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Hydro One announces third quarter net income

Nov 8, 2007

    TORONTO, Nov. 8 /CNW/ - Hydro One Inc. today released its third quarter
results with net income of $309 million and revenues of $3,526 million for the
nine months ended September 30, 2007.
    "The recent Ontario Energy Board approval of our 2007 and 2008
transmission rates lays the foundation for our most significant period of
infrastructure renewal in more than two decades," said Laura Formusa, Acting
Hydro One President and CEO. "The Board approved our entire capital and
operating budgets, which will allow us to make major system improvements,
including projects to reinforce and expand Ontario's transmission system and
projects to deliver new clean generation."The following are some of the key achievements in the third quarter:

    -   We are seeking approval to construct a 180 kilometre high-voltage
        transmission line from the Bruce Power complex to our Milton
        Switching Station that will bring needed power into southern Ontario.
        On August 20, 2007, the Ontario Energy Board (OEB) granted Hydro One
        Networks early access to land to conduct certain survey, testing,
        appraisal and investigative activities for the proposed line.

    -   We are strengthening the transmission links between Ontario and
        Quebec by constructing a new connection and adding a reinforcement
        line by Spring 2010. This interconnection will provide greater access
        to a reliable supply of renewable energy and reduce the use of
        fossil-fuels during peak periods.

    -   We are improving supply reliability in central Toronto by
        constructing two underground, 115-kV transmission circuits between
        John and Esplanade transformer stations. The tunnel will alleviate
        the growing electricity demand in the downtown Toronto core.
        Construction will be completed in January 2008.

    -   Our Smart Meter Project was selected as winner of a Utility Planning
        Networks (UPN) 2007 Metering Award recognizing exceptional metering
        initiatives worldwide in the category of Automated Meter Reading
        Initiative - North American Municipal or Cooperative. The UPN is a
        global organization enabling utilities to share best practices in
        business case development, implementation and operation of advanced
        metering systems.

    -   The OEB approved all our planned transmission operating and capital
        programs for 2007 and 2008, stating that it was "convinced that the
        Company has genuinely formed the judgement, based on its engineering
        expertise and its enhanced analytical capability, that increases of
        the nature applied for are needed to maintain a robust, safe, and
        reliable transmission system."

    -   Corporate Knights magazine recognized Hydro One as Canada's most
        diverse utility and ranked us 5th overall in corporate Canada, based
        on the composition of our Board, senior executives and the Company's
        practices and policies on diversity.Net income of $67 million was lower by $36 million, or 35%, in the third
quarter and was lower by $45 million, or 13%, in the first nine months
compared to 2006 results. Net income, both in the quarter and year-to-date,
was impacted by the OEB's August 16, 2007 transmission rate decision. While
the OEB approved all of our work program requirements for 2007 and 2008, our
return on equity was reduced from 9.88% to 8.35%. Our net income levels in
both the quarterly and year-to-date periods were also affected by higher
distribution work program expenditures to maintain system reliability, the
impact of a 2006 OEB decision on our distribution-related pension expenditures
and by higher effective tax rates. The increased rates are related to
temporary differences associated with amounts to be returned to customers as
part of the OEB's transmission rate decision and a recovery of payments in
lieu of corporate income taxes in the first quarter of last year. These
impacts were partially offset by increased transmission revenues due to a
higher average peak demand and distribution tariff revenues for the first nine
months of 2007.
    Capital expenditures of $765 million for the first nine months were
higher than in 2006 by $172 million, or 29%. Expenditures made to expand our
transmission system increased primarily as a result of four major initiatives:
load and generation connections projects, the reconfiguration of our Lambton
Transformer Station, construction on our new inter-connection with Quebec, and
the continuation of our Downtown Toronto Cable Project. These projects will
allow us to further increase the reliability and flexibility of our system,
and the ability to import power. The impact of these increases was partially
offset by expenditures on our Niagara Reinforcement Project, which was
substantially completed last year. Within our Distribution business,
significant capital investments were made to install smart meters, consistent
with our planned installation of 240,000 meters in 2007.
    Total revenues for the nine-month period were $123 million, or 4%, higher
than last year. This increase reflects a number of factors within our
distribution business. We experienced increased distribution tariff revenues
due to higher demand and the approval of new distribution rates effective May
1, 2006 and 2007. We also recovered increased purchased power costs. As a
result of the OEB's decision on August 8, 2007 regarding the combined smart
meter proceeding, we recognized an additional $16 million in revenue and
additional costs which we incurred in support of this program. Our
transmission revenues increased marginally. A previous OEB decision that
ordered the earnings sharing mechanism cease effective December 31, 2006,
resulted in an increase in revenue by $23 million on a year to date basis. We
also experienced increased tariff revenues as a result of higher peak demands.
However, these impacts were substantially offset by the recent OEB
transmission rate decision which reduced revenues by $38 million. Net cash
from operating activities was $868 million for the first nine months of 2007.
During this period, we paid $252 million in dividends to the Province of

     in millions)     Three months ended              Nine months ended
    (except as           September 30                   September 30
     otherwise                       $      %                       $      %
     noted)       2007    2006  Change Change    2007    2006  Change Change
    Revenues     1,128   1,165     (37)    (3)  3,526   3,403     123      4
     power         533     564     (31)    (5)  1,696   1,667      29      2
     costs         391     365      26      7   1,138   1,029     109     11
    Net income      67     103     (36)   (35)    309     354     (45)   (13)
    Net cash
     operations    331     351     (20)    (6)    868     715     153     21
     (MW)(1)    24,730  24,358     372      2  23,542  23,112     430      2
     - units
     to customers
     (TWh)(1)      7.1     7.0     0.1      1    22.5    21.6     0.9      4
    (1) System related statistics are preliminaryHydro One Inc. is a holding company that operates through its
subsidiaries in electricity transmission and distribution and telecom
businesses. One of its subsidiaries, Hydro One Networks Inc., operates one of
the largest transmission and distribution systems in North America. Hydro One
Inc. is wholly owned by the Province of Ontario.

    Hydro One's 2007 Third Quarter Consolidated Financial Statements and
Management Discussion and Analysis can be accessed through the following link:

For further information:

For further information: Peter Gregg, Vice President, Corporate and
Regulatory Affairs, (416) 345-6072; Ali R. Suleman, Vice President and
Treasurer, (416) 345-6126; Hydro One Investor Relations, (416) 345-6867