Q3 2020 Hydro One Ltd Earnings Call
[music].
Ladies and gentlemen, and welcome to the Hydro one limited's third quarter 2020 analyst teleconference.
At this time, all because my son in listen only mode. After.
The speakers presentation, there will be a question answer session to ask a question then, especially when need to press star one on your telephone until.
As a reminder to call is being recorded.
I will now like to introduce your host for today's conference Mr. Omar Jahvid, Vice President Investor Relations at HEICO been please go ahead.
Good morning, everyone and thank you for joining us in hydro one's third quarter earnings call.
Joining us today, our president and CEO, Mark for Wesco, and our Chief Financial Officer, Chris Lopez.
On the call today, we will go over our third quarter results and then spend the majority of the call answering as many of your questions as time permits.
There are also several slides that illustrate some of the points will address in a moment they should be up on the webcast snow or if your dialed into the call. You can also find find them on hydro one's website in the Investor Relations section under events and presentations.
Today's discussions are likely touch on estimates and other forward looking information you should review the cautionary language in today's earnings release, and our and DNA, which is 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 art.
President and CEO Mark for Wesco.
Good morning, everyone and thank you for joining us.
Before we begin I'm heartbroken to share with you that one of our employees lost his life in a very serious motor vehicle accident in the Port Carlene area, a couple of days ago.
Our employee was traveling in a hydro one pickup truck on a rural Ontario Road, when a concrete truck rolled onto this vehicle well rounded the corner.
Our thoughts and prayers are with his family friends and coworkers.
Nothing is more important to me.
Company, and our employees and the safety of our colleagues.
This incident will further strengthen our resolve to eliminating serious injuries in our company.
With respect to the business.
I'd like to start by taking all of our employees for delivering on a corporate strategy, while keeping our focus on the Daddy print priorities, we set to help us navigate through these challenging times.
From the start of the pandemic hydro one has been guided by two priorities.
Protecting our employees and delivering safe reliable power to Ontario.
These priorities will continue to guide our decisions along with the advice of our public health experts.
To date, we've had very acute cases of colitis amongst our employee population.
And there's only been one suspected case of workplace transmission, which occurred subsequent to the quarter end.
Safety protocols, such as extra pp onsite handwashing supplies adaptive worked methods and state protocols have allowed us to complete our work programs.
We will continue to be diligent and following these protocols as we look to the future when we get to a new normal.
I returned to office plan is designed to minimize the risk to our employees.
It is gradual and paid it helps it builds on the lessons we've learned since it started the pandemic it is flexible and when and how we work so that everyone is protected.
And it ensures that lights stay on while we continued to complete our work programs.
Our customers have also been impacted in many ways and we understand this week.
We have been and will continue to be there for our customers.
In yesterday's budget, the government announced an additional initiatives to lower the global adjustment charge.
This will help our business customers.
The government also confirmed rate protections for residential customers will remain in place.
We were pleased to see the government's commitment to managing electricity costs. So ontarios businesses can be competitive on the global stage.
At Hydro one we continue to support residential customers by extending our ban on electricity disconnections and providing them with help through hydro one's pandemic really program.
As well, ensuring they are benefiting from the government's coated energy assistance programs.
We have a responsibility to get back to the communities, where we work and live this.
This includes support for our indigenous customers businesses and families.
We serve 104 indigenous communities and have transmission assets and 23 first nations reserves.
We have a responsibility to build respectful and meaningful relationships with indigenous communities across the province through the work that we do every day.
And I'm pleased that we're making advancements.
Hydro one that was recently recognized by the Canadian Council for Aboriginal business or the CCB with silver level certification in progressive Aboriginal relations or par.
Advancing from a bronze level level certification in 2017.
Awards like these are incredibly important because they track our progress there.
To help us improve our performance as a trusted partner with indigenous communities and we are honored to be recognized in this way.
This partnership mindset also extends to our employees and unions.
I'm pleased to announce that the power Workers' Union. The PW members voted in favor of renewing two collective agreements.
The main collective agreement, which includes frontline operation staff.
And the customer service operations collective agreement, which includes staffing customer facing roles.
The collective agreements cover over 4200 regular employees and approximately 1500 contingent employees in critical frontline roles across the company operations in Ontario.
These agreements reflect our shared commitment to working together.
And there are several notable components, including employment security extended health benefits focus on mental health for employees.
The agreement also allow for increased productivity enhance flexibility and a renewed emphasis on diverse and inclusive practices.
We're now in a period of labor stability with these agreements in place for the next several years.
And as we look out to the future.
We see a lot of things to be optimistic about.
First we are continuing to energize light parent customers were.
We're working to connect over a 170 commercial and industrial customers to the grid. These new customers represent over 2200 megawatts of capacity, which is enough to supply a city about one and a half times the size of the model.
Second we are in a stable rate regulated environment, our rate applications for the distribution and transmission businesses have been successful through 2022.
We have high visibility of the capital investment in corresponding rate base growth that is required to maintain the safe and efficient transmission and power.
Our formulaic return on equity has already been determine which provides us with an incentive to work harder for our customers.
In addition, we have a path to final resolution on the deferred tax asset.
Our constructive relationship with the regulator is strong and we are working with the new leadership at the Ontario Energy Board as they move forward with the regulatory reforms that will benefit all Ontario, and in which we support.
Third we have successfully close the Peterborough and a really a transactions.
We're now welcoming them into the hydro one family and sharing best practices between us. So we can be efficient in our delivery of services to those communities.
We are confident that this will be a positive experience for RIDEA and Peterborough customers and employees.
And we will be an example for other communities to join our family as well.
And lastly, we're continuing to execute on our strategic plans, we are reducing costs, putting capital to work and generating positive returns for our shareholders.
This positive outlook combined with our greater purpose of energizing life is attracting high caliber individuals to our talent force in motivating existing employees to step up.
And with that I'm pleased to welcome the median Telford that's achieved chief Human Resources Officer.
Michigan was previously at Toronto, Dominion, where she transitioned through increasingly challenging roles and most recently was the head of human resources for TD insurance.
Her background in all areas of the HR and law will be invaluable to us.
Okay.
Our Chief Safety Officer, Darlene Bradley recently retired after 33 years with the company.
Domain has been a core part of my leadership team and I would like to thank her for her service and we all wish him the very best in this new stage of her life.
And Im pleased to report the appointment of lot of the guys Uzi to the role of Chief Safety Officer.
Lyla, an electrical engineer by background has over 15 years of experience in hydro one.
Most recently as vice President of distribution.
Given our frontline experience she is deeply committed to improving hydro one safety culture.
She was also recently recognized as one of Canada's top 40 under 40 for 2020.
As an executive sponsor of Pride Lyla is also an important model, who will continue to deliver on our commitment to diversity and inclusion.
And to close.
We're all saddened by the loss of our colleague.
And this has prompted us to step back and reflect.
In many ways this quarter, it's been positive.
But all the good is diminished when we experienced a tragic incident like the one this week.
We must and will continue to work towards eliminating serious injuries in this company.
Chris over to you.
Thank you Mark good morning, everyone and thank you for joining US today, I Hope you and your families assays and doing well.
I will take this moment to express my sincerest of condolences to the family friends and co workers affects the budgets tragic motor vehicle accident.
Our thoughts and prayers are with you all.
With respect to the business I.
I would like to extend Megan and Lyla, a warm welcome to the executive leadership team.
As Mark mentioned, there was a lot to be positive about we.
We have accomplished a great deal since we launched our strategy a year ago.
Spot of COVID-19, our team continue to perform well.
I would like to thank all that have contributed to this outcome in a trying and unexpected circumstances.
Well our commitment to excellence is being rewarded we're not losing sight of the work that lies ahead.
In terms of our financial results for the quarter, we saw an increase in per share to 47 cents compared to 40 cents last year.
The main driver of higher earnings this quarter was warmer weather, which positively affected peak demand in the transmission segment, while also increasing energy consumption in the distribution segment.
Our third quarter revenue net of purchase Pella was higher year over year by 6.3%.
We saw substantially warmer weather during the quarter with year over year peak demand up 12% in July and August and up 3% in September this.
These favorable favorable weather resulted in an increase in year over year peak demand during the quarter of 9%.
Electricity distributed to hydro when customers was also higher by 7.6%.
As a result transmission revenues were up by 9% and distribution revenue net of purchase power with 3.5% higher.
On the cost front.
Operating maintenance and administrative expenses were higher by 1.2% year over year.
Recall in the transmission decision with Sidoti the Shia we were required to recognize additional other post employment benefits as both the cost and the revenue, making it net income neutral.
Adjusting for this we saw a marginal decrease in eliminate year over year. Despite the additional COVID-19 related costs.
On which I will elaborate further.
In this call.
The main reason for the lower element I was little vegetation management cost compared to last year.
To remind you we had taken advantage of the milder weather last year and accelerated the vegetation management program to further enhance the electricity infrastructure.
Consistent with previous quarters, the impact of the measures taken by hundred loan to support our customers, including the pandemic relief fund.
Financial assistance and increased payment flexibility.
Extending the winter release program and the temporary suspension of late fees are not expected to be material.
With respect to COVID-19 costs, we've incurred operating expenses of approximately 5 million related to the purchase of additional facility and clean related supplies this quarter.
This brings our year to date on an exponential uncoated $19 million to $32 million.
As a reminder, this amount includes cost associated with the temporary stand down of the workforce and other sustainment work performed in previous quarters.
We continue to track the impacts of COVID-19, as directed by the Ontario and keyboard.
The company is tracking approximately 54 million in these accounts, which includes a $14 million allowance for bad debts, which has been to food.
We are pleased to report that we do not see a material change in the allowance for bad debt at this stage.
As such have not changed the allowance taken in the first quarter of this year.
From the regulatory perspective, the only be increased the number of COVID-19 related trucking accounts from three to five.
The new accounts include.
Foregone revenue from postponing right implementation.
And carving out bad debt from the other incremental cost of accounts.
In September the only be concerned that they had engaged external consultants to assist in the preparation and issuance of an only be stopped proposal regarding the deferral accounts.
The consultant's reports and additional guidance from the only be on potential next steps is expected sometime this month.
On financing, we saw a slight decrease in interest expense in the quarter due to a lower weighted average long term debt balance outstanding in the quarter.
There were a few notable events that occurred with respect to the capital structure since our last call.
First on September 21st we announced that we would exercise the option to redeem series one preferred shares on November 22020.
The chaise carries a yield of 4.25% and will be redeemed for 423 million consisting of 418, meaning being the value of preferred shares as well as 5 million of accrued dividends.
Second on October 15th subsequent to the quarter end Hodgman limited issued $425 million of long term debt at a competitive rate of 1.41% to fund the preferred share redemption.
DBRS limited assigned an issuer rating of 801 limited and also assigned an a rating to the 425 million long term debt issuance.
This is Pete assigned an issue level rating of Triple B plus to the $425 million long term debt issuance.
The redemption of the preferred shares is expected to be approximately two cents accretive.
Good on a pretty benign hydro mining issued long term debt totaling $1.2 billion at competitive rates.
We expect to use net proceeds of this offering to repay and all prepaid maturing long term debt and short term debt, including maturity coming up early in 2021.
Thanks for general corporate purposes.
We remain very pleased with our strong liquidity position and balance sheet.
As well as our robust investment grade credit ratings.
Income tax expense was 22 million for the third quarter compared to $14 million last year.
The increase in income tax expense was mainly related to high income before taxes.
The effective tax rate for this quarter was 7% this is 5.4% last year.
That effective tax rate is consistent with our previous guidance of 6% to 13%.
Following the positive decision in July anterior divisional court issued its final order regarding setting aside the only be ruling on the deferred tax asset on September 21.
Recall from the last quarter that we had reversed the onetime charges taken at the end of 2018 and recognized an income tax recovery that had a onetime net income impact of $867 million.
I'll now turn the second.
We issued a procedural order to implement the direction of the divisional court and instructed hydro one to submit a proposal for the recovery of the deferred tax asset amounts allocated to rate payers for the 2017 to 2022 period.
We view this as a positive development and anticipate a final decision in the first half of next year.
In the near term our effective tax rate guidance is not expected to change.
We will update you once the only thing he has finalized the matter.
Moving to investing activities. The company placed 371 billion of assets in service in the third quarter and.
A 14.3% decrease to the prior year.
This was largely a result of the year over year decrease related to the transmission segment, which had the substantial completion of the Niagara reinforcement project as well as investments in the elegant transmission station in 2019.
In the distribution segment, we saw a year over year increase as the feed a development project at Leeds and transmission station underwent a substantial completion this quarter.
We expect to meet this year's in service commitments.
Capital investment for the third quarter was $500 million, which is a 17.9% increase from the third quarter in 2019.
The increase was mainly due to a higher volume of station refurbishment and replacement hiring.
Our investment in multiyear development projects for the transmission business.
The construction of a new Ontario, Good control center in Arena and Woodstock Operation Center.
Investments in distribution system connections and modernization initiatives.
The higher volume of refurbishment work and storm related asset replacements.
On the acquisition front as mentioned on the last call. We completed the purchase of the business and distribution assets of Pete about a distribution from the city of Pete about on August 1st.
I'm pleased to report that we also successfully completed the acquisition of a really a power distribution cooperation from the city of a really up on September 1st.
As Ken did last quarter, we have updated the future capital investment table to reflect the changes arising from the YRI India acquisition.
Over the next few quarters, we will focus our efforts on business integration for the two acquisitions.
Lastly, we continue to be committed to and the fun out guidance of 47% earnings per share growth three 2020 two.
I'll stop there and we'd be pleased to take your questions.
Thank you Mark and Chris we ask the operator to explain how she'd like to organize the kunaev calling process.
And in case, we aren't able to address your questions today My team and I are always available to respond to any follow up questions.
Please go ahead Chen.
Okay.
Thank you as a reminder to ask a question we need to press Star wondering your telephone to withdraw your question press the pound key please symbolically composites you any roster.
Our first question comes from Robert Kwan with RBC capital markets. Your line is now open.
Chris you just talked about Reconfirming EPS growth rate in that with that dollar $52 65 range that you've rolled out in March as you stand here today, you've got the T X rate decision since that Youve made a lot of headwind cost and productivity improvements and a lot of that.
Tailwinds on the actual debt financing so just kind of wondering as you're thinking about the headwinds and tailwinds that kind of unfolded. How are you thinking about where you might be sitting not guidance range.
Thanks, Robert Good question I agree with you, both Mike and I touched on the fact that a number of the uncertainties have been taken out of the business.
I'll remind you that our long term projection was a growth in rate base at 5% growth in earnings of 5% and the growth in dividends of 5%, we still see that continuing over the long term in the short term. It's true that we'll have some variation and this quarter is a good example of that where where that has resulted in a.
Fairly sizable uptick.
They are related to the quarter at hand, and not sustainable over the long term. So I still think the long term guidance is is relative to that we did give a range of 4% to 7%, so clearly with that uncertainty being taken out.
The guidance is probably skewed towards the the upper end of that.
So that's how I would answer that question just too soon to call.
A revision of that guidance. We're at the early stages of closing we know of in the second wave. So we're going to be thinking about those outcomes as well it looks like it's going to be lasting well into next year, and then may be long and lasting impacts of that that we can't yet see.
So I'll leave you with those thoughts but.
Certainly we are a little more confidence around our guidance at this point.
Simply because the uncertainty has been taken out of that story.
Sure you mentioned kind of removing the uncertainty is it fair to say it and then when you constructed that range.
With that uncertainty from your perspective, maybe she did you to being more conservative because there are a number of things that you whether you called it the uncertainty.
Financing rates are.
Probably lower than you would have anticipated and you've done a good job locking in a lot of guidance and that's ongoing and not really.
Related to the near term per se.
Yeah.
Again, Robert I won't be changing the range I think the comments on a fairly clear that our confidence level in terms of of being in that range and again skew towards the upper end of that has improved its how I put that so now what you pointed to is is interest costs and that is saying interest cost has been lower than anticipated.
And initially anticipated so very pleased with that but again, if I look forward to next year thereafter.
I don't have clarity yet on the impacts of COVID-19 in the longer term outlook.
In the second way, we could have a third way again. The uncertainty then you're asking me about a range over that period and the range is still valid, although possibly towards skew towards the upper end.
Understood and I can just finish with your approach to M&A and and obviously right now is focused on on roll ups and wish them being very small it's easy for you just to double leverage down but.
Can you just talk about your corporate approached acquisitions, especially just decide to start doing maybe some larger transactions.
Do you assess the accretion based on actual financing is that kind of your threshold or are you approaching that for me fully finance basis.
Notional common equity issuance for the equity component.
[noise] actions.
Yeah, I think it's a lotta Robert I'm, not a big fan of of high leverage.
We may have the balance sheet that can leverage it, especially on the smaller ones from our from the funding sources.
We still look at it through the lens of financing at long term, especially in the regulated space 60, 60% debt, 40% equity.
And then much between that range.
Right and just have to be immediately accretive or do you have a timeframe that you want to see some crossover into accretion.
Yes, it would need to be immediately accretive.
I've not got a specific timeline in mind, what we find with the smaller ldcs. The construction at that is usually in the first year or so what do you have some integration costs.
It's not accretive, but it's accretive within the second and third year. So that's the that's the model on the smaller ltcs at this point.
The change.
That's great. Thanks, very much appreciate the answers.
Thank you. Our next question comes from Ben Pham with BMO capital. Your line is open.
Okay. Thanks, and good morning, I'm wondering why not on the.
You mentioned, you're not that substantial of lever Chubb, but are you able to quantify a you've done that the holdco debt recently.
What sort of.
Flex or room, you have there if any on a day to take on more holdco debt and I know you get your take out perhaps as well, but as I would assume there's there's also some room on preferred shares to in your capital structure taking into account.
Hi, Ben Chris again look on preferred shares they are not and efficient we would always look at them, but right now they're not an efficient source of capital for hydro one and the main reason for that is that we went out were unable to realize the tax benefits in the near term and that's because of that.
Its deferred tax asset.
So even before we run the DTA case, we still had a significant amount of tax deductions available to hodja. One so it's not as efficient to hide you want to say other entities. So.
So that answers the preferred.
Shake question I would you had some flexibility today, we are a nice 9% regulated business. The regulatory construct is 60% debt, 40% equity and we're going to stay to the other area that we have guided by is.
Is that we will always remain investment grade as far as our credit ratings go so well not pushed the boundaries.
At that point that said, we do have some financial flexibility at the Holdco level, we will look at that as the right opportunities come and like we said we are very focused on growing regulated business. So again I'd expect that to remain in the 60% to 40% equity mentioned.
Okay.
And then.
Sure Nonregulated assets I know you cant get going on that the profit that's I guess a 6.1.
Axon are you able to let's.
Well I think if you grow your non regulated businesses over time, that's our stride here, there's there's ability to use that that profit.
Already back that that tax.
Clarify things or is that that's not available and then an associate questions that was non Reg.
You mentioned a number of scenarios to grow that but is there also a thought process of have grown through M&A.
That portion.
Yes. Thanks.
I think I mean, my first comments gonna be weak today, we are 99% regulated and the majority of it if it's a focus that including competitive transmission and the growth.
In acquisition of LTC. So that's really the primary focuses on even at Investor Day, I said that that 1% unregulated may grow to 5% over time. It will still remain a very small part of the business. So that itself would not be sufficient to absorb those tax deductions that we.
For the Gulf So preferred shares would be still not not an efficient financing vehicle.
Think that's the key point they've been is that look we're going to focus on regulated and then potentially as I said at Investor day, we could get as much as 1% growth added I normally do they business, but it would be immediately adjacent to our regulated business here in Ontario. So a good example of that is our I'd business electric vehicle charging.
Energy management services I did speak about so is there something we can do with our customers that build on the.
The service that we provide to them today. So again I don't expect us to take a large step out and I think thats, where the question is that is not not we're looking we're looking to build on our regulated rate base and the regulated business that we have today.
We find that keeping that efficient and effective will be the best outcome for hydro one and for all Ontario.
All right that's great. Thank you.
Thank you. Our next question comes from Julien Dumoulin Smith with Bank of America. Your line is open.
Okay.
Hey, good morning team, it's actually Dario flaws me on for Julian Thank.
For taking my question.
I wanted to ask briefly about going back to the M&A discussion. If you were to receive a favorable ruling in your deferred tax assets are proceeding, which it sounds like that's that's the direction. Its trending have you considered using the proceeds the cash proceeds there.
Potentially for doing some additional roll up to the LDC.
Hi, guys. Its Chris it is not going to Neville Oh, I'll start and then all let you weigh in on that Christian and thanks welcome to the call. There. It's on your you're right that the deferred tax asset is done we got a a table the ruling from the Ontario Divisional court and are going through.
With the only be in Interveners on on that the timing is duration for for collecting on those costs.
So on on L.D.C., we are open for for a rolling up the Ldcs and I think there's a desire overall and we see a in government and other places because their savings to the rate pairs broadly in Ontario of LDC consolidation. It has been a whole bunch of studies and reports on that until.
So a world will continue to to look at that we do have a competitive advantage on the LDC consolidation, particularly the smaller rural rural ones, where we are we can reduce their operating costs quite significantly because we have assets in equipment and and people.
In those regions surrounding for our our rural operations, which is around to one of those otcs. So so absolutely. We will continue to to talk about we see there's a good opportunity not just for hydro one but for rate payers broadly in consolidating the LDC sector.
Chris.
Hi, there its yeah I think my my title to the.
The imperative to continue with all the consolidation it has not been impacted in terms of pace either faster or slower by the deferred tax asset decision. What I will say independent of that is the deferred tax asset decision does give us increased efficiency and one of the key areas from rating agencies is that if if any to date. So that does include.
Presell financing potential at the Holdco.
Over the long term would still look at 50% to 60% debt to 20% equity. So that's not going to change, but we do have some additional cash flows you say diaries that could fund and acceleration of LDC consolidation, but that hasn't been the limiting factor. The limiting factor is a is a willing seller, we arent willing buyer.
So the more that we can do there to facilitate or encourage consolidation the better so financing is not a limiting factor, but it has helped.
Excellent. Thank you that's very helpful. One more if I may just said I'm looking a little bit further out into the future now as I look at your projected.
Capex slide and I.
I see there's a plan step up in beginning in 23 at both transmission and distribution and I understand that that coincide with when you expect your next series of rate plans to be in play. So I was wondering just if you could comment on your confidence in being able to achieve approval of the somewhat meaningfully higher capex plan in 2000.
Are you going forward relative to the current plant.
Yeah, I'll say this again and Chris can maybe a true at them.
You know when we file though our loss on vacations, we did project.
On [noise].
On our TX, particularly that that we would require additional investments in the 2023 and beyond maybe a couple of significant investments in there like the replacement of our new of our smart meters, which which are an imperative for us to do so we think we have a good case based on or.
The health of their condition of our assets as well as the imperative around some fairly significant investments and things like or am I, which is the smart meter infrastructure.
So we're going through the the the J REIT process right now and the first two phases are our customer engagement to two test scenarios on investments in rate across and not and so far we've had positive feedback from our customers that they recognize and see the need for us invest.
In in our assets to maintain and improve the reliability that system. So as.
As we put together our case for this or we feel confident that that would go in support of our customers and repairs and on to.
Chris.
Thanks, Mike the only thing I would add is that when you look at that the shape of that Capex spend is when you do get a decision on a rate case. So let's take transmission for example, where we had a $400 million adoption.
On $3.8 billion or we can just stop spending the current use and what you find is that those reductions are more skewed to the final year of that rate case. So that does it shows a slight difference between the final year, which is 2022 in the graph you looking at and then the first year of the next rate case, but overall the only be huh.
Familiar with that trajectory over time. So you can see the 2022 is the anomaly in that grass otherwise you would have seen a steady increase or the time, which is has always been part of the business plan and the requirements of the system in Ontario, and mind, you that 70% to 80%.
Of all capital expenditure is deployed to maintain the system.
Okay. That's very helpful. Thank you very much and I'll leave it there.
Thank you. Our next question comes from Linda Ezergailis Gillis with TD Securities. Your line is open.
Thank you.
Congratulations on a strong quarter.
Hi, I'm wondering if you can help us understand with the recent ratifying happier to power Workers' Union agreements and how might that change your cost prospect definitely can you help us understand the nature of any flexibility that these agreements have in terms.
Uh huh.
Job design and outsourcing.
Sure sure and its mark here. So so we we agreed on on base salary or or base wages in line with what we're seeing with other utilities across Ontario, and see a little bit lower than what we're seeing so it does help to.
Start to close that delta between us and the others that the OE b has been pointing to but more importantly, as you point out we we made some good progress with you with the PW on on additional flexibility, which will result in further efficiencies in the company. So some examples of that are spin.
Bigger agreements report are relating to flexibility and hours of work so our ability to to move start and finish times around to align better with the work crew composition. So so the makeup of the crews and and who does what on a on a crew as as well as job duties in contracting.
We also have a new home worker classification for clerical and technical personnel, which includes a 10% wage differentials. So Ah you know the looking forward and and our experience with coal bid.
This gives us the ability to have a more flexible work arrangements in the future, which our employees like.
But it also drives out savings for for the company and and you.
Which we like.
Other things like per diem as Emil you know expenses, we've shifted away from receded meals to set per diem amount, which allows us to better plan and control those expenses.
As well as that increased eligibility for for moving expenses. So why do you need a circle.
Around where where we will pay for people to move.
So there's some some some good good improvements there as well as several diversity and inclusion in this area. So we include in there such as paid leave for indigenous employees on National digital as People's Day, and hiring Hall and region its employment target of 4%.
Which the the union to support above so so I think you know.
Lot of times people focus on what were the wage increases, but there was a lot of other elements that are that were positive for both us and employees.
That's helpful context. Thank you maybe also just stem rounding out the discussion a little bit about your investment opportunities there.
There is in Ontario, and drive for ACA economic stimulus then.
And you know being mindful of a number of moving parts.
Hi, there I'm, just wondering what sort of incremental opportunities.
That are different than your base plan might arise as a result of that.
We've been we've been working with the government and infrastructure, Ontario, as they look at economic recovery coming out of this and investments in infrastructure and and we've identified where additional transmission assets that may be required or accelerating things like Watson can to help with that so.
Oh, so nothing not definitive, but we have been working with them as they as the government looks too to how we're going to recover the budget yesterday included some things, which will help to stimulate that such as the the support that they announced for the business customers, which is commercial and industrial which really.
During the the electricity rates for those types of businesses to below the U.S. average actually so its it helps us to be more and more competitive on the electricity pricing for those companies, which will I believe help with with recovery and growth of the decline.
And those businesses, which is good for us as well as the Ontario.
That's helpful context, Thank you I'll jump back in the queue.
Thank you. Our next question comes from Mark to drive even see RBC capital markets. Your line is open.
Hi, good morning, everyone first.
First question is on the implementation of the tiered pricing.
Versus a difficult time and he is just curious if that changed at all your sensitivity to load variations or weather.
If it was a high adoption.
Yeah. Good question Mark down we don't anticipate because the the rate set for the can discover great care and basically the average and so so whether people will change their behavior and use more or less it's pretty hard to tell at this point the that the purpose of that.
The be giving you now on.
Facility option when it was really important and when we pulled our our customers over 60% of them said they wanted to choose and they want or option on whether they had Tommy usefully or are they on the streets and so we were pleased to see the government do though as far as whether it will drive up load or not it's not it's hard to.
Well at this time.
I was just curious in a quarter like this where piccolo to US you know the higher consumption with hot weather in July and August have hit that would have changed at all in terms of how.
Results for the paradox.
Yeah. It's a good question may be the stepped rates are out were set based on what the average would have been so so we haven't actually done the analysis on what that would have meant treated this so this past quarter and loads were impacted.
A lot there, whether as you know and but there it kind of mass by coal that as well because a lot of people are at home and so whether that will stay that way for for a long period.
It's hard to tell at this point there.
Okay and.
And then but legally they came out a few months ago and indicate they might put behind the meter storage allow that into rate base. Just curious if you guys see that as a meaningful opportunity and maybe how that might dovetail with ongoing efforts with her energy management services efforts.
Yeah, we think that would be a pause or a man and behind the meter storage, where it provides multiple uses or benefits to to the customers and to the system is ideal for us and an example of that is actually we're we're installing a battery storage system in Aero and first nations.
Which we are rate basing and thats to improve the reliability because they're on a long radio line. Yeah. You know. Another example is that that we'd been approved by the we'd be we propose to them were approved for a pilot where we're we're looking at installing not Tesla battery walls behind the meter or two.
Again help with reliability, and <unk> and <unk> and other benefits to the system and and they've allowed us to rate base those for the pilot and so you know I think as we go forward. There is an opportunity for for behind the meter storage to be rate base. When it provides multiple benefits.
The system, such as reliability or power quality.
So just based on those.
Having said that he look forward and think about the next rate application, hey, guys increasingly confident of being.
The plan to put more into your plan there or is it still just sort of a slow steady evolution.
Yeah, just points to slow steady evolution well in in the rate application we have to.
Apply in according to the rules today and again. These are all these are pilots part of the OE read we'd be reform, which I'm pleased with the new leadership, that's come in place and they're starting to move on the recommendations of the of the Disney report of a few years ago. One of those is to look at them down.
We are doing behind the meter in and what the future those looks like.
Weve also hired London economics to look at that time as we're expecting to reports are at the end of November So you.
I think things are going that way, but at this point you know the regulations don't allow for it but there is that recognition that if that is the way to the future.
Thank you once again like how many do you wish to ask a question at this time. Please press Star then one of the Touchstone telephone. Our next question comes from Rob Hope the Scotiabank. Your line is open.
Yes, marni ever.
I want to follow up question just in terms of gun government relations you know just with the announcement and saw need changes and in electricity rates yesterday I just want to confirm that you guys weren't approached on any other alteration that could have impacted your allow our loud ROI or return.
Yeah, Rob there was a there has been no discussion with me in and or or or GR team and government on on those assets changes.
Okay. Thank you and then just a second one when you take a look at a you know how cost have been progressing through 2020, offset a little bit by co but of course, how have your kind of productivity savings plans been altered and through the year are you tracking ahead of schedule below schedule.
You know could we see a good amount of work being done on this front in 2021 as well.
Yeah, like Oh, like Chris that answer that one.
Hello. Thanks for the question I think last quarter, we reported we had a very good quarter, because we had to prioritize a certain work due to safety concerns and that really did help out productivity up this fall to the Shia overall, we're tracking to our long term guidance, where we look to offset inflation. So we're on track.
You know the last four years since the IPO Weve also inflation, we're on track again, it's nothing that 2% right.
So were in line with that could be slightly ahead.
Overall, we see that continuing into the future. So no real change there I think that one of the side effects of Carbonite things you have to do things differently. So we are seeing better use an uptick of technology as Bob talked about our agreement with the Union partners, we will provide further opportunity to again de risk.
Our targets on productivity and potentially exceed them going forward. This year it'll be pretty much in line with prior years.
In terms of the increase in productivity.
All right. Thank you.
Thank you. Our next question comes from Andrew Pesky with Credit Suisse. Your line is open.
Thanks, Good morning that maybe just as it relates to Australia in Peterborough if you could just give us some color and commentary on the.
Experience, thus far and maybe the game plan that you had laid out in my 100 day game plan and where you are in that process.
Yeah, I'll start about the experience so far so after we close we do have a transition plan for both of those and it's about a 12 to 18 month transition plan as we as we integrate our operations are technologies the employees the customers and and.
And so far it's going well and we're on we're on plan for that I attended the kickoff in each in order to deal with the mayor and that and employees are up there and and they were very excited to after a long period to get the transaction completed and moved to the next phases. So integration efforts.
We will continue over the next few quarters, some but we're on we're on plan and on target with what we set out at the beginning right now Andrew.
Okay. Thank you for that and then.
In Waterloo region.
You are helping out with some transmission efforts there I think on a substation could you just maybe give us some color on what.
The intent there is this part of a partnership kind of approach and it's hard to get to know them a bit better for some longer term aspirations any kind of color would be appreciated.
You know Andrew <unk>, we're going to have to get back to you on that one because I'm actually not sure or what your return to their Oh I have to check with my team what were doing in Waterloo.
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Okay and then we do we do work hard work with a lot of save a lot of our LDC partner when they need some help to to work on to map that toward share resources and not being maybe at I'm not I'm not sure Andrew.
Okay. That's fair enough and then one final one and I'm just with General Motors, Canada announcing in a restart intentions menasha walk probably doesn't change anything on the infrastructure side, because a lot of infrastructure is already there, but do you have a view on what that means on just volume.
You know positive I would assume but anyway.
Any preliminary views.
Yeah. We were we were happy and excited to see that filter, Ontario and for US says you're right. There is a lot of infrastructure that was put in there that's down when that loan or went away. So.
Stranded assets. So it's good to see that those will be used again.
So you're right any load increases will be good for us not sure yet on not on what at what level of manufacturing, they're going to be happening, there and what that might need to need to load that we will be looking at that closer.
Okay. That's great. Thank you very much.
Thank you. Our next question comes from you guys how schools with Industrial Alliance. Your line is I think [noise].
Good morning.
My question I, just want to pass on my condolences and my condolences to the family would be our hydro worker passed away [noise].
[noise] sort of an idea.
Moving beyond that yeah.
Probably just a question for Chris [noise].
Given your strong balance sheet.
And I am looking at the redemption of the preferred shares is there any other what I would call financial engineering.
You might consider such as a normal course issuer bid or something like that in time for something that I can think of.
And then we might keep our eye on.
[noise] Hi bus. Thanks for the question and good questions. We've always thought sort of that you know when it makes sense, we would do it again, we that's just one option that we can pay a future opportunities to say no.
A regulated business is a better and more accretive to.
So investors to [noise].
She will be so it's something we'll look at overtime, it's not off the table, but its not in place at this point.
Okay.
That's it for me thanks very much.
Thank you Mike does conclude actually on a session for today I'd like to turn the call back over to Omar jobs. It for any further remarks.
Thank you Chen or the management team at Hydro one thanks, everyone for their time with US. This morning. During what is a busy period are we.
Appreciate your interest and your ownership if.
If you have any questions that weren't addressed on the call. Please feel free to reach out and we'll get them answer for you.
Thank you again and enjoy the rest of your day and continues to be safe. Please.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude todays program you may all disconnect everyone have a great.
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