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Power lines run out of the the Hydro One Claireville Transfer Station in Vaughan, Ont.

Tim Fraser/The Globe and Mail

Hydro One has applied for a rate increase in order to keep the power system stable, its president and CEO said Thursday.

Speaking after delivering remarks to the Empire Club, Mayo Schmidt spoke about the application that's currently before the Ontario Energy Board, which seeks to increase rates by 0.5 per cent this year and 4.8 per cent next year.

Hydro One has kept its distribution rates flat, what it is seeking is an increase to transmission rates, he said.

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"What we apply for is to keep the system stable and functioning," Schmidt said. "If in fact we don't apply for capital that's required to replace aged equipment and that equipment fails, the system fails, so Ontario – in whatever region that would be – would be without power."

Ontario's Liberal government cut hydro bills by an average of 25 per cent this year, after soaring costs for ratepayers helped send Premier Kathleen Wynne's approval ratings to record lows.

Schmidt took some credit for the hydro plan in his speech Thursday, telling the audience that when he started at Hydro One two years ago one of the company's first initiatives was to advocate for rate relief. Hydro One customers have seen an average 31 per cent decrease in bills, he said.

After the cut to bills this year, the government has said rate increases will be held to the rate of inflation for the next four years. The OEB will set Hydro One's rates some time this fall.

As it considers the application, the OEB recently ordered Hydro One to cut its administrative budget by $30-million over two years. Customers shouldn't foot the bill for "unreasonably high" compensation for Hydro One's senior staff, the regulator said.

The total corporate management costs for Hydro One in 2014 of about $5.5-million are set to increase to $22.1-million in 2018, the OEB said.

Ontario partially privatized Hydro One, starting with an IPO in 2015 and leaving the province with just under 50 per cent ownership.

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Hydro One has agreed that some of the compensation costs will be borne by the shareholders and not the customers, but Schmidt said the salaries are of fair market value.

"We would take the view that the compensation is market-based compensation to attract and retain leaders in the business," he said. "We respect that politicians in some cases may have a different view, which is fine."

Schmidt's own compensation package, $4.5-million in 2016 that includes an $850,000 salary plus bonuses, has frequently come under fire from opposition politicians. The company has also reduced its costs by tens of millions of dollars over the last two years, he said, which benefits customers.

The OEB also rejected a proposal to give all of the tax savings generated by the 2015 IPO of the partially privatized company to shareholders. The regulator instead mandated shareholders receive 71 per cent of the savings while ratepayers receive the remaining 29 per cent.

That would drop Hydro One's shareholders portion of tax savings from $81.9-million to $58.1 in 2017 and from $89.6-million to $63.6-million in 2018.

Hydro One has asked the OEB to reconsider.

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"When (Ontario) sold the company the shareholders that are acquiring those shares would have acquired the effect of the tax in their transaction," Schmidt said. "We would have a view that the tax would belong to shareholders."

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