Toronto Hydro is seeking steady rate increases averaging 8 per cent on its portion of a residential customer’s bill to fund a massive overhaul of its aging system.

The city-owned utility wants to spend nearly $2.5 billion in capital between 2015 and 2019, according to an application filed with the Ontario Energy Board.

Funding that will require regular rate increases, averaging $3.54 on a typical household bill, in each year of the period.

That’s an increase of 2.5 per cent on a hydro customer’s overall bill, which includes charges for the energy used, plus transmission and regulatory fees.

But for the portion flowing to Toronto Hydro it comes to an 8-per-cent annual hike for a residential customer.

“It hurts,” executive vice-president Chris Tyrrell acknowledged in an interview, but upgrading the system is costly.

The heavy spending, which started three years ago, was rooted in a prior period when spending and hydro rates were held back to keep rates down, he said.

“Some day you’re going to have to deal with this — and that day has come,” Tyrrell said.

While customers don’t like high rates, they also want reliable service, he said.

He rattled off a list of issues facing the utility:

26 per cent of the company’s equipment is older than the lifetime it was designed for.

The workforce is aging, with 25 per cent of its staff set to retire within the next five years.

Toronto’s construction boom is forcing the utility to expand its network to service the new developments.

December’s ice storm, and the flash flood of July 2013, have shown that the system needs to be tougher to withstand extreme weather.

Although cost pressure is rising, conservation programs, energy-efficient buildings and other factors are actually reducing the amount of electricity flowing over Toronto Hydro’s lines, which in return limits revenue.

Toronto Hydro’s application is nonetheless likely to face tough questioning at the Ontario Energy Board, which pushed back hard when the company last brought a rate application forward.

The energy board must approve the spending plans, and holds hearings where customers and experts can challenge the utility.

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Three years ago, the board forced the company to scale back plans, which resulted in staff cuts.

But capital spending still averaged $440 million a year over the period, and is now set to grow to $500 million.

Tyrell said a five-year rate schedule will allow the company to plan with more confidence, which will boost productivity.

The heavier spending on equipment has had a noticeable effect, he said, with the frequency of outages caused by defective equipment down by 28 per cent since 2008, according to Toronto Hydro figures.

The company is cutting expenses in some areas. Its building at 5800 Yonge St. is up for sale, as are some others, with staff moved into existing offices.

“We’re squishing people into smaller space,” said Amanda Klein, Toronto Hydro’s director of regulatory affairs.

The rate increase isn’t spread evenly across Toronto Hydro’s customer base. The percentage increase in rates for large customers will be about half the increase for householders.

Depending on what the energy board rules, new rates could be in effect by May 1, 2015.

It’s unlikely to console most householders, but they’ll benefit indirectly from the higher rates, as Toronto Hydro pays dividends to its sole shareholder, the City of Toronto.

The city received $43 million in dividends last year; Toronto Hydro is expected to be allowed a 9.3 per cent return on equity in 2015.

Toronto Hydro owns the wires, poles and transformers that deliver power directly to homes and businesses in the city. It gets part of the bill for running and maintaining that system. The rest of the bill goes to generators that produce the power, to Hydro One for its system of long-distance transmission lines and for regulatory fees.