Hydro One Stock

Good morning, ladies and gentlemen, and welcome to Hydro One Limited's Second Quarter 2026 Analyst Teleconference. [Operator Instructions] As a reminder, the call is being recorded.

I would now like to introduce your host for today's conference, Mr. Wassem Khalil, Director of Investor Relations at Hydro One. Please go ahead.

Good morning, and thank you for joining us for our quarterly earnings call. Joining me on the call today are our new President and CEO, Megan Telford; and our Chief Financial and Regulatory Officer, Harry Taylor.

On the call today, we'll provide an overview of our quarterly results, and then we'll answer as many questions as time permits during our question-and-answer session. As a reminder, today's discussion will likely touch on estimates and other forward-looking information. Listeners should review the cautionary language in today's earnings release and our MD&A, which we filed this morning regarding the various factors, assumptions and risks that could cause our actual results to differ as they all apply to this call.

With that, I turn the call over to our President and CEO, Megan Telford.

Thank you very much, Wassem. Good morning, everyone, and thank you for joining us for our second quarter results call. I am pleased to be releasing this call, my first as President and CEO of Hydro One. This morning, I will provide an update on our recent activities and key accomplishments during the quarter. Following my remarks, Harry will take you through our financial results. I am deeply honored to take on the role of President and CEO of Hydro One.

It's such an important moment for our company and for the utility sector broadly. David Lebeter's leadership leaves a strong legacy, one defined by unwavering focus on safety, performance and people, which has positioned Hydro One well for the future. I am deeply grateful for his contributions and for the enduring foundation he has built. I am proud to lead an organization with such a strong history and even more energized by the opportunities ahead. to build on our momentum and seize the opportunities that we see before us. Together, we have achieved great success executing on our strategy, which is built on 4 key pillars: customers, growth solutions and partnerships. We will build on this momentum by responding to the changing landscape where appropriate, continuing to improve execution, further enhancing our performance and strengthening the position of the company for long-term success.

We will continue to make critical strategic investments in our system to deliver safe, reliable and resilient services. This means investing in grid stability, storm preparedness and system modernization to keep the lights on, restore power quickly after major storm and to continue to deliver major projects on time and on budget. We also continue to implement programs and tools for our customers to make it easier to do business with us and show them that we care. At the same time, we will continue to build strong relationships in track with many of our partners, including indigenous communities, municipalities, residents and the governments. These are foundational elements that have made Hydro One successful. I have a deep appreciation for the work we do and the responsibility we carry with the customers and communities we serve, particularly at a time when the role of electricity in our economy in daily lives has never been more important.

I intend to build on this strong foundation and look forward to delivering on our products to our customers, partners and stakeholders. CET remains our highest priority. Our focus on achieving 0 life-altering injuries and fatalities is unwavering. A strong safety culture is the foundation of operational excellence, and we will continue reinforcing our safety principles and expectations. So every employee and contractor return home safely at the end of each day. As electricity demand continues to grow across Ontario, aging infrastructure and changing weather patterns are placing increased demand on the electricity system.

Hydro One is advancing the transmission infrastructure required to provide reliable, cost-effective and resilient power home businesses and communities. These investments not only address today's needs but also help prepare the provincial electricity grid for future growth by replacing aging assets reducing congestion and enabling increased electrification and clean energy integration. On April 23, 2026, Hydro One was designated to develop and obtain all necessary approvals for the Red Lake Transmission Line in Northwestern Ontario, north of Dryden. This priority project will include new double circuit transmission line extending from a dried-in transformer station to the year falls transformer station, including associated station facilities and connecting to the Red Lake switching station. The project is expected to be in service in the early 2030s and will support reliability and economic development across the region.

Consisting of Hydro One's long-standing approach to indigenous partnerships, the project will follow the company's 50-50 First Nation equity partnership model, enabling participating First Nations along the route to share directly in the long-term value created by the infrastructure. We've announced several critical investments in our transmission and distribution systems to modernize strengthen and expand the grid in support of economic development and increased electrification across the province. During the quarter, Hydro One submitted lead to construct applications to the Ontario Energy Board for 3 major transmission projects. First, Northeast power line, a single circuit 500 kV transmission line connecting the Greater Sudbury area to the Wharncliffe area. Second, Longwood to Lakeshore line, a single circuit 500 kV transmission line connecting the Municipality of Strathroy-Caradoc and Municipality of Lakeshore. Third, durum Corsa line, a double-circuit 230 kV transmission line connecting the Municipality of Clarington and Peterborough County. Collectively, these projects represent more than $3.4 billion in planned investments and are expected to enter service between 2029 and 2030.

Hydro One also filed a lead to construct application for the Orleans area reinforcement project in the Greater Ottawa area. The project includes a new 115 kV transmission line and the conversion of an existing 115 kV line to 230 kV. With an investment of approximately $100 million, the project will increase regional capacity, improve transfer capability and strength and reliability. The project is expected to be in service by 2029. As many of you are aware, Ontario is experiencing an unusually active wildfire season this year. I would like to briefly address the situation and its potential implications for our business. We are seeing a higher number of fires this year. In fact, the number of wildfires in Ontario this year is 54% above last year's and 56% above the 10-year average.

Our highest priority remains the safety and well-being of our employees, contractors and the communities we serve. At this time, wildfire activity has not had a major impact in our operations and no fires have been attributed to our assets or infrastructure. We continue to work proactively with our teams. Customers and local authorities to monitor conditions, mitigate potential risks and maintain operational readiness. We remain committed to supporting our employees and communities throughout this period while continuing to deliver safe, reliable and resilient service.

Meeting Ontario's growing electricity needs will require a skilled, diverse and future-ready workforce. To support this objective, Hydro One renewed its long-standing university partnerships with Toronto Metropolitan University, University of Waterloo, Ontario Tech University and Western University. The renewed partnership includes a $1.2 million investment over 3 years and is expected to benefit more than 60,000 students across Ontario, building in more than a decade of collaboration, the program will expand to 12 outreach, mentorship opportunities, student awards and career development initiatives, helping strengthen the talent pipeline for Ontario electricity sector. Through these investments, Hydro One is helping prepare the next generation of engineers and energy professionals who will support a safe, reliable and sustainable electricity system.

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

With that, I will turn the call over to Harry to go over through the financial results. Over to you, Harry.

Good morning, and thank you for joining us today. Before discussing our financial results, I would like to take a moment to welcome Megan to her first earnings call as President and CEO of Hydro One. Welcome, Megan. Having worked closely with median over the past 2 years, I have seen firsthand her strong leadership, deep understanding of our business and unwavering focus on delivering for customers, employees and shareholders. Megan's combination of strategic thinking, and focus on operational discipline will serve us well as our growth accelerates and our sector evolves.

Turning to the quarter. Net income attributable to common shareholders in the quarter was higher by 13.1% compared to the same period for a year ago. The key drivers behind the result this quarter include higher revenues net of purchased power due to higher OEB-approved 2026 rates higher average monthly transmission peak demand, a higher distribution customer count and more electricity distributed to our distribution customers. lower depreciation, amortization and asset removal costs primarily due to lower asset removal costs resulting from reduced storm restoration efforts also contributed to our earnings growth. These profit drivers were partially offset by higher OM&A costs primarily due to higher work program expenditures, including emergency power restoration and line maintenance work. A higher interest expense due to an increase in long-term debt outstanding, partially offset by higher capitalized interest and higher income tax expense due to higher pretax earnings, partially offset by higher deductible timing differences. This resulted in second quarter basic earnings per share of $0.62 compared to $0.54 in the second quarter of 2025.

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

In the Distribution segment, costs increased by 3.7% and mainly due to higher work program expenditures, including emergency power restoration and lines maintenance work as well as higher corporate support costs. These were partially offset by net income neutral items, which are offset in revenue. Depreciation, amortization and asset removal expenses during the quarter were lower by 2.8%. The decrease was primarily due to lower asset removal costs resulting from reduced storm restoration efforts compared to the prior year. This was partially offset by higher depreciation expenses due to growth in capital assets as the company continues to place new assets in service. With respect to our financing activities, we saw a 7.1% increase in interest expense year-over-year. This was mainly due to the increase in our outstanding long-term debt. Following the additional issuances we executed in Q4 2025, and our inaugural U.S. dollar issuance during the quarter, partially offset by higher capitalized interest.

During the quarter, Hydro One issued USD 1.0 billion of senior 4.75% notes due in 2031. The issuance was well received by U.S. fixed income investors, and we were pleased with the demand for the product. We entered into a swap arrangement on the day of issue that resulted in a Canadian fixed equivalent rate of 3.835%. We intend to become regular issuers in the U.S. fixed income market as having the ability to access 2 markets provides us with flexibility to fund our future capital needs and growth opportunities. The net proceeds from the offering will be used to repay some maturing long-term debt and certain short-term indebtedness, including commercial paper as well as for other general corporate purposes. Our balance sheet continues to be in excellent shape, along with our creditworthiness. Our FFO to net debt ratio as at June 30, 2026, was 14.1% and remains well above the threshold limits the rating agencies use to trigger a credit rating review.

Turning to taxes. Our income tax expense in the quarter was $69 million compared to $61 million in the same quarter last year. The increase year-over-year was primarily due to higher pretax earnings. This was partially offset by higher deductible timing differences than the prior year, including additional tax deductions from the reintroduction of accelerated capital cost allowance that are offset by a corresponding reduction in revenue and therefore, net income neutral. As a result, our effective tax rate this quarter was 15.6%, which was similar to a year ago. Looking at our capital expenditures. In the second quarter, we invested $812 million which was a decrease of 11.1% from the same period in 2025. The decrease resulted from a lower volume of station refurbishments and equipment replacements, as well as a lower investment in the Washington, St. Clair and the Northeast power line projects, coupled with a lower spend on storm-related asset replacements. These were partially offset by an increase in investments relating to Ontario's broadband initiative the advanced metering infrastructure or AMI 2.0 system and a higher spend on other major development projects.

Looking at our assets placed in service. In the first quarter, we placed $644 million in service for our customers, which was an increase of 9.0% compared to the prior year. In the transmission segment, we saw an increase of 147.6% year-over-year, primarily due to timing of assets placed in service for station refurbishments and replacements. These were partially offset by the absence of in-service additions relating to the Orillia distribution warehouse that occurred in the prior year. In the Distribution segment, in-service additions decreased by 36.9% from the prior year. mainly due to the lower volume of storm-related asset replacements. The absence of in-service additions relating to the Orillia distribution warehouse in the prior year. and the timing of investments placed in service for system capability reinforcement projects. These were partially offset by higher investments in the broadband initiative and the AMI 2.0 system.

I am pleased to report that our Board of Directors declared a dividend of $0.3531 per share payable to common shareholders of record on September 9, 2026. Looking ahead, we continue to expect earnings per share to grow between 6% and 8% annually for this rate period using the normalized 2022 EPS of $1.61 as a base. Looking even further ahead, I know many of you are interested in our joint rate application for 2028 to 2032. We expect to file the application in October. While I cannot provide specific details in advance of the filing, I can assure you that the application contains compelling proposals to further enhance the reliability and resilience of our transmission and distribution systems, support the electrification and economic growth of Ontario and deliver good value for money to our customers while providing appropriate returns for our shareholders. We believe these investments will help ensure the energy system remains well positioned to meet the province's evolving needs and support long-term growth for all stakeholders.

With that, we will open the phone lines and be happy to take questions.

Thank you, Megan and Harry. We'll now open the call for questions. The operator will explain the Q&A polling process. [Operator Instructions]

Please go ahead, Shannon.

[Operator Instructions] Our first question comes from the line of Michael Lonegan with Barclays.

Congrats, Megan, on starting the new role. So as we think about the upcoming JRAP application, I know, Harry, you said you can't provide details, but anything high level you can preview in terms of what we could expect aside from a substantial increase in the capital program? Like could we expect you to ask for a higher equity thickness and increased earnings sharing threshold, for example?

Michael, I'm afraid I can't give any of those at this point. The trailer in my prepared remarks is as much as we can say. It's around the corner, and you'll see it very shortly.

Okay. Great. And then obviously, expectation is a substantial increase in capital requested. You've talked about needing equity in the next JRAP period. Anything you could say about what portion -- what percentage of incremental CapEx could be financed with equity? Would it be an ATM program? And also, what would your FFO to debt target be?

I can make a couple of comments there. We're committed to our credit rating. Our -- we're very proud of our A credit rating, and so we want to maintain that. The FFO to debt, our downgrade threshold is 11%, and we want to make sure that we don't violate nor even really approach too closely that level. And therefore, the equity needs will be sold to preserve that credit rating. In terms of the vehicles we'll use, we'll look at hybrid debt first because we get 50% equity credit for hybrid debt. But inevitably, equity will be required in the next period.

An ATM program is very attractive because it's almost just in time. to minimize dilution for our shareholders. But if market conditions were right, and we had significant capital needs, a bigger issue could also be considered. So we're keeping our options open -- as wait until the application is approved, and we know with clarity, what we need to fund through '28 through '32, and then we'll develop our -- and communicate our financing plan at that point. But we are thinking of all the avenues that you outlined. We're in a very strong position to start and seeing the success of ATM programs, the success of hybrid debt. We don't need to innovate, if you will, we can follow tried and true solutions for ourselves.

Our next question comes from the line of Maurice Choy with RBC Capital Markets.

My first question perhaps is for Megan. In your prepared remarks, you highlighted the 4 key pillars of customers' growth solutions and partnerships. When you think about your next 12 months, which of these 4 key pillars do you think requires more attention for you and why?

Well, first of all, thanks very much for the question. And really, I think what's interesting is before taking on this role under my COO mandate, I had strategy as part of my area. So -- but I think the customers grow solutions and partnerships for me, they're equally balanced. What I would say, and you heard Harry talk about our upcoming rate application, is, obviously, we're not going to talk about the details what's in there.

But when you think of what's happening right now in our sector, you have aging infrastructure you have obviously inclement weather that we can all feel and we have increased electrification in Ontario. And those are all things at the end of the day that we need to for the province and for our customers. So they're all important. But at the end of the day, a utility like Hydro One served the customers and we've got our customers' needs as a part of what we do.

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

Sure. So first of all, as you can appreciate in the first 8 weeks of the row, I've been out meeting of all sort of people, stakeholders and many people, and we're always sort of listening to the point of the customer. On the specific regulatory engagement, we of course, engage customers, I'm going to turn to Harry as it is his portfolio.

Maurice, we have completed our customer engagement as part of our filing and have very strong sort for the proposals that we will be filing in October, which was refreshing to see. At the same time, we are aware of the cost of living issues that have risen to the top of Ontarians agendas. We've seen some polling that indicates for the first time in a long time, cost of living is the #1 issue on Ontario voters mines. It has exceeded housing, that so-called housing crisis, and health care, which are usually #1 or #2. And so we are being responsive to that. At the same time, we're making what we think our responsible proposals to invest in the infrastructure to enable growth improve reliability and resiliency, but also mitigate bill and rate impacts because we're not tone deaf and you'll see that in the application. We'll talk explicitly about that.

And maybe just finishing off on a question on the balance sheet. Harry, you did mention that you ended the quarter at 14.1% FFO to debt. As you mentioned, that's materially above the 11% downgrade [indiscernible]. Philosophically speaking, how do you think about what is the appropriate cushion versus the downgrade threshold for unexpected circumstances. And as you think about where you would be at the end of the next 5 years versus where you were or you will be ending in this 5-year period. Like is there a potential for this metric to progressively build back to 14% at the end of that.

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

Congrats, Megan, on your start of your CEO tenure. .

Thank you, appreciate that.

Our next question comes from the line of Mark Jarvi with CIBC.

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

Well, first of all, Mark, good to hear from you. And I would be remiss in answering that question if I didn't say a thoughtful thank you to my previous boss, David Lebeter, obviously, an incredible mentor to me. And I imagine right now, he's doing something delightful in retirement, so we're thinking of them. So I would say, clearly, David and I are different people, very different background. But we are very similar from a value perspective. And that's what I appreciate most, although he had a very, very deep expertise in forestry considerable time of BC Hydro, et cetera, I come from law and banking.

But actually, the heart of why I joined Hydro One is the same. And I come from a small town, I think of either one's footprint across the province. And our employees live and work in these communities. And then for those of you who are from environments like that, you'll know how deeply personal it is to really think about electricity and the growth across the province is what we need right now. So I don't think you'll see much change from that. In my first 8 weeks, I had a very, very fortunate opportunity to get out and have listening to or speaking to people trying to get out and talk to our employees directly. And so that is very much similar to what David had been doing. He's very on the ground leader, I'm a very on-the-ground leader, and I think leading an organization like Hydro One.

The only thing I would say from a difference perspective is not really a difference between David and I. You heard me mention in the previous comments that when you look at what the province needs that we're focusing on, again, these increased storms, obviously, wildfires as you can see what's changing the province continued push for electrification. As I imagine, over my tenure, those things are going to intensify. And that's why we're focused on delivering for customers. That's why you hear us talk about those themes for JRAP. So really, it's a continuation of what David did, but I imagine tool be even more pronounced in or my leadership just by the nature what's going on the world right now.

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

Yes. I think what's really interesting is that we obviously participate in a lot of different associations. Just talking yesterday, we were speaking to show on [indiscernible] major power producers. When you listen to a group like that and they have a fantastic leader [indiscernible], but what they'll say is they're very supportive for what we want to do. I mean, if you're thinking if you're an industrial organization in Ontario right now, it's not really been up front of time in the last year with tariffs, obviously, increased pressure. .

And as a very proud Canadian, as I know we are in this call, we need the companies to thrive. And so they're really looking at the thing Harry already spoke about, what is affordability and how can they make sure that we keep those businesses in Ontario. So I think from an industrial perspective, they're really trying to understand will the better be there when they need it. They're looking for increased reliability because obviously it has a big impact on their business. And of course, they're really looking to ride out this very usual time in our -- in what's happening, I guess, economically, especially on with tariffs, et cetera.

On the residential piece, again, I just have to leverage what Harry said, those customers are really feeling on everyday pocketbook issue. You can see the price of food. You can see the things you're wrestling with. And so that's why we're being so mindful about affordability, the rate in Paco. It's a similar theme, but I would say just different nuances. And of course, the individual customers is a little less fluent particularly on what we're building in the province and industrial customers are very engaged. But what is united between them is they want to see Ontario prosper, and they know that we need to continue to electrify and we know we need to be thoughtful about bills to make both those things happen. So just Harry, do you have anything you'd like to add to that from your regulatory perspective?

No, I think you've summarized it well.

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

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

One thing I would add there, Mark, just from my perspective, is that you can imagine yourself in my situation, I think I've been here. But we're all using this leadership transition. I mean we have the beauty of benefits, excuse me, of a very smooth leadership transition from a governance perspective, which we're all very grateful for. And so when you come into the seat like mine, we're taking the time here and I just sort of try to look at it with fresh eyes. Very good proud of our regulatory team. I mean they are really an incredible group you can imagine an application of this magnitude, the level of engagement across the organization. So what I can tell you on behalf of Harry and I is that, yes, we're in the refining period of when that extra application goes in, I would tell you, we will have gone for every line been super diligent and we'll know it's out to the right things people of Ontario.

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

Our next question comes from the line of Robert Hope with Scotia Bank.

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

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

The pressure comes in the early part of rate period, and then we normalize mid- to end of the rate period. One of the things that we will do once we have an approved application is we'll have an Investor Day, we'll lay out the plans for the next what will be 6-ish years because it will be in advance of the rate period starting. That includes the funding outlines how we see it developing and the tools that we will be using to minimize dilution, protect our credit rating and fund what we need to fund.

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

I'd say we're -- we -- between our ops teams and our procurement team -- they have great visibility into the knees. Human resources, material, et cetera, and the timing. So the planning is underway. I'd love to say we've got a bow tie on it, and we have no concerns, but that would be misleading. As we look ahead, the entire world is electrifying. It's not just Ontario. The manufacturers of equipment are seeing unprecedented demand. They're adding capacity. There was an article in the globe about Hitachi, one of our strategic suppliers, adding capacity in Quebec. We recently added some capacity in Grigsby, Ontario as well.

And so we're working with our vendors and our HR team as well as we think about both procurement but also resourcing. We use a lot of contractors to support us. We're giving them visibility for some of the bigger projects like transmission lines. We have an early contractor involvement initiative to bring them in early, commit to them so they can commit resources. They see our order book, if you will, and understand that, hey, this isn't one and done. This is a series projects, investments that are being made. And so this is a customer from their point of view, we want to support because we've got a great runway business ahead. And so we're trying to consolidate as best we can with them. So they have visibility not to just the next project, but the next years of projects.

So we will secure what we need. We are not hesitant on the material side to make commitments for long lead time. We have production slots for some of the scarcest resources as many as 3 and 4 years out, with some pricing contracts and governors, et cetera, not fixed price, but parameters, et cetera. So we're doing everything we can to look ahead, stay ahead, consolidate relationships so that we are not someone who's suffering from a lack of supply of either material or human resources.

Our next question comes from the line of Benjamin Pham with BMO.

I wanted to -- you mentioned the wildfire acceleration in Canada. And I know you mentioned there's no current impact on Hydro One. But can you talk practically how it plays out with wildfire damages to your infrastructure? Is that factor filing? And you also comment, any conversations you had with respect to credit rating agencies and how they're thinking about broader Canadian [indiscernible] for utilities?

So I'm happy -- first of all, thanks for the question. And I'm -- well, [indiscernible] probably take this one in tandem. So first of all, yes, we can all see it's been a very unusual wildfire season, obviously, one of the works that people have seen in Canada, and indeed, I'm sure people are also monitoring the top pan Europe. So it has impacted some of our infrastructure in Northern Ontario. But we actually spend, as you imagine, in our line of work, a great deal of time preparing for this. We have very, very strong preparedness programs run by our ops team with very close coordination with our fire management partners, the Ministry of National Resources, and we have very dedicated crews. And so where we are allowed and work at the government decision to make sure that the area is safe. We obviously can respond very quickly and restore power.

So our main focus at all times in wildfires is protecting the people that live there, protecting our employees, really supporting the communities and of course, we want to get the power up as quickly as possible to the customers. And so that's what we're doing right now. Harry, do you want to speak about the particularly potential regulatory recovery?

Yes. Ben, any wildfire recovery or restoration work that we would incur. We would add into rate base the way that we do normal storm restoration, not a storm [indiscernible]. I guess on fire storm, not a ice or wind storm. And that's normal course. You mentioned Z factor. There's very specific conditions Thankfully, we are not anywhere close to meeting the conditions for Z factor because that would be very destructive in terms of equipment losses infrastructure losses, et cetera. And we don't anticipate that the Z factor filing from the ice storm of March 2025, gave us a better understanding of how the OEB interprets the qualification.

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

Okay. Got it. And you've been quite active on OEB filings on a couple of prior transition line. So thanks for that update. So can you talk about maybe the time line for the remaining TBD, there's another 8 to 9 projects. Do you think that you can file a material [indiscernible] before the next JRAP filing? I know it's not included in that, but just more curious about the timing.

We use a next rate application filing, not October, you mean the next one for 2033 to 2037?

Yes. Sticking more, there's a couple of priority transmission projects that you haven't filed separate to filings. Are you able to have those CapEx numbers as I would think it has maybe more indirect impact on how you think about the JRAP?

Well, there are 2 things. The one rate application is for Hydro on Networks, Inc. So the future transmission lines will be their own rate application because they are partnerships with the First Nations. But when I -- when we present at our Investor Day after the investor -- after the rate application is approved, we'll lay out the Hydro One Limited outlook and expectations, so you can get a sense of that. We will not -- we won't file Section 92 lead to construct applications in a hurry. We'll file them as we require, once we've done all the work to get the credible estimates to file. And so we don't want to rush them because some of these lines will not be in service until 2031, 2032. We want to make sure that we are not front running in a way that may cause us challenges from either a pricing or availability of resources. We may have 1 or 2 more that are filed in advance of the filing, and we will communicate as we file each lead to construct application once it's filed with the OEB.

[Operator Instructions] Our next question comes from the line of John Mould with TD Securities.

Maybe just starting with competitive transmission procurement. Hydro One was added to the ISO's transmitter selection framework registry. Earlier this year, there's 5 other entities on that list. At a higher level, how are you as an organization thinking about broader competition for some portion of future transmission needs in the province. And then more specifically, the upcoming competitive RFP for Toronto third line.

John, thanks for the question. So first of all, I would say it's a very interesting process because, of course, the ISO is developing new rules in real time, I'm sure you've been following it. And so for the third line, I would say is, look, Hydro One is very, very well positioned to compete. We are a competitive organization, an innovative organization, and we have a winning team. The other thing I would state just to remind people is that there is actually already incredible amount of competition in the building of transmission lines in Ontario because we obviously contract with a number of firms. We don't do the whole thing ourselves. And so in the procurement, and Harry talked about supply chain and a number of things that go into building the line, those entities compete against each other through our RFPs to win the right to assist us in building those lines. So first of all, I just want to start with the actual competition that exists today.

On the third line, I would say, obviously, we're very interested in this under ACVC cable line. And so what we're really doing is participating in the process, as we mentioned, we're registered. And what we're doing is really evaluating the opportunity as it comes along. So that one needs to come into a bit sharper focus as the ISO develops their roles in terms of what we would do, and I'm sure at that time I would update you on our participation. But right now, we're full participating.

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

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

I guess what I'd say is, look, we're not chasing growth outside of Ontario just for the sake of chasing something. I mean we are very clear on what we're great at, and that's really serving the people's Ontario making sure there's great reliability and making sure there's a strong future in terms of energy here. And so obviously, again, as I mentioned, proud Canadian watching very closely what's happening right now in the world. You can see the federal government level that people are exploring all sorts of projects across Canada, and we have a very unique relationship and partnership with First Nation.

So look, we would never say no to consider something in the right set of circumstances. But again, as you said, it would not distract we would have to be very, very specific in terms of many things. I'm sure my excellent partner CFO here is going to talk to you about the other financial conditions. But really for us, we want to deliver the projects we have safely on time and on budget. Any consideration beyond that would have to be in the mix, as you said, of what making sure we can deliver what we've already brought in. Harry, anything you would like to add to that?

No. Well, yes, I'll say, as we look ahead, we have a great growth agenda here in the province. And so we don't need to look outside to generate great growth while still delivering great value for our customers and meeting all of the needs of all our instituents. So our conditions are still the same, John. We certainly want to contribute to the extent we can to the national agenda, but it can't distract or dilute either our activity or our performance in the pursuit of that.

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

It will be a bit, John, -- a bit market conditions specific. We're going to be active in Canada as well. So we don't have a specific target. We're going to look at the all-in interest rate that will ultimately pay on the debt sometimes that's more favorable in Canada, sometimes U.S. based on different conditions. But we can easily see at least 1/3, if not more, of our debt in the medium term being placed in the U.S. Could be more, could be less, obviously, if the U.S. market turns quite expensive. But it is situational. We view it as optionality and flexibility rather than being dogmatic about 1/3, 40%, 50% will be U.S. versus Canada.

Our next last question comes from Patrick Kenny of National Bank Capital Markets.

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

So yes, this is the question in the world right now about data center growth. And of course, we're following it very closely. So the first thing I would say is prior, as you know, doesn't make policy. And so we are naturally watching and seeing what the government is going to do. They've talked very openly. We were at an announcement, a public announcement with the Minister a couple of weeks ago. He was very clear about a couple of things. First of all, that they are looking on rules on this to make it clear for municipalities and for providers like us.

And second of all, very, very focused on making sure that there's a fair an equitable payment scheme, meaning not passing on all the cost to under repair. So I can't -- obviously, I'm just sitting in the same position you are in terms of not knowing what that's going to say, but we expect there to be guidelines coming out. We do engage with data centers, of course, but mainly their roots in Ontario is through the ISO where they file up stations. And so right now, it's very much like any provider. They're in a queue. And if the ISO deems it's necessary, we, of course, have an obligation to enact.

So don't have much more insider information turning to you from a regulatory perspective to the thing you want to add, but we monitor it closely, obviously, as you planned out, there is a certain degree of slow growth in the province is course that we are monitoring. But I would say one thing I'm proud about in Ontario is that we've managed to really look at the lessons learned in the United States. And I think we will really benefit from watching the things that went well there and that didn't go so well. And hopefully, we'll expect a much more thoughtful and planned approach in Ontario.

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

Pat, the strategy was more diversification lowered cost, lower interest costs, always an objective. And the way we timed it quite well in retrospect in terms of both the underlying, the spreads and where the swap market was for us at that time, which gave us a very attractive rate, kind of exceeded our expectations going into it. But the primary driver is diversification, sources of capital, but we're always trying to manage our interest expense to minimize because we recover those in rates and to minimize that impact for our customers.

As we look ahead, our capital needs will be more significant than we have seen even in this rate period given, and you'll see that when we file our rate application. So we wanted to make sure that we're availing ourselves of the biggest pools of capital and not waiting until we need it to get out in front establish our brand for lack of a better term with fixed income investors outside the country. We are not leaving the country. We will be issuing in Canada. But just diversifying those sources so that no one will ever say I've got too much Hydro One paper in my portfolio.

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

Thank you Shannon. The management team at Hydro One, thanks everyone for their time with us this morning. We appreciate your interest and your continued support. If you have any questions that weren't addressed on the call, please feel free to reach out and we'll get them answered for you. We look forward to seeing everyone at our third quarter conference call in November. Thank you again, and enjoy the rest of your day. .

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.

Good morning, ladies and gentlemen, and welcome to Hydro One Limited's First Quarter 2026 Analyst Teleconference. [Operator Instructions] As a reminder, the call is being recorded. I would now like to introduce your host for today's conference, Mr. Wassem Khalil, Director of Investor Relations at Hydro One. Please go ahead.

Good morning, and thank you for joining us for our quarterly earnings call. Joining me on the call today are our current President and CEO, David Lebeter; our Chief Financial and Regulatory Officer, Harry Taylor; and also joining us is our current Chief Operating Officer, Megan Telford.

On the call today, we'll provide an overview of our quarterly results, and then we'll answer as many questions as time permits during our question-and-answer session. As a reminder, today's discussion will likely touch on estimates and other forward-looking information. Listeners should review the cautionary language in today's earnings release and our MD&A, which we filed this morning regarding the various factors, assumptions and risks that could cause our actual results to differ as they all apply to this call.

With that, I'll turn the call over to our President and CEO, David Lebeter.

Thank you, Wassem. This morning, I will provide an update on our recent activities and accomplishments during the quarter. Then Harry will take you through the financial results. As always, I will begin with the safety news. Last month, our employees achieved a significant milestone, working 2 years without a high-energy serious incident. When this achievement is considered alongside our top quartile, low recordable injury frequency, I'm confident in our ability to create a workplace with 0 life-altering injuries or fatalities.

As I've said many times on these calls, a safe workplace is the essential foundation of our operational excellence. The same factors which create safe workplaces also lead to efficient, low-cost operations. As announced on February 26, 2026, I made the decision to retire as President and CEO of Hydro One effective June 9, 2026. This was a thoughtful decision, which best met the needs of my family and Hydro One. At the same time, we announced that Megan Telford, our current Chief Operating Officer, will assume the role of President and CEO upon my retirement.

Megan is a highly respected and proven leader who joined Hydro One in 2020. As a key member of the executive leadership team, she has played a pivotal role in delivering our strong performance. During her time at Hydro One, Megan has held executive responsibility for health and safety and environment, strategy, system planning, growth, distribution and transmission operations, human resources, labor relations, indigenous relations, corporate affairs and customer care. Her values, breadth of experience at Hydro One and extensive leadership expertise position her well to lead the organization into its next chapter.

Hydro One is entering a period of significant change. Ontario's growing population, electrification and economic expansion are fundamentally reshaping electricity demand across the province. Hydro One is positioned to support this transformation through significant investments in transmission and distribution infrastructure, strong partnerships with First Nations, unions, municipalities and others, plus an unwavering focus on system reliability, resilience and affordability.

I leave with great confidence in the future of this organization. The leadership team is strong and focused. The strategy is sound and the culture remains grounded in safety, customer service and execution excellence. As mentioned previously, Ontario's demand for reliable, resilient and affordable electricity continues to grow. Across the province, strong population growth, industrial investment and accelerating electrification are reshaping how communities live, work and move. Meeting this rising demand is critical to sustaining the province's long-term competitiveness and prosperity.

As a trusted leader in transmission development, Hydro One is well positioned to support this growth. We continue to play a central role in Ontario's grid expansion, working with government, First Nations partners, industry stakeholders and local communities, we continue to advance and build the critical infrastructure required. In addition to meeting today's demands, these investments ensure the electricity grid is fit for the purpose for decades by replacing aging infrastructure, reducing congestion and enabling clean energy integration to support economic expansion and community growth.

As new transmission projects are planned and awarded, we are pleased to be selected to develop and construct these critical lines. As previously announced, we were designated to develop and obtain all necessary approvals for the Greenstone transmission line in Northern Ontario as well as the Sudbury to Barrie transmission line in North Central Ontario. Both projects are expected to enter into service in 2032.

More recently, Hydro One was designated to develop and construct the Red Lake transmission line in Northwestern Ontario to north of Dryden. This proposed project -- priority project consists of a new double-circuit 230 kV transmission line extending from the Dryden transformer station to the Ear Falls transformer station, including associated station facilities.

I'll pick up. David, are you okay? Okay. We'll give David a minute here. I'm going to continue on. We're talking about the Dryden transformer station to the Ear Falls transformer station, including associated station facilities and continuing to connect to the Red Lake switching station. This project is expected to be in service by the early 2030s. The addition of the Red Lake transmission line increases our inventory to 15 transmission lines under development and construction and positions Hydro One with a strong and visible growth profile through our next regulatory period.

Across each of these projects, our 50-50 First Nation equity partnership model ensures that proximate First Nations share directly in the long-term value created by the transmission line infrastructure. The generational ice storm in late March 2025 caused widespread damage across many areas of Ontario and impacted more than 600,000 customers. Hydro One crews alongside 30 Canadian utility partners and contractors worked safely day and night in freezing rain, snow and wind to restore power to those impacted by the storms.

As a result of the storm, Hydro One filed a Z-Factor application with the Ontario Energy Board. Subsequent to the quarter end, we received a decision from the OEB regarding our Z-Factor application, denying the recovery of $69 million of incremental revenue related to the costs incurred in the ice storm. While we're disappointed with the outcome, I want to be clear that the decision does not deter our efforts with respect to our joint rate application filing. Hydro One has completed its customer engagement process, receiving significant support for our proposal and our teams are finalizing the application. We remain on track to file it with the OEB in Q3 2026.

Thank you, Harry, for stepping in. My apologies. The springtime cold seems to have taken over my body. Our employees are the heartbeat of Hydro One and their dedication, expertise and professionalism drives our success every day. That is why we are so pleased to see the collective agreement reached with the Society of United Professionals on January 13, 2026, ratified by union members.

The agreement covers engineering, supervisory and other professional roles and reflects our shared approach on collaboration, stability and long-term success. The collective agreement took effect on October 1, 2025, and runs through March 31, 2028, providing certainty for our workforce as we continue to execute on strategic priorities and support Ontario's growing needs. I'm also pleased to report that we reached a tentative agreement with our construction union, the Canadian Union of skilled workers, which represents construction line persons and electricians working on critical projects across the organization.

This agreement is subject to ratification by [ CoW ] members, and once ratified, will replace the current agreement that expired on April 30, 2026. I would like to thank all bargaining teams for negotiating in good faith to reach agreements that support our employees, our customers and the long-term health of our company. At Hydro One, we have built a culture rooted in dedication, passion, inclusion, empowerment and a strong sense of belonging. The work people do every day drives strong performance, and our teams continue to receive recognition for their efforts.

Recently, the company was recognized by Electricity Human Resource Canada with its Excellent and Workplace Culture Award. This recognition acknowledges Hydro One Step Up program, which supports open conversations around inclusion, allyship and psychological safety. We also received the Electrical Distributors Association's Sustainability Excellence Award. Recognizing our leadership in building sustainable partnerships, Hydro One and the 5 Nation partners were honored for their collaborative and sustainable approach behind the construction of the Chatham to Lakeshore transmission line, the first to be completed under our First Nations equity partnership model.

Finally, we were again named the Globe and Mail's Women Lead Here Annual Benchmark, which recognizes gender diversity within executive teams across corporate Canada. This recognition reflects our continued efforts to build a strong, diverse executive leadership team that is well positioned to lead Hydro One into the next phase of corporate evolution.

Before I turn the call over to Harry to review the financial results, I have a few closing observations as this will be my final call as President and CEO of Hydro One. Serving as the President and CEO of Hydro One has been the privilege of a lifetime. This organization plays a vital role in the lives of every Ontarian and [indiscernible] it has been both a profound responsibility and an honor. Together, we have redefined our safety culture, advanced operational excellence, rebuilt trust with our customers, partners, stakeholders and all levels of government and position Hydro One for the future.

When I reflect on my time here, I am most proud of the professionalism and dedication our people bring to work every day. Every storm response, every safety milestone, every customer restored and every project delivered reflects their care for one another and for the people of Ontario. Together, we successfully navigated unprecedented challenges, including COVID, extreme weather events, electrification and the trade war by focusing on people, following our strategy and keeping our values front and center. I want to express my sincere gratitude to our employees, our Board, our shareholders, partners, the communities we proudly serve and those joining us on the call today. It's been a lot of fun, and I'll miss you all.

Over to you, Harry.

Thank you, David. Good morning again, everyone, and thank you for joining us today. In the first quarter, we delivered basic earnings per share of $0.65 compared to $0.60 in the first quarter of 2025. Net income attributable to common shareholders in the quarter was higher by 9.2% compared to the same period from a year ago.

The key drivers behind the result this quarter include higher volumes in both distribution and transmission, higher revenue net of purchase power from higher OEB-approved 2026 rates and higher average monthly peak transmission demand, lower OM&A costs primarily due to lower work program expenditures, including vegetation management and lower income tax expense due to higher deductible timing differences, partially offset by higher pretax earnings.

These were partially offset by a higher interest expense due to an increase in long-term debt outstanding and higher depreciation, amortization and asset removal costs primarily due to the growth in capital assets. Our first quarter revenue, net of purchased power increased year-over-year by 3%. Transmission revenues increased by 4.4%, primarily due to higher average monthly 1-hour peak demand that was 0.8% higher and higher revenues from OEB approved 2026 rates.

Distribution revenues net of purchased power increased by 0.9%, mainly due to a 0.9% increase in customer count. Both the transmission and distribution segments had regulatory adjustments that had offsetting entries and thus are net income neutral. On the cost front, operating, maintenance and administration expenses in the quarter decreased by approximately 0.9% year-over-year.

In the transmission segment, costs were higher by 3.1%, mainly due to higher corporate support costs, partially offset by lower work program expenditures attributable to facilities maintenance and information technology initiatives.

In the distribution segment, costs decreased by 5%, mainly due to lower work program expenditures, including vegetation management. Depreciation, amortization and asset removal expenses during the quarter were higher by 3.4%. The increase was primarily due to the growth in capital assets as the company continues to place new assets in service, partially offset by lower asset removal costs.

With respect to financing activities, we saw an 8% increase in interest expense year-over-year. This was mainly due to the increase in our outstanding long-term debt following the additional issuances we executed in 2025, partially offset by higher capitalized interest. Our balance sheet continues to be in excellent shape, along with our creditworthiness. Our FFO to net debt ratio as of March 31, 2026, was 13.9% and remains well above the threshold limits the rating agencies use to trigger a credit rating review.

Turning to taxes. Our income tax expense in the quarter was $41 million compared to $68 million in the same quarter last year. The decrease year-over-year was primarily due to higher deductible timing differences than the previous year, including additional tax deductions from the reintroduction of accelerated capital cost allowance that are offset by a corresponding reduction in revenue and therefore, net income neutral. This was partially offset by an increase in pretax earnings. As a result, our effective tax rate this quarter was 9.4% compared to 15.9% a year ago.

Turning to our capital expenditures. In the first quarter, we invested $715 million, which was a decrease of 2.7% over the same period in 2025. The decrease resulted from a lower volume of station refurbishments and equipment replacements as well as a lower spend on customer connections within the transmission segment. Also contributing to the decrease was a lower spend on the St. Clair transmission line and a lower volume of wood pole replacements in both the transmission and distribution segments. These were partially offset by an increase in the investment in equipment to support our long-term growth projects, increased investments in the advanced metering infrastructure or AMI 2.0 system as well as the Ontario Broadband initiative.

Looking at our assets placed in service. In the first quarter, we placed $484 million in service for our customers, which was an increase of 14.4% compared to the prior year. In the transmission segment, we saw an increase of 39% year-over-year, primarily due to investments for a high-voltage underground cable replacement and investments for station refurbishments and replacements. These were partially offset by the absence of in-service additions relating to a customer connection project at a transmission station that occurred last year.

In the distribution segment, in-service additions decreased by 4.3% from the prior year, mainly due to the overlap of investments related to the Orillia operations center in serviced in the prior year and a lower volume of wood pole replacements. These were partially offset by higher investments in the broadband initiative and the AMI 2.0 system. Looking ahead, we continue to expect earnings per share to grow between 6% and 8% annually for this rate period using the normalized 2022 earnings per share of $1.61 as a base. Finally, I am pleased to report that our Board of Directors declared a dividend of $0.3531 per share payable to common shareholders of record on June 10, 2026.

With that, we'll open the phone lines and be happy to take questions.

Thank you, David and Harry. We will now open the call for questions. The operator will explain the Q&A polling process. [Operator Instructions] In case we can't address your questions today, my team and I are always available to respond to follow-up questions.

Please go ahead, Shannon.

[Operator Instructions]

Our first question comes from the line of Mark Jarvi with CIBC.

Yes. First, congratulations to Megan, and all the best to you, David. It's been a pleasure getting to know you over the last couple of years. Maybe Harry, just on the broadband investment, you just reiterated the EPS growth guidance. Can you just kind of unpack how that incremental spend on broadband flows through earnings? Is it because a lot of in '27 doesn't come until really 2028?

Our guidance hasn't changed in terms of the in service, if you will, of broadband. It's still in the early innings in terms of getting into the rate base between $300 million and $700 million. We're trending well on that, and so it will flow through into earnings once in service. So we'll see impact more in the back half of this year and into next year. But at this point, no -- not enough to take us over or outside the range of the EPS guidance.

Okay. And then just as you think about the JRAP coming up, just in terms of where you guys will start to communicate to the Street, is the plan here once you file the application to revise the CapEx and provide visibility through 2032? And how do you -- would you figure in maybe some of the transmission projects that haven't gone through Section 92 in terms of how you communicate the overall growth, if that's the plan to give an update this fall?

Mark, I would love to give an update this fall. We will file on or before October 1 of this year. And then what we are proposing will be publicly available and visible. We will not be able to give any specific guidance or updates until we're through and have the application approved. Much as I'd like to, as I say, we have to go through the application. And until it's approved, we don't want to create any expectations without the confidence knowing that our application and proposals have been approved.

So last time the JRAP was submitted, then you kind of did at least give the CapEx plan, just taking the numbers in the submission. Is that what we'll see -- you're just saying you don't give us EPS guidance?

Correct. You'll see everything that's in the proposal, and we can summarize that for you. Beyond what's in there, we can't do any more.

Our next question comes from the line of John Mould with TD Cowen.

Just a couple of questions on the regulatory front. Maybe starting with the Pulse panel on LDCs that was launched in October. Wondering when you're expecting an update from that process, what kind of engagement you've potentially had with it? And then just more broadly, how you're thinking about the LDC consolidation opportunity right now?

John, it's David Lebeter here. The Pulse panel, as you know, filed their results in early this year, and the government has had them. They've reviewed them. They haven't actually made any indication when they're going to make them public or even if they're going to move forward those recommendations.

I would suggest right now, given we have municipal elections coming up in Ontario in October of this year, you're not going to see any LDC consolidation for probably the next 18 to 24 months. And that's probably why the government is sitting on those. They want to wait and see what comes out of the election. I'm hypothesized, I'm not the government, but I wouldn't expect that they were going to release those results that we wouldn't see them until the end of the year.

Okay. That's very helpful. And then the OEB's next-generation rate framework, I realize it's early in that consultation. But can you maybe just put that into context with how, if at all, it might play into the JRAP process, how that's progressing from your perspective and the engagement that your company has had?

John, it's Harry here. We are involved in the consultations. The indications are right now that it doesn't -- it won't take effect whatever comes from it until 2029. So our rate application will be filed under the current framework, and we expect it to go through the process and get approved before -- the beginning of 2028.

And John, we do not expect it to be retroactive at this point. So it wouldn't impact us until 2033 when our subsequent rate period.

Okay. Okay. Great. I'll get back in the queue. But David, just to echo Mark's comments, it's been great working with you and all the best in your retirement and, Megan, best wishes as you step into the CEO role.

Our next question comes from the line of Maurice Choy with RBC Capital Markets.

I just wanted to pick up on a comment you made in your prepared remarks that you have completed your customer engagement for JRAP and received significant support for your proposal. I assume when you say significant support, that refers to your proposals to expand the network and improve reliability. And if so, where have you seen the biggest need to adjust your proposal given the feedback that you've received?

Actually, Maurice, the way that we take our customers through -- well, first of all, it's an unprecedented for us level of customer engagement, well over 100,000 customers of all types from residential customers to large transmission connected customers throughout and [ reviewed ] put them through exercises in terms of here's what the proposals are, here are the rate impacts, do you support it and then takes them through some trade-offs about if you'd like more improvements in either reliability or investments in growth, here's what the rate impact would be. Are you prepared to pay that? Yes, no, et cetera.

And we are -- you'll see this in the evidence that we file with the rate application, a plurality or a strong majority is in support of what we're proposing and/or more, not less. And so that gives us confidence that we are putting together a strong rate application with the support of our customers, knowing full well the bill impacts from the investments and the spending that we're proposing.

Maurice, just to add a bit more color to that. Over 2/3 of the customers, this is all different customer segments that regardless of the segment, over 2/3 were supportive of the draft plan that we've prepared. And the areas they're most interested in are reliability, resilience and anything we can do to promote economic activity in the province.

Has the pushbacks that you received been at all surprising or pretty much down fairway based on your initial expectations heading into this?

There is nothing that we've seen that it was either a surprise or a concern.

That's comforting. If I could just finish off with the discussion about Z factor, I think you mentioned previously that you're reviewing the decision and will determine the appropriate next steps. I wonder if you could share what these next steps could be. And just more philosophically speaking, do you sense that this decision represents a different approach by the regulator versus prior decisions?

Maurice, at this point, we've reviewed everything, and we want to proceed with our rate application. That's the most important thing for us to do from a regulatory point of view this year. The read-through, if you will, to the rate application is very low. This was a very specific set of circumstances. The interpretation of the commissioners who heard our application was fairly narrow in terms of -- they interpreted one of the conditions being it didn't materially disrupt our operation from a financial point of view.

Our ROEs were so strong last year that they didn't feel there was any incremental revenues that were worthy of being authorized to compensate us for the cost and the disruption operationally that we endured. So it was strictly based on the strong financial performance we had last year that didn't feel anything else was worthy. That has nothing to do with '28 through '32. This is all about just the things David articulated, improving reliability, investing in the resiliency of the grid, promoting economic development in the province and delivering on electrification within the province.

Understood. And Harry, hopefully you [ feel ] better and best of luck to you and your family. Megan, congratulations.

Our next question comes from the line of Robert Hope with Scotiabank.

A bit of a longer-term question. So the federal government continues to speak on greater electric connectivity between the provinces and Ontario has spoken about the National Energy Corridor. So what is your thinking on Hydro One can benefit from this at all as well as any potential thoughts on timing?

Robert, thanks for that question. It's a really interesting hypothesis on building out East West transmission across the province. There are certainly areas where it does make sense across the country to have stronger ties. The 2 that come to mind most quickly for me are between Manitoba and Ontario and between Quebec and Ontario. And should that materialize and what that would likely mean is more transmission investment for Hydro One. We already have interties with both those provinces, and we already have right of ways.

So to the extent we're able to use those right away to add additional capacity or circuits, that would certainly position us well to be the lead developer on those new transmission lines. I think we have to wait and see when the federal government releases our electrification policy, which are going to be opening up to getting feedback from industry and provinces later on this year.

All right. And then maybe just moving on to Ontario. So Hydro One has been very successful in getting transmission projects allocated to it over the last year. It appears the government has largely cleared the backlog of its projects pending allocation. So do you expect to see a slowdown in projects allocated to Hydro One? Or is there a next wave of projects that you have visibility on?

Well, a lot of the projects, as you know, were driven by economic activity, starting with the greenhouse sector, so the agricultural sector, then following on with electrification in Southwestern -- Southern Ontario. And now it's moving into developing the resource sector in Ontario. So the 2 or 3 areas I would pay attention to, of course, there's the Ring of Fire and any expansion of any mineral processing up in Timmins as well comes to mind. So Ring of Fire, Timmins come to mind for mining expansion.

Electrification is going to continue. I'd be thinking about what are the steel mills going to do in Hamilton. They're going to have to probably follow a similar path to Algoma. And then, of course, there's a recent announcement by the government and Bruce Power looking at advancing Bruce C to the next stage of that development with an intent to come back in the -- by 2030, I believe, is the date and make a decision on that. So obviously, if Bruce C were to go ahead and get the green light or final investment decision, there'd be significant transmission investment that would have to be made to bring the power from Bruce Peninsula down to GTA and the Golden Horseshoe.

And then there's Wesleyville as well, which is further out that the Ontario government as well as OPG are looking at, and that would be double the size of Bruce C. So we do see projects coming down the horizon in the shorter term. So probably in the next 5 years, I'd be looking at mineral exploitation and development in the Ring of Fire and up around the Timmins area and other parts. Longer term, I might be thinking about some hydroelectric up towards the base of James Bay as well as nuclear development in the Bruce Peninsula and along the North Shore East of Toronto and Wesleyville.

All right. Appreciate that, David, all the best and, Megan, congrats.

Our last question comes from the line of Benjamin Pham with BMO.

First off, also congratulations, David, on your retirement as well. I wanted to start off on the storm cost impact, does that factor? And maybe you can -- I mean, you reaffirmed the EPS CAGR guidance, and it doesn't sound like the storm disallowance is impacting your earnings per share. But could you clarify if that's correct or not? And how do you think about does that factor going forward, just really the applicability of it? Does it make sense at all? And how do you think about recovering storm costs of that magnitude going forward?

Ben, there's a few questions there. Let me -- I'll go one by one. The denial of our request for incremental revenue doesn't affect the EPS guidance. We hadn't built it into the EPS guidance. And so the fact we're not getting incremental revenue is a wash for us, if you will. How do we think about it? It was a very narrow set of facts and a narrow application. We have normal course storm restoration expenses, expenditures, not just expenses, capital expenditures as well in our base. This was something that was extraordinary, and we believe it met all the tests for the Z factor and therefore, brought the application. But it doesn't mean that we will not have normal course storm restoration either costs in OM&A and capital expenditures in rate base. That's normal course for us.

So this was a truly extraordinary event with an extraordinary decision that isn't something that is the beginning of a pattern or a change in how storm restoration is impacted. One of the things that we need to think about in our rate application is putting in something like a deferral and variance account for extraordinary storm expenditures that would likely meet the test, but maybe not. And so that's something that we are considering at this point.

Okay. Got it. I totally understand. And maybe I can next go to the -- if you can maybe qualitatively compare and contrast the growth differences between the current JRAP and JRAP 2.0. I know specifically, you've mentioned that EPS is poised to accelerate, but I'm just curious more the building blocks of that EPS. You got the current guidance of 6% JRAP plus 2% plus on these various different levers. Can you comment on going forward, really if those variances could potentially be increasing over time? Do you expect to be a plus 2% and sustain that?

As much as I would love to, Ben, I can't. We have to, a, finalize the application and then get it approved. And once we do, we will hold an Investor Day, lay out all the expectations. Once we file, as Mark had asked, we will -- can summarize based on what's in the filing, impact on capital expenditures, et cetera. But until the application is approved, we can't really give any guidance because it is dependent on what is ultimately approved in the application.

Yes. Okay. Maybe if I can just try it a different way. I mean, let's say you got approved for a 6% JRAP again. Is the next 5-year period when you think about the priority transmission projects, the LDC opportunities, the broadband and rate base, is it much more positive outlook than how you view the current JRAP or is that 6% going up to 8% potentially?

Well, I can't at this point. The one technical piece is our joint rate application is for Hydro One Networks, Inc. Transmission lines will all be affiliate transmission partnerships. That's the term we use. They'll have their own rate application as they -- once they're ready to be energized. And they will go through the rate application process as well. So Hydro One Limited will be more than just -- I'll say, just, more than what is in the rate application. This is why we will hold the Investor Day once the rate application is approved, lay everything out.

We'll give us much context as we can post filing, but we have to be very careful. We do not want to get ahead of the application process because that is so important to make sure that we have a chance to make our case to the intervenors and the commissioners before we go public with any specific guidance that you're looking for. I wish I could give you a better answer, but I can't.

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

Thank you, Shannon. The management team at Hydro One thanks everyone for their time with us this morning. We appreciate your interest and your continued support. If you have any questions that we weren't able to address on the call today, please feel free to reach out, and we'll get them answered for you. We look forward to seeing everyone at our second quarter conference call in August. Thank you again, and enjoy the rest of your day.

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

Good morning, ladies and gentlemen, and welcome to Hydro One Limited's Fourth Quarter 2025 Analyst Teleconference. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Mr. Wassem Khalil, Director of Investor Relations at Hydro One. Please go ahead.

Thanks, Shannon. Good morning, and thank you for joining us for our quarterly earnings call. Joining me on the call today are our President and CEO, David Lebeter; and our Chief Financial and Regulatory Officer, Henry Taylor. On the call today, we'll provide an overview of our quarterly results, and then we'll answer as many questions as time permits.

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

With that, I'll turn the call over to our President and CEO, David Lebeter.

Thank you, Wassem. This morning, I'll provide an update on our recent activities and accomplishments during the quarter. Then Harry will take you through the financial results. As I look back on 2025, I can't help but reflect on the growth in energy demand that's forecasted for Ontario over the next 25 years. This growth is driven by new homes, businesses, electric vehicle manufacturing and charging, mining, agriculture and advanced manufacturing, and it's reshaping the province's economic landscape. For Hydro One, this represents both a responsibility and a tremendous opportunity, a responsibility to build in a safe and fiscally prudent manner, the infrastructure that will power Ontario's communities and businesses and create long-term value for our shareholders.

We are acting now by delivering reliable power where it's needed the most when it's needed. By building the lines that enable Ontario's success, we are positioning Hydro One for sustainable growth, supporting local jobs, businesses, Ontarians, strengthening the Ontario-based supply chain and delivering reliable electricity to all our customers. We are connecting power and possibilities for the people of Ontario. I'm happy to report that we had another strong year for safety in 2025. And as we all know, a safe workplace is an essential foundation of operational excellence. As of this month, we have worked 20 consecutive months without a high-energy serious injury or fatality.

And in 2025, our recordable injury rate was 0.68 per 200,000 hours, well below the world-class benchmark of 1. These achievements reflect the professionalism of our crews across the province and highlight what is possible when we work together to achieve a common goal. The extreme weather events in December put our operational capabilities to the test. We experienced two back-to-back storms affecting more than 250,000 customers. In response, our teams mobilized quickly, safely restoring power under exceptionally challenging conditions.

We were there when our customers needed us the most, and we didn't stop until every customer was restored. Our focus on reliability, operational excellence and customer service continues to translate into strong customer satisfaction results. In 2025, residential and small business customer satisfaction remained strong at 88%. Commercial and industrial customers rated us at 82%. Transmission customers gave us 79%. While we recognize there is more work ahead, these results demonstrate meaningful progress towards positioning Hydro One as a trusted energy partner, a partner whose investments deliver tangible value to its customers.

In 2025, we continue to invest in the infrastructure needed to support the province's rapid electrification and economic expansion. We deployed approximately $3.4 billion of capital and in service approximately $2.9 billion of assets, reinforcing our commitment to build a resilient, reliable and future-ready grid. At the same time, we remain highly disciplined as stewards of the customers' dollars. Through our energy -- through our enhanced focus on productivity, we generated approximately $254 million in savings across capital and operating expenditures. This reflects our commitment to fiscal prudency, optimizing every dollar we invest to generate the most value for our customers.

As I mentioned earlier, Hydro One is playing a central role in enabling Ontario's growth through the development of new large-scale transmission infrastructure. We continue to work collaboratively with partners to develop and build the critical lines to support this growth. In November, we were designated to develop and seek all necessary approvals for the construction of a new priority 500 kV double circuit transmission line between Bowmanville and the Greater Toronto area. The line will support economic growth in the region and deliver clean electricity from the first four small modular reactors in the Darlington nuclear facility. It is expected to be in service in the early 2030s.

We also filed a leave to construct, our Section 92 application with the Ontario Energy Board for a 230 kV double circuit transmission line in the Niagara region in Southern Ontario. The line will run from Thorold to Welland, supporting capacity and reliability in the region's clean energy future. The approximately $311 million project is expected to be completed by 2029. Subsequent to the quarter, we were designated to develop and seek all necessary approvals for the construction of the Greenstone transmission line in Northern Ontario. The project will be a 230-kilometer single-circuit transmission line that will be designated for future expansion.

The line will enhance reliability for Northern communities and support economic growth in the mining sector. This project is expected to be in service in 2032. Lastly, earlier this week, Hydro One was designated to develop and seek all necessary approvals for the construction of the Barrie to Sudbury Transmission Line. The project will be approximately 290-kilometer long, single-circuit, 500 kV transmission line and is expected to be in service in 2032. Development work on a single -- on a second single circuit 500 kV transmission line will also be carried out to support new generation opportunities in Northern Ontario.

All of these projects -- across each of these projects, our 50-50 First Nations equity partnership model ensures that proximate First Nations share directly in the value created by the transmission line components. I also want to highlight the successful completion of the Chatham to Lakeshore transmission line in 2024, which represented the first project to be completed through our 50-50 First Nations equity partnership model. As of earlier this month, all 5 partner First Nations have secured financing and are now equity partners, marking a milestone in how well -- marking a milestone in how we advance reconciliation, community partnerships and economic inclusion.

None of this progress is possible without the dedication of our employees. They are the heartbeat of Hydro One and their commitment drives our success. I am pleased to share that the collective agreement that was reached with the Society of United Professionals on January 13, 2026, was ratified by the union members earlier this month. The collective agreement covers engineering, supervisory and other professional roles and takes effect from October 1, 2025, and runs through March 31, 2028. I want to thank both bargaining teams for negotiating in good faith to reach an agreement that supports employees, customers and long-term health of our company. Before I pass the call to Harry, I want to acknowledge the Hydro One's recognition as one of Canada's best employers for 2026 by Forbes and Statista.

The ranking is based on recommendations from employees and professionals who view Hydro One as a desirable employer. These rankings are derived from independent surveys of more than 37,000 Canadian-based employees working in companies with a minimum of 500 employees in Canada. We are proud of the culture we continue to build, one rooted in inclusion, empowerment and a sense of belonging. Our teams feel heard, valued and motivated to excel. Just as importantly, we share a strong sense of purpose. The work we do matters to this province and to everyday Ontarians who rely on us. That commitment fuels our culture and drives our success.

With that, I'll turn things over to Harry to discuss our financial results. Harry, over to you.

Thank you, David. Good morning, and thank you all for joining us today. As David highlighted, we had a very strong finish to the year, and we look forward to continuing to deliver on our commitments in 2026. In the fourth quarter, we delivered basic earnings per share of $0.39 compared to $0.33 in the fourth quarter of 2024. On a full year basis, earnings per share were $2.23 compared to $1.93 in 2024. Our net income in the quarter was higher by 16.5% compared to the same period from a year ago.

The key drivers behind the result this quarter include revenue growth driven by volume growth in transmission and distribution as well as OEB-approved 2025 rates and also lower OM&A costs, primarily due to the lower corporate support costs. Now these were partially offset by reductions in revenue net of purchased power due to regulatory adjustments, primarily resulting from higher earnings sharing, which we account for in the fourth quarter, a higher interest expense due to an increase in long-term debt outstanding and higher income tax expense due to the increase in pretax earnings.

On a full year basis, our net income was higher by 15.8% with the key drivers of the increase being higher revenues net of purchased power due to OEB-approved 2025 rates as well as higher average monthly peak demand in transmission and growth in customer count and energy consumption in distribution, partially offset by the accounting for the higher earnings sharing mentioned earlier and also lower OM&A costs, primarily due to lower work program expenditures as well as lower corporate support costs. Now these positive drivers were partially offset by higher depreciation, amortization and asset removal costs due to the growth in our capital assets, higher interest expense and higher income tax expense.

Both our transmission and distribution segments performed well this year. And as a result of our efforts, we were pleased to share approximately $166 million with our customers through the reduction in future rates. On the productivity front, we are happy to report that our efforts in the year resulted in us achieving approximately $254 million in productivity savings. This achievement continues the trend we have delivered in prior years and reinforces our commitment to keeping costs as low as possible. The savings were delivered as absolute reductions in spending, reduced unit costs or greater noncustomer revenue, all of which flow back to our customers in the form of reduced rates in our next rate period.

Our fourth quarter revenue, net of purchased power decreased year-over-year by 5.2% Transmission revenues decreased by 2.8%, primarily due to regulatory adjustments, including the higher earnings sharing. These were partially offset by stronger average monthly peak demand and increased revenues from OEB-approved 2025 rates. Distribution revenues, net of purchased power decreased by 10.1%, mainly due to the regulatory adjustments, including higher earnings sharing and lower revenue associated with mutual storm assistance costs recovered from third parties. These were offset by increased revenues from OEB approved 2025 rates, higher energy consumption and higher customer count. On the cost front, operating, maintenance and administration expenses in the quarter decreased by approximately 30.8% year-over-year.

In the Transmission segment, costs were lower by 37.5%, mainly due to lower corporate support costs and lower work program expenditures attributable to facilities maintenance and vegetation management. In the Distribution segment, costs decreased by 25% due to reduced mutual storm assistance costs and lower fuel costs of Hydro One Remotes as well as lower corporate support costs. These were partially offset by higher work program expenditures, including emergency restoration and vegetation management. Depreciation, amortization and asset removal expenses for the fourth quarter were essentially unchanged year-over-year. With respect to our financing activities, we saw a 10.8% increase in interest expense year-over-year. This was mainly due to the increase in our outstanding long-term debt following the additional issuances we executed during the year, partially offset by capitalized interest.

During the quarter, Hydro One issued $1.6 billion of medium-term notes. This consisted of $1.2 billion of 3.9% notes due in 2033 and $400 million of 4.8% notes due in 2056. In 2025, Hydro One issued a total of approximately $2.7 billion in medium-term notes to support our capital program and to refinance maturing debt. All of the issued notes were completed under our sustainable financing framework. Our balance sheet continues to be in excellent shape, along with our creditworthiness. Our FFO to net debt ratio as at December 31 was 14.2% and remains well above the threshold limits the rating agencies use to trigger a credit rating review.

Turning to taxes. Our income tax expense in the quarter was $30 million compared to $17 million in the same quarter last year. The increase year-over-year was primarily due to the increase in pretax earnings. As a result, our effective tax rate this quarter was 11.4% compared to 7.8% a year ago. On a full year basis, our 2025 effective tax rate was 14% compared to 13.4% realized in 2024. We continue to expect our effective tax rate to be between 13% to 16% for the remainder of the JRAP '23 period. Looking at our capital expenditures. In the fourth quarter, we invested $939 million, which was an increase of 17.5% over the same period in 2024.

The increase resulted from investments in our Transmission segment. specifically the Waasigan transmission line, the St. Clair transmission line and other major development projects as well as higher spend on distribution customer connections. These were partially offset by a lower volume of line refurbishments and a lower volume of wood pole replacements in both the transmission and distribution segments. On a full year basis, capital expenditures were approximately $3.4 billion, representing an increase of 9.9% compared to 2024, primarily due to the items mentioned earlier. Looking at our assets placed in service. In the fourth quarter, we placed $1.3 billion in service for our customers, which was an increase of 19.1% compared to the prior year.

In the Transmission segment, we saw an increase of 26.4% year-over-year, primarily due to timing of assets placed in service for station refurbishments and replacements as well as investments placed in service for customer connection projects. These were partially offset by the absence or overlap of the in-service addition relating to our Chatham by Lakeshore transmission line, which was placed in service in 2024 as well as a lower volume of line refurbishments and wood pole replacements. In the Distribution segment, in-service additions increased by 2.6% from the prior year due to investments in the broadband initiative and the advanced metering infrastructure or AMI 2.0 system. These were partially offset by a lower volume of wood pole replacements and line refurbishments.

For the full year, we placed approximately $2.9 billion of assets in service for our customers, which was an increase of 17.8% compared to full year 2024. And that year-over-year increase was mainly due to the higher distribution and service additions. Looking ahead, we continue to expect earnings per share to grow between 6% and 8% annually for this rate period using the normalized 2022 EPS of $1.61 as a base. Finally, I'm also pleased to report that our Board of Directors declared a dividend of $0.3331 per share payable to common shareholders of record on March 11, 2026.

With that, we will open the phone lines and be happy to take questions.

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

[Operator Instructions] Our first question comes from the line of Robert Hope with Scotiabank.

Question is on the IESO launching the new competitive procurement for transmission in the province. How do you think future large-scale transmission projects could fall under this program? And how does Hydro One position itself in a competitive environment?

Robert, thanks for that question. As you know, the IESO has just kicked off that process, and they're still taking input from the different participants who might bid into that market such as ourselves. So we're hopeful that they're going to come up with realistic criteria for determining which transmission lines do go into the competitive process. I feel fairly comfortable saying that it probably won't include lines that are time constrained, need to be built quickly or infrastructure on our existing right of ways that we use the same corridors that we do.

What they will be looking for, I anticipate is transmission lines, we have a bit longer runway because we all know the competitive process takes more time and they're greenfield for the full length, which eliminates a lot of conflict. But we've been participating, as I said, providing feedback on our thought process. I know others have, and we look forward to hearing what they can bring forward later on this year.

Appreciate that. And then sticking with the government. So the Ontario launched the expert panel on local electric distribution, the [ Pulse Panel. ] What would you like to see come out of this? And do you think we could see increased consolidation on the back of this?

Yes. I think there is a potential for increased consolidation further out, but that isn't the government's intent when I talk to them. What they were trying to do is make sure that all the local distribution companies, whether they be large, such as ourselves or the small ones are adequately financed to make the investments they need to make in a system, which is, in many cases, end of life and in many cases, not for the economic activity or the growth that it needs to support.

So I'm looking forward to the results of the panel. I think it will be positive for this industry. I do expect it will identify some local distribution companies that do have funding challenges, which may lead to consolidation. But as I said, that wasn't their original intent. And I think it will give a clearer picture of the state of the electric -- the distribution system in Ontario.

Our next question comes from the line of Maurice Choy with RBC Capital Markets.

I just wanted to ask about the 5 partner First Nations that have secured financing for the Chatham to Lakeshore line. I recognize that there are different First Nation groups across different projects. So not all these projects have the same 5 partners. But was there any indication in your process that would suggest to you that we wouldn't have the same outcome across all your backlog projects?

Maurice, David Lebeter. It was a very good process. We had many, many long conversations with the partners. I believe if you were to speak with them, they would say they're very happy with the partnership and where they landed with the financing they were able to arrange. And I don't see any indication that this will get more challenging as we move across.

There are 129 different nations in the province of Ontario. And of course, given the transmission build that we have, we're going to be interacting with many of them. But the goal was to set a foundation or a template, if you like, that we can replicate across the province. And we've gotten support from our First Nations partners in doing that. It makes it easier for them, makes it easier for us, which allows the projects to move forward faster and creates certainty for everybody in what they can expect as we move forward.

And Maurice, it's Harry here. I would just add, Chatham by Lakeshore was a watershed both for us, for our First Nations partners, but also the financial institutions supporting the nations. I think everybody learned through the process of the 5 nations, there are 4 different providers of capital, one of which is not supported by a federal or provincial guarantee.

So everybody learned a lot, and we're pretty optimistic as we look ahead to our future partnerships that things will get easier and we know what to do, how to do it, what the processes that the different institutions use, et cetera. So we are really excited about the opportunity and the potential for our partnerships and the support that they -- our partners receive from different elements of the communities.

Maybe as a quick follow-up to that. Is there a way to size up the capacity that they have given that your backlog is just growing right now from 10 to 14 right now. And if they participate across the transmission projects at a 50% rate, you have an ability to issue equity. Do they have the similar ability? Or is it capped at some point?

Maurice, what we've seen is a great expansion in the market of people willing to lend to the nations on these types of projects. These are, as you know, low-risk projects, so they're ideal for them to go out and borrow money. At this point in time, we don't see any concerns, but it's certainly something everybody is keeping an eye on, and I'll just reiterate, the expansion of the capital market that's willing to support these type of projects was really impressive to see.

That's great news. Maybe just to finish off, obviously, as a regulated utility, managing affordability is part of your day-to-day operations. So nothing new there. But ahead of your JRAP filing, I wonder if you could just give us some color on your early engagement with some of the stakeholder groups, what their sentiment is like, what they're willing to accept in terms of rate increases? Or are they going to prioritize investments in?

Maurice, we have engaged in 2 rounds of -- well, customer engagement, laying things out quite clearly in terms of what we're proposing and what the impacts on. And we have been very happy with the results. We see very strong support for the investments we're proposing to both expand the capacity of our -- both distribution and transmission networks, but also support improved reliability.

So the bill impacts are explicit in our customer engagement, and we put them through exercises of trade-offs. It isn't crazy, but the support for significant investment has been both reassuring and comforting for us. So I can't give much more for that. You'll see a lot of the details in our rate application, which we will be filing late summer, early fall this year.

Maurice, if I might just add on top of that. The last time we went out, we did about 40,000, 45,000 customer interviews for JRAP '23. For JRAP '28, we reached out and connected with over 100,000 customers. So we think we got a really strong feedback from that group. We have a good understanding what they want. And a lot of these investments are focused on improving reliability and expanding capacity. These are investments that communities, citizens and businesses value.

Is there a way to compare the sentiment and tone between the '23 and '28 JRAP engagements?

It's largely the same in terms of the support for what the proposals are. And that's across all customer segments. So we have residential. We also have small commercial industrial, large commercial industrial, and then there's another group as well. And consistently, the support is there. I think statistically, we're down a little bit, but it's still more than -- more than 2/3 or something are supportive or very supportive and willing to -- they understand the bill impacts and still support it.

Our next question comes from the line of Mark Jarvi with CIBC.

Just wanted to follow up on the last question and answer. Obviously, with the transmission lines being awarded to you, there's certainly a timeliness and urgency of that. Just when you think about the other things that you could flex in your budget, you're planning for next JRAP when you talk to customers, what's sort of the dialogue around deferring some sustaining CapEx? Obviously, reliability is important. I'm just wondering what they're thinking in terms of growth versus reliability trade-offs right now.

When we do the customer interaction, we actually tell them what the investments are going to do, whether they're going to create reliability, whether they're enabling non-wire solutions, whatever that happens to be. And given the growth that we're going through right now, our asset planning team is really pushing anything that isn't urgent out. We don't want to be spending money where we don't need to because we want to recognize the impact on the bills. So it's really our investments are focused on the areas that the equipment is at end of life or the reliability isn't up to standard. It's a lower reliability.

We want to improve that or there might be economic growth in the area that's being held back because of capacity. Those are the sort of investments we're doing. Where we can delay and the way we do this is we can put a monitoring on the equipment, so we have a better understanding of what's happening. We can change our maintenance regime. So we look at it more frequently or touch it more frequently to keep it going or in some cases, we're able to change the loading on a circuit or a system that helps prolong the life. So we're trying to extend the life so we get the maximum value out of every asset we have and put the dollars where they're most needed.

Makes sense. And then Harry, maybe you can comment in terms of the incremental capital you plan to spend in '26 and '27, how might that impact earnings? Like I'm not sure if you get a recovery on that. Does it create a little bit of a drag with higher financing costs? Just how does that higher CapEx translate to earnings over the next couple of years?

It's a limited impact, Mark. We will have some incremental interest expense; however, we've been able to achieve some really good coupons on the bonds that we're issuing. We're actually ahead of where our expectations were for this year -- we were for last year, and I'm hoping we will for this year. Most of it will not go in service. Most of the incremental will not go in service this year. So we won't be earning anything on it. But we do not think it will create any drag. It's why we're sticking with the guidance that we previously published.

Our next question comes from the line of John Mould with TD Cowen.

Maybe just going back to your [ OM&A ] profile. On an annual basis, it was down about $100 million year-over-year. Can you give us a little more color on, I guess, a, what the lower corporate support costs were? And then b, how should we think about your OM&A run rate going forward, just given your assets in service at the end of 2025?

John, it's Harry here. The reduction were driven twofold from a corporate and more broad period. One, we had a pretty significant severance accrual in last year for a voluntary separation program that we ran at the beginning of this year. And that paid off in terms of reductions in both corporate but also field costs. In addition, with our growth in capital expenditures and in-service assets, we capitalized some corporate overhead support costs, all in line with the OEB approved model.

So between the overlap of the severance, the reduction in salaries and benefits and corporate costs and capitalization of more on a year-to-year basis, we saw that significant reduction. The run rate will be used this year as a base and start to move. Our productivity initiatives are certainly paying off and helping us, less in corporate, although they're there, but also in field as well. And so I'm confident our OM&A cost run rate will not suddenly spike back up, if you will, that this is a sustainable level.

John, it's David. You can take a look at the Joint Rate Application '23 filing, you'll see the approved envelopes that we got for the OEB. We are going to live within those envelopes. So you can use that as a proxy for our run rate for the next two years.

Yes, that's great. And then just on M&A, in the past, you've mentioned a willingness to consider M&A outside of Ontario, but limited to neighboring jurisdictions. Wondering what you're seeing in that in the market in terms of potential opportunities that might fit within the criteria you've laid.

Yes. We haven't seen anything. We've got lots of work on our plate in Ontario. As I said in other calls, we're not outside Ontario looking for opportunities. But if the right opportunity came along, and it wasn't going to distract us from our primary focus, which is building the 14 transmission lines and running our distribution system in Ontario, we would certainly take a look at it. But we don't have anything on our plate right now, and we're not actively looking.

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

Thank you, Shannon. The management team at Hydro One thanks everyone for their time with us this morning. We appreciate your interest and your continued support. If you have any questions that weren't addressed on the call, please feel free to reach out, and we'll get them answered for you. Thank you again, and enjoy the rest of your day.

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.

Good morning, ladies and gentlemen, and welcome to Hydro One Limited's Third Quarter 2025 Analyst Teleconference. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Mr. Wassem Khalil, Director, Investor Relations at Hydro One. Please go ahead.

Good morning, and thank you for joining us for our quarterly earnings call. Joining me on the call today are our President and CEO, David Lebeter; and our Chief Financial and Regulatory Officer, Harry Taylor. On the call today, we will provide an overview of our quarterly results, and then we'll answer as many questions as time permits.

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

Thank you, Wassem. Good morning, and thank you for joining us for our third quarter 2025 earnings call. This morning, I'll provide an update on our recent activities and accomplishments during the quarter. Then Harry will take you through the financial results.

Before we begin, as many of you know, I temporarily stepped away from my role as President and CEO on August 25, 2025, on a compassionate basis to care for a family member. During this time, I continue to support the company on an advisory basis. And as announced in our press release this morning, I reassumed my duties effective November 12, 2025. I would like to thank everyone for their understanding, messages, e-mails and words of support as my family and I navigate this difficult journey. We are very appreciative and grateful for the support that we received.

I would also like to extend my thanks to Harry Taylor who in addition to his role as Chief Financial and Regulatory Officer, assumed the role of Interim President and CEO, during my absence. Under Harry's guidance, the company continued to execute on our stated objectives and deliver on our promise for all Ontarians. Thank you, Harry.

On to the quarter. As always, safety comes first at Hydro One. Our focus on being an efficient and agile company is supported by our policies and systems that prioritize workplace safety as well as public safety, public health and safety. By empowering our employees to take actions for their health and safety ourselves, coworkers and our communities. Together, we can achieve a workplace free of life-altering injuries and fatalities.

Ontario is facing historic growth in demand for electricity driven by continued economic growth, the electrification of the transportation and manufacturing sectors, population growth as well as industrial expansion and evolving technologies.

Over the next 25 years, the Independent Electric System Operator or the IESO, anticipates electricity demand to increase 75% by 2050. Hydro One is proud to play a pivotal role in serving the new load. With our provincial, indigenous, municipal and industry partners, we are and will continue to build a reliable, resilient, sustainable and affordable energy system for generations to come.

On September 9 of this year, alongside First Nations partners and provincial and municipal leaders, Hydro One celebrated the groundbreaking of the St. Clair transmission line project in Southwestern Ontario. The project involves constructing a double-circuit 230 kilovolt transmission line, expanding the existing Chatham Switching Station and Lambton Transformer Station and converting the existing Wallaceburg Transformer Station to 230 kV.

The total investment nin the project is expected to be approximately $472 million with an in-service date in 2028. The transmission line will support improved grid resiliency and reliability as well as enhanced economic growth in the region.

Along with powering homes, businesses and industry, it will support key industries including the agricultural sector and electric vehicle technology. Farming and food production are economic cornerstones in this region, and the line will help enable the expansion of farming operations to support a reliable and affordable local food supply chain in Ontario.

The project will also support electric vehicle manufacturing, providing a reliable supply of clean electricity to develop a secure supply chain in Ontario. St. Clair transmission line as part of a network of projects in the region, including the Chatham to Lakeshore line that was energized in late 2024 and along with the Lakeshore transmission line being developed in collaboration with five First Nation partners.

Through Hydro One's 50-50 First Nation equity partnership model, First Nation partners have been offered a 50% equity stake in the transmission line component of the project.

Integrated energy plan released in June of this year highlighted the need for additional transmission capacity in the Red Lake area in Northwestern Ontario. This area is a key region for Ontario's critical minerals with several mining projects that will create large electricity demand.

In August, the ISO released the Northwest Region Integrated Regional Resource Plan addendum, that recommend the urgent development of the Red Lake transmission line. This line will be a new double-circuit 230 kV transmission line that run from the Dryden transformer station up to the Red Lake switching station, along with associated station facilities to meet the growing demand capacity need after 2028.

On October 29, 2025, the government announced the proposal to declare the Red Lake transmission line as a priority project and also proposed to designate hydros a transmitter for the project. The proposal is subject to required approvals and community consultation, including consultation with indigenous communities.

In response to continued uncertainty surrounding tariffs and trade, Hydro One has been working to identify further actions to limit our exposure and the impact of tariffs. These actions have focused on the diversification of our supplier base beyond the United States, the prioritization of Canadian suppliers to reduce costs and encourage manufacturing within Canada to support a domestic supply chain.

Now more than ever, we must focus on investing in homegrown businesses to build a strong, secure and self-reliant supply chain to further reduce risk. Recently, Hydro One was at a groundbreaking ceremony that will see Northern Transformer, a leading Canadian manufacturer of high-voltage power transformers expand its manufacturing facility in Ontario. This expansion will support the demand for high-quality, reliable and timely power transformers to support grid modernization and electrification initiatives across the province.

Hydro One is proud to support the growth of the Canadian supply chain and is committed to spend approximately $165 million per year to secure energy infrastructure from Northern Transformer. Their high-voltage transformers will support a reliable supply of electricity across the province and like us, the roots are in Ontario. We congratulate Northern transformer on their expansion and look forward to our continued partnership to develop for the people of Ontario.

The strength of our culture and the way we support each other and our communities shine throughout the year. This particularly on display during our signature Power to Give campaign that takes place every September. This year, Hydro One employees once again demonstrated their generosity and community spirit, raising more than $2.1 million. Employees also logged more than 5,200 volunteer hours in support of their communities. It is a remarkable achievement that will make a real difference in the lives of people and families across the communities where we live and work, and I'm incredibly proud of our employees only for their efforts in September for the way they gave back all year long. Their compassion and dedication to support and others embodies one of our key values and reflects the best of who we are at Hydro One.

Our vision of building a better and brighter future for all is also reflected in the work that our teams do. We are pleased that our work and dedication continues to be recognized.

For the second consecutive year, Hydro One has been named Company of the Year with the Ontario Energy Association. This award recognized both our technical contributions to strengthening Ontario's Energy Grid and the meaningful partnerships that are helping power a brighter future for the province. We are deeply honored by this recognition of our role in Ontario energy transition and proud of the dedication, skill and resilience of our people. Hydro One continues to grow, adapt and deliver for the people of Ontario at a time when the energy system is transforming faster than ever before.

With that, I will turn the call over to Harry to discuss our financial results. Harry, over to you.

Thank you, David. I am happy to say on behalf of everyone at Hydro One, welcome back. and good morning to everyone on the call, and thank you for joining us today. In the third quarter, we delivered basic earnings per share of $0.70 and compared to $0.62 in the third quarter of 2024. The key drivers behind the year-over-year change included higher revenues net of purchased power due to higher 2025 approved OEB rates and higher average monthly peak demand. These were partially offset by higher depreciation, amortization and asset removal costs due to the growth in our capital assets. And higher interest expense primarily due to an increase in long-term debt outstanding. And higher income tax expense, primarily due to higher pretax earnings.

Our third quarter revenues net of purchase power increased year-over-year by 7%. In the Transmission segment, revenues increased by 9.4% year-over-year. primarily due to a higher average monthly peak demand. Higher revenues due to OEB-approved rates for 2025, coupled with revenue from our Chatham by Lakeshore transmission line following its in servicing in Q4 2024. And finally, equity income from Hydro One's investment in the East West Tie Limited partnership, which we closed in the first quarter of this year.

Distribution revenues net of purchase power increased by 4.2% year-over-year, primarily due to the changes in OEB approved rates for 2025. We continue to see strong energy consumption within the Distribution segment, along with growth in the number of customers we support.

On the cost front, operating, maintenance and administration expenses in the quarter were higher by 0.7% compared to the same period last year. In the transmission segment, costs were lower by 3.5%, mainly due to lower work program expenditures, including vegetation management expenditures partially offset by higher corporate support costs.

In the Distribution segment, costs were higher by 5.8%, mainly due to higher corporate support costs resulting from lower capitalized overheads and higher bad debt expense. These were partially offset by lower work program expenditures, including vegetation management expenditures.

Depreciation, amortization and asset removal expenses for the third quarter were higher by 3.4% year-over-year. This was due to the growth in capital assets as the company continues to place new assets in service, partially offset by lower asset removal costs.

And with respect to our financing activities, we saw an 8.9% increase in interest expense year-over-year. This was mainly due to a higher amount of long-term debt and a slightly higher weighted average interest rate on our long-term debt.

During the quarter, Hydro One issued $1.1 billion of medium-term notes. The issuance was comprised of $450 million of 3.94% notes due in 2032, and $300 million of 4.3% notes due in 2035, and $350 million of 4.95% notes due in 2055. The issuances were completed under our sustainable financing framework.

We continue to be one of the largest issuers of corporate debt in Canada. And Canada continues to be our primary market for debt capital. However, as our funding needs continue to grow, we need to ensure that we have the financial flexibility to support our development and construction programs. To ensure we have this flexibility, we filed a U.S. debt shelf prospectus in the quarter that will provide us with the ability to issue debt in the U.S. capital markets. Being able to issue debt in the U.S. will provide us with an additional tool in our toolbox to help finance our capital expenditure programs. We will be responsive to market conditions as we broaden our funding alternatives and the aim to execute our inaugural issue in 2026.

Our balance sheet continues to be in excellent shape, along with our creditworthiness. Our current annualized FFO to net debt metric of 3.6% remains well above the threshold limits the rating agencies use in determining our credit rating.

Turning to taxes. Our income tax expense in the quarter was $60 million compared to $56 million in the same quarter last year. The increase was primarily due to a higher pretax earnings, which were partially offset by higher deductible timing differences compared to last year. The effective tax rate this quarter was 12.4% versus an effective tax rate last year of 13%. We continue to expect our effective tax rate to be between 13% and 16% for the remainder of this rate period.

Moving on to capital expenditures. In the third quarter, we invested $779 million which was an increase of 0.8% over 2024. The increase occurred in the transmission segment as a result of investments in the Waasigan transmission line and the St. Clair transmission line. These were partially offset by the overlap of investments in the Orillia distribution warehouse last year.

In the Distribution segment, we saw a decrease primarily due to a lower volume of wood pool replacements, lower spend on system capability reinforcement projects, lower investments in the Orillia operations center, the Orleans Operations Center and the Orillia distribution warehouse as well as a lower volume of work on customer connections compared to last year. These were partially offset by investments supporting Ontario's broadband initiative.

Looking at our assets placed in service. In the third quarter, we placed $577 million in service for our customers, which was a decrease of 3.4% compared to the prior year. In the transmission segment, we saw a decrease of 21% year-over-year, primarily due to the timing of assets placed in service for station refurbishments and replacements. These were partially offset by investments placed in service in Sault Ste. Marie, upgrading an existing line.

In the Distribution segment, in-service additions increased by 18% from the prior year due to assets placed in service for our second-generation advanced metering system and timing of investments placed in service for system capability reinforcement projects. These were partially offset by a lower volume of wood pole replacements, a lower volume of work on customer connections and timing of investments placed in service for information technology initiatives. Looking ahead, we continue to expect earnings per share to grow between 6% and 8% annually through 2027, using the normalized 2022 EPS of $1.61 as a base.

Finally, I'm pleased to report that our Board of Directors declared a dividend of $0.3331 per share payable to common shareholders of record on December 10, 2025.

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

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

[Operator Instructions] Our first question comes from the line of John Mould with TD Cowen.

Good to have you back, David. I'd like to start with the government's Pulse Panel on the broader environment for LDCs. I guess that's a fair way to characterize that. Looking for an early read on that process for you, what does that say about where LDC financing is going in Ontario? And at a first blush, could this create more opportunities for your organization? Or -- so maybe an indication that the government is looking for alternatives to the gradual consolidation. I think it's fair to say has been pursued historically.

Nice to hear you on the line this morning. I expected a question on Pulse. I think you're right. It is very early to actually definitively say what is going to happen there. But ultimately, what the government wants to do is ensure that all the distribution companies in Ontario have a good plan. They understand the investments they need to make going forward. And they're adequately financed and understand where that financing will come from so they can make those investments to support the growth that I talked about by the ISO, the 75% increase in demand for energy in the province by 2050.

So that is the ultimate goal. If it was to result in further consolidation, we would certainly be open to that. We're certainly going to be participating, but that we'll have to wait and see where it goes. I haven't actually had a chance to meet with the Minister of Energy on that topic yet, and I look forward to that meeting. So I can have a better understanding myself of where they're going.

Okay. And then maybe just one on the U.S. debt shelf. When you think about the next JRAP period, and I appreciate you don't want to get ahead of your filings, but just what range of debt financing do you think you might consider drawing from U.S. markets just considering the deeper liquidity that's letting you consider that in the first place?

John, this is Harry answering the question. Our first issue needs to be large enough to be meaningful. We need to build both awareness and our brand for lack of a better term, with the U.S. fixed income investors. So A, it will not be small. And as I mentioned in the prepared remarks, Canada is always going to be our primary market. But as we look ahead and see the funding needs that we have to support not only our investments in the current period, but as we think the accelerating investments into the next period, we need to have a substantial U.S. program as well.

We do need to make sure that we're being prudent. And so we're not just going to slavishly drive in and take 1/3 of our program and put it into the market. If on a swap-back basis, it's more expensive to do so. So the market conditions need to be right. It will be meaningful, but we don't have a specific target or allocation. And we'll see.

Certainly, as we've studied other utilities as they've gone into other markets, you clearly see then doing two things: One, building an awareness being the new kid in town, in a new market, but ensuring that on a swap-back basis it is still attractive from a financial point of view and hopefully accretive ultimately versus what could otherwise be there in terms of interest expense.

Our next question comes from the line of Maurice Choy with RBC Capital Markets.

Thank you, and good morning, everyone. I just want to come back to a comment earlier about financial flexibility. Given the rising growth capital expenditures that your company is experiencing. Beyond the ability to issue USD dominated debt, what are the options are you exploring? And perhaps you were looking in the past?

Maurice. Everything is on the table, if you will. There's nothing urgent. Through the next couple of years, we are comfortably able to fund our capital expenditure program through funds from operation and continued borrowing.

As we look ahead, we're assembling our rate application and preparing the financial projections that support that. And we will need to supplement debt with equity investments and/or something like a hybrid or a convertible as well. So we're looking at the range of options could include bringing a financial partner in some specific projects, if that is ultimately the lowest cost of capital more attractive. So we are not constraining ourselves just one lane, but looking for the best alternative or alternatives available to us to keep our overall cost of capital as low as possible and support the investment profile.

But I do want to reiterate, through the next couple of years, we have no need for anything beyond the funds that we generate from our operations and the debt financing. Dependent on where we -- what happen through the rate application, we'll have clarity around the capital spending program in the next rate period, and we'll be doing the work behind the scenes to get ready so that there's never an issue in terms of funding our CapEx program.

Just a quick follow-up. Has there been any change in the timing of when you file the rate application, I think, fall of 2026...

Still planning on fall of 2026. We want to make sure we've got sufficient time to work through the process and not run up against the end of 2027.

Understood. And if I could just finish off with backing into the expert panel that was launched by the government, it feels like this review was something that was done in the past, I recall back in 2018 and 2022, I think, there was a similar review being done and it doesn't seem like we saw a lot of consolidation after even though it was recommended. Any thoughts about what may change this time around to either, A, come up with a different outcome of a report, or B, even a different outcome in terms of actions and behaviors from the 50 other LDCs?

Maurice, it's David speaking. As I said earlier, my to a previous question. I don't believe the panel is actually trying to drive consolidation. They want to make sure that the electricity sector in Ontario can support they have growth in demand that is going to be coming over the next 25 years. So from that perspective, it's a little bit different than those other reviews that were done in the past that we're strictly focused on consolidation. That is not the focus of this panel.

[Operator Instructions] Our next question comes from the line of Benjamin Pham with BMO.

Just wanted to go back to your guidance of 6% to 8%. I want to maybe help to get your comments on your year-to-date earnings per share has been well above that. It looks like it's 14% or so year-to-date. And just curious really your thoughts on that outperformance? And how do you think about the outlook going forward? Is there some puts to think about as you think about that to guide through 2027.

Ben, it's Harry. The -- we are definitely generating earnings growth above what our guidance over the entire rate period is. And this performance this year has been a very pleasant favorable variance driven a lot by load. And so we've seen in both transmission and distribution above what we had put in our own internal budget, what we used in our assumptions for the guidance that's given us this favorable variance.

Now load comes, load giveth and load taketh away. We've also had years where it's been the other where weather hasn't been as volatile or is extreme, and we've seen the other trend as well. So we're sticking with the 6% to 8% over the period. So that we're not going to push expectations up and then have to come back and say, "Oh, load didn't materialize the way it had in 2025 and end up disappointing". So that's the cold hard fact why where we are.

So it sounds like if load doesn't at least decline through 2027, you're nicely tracking above that range? Or you will be nicely tracking above that range?

It's yes, it's possible. I don't want to say anything more than that.

Okay. I know -- thanks -- I mean it's the second or second topic I wanted to ask is on the -- you think about the JRAP, the higher CapEx and even all the priority transmission projects you have, like there's a huge series of them coming ahead? Like how do you -- a big topic on the industry now is human capital and access to it and maybe just not enough of it. Is that something that is, I don't want to say concerning for you is how do you think about managing that in labor and parts and all that as you head into the next phase.

Ben, David Lebeter speaking. We obviously pay a lot of attention to the resource adequacy can we have access to our engineer, procure and construct contractors? Do we have access to the appropriate skills within the organization. It hasn't been a problem yet. And to be honest, I don't see a problem on the horizon, but it's something we always pay attention to. We want to make sure we have the right resources available the right time.

North America is big. There's lots of talk about the growth that's going on. But we've been able to secure really quality individuals to build our transmission lines, and we don't see that changing going forward.

And it, I'm going to add on from both a supply chain point of view and a partner point of view, it isn't all our resources who are building or constructing or even designing the transmission lines. We rely on internal but also heavily on external resources, EPC contractors in particular.

With the visibility we have over the next 7 to 8 years, we are able to bring partners in early may make it competitive, but bring them in, they can plan do their human resource planning our supply chain team has good visibility. It's not like all of these are going to hit all at once. They're laddered out through the period, and we have enough visibility now that we can on the supply chain side aside, make commitments for the long lead time items with our vendors to ensure we've got production slots. We've got promise of supply.

Pricing may still be negotiable depending on the time frame. Obviously, we'd like to lock them down as best we can. But if you're committing to something 3 and 4 years out, we may not be locking in the price, but we will lock in the supply. So we are -- with the visibility we have, we're able to manage some of that risk that others may not be able to manage the same way.

It sounds a little bit counterintuitive, but actually having a pipeline of projects makes you a more attractive client and actually makes it easier for us to secure the resources and materials we need.

Our next question comes from the line of Robert Hope with Scotiabank.

So the provincial government, obviously, is very focused on increasing transmission in the north. The federal government is also equally focused on expanding transmission across the country. Is this an area that you have put any work in? Could we see some incremental growth, either connecting additional Northern communities or the provinces. And I guess as a final point, is this even needed? Or do you have enough transmission growth in hand right now?

Well, the last part of your question is interesting, Rob, is it needed? I'm a bit greedy, so I always like to have lots of growth. But yes, we have had conversations with the federal government I know they've got an announcement coming out later on today and some more nation-building projects, so we'll see what they decide to do there.

I think the overall, as a general comment, there is a focus on electrifying northern communities that for too long, have been reliant on diesel generation and that has actually hindered growth across the country, not just in Ontario.

So I would say both levels of government and even municipalities that third level of government focused on, how do we connect all the communities in Canada to the grid with reliable, affordable and resilient energy.

Appreciate that. And then maybe just a smaller question. Broadband, there looks like there's been some puts and takes there. How are you thinking about the timing and overall size of the investment here? We still think it will be in the $300 million to $700 million addition of rate base for ourselves. I'm getting a little bit more cautiously optimistic. I think this last round of negotiation between the Ministry of Energy and Mines, which now has responsibility for the broadband portfolio and the largest of the Internet service providers has finally broken the log gem. We're going to see things start to move.

And I know I've been optimistic before, but this is the most optimistic I've been as we've been on this journey. I think over the next 6 months, we're having this call we'll be able to give you a better range estimate and an idea of how well it is moving.

But I feel like we finally broke the government and the ISPs have finally reached an agreement on how to move forward. And that's what's going to allow us to get out the work we need to do.

Our last question comes from the line of Patrick Kenny with National Bank.

Yes, welcome back, David, and great job Harry over the last few months. Just wanted to touch base on -- I know your allowed ROE is still locked in for a couple of years, but just given the recent cost of capital update from the OEB it looks like 2026 has shaken out to be about 25 basis points below your current 9.36%. So just wondering if you've had any discussions or feedback for the OEB that might help to hold the ROE a little bit closer to where you are at today for the next JRAP period?

Pat, thanks for those comments. You're right. I think for next year, 9.11% is the ROE for any rate applications that come through. using forecasts for the benchmarks that are used in the formula. When we're back at this point, it would be 9.33%. So 3 basis points below the current approved ROE.

But as you know, we have earned above that. And so we don't have any real concerns as we go in I think our submission, which is a public document in the cost of capital hearing was for increased equity thickness and other adjustments. The ruling was a generic ruling that applies to all utilities regulated by the OEB, but they were at pains mentioning over and over. If a utility feels their situation is different. They are free to bring proposals in the next rate application. So that's a door that we plan on jumping through as part of the next rate application. So at this point, stay tuned.

Got it. Okay. And then maybe just back on the effective tax rate range as well. I think you mentioned, Harry, 13% to 16%. Can you just remind us what tools you might have at your disposal to achieve the lower end going forward and perhaps extend that lower end of the level into the next JRAP as well?

We don't have a lot of tools ourselves. What primarily drives it is the accelerated CCA and the so-called super productivity deduction in the budget. That would certainly help keep us at the low end -- continue to keep us at the low end as we continue to invest, we take and we're entitled to use that, and that's what keeps us at the low end. And we're happy to see that proposal in the budget. It has to be turned into law so that it does continue well into the next -- our next rate period.

Okay. And last one, I guess for David, maybe on the supply chain front. So I appreciate the details on the domestic procurement. Can you just maybe update us on some of your commitments for transformers and other equipment and components over the next few years as you look to bring some of your transmission developments into the capital budget.

At this there. We're not -- at this point, we have no concerns. We've got locked up manufacturing capacity. We anticipate no problems at all getting the materials we need transformers, switchgear, whatever it is for any of the projects. And our supply chain pays attention to that night and day. That is one of the big risks we pay attention to. As we're developing new suppliers in Canada, we continue to work with our existing suppliers to make sure that we don't cut off an avenue. We would actually like to have more suppliers, not fewer. And that we believe will help us with pricing as well. But no concerns at this point in time.

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

Thanks, Shannon. The management team at Hydro One thanks everyone for their time with us this morning. We appreciate your interest and your continued support. If you have any questions that weren't addressed on the call, please feel free to reach out, and we'll get them answered for you. Thank you again, and enjoy the rest of your day.

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.