Q2 2023 Hydro One Limited Earnings Call
Good morning, ladies and gentlemen, and welcome to the Hydro one limited's second quarter 2023 analysts teleconference.
To ask a question. During this session you will need to press star one on your telephone you.
You will then hear it out an automated message advising your hand is raised to withdraw your question. Please press star one again.
The call is being recorded.
I would now like to introduce your host for today's conference Mr. Omar.
This president communications marketing and Investor Relations at Hydro one. Please go ahead.
Good morning, and thank you for joining us and hydro one quarterly earnings call joining us today are president and CEO , David Leadbetter at all.
Our chief financial and regulatory Officer, Chris Lopez.
The call today, we will go over our quarterly results and then spend most of the call answering as many of your questions as time permits.
There are also several slides that illustrate some of the points, we will address in a moment this should be up on the webcast now or if you're dialed into the call. You can also find them on hydro one's website in the Investor Relations section under events and presentations.
Today's discussions will likely touch on estimates and other forward looking information.
You 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 all cause our actual results to differ as they all are part of this call.
I'll turn the call over to our President and CEO David leader.
Thank you Omar and good morning, and thank you for joining us for our second quarter earnings call. This morning, I will provide an update on our recent activities and then Chris will take you through the Q2 financial results.
I'm pleased to report our teams are doing an excellent job in progressing our capital program and have achieved several significant milestones since our last call our investments in modernizing and expanding the grid are playing a pivotal role in accelerating the adoption of sustainable electricity solutions that will contribute to Ontario economic growth.
At the same time, we continue to advance our reconciliation efforts with our first nations partners.
Sure. They also benefit from the expected growth.
Coupled with strong project execution, and our commitment to sustainability.
People planet and community and our focus on delivering unparalleled service to our customers. It is no surprise that we remained the transmitter a choice for the province of Ontario.
Turning to our recent achievements first on July 31, we filed our leave to construct application otherwise known as a section 92 for the Washington transmission line.
As mentioned on last quarter's call phase one of the Washington transmission line is a double circuit 230, kilovolt transmission line from Thunder Bay data Coker, which is expected to be in service by the end of 2025.
Phase two is a single circuit 230 kv transmission line from <unk> to driving.
Would be in service by the end of 2027.
Once again will bring an additional 350 megawatts of electricity to the region, which is more than two times, what it takes to power the city of Thunder Bay by.
I am pleased with the efforts of our teams put forth and the hard work that we're going to get at this point I also want to acknowledge and thank our first nations partners for their support of the application and the project infrastructure investment for both phases of this project is expected to be approximately $1 $2 billion.
Hydro one is proud to co invest with our first nations partners and the entire grid, which had a positive impact on tariffs economy.
Once built the Washington transmission line project will provide northwest, Ontario, clean reliable electricity to meet forecasted energy demands in the region.
Economic growth job creation and mining operation. The project is being built in partnership with nine first nations in the region. We will have the opportunity to invest in the ownership up to 50% of the transmission line component of the project when complete.
Second we broke ground on the chattel by lakes shoreline, which when completed will provide clean electricity to support growth in the agri food and manufacturing industries in southwestern Ontario.
The line will add approximately 400 megawatts of clean electricity into the region, which is enough power to supply a city the size of Windsor.
The $268 million project is expected to be in service by the end of 2025.
Third after a thorough evaluation of several routes we announced the preferred route for the St. Clair transmission line. This transmission line will run from near Sarnia to Chatham with a target completion date of 2028 and.
In addition to technical and cost advantages the preferred route has the least impact the natural environment.
Our diversity indigenous values landowners and agricultural operations, 80% of its review of its existing transmission corridors and upgrades of existing transmission line.
These achievements form a key component of our continued growth and as we look for additional growth opportunities I was pleased to see the province's commitment to economic development and energy transition as presented in their powering Ontario's growth plan.
Plan outlines support for critical transmission infrastructure in the coming years, which will provide hydro one of additional growth opportunities.
As part of the plan the government proposed the prioritization of the regulatory approval process for three transmission lines in north Eastern and Eastern Ontario, Wiesel and ensure these projects can quickly support the rapid demand for growth in the region.
The Ministry also proposed to designate hydro one of the transmitter to undertake the development work and seek all necessary approvals to construct these priority projects.
I have no doubt that the government's confidence hydro one is rooted in our execution track record and ongoing engagement with the first nations communities towards advancing a reconciliation.
None of this progress is possible without the dedicated employees of the hydro <unk> family. Our employees are the heartbeat of our organization and we recognize their invaluable contributions to our success.
I am pleased to report we have reached a tentative settlement for two collective agreements. The main collective agreement and the customer service operations agreement with the power work is union.
These agreements cover employees in frontline and customer facing roles across the company's operations.
I want to thank our respective teams for negotiating in good faith in search of an agreement, which met the needs of employees customers and hydro one three.
With respect to bargaining process between the teams we will not be commenting on the specifics of the agreement until it's been ratified with power workers Union.
Partnering with the society of United Professionals continues with the parties working towards reaching an agreement as is normal dream bargaining, we won't be providing any further comments on this process.
Today, we released our latest sustainability report encompassing three priority areas people planet and community.
These areas reflect our commitment to conducting business responsibly.
Energizing life for all Ontario, while focusing on delivering a sustainable future.
Under people section, we prioritize employee safety health and wellbeing and providing a welcoming inclusive equitable work environment, where every employee can thrive professionally and personally.
Nothing is more important than ensured our people return home safely.
This year, we are on track to match, our lowest ever recordable injury frequency of 0.62 for 200000 hours worked achieved in 2022.
However, we recognize there's more work to do to achieve a workplace tree of life altering injuries and fatalities.
Additionally, we highlight our ongoing efforts to promote diversity equity and inclusion within our organization, we are creating an inclusive workplace where diverse perspectives thrive enable us to one better understand and serve the needs of our varied customer base to innovate and three continue to identify and actualized efficient.
Improvements.
While we continue to exceed our targets for gender diversity, both at the board and executive levels, we have not yet met our commitment to the black North initiative, we continue to remove the biases and barriers in our hiring and selection processes by running educational sessions on Antiblack racism and diversity equity and inclusion foundational training, but we have more work to do.
The planet section of our report outlines our comprehensive approach to environmental stewardship. It outlines the efforts and work that goes into building operating and maintaining the grid that is resilient and can reliably serve the needs of Ontario today and for generations to come.
This grid must be one that is environmentally sustainable and can adapt to future worsening climatic change impacts.
We continue to make progress towards our goal of achieving net zero greenhouse gas or <unk> emissions by 2050, and 30% of ghd reduction by 2030.
Our ghd reduction figures from last year, where rebates to account for new Canadian industry guidelines. As a result, 2021 reduction from a 2018 base here, which was reported last year was recalculated from 9% to 4%.
Using the same guidelines at the end of 2022, we had reduced ghd emissions by 7% compared to 2018.
After a slow start in 2021 due to vehicle availability, we converted 17% of our fleet of Suvs and sedans to electric vehicles or hybrid at the end of 2022, we still expect to convert 50% of our fleet evs or hybrids by 2025 and 100% by 2030.
The community section of our report highlights our dedication to being a responsible corporate citizen. We believe that our success is integrally linked to the wellbeing of the communities we serve.
As such we are deeply invested in various social and philanthropic activities that empower and uplift communities.
Through targeted programs charitable, giving and partnerships, we strive to make a positive and lasting impact on the lives of our customers neighbors and partners.
A significant comp from last year was the launch of the equity partnership model through which first nations communities can invest 50% ownership in the transmission line component hydro on Newbuild transmission line projects that are greater than $100 million.
This unique milestone agreement is industry, leading and a meaningful step towards reconciliation.
I'm also proud to report that in 2022, we exceeded our targets for indigenous procurement with our highest spend ever and also exceeded our targets for corporate donations and sponsorship to indigenous communities.
During the past quarter, we were confronted by storms and wildfires as utilities, serving diverse geographies, we understand the profound impact of severe weather and natural disasters can have on our customers and communities.
While we have not experienced significant impacts from the wildfire response teams are ready to respond to restore power help and bring relief to those affected.
Our dedication to preparedness early warning systems and robust infrastructure investment allows us to respond swiftly and effectively to the challenges posed by these extreme events, we take immense pride in our ability to respond to these types of events to ensure power is restored in a quick and efficient manner for our communities.
Our commitment to disaster management extends beyond just restoring power, we continuously analyze and learn from our experiences refining our protocols to further enhance our disaster response capabilities.
Our goal is not only to minimize disruptions during emergencies, but also to actively contribute to building more resilient communities.
I am proud to share the hydro and received our 14th award from the Edison Electric Institute for our exemplary performance of storm restoration after winter Storm Elliot.
Reflects the dedication and resilience of our employees and the effectiveness of our disaster management protocols as well as the continuous improvements we have made to enhance our responsive capabilities.
In addition, we were once again recognized by corporate Knights as one of the best 50 corporate citizens in Canada for a relentless commitment to sustainability and environmental stewardship. This recognition is a testament to the dedication of our teams in driving our sustainability initiatives and adopting the best practices throughout our operations.
We are humbled and inspired by these accolades. These recognitions are a testament to the collective efforts of our employees partners and stakeholders have contributed significantly to our achievements.
On other matters. It is my pleasure to announce the successful exit of three new board members, Brian value Helga ride Hail and Mitch pass yet following our annual general meeting of shareholders. In early June we believe that an experienced and diverse board is essential to effective corporate governance and strategic decision making.
Our new board members bring a wealth of experience from diverse industries and their appointment further strengthens our company's leadership.
With that I will turn it over to Chris discuss our financial results this quarter over to you Chris.
Good morning, everyone and thank you for joining us today.
I want to acknowledge the substantial progress our teams continue to make in advancing our capital projects to secure a better brighter future for all Ontario.
The filing of the lease construct application for the Washington transmission line was tremendous work that once approved will begin another phase of continued economic growth for northwestern Ontario, Endesa as patients partners I.
I also want to recognize the efforts of our team members who are on the Frontlines and monitoring the wildfire situation very closely.
We're taking proactive measures to safeguard our infrastructure and stand ready to support our customers.
In terms of our financial results for the second quarter basic earnings per share was <unk> 44.
Compared to <unk> 43 in 2022.
The key drivers for the change in earnings this quarter work.
Adjustments to only be approved rates for transmission following the approval of the joint application or J REIT.
Higher energy consumption and distribution and lower depreciation amortization and asset removal costs, primarily due to lower asset removals, resulting from fewer storm related asset replacements.
Partially offset by higher operating maintenance and administration or <unk> costs, primarily resulting from higher corporate support costs and what program expenditures.
And higher financing charges attributable to higher weighted average interest rate on long term and short term debt.
Second quarter revenue net of purchase power was higher year over year by seven 3% transfer.
Transmission revenues increased eight 3%, primarily due to higher revenues, resulting from OSB approved rates, including the recovery of regulatory assets following implementation of the joint application decision.
The recovery of regulatory assets at Allstate, and eliminate income taxes, making them net income neutral.
Higher revenues were partially offset due to a lower average monthly peak demand, which declined by one 2%.
Distribution revenues net of purchase power increased by five 4%, mainly due to high revenues, resulting from the recovery of regulatory assets, which as discussed net income neutral.
And high energy consumption by hydro, one customers, which increased by 0.8%.
On the cost front operating maintenance and administration expenses increased year over year by approximately 17, 5%.
While this increase may seem lives it is driven primarily by.
Either going to be offset later in the year.
Net income neutral.
The largest driver was higher corporate support costs for both segments that were mainly attributable to lower capitalized overhead.
Discussed in last quarter's call. These costs increased as we capitalized common costs and lower rates due to the timing and volume of capital work in relation to the rest of the year.
As a capital program ramps up in the back half of the year, we expect to capitalize common cost at a higher rate substantially offsetting the corporate support cost increases.
First two quarters.
The net impact of both segments was higher expenses associated with the recovery of regulatory assets as discussed earlier net income mutual is that fully recovered in revenues.
In addition to these costs, we had highway program expenditures, including vegetation management station maintenance information technology initiatives and emergency restoration recall that we had higher capitalized storm costs lastly that favorably impacted over time.
Finally.
These eliminate expenses were partially offset by a lower allowance for doubtful accounts stemming from the macroeconomic issues over the past couple of years.
Depreciation expense was lower year over year by four 3%, primarily due to lower asset removal costs, resulting from the fewest formulated asset replacements. As a reminder, we fueled significant storms experienced in the quarter, we saw a lower level of storm cost capitalized compared to the same period a year ago.
Partially offsetting these amounts was an increase in depreciation and amortization due to the growth in capital assets, which is consistent with our stated capital investment program.
On financing, we saw a 21% increase year over year.
Some charges. This is primarily due to higher weighted average interest rates on long term debt and short 10 months. These financing charges are a result of issuances and refinancings over the last few quarters, including the $1 billion and $50 million inaugural issuance of medium term notes in the first quarter under the sustainable financing framework.
Financing of short term notes and the payment of long term debt.
We continue to be pleased with stability of our balance sheet and robust investment grade credit ratings.
Income tax expense was 65 million for the quarter compared to 68 million in the same quarter last year. The decrease in income tax expense was due to high deductible timing differences, partially offset by higher earnings and the tax on the disposition of the regulatory accounts, which as discussed it is net income neutral.
The effective tax rate for the quarter was 19, 6% versus the effective tax rate last year of 29%.
This is consistent with annual guidance provided earlier this year as a reminder, we expect the effective tax rate to be 13% to 16% over the next five years.
Note that the previously shared deferred tax asset with DTA announced with fully recovered by the end of June .
Moving to investing activities in the second quarter, we placed 415 million of assets in service, which is a 24, 5% decrease compared to the prior year.
The decrease in the transmission segment was primarily rate.
Timing of investments placed in service, partially offset by a higher volume of work.
On wood pole replacements.
The decrease in the distribution segment was primarily related to a lower volume of storm related answer the placements, partially offset by a high volume of work on customer connections line Refurbishments and wood pole replacements.
Capital investments for the second quarter were $649 million, which is a 6% increase from the second quarter in 2022.
The transmission segment saw high capital investments relating to the nature of intellectual and once again in transmission line projects and highest station establishment and equipment replacements.
The distribution segment capital investments decreased due to a lower spend on storm related ads placements, partially offset by timing of weapon system capability.
Boston project.
High volume of work on customer connections high volume of externally driven what attributable to joint use assets in line relocations and a higher volume of line Refurbishments and wood pole replacements.
With the recent announcement regarding the filing of the lead to construct deprecation for the Washington transmission line, we have updated the future capital investments table, which outlines the regional and system growth outlook to account for the one 2 billion of expected capital investment in this line.
The cabinet is expected in two phases with phase one expected to be complete by the end of 2025 in phase III to follow by the end of 2027.
As a reminder, the capital investment and rate base numbers for the future years remain subject to OMB approval.
In addition, the table does not include any future investments associated with the three north eastern and Eastern line that David discussed earlier today.
As discussed on our last conference call. We continue to work with Internet service providers to deliver broadband internet access to our existing infrastructure.
We have prepared our ecosystem to handle the anticipated volume quarter on accounts of these initiatives.
The pace of progress on the initiative continues to be slower than expected, but we remain poised and ready to help deliver connectivity to families and businesses in Ontario.
We also continue to engage with local distribution companies or LDC to facilitate consolidation within the sector.
We are in active discussions with different LDC, but at this point there are no definitive agreements.
On guidance, we continue to be committed to and different types of 5% to 7% earnings per share growth through 2027 on a normalized 2020 to EPS of $1 61.
As a reminder, the EPS growth range does not factor in growth from broadband LDC consolidation and the transmission lines that had been previously awarded but only had preliminary estimates or pending approval such as the Washington transmission line as well as any amounts from externally driven variance accounts.
Finally, I am pleased to report that we declared a dividend to common shareholders of $29 64 per share.
I'll stop there and we'd be pleased to take your questions.
Thank you, David and Chris we ask the operator to explain how she'd like to organize the Q&A polling process NK.
In case, we can address your questions today my team and I are always available to respond to follow up questions. We ask that you limit your questions to one question and one follow up.
You have additional questions. Please rejoin the queue.
Go ahead 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 again.
Please standby for your first question.
Okay.
Our first question comes from the line of Ben Pham with BMO. Your line is now open.
Alright, thanks, good morning.
I wanted to start off maybe with that.
Critical infrastructure projects, adding plus again today.
Capex plan can you comment.
Thank you.
Their balance sheets.
Debt financing its next chapter.
For Capex and then.
Impact on.
On guidance and EPS growth rates.
Hi, Ben Chris slightly see thanks for the question.
So I'll start off with the the.
The impact of the financing plan.
This is within previous.
Guidance on financing.
Just recall here that we are partnering with first nations. It doesn't mean, they're going to pick up their share of the equity investments.
Investments as we go along so that would be the first part of the financing we will finance a dream working construction and we'll do that.
But it doesn't change out our ability to finance that theres no need for equity if youre asking me that question.
Result of this announcement today with regard to EPS guidance, we're going to follow general practice, which is.
Updated capital guidance.
Upon filing when it's approved the 692.
We expect to be in the next six months.
We decided at the end of the year or slightly over.
We would then update EPS guidance at that time, if it's coastal what I'll tell you is that we previously put out five to seven this would take us up closer to the top end of that guidance, but we need to go through that guidance before we would change it.
Okay, that's great and can you also comment.
But first nations.
Maybe more specifically the process.
Yes.
And Jackson from them is that more backend weighted.
The construction cycle.
Yes, Ben we.
Handle construction at hydro one and when the asset goes into service as when the first nation would invest with the equity portion of that investment.
It breaks out on this particular project roughly 60%.
Gen, one and 40%.
<unk>.
Is 50 50 on the main component, but there is also additional investments around stations that are hydro mining methods.
Got it okay. Thank you.
Thank you.
Our next question comes from the line of Maurice Choy with RBC capital markets. Your line is now open.
Thanks, and good morning, I just wanted to touch on the LDC consolidation, Chris you mentioned that there are no definitive agreements to announce so far I believe there are tax incentives to where entities.
Back in 2015 that includes the.
The reduction in tax rate for transfers, maybe some capital gains exemption when you exit payments and leave.
Of corporate tax regime.
Given the how these incentives are set to expire at the end of next year do you feel like the service.
It might be more motivated just transact or are these incentives that matter.
Less.
Hi, Chris.
I think the incentives to help I would expect those incentives potentially to be extended as well.
But I will comment just generally on the activity.
So we had the municipal elections last October it did start off a little slow we have seen increased activities.
And discussions with Airbus.
Meredith counsels and LDC themselves around what potential opportunities might be.
So the activity has increased just as I said in my comments no definitive agreements I would expect that the incentives that are available for consolidation will be considered for extension.
<unk> still the right thing for Ontario.
Thanks, and just finish off with.
A more broad question and you obviously you would have seen the federal government put out a vision document yesterday called powering Canada forward.
Any any brought takes that document what it means for Ontario, and even for hydro one.
Hey, good morning mortgage David leave it or I think that document is really a great piece of great announcement, because what it does do is it does show. The government is committed to the 2035 development of a clean electricity system within candidate recognizes the different roles of provinces territories in federal government play in achieving that and it leaves a path.
Forward for the federal government is going to continue to interact with the provincial governments to make this happen and continue to fund the energy transition that is part of the tax base. So good good document pointed us in the right direction and look forward to seeing the clean energy regulations get released later on.
And then maybe just a quick follow up.
Our interpretation that the federal funding.
It's somewhat tied are connected to the provincial.
Climate objectives or <unk>.
Is your view of how.
Itc's may.
May be received unchanged even before.
Before discussing <unk> came out.
Yes, I don't have a view of that at this point mortgage that's something that we're going to have to wait and see what gets announced as we move forward and how the different announcements gets actually implemented.
Makes sense. Thank you very much.
Thank you.
Question comes from the line of Linda <unk> with TD Securities. Your line is now open.
Thank you I have a follow up question with lots of good line would it be possible to break down the $1 2 billion between phases one.
And phases Q.
And will the phase two construction start in 2025 or post 2025.
Hi, Linda it's Chris.
690, <unk> application, but I'll give you a quick rundown.
Phase one is expected to be approximately $700 million and putting service towards the end of 2025, I would expect Penguin and phase two to be going in conjunction there won't be but Scott is exactly the same time, but the work will go on together.
Phase II is 500 million, which is the balance of the one two and we will go in service in 2027.
That's helpful. Thank you and then for the proposed St. Clair transmission line.
<unk> also offered.
Our 50% equity stake.
Can you share kind of would that be also a 60 40 split.
And ditto for the Chatham to Lake Shore transmission line in terms of first nations participation.
Good morning, Linda.
Wine is a little bit different because it depends on the mix of transmission stations that are required the length of the line.
So we're not releasing any information on that at this point in time, you'll have to wait we filed a section 92, which is when the detailed engineering being done we have a final cost estimate and it's broken down between the different aspects of the project.
Okay. Thank.
Thank you and just a quick follow up on your broadband initiatives recognizing that it is ramping up more slowly are you getting more feedback or insights as to what is behind the lag.
And are you rethinking your offering.
Two.
<unk> built some momentum Marc can you give us an update on.
How youre thinking about that.
Let me Youre absolutely correct. It is ramping up slower than we had anticipated but it is starting to pick up we have very good partnerships with the.
The various government ministries involved in this and as well, we're having really good discussions with Internet service providers.
We have collectively eliminated a lot of the issues that were effective eliminate all of the issues that have been brought forward and we continue to look for ways to streamline the project that speed it up so although it hasnt progressed as quickly as we would've liked at this point.
Remain optimistic and committed to delivering it by the end of 2025.
Great. Thank you so much.
Thank you.
Our next question comes from the line of Mark Jarvi with CIBC. Your line is now open.
Hey, good morning, Ron.
Can you just remind us again, what the authorized ROE would be on the transmission lines as they get approved is that based on the existing one in the <unk> or is that every year based on when they get approved.
Our cost of capital parameters.
Hi, Mark.
Yes, it's based on the year.
Yes. It gets approved so it goes into service say phase one for once again will be the prevailing rates.
The application going 2025 subject to providing rates at the end of 2024 that.
That will apply for the phase two you'll be providing rates at the end of 2026, which will apply to 2027.
Got it and then does it then get folded back in when you go back in for the next multi year cycle on the transmission business.
There'll be separate applications because typically.
Cipla agreement so yes.
Yes, likely there'll be five applications and there'll be renewed every five years with the rates.
At the end of that cycle.
And then just as we think about some of the major projects across.
I guess North America faced cost overruns tight labor markets, just whats the process or I guess mechanism. If you do see some cost overruns as labor or any other reasons on those major projects is there a path to full recovery for any additional operating cost just sort of how well protected you are in terms of any cost pressures.
Hey, David.
Fantastic question. So obviously, we're in a deflationary period that we haven't seen for a while we're seeing tight supply of materials, which also creates upward pressure on projects.
Think about let's think about other Washington transmission lines. So you take your section 92, 4% and Theyre going to look at your prudency of your costs are going to say is this a reasonable cost estimate for this project. They would not approve that assuming that you concluded. The reason why they would then prove that as we go through the construction process, we as a construct theyre going to do everything.
We can to live within that budget, where there are reason whether legitimate reasons why we can't live within that budget. We document those we do a very thorough analysis of what else could have been done to prevent that from occurring and then we go back to when the project is finished after it's gone in service and we walked through the actual cost versus the budgeted cost.
And Thats, what <unk> decides if your costs were prudent after the fact, so it really comes down to demonstrating due diligence you've done everything you could to maintain to live within the existing budget and demonstrated at the cost increases are reasonable.
And they are beyond your control.
And that can be done in a fairly timely fashion that you don't have to wait for the next five year rate cycle can be true it up any cost increases no that happens independent after the project is completed and hydro one has a very strong track record I don't believe we've ever had across this allowance.
I see people not in Europe .
Yes, Keith example, mark.
With phase one we will we're going to put it in service in 2025, that's when the actual cost that goes into service will be approved by the rebates. So any.
Change in the estimate will be approved at that point.
Alright, Okay. Thanks, Chris Thanks, Dave.
Thank you.
Reminder, to ask a question at this time. Please press star one one are you touched on telephone.
Our next question comes from the line of Robert Hope with Scotiabank. Your line is now open.
Hi, Good morning, everyone. Just a follow up question on the broadband initiatives. So I appreciate the commentary that it is Brian .
Slower than expected when you take a look at the issues that I'm, sorry could you maybe add a little bit more color on the issues that are slowing it down.
As well as just the difc have a lot going on right now is there a potential that we could see that bleed beyond 2025.
Robert It's David I honestly don't believe this is going to go beyond 2025 of all the government ministries, the Ministry of energy Ministry of infrastructure ourselves.
And the Isps are committed to getting it done by 2025, there is a lot of work that's gone on behind the scenes.
On our part we've streamlined the process for joint use applications. We've stood up a warehouse that's dedicated to just use we purchased inventory of raw materials recognize we need to get that flowing.
Updated the standards to drive consistency across Ontario, we've been working closely with electrical safety authority to make sure. Those standards are aligned and the Isps Internet service providers have been along on the journey. So collectively as we've identified things that could allow the process to move more smoothly or be done more efficiently.
Things have been addressed and knocked off so.
No. One particular issue stands other systems a lot of work that has to get done a lot of process that had to be where a lot of.
Pre upfront work before you can start putting shovels in the ground I feel we're getting as I said, we are seeing that start to ramp up its not as quick as we'd like but we have seen that ramp up and we remain committed to 2025 as do all of the other partners.
Alright excellent.
And then as a follow up you did highlight a number of transmission lines that are not yet in kind of your capital outlook or guidance, how are discussions going with kind of the.
Market authorities in terms of kind of the next tranche of transmission projects and kind of when do you expect to get line of sight on the ones that are not in guidance as of right now plus the next level of transmission projects.
Robert I assume you're referring to the three that were announced and the power of Ontario's growth plan.
Yes.
Great.
Continued a very good discussion with the government on that we support the proposed their proposed approach, which is a comment period to get feedback from all interested.
Vendors all interested proponents I should say, it's going to be outstanding until September eight we're optimistic we will get a designated as a developer for those projects.
But I think the government has taken a very prudent approach to moving forward with this.
Thank you.
Thank you. Our next question comes from the line of Andrew Kuske with Credit Suisse. Your line is now open.
Thanks, Good morning, maybe if we could come back to the municipal consolidations.
<unk> Energy Board.
They're in the midst of launching an evaluation on the policy related to consolidations. So obviously can continue conversations with the munis, but how do you think that plays out for any potential consolidation efforts that you may be engaged in.
Andrew.
That's a really interesting question.
Economic Lee consolidation makes a lot of sense for the province of Ontario, that's well that's been well proven.
Each municipality has their own set of drivers why they might want to engage and actually selling the assets or not selling their assets so and.
In part where you are asking us for us to speculate on what their drivers might be which is really hard to do with the regulatory regime is looking at doing I believe is how can we streamline the process make it efficient upgrade move red tape, so where municipalities are interested in selling their local distribution company and where theres a willing buyer that process because move forward quicker.
Really.
A certain degree of certainty I think thats really what theyre going to be focused on.
Okay. I appreciate that color and then maybe somewhat related to potential consolidation. There is a little bit of just the it spend you had in the quarter you had a little bit of elevation in O. M&A you cited it as being one of those issues.
Obviously, that's something that you can provide scale in our consolidation effort.
Maybe you could just give us a bit of a breakdown how much of a cyber how much was maybe big data related and AI related there helped improve decision making into the future as you scale up the grid and the distribution efforts become.
Our dynamic.
Yes. Good question, Andrew we won't provide specifics on underpinned what I will tell you is the smallest part of that group and put in that order for that reason.
Consistently investing in our it platforms cyber security included.
Which puts us in a good place for consolidation. So we know the only thing you kind of look at cyber security, specifically and how.
LTC is across Ontario will stack up over time, we think we are at the forefront of that and we will continue to invest to do that.
Okay I appreciate the color. Thank you.
Thank you. Our last question comes from the line of Patrick Kenny with National Bank. Your line is now open.
Hey, good morning, just wondering if you could provide us with a bit of a live update on.
The affordability landscape in Ontario, just given what.
We've seen some other provinces other jurisdictions pullback or take a pause on certain infrastructure investments, whether it be TNT or generation.
I know there were big strides made an overall customer builds a few years ago, but just wanted to get your thoughts on how you might be positioned in Ontario relative to other areas.
Yes. Thanks for that question Patrick a couple a couple of thoughts come to mind.
First of all a lot of those other jurisdictions, where <unk> seen pullback is because they had commodity exposure to their natural resort to the resources are using for generating electricity, Ontario didn't experience any of that because larger nuclear followed by hydro and renewable so didn't suffer that same spike up in natural gas prices that you saw elsewhere.
That translated into very high energy costs.
That'd be the first thought I would make about that the provincial government has remained committed to capping the increase on the electricity bills to the rate of inflation and recognizing.
I believe that the energy transition as a multi generational journey that we need to go on and that there is a role for the taxpayer to play in transitioning through that journey. So <unk> seen steadfast commitment from the Ontario government to cap those rates to the rate of inflation and support the residents and businesses of Ontario's would go through this transition and I think what the latest.
Report that came out the pathways powering candidates forward you have seen the federal government step up looking for other options that they can help contribute to finance this transition as well and in fact, you're starting to see other you're starting to see evidence now that once we get through the transition our consumers total energy bill might actually be lower.
Once you're through this adjusted for the rate of inflation. So some really good things starting to come up on the horizon and increasingly you're seeing people talk about the affordability how do we make sure. This moves forward at a pace that's acceptable to consumers and maintains affordability for all consumers.
Okay. That's great. Thanks for that and then maybe just a quick follow up for Chris.
With six months of earnings here under your belt, how the year might be tracking.
With respect to.
The excess earnings portion relative to historical performance.
What that might translate into as it relates to.
Some of your <unk> to debt metric targets relative to rating agencies.
Hi, Pat.
We provided long term guidance, which is that.
5% to 7% to 6% was the Bill just a reminder, when we set that number.
King.
This year, we sit at a 100 basis points over and so we're tracking to that we will achieve our intended goal. This year on that particular point, how it translates to <unk>. If it's always come down a little bit this year really driven by changes in regulatory counts and the other point would be the deferred taxes. So just to.
A reminder, that we completed recovering the deferred tax asset.
Through rates here in June so that was kind of a date approximately $260 million over the last 24 months and.
And that stops hearing J&J youll see <unk> come down a little bit, but there's still plenty of financial flexibility to fund the growth that we've put in this plan.
Thank you very much.
Thank you.
We have one more question from the line of David Quezada with Raymond James Your line is now open.
Thanks, Good morning, everyone. Just one additional one from me I'm just curious it seems like it's been a pretty.
Pretty active season for wildfires, and Ontario, I'm curious if that affects any of your route planning from a transmission perspective and or potentially cost.
Do you see potentially that affects your costs in the future.
Good morning, Raymond So first point I'll make is that it has been a little bit more active fire season, Ontario, then the 10 year average, but certainly nothing like what we've been seeing.
West in BC, and Alberta, more specifically to your question in terms of the impact on our transmission as we entered fire season. There is certainly standard procedures that we do every year make sure being properly trained.
And how to work in fire houses, we make sure that we have the appropriate equipment. We leave all of the different government officials to make sure we understand any concerns they have and then we actively monitor the fire season, and we do adjust our work plans and our work schedule based on the prior conditions in a particular area of the crews are working.
This year, despite the increased fire activity overall, the fire hazard hasnt been that severe that it's had any impact but this is just normal course of business for us we monitor it and we make adjustments.
As per the particular condition so no impact.
Excellent thanks for that.
Thank you.
That does conclude our Q&A session for today.
Like to turn the call back over to Omar Chavez for any further remarks.
Thanks, Shannon the management team at Hydro one thanks, everyone for their time with US. This morning during what is a busy period.
We appreciate your interest and your ownership 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.
Thank you again and enjoy the rest of the day.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect everyone have a great day.
Okay.
[music].
Okay.
Okay.
[music].
Yes.
Okay.
[music].