Q3 2024 Hydro One Ltd Earnings Call

Operator: Good morning, ladies and gentlemen, and welcome to Hydro One Limited's 3rd Quarter 2024 Analyst Teleconference. At this time, all participants are in a listen-only mode.

Okay.

Speaker Change: Good morning, ladies and gentlemen, and welcome to the Hydro one limited's third quarter 2024 analyst teleconference.

At this time all participants are in a listen only mode.

Operator: 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again.

Speaker Change: The speaker's presentation, there will be a question and answer session.

Speaker Change: To ask a question. During this session you will need to press star one on your telephone.

You will then hear an automated message advising your hand this waste.

Speaker Change: Draw. Your question. Please press star one again.

Operator: As a reminder, this call is being recorded.

Speaker Change: As a reminder, this call is being recorded.

Omar Javed: I would now like to introduce your host for today's conference, Mr. Omar Javed, Vice President Investor Relations at Hydro One.

Speaker Change: I'd now like to introduce your host for today's conference Mr. Omar job at Vice President of Investor Relations at Hydro one. Please go ahead.

Omar Javed: Please go ahead. Good morning and thank you for joining us in Hydro One's quarterly earnings call. Joining us today are our President and CEO, David Lebeter, and our Chief Financial and Regulatory Officer, Harry Taylor.

Omar Job: Good morning, and thank you for joining us and hydro one's quarterly earnings call. Joining us today are president and CEO David leader.

Speaker Change: Our chief financial and regulatory Officer, Harry Taylor on.

Omar Javed: On the call today, we will provide an overview of our quarterly results, and then we will take some time answering questions as time permits. Today's discussions will likely touch on estimates and other forward-looking information.

Speaker Change: On the call today, we will provide an overview of our quarterly results and then we will take some time answering questions as time permits.

Speaker Change: These discussions will likely touch on estimates and other forward looking information.

Omar Javed: You should review the cost-sharing 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 as well.

Speaker Change: You should review the cautionary language in today's earnings release and our MD&A.

Speaker Change: Filed this morning regarding the various factors assumptions and risks that could cause our actual results to differ as they all apply to this.

Speaker Change: This call as well.

David Lebeter: With that, I turn the call over to our President and CEO, David Lebeter. Thank you, Omar.

Speaker Change: With that I turn the call over to our President and CEO David Ruberg.

David Lebeter: Good morning, and thank you for joining us for our third quarter 224 Earnings Call.

David Ruberg: Thank you Omar good morning, and thank you for joining us for our third quarter to 24 earnings call I.

David Lebeter: I would like to begin by acknowledging that tomorrow is National Indigenous Veterans Day in Canada, a day to acknowledge and commemorate the contributions and sacrifices made by the First Nations, Inuit, and Métis soldiers who have served our country. Additionally, Remembrance Day is only a few days away. This is a time for us all to collectively remember and honour those who sacrificed and those that continue to sacrifice in serving our country during times of war, conflict, and peace. It's a moment for us to pause and be thankful for the freedoms we enjoy today because of the sacrifices made by others.

Speaker Change: I would like to begin by acknowledging that tomorrow is national indigenous veterans day in Canada, a data acknowledged and commemorate the contributions and sacrifices made by the first nations anyway, Macy's soldiers, who have served our country.

Speaker Change: The member States only a few days away.

Speaker Change: April to collectively remember and honor those who sacrificed and those that continue to sacrifice and serving our country during times of war conflicts and piece.

Speaker Change: It's a moment for us to pause and be thankful with freedoms, we enjoy today because of the sacrifices made by others.

David Lebeter: I also want to take a moment to reflect on the various global conflicts. As events unfold across the world, they can have deep and profound impact on us all. The news of innocent lives lost can be overwhelming. It is important that we support one another during these times. I want to extend my support and sympathy to those who have been affected by these global events.

Speaker Change: I also want to take a moment to reflect on the various global conflicts.

Speaker Change: As events unfold across the world that could have deep and profound impact on our call. The news of innocent life loss can be overwhelming.

Speaker Change: It is important that we support one another during these times what extent my support and sympathy to those who have been affected by these global events.

David Lebeter: Turning to the quarter, this morning I will provide an update on our recent activities, and then Harry will take you through the third quarter financial results. In the spirit of looking after one another, I'm very proud of the Hydro One team who took time away from their families, including over Canadian Thanksgiving, to participate in relief efforts following Hurricane Helen and Milton. Our thoughts and prayers are with our neighbors affected by those catastrophic events. In response, Hydro One sent 150 skilled employees to Georgia and Florida to restore power. We were proud to answer the call during their time of need.

Speaker Change: Turning to the quarter.

Speaker Change: I will provide an update on our recent activities and then Harry will take you through the third quarter financial results.

Speaker Change: In the spirit of looking after one another I'm very proud of the hydro one team, we took time away from their families including over Canadian Thanksgiving to participate in relief efforts following hurricane pellet Milton.

Speaker Change: Thoughts and prayers are with our neighbors affected by those catastrophic events.

Speaker Change: In response, <unk> said 150 skilled employees to Georgia, and Florida to restore power.

Speaker Change: Proud to answer the call during their time of need.

David Lebeter: Time and time again, our teammates demonstrate how Hydro One is always caring for others.

Speaker Change: And time again, our teammates demonstrate our hydro one is always caring for others.

David Lebeter: This commitment to caring was also evident during our annual Power to Give campaign. In the month of September, Hydro One employees demonstrated their generosity and community spirit, donating and contributing more than 4,500 volunteer hours during the month. This is a remarkable achievement that will make a meaningful impact for those in need across our community. I'm incredibly proud of our employees' efforts and generosity, not only in September, but throughout the year. Their commitment to giving back and supporting our communities is a core value of Hydro One's culture and one they embody every day.

Speaker Change: This commitment to care was also evident during our annual power to gift campaign in the month of September hydro unemployed demonstrated their generosity and community spirit.

Speaker Change: Radian and contributed more than 4500 volunteer hours during the month. This is a remarkable achievement that will make a meaningful impact for those in need across our communities.

Speaker Change: I'm incredibly proud of our employees efforts and generosity not only in September but throughout the year their commitment to giving back and supporting our communities is a core value of hydro one culture and one they embody everyday.

David Lebeter: As I've mentioned on prior calls, the demand for electricity in Ontario continues to grow. This is being driven by population growth, energy transition, and new manufacturing capacities such as investments being made by Stellantis. Volkswagen, and Honda. All of this is leading to greater economic growth in the province. Consequently, the Independent Electric System Operator, IESO, recently increased its energy demand forecast through to 2050. The IESO is now estimating a 75% increase in electricity demand over the next 25 years, which is higher than the 60% previously forecast. The IESO estimates new large potential projects such as data centers, commercial sector building electrification, EV production, and its supply chain to contribute to the forecasted increase in demand.

Speaker Change: As I've mentioned on prior calls the demand for electricity Antero continues to growth is being driven by population growth energy transition a new manufacturing capacity such as the investments being made by <unk>.

Speaker Change: Swagger and Honda.

Speaker Change: All of this has lead to greater economic growth in the province.

Speaker Change: Consequently, the independent system, operator, ISO recently increased its energy demand forecast through to 2050 <unk>.

Speaker Change: DSO is now estimated at 75% increase in electricity demand over the next 25 years, which is higher than the 60% previously forecasted.

Speaker Change: Yes, so estimates new large potential projects such as data centers.

Speaker Change: Actual sector building electrification EV production and its supply chain to contribute to the forecasted increase in demand.

David Lebeter: To meet the increased demand for electricity, work in the province is well underway, building more generation, building new transmission lines, integrating new technologies, and expanding energy efficiency programs. Hydro One is part of this growth and continues to play a critical role in meeting the increased demand and supporting the province's electrification goals. Whether it's through our investments in transmission and distribution systems, connecting new generation energy storage solutions, or using new technology in our control systems, we are building a grid to power Ontario's future. Together with industry and Indigenous communities, we will ensure a reliable, resilient, sustainable energy system for our children and grandchildren.

Speaker Change: To meet the increased demand for electricity working the process is well underway building more generation building new transmission lines.

Speaker Change: Creating new technologies, and expanding expanding energy efficiency programs.

Speaker Change: I don't want as part of this growth and continues to play a critical role in meeting the increased demand and supported the province electrification goals.

Speaker Change: Through our investments in transmission and distribution systems connecting new generation energy storage solutions are using new technology and our control systems. We are building a grid to power, Ontario future.

Speaker Change: Together with industry and indigenous communities, we will ensure reliable resilient sustainable energy system for our children and grandchildren.

David Lebeter: I'm happy to report our new transmission projects continue moving forward. During the quarter, Hydro One received approval for the Ministry of Environment, Conservation and Parks on the final environmental assessment report for the Washington transmission line. This approval paves the way for construction activities to commence, allowing for shovels in the ground before year end. The total expected investment in the line will be $1.2 billion and will bring an additional 350 megawatts of electricity to the region to meet current and future energy needs of Ontario's Northwest communities. As a reminder, the line will be completed in two phases.

Speaker Change: I'm happy to report a new transmission projects continue moving forward during the quarter Hydro and received approval from the Ministry of environment Conservation and parks on the final Environmental assessment report for the Washington transmission like this.

Speaker Change: This approved paved the way for construction activities to commence aligns ourselves in the ground before year end.

Speaker Change: The total expected investment aligned to be $1 2 billion and will bring an additional 350 megawatts of electricity in the region to meet current and future energy needs of Ontario's northwest communities as a reminder, <unk>.

David Lebeter: Phase 1 of the project targeted to be in service in 2025 and Phase 2 to be in service in 2027.

Speaker Change: It will be completed in two phases with phase one of the project targeted being served in 2025 and <unk>.

Speaker Change: <unk> to be in service in 2027.

David Lebeter: Our Chatham-to-Lakeshore transmission line project, which began construction in the spring of 2023, remains on track for completion by the end of 2024. Commissioning tests are progressing well, and we expect that the line is fully operational by year-end, completing the project one year ahead of schedule and under budget, as previously disclosed. Once complete, the line will provide clean electricity to support the growth in agri-food and manufacturing industries, as well as a growing population in southwestern Ontario, adding 400 megawatts of clean electricity to the region. We are proud that both the Washington and Chatham-by-Lakeshore transmission lines will be co-owned with Proximate First Nations through Hydro One's equity partnership model.

Speaker Change: Our chat and our Lakeshore transmission line project, which began construction in spring of 2023 remains on track for completion by the end of 2020 for commissioning tests are progressing well and we expect that line fully operational by year end completed the project one year ahead of schedule and under budget as previously disclosed.

Speaker Change: Once complete the line will provide clean electricity to support the growth in the Agri food and manufacturing industries as well as the growing population in southwestern Ontario, adding 400 megawatts of clean electricity through the region.

Speaker Change: We are proud that both the Washington, and Chatham by links to our transmission lines to be co owned with approximate first nations through hydro as equity partnership model.

David Lebeter: We are also pleased to report significant progress in our regulatory efforts. Settlements in principle have been reached for three five-year revenue requirement applications for three of our transmission partnerships, including the Bruce DeMille Limited Partnership. The Niagara Reinforcement Limited Partnership. and the Chatham-by-Lakeshore Limited Partnership. On October 21st, 2024, in collaboration with parties for the Settlement Conferences, Hydro One filed settlement agreements with the Ontario Energy Board, or OEB, for the Brewston-Milton Limited Partnership and the Niagara Reinforcement Limited Partnership. These agreements outlined total revenue requirements of $193 million for Brewston-Milton and $45 million for the Niagara Reinforcement over the 5-year period.

Speaker Change: We are also pleased to report significant progress on our regulatory efforts settlement in principle has been reached where three five year revenue requirement applications for three of our transmission partnerships, including the Bruce to Milton Limited partnership.

Speaker Change: The Niagara reinforcement limited partnership.

Speaker Change: And the channel by Lake Shore Limited partnership.

Speaker Change: On October 21, 2024, and collaboration with parties for settlement conferences Hydro one filed settlement agreements with the Ontario Energy Board or <unk> for Bruce to Milton Limited partnership and in aggregate unfortunate led approach partnerships. These agreements outlined total revenue requirements of $193 million for Bruce to Milton and $45 million for them.

Speaker Change: Mega reinforcement over the five year period. The settlement proposal is accepted the ratemaking framework proposed by the partnerships, including a modest 3% reduction in proposed <unk> expenses over the period and an additional one 5% stretch factor.

David Lebeter: The settlement proposals accepted the rate-making framework proposed by the partnerships, including a modest 3% reduction in proposed OM&A expenses over the period, and an additional 0.15% stretch factor. With respect to the Channel by Lakeshore Limited partnership, Hydro One has reached a settlement agreement of principle and expects to file this proposal with the OEB shortly. These settlement proposals support investment in our infrastructure to maintain a safe and reliable system that meets our customers' needs and highlights the constructive regulatory framework in Ontario. These achievements mark significant success for Hydro One and our First Nations partners. Once approved, the proposed settlements will provide revenues and cost certainty for the projects from 2025 to 2029.

Speaker Change: With respect to the chatter by Lakeshore Limited partnership Hydro one has reached the settlement agreement in principle and expect to file this proposed with the AAV shortly.

Speaker Change: These settlement proposal support investment in our infrastructure to maintain a safe and reliable system that meets our customers needs and highlights a constructive regulatory framework, Ontario.

Speaker Change: These achievements marked significant success hydro one and our first nations partners.

Speaker Change: Once approved the proposed settlement will provide revenue and cost certainty for the project from 2025% to 2029.

David Lebeter: Final approvals from the OAB are expected by year-end.

Speaker Change: Final approvals from the OMB are expected by year end.

David Lebeter: Separately, in late October, the OAB released the cost of capital parameter for 2025, the deemed ROE was formulaically updated to 9.25%, will be the applicable rate for these settlement agreements. The rate will remain fixed the duration of the rate period.

Speaker Change: Separately <unk>.

Speaker Change: October the Iab released the cost of capital parameters for 2025.

Speaker Change: Deemed ROE was formula formulae updated to 925% will be the applicable rate for these settlement agreements the rate will remain fixed the duration of the rate period.

David Lebeter: In other news, I'm pleased that our good work and collective efforts continue to be recognized by others. We were recently named one of Canada's most responsible companies for 2025 by Newsweek. The list recognizes companies across 13 industries for their commitment to climate, social welfare, and responsible governance. This award reflects the hard work and dedication of our entire team to positively impact our communities and the environment. Hydro One is dedicated to responsible business practices that balance sustainability, social responsibility, and governance. We take a holistic view of corporate responsibility that considers how these topics are incorporated deeply into our business.

Speaker Change: In other news I am pleased that our good work and collective efforts continue to be recognized by others were recently named one of Canada's most responsible companies for 2025 by Newsweek.

Speaker Change: This recognizes companies across 13 industries for their commitment to climate, social welfare and responsible governance.

Speaker Change: It reflects the hard work and dedication of our entire team to positively impact our communities and the environment.

Speaker Change: I don't want is dedicated to responsible business practices that balance sustainability, social responsibility and governance, we take a holistic view of corporate responsibility to consider all of these topics are appropriate it deeply into our business sure actions hydro and strive to be responsible corporate citizens contributing to a better future for all Canadians.

David Lebeter: Through our actions, Hydro One strives to be a responsible corporate citizen, contributing to a better future for all Canadians.

David Lebeter: We are also honoured to receive the Powerline Safety Award from the Electrical Safety Authority in recognition of our role in enabling the safe delivery of very large pieces of equipment to a brewery in southwestern Ontario. In collaboration with our partners, Hydro One raised and lowered conductors along a 117-kilometer route, allowing for the safe movement of the equipment while minimizing the impact on customers. This award is a testament to the power of partnership and our collective efforts to achieve an objective without compromising safety.

Speaker Change: We were also honored to receive the Powerline Safety award for electrical safety authority and recognition of our role in enabling the safe delivery of very large piece of equipment to a brewery in southwestern Ontario and.

Speaker Change: In collaboration with our partners hydro and raised and lowered conductors logged 117 kilometer route allowing for the safe movement of the equipment, while minimizing the impact on customers.

Speaker Change: This award is a testament to the power partnership and our collective efforts to achieve an objective without compromising safety.

David Lebeter: With that, I will turn it over to Harry to discuss our financial results.

Speaker Change: With that I will turn the call over to Harry to discuss our financial results Terry over to you.

Harry Taylor: Harry, over to you. Thank you, David. It certainly is an exciting time in the province and Hydro One is well positioned to contribute to the energy transition and electrification initiatives underway to meet the needs of all Ontario residents and businesses. Turning to our third quarter financial results, we delivered basic earnings per share of $0.62 compared to $0.60 in the third quarter of 2023. The key drivers behind the year-over-year change included higher revenues, net of purchased power, partially offset by higher income tax expense, primarily due to unfavorable timing differences compared to last year, and higher pre-tax earnings.

Terry: Thank you David It certainly is an exciting time in the province, and Hydro one is well positioned to contribute to the energy transition and electrification initiatives underway to meet the needs of all Ontario residents and businesses.

Speaker Change: Turning to our third quarter financial results, we delivered basic earnings per share of <unk> 62 cents compared to <unk> 60 in the third quarter of 2023.

Speaker Change: The key drivers behind the year over year change included higher revenues net of purchased power.

Speaker Change: Partially offset by higher income tax expense, primarily due to unfavorable timing differences compared to last year and higher pre tax earnings.

Harry Taylor: higher depreciation and amortization and asset removal costs, as well as higher interest expense. As a reminder, both the transmission and distribution segments had net income neutral items in revenue that include normal course regulatory adjustments, such as OEB approved recovery of historical cost deferral. There are corresponding offsets for these items in the tax expense and in OM&A, thus making them net income neutral. Our third quarter revenue, net of purchase power, increased year over year by 6%. Transmission revenues increased by 5.7%, primarily due to changes in OEB approved rates for 2024 and higher average monthly peak demand.

Speaker Change: Higher depreciation and amortization and asset removal costs as well as higher interest expense.

Speaker Change: As a reminder, both the transmission and distribution segment had net income neutral items in revenue that include normal course regulatory adjustments such as OLED approved recovery of historical cost deferrals, there are corresponding offsets.

Speaker Change: For these items in the tax experiments and in ome, thus, making them net income neutral.

Speaker Change: Our third quarter revenue net of purchased power increased year over year by 6%.

Speaker Change: <unk> mission revenues increased by five 7%, primarily due to changes in OSB approved rates for 2024 and higher average monthly peak demand.

Harry Taylor: These were partially offset by the revenue impact of the net income neutral items mentioned earlier. Distribution revenues net of purchased power increased by 6.1% year over year, due to changes in OEB approved rates for 24, higher energy consumption, and a higher number of customers. On the cost front, operating maintenance and administration expenses in the quarter were essentially unchanged year over year, increasing slightly by 0.3%. In the transmission segment, costs were higher by 1.8% mainly due to higher work program expenditures attributable to stations, lines maintenance and vegetation management. In addition, we also had some net income neutral items that were offset in revenue.

Speaker Change: These were partially offset by the revenue impact of the net income neutral items mentioned earlier.

Speaker Change: Distribution revenues net of purchased power increased by six 1% year over year due to changes in OSB approved rates for 24 higher energy consumption.

Speaker Change: A higher number of customers.

Speaker Change: On the cost front operating maintenance and administration expenses in the quarter were essentially unchanged year over year, increasing slightly by 0.3%.

Speaker Change: In the transmission segment costs were higher by one 8%, mainly due to higher work program expenditures attributable to stations lines maintenance and vegetation management.

Speaker Change: In addition, we also had some net income neutral items that were offset in revenue.

Harry Taylor: In the distribution segment, costs were lower by 4.3%, mainly due to lower corporate support costs and regulatory adjustments, partially offset by higher work program expenditures, mainly attributable to customer programs and emergency power restoration. Depreciation expense for the third quarter was higher year over year by 6%. This was due to the growth in capital assets and higher asset removal costs, partially offset by lower amortization of regulatory assets. Regarding financing, we saw a 10.5% increase in interest expense year over year, mainly due to a higher weighted average interest rate on our long term debt, and more long term debt resulting from issuances in the second half of 2023 and year to date this year.

Speaker Change: In the distribution segment costs were lower by four 3%, mainly due to lower corporate support costs and regulatory adjustments, partially offset by higher work program expenditures, mainly attributable to customer programs and emergency power restoration.

Speaker Change: Depreciation expense for the third quarter was higher year over year by 6%.

Speaker Change: This was due to the growth in capital assets and higher asset removal costs, partially offset by lower amortization of regulatory assets.

Speaker Change: Regarding financing, we saw 10, 5% increase in interest expense year over year, mainly due to a higher weighted average interest rate on our long term debt and a more long term debt, resulting from issuances in the second half of 2023 and year to date.

Harry Taylor: These charges were partially offset by a lower average volume of short-term notes outstanding and higher capitalized interest due to a higher average balance of assets under construction. During the quarter, Hydro One issued $1.2 billion of medium-term note This consisted of $700 million of 4.25% notes due in 2035, and an additional $500 million of 4.85% notes due in 2054. The issuance was completed under our sustainable financing framework. One of our differentiating factors is the strength and stability of our balance sheet, along with our creditworthiness, both of which we are happy to report remain robust. Our current FFO to debt metric, which is a good proxy for creditworthiness, remains well above the threshold limits the credit rating agencies use to qualify our credit rating.

Speaker Change: This year.

Speaker Change: These charges were partially offset by a lower average volume of short term notes outstanding and higher capitalized interest due to a higher average balance of assets under construction.

Speaker Change: During the quarter Hydro one issued $1 $2 billion of medium term notes.

Speaker Change: This consisted of $700 million up 4% to 5% notes due in 2035.

Speaker Change: Additional $500 million of 485% notes due in 2054.

Speaker Change: The issuance was completed under our sustainable financing framework.

Speaker Change: One of our differentiating factors is the strength and stability of our balance sheet, along with our credit worthiness, both of which we are happy to report remained robust.

Speaker Change: Our current <unk> to debt metric, which is a good proxy for creditworthiness remains well above the threshold limits the credit rating agencies use to qualify our credit rating.

Harry Taylor: Turning to taxes. Our income tax expense in the quarter was $56 million, compared to $36 million in the same quarter last year. Contributing to the increase were unfavorable timing differences compared to last year. As a reminder, we put several information technology initiatives in service in the third quarter last year that qualified for 100% capital cost allowance. This year, we also had higher adjusted pre-tax earnings, and these were partially offset by the impact of the net income neutral items discussed earlier. The effective tax rate this quarter was 13% versus an effective tax rate last year of 9.1%.

Speaker Change: Turning to taxes.

Speaker Change: Our income our income tax expense in the quarter was $56 million compared to $36 million in the same quarter last year.

Speaker Change: Contributing to the increase were unfavorable timing differences compared to last year. As a reminder, we put several information technology initiatives in service in the third quarter last year, they qualified for 100% capital cost allowance.

Speaker Change: This year, we also had higher adjusted pretax earnings and these were partially offset by the impact of the net income neutral items discussed earlier.

Speaker Change: The effective tax rate this quarter was 13% versus an effective tax rate last year of nine 1%.

Harry Taylor: The effective tax rate for nine months was 14.5% compared to a rate of 15.3% last year, which included the deferred tax asset recovery through June 30 2023. The current rate is consistent with our effective tax rate expectations of 13 to 16% for the remainder of the JRAP period.

Speaker Change: The effective tax rate for nine months was 14, 5% compared to a rate of 15, 3% last year, which included the deferred tax asset recovery through June 32023.

Speaker Change: The current rate is consistent with our effective tax rate expectations up 13% to 16% for the remainder of the J wrap period.

Harry Taylor: Moving to our investing activities in the third quarter, we placed $597 million of assets in service for our customers, which was a decrease of 14.6% compared to the prior year. In the transmission segment, we saw a decrease of 2.4% year over year, primarily due to a lower volume of line refurbishments and the timing of assets placed in service for information technology initiatives. These are partially offset by an increase in assets placed in service for grid operating and control facilities, as well as the timing of investments placed in service for customer driven work. In the distribution segment, in-service additions decreased by 22.9% from the prior year due to the timing of investments placed in service for information technology initiatives and the timing of assets placed in service for system capability reinforcement projects.

Speaker Change: Moving to our investing activities in the third quarter, we placed $597 million of assets in service for our customers, which was a decrease of 14, 6% compared to the prior year.

Speaker Change: In the transmission segment, we saw a decrease of two 4% year over year, primarily due to a lower volume of line Refurbishments and the timing of assets placed in service for our information technology initiatives.

Speaker Change: These are partially offset by an increase in assets placed in service for grid operating and control facilities as well as the timing of investments placed in service for customer driven work.

Speaker Change: In the distribution segment in service additions decreased by 22, 9% from the prior year due to the timing of investments placed in service for information technology initiatives and the timing of assets placed in service for system capability reinforcement projects.

Harry Taylor: These were partially offset by a higher spend on customer connections and a higher volume of wood pole replacement. In terms of our capital expenditures for the third quarter, we invested $773 million, which was an increase of 21.2% over 2023. The increase occurred in both the transmission and distribution segments, resulting from higher investments in new transmission and distribution infrastructure, increased customer connections, and a higher volume of line refurbishments and wood pole replacement. They were partially offset by a lower spend on information technology initiatives.

Speaker Change: These were partially offset by higher spend on customer connections and a higher volume of wood pole replacements.

Speaker Change: In terms of our capital expenditures for the third quarter, we invested $773 million, which was an increase of 21, 2% over 2023.

Speaker Change: The increase occurred in both the transmission and distribution segments, resulting from higher investments in new transmission and distribution infrastructure increased customer connections and a higher volume of line Refurbishments and wood pole replacements.

Speaker Change: They were partially offset by a lower spend on information technology initiatives.

Harry Taylor: Turning to broadband, we were very pleased with the Ministry of Infrastructure's announcement last week to provide subsidies to internet service providers for work associated with designated broadband projects. The $400 million program is intended to provide financial support to ISPs to carry out their work and deliver high-speed internet access to rural communities. While it is too early to comment on the impact of this program on our magnitude of work, we are hopeful this move will advance the pace of order. Our expectation of the magnitude of work remains between $300 million and $700 million of incremental rate base in the distribution segment.

Speaker Change: Turning to broadband we were very pleased with the ministry of infrastructure as announcement last week to provide subsidies to internet service providers for work associated with designated broadband projects.

Speaker Change: The $400 million program is intended to provide financial support to Isps to carry out their work and deliver high speed Internet access to rural communities.

Speaker Change: While it is too early to comment on the impact of this program on our magnitude of work. We are hopeful this move will advance the pace of orders.

Speaker Change: Our expectation of the magnitude of work remains between $300 million and $700 million of incremental rate base in the distribution segment.

Harry Taylor: As a reminder, this is not included in our capital investment projections, nor in our earnings guidance at this point.

Speaker Change: As a reminder, this is not included in our capital investment projections, nor in our earnings guidance at this point.

Harry Taylor: With respect to LDC consolidation, we continue to be active in engaging with local distribution companies and their respective municipalities to facilitate further consolidation within the sector. We are committed to being disciplined in our process. And as such, we will not pursue opportunities that do not meet our stringent investment criteria.

Speaker Change: With respect to LDC consolidation, we continue to be active in engaging with local distribution companies and their respective municipalities to facilitate further consolidation within the sector.

Speaker Change: We are committed to being disciplined in our process and as such we will not pursue opportunities that do not meet our stringent investment criteria.

Harry Taylor: Looking ahead, we maintain our guidance of five to 7% compound annual growth for earnings per share for the 2023 to 2027 period using the normalized 2022 earnings per share of $1.61 as a base.

Speaker Change: Looking ahead, we maintain our guidance of 5% to 7% compound annual growth for our earnings per share for the 2023 to 2027 period using the normalized 2022 earnings per share of $1 61 as a base.

Harry Taylor: Finally, I am pleased to report that our board of directors declared a dividend of 31.42 cents per share payable to common shareholders of record on December 11, 2024.

Speaker Change: Finally, I am pleased to report that our board of directors declared a dividend of 30 142 cents per share payable to common shareholders of record on December 11, 2024.

Omar Javed: With that, we'll open the phone lines and be pleased to take questions. Thank you, David and Harry.

Speaker Change: With that we'll open the phone lines and be pleased to take questions.

Operator: We asked the operator explain how they would like to organize the Q&A polling process.

Speaker Change: Thank you David and Harry.

Speaker Change: We ask that the operator explain how they would like to organize the Q&A polling process.

Omar Javed: In case we can't get to your questions today, my team and I are always available to respond to follow up questions. We ask that you limit your question to one question and one follow up.

Operator: If you have additional questions, we request you to rejoin the Please go ahead. Thank you.

Operator: As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Operator: Please stand by while we compile the Q&A roster.

Jessica Hoyle: Our first question comes from the line of Jessica Hoyle with Scotiabank. Your line is now open. Morning, thanks so much for taking my questions. So just to start, just given the higher demand forecast out of the ISO, can you talk a little bit more about what you see in terms of incremental transmission opportunities moving forward?

David Lebeter: Morning Jessica, David Lebeter here. We've been working with the ISO on their forecast and we have identified areas where there are capacity constraints in the province that we anticipate will be addressed moving forward. The next phase now the ISO has updated their forecasted growth is to go back to their planning and update their planning. We expect to see something from that early next year.

Henry Taylor: Great, thanks so much. And then just how are you thinking about the supply chain and inflation risks, given this increasing demand for electricity, not only in Ontario, but also just across the continent?

Henry Taylor: Hi, Jessica, it's Henry Taylor. We have a procurement team that has been well out in front coming out of the pandemic in writing contracts with our vendors, our vendor partners, and anticipating supply chain issues, securing supply with pricing based on indices, etc. So I would say there really isn't any new news. Supply chain issues have been with us for a while, and for all our significant vendors and requirements in terms of materials, we have long-term contracts with multiple vendors to ensure we've got adequate supply, and at the same time ensure our pricing is certainly market-based, if not better.

Jessica Hoyle: Appreciate the color.

Jessica Hoyle: Thank you.

Mark Jarvi: Our next question comes from the line of Mark Jarvi with CIBC. Your line is now open. Yeah, good morning, everyone.

Mark Jarvi: Maybe just on the government support for broadband, at what point will you have clarity? And then do you think the dollar value that's been put forward is enough to maybe bring you up to the top end of the 300 to 700 million rate-based growth for your side of the equation?

Harry Taylor: Hey, Mark, it's Harry here, Harry Taylor. It's too early to determine whether we're at the bottom end or the top end of the range. I know it's a wide range. We are certainly very welcoming of the incentive. Do expect that it will break the logjam in terms of orders and applications that we see. Candidly, if this doesn't, I don't know what would. But at this point, we just haven't, it was just announced last week, we haven't seen the uptick yet. So it's tough to try to put a pin in a wide range at this point.

Speaker Change: We are certainly very.

Speaker Change: Welcoming of the incentives do you expect that it will break the logjam in terms of orders and the applications that we see.

Speaker Change: Candidly if this doesn't I don't know what word.

Speaker Change: But at this point, we just haven't it was just announced last week, we haven't seen the uptick yet so it's tough to try to put a PMA in a wide range at this point, we will update as and when we see the trend develop and try to narrow the range as best we can obviously, we'd like it to be at the top end.

Harry Taylor: We will update as and when we see the trend develop and try to narrow the range as best we can. Obviously, we'd like it to be at the top end to serve Ontarians and put it into our rate base, but it is subject to the applications from the ISPs.

Speaker Change: To serve Ontario, and put it into a rate base, but it is subject to the applications from the Isps.

Mark Jarvi: Understood. And then, David, just follow up your comments about interactions with the IESO around, you know, ultimately, transmission, planning, demand. The government is also pretty vocal about being sort of an energy exporter. What conversations are you having around that in terms of transmission, interconnects, a role for Hydro One to play if we are sending more power south?

Speaker Change: And then David just follow up your comments about interactions with the <unk>.

Speaker Change: So around ultimately transmission planning demand.

Speaker Change: The government also pretty vocal about being sort of an energy exporter.

Speaker Change: What conversations are you having around that in terms of transmission Eric connects a role for hydro one to play if we are sitting more power south.

David Lebeter: Good morning, Mark, and thanks for the question.

Speaker Change: Hey, good morning, Mark and thanks for the question. It's a really interesting question Theres a lot going on so the first the first half of the government has said, we're going to become energy self sufficient and we're going to be able to address the growth that we see in the province that'll be the 75%.

David Lebeter: That's a really interesting question. There's a lot going on.

David Lebeter: So the first, the first task, the government said, we're going to become energy self-sufficient, and we're going to be able to address the growth that we see in the province. That'll be the 75%, or 70% increase, 75% increase. Second goal, they said, is to keep it affordable. And that's where the export comes in. If you're going to build out an energy system, you're going to want to make sure that you err on the side of having a bit more than you need, because being short is a real problem. And so you want to have access to export markets.

Speaker Change: <unk>, 7% increase 35% increase second goal, we've set is to keep it affordable and Thats, where the export comes in if youre going to build out an energy system.

Speaker Change: Want to make sure that you are on the side of having a bit more than you need because of being short as a real problem and so you won't have access to export markets. We've worked with both the ISO and the government to identify one constraints as I pointed out earlier, where additional flow or ties would be required going south or going to Easter west as well because we can move power in three different.

David Lebeter: We've worked with both the ISO and the government to identify one constraint, as I pointed out earlier, where additional flow or ties would be required going south, or going east or west as well, because we can move power in three different directions. It doesn't all have to go south, as well as where they are thinking about citing the additional generation. That opens up opportunities.

Speaker Change: Direction does it all have to go so as well as where they are thinking about citing the additional generation that opens up opportunities. So what I would expect to see in the coming.

David Lebeter: And so what I would expect to see in the coming next year, as the government announces more details on what becoming an energy superpower means, where the generation is going to come from, additional build-out in the transmission going beyond 2030. So this will probably be mid-2030s to late 2030s, particularly if it's nuclear. Does that answer your question, Mark?

Speaker Change: Next year as the government announces more details on what kind of an energy superpower means where the generation is going to come from additional buildup in the transmission going beyond 2030. This appropriately mid 2000 <unk> to late 2000 32 billion 2030 are particularly if its nuclear.

David Lebeter: Yeah, nope. And then your view would be that you still would be sort of the transmitter of choice and the scale of these projects would be something that you think you would have sort of first right to look at? Yeah, absolutely. I mean, that's going to be our opening position. We believe we're the best suited to manage these projects and build them. We've demonstrated that with our Chatham-by-Lakeshore coming in early and under budget. We've demonstrated that with the Wasagan transmission line, but how quickly we've moved into construction where we hit shovels in the ground this year.

Speaker Change: That answer your question Marc.

Speaker Change: Yes, and then your view would be that you still would be sort of the transmitter choice and the scale of these projects would be something that you think you would have.

Speaker Change: Sort of first right to look at.

Speaker Change: Yeah, absolutely I mean, thats going to be our opening position. We believe we are the best suited to manage these projects and build them, we've demonstrated that with our Chatham by linked shortcoming in.

Speaker Change: Early and under budget, we've demonstrated that with the work the good transmission line, but how quickly moved into construction rates shovels in the ground. This year and we have a strong relationship with the indigenous communities our partners as well as with government.

David Lebeter: We have a strong relationship with the Indigenous communities, our partners, as well as with government. Government ultimately gets to make the decision, as you saw with the Walla Walla Porcupine. They did put a competitive process, but I think they're going to find and at the end of the day, they did award that to us. So obviously, they're seeing the value we bring to these lines. So that's our hope that we get designated. But if that isn't the case, we're certainly confident in our ability to compete.

Speaker Change: Government ultimately gets to make the decision as you start up a warlord of Porcupine. They did put a competitive process, but I think they're going to find and then at the end of the day. They did award that just so obviously they are seeing the value we bring to these lines. So that's our hope that we get designated but that isn't the case, we're certainly confident in our ability to compete.

Mark Jarvi: Okay, thanks for the time this morning. I appreciate it. Thank you.

Speaker Change: Okay. Thanks for the time I swear I appreciate it.

Operator: As a reminder, to ask a question at this time, please press star 11 on your touchtone telephone.

Speaker Change: Thank you as a reminder to ask a question at this time. Please press star one one oriented stone telephone. Our next question comes from the line of Maurice Choy with RBC capital markets. Your line is now open.

Maurice Choy: Our next question comes from the line of Maurice Choy with RBC Capital Markets. Your line is now open. Thanks and good morning. Maybe just a quick follow-up on the Wild, Wild 2 Porcupine. You said they did award that to you. I think they proposed to designate you as the transmitter of choice, but has that been awarded, and if not, any reason why the delay?

Maurice Choy: Thanks, and good morning, maybe just a quick follow up on the Wawa Porcupine you said that did award got to you.

Speaker Change: I think the designated proposed to designate year to transmit choice but.

Speaker Change: Has that been awarded.

Speaker Change: Not any reason why the delay.

David Lebeter: Good morning, Maurice. It was designated to us, then they had a consultative process for 45 days where the award was open for discussion and comment. That ended a couple months ago. I'm still confident that we will get the final letter designating that project to us so we can get moving forward on it. They're just taking this time to make sure they reviewed all the comments and provided back comments to everybody involved. But it's, in my opinion, unlikely they're going to change their designation. So we're very confident that we will hear some positive news on that later on this year.

Morris: Good morning Morris.

Speaker Change: Was designated to us than they had a console to consolidated consultative process for 45 days, where the award was opened for discussion and comment that ended a couple months ago.

Speaker Change: I'm still confident that we will get the final letter designating that project us. So we can get moving forward on it Theyre just taken this time to make sure. They reviewed all the comments and provided back comment everybody involved but some in my opinion unlikely theyre going to change the designation. So we're very confident that we will hear some positive news on that later on this year.

David Lebeter: And just to finish up on your comments about the Ontario government and their vision for the province's energy future. So they are obviously looking to launch their first integrated energy resource plan next year, as you mentioned. thoughts on what would actually be different. meaningfully different from what is being done today and what that Building on the comments of an integrated plan means they're going to look at bringing gas and electricity together so you can build out the system in the most rational way, provide certainty to the gas companies as well as the electricity companies. I would expect, given that they want to become an energy superpower, to be a long term vision.

Speaker Change: Thanks, and then just to finish up on your comments about the entire government and their patient four provinces LNG future. So.

Speaker Change: They are obviously looking to launch their first integrated energy resource plan next year as you mentioned.

Speaker Change: Thoughts on what would actually be different meaningfully different from what is being done today and what that means for you.

Speaker Change: Building on the comments of integrated planning means theyre going to look at taking every bring gas and electricity together. So you can build out the system and the most rational way.

Speaker Change: It provides certainty to the gas companies as well as the electricity companies I would expect given that they want to become a energy too proud to be a long term vision, so rather than the isos current process, which is looking at it a couple of years I would expect this to be a five to 15 year outlook. So you can actually track a trajectory and start making investments.

David Lebeter: So rather than the ISO's current process, which is looking out at a couple of years, I would expect this to be a 5 to 15 year outlook so you can actually track a trajectory and start making investments.

Maurice Choy: Thank you very much.

Operator: Thank you. And that does conclude our Q&A session for today.

Omar Javed: I'd like to turn the call back over to Omar Javed for any further remarks.

Omar Javed: Thank you, 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 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.

Omar Javed: 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.