Hydro One Q3 2026 Earnings Results & Report

Hydro One EPS Results

• Actual EPS: C$0.68
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A
• EPS Beat Rate: 5 of last 8 quarters

Hydro One Revenue Results

• Actual Revenue: C$1.29 billion
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Hydro One (TSE:H), through its wholly-owned subsidiaries, is Ontario's largest electricity transmission and distribution provider with 1.5 million valued customers, $39.7 billion in assets as at December 31, 2025, and annual revenues in 2025 of $9 billion. Our team of 9,600 skilled and dedicated employees proudly build and maintain a safe and reliable electricity system which is essential to supporting strong and successful communities. In 2025, Hydro One invested $3.4 billion in its transmission and distribution networks, and supported the economy through buying $3 billion of goods and services. We are committed to the communities where we live and work through community investment, sustainability and diversity initiatives. Hydro One Limited's common shares are listed on the TSX and certain of Hydro One Inc.'s medium term notes are listed on the NYSE. Additional information can be accessed at www.hydroone.com/, www.sedarplus.com or www.sec.gov.

Hydro One Q3 2026 Earnings Call Transcript

Key Takeaways

• Negative Sentiment: Third-quarter net income attributable to common shareholders declined 1.9% year over year, with EPS of CAD 0.69 versus CAD 0.70. Higher work-program spending, storm-related asset removal, depreciation and interest costs outweighed higher revenues.
• Positive Sentiment: Hydro One filed a proposed CAD 27 billion, five-year capital plan for 2028–2032 to expand capacity, connect new customers and generation, and renew aging infrastructure. The company estimates modest residential bill impacts, but the plan remains subject to Ontario Energy Board approval.
• Neutral Sentiment: The company expects about CAD 11 billion of additional transmission-line investment outside the rate application, with projects intended to be 50/50 partnerships with First Nations. Management said it expects no funding-related need to re-pace spending, but anticipates raising equity during the next rate period.
• Positive Sentiment: Hydro One maintained its expectation of 6%–8% annual EPS growth for the current rate period; year-to-date EPS rose to CAD 1.96 from CAD 1.84. Its FFO-to-net-debt ratio was 13.9%, which management said remains above rating-agency review thresholds.
• Negative Sentiment: Management said inflation had forced Hydro One to defer some work in the current rate period to stay within approved spending limits, though it prioritized projects it viewed as less critical to reliability, resilience, and asset health. The proposed next-period plan aims to address system needs, but its scale and delivery depend on regulatory approval and execution.

Presentation

[Operator]

Good morning, ladies and gentlemen, and welcome to Hydro One Limited's third quarter 2026 analyst teleconference. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone.

[Operator]

You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. As a reminder, the call is being recorded. I would now like to introduce your host for today's conference, Mr. Waseem Khalil, Director of Investor Relations at Hydro One. Please go ahead.

[Waseem Khalil, Director of Investor Relations at Hydro One]

Good morning, and thank you for joining us for our quarterly earnings call. Joining me on the call today are our President and CEO, Megan Telford, and our Chief Financial and Regulatory Officer, Harry Taylor. On the call today, we will provide an overview of our quarterly results, and then we will answer as many questions as time permits during our question-and-answer session.

[Waseem Khalil, Director of Investor Relations at Hydro One]

As a reminder, today's discussion will likely touch on estimates and other forward-looking information. Listeners should review the cautionary language in today's earnings release and our MD&A, which we filed this morning, regarding the various factors, assumptions, and risks that could cause our actual results to differ, as they all apply to this call. With that, I turn the call over to our President and CEO, Megan Telford.

[Megan Telford, President and CEO at Hydro One]

Thank you so much, Waseem. Good morning, everyone, and thank you for joining us for our third quarter results call. This morning, I will provide an update on our recent activities and key accomplishments during the quarter. Following my remarks, Harry will take you through our financial results. Safety remains our top priority and is at the core of everything we do. Our focus on achieving zero life-altering injuries and fatalities is unwavering.

[Megan Telford, President and CEO at Hydro One]

By continuing to strengthen our safety culture, enhancing awareness and accountability, and fostering continuous learning, we strive to ensure that every employee and contractor returns home safely every day. Ontario's electricity system is entering a period of sustained growth and transformation, driven by population growth, housing development, industrial and commercial expansion, electrification, and the integration of new generation resources.

[Megan Telford, President and CEO at Hydro One]

As electricity demand continues to increase, Hydro One must make significant investments to renew aging infrastructure, maintain the safe and reliable delivery of electricity, and enhance system resilience to support economic growth across the province. On October 7, 2026, Hydro One filed its joint rate application, known as JRAP, with the Ontario Energy Board, outlining a comprehensive five-year investment plan for our transmission and distribution businesses.

[Megan Telford, President and CEO at Hydro One]

The plan was developed through extensive engagement across all our customer segments and includes feedback from more than 100,000 customers across the province. The plan reflects a balanced approach to meeting Ontario's growing electricity needs while focusing customer dollars on the work that delivers the greatest value and addresses the long-term needs of the electricity system. The proposed JRAP 2028 plan responds to system and operating conditions that are materially different from those experienced during the 2023 to 2027 period.

[Megan Telford, President and CEO at Hydro One]

Sustained inflation, supply chain constraints, more frequent severe weather events, evolving policy and market dynamics, and increasing demand for customer connections have significantly increased both investment requirements and the cost of delivering essential work. In response, Hydro One designed a plan that will enable the company to continue meeting Ontario's growing electricity needs while maintaining safe, reliable, and resilient service for customers across the province. Executing this plan will require delivering the largest and most complex capital program in Hydro One's history.

[Megan Telford, President and CEO at Hydro One]

The plan includes connecting new customers and generation, expanding and reinforcing the grid, renewing aging assets, strengthening reliability and resilience, and enhancing the organizational capabilities required to successfully deliver this work. The proposed investments were developed through a disciplined and comprehensive planning process that considered customer priorities, asset condition, system requirements, regulatory obligations, alternative solutions, and the risks associated with delaying critical work.

[Megan Telford, President and CEO at Hydro One]

Throughout this process, Hydro One carefully evaluated investment decisions to improve productivity, capture efficiencies, bundle work programs, and appropriately pace investments, ensuring that the most critical system needs are addressed while continuing to deliver value for customers. The JRAP 2028 plan proposes approximately CAD 27 billion of capital expenditures across our transmission and distribution businesses from 2028 through 2032.

[Megan Telford, President and CEO at Hydro One]

The plan reflects the scale of investment required to support Ontario's growth, modernize critical infrastructure, and prepare the electricity system for a more electrified future. Within the transmission business, the plan proposes a CAD 16.7 billion investment, or approximately CAD 3.3 billion annually, to maintain reliability, address growing customer demand, expand system capability, support government energy priorities, and manage asset and operational risks. Notably, the plan includes approximately CAD 8.3 billion for new transmission infrastructure projects.

[Megan Telford, President and CEO at Hydro One]

These investments are expected to enable more than 6,000 MW of new customer load, connect approximately 2,500 MW of new generation resources, provide more than 10,000 MW of incremental transfer capacity, helping ensure Ontario's electricity system can support continued growth, economic development, and electrification across the province.

[Megan Telford, President and CEO at Hydro One]

The plan also includes approximately CAD 4.4 billion to renew and replace critical station assets across major asset classes, including transformers, breakers, protection and control systems, conductors, and wood structures. These investments will address aging infrastructure that can increase the risk of equipment failures, extended outages, and reduced operational flexibility. Station assets play a critical role in connecting generation resources, communities, and major customers to electricity grids, making their continued reliability essential to the performance of Ontario's electricity system.

[Megan Telford, President and CEO at Hydro One]

In addition, approximately CAD 2.7 billion of capital will be directed to renew transmission lines across the province, including upgrades to more than 1,400 km of transmission infrastructure. These lines serve smaller communities, First Nations, businesses, and industrial facilities, helping ensure customers continue to receive safe, reliable, and resilient electricity service while supporting future growth and economic development.

[Megan Telford, President and CEO at Hydro One]

Together, these investments will enhance system reliability and resilience, reduce asset-related risks, and ensure Hydro One's transmission network is well-positioned to meet the evolving needs of customers and the province for decades to come. In our distribution business, we are proposing average annual capital investments of approximately CAD 2.2 billion, representing a total investment of CAD 10.9 billion over the 2028-2032 period.

[Megan Telford, President and CEO at Hydro One]

The distribution system plan is designed around an outcomes-driven and customer-focused portfolio of investments that will strengthen the grid, enhance reliability, and improve the customer experience. Hydro One's large, geographically dispersed, and predominantly rural distribution system operates more than 126,000 circuit kilometers of distribution lines, of which approximately 91% are overhead lines and directly exposed to vegetation and severe weather.

[Megan Telford, President and CEO at Hydro One]

The plan focuses on upgrading infrastructure and deploying advanced technologies that will enable us to detect, respond to, and restore power outages more quickly. Specifically, our distribution capital will focus on maintaining the grid, and we propose spending approximately CAD 3.4 billion of capital to maintain the safe and reliable operation of the existing distribution system. This includes replacing or refurbishing assets, including transformers, cables, and poles across our system to reduce failures and help power lines to withstand severe weather.

[Megan Telford, President and CEO at Hydro One]

We are also focused on improving the reliability and resiliency of the grid, with approximately CAD 1.6 billion of capital directed to reduce outage exposure and impacts, improve restoration capability, and strengthen the system's ability to withstand and recover from equipment failures and severe weather. This includes the deployment of 5,400 residential energy storage systems, improving reliability as much as 95% for customers that are most impacted by prolonged outages.

[Megan Telford, President and CEO at Hydro One]

To meet Ontario's growing demand for electricity, approximately CAD 3.8 billion of capital will focus on activities that provide customer access, enhance system capacity and operational capability to accommodate growth, as well as support economic development and the integration of new distribution technology. This investment will connect over 94,000 new homes and businesses to the grid and increase system capacity.

[Megan Telford, President and CEO at Hydro One]

Through these investments, Hydro One will continue to build a smarter, more resilient distribution network that supports growth, improves service reliability, and meets the evolving expectations of customers across the province. Delivering value for customers was a central consideration in developing the plan.

[Megan Telford, President and CEO at Hydro One]

We rigorously challenged the scope and timing of investments, distinguished mandatory and time-critical work from projects that could be deferred or rephased, evaluated non-wires and other alternative solutions, bundled work where efficiencies could be achieved, and embedded productivity improvements across the organization. These actions reflect our focus on delivering essential investments while minimizing impacts on customer bills. Over the five-year application period, the impact on customer bills remains modest relative to the scale of proposed investments.

[Megan Telford, President and CEO at Hydro One]

For a typical year-round, medium-density residential customer, known as R1, transmission charges are expected to increase by approximately CAD 0.50 per month in 2028, and by an average of CAD 1.14 per month annually from 2028 to 2032. For distribution, monthly base charges for year-round, medium-density residential customers are expected to decrease by approximately CAD 0.10 in 2028 and remain unchanged over the remainder of the plan period, largely reflecting the benefits of the Distribution Rate Protection Program, DRP, for eligible residential customers, together with a proposed customer refund.

[Megan Telford, President and CEO at Hydro One]

By continuing to innovate and operate more efficiently, we are focused on delivering the investments needed to support Ontario's growth, strengthen the electricity system, and create sustainable value for customers, communities, and shareholders. Turning to our current projects. During the quarter, Hydro One submitted a leave-to-construct application to the Ontario Energy Board for the North Shore Link transmission line. The line is a 105 km double circuit, 230 kV transmission line connecting the Wharncliffe area to Sault Ste. Marie.

[Megan Telford, President and CEO at Hydro One]

The CAD 1.3 billion investment is expected to strengthen the connection between the northeast and northwest parts of the province and improve the resiliency of the northern transmission system. The line is expected to be in service in 2029. Also in the quarter, Hydro One energized the Etobicoke Greenway transmission line. This new 6 km, 230 kV line runs between the Richview and Manby transformer stations in Etobicoke.

[Megan Telford, President and CEO at Hydro One]

The line will add approximately 300 MW of additional capacity to the region to help meet growing electricity demand and strengthen power reliability across Toronto and western Greater Toronto Area. Delivered on time and under budget, the project reinforces Hydro One's track record of executing critical infrastructure investments that support Ontario's energy needs. The strength of our culture is reflected on how we support one another in the communities we serve.

[Megan Telford, President and CEO at Hydro One]

While this commitment is evident throughout the year, it shines especially bright during our annual Power to Give campaign each September. This year, Hydro One employees once again demonstrated remarkable generosity in a very challenging year, raising more than CAD 2 million and contributing over 7,400 volunteer hours, an increase from 5,200 hours in 2025 in support of communities across Ontario.

[Megan Telford, President and CEO at Hydro One]

These efforts will have a meaningful and lasting impact on individuals and families where we live and work. I'm incredibly proud of our employees, not only for what they accomplished during Power to Give, but for the spirit of giving they demonstrate every day.

[Megan Telford, President and CEO at Hydro One]

Their generosity, compassion, and commitment to helping others embodies our values and reflects the very best of Hydro One. Hydro One's success continues to be powered by our people. Their dedication, professionalism, and expertise, combined with an unwavering focus on safety, customer service, and excellence, are what set our company apart. It is gratifying to see their efforts continue to be recognized.

[Megan Telford, President and CEO at Hydro One]

Hydro One was named to Newsweek magazine's list of the world's most trustworthy companies for 2026. The ranking evaluates publicly listed companies with revenues above CAD 500 million across 20 target countries and combines independent surveys of 65,000 residents, generating more than 200,000 evaluations across customer, investor, and employee trust. With that, I will turn the call over to Harry to go through the financial results. Over to you, Harry.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

Thank you, Megan. Good morning, and thank you for joining us today to review our third quarter results. Starting with net income attributable to common shareholders, in the quarter, we saw a small decline of 1.9% compared to the same period from a year ago. The significant drivers behind the change this quarter include higher OM&A expenses, largely attributable to increased work program spending, including station maintenance and vegetation management activities, higher depreciation, amortization, and asset removal costs reflecting increased storm-related asset removal activity,

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

and continued growth in the capital asset base, and higher interest expense, primarily due to higher long-term debt balances, partially offset by lower average short-term borrowings. These drivers were partially offset by higher revenues, net of purchased power, due to higher OEB-approved 2026 rates, as well as higher average monthly transmission peak demand.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

This resulted in third quarter basic earnings per share of CAD 0.69, compared to CAD 0.70 in the third quarter of 2025. It also resulted in year-to-date earnings per share of CAD 1.96, compared to CAD 1.84 for the same period in 2025. Our third quarter revenue, net of purchased power, increased year-over-year by 5.6%.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

Transmission revenues increased by 7.6%, primarily due to higher OEB-approved 2026 rates and a 2.8% increase in the average monthly peak demand compared to the same period last year. Distribution revenues, net of purchased power, increased by 2.5%, mainly due to higher OEB-approved 2026 rates, a 2.5% increase in distributed energy, and a 0.9% increase in the number of customers. On the cost front, OM&A expenses in the quarter increased by approximately 9.8% year-over-year.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

In the transmission segment, costs were 19.3% higher year-over-year, primarily due to increased work program spending, including station maintenance and vegetation management, along with higher asset write-offs. In the distribution segment, costs declined by 0.6% year-over-year, mainly reflecting lower corporate support costs and the recovery of third-party storm costs and cost deferrals. As these recoveries are offset in revenue, there is no impact on net income.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

These were partially offset by higher work program expenditures, including emergency power restoration and lines maintenance. Of note this year, we have experienced more storm days than we did last year, which included the generational ice storm at the end of March 2025. Depreciation, amortization, and asset removal costs during the quarter were higher by 10.7%.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

The increase was primarily attributable to higher asset removal costs stemming from increased storm restoration activity relative to the same quarter in 2025, higher spending on station construction projects, and higher depreciation expense, reflecting continued growth in the capital asset base. With respect to our financing activities, we saw a 9.3% increase in interest expense year-over-year.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

This was mainly due to the increase in our outstanding long-term debt following the additional issuances we executed in Q4 2025 and our inaugural U.S. dollar issuance in Q2 2026, partially offset by lower average volume of short-term notes outstanding and higher capitalized interest. Our balance sheet continues to be in excellent shape, along with our creditworthiness. Our FFO to net debt ratio as at September 30, 2026, was 13.9% and remains well above the thresholds the rating agencies use to trigger a credit rating review. Turning to taxes.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

Our income tax expense in the quarter was CAD 60 million, which matched the same quarter last year. As a result, our effective tax rate this quarter was 12.6%, which was in line with the 12.4% achieved the same time last year. Looking at our CapEx, in the third quarter, we invested CAD 1.1 billion, which was an increase of 39.2% from the same period in 2025.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

The increase was due to investments in Ontario's broadband initiative, investments in transmission line projects, including the Northeast Power Line, North Shore Link, and Longwood to Lakeshore, a higher spend on other major transmission development projects, investments in the AMI 2.0 system, and a higher spend on storm-related distribution asset replacements in the quarter. These were partially offset by a lower volume of transmission station refurbishments and equipment replacements.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

Also lower due to the absence of investment in Sault Ste. Marie for Sault 3 circuit and a lower expenditure on specified distribution equipment to support long-term projects. As part of our ongoing disclosure practices and to enhance transparency, we have updated the future CapEx estimates included in the MD&A to extend the forecast period through 2032.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

The update reflects the filing of Hydro One Networks proposed transmission and distribution investment plan as part of the 2028 to 2032 JRAP, as well as the investment plan filed as part of the 2028 to 2032 rate application for Hydro One Sault Ste. Marie. As a result of the extended forecast horizon, estimated future CapEx now include estimated CapEx and development costs for projects for which a leave-to-construct Section 92 application has not yet been filed.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

Section 92 applications will contain more detailed project information and refined cost estimates, which will be incorporated into future disclosures once filed with the OEB. Outside of the JRAP, we expect to invest approximately CAD 11 billion for new transmission lines that will ultimately be partnerships with First Nations and will have their own unique rate applications.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

The projected CapEx and the timing of planned transmission and distribution investments for the 2028 to 2032 period remain subject to OEB approval. Looking at our assets placed in service. In the third quarter, we placed CAD 658 million in service for our customers, which was an increase of 14.0% compared to the prior year. In the transmission segment, we saw a decrease of 3.9% year-over-year, primarily due to timing of assets placed in service for station refurbishments and replacements.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

In the distribution segment, in-service additions increased by 28.3% from the prior year, mainly due to investments in the broadband initiative and higher volume of storm-related asset replacements. These were partially offset by the timing of investments placed in service for system capability reinforcement projects and lower investments in the AMI 2.0 system.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

Turning to our quarterly dividend, I am pleased to report that our board of directors declared a dividend of CAD 0.3531 per share to common shareholders of record on December 9, 2026, and payable on December 31, 2026. Looking ahead, we continue to expect EPS to grow between 6% and 8% annually for the current JRAP period, using the normalized 2022 EPS of CAD 1.61 as a base.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

As Megan noted in her remarks, we recently filed our JRAP, which outlines our proposed investment plan for our transmission and distribution businesses for the 2028 to 2032 rate period. I am very excited about this application, as it reflects Hydro One's response to materially changing operating conditions while addressing the need to renew aging infrastructure, maintain safe and reliable service, strengthen system resilience, and support economic growth across Ontario.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

The application will now proceed through the Ontario Energy Board's regulatory review process. Following approval, we intend to host an investor day where we will provide additional detail on our outlook for the next rate period, including our growth expectations, capital investment plans, and funding plan. With that, we will open the phone lines and be happy to take questions.

[Waseem Khalil, Director of Investor Relations at Hydro One]

Thank you, Megan and Harry. We will now open the call for questions. The operator will explain the Q&A polling process. As always, we ask that you limit your questions to one question and one follow-up. If you have additional questions, we request you rejoin the queue. In case we cannot address your questions today, my team and I are always available to respond to follow-up questions. Please go ahead, Shannon.

[Operator]

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Michael Lonegan with Barclays. Your line is now open.

[Michael Lonegan, Senior Equity Research Analyst at Barclays]

Hi, good morning. Thanks for taking my question. The JRAP application calls for a 10% rate base CAGR, excludes some transmission capital. Based on transmission awards and expectations for more, what would you say the potential total consolidated rate base CAGR could go to? How much above that 10% could be possible?

[Operator]

Speakers, please check your mute button. Ladies and gentlemen, please remain on the line. Your call will resume momentarily. Once again, please remain on the line. Your call will resume momentarily. Once again, ladies and gentlemen, please remain on the line. Your conference will resume momentarily. Once again, please remain on the line.

[Operator]

Your conference will resume momentarily. Once again, ladies and gentlemen, please remain on the line. Your conference will resume momentarily. Once again, please remain on the line. Your conference will resume momentarily. Speakers, you are now back. You may resume your conference.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

Good morning, Michael, and to all callers. I apologize for the technical difficulties. Michael, you are asking about rate base guidance beyond what we have given based on the rate application. At this point, we cannot give any more guidance. We will update once we have completed the rate application, had it approved, and also updated any estimates that are included in the current plan outside the rate application.

[Michael Lonegan, Senior Equity Research Analyst at Barclays]

Great. Thank you. Based on the application as filed and your expected financing of it, with First Nations in mind, do we expect rate base and EPS growth to accelerate over the course of the next JRAP period through 2032, or could there be more linearity to it? Anything you could share about the shape of that profile would be helpful. Thank you.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

I think it is fair to say that rate base growth and earnings growth will accelerate. A lot of it is dependent on what is approved through the rate application process. As you referenced, our goal is to have a 50/50 partnership with First Nations in all of our future transmission lines.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

We will recycle the capital as we sell our equity in those lines to fund future projects that will create a growing non-controlling interest, both on our balance sheet and in our P&L. So, there will be a little divergence between rate base growth and earnings growth, but it should not be material at this point, the way we see it. A lot of it is dependent for when things settle out. We will, at our investor day, give our best outlook once we have got the rate application approved, so there is clear guidance in terms of on both those dimensions.

[Michael Lonegan, Senior Equity Research Analyst at Barclays]

Great. Thanks for taking my questions.

[Operator]

Thank you. Our next question comes from the line of Maurice Choy with RBC Capital Markets. Your line is now open.

[Maurice Choy, Director of Canadian Energy Infrastructure at RBC Capital Markets]

Thanks, and good morning, everyone. Maybe just a very quick start to my questioning. Any early thoughts on what the interveners or the regulators who have reviewed your application, what are their early thoughts and responses so far?

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

Good morning, Maurice. There's no early thoughts. We're too early in the administrative process. Our expectations are essentially, are what we're proposing reasonable and prudent given the objectives we have in the environment that we're operating? But we haven't seen any specifics to know where their questions or pressure points will be at this point.

[Maurice Choy, Director of Canadian Energy Infrastructure at RBC Capital Markets]

That makes sense. Maybe if I could then just zoom in a little bit into some of the elements of the application. I find that one of the most fascinating elements of your application was your proposal to calculate the long-term debt rate for each of the five test years, rather than using the first test year consistently across the remaining test years.

[Maurice Choy, Director of Canadian Energy Infrastructure at RBC Capital Markets]

Maybe I could just ask you if you could just share with me why you felt this proposal was made. What does it mean for Hydro One shareholders and for your customers separately?

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

It is more a technical piece than anything else. What we have seen with both volatility in markets and our funding needs as we move through the period, that we wanted to have specific forecast, specific rates for each of the years to give a more realistic picture in terms of what we thought our financing and funding requirements would be at the time, and therefore could be recovered in rates. So, it is trying to get more precise, for lack of a better term, and more accurate.

[Maurice Choy, Director of Canadian Energy Infrastructure at RBC Capital Markets]

And maybe as a quick follow-up and final one from me, based on how you just justified the need to change the cost of debt to be customized every single test year, how do you plan on reconciling this justification with your interveners and regulators, given that the ROE is going to be fixed for all five years?

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

I think, well, at this point, I expect there may be more realism to it, and it will give us a chance to recover what we actually will fund. The reconciliation with ROE being fixed for the period is part of the overall construct that we operate in, and it uses the best information at the time that the ROE is set. I do not know that we can reconcile the two. The formulaic approach has, I think, served the industry and the customers of utilities in Ontario well, and do not see any need to change it.

[Maurice Choy, Director of Canadian Energy Infrastructure at RBC Capital Markets]

Understood. Thank you very much.

[Operator]

Thank you. Our next question comes from the line of Mark Jarvi with CIBC. Your line is now open.

[Mark Jarvi, Equity Research Analyst at CIBC]

Thanks. Good morning, everyone. I appreciate all the details you are sharing, the CapEx plan out to 2032. I am curious, how much flexibility is there on the transmission lines? I guess maybe even the overall scope of work on the Joint Rate Application, just to manage CapEx, because it is a pretty substantial ramp. Just curious about being able to manage contractors, but also the funding requirements.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

Good morning, Mark. In terms of flexibility to manage, the transmission lines will have their own rate applications as partnerships with the First Nations. What we have tried to do with the disclosure is give the full picture with the gross amount that will be spent. We have not built this in our disclosure in MD&A.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

We have not built in the funding, if you will, that we will ultimately receive from the First Nations at this point, and that will be something that is important for us to take you through at Investor Day. In terms of flexibility and funding, we are building our financing plan to support that level of expenditure right through the period. As I think we have said before, it is going to be a combination of funds from operation, senior secured debt, hybrid debt, and equity as well.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

We will be raising equity, we expect, in the next rate period. The first step is to successfully achieve approval of the rate application. The funding plan will be working behind the scenes. We will bring them together and then determine. We don't anticipate any challenges in funding which would cause us to re-pace some of the spending.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

We know that customers in Ontario want and need the improvements in reliability, resiliency, the growth that our plan is going to deliver, and we don't see any challenges from a funding point of view. Our both procurement teams, our capital projects delivery team are working with our EPC contractors on the transmission side to ensure that the availability of resources and materials will be there.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

We engage in some pretty long-term planning and long-term commitments after following a competitive process to ensure we're bringing value for our customers to each of these projects. At this point, we do not anticipate any issues that would cause us to re-pace things, but we will be vigilant in monitoring trends to make sure that that remains the case.

[Mark Jarvi, Equity Research Analyst at CIBC]

Given that you don't know exactly what the outcome of the Joint Rate Application in terms of what's approved, how do you think about planning even just for the first year in 2028, given you won't finalize the plan until nine months from now, and then you got to start to execute it in short order thereafter? Just any challenges in terms of just moving in the first year of the plan?

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

We're already planning, looking ahead to 2028, saying, "What do we need, and when do we need it or them?" Human resources are as critical as materials. So, we're moving on that already. We're not waiting for January 1st to start.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

We're confident we have put together a compelling proposal in terms of what we've laid out. If we need to make some changes, then we'll make those changes, but we are planning for full implementation as of January 1st, 2028, and doing a lot to get our organization, our vendors, partners, and our funders, if you will, ready to help support us in this.

[Mark Jarvi, Equity Research Analyst at CIBC]

Sounds good. Thanks for the time this morning.

[Operator]

Thank you. As a reminder, to ask a question at this time, please press star 11 on your touch-tone telephone. Our next question comes from the line of Robert Hope with Scotiabank. Your line is now open.

[Robert Hope, Managing Director of Equity Research at Scotiabank]

Good morning, everyone. Appreciate all the JRAP conversations. I understand it is early days in discussions with stakeholders about what you have filed. But, as we look forward, if there is a path towards a settlement here, what milestones should we be looking for, and what timeline should we be looking for?

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

Oh, good morning, Rob. We're in the administrative phase right now, interrogatories, technical conference, et cetera. Settlement discussions will begin February timeframe and could, depending how they go, could proceed right through almost to June.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

So, as we're thinking about this administration and interrogatories technical through into January, Feb to May, June settlement discussions, and then if we fail to come to a settlement on everything, we move to oral hearing, which will take place over the summer. Then once we complete the oral hearing process, the commissioners have up to 90, a maximum 90 days to issue the approved rate application.

[Robert Hope, Managing Director of Equity Research at Scotiabank]

Great. Appreciate that. Maybe switching gears here. The Ontario government has proposed significant changes to LDC governance and planning. What are your initial takes on this, and could this spur increased LDC consolidation in the province, also acknowledging new mayoral terms?

[Megan Telford, President and CEO at Hydro One]

Hi, Rob. It's Megan. Thanks for your question. I would say what's really interesting about LDC consolidation is for us, as you know, we're already the largest distributor, and we're very supportive of what the government has done. The reforms that you can see are mainly governance reforms in terms of who can sit on the boards.

[Megan Telford, President and CEO at Hydro One]

And really asking municipalities to work with their utility to file a 10-year capital plan, and that's really very in line with what we talk about, right? This need for long-term planning in the province and ensuring the growth. We're very supportive of that. I think whether it actually leads to consolidation is really in the hands of the municipality. I mean, obviously, they'll have new boards that need to discuss whether they can meet those capital plans.

[Megan Telford, President and CEO at Hydro One]

If there is consolidation, we're always very, very prudent about what we would look at and make sure it's in the best interests of the community and our shareholders. We're obviously interested, but we would be very thoughtful about which acquisitions we would do.

[Robert Hope, Managing Director of Equity Research at Scotiabank]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Benjamin Pham with BMO. Your line is now open.

[Benjamin Pham, Managing Director at BMO]

Hi. Thanks. Good morning. I wanted to go back to the JRAP application. You said your prepared remarks and the press release that came out when you filed had a really good summary of the compare and contrast of the current JRAP versus the upcoming. Can you perhaps add a bit more detail to the compare and contrast situation when you think about the outcome of the last JRAP? I am just thinking about really what did you achieve in terms of percent of revenues or what was approved in the CapEx plan, and also the timeline in terms of application to OEB decision?

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

Good morning, Ben. Looking back, if you will, now we are not through the rate period, we will have spent all that we had proposed and as we agreed to in the settlement, if you will, for our Hydro One Networks Inc. business. But we have not accomplished everything that was in the rate filing at the time.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

As we dealt with the extraordinary inflation in the industry, we deferred some of the work that we had planned on doing to stay within the envelopes, the spending envelopes that had been approved, we did not end up generating a backdoor price increase, rate increase to our customers. While we will have spent everything that we were approved to have spent, we will not have accomplished everything that we had initially proposed to be accomplished, or at least agreed to accomplish in the settlement.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

That is not something that we like, but we made the decision that it was better not to jam our customers with an unexpected rate increase that the ultimate excess spending could have resulted in the next rate period and stick within our envelopes. We did a lot of work to go through the work plan, the work program, and defer the least, if you will, risky or the most discretionary items that there were.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

We never want to put either resiliency or reliability at any greater risk. We are working to improve it all. The asset health is the other piece we look at, so we deferred work that would have the least impact on either asset health, reliability, or resiliency. We do want to make that up.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

That's part of what we're doing, and we can reset everything for the next rate period and have some pretty high objectives in terms of what we'll achieve for resiliency, improving resiliency, making up some of the things that we weren't able to do in the last period so that the system is able to enable the growth, but also be more resilient as climate change inflicts some of the damage that it's done on our system.

[Benjamin Pham, Managing Director at BMO]

Okay. Just to clarify, on the expectation on this JRAP timeline, you've laid out some of the scenarios about one year or so to decision. Was that the timeline of the last JRAP? It took about a year to get a decision from OEB?

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

I think we were a little faster. The year timeline in this case would take us right out to the end of the oral hearing phase. We settled last time, so we were about nine months from start to finish, but we want to be clear what the process could look like if we go the whole way.

[Benjamin Pham, Managing Director at BMO]

I got you. I think there was some sort of refiling with inflation as well in the last one.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

We did have that. You're right. We had a refiling inflation update filing, which extended a little bit the period.

[Benjamin Pham, Managing Director at BMO]

Can I just ask, you have a supersized or sorry, you have a higher CapEx program in the next JRAP. Your last growth guidance included placeholders for broadband and rate base and a little bit of LDC, which played a little bit. How do you think about that going forward through 2032, and is that more maybe a bit of, I don't know, you touched on LDC in some of your response there. Is that a lever perhaps for Hydro One if maybe the JRAP CapEx doesn't get fully approved?

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

On the broadband file, it'll be complete, so that project will be done, and it'll be in our rate base. We aren't building any LDC acquisitions into our business plans or the guidance that we give. If something does come that is sufficiently attractive, and isn't overpriced in terms of valuation expectations, and we can create some value through the acquisition, we will bring that in, and then we will adjust our guidance accordingly.

[Benjamin Pham, Managing Director at BMO]

Okay, got it. That's very helpful. Thank you.

[Operator]

Thank you. Our next question comes from the line of Patrick Kenny with National Bank Capital Markets. Your line is now open.

[Patrick Kenny, Managing Director and Research Analyst at National Bank Capital Markets]

Thank you. Good morning, everyone. Just on the ask to increase the equity thickness to 45%, curious if, Harry, you have had any preliminary discussions with the rating agencies with respect to, if approved, how this new deemed capital structure might call for, say, resetting the deck on the corporate capital stack, or perhaps shift the goalposts on you, with respect to the FFO to debt threshold?

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

Pat, we meet with the rating agencies annually and both review the business, but also look ahead. We spent time with each of the agencies who rate us, going through what our proposal and what the implications were. At this point, we are not planning or expecting to see any change in downgrade rating thresholds. I think, rightly, the rating agencies are saying, "We certainly like what you are proposing.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

We understand your argument in terms of it meeting the fair return standard and against your comparators. You are even at the low end at 45%." But they are taking a wait-and-see approach. Once we have successfully received approval of the application, we will then work with them as we work with you and issue the guidance and work through that to see if there are any upsides, if you will, in terms of rating and thresholds.

[Patrick Kenny, Managing Director and Research Analyst at National Bank Capital Markets]

Got it. Okay. Thanks for that. Then I guess looking at the significant increase in capital budget, as you have outlined, the expected increase to average residential rates looks to be relatively nominal. But I am just wondering if you could confirm, if you include the all 15 ATP projects, what the total impact on customer affordability might look like, and I guess what levers you might still be able to pull outside of, say, peak demand or other factors outside of your control?

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

The 15 ATP projects, a lot of them, more than half, we do not have even Section 92 estimates. Rate impacts are not included in anything that we have included in, well, obviously, in our joint rate application. They will have their own rate application. Transmission, by its nature, does not result in significant increases for customers over time.

[Harry Taylor, Chief Financial and Regulatory Officer at Hydro One]

The transmission portion of the bill in Ontario is much lower than distribution. It is certainly much lower than generation. But each rate application will have that in there and goes through the approval process. We do not expect anything more than a modest increase in all-in transmission rates in Ontario. It is pooled across all transmitters.

[Patrick Kenny, Managing Director and Research Analyst at National Bank Capital Markets]

Okay, that is perfect. I will leave it there. Thank you.

[Operator]

Thank you. That does conclude our Q&A session for today. I would like to turn the call back over to Waseem Khalil for any further remarks.

[Waseem Khalil, Director of Investor Relations at Hydro One]

Thank you, Shannon. The management team at Hydro One thanks everyone for their time with us this morning. We appreciate your interest and your continued support. If you have any follow-up questions that were not addressed on the call, please feel free to reach out, and we will get them answered for you. We look forward to seeing everyone at our fourth quarter and year-end conference call in February. Thank you again, and enjoy the rest of your day.

[Operator]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Have a great day.

Participants

Executives

• Waseem Khalil, Director of Investor Relations
• Megan Telford, President and CEO
• Harry Taylor, Chief Financial and Regulatory Officer

Analysts

• Michael Lonegan, Senior Equity Research Analyst at Barclays
• Maurice Choy, Director of Canadian Energy Infrastructure at RBC Capital Markets
• Mark Jarvi, Equity Research Analyst at CIBC
• Robert Hope, Managing Director of Equity Research at Scotiabank
• Benjamin Pham, Managing Director at BMO
• Patrick Kenny, Managing Director and Research Analyst at National Bank Capital Markets