Good day, ladies and gentlemen, and welcome to the Hydro One Limited first quarter 2019 analyst teleconference. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. If anyone should require operator assistance, please press star and then zero on your touch-tone telephone. As a reminder, today's conference is being recorded. I would now like to introduce your host for today's conference, Mr. Omar Javed, Vice President, Investor Relations at Hydro One. Please go ahead.
Good morning, everyone, and thank you for joining us. I'm here in Toronto with our Acting President and CEO, Paul Dobson, our Incoming President and CEO, Mark Poweska, and our Chief Financial Officer, Chris Lopez. We'll provide some brief comments on our first 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 should illustrate some of our points that we'll go over in a moment. They should be up on our webcast now, or if you're dialed into the call, you can find them at Hydro One's website in the Investor Relations section under Events and Presentations. Today's discussions will likely touch on estimates and other forward-looking information.
You should review the cautionary language in today's earnings release and our 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 apply to this call. With that, I'll turn the call over to Paul Dobson.
Thank you, Omar. Thank you to everyone for joining today and for dedicating your time to review our first quarter results. If you don't get a chance to ask a question near the end of this call, please keep in mind that Omar and his team remain available to you. Before we begin, I want to acknowledge the tragic loss we suffered in March when one of our teammates sustained fatal injuries conducting forestry work in the Minden area. It has been an incredibly sad time for our Hydro One family, and our thoughts and deepest sympathies are with this person's family, friends, and colleagues. The memory of our lost colleague will strengthen the resolve of our teams to achieve the vision of an injury-free Hydro One.
After I review the highlights of the quarter, I have the honor of turning to Mark Poweska, Hydro One's Incoming President and CEO. After hearing from Mark, we will turn to Chris to review the financial figures. Hydro One is a company built upon strong foundations. Since 2015, it has been a company generating considerable momentum in achieving improvements across the board. Improvements in service, reliability, efficiencies, and financial performance. The first quarter demonstrates that we are already off to a great start in 2019. I am proud, but not at all surprised, by the dedication and compassion our teams are displaying as they work long days in the challenging conditions to help families, homes, and businesses facing record-high floods in central and eastern Ontario. Using our more proactive approach, our teams and specialty equipment assembled in the hardest-hit areas, ready to quickly and safely address our customers' needs.
Additional team members and trucks are volunteering to support the sandbagging efforts. Many of our men and women continue to work tirelessly to help their neighbors in a time of great need. The team at Hydro One is truly committed to the communities we serve. Our relentless focus on outstanding service continues to improve customer experience. Our billing accuracy of 99.6% far surpasses the Ontario Energy Board's requirements of 98% and represents an increase from 99.4% at the end of 2018. Our teams continue to drive efficiency programs to increase productivity and achieve savings. Last quarter, we shared how our forestry program is covering 3 times the line distance with just a marginal increase in cost. Another fantastic example is how we use telematics, which has increased the fleet utilization by 14%. We are doing more with less.
At the end of March, we filed our 2020 to 2022 transmission rate application with the Ontario Energy Board. Our three-year, CAD 5 billion investment plan will ensure we maintain a safe and reliable system and facilitate connectivity to new-load customers to support a vibrant economy. By making smart and prudent investments in the system today, we will help to protect the public, maintain reliability, and offset more costly work in the future. We are planning for the future. I'm pleased to report that we received a decision from the Ontario Energy Board for our 2018 to 2022 distribution rate application. This decision provides clarity for our teams, customers, and investors for the next three years. Catch-up revenues from this decision, favorable weather, and lower taxes resulted in higher revenues in the first quarter over the previous year.
We reached an agreement with the Society of United Professionals at the end of March, and members of the Society of United Professionals ratified a two-year agreement at the end of April. This agreement recognizes the role our teammates play in providing exceptional service and the safe, reliable, and efficient delivery of power while helping to generate greater value for our customers and shareholders. I would like to thank the respective negotiating teams for their hard work and collaboration over the last several months. In March, the Management Board of Cabinet approved our Executive Compensation Framework, which will provide certainty and clarity for our employees, shareholders, and the people of Ontario. Furthermore, the approval of our framework allowed our Board of Directors to announce the appointment of Mark Poweska as the company's President and CEO.
Before I turn it over to Mark to say a few words, I want to recognize Greg Kiraly and Jamie Scarlett for their outstanding contributions to Hydro One. Under Greg's leadership as Chief Operating Officer, Hydro One has been strengthening its safety culture in every aspect of its operations. As our Chief Legal Officer, Jamie was critical in transforming Hydro One into a commercial enterprise. We wish you both the best in your future endeavors. The company is fortunate to have significant bench strength and depth of management that will ensure stability and continuity during this planned leadership transition. As my time at Hydro One is drawing to a close, I would like to express my gratitude to the Hydro One family, the Board of Directors, as well as our customers, communities, and shareholders. It has truly been an honor to work alongside such committed and hardworking people.
To say that I've been proud to be part of the Hydro One team would be an understatement. I am confident that I'm leaving the company and our people in good hands with Mark Poweska. During his 25+ years at BC Hydro, Mark has proven that he can build a strong safety culture, exceed customer expectations, and improve operational performance. His appointment should send a powerful signal about the company's continued focus on safety, operational improvements, exceptional customer service, and reducing costs for the benefit of our customers, our shareholders, and the communities we serve. At this time, I would like to publicly welcome Mark and ask him to say a few words about the future of Hydro One.
Good morning, everyone. Thank you, Paul, for that tiny introduction. On behalf of Hydro One's 8,600 employees, I'd like to extend my sincere gratitude for your strong leadership through this period of transition. I'm excited to be joining such a great company full of hardworking, dedicated employees who are proud of the work they do. In this, my first week with the company, I met with the executive team and some of the senior leaders in the company. What I've seen thus far is a results-driven team that is focused on safely providing power to our customers, improving productivity, and delivering great value for our customers and shareholders. We will build on this momentum through an unwavering commitment to safety, operational excellence, outstanding service, and cost reductions.
With that, I'm pleased to announce that I've appointed Chris Lopez as the Chief Financial Officer after he successfully acted in this role for many months over the past 2 years. Chris has proven himself a strong leader by effectively leading the finance organization at Hydro One. He has a proven track record for delivering financial success with more than 20 years of experience in the utilities industry. I'm very pleased that Chris has agreed to stay on as our Chief Financial Officer. I'm also looking forward to working with our Board of Directors and management team to set a clear vision and strategy that will ensure a strong, stable, and successful Hydro One now and into the future.
One of my first priorities will be to solidify the executive team and build relationships with the Government of Ontario, our customers and communities, indigenous leaders, investors, and our partners across the electricity sector. At the same time, I will be working to earn the trust and confidence of the investment community. Over the coming weeks and months, I look forward to meeting, listening, and learning from so many of you. With that, I'd like to pass it over to Chris.
Thank you, Paul and Mark, and good morning, everyone. I'd like to take the opportunity to welcome Mark to the Hydro One family and echo his acknowledgment of the great results Paul has delivered over the past year. We truly are a resilient organization, and I look forward to working with you, Mark, to take Hydro One forward. In terms of our financial results, I am pleased to advise that we reported strong results, a testament to the strength of the fundamentals of the business. While we saw a decrease in earnings per share in the first quarter to CAD 0.29 compared to the first quarter last year of CAD 0.37, the decline was primarily related to the cost associated with the termination of the merger agreement. Both Avista and Hydro One mutually agreed to terminate the transaction, which resulted in a contractual termination fee of $103 million or CAD 138 million.
Adjusting for this fee and other transaction-related costs, our first quarter adjusted earnings per share was CAD 0.52 compared to CAD 0.35 the prior year. The earnings growth was primarily due to one-time catch-up revenues resulting from the decision on our distribution rate application, favorable weather, and lower income taxes. Driven by both the transmission and distribution business, our first quarter revenue net of purchased power was higher year-over-year by 15.4%. The primary driver of the increase came from the one-time catch-up revenue of approximately CAD 85 million or CAD 0.10 EPS following the recent decision on the distribution rate application. Both transmission and distribution revenues were also affected by higher consumption of energy from favorable weather, as demonstrated by the 5% increase in both peak demand and electricity distributed to Hydro One customers.
On operating expenditures, we were higher primarily due to costs associated with the termination of the merger agreement and project write-offs related to the Lake Superior Link project. The year-over-year increase in the quarter amounted to 54.1%. However, excluding the merger termination fee and the project expenses for Lake Superior Link project, that was written off, OM&A was flat versus last year. This cost control, coupled with increased work done, represents our continued focus on productivity and taking expenses out of the system to the benefit of both customers and shareholders alike. The termination of the merger agreement also impacted the quarterly financing charges, which increased 85.2%. While there were marginally higher interest costs related to an increased weighted average long-term debt balance, the primary reason for the increase in financing costs was the termination of the merger.
The termination resulted in the reversal of previously recorded gains on the foreign exchange contract, the write-off of deferred financing costs related to convertible debentures, and the related interest payments and subsequent delisting of the installment receipts. All these factors are outlined in today's MD&A. Quarterly income tax decreased by CAD 58 million, which resulted in a tax recovery of CAD 16 million. The decrease in income tax expense was primarily attributable to the tax recovery on the termination fee and financing charges related to the merger, as well as incremental tax deductions from the deferred tax asset sharing as mandated by the OEB. These latter costs pertaining to the deferred tax asset sharing were, however, offset by lower revenues, making them net income neutral. Due to these reasons, the effective tax rate for this quarter was negative 9.9% versus 15.6% in the first quarter of last year.
Related to tax impacts, the 2019 federal and Ontario budgets introduced certain time-limited investment incentives, which, when enacted, will allow the company to take accelerated tax depreciation up to three times the first-year rate for capital investments acquired after November 20, 2018, and placed in service prior to January 1, 2028. This will result in a temporary reduction to the effective tax rate in the near term. Taking into account these budget items, the deferred tax asset sharing, and merger-related costs, we expect our effective tax rate to fall to approximately 2% in 2019. That's 2% for full-year 2019. Over the next five years, we expect the effective tax rate will be in the range of 8%-11%. While the decrease in effective tax rate will be net income neutral, it may have an impact on the timing of future cash flows.
Moving over to investing activities, the company placed CAD 145 million of assets in service in the first quarter, which is consistent with the prior year. Following the distribution rate case decision, we have updated the projected annual capital investment in the MD&A. These forecasts reflect the draft rate order, which is currently under review and subject to approval by the Ontario Energy Board. We strongly believe that continued investments in our aging electricity infrastructure will promote economic growth and prosperity and result in a vibrant, growing, and prosperous Ontario. On the regulatory front, this has been a very busy quarter. We received the deferred tax asset and distribution rate case decisions that were referenced previously, as well as, we filed our application for transmission rates for the 2020 to 2022 years under the incentive rate-making framework.
Following the deferred tax asset decision, we recognized an impairment charge to our regulatory assets and recorded a CAD 867 million one-time decrease in net income under last year's annual statements. While we are disappointed with the deferred tax asset decision, we have appealed it to the Ontario Divisional Court. We continue to believe the deferred tax asset is a benefit that accrues to all of Hydro One's shareholders, and we will continue to advocate for that position. In regard to the distribution decision, we filed a motion to review and vary with the Ontario Energy Board with respect to recovery of pension costs. We believe that interpretation issued post-hearing from the Financial Services Commission of Ontario does not permit Hydro One to take contribution holidays. As a result, we would be allowed to recover these legally required pension contributions.
On the financing front, Hydro One priced CAD 1.5 billion of medium-term notes on April 2, 2019. We were very pleased with this large, successful offering, which locked in significantly low weighted average rates for the benefit of our customers. This is yet another way in which we are reducing costs for our customers and demonstrates the stability of our regulatory environment. Finally, I'm pleased to confirm that the Board of Directors approved a 5% increase in the common share dividend. The increase reflects the strong fundamentals of the business and the good work we are doing for the benefit of all stakeholders. I'll stop there, and we'd be pleased to take your questions.
Thank you, Paul, Mark, and Chris. Before we ask Candace to explain how she'd like to organize the Q&A polling process, we're a bit tight on time this quarter as our annual shareholder meeting begins at 9:30 A.M. We are requesting that participants wishing to ask questions this morning to please keep them to a single topic so that as many people as possible have an opportunity to participate in the time available. Please go ahead, Candace.
Thank you. Ladies and gentlemen on the phone lines, if you'd like to ask a question at this time, please press star and then the number one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from Robert Hope of Scotiabank. Your line is now open.
Good morning, everyone. Just in terms of your conversations with the government following the Fixing the Hydro Mess Act, 2019, as well as some recent decisions, can you just update us on what the conversations are there and whether or not you think most of the Ontario government's work on the energy file is behind them in the near term?
Yeah. Sure, Rob. I would say at the onset, as I've said in previous calls too, that Hydro One fully supports the province's commitment to reduce power rates in Ontario. We've seen rates rise in this province over the past 10, 15 years, mainly due to the Global Adjustment. This is an industry-wide issue, and I'm pleased to report that the industry as a whole is working very well with government to come up with different ideas. I think, as we've seen with Bill 87, that if it isn't approved yet, it will be approved shortly. From what my take of it, there's three main components to that. There's the Fair Hydro Plan being replaced with a new bill rebate, but the intention of that is to reduce residential bills to inflation.
We're still studying the mechanisms by which that'll be achieved and then understand that any amounts over inflation will be paid for by a taxpayer-funded mechanism. We don't believe that's going to have a direct impact on our revenues. The second component of that is the new OEB structure, which kind of followed on from the OEB modernization work or the discerning panel that was undertaken a while back, which we participated in, separating the adjudicative from the administrative functions. We know that's going to help improve processes, the governance structure, accountability, and efficiency of the OEB, which we think is a good thing. The third element is the CDM programs, reducing the CDM programs and overall, perhaps more focus on business programs, and then uploading the remainder to the IESO, who will be the central administrator.
Again, we don't think that's going to have any material impact on our business here and our financials, certainly. Bill 87 is meant to save over CAD 400 million. It's a good step, and it does reflect a lot of the input from industry. We're also working, though, with industry, with the Ontario Energy Association, with Canadian Manufacturers & Exporters, and the MOE to come up with different ideas to address other rates, particularly around industrial customers and business customers, to see if there's something that we can do in that space as well. We expect that those ideas will emerge some point this year. Overall, I think the government's taken a pretty good step in the direction of rate reduction.
Just as a follow-up there, do you think that gets most of the way there on their 12% cut, or how do you calculate the rate impact?
Yeah. It's tough to tell exactly how the government is looking at that, but it certainly should have an impact on reducing rates to some degree. I think we'll still have to continue to work with them and see where they think they are with that. We don't think they're all the way there, but they're making progress.
All right. All the best on your next steps. Welcome, Mark. I'll hop back in the queue.
Thanks, Rob.
Thank you.
Thank you. Our next question comes from Linda Ezergailis of TD Securities. Your line is now open.
Thank you. This is maybe a bit more of a strategic question, but I'm wondering if you can give us an update on the outlook for LDC initiatives in Ontario. Might there continue to be a drive to consolidate, and what role, if any, might Hydro One take in that, or has the outlook shifted with the new government?
It's certainly on our list of ideas that we put forward to help control rates and reduce rates. We think that there is still opportunity there, but for us, only if they make good operational and economic sense. They have to be on the right terms and conditions. We know that the province has certainly stated in the past that there was a goal to consolidate. We still think that's a viable option for the province to consider, and they're advocating on that behalf. We'll have to see if the terms and conditions that emerge from that create opportunities for us.
Sorry, just as a follow-up, has the current government stated any views on the possibility and the merits of LDC consolidation, or have they been silent, or?
No. They have not stated a position on it, is my understanding. We certainly see, and we know that there are studies out there that show that the economics of it can be compelling under the right terms and conditions.
Thank you.
Thank you. Our next question comes from Andrew Kuske of Credit Suisse. Your line is now open.
Thank you. Good morning. Just focusing on the business and the OM&A in the quarter, could you just give us some color and commentary on what happened in the transmission side where you trimmed costs? Is this really structural, or is this seasonal or cyclical in nature? If you could also give some color on the distribution potential to trim more OM&A costs.
Sure. Yeah. Andrew, you know that productivity has been one of the key pillars of the strategy for a number of years now, and we're really pleased with the progress that we've made. In the quarter, we've seen continuing utilization of our telematics program with our fleet, increasing utilization to about 14%, which helps us identify underutilized assets, reduces fuel costs, insurance costs. That is continuing to yield, and there's still more to go for there. Also, in our forestry, on our distribution side, the Optimal Cycle Protocol allows us to complete more work for less money. We still have other ideas as well across both transmission and distribution that will be investigated, I imagine, as part of a go-forward strategy, things around our real estate portfolio, new innovative technologies, billing and payment apps, using sensors and controls, robotics.
On the OM&A side, I expect our goal is to continue to hold those costs, aiming for a 2% reduction or so, around 2% a year, and try to hold those costs flat as we go forward.
Okay. Thank you. You mentioned the billing side of it. Just a follow-up question on what kind of scale does your billing system and process have at this point in time? How many more customers could you have on the system?
Customers on the system? Well, I assume you mean on electronic payment and billing. Electronic billing.
Yeah.
Yeah. We have 1.4 million customers, the majority of which still receive a paper bill. I think that there's quite a bit of opportunity there to reduce that, as everybody has a mobile. 99% of the population has a mobile phone. They're connected to the internet. There are ways to deliver bills to our customers without having to mail them. I think that there's opportunity to save on paper costs, good for the environment, save on postage costs, get the bills out quicker, actually. That can actually result in customers paying quicker as well, which helps our cash flow cycle. Lots of benefits for both us and customers if we can increase that penetration.
Okay. That's great. Thank you.
Thank you. Our next question comes from Robert Kwan of RBC Capital Markets. Your line is now open.
Good morning. Questions for Mark. I don't know if you've got any initial impressions, but even just thinking about your background and what you kind of expect to bring to Hydro One, just do you have thoughts on financial setup and stock valuation performance? Really, who do you view as your peer group now that you're at Hydro One? Then also, as you think about growth or expansion, U.S. expansion was a strategy for Hydro One. How do you feel about that? Then your background in Generation, something from BC Hydro, how do you feel about Generation being part of Hydro One going forward?
Lunch questions in there. Thank you. My view on Hydro One is it has great fundamentals, and my plan is to meet with employees, meet with shareholders, meet with key stakeholders over the next while, and then work with the board of directors and the executive team to develop a new strategy and vision going forward for the company. The peer groups that I look at are obviously the other utilities in our sectors, such as Fortis and Emera and the other publicly traded utilities. As I said, one of my priorities will be to develop some relationships. I come from the West, so obviously, I have many relationships out there, but I am new to the Ontario market.
One of my priorities will be to get out there to meet with all the players across the electricity sector, as well as in government and our key stakeholders and customers and shareholders, and to listen and understand what the views of all those groups are as I move forward with the executive team and the board to develop a new strategy going forward.
That's great. Thanks very much.
Thank you. Our next question comes from Robert Catellier of CIBC Capital Markets. Your line is now open.
Hi. Good morning. I just wanted to congratulate Chris Lopez on his appointment to the permanent CFO role. Going from there, a related question. I wondered, Mark, if you had time to think about what you need to do in terms of settling down the management turnover that's occurred recently and what you can do on the recruiting and retention side in light of the constraints imposed by the government.
Yeah. I think the move this morning that was announced with solidifying Chris in that position was a key thing for me, and I'm happy that Chris has agreed to stay on. We do have a lot of bench strength and good succession planning in Hydro One, and we have very capable people in those positions right now. I'm confident and comfortable with the go-forward right now. We will be going to the street to recruit for some of the vacancies we have, as well as looking internally at our own employees because there is a lot of strength within this company. We will be looking to solidify those positions and stabilize the executive team as soon as possible.
Okay. Given your response to Robert Kwan's questions, it seems like it's premature on the strategy side, given you've just taken the role. Do you have any initial thoughts on how the company might grow outside of Ontario, or if that's necessary at all?
Yeah. I think it is a little premature for me to speculate on that and comment on that right now. I do want to engage and listen and work with the board and the management team to get a view on that going forward. One thing that won't change is our continued drive on operational excellence, which is driving safety, is a priority for me, absolutely, given the recent fatality and event here that further solidifies my dedication and drive towards safety. It is absolutely a priority for me. Reliability, cost savings, and customer service, which will be part of any strategy going forward, those will be absolute. The other parts, I will be working with the leadership team and the board to solidify those over the next while.
Yeah. It's an understandable response. Finally, given the amount of flooding activity and the related OpEx that might be associated with that, I wonder if there's any indication how we could look at that for Q2. Is there some way to quantify by looking at similar quarters, or can you help point us how to gauge that in some way?
Yeah. It's with Paul here. We're still looking at that. We'll be able to come up with an estimate at some point in the near future. Right now, we're still in our response phase. It's still happening as we speak. We're really more focused on the operational side of it, the safety side of it, and helping our customers not only disconnect where they needed to disconnect but then reconnect and not charging customers for that and really helping the communities. That's where our focus has been. There probably will be a cost associated with that, but I don't expect it'll be material.
Okay. Thank you. Good luck, Paul, on your future endeavors.
Thank you, Robert.
Thank you. Our next question comes from David Quezada of Raymond James. Your line is now open.
Thanks. Morning, guys. Maybe just kind of a high-level question for me. I'm just thinking about what you see in terms of opportunities for maybe some larger projects outside of your current capital plan in the long term, now that it looks like Lake Superior Link is not going forward and the M&A strategy is kind of on the back burner. Yeah. Just any opportunities you can speak to with respect to rate-based growth above what you've currently contemplated.
Sure. The one that we have going now, which you're probably aware of, is in the northwest part of Ontario, now referred to as the Waasigan Transmission Line. We rewarded the development work for that, and that will likely translate into a full-blown project at some point in the future. We're definitely hoping to be participating in that. It's unclear to us at the moment how the OEB will sort of allocate or award that project, but that is something that represents growth. Further growth in the north, as the government looks to expand the economy, health industries such as mining in the north could also present opportunities for us as well. We're also, as part of our plan, which is in our plan, looking at the southwest part of Ontario.
All of the growth that's happening in agriculture and greenhouses down there is also, depending on the pace at which that goes, that could also represent good growth for us as well. Lots of opportunity right here in the province.
That's good color. Thank you. I'll get back to you.
Thank you. Once again, ladies and gentlemen, if you would like to ask a question at this time, you may press star one. Our next question comes from Ben Pham of BMO. Your line is now open.
Okay. Thanks. Good morning. My next question is from Mark. I'm curious. You certainly got the replenishment of the C-level staff, executive level. You deal with that short term. I'm just curious as you think about your time at BC Hydro and looking at Hydro One. How do you think that the industry and Hydro One's going to manage this big exodus of staff the next couple of years? You have engineers looking at retirement. Can you actually grow rate base, safely, reduce costs when you have a pretty big number of experienced technical staff looking to retire?
Yeah. Great question. I think it is common across utilities and I think industry in general with trying to replenish staff who are retiring and moving on. I haven't had time yet to look at, within Hydro One, what the risk profile looks like on that. I do expect to see that we do have good succession planning in place and that there are good development programs in place. We bring in a lot of trainees from the bottom up. We're feeding the system and providing opportunities for new people to step in those positions. My experience in 26 years with BC Hydro, where there were similar issues, is that you worry about that risk. I have always been surprised with the abilities of people to step up into new positions and take on new challenges, even on the technical side.
I expect to see the same thing here. I will look closer at what is that risk and what the plans are in place. I do expect that that's well managed.
Okay. If I could just add to that too, as Mark soon discover this with Hydro One, our investment in women in technology roles, women in STEM scholarships, we've seen that this is an issue, that it's going to be an issue as folks retire. And so our investment, having more women come into technical roles where there traditionally have been more men, is also an opportunity for us and probably right across the whole industry, I would argue, as well. We would look forward to seeing more investment there.
All right. That's great. Again, I quote everyone's comments. All the best, Paul, and welcome, Mark.
Thank you, John.
Thank you. Our final question comes from a line of Patrick Kenny of National Bank. Your line is now open.
Yeah. Good morning, everyone, and welcome, Mark. Congrats, Chris. Chris, just wanted to maybe get an update on any discussions you're having with credit rating agencies and just your thoughts around any further risk to a downgrade there?
Thanks for the question, and thanks for the congrats. Overall, we've been through one update this year already, and the agency, DBRS, it was, has confirmed their ratings based on our long-term plans or midterm plans. The other two will be happening later this year. There's been no specific discussions, but we are still within the metrics that they have put out there. The only thing I'll caution there is that S&P have their credit watch negative on Hydro One, but that's purely focused on any kind of action from the Ontario government. That's the area that they're looking at, and they would resolve that within their 12-month period, but nothing at this point in time.
Just to confirm, there's nothing outstanding in terms of them waiting for the results of the TX application?
Nope. Nope. The TX application wouldn't be my expectation, it wouldn't be materially different to what we've put in front of the OEB. If I looked at the past with distribution and so on, there are some minor changes. If they look at it, they'll cut OM&A in case the distribution was 5%, I think, in OM&A. We looked to offset that. The other one would be capital, but that just sort of reduces your long-term growth and is normally credit positive because it's a lower amount of debt you're raising. I don't see any concerns from the outstanding TX. They've already taken into account the DTA. That decision's out there.
Got it. That's great. Thank you very much.
Thank you. That does conclude our question-and-answer session for today. I'd like to turn the conference back over to Omar Javed for closing remarks.
Thanks, Candace. The management team at Hydro One, thanks, everyone, for their time with us this morning during what is a busy period. We appreciate your interest and your ownership. 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 the day.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.