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Hydro poles stand in Toronto's west end.The Canadian Press

An impending Ontario Energy Board decision could have far-reaching consequences for home hydro bills, the city's failing electrical grid and City Hall's forthcoming budget over the next year.

At 4 p.m. on Thursday, the board will rule whether Toronto Hydro can present a case for raising monthly hydro rates by an average of $5 a household to pay for massive infrastructure improvements totalling $1.5-billion over the next three years.

Hydro says the upgrades are needed to bring Toronto's grid up to modern standards. Half of the components are beyond their life expectancy. The other half will reach that point within a decade.

If the board turns down Hydro's application for a full hearing, it would instead approve a standard, inflation-based rate increase totalling just $141-million a year, far short of the sum Hydro says it needs to stave off rolling brownouts in the city.

"If there was a reduction to $141-million, we would have to seriously curtail our grid renewal program," said Toronto Hydro treasurer Pankaj Sardana.

But rather than cancel grid projects, some observers suspect the utility will attempt to find money anywhere it can to pay for the improvements, including cutting its annual dividend to the city and reducing staff.

That dividend is expected to total more than $33-million in 2011 and city bean counters had been counting on an extra $15-million in Hydro dividends to help balance the budget in 2012. Both Mayor Rob Ford's office and City Manager Joe Pennachetti have been watching the Hydro proceedings with some unease, worrying about a new and unanticipated budget pressure.

But Mr. Sardana says their concerns are largely unwarranted.

"The dividend policy is set by the city for Toronto Hydro," he said. "I don't think the infrastructure spending would cut into the financial performance of the company."

The same does not go for staffing levels, which the unions representing electrical workers say would be curbed if the board doesn't approve enough of a rate hike.

"There's a definite concern there," said Rob Sheppard, president of the Society of Energy Professionals, which represents 7,000 electrical workers. "But at the same time you need that infrastructure."

On Wednesday, the Ontario Energy Board was offering few hints of which way it would rule. A spokesman would only say that "the OEB would not make a decision that would compromise grid reliability."

Hydro contends it may have reached that point already. "We have neighbourhoods now that are getting 12 to 18 outages now due to failing equipment," Mr. Sardana said. "We have to keep up with deteriorating service and get ahead of it."