Hydro One Q2 2026 Earnings Report

Hydro One EPS Results

• Actual EPS: C$0.62
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Hydro One Revenue Results

• Actual Revenue: $1.23 billion
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Hydro One Announcement Details

• Quarter: Q2 2026
• Date: 8/12/2026
• Time: Before Market Opens
• Conference Call Date: Wednesday, August 12, 2026
• Conference Call Time: 8:00AM ET

Hydro One (TSE:H) operates regulated transmission and distribution assets in Ontario. The area's largest electricity provider serves nearly 1.5 million customers. Transmission accounts for roughly 60% of the company's rate base, with distribution accounting for the remainder. Hydro One operates a small telecom business, Acronym Solutions, with annual revenue contributing less than 1% to consolidated results. The province of Ontario holds an approximate 47% common equity stake.

Hydro One Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Second-quarter earnings increased: Net income attributable to common shareholders rose 13.1% year over year, with EPS reaching CAD 0.62 versus CAD 0.54, driven by higher approved rates, demand, customer growth, and lower storm-related asset removal costs.
• Positive Sentiment: Hydro One submitted applications for three major transmission projects representing more than CAD 3.4 billion of planned investment, with expected in-service dates between 2029 and 2030; the company also advanced the CAD 100 million Orléans reinforcement project and the Red Lake transmission line.
• Negative Sentiment: The expected acceleration in capital spending during the 2028–2032 rate period will require additional financing to protect Hydro One’s A credit rating. Management expects to use hybrid debt and potentially an ATM or larger equity issuance, creating potential shareholder dilution.
• Neutral Sentiment: Ontario’s wildfire activity is significantly above normal, but management said there has been no major operational impact and no fires have been attributed to Hydro One assets; any eligible restoration investment would generally be added to rate base for recovery.
• Positive Sentiment: Management maintained its expectation for 6%–8% annual EPS growth during the current rate period and declared a quarterly dividend of CAD 0.3531 per share. The company expects to file its 2028–2032 joint rate application in October, with proposals focused on grid reliability, resilience, electrification, and growth.

Presentation

[Operator]

Good morning, ladies and gentlemen, and welcome to Hydro One Limited's second quarter 2026 analyst teleconference. At this time, all participants are in 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 one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. As a reminder, the call is being recorded. I would now like to introduce your host for today's conference, Mr. Wassem Khalil, Director of Investor Relations at Hydro One. Please go ahead.

[Wassem 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 new 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. 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 very much, Wassem. Good morning, everyone, and thank you for joining us for our second quarter results call. I am pleased to be leading this call, my first as President and CEO of Hydro One. 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. I am deeply honored to take on the role of President and CEO of Hydro One at such an important moment for our company and for the utility sector broadly. David Lebeter's leadership leaves a strong legacy, one defined by unwavering focus on safety, performance, and people, which has positioned Hydro One well for the future. I am deeply grateful for his contributions and for the enduring foundation he has built.

[Megan Telford, President and CEO at Hydro One]

I am proud to lead an organization with such a strong history and even more energized by the opportunities ahead to build on our momentum and seize the opportunities that we see before us. Together, we have achieved great success executing on our strategy, which is built on four key pillars: customers, growth, solutions, and partnerships. We will build on this momentum by responding to the changing landscape where appropriate, continuing to improve execution, further enhancing our performance, and strengthening the position of the company for long-term success. We will continue to make critical strategic investments in our system to deliver safe, reliable, and resilient services. This means investing in grid stability, storm preparedness, and system modernization to keep the lights on, restore power quickly after a major storm, and to continue to deliver major projects on time and on budget.

[Megan Telford, President and CEO at Hydro One]

We will also continue to implement programs and tools for our customers to make it easier to do business with us and show them that we care. At the same time, we will continue to build strong relationships and trust with many of our partners, including Indigenous communities, municipalities, residents, and the government. These are foundational elements that have made Hydro One successful. I have a deep appreciation for the work we do and the responsibility we carry for the customers and communities we serve, particularly at a time when the role of electricity in our economy and daily lives has never been more important. I intend to build on this strong foundation and look forward to delivering on our promise to our customers, partners, and stakeholders. Safety remains our highest priority. Our focus on achieving zero life-altering injuries and fatalities is unwavering.

[Megan Telford, President and CEO at Hydro One]

A strong safety culture is the foundation of operational excellence, and we will continue reinforcing our safety principles and expectations so every employee and contractor returns home safely at the end of each day. As electricity demand continues to grow across Ontario, aging infrastructure and changing weather patterns are placing increased demands on the electricity system. Hydro One is advancing the transmission infrastructure required to provide reliable, cost-effective, and resilient power to homes, businesses, and communities. These investments not only address today's needs but also help prepare the provincial electricity grid for future growth by replacing aging assets, reducing congestion, and enabling increased electrification and clean energy integration. On April 23rd, 2026, Hydro One was designated to develop and obtain all necessary approvals for the Red Lake transmission line in northwestern Ontario, north of Dryden.

[Megan Telford, President and CEO at Hydro One]

This priority project will include new double-circuit 230 kV transmission line extending from the Dryden transformer station to the Ear Falls transformer station, including associated station facilities and connecting to the Red Lake switching station. The project is expected to be in service in the early 2030s and will support reliability and economic development across the region. Consistent with Hydro One's longstanding approach to Indigenous partnerships, the project will follow the company's 50/50 First Nation equity partnership model. Enabling participating First Nations along the route to share directly in the long-term value created by the infrastructure. We have announced several critical investments in our transmission and distribution systems to modernize, strengthen, and expand the grid in support of economic development and increased electrification across the province. During the quarter, Hydro One submitted leave-to-construct applications to the Ontario Energy Board for three major transmission projects.

[Megan Telford, President and CEO at Hydro One]

First, Northeast Power Line, a single-circuit 500 kV transmission line connecting the greater Sudbury area to the Warren Cliff area. Second, Longwood to Lakeshore Line, a single-circuit 500 kV transmission line connecting the municipality of Strathroy-Caradoc and the municipality of Lakeshore. Third, Durham Kawartha Line, a double-circuit 230 kV transmission line connecting the municipality of Clarington and Peterborough County. Collectively, these projects represent more than CAD 3.4 billion in planned investments and are expected to enter service between 2029 and 2030. Hydro One also filed a leave-to-construct application for the Orléans Area Reinforcement Project in the greater Ottawa area. The project includes a new 115 kV transmission line and the conversion of an existing 115 kV line to 230 kV. With an investment of approximately CAD 100 million, the project will increase regional capacity, improve transfer capability, and strengthen reliability. The project is expected to be in service by 2029.

[Megan Telford, President and CEO at Hydro One]

As many of you are aware, Ontario is experiencing an unusually active wildfire season this year. I would like to briefly address the situation and its potential implications for our business. We are seeing a higher number of fires this year. In fact, the number of wildfires in Ontario this year is 54% above last year's and 56% above the 10-year average. Our highest priority remains the safety and well-being of our employees, contractors, and the communities we serve. At this time, wildfire activity has not had a major impact on our operations, and no fires have been attributed to our assets or infrastructure. We continue to work proactively with our teams, customers, and local authorities to monitor conditions, mitigate potential risks, and maintain operational readiness. We remain committed to supporting our employees and communities throughout this period, while continuing to deliver safe, reliable, and resilient service.

[Megan Telford, President and CEO at Hydro One]

Meeting Ontario's growing electricity needs will require a skilled, diverse, and future-ready workforce. To support this objective, Hydro One renewed its longstanding university partnerships with Toronto Metropolitan University of Waterloo, Ontario Tech University, and Western University. The renewed partnership includes a CAD 1.2 million investment over three years and is expected to benefit more than 60,000 students across Ontario. Building on more than a decade of collaboration, the program will expand K-12 outreach, mentorship opportunities, student awards, and career development initiatives, helping strengthen the talent pipeline for Ontario's electricity sector. Through these investments, Hydro One is helping prepare the next generation of engineers and energy professionals who will support a safe, reliable, and sustainable electricity system. Hydro One's success is driven by the dedication, professionalism, and expertise of our employees.

[Megan Telford, President and CEO at Hydro One]

Their focus on safety, customer service, and excellence is what makes this company successful, and these efforts continue to be recognized by respected organizations across Canada and internationally. During the quarter, Hydro One earned several notable recognitions, including being named among Corporate Knights 50 Best Corporate Citizens in Canada, recognizing leadership in sustainability and responsible business practices. We were included in Time Magazine's and Statista Canada's Best Companies 2026, based on employee satisfaction, sustainability, transparency, and financial performance. We were recognized by Forbes as one of Canada's best employers for company culture, reflecting strong performance in areas such as fairness, inclusion, opportunity, and workplace culture. These achievements are a testament to our values, our culture, and the outstanding work our teams deliver every day. They reflect our focus on building a workplace where employees feel valued, empowered, and connected to our purpose.

[Megan Telford, President and CEO at Hydro One]

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]

Good morning, and thank you for joining us today. Before discussing our financial results, I would like to take a moment to welcome Megan to her first earnings call as President and CEO of Hydro One. Welcome, Megan. Having worked closely with Megan over the past two years, I have seen firsthand her strong leadership, deep understanding of our business, and unwavering focus on delivering for customers, employees, and shareholders. Megan's combination of strategic thinking and focus on operational discipline will serve us well as our growth accelerates and our sector evolves. Turning to the quarter, net income attributable to common shareholders in the quarter was higher by 13.1% compared to the same period for a year ago.

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

The key drivers behind the result this quarter include higher revenues, net of purchased power, due to higher OEB-approved 2026 rates, higher average monthly transmission peak demand, a higher distribution customer count, and more electricity distributed to our distribution customers. Lower depreciation, amortization, and asset removal costs, primarily due to lower asset removal costs resulting from reduced storm restoration efforts, also contributed to our earnings growth. These profit drivers were partially offset by higher OM&A costs, primarily due to higher work program expenditures, including emergency power restoration and lines maintenance work. A higher interest expense due to an increase in long-term debt outstanding, partially offset by higher capitalized interest. And higher income tax expense due to higher pretax earnings, partially offset by higher deductible timing differences. This resulted in second quarter basic earnings per share of CAD 0.62 compared to CAD 0.54 in the second quarter of 2025.

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

Our second quarter revenue, net of purchased power, increased year-over-year by 5.5%. Transmission revenues increased by 7.2%, primarily due to higher revenues from OEB-approved 2026 rates and 0.5% higher average monthly peak demand. Distribution revenues, net of purchased power, increased by 2.4%, mainly due to increased revenues from OEB-approved 2026 rates, 4% higher energy distributed to 0.8% more customers. On the cost front, operating, maintenance, and administration expenses in the quarter increased by approximately 3.4% year-over-year. In the transmission segment, costs were higher by 4.7%, mainly due to higher corporate support costs and a higher spend on vegetation management, partially offset by a one-time reduction to the property tax provision. In the distribution segment, costs increased by 3.7%, mainly due to higher work program expenditures, including emergency power restoration and lines maintenance work, as well as higher corporate support costs.

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

These were partially offset by net income neutral items, which are offset in revenue. Depreciation, amortization, and asset removal expenses during the quarter were lower by 2.8%. The decrease was primarily due to lower asset removal costs resulting from reduced storm restoration efforts compared to the prior year. This was partially offset by higher depreciation expenses due to growth in capital assets as the company continues to place new assets in service. With respect to our financing activities, we saw a 7.1% increase in interest expense year-over-year. 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 US dollar issuance during the quarter, partially offset by higher capitalized interest. During the quarter, Hydro One issued US $1.0 billion of senior 4.75% notes due in 2031.

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

The issuance was well-received by U.S. fixed income investors, and we were pleased with the demand for the product. We entered into a swap arrangement on the day of issue that resulted in a Canadian fixed equivalent rate of 3.835%. We intend to become regular issuers in the U.S. fixed income market, as having the ability to access two markets provides us with flexibility to fund our future capital needs and growth opportunities. The net proceeds from the offering will be used to repay some maturing long-term debt and certain short-term indebtedness, including commercial paper, as well as for other general corporate purposes. Our balance sheet continues to be in excellent shape, along with our credit worthiness. Our FFO to net debt ratio as at June 30, 2026 was 14.1% and remains well above the threshold limits the rating agencies use to trigger a credit rating review.

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

Turning to taxes, our income tax expense in the quarter was CAD 69 million compared to CAD 61 million in the same quarter last year. The increase year-over-year was primarily due to higher pre-tax earnings. This was partially offset by higher deductible timing differences than the prior year, including additional tax deductions from the reintroduction of accelerated capital cost allowance that are offset by a corresponding reduction in revenue, and therefore, net income neutral. As a result, our effective tax rate this quarter was 15.6%, which was similar to a year ago. Looking at our capital expenditures in the second quarter, we invested CAD 812 million, which was a decrease of 11.1% from the same period in 2025.

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

The decrease resulted from a lower volume of station refurbishments and equipment replacements, as well as a lower investment in the Waasigan, St. Clair, and the Northeast Power Line projects, coupled with a lower spend on storm-related asset replacements. These were partially offset by an increase in investments relating to Ontario's broadband initiative, the Advanced Metering Infrastructure, or AMI2.0 system, and a higher spend on other major development projects. Looking at our assets placed in service, in the first quarter, we placed CAD 644 million in service for our customers, which was an increase of 9.0% compared to the prior year. In the transmission segment, we saw an increase of 147.6% year-over-year, primarily due to timing of assets placed in service for station refurbishments and replacements. These were partially offset by the absence of in-service additions relating to the Orillia distribution warehouse that occurred in the prior year.

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

In the distribution segment, in-service additions decreased by 36.9% from the prior year, mainly due to the lower volume of storm-related asset replacements, the absence of in-service additions relating to the Orillia distribution warehouse in the prior year, and the timing of investments placed in service for system capability reinforcement projects. These were partially offset by higher investments in the broadband initiative and the AMI2.0 system. I am pleased to report that our board of directors declared a dividend of CAD 0.3531 per share payable to common shareholders of record on September 9, 2026. Looking ahead, we continue to expect earnings per share to grow between 6% and 8% annually for this rate period using the normalized 2022 EPS of CAD 1.61 as a base. Looking even further ahead, I know many of you are interested in our Joint Rate Application for 2028-2032.

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

We expect to file the application in October. While I cannot provide specific details in advance of the filing, I can assure you that the application contains compelling proposals to further enhance the reliability and resilience of our transmission and distribution systems, support the electrification and economic growth of Ontario, and deliver good value for money to our customers while providing appropriate returns for our shareholders. We believe these investments will help ensure the energy system remains well-positioned to meet the province's evolving needs and support long-term growth for all stakeholders. With that, we will open the phone lines and be happy to take questions.

[Wassem 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 one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Our first question comes from the line of Michael Lonegan with Barclays. Your line is now open.

[Michael Lonegan, Analyst at Barclays]

Hi. Good morning. Thanks for taking my questions, and congrats, Megan, on starting the new role. As we think about the upcoming JRAP application, I know, Harry, you said you cannot provide details, but anything high level you can preview in terms of what we could expect aside from a substantial increase to the capital program. Could we expect you to ask for a higher equity thickness and increased earning sharing threshold, for example?

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

Michael, good morning. I am afraid I cannot give any of those at this point. The trailer in my prepared remarks is as much as we can say. It is around the corner, and you will see it very shortly.

[Michael Lonegan, Analyst at Barclays]

Okay, great. Obviously, expectation is a substantial increase in capital requested. You have talked about needing equity in the next JRAP period. Anything you could say about what percentage of incremental CapEx could be financed with equity? Would it be an ATM program? Also, what would your FFO to debt target be?

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

I can make a couple of comments there. We are committed to our credit rating. We are very proud of our A credit rating, so we want to maintain that. The FFO to debt, our downgrade threshold is 11%, and we want to make sure that we do not violate, nor even really approach too closely that level. Therefore, the equity needs will be sold to preserve that credit rating. In terms of the vehicles we will use, we will look at hybrid debt first, because we get 50% equity credit for hybrid debt. But inevitably, equity will be required in the next period. An ATM program is very attractive because it is almost just in time to minimize dilution for our shareholders. But if market conditions were right and we had significant capital needs, a bigger issue could also be considered. So we are keeping our options open.

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

We have to wait until the application is approved, and we know with clarity what we need to fund through 2028 through 2032, then we will develop and communicate our financing plan at that point. But we are thinking of all the avenues that you outlined. We are in a very strong position to start, and seeing the success of ATM programs, the success of hybrid debt, we do not need to innovate, if you will. We can follow tried-and-true solutions for ourselves.

[Michael Lonegan, Analyst at Barclays]

Great. Thanks for taking my question.

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

You are welcome.

[Operator]

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

[Maurice Choy, Analyst at RBC Capital Markets]

Thank you, and good morning, everyone. My first question, perhaps is for Megan Telford. In your prepared remarks, you highlighted the four key pillars of customers, growth, solutions, and partnership. When you think about your next 12 months, which of these four key pillars do you think requires more attention from you, and why?

[Megan Telford, President and CEO at Hydro One]

Well, first of all, thanks very much for the question. I think what's interesting is, before taking on this role, under my COO mandate, I had strategy as part of in my area. But I think the customers, growth, solutions, and partnerships, for me, they're equally balanced. What I would say, and you heard Harry talk about our upcoming rate application, is obviously we're not going to talk about the details of what's in there, but when you think of what's happening right now in our sector. You have aging infrastructure, you have obviously inclement weather that we can all feel, and we have increased electrification in Ontario. Those are all things, at the end of the day, that we need to do for the province and for our customers.

[Megan Telford, President and CEO at Hydro One]

They're all important, but at the end of the day, a utility like Hydro One serves the customers, and we've got our customers' needs at the heart of what we do.

[Maurice Choy, Analyst at RBC Capital Markets]

When you think about the customers, I think your engagement for the JRAP has recently ended. Just curious whether or not since then, have you heard more in terms of how they've looked to the upcoming JRAP? How they're engaging with you, or how are you engaging with them as you approach your finalization of your application?

[Megan Telford, President and CEO at Hydro One]

Sure. First of all, as you can appreciate, in the first eight weeks of the role, I've been out meeting all sorts of people, stakeholders, and many people. We're always sort of listening to the voice of the customer. On the specific regulatory engagement, we, of course, engage with customers. I'm going to turn to Harry. That's under his portfolio.

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

Maurice, we have completed our customer engagement as part of our filing and have very strong support for the proposals that we will be filing in October, which was refreshing to see. At the same time, we are aware of the cost of living issues that have risen to the top of Ontarians' agendas. We've seen some polling that indicates for the first time in a long time, cost of living is the number one issue on Ontario voters' minds. It has exceeded housing, that so-called housing crisis, and healthcare, which are usually number one or number two. We are being responsive to that. At the same time, we're making what we think are responsible proposals to invest in the infrastructure to enable growth, improve reliability and resiliency, but also mitigate bill and rate impacts because we're not tone deaf. You'll see that in the application.

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

We'll talk explicitly about that.

[Maurice Choy, Analyst at RBC Capital Markets]

Thanks. Maybe just finishing off on a question on the balance sheet. Harry did mention that you ended the quarter at 14.1% FFO to debt. As you mentioned, that's materially above the 11% downgrade threshold. Philosophically speaking, how do you think about what is the appropriate cushion versus the downgrade threshold for unexpected circumstances? As you think about where you would be at the end of the next five years versus where you were, or where you will be ending in this five-year period, is there a potential for this metric to progressively build back to 14% at the end of that?

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

Yeah. It's an interesting question, Maurice. In the early part of the rate period, we will be under pressure, and that's where we'll need to support the balance sheet with equity, because the amount of capital expenditures that we'll have are very significant. As you know, it takes, particularly for transmission lines, but even distribution investments, there's a lag between the investment, then the move into rate base, and the earning the returns and generating funds from operations. The pressure will be early in the rate period, and then will normalize. That's something that we are watching. Specifically, 100 basis points above 11% is a flashing yellow light, and 50 basis points is a flashing red light. We will be monitoring our performance and using our forecast and outlook to make sure that we don't end up flirting with breaching the threshold.

[Maurice Choy, Analyst at RBC Capital Markets]

That's great color. Thank you very much, Harry. And congrats, Megan, on your start of your CEO tenure.

[Megan Telford, President and CEO at Hydro One]

Thank you so much. Appreciate that.

[Operator]

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

[Mark Jarvi, Analyst at CIBC]

Thanks. Good morning, everyone. Megan, it's been sort of communicated that it's going to be much of the same with the CEO transition, and I see no real need for big changes. You're part of the strategy, obviously. But how would you compare and contrast your management style with David? I guess, how does that influence anything in terms of whether it's customer engagement, procurement, growth, project execution, just anything that might feel or seem a bit different with you at the helm now?

[Megan Telford, President and CEO at Hydro One]

Well, first of all, Mark, good to hear from you. I would be remiss in answering that question if I did not say a thoughtful thank you to my previous boss, David Lebeter. Obviously, an incredible mentor to me, and I imagine right now he is doing something delightful in retirement, so we are thinking of him. I would say, clearly, David and I are different people, very different backgrounds. But we are very similar from a values perspective, and that is what I appreciate most. Although he had a very deep expertise in forestry, spent a considerable time at BC Hydro, et cetera. I come from law and banking. But actually, the heart of why I joined Hydro One is the same. I come from a small town, I think of Hydro One's footprint across the province, and our employees live and work in these communities.

[Megan Telford, President and CEO at Hydro One]

For those of you who are from environments like that, you will know how deeply personal it is to really think about electricity and the growth across the province is what we need right now. I do not think you will see much change from that. My first eight weeks, I had a very fortunate opportunity to get out and have a listening tour, speaking to people, trying to get out and talk to our employees directly. That is very much similar to what David had been doing. He is a very on-the-ground leader. I am a very on-the-ground leader, and I think leading an organization like Hydro One. The only thing I would say from a difference perspective, it is not really a difference between David and I.

[Megan Telford, President and CEO at Hydro One]

You heard me mention in the previous comment that when you look at what the province needs and what we are focusing on, again, these increased storms, obviously wildfires, you can see what is changing the province. A continued push for electrification. As I imagine over my tenure, those things are going to intensify, and that is why we are focused on delivering for customers. That is why you hear us talk about those themes for our JRAP. Really, it is a continuation of what David did, but I imagine some of those themes will be even more pronounced under my leadership, just by the nature of what is going on in the world right now.

[Mark Jarvi, Analyst at CIBC]

That is very helpful. Then just on your listening tour, just curious in terms of the different constituents and types of customers out there, whether it is industrial, small commercial, residential. Anything kind of surprise you in terms of the feedback or what is their pinch points more recently? Is there any tension between what some customers need and want in terms of growth and demand for electricity versus others who are feeling it a little bit of the pain in terms of customer affordability? Just wondering if there is some challenges to mesh all the needs that are out there from your constituents.

[Megan Telford, President and CEO at Hydro One]

Yeah, I think what is really interesting is that we obviously participate in a lot of different associations. In fact, yesterday we were speaking on a show, one group out, AMPCO, major power producers. When you listen to a group like that, and they have a fantastic leader, Brad Duguid, what they will say is they are very supportive for what we want to do. If you are thinking of you are an industrial organization in Ontario right now, it is not really been that fun of a time in the last year with tariffs, obviously increased pressure. As a very proud Canadian, as I know we are on this call, we need those companies to thrive. They are really looking at the thing Harry already spoke about, which is affordability and how can they make sure that we keep those businesses in Ontario.

[Megan Telford, President and CEO at Hydro One]

I think from an industrial perspective, they are really trying to understand, will the energy be there when they need it? They are looking for increased reliability because obviously it has a big impact on their business. Of course, they are really looking to ride out this very usual time in what is happening economically, especially, again, like I said, with tariffs, et cetera. On the residential piece, again, I just have to leverage what Harry says. Those customers are really feeling it on everyday pocketbook issues. You can see the price of food. You can see the things they are wrestling with.

[Megan Telford, President and CEO at Hydro One]

That is why we are being so mindful about affordability, the rate impact. It is a similar theme. I would say just different nuances. Of course, the individual customer is a little less fluent, particularly on what we are building in the province, and industrial customers are very engaged.

[Megan Telford, President and CEO at Hydro One]

What is united between them is they want to see Ontario prosper, and they know that we need to continue to electrify, and we know we need to be thoughtful about the bills to make both those things happen. Just, Harry, do you have anything you would like to add to that from your regulatory perspective?

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

No. I think you summarized it well.

[Megan Telford, President and CEO at Hydro One]

Okay, thanks very much.

[Mark Jarvi, Analyst at CIBC]

Maybe here, I'll just ask you to follow up. Just in terms of the last things that need to be ironed out on the JRAP submission, where are you spending most of your time? Is it scope of work? Is it refining cost estimates? Is it trying to find some relief on the affordability front? Where's the last sort of effort here now to the finish line?

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

At this point, Mark, we are just finalizing all the documentation that we put together. We have mountains of expert evidence, expert reports, analysis. We're trying to bring it all together to tell the full story to support the proposals that we're making, bring the customer perspective in, reflect what we know our customers are feeling, but also what we know the grid needs in terms of reliability and resilience and what will support the economic growth of the province. At the same time, ensure that we can deliver decent returns for our shareholders. So it's putting it all together. All the hard work has been done. Now it is bringing it together, putting it into the documents that we need to file in a way that's logical, understandable, and makes sense.

[Megan Telford, President and CEO at Hydro One]

One thing I would add there, Mark, just from my perspective, is that you can imagine yourself in my situation. I've been here, but we're all using this leadership transition. We have the beauty of, benefit, excuse me, of a very smooth leadership transition from a governance perspective, which we're all very grateful for. When you come into a seat like mine, we're taking the time, Harry and I, to sort of try to look at it with fresh eyes. Very, very proud of our regulatory team. They are really an incredible group. You can imagine an application of this magnitude, the level of engagement across the organization. So what I can tell you on behalf of Harry and I is that, yes, we're in the refining period.

[Megan Telford, President and CEO at Hydro One]

When that application goes in, I will tell you, we will have gone through every line and been super diligent, and we will know it is absolutely the right thing for people in Ontario.

[Mark Jarvi, Analyst at CIBC]

Great to hear. Looking forward to the update this fall. Thanks.

[Operator]

Thank you. Our next question comes from the line of Robert Hope with Scotiabank. Your line is now open.

[Robert Hope, Analyst at Scotiabank]

Good morning, everyone. I want to go back to the balance sheet and the funding plan. How are you thinking about the increasing capital requirements over the next couple of years? How do you balance that with the fact that you will get some capital back for a number of these larger projects at completion, just given the 50/50 First Nations partnership? How are you thinking about the near term versus the, we will call it medium to longer term requirements there?

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

Rob, it's something we're working through as supporting both the rate application and our long-term financial projections. As I was saying a little earlier, there is this lag, as you point out. When we think of transmission, the transmission lines that we will be building between now and 2032, we fund all the construction. Once the line's energized, the rate application's been approved for that line, then our First Nations partners have the next year from the date of energization to buy in. That recycles some capital. So it's the early pressure that we are building the scenario. We build the funding plan to support that, protect our credit rating, not issue too much equity because we are also conscious of dilution, and that's why an ATM program works well.

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

The pressure comes in the early part of the rate period, and then we normalize mid to end of the rate period. One of the things that we will do once we have an approved application is we'll have an investor day. We'll lay out the plans for the next, what will be six-ish years because it'll be in advance of the rate period starting. That includes the funding, outlines how we see it developing, and the tools that we will be using to minimize dilution, protect our credit rating, and fund what we need to fund.

[Robert Hope, Analyst at Scotiabank]

All right. Appreciate that. Maybe just keeping on the transmission increasing spend there. How is the organization positioned to execute on this increasing plan? Any supply chain challenges that you see as you're ramping up spend?

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

I'd say between our ops teams and our procurement team, they have great visibility into the needs, human resources, material, et cetera, and the timing. The planning is underway. I'd love to say we've got a bow tie on it and we have no concerns, but that would be misleading. As we look ahead, the entire world is electrifying. It's not just Ontario. The manufacturers of equipment are seeing unprecedented demand. They're adding capacity. There was an article in The Globe about Hitachi, one of our strategic suppliers, adding capacity in Quebec. They recently added some capacity in Grimsby, Ontario, as well. We're working with our vendors and our HR team as well, as we think about both procurement but also resourcing. We use a lot of contractors to support us. We're giving them visibility.

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

For some of the bigger projects, like transmission lines, we have an early contractor involvement initiative to bring them in early, commit to them so they can commit resources. They see our order book, if you will, and understand that, hey, this isn't one and done. This is a series of projects, investments that are being made. This is a customer from their point of view, we want to support because we've got a great runway of business ahead. We're trying to consolidate as best we can with them so they have visibility, not to just the next project, but the next seven years of projects, so we will secure what we need. We are not hesitant on the material side to make commitments for long lead time.

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

We have production slots for some of the scarcest resources, as many as three and four years out with some pricing contracts and governors, et cetera. Not fixed price, but parameters, et cetera. We're doing everything we can to look ahead, stay ahead, consolidate relationships so that we are not someone who's suffering from a lack of supply of either material or human resources.

[Robert Hope, Analyst at Scotiabank]

Good color. Thank you.

[Operator]

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

[Benjamin Pham, Analyst at BMO]

Hi. Thanks. Good morning. I wanted to, you mentioned the wildfire acceleration in Canada. I know you mentioned there is no current impact on Hydro One. Can you talk practically how it plays out with wildfire damages to your infrastructure? Is it a Z-factor filing? Can you also comment, is there any conversations you had with respect to credit rating agencies on how they are thinking about broader Canadian wildfire risks for utilities?

[Megan Telford, President and CEO at Hydro One]

I am happy. First of all, thanks for the question. Harry and I will probably take this one in tandem. First of all, yes, as we can all see, it has been a very unusual wildfire season, obviously one of the worst that people have seen in Canada. Indeed, I am sure people are also monitoring what is happening in Europe. It has impacted some of our infrastructure in Northern Ontario. We actually spend, as you imagine, in our line of work, a great deal of time preparing for this. We have very, very strong preparedness programs run by our ops team. We have very close coordination with our fire management partners, the Ministry of Natural Resources, and we have very dedicated crews.

[Megan Telford, President and CEO at Hydro One]

Where we are allowed in, of course, at the government's decision to make sure that the area is safe, we obviously can respond very quickly and restore power. Our main focus at all times in wildfires is protecting the people that live there, protecting our employees, really supporting the communities. Of course, we want to get the power up as quickly as possible to the customers. That is what we are doing right now. Harry, do you want to speak about specifically potential regulatory recovery?

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

Yes.

[Megan Telford, President and CEO at Hydro One]

Yeah.

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

Ben, any wildfire recovery or restoration work that we would incur, we would add into rate base the way that we do normal storm restoration. It is not a storm, well, I guess a wildfire storm, not an ice or windstorm. That is just normal course. You mentioned Z-factor. There are very specific conditions. Thankfully, we are not anywhere close to meeting the conditions for a Z-factor because that would be very destructive in terms of equipment losses, infrastructure losses, et cetera. We do not anticipate that. The Z-factor filing from the ice storm of March 2025 gave us a better understanding of how the OEB interprets the qualification. We are nowhere close to incurring any of those restoration costs and capital expenditures. We are watchful.

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

All the great work our ops teams do to prepare for in advance should fires start approaching any of our infrastructure will hopefully minimize, if that were to happen, any damage and also minimize restoration. But I have no concerns that any incremental capital expenditures we incur would have any issues. The regulator would not have any issues with us adding it into rate base and recovering or earning revenue over time.

[Benjamin Pham, Analyst at BMO]

Okay. Got it. Thanks for that. And you have been quite active on OEB filings on a couple of priority transition lines. Thanks for that update. Can you talk about maybe the timeline for the remaining PVD? Looks like there is another eight to nine projects. Do you think that you can file material amount of that before the next JRAP filing? I know it is not included in that, but just more curious about the timing.

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

When you say the next rate application filing, not October, you mean the next one for 2033-2037?

[Benjamin Pham, Analyst at BMO]

Yeah, I was thinking more, there is a couple of priority transmission projects that you have not filed separate to OEB filings. Are you-

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

Okay

[Benjamin Pham, Analyst at BMO]

able to have those CapEx numbers? I would think it has maybe more indirect impact on how you think about the JRAP.

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

Well, there are two things. The Joint Rate Application is for Hydro One Networks Inc. The future transmission lines will be their own rate application because they are partnerships with the First Nations. But when we present at our investor day after the rate application is approved, we will lay out the Hydro One Limited outlook and expectations so you can get a sense of that. We will not file Section 92 leave-to-construct applications in a hurry. We will file them as we require once we have done all the work to get the credible estimates to file. We do not want to rush them because some of these lines will not be in service until 2031, 2032. We want to make sure that we are not front running in a way that may cause us challenges from either a pricing or availability of resources.

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

We may have one or two more that are filed in advance of the filing, and we will communicate as we file each leave-to-construct application once it is filed with the OEB.

[Benjamin Pham, Analyst at BMO]

Okay, that is helpful. Thank you.

[Operator]

Thank you. As a reminder, to ask a question at this time, please press star one one on your touchtone telephone. Our next question comes from the line of John Mould with TD Securities. Your line is now open.

[John Mould, Analyst at TD Securities]

Hi. Morning, everybody. Maybe just starting with competitive transmission procurement. Hydro One was added to the IESO's Transmitter Selection Framework registry earlier this year. There are 5 other entities on that list. At a higher level, how are you as an organization thinking about broader competition for some portion of future transmission needs in the province? Then more specifically, the upcoming competitive RFP for the Toronto Third Line.

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

Hi, John. Thanks for the question. First of all, I would say it is a very interesting process because, of course, the IESO is developing the rules in real time. I am sure you have been following it. For the third line, what I would say is, look, Hydro One is very well-positioned to compete. We are a competitive organization, an innovative organization, and we have a winning team. The other thing I would say, just to remind people, is that there is actually already incredible amount of competition in the building of transmission lines in Ontario. Because we obviously contract with a number of firms. We do not do the whole thing ourselves. In the procurement, Harry talked about supply chain and a number of things that go into building the lines.

[Megan Telford, President and CEO at Hydro One]

Those entities compete against each other through our RFPs to win the right to assist us in building those lines. First of all, I just want to start with the actual competition that exists today. On the third line, I would say, obviously, we are very interested in this under ACCC Cable line. What we are really doing is participating in the process. As you mentioned, we are registered, and what we are doing is really evaluating the opportunity as it comes along. So that one needs to come into a bit sharper focus as the IESO develops their rules in terms of what we would do. I am sure at that time, we would update you on our participation. But right now, we are full participating.

[Megan Telford, President and CEO at Hydro One]

The last thing I would comment about it is that we really appreciate the IESO's approach because, of course, they're consulting with people, and every time they ask for consultation, we sort of course, submit our views on how that line should be competed. Very interested, and I'm sure, like you, we'll be watching it very closely.

[John Mould, Analyst at TD Securities]

Okay, thanks for that. Then maybe just one on potential investments outside of Ontario. As an organization, you said in the past that those would need to not distract from what you're doing in the province, be consistent with the existing asset base, and be relatively close geographically. Can you just give us an update on what, if anything, you've seen in terms of potential opportunities along those lines?

[Megan Telford, President and CEO at Hydro One]

Yeah, I guess what I'd say is, look, we're not chasing growth outside of Ontario just for the sake of chasing something. We are very clear on what we're great at, and that's really serving the people of Ontario, making sure there's great reliability, and making sure there's a strong future in terms of energy here. Obviously, again, as I mentioned, proud Canadian, watching very closely what's happening right now in the world. You could see the federal government level that people are exploring all sorts of projects across Canada, and we have a very unique relationship and partnership with First Nations. Look, we would never say no to consider something in the right set of circumstances. But again, as you said, it would not distract. We would have to be very specific in terms of many things.

[Megan Telford, President and CEO at Hydro One]

I'm sure my excellent partner CFO here is going to talk to you about the right financial conditions. But really for us, we want to deliver the projects we have safely, on time, and on budget. Any consideration beyond that would have to be in the mix, as you said, of what making sure we can deliver we've already promised. Harry, anything you'd like to add to that?

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

No. Well, yes. I'll say as we look ahead, we have a great growth agenda here in the province, and so we don't need to look outside to generate great growth while still delivering great value for our customers and meeting the needs of all our constituents. So our conditions are still the same, John.

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

We certainly want to contribute to the extent we can to the national agenda, but it cannot distract or dilute either our activity or our performance in the pursuit of that.

[John Mould, Analyst at TD Securities]

Okay, thanks for that. Then maybe just a quick one on the U.S. debt issuance. Harry, you said earlier on the call you intend to become regular issuers in the U.S. market. How are you thinking about that pacing and what percentage of annual issuances might you eventually want to raise in the U.S.?

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

It will be a bit, John, a bit market condition specific. We are going to be active in Canada as well. We do not have a specific target. We are going to look at the all-in interest rate that will ultimately pay on the debt. Sometimes that is more favorable in Canada, sometimes the U.S., based on the different conditions. But we can easily see at least a third, if not more of our debt, in the medium term being placed in the U.S. Could be more, could be less, obviously, if the U.S. market turns quite expensive. But it is situational. We view it as optionality and flexibility rather than being dogmatic about one third, 40%, 50% will be U.S. versus Canada.

[John Mould, Analyst at TD Securities]

Okay, that is great. Thanks very much for taking my questions and again, congrats again.

[Megan Telford, President and CEO at Hydro One]

Thanks very much. I appreciate it.

[Operator]

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

[Patrick Kenny, Analyst at National Bank Capital Markets]

Yeah, good morning. I just wanted to check in on the data center front here and things might be a little slow to get off the ground, but still expect it to be, call it 8%-10% of Ontario demand growth through 2050. So I was just curious how your discussions with the province or with proponents have been developing. If there's been any more clarity on where the incremental generation might come from to support the build-out and where you might be exploring other new lines or new expansions in order to foster data center growth in the province.

[Megan Telford, President and CEO at Hydro One]

Hi, Pat. So yes, this is the question in the world right now about data center growth, and of course, we're following it very closely. The first thing I would say is Hydro One, as you know, doesn't make policy, and so we are naturally watching and seeing what the government's going to do. They've talked very openly. We were at a public announcement with the minister a couple weeks ago. He was very clear about a couple of things. First of all, that they are looking at rules on this to make it clear for municipalities and for providers like us. And second of all, very focused on making sure that there's a fair and equitable payment scheme, meaning not passing on all the costs to Ontario ratepayers.

[Megan Telford, President and CEO at Hydro One]

I am just sitting in the same position you are in terms of not knowing what that is going to say, but we expect there to be guidelines coming out. We do engage with data centers, of course, but mainly their route in Ontario is through the IESO, where they file applications. Right now it is very much like any provider. They are in a queue, and if the IESO deems that it is necessary, we of course have an obligation to connect. I do not have much more insider information. Harry, turning to you from a regulatory perspective to see if there is anything you want to add, but we monitor it closely. Obviously, as you pointed out, there is a certain degree of slow growth in the province, of course, that we are monitoring.

[Megan Telford, President and CEO at Hydro One]

I would say one thing I am proud about in Ontario is that we have managed to really look at the lessons learned in the U.S., and I think we will really benefit from watching the things that went well there and that did not go so well. Hopefully, we will expect a much more thoughtful and planned approach in Ontario.

[Patrick Kenny, Analyst at National Bank Capital Markets]

Okay, that is great. Thanks for that. Then maybe just a follow-up for Harry on the U.S. bond offering and the attractive swap rate there. As you mentioned, looking to add future offerings to the debt stack here, especially longer duration paper over time. Just how you might be thinking about this cadence as another lever to accelerate EPS growth relative to accessing capital solely in Canada. Or is this just more of simply diversifying your sources of capital as you continue to expand the capital plan over time?

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

Pat, the strategy was more diversification. Lowered cost, lowered interest cost, always an objective. The way we timed it quite well in retrospect in terms of both the underlying, the spreads, and where the swap market was for us at that time, which gave us a very attractive rate, kind of exceeded our expectations going into it. But the primary driver is diversification of sources of capital. We are always trying to manage our interest expense to minimize, because we recover those in rates, and to minimize that impact for our customers. As we look ahead, our capital needs will be more significant than we have seen even in this rate period given, and you will see that when we file our rate application.

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

We wanted to make sure that we're availing ourselves of the biggest pools of capital, not waiting until we need it to get out in front, establish our brand, for lack of a better term, with fixed income investors outside the country. We are not leaving the country. We will be issuing in Canada. Just diversifying those sources so that no one will ever say, "I've got too much Hydro One paper in my portfolio.

[Patrick Kenny, Analyst at National Bank Capital Markets]

Okay, got it. Thanks, everybody.

[Operator]

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

[Wassem 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 questions that weren't addressed on the call, please feel free to reach out and we'll get them answered for you. We look forward to seeing everyone at our third quarter conference call in November. 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

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

Analysts

• Michael Lonegan, Analyst at Barclays
• Maurice Choy, Analyst at RBC Capital Markets
• Mark Jarvi, Analyst at CIBC
• Robert Hope, Analyst at Scotiabank
• Benjamin Pham, Analyst at BMO
• John Mould, Analyst at TD Securities
• Patrick Kenny, Analyst at National Bank Capital Markets