Hydro One’s $37 Billion Rate Application: What It Means for Shareholders
On October 7, Hydro One Networks Inc. submitted a proposed investment plan of roughly $37 billion to the Ontario Energy Board, covering the five years from January 1, 2028 to December 31, 2032 under file EB-2026-0164. Hydro One Limited (TSX: H) reports third quarter results before North American markets open this morning, with management on a call at 8:00 a.m. ET, a schedule the company confirmed in an October 9 notice.
Results are in: Hydro One reported basic EPS of $0.69 against $0.70 a year earlier, raised its 2027 capital plan by $1.2 billion and extended its published capital forecast to 2032. Our coverage of the quarter is at Hydro One Q3 2026 earnings.
The results are the occasion. The application is the thing that decides what the next five years are worth to a shareholder, and it does two jobs at once. It asks the regulator to approve a far larger build, and it is the proceeding at which the OEB’s new cost-of-capital parameters attach to this company. One filing therefore sets both the asset base and the allowed return on it for 2028 through 2032.
The application is also where the allowed return gets reset
Hydro One states the connection between interest rates and its own earnings plainly in the market risk section of its second quarter report. “The Company is exposed to fluctuations in interest rates, as its regulated return on equity is derived using a formulaic approach that takes anticipated interest rates into account” (Q2 2026 report, p. 42).
Timing is what makes that sentence load-bearing right now. On March 27, 2025 the OEB “issued its Decision and Order, issuing new cost of capital parameters and confirming that the new cost of capital parameters will take effect at a utility’s next rebasing rate application”, and left its deemed capital structure “unchanged at 40% equity and 60% debt, for transmission and distribution electricity utilities” (Q3 2025 report, p. 19). The 2028-2032 Joint Rate Application is that next rebasing. The formula and the asset base it applies to are both in front of the regulator in the same proceeding.
Which is why the macro backdrop reads differently here than it does for an ordinary borrower. The Bank of Canada’s policy interest rate rose 25 basis points to 2.50% on October 28, effective the next day, its first increase since July 2023, and the next decision is December 9. For a utility whose allowed return is derived from a formula that takes anticipated interest rates into account, the level of rates during a rebasing is an input to revenue, not simply a cost. The direct cost channel, meanwhile, is small by the company’s own disclosure: “A hypothetical 100 basis points increase in interest rates associated with variable-rate debt would not have resulted in a significant decrease to Hydro One’s net income for the three and six months ended June 30, 2026 and 2025, respectively” (p. 42). Commercial paper outstanding was $100 million at June 30, 2026 on a programme authorized to $2,300 million, and $3,900 million of operating credit facilities were undrawn (p. 17). There is very little floating-rate exposure to move.
A single meeting three weeks out is not what a rate period beginning in 2028 turns on, but the market’s read on the direction has cooled since last week. As at this morning’s reading of Montreal Exchange one-month CORRA futures, the December contract carries 9.43 basis points of tightening, which across the two realistic outcomes of no change or a quarter point works out to 38% of a hike. That is our arithmetic on the exchange’s own settlements: implied average CORRA of 2.585% for the decision month against 2.515% for the month before, with spot CORRA at 2.52%. Six days ago the same calculation gave 12.0 basis points, so the December decision we priced as a coin flip last week now reads closer to one chance in three.
What the $37 billion would buy, and on which basis
Hydro One’s 2028-2032 Joint Rate Application is a large step up in ambition. In Hydro One’s October 7 news release, filed with the SEC the following day, the company said that “if approved, the approximately $37 billion five-year plan will address Ontario’s growing electricity demand and strengthen the reliability and security of the electricity system”, and that the plan “was informed by feedback from more than 100,000 customers across the province.” The work would connect approximately 6,000 megawatts of new electricity, modernize roughly 1,400 kilometres of transmission lines, replace or refurbish more than 85,000 distribution poles, put smart switching on about 90 per cent of major distribution lines and deploy 5,400 residential energy storage systems. For a typical year-round medium-density residential customer, the release says monthly transmission charges would rise $0.50 in 2028 and by an average of $1.14 each year from 2028 to 2032, while monthly distribution base charges would fall about $0.10 in 2028 and hold flat after that. Those estimates could change based on the OEB’s decisions.
Two different measurements are in play and they should not be blended. The $37 billion is the proposed plan of Hydro One Networks Inc., the regulated subsidiary, as filed in a rate application, and it averages $7.4 billion a year on our arithmetic. Separately, Hydro One Limited consolidated invested $3.4 billion in its transmission and distribution networks in 2025, and its consolidated capital plan at page 16 of the Q2 2026 report totals $3,854 million for 2026 and $4,742 million for 2027, a 23.0% step on our arithmetic in which development spending rises 55.8% and transmission carries the entire increase while distribution edges down, from $1,383 million to $1,377 million. Those consolidated figures include certain Hydro One Networks development projects that are not in the investment plan the OEB approved in the 2022 Joint Rate Application decision, a different proceeding from the 2028-2032 application.
The consolidated plan also sits below the potential build. Since the first quarter of 2022 the Minister of Energy and Mines has directed the OEB to amend Hydro One Networks’ transmission licence to require it to develop and seek approvals for twelve priority transmission lines in Ontario. The planned figures exclude eight of them, named in the footnote as Second Longwood to Lakeshore, Windsor Lakeshore, North Shore Link, Wawa Timmins, Bowmanville to East Greater Toronto Area, Greenstone, Sudbury Barrie and Red Lake, and the filing says the company “is currently evaluating the scope and timing of these eight lines.”
Asking is not receiving, as the Z-Factor decision showed
The most recent precedent on how this regulator treats a Hydro One request went against the company. On August 28, 2025 Hydro One “submitted a Z-Factor application which sought recovery of the incremental revenue requirement associated with $223 million of storm-related costs, including capital and asset removal costs, incurred for a severe storm that began on March 28, 2025.” On April 7, 2026 the OEB issued its decision “denying the recovery of $69 million in incremental revenue requirement” (Q2 2026 report, p. 16). The two figures measure different things and should not be read as a fraction: the $223 million is the storm cost the company incurred, while the $69 million is the slice of incremental revenue requirement built on that cost which the OEB refused to let it recover. What the decision establishes is the posture, seven months ago, on a claim a small fraction of the size of the plan now under review.
Execution is the other open question. Capital investments were $1,527 million in the first half of 2026 against $1,648 million in the first half of 2025, down 7.3% on our arithmetic, while the full-year consolidated plan is $3,854 million. That leaves roughly $2.3 billion to land in the second half.
The interest bill is a volume story, not a price story
Hydro One prints its own financing-charge record in the earnings coverage table toward the back of each report. Spliced across two filings, the eleven quarters from the fourth quarter of 2023 to the second quarter of 2026 read 147, 148, 157, 158, 158, 163, 169, 172, 175, 176 and 181 million dollars.
Eleven quarters of Hydro One financing charges, the fourth quarter of 2023 through the second quarter of 2026, in millions of Canadian dollars. Spliced from the earnings coverage ratio tables in the Q3 2025 report, page 24, and the Q2 2026 report, page 23. The five quarters that appear in both filings match exactly.
Across the ten steps between those eleven values the figure rose nine times, was flat once, at $158 million for both the September and December 2024 quarters, and never fell. From $147 million to $181 million is a 23.1% increase on our arithmetic.
What is doing the work is the size of the debt rather than its price, and both filings say so in their own way. For the 2025 quarter the company wrote that “financing charges increased by $14 million and $41 million for the three and nine months ended September 30, 2025, respectively, primarily due to an increase in outstanding long-term debt and higher weighted-average interest rates, partially offset by higher capitalized interest” (Q3 2025 report, p. 11). Rates were part of it then. The Q2 2026 report no longer names them, attributing the increase to “an increase in outstanding long-term debt, partially offset by higher capitalized interest” (p. 9) and nothing else. The coupon figures point the same way. The weighted-average coupon on total long-term debt was 4.2% at June 30, 2026, unchanged from December 31, 2025 and down from 4.3% at September 30, 2025, on $19,965 million of principal at a weighted-average 13.0 years to maturity. The newest tranche priced below that book: US$1.0 billion of 4.75% senior notes due May 30, 2031, a 3.835% CAD fixed equivalent, raised to repay maturing long-term debt and short-term indebtedness including commercial paper, and for general corporate purposes.
The volume keeps rising. Net debt was $19,385 million at June 30, 2026 against $18,568 million at December 31, 2025, a $817 million increase in six months on our arithmetic. Net debt to capitalization was 59.9% at June 30, 2026, against 59.5% at December 31, 2025 and 59.3% at September 30, 2025. The OEB’s deemed capital structure for transmission and distribution utilities is 40% equity and 60% debt.
There is a genuine counterweight. Annualized funds from operations to net debt, the company’s own coverage measure, improved across the eight quarters to June 30, 2026, reading 13.4%, 13.4%, 13.4%, 13.6%, 13.6%, 14.2%, 13.9% and 14.1%, and the earnings coverage ratio printed 2.8 in every one of those eight quarters. Debt is growing and so is the cash flow servicing it.
The quarter underneath all of this
The comparative the September 2026 quarter is measured against is a strong one.
| Line (C$M unless noted) | Q3 2025 | Q3 2024 | Change |
|---|---|---|---|
| Revenues | 2,299 | 2,192 | 4.9% |
| Purchased power | 1,080 | 1,047 | 3.2% |
| Revenues, net of purchased power (non-GAAP) | 1,219 | 1,145 | 6.5% |
| OM&A costs | 296 | 294 | 0.7% |
| Depreciation, amortization, asset removal | 272 | 263 | 3.4% |
| Financing charges | 172 | 158 | 8.9% |
| Income tax expense | 60 | 56 | 7.1% |
| Net income attributable to common shareholders | 421 | 371 | 13.5% |
| Basic EPS | $0.70 | $0.62 | 12.9% |
| Funds from operations (non-GAAP) | 678 | 639 | 6.1% |
| Capital investments | 779 | 773 | 0.8% |
| Assets placed in-service | 577 | 597 | (3.4%) |
| Avg monthly Ontario 60-minute peak demand (MW) | 23,080 | 22,694 | 1.7% |
| Electricity distributed to Hydro One customers (GWh) | 7,937 | 7,691 | 3.2% |
Source: Hydro One Limited, Q3 2025 report, page 8, “Consolidated Financial Highlights and Statistics”, three months ended September 30.
Q3 2025 delivered $0.70 of basic EPS and $421 million of net income attributable to common shareholders, and nine-month figures of $1.84 and $1,106 million against $1.60 and $956 million the year before.
Basic earnings per share for the eight quarters from the third quarter of 2024 through the second quarter of 2026, with the two third quarters picked out, from the quarterly results table in Hydro One’s Q2 2026 report, page 12. The $0.70 of Q3 2025 is the highest figure in the series. Diluted EPS equalled basic in all eight quarters.
That $0.70 is the maximum of the eight, though the third quarter is not uniformly the strongest: Q1 2026 at $0.65 beats Q3 2024 at $0.62. The filing explains the variation in its own words as “primarily due to the impact of seasonal weather conditions on customer demand and market pricing, as well as timing of regulatory decisions” (p. 12). Where the third quarter does have an edge is on revenue net of purchased power against operating cost. In 2025, revenues net of purchased power were $1,167 million in Q2 and $1,219 million in Q3 while OM&A costs fell from $320 million to $296 million, with average monthly Ontario 60-minute peak demand at 20,836 MW in Q2 and 23,080 MW in Q3. Top-line revenue, by contrast, peaks in the first quarter: Q1 2026 at $2,648 million is the largest of the eight quarters. And the third quarter’s edge narrowed through 2026, because on revenues net of purchased power both Q2 2026 at $1,231 million and Q1 2026 at $1,224 million came in above Q3 2025.
That eight-quarter grid sits near the back of the management discussion and analysis rather than in the statements, and it does something the statements cannot: it shows the shape of a business across two years rather than one snapshot of it. Our guide to how to read financial statements covers where it lives and what to do with it.
One line in the half-year numbers is easy to misread. The effective tax rate was approximately 15.6% for the three months ended June 30, 2026, unchanged from the same period of 2025, but 12.5% for the six months against 15.8%. The six-month drop comes from deductions tied to the re-introduction of accelerated capital cost allowance, and the filing says those are “offset by a corresponding reduction in revenue, and therefore net income neutral” (p. 11). It is not an earnings tailwind.
What the market is paying
Shares closed at C$57.09 on November 9, 2026, down $0.59 or 1.02% on the session, inside a 52-week range of $50.14 to $60.57 and 5.7% below the high on our arithmetic. Market capitalisation was C$34.26 billion, trailing EPS $2.36, P/E 24.20 and forward P/E 24.17. The consensus rating is Hold, with an average 12-month price target of $56.60 and a median of $57.00 in a range of $47.00 to $61.00, “according to 13 analysts polled by S&P Global.” The average target sits below the November 9 close. Source: StockAnalysis.
Income is a large part of why this stock is owned. The declaration of August 11, 2026 set a quarterly cash dividend of $0.3531 per share, $211 million in total, paid September 29 to holders of record September 9. The prior-year third quarter declaration, made November 12, 2025, was $0.3331, so the rate is 6.0% higher year over year on our arithmetic. Each of those declarations is dated the day before the release it accompanied. The annual rate of $1.41 against the November 9 close is a 2.47% yield, which is modest next to much of the Canadian income universe, and anyone weighing that trade-off can set it beside the names on our Canadian dividend stocks page.
One piece of arithmetic is worth putting on the table with its caveats attached. Trailing EPS of $2.36 is exactly the sum of the four reported quarters from Q3 2025 to Q2 2026, so it reconciles to the filings rather than to an adjusted measure. The first half of 2026 delivered $1.27 of reported basic EPS. Against a published full-year 2026 consensus of $2.31, that leaves roughly $1.04 implied across the second half, versus the $1.09 the same two quarters delivered in 2025. On that reading, a first half up 11.4% is followed by a second half slightly below last year’s. Take it as an implication of our own arithmetic rather than a stated view: the consensus is a third-party estimate that may be struck on an adjusted basis rather than reported basic EPS, and only five analysts sit behind the annual figures. Consensus figures: StockAnalysis.
The things to watch from here
Megan Telford was appointed President and CEO effective June 9, 2026, when David Lebeter retired from the role and stayed on as a Special Advisor until October 10, 2026. “Ontario’s growth, prosperity and competitiveness depend on a reliable and secure electricity system,” she said in the October 7 release. Her first full test is not a quarter. It is a rate application that fixes the asset base and the allowed return for five years, filed with a regulator that in April refused $69 million of the incremental revenue requirement the company sought after the March 2025 storm, by a company carrying net debt at 59.9% of capitalization on June 30 against the 60% debt that same regulator deems, and whose first-half capital spending ran 7.3% below the first half of 2025, which left roughly $2.3 billion of the year’s plan for the second half. Those are the numbers that will decide what the $37 billion is worth to a shareholder, and the quarterly reports are where they show up one at a time.
Disclaimer: The content on bestcanadianstocks.ca is for informational and entertainment purposes only and does not constitute financial advice. Past performance is not indicative of future results. Always consult a qualified financial advisor before making investment decisions. Company figures are Hydro One Limited’s own, from its Q2 2026 report (three and six months ended June 30, 2026) and its Q3 2025 report (three and nine months ended September 30, 2025), with the document and page cited at each use. The 2028-2032 Joint Rate Application figures are from Hydro One’s news release of October 7, 2026, filed with the SEC as Exhibit 99.1 to a Form 6-K on October 8, 2026. Share price and consensus data are from StockAnalysis as at the November 9, 2026 close. The December pricing is our arithmetic on Montreal Exchange one-month CORRA futures settlements read on November 10, 2026.
