Hydro One's Strategic Transmission Expansion and Its Implications for Long-Term Earnings Growth

Transmission Expansion: A Regulatory-Backed Growth Engine

Hydro One's capital expenditure plans are anchored in a C$11.8 billion investment roadmap through 2027, with transmission projects forming the backbone of this strategy. Management has identified seven major transmission line opportunities, three of which are already approved and under construction. These projects, spanning high-voltage corridors and grid modernization, are designed to accommodate renewable energy integration and meet rising demand.

The regulatory environment further amplifies this growth potential. Ontario's Independent Electricity System Operator (IESO) has emphasized the need for grid upgrades to support decarbonization goals, and Hydro One's upcoming Joint Rate Application for 2028–2032 will be pivotal. While specific details for this filing remain undisclosed, the company's historical success in securing constructive regulatory outcomes-such as the 9.4% rate increase in 2025-suggests continued alignment with its growth trajectory.

Capital Efficiency and Earnings Resilience

Hydro One's ability to translate infrastructure spending into earnings is underscored by its capital efficiency metrics. For Q3 2025, the company reported basic earnings per share of C$0.70, up 12.9% year-over-year, driven by a 7% revenue increase and higher peak demand. While Return on Invested Capital (ROIC) and Return on Investment (ROI) figures for 2022–2025 are not explicitly disclosed, its Return on Equity of 10.34% in 2025 and Return on Assets (ROA) of 3.70% indicate robust asset utilization.

The company's capital deployment-C$779 million in Q3 2025 investments-is also aligned with its earnings guidance. Hydro One reaffirmed a 6%–8% annual EPS growth target through 2027, with normalized 2022 EPS of C$1.61 serving as a base. By 2028, the utility projects C$1.5 billion in earnings, reflecting a compounding effect from its transmission projects. This trajectory is further supported by its dividend policy, with a recent quarterly payout of C$0.3331 per share, signaling confidence in cash flow sustainability.

Future Outlook: Linking Infrastructure to Earnings

The long-term implications of Hydro One's strategy are clear. With 75% of its transmission projects expected to extend beyond the 2027 forecast period, the company is building a durable asset base that will drive rate base growth. The provincial and federal focus on electrification-particularly for transportation and industry-creates a tailwind for demand, ensuring that these investments remain earnings accretive.

However, risks such as regulatory delays or inflationary pressures on construction costs could temper growth. That said, Hydro One's proactive engagement with regulators and its track record of securing approvals mitigate these concerns. For investors, the key takeaway is that the utility's infrastructure-led model is not just about meeting today's demand but positioning for tomorrow's energy transition.

Conclusion

Hydro One's strategic transmission expansion, supported by regulatory alignment and capital efficiency, offers a compelling case for long-term earnings growth. As Ontario's grid evolves to meet decarbonization targets, the company's role as a critical infrastructure provider will only strengthen. For investors seeking stable, rate-base-driven returns, Hydro One exemplifies the value of infrastructure-led utility growth in a low-interest-rate environment.