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Posted August 18 , 2010
Quarterly Report

Hydro One Releases 2010 Second Quarter Financial Results

TORONTO - Hydro One Inc. released its 2010 second quarter results with net income for the quarter of $105 million and revenues of $1,165 million.

"In the second quarter, we continued to see strong financial and operational performance, allowing us to make significant investments to develop and sustain a safe and reliable electricity grid," said Laura Formusa, President and CEO, Hydro One Inc. "Hydro One recognizes that transmission system sustainment and development has the potential to impact the cost of electricity. We aim to make prudent investments and be cost-efficient so that we always strike the right balance between service and cost."

Some achievements in the second quarter:

- On June 1, 2010, Hydro One increased the amount of its $500 million
revolving standby credit facility with a syndicate of banks to
$1,250 million and extended the term from February 2013 to June 2013.
Simultaneously, Hydro One cancelled the existing $750 million
revolving credit facility which would have expired in August 2010.

- The Ontario Energy Board (OEB) approved, subject to conditions, Hydro
One's Leave-to-Construct application for the Midtown Toronto
Transmission Reinforcement Project. The project is needed to
strengthen the aging 115 kilovolt (kV) transmission system that
serves midtown Toronto and areas to the west. In its decision, the
OEB found the project to be in the public interest in regard to its
impact on price, reliability and quality of electricity service to

- Hydro One continues to work with various stakeholders to facilitate
connection of renewable electricity production under the Ontario
Power Authority's (OPA) Feed-In-Tariff (FIT) and microFIT programs.
Under the microFIT program, approximately 570 smaller generators
representing 4,412 kW have been successfully connected, with more
than 2,500 additional projects in progress. For FIT, about 150
generator projects are also in progress.

- Hydro One responded swiftly and safely to power outages caused by
severe weather across the province. Hydro One restored power to
customers in both the Essex and Midland areas following tornados on
June 6 and June 23 respectively. We also responded to a massive
outage in the Chapleau area following a forest fire in late-May that
burned through distribution poles, causing the widespread outage.

- Hydro One ranked as one of Canada's top five Corporate Citizens and
first amongst utilities in Corporate Knights Magazine's annual
ranking of the best 50 corporate citizens in the country. Corporate
Knights Inc. is an independent Canadian-based media company that
publishes the world's largest circulation magazine with an explicit
focus on corporate responsibility.

Net income of $105 million in the second quarter and $274 million year-to-date was higher by $23 million, or 28%, and by $15 million, or 6%, respectively, compared to 2009 results. Net income was higher primarily due to increased revenues in both periods as a result of the OEB-approved transmission tariff rate increases that were effective July 1, 2009 and January 1, 2010, which support investments in respect of the OPA's supply mix policies, including the phase-out of coal-fired generation and investments to address aging infrastructure. Also contributing to higher net income in both periods were increased revenues as a result of the OEB decisions in respect of our distribution rates, effective May 1, 2009 and May 1, 2010, that support necessary maintenance and investment requirements of our distribution system. The impact of increased tariffs on net income was partially offset by higher financing charges and higher depreciation in both periods.

Capital expenditures of $705 million for the first six months were lower by $14 million, or 2%, compared to the previous year. Expenditures to expand our transmission system were relatively unchanged from the previous year. We continued to invest in a number of significant inter-area network upgrade projects facilitating new generation or increased transfer capability from other jurisdictions in support of government supply mix objectives for generation. These projects include our Bruce to Milton Transmission Reinforcement Project, to connect wind generation and refurbished nuclear sources in the Huron-Grey-Bruce area, our Northeast Transmission Reinforcement Project and our Static Var Compensator installations at Nanticoke and Detweiler Transformer stations, which, respectively, will enhance the North-South Interface transfer capability to access available northern generation and the transfer capability between South Western Ontario and the Greater Toronto Area. Expenditures on these and other projects were offset by the reduction in expenditures on various development projects that were substantially completed or nearing completion in the first half of this year.

Lower capital expenditures within our Distribution Business were primarily a result of the substantial completion of our smart meter installations by the end of last year. This was partially offset by expenditures on the smart meter network infrastructure and on the development and integration of the systems required for time-of-use billing. In the second quarter, we commenced time-of-use billing for our first tranche of customers. Our capital expenditures in both businesses were impacted by the completion of the second phase of our information system replacement and improvement project in the third quarter of last year.

Total revenues for the six-month period were $2,484 million, which were $91 million, or 4%, higher than the same period last year. Transmission revenues of $626 million were higher by $53 million primarily due to the OEB-approved transmission tariff rate increases that were effective July 1, 2009 and January 1, 2010, partially offset by lower revenues associated with the lower average monthly peak demand. Distribution revenues of $1,825 million were higher by $36 million primarily due to OEB decisions made in respect of our subsidiary, Hydro One Networks, on May 13, 2009 and April 9, 2010, which approved increases in distribution tariff rates effective May 1, 2009 and May 1, 2010, respectively. The April 9, 2010 decision also resulted in increased revenue related to the recovery of smart meter and smart grid investments. In addition, distribution revenues reflected the recovery of higher purchased power costs. These increases were partially offset by lower energy consumption resulting from milder weather this year.

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