Hydro One Q2 Earnings Call Highlights
Key Points
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- Second-quarter results improved: Net income attributable to common shareholders rose 13.1% year over year to C$0.62 per share, while revenue net of purchased power increased 5.5% on higher approved rates, electricity demand and customer growth.
- Hydro One expanded its funding and investment plans: The company issued US$1 billion of 4.75% notes due 2031 and plans to become a regular U.S. debt-market issuer, while maintaining its goal of preserving an A credit rating. It also outlined more than C$3.4 billion in planned investment across three major transmission projects.
- Rate filing and earnings outlook remain intact: Hydro One expects to submit its 2028–2032 joint rate application in October, focusing on reliability, resilience and electrification while addressing affordability. Management continues to forecast annual EPS growth of 6% to 8% during the current rate period and declared a quarterly dividend of C$0.3531 per share.
Hydro One (TSE:H) reported higher second-quarter earnings as approved 2026 rates, increased electricity demand and customer growth lifted revenue, while the company outlined a growing pipeline of transmission investments and plans to file its next joint rate application in October.
Net income attributable to common shareholders rose 13.1% from the prior-year quarter, resulting in basic earnings per share of C$0.62, compared with C$0.54 in the second quarter of 2025. Chief Financial and Regulatory Officer Harry Taylor said the increase reflected higher revenue net of purchased power and lower depreciation, amortization and asset-removal costs, partly offset by increased operating expenses, interest expense and income taxes.
Revenue Growth and Operating Costs
Revenue net of purchased power increased 5.5% year over year. Transmission revenue rose 7.2%, driven primarily by Ontario Energy Board-approved 2026 rates and a 0.5% increase in average monthly peak demand. Distribution revenue net of purchased power increased 2.4%, supported by approved rates, 4% more electricity distributed and a 0.8% increase in customer count.
Operating, maintenance and administration expenses increased about 3.4% from a year earlier. Transmission costs rose 4.7%, largely due to corporate-support costs and vegetation-management spending, partly offset by a one-time reduction in the property-tax provision. Distribution expenses increased 3.7% as the company spent more on emergency power restoration, line maintenance and corporate support.
Depreciation, amortization and asset-removal expenses declined 2.8%, primarily because storm-restoration efforts were lower than in the prior-year period. Interest expense increased 7.1%, reflecting higher long-term debt outstanding following issuances in late 2025 and the company’s first U.S.-dollar debt offering during the quarter.
U.S. Debt Offering and Capital Spending
During the quarter, Hydro One issued US$1 billion of senior 4.75% notes due in 2031. Taylor said the company entered into a swap arrangement on the issuance date that produced a Canadian fixed-equivalent rate of 3.835%.
The proceeds are intended to repay maturing long-term debt and certain short-term indebtedness, including commercial paper, and to support general corporate purposes. Taylor said the company expects to become a regular issuer in the U.S. fixed-income market, while continuing to access Canadian markets, in order to diversify funding sources and support future capital needs.
Hydro One’s funds from operations-to-net-debt ratio stood at 14.1% as of June 30. Taylor said the company aims to preserve its A credit rating and views 100 basis points above its 11% downgrade threshold as a “flashing yellow light,” while 50 basis points above the threshold would be a “flashing red light.”
Second-quarter capital expenditures totaled C$812 million, down 11.1% from the same period in 2025. The decline reflected lower station refurbishment and equipment-replacement activity, reduced investment in the Waasigan, St. Clair and Northeast Power Line projects, and lower storm-related asset replacement spending. Those declines were partly offset by increased investments in Ontario’s broadband initiative, the AMI 2.0 advanced metering system and other development projects.
Transmission Development Pipeline
President and CEO Megan Telford, leading her first earnings call in the role, said the company will continue to focus on customers, growth, solutions and partnerships. She emphasized investments in grid stability, storm preparedness and modernization as electricity demand grows, infrastructure ages and weather patterns change.
Hydro One was designated on April 23 to develop the Red Lake transmission line in northwestern Ontario. The planned project includes a new double-circuit 230-kilovolt line from the Dryden transformer station to the Ear Falls transformer station, associated station facilities and a connection to the Red Lake switching station. The line is expected to enter service in the early 2030s and will use Hydro One’s 50/50 First Nation equity partnership model for participating First Nations along the route.
During the quarter, the company submitted Ontario Energy Board leave-to-construct applications for three other major transmission projects:
- The Northeast Power Line, a 500-kilovolt line between the Greater Sudbury and Warren-Cliff areas.
- The Longwood to Lakeshore Line, a 500-kilovolt line connecting Strathroy-Caradoc and Lakeshore.
- The Durham Kawartha Line, a double-circuit 230-kilovolt line connecting Clarington and Peterborough County.
Collectively, those three projects represent more than C$3.4 billion of planned investment and are expected to enter service between 2029 and 2030. Hydro One also filed an application for the approximately C$100 million Orléans Area Reinforcement Project near Ottawa, which is expected to be in service by 2029.
Rate Application, Affordability and Outlook
Taylor said Hydro One expects to file its 2028-2032 joint rate application in October. While he did not provide details ahead of the filing, he said the proposal would address reliability, resilience, electrification and Ontario’s economic growth while seeking to mitigate customer bill impacts.
Management said customer engagement related to the application had been completed and had generated strong support for the proposals. At the same time, Telford and Taylor acknowledged broader affordability pressures affecting Ontario residents and businesses.
The company continues to expect annual earnings-per-share growth of 6% to 8% during the current rate period, using normalized 2022 EPS of C$1.61 as the base. Hydro One’s board declared a quarterly dividend of C$0.3531 per share, payable to shareholders of record on Sept. 9, 2026.
Hydro One also said Ontario’s active wildfire season had not had a major operational impact and that no fires had been attributed to its assets or infrastructure. The company said wildfire-related restoration spending would generally be added to rate base in the same manner as normal storm-restoration work, though management said current conditions were not close to meeting the criteria for a Z-factor regulatory filing.
About Hydro One (TSE:H)
Hydro One operates regulated transmission and distribution assets in Ontario. The area's largest electricity provider serves nearly 1.5 million customers. Transmission accounts for roughly 60% of the company's rate base, with distribution accounting for the remainder. Hydro One operates a small telecom business, Acronym Solutions, with annual revenue contributing less than 1% to consolidated results. The province of Ontario holds an approximate 47% common equity stake.
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