Hydro One Limited

Omar Javed - Director, IR Mayo Schmidt - President and CEO Chris Lopez - SVP, Finance Greg Kiraly - COO Paul Barry - EVP, Strategy and Corporate Development Ferio Pugliese - EVP, Customer Care & Corporate Affairs

Mona Nazir - Laurentian Bank Andrew Kuske - Credit Suisse Rob Hope - Scotiabank Jeremy Rosenfield - Industrial Alliance Linda Ezergailis - TD Securities Robert Kwan - RBC Capital Markets Robert Catellier - CIBC Capital Market

Thank you, Crystal. Good morning everyone, and thank you for joining us.

I am here in Toronto with Hydro One's President and CEO, Mayo Schmidt; our Senior Vice President of Finance, Chris Lopez, Greg Kiraly, our Chief Operating Officer, Ferio Pugliese, our Executive Vice-President of Customer Care & Corporate Affairs; and Paul Barry, our Executive Vice President of Strategy and Corporate Development. We’ll provide some brief comments on our third quarter results, and then spend the majority of the call answering as many of your questions as time permits.

There are also several slides which illustrate some of the points we’ll go over in a moment. They should be up on the webcast now; or, if you are dialed into the teleconference you can also find them on Hydro One's website in the Investor Relations section under Events & Presentation.

As the discussion this morning will likely touch on estimates and other forward-looking information, you should review the cautionary language in today's earnings release and our quarterly MD&A, which we have 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 will turn the call over to Mayo Schmidt.

Thank you, Omar and good morning everyone. Our team is quite excited to have the opportunity to talk about our third-quarter results.

Let me start by providing a review of the quarter and where we are in our transformation as a North American leading utility. We have introduced innovative productivity programs in our operations with a strong focus on customer advocacy and the success of new initiatives enhancing and materially improving our relationship with all customers.

Greg is prepared to discuss productivity initiatives. Additionally Ferio is keen to highlight a number of high-impact customer initiatives during our discussion to follow this morning.

Chris will follow my comments today to provide our analysis of the financial results. The positive results that we saw this past quarter reflect retroactive revenues from the transmission rate decision, as well as our significant momentum in two key areas.

Using innovation to improve productivity and reliability and the introduction of customer centric programs designed to improve our customers experience while driving our accounts receivable to lower levels. Some high or some key operational highlights from the quarter include the growing productivity savings being achieved through our new vegetation management approach, our fleet optimization project, and the execution of a more competitive procurement process.

As you'll recall these initiatives which arose through our comprehensive analysis of Hydro One's operating platforms and customer service businesses on the arrival of the new leadership team. In our focus on operational excellence, Greg's teams are leveraging innovation and targeted investments to transform and modernize our system to achieve productivity savings.

We've introduced a new condensed vegetation management program that will result in immediate unit cost productivity savings through a more surgical approach and selective clearing of vegetation and will over the long-term reduce the total program cost after clearing much of the heavier vegetation through the first three trimming cycles. We expect to achieve long-term productivity savings, as well as improved reliability and community relations.

This approach will target high growth areas in our territories areas with strong likelihoods of causing an outage, our intent is to shorten vegetation cycle to every three years down from every 10 years. At the same time we're leveraging telematics data to evaluate equipment utilization and productivity of the company's fleet in order to identify opportunities to reduce fleet size.

So far the fleet component has been identified as being released by as much - reduced by potentially 10% or as many as 800 units with several hundred be removed from inventory over the balance of 2017 and continuing disposal in the 2018. Going forward we will continue to leverage our telematics to continue removal of units or logistics planning improvements in our dispatch and logistics programs further rationalizing equipment while improving productivity levels, allowing greater safety, reduce maintenance costs and a reduction in our carbon footprint.

Savings were also achieved through our strategic sourcing program designed to refocus our procurement strategy and leverage our $1 billion in spend annually across 18 materials and service categories. We have already successfully reduced the price for procured materials and services by consolidating spending to exercise purchasing power and by introducing a revised more streamlined bidding process.

I’m proud to report that Hydro One teams are successfully demonstrating a strong commitment for operational excellence and commitment to safety. Our crews demonstrated their expertise, hard work ethic and safety record during several big storms this quarter both in Ontario and during the restoration effort in Florida.

Through our unique relationship with peers internationally, Hydro One mobilized 175 employees to Florida to restore power to people in desperate need of help after hurricane Irma hammered the state of Florida causing extensive damage and losses. Over a period of 14 days, Hydro One crews made the round-trip to Miami Florida and restored power to over 10,000 Florida Power & Light customers.

During our time in Florida, our employees were assigned challenging work in extreme heat conditions. Above all else, every crew member lived our core values and demonstrated how we worked together to help others in need.

The team earned the admiration and public recognition among their peers, the public and the state administration involved in the rescue efforts at Florida. Further on the customer front, Ferio's teams have been listening, focusing and acting on customer preferences.

We've introduced programs and policies that deliver maximum benefit at minimal cost to ratepayers. The execution of these programs many of which have been profiled in previous quarters serve to improve our customer experience, build our relationship with those we serve while reducing our service and bad debt cost.

We have now enrolled nearly 90,000 residential and small business customers in the continued uptake of our enhanced paperless billing service, customized high usage alerts, and billing arrival notifications. While this enhances a convenience for customers, it also serves to reduce our billing and our postage cost.

Additionally, to make e-billing even easier, we launched a new mobile friendly website offering streamlined self-service features to meet evolving needs of our customer. Overall, customers are pleased with the new website with self-service features, initial results are positive with increased usage of the website and self-service portal.

I'm also pleased to report to you that billing accuracy continues to surpass Ontario Energy Board requirements achieving today 99.25%. We continue to advocate for the customer.

Hydro One's leadership and Board of Directors support the recent launch of the Affordability Fund, a relief program of up to 200 million in funding paid for by the Province of Ontario and administered by Hydro One. This is a program that Hydro One advocated for which helps all customers who do not qualify for low-income programs but need assistance to make energy efficient home improvements to bring down their monthly electricity bills.

This year's winter relief program builds on the leadership position Hydro One took last year by proactively reconnecting hundreds of families across Ontario living without power during the cold Ontario winters. Following Hydro One's proactive leadership and reconnections in 2016, the Ontario Energy Board recently mandated winter reconnection's for those Ontario customers that have fallen behind on their accounts, a decision which supports and we applaud.

We are committed to continuing to provide support and relief to customers especially at a time when needed most. Now lastly Hydro One continues to be recognized for our leadership position at the provincial and national levels.

In September, Hydro One was awarded leader of the year by our peers with the Ontario Energy Association. We were also recognized by the Canadian Council for Aboriginal Business for our commitments to indigenous Canadians and communities and their progressive Aboriginal Relations program.

This designation follows committed participation in the progressive Aboriginal Relations program and an external validation of corporate performance in our Aboriginal Relations. This program recognizes the company as a good partner, a great place to work and a champion for the prosperity of Aboriginal original communities, businesses and individuals.

Now as we discussed in the call last quarter, we're very excited to combine with Avista to create a North American utility leader with a $34 billion enterprise value. This is a strategic acquisition of a high quality regulated transmission and distribution utility, top leadership team in the U.S.

Pacific Northwest which will place Hydro One in the top 20 North American utilities, a truly historical achievement for Hydro One. In the first full year post close, we expect the merger will be accretive to EPS.

In the longer term we expect to see increased opportunities for innovation, research and development and the efficiencies by sharing technology, best practices and business processes over broader customer base and set of infrastructure. On September 14, Hydro One and Avista Corporation marked a major milestone in the proposed transaction when we filed joint applications to request regulatory approval of the proposed merger.

The applications have been filed as expected with state utility commissions in all five states Washington, Idaho, Oregon, Montana, and Alaska, as well as with the U.S. Federal Energy Regulatory Commission FERC.

FERC approval is likely to proceed as no comments or requests for formal intervention received by the deadline and given lack of opposition the decision may be made in early January 2018. In early October, Avista Corporation also filed the preliminary proxy for shareholders approval of the merger with the U.S.

Securities and Exchange Commission. In the coming months we will file additional applications with a number of other American agencies including the Federal Communications Commission and the Committee on Foreign Investments in the United States.

The leadership and regulatory teams of both Hydro One and Avista are laser focused on a high-quality filing, and an efficient process to achieve our stated outcome. This is our top priority.

It is also important to note the success of the Canadian bought deal offering associated with the Avista transaction. Investor enthusiasm and strong demand for both retail and institutional investors resulted in oversubscription of the approximately 1.5 billion of convertible debentures.

The security sold out an overnight and were two times oversubscribed a testament to the high level of investor support for the Avista transaction. The energy landscape is rapidly changing and Hydro One must be positioned as a leader to launch an innovative solutions new business, and growth.

At the same time the company will continue to laser focus on strengthening its core business for the benefit of the shareholders, customers, communities and its people. By leading the customer service, operational excellence and innovation, we will ensure Hydro One is recognized as the North American leading energy company.

Now with that, I'll turn the call over to Chris for some additional color on the financial results and then will stand by for questions.

Thank you, Mayo and good morning everyone. I'm pleased to report that EPS for the quarter was $0.37.

After adjusting for one-time impact of the Avista transaction, the adjusted EPS is $0.40 which is 2.6% increase over the last year. The transmission rate decision and positive comp performance after adjusting for one-time costs related to the Avista transaction drove favorable results this quarter which were partially offset by lower ROE and the impact of mild weather.

Our third quarter revenue net of purchased power was high at 1.3% year-over-year. This is reflective of the decision on our 2017/2018 transmission rate filing on September 28, 2017, coupled with the few factors that have been impacting results all year.

The transmission rate decision has increased revenue of approximately $55 million which represent catch-up revenue earned during the first, second and third quarters of this year. This includes higher disposition of certain OEB approved variance accounts, higher export service credits and higher rate revenues.

The acquisitions of Hydro One's Sault Ste. Marie in the fourth quarter last year also contributed to higher transmission revenue.

The upswing in transmission revenues resulting from the rate decision were largely offset by the impact of mild weather in the quarter which affected peak demand. The average monthly Ontario is 60-minute peak demand was 9.3% lower this quarter compared to the same period last year.

Distribution revenues were also impacted by the mild weather as consumption levels declined. Lastly, but noted in the previous two quarters the OEB approved allowed return on equity was formulaically adjusted down with late last year reflecting the prevailing interest rates at that time.

Our ROE declined from 9.19% in 2016 to 8.78% in 2017 which resulted in lower earnings to both the distribution and transmission segments. Since then these rates have been steadily increasing.

If you were to calculate the ROE today by some formulary mechanism which includes the current long bond rates and utilities spreads, the ROE would be approximately 9%. On the OM&A front, costs this quarter increased by 4.9% from last year.

This increase is mainly due to outside factors and once normalized the OM&A levels are actually 3.8% lower year-over-year. Although we spoke about acquisition last quarter, the transaction actually occurred during the third quarter.

As a result we have recognized related nonrecurring consulting costs which contribute to the increase of 25 million of OM&A cost in the other segment. Within our distribution segments, OM&A decreased by 6.9%.

It is important to note that included in our distribution OM&A to this quarter at the storm restoration costs associated with hurricane Irma. Restoration efforts in Florida which are fully recovered in revenue with no impact to net income.

Adjusting for this item, the distribution of OM&A would have been lower by approximately 11.3% which reflects operational improvements such as the vegetation management initiative discussed by Mayo earlier on this call. Follow the operating cost line, we had similar factors affecting our results as in prior quarters this year and increased weighted average long-term debt portfolio including long-term debt assumed as part of the Hydro One Sault Ste.

Marie acquisition results in higher financing charges and increased depreciation was due to rate base growth. Also affecting financing charges this quarter was an increase in interest of approximately $8 million on the convertible debentures issued in August which was also set up on the equity components of the Avista acquisition.

Moving to the end of the October we entered into a deal contingent foreign exchange forward agreement to convert 1.4 billion Canadian to U.S. dollars.

This agreement mitigates the foreign currency risk related to the portion of the acquisition purchase price financed with convertible debentures. The contract can be executed anytime up to March 31, 2019 and a deal contingent fee could be in the range of $27 million to $47 million.

Moving now to investing activities, assets placed in service allow this quarter which is also affecting the year-to-date comparison. While distribution assets placed in-service are up by 8.9% this quarter transmission assets placed in-service are down significantly from the prior year.

There were a number of large transmission projects that had significant portions put into service during the third quarter of 2016 including the Guelph Area Transmission Refurbishment project, the Toronto Midtown Transmission Reinforcement project and the Richview transmission station Circuit Breaker Replacement project. Capital investments of $380 million were made during the quarter.

In the transmission business the amount of capital investment was similar to last year as we continue our investments in three major transmission stations. A new transmission station in Clarington, rebuild of a critical switch of supporting the [British Power] nuclear facilities and the Leamington Transmission station which will save low growth in the Essex County.

In the distribution business, capital investments were lower than the prior year as we attempt to manage our rate base additions over 2016 and 2017 to align to OEB approved levels. As a results, the year-over-year change is related to the work that was started in 2016 and is completing in 2017.

In terms of our Regulatory Update, on the transmission side as mentioned earlier we received a decision from the OEB during the quarter on the 2017/2018 rate application that we had called back from May 31, 2016. As a reminder this was a three year cost of service filing and the next transmission filing which we expect to make in the second quarter next year will be a five-year filing under the OEB incentive-based leadership framework for the 2019 to 2023 period.

Following the decision, we filed a draft [indiscernible] and on November 9 received a subsequent decision which confirmed the revised revenue requirement and reflects the impact of the OEBs decision including a reduction in OM&A expense of $15 million related to compensation, a reduction of $31 million in income tax expense related to the deferred tax asset, and a reduction to capital expenditures of $126 million among others for the 2017 rate year. On October 18, 2017 we filed a Motion to Review and Vary portions of decision that give rise to reduction in the improved revenue requirement.

This included objections that are portion of the tax savings resulting from the government Ontario's decision to sell its ownership interest in Hydro One Limited and its subsequent IPO should be applied to adjust the revenue requirement and a cost related to the Ombudsman's office should not be included in rates. On October 27, we also filed an appeal of the decision to the Ontario Divisional Court which to state pending the outcome of the OEB review and variance Motion.

The revenue recorded this quarter for the transmission decision was calculated using a revenue requirement that was inclusive of 100% of the tax savings resulting from the government Ontario's decision to sell its ownership interest in Hydro One. We believe the OEB’s direction to include only a portion of these savings in the revenue requirement was based on four principal areas in the tax savings determination which are clearly articulated in Hydro One's positions filed.

On the distribution side, we filed a blue page update on June 7 to the 2018/2022 distribution rate application which resulted in lowering the average annual impact on distribution rates over the five-year term from an increase of 3.7% to an increase of 3.5% per annum. The OEB related issue correspondence indicating that the timing and key dates leading up to Orillia hearing had been postponed and the schedule changes would be provided at a later date.

We look forward to engaging with OEB and demonstrating our position. At this time we cannot estimate when the decision would be anticipated.

In terms of financial strength, we continue to have a very strong balance sheet with conservative leverage and strong investment grade rating. Our weighted average cost of debt is a low 4.3%, our redemption schedule is fairly smooth with an average term of 15.1 years and we have significant liquidity.

As previously mentioned, we completed the sale of 1.54 billion convertible unsecured subordinated debentures on August 9 as part of the Avista financing strategy. These convertible debentures are represented by installment receipts that trade on the Toronto Stock Exchange.

I’ll stop there, and we’ll be pleased to take your questions.

Thank you, Mayo and Chris. We’ll ask the operator to explain how she’d like to organize the Q&A polling process.

Please go ahead operator.

So the first question is how just related to the 18 million in Avista related cost. How do we expect that trend or how do you expect that to trend into Q4 and as we get into 2018 closer to the closing date?

So the cost that reflected there was the cost of – successfully for the bankers and some of the advising fees that were early in the process so I wouldn’t expect to continue with that right into Q4. However it will have an uptick towards the end of the transaction as we move into the more detail part of the regulatory filings and the hearings, so I'd expect to pick up in Q1 and into Q2 and Q3 next year when the deal is closed.

And just touching on the resent OEB transmission decision in the history of the company have you ever had to appeal either appealing directly to OEB or going through this kind of court appeal process?

No, we have not - this would be a new event for the organization but we feel strongly about our position. The communication between the organization has been clear and frankly I don't think unexpected by the OEB in any case.

And just lastly from me before I step back, the diversification brought on by Avista on both the geographic basis and new vertical. I know it's still early days in the process but I’m just wondering your thoughts on how to capitalize on your new footprint and do you expect much change to the business mix and geographic reach over the next five years to kind of visualize keeping with what do we see now and that’s assuming Avista closes?

I would just start with the point we have a strong view that the regulatory process will be efficient that it will be a successful outcome. Secondly, as we see opportunities in a number of areas whether its procurements or IT services et cetera to share in the productivity and efficiencies between the two organizations and course the levers it comes with the collective balance sheet to the two organization positions us I think strong in terms of procuring what is hundreds of thousands of polls and thousands of miles of wire et cetera.

The thing that I think we embrace most about the transaction is not only the quality of the leadership team but really two other key components one is, it's a company that has a deep history of innovation that goes back over 100 years and you may be aware that they actually own the patent of the first electric stove, that's how far back their innovative history goes and they have had a considerable number of successes that will complement the work that we’re doing on innovation here. And I think also we think about when we talk about verticals, this is really unique opportunity to not only buy a fully regulated business in the transmission and distribution businesses which is of course a core competency for our organization, but also it gives us a really nice exposure which we have skills in on the gas distribution and also on generation that's a renewable such as the hydroelectric.

So we’re buying really deep value long-term assets this should continue to produce year-after-year after year over the century. So we’re quite excited about that and at the same time the size of the new opportunities which is of course gas distribution is very much appropriate considering the weight of the business relies and the transmission distribution.

So we like the exposure, we like the size of it and frankly it's the business of Avista is large enough that it's very meaningful, but it’s not so large as to be any kind of extraction from both overall running of the business here in Ontario but also the gaining the efficiencies of the collective organizations.

The question might be for Chris and it's just on the OM&A reductions and I appreciate the detail you went into, but could you talk maybe a little bit more about just the OM&A so on a overall basis it's obviously up but it's skewed by the 33 million and other which includes a lot of the Avista costs. But if you drill into the distribution and particular and your costs are down.

So what's the dynamic there and what part is really timing versus structural?

So when I split out the one-time events, my comments were around the overall OM&A costs are down 4% and that is structural, it’s use about the one-time event and structural is really being driven by vegetation management and reduction in asset calls. And I still think that if you strip after that really are the Avista transaction and that there was - the cost associated with the Florida hurricane that recovered in one-time and it was recovered in revenue and that’s approximately $7 million.

And then just on the vegetation management, if we could maybe get into a little bit of just the dynamics there as it sounds like you've truncated the old schedule of vegetation management to something a bit shorter in duration and maybe being a bit more aggressive in going out and tackling certain issues. And obviously that has knock on effects and productivity reliability but are your expenses more front-end loaded.

And then you really reap the benefits of that on longer-term basis?

This is Greg Kiraly, Chief Operating Officer. So we just undergone commencement of this new vegetation management program based on lot of best practices of U.S.

utilities and other Canadian utilities and it moves that cycle from a 10-year timeframe to a three year. So we’re going accomplish more circuit kilometers of clearing but we’re going to be more surgical in our approach.

So we’re not going to do a complete clearing but we’re going to clear the vegetation that has the most significant impact and potential for an outage on our system. So when we do that of course we reduced the unit cost because we’re covering circuit kilometers, many more circuit kilometers with this new approach.

We’re still going to need a significant amount of dollars, the dollars that we submitted in our rate case application for the first couple of years because we’re going to be removing a lot of dead, dying and disease trees that could fall into our lines based on this new approach. And then over the long term after we get through a cycle or two and much of that heavier vegetation is weeded out then we’ll be able to achieve total cost savings that will be on the decline in the out years, but immediate unit cost saving upfront and then total cost savings over the long-term.

Just starting off south of the border with Avista and I realized it's early days, but any thoughts on potential implications of U.S. tax policy changes there either pro or con?

So it’s very, very early days as just pointed out and I think the only item that was of any significant that came out was the suggestion that the tax that will be cut to 20% so that would have $0.01 or so up to $0.02 impact on the accretion, but we would find a way to manage that. And again it’s a very, very early days and that’s without any optimization.

So we’ll continue to monitor and look at it and see how we can offset any impact of the change in tax breakdown there.

And then moving back north of the border just when looking at Q3 just to help us understand so the $0.40 that you booked I guess was inclusive of the transmission decision for all aspects except for the tax changes there. And then just want to get a sense of how much of a magnitude that would been during the quarter?

Yes, so you summarized it correctly and the magnitude during the quarter is approximately $50 million.

And then just in terms of timing, when would you expect to get this review in variance application? Or court challenge finalized?

Or to completion?

I would say that one is over the course of the balance which really have a couple of months left in the year were in as the process will begin I would expect the first quarter there will be a lot of activity but it would not be predictable to say that this is going to happen in the first quarter, first two quarters but I think just using a reasonable judgment the expectation would be if anything that would be late in the first quarter or potentially in the second and we can use history as a guide of course the ruling we just received on the transmission filing was retroactive to January 1. So that's the information that we have and it's early days in the process but as I mentioned earlier, Rob it was not affected the impact we would be responding in the way that we have with the OEB would be our information.

First, I’m curious if you have heard anything as to why the OEB has not yet published it's update for the ROE officially and if there has been any indication to you specifically as to when they may publish that.

So we haven’t heard any specifically but we anticipate will have that updated to the next two weeks. As we’ve indicated previously its formulaically calculated, so it’s not a matter of interpretation, it's just a matter of publishing.

Yes, I'm aware of that. Just in the past they have typically published it within October and now it seems later, so I was wondering if there had been implication as a result of that but if not that's very good.

Just moving forward from a more broad perspective looking at the Ontario long-term energy plan which was published recently, are there any takeaways that you can highlight for us from the plan that would lead into how you are going to develop the business going forward?

We are taking an extensive review of the long-term energy plan. It is certainly based on input from industry across Ontario.

At first blush we believe that there is certainly opportunities there, you know with what it's been suggested with the additional fit contracts and green energy initiatives but we continue to do a deeper dive into what other potential there is for us to see initiates orientation that would apply to the business. It's the third volume of document that have been increased in Ontario and what we feel with this plan is that actually gives some sense of certainty to cost and program uncertainty over the long-term.

So we're beginning to feel through it. Time will tell here in the coming months as to what opportunities we evaluate that we feel we can add commercial value to the business.

I am still going through your results, I apologize as some of my questions have been addressed in your write up. But and I'm just wondering maybe when you talk about some of the initiatives you're taking around vegetation, fleet management and procurement notionally for each of those buckets how might we think of the relative proportion of benefit being in your distribution versus the transmission business?

I would say most of those productivity initiatives are in a distribution business. Certainly there are some in our transmission business as well, and all of those collectively those initiatives really helped us achieve the financial results that we reported here today.

And so how much more would you say would there be left to go. Are you three quarters of the way there or…

We're on track right now to achieve our forecasted savings for the year and we build productivity savings into our budget. As we have in our five year distribution rate case moving forward, as well as we are going to our transmission rate case so both shareholders and customers are going to benefit from these productivity savings but we're on track to achieve our targeted savings for the full year of 2017.

And just a follow up question with respect to your accounting treatment of the transmission decision. For the fourth quarter how will you be booking your financials both for your ongoing operations and will there be - may be a one-time impairment charge related to tax or an adjustment to FFO on the annual basis that you disclosed in your write-up or would that decision be made to make that change once a final resolution comes either from a review and variance decision or an appeal and how are your accountants advising that you approach that?

It's the later of what you proposed there - what you indicated so, we remain to the opinion that is probable that we’ll prosecute our cases to success and while that remains true, we would differ any impairments as such it became a change and that could be in the event of decision or it could be other factors. Likely will be the decision in the Motion to review and vary that would set that out.

So that’s what would be and the accounting has set out in the notes and the MD&A it talks about a one-time impairment in the event that we are unable to defend acquisitions and then going forward it also in the MD&A highlight the impact of the FFO going forward.

So the FFO will not - how will be booking cash flows because your FFO does go down as your new rates come into affect do they not or do you reverse that back and normalize for that.

Yes, so the new rates have come into effect, new rates that we are accounting on as we expect to recover the full amounts of the tax benefit at this point. So a point way that is no longer true, we would book a one-time impairment and then the FFO would be reduced at that point.

Maybe I will follow up offline with Omar if that’s okay.

Absolutely.

If I can just follow on the financial impacts. So if the R&V is unsuccessful, you've laid out the $50 million to $60 million annual FFO impact, just wanting to drill down the development of that figure.

So does that include a similar impact on the distribution side of business?

Yes.

So is that really what you have outlined depending on the year, let's call it $25 million, attacks on the transmission side, that assumes the full $15 million OM&A disallowance with no mitigation, and then call it high teens on the distribution side of things? On the tax?

Yes. So the FFO impact that is outlined in MD&A is purely made for tax.

In regard to the other impacts, we will look at ways to recover that and clearly in our business. But as we have corporate overhead or what we think that could be.

And then from the earnings side of things how do you expect that to play through as the tax and actual impact on the income statement or is that going to start way by regulated accounting?

At the time, say today there is no impact because we made the opinion that we can defend the position it will be recovered. At the point where that is no longer true, and there will one final write-off or one final hit earnings, and in the MD&A we set up what that range is based on the current ownership in the calculation put forth by the OEB that could be for the distribution and the transmission business up to $885 million as a one-time impairment charge with no further impacts on net income after that.

However there will be an impact on FFO because we won’t be collecting the higher rate going forward.

So the ongoing impact to earnings is zero. But that's because of rate regulator accounting principles?

As we sit today, yes

The last question I have got is you’ve got a disclosure about insourcing of the back office and we've seen with some others you have done this, this has been a positive event given rate base investments to set up the operations is that the case here?

Can you provide some clarity when you talk about back office?

So I think there's a disclosure that you got an outsourced customer service or function that contractors by the end of the year and you’re going to be insourcing the operation?

Yes, we're just working through the process with bringing the call center operation our customer service operations back in health and insourcing it this has been based on discussions and negotiations that we've had with both of our unions at PW and Society and have been able to reach arrangements that are cost effective and flexible will allow us to insource that at a lower cost structure and a declining cost structure basis. Right now as we've moved to a more flexible channels by using an opening up digital channels for E billing and so on, introducing call volumes into our call center, bringing the call center back and through those lower call volumes and now at a declining rate of cost per call gives us the price flexibility and the cost advantage of operating a more efficient call center on our own but in addition it speaks to some of the points that Mayo made in his opening remarks about us also driving for a greater quality of experience with our customers.

The intent with the insourcing of the call centers as well as we've obtained through our contract negotiations with both the PW and The Society is flexible work terms that allow the call center agents now to work just beyond the basics of entertaining customer escalations and complaints we can actual now use the call center agents to expand the level of service they’re providing if we were to get into other commercial arrangements or sell other services we could now use that call center to do as such. So we view it as a strategic advantage it gives us the control over the customer experience better than we have today at a better cost price point and in addition delivering a better quality service to our customers.

Right so but is there a capital cost of setting up the infrastructure to handle all of this?

There is no capital cost we own the facilities and have for years and in essence what we’ll be doing is just in essence terminating the contract with our outsourcer insourcing that contract and with the new terms and conditions we’re actually insourcing it at a lower cost base.

So just a people OpEx situation.

That’s correct.

I wondered if you could discuss based on your initial contact with the regulators and stakeholders about the Avista acquisition. What your sense is of the required concessions or contributions they need to make have the deal approved and compare those to your accretion expectations?

Let me take that so maybe there is two levels to answer that question one being that this is Mayo I have met with the commissioners of four out of the five states and intend to meet with the fifth one this month in the next week and half. I would say that the meetings were very constructive very positive and quite frankly quite welcoming and I say that with two reasons.

One is the activities of this organization over the last year's have specifically two years have demonstrated a real strong customer focus which is important the activities that they embrace. And secondly is bringing a organization with the not only the good reputation but also the balance sheet that Hydro One has been seen as a highly attractive to the states both via the governors that I've met and also the estate commissioners.

It’s early yet and we just filed in mid-September and October was a period of time whether a lot of questions be answered. So we received from different states different numbers of questions but there is some substandard question request which under Jamie Scarlet the team is always executing on those responses.

We've got a very strong regulatory team both here in Hydro One and at Avista that are working collaboratively. So we don't think it's an exercise its going to be too arduous for us.

We don't know at this period of time yet what the expectation of net benefit will be but at the same time we have recognized there needs to be one and we will be providing with - and we haven’t accounted our view within the accretiveness of the transaction. There is a recognition of what our expectation may be of what their request ultimately will be and we expect by next quarter we'll have more clarity on that so Robert.

And then just we haven't heard an update I think on this the CFO search so can you just give a quick update there please?

I’m happy to. So as you would expect the organization has done an extensive search looking in Canada and also in the U.S.

and I would say that I've met with the number of candidates, I've got more to meet with. We've surfaced some very high quality individuals.

We’re in the process now of narrowing to a short list over the next course of the next few weeks including this week and next I'll be meeting with the candidates. And I would say that my goal and the goal of the Board of Directors and the full leadership team here is to hirer and attract and retain high-caliber candidate that is in fact has the competencies of the leadership team that we built around at Hydro One which I think is quite strong.

And so I think it's a combination of both the personality fit but also the competency fit. And I think I like what I'm seeing as we've narrowed now down into a shorter list and Judy McKellar who is the Chief Human Resource Officer and I are working through that list and we'll get to a conclusion here I think in the coming well, I think in the balance of this year would be the expectation assuming the people are available to complete the interviews.

My last question then is on the actual tax rate in the quarter may be Omar this is something we could take off-line but it was a year-over-year decline so just any obvious explanation for that?

Yes Rob happy to touch based with you and provide you with more color on the effective tax rates, I believe that you're correct in your assessment.

So you don't think it's likely to continue it’s just timing issues or…?

We had a number of tax returns I think maybe we had revisions against some of those tax returns so we have to clear those provisions now. So it’s one-time benefit if you like so you'll see the right stay within the range that we expected that we put out there, the 14%, 16% but for the quarter it was low that’s correct.

Wanted to understand more the FFO effect of 50 million to 60 million and the assumptions behind that just to clarify its transmission and distribution potential tax effect if you’re not your successful in your appeal. What is the assumption in terms of ownership of the public versus the government, will this go down with the dilution from the Avista shares once that transaction closes or is that number already reflecting a higher share count or is that not a factor?

Yes on all counts so summarize it very clearly. It currently reflects the decision that the OEB has been on file which is at the higher provincial investments announced.

Once they are diluted further and they can go it down to 40% and they currently at 51% in that calculation. This amount will go down.

The write up will go down and the FFO impacts will also go down.

So what would the realistic number be once the Avista transaction closes and those shares get converted?

Yes, there's two pieces to that. There is the Avista transaction sales and as a commitment from the government, government to sell shares to first nations and unions.

If both have been superior and take them down to 41%, the write-off will drop by $150 million to $200 million and the FFO impact would go down by 15% to 20%.

And just a follow up bigger picture question maybe for Mayo, there is a provincial election next year I'm wondering if you'll engage the various parties or if you're aware what their platform is with respect to electricity policy and how it might affect Hydro One if at all if any of the different parties were to come?

I would say one as we have and do engage with them and let me be clear about that engagement. So we as an organization of course would not want to be toned as to government policy in any length but important to note that the government is of course a shareholder not a manager of the business.

So in our communications really at two levels just to understand where they intend to take electricity policy or Hydro policy for the province which we see in the long-term energy plan and which is of course focused on innovation and opportunities that we see there. Secondly, as the work that we've done with the current government which when you think about the fair hydro plan which is reduced power by $0.25 for every customer and 31% for Hydro One customers done and completed after our first meeting within 14 days is rather extraordinary outcome which is a $3 billion per annum reduction.

Then the affordability plan which was up to $200 million that was deposited in Hydro One's account because we’re the administrator of that program and then a change in reduction in the distribution charges. Those are really illustrations of the level of collaboration an affect our organizations had constructively on the relationship.

But then going to the second part which gets to you again your question is, there is no doubt that hydro or electricity policy is going to be debated and the two levels are one is the privatization of Hydro One which of course is I’ll use the word noise in the marketplace and I think we all as commercial people realize that that's done complete and this organization is fully functioning operating and even has its first acquisition underway. So that sort of the legacy debate and argument that is probably going to get some profile and then of course the Fair Hydro plan which is some debate between the different branches of opposition and the current government simply around how it's going to get paid for which the finance department is dealing with which is outside of our purview.

So I would just sum it up to say there will be let’s use the word noise in the marketplace related to hydro. I don't think in any way it’s going to affect our commercial operations.

I think that all parties have admired the work that's been done in this organization to both be effective and successful commercially. And also have a very positive public improvement of relationship.

So I would say our customer relationships are an all-time high in history of this company. Even the work that we’re doing what you might say is our corporate social responsibility has resulted in a record low accounts receivable so people are paying more bills than they ever have, our receivables are at the lowest level that we've ever experienced, relationships are at the highest level.

Our billing is at the highest level and yes there is noise but I think that the feedback we have this is not personal the Hydro One it’s just simply is the politics of what resulted in $11 billion global adjustment that weighs on the shoulders of every resident that's been the case of policy for the last 10 years. So hopefully that's a nice purview of what we see is what will be sort of election outcome and following that we just think the conversation around hydro is going to diminish significantly.

Thank you, Crystal. The management team here at Hydro One thanks everyone for investing their time with us this morning.

We appreciate your interest and to the extent if you have any questions that weren’t answered please feel free to reach out and we'll them answered for you. Thank you again, and enjoy the rest of your day.