20170914Lopez Exhibit 4.pdf

ON BETIAI,E OE AVISTA CORPORATION
DAVID J. MEYER
VICE PRESIDENT AND CHIEE COUNSEL EOR
REGULATORY & GOVERNMENTAL AFFA]RS
P.O. BOX 3121
7477 EAST MISSION AVENUE
SPOKANE, VIASH]NGTON 99220-3127
TELEPHONE: [phone]
FACSIMILE: [phone]
DAVI D . MEYERGAV] STACORP . COM
i:-:
ttl
ON BEHALE OE HYDRO ONE LIMITED
EL]ZABETH THOMAS, PARTNER
KARI VANDER STOEP, PARTNER
K&L GATES LLP
925 FOURTH AVENUE, SUITE 29OO
SEATTLE, WA 981014-1158
TELEPHONE: [phone]
EACSIMILE: [phone]
LI Z . THOMAS GKLGATES . COM
KARI . VANDERSTOEPGKLGATES . COM
BEFORE THE IDAHO PT'BI,IC UTII,ITIES COMMISSION
]N THE MATTER OE THE JO]NT
APPLICAT]ON OF HYDRO ONE LIMITED
(ACTING THROUGH ITS INDIRECT
SUBSIDIARY, OLYMPUS EQUITY LLC)
AND
AVISTA CORPORATION
FOR AN ORDER AUTHORIZING PROPOSED
TRANSACTION
CASE NO
CASE NO
AVU-E- t]-_9:t
AVU_G-71_ O;
EXH]B]T NO. 4
CHRISTOPHER F. LOPEZ
FOR HYDRO ONE LIM]TED
(ELECTRIC AND NATURAL GAS)
.\
CURRICULUM VITAE
FOR
CHRISTOPHER LOPEZ
EMPLOYMENT HISTORY
Employer TransAltaCorporation(Canada)
Industry Focus Generation and Sale of Electricily.
Located in Alberta Canada, Dual Listed on the TSX /NYSE with a market cap of CAD$3.68 and
Total Enterprise Value of CADS9B.
Role VP Corporate Planning and Mergers & Acquisition Oct ll - 2015
Mclior Achievements:o Lead Corporate Planning processes and supported the CEO / CFO annual review of
strategy and subsequent repoft the Board
. Lead M&A processes delivering bids on over CAD $8B or approx. 85% of the TEV of
TransAlta
o Developed strategic relationships with potential targets, partners and feeder
organisations/ systems to ensure continuous pipeline of opportunities.
o Optimised M&A process and developed team of 13 to deliver maximum value /
flexibility for investment in activity
Accountabilities:. Lead Corporate Planning activities; TEV -$98 and Revenue -$3B.. Imagine alternate structures / strategies that will maximise the value of the company,
explore ways to execute and communicate the same to the CEO / CFO
. Lead M&A activities in Canada and the United States and support the same in Australia
o Ensure integrity of Corporate Planning and M&A processes and outputs to ensure value
is maximised and protected.
. Effective communication/company representation with intemal and external stakeholders.
Role Director Generation Finance Apr 07 - Oct l l
Major Achievements:
o Lead the management reporting / value integration process for TransAlta.
. Member of and value integration partner to the Operations Leadership Team.
o Developed team of 7 Managers (direct reports) and 52 professionals / para professionals
(indirect reports) into an effective, successful financial services leadership team.
. Successfully merged Capital Budgeting and. Operations finance into one group and
realigned accountabilities to better service the business / asset teams (streamlined group
from 78 to 52).
. Successfully integrated SAP / continuous enhancements into monthly reporting and
developed reporting standards used across the group.
Accountabilities:
. Lead the operations finance management activities for the Generation Business Segment.
Revenues CAD$2.8 Billion: Capital Expenditure $l Billion.
o Lead and develop the operations finance leadership team (7 Managers {direct reports} ;
52 professionals {indirect reports} in 8 geographical locations across 4 countries)
o Lead and develop management reporting and analysis to the senior leadership team up to
and including the CEO.
Exhibit No. 4
Case Nos. AVU-E-I7- and AVU-G-I7-
C Lop.r. Hydro One
Schedule l, Page I of 5
Employer
Role
. As part of the Generation Leadership Team, provide financial analysis and advice on how
to maximise asset performance.
o Lead and develop the forecasting, annual planning and budgeting cycles
o Ensure integrity of financial accounts (control environment) and stewardship of physical
and financial assets
o Ensure all corporate financial policies and controls are adhered to.
o Effective communication/company representation with intemal and extemal stakeholders.
TransAlta Energy Australia Pty Ltd. (Australia)
A subsidiary of TransAlta Corporationwith Operating Assets: AS400M Revenue: A$100M.
Major Customers BHP Nickel (formerly WMC Resources) and Nevmont Mining Australia
Country Financial Controller (Aust, New Zealand & Barbados) Jul 02 - Apr 07
Major Achievements:
r Developed team of5 Senior Professionals and 5 Para Professionals into an effective,
successful financial services leadership team. (Administration offices in Australia, New
Zealand and Barbados).
. Requested to act and accepted Directorships for TransAlta Companies in Australia, New
Zealand and Barbados for three years. These Companies were involved in Operations,
Finance and Insurance Activities.
. Exported reporting/analysis methodology from Australian Business to the rest of the
Company.
. Successful in communicating the Australian Growth Strategy to the Shareholder resulting
in the first growth, project for some time and an increasing appetite to invest in the
Australian Business.. Implemented financial risk management strategy/process in regard to oil price exposure
resulting in costs well below market price over the past three years.
. Successfully managed the implementation of Tax Consolidations resulting in a
substantial benefit to the P&L in2004.
. Successfully managed/defended statutory and commercial claims on TransAlta
Corporation in New Zealand in the amount of $45M.. Refinanced the Australian Business in2004 (cross currency interest rate swap)
o Frequently acted as General Manager - Australia.
Accountabilities:
r Lead the financial management activities in Australia (Operations Company) and New
Zealand (Financing Company), Barbados (Financing and Insurance). Lead and develop the financial services leadership team (10 staff,5 Senior Professional)
r Lead and develop periodical management reporting and analysis to the Australian
Leadership Team, the Board and the Shareholder (compliant with Australian GAAP and
foreign requirements - Sarbanes Oxley, US GAAP and CAD GAAP).
r As part of the Australian Leadership team, provide financial analysis and advice on how
to maximise asset performance and actively participate in the financial aspects of
acquisition and development projects.
. Lead and develop the forecasting, annual planning and budgeting cyclesr Lead and develop financial risk management and insurance activity (complemented by
Directorship on Global Corporate Captive Insurance Company)
. Ensure integrity of financial accounts (control environment) and stewardship of physical
and financial assets
o Ensure all corporate financial policies and controls are adhered to
. Lead and develop the Corporate Secretarial Function for Australia
Exhibit No. 4
Case Nos. AVU-E-17- and AVU-G-17-
C Lop.r, Hydro One
Schedule l, Page 2of5
Role
Role
o Lead and develop tax planning strategies (particularly as related to the shareholder
distributions)
o Effective communication/company representation with intemal and external stakeholders. Member of the Joint. Venture Committee (TransAlta,Newmont) for the provision of
power to Newmont Mining
Senior Business Analyst - Corporate Apr 00 - Jul 02
Major Achievements:
. Reduced operating costs under existing contracts by A$500k per annum.o Created Budget Model - Australia, Tumover A$100M.o Created Long Range Forecast Model - Australia, 5 Years Duration.o Implemented GST Compliance Program.
. Frequently acted as Financial Controller.
Kqt Accountabilities:. Forward Planning (13 Companies, I Paftnership, I Joint Venture, T Plants,6 Profit
Centres, 100 Cost Centres)
o Maintaining Long Range Forecast Model (Horizon -5 years)o AnnualBudget(Operating/Capital)
. Comparison of Forward Plan to the Original Economic Models under which the
assets/business had been purchased.
o Monthly Variance Analysis, Actual Vs BudgeVForecast. (Customers, Australian
Management Group and Parent Management Group, Canada). Olhero Customer Profitability Analysis and Liaison
. Supplier Contract Management and Liaison
r Capital Budgeting Process (A$20M per annum)
Senior Financial Accountant - Corporate Apr 99 to Apr 00
Maior Achievements:
r 5 Months as Acting Financial Controller.
. Created Management Reporting Framework for Australia.. Team Leader in migration from ACCPAC to SAP.. Significant participation in the transformation from a Management to Operations
Company, i.e. contracts/staff became internalised.
Accountqbililies:
o Financial Reporting
. Consolidatedll companieso Internal - Aust Management Group and Parent Management Group, Canada.o Extemal - Statutory, ASC, ABS, ATO and other, Auditors.
o Preparation of Ad Hoc requests for analysis.
o FinancialManagement.
o AccountsPayable/ReceivableProcess.
. Cash Management Process.. General Ledger Reconciliation Process.
o Syslems
r Conversion of General Ledger and Management Reporting Structures from
ACCPAC to SAP.r Maintenance/lmprovement - General Ledger
o Prompt verification of transaction input in the Accounting Systems.
Exhibit No.4
Case Nos. AVU-E-17- and AVU-G-17-
C Lop.r. Hydro One
Schedule 1, Page 3 of5
Employer
Role
Role
Role
Hamersley Iron Pty. Limited (Pilbra Iron Pty Ltd) (Australia)
Industry Focus Mining and Sale of lron Ore.
A subsidiary of the Rio Tinlo Corporation, London, England. Rio Tinto is listed as a top 100
company worldtuide and is dual listed on the ASX and LSE. Hamersley lron had assets of A$48
and annual revenue ofA $1.28.
Financial Accountant- Corporate Dec 97 - Apr 99
Major achievements:. Conversion of General Ledger from Legacy to SAP.. Simplification of Consolidation Process i.e. completed within the General Ledger.
. Simplification of Reporting for 4 foreign Sales Offices, including currency translation.
o Improved valuation model for ore stocks. A$300M.
Kqt Accounlabilities:
o Finqncial Reporting
. Consolidated24Companies, 5 Currencies.r Intemal - Australian Management Group and Parent Management Group, London.e Extemal - Statutory, ASC, ABS, ATO and other, Auditors.r Preparation of Ad Hoc requests for analysis.
o Financial Management - Generql Ledger Reconciliqtion Process.
. Systemsr Maintenance/lmprovement - General Ledger. Prompt Verification of Transaction input in the Accounting Systems. (Particularly in
the Legacy environment i.e. many systems linked to GL.)
Management Accountant - Mining & Processing Feb 97 - Dec 97
Maior achievements:. Consolidation of Management Accounting Processes/lnfrastructure. 5 distinct sites into
one value chain.
. Improvement/Implementation of Activity Based Costing.r Development/Improvement of the non-financial results, i.e. tonnage reconciliation.
(ssMtpa)
o Costing budget for consolidated operations, AS500M.
Accountabilities:o Cost Accounting - 5 mine sites, Revenue A$500M pa, customer base: l5 Managers, 40
superintendentso Management Reporting - FinancialNon Financialo Preparation of Ad Hoc requests for analysis
. General Ledger Reconciliation
. Capital Budgeting Support, Financial Analysis
Graduate Accountant (Site) Feb 96 - Feb 97
Accountabilities:
o Month End Reporting
. CapitalBudgeting. CapitalExpenditurePrioritisationo Post Implementation Reviews
o Managerial Finance support for Capital Applications
. General Ledger Reconciliation
o Taxation - Capital for Tax and Fringe Benefits Tax compilation
Exhibit No. 4
Case Nos. AVU-E-17- and AVU-G-17-
C Lop.r, Hydro One
Schedule l, Page 4 of5
Employer Sun-Vale Foods Pty Ltd
A small private company in the food manufacturing industry with sales and distribution in
Australia and South East Asia. Revenue: A$ I M.
Role Accountant Mar 93 - Feb 96
Accountabilities:
. Ownership of all internal accounting functions. Debtor/Creditor Process, Costing, Cash
Management and the preparation of the company's Financial Statements.
. Forward Planning - Budgeting and Forecasting.
o Liaising with an external accountant regarding taxation matters and statutory disclosure.o Customer profitability analysis
EDUCATION. 2006 Graduate Diploma - Institute of Company Directors - Company Directors Course
o 2002 Advanced Financial Modelling - 5 Day residential workshop.
r 2000 Management and Leadership Development - Banff Centre for Management - Alberta,
Canada. - Two week residential workshop.. 1997-98 Professional Year - Institute of Chartered Accountants in Australia
Accounting I (Financial/Statutory)
Accounting II (Management Accounting/Auditing)
Taxation
Advanced Management Accounting
Ethicso 1993-96 Bachelor of Business - Edith Cowan University
Majors: Accounting, Finance and Taxation (Sub)
Course Averagez78%o
o 1992- 94 Associate Diploma of Business - Carine College of TAFE
Major: Accounting
Course Average:75%o
o 1991 Certificate of Business - Carine College of TAFE
Major: Accounting
Course Average: 8loZ
AWARDSo 1993o 1993o 1992
PROFESSIONAL MEMBERSHIPS
o Institute of Chartered Accountants in Australiao Australian Institute of Company Directorso The Executive Connection (TEC) Key I I I
National Institute Of Accountants. Award - Best full time student, first year
State Government Insurance Award - Best fuIl time student, first year
Joondalup Development Corporation Award - Highest academic student
Exhibit No. 4
Case Nos. AVU-E-17- and AVU-G-17-
C Lop.r. Hydro One
Schedule l, Page 5 of5
Current Corporate Structure
The diagram below depicts the current relationship of Hydro One Limited and its primarv operating
subsidiaries that are referenced in the Joint Application.
Public Company
(TSX: H)
r00%roo%
Public Debt lssuer
700%700%700%
Rate Regulated Businesses
(98% of Revenues)
Non-Rate-Regulated Business
Exhibit No.4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Hydro One Limited
Hydro One lnc.2486267 Ontario lnc.
Hydro One Networks
lnc.
Hydro One Remote
Communities lnc.
Hydro One Telecom
I nc.
Schedule 2,Page 1 of 2
l
Post-Closing Corporate Structu re
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-I7-_
C.Lopez, Hydro One
Schedule 2, Page 2 of 2
Hydro One lnc.
Hydro One Limited
(Ontario
Corporation)
Can Sub
(Ontario
Olympus Holding
Corp. (Delaware
Corporation)
2486267
Ontario lnc.
Hydro One
Networks lnc.
Hydro One Remote
Communities lnc.
Hydro One Telecom
lnc.
(Washington
Corporation)
Avista Corporation
Subsidiaries
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D A D
zorc ANNUAL REPORT
ONE OF NORTH AMERICA'S TARGEST ELECTRIC UTILITIES (TSX: H)
Case Nos. AVU-E-l 7-_ and AVU-C-1 7-_
C. Lopez, Hydro One
Schedule 3, Page I of 167
Hydro One limited is Conodq's lorgest pure-ploy electric
tronsmission ond distribution utility with $2S billion in ossets
ond onnuol revenues of over $6.5 billion. It lronsmits ond
distributes electricity sofely ond reliobly ocross the Province
of Ontorio, home to 38 percent of the country's populotion.
Hydro One owns ond operoles o 3Q000 circuit km
high-voltoge tronsmission nelwork tronsmitting
98 percent of Ontorio's electric copocity, ond o
123,000 circuit km lower-volioge distribution nefwork
serving 75 percent of the geogrophy of the province
ond more thqn 1.3 million residentiql ond business
cuslomers. Hydro One Limited becqme o public
compony coincident with its initiol public offering in
November 2015, ond ils common shores ore listed
on the Toronto Stock Exchonge {TSX: Hl.
HYDRO ONE'S
BUSINESS
YEAR ENDED DECEiIBER 3I,
ICAD $ millions, except per shore omounls)2016 2015
Revenues
Purchosed power
Revenues (net of purchosed power)
Operotion, mointenonce ond odministrotion
Depreciotion ond omortizotion
lncome before finoncing chorges ond income tox expense
Finoncing chorges
lncome tox expense
Nel income ofiributoble lo common shoreholders
Diluted eornings per common shore
Adiusted diluted eornings per common shore r
Net cosh from (used in) operoting octivities
Adiusted nel cosh from operoting octivities 2
Copitol investments
$ 6,552
3,427
3,125
t,069
778
1278
393
139
721
l.2t
I.2t
t,656
t,656
1,697
$ 6,538
3,450
3,088
1,135
759
1,194
376
105
690
1.39
l.t6
tr,253)
1,557
I,663
Tronsmission - overoge monthly Ontorio 60-minute peok demond /MW/20,690 20,344
Distribution - electricity distrlbuted to Hydro One customers /GWhl 26,289 28,764
2015 Adjusted mrnings per shoe IEPS) is colculoted using the number o{ ommon shores ouldonding ot December 31, 2016
' 2Ol5 omount excludes the $2,810 million nonrosh impocl of lPoreloted odiustments
Exhibit No. 4
Case Nos. AVU-E-l 7-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 2 of 167
TRANSMISSION ----------l DISTRIBUTIoN
rHlf|ef fHffiB-z
and 25"/" of end cuslomers
.?h
98Y" ol copocity 757" ol geogrophy
HYDRO ONE'S ROIE
IN THE ELECTRIC POWER SYSTEM
MVFl
.1111 I[
Tronsmission
Syslem
Dishibution
System
Tronsformer
{Decreosed to
lower volloge)
lndustriol,
Residentiol,
Commerciol
Cuslomers
Eiectricity
Generotion
Sources
Percentoge of
Onlorio morkel
Tronsformer
{lncreosed lo
higher voltoge)
Tronsformer
(Decreosed lo
medium volloge
REVENUES
(NEI OF PURCHASED
POWER COSTS)
REGUTAIED EARNINGS
BEFORE FINANCING CHARGESAND INCO'YIE TAXESTOTAI. ASSEIS
$25.35
BILLION
O Tronsmission I Distribution O Other
IOTAT SHAREHOTDER RETURN'
NOVEMBER 5, 2OI5 IPO TO DECEMBER 3I, 20I6
HYDRO ONE
urvilTED
s&P/ISX
CAPPED UIII.ITIES
INDEX
s&P/TSX
COMPOSITE
INDEX
$3,t25 $r,3t3
MILLION MILLION
CONTENTS
letter from the Boord Choir
letter from the President ond CEO
Tronsmission Operolions
Diskibution Operotions
Customers ond Communities
Environmentol Sustoinobility
Corporote Governonce
Why lnvest in Hydro One
Monogemenl's Discussion ond Anolysis
Consolidoted Finonciol Stotements
Notes to Consolidoted Finonciol Stotements
Boord of Directors ond Senior Leodership
Corporote ond Shoreholder lnformotion
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
HyDRo oNE r.rrrrED oNE oF NoRTH AMERrql',sLdFiStT ffrfilt6 U[Errs
Schedule 3, Page 3 of 167
RAIE BASE
$t7.&l
BILLION
2%
s&P 500
EI,ECTRIC UIII.ITIES
INDEX
2
3
4
6
8
l0
II
12
t4
49
53
98
99
19.7%
$.ra
r6.3%
9.3%s&P 500
INDEX
*Sourcer Bloomberg ond S&P
AUa
17.4%
\
/
"Hydro One hos ochieved much over this
post yeor while moking significont progress
in Ioying the foundotion ond building
the orgonizotionol momenlum to deliver
increosing volue for its customers qnd
shoreholders in the yeors to come."
A MESSAGE FROM
THE CHAIR OF THE BOARD
Deor fellow shoreholders,
2016 wos Hydro One's first full yeor os
o public compony, ond ils evolulion to
o more broodly owned ond customer-
focused orgonizotion is well underwoy.
The compony hos ochieved much over
this post yeor, including executing ils
20l6 finonciol ond operoting plons ond
generoling totol shoreholder return o[
19.7% since the November 2015 initiol
public offering. lt hos olso mode significonl
progress in loying the foundoiion to deliver
increosing volue for its customers ond
shoreholders in the yeors to come.
One of President ond Chief Execulive
Officer Moyo Schmidt's key obiectives over
the post yeor wos to significontly skengthen
the compony's senior leodership teom, ond
in thot regord we now hove new executives
heoding Hydro One's operotions, customer
service, legol, ond strotegy functions. Eoch
of lhese individuols hos broughl significont
experience ond copobilities to Hydro One,
ond the Boord of Direclors is very confident
lhot we now hove in ploce the depth ond
breodth of leodership expertise thot will
further occelerote the compony's evolution.
ln April 2016, the Province of Ontorio sold
on odditionol l5% of its stoke in Hydro One
to the public in o very successful secondory
offering. This followed the November
20l5 initiol public offering of the shores
of Hydro One, ond served to double the
public floot of the compony to 3O% of
shores outstonding while ol the some time
meosurobly increosing the troding volume
ond liquidity of the shores. This tronsoction
wos nof dilutive lo our existing public
shoreholders, ond wos onolher step by the
Province lowords its stoled gool of reducing
its ownership of Hydro One to 4O%.
While the Province of Onlorio remoins
o significont shoreholder of Hydro One,
the outonomy of the compony ond
independence of our Boord of Direclors
is enshrined in o governonce ogreement
between Hydro One ond the Province.
This governonce ogreement wos executed
in odvonce of lost yeor's initiol public
offering ond hos operoted os designed
lo ensure lhot the compony is governed
os on independent commerciol entity
with the Province's role limited to thot of
o shoreholder.
I would like to recognize my fellow Boord
members for their service over lhis busy
period of chonge. Our Boord is comprised
of o diverse ond occomplished group of
proven leoders, eoch o[ whom is very
committed to lhe success of Hydro One
ond the highest stondords of corporote
governonce. The Boord hos been highly
engoged with Moyo Schmidt ond his
leodership leom in defining the strotegy
for the orgonizotion ond chorting the
poth forword over lhe course of the next
few yeors.
I would olso like to ocknowledge he
hord work ond commitment o[ the more
thon 5,500 regulor employees of Hydro
One. This ieom of dedicoted professionols
works tirelessly - often oround the clock
ond in potenliolly hozordous weother ond
conditions -- lo ensure lhot electric power is
tronsmitted ond distributed sofely, reliobly
ond cosFeffectively to the millions of citizens
of Ontorio ond the communities in which
they live ond work.
Thonk you for your investment ond
continued support,
DAVTD F. DENISON, o.c.
Choir of the Boord
Hydro One Limited
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-I7-_
C. Lopez, Hydro One
Schedule 3, Page 4 of 167
2 HYDNO ONE LI'VIITED 2016 ANNUAL REPORT TSX: H
!
"We hove ossembled o leom of tolented
ond deeply experienced leoders who
ore dedicoted to lronsforming Hydro
One into o more disciplined, customer-
focused ond commerciolly oriented
electric tronsmission ond distribution
service provider."
A MESSAGE FROM
THE PRESIDENT AND CEO
Deor fellow shoreholders,
This is o new ero ot Hydro One. 2016 wos
o tronsformotive yeor os we emborked on
our iourney from good to greol. ln this first
full yeor os o publlc compony, we undertook
o compony-wide systemotic review of our
business. Through this intensive process,
we identified o number of initiotives, mekics
ond torgets thot will enoble us to drive
greoter efficiency ond ef{ectiveness ocross
customer service, operotions, procurement,
network plonning, copitol deploymenl
ond odminiskotion.
Accordingly, we hove ossembled o leom
of tolented ond deeply experienced leoders
who ore dedicoted to tronsforming Hydro
One into o more disciplined, customer-
focused ond commerciolly oriented electric
lronsmission ond distribution service
provider. We ore becoming significontly
more customer ond performonce driven by
focusing on compony-wide occountobility,
productivify, ond efficienry while olso
engoging more prooctively with our
communities ond First Notions ond
M6tis portners.
Mony Onlorions feel the pressure of
increoses to their electricily bills, so we
ore doing our port to keep Hydro One's
portion of the bill os low os possible.
We ore olso providing customers with
meoningful conservotion progroms so they
con loke greoter conkol of lheir consumption
ond monoge their bills. Port of this move
involves informolion lechnology investments
thot enoble the shift from poper-bosed
syslems to increosingly mobile, online ond
poperless lechnologies.
Hydro Onet employees hove embroced
our lronsformolionol iourney to becoming
o commerciol enlerprise, one focused
on delivering volue for customers ond
shoreholders. This tronsformotion is centrol
to our octions ond strolegies, ond is
enshrined in oll thot we endeovour to
ochieve. As we move the orgonizotion
forword ond modernize Ontorio's electricol
grid, I believe thot we hove multiple
opportunities lo creote increosing volue for
our customers ond shoreholders olike.
While we ore forlunote to hove o strong
foundolion for growth upon which to
build, we ore olso owore thot lhere ore
opportunities for us to enhonce customer
service ond improve our execulion
copobilities ocross the business. We olso
oppreciote the criticolity of occeleroting
the poce of upgroding Ontorio's oging
eleclric power system ond the significont
infroslructure investment thot is needed to
build ond mointoin o skong, modern ond
relioble grid.
We mode importont progress this yeor
on the regulolory front, where we now
hove o plon wilh o cleor line of sight
to the imminent tronsition from o cost of
service-bosed regulotory model lo o more
dynomic pe#ormonce-bosed, customer-
focused regulotory model. We ore fully
engoged ond goining troction on his front
in bolh segments of our reguloted business.
We expecl lo complete the lronsition to o
performonce-bosed regulolory fromework
in our distribulion segment in eorly 2018 ond
in our lronsmission segment in eorly 2019.
ln oddition to the significont volue we intend
to creote in improving the performonce of
our substontiol existing operotions, there
is olso volue to be creoted in continuing
to leod the consolidolion of whot is slill
o frogmented syslem of electric ulility
ossels in Onlorio. As such, during 2016
we significontly stepped up the rigour
ond copobilities oround how we ocquire
ond inlegrole olher electric ulilities. Our
successful integrotion of the Holdimond ond
Woodstock municipol ulilities is o good
indicotor of things to come. During the yeor,
we olso completed the ocquisition of Greot
Lokes Power Tronsmission ond onnounced
the ocquisition of Orillio Power Dislribution,
two reguloled eleclric utilities in Ontorio
which further odd to our leodership position.
AAy thonks go out to the thousonds of
Hydro One employees ocross Onlorio for
embrocing lhis konsformotionol lourney
ond their unwovering commitment lo our
customers. I olso extend my oppreciotion
to our Boord of Directors for its supporl
ond confidence in monogement.
The future is bright ond we will continue
to power forword,
rrt@
MAYO SCHMIDT
President ond Chief Executive Officer
Hydro One Limited
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
HyDRo oNE LrxurED oNE or NoRTH AMERrgsLUFEfl lff&6 6ttEres
Schedule 3, Page 5 of 167
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IN 2016, HYDRO ONE CO TPLETED THE PURCHASE OF GREAT TAKES POWER, TRANS'IIISSION,
rHE SECOND TARGEST ELECTRICITY TRANSMETER IN ONTARIO. THIS ACQUISITION INCN,EASED
HYDR,O ONE'S TRANS TISSION CAPACITY IN ONTAR,IO IO 98"/", WHIIE I'VIPROVING THE
COTIPANY'S ABITIT TO CONNECT GENER,ATORS IN NON,THERN ONIARIO TO EIECTR|CITY
DE,YIAND IN SOUTHERN ONTARIO.
ETECTRIC TRANSMISSION
SEGMENT
The scole of Hydro One's konsmission
operotions increosed during 2016 to
opproximotely 30,000 circuit-kilometres
of high-voltoge lines. Hydro One tronsmits
high-voltoge electricity from nucleor,
hydroelectric, noturol gos, wind ond solor
generotion sources to locol distribution
componies ond to directly connected
industriol customers ocross Ontorio.
Hydro One's lronsmission ossels con
be divided inlo three moin colegories:
Tronsmission stotions
Used for the delivery of power, voltoge
konsformotion ond switching, lhe slotions
serve os connection points for both
customers ond generotors.
Tronsmission lines
Bulk konsmission lines deliver power from
generoting stotions or connections to
receiving terminol stotions. Areo supply lines
toke power from the network ond tronsmit
it to customer supply lronsmission stotions
ot customer lood centres,
Network operolions
The Ontorio Grid Control Centre
monoges oll of Hydro One's tronsmission
ond sublronsmission operotions.
During 2016, copitol investments in
Hydro One's lronsmission segment lotoled
$988 mi!!ion, including expenditures
on the following proiects:
TORONTO MIDTOWN TRANSMISSION
REINFORCEMENT PROJECT
ln 2016, Hydro One substontiolly completed
work on the $ll8 million Toronto Midtown
Tronsmission Reinforcement Prolect which
re[urbished the existirg tronsmission
infrostructure thot serves midtown Toronlo
ond oreos to the west. This five-yeor proiecl
reploced 14,500 metres of tronsmission
cobles ond provides 100 megowotts of
odditionol copocily to serve the locol
distribution compony ond ils customers.
GUETPH AREA TRANSMISSION
REFURBISHMENT PROJECT
Hydro One substontiolly completed the
$87 million Guelph Areo Tronsmission
Refurbishmenl Proiect thot will help meet
the eleckicity needs of lhe growing
southwestern Onlorio region. The proiect
included upgroding o five-kilometre section
of existing tronsmission lines, ond instolling
new tronsformer ond switching equipment
ot the konsformer stotion. More thon 340
construction professionols were involved in
the construclion phose of the proiect.
COIIABORATION WITH TONDON HYDRO
Hydro One enlered into o colloborolive
investmenl with London Hydro to modernize
the equipment in Hydro One's Nelson
Tronsformer Stotion. Hydro One identified
o need to reploce oging equipmenl ond
London Hydro contributed finonciolly for
o voltoge conversion of the stotion to be
consislenl with the other six locol tronsformer
stotions, ollowing the entire London Hydro
system to be interconnecled. The proiect
will olso increose the reliobility of supply
to on imporront stotion lhot serves much
of downtown London.
These proiects together with mony others
underwoy ensure lhot Ontorions continue lo
receive o sofe, relioble supply of electricity
now, ond for yeors to come.
CIRCUIT KITOMETRES
OF HIGH.VOLTAGE LINES
30,ooo
A
===
flililIffi 306
TRANS'YIISS!ON
STATIONS
PROV!NCIAt
CAPACITY
4 HYDRO ONE LlIvllTED 2016 ANNUAL REPORT TSX: H
Case Nos. AVU-E-17-
a
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3, Page 6 of 167
Exhibit No- 4
AVU-G-I7-
Hvdro One
ONE OF NORTH
AMERICA'S IARGEST
ETECTRIC POWER
TRANSMITTERS
AVU-E-I7- and AVU-C-17-
ONE OF NORTH AMERICA'S LAPGFST iLECIPIC 'J'ILIIIES
Phoro courtesy of Brion Pielers Photogrophy
www.pietersohoto.com
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HYDRO ONE'S 5,5OO SKIIIED AND DEDICATED EMPLOYEES SEN,VE T.3 TIIIIION
VATUED RESIDENTIAL AND BUSINESS CUSTOiiERS ACROSS ONIARIO. HYDR,O ONE
IS THE PROVINCE'S TARGEST tOCAt ETECTRIC POWER DISTRIBUTION CO TPANY
WITH APPROXIiIATETY I23,OOO CIR.CUIT KILO'VIETRES OF POWER IINES.
ETECTRIC DISTRIBUTION
SEGMENT
Operoting in rurol, suburbon ond urbon
communities spreod ocross lhe province
of Ontorio, home to 38 percent of the
populotion of Conodo, Hydro One
possesses significont economies o{ scole
ond brings to beor o slrong commitment
to ensuring o modern ond relioble locol
electricily system for ifs ,l.3 million
customers. This commitmenl olso includes
serving customers in 2l remote communilies
spreod ocross the for reoches of northern
Ontorio thot ore nof connected to the
electricily tronsmission grid.
CUSTOMER CONSUTTATION
ln mid-2016, Hydro One onnounced
o province-wide consultotion process to
seek input from ils customers on the
developmenl of o five-yeor rote plon thot
will help shope fulure investments in Hydro
One! eleclric distribution system. The gool
of the consultotion wos lo befier understond
how Hydro One's customers' needs ore
being met by the current system, ond the
lpes of reliobility ond service improvemenls
customers would volue most. This included
oddressing oging eleckicity infrostruclure,
system repoirs ond responding to power
outoges, power quolity ond cosls, os
well os new producls, services ond
web-enobled tools to moke il eosier for
customers to do business with Hydro One.
The feedbock influenced detoiled plons
lhot the compony will submil to the
Ontorio Energy Boord, who wlll ultimotely
delermine lhe investments ond rote plons
for Hydro One's locol distribution segmenl
for the 2018 through 2022 period.
ACOUISITION OF ORITTIA POWER
ln August 2016, Hydro One onnounced
thol it reoched o definitive ogreement
lo ocquire Orillio Power Dislribution
Corporotion in o tronsoction volued ot over
$41 million. Hydro One will integrote into its
operotions opproximotely 14,000 customers
locoted in Simcoe County, home to o
populotion of more thon 30,000 ond port
of the Huronio region of Cenlrol Ontorio.
Hydro One's current service lerritory
includes the oreos surrounding the City of
Orillio ond this ocquisition enobles Hydro
One to reolize operotionol synergies over
time. After closing, Hydro One olso intends
to construct severol grid control ond
operoting focilities in Orillio. The ocquisition
is conditionol upon the sotisfoction of
cuslomory closing conditions ond opprovol
of the Ontorio Energy Boord.
SERVING MANITOUTIN ISIAND
In October 2016, Hydro One onnounced
thot o new distribution slotion will be built
to serve customers on Monitoulin lslond,
locoted in norlhern Ontorio on Loke Huron.
The new diskibution stotion will reploce the
Little Current Distribution Stotion, which wos
originolly buih in 1950, ond will help
improve reliobility ond increose copocity
for the opproximotely 10,000 cuslomers
who live on Monitoulin lslond.
CIRCUIT KILOMETRES
OF LOCAL DISTRIBUTION LINES
GEOGRAPHY
OF PROVINCE
SERVED
l23,OOO
r.3M ti
RESIDENTIAL
& BUSTNESS
cusToftrERs
ACROSS ONTARIO
6 HYDRO ONE tlXllIED 2016 ANNUA| REPORT TSX: H
Case Nos. AVU-E-17-
3, Page 8 of 167
Exhibit No. 4
AVU-G-17-
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AVU-E-I7- and AVU-G-l7-
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Exhibit No. 4
17- and AVU-G-I7-
T. Lopez, Hydro
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!.: Lril.trED.- 2016 o,&ro, *rro*, tr*, ,
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Schedule 3, Page 10
SERVING
CUSTOMERS & COMMUNITIES
CUSTOMER
SERVICE RELIABITITY
SUSTAINABILITY
SAFETY
DIVERSITYFIRST NATIONS
PARTN ERSHI PS
Throughout 2016, Hydro One's skilled ond
dedicoted employees responded 24 hours o doy,
seven doys o week to quickly ond sofely restore
power for customers through often extremely
chollenging weolher, lerroin ond circumstonces.
Hydro One olso continued to provide new ond
enhonced progroms ond services to furlher define
the compony's commitmenl lo cuslomer service
ond energy conservotion.
PROACTIVE OUTAGE AI.ERTS
ln eorly 2016, Hydro One wos the first utility in
Conodo lo offer customers prooctive ouloge olerls.
Customers who regisler for this service receive
personolized emoil or texl olerts obout outoges thol
moy offect their homes, cottoges, forms or smoll
businesses, os well os informotion on eslimoled
times of restorolion. Since lounching the progrom,
Hydro One hos sent hundreds of thousonds of
prooctive olerts to customers. This service is on
extension of Hydro One's existing suite of outoge
communicotion tools, which includes online outoge
mops ond smorlphone opps,
FARM RAPID RESPONSE TEAM
Hydro One onnounced the lounch of its Form Ropid
Response Teom thol ossists lhe compony's 13,000
forming cuslomers to idenlify, ossess ond mitigole
on{orm electricol issues, This new opprooch better
serves the needs of Hydro One's forming customers
ond wos developed in portnership with the Ontorio
Federotion of Agriculture. This skeomlined process
olso provides Hydro One's forming customers o
single, speciolized point of contoct lo better ossist
with their specific on{orm concerns.
PAPERTESS BIIIING AND H]GH USAGE ATERTS
ln lote 2016, Hydro One lounched poperless
billing notificotions ond high usoge olerts to provide
customers wilh more visibility ond control over heir
occounts ond energy use. With billing notificotions,
customers sign up to receive poperless billlng
together with personolized insights ond progrom
promotions, which olso provide o new online self-
service chonnel for cuslomers os on olternolive to
contocting the coll centre. With high usoge olerts,
customers receive emoils or text messoges if their
usoge during o billing period is trending higher
thon o predefined threshold. Customers olso receive
guidonce on how they con odjust their energy use
before the end of the billing period. Through the
enhonced web portol, customers con olso eosily
find more informotion obout their energy use, os
well os explore o wide ronge of energy tips ond
conservotion progroms provided by Hydro One.
@ For funher informofion on
Hydro One's commitmenls
to cusfomers go fo
) HydroOne.com/
Commilments
COMMUNITY INVESTMENT
Throughout 2016, Hydro One committed
millions of dollors in donolions ond sponsorships
to communities il serves ocross Ontorio. The
contributions supporled communily proiects such
os the Morkstoy ouldoor ice rink roof-building
proiect for the locol municipolity, benefiting the
community's locol youth. Olher communily initiotives
include the compony's portnership with Right to
Ploy's Promoting Lile-Skills in Aboriginol Youth
progrom, o non-proflt orgonizotion thot oims to
deliver sofe, fun ond educotionol progromming to
Aboriginol youth.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-I7-_
HYDRo oNE LrrrilrED oNE oF NoRTH AMERrql',sLdFit T ltFdtr6 Ul\gES
Schedule3, Page ll of167
9
GET I.OCAL IN IIRST NATIONS COMMUNITIES
Hydro One begon to offer o new service model
in Firsl Notions ond M6tis communilies which
focuses on locol, foce-tojoce interoclions to ensure
customers ore informed of ond hove occess to oll
of the conservotion ond ossistonce progroms the
compony offers. Meeting with Chiefs ond Councils,
represenlotives from Hydro One's Cuslomer Service
teom visit communities throughout the province ond
conduct in[ormotion-shoring sessions wilh customers.
TRANSMITTING AND
DELIVERING SOME
OF THE CLEANEST
ETECTRIC POWER
IN NORTH AMERICA
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AS A STEWAR,D OF THE GRID, HYDR,O ONE IS FOCUSED ON TRANS'IIITTING AND DETIVER,ING SAFE,
CLEAN AND SUSIAINABTE ENERGY. THIS YEAN. THE CO'IiPANY PRODUCED ITS F!RST CON,PORATE
SOCIAI RESPONSIBITlrY REPORT, ONE WHICH ADHERES TO THE GUIDELINES FOR THE G4 GTOBAL
REPOR,TING INIIATIVE AND !S PART OF A CONflNUED EFFOR,T BY THE COMPANY TO ENHANCE THE
TRANSPARENCY, ACCOUNTABILITY AND IINE OF s!GHT TO lrs SUSIAINABIE OPERATIONS.
ENVIRONMENTAT
SUSTA!NABILITY
HEBER, DOWN CONSERVATION AREA
Hydro One's Foreslry leom portnered with the
Centrol Loke Ontorio Conservotion Authority
ond neighbouring utilities to mitigote the
spreod of Phrogmiles, on invosive species,
on 3,500 squore mekes of o right-of-woy
corridor in the Heber Down Conservotion
Areo. Chollenging ond costly to remove,
such invosive species threoten lokes, rivers
ond forests. Together with o locol controctor
ond using o voriety of control methods
bosed on locotion, density ond sunounding
vegetolion of eoch oreo, the compony
begon work on eliminoting the invosive
species from its rlght-of-woy. With thousonds
of kilometres of tronsmission line corridors
crossing the province, the compony hos
token o leodership role in engoging with
locol stokeholders, toking o prooctive
opprooch to lond monogement ond pooling
community resources to monoge the spreod
of invosive species.
VEGETATION'IANAGEMENT
To ensure the continued sofe operotion of
Hydro One's lronsmission ond diskibution
lines, the compony conducts province-wide
vegetotion monogement operotions to
mointoin reliobllity ocross the system. As port
of the compony's ongoing commilment to
locol communities, Hydro One hos consulted
with conservotion outhorilies ond is working
with locol seed distributors to develop ond
test pollinotor-friendly seed mixes. Pollinotors
include vorious forms of bees, wosps, onts,
flies, moths, beetles, bots ond birds These
species feed on nector ond pollen from
plonts ond their populotions in Ontorio ore
generolly in decline due to hobitot loss,
diseose, pesticide use ond climote chonge.
To mitigote this, Hydro One is working
lo incorporote pollinotor-friendly seed os
port of its vegelotion monogement work in
oppropriote oreos os on olternotive to gross
seed. Locolly, this work supports provinclol
initiotives like the Pollinotor Heolth Action
Plon developed by the Ontorio Ministry of
Agriculture, Food ond Rurol Affoirs.
CORPORATE KNIGHT'S BEST
50 CORPOR,ATE CITIZENS
Hydro One wos ronked os the top utility
in the l5th onnuol ronking of the 2Ol5
Corporote Knights Conodo's Best 50
Corporote Citizens. The Best 50 Corporote
Cltizens in Conodo ronking ossesses o
brood ronge of Conodion enterprises on
o set o[ l2 sustoinobility metrics, including
corbon, woter ond woste productivity, percent
of toxes poid, leodership gender diversity,
innovolion, heolth ond sofety performonce,
ond pension fund quolity. Being recognized
os one of Conodo's Best 50 Corporote
Citizens is o testoment to Hydro One's core
volues ond demonstrotes lhot the compony
continues to develop o strong culture of
sustoinobllity ond corporote responsibility.
Customers, investors ond citizens of Ontorio
should expect thot Hydro One will power
lorword in its responsible leodership on
Corporote Citizenship in Conodo.
@ For further informolion on Hydro One's
commilments lo the environment, go to
) HydroOne.com/OurCommilment
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-I7-_
C. Lopez, Hydro One
Schedule 3, Page 12 of 167
lO HYDRO ONE tlllltED 2016 ANNUA| REPORT TSX: H
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CORPORATE GOVERNANCE
OVERVIE\V
* crarn O MEMBER
BOARD OF DIRECTORS
AND CO'YIMI TEES
Dovid Denison - Choir
NOiAINATING,
CORPORATE GOVERNANCE,
PUBLIC POI.ICY AND
REGULATORY
HUIIAN
Rr50uRcE5
HTAI.IH, SAFET'
ENVIRONMENT AND FIRST
NAIIONS AND
'YIfTI5
Moyo Schmidt - President ond CEO
lon Bourne a *
Chorles Brindomour o o
Morc Coiro o o
Chrislie C ork o o
George Cooke a o
Morionne Horris o *
lomes Hinds a o
Kothryn lockson a o
Roberto lomieson a a
Fronces lonkin a o
Phi ip Orslno *o
lone Peverell *o
Gole Rub,enslein o o
Hydro One ond its independent Boord of Directors recognize the
importonce of corporote governonce to the effective monogement
o[ the compony. lndependence, integrity ond occountobility ore the
foundotion of the compony's opprooch lo corporote governonce.
It is in the long-term best interests of shoreholders os well os customers
ond promotes ond strengthens relotlonships with employees, the
communities in which the compony operotes ond other stokeholders
of the compony. The Boord of Directors is firmly supported in these
commitments by o governonce ogreement between Hydro One ond
the Province of Ontorio, which wos executed in odvonce of the
November 2015 initiol public offering of the compony ond ossures
thot the Province's role is limited to thot of o shoreholder ond not
o monoger of lhe business.
Hydro One's Boord of Directors is composed of o diverse ond
occomplished group of independent, proven business leoders with
deep corporote governonce experience. The Boord's primory role
is overseeing corporote performonce ond the quolity, depth ond
continuity of monogement required to meet the compony's strotegic
obiectives. Hydro One is commilled to best proctices of corporote
governonce, ond regulorly reviews the compony's governonce
proctices in response to chonging governonce expeclotions ond
regulotions. The Compony's proctices ore fully oligned with the rules
ond regulotions issued by Conodion Securities Administrotors ond
the Toronto Stock Exchonge, including notionol corporote
governonce guidelines ond reloted disclosure requirements.
HYDRO ONE'S GOOD GOVERNANCE PRACTICES
TULTY
INDEPENDENT
BOARD
IExcLUDTNG CEO)
BOARD EDUCATION
SESSTONS
TERM I.IMITS
FOR DIRECTORS
SEPARATE BOARD
CHAIR AND CEO
COMMITMENT TO
DIRECTOR DIVERSITY
CODE OF BUSINESS
CONDUCT AND
WHISTLEBTOWER
HOTI-INE
ANNUAI- REVIEWS
OF BOARD AND
COMMITTEE
PERFORMANCE
COMMITTEE
AUTHORITY TO
RETAIN
INDEPENDENT
ADVTSORS
BOARD AND
COMMITTEE
IN.CAMERA
DrscussroNs
DIRECTOR SHARE
OWNERSHIP
GUIDETINES
GOVERNANCE
AGREEMENT WITH
PROVINCE
MAJORITY VOTING
FOR DIRECTORS
(9 For o conplele descripfion of l-lydro One's corporote
governonce slruclure ond proctices ond individuol
diector biogrophicol informotion, go to
) HydroOne.com/lnvestors
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-I7-_
HYDno oNE LrmrtED oNE oF NoRTH AMERrq}',sLdFiStT ttB?6 Ut\grEs rr
Schedule 3, Page 13 of 167
AUDIT
Business is 99 percent
reguloted ond operotes in
o sloble, lronsporent ond
colloborotive rote-regu loted
environment
3
One of the lorgest pure ploy
electric utilities in North
Americo, with significont
scole ond o leodership
position in Conodo's most
populoted province
I
Unique combinotion of
electric tronsmission ond locol
distribution, with no moteriol
exposure lo commodity prices
2
Consislent rote bose growth
expected under multi-yeor
copitol investment progrom
to upgrode oging electric
power system infrostructure
Strong governonce structure
ond o fully independent Boord
ollow compony to operote
outonomously, tronsform its
culture ond drive shoreholder
volue creotion on multiple fronts
Timing of operotionol
tro nsformotion coincident
with tronsition to Ontorio's
incentive bosed regulotory
fromework expected to
creote volue for both
customers ond shoreholders
6
Proven monogement teom
with demonstroted experience
in tronsforming orgonizotions,
occeleroting performonce
ond creoting significont
shoreholder volue
7
Attroctive dividend yield with
70 - 80 percent torget poyout
rotio ond opportunity for growth
wilh rote bose exponsion,
efficiency reolizolion ond
conlinued consolidotion
B
Strong A-roted investment
grode bolonce sheet with
one of the highest-quolity
credit profiles in the North
Americqn utility sector
I
A unique opportunify to porticipote in the tronsformolion of o premium, Iorge-scole utilityI
TEN REASONS TO INVEST
!N HYDRO ONE
12 HYDRO ONE tll |TED 2016 ANNUAI REPORT TSX: H
>4 )5
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 14 of 167
hydroon e
2OI 6 FINANCIAL REPORT
,IIANAGE'IIENT'5 DISCUSSION AND ANATYSIS
Consolidoted Finonciol Highlights ond Stotistics
Overview
Results of Operotions
Common Shore Dividends
Copilol lnveslments
Summory of Sources ond Uses of Cosh
Liquidity ond Finoncing Strotegy
Regulolion
Other Developments
NonGAAP Meosures
Reloted Porty Tronsoclions
Risk Monogemenl ond Risk Foclors
Forword-looking Slotements ond lnformotion
CONSOTIDAIED FINANCIAI SrATEilEltlTS
Monogement's Report
lndependent Auditors' Report
Consolidoted Stotemenls of Operolions ond Comprehensive lncome
Consolidoted Bolonce Sheets
Consolidoted Slotements of Chonges in Equity
Consolidoted Slotements of Cosh Flows
NOTES TO CONSOTIDATED FINANCIAL STATEMENTS
BOAR,D OF DIRECTOR,S AND SENIOR LEADER,SHIP
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14
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t7
t8
20
22
23
25
26
28
29
30
44
49
47
48
49
50
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52
53
98
99
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
HYDRo oNE LrmrrED oNE oF NoRTH AMERre\',tjouiffrHlQlf6uflgrrs rr
Schedule 3, Page 15 of 167
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CORPOR.ATE AND SHAREHOLDER INFORIYTATION
hydroon e
AAonogement's Discussion ond Anol
For the yeors ended December 3 I , 201 6 ond 2Ol 5
ys rs
The following Monogement's Discussion ond Anolysis (MD&A) of the
Iinonclol condition ond results o[ operotions should be reod together
with the consolidoted finonciol stolemenls ond occomponying notes
(the Consolidoted Finonciol Stotements) of Hydro One Limited (Hydro
One or the Compony) for the yeor ended December 3 1 , 20 I 6. The
Consolidoted Finonciol Stotements ore presented in Conodion dollors
ond hove been prepored in occordonce with United Stotes (US)
Generolly Accepted Accounting Principles (GAAP). All flnonciol
inlormotion in this MD&A is presented in Conodiqn dollors, unless
otherwlse indicoted.
Consolidoted Finonciol Highlights And Stotistics
The Compony hos prepored this MD&A in occordonce with Notionol
lnstrumenl 5l-,l02 - Continuous Disclosure Obligotions of the
Conodion Securities Adminislrotors. This MD&A provides informotion
Ior the yeor ended December 3 I , 201 6, bosed on informotion
ovoiloble to monogement os of Februory 9, 2017.
The comporotive informotion consists of the results of Hydro One lnc.
up to October 3l , 20.15, ond lhe consolidoted results of Hydro One
ond Hydro One lnc. from November I , 20 I 5 to December 3 I ,
2015. See further detoils in seclion "Other Developments - Chonge
in Hydro One Ownership Structure".
201 6 2015 Chonge
Yeor ended December 3l
(millions of dollors, except os okerwise noted)
Revenues
Purchosed power
Revenues, net of purchosed power
Operotion, mointenonce ond odministrotion costs
Depreciotion ond omortizolion
Finoncing chorges
lncome tox expense
Net income ottributoble to common shoreholders of Hydro One
Bosic eornlngs per common shore {EPS)
Diluied EPS
Bosic pro formo odlusted nonCAAP EPS (Adiusted EPS)]
Diluted Adiusted EPSr
Nel cosh from (used in) operoting octivities
Adiusted nel cosh {rom operoting octivitiesr
Funds {rom (used in) operotions (FFO)r
Adlusted FFOr
Copitol investments
Assets ploced in-service
Tronsmission: Averoge monthly Ontorio 60minute peok demond /MW/
Distribution: Electricity distributed to Hydro One customers /GWhl
$ 1.2t
$ t.zt
$ t.zt$ t.2t
6,552
3,427
3,125
r,069
778
393
139
721
1,656
1,656
1,494
1,494
6,538
3,450
3,088
r,r35
759
376
105
690
11,479)
r,33 r
r,663
I,476
20,344
28,764
lo.7%)
| .l/o
(s 8%)
2.5%
4.5%
32.4%
232.7%
6.0%
201.O%
12.2%
2.0%
6./ /o
l./ /o
18.6%l
$ t.ss$ t.:s
t2.e%)
t2.e%l
$ t.to$ t.to
4.5%
l.1,248)
),562
,697
,605
20,690
26,289
December 3 I 201 6 201 5
Debt to copitolizotion rotio2 52.6%50.7%
I See section "NonGAAP Meosures" for descriplion ond reconciliotion ol Adiusted EPS, odiusted net cosh from operoting oclivities, FFO ond Adiusted FFO.
z Debt to copiblizotion rotio hos been colculoted os totol debt {includes totol long-term debt ond short-term borrowings, net of cosh ond cosh equivolents)
divided by totol debt plus totol shoreholders' equity, including prelered shores but excluding ony omounts reloted to nonconholling interest.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-I7-_
14 HYDRo oNE LlillrED 2016 ANNUAL REPoRT TSX: H C.LOpez, HydrO One
Schedule 3, Page 16 of 167
Overview
Hydro One is the lorgest electricity lronsmission ond distribution
compony in Ontorio. Through its wholly owned subsidiory, Hydro
One Inc., Hydro One owns ond operotes substontiolly oll of Ontorio's
electricily lronsmission network, ond on opproximotely ,l23,000
circuit
km lowvoltoge distributlon network. Hydro One hos three business
segments: (i) tronsmission; (ii) distributlon; ond (iii) other business.
Tronsmission Segment
Hydro One's tronsmission business owns, operotes ond mointoins
Hydro One's konsmission system, which occounts for opproximotely
98% of Onlorio's lronsmission copocity bosed on revenue opproved
by the Ontorio Energy Boord (OEB). The Tronsmission Business
consists of the tronsmission system operoted by Hydro One Inc.'s
subsidiories, Hydro One Networks Inc. (Hydro One Networks) ond
Hydro One Soult Ste. Morie LP (formerly Greot Lokes Power
Tronsmission LP {Greot Lokes Power)), os well os o 66% interest in
B2M Limited Portnership (B2M LPl, o limited portnership between
Hydro One ond the Sougeen Olibwoy Notion in respect o[ the
Bruc*loMilton lronsmission line. The Compony's tronsmission
business is o rotereguloled business thot eorns revenues moinly lrom
chorging tronsmission roles hot ore opproved by the OEB. The
tronsmission business represented opproximotely 5l % of the
Compony's totol ossets os ot December 31, 2016, ond
opproximotely 5 I % of its 20I 6 revenues, net of purchosed power.
2016 2015
>7oziB>[-;i
aA6I
oCa
oz
I
Electricity Uonrr,tt; t lMWh/
Tronsmission I ines sponning the provi nce lci rcuit'kilometres)
Rote bose lmillions of dollors)
Copitol investments fmil/ions of dollors)
Assetsploced in""W
136,989,747
30,259
10,775
988
937
137,011,780
29,355
10,175
943
696
r Elechicity konsmitted represents totol eleckicity lronsmission in Onlorio by oll honsmitters.
Distribution Segment
Hydro One's distribution business is the lorgest in Ontorio ond
consists of the distribution system operoled by Hydro One lnc.'s
subsidiories Hydro One Networks ond Hydro One Remote
Communities lnc. The Compony's distribution business is o role
reguloted business thol eorns revenues moinly by chorging distribution
roles thot ore opproved by the OEB. The distribution business
represented opproximotely 37/" ol lhe Compony's totol ossets os ol
December 3 I , 20 I 6, ond opproximotely 47% ol its 201 6 revenues,
net ol purchosed power.
O Residentiol
I Generol Service
O Lorge Users
O Embedded Diskibutors
2016 201 5
Electriclty distributed to Hydro One customers /GWhi
Electricity distribuled through Hydro One lines /GWh/t
Distribution lines sponning the province (circuitkilomelres)
Distribution customers lnumber of customers)
Rote bose lmillions of dollors)
Copitol investments /mil/ions of dollors)
fusets ploced inservice lnillions of dollors)
26,289
37,394
122,599
r,3s5,302
7,056
703
662
28,764
40,721
123,425
347,231
6,739
711
775
r Units dishibuted $rough Hydro One lines represent totol distribution system requirements ond include electricity dishibuted to consumers who purchosed
power directly from the lndependent Eleckicity System Operotor {lESOl.
Other Business Segment
l-1ydro One's other business segmenl consists of the Compony's
telecommunicolions business ond cerloin corporote octivities. The
telecommunicotions business provides telecommunicotions support lor the
Compony's lronsmission ond distribution businesses, ond olso offers
communicotions ond lT solutions to orgonizotions with broodbond
network requirements utilizing Hydro One Telecom lnc.'s (Hydro One
Telecom) fibre optic network to provide diverse, secure ond highly
relioble broodbond connectivity. Hydro One's other business segment is
not rotereguloted. This segment represenled opproximotely l2% of
Flydro One's lotol ossets os ot December 31, 20,16, ond opproximotely
2%dns2016 revenues, netof purchosed power.
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-I7-_
HYDRo oNE LrmrrED oNE oF NoRTH AMERtg',qjdUifrrFllQIfFenHrrs rs
Schedule 3, Page 17 of 167
I
MANAGEMENT'S DISCUSSION AND ANALYSIS
Primory Foctors Affecting Results Of Operotions
Tronsmission Revenues
Tronsmission revenues primorily consist of lhe Compony's tronsmission
roles opproved by the OEB which ore chorged bosed on the monthly
peok electricily demond ocross Hydro One's high-voltoge network.
Tronsmission roles ore designed to generote revenues necessory lo
construct, upgrode, extend ond support o tronsmission system with
sufficienl copocity to occommodote moximum forecosled demond
ond o reguloted return on the Compony's investment. Peok electricity
demond is primorily inlluenced by weother ond economic conditions.
Tronsmission revenues olso include export revenues ossocioled with
konsmitting electricity to morkets outside of Onlorio. Ancillory
revenues include revenues lrom providing mointenonce servlces to
power generotors ond from third-porty lond use.
Distribution Revenues
Distribution revenues include the distribution rotes opproved by the
OEB ond omounls lo recover the cosl of purchosed power used by
the customers of the distribution business. Distribution roles ore
designed lo generote revenues necessory to construct ond suppon the
locol distribution system with sufficient copocily lo occommodote
exisling ond new customer demond ond o reguloted relurn on the
Compo ny's inveslment. Accordi ngly, distribution revenues ore
influenced by distribution rotes, lhe cost of purchosed power, ond the
omounl o[ electricity the Compony distributes. Distribution revenues
olso include oncillory distribution service revenues, such os fees
reloted to the ioint use of Hydro One's distribution poles by the
telecommunicolions ond coble television induslries, os well os
miscelloneous revenues such os chorges for lote poyments.
Purchosed Power Costs
Purchosed power costs ore incurred by the distribution business ond
represenl the cost of the electricily purchosed by lhe Compony lor
delivery to customers within Hydro One's distribution service terrilory.
These costs comprise the wholesole commodlty cost of energy, in
oddition to wholesole morket service ond konsmission chorges levied
by the IESO. Hydro One posses the cost o[ eleclricity thot it delivers
to ils customers, ond is therefore nol exposed to wholesole electricity
commodity price risk.
Operotion, Mointenonce ond
Administrotion Costs
Operotion, mointenonce ond odministrolion (OM&A) costs ore
incurred to support the operotion ond mointenonce of the tronsmission
ond distribution systems, ond other costs such os property toxes
reloted to tronsmission ond distributlon lines, slotions ond buildings.
Tronsmission OM&,A costs ore incurred to sustoin the Compony's
high-voltoge tronsmission stotions, lines ond rightsof-woy, ond include
preventive ond corrective mointenonce costs reloted to power
equipment, overheod lronsmission lines, konsmission stolion sites, ond
forestry control to mointoin sofe distonce between line spons ond
kees. Distribution OM&A costs ore required lo mointoin the
Compony's low-voltoge distribution system, ond include costs reloted
to distribution line cleoring ond forestry control to reduce power
outoges coused by lrees, line mointenonce ond repolr, os well os
lond ossessment ond remediotion. Hydro One monoges its costs
through ongoing efficiency ond productivity initiotives, while
continuing to complete plonned work progroms ossocioted with the
development ond moinlenonce of its tronsmission ond distribulion
networks.
Depreciotion ond Amortizotion
Depreciotion ond omortizolion costs relote primorily to depreciotion
of the Compony's properly, plont ond equipment, ond omortizotion
of certoin intongible ossets ond regulotory ossets. Depreciotion ond
omortizotion olso includes the costs incurred to remove property, plont
ond equipment where no osset retiremenl obligotions hove been
recorded on the bolonce sheet.
Finoncing Chorges
Finoncing chorges relote to lhe Compony's finoncing oclivities, ond
lnclude interest expense on the Compony's long-term debt ond short-
term borrowings, goins ond losses on inlerest role swop ogreements,
net of interest eorned on short-term investments. A portion of [inoncing
chorges incurred by the Compony is copitolized to the cost of
property, plont ond equipment ossocioted with the periods during
which such ossets ore under construction before being ploced
in-service.
lncome Toxes
Hydro One ond its subsidiories were exempt from regulor Conodion
federol ond Ontorio income tox (Federol Tox Regime) ond insteod
poid on equivolenl omounl referred to os poyments in lieu of
corporole income toxes {PlLs) to the Ontorio Electricity Finonciol
Corporotion (OEFC) under the Eleclricily Acl (Plls Regime) until
October 2015. Since then, Hydro One ond its subsidiories hove
been subject to the Federol Tox Regime.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C. Lopez, Hydro One
Schedule 3, Page l8 of 167
l6 HYDRO ONE tlMlTED 201 6 ANNUAL REPORT TSX: H
Results of Operotions
Net lncome
Net income ottributoble to common shoreholders lor the yeor ended
December 31, 20,l6 wos $Z2l million, on increose of 4.5%[ron
the prior yeor. Eornings were positively offected by lower OAA&A
ond higher revenues net of purchosed power. These positive effecls
were portly offset by non-recurring items reloted to the Compony's
IPO in 20.l5, nomely on increose in the eflective lox rote primorily
driven by lPOreloted tox benefit of $ I 9 million recorded in 20I 5
ond divestiture of Hydro One Brompton lnc. (Hydro One Brompton)
in 2015. Excluding these lPOreloted effects, net income increosed
by 10.9%.
Bosic EPS ond Adiusted Bosic EPS
Bosic EPS wos $1.2i in 2016 (2015 - $1.39). Bosic EPS is
significontly offected by the weighted overoge number of shores in
issue being di{ferent lrom lost yeor due to the effects of the lPO, ond
is the most significont reoson for the lower EPS compored to lost yeor
Adiusted Bosic EPS, which odiusts for the inconslstent number of
shores in issue, wos $1.2,l tn 201612015 - $l.l6l, driven by
increosed net income compored to lost yeor. See section
"NonGAAP Meosures" for description of Adlusted EPS.
Reven ues
Yeor ended December 3 I
lmillions of dollors, except os olhervvise noted) 2016 20) 5 C\ooge
Tronsmission 1 ,584 1,536 3.1%
Distribution 4,915 4,949 ,0.7%)
Other 53 53
6,552 6,538
>7ez
za>B;aaa6(,6.)C
oz
I
Tronsmission volumes: Averoge monthly Ontorio 6Gminute peok demond /MWi 20,690
26,289
20,344
28,764
1.7/"
18.6%lDistribution volumes: Electricity distributed to Hydro One customers /Gwh)
Tronsmission Revenues
Tronsmission revenues increosed 6y 3.1% in 201 6 primorily due to
the lollowing:
. prior yeor revenues were offected by o regulotory driven reduction
of $28 million reloted to differences between octuol ond forecost
provincewide conservotion ond demond monogemenl sovings
durlng 2014, which did not recur in 2016;
. higher overoge monthly Ontorio 6Gminute peok demond moinly
due to wormer weofier in lhe second ond thlrd quorters of 201 6,
os well os the impoct of severol extremely cold doys thot more
thon offset the overoll milder weother in the fourth quorter of
20 I 6; ond
o increosed OEB<pproved konsmission rotes for 2016.
Operotion, Mointenonce ond Administrotion Costs
Yeor ended December 3 I
Distribution Revenues
Distribution revenues decreosed 6y 07% in 20 I 6 primorily due to
the following:
r the divestiture of Hydro One Bromplon in August 20 I 5, which
olso coused the moiority of the decreose in distribution volumes;
ond
o lower overoll energy consumption resulting {rom milder weother in
fie first ond fourth quorlers of 20.16; portiolly offset by
. higher power costs from generotors lhot ore possed on to
customers, excluding the impoct of divestiture of Hydro One
Brompton;
o increosed OEBopproved distribution rotes for 2O l6; ond
.
::::".";O
revenues due to o rote order reloted to shored-use
lmillions of dollors)2016 201 5 Chonoe
Tronsmission
Distribution
Other
382
608
79
414
633
BB
17.7%)
13.9%)
110.2%)
r,069 r,r35 (5.8%)
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-I7-_
HYDRo oNE LrryurED oNE oF NoRTH AMERrg',qj0bifrrFllQIfE€[llglrs t7
Schedule 3, Page 19 of 167
MANAGEMENT'S DISCUSSION AND ANALYSIS
Tronsmission OM&A Costs
Tronsmission OAzl&A decreosed by 7 .7% in 20 I 6 primorily due to
lower proiect cost ond inventory writedowns coupled wllh lower
octivity reloted to tronsformer equipmenl refurbishments ond stotions
moinlenonce.
Distribution OM&A Costs
Distribution OM&.A decreosedby 3.V/" in 20'l6 primori!due to the
following:
o decreose in bod debt expense including the impoct of revised
eslimotes of uncollectible occounts;
o the divestiture o[ Hydro One Brompton in August 20 i 5;
o lower support services costs; ond
o lower cosls ossocioted with underground dislribution coble
locoies; portiolly offset by
. higher volume o[ vegetotion monogemenl octivilies.
Other OM&A Costs
Other OAMA decreosed W 10.2% in 20 16 primorily due to lower
cosls reloting to the integrotion of ocquired locol distribution
componies ond lower consulting costs.
Depreciotion ond Amorlizotion
The increose of $ I 9 million or 2.5% in depreciotion ond
omorlizotion costs for 20 I 6 wos moinly due to the growth in copitol
ossets os the Compony continues to ploce new ossets in-service,
consistent with its ongoing copitol investment progrom.
Finoncing Chorges
The increose of $ 17 million or 4.5% in finoncing chorges for 2016
wos moinly due to the following:
. on increose in inleresl expense on long-term debt moinly due to the
increose in weighted overoge long-term debt bolonce outstonding
during the yeor, portiolly offset by o decreose in the weighted
overoge interest rote for long-term debt; ond
o on increose in interest expense on shorl-term notes moinly due fo
the increose in weighted overoge short-term notes bolonce
outstonding during the yeor, os well os on increose in the
weighted overoge inlerest rote for short-term notes.
lncome Tox Expense
Income tox expense in 20,16 increosed by $34 million compored to
20,1 5, ond the Compony reolized on effective tox rote of
opproxlmotely 15.7%in 2016, compored lo opproximotely 12.8%
reolized in 20,l5. The increose in the tox expense is primorily due to
the effect o[ on lPOreloted positive tox odjustment of $ l9 million in
2015, coupled with higher income before toxes in 2016.
Common Shore Dividends
ln 20,)6, the Compony declored ond poid cosh dividends to common shoreholders os follows:
Dote Declored Record Dote Poyment Dote Amount per Shore
Totol Amount
lmillions of dollors)
Februory I l, 2016
Moy 5, 2016
August 1 1,2016
November ,l0,20.l6
I'Aorcl 17, 2O16
Jone 14,2016
September 14,2O16
December 14,2016
Morch 31, 2Ol6
lune 30, 2016
September 30, 2016
December 30, 20,l6
$0.34r
$o.z I
$0.21
$0.21
202
125
125
125
577
t ThiswosthefirstcommonshoredividenddecloredbytheComponyfollowinglhecomplelionof itsiniliol publicofferinginNovember20l5.The$0.34per
shore dividend included $0. I 3 for the posl{PO period from November 5 to December 3 I , 201 5, ond $0.21 for lhe quorter ended Morch 3 I , 2016.
Following the conclusion of the fourth quorter of 2016, the Compony declored o cosh dividend to common shoreholders os follows:
Dote Declored Record Dote Poyment Dote Amount per Shore
Totol Amount
lmillions of dollors)
l8 HYDR9 ONE tlitlTED 2016 ANNUAL REPORT TSX: H
Morch 31, 2017
Schedule 3, Page 20 of'167
Febroory 9,2017 Morch 14, 2016 $0.21 125
Exhibit No. 4
Case Nos. AVU-E-I7- and AVU-G-I7-
i.Lop"r,Hydro one
Divestiture of Hydro One Brompton
On August 3 I , 201 5, o dividend wos poid to lhe Province of
Ontorio (Province) by tronsfening lo o compony wholly owned by the
Province oll of the issued ond outstonding shores of Hydro One
Brompton ond intercompony indebtedness owed to Hydro One lnc.
by Hydro One Brompton. Hydro One's 20i5 consolidoted results of
operolions include the results of Hydro One Brompton up lo
August 31 , 201 5. The following tobles present quorterly results of
Hydro One Bromplon thot were included ln consolidoted results of
Hydro One for the yeor ended December 3 I , 20 I 5.
Quorter ended
lnillions of dollors)
Mor. 3'l ,
20r5
Jun.30,
20t5
Sept. 30,
20 r5
Dec. 3 l,
201 5
201 5
Totol
z>az
za>gt,q+aa
o;I6.)C
UZ
I
Revenues
Purchosed power
oA &A
Depreciotion ond omortizotion
lncome tox expense
125
t07
6
5
129
ill
6
4
1
r00
88
4
2
(t)
354
306
t6il
Net income 7 7 7 2t
Copitol investments I l1 8 28
Selected Annuol Finonciol Stotistics
Yeor ended December 3l
lnillions of dollors, exceplp91fure ungylts!2016 201 5 2014
Totol revenue
Net income ottributoble lo common shoreholders
Bosic ond diluted EPS
Bosic ond diluted Adiusted EPS
Dividends per common shore declored
Dividends per preferred slLSre !g!]g,ed
$ l.2l
$ r.2r
$ 0.92'
$ l.l2
i.39
t. t6
r.83
r.03
6,552
721
6,538 6,548
731690
$
$
$
$
r.53
1.23
0.56
r.38
rThe$0.gZpershoredividendsdecloredin20l6included$0. l3forfiepostlPOperiodfromNovember5toDecember3l,20'l5,ond$0.84 lortheyeor
ended December 31, 2016.
December 3 I
lmillions of dollors)2016 2015 2014
Totol ossets
Totol noncurrent finonciol liobilities
25,351
10,078
24,294
8,207
22,550
8,373
Quorterly Results of Operotions
Quorter ended
(millions of dollors, except EPS)
Dec.3l,
2016
Sep. 30,
2016
Jun.30,
2016
Mor.3l,
2016
Dec.3l,
20 r5
Sep. 30,
201 5
lun. 30,
20r5
Mor. 3l,
201 5
Revenues
Purchosed power
Revenues, net of purchosed power
Net income to common shoreholders
Bosic EPS
Diluted EPS
Bosic Adiusted EPS
Diluted Adiusted EPS
1,614
858
756
128
1,686
896
790
208
1,563
838
/tJ
l3t
1,706
870
836
233
1,546
803
743
1s2
1,522
786
736
143
1,645
856
789
r88
,l,808
970
838
228
$ 0.22
$ o.2l
$ 0.22
$ o.2l
$ o.3e
$ 0.39
$ 0.39
$ o.3e
$ 0.26
$ 0.2s
$ 0.26
$ 0.25
$ 0.35
$ 0.3s
$ o.3s
$ 0.35
$ 0.26
$ 0.26
$ o.zt
$ o.za
$ o.ss
$ o.:s
$ o.sz
$ 0.32
$ o.zz
$ o.zz
$ o.zz
$ o.zz
$ o.tz
$ o.tz
$ 0.38
$ 0.38
Voriotions in revenues ond nel income over the quorters ore primorily due to the impoct of seosonol weother conditions on customer demond ond
morket pricing.
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-I7-_
HYDRo oNE umrrED oNE oF NoRTH AMERrg',qj0trifrrFI'QII6Uftgres rs
Schedule 3, Page 21 of167
MANAGEMENT'S DISCUSSION AND ANALYSIS
Copitol lnvestments
The Compony mokes copitol investmenls to moinloin the sofety,
reliobility ond integrity of its tronsmission ond distribution ossets ond to
provide for the ongoing growth ond modernizolion required to meet
the exponding ond evolving needs o[ its customers ond the eleclricity
morkel. This is ochieved through o combinotion of sustoining copitol
The following toble presents Hydro One's 2016 ond 2015 copitol inveslmenls:
Yeor endd December 3l
lmillions of dollorsl
investments, which ore required lo support the continued operotion o[
Hydro One's existing ossets, ond development copitol investments,
which involve both odditions to existing ossels ond lorge scole
proiects such os new lronsmission lines ond [onsmission stolions-
2016 20r5 Chonge
Tronsmission
Sustolning
Development
Other
750
r56
82
706
166
7l
6.2%
16.o%l
15.5%
9BB 943 4.8%
Dishibution
Sustoining
Developmenl
Other
384
217
102
398
220
93
(3.5%)
11.4%)
9.7%
703 711 (r.r%)
Other 6 9 (33.3%)
Totol copitol investments 1,697 r,663 a ^,o/
Tronsmission Copitol lnvestments
Tronsmission copitol investments increosed by $45 milllon or 4.8%in
201 6. Principol impocts on the levels of copitol investments included:
r on increosed volume of work on overheod line refurbishments ond
insulotor replocements;
o on increosed volume o{ integroted stolion component replocements
to susloin certoin oging ossels ol lronsmission stotions;
r continued work on moior locol oreo supply network development
projects, such os the Hollond Tronsmission Stotion, the Howthorne
Tronsmission Stotion, ond lhe Toronto Midtown Tronsmission
Reinforcement; ond
o increosed investments reloting lo informotion technology
infroskucture ond cuslomer progroms, enhoncement pro jects,
including investments to integrote mobile technology with the
Compony's existing work monogemenl tools; portiolly offset by
r decreosed inveslments in system enhoncement projects, primorily
due to completion of certoin projects ond o difference in timing o[
work on olher proiects; ond
o completion of the Guelph Areo Tronsmission Refurbishment proiect.
Distribution Copitol lnvestments
Distribution copitol investments decreosed by $8 million or i.l% in
201 6. Principol impocts on the levels of copitol investments included:
o reduced copitol expenditures due to the divestiture of Hydro One
Brompton ln 2015; ond
o o lower volume of work within stotion refurbishment progroms ond
lower volume of spore tronsformer purchoses; portiolly offset by
. increosed investments reloted to informotion technology
infrostructure ond customer progroms together with upgrode ond
enhoncement projecls, including inveslments to integrote mobile
technology with the Compony's existing work monogement tools;
ond
. investments in smort grid technology to mitigole power quolity
impocts of distributed generotion ond to improve outoge response
times.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 22 of 167
20 HYDRO ONE LI'IIITED 20] 6 ANNUAL REPORT TSX: H
Moior Tronsmission Copitol lnvestment Proiects
The following toble summorizes the slotus of signi{icont konsmission proiecls os ot December 3 I , 20 I 6:
Anticipoted
ln-Service
Dote
Estimoted
Cost
Copitol Cost
ToDoteNome
Development Proiects:
Guelph Areo Tronsmission
Refurbishment
Toronto Midtown Tronsmission
Reinforcement
Supply to Essex County
Tronsm ission Reinforcement
Clorington Tronsmission Slotion
Northwest Bulk Tronsmission Line
Eost-West Tie Stotion Exponsion
Locotion
Guelph oreo
Soulhweslern Ontorlo
Toronto
Southwestern Ontorio
Windsor-Essex oreo
Soulhwestern Ontorio
Oshowo oreo
Southwestern Ontorio
Thunder Boy
Northwestern Ontorio
Tronsmission line
upgrode
New tronsmission
line
New honsmission
line ond stotion
New tronsmission
stolion
New tronsmission
line
T.
Northern Onlorio Stolion exponslon
September
20161
December
20162
201 B
201 8
To be
determined
2020
$BZ million $86 million
$]18 million $ll3 million
$23 million $13 million
$267 million $ 192 million
To be
delermined
$166 million
>;az
zo>!!-=;sa=6qaoca
oZ
I
Sustoinment Proiects:
Bruce A Tronsmission Siotion
Richview Tronsmission Stotion
Circuit Breoker Replocement
Lennox Tronsmission Stotion
Circuit Breoker Replocement
Beck #2 Tronsmission Stotion
Circuit Breoker Replocemenl
Tiverton
Southwestern Ontorio
Toronto
Southwestern Onlorio
Noponee
Soulheoslern Ontorio
Niogoro oreo
Southwestern Ontorio
Stotion sustoinment 20I 9
Stotion sustoinment 20,l 9
Stotion sustoinment 2O2O
Stotion sustoinment 2021
$ 109 million $83 million
$102 million $68 million
$95 million $15 million
$93 million $28 million
lMoiorportionsof fieproiectwerecompletedondplocedin-seruiceinSeptember20'l6.Workoncertoinminorportionsof theproiectcontinuesinthefirst
quorter of 201 7.
2 Mo jor portions of the proiect were compleled ond ploced in-service in December 201 6. Work on certoin minor porlions of the prolect continues in the first
quorler of 201 7.
Future Copitol lnvestments
Following is o summory of estimoted copilol investments by Hydro
One over the next five yeors. The Compony's estimotes ore bosed on
monogemenl's expectotions of the omount of copitol expenditures lhot
will be required to provide tronsmission ond dislribution services thot
ore efficient, relioble, ond provide volue for cuslomers, consistent with
the OEB's Renewed Regulotory Fromework. These estimotes dlffer
from the prior yeor disclosures, reflecting onnuol increoses o[
$l 26 million for 2017, $l 13 million for 2018, $239 million for
20T9, ond $360 milllon lor 2020. These future copitol investments
reflect monogement's best estimotes ond, os opplicoble, proiections
included in rote filings currently in process. These proiections ond the
timing o[ expenditures ore in lorge port sublect to opprovol by the
OEB, ond will be odiusted going forword os oppropriote to reflect
role decisions by the OEB.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
HYDRo oNE umrrED oNE oF NoRrH AMERre\',qjotriffrflltlEo?Htrs zr
Schedule 3, Page 23 of 167
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following toble summorizes Hydro One's onnuol projected copitol investmenlsfor 2017 lo2O2), by business segment:
lmillions of dollors) 2017 2018 2019 2020 2021
Tronsmission
Distribution
Other
1,086
648
12
1,132
647
9
1,217
771
B
1,278
735
6
1,486
749
8
Totol copitol inveslments 1,746 1,788 1 ,996 2,019 2,243
The following toble summorizes Hydro One's onnuol proiected copitol investmenrs for 2017 lo 2021 , by cotegory:
lmillions of dollors) 2017 20lB 2019 2020 2021
Sustoin ing
Development
Otherr
1,107
414
22s
t,r65
400
223
1,219
484
293
1,327
487
205
1,546
490
207
Totol copitol investments 1,746 1,788 1,996 2,019 2,243
I "Other" copitol expenditures consist of speciol proiects, such os those reloting to informolion technology.
Summory Of Sources And Uses Of Cosh
Hydro One's primory sources o[ cosh flows ore funds generoted from operotions, copitol morket debt issuonces ond bonk credit focilities thot ore
used to sotisfy Hydro One's copitol resource requirements, lncluding the Compony's copitol expenditures, servicing ond repoyment of debt, ond
dividend poyments.
Yeor ended December 3l
lmillions of dollors) 2016 20]5
Cosh provided by (used in) operoting octivilies
Cosh provided by finoncing octivilies
Cosh used in invesling octivities
r,656
t6t
(r,86r I
11,24Bl
2,954
11712)
Decreose in cosh ond cosh equivolenls 144l (6)
Primory foctors behind the increose in cosh provided by operoting octivities
The increose in cosh provided by operoting octivities is primorily due to o defened lox recovery of $2.8 billion recorded in 2015 thot resulted os
o consequence o[ leoving the PlLs Regime ond enlering the Federol Tox Regime.
Primory foctors behind the decreose in cosh
provided by finoncing octivities
Sources o[ cosh
o The Compony received $2.3 billion proceeds from issuonce of
long-term debt in 2016, compored to $350 million received lost
yeor.
o The Compony received $3,03,l million proceeds from issuonce of
short-term notes in 20l6, compored to $2,89,l million received
lost yeor.
r In 20,] 5, the Compony received $2.6 billion proceeds from
common shores issued to the Province prior to the completion o[
rhe initiol public offering (lPO).
Uses of cosh
o Dividends poid in 2016 were $596 million, consisting o[
$5ZZ million common shore dividends ond $ l9 million preferred
shore dividends, compored to $888 million poid in 20.15. 2015
dividends consisted of $75 million common shore dividends,
$ l3 million preferred shore dividends, os well os on $B0O million
speciol dividend poid to the Province prior to the completion o[ lhe
tPo.
o The Compony repoid $4,053 million o[ short-term notes,
compored to $,1,400 million repoid lost yeor.
o The Compony repoid $502 million of long-term debt in 20,l 6
compored to $585 million repoid lost yeor.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 24 of 167
22 HYDRO ONE LIAIIIED 2016 ANNUAL REPORT TSX: H
Primory foctors behind the increose in cosh used
in investing octivities
Uses of cosh
r Copitol expenditures were $29 million higher in 2016, primorily
due to increosed tronsmission copitol investments consislenl with the
Compony's ongoing copitol inveslment progrom.
Liquidity ond Finoncing Strotegy
Short-term liquidity is provided through funds from operotlons, Hydro
One lnc.'s commerciol poper progrom, ond the Compony's
consolidoted bonk credit focilities. Under the commerciol poper
progrom, Hydro One Inc. is outhorlzed to issue up to $ 1.5 billion in
short-term noles with o lerm to moturity of up to 365 doys. At
December 31 , 2Ol6, Hydro One Inc. hod $469 million in
commerciol poper bonowings outstonding, compored to
$ I ,491 million outstonding ot December 3 1 , 20,1 5. In oddilion, the
Compony ond Hydro One lnc. hove revolving bonk credit focilities
totolling $2,550 million moturing in 2021 . The Compony moy use
the credit focilities for working copitol ond generol corporote
purposes. The short-term liquidiry under the commerciol poper
progrom, the credit focilities ond onticipoted levels of funds from
operolions ore expected to be sufficient to fund the Compony's
normol operoting requirements.
Al December 31 , 2016, the Compony's longlerm debt in the
principol omount of $ lO,OZt million included $ I0,523 million long-
term debt issued under Hydro One lnc.'s Medium Term Nole (MTN)
Progrom ond long-term debt in the principol omount of $ 148 million
held by Greol Lokes Power. At December 3 I , 20,l 6, the moximum
outhorized principol omount of noles issuoble under the current MTN
Progrom prospectus filed in December 2015 wos $3.5 billion, with
$ I .2 billion remoining ovoiloble for issuonce until Jonuory 201 B. The
Credit Rotings
At December 3l , 20.l6, Hydro One's corporote credit rotings were os lollows
Roting Agency
. In 20.]6, the Compony poid $226 million to ocquire Greot Lokes
Power, compored to o totol of $90 mlllion poid in 20l5 to
ocquire Holdimond County Utilities lnc. (Holdimond Hydro) ond
Woodstock Hydro Holdings lnc. (Woodsrock Hydro).
o ln August 20']5, on investmentof $53 mlllion wos mode in Hydro
One Bromplon prior to its divestiture to the Province.
long-term debt consists o[ noles ond debentures thot moture between
2Ol7 ond 2064, ond ot December 3 I , 20 I 6, hod on overoge
term to moturity of opproximotely 'l 5.9 yeors ond o weighted
overoge coupon of 4.3%.
On Morch 30, 20,1 6, Hydro One filed o finol universol short form
bose shelf prospectus (Universol Bose Shelf Prospectus) with securities
regulolory outhorilles in Conodo. The Universol Bose Shelf Prospectus
ollows Hydro One to offer, from time lo time in one or more publlc
oflerings, up to $8.0 billion of debt, equity or other securities, or ony
combinotion thereof, during the 25-month period ending on April 30,
2018. Hydro One filed the Universol Bose Shell Prospectus in port to
focilitote the secondory offerings of outstonding shores of the
Compony by the Province, ond to provide lhe Compony with
increosed finoncing flexibility golng forword. In 201 6, Hydro One
completed o secondory offering of o portion of its common shores
previously owned by the Province. See section "Other Developments
- Chonge in Hydro One Ownership Structure" for detoils of this
konsoction. Upon closing o[ the tronsoction, $6,030 million
remoined ovoiloble under the Universol Bose Shelf Prospectus.
At December 3,), 20,16, the Compony ond Hydro One lnc. were in
complionce with oll flnonciol covenonts ond limitotions ossocioled
with the outstonding borrowings ond credit focilities.
Corporote Credit
Roting
>*ez
za>gD't>m27a=
<;
Ua(-)CaaoZ
I
Stondord & Poor's Rol,ng S"*i."r (S&P)A
Hydro One hos not obtoined o credit roting in respect o[ ony o[ its
securities. An issuer rotlng from S&P is o forword-looking opinion
obout on obligor's overoll creditworthiness. This opinion focuses on
the obligor's copocity ond willingness to meet its finonciol
commitments os they come due but it does not opply to ony specilic
finonciol obligotion. An obllgor with o long-term credit roting of 'A'
hos strong copocity to meet its flnonciol commitments bul is somewhot
more susceptible to the odverse effects o[ chonges in circumstonces
ond economic conditions thon obligors in higher-roted cotegories.
The roting obove is nol o recommendotion to purchose, sell or hold
ony of Hydro One's securities ond does not comment on the morket
price or suitobility ol ony of the securilies for o porticulor inveslor.
There con be no ossuronce thot the roting will remoin in effect for ony
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-I7-_
HYDRo oNE uiurED oNE oF NoRTH AMERre',qjoUifrrFl!fll6g1grrs zr
Schedule 3, Page 25 of 167
MANAGEMENT'S DISCUSSION AND ANALYSIS
given period of time or thot the roting will not be revised or
wilhdrown entirely by S&P ot ony time in the future. Hydro One hos
mode, ond onticipotes moking, poyments to S&P pursuonl to
ogreements entered inlo with S&P in respect o{ the roting ossigned lo
Hydro One ond expects lo moke poyments to S&P in the {uture to the
extent it obtoins o roting specific lo ony of its securilles.
At December 3l , 20,l6, Hydro One lnc.'s long-term ond shorl-term debt rolings were os follows:
Roting Agency
Short-term Debt
Roting
long-term Debt
Roting
DBRS Limited
Moody's Inveslors Service
S&P
R-l (low)
Prime2
A-l
A (high)
A3
Effect of lnterest Roles
The Compony is exposed to fluctuotions of inlerest rotes os its
reguloted return on equily (ROE) is derived using o formuloic
opprooch thol tokes lnto occount chonges in benchmork interest rotes
for Governmenl o[ Conodo debt ond the A*oted uliliry corporote
bond yield spreod. See section "Risk Monogement ond Risk Foctors -
Risks Reloting to Hydro One's Business - Morket, Finonciol lnstrument
ond Credit Risk" for more detoils.
Pension Plon
ln 20,1 6, Hydro One contributed opproximotely $ I 0B million to its
pension plon, compored lo contributions of opproximolely
$l7Z million in 20,l5, ond incurred $l l6 million in net periodic
penslon benefit costs, compored to $
,)63 million incurred in 20 15.
InJune 20 16, Hydro One Inc. filed on ocluoriol voluolion of its
Pension Plon os ot December 3l , 2015. Bosed on this voluotion ond
20I 6 levels o[ pensionoble eornings, the 20 I 6 onnuol employer
contributions hove decreosed by opproximotely $72 million from
$ I BO million os estimoted ot December 3l , 2015, primorily due to
improvements in the funded stolus of the plon ond future octuoriol
ossumptions. The decreose olso reflects the impoct of chonges
implemenled by monogement lo improve the bolonce between
employee ond Compony contributions to the Pension Plon. The
updoted ocboriol voluotion resuhed in o $25 million decreose in
20 I 6 revenue wlth o conesponding decreose in OM&A cosls, os
the lower pension contributions will be returned to customers through
the pension cost vorionce defenol occount in future rote opplicotions.
The Compony estimotes thot totol pension conklbutions for 2017 ond
20 I B will be opproximotely $ I 05 million ond $ l 02 million,
respectively.
The Compony's pension benefits obligolion is impocted by vorious
ossumptions ond estimotes, such os discount rote, role ol return on
plon ossets, rote o[ cost of living increose ond mortolity ossumptions.
A full discussion of the significont ossumplions ond estimotes con be
found in lhe section "Criticol Accounling Estimotes - Employee Future
Benefits".
Other Obligotions
Off-Bolo nce Sheet Arrongements
There ore no off-bolonce sheel onongemenls thol hqve, or ore
reosonobly likely to hove, o moteriol currenl or future effect on the
Compony's [inonciol condition, chonges in finonciol condition,
revenues or expenses, results of operotions, liquidity, copitol
expenditures or copitol resources.
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-I7-_
C. Lopez, Hydro One
Schedule 3, Page 26 of 167
24 HYDRO ONE LI'YIITED 2016 ANNUAL REPORT TSX: H
Summory of Controctuol Obligotions ond Other Commerciol Commitments
The following toble presents o summory of Hydro One's debt ond other moior controctuol obligotions ond commerciol commilments
December 31, 2016 Less thon l-3 3-5
(millions of dollors) Totol I yeor yeors yeors
More thon
5 yeors
Conlroctuol obligotions ldue by yeor)
Long-term debt - principol repoyments
Longlerm debt - interest poyments
Short-term notes poyoble
Pension conkibutionsl
Environmentol ond osset retirement obligotions
Outsourcing ogreements
Operoting leose commitments
Long-term softwore,/meter ogreement
10,671
8,1 45
469
207
243
374
42
73
602
456
469
105
27
165
lt
17
1,484
827
1,156
754
7,429
6,1 08
100
I
2
5
102
5l
196
l6
33
65
4
r3
r8
>=Z>ez
za>g
3Aaa
C;I
r)Caaoz
I
Totol controctuol obligotions 20,224 1,852 2,709 2,010 3,653
Other commerciol commitments lby yeor of expiry)
Credit focilitiesz
Letters of credit:
Guoronteesa
2,550
174
330
2,550
174
330
Totol other commerciol commitments 3,054 504 2,550
rContributionstotheHydroOnePensionFundoregenerollymodeonemonthinorreors.The20lTond20lSminimumpensioncontribulionsorebosedon
on octuoriol voluotion os ot December 3,l, 2015 ond projected levels o[ pensionoble eornings.
2 On August 15,2O16, Hydro One lnc. lerminobd its credit focilities totolling $2.3 billion moturing in June 2020 ond October 2018, ond entered inlo o new
$2.3 billion credit focility moturing in June 2021 . On November 7 , 2Ol6, the moturity dote of Hydro One's $250 million credit focility wos extended from
November 2020 to November 2021.
3 Letters of credit consist of o $ I 50 million lelter of credit reloted to reliremenl compensolion orrongements, ond letters of credil totolling $24 million provided
os prudentiol support.
a Guorontees consist of prudentiol support provided to the IESO by Hydro One lnc. on beholf of its subsidiories.
Regulotion
The OEB opproves both the revenue requirements o[ ond the rotes
chorged by Hydro One's reguloted honsmission ond distribution
businesses. The roles ore designed to permit the Compony's
lronsmission ond distribution businesses to recover the ollowed co$s
ond to eorn o formulo-bosed onnuol role of return on its equity
invested in the reguloted businesses. This is done by opplying o
specified equily risk premium to forecosted interest rotes on long-term
bonds. In oddition, the OEB opproves rote riders to ollow for lhe
recovery or disposition of specific regulotory deferrol occounls over
specified time fromes.
The fol owing toble summorlzes lhe slotus o[ Hydro One's mojor regulotory proceedings:
Applicotion Yeor(s) Type Stotus
Eleckicity Rotes
Hydro One Networks
Hydro One Networks
l-1ydro One Networks
B2M LP
Greot Lokes Power
2015-20l. 6
2017 20l,8
2015-20l'7
201 5-20 t 9
2017
Tronsmission - Cost-ofservice
Tronsmission - Cost-of-service
Distribution - Custom
Tronsmission - Coslof-service
Tronsm ission - Cosi-of-service
OEB decision received
OEB decision pending
OEB decision received
OEB decision received
OEB decision pending
MergersAcqrisitio@
Greot Lokes Power n/o Acquisition OEB decision received
Orillio Power n/o Acquisition OEB decision pending
Leove to Construcl
Supply to Essex County Tronsmission Reinforcement Proiect n/o Sectlon 92 OEB decision received
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
HYDRo oNE LrrrurED oNE oF NoRTH AMERre',qjoUiffrH!tl6gHgrs zs
Schedule 3, Page 27 of 167
MANAGEMENT'S DISCUSSION AND ANALYSIS
Hydro One hos obtoined revenue requirement opprovols from the
OEB, subiecl to certoin onnuol odiustments, for Hydro One
Networks'tronsmission business through 2016, for B2M LP through
20,l9, ond lor Hydro One Networks'distribution business to the end
ol 2017. The following toble summorizes the key elements ond slotus
of Hydro One's electricity rote opplicotions:
Applicotion Yeor
ROE
Allowed (A)
or Forecost (Fl Rote Bose Rote Applicotion Stotus
Rote Order
Stotus
Tronsmission
Hydro One Networks 2016
2017
20rB
$lO,O40 million
$10,554 million
$l1,226million
9.19%lA)
B.7B%l )
8.78%lF)
Approved in Jonuory 2015
Filed in Moy 2016
Filed in Moy 2016
Approved in Jonuory 201 6
To be filed in 201 z Q I
To be filed in 2017 Q4
B2M LP 2016
2017
20 rB
2019
e.1e%lA)
8.78%lA)
8]8%lFl
8.78%lFl
$5 l6 million
$509 million
$502 milllon
$496 milllon
Approved in December 20 I 5
Approved in December 20l5
Approved in December 2Ol5
Approved in December 2015
Approved in Jonuory 20 1 6
Filed in December 2016
To be filed io 2ol7 Q4
To be filed in 2018 G4
Greot Lokes Power 2U7 S 19%lF) $2I B mil ion Filed in December 2Ol6 Filed in December 2O16
Dishibution
Hydro One Networks 2016
2017
e. r9% (A)
B.7B%lAl
$6,863 million
$7, l90 millton
Approved in Morch 2015
Approved in Morch 2015
Approved in April 2015
Approved in December 20,l6
Hydro One Networks
On Moy 31 , 2O16, Hydro One Networks filed o cosl-of-service
opplicotion with the OEB {or 2017 ond 20,18 tronsmission roles. The
opplicotion seeks opprovol of rote bose of $ 10,554 million for
2017 ond $11 226million for 20lB. ln October 2016, the OEB
issued updoted cost of copitol porometers for rotes effective in 2017,
including on updoted 2Ol Z ollowed ROE of 8.ZB%. The opplicotlon
olso loys out o plonned tronsmission copllol investment progrom for
the liveyeor period ending on December 31 , 2021, with investments
in copitol spending primorily to oddress reliobility, sofety ond
cuslomer needs, in o costeffective monner. Monogement expects thot
o decision will be received in the [irst holt of 2017, ond thot new
rotes will be retrooctive toJonuory 1 , 2017. Future tronsmission rote
opplicotions ore onticipoted lo be filed under the OEB's incentive-
bosed regulotory fromework.
Hydro One Networks plons to submit on opplicotion tor 2O1B-2O22
distribution rotes under the OEB's incenlivebosed regulotory
fromework in the first quorter o[ 20 17.
B2M LP
On Jonuory 14, 2016, the OEB issued its Decision ond Rote Order
opproving the B2M LP revenue requirement recovery through the
201 6 Uniform Tronsmission Rotes. On December I , 20 I 6, B2M LP
filed o Droft Rote Order with o revised 2017 revenoe requirement o{
$34 million, reflecting updoted 2017 cost o[ copitol porometers
issued by the OEB in October 2016.
Other Regulotory Developmenis
OEB Pension ond Other Post-Employment
Benefits (OPEB) Generic Heoring
ln 20,15, the OEB begon o consultotion process io exomine pensions
ond OPEBs in rote-reguloted utllitles, with the obiectives of developing
stondord principles to guide its review o[ pension ond OPEB reloted
costs in the future, ond to estoblish specific requirements lor
opplicotions ond oppropriote ond consistent regulotory mechonisms for
cost recovery. Hydro One ond other stokeholders [iled written
submissions with respect to initiol OEB questions intended to solicit
views on the key issues o[ inlerest to the OEB. Following o stokeholder
lorum in July 2016, updoted written submissions were filed with the
OEB in September 2016. lt is onticipoted lhot subsequent to the
OEB's review o[ the updoted written submissions, the OEB will outline
principles to guide its review of pension ond OPEB reloted costs in lhe
fulure, ond provide further guidonce on opplicotion requiremenls ond
regulotory mechonisms for cost recovery.
Other Developments
Chonge in Hydro One Ownership Structure
ln November 2015, Hydro One ond the Province completed on IPO
on the Toronto Stock Exchonge of opproximotely 89.3 million
common shores of Hydro One, representing l5% of the Province's
ownership position. Prior to the completion of the lPO, Hydro One
ond its subsidlory, Hydro One Inc., completed o series of
tronsoctions (PrelPO Tronsoctions) thot resulted in, omong other
lhings, the ocquisition by Hydro One ol oll of the issued ond
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 28 of 167
26 HYDRO ONE LIIIITED 2016 ANNUAT REPORT TSX: H
outstonding shores o[ Hydro One lnc. from the Province ond the
issuonce o[ new common shores ond preferred shores of Hydro One
to lhe Province. Both Hydro One ond Hydro One Inc. ore reporting
issuers. ln April 2016, the Province completed o secondory offering
of 83.3 million common shores of Hydro One on lhe Toronto Stock
Exchonge. Hydro One did not receive ony of the proceeds from
either of the soles of common shores by the Province. At
December 3l , 2016, lhe Province direcily holds opproximotely
70.1% o{ Hydro One's totol issued ond outstonding common shores.
Closs Action Lowsuit
Hydro One Inc., Hydro One Networks, Hydro One Remote
Communities Inc., ond Norfolk Power Diskibution lnc. ore defendonts
in o closs oclion suit in which the representotive plointiff is seeking up
to $ I 25 million in domoges reloted to ollegotions of improper billing
proctices. A certificotion molion in the closs oction is pending. Due to
the preliminory stoge of legol proceedings, on estimole of o possible
loss reloted to this cloim connot be mode.
Acquisitions
lntegrotion of Holdimond Hydro ond
Woodstock Hydro
ln 2015, the Compony ocqulred Holdimond Hydro ond Woodstock
Hydro, two Ontoriobosed locol distribution componies. ln September
2016, the Compony successfully completed the integrotion of both
entities, including the integrotion of employees, customer ond billing
informotion, business processes, ond operotions.
tronsmission business operoting olong the eostern shore o[ Loke
Superior, north ond eost ol Soult Ste. Morie, Ontorio. The lotol
purchose price lor Greot Lokes Power wos opproximotely
$376 million, including the ossumption of opproximotely
$150 million in outstonding indebtedness. OnJonuory 16,2017
Greot Lokes Power's nome wos chonged to Hydro One Soult Ste.
Morie LP.
On December 23,2016, Greot Lokes Power filed on opphcotlon for
2Ol7 rotes, requesting on increose to the opproved 2Ol6 revenue
requirement ol 1 .9%, resulting in on updoted revenue requiremenl of
$41 million.
Acquisition of Orillio Power
ln August 2016, the Compony reoched on ogreement to ocquire
Orillio Power Dishibution Corporotion (Orillio Power), on elechicity
distribution compony locoted in Simcoe County, Ontorio, for
opproximotely $4,1 million, including the ossumption of
opproximotely $,15 million in outstonding indebtedness ond
regulotory liobilities, sublect lo closing odiustments. The ocquisilion is
subiect to regulotory opprovol by the OEB.
Hydro One Work Force
Hydro One hos o skilled ond flexible work lorce of opproximotely
5,5@ regulor emplcyees ond over 2,@0 non-regulor employees
provincewide, comprising o mix of skilled trodes, engineering,
profesionol, monogeriol ond executive personnel. Hydro One's regulor
employees ore supplemented primorily by occessing o lorge externol
lobour force ovoiloble through orrongements with the Compony's trode
unions lor vorioble workers, sometimes referred to os "hiring holls", ond
olso by occess to controcl personnel. The hiring holls offer Hydro One
the obility to flexibly utilize htghly troined ond oppropriotely skilled
workers on o proiect-byproiect ond seosonol bosis.
Acquisition of Greol Lokes Power
On Oclober 3 I , 20 I 6, following receipt o{ regulotory opprovol o[
the tronsoction by rhe OEB, Hydro One completed the ocquisition of
Greot Lokes Power, on Onlorio reguloted electricity
The following toble sets oul the number of Hydro One employees os ot December 3,l, 2016
Regulor
Employees
Non-Regulor
Employees lotol
>7oz
ZA>g
36q1
<;(f
6ocaaoz
l
Power Workers' Union (PWUI
The Society of Energy Professionols (Society)
Conodion Union of Skilled Workers (CUSW) ond construction building trode
unions2
3,470
1,365
698r 4,168
1,409
1,275 1,275
44
Totol employees represented by unions
Monogement ond !on-representd emp
4,835
659
2,017
28
6,852
687
7,9
r Includes 528 non-regulor "hking holl" employees covered by the PWU ogreemenl.
2 Employees ore iointly represented by both unions. The construction building trode unions hove collecfive ogreemenls with the Electricol Power Systems
Conshuction Associotion {EPSCA).
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-17-_
HYDRo oNE LrmrrED oNE or NoRTH AMERlg',Lr.0UUrrFl9QIf6enHrrs zz
Schedule 3, Page 29 of 167
2Tolol employees 5,494
MANAGEMENT'S DISCUSSION AND ANALYSIS
Shore-bosed Com pensotion
During 2016, the Compony gronted owords under its Longlerm
lncenlive Plon, consisting of Performonce Stock Units (PSUs] ond
Restricted Stock Units (RSUs), oll of which ore equily settled. At
December 31, 2016, 230,600 PSUs ond 254,150 RSUs were
outstonding. No long-term incentive owords were gronted during
201 5.
poid on prefened shores, ond (iii) disiributions lo nonconkolling
interest. Adiusted FFO is defined os FFO, odiusted lor the impoct of
the deferred income lox osset thot resulled os o consequence of
leoving the PlLs Regime ond enterlng the Federol Tox Regime.
Monogement believes thol FFO ond Adiusted FFO ore helpful os
supplementol meosures of the Compony's operoting cosh flows os
they exclude timing-reloted fluctuotions in non'cosh operotlng working
copitol ond cosh flows not ottribuloble lo common shoreholders, ond,
in lhe cose of Adiusted FFO, the impoci of the lPOreloted deferred
income lox osset. As such, these meosures provide consistenl
meosures of the cosh generoting performonce of the Compony's
ossets.
201 6 201 5
Non-Goop Meosures
Funds from Operotions (FFO) ond Adiusted FFO
tFO is defined os net cosh from operoting octivitles, odjusted for
(i) chonges in non-cosh bolonces reloted to operotions, (ii) dividends
The following toble presents the reconclliotion of net cosh from operoting octivilies to FFO ond Adlusted FFO:
Yeor ended December 3l
lnillions of dollors)
Net cosh from (used in) operoting octivities
Chonges in noncosh bolonces reloted to operotlons
Preferred shore dividends
Distributions to nonconkollino interest
1,656
(r 34)
(t e)
t9)
11,248)
(2rs)
{t 3)
(51
FFO 1,494 t1.4791
Less: Defened income lox ossetl (2,8 r0)
Adiusted FFO 1,494 r,331
I lmpoct of defened income tox osset thot resulted os o consequence of leoving the PlLs Regime ond entering the Federol Tox Regime.
Adiusted EPS
The following bosic ond diluted Adiusted EPS hos been prepored by
monogemenl on o supplementory bosis which ossumes thot the
tolol number o[ common shores outslonding wos 595,000,000 in
eoch of the yeors ended December 3 1, 20,l 6 ond 20.l 5. The
supplementory pro lormo disclosure is used internolly by monogement
subsequent to the IPO of the Compony's common shores in
November 20l5 to ossess the Compony's performonce ond is
Yeor ended December 3 I
consldered useful becouse it eliminotes lhe impoct o[ o different ond
non<omporoble number of shores oulstondlng ond held by the
Province prior to lhe lPO. Adiusted EPS is considered on importont
meosure ond monogement believes thol presenting it consislently for
oll periods bosed on the numGr o[ outstonding shores on, ond
subsequent to, the IPO provides users with o comporotive bosis to
evoluole the operotions o[ lhe Compony.
2016 201 5
Net income ottributoble to common shoreholders (millions of dollors)
Pro formo weighted overoge number of common shores
Bosic
Eflect of dilutive stock-bosed co[pinsqlon_p]e!s
721 690
s9s,000,000 595,000,0001,700,823 94,691
Diluted
Adiu$ed EPS
Bosic
Diluted
596,700,823 595,094,691
$
$
$
$
1.21
1.2'l
r .16
I .16
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 30 of 167
28 HYDRO ONE tlMlTED 2016 ANNUAL REPORT TSX: H
Adiusted Net Cosh from Operoting Activities
Adiusted net cosh from operoting octivilies is defined os net cosh from
operoting octivities, odiusted for the impoct of the defened income
tox osset thot resulted os o consequence o[ leoving the PlLs Regime
ond enterlng the Federol Tox Regime. Monogement believes thot this
meosure is helpful os o supplemenlol meosure of the Compony's net
cosh from operoting octivities os il excludes the impoct of the
lPGreloted deferred income tox osset. As such, odiusted net cosh
from operoting octivities provides o consistent meosure of the
Compony's cosh lrom operollng octivities compored to prior periods.
20r5
The following toble presents the reconciliofion of nel cosh from operoting oclivities lo odiusted net cosh from operoting octivilies:
Yeor ended December 3l
lmillions of dollors) 2016
Z>cz
ZA>g
3aaAo'I
oC
^z
I
Net cosh from {used in} operoting octivilies
Less: Defened income tox ossell
1,656 11,24Bl
(2,8 r01
Adiusted net cosh from operoting oclivilies r,656 1,562
I lmpoct of defened income tox osset thot resulted os o consequence o{ leoving the PlLs Regime ond entering the Federol Tox Regime.
To the extent thot odiusted nel income is used in luture continuous
disclosure documents of Hydro One, it will be defined os net income,
odiusted for cerloin items, including non-recuning ilems ond other
onelime items thot monogement does not consider to be reflective of
the operoting performonce of the Compony. No such odiustments to
net income ore presented in this MD&A. Monogement believes thot
his meosure will be helpful in ossessing the Compony's finonciol ond
operoting performonce in the future.
FFO, odiusted FFO, odiusted bosic ond diluted EPS, odiusted net
cosh kom operoting octivities, ond odiusted nel income ore nol
recognized meosures under US GAAP ond do not hove o
stondordized meoning prescribed by US GAAP. They ore therefore
unlikely to be directly comporoble to similor meosures presented by
other componies. They should not be considered in isolotion nor os o
substitute for onolysis of the Compony's finonciol informotion reported
under US GAAP.
Reloted Porty Tronsoctions
The Province is the moiority shoreholder of Hydro One. The IESO, Ontorio Power Generolion lnc. (OPG), OEFC, OEB, ond llydro One Brompton
ore reloted porties to Hydro One becouse fiey ore conholled or significontly influenced by the Province. The following is o summory of the
Compony's reloted porly tronsoctions during the yeor ended December 31, 20.16:
Yeor ended December 3 l2016 2015
lmillions of dollors)RelotedPorty Tronsoction
Provincel Dividends poid
Common shores issued2
IPO costs subsequentlv reimbursed by the Province3
451 888
2 600
7
IESO Power purchosed
Revenues for tronsmission services
Distribution revenues reloted to rurol rote protection
Distribution revenues reloted to the supply of elecricity to remote northern communities
Funding received reloted to Conservotion ond Demond Monogement progroms
2,096
1,549
125
32
63
2,31 I
1,548
127
JI
70
OPG Power purchosed
Revenues reloted to provision of conskuction ond equipment mointenonce services
Costs expensed reloted to he purchose of services
l
7
I
6
5
I
OEFC Poyments in lieu of corporote income toxes4
Power purchosed from power controcls odministered by the OEFC
lndemnlficolion fee poid {terminoted effective October 3 1 , 201 5)
2,933
6
B
OEB OEB fees il 12
Hydro One
Bromptonl
Revenues from monogemenl, odministrotive ond smort meter network services
lOnAugusl 3l,20l5,HydroOnelnc.completedthespinoff of itssubsidiory,HydroOneBrompton,totheProvince.
2 On November 4,2015, Hydro One issued common shores lo the Province for proceeds of $2.6 billion.
3ln20l5,HydroOneincurredcertoinlPOrelotedexpensestotolling$Tmillion,whichweresubsequentlyreimbursedtotheComponybytheProvince.
{ ln 2015, Hydro One mode PlLs to the OEFC totolling $2.9 billion, including deporlure tox of $2.6 billion.
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-I7-_
HYDRo oNE LimlrED oNE oF NoRTH AMERTe\'qjoUit rfl!uf6:ghgrEs 2e
Schedule 3, Page 31 of 167
3
I
MANAGEMENT'S DISCUSSION AND ANALYSIS
At December 3 1 , 20] 6, the omounts due from ond due to reloted
porlies os o result of the tronsoctions described obove were
$l5B mtllion ond $147 million, compored to $,l91 million ond
$ 1 38 milllon ol December 3l , 2015, respectively. At
December 31, 2016, included in omounts due to reloted portles
were omounts owing to the IESO in respect of power purchoses o[
$
.)43 mtllion, compored to $ I 34 million ot December 3l , 20,1 5.
Risk Monogement ond Risk Foctors
Risks Reloting to Hydro One's Business
Regulotory Risks ond Risks Reloting to Hydro
One's Revenues
Risks Re/o/ing to Obtoining Rote Orders
The Compony is subiecl lo the risk lhot the OEB will not opprove the
Compony's lronsmisslon ond distribution revenue requirements
requested ln outstonding or future opplicolions for rotes. Role
opplicotions for revenue requiremenls ore sublect to the OEB's review
process, usuolly involving porticlpotion from intervenors ond o public
heoring process. There con be no ossuronce thot resulting decisions
or rote orders issued by the OEB will permit Hydro One to recover oll
costs octuolly incurred, costs of debt ond income loxes, or to eorn o
porliculor ROE. A foilure to obtoin occeptoble rote orders, or
opprovols of oppropriote relurns on equily ond costs octuolly
incurred, moy moleriolly odversely offect: Hydro One's tronsmission
or distribution businesses, the undertoking or liming of copitol
expenditures, rotings ossigned by credit roting ogencies, the cost ond
issuonce o[ long-term debt, ond other motlers, ony o[ which moy in
turn hove o moterlol odverse effect on the Compony. ln oddition,
there is no ossuronce thot the Compony will receive regulotory
decisions in o timely monner ond, therefore, costs moy be incurred
prior to hoving on opproved revenue requirement.
Risks Re/oting to Acluol Performonce Agoinst
Forecosts
The Compony's obility to recover lhe octuol costs of providing service
ond eorn the ollowed ROE depends on the Compony ochleving ils
forecosts estoblished ond opproved in the rotesetling process. Actuol
costs could exceed the opproved forecosts i[, for exomple, the
Compony incurs operotions, mointenonce, odministrotion, copitol
ond linoncing costs obove those included in the Compony's
opproved revenue requirement. The inobility to obtoin occeptoble
role decisions or to recover ony significont difference between
forecosl ond octuol expenses could moteriolly odversely offect the
Compony's [inonciol condilion ond resu ts o[ operotions.
Further, the OEB opproves the Compony's lronsmission ond
distribution rotes bosed on proiected electricity lood ond consumplion
levels, omong olher foctors. lf octuol lood or consumption moteriolly
folls below projected levels, the Compony's revenue ond net income
for either, or both, of these businesses could be moteriolly odversely
offected. Also, the Compony's currenl revenue requirements for these
businesses ore bosed on cost ond other ossumptions thol moy nol
moteriolize. There is no ossuronce thot the OEB would ollow rote
increoses sufficient lo offset unfovouroble finonciol impocts from
unonticipoted chonges in electricify demond or in the Compony's
cosls.
The Compony is subiect to risk of revenue loss from other foctors,
such os economic trends ond weother conditions thot influence the
demond for electricity. The Compony's overoll operoting results moy
flucluote subslontiolly on o seosonol ond yeor-loyeor bosis bosed on
these trends ond weother conditions. For instonce, o cooler thon
normol summer or wormer lhon normol winter moy reduce demond
for eleckicity below thot forecost by the Compony, cousing o
decreose in the Compony's revenues from the some period of the
previous yeor. The Compony's lood could olso be negotively
offmted by successful Conservotion ond Demond Monogement
progroms whose results exceed forecosted expectotions.
R;sks Re/oting lo Rote-Seltin g Models for
T ronsmission ond Di slribution
The OEB opproves ond periodicolly chonges the ROE for
tronsmission ond distribution buslnesses. The OEB moy in the fulure
decide to reduce the ollowed ROE for either of these businesses,
modify the lormulo or methodology it uses to delermine the ROE, or
reduce the weighting ol the equity component of the deemed copitol
struclure. Any such reduclion could reduce the net income of the
Compony.
The OEB's recent Custom Incentive Rote-setfing model requires thol
the term of o custom rote opplicotion be o minimum fiveyeor period.
There ore risks ossocioted with forecosling key inputs such os
revenues, operoting expenses ond copitol, over such o long period.
For instonce, if unonticipoted copitol expenditures orise thot were not
contemploted in the Compony's most recenl rote decision, the
Compony moy be required to incur cosls thot moy not be recoveroble
unill o luture period or nol recoveroble ot oll in fulure rotes. This could
hove o moteriol odverse effect on the Compony.
After rotes ore set os port of o port ol o Custom lncentive Rote
opplicotion, the OEB expects there to be no [urther rote opplicotions
for onnuol updotes within the fiveyeor term, unless there ore
exceplionol circumslonces, with the exception of the cleoronce o[
estoblished deferrol ond vorionce occounls. For exomple, the OEB
does not expect to oddress onnuol rote opplicotions for updotes for
cost of copitol (including ROE), working copitol ollowonce or soles
volumes. lf there were on increose ln interest rotes over the period of
o role decision ond no corresponding chonges were permitted to the
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C. Lopez, Hydro One
Schedule 3, Page 32 of 167
30 HYDRO ONE LllllTED 2016 ANNUAT REPORT TSX: H
Compony's ollowed cost of copitol (including ROE), then the result
could be o decreose in the Compony's finonciol perlormonce.
To the extent thot the OEB opproves on ln-Service Vorionce Account
for the tronsmission ond,/or distribution businesses, ond should the
Compony foil to meet the threshold levels of in-service copitol, the
OEB moy recloim o corresponding portion o[ the Compony's
revenues.
Risks Re/otin g to Copitol Expenditures
ln order to be recoveroble, copitol expendilures require the opprovol
of the OEB, either through the opprovol of copitol expendlture plons,
role bose or revenue requirements for the purposes of setting
lronsmission ond distribution rotes, which include the impocl of copitol
expendilures on rote bose or cost o[ servlce. There con be no
ossuronce thot oll copitol expenditures incuned by Hydro One will G
opproved by the OEB. Copitol cost overruns moy not be recoveroble
in tronsmission or distribution rotes. The Compony could incur
unexpected copitol expenditures in mointoining or improving its
ossets, porliculorly given thot new technology moy be required to
support renewoble generotion ond unloreseen technicol issues moy
be identified through implementotion of proiects. There is risk thot the
OEB moy not ollow full recovery of such expenditures in the future. To
the extent possible, Hydro One oims to mitigote this risk by ensuring
prudent expenditures, seeking from the regulotor cleor policy direction
on cosl responsibility, ond preopprovol o[ the need for copitol
expenditures.
Any future regulotory decision by the OEB to disollow or limit the
recovery o[ ony copitol expenditures would leod to o lower lhon
expected opproved revenue requiremenl or role bose, potentiol osset
impoirment or chorges to the Compony's results o[ operotions, ony of
which could hove o moteriol odverse effect on the Compony.
Risks Re/otin g to Deferred Tox Asset
As o result of leoving the Pl[s Regime ond entering the Federol Tox
Regime in connection with the IPO o[ the Compony, Hydro One
recorded o deferred tox osset due to the revoluotion ol the tox bosis
of Hydro One's fixed ossets ot their [oir morket volue ond recognition
of eligible copitol expenditures. Monogement believes this will result
in onnuol net cosh sovings over ot leost the next five yeors due to the
reduclion o{ cosh income toxes poyoble by Hydro One ossocioted
primorily with o higher copitol cost ollowonce. There is o risk thot, in
current or future rote opplicotions, the OEB will reduce the
Compony's revenue requirement by oll or o portion of those nel cosh
sovings. lf the OEB were to reduce fie Compony's revenue
requirement in this monner, it could hove o moteriol odverse elfect on
the Compony.
Risks Reioling to Other Applicotions to the OEB
The Compony is olso subiecl to the risk thol it will nol obloin required
regulotory opprovols for other motlers, such os leove to conskuct
opplicotions, opplicotions for mergers, ocquisitions, omolgomotions ond
divestilures, ond environmentol opprovols. Decisions to ocquire or divest
other reguloted businesses licensed by the OEB ore sublect to OEB
opprwol. Accordingly, there is the risk thot such motlers moy not be
opproved or thot unfovouroble conditions will be lmposed by the OEB.
First Notions ond M6tis Cloims Risk
Some of the Compony's cunent ond proposed tronsmission ond
distribution ossels ore or moy be locoted on reserve (os defined in the
lndion Act (Conodo); Reserve) londs, ond londs over which First
Nolions ond M6tis hove Aboriginol, treoty, or other legol cloims.
Some First Notions ond M6tis leoders, communities, ond their
members hove mode ossertions reloted to sovereignty ond lurisdiction
over Reserve londs ond troditionol terrilories ond ore increosingly
willing to ossed their cloims through the courts, tribunols, or by direct
oction. These cloims ond/or settlement of these cloims could hove o
moteriol odverse effect on the Compony or otherwise moteriolly
odversely impoct the Compony's operotions, including the
development of current ond future projects.
The Compony's operotions ond octivilies moy give rise to the
Crown's duty to consult ond potentiolly occommodote First Notions
ond M6tis communities. Procedurol ospects of the duty to consull moy
be delegoted to lhe Compony by the Province or the federol
government. A perceived foilure by the Crown to sulficiently consult o
Firsl Notions or M6tis community, or o perceived foilure by the
Compony in relotion to delegoted consultotion obligotions, could
result in legol chollenges ogoinst the Crown or the Compony,
including iudiciol revlew or iniunction proceedings, or could
potentiolly result in direct oclion ogoinst the Compony by o
community or its cilizens. lf lhis occurs, it could disrupt or deloy the
Compony's operolions ond octivities, including current ond luture
proiecls, ond hove o moteriol odverse elfect on the Compony.
Risk from Tronsfer of Assets Locoted on Reserves
The tronsfer orders by whlch the Compony ocquired certoin o[ Ontorio
Hydro's businesses os o[ April 1 , ,1999 did not tronsfer title to ossets
locoted on Reserves. The tronsfer of title to these ossets did not occur
becouse outhorizolions originolly gronted by the federol government
for lhe construction ond operotion of these ossets on Reserves could
not be tronsfened wilhoul required consent. In severol coses, the
outhorizolions hod either expired or hod never been issued.
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-I7-_
HYDRo oNE Lr'$rED oNE oF NoRTH AMERre\',qj0uiffrFlfdf6:gtlgrs st
Schedule 3, Page 33 of 167
>7vL
ZA>g
3Aa=
d
I6oCa(,
oZ
I
MANAGEMENT'S DISCUSSION AND ANALYSIS
Currently, the Onlorio Electricity Finonciol Corporotion holds legol title
lo these ossets ond it is expected thot the Compony will monoge
them until it hos obtoined permits to complete the title tronsfer. To
occupy Reserves, the Compony musl hove volid permits issued by
Her Moiesly the Queen in the Right of Conodo. For eoch permit, the
Compony must negotiote on ogreement (in the form o[ o
memorondum ol understonding) with the First Notion, the Ontorio
Electricify Finonciol Corporolion ond ony members of the First Notion
who hove occuponcy rights. The ogreement includes provisions
whereby the First Notion consents lo the federol government {presently
lndigenous Af{oirs ond Noilhern Development Conodo) issuing o
permit. For konsmission ossets, the Compony must negotiote terms of
poyment. lt is difficult to predict the oggregote omounl thol the
Compony moy hove to poy, either on on onnuol or one-lime bosis, to
obtoin the required ogreemenls {rom Firsl Notions. l[ the Compony
connot reoch sotisfoctory ogreements with the relevont First Notion to
obtoin federol permits, it rnoy hove to relocole lhese ossets lo other
locotions ond restore the londs ot o cost thot could be substontiol. In
o limited number of coses, it moy be necessory to obondon o line
ond reploce it with diesel generotion focilities. In either cose, the
costs reloting to these ossets could hove o moteriol odverse effecl on
the Compony if the costs ore not recoveroble in future rote orders.
Complionce with Lows ond Regulotions
Hydro One must comply with numerous lows ond regulotlons
oflecting its business, including requirements reloting to tronsmission
ond diskibution componies, environmentol lows, employment lows
ond heolth ond sofe! lows. The foilure of the Compony to comply
with these lows could hove o moteriol odverse effect on lhe
Compony's business. See olso "- Heolth, Sofety ond Environmentol
KISK.
For exomple, Hydro One's licensed tronsmission ond distribution
businesses ore required to comply with the terms of lheir licences,
with codes ond rules lssued by the OEB, ond with olher regulotory
requirements, including regulotions o[ the Notionol Energy Boord. In
Ontorio, the Morket Rules issued by the IESO require the Compony
to, omong other things, comply with the reliobility stondords
estoblished by the North Americon Electric Reliobility Corporolion
(NERC) ond Northeost Power Coordinoting Council, lnc. (NPCC).
The incrementol costs ossocioted wilh complionce with these
reliobility stondords ore expected to be recovered through rotes, but
there con be no ossuronce thot the OEB will opprove the recovery of
oll of such incrementol costs. Foilure to obtoin such opprovols could
hove o moteriol odverse effect on the Compony.
There is the risk thol new legislotion, regulotions, requiremenls or
policies will be introduced in the future. These moy require Hydro
One to incur odditionol costs, which moy or moy not be recovered in
future tronsmission ond distribution roles.
Risk of Noturol ond Other Unexpected
Occurrences
The Compony's focilities ore exposed to the eflects of severe weother
conditions, noturol disosters, mon-mode events including but not
limited lo cyber ond physicol terrorist type ottocks, events which
originote from third-porty connected systems, or ony olher potentiolly
cotostrophic events. The Compony's focilities moy not withstond
occurrences of thls type in oll circumslonces. The Compony does not
hove insuronce for domoge to its konsmission ond distribution wires,
poles ond towers locoted outside its lronsmission ond distribution
stotions resulting from these or olher evenls. Where insuronce is
ovoiloble lor other ossets, such insuronce coveroge moy hove
deductibles, limits ond,/or exclusions. Losses from lost revenues ond
repoir costs could be substontiol, especiolly for mony of the
Compony's focilities thot ore locoted in remole oreos. The Compony
could olso be subiect to cloims for domoges coused by its foilure to
tronsmit or distribute electricity.
Risk Associoted with lnformotion Technology
lnfroslructure ond Doto Security
The Compony's obilily to operole effectively in the Ontorio eleckicity
morket is, in port, dependent upon it developing, mointoining ond
monoging complex informolion technology systems which ore
employed to operote ond monitor its tronsmission ond distribution
focilities, [inonciol ond billing systems ond olher business systems. The
Compony's increosing relionce on informotion syslems ond
exponding doto nelworks increoses ils exposure to informotion
security threots. The Compony's lronsmission business is required to
comply with vorious rules ond slondords for tronsmission reliobility,
including mondotory stondords estoblished by the NERC ond the
NPCC. These include stondords reloting to cyber-security ond
informotion technology, which only opply to certoin of the Compony's
ossets (generolly being those whose foilure could impoct the
functioning of the bulk electricily system). The Compony moy mointoin
different or lower levels o[ informotion technology security for its ossets
thot ore not subiect to these mondotory stondords. The Compony must
olso comply with legislotive ond licence requirements reloting to the
collection, use ond disclosure o[ personol informotion ond informotion
regording consumers, wholesolers, generotors ond retoilers.
Cybercttocks or unouthorized occess to corporote ond informotion
technology systems could resuh in service disruptions ond system
foilures, which could hove o moleriol odverse effect on the
Compony, including os o result of o foilure to provide electricity to
cuslomers. Due to operoting criticol infrostructure, Hydro One moy be
ot greoler risk of cyber-ottocks from third porties (including stote run or
controlled porlies) thot could impoir or incopocitote its ossets. ln
oddition, in the normol course of its operotions, the Compony
collects, uses, processes ond stores informolion, which could be
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 34 of 167
32 HYDRO ONE tlMlTED 2016 ANNUA| REPORT TSX: H
exposed in the event of o cyber-securlly incident or other
unouthorized occess, such os informotion obout cuslomers, suppliers,
counterporties ond employees.
Security ond syslem disoster recovery conlrols ore in ploce; however,
lhere con be no ossuronce thot there will not be system foilures or
security breoches or lhot such threots would be detected or mitigoted
on o limely bosis. Upon occurrence ond delection, the focus would
shift from prevention to isololion, remediotion ond recovery until the
incident hos been Iully oddressed. Any such system [oilures or security
breoches could hove o moteriol odverse effect on the Compony.
Work Force Demogrophic Risk
By the end o[ 2O16, opproximotely 22% ol the Compony's
employees who ore members of the Compony's defined benefit
pension plon were eligible for retirement under thot plon, ond by the
end of 2017, up to opproximotely 23% could be eligible. These
percentoges ore not evenly spreod ocross the Compony's work force,
but tend to be most significont in the most senior levels of the
Compony's stoff ond especiolly omong monogement stoff. During
eoch of 20 I 6 ond 20 I 5, opproximotely 3% of the Compony's work
force elected lo retire. Accordingly, the Compony's conlinued success
will be tied to its obility to conlinue to otlrocl ond retoin sufficient
quolified stoff to reploce the copobility lost through retirements ond to
meet the demonds of the Compony's work progroms.
ln oddltion, the Compony expects the skilled lobour morket for its
industry to be highly competitive in the future. Mony of the
Compony's current employees ond mony o[ the potentiol employees it
would seek in the future possess skills ond experience thot would olso
be highly sought ofter by other orgonizotions inside ond outside the
elmkicity sector. The foilure to otlrod ond retoin quolilied personnel
for Hydro One's business could hove o moteriol odverse effed on the
Compony.
Lobour Relotions Risk
The substontiol moiorl! of the Compony's employees ore represented
by either the PWU or the Society. Over the post severol yeors,
significont effort hos been expended to increose Hydro One's
flexibility to conduct operotions in o more costefflcienl monner.
Although the Compony hos ochieved improved flexibility in its
collective ogreements, the Compony moy not be oble to ochieve
furfier improvements. The Compony reoched on ogreemenl wilh the
PWU for o renewol collective ogreement with o threeyeor term,
covering the period from April l, 2015 to Morch 3,l, 20,l8 ond on
eorly renewol collective ogreement wilh the Sociely with o threerTeor
term, covering the period from April 1 , 2016 to Morch 3l , 2019.
The Compony olso reoched o renewol collective ogreement with the
Conodion Union of Skilled Workers for o three-yeor term, covering
the period lrom Moy 1,2014 to April 30, 2012. Additionolly, the
EPSCA ond o number o[ construction unions hove reoched renewol
ogreements, to which Hydro One is bound, for o fiveyeor term,
covering the period from Moy I , 2015 to April 30, 2020. Future
negotiotions with unions presenl the risk of o lobour disruption ond
the obilily lo sustoin lhe continued supply of energy to customers. The
Compony olso foces finonciol risks reloted to its obility to negotiote
collective ogreements consislent with its rote orders. ln oddition, in the
event of o lobour dispute, the Compony could foce operotionol risk
reloted to continued complionce with its requirements of providing
service to customers. Any of these could hove o moteriol odverse
effect on the Compony.
Risk Associoted with Arronging Debt Finoncing
The Compony expects to borrow to repoy its exisling indebtedness
ond lo fund o portion of copitol expenditures. Hydro One lnc. hos
substontiol debt principol repoyments, including $602 million in
2017,$753 milllon in 2018, ond $23 1 million in 2019. ln
oddition, from time to time, the Compony moy drow on its syndicoted
bonk lines ond or issue short-lerm debt under Hydro One lnc.'s
$.l.5 billion commerciol poper progrorn which would moture withln
opproximotely one yeor of issuonce. The Compony olso plons to
incur conlinued moteriol copitol expendltures for eoch of 2017 ond
20 I B. Cosh generoled from operotions, ofter the poyment of
expected dividends, will not be sufficient to lund the repoyment of the
Compony's existing indebtedness ond copitol expenditures. The
Compony's obility to ononge sufficient ond costeffective debt
linoncing could be moteriolly odversely offected by numerous foclors,
including the regulotory environment in Ontorio, the Compony's
results of operotions ond finonciol position, morket conditions, the
rotings ossigned to its debt securilies by credit roting ogencies, on
inobility of the Corporotion to comply wilh its debt covenonts, ond
generol economic conditions. A downgrode in the Compony's credit
rotings could restrlct lhe Compony's obility to occess debl copltol
morkets ond increose the Compony's cost o[ debt. Any loilure or
inobility on the Compony's port to bonow the required omounts of
debt on sotisfoctory terms could impoir its obillry to repoy moturing
debt, fund copitol expenditures ond meet olher obligotions ond
requirements qnd, os o result, could hove o moteriol odverse eflect
on the Compony.
Morket, Finonciol lnstrument ond Credit Risk
Morket risk refers primorily to the risk o[ loss thot results from chonges
in costs, foreign exchonge rotes ond interest roles. The Compony is
exposed to fluctuolions in interest rotes os ils reguloted ROE is derived
using o formuloic opprooch thot tokes into occount onticipoted
inlerest roles, but is not currently exposed to moteriol commodity price
risk or moteriol foreign exchonge risk.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-I7-_
HyDRo oNE Lrf,irrED oNE or NoRTH AMERre\',qjdBlE r Flltl6 €ftlgrrs sg
Schedule 3, Page 35 of 167
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MANAGEMENT'S DISCUSSION AND ANALYSIS
The OEB-opproved odiustment formulo for colculoting ROE in o
deemed regulolory copitol structure o[ 60% debt ond 40% equity
provides for lncreoses ond decreoses depending on chonges in
benchmork interest rotes for Government o[ Conodo debt ond lhe
A-roted utility corporote bond yield spreod. The Compony estimotes
thot o decreose of 100 bosis points in the combinotion o[ the
forecosted long-term Government of Conodo bond yield ond the
A+oted utility corporole bond yield spreod used in determining its rote
of return would reduce the Compony's tronsmission business' 2O l B
net income by opproximotely $23 million ond its diskibution business'
20,l B net income by opproximotely $ I 5 million. The Compony
periodicolly utilizes lnteresl role swop ogreemenls to mitigole
elemenls o[ interest rote risk.
Finonciol ossels creote o risk thot o counterporty will foil to dischorge
on obligotion, cousing o finonciol loss. Derivotive finonciol
instruments result in exposure to credit risk, since there is o risk o[
counterporty defoult. Hydro One monitors ond minimizes credil risk
lhrough vorious techniques, including deoling with highly roted
counterporlies, limiting totol exposure levels with individuol
counterporties, entering into ogreements which enoble net settlement,
ond by monitoring the finonciol condition of counterporties. The
Compony does not trode in ony energy derivotives. The Compony is
required to procure electricily on beholf of competitive retoilers ond
certoin locol distribution componies for resole to their customers. The
resulting concentrotions of credit risk ore mitigoted through the use of
vorious security orrongements, including letters of credit, which ore
incorporoted into the Compony's service ogreements with lhese
retoilers in occordonce with the OEB's Retoil Settlement Code.
The loilure to properly monoge these risks could hove o moteriol
odverse effect on lhe Compony.
Risks Reloting to Asset Condition ond Copitol
Proiects
The Compony continuolly incurs sustoinment ond development copitol
expenditures ond monitors lhe conditlon of its tronsmission ossels to
monoge the risk of equipmenl foilures ond to determine the need for
ond timing of molor refurbishments ond replocements of its
lronsmission ond diskibution infrostructure. However the lock of reol
time monitoring of distribution ossets increoses the risk of distribution
equipmenl foilure. The connection of lorge numbers of generotion
focilities to the distribution net'work hos resulted in greoter thon
expected usoge of some of the Compony's equipment. This lncreoses
moinlenonce requirements ond moy occelerole the oging of the
Compony's ossets.
Execution of the Compony's copitol expendlture progroms,
porticulorly for development copitol expenditures, is portiolly
dependent on externol foctors, such os environmenlol opprovols
municipol permits, equipment outoge schedules thot occommodote
fie IESO, generolors ond lronsmission-connecled cuslomers, ond
supply choin ovoilobility for equipment suppliers ond consulting
services. There moy olso be o need [or, omong other things,
Environmenlol Assessment Acf (Ontorlo) opprovols, opprovols which
require public meelings, oppropriote engogement with First Notions
ond M6lis communities, OEB opprovols o[ expropriolion or eorly
occess to properfy, ond other octivities. Obtoining opprovols ond
corrying out these processes moy olso be impocted by opposition to
lhe proposed site o[ the copitol investments. Deloys in obtoining
required opprovols or foilure to complete copitol projects on o timely
bosis could moleriolly odversely offect lronsmission reliobility or
customers' service quolity or increose mointenonce costs which could
hove o moteriol odverse effect on the Compony. Externol foclors ore
considered in the Compony's plonning process. lf the Compony is
unoble to corry out copitol expenditure plons ln o timely monner,
equipment perlormonce moy degrode, which moy reduce network
copoclty, result in customer interruptlons, compromise the reliobiliry of
the Compony's networks or increose the costs of operoting ond
mointoining these ossets. Any o[ these consequences could hove o
moteriol odverse eflect on the Compony.
lncreosed compelition for the development of lorge tronsmission
proiects ond legislotive chonges reloting lo the selection o[
tronsmitters could impoct the Compony's obility to expond its existing
tronsmission system, whlch moy hove on odverse effect on the
Compony. To the extent lhot olher porties ore selected to construct,
own ond operote new tronsmission ossets, the Compony's shore o[
Ontorio's tronsmission network would be reduced.
Heolth, Sofety ond Environmentol Risk
The Compony is subiect lo provinciol heolth ond solety legislotion.
Findings of o [oilure to comply wilh this legislotion could result in
penohies ond reputolionol risk, which could negotively impoct the
Compony.
The Compony is subject to extensive Conodion federol, provinciol ond
munlcipol environmentol regulotion. Foilure to comply could sublect the
Compony lo fines or other penolties. ln oddition, the presence or
releose o[ hozordous or other hormlul substonces could leod to cloims
by third porties or governmentol orders requiring the Compony to toke
specific octions such os investigoting, conkolling ond remedioting the
effects of these substonces. Conlominotion of the Compony's
properties could limit its obility to sell or leose these ossets in lhe fulure.
In oddition, octuol future environmentol expenditures moy vory
moteriolly from the estimotes used in the colculotion of the
environmentol liobilities on the Compony's bolonce sheel. The
Compony does not hove insuronce coveroge for these environmentol
expenditures.
Exhibit No. 4
Case Nos. AVU-E-I7- and AVU-G-I7-
i.top".,Hydro One34 HYDRO ONE LlmlrED 2016 ANNUAT REPORT TSX: H
Schedule 3, Page 36 of 167
There is olso risk ossocioted with obtoinlng governmentol opprovols
permits, or renewols of existing opprovols ond permits reloted to
constructing or operoting focilities. This moy require environmentol
ossessment or result in the imposition of condilions, or both, which
could result in deloys ond cost increoses.
Hydro One emits certoin greenhouse goses, including sulphur
hexofluoride or "SF6". There ore increosing regulotory requirements
ond costs, olong with ottendont risks, ossocioted with the releose of
such greenhouse goses, oll of which could impose odditionol
moteriol costs on Hydro One.
Any future regulotory decision to disollow or limit the rmovery of such
costs could hove o moteriol odverse effect on the Compony.
Pension Plon Risk
Hydro One hos the Hydro One Defined Benefit Pension Plon in ploce
for the molority of its employees. Contributions to the pension plon
ore estoblished by octuoriol voluotions which ore required to be filed
with the Finonciol Services Commission of Ontorio on o trienniol
bosis. The most recently [iled voluolion wos prepored os ot
December 3 I , 20 I 5, ond wos filed in lune 201 6, covering o three
yeor period from 2016 to 20l B. Hydro One's contributions to its
pension plon sotisfy, ond ore expected to sotlsfy, minimum funding
requirements. Contributions beyond 20lB will depend on the funded
position of the plon, which is determined by investment returns,
interest rotes ond chonges in benefits ond octuoriol ossumptions ot
thot lime. A determinotion by the OEB thol some of the Compony's
pension expenditures ore nol recoveroble through rotes could hove o
moteriol odverse effect on the Compony, ond this risk moy be
exocerboted if the omount of required pension contribulions
increoses.
The OEB hos begun o consultotion process lhot will exomine
pensions ond other postemployment benefits in reguloted utilities. See
"- Other Post-Employment ond Post-Retirement Benefits Risks'. The
oulcome of this consultotion process is uncertoin ond the Compony is
unoble to ossess the impoct of the potentiol chonges stemming from
the review ot this time.
Risk of Recoverobility of Totol Compensotion
Costs
The Compony monoges oll o[ its totol compensotion costs, including
pension ond other postemploymenl ond post-retiremenl benefits, sublect
to restrictions ond requiremenls imposed by the collective borgoining
process. Should ony element of totol compensotion costs be disollowed
in whole or port by the OEB ond not be recoveroble from customers in
rotes, the costs could be moteriol ond could decreose net income, which
could hove o moteriol odverse effed on the Compony.
Other Post-Employment ond PosFRetirement
Benefits Risks
The Compony provides other postemployment ond post-retirement
benefits, includlng workers compensolion benefits ond long'term
disobility benefits to quolifying employees. The OEB hos begun o
consultotion process thol will exomine pensions ond other post-
employment benefits in reguloted utllitles. The obiectives of the
consultotion ore to develop stondord principles to guide the OEB's
review of pension ond other post-employmenl ond posl-retiremenl
benefils costs in the future, to estoblish specific informotion
requirements lor opplicotion ond to estoblish oppropriote regulotory
mechonisms lor cost recovery which con be opplied consistenlly
ocross the gos ond eleckicity sectors for rote-reguloted utilities. The
oulcome o[ this consultotion process is uncertoin ond the Compony is
unoble to ossess lhe impoct of the potenliol chonges stemming from
the review ot this time. A determinolion fiot some of lhe Compony's
postemployment ond post-rellrement benefit costs ore not recoveroble
could hove o moleriol odverse elfect on the Compony.
Risk Associoted with Outsourcing Arrongements
Consistent with Hydro One's strotegy of reducing operoting costs, it
hos entered inlo on oulsourcing orrongement with o thlrd por! for the
provision of bock office seryices ond coll centre services. l[ the
outsourcing orrongement or stotements o[ work thereunder ore
terminoted for ony reoson or expire before o new supplier is selected
ond fully tronsilioned, the Compony could be required to incur
significont expenses lo konsfer to onother service provider or insource,
which could hove o moteriol odverse effect on the Compony's
business, operoting results, finonciol conditlon or prospects.
Risk from Provinciol Ownership of Tronsmission
Corridors
The Province owns some of the corridor londs underlying the
Compony's tronsmission system. Although the Compony hos the
stotutory right lo use lhese lronsmission conidors, the Compony moy
be hmiled in its oplions to expond or operote ils systems. Also, other
uses of the konsmission corridors by third porties in coniunction with
ihe operotion of the Compony's syslems moy increose sofety or
environmenlol risks, which could hove o moleriol odverse effect on
the Compony.
Litigotion Risks
ln lhe normol course of the Compony's operotions, it becomes
involved in, is nomed os o porty to ond is the subiect o[, vorious
legol proceedings, including regulotory proceedings, tox
proceedings ond legol octions, reloting to octuol or olleged violotions
of low, common low domoges cloims, personol iniuries, property
domoge, property toxes, lond rights, lhe environmenl ond conlrocl
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-17-_
HyDRo oNE LmrrED oNE oF NoRTH AMERtg\',qJotriffJf{!Cdf6rOftgrEs 35
Schedule 3, Page 37 of167
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MANAGEMENT'S DISCUSSION AND ANALYSIS
dispules. The outcome of oulstonding, pending or future proceedings
connot be predicted with certointy ond moy be determined odversely
lo the Compony, which could hove o moteriol odverse effect on the
Compony. Even if the Compony prevoils in ony such legol
proceeding, the proceedings could be costly ond tim*consuming
ond would divert the ottention of monogement ond key personnel
from the Compony's business operotions, which could odversely
offect the Compony. See olso "Other Developments - Closs Action
Lowsuil".
Tronsmission Assets on Third-Porty Londs Risk
Some o[ the londs on which the Compony's lronsmission ossets ore
locoted ore owned by third porties, inc uding the Province ond
federol Crown, ond ore or moy become subiect to lond cloims by
First Nolions. The Compony requires volid occupotion rights to
occupy such londs (which moy toke lhe form of lond use permils,
eosemenls or otherwise). lf the Compony does not hove volld
occupotionol rights on third-porl'/ owned londs or hos occupotionol
rights thot ore subiect to expiry, it moy incur moteriol costs to obtoin
or renew such occupotionol rights, or if such occupotionol righls
connot be renewed or obtoined it moy incur moleriol cosls lo remove
ond relocote its ossets ond restore the subiect lond. lf the Compony
does not hove volid occupolionol rights ond musl incur cosls os o
result, this could hove o moteriol odverse elfect on the Compony or
olherwise moteriolly odversely impoct the Compony's operotions.
Reputotionol ond Public Opinion Risk
Reputotion risk is the risk of o negotive impocl to the Compony's
business, operotions or [inonciol condilion thot could result from o
deteriorolion of Hydro One's reputotion. The Compony's reputotion
couid be negotively impocted by chonges in public opinion, ottitudes
towords the Compony's privotizotion, foilure to deliver on ils cuslomer
promises ond other externol forces. Adverse reputotionol events could
hove negotlve impocts on the Compony's business ond prospects
including, but not limited to, deloys or deniols o[ requisite opprovols
ond occommodotions for the Compony's plonned projects, escololed
costs, legol or regulotory oction, ond domoge to stokeholder
relotionsh ips.
common shores) of ony closs or series if it would own less thon 40%
of the outstonding number of voting securities of thot closs or series
ofter the sole ond in certoin circumslonces olso requires the Province
to toke steps to moinloin thot level of ownership. Accordingly, the
Province is expected to continue to mointoin o significont ownership
interest in voting securities o[ Hydro One for on indelinite period.
As o result of its significont ownership of the common shores ol Hydro
One, lhe Province hos, ond is expected indefinitely to hove, the
obility to determine or significontly influence the outcome of
shoreholder votes, subiect to lhe reslrictions in the governonce
ogreement entered into between Hydro One ond the Province doted
November 5, 2015 (Governonce Agreement; ovoiloble on SEDAR
ot www.sedor.com). Despite the terms of the Governonce Agreemenl
in which the Province hos ogreed to engoge in lhe business ond
offoirs of the Compony os on investor ond not os o monoger, lhere is
o risk thot the Province's engogement in the business ond ofloirs o[
the Compony os on investor will be informed by its policy oblectives
ond moy influence the conduct o[ the business ond offoirs of the
Compony ln woys thot moy nol be oligned with lhe interests of other
shoreholders.
The shore ownership reslriclions in lle Elecfricity Acl (Shore
Ownership Restrictions) ond the Province's significont ownership of
common shores o[ Hydro One together effectively prohibit one or
more persons octing logether from ocquiring control of Hydro One
They olso moy limit or discouroge tronsoctions involving other
fundomentol chonges to Hydro One ond the obility of other
shoreholders to successlully conlest the election of the directors
proposed for election pursuont to the Governonce Agreemenl. The
Shore Ownership Restrictions moy olso discouroge troding in, ond
moy limit the morket for, the common shores ond other voling
securilies.
Nominotion of Directors ond Confirmotion of
Chief Executive Officer ond Choir
Although director nominees ore required to be independent of both
the Compony ond the Province pursuont lo the Governonce
Agreemenl, there is o risk thot the Province will nominote or confirm
individuols who solisfy the independence requirements but who il
considers ore disposed lo support ond odvonce its policy objectives
ond give disproportionole weight to the Province's interests in
exercising their business judgment ond boloncing the interests o[ the
stokeholders o[ Hydro One. This, combined with the foct certoin
motters require o twothirds vote of the Boord of Directors, could
ollow the Provlnce to unduly influence certoin Boord oclions such os
confirmotion o{ the Choir ond confirmotion of the Chlef Executive
O[[icer.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 38 of 167
Risks Reloting to the Compony's Relolionship
with the Province
Ownership ond Continued lnfluence by the
Province ond Voting Power; Shore Ownership
Restrictions
The Province currently owns opproximolely 70.1% o[ the outslonding
common shores of Hydro One. Ihe Electrtctly Acl reskicls lhe
Province lrom selling voting securities of Hydro One (including
36 HYDRO ONE LllllllED 2016 ANNUAL REPORT TSX: H
Boord Removol Rights
Under the Governonce Agreement, the Province hos the right to
withhold lrom voting in fovour of oll director nominees ond hos the
right to seek to remove ond reploce the entire Boord of Direclors,
including in eoch cose ils own director nominees but excluding the
Chief Executive Officer ond, ol the Province's discretion, the Choir. ln
exercising these rights in ony porticulor circumstonce, the Province is
entitled to vote in ils sole interest, which moy not be oligned with the
interests of other shoreholders.
More Extensive Regulotion
Although under the Governonce Agreement, lhe Province hos ogreed
to engoge in the business ond offoirs of Hydro One os on inveslor
ond nol os o monoger ond hos sioted thot its intention is lo ochieve
its policy objectives through legislotion ond regulotion os it would
with respecl to ony other ulility operoling in Ontorio, there is o risk
thot the Province will exercise its legislotive ond regulotory power to
ochieve poliry obiectives in o monner thot hos o moleriol odverse
effect on the Compony.
Prohibitions on Selling the Compony's
Tronsmission or Distribution Business
fhe Electricfiy Act prohibits the Compony from selling oll or
substontiolly oll of the business, property or ossets reloted to its
tronsmission system or distrlbution system thot is reguloted by the
OEB. There is o risk thot these prohibitions moy limit the obility of the
Compony to engoge in sole tronsoctions involving o substontiol
portion o[ either system, even where such o tronsoction moy
otherwise be considered to provide substontiol benefits to the
Compony ond the holders of lhe common shores.
Future Soles of Common Shores by the Province
The Province hos indicoted thot it cunenlly inlends to sell further
common shores of Hydro One over time, until it holds opproximotely
40% of rhe common shores, subjecl to the selling restrictions ogreed
with the Underwriters. The registrotion rights ogreement between
Hydro One ond the Province doted November 5, 2015 (ovoiloble
on SEDAR ot www.sedor.com) olso gronts the Province the right to
request thot Hydro One file one or more prospectuses ond toke other
procedurol steps to focilitote secondory offerings by the Province of
the common shores o[ Hydro One. Future soles o[ common shores o[
Hydro One by the Province, or lhe perception thot such soles could
occur, moy moteriolly odversely offect morket prices for these
common shores ond impede Hydro One's obility lo roise copitol
through the issuonce o[ odditionol common shores, including the
number of common shores thol Hydro One moy be oble to sell ot o
porticulor time or lhe totol proceeds thot moy be reolized.
Limitotions on Enforcing the Governonce
Agreement
The Governonce Agreement includes commitments by the Province
reslricting lhe exercise of its rights os o holder of voting securities,
including with respect to the moximum number of directors thot the
Province moy nominole ond on how the Province will vote with
respect to other director nominees. Hydro One's obility to obtoin on
effective remedy ogoinst the Province, i[ the Provlnce were not lo
comply with these commitments, is limited os o result of the
Proceedings Agoinst the Crown Act {Ontorio). This legislotion
provides thot the remedies o[ iniunction ond specific performonce ore
not ovoiloble ogoinst the Province, olthough o court moy moke on
order declorotory of the rights of the porties, which moy influence the
Province's oclions. A remedy o[ domoges would be ovoiloble to
Hydro One, but domoges moy not be on elfective remedy,
depending on lhe noture of the Province's non-complionce with the
Governonce Agreemenl.
Criticol Accounting Estimotes ond
Judgments
The preporotion of Hydro One Consolidoted Finonciol Stotements
requires the Compony to moke key estimoles ond criticol judgments
thot offect the reporled omounts of ossets, liobilities, revenues ond
cosls, ond reloled disclosures of contingencies. Hydro One boses its
estimotes ond iudgments on historicol experience, current conditions
ond vorious other ossumptions thot ore believed to be reosonoble
under the circumstonces, the results of which form the bosis for
moking iudgments obout the corrying volues of ossets ond liobilities,
os well os identifying ond ossesslng the Compony's occounling
keotment with respect to commitments ond conlingencies. Actuol
results moy differ from these estimotes ond iudgments. Hydro One hos
identified the lollowing crilicol occounting estimotes used in the
preporotion of its Consolidoted Finonciol Stotements:
Revenues
Distribution revenues otlributoble to the delivery of eleclricify ore
bosed on OEBopproved distribution rotes ond ore recognized on on
occruol bosis ond include billed ond unbilled revenues. Billed
revenues ore bosed on electricity dellvered os meosured from
cuslomer melers. At the end of eoch month, electricity delivered to
customers since the dote o[ the lost billed meter reoding is estimoted,
ond the conesponding unbilled revenue is recorded. The unbilled
revenue estimote is offected by energy consumption, weother, ond
chonges in the composition of customer closses.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
HYDRo oNE LmrrED oNE oF NoRTH AMERre\',qjouiffrH'Qf6€F#grrs sz
Schedule 3, Page 39 of 167
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Accounts Receivoble ond Allowonce for
Doubtful Accounts
The ollowonce for doubtful occounts reflects the Compony's best
estimote of losses on billed occounts receivoble bolonces. The
Compony estimotes the ollowonce for doubtful occounts on cuslomer
receivobles by opplying inlernolly developed loss rotes to the
oulstonding receivoble bolonces by oging cotegory. Loss roles
opplled to the occounts receivoble bolonces ore bosed on historicol
overdue bolonces, customer poyments ond write-offs.
Regulotory Assets ond Liobilities
Hydro One's regulotory ossels represent certoin omounts receivoble
from future electricity customers ond cosls thot hove been defened for
occounting purposes becouse it is proboble thot they will be
recovered in future rotes. The regulotory ossets moinly include cosls
reloted to the pension benefit liobility, deferred income tox liobilities,
post-retirement ond postemployment Gnef lt I iobility, shorebosed
compensation costs, ond environmentol liobilities. The Compony's
regulotory liobilities represent certoin omounts thot ore refundoble to
future electricity cusfomers, ond pertoin primorily to OEB defenol ond
vorionce occounts. The regulotory ossets ond liobilities con be
recognized for rotesetting ond finonciol reporting purposes only if the
omounls hove been opproved for inclusion in the electricity rotes by
the OEB, or i[ such opprovol is iudged lo be proboble by
monogemenl. l[ monogement judges thot il is no longer proboble thot
the OEB will ollow the inclusion of o regulotory osset or liobillty in
future eleclricity roles, the opplicoble corrying omounl o[ the
regulolory osset or liobiliry will be reflected in results o{ operotions in
the period thot lhe iudgment is mode by monogement.
Environmentol Liobilities
Hydro One records o liobility for the estimoted fulure expenditures
ossocioted with the removol ond destruction of PCB-contominoted
insuloting oils ond reloted electricol equipment, ond for the
ossessmenl ond remediotion of chemicolly contomlnoted londs. There
ore uncertointies in estimoting future environmentol costs due to
potentiol externol events such os chonges ln legislotion or regulotions
ond odvonces in remedlotion technologies. In determining the
omounts lo be recorded os environmenlol liobilities, the Compony
estimotes the current cost of completlng required work ond mokes
ossumptions os to when the future expenditures will octuolly be
incurred, in order to generole future cosh flow in{ormotion. All foctors
used in estimoting the Compony's environmentol liobilities represent
monogement's best estimotes of the present volue o[ costs required to
meet existing legislotion or regulotions. However, il is reosonobly
possible thot numbers or volumes o[ contominoted ossets, cosl
estimoles to perform work, inllotion ossumptions ond the ossumed
pottern of onnuol cosh {lows moy dilfer significontly from the
Compony's currenl ossumptions. Environmentol llobilities ore
reviewed onnuolly or more frequently if significont chonges in
regulotions or other relevont foctors occur. Estimote chonges ore
occounled for prospectively.
Employee Future Benefits
Hydro One's employee future benefils consist of pension ond post-
retirement ond postemployment plons, ond include pension, group
life insuronce, heolth core, ond long-term disobility benefits provided
to the Compony's current ond retired employees. Employee future
benefits costs ore included in Hydro One's lobour costs lhot ore either
chorged to results of operolions or copitolized os port o[ the cost of
property, plont ond equipment ond intongible ossets. Chonges in
ossumptlons offect the benefit obligotion o[ the employee future
benelits ond the omounls thot will be chorged to results of operolions
or copitolized in future yeors. The following significont ossumptions
ond estimotes ore used to determine employee future bene{it costs
ond obligotions:
Weighted Averoge Discount Rote
The weighted overoge discount rote used to colculote the employee
future benefits obligotion is delermined ol eoch yeor end by referring
lo the mosl recently ovoiloble morket inlerest rotes bosed on "AA"-
roted corporote bond yields reflecting the durotion of the opplicoble
employee luture Gnefit plon. The discounl rote ot December 3,l,
20I 6 decreosed to 3.90"/" (from 4.00% ot December 3 I , 20 I 5) for
pension benefits ond decreosed to 3.90% (from 4. 10% used ot
December 3I, 20I5) for the post-retirement ond post-employmenl
plons. The decreose in the discount rote hos resulled in o
corresponding increose in employee future benefits liobilities for the
pension, post-retirement ond postemployment plons lor occounting
purposes. The liobilities ore determined by independent octuories
using the proiected benefit method proroted on service ond bosed on
ossumplions lhot reflect monogement's best estimotes.
Expected Rote of Return on Plon Assets
The expected rote of return on pension plon ossets is bosed on
expectotions of long+erm rotes of return ot the beginning of the yeor
ond reflects o pension osset mix conslstent with the pension plon's
current investment poliry.
Rotes o[ return on the respective portfolios ore determined with
reference to respective published morkel indices. The expected rote
ol return on pension plon ossels reflecls the Compony's long{erm
expectotions. The Compony believes thot this ossumplion is
reosonoble becouse, with the pension plon's bolonced investmenl
opprooch, the higher volotility of equity investment relurns is intended
to be offset by the greoter stobility ol fixed-income ond short-term
investment returns. The net result, on o long-lerm bosis, is o lower
return fion mlghl be expecled by investing in equities olone. ln the
short term, the pension plon con experience fluctuotions in ocbol
rotes of return.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 40 of 167
38 HYDRO ONE LlltlTED 201 6 ANNUAL REPORT TSX: H
Rote of Cost of Living lncreose
The rote of cosl ol living increose is determined by considering
differences between longlerm Government of Conodo nominol
bonds ond reol return bonds, which increosed from 1 .50% per
onnum os ot December 31, 2015 lo opproximotely I .80% per
onnum os ol December 3.l, 20,l6. Given the Bonk of Conodo's
commitment to keep longlerm inflolion between 'l .00% ond 3.00%,
monogement believes thot the current rote is reosonoble to use os o
longlerm ossumption ond os such, hos used o 2.0% per onnum
inflotion rote for employee future benefits liobiliv voluotion purposes
os ot December 31,2016.
Mo*olity Assumptions
The Compony's employee future benefits liobility is olso impocted by
chonges in life expectoncies used in morlolity ossumplions. Increoses
ln life expectoncies of plon members result in increoses in the
employee future benefits liobilil/. The mortolity ossumption used ol
December 3 I , 20,l 6 is 95% ol 201 4 Conodion Pensioners
Mortolity Privote Seclor toble proiected generotionolly using
improvement Scole B (compored to 100% ol 2014 Conodion
Pensioners Modolity Public Sector toble proiected generotionolly
using improvement Scole B used ot December 31, 20,15). The
mortolity toble wos updoted bosed on o review of the historicol
mortolity experience of the pension plon members.
Rote of lncreose in Heolth Core Cost Trends
The costs o[ post-relirement ond post-employment benefits ore
determined ot the beginning of the yeor ond ore bosed on
ossumplions for expected cloims experience ond future heolth core
cost inflotion. A l% increose in the heolth core cost trends would
result in o $23 million increose in 20l6 interestcost plus service
cost, ond o $289 million increose in the benefit liobiliry ot
December3l,2Ol6.
Business Combinotions
Monogement's iudgment is required to estimote the purchose price,
to identify ond to determine {oir volue o[ oll ossels ond liobilities
ocquired. The determinotion of the foir volue of ossets ond liobilities
ocquired is bosed upon monogement's estimotes ond certoin
ossumplions.
Toxes
Hydro One ossesses the likelihood thot deferred tox ossets will be
recovered from future toxoble income. To the extent monogement
considers it is more likely thon not thot some porlion or oll of the
defened tox ossets will not be reolized, o voluolion ollowonce is
recognized.
Asset lmpoirment
Withln Hydro One's reguloted businesses, the corrying costs of most
of the long-lived ossets ore included in the rote bose where they eorn
on OEBIpproved role of return. Asset corrying volues ond the reloted
return ore recovered through OEB'opproved rotes. As o result, such
ossets ore only tested for lmpoirment in the event thot the OEB
disollows recovery, in whole or in port, or if such o disollowonce is
iudged to be proboble. The Compony regulorly monitors the ossets of
its unreguloled Hydro One Telecom subsidiory for indicotions of
impoirment. As ot December 3l , 20,16, no osset impoirment hod
been recorded for ossets within Hydro One's reguloted or
unreguloted businesses.
Goodwill is evoluoled for impoirment on on onnuol bosis, or more
frequently if circumstonces require. Hydro One hos concluded thot
goodwill wos not impoired ot December 3 I , 20,1 6. Goodwill
represenls the cost of ocquired distribution ond tronsmission
componies thot is in excess of the [oir volue ol the net identifioble
ossets ocquired ot the ocquisition dote.
Disclosure Controls And lnternol Controls
Over Finonciol Reporting
lnlernol conlrols hove been documented ond tested for odequocy ond
effectiveness, ond continue to be refined over oll business processes.
ln complionce with the requirements of Notionol lnskument 52'109,
the Compony's Certifying Officers hove reviewed ond certified the
Consolidoted Finonciol Stotements for the yeor ended December 3l ,
201 6, together with other [inonciol informotion included in the
Compony's securities filings. The Certifying Officers hove olso certified
thot disclosure controls ond procedures (DC&P) hove been designed to
provide reosonoble ossuronce thot moteriol informotion reloting to the
Compony is mode known within the Compony. Further, the CerliFying
Officers hove certified thot internol conkols over finonciol reporting
(ICFR) hove been designed to provide reosonoble ossuronce
regording fie reliobility of finonciol reporting ond the preporotion of
the Consolidoted Finonciol Stotements. Bosed on the evoluotion of the
design ond operoting effecliveness of the Compony's DC&P ond ICFR,
the Certifying Officers concluded thot the Compony's DC&P ond ICFR
were effective os ot December 3 I , 201 6.
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-17-_
HYDRo oNE LmrrED oNE oF NoRTH AMERre\',ilouiffrFIIQrEgftgrrs sc
Schedule 3, Page 41 of 167
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MANAGEMENT'S DISCUSSION AND ANALYSIS
New Accounting Pronouncements
The following tobles present Accounting Slondords Updoles (ASUs) issued by the Finonciol Accounting Srondords Boord thot ore opplicoble to
Hydro One.
Recently Adopted Accouniing Guidonce
ASU Dote issued Description Effective dote lmpoct on Hydro One
2O14'16 November
2014
This updote clorilies thol oll relevont terms ond feotures Jonuory 1, 2016
should be considered in evoluoting the noture of o
hosl conkocl for hybrid finonciol instruments issued in
the form ol o shore. The noture of the host conkoct
depends upon the economic chorocteristics ond risks
o[ the entire hyb,id finon.iol in.
No moteriol impoct upon odoption
20 1 50 I .lonuory 20 1 5 Extroordinory items ore no longer required to be
plesented seporoiely
lonuory 1 , 20 1 6 No moteriol impoct upon odoption
201512 Februory
201 5
Guidonce on onolysis to be performed lo determine
whether certoin types of legol entities should be
consolidoted.
Jonuory l, 20l6 No moteriol impoct upon odoption
20l5O3 April 2015 Debl issuonce cosls ore required to be presented on
the bolonce sheet os o direct deduction from the
corrying ornount of the reloted debt llobiliry consistent
with debt discounts or premiums.
Reclossificotion of defened debl
issuonce costs ond net unomortized
debt premiums os on offset to long-term
debt. Applied retrospeclively.
.lonuory 1,2016
2015O5 April 20l5 Cloud computing orrongemenls thot hove been
ossessed to contoin o softwore licence should be
occounled for os internoluse softwore.
Jonuory 1 , 201 6 No moteriol impoct upon odoption
20,15-16 September
2015
Adjustments to provisionol omounts thot ore identified
during the meosuremenl period of o business
combinotion in lhe reporting period in which the
odjustment omounl is determined ore required to be
recognized. The omount recorded in current period
eornings ore required to be presenled seporolely on
the foce o[ lhe income stotement or disclosed in the
rotes by lire iten.
No moteriol impoct upon odoptionJonuory 1 , 2016
2015-17 November
201 5
All defened tox ossets ond liobilities ore required to
be clossified os noncurrent on the bolonce sheet.
This ASU wos eorly odopted os o[
April 1 , 201 6 ond wos opplied
prospectively. As o result, the current
portions of the Compony's de{ened
income tox ossets ore reclossified os
noncurrent ossets on the consolidoted
Bolonce Sheel. Prior periods were nol
retrospectively odiusted.
Jonuory 1,2017
2016-09 Morch 2016 Severol ospecls of the occounting lor shorebosed
poyment konsoctions were simplified, including the
income tox consequences, clossiflcotion of owords os
either equily or liobllities, ond clossificotion on the
slotement of cosh flows.
This ASU wos eorly odopted os of
October I ,2O16 ond wos opplied
retrospectively. As o result, the
Compony occounts for forfeitures os
lhey occur. There were no other
moteriol impocts upon odoption.
)onvory 1 ,2017
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C. Lopez, Hydro One
Schedule 3, Page 42 of 167
40 HYDRO ONE tlllllED 2016 ANNUAT REPORT TSX: H
Recently lssued Accounting Guidonce Not Yet Adopted
ASU Dote issued Description Effective dote Anticipoted impoct on Hydro One
2014{9 Moy 2Ol4- ASU 2014f9 wos issued in Moy 2014ond Jonuory 1,20 18 HydroOne hoscompleted its initiol
2015-14 December providesguidonceonrevenuerecognitionrelotingto ossessmentondhosidentifiedrelevont
20I 6o8 20,l 6 the tronsfer of promised goods or services to revenue streoms. No quontilolive
201610 customers in on omount thot reflects the considerotion determinotion hos been mode os o
2dGl2 to which the entity expects to be entitled in exchonge detoiled ossessment is now undewoy
201620 for those goods ond services. ASU 20]5 14 defened ond will continue lhrough to the third
the effective dote of ASU 2Ol 4Oq by one yeor. quorter of 2Ol7 , with the end result
Additionol ASUs were issued in 201 6 thot simplify being o determinotion ol the finonciol
ff:::fl:.'ovide cloritv on cerroin ospects of the ;i:T[hlll,*,*,]"i,"fl*" ''
stondord by the effective dote.
20l ml Jonuory 2016 This updote requires equity investmenls to be Jonuory 1 , 20 l 8
meosured ot foir volue with chonges in foir volue
recognized in net income, ond requires enhonced
disclosures ond presentolion of finonciol ossets ond
liobilities in fie finonciol stotements. This ASU olso
simplifies the impoirment ossessment of equity
inveslments without reodily determinoble foir volues by
requiring o quolitotive ossessment lo identify
imPoirment.
Under ossessment
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201ffi2 Februory
2016
Jonuory 1,2019 An initiol ossessment is currently
underwoy encompossing o review of oll
existing leoses, which will be followed
by o detoiled review of relevont
conlrocts. No quontitotive determinolion
hos been mode ot this time. The
Compony is on trock for implementotion
of this stondord by the effective dote.
201 605 Morch 20 I 6 The omendmenls clorify thot o chonge in the Jonuory 1 , 201 8 Under ossessmenl
counterporty lo o derivotive instrumenl thot hos been
designofed os the hedging inslrumenl under Topic
8l 5 does nol, in ond of ibelf, require dedesignotion
o{ thot hedging relolionship provided thot oll other
hedge occounting crilerio continue to be met.
20 I 6o6 Morch 20 I 6 Contingent coll (put) options thot ore ossessed to Jonuory 1 , 201 7 No moteriol impoct
occelerole the poyment o[ principol on debt
instruments need to meet the criterio of being "cleorly
ond reloted" to their debt hosts.
2016A7 Morch 20 I 6 The requirement to retrooctively odopt the equity Jonuory 1 , 2017 No moteriol impoct
method of occounting if on investment quolifies for use
of the equity method os o result of on increose in the
level of ownership or degree of influence hos been
eliminoted.
Lessees ore required lo recognize the rights ond
obligotions resulting from operoting leoses os ossets
(right to use the underlying ossel for the term of lhe
leose) ond liobilities (obligotion to moke future leose
poyments) on the bolonce sheet.
2016-l'l Moy 2Ol6 This omendment covers the SEC Sloff 's rescinding o[ Jonuory 1 , 201 9
certoin SEC Sto[[ observer comments thot ore codified
in Topic 605 ond Topic 932, eflective upon lhe
odoption of Topic 606 ond Topic 8.15, effective to
coincide with the elfective dote of Updote 2014'16.
No moteriol lmpoct
Exhibit No.4
Case Nos. AVU-E-17-_ and AVU-G-l 7-_
HYDRo oNE LrrrilrED oNE oF NoRTH AMERre\',qjoUifrrfllQilEeHges rt
Schedule 3, Page 43 of 167
MANAGEMENT'S DISCUSSION AND ANALYSIS
ASU Dote issued Description Effective dote Anticipoted impoct on Hydro One
201 6-l 3 June 201 6 The omendment provides users with more decision- Jonuory 1 , 2019
useful lnformotion obout the expected credit losses on
[inonciol instrumenls ond other commitments to extend
credit held by o reporting entily ot eoch reporting
dote.
Under ossessment
2016-,)5 August 2016 The omendments provide guidonce for eight specific Jonuory 1 , 201B
cosh flow issues with the objective of reducing the
erisli!9 !,ug,s'tyllf ,o!!9e.
Under ossessmenl
2016-16 Ocrober
2016
The omendment eliminotes the prohibition of Jonuory i , 2018
recognizing current ond delerred income toxes lor on
intro€ntity ossel tronsfer, other thon inventory, until the
ossel hos been sold to on outside porl'y. The
omendment will permit income lox consequences of
:r.l,::.U*.
to be recognized when the tronsler
Under ossessment
20,l6-lB November
2016
The omendment requires thot restricted cosh or Jonuory 1, 2018
restricted cosh equivolents be included with cosh ond
cosh equivolents when reconciling the beginning ond
end-of-period bolonces in the stotement of cosh flows.
Under ossessment
2Ol7{1 Jonuory 2012 The omendment clorilies the definition o[ o business Jonuory 'l , 2018 Under ossessment
ond provides odditionol guidonce on evoluoting
whether tronsoclions should be occounted for os
ocquisitions (or disposols) o[ ossets or businesses.
Exhibit No. 4
Case Nos. AVU-E-I7- and AVU-G-I7--. Lop"r, Hydro One42 HYDRO ONE LIMITED 2016 ANNUAT REPORT TSX: H
Schedule 3, Page 44 of 167
Summory of Fourth Quorter Results of Operotions
Three months ended Decenber 3 1
(nillions of dollors, except EPS)2016 20r5 Chonge
Revenues
Distribution
Tronsmission
Other
1,228
373
l3
r, t4B
361
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786
6.0%
11.6%
122.2%l
{r 0.3%l
858
r63
98
26
146
126
29
Costs
Purchosed power
o/\ &A
Distribution
Tronsmission
Other
Depreciotion ond omortlzotion
287
204
30r
193
14.7/"1
5.7%
1,349 r,280 5.4%
lncome before finoncing chorges ond income loxes
Finoncing chorges
265
10r
242 9.5%
7 /o/94
lncome before income toxes
lncome tox expelL
164
29
148 10.8%
r 00.0%
Net income r35 147 lB.2%)
Net income ottributoble to common shoreholders of Hydro One 128 143 {r0.s%)
Boslc EPS
Diluted EPS
Copitol investments
Distribution
Tronsmission
Other
201
274
2
r98
251
2
1.5%
477 451 < Qo/
Net lncome
Net income ottributoble to common shoreholders for the quorter
ended December 3.l, 2016 of $.l28 million is o decreose of
$ l5 mill;on or lO.5% from the prior yeor. Excluding the ef{ect of on
lPOreloted positive tox odiustment of $ 19 million in the fourth quorter
of 2015, net income for lhe quorter increosed by 3.2%.
Revenues
The quorterly increose of $ 1 2 million or 3.3% in tronsmission
revenues wos primorily due to higher overoge monthly Ontorio
6Gminute peok demond os severol extremely cold doys during the
quorter increosed peok tronsmission demond ond OEBopproved
tronsmission rote increoses.
The quorterly increose of $BO million or 7.O% in distribution revenues
wos primorily due to higher power costs from generotors thol ore
possed on to customers ond increosed OEB'opproved distribution
roles for 20.l 6, portiolly offset by lower energy consumption resulting
from milder weother.
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-I7-_
HYDro oNE LrmrED oNE oF NoRTH AMERre\',qjotrit rf{1fl[6rOffigrEs 43
Schedule 3, Page 45 of 167
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$ o.zz $ o.zo 115.4%l
$ o.zr $ 0.26 11e.2%l
MANAGEMENT'S DISCUSSION AND ANALYSIS
OM&A Costs
The quorterly decreose of $28 million or 22.2% in konsmission
OM&A costs wos primorlly due lo lower proiect cost ond inventory
writedowns ond lower expenditures reloted to forestry control ond
line cleoring on the Compony's tronsmission rightsof-woy.
The quorledy increose of $ l7 million or 11 .6% in distribulion OM&A
cosls wos primorily due to higher volume of vegetotion monogement
octivilies, portiolly offset by lower cosls reloted to restoring power
services ond storm response.
Depreciotion ond Amortizotion
The increose of $l I million or 5.7% in depreciolion ond
omortizotion cosls for the fourth quorter of 20'16 wos moinly due to
the growth in copitol ossels os the Compony continues to ploce new
ossets in-service, consistenl with its ongoing copitol investment
progrom.
Finoncing Chorges
The quorterly increose of $7 million or 7.4% in finoncing chorges
wos primorily due to on increose in interest expense on long-term
debt resulting from the increose in weighted overoge long+erm debt
outstonding during the quorter.
lncome Tox Expense
lncome tox expense for the fourth quorler o[ 2016 increosed by
$28 milhon compored to 2015, ond the Compony reolized on
effeclive tox rote of opproxim otely 17 1% in the fourth quorter of
20 1 6 compored to opproximotely 07% in 201 5 . The increose in
tox expense ls primorily due to the following:
o lhe effect of on lPOreloted posilive lox odiustment of $ 1 9 million
in the fourlh quorter of 2015;
. higher income before toxes in the fourth quorter of 2016; ond
r o decreose in dedudible temporory differences such os
copitolized pension deducted for tox purposes.
Copitol lnvestments
The increose in tronsmission copitol investments during the fourth
quorter wos primorily due to
o on increosed volume of work on insulotor replocements;
o on increosed volume o[ integroted stotion component replocements
to reploce delerioroted ossets ot tronsmission stoiions; ond
. higher volume of demond work ossocioted with equipment foilures
ond spore tronsformer equipment purchoses; porliolly offset by
. reduced work on the Clorington Tronsmission Stotion os the proiect
neors completion.
The increose in distribution copitol investments during the fourth
quorter wos primorily due to
o increosed investmenls reloted to informotion technology
infrostructure ond customer progroms together with upgrode ond
enhoncemenl proiects, including inveslmenls to integrote mobile
technology with the Compony's existing work monogement tools;
. higher volume of focility upgrodes ond conslruction of new
operotion centres; ond
. higher volumes of work ossocioled with further enobling certoin of
Hydro One's ossets to G ;ointly used by the telecommunicolions
ond coble ielevlsion induslries, os well os relocotion of poles,
conduclors ond other equipment os required by municipol ond
provinciol rood outhorities; portiolly offset by
. higher storm restorotion work in the prior yeor primorily os o result
of two significont wind slorms during lhe lourth quorler of 20,l5.
Forword-looki ng Stotements And
lnformotion
The Compony's orol ond written public communicotions, including
this document, often contoin forword-looking stotements thot ore
bosed on current expectotions, estirnotes, forecosts ond proiections
obout the Compony's business ond the industry, regulotory ond
economic environmenls in which it operoles, ond include beliefs ond
ossumplions mode by lhe monogement of the Compony. Such
stotements include, but ore not limited to: stotemenls regording the
Compony's tronsmission ond distribulion rotes resuhing from rote
opplicotions; stolemenls regording the Compony's liquidity ond
copitol resources ond operotionol requirements; stotements obout the
stondby credit focilities; expectotions regording the Compony's
finoncing octivilies; slotements regording lhe Compony's moturing
debt; stolements reloted to credit rotings; stolements regording
ongoing ond plonned projects ond/or initiotives, including expected
results ond completion dotes; stotements regording expected fulure
copitol ond development investments, the timing of these expenditures
ond the Compony's investment plons; stotements regording
controctuol obligotions ond olher commerciol commilments;
stolements reloted to the OEB; stotements regording future pension
contributions, the pension plon ond voluolions; expeclotions reloted to
work lorce demogrophics; stotements obout collective ogreements;
stolements reloted to dividends; stotemenls reloted to cloims;
expectotions regording toxes; stotements reloted to occupotionol
rights; stotements obout nonCAAP meosures; stotements reloled to
crilicol occounting estimotes, including expectotions regording
employee future benefits, environmentol liobilities, ond regulotory
ossets ond liobilities; expectotlons reloted to the effect of interest
rotes; slotements obout the Compony's repulotion; stotements
regording cyber ond doto security; stotemenls reloted to future soles
o[ shores ol Hydro One; stotements reloted to the Compony's
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-I7-_
C.Lopez, Hydro One
Schedule 3, Page 46 of 167
44 HYDRO ONE tlMlTED 2016 ANNUAI. REPORT TSX: H
relotionship with the Province; slotements regording recenl
occounting+eloted guidonce; expectolions reloted lo tox impocts;
stotements reloted to the Universol Bose Shelf Prospectus; ond
stotemenls reloted to the Compony's ocquisitions, including stotemenls
obout Greot Lokes Power ond Orillio Power. Words such os
"expect", "onlicipole", "i nlend", "otlempl", "moy", "plon", "will ",
"believe", "seek", "estimote" , "gool" , "oim", "torget", ond voriotions
o[ such words ond similor expressions ore inlended to identily such
forword-looking stoternents. These stolements ore nol guoronlees of
future performonce ond involve ossumplions ond risks ond
uncertointies thot ore difficult to predict. Therefore, octuol outcomes
ond results moy differ moteriolly from whot is expressed, implied or
forecosted in such forword-looking stotements. Hydro One does not
intend, ond it disclolms ony obligotion, lo updote ony forword-
looking stotements, except os required by low.
These forword-looking stotemenls ore bosed on o voriety of foctors
ond ossumptions lncluding, but not limited to, the following: no
unforeseen chonges in the legislotive ond operoting fromework for
Ontorio's eleckicity morket; fovouroble decisions from the OEB ond
olher regulotory bodies concerning outstonding ond luture rote ond
other opplicotions, no unexpected deloys in obtoining the required
opprovols; no unforeseen chonges in rote orders or rote setting
methodologies for the Compony's distribution ond tronsmission
businesses; continued use o[ US GAAP; o sloble regulotory
environment; no unfovouroble chonges in environmentol regulotion;
ond no significont event occurring outside the ordinory course of
business. These ossumplions ore bosed on informotion currently
ovoiloble to the Compony, including inlormotion obtoined from third-
porty sources. Actuol results moy differ moteriolly from those predicted
by such forword-looking stotements. While Hydro One does nol
know whot impoct ony o[ these differences moy hove, the
Compony's business, resulls o[ operotions, finonciol condition ond
credit stobility moy be moteriolly odversely offected. Foctors thot
could couse ocluol results or outcomes to differ moteriolly from the
resuhs expressed or implied by forword-looking stotements include,
omong other things:
o risks ossocioted with the Province's shore ownership of Hydro One
ond other relotionships with the Province, including potentiol
conflicts of interest thot moy orise belween Hydro One, the
Province ond reloled porties;
. regulotory risks ond risks reloting to Hydro One's revenues,
including risks reloting to role orders, octuol performonce ogoinsl
forecosts ond copitol expenditures;
o the risk thot the Compony moy be unoble to comply with
regulotory ond legislotive requirements or thot the Compony moy
incur odditionol costs for complionce thot ore not recoveroble
through rotes;
o the risk of exposure of the Compony's focilities to the effects o{
severe weother condltions, noturol disosters or other unexpmled
occurrences for which the Compony is uninsured or for which the
Compony could be subiect to cloims for domoge;
. public opposition to ond deloys or deniols o[ the requisite
opprovols ond occommodotions for lhe Compony's plonned
proiects;
o the risk thot Hydro One moy incur significont costs ossocioted with
tronsferring ossels locoted on Reserves (os defined in the /ndion
Acf (Conodo)),
o the risks ossocioted with informotion system security ond
mointoining o complex informolion technology system
infrostructure;
o the risks reloted to the Compony's work force demogrophic ond its
potentiol inobilily to otlroct ond retoin quolified personnel;
r the risk of lobour disputes ond inobility to negotiote oppropriote
colleclive ogreements on occeptoble terms consistent with the
Compony's rote decisions;
o risk thot the Compony is not oble to orronge sufficient costeffective
{inoncing to repoy moturing debt ond to fund copitol expenditures;
o risks ossocioled with fluctuotions in interest rotes ond [oilure to
monoge exposure to credit risk;
o the risk thot the Compony moy not be oble to execute plons for
copitol proiects necessory to mointoin the performonce of the
Compony's ossels or to corry out proiects in o limely monner;
o the risk of noncomplionce with environmentol regulotions or foilure
to mitigote signilicont heolth ond sofety risks ond inobility to
recover environmentol expenditures in rote opplicotions;
o the risk thol ossumptions thot form the bosis of the Compony's
recorded environmentol liobilities ond reloted regulotory ossets
moy chonge;
r the risk of not being oble to recover the Compony's pension
expenditures in future rotes ond uncerlointy regording the future
regulotory treolment of pension, other postemployment benefits
ond post-retirement bene{its costs;
r the potentiol thot Hydro One moy incur significont expenses lo
reploce functions cunently outsourced if ogreements ore terminoted
or expire before o new service provider is selected;
r the risks ossocioted wilh economic uncertointy ond finonciol
morket volotility;
o the inobility lo prepore finonciol stotements using US GAAP; ond
o the impoct o[ the ownership by the Province of londs underlying
the Compony's tronsmission system.
Hydro One coutions the reoder thot the obove list of foctors is not
exhouslive. Some ol these ond olher foclors ore discussed in more
detoil in the section "Risk Monogement ond Risk Foctors" in this
MD&A.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
HYDRo oNE LrrrilrED oNE oF NoRTH AMERte\',t!6trU21FI!QI|6:OqHrEs 4s
Schedule 3, Page 47 of 167
>3z>oz
zo>g366A
U;I6oC6a
(_.,z
I
MANAGEMENT'S DISCUSSION AND ANALYSIS
In oddition, Hydro One coutions the reoder thot informotion provided
in this MD&A regording the Compony's outlook on certoin motters,
including potentiol future investmenls, is provided in order lo give
context to the nolure ol some of the Compony's future plons ond moy
not be oppropriote for other purposes.
Additionol inlormotlon obout Hydro One, including the Compony's
Annuol lnformolion Form, is ovoiloble on SEDAR ot www.sedor.com
ond the Com po ny's websile ot www. HydroOne.com/lnvestors.
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-I7-_
C.Lopez, Hydro One
Schedule 3, Page 48 of 167
46 HYDRO ONE tll |TED 2016 ANNUAL REPORT TSX: H
AAonogement's Report
The Consolidoted Finonciol Stotements, Monogement's Discussion
ond Anolysis (MD&A) ond reloted finonciol inlormotion hove been
prepored by the monogemenl o[ Hydro One Limited (Hydro One or
the Compony). Monogement is responsible for the integrity,
consistenc/ ond reliobility of oll such lnformotion presented. The
Consolidoted Finonciol Stolements hove been prepored in
occordonce with United Stotes Generolly Accepted Accounting
Principles ond opplicoble securities legislotion. The MD&A hos been
prepored in occordonce with Notionol lnstrument 5l-102.
The preporotion of the Consolidoted Finonciol Stotements ond
informotion in the MD&A involves the use of estimotes ond
ossumptions bosed on monogemenl's judgment, porticulorly when
tronsoctions oflecting the cunent occounting period connot be
finolized with certointy until future periods. Estimotes ond ossumptions
ore bosed on historicol experience, current conditions ond vorious
other ossumptions believed to be reosonoble in the circumstonces,
with criticol onolysis of the significont occounting policies followed by
the Compony os described in Note 2 to the Consolidoted Finonciol
Stotements. The preporotion of the Consolidoted Finonciol Stotements
ond the MD&A includes informotion regording the estimoted impocl
of lulure events ond lronsoctions. The MD&A olso includes informotion
regording sources o[ liquidity ond copitol resources, operoting trends,
risks ond uncertointies. Actuol results in the future moy differ moteriolly
Irom the present ossessment of this informotlon becouse future events
ond clrcumstonces moy not occur os expected. The Consolidoted
Finonciol Stotements ond MD&A hove been properly prepored within
reosonoble limits of moteriolity ond in light of informotion up to
Februory 9,2017.
Monogement is responsible for estoblishing ond mointoining
odequote internol control over finonciol reporting for the Compony. ln
meeting its responsibility for the reliobiliry of [inonciol informotion,
monogement mointoins ond relies on o comprehensive syslem of
internol control ond internol oudit. The system of internol control
includes o writlen corporote conduct poliry; implementotion of o risk
monogement fromework; effective segregotion of duties ond
delegotion of outhorities; ond sound occounling policies thot ore
regulorly reviewed. This structure is designed to provide reosonoble
ossuronce thot ossets ore sofeguorded ond thot relioble informotion is
ovoiloble on o timely bosis. In oddition, monogement hos ossessed
the design ond operoting effectiveness o[ the Compony's inlernol
control over finonciol reporting in occordonce with lhe crilerlo set
forth in lnternol Control - lntegroted Fromework (2013), issued by the
Committee o[ Sponsorlng Orgonizotions of the Treodwoy
Commission. Bosed on this ossessmenl, monogemenl concluded thot
the Compony mointoined effective internol control over finonciol
reporting os of December 3 I , 20 I 6. The effectiveness of these
internol controls is reporled to the Audit Committee of the Hydro One
Boord of Directors, os required.
The Consolidoled Finonciol Stotements hove been oudited by KPMG
LLP, independent externol ouditors oppointed by the shoreholders o[
the Compony. The externol ouditors' responsibility is to express their
opinion on whether the Consolidoted Finonciol Stotements ore foirly
presented in occordonce with United Stotes Generolly Accepted
Accounting Principles. The lndependent Auditors' Report outlines the
scope of their exominotion ond their opinion.
The Hydro One Boord of Directors, through its Audit Committee, is
responsible for ensuring thol monogement fulfills its responsibilities for
finonciol reporting ond internol controls. The Audit Committee of
Hydro One met periodicolly with monogement, the internol ouditors
ond the exlernol oudilors to sotisfy itself thot eoch group hod properly
dischorged ils respective responsibility ond to review the
Consolidoted Finonciol Stotements before recommendi ng opprovol
by the Boord of Directors. The externol ouditors hod direct ond full
occess lo the Audit Committee, wilh ond without the presence of
monogement, to discuss their oudit findings.
The President ond Chief Executive Officer ond the Chief Finonciol
Officer hove cedified Hydro One's onnuol Consolidoted Finonciol
Slolements ond onnuol MD&A, reloted disclosure controls ond
procedures ond the design ond effectiveness o[ reloted internol
conhols over [inonciol reporting.
On beholf of Hydro One's monogement:
7r/'@ ,2.4
Moyo Schmidt
President ond Chief
Executive Officer
Michoel Vels
Chief Finonciol Olficer
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
HYDRo oNE LrnilrED oNE oF NoRTH AMERre\',*oUiffTFIlQffEgHgrs rz
Schedule 3, Page 49 of 167
lndependent Auditors' Report
To the Shoreholders of Hydro One Linited
We hove oudited the occomponying Consolidoted Finonciol
Stotements of Hydro One Limited, which comprise the
consolidoted bolonce sheets os ot December 3 I , 20 I 6 ond
December 31, 2015, the consolidoted slotemenls o[ operotions ond
comprehensive income, chonges in equity ond cosh flows for the
yeors then ended, ond notes, comprising o summory of signilicont
occounting policies ond other explonotory informotion.
Monogementt Responsib ility for the Consolidoted
Finonciol Slotements
Monogemenl is responsible for the preporotion ond foir presentotion
ol these Consolidoted Finonciol Stotements in occordonce with
United Stotes Generolly Accepted Accounting Principles, ond for such
internol conlrol os monogement determines is necessory to enoble the
preporotion o[ Consolidoted Finonciol Slotemenls thot ore free from
moteriol misstotement, whether due to froud or error.
Auditors' Respon si bil i ty
Our responsibility is to express on opinion on these Consolidoted
Finonciol Stotements bosed on our oudils. We conducted our oudits
in occordonce with Conodion generolly occepted ouditing
stondords. Those stondords require thot we comply wlth ethicol
requiremenls ond plon ond perlorm the oudit to obtoin reosonoble
ossuronce obout whether the Consolidoled Finonciol Slotements ore
lree from moleriol misstotemenl.
An oudit involves perlorming procedures to obtoin oudit evidence
obout the omounts ond disclosures in the Consolidoted Finonciol
Stotements. The procedures selecled depend on our iudgment,
including the ossessment of the risks o[ moteriol misstotement o[ the
Consolidoted Finonciol Stotements. whether due to froud or error. In
moking those risk ossessmenls, we consider inlernol control relevont to
the entity's preporotion ond foir presentotion of the Consolidoted
Finonciol Stotements in order to design oudil procedures thot ore
oppropriole in lhe circumslonces, bul not for the purpose of
expressing on opinion on the effecliveness o[ the entity's internol
control. An oudit olso includes evoluoting lhe opproprioteness o[
occounting policies used ond the reosonobleness of occounling
estimotes mode by monogement, os well os evoluoting the overoll
presentolion of the Consolidoted Finonciol Stotements.
We believe thot the oudit evidence we hove obtoined in our oudits is
suflicient ond oppropriote to provide o bosis for our oudit opinion.
Opinion
ln our opinion, the Consolidoted Finonciol Stotements present foirly,
ln oll moteriol respects, the consolidoted finonciol position of Hydro
One Limited os ol December 31, 20,l6 ond December 31, 20,l5,
ond its consolidoted resulls of operotions ond its consolidoted cosh
flows for the yeors then ended in occordonce with United Slotes
Generolly Accepted Accounling Principles.
y'ha /4?
Chorlered Professionol Accountonts, Licensed Publ ic Accountonts
Toronto, Conodo
Februory 9,2017
Exhibit No. 4
CaseNos. AVU-E-I7- and AVU-G-I7-
i.Lop"r,Hydro One48 HYORO ONE LlillTED 2016 ANNUAL REPORT TSX: H
Schedule 3, Page 50 of 167
Consolidoted Stotements of Op"rotions
ond Comprehensive lncome
For the yeors ended December 3 I , 20 I 6 ond 20 I 5
Yeor ended December 3l lmillions of Conodion dollors, except per shore omountsl 2016 2015
Revenues
Diskiburion (includes $ 160 reloted porry revenues; 2015 - $ ,l59)
lNote 26) 4,915 4,949
Tronsmission (includes $1,553 reloted portyrevenues; 2015 -$l ,5541 (Note26) 1,584 ,],536
Other 53 53
6,5s2 6,538
Costs
Purchosed power (includes $2,l03 reloted porty costs; 20,I5 - $2,335) (Note 26)
Operotion, mointenonce ond odminiskotion lNole 26)
Depreciotion ond omortizotion /Nole 5/
3,427
1,069
778
3,450
r,r35
759
5,274 5,344
lncome before finoncing chorges ond income toxes
Finoncing.ho,g", /L
1,278
393
1,194
376
o.oto17gF
MF1oa>m(f
Iz
zot
2
885
139
BIB
r05
lncome before income toxes
lncome toxes /Notes
Net income 746 713
Other comprehensive income
Comprehensive income 746 714
Net income ottributoble to:
Noncontrolling inlerest /Nole 25/
Prelened shoreholders
Common shoreholders
6
t9
721
t0
l3
690
746 713
Comprehensive income ottributoble to:
Noncontrollirg interest /Nole 25/
Preferred shoreholders
Common shoreholders
6
t9
721
t0
t3
69r
746 714
Eornings per common shore /Note 23i
Bosic
Dtluted
$ t.zt
$ l.2l
$
$
39
39
Dividends per common shore declored (Note 22) $ 0.97 $ 1.83
See occomponying notes to Consolidoted F inonciol Sfotemenfs.
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-I7-_
HYDRo oNE LlmrED oNE oF NoRTH AMERre\',qjoUifrrFllftilE€ftgus rs
Schedule 3, Page 51 of 167
CONSOLI DATED FINANCIAL STATEMENTS
At December 31, 2Ol6 ond 2015
December 3l lmillions of Conodion dollors)
Consolidoted Bolonce Sheets
2016 201 5
Assets
Current ossets:
Cosh ond cosh equivolents
Accounts receivoble /Note 8i
Due from reloted porties lNote 26)
Olher current ossels /Note 9i
50
838
158
102
94
776
191
r05
148 r ,166
Property, plont ond equipmenl /Note iOl
Other long-term ossets:
Regulolory ossels /Note 12/
Deferred income tox ossets /Nofe Zi
lntongible ossets /Note i l/
Goodwill lNote 4)
Other ossets
19,140 17,968
3,1 45
1,235
349
327
7
3,01 5
r,636
336
r63
t0
5,063 5,1 60
Totol ossets 25,351 24,294
Liobililies
Current liobilities:
Short-term notes poyoble /Nole 15/
Longlerm debt poyoble within one yeor /Note l5/
Accounts poyoble ond other current liobilities lNote l3l
Due to reloted porties /Note 26/
469
602
945
147
1,491
500
B6B
r38
r63 99722
Long-term liobilities:
fong-termdebt(includes$54Smeosuredolfoirvolue; 2015-$5])/Nofes 15, /6i 10,078 8,207
Regulotory liobilities lNote 12) 209 236
Defened income tox ltobilities lNote 7) 60 2072,752 2,723
r 3,099 | 1 ,373
Totol liobilities 15,262 14,370
Contingencies ond Commitmenls (Notes 28, 29)
Subsequenf Events /Note 3 ii
Noncontroliing interest subiect to redemption lNote 25) 22 23
Equity
Common s\ores (Notes 21, 22) 5,623 5,623
Preferred s\ores lNotes 21, 22) 418 418
Additionol poid-in copirol (Note 24) 34 l0
Retoined eornlngs 3,950 3,806
Accumuloled other comprehensive loss (8) (8)
Hydro One shoreholders' equity 10,017 9,849
Noncontrolling interest /Nofe 25i 50 52
Totol equity 10,067 9,901
25,351 24 294
See occomponying notes to Consolidoted Finonciol Stotements.
On beholf of the Boord of Directors:
Dovid Denison
Choir
\F (>
Philip Orsino
Choir. Audit Commitlee
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-I7-_
C. Lopez, Hydro One
Schedule 3, Page 52 of 167
50 HYDRO ONE LI'IIITED 20] 6 ANNUAI- REPORT TSX: H
frr-.*i
Consolidoted Stotements of Chonges in Equily
For the yeors ended December 3l ' 2016 ond 201 5
Accumuroted Norr
yeorendedDxember3t,2ot6 common prebrred
*iHfl
Reroined co,p,"nfl?iJ tt?#ff *"[1']:.g,
Toi:t
Imllions of Conodion dollorsl Shores Shores Copitol Eornings Loss EquiV /Note 25) Equity
lonuory 1,2016
Nel income
Other comprehensive income
Distributions to noncontrolling interest
Dividends on preferred shores
Dividends on common shores
Stock-bosed compensotion (Note 24)
5,623 418 3,806
740
(r;
(s77:
9,849 9,901
744
t0 9 52
4
(6)
24
(t e)
ls77l
24
(6)
(t e)
15771
24
December 31 , 2Ol 6 5,623 418 34 3,950 (81 1O,Ot7 50 10,067
Yeor ended D*embr 3l , 201 5 Common Preferred
Shores Shores
Accumuloted Non-
Additionol Other [!ro One controlling
Poidin Retoined Comprehensive Shoreholders' lnEresl Totol
of Conodion
Jonuory 1,2015
Net income
Olher comprehensive income
Dishibutions to nonconlrolling inlerest
Eorn Loss
3,3r4 4,249
703
{e)
I
7,554
703
'I
9 849 \)o
49 7,603
7 710
-t
t4) 14)
Dividends on preferred shores - (l 3) - (l 3) - (l 3)
Dividends on common shores - ,875|l - ,875) - 1875],
Hydro One Brompton spinoff /Nore 4i {196) {258) - 1454) - 1454J
PrelPO Tronsoctions lNote 2 l/ 2,505 4,l 8 - 2,923 - 2,923
Stock-bosedcompensotionlNob24/ - - l0 - - l0 - lO
901
See occomponying noles to Consolidoted Finonciol Stotements.
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-I7-_
HYDRo oNE r.mrrED oNE oF NoRTH AMERre\',qJoUiffJFliQI[Egftgrs sr
Schedule 3, Page 53 of 167
6O>Ui6sa)m=1ea>mIlZ
Z.)t
2
December 3.l, 2015 5,623 4r8 10 3,806
CONSOLI DATED FINANCIAL STATEMENTS
For ke yeors ended December 3 I , 201 6 ond 2Ol 5
Yeor ended December 3l lmillions of Conodion dollors)
Consolidoted Stotements of Cosh Flows
2016 20r5
Operoting octivities
Net income
Envi ronmentol expend itures
Adiustmenls for noncosh items:
Depreciotion ond omortizotion {excludlng removol costs}
Regulotory ossets ond liobilities
Deferred income toxes lNote 7)
Other
Chonges in noncosh bolonces reloted to oryolignsl|loP24
713
lte)
688
(16)
114
t0
134
668
(3)
12,8441
24
213
Nel cosh from (used in) operoting octivilies 1,656 \1,248)
Finoncing octivities
Long-term debt issued
Longlerm debt repoid
Short-term notes issued
Short-lerm notes repoid
Common shores issued
Dividends poid
Distributions poid lo nonconlrolling interest
Chonge in bonk indebtedness
Other
2,300
(s02)
3,031
(4,0s3)
(se6)
(e)
(10)
350
(sB5t
2,891
(1 ,4001
2,600
(888)
(s)
t2t
t7)
Net cosh from finoncing octivities l6t 2,954
lnvesting octivities
Copitol expenditures (Note 27)
Property, plont ond equipment
lnlongible ossets
Copitol contributions received lNote 27)
Acquisitions lNote 4)
lnvestment in Hydro One Brompton lNote 4)
Other
(r,600)
(61)
21
12241
3
,595)
l37l
57
(e0l
{53}
6
Net cosh used in investing octivities (r,86r )0,712)
Net chonge in cosh ond cosh equivolents
Cosh ond cosh equivolents, beginning of yeor
(441
94
(6)
r00
Cosh ond cosh equivolents, end of yeor 50 94
See occomponying notes to Consolidoted Finonciol Slotements.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-I7-_
C.Lopez, Hydro One
Schedule 3, Page 54 of 167
52 HYDRO ONE II'IIITED 20I6 ANNUAL REPORT TSX: H
746
(20)
(1
Notes to Consolidoted Finoncio Stotements
For the yeors ended December 3 I , 201 6 ond 201 5
I . Description of The Business
Hydro One Limited (Hydro One or the Compony) wos incorporoled
on August 3l , 20,15, under the Business Corporotions Acl {Ontoriol.
On October 31 , 20,15, the Compony ocquired Hydro One Inc., o
compony previously wholly owned by the Province of Ontorio
(Province). The ocquisition of Hydro One lnc. by Hydro One wos
occounted for os o common control tronsoction ond Hydro One is o
continuotion of business operotions of Hydro One lnc. At
December 3 I , 201 6, the Province holds opproximolely 70.1%
{2015 - 84%l of the common shores of Hydro One. See nole 2 l for
further detoils regording the reorgonizotion of Hydro One.
The principol businesses of Hydro One ore the tronsmission ond
distribution of electricity to cuslomers within Ontorio.
2. Significont Accounting Policies
Bosis of Consolidotion ond Preporotion
These Consolidoted Finonciol Slotemenls include the occounts of the
Compony ond its subsidiories. Intercompony konsoctions ond
bolonces hove been eliminoted.
The comporotive lnformotion to these Consolidoted Finonciol
Stotements hos been presented in o monner similor to the
poolingof-interests method. The comporotive informotion consists of
the resulls of operotions of Hydro One lnc. prior lo October 31,
2015, ond the consolidoted resuhs of operotions of Hydro One from
the dote of incorporolion on August 3 I , 201 5 to December 3 'l
,
2015, which include the results of Hydro One Inc. subsequent lo its
ocquisition on October 3 I , 20 I 5. The comporotive informotion hos
been combined using historicol omounts. ln oddition, Hydro One's
issued ond outstonding common shores prior to October 3 I , 20.l 5
hove been retrooctively odiusted for the purposes of presentotion to
reflect the effects of the ocquisition of Hydro One Inc. using the
exchonge rotio estoblished for the ocquisition. The Consolldoted
Finonciol Slotements ore relerred to os "consolidoled' for oll periods
presented.
On August 3 I , 20I 5, Hydro One lnc. completed the spinoff of its
subsidiory, Hydro One Bromplon Networks lnc. {Hydro One
Brompton) to the Province (see nole 4). The comporolive informotion
to these Consolidoted Finonciol Stotements includes the results of
Hydro One Brompton up to August 3,1, 2015.
Bosis of Accounting
These Consolidoted Finonciol Stotements ore prepored ond presented
in occordonce with Uniled Stotes (US) Generolly Accepted
Accouniing Principles (GAAP) ond in Conodion dollors.
Use of Monogement Estimotes
The preporotion of finonciol stotements requires monogement to moke
estimotes ond ossumptions thot offect the reported omounts of ossets
ond liobilities ot the dote ol the finonciol stotements ond the reported
omounts of revenues, expenses, goins ond losses during lhe reporting
periods. Monogement evoluotes these estimotes on on ongoing bosis
bosed upon hisloricol experience, current conditions, ond
ossumptions belleved to be reosonoble ot the time the ossumptions
ore mode, with ony odiustments being recognized in results of
operotions in the period they orise. Significont estimotes relote to
regulotory ossets ond regulotory liobilities, environmentol liobilities,
pension benefits, post-retiremeni ond postemployment benefits, osset
retirement obligotions, goodwill ond osset impoirments,
contingencies, unbilled revenues, ollowonce for doubtful occounts,
derivotive instruments, ond deferred income tox ossets ond liobilities.
Actuol resulls moy difler significontly from these estimotes.
Rote Setting
The Compony's Tronsmission Business consists of the honsmission
business o[ Hydro One lnc., which includes the konsmission business
ol Hydro One Networks lnc. (Hydro One Networks), Hydro One
Soult Ste. Morie LP (previously Greot Lokes Power Tronsmission LP
(Greot Lokes Powerl), ond its 66% interest in B2M Limited Portnership
{B2M tP). The Compony's Distribution Business consists of the
distribution business o[ Hydro One lnc., which includes the
distribution businesses of Hydro One Networks, os well os Hydro
One Remote Communities Inc. (Hydro One Remote Communities).
Tronsmission
ln November 2015, the OEB opproved Hydro One Networks'
20 i6 tronsmission rotes revenue requirement of $ 1 ,480 million.
In December 201 5, the OEB opproved B2M LP's 20 l 5-201 9 rotes
revenue requirements of $39 million, $36 million, $37 million,
$38 million ond $37 million for the respeclive yeors. OnJonuory l4,
20,l 6, the OEB opproved the B2M LP revenue requirement recovery
through the 20,16 Uniform Tronsmission Rotes, ond the estoblishment
of o deferrol occount to copture costs of Tox Role ond Rule chonges.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
HYDRo oNE umrrED oNE oF NoRTH AMERtg',qjduiffrFI'QIf6€[igrrs ss
Schedule 3, Page 55 of 167
azzo_>r
6-.
E6aO
1,9fra<om=z9r>@1mI
3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Distribution
In Morch 201 5, the OEB opproved Hydro One Nelworks'
distribution revenue requirements of $
,l,326 million for 20.l5,
$ I ,430 million lor 201 6 ond $ I ,486 million for 20 I Z. The OEB
hos subsequently opproved updoted revenue requirements of
$ I ,41 0 million for 201 6 ond $ I ,41 5 million for 201 7.
On Morch 17, 2O16, the OEB opproved on increose of 2.)O% to
Hydro One Remote Communities' bosic rotes for lhe distribut'ton ond
generolion of electricity, with on effective dote of Moy ) ,2A16.
Regulotory Accounting
The OEB hos the generol power to include or exclude revenues,
costs, goins or losses in lhe roles of o specific period, resulting in o
chonge in the timing of occounting recognition from thot which would
hove been opplied in on unreguloted compony. Such chonge in
timing involves the opplicotion of rotereguloted occounting, giving
rise to the recognition of regulotory ossels ond liobilities. The
Compony's regulotory ossels represent cerloin omounts receivoble
from future customers ond cosls thot hove been delerred lor
occounting purposes becouse it is proboble thot they will be
recovered in future rotes. ln oddition, the Compony hos recorded
regulotory liobilities thot generolly represent omounls thol ore
refundoble to luture customers. The Compony continuolly ossesses the
likelihood o[ recovery of eoch o[ ils regulotory ossets ond continues lo
believe thot it is proboble lhot the OEB will include its regulotory
ossets ond liobilities in settlng of future rotes. lf, ot some future dote,
the Compony iudges thot it is no longer proboble thot the OEB will
include o regulotory osset or liobility in setting future rotes, the
oppropriote corrying omount would be reflecled in results of
operotions in the period thot the ossessment is mode.
Cosh ond Cosh Equivolents
Cosh ond cosh equivolents include cosh ond short-term investmenls
wlth on originol moturity of three monlhs or less.
Revenue Recognition
Tronsmission revenues ore collected through OEB-opproved rotes,
which ore bosed on on opproved revenue requirement thol includes
o rote of return. Such revenue is recognized os eleclriclty is
tronsmitted ond delivered to customers.
Distribution revenues ottributoble to the delivery ol eleckicity ore
bosed on OEB<pproved distribution rotes ond ore recognized on on
occruoi bosis ond include billed ond unbilled revenues. Billed
revenues ore bosed on electricily delivered os meosured from
customer meters. At the end of eoch month, electricify delivered to
customers since the dote o{ the lost billed meter reoding is estimoted,
ond the conesponding unbilled revenue is recorded. The unbilled
revenue eslimote is offected by energy consumption, weother, ond
chonges in the composition of customer closses.
Distribution revenue olso includes on omounl reloting to rote
protection for rurol, residentiol, ond remole customers, which is
received from lhe Independent Eleclricily System Operotor (IESO)
bosed on o stondordized cuslomer rote lhot is opproved by the OEB
Revenues olso include omounts reloted to soles of other services ond
equipmenl. Such revenue is recognized os services ore rendered or
os equipment is delivered.
Revenues ore recorded net of indirect toxes.
Accounts Receivoble ond Allowonce for
Doubtful Accounts
Billed occounts receivoble ore recorded ot the invoiced omount, net
o[ ollowonce for doubtful occounls. Unbilled occounts receivoble ore
recorded ol their estimoted volue. Overdue omounls reloted to
reguloted billings beor interest ot OEBopproved roles. The ollowonce
for doubtful occounls reflects the Compony's besl estimote of losses
on billed occounts receivoble bolonces. The Compony estimotes lhe
ollowonce for doubtful occounls on billed occounts receivoble by
opplying internolly developed loss rotes to the outstonding receivoble
bolonces by oglng cotegory. Loss rotes opplied to the billed occounts
receivoble bolonces ore bosed on historicol overdue bolonces,
customer poyments ond writeoffs. Accounts recelvoble ore written-off
ogoinsl the ollowonce when lhey ore deemed uncollectible. The
ollowonce for doubtful occounts is offected by chonges in volume,
prices ond economic conditions.
Noncontrolling interest
Noncontrolling inlerest represents the portion of equity ownership in
subsidiories thot is not ottributoble to shoreholders of Hydro One.
Nonconkolling interest is initiolly recorded ol loir volue ond
subsequently the omount is odiusted lor lhe proportionole shore of net
income ond other comprehensive income ottributoble to the
noncontrolling interest ond ony dividends or diskibutions poid to the
nonconlrolling inlerest.
lf o tronsoction results in the ocquisition of oll, or port, of o
noncontrolling inlerest in o subsidiory, the ocquisition o[ the
nonconkolling interest is occounled for os on equity lronsoction. No
goin or loss is recognized in consolidoted nel income or
comprehensive income os o resuli ol chonges in the noncontrolling
interest, unless o chonge results in the loss of control by the
Compony.
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 56 of 167
54 HYDRO ONE LIXIITED 2016 ANNUAL REPORT TSX: H
lncome Toxes
Prior to lhe lPO, Hydro One wos exempl from tox under the /ncome
Iox Act {Conodo) ond the Toxotion Act, 2OO7 lOntorio) (Federol Tox
Regime). However, under the Electricity Act, Hydro One wos
required to moke poyments in lieu of lox (PlLs) to the Ontorio
Eleckicity Finoncing Corporotion (OEFCI {PlLs Regime). The PlLs were,
in generol, bosed on the omounl of tox thot Hydro One would
otherwise be lioble to poy under the Federol Tox Regime if it wos not
exempt from toxes under those slotutes. ln conneclion with the IPO of
Hydro One, Hydro One's exemplion from lox under the Federol Tox
Regime ceosed to opply. Upon exiting the PlLs Regime, Hydro One is
required to moke corporole income tox poyments to the Conodo
Revenue Agency (CRA) under the Federol Tox Regime.
Current ond deferred income toxes ore computed bosed on the tox
rotes ond tox lows enocted os ot the bolonce sheet dote. Tox benefits
ossocioted with income tox positions loken, or expected to be token,
in o tox relurn ore recorded only when the "morelikely-thon-not"
recognition threshold is sotisfied ond ore meosured ol the lorgest
omount of benefit thot hos o greoter thon 50% llkellhood of being
reolized upon sefilement. Monogement evoluotes eoch position
bosed solely on the technicol merils ond focts ond circumstonces of
the position, ossuming the position will be exomined by o toxing
outhoril'y hoving full knowledge of oll relevont informolion. Significont
monogement iudgment is required to determine recognilion thresholds
ond the reloted omount o[ tox benelits to be recognized in the
Consolidoted Finonciol Stotemenls. Monogement reevoluotes lox
positions eoch period using new informotion obout recognilion or
meosurernent os it becomes ovoiloble.
Deferred lncome Toxes
Deferred income toxes ore provided for using lhe liobility method.
Deferred income loxes ore recognized bosed on the eslimoted future
tox consequences ottributoble to temporory differences between the
corrying omount of ossets ond liobilities in lhe Consolidoted Finonciol
Stotements ond their corresponding tox boses.
Deferred income tox liobilities ore recognized on oll toxoble
lemporory differences. Delerred tox ossets ore recognized to the
extent thot it is morelikelython-not thot these ossets will be reolized
from toxoble income ovoiloble ogoinst which deductible temporory
differences con be utilized.
Defened income toxes ore colculoted ot lhe tox rotes lhot ore
expected to opply in the period when the liobilit/ is settled or the
osset is reolized, bosed on lhe tox rotes ond tox lows thot hove been
enocled os ot lhe bolonce sheet dote. Deferred income toxes thot ore
not included in the rotesetting process ore chorged or credited to the
Consolidoted Stotements o[ Operotions ond Comprehensive lncome.
lf monogement determines thot il is morelikelython-not thol some or
oll of o deferred income tox osset will not be reolized, o voluotion
ollowonce is recorded ogoinst the deferred income lox osset to report
lhe net bolonce ot the omount expected to be reolized. Previously
unrecognized deferred income tox ossets ore reossessed ot eoch
bolonce sheet dole ond ore recognized to fie exlent thot il hos
become more-likelython-not thot the tox benefit will be reolized.
The Compony records regulotory ossets ond liobilities ossocioted with
deferred income toxes thot will be included in the rote-setting process.
The Compony uses the flowthrough method to occount lor investment
tox credits {lTCs} eorned on eligible scientific reseorch ond
experimentol development expenditures, ond opprenticeship iob
creotion. Under this method, only non-refundoble lTCs ore recognized
os o reduclion lo income tox expense.
Moteriols ond Supplies
Moleriols ond supplies represent consumobles, smoll spore ports ond
construction moleriols held for internol construction ond mointenonce
of property, plont ond equipment. These ossets ore conied ot
overoge cosl less ony impoirments recorded.
Property, Plont ond Equipment
Property, plont ond equipment is recorded ot originol cost, net of
customer contributions, ond ony occumuloled impoirment losses. The
cost of odditions, including betterments ond replocement osset
cornponents, is included on the Consolidoted Bolonce Sheets os
property, plont ond equipmenl.
The originol cost of property, plont ond equipment includes direct
moteriols, direct lobour (including employee benefits), controcted
services, ottributoble copitolized finoncing cosls, osset retirement
costs, ond direct ond indirect overheods thot ore reloted to the copitol
proiect or progrom. lndirect overheods include o portion o[ corporote
costs such os finonce, treosury, humon resources, informotion
technology ond executive costs. Overheod costs, including corporote
functions ond field sevices costs, ore copitolized on o fully ollocoled
bosis, consislent with on OEB-opproved methodology.
Properly, plont ond equipment in service consists of lronsmission,
distribution, communicotion, odministrotion ond service ossets ond
lond eosements. Property, plont ond equipment olso includes future
use ossels, such os lond, moior components ond spore ports, ond
copitolized proiect development costs ossocioted with defened
copitol proiects.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
HYDRo oNE LrruurED oNE oF NoRTH AMERte',qjbtriffrfly{r6:OhgrEs ss
Schedule 3, Page 57 of 167
azzo>r
6@EdaO
r,9fra
=om=zal>U'4mI
3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tronsmission
Tronsmlssion ossets include ossets used for the lronsmission of high-
voltoge electricity, such os tronsmission lines, support structures,
foundotions, insulotors, connecting hordwore ond grounding systems,
ond ossets used to slep up the voltoge of electricity from generoting
stotions for tronsmission ond to step down voltoges for dislribution,
including tronsformers, clrcuil breokers ond switches.
Distribution
Distribution ossets include ossets reloled to the distribution ol
low-voltoge electricily, including lines, poles, switches, lronslormers
proteclive devices ond metering systems.
Communicolion
Communicotion ossets include [ibre optic ond microwove rodio
systems, opticol ground wire, towers, telephone equipmenl ond
ossocioted buildings.
Adminishotion ond Service
Administrotion ond service ossels include odministrotive buildings,
personol computers, tronsport ond work equipment, tools ond other
minor ossels.
Eosements
Eosemenls include stotutory rights of use for tronsmission corridors ond
obutting londs gronted under the Re/,oble Energy ond Consumer
Protection Act, 2002, os well os other lond occess rights.
lntongible Assets
lnlongible ossets seporotely ocquired or internolly developed ore
meosured on initiol recognition ot cost, which comprises purchosed
softwore, direct lobour (including employee benefits), consulting,
engineering, overheods ond ottributoble copitolized [inoncing
chorges. Following initiol recognition, intongible ossets ore corried ol
cosl, net o[ ony occumuloted omortizotion ond occumuloted
impoirment losses. The Compony's intongible ossets primorily
represent moior computer opplicotions.
Copitolized Finoncing Costs
Copitolized finoncing costs represent interest costs ottributoble to the
conslruction o[ property, plont ond equipment or development of
intongible ossets. The [inoncing cost of ottributoble borrowed funds is
copitolized os pon of lhe ocquisition cosl of such ossets. The
copitolized finoncing costs ore o reduction of finoncing chorges
recognized in the Consolidoted Stotements of Operotions ond
Comprehensive lncome. Copitolized finoncing costs ore colculoted
using the Compony's weighted overoge effective cost ol debt.
Construction ond Development in Progress
Construction ond development in progress consists of the copitolized
cost of constructed ossets thot ore not yet complete ond which hove
not yet been ploced in service.
Depreciotion ond Amortizotion
The cost of property, plont ond equipment ond intongible ossets is
deprecloted or omortized on o skoight-line bosis bosed on the
estimoted remoining service life o[ eoch ossel cotegory, excepl for
lronsport ond work equipment, which is deprecioted on o declining
bolonce bosis.
The Compony periodicolly initiotes on externol independenl review of
its property, plont ond equipment ond lntongible osset depreciotion
ond omortizotion rotes, os required by the OEB. Any chonges orising
from OEB opprovol of such o review ore implemented on o
remoining service life bosis, consislent with their inclusion in electricity
roles. The losl review resulted in chonges lo rotes effectiveJonuory l,
201 5. A summory of overoge service lives ond depreciotion ond
omortizotion roles lor the vorious closses of ossets is included below:
Averoge
Service Life
Rote
Ronge Averoge
Property, plont ond equipment:
Tronsmission
Distribution
Communicotion
Adminishotlon ond service
Intongible ossets
56 yeors
46 yeors
1 6 yeors
1 8 yeors
1 0 yeors
1%-3%
1%-7%
1%-15%
1%-20%
10%
2%
2%
6%
107"
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-I7-_
C.Lopez, Hydro One
Schedule 3, Page 58 of 167
56 HYDRO ONE tlMlTED 2016 ANNUAT REPORT TSX: H
ln occordonce with group depreciotlon proctices, the originol cost of
property, plont ond equipment, or moior components thereof, ond
intongible ossets thot ore normolly retired, is chorged to occumuloled
depreciotion, with no goin or loss being reflected in results of
operotions. Where o disposition of property, plont ond equipment
occurs through sole, o goin or loss is colculoted bosed on proceeds
ond such goin or loss is included in depreciotion expense.
Acquisitions ond Goodwill
The Compony occounts for business ocquisitions using the ocquisition
method of occounting ond, occordingly, the ossets ond liobilities of
the ocquired entities ore primorily meosured ot lheir estimoted foir
volue ot the dote of ocquisition. Goodwill represents the cost of
ocquired componies thot is in excess of the foir volue o[ the net
idenlifioble ossets ocquired ot the ocquisition dote. Goodwill is not
included in rote bose.
Goodwill is evoluoted lor impoirment on on onnuol bosis, or more
lrequently if circumstonces require. The Compony performs o
quolitotive ossessment to determine whether it is morelikely-thon-not
thot the foir volue of the opplicoble reporling unil is less thon its
corrying omount. lf the Compony determines, os o result of its
quolitotive ossessmenl, thot it is not morelikely-thon-not thot the foir
volue of the opplicoble reporting unil is less thon its corrying omount,
no further testing is required. lf the Compony determines, os o result
of its quolitotive ossessmenl, thot it is morelikelython-not thot the foir
volue of the opplicoble reporting unit is less lhon its corrying omounl,
o goodwill impoirmenl ossessment is performed using o twostep, foir
voluebosed test. The first step compores the foir volue of the
opplicoble reporting unit to its corrying omount, including goodwill. lf
the corrying omounl o[ the opplicoble reporting unit exceeds its foir
volue, o second step is performed. The second slep requires on
ollocotion of foir volue to the individuol ossets ond l;obilities using
purchose price ollocotion in order lo determine the implied loir volue
of goodwill. lf the implied foir volue of goodwill is less thon the
corrying omounl, on impoirment loss is recorded os o reduction to
goodwlll ond os o chorge to results o[ operotions.
For the yeor ended December 3l , 20 16, bosed on the quolitotive
ossessment performed os ot September 30, 20,16, the Compony hos
determined thot it is not morelikelython-not thot fie foir volue of eoch
opplicoble reporting unit ossessed is less thon its corrying omount. As
o result, no further testing wos performed, ond the Compony hos
concluded thot goodwill wos not impoired ol December 3.l, 20'16.
Long-Lived Asset lmpoirment
When circumstonces indicote the corrying volue of long-lived ossets
moy not be recoveroble, the Compony evoluotes whether the
corrying volue of such ossets, excluding goodwill, hos been
impoired. For such longlived ossets, the Compony evoluotes whether
impoirment moy exisl by estimoting future estimoted undiscounted
cosh flows expected to result lrom the use ond eventuol disposition of
the osset. When olternotive courses of oction to recover the corrying
omounl of o long-lived osset ore under considerotion, o probobiliy
weighted opprooch is used to develop estimoles o[ fulure
undiscounted cosh flows. l[ the corrying volue of the long-lived osset
is nol recoveroble bosed on the eslimoted fulure undiscounted cosh
flows, on impoirment loss is recorded, meosured os the excess of the
corrying volue of the osset over its foir volue. As o result, the ossel's
corrying volue is odiusted lo its estimoted [oir volue.
Wthin its reguloted business, the corrying costs of most of Hydro One's
longlived ossets ore included in role bose where they eorn on
OEB-opproved rote of return. Asset corrying volues ond the reloted return
ore recovered through opproved rotes. As o result, such ossets ore only
tested for impoirment in fie event thot the OEB disollows recovery, in
whole or in port, or i{ such o disollowonce is iudged to be proboble.
Hydro One regulorly monitors the ossets of its unreguloted Hydro
One Telecom subsidiory for indicotions o[ impoirment. Monogement
ossesses the foir volue of such long-lived ossets using commonly
occepted techniques. Techniques used to determine foir volue
include, but ore not limited to, the use of recent third-porl'/
comporoble soles for relerence ond internolly developed discounted
cosh flow onolysis. Significont chonges in morkel conditions, chonges
to the condilion of on osset, or o chonge in monogement's inlent to
utilize the ossel ore generolly viewed by monogement os triggering
events to reossess the cosh flows reloled to these long-lived ossels. As
ot December 3 I , 20.l 6 ond 201 5, no osset impoirment hod been
recorded for ossets within either the Compony's reguloted or
unreguloted businesses.
Costs of Arronging Debt Finoncing
For finonciol liobilities clossified os other thon heldJor-troding, the
Compony defers the externol konsoction costs reloted lo obtoining
debt [inoncing ond presenls such omounls net of reloted debt on the
Consolidoted Bolonce Sheets. Deferred debt issuonce costs ore
omorllzed over lhe controctuol life of the reloted debt on on effective
interest bosis ond the omortizotion is included within finoncing
chorges in the Consolidoted Stotements of Operotions ond
Comprehensive lncome. Tronsoction costs for items clossi{ied os
held{or-troding ore expensed immediotely.
Comprehensive lncome
Comprehensive income is comprised of net income ond other
comprehensive income (OCl). Hydro One presents net income ond
OCI in o single continuous Consolidoted Stotemenl o[ Operotions
ond Comprehensive Income.
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-I7-_
HYDRo oNE LrrnrED oNE or NoRTH AMERrq}',ilouifrrFllQIfEgHges sz
Schedule 3, Page 59 of 167
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Finonciol Assets ond Liobilities
All finonciol ossets ond liobilities ore clossified into one o[ lhe
following flve cotegories: held-tomoturity; loons ond receivobles;
held{or-troding; other liobllities; or ovoiloble{or-sole. Finonciol ossets
ond liobilities clossilied os held{or-troding ore meosured ot foir volue.
All other finonciol ossets ond liobilities ore meosured ot omortized
cosl, except occounts receivoble ond omounts due from reloted
porlies, which ore meosured ot lhe lower o[ cosl or foir volue.
Accounts receivoble ond omounts due from reloted porties ore
clossified os loons ond receivobles. The Compony considers the
corrying omounls of occounts receivoble ond omounts due from
reloted porlies to be reosonoble estimotes of [oir volue becouse o[ the
short time to moturily of these instruments. Provisions for impoired
occounls receivoble ore recognized os odiustments to the ollowonce
for doubtful occounts ond ore recognized when there is obiective
evidence thot the Compony wlll not be oble to collect omounts
occording to the originol terms. All finonciol instrument tronsoctions
ore recorded ot trode dote-
Derivolive instruments ore meosured ot foir volue. Goins ond losses
from foir voluotion ore included within finoncing chorges in the period
ln which they orise. The Compony delermines the clossificotion o[ its
finonclol ossets ond liobilities ot the dote of initiol recognition. The
Compony designotes certoin o[ its [inonciol ossets ond liobilities to be
held ol foir volue, when it is consistent with the Compony's risk
monogement poliry disclosed in Note l6 - Foir Volue o[ Finonciol
Instruments ond Risk Monogement.
Derivotive lnstruments ond Hedge Accounting
The Compony closely monilors the risks ossocioted with chonges in
interest rotes on ils operotions ond, where oppropriote, uses vorious
instruments to hedge these risks. Certoin of these derivotive inslrumenls
quolify for hedge occounting ond ore designoted os occounting
hedges, while others either do not quolily os hedges or hove not
been designoted os hedges (hereinofuer referred to os undesignoted
conlrocls) os they ore port of economic hedging relotionships.
The occounting guidonce for derivotive instruments requires the
recognition o[ oll derivotive instruments not identified os meeting the
normol purchose ond sole exemption os either ossets or liobilities
recorded ot foir volue on the Consolidoted Bolonce Sheets. For
derivotive instruments thot quolify for hedge occounting, the Compony
moy elect to designote such derivotive instruments os either cosh flow
hedges or foir volue hedges. The Compony offsets foir volue omounts
recognized on its Consolidoted Bolonce Sheets reloted lo derivotive
inskuments executed with the some counterporty under the some
moster netling ogreement.
For derivotive instruments thot quolify for hedge occounting ond which
ore designoted os cosh flow hedges, the effective portion o[ ony goin
or loss, net o[ lox, is reporled os o component of occumuloted OCI
(AOCI) ond is reclossified to resuts of operotions ln the some period
or periods during which the hedged tronsoction offects resulls of
operotions. Any goins or losses on the derivotive instrument thot
represenl either hedge ineffectiveness or hedge components excluded
from the ossessment of effectlveness ore recognized in results of
operotions. For foir volue hedges, chonges in foir volue of both the
derivotive instrument ond the underlying hedged exposure ore
recognized in the Consolidoted Stotements of Operotions ond
Comprehensive Income in the current period. The goin or loss on the
derivotive instrument is included in the some line item os the offseiling
goin or loss on the hedged item in the Consolidoted Stotements of
Operotlons ond Comprehensive lncome. The chonges in foir volue o[
the undesignoted derlvolive instruments ore reflected in results o[
operolions.
Embedded derivotive instrumenls ore seporoted lrom their host
controcls ond ore conied ot foir volue on lhe Consolidoted Bolonce
Sheets when: (o) the economic chorocteristics ond risks of lhe
embedded derivolive ore not cleorly ond closely reloted to the
economic chorocterisiics ond risks of the host controct; lb) the hybrid
instrument is not meosured ot foir volue, with chonges in foir volue
recognized in results of operotions eoch period; ond {c) the
embedded derivoiive itself meets the definition of o derivotive. The
Compony does not engoge in derivotive troding or speculotive
oclivilies ond hod no embedded derivotives ot December 3l ,2016
or 20,l 5.
Hydro One periodicolly develops hedging strotegies toking into
occount risk monogement objectives. At the inception of o hedging
relotionship where the Compony hos elected to opply hedge
occounting, Hydro One formolly documents the relotionship between
the hedged item ond the hedging instrument, the reloted risk
monogement obiective, the noture o[ the specific risk exposure being
hedged, ond the method for ossessing the effecliveness o[ the
hedging relotionship. The Compony olso ossesses, both ot lhe
inception of the hedge ond on o quorterly bosis, whether the hedging
instruments ore effective in offsetting chonges in foir volues or cosh
flows of the hedged items.
Employee Future Benefits
Employee future benefils provided by Hydro One include pension,
post-retirement ond post-employment benefits. The costs of the
Compony's pension, post-retirement ond postemployment benef it
plons ore recorded over the periods during which employees render
service.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 60 of 167
sg HYDRO ONE tlMlTED 2016 ANNUAI REPORT TSX: H
The Compony recognizes the funded stotus of its defined benelit
pension, post-retirement ond postemployment plons on its
Consolidoted Bolonce Sheets ond subsequently recognizes the
chonges in funded stotus ot the end of eoch reporting yeor. De[ined
benelit pension, post-retirement ond postemployment plons ore
considered to be underfunded when the proiected benefit obligotion
exceeds the foir volue o[ the plon ossets. Liobilities ore recognized on
the Consolidoted Bolonce Sheets for ony net underfunded proiected
benefit obligotion. The net underfunded proiected benefit obligotion
moy be disclosed os o current liobility, long-term liobility, or both. The
current portion is the omount by which the octuoriol present volue of
benefits included in lhe benefit obligotion poyoble in the next l2
months exceeds the foir volue o[ plon ossets. lf lhe fo;r volue of plon
ossets exceeds the proiected benefit obligotion of the plon, on osset
is recognized equol to the net overfunded proimted benelit
obligotion. The post-retirement ond postemployment benefit plons ore
unfunded becouse lhere ore no reloled plon ossets.
Hydro One recognizes ils conkibutions lo the defined conlribution
pension plon os pension expense, with o portion being copitolized
os port of lobour costs included in copitol expenditures. The
expensed omount is included in operolion, mointenonce ond
odminishotion cosls in the Consolidoted Stotemenls of Operotions
ond Comprehensive lncome.
Defined Benefit Pension
Defined benelit pension costs ore recorded on on occruol bosls for
finonciol reporting purposes. Pension cosls ore ocluoriolly determined
using the proiected benefit method proroted on service ond ore
bosed on ossumplions thot reflect monogemenl's best estimote of the
effect of future events, including future compensolion increoses. Post
service costs from plon omendmenls ond oll octuoriol goins ond
losses ore omorlized on o stroighl-line bosis over the expected
overoge remoining service period of octive employees in the plon,
ond over the estimoted remoining life expectoncy of inoctive
employees in the plon. Penslon plon ossets, consisting primorily o[
listed equity securities os well os corporote ond government debt
securities, ore foir volued ol the end of eoch yeor. Hydro One
records o regulolory osset equol to the net underfunded proiected
benefit obligotion for its pension plon.
Post-retirement ond Postcmployment Benefits
Post-retirement ond postemployment benefits ore recorded ond
included in rotes on on occruol bosis. Costs ore determined by
independent octuories using the proiected benefit method proroted on
service ond bosed on ossumplions thot reflect monogemenl's best
estimotes. Post service costs from plon omendments ore omortized to
results of operotions bosed on the expected overoge remoining
service period.
For post-retirement benefits, oll octuoriol goins or losses ore defened
using the "conidor" opprooch. The omounl colculoted obove lhe
"conidor" is omortized to results of operotions on o stroight-line bosis
over the expected overoge remoining service life of octive employees
in the plon ond over the remoining life expectonry of inoctive
employees in the plon. The post-retirement benefit obligotion is
remeosured to its foir volue ot eoch yeor end bosed on on onnuol
octuoriol reporl, with on offset to the ossocioted regulolory osset, to
the extent of fie remeosurement odiustment.
For postemployment obligotions, the ossocioted regulotory liobilities
representing octuoriol goins on tronsition to US GAAP ore omortized
to results of operotions bosed on the "conidor" opprooch. The
octuoriol goins ond losses on post-employment obligotions thot ore
incuned during fie yeor ore recognized immediotely to results o{
operotions. The postemployment benefit obligotion is remeosured to
its loir volue ot eoch yeor end bosed on on onnuol ocluoriol report,
with on offsel to the ossocioted regulotory osset, to he extent of the
remeosurement odiustment.
AII post-retirement ond postemployment future benefit cosls ore
ottributed to lobour ond ore either chorged to results of operotions or
copitolized os port of the cost of property, plont ond equipment ond
intongible ossels.
Stock-Bosed Com pensotion
Shore Gront Plons
Hydro One meosures shore gront plons bosed on foir volue of shore
gronts os estimoted bosed on the gront dote shore price. The costs
ore recognized in the finonciol stolements using the grodedvesting
ottribution method for shore gront plons thot hove both o perlormonce
condition ond o service condition. The Compony records o
regulotory osset equol lo the occrued costs o[ shore gront plons
recognized in eoch period. Forfeitures ore recognized os they occur
(see note 3).
Directors' Deferred Shore Unit (DSU) Plon
The Compony records the liobilities ossocioted with its Directors' DSU
Plon ot foir volue ot eoch reporling dote until settlement, recognizing
compensotion expense over the vesting period on o stroight- ine
bosis. The foir volue of the DSU liobiliry is bosed on the Compony's
common shore closing price ot the end of eoch reporting period.
Long{erm lncentive Plon (LTIP)
The Compony meosures its LTIP ot foir volue bosed on lhe gront dote
shore price. The reloted compensotion expense is recognized over
the vesting period on o stroight-line bosis. Forfeitures ore recognized
os they occur.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-I7-_
HYDRo oNE LrrrurED oNE oF NoRTH AMERrg',qjoUifrrH'QIfEU#grrs sc
Schedule 3, Page 6l of 167
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loss Contingencies
Hydro One is involved in cerloin legol ond environmentol motters thol
orise in the normol course of business. n the preporotion of its
Consolidoted Finonciol Stotements, monogement mokes iudgmenls
regording the future outcome ol contingent events ond records o loss
for o contingenry bosed on its best estimote when it is determined
thot such loss is proboble ond the omount o{ the loss con be
reosonobly estimoted. Where the loss omount is recoveroble in future
rotes, o regulotory osset is olso recorded. When o ronge estimote lor
the proboble loss exists ond no omounl within the ronge ls o better
estimote thon ony other omount, the Compony records o loss ot the
minimum omount within the ronge.
Monogement regulorly reviews current informotion ovoiloble to
determine whether recorded provisions should be odiusted ond
whether new provisions ore required. Estimoting proboble losses moy
require onolysis of multiple forecosts ond scenorios thot ohen depend
on judgments obout potentiol octions by third porties, such os federol,
provinciol ond locol courts or regulotors. Contingent liobilities ore
often resolved over long periods of time. Amounts recorded in the
Consolidoted Finonciol Stolemenls moy differ from the octuol outcome
once the contingenry is resolved. Such differences could hove o
moteriol impocl on future results of operolions, finonciol position ond
cosh flows of the Compony.
Provisions ore bosed upon current eslimotes ond ore subiect lo
greoter uncertointy where the projeclion period is lengthy. A
significont upword or downword trend in the number ol cloims filed,
the noture of the olleged iniuries, ond the overoge cost of resolving
eoch cloim could chonge the estimoted provision, os could ony
substontiol odverse or lovouroble verdict ot triol. A federol or
provinciol legislotive outcome or skuctured settlement could olso
chonge the estimoted llobility. Legol fees ore expensed os incurred.
will continue lo be recoveroble in future rotes, on oflsetting regulotory
osset hos been recorded to reflect the future recovery o[ these
environmentol expenditures from customers. Hydro One reviews ils
estimotes of future environmentol expenditures onnuolly, or more
frequenily if lhere ore indicotions thot circumstonces hove chonged.
Asset Retirement Obl igotions
Asset retiremenl obligotions ore recorded for legol obligotions
ossocioted with the future removol ond disposol of longlived ossets.
Such obligotions moy result from the ocquisition, construclion,
development ond,/or normol use o[ the osset. Conditionol osset
retirement obligotions ore rmorded when there is o legol obligotion
to perform o future osset retiremenl octivity but where the timing ond/
or method of seJtlement ore conditionol on o future event thot moy or
moy not be wilhin the control o[ the Compony. ln such o cose, the
obligotion to perform the osset retirement octivity is unconditionol
even though uncertoinly exists obout the timing ond/or method of
settlement.
When recording on osset retirement obligotion, the present volue of
the estimoted future expenditures required to complete the osset
retirement octivity is recorded in the period in which the obligotion is
incurred, if o reosonoble eslimote con be mode. ln generol, the
present volue o[ the estimoted future expenditures is odded to the
corrying omounl of the ossocioted osset ond the resulting osset
retiremenl cost is deprecioted over the estimoted useful life of the
osset. Where on osset is no longer in service when on osset
relirement obligotion is recorded, the osset retirement cost is recorded
in resulls of operotions.
Some of the Compony's tronsmission ond dishibution ossels,
porticulorly those locoted on unowned eosements ond rightsofr,,roy,
moy hove osset retirement obligotions, conditionol or otherwise. The
moiority of the Compony's eosements ond rightsof-woy ore either of
perpetuol durolion or ore outomoticolly renewed onnuolly. Lond rights
with finite lerms ore generolly sublect to extension or renewol. As the
Compony expects to use the mojority of its focilities in perpetuity, no
osset relirement obligotions hove been recorded for these ossets. lf, ot
some future dote, o porticulor focility is shown nol to meet the
perpetuity ossumption, it will be reviewed to determine whether on
estimoble osset retiremenl obligotion exists. ln such o cose, on osset
retirement obligotion would be recorded ot thot time.
The Compony's osset retiremenl obligotions recorded to dote relote to
estimoted future expenditures ossocioted with the removol ond
disposol o[ osbestoscontoining moteriols instolled in some of its
focilities ond with the decommissioning o[ specific switching stotions
locoted on unowned sites.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 62 of 167
60 HYDRO ONE LI'IIITED 20I6 ANNUAI REPORT TSX: H
Environmentol Liobilities
Environmentol llobilities ore recorded in respecl of post contominotion
when il is determined thot future environmentol remediotion
expenditures ore proboble under existing stotute or regulotion ond the
omount o[ the future expenditures con be reosonobly estimoted.
Hydro One records o liobilit'y for the estimoted future expenditures
ossocioted with contominoted lond ossessment ond remediotion ond
for the phoseout ond deskuction of polychlorinoted biphenyl (PCB)-
conlominoted minerol oil removed from electricol equipment, bosed
on the presenl volue o{ these estimoted future expenditures. The
Compony determines the present volue with o discount rote equol to
its credilodiusted risk{ree interest rote on finonciol instruments with
comporoble moturities to the pottern o[ future environmentol
expenditures. As the Compony onticipotes thot the future expenditures
3. New Accounting Pronouncements
The following tobles present Accounting Stondords Updotes (ASUs) issued by the Finonciol Accounting Stondords Boord {FASB) thot ore opplicoble
to Hydro One:
Recently Adopted Accounting Guidonce
ASU Dote issued Description Effective dote lmpoct on Hydro One
2Ol4-16 November
2014
This u$ote clorifies thot oll relevont terms ond lonuory 1 , 20.l6 No moleriol impoct upon odoption
feotures should be considered in evoluoting the
noture of o host conkoct for hybrid finonciol
instruments issued in the form o[ o shore. The
noture of the host controcl depends upon the
economic chorocteristics ond risks ol ihe entire
hybrid [inonciol instrument.
20 I 50 I Jonuory 20 1 5 Extroordinory ilems ore no longer required to be lonuory 1 , 2016 No moteriol impoct upon odoplion
presented seporotely in the income stolement.
201 5U2 Februory
20r5
Guidonce on onolysis to be performed to Jonuory 1, 2016 No moteriol impoct upon odoplion
determine whether certoin types of legol entities
should be consolidoted.
2015{3 April 2015 Debl issuonce costs ore required to be
presented on the bolonce sheet os o direct
deduction from the corrying omount ol the
reloted debt liobiliv consistent with debt
discounts or premiums.
Jonuory 1 , 20 i 6 Reclossificotion of deferred debt issuonce costs
ond net unomortized debt premiums os on olfsel
to long-term debt. Applied rekospectively {see
nole l5).
20 I 5O5 April 2O 1 5 Cloud computing orrongements thot hove been Jonuory I , 201 6 No moteriol impoct upon odoption
ossessed to contoin o softwore licence should
be occounted for os internol-use softwore.
2015-16 September
20r5
Adiustmenls to provisionol omounls thol ore Jonuory I , 20,l6 No moteriol impocl upon odoplion
identified during the meosurement period of o
business combinotion in he reporling period in
which the odiustmenl omount is determined ore
required to be recognized. The omount
recorded in currenl period eornings ore required
to be presented seporotely on the foce of the
income stolement or disclosed in the notes by
line ilem.
2015-17 November
2015
All deferred tox ossets ond liobilities ore
required to be clossified os noncurreni on the
bolonce sheel.
Jonuory 1 ,2017 fhis ASU wos eorly odopted os of April l,
20 I 6 ond wos opplied prospectively. fu o
result, the current portions o[ the Compony's
deferred income tox ossets ore reclossified os
noncurrent ossets on the consolidoted Bolonce
Sheet. Prior periods were not retrospectively
odiusted (see note 7).
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20.1 @9 Morch 20,1 6 Severol ospects of the occounting for shore'
bosed poyment tronsoctions were simplified,
including he income lox consequences,
clossificotion of owords os either equity or
liobilities, ond clossificotion on the stotement of
cosh flows.
Jonuory 1 ,2017 Ihis ASU wos eorly odopted os of October I ,
20 i 6 ond wos opplied reirospectively. As o
resuh, the Compony occounts for forfeitures os
they occur. There were no olher moteriol
impocts upon odoption.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
HyDRo oNE LrNilrED oNE oF NoRTH AMERre\',qj0lGrrFlffiEgryges cr
Schedule 3, Page 63 of 167
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recently lssued Accounting Guidonce Not Yet Adopted
ASU Dote issued Description Effective dote Anticipoted impoct on Hydro One
2OlAOq Moy2014- ASU2Ol4O9wosissuedinMoy20l4ond Jonuoryl,2018 HydroOnehoscompleteditsinitiol ossessment
2O1 5-14 December provides guidonce on revenue recognition ond hos identified relevont revenue streoms. No
20 I 608 2016 reloting to the lronsler of promised goods or quontitotive determinotion hos been mode os o
2016-10 services to customers in on omounl thot reflects detoiled ossessmenl is now undenwoy ond will
201612 the conslderotion to which the entity expects to continue through to the third quorter ol 2017,
2016-20 be entitled in exchonge for those goods ond with the end result being o determinotion o[ the
services. ASU 20.15-14 defened the effective finonciol impoct o[ this stondord. The Compony
dote of ASU 2Ol4{9 by one yeor. Additionol is on lrock for implementotion o[ lhis stondord by
ASUs were issued in 2016 thot simplify the effective dote.
tronsition ond provide clority on certoin ospects
of the new slondord.
20l60l Jonuory
2016
This updote requires equily investments to be
meosured ol foir volue wilh chonges in foir
volue recognized in nel income, ond requires
enhonced disclosures ond presentotion of
finonciol ossets ond liobilities in the [inonciol
stotemenls. This ASU olso simplifies the
impoirment ossessmenl of equity inveslments
without reodily delerminoble foir volues by
requiring o quolitotive ossessment to identify
impoirment.
Jonuory 'l , 20lB Under ossessment
2016O2 Februory
2016
Lessees ore required to recognize the rights ond Jonuory l, 20,l9 An initiol ossessment is cunently underwoy
obligotions resulling lrom operoting leoses os encompossing o review o[ oll existing leoses,
ossets (right to use lhe underlying osset for the whlch will be followed by o detoiled review o{
term o[ the leose) ond liobilities (obligotion to relevont conlrocts. No quontitotive determinotion
moke future leose poyments) on the bolonce hos been mode ot this time. The Compony is on
sheet. trock for implementotion of this stondord by the
effective dote.
20,1605 Morch 20,16 The omendments clorify thot o chonge in the
counterporty to o derivotive instrumenl lhol hos
been designoled os the hedging inslrument
under Topic B l5 does not, in ond of itself,
require dedesignotion of thot hedging
relotionship provided thot oll other hedge
occounting criterlo conlinue to be met.
Jonuory 'l , 2018 Under ossessment
2016-06 Morch20l6 Contingentcoll (put) optionsthotoreossessedto Jonuory1,2017 Nomoteriol impoct
occelerole the poyment o[ principol on debt
instruments need to meet the crilerio of being
"cleorly ond closely reloted" to their debt hosts.
2016t7 Morch 2016 The requirement lo retrooclively odopl lhe equify Jonuory 1, 20l7 No moteriol impoct
method of occounting if on investment quolifies
for use o[ the equity method os o result of on
increose in the level o[ ownership or degree o[
influence hos been eliminoted.
2016-l I Moy 2016 This omendment covers the SEC Stoff's Jonuory 1 , 2Ol9 No moteriol impoct
rescinding of certoin SEC Stoff observer
comments thot ore codified in Topic 605 ond
fopic932, effective upon lhe odoption of Topic
606 ond Topic 815, effective to coincide with
lhe effective dote of Updote 2Ol4-16.
Exhibit No. 4
Case Nos. AVU-E-17- and AVU-G-I7-
C. Lop"r, Hydro One62 HYDRO ONE LI'IIITED 20]6 ANNUAL REPORT TSX: H
Schedule 3, Page 64 of 167
ASU Dote issued Description Effective dot" Anti.ipot"d irpo.
20I 6-1 3 lune 20 I 6 The omendment provides users wilh more
decision-useful informotion obout the expected
credit losses on [inonciol instruments ond other
commitments to extend credit held by o
reporting entity ot eoch reporling dote.
Jonuory 1, 20l9 Underossessmenl
20,l6-.l5 August 2016 The omendments provide guidonce for eight Jonuory 1, 20.l 8 Under ossessment
specific cosh flow issues with the obiective of
reducing the 91Ql!1g diversity in proctice.
2Ol6-16 October The omendment eliminotes the prohibition of Jonuory 1 , 20lB Under ossessment
2016 recognizing current ond defened income toxes
for on introentity osset tronsfer, other thon
invenlory, until lhe osset hos been sold to on
oulside porty. The omendment will permit
income lox consequences o[ such tronsfers to be
recognized when lhe tronsfer occurs.
2016-lB November Theomendmentrequiresthotreslricledcoshor Jonuory1,20,)8 Underossessmenl
2016 restricted cosh equivolents be included with
cosh ond cosh equivolents when reconciling the
beginning ond end-of-period bolonces in the
stolemenl o[ cosh flows.
201741 Jonuory
2017
Jonuory '1 , 20,l I Under ossessmenl
4. Business Combinotions
Acquisition of Greot Lokes Power
On October 3 I , 201 6, Hydro One ocquired Greot Lokes Power, on
Ontorio reguloted electricily tronsmission business operoling olong the
eostern shore o{ Loke Superior, nodh ond eost of Soult Ste. Morie,
Ontorio from Brookfield lnfrostructure Holdings lnc. The totol purchose
price for Greot Lokes Power wos opproximotely $376 million,
lmillions of dollors)
including the ossumption of opproximotely $ l50 milllon in
outstonding indebtedness. The following toble summorizes the
determinotion of the flnol foir volue of the ossets ocquired ond
liobllities ossumed:azzo.>4
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Cosh ond cosh equivolents
Properly, plont ond equipment
lntongible ossels
Regulotory ossets
Goodwill
Working copitol
Longlerm debt
Pension ond postemployment benefit liobilities, net
Defened income toxes
5
221
I
50
159
t2l
(r 86)
(51
117l
226
Goodwill of opproximotely $
.159 million orising from the Greot Lokes
Power ocquisition consists lorgely of the synergies ond economies o[
scole expected from combining the operotions of Hydro One ond
Greot Lokes Power. Greot Lokes Power contributed revenues of
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
HYDRo oNE LrrrilrED oNE oF NoRTH AMERre\',LSUifrrFlltl6gpg'es ce
Schedule 3, Page 65 of 167
The omendment clorifies the definition of o
business ond provides odditionol guidonce on
evoluoting whether tronsoctions should be
occounted for os ocqulsitions
(or disposols) of ossets or businesses.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$6 million ond less thon $l million o[ net income to the Compony's
consolidoled finonciol resuhs for the yeor ended December 3l ,
20.16. All costs reloted to the ocquisition hove been expensed
through the Consolidoted Slotements o[ Operotions ond
Comprehensive Income. Greot Lokes Power's finonciol informotion is
not moteriol to the Compony's consolidoted finonciol results for the
yeor ended December 3 I , 20 I 6 ond therefore, hos not been
dlsclosed on o pro formo bosis. Onlonuory 16,2017, the nome of
Greot Lokes Power wos chonged to Hydro One Soult Ste. Morie LP.
Agreement to Purchose Orillio Power
On Augusl 15, 20,i6, the Compony reoched on ogreement lo
ocquire Orillio Power Distribution Corporotion (Orillio Power), on
electricity distribution compony locoted in Simcoe County, Ontorio,
from the City of Orillio for opproximotely $4 1 million, including the
ossumption ol opproximotely $ 15 million in oulstonding indebtedness
ond regulotory liobilities, subiect to closing odjustments. The
ocquisition is subjecl to regulotory opprovol by the OEB.
Acquisition of Woodstock Hydro
On October 3I , 2015, Hydro One ocquired Woodstock Hydro
Holdings lnc. (Woodstock Hydro), on eleckicity distribution compony
locoted in southwestern Ontorio. The totol purchose price for
Woodstock Hydro wos opproximolely $32 million. The purchose
lmillions of dollors)
price wos finolized ond the Compony mode the finol purchose price
poyment of $3 million in 2016. The following toble summorizes the
determinotion o[ the [oir volue o[ the ossets ocquired ond liobilities
ossumed:
Working copitol
Property, plont ond equipment
lnlongible ossets
Deferred income lox ossets
Goodwill
Long-term debt
Derivotive instrumenls
Post-retirement ond postemployment benefit liobility
Regulotory liobilities
Other long-terrr liobiliries
A
27
I
2
22
117l
(3)
(r)
(t)
tzt
32
Goodwill of opproximotely $22 million orising Irom the Woodstock
Hydro ocquisition consisls lorgely ol the synergies ond economies o[
scole expected from combining the operotions o[ Hydro One ond
Woodstock Hydro All of the goodwill wos ossigned to Hydro One's
Dislribution Business segment. Woodstock Hyd ro contributed
revenues of $ l2 million ond nel income of $2 million to the
Compony's consolidoted {inonciol resulls for the yeor ended
December 3.1, 2015. All costs reloted to the ocqulsition hove been
expensed through the Consolidoted Stotements of Operotions ond
Comprehensive Income. Woodstock Hydro's finonciol inlormotion is
not moteriol lo the Compony's consolidoted [inonciol results for the
yeor ended December 3 1 , 20 I 5 ond therefore, hos not been
disclosed on o pro formo bosis.
Acquisition of Holdimond Hydro
Onlune 30, 2015, Hydro One ocquired Holdimqnd County Utilities
Inc. {Holdimond Hydro), on electricity distribution compony locoted in
soulhwestern Ontorio. The totol purchose price for Holdimond Hydro
lmillions of dollors)
wos opproximotely $23 million. The purchose price wos [inolized in
20,)6. The following loble summorizes the determinotion o[ the foir
volue of lhe ossets ocquired ond liobilities ossumed:
Cosh ond cosh equivolents
Working copitol
Property, plont ond equipment
Deferred income tox ossets
Goodwill
Long-term debt
Regulotory liobilities
3
5
52
I
33
(l8l
L3)
/J
Exhibit No.4
Case Nos. AVU-E-17-_ and AVU-G-l 7-_
C. Lopez, Hydro One
Schedule 3, Page 66 of 167
64 HYDRO ONE Lll |TED 2016 ANNUAT REPORT TSX: H
Goodwill of opproximotely $33 million orising from the Holdimond
Hydro ocquisition consists lorgely of lhe synergies ond economies of
scole expected from combining the operotions of Hydro One ond
Holdimond Hydro. All of the goodwill wos ossigned to Hydro One's
Distribution Business segment. Holdimond Hydro contributed revenues
of $32 million ond nel income of $6 million to the Compony's
consolidoted finonciol results for the yeor ended December 3l,
20,15. All costs reloted lo the ocquisition hove been expensed
through the Consolidoted Stotements o[ Operotions ond
Comprehensive lncome. Holdimond Hydro's finonciol informotion is
not moteriol to the Compony's consolidoted finonciol results for the
yeor ended December 3 l, 20.1 5 ond therefore, hos not been
disclosed on o pro lormo bosis.
Hydro One Brompton Spin-off
On August 31, 2015, Hydro One completed the spinoff o[ its
subsidiory, Flydro One Brompton. The spinoff wos occounled os o
non-monetory, nonreciprocol tronsfer with the Province, bosed on its
corrying volues ol August 3l , 20'l5. Tronsoctions thot immediotely
preceded the spinoff os well os the spinoff were os follows:
. Hydro One subscribed for 357 common shores o[ Hydro One
Brompton for on oggregote subscription price of $53 million; ond
. Hydro One tronsferred to o compony wholly owned by the
Province oll the issued ond oulstonding shores of Hydro One
Brompton os o dividend-in-kind; ond oll of the longlerm
intercompony debl in oggregote principol omount of $ I93 mlllion
plus occrued interest of $3 million owed by Hydro One Brompton
to Hydro One os o return of stoted copitol of $ 196 million on its
common shores-
2016 201 5
As o result of the spinoff, goodwill reloted to Hydro One Brompton of $60 mlllion wos eliminoted lrom the Consolidoted Bolonce Sheet.
5. Depreciotion And Amortizotion
Yeor ended December 3 I
lmillions of dollors)
Depreciotion of property, plont ond equipment
Assel removol costs
Amortizotion of intongible ossets
Amortizotion o[ regulotory ossets
,12
90
56
20
6 595
9l
54
19
778 759
6. Finoncing Chorges
Yeor ended Decenber 3l
(millions of dollors)2016 20r5
lnterest on long-term debt
lnteresl on shod-term noles
Other
Less: lnterest copitolized on conslruction ond development in progress
Inlerest eorned on investments
Goin on inlerest-rote swop ogreements
424
9
t6
(s4)
l2l
417
2
14
ls2l
(sl
t2t
azzo>r
6-.
EdaO>Ymo30m=zar>o4m(,
3
393 376
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
HYDRo oNE LmrrED oNE oF NoRTH AMERte\',qJoUit Jfl!fl16€AHrrs cs
Schedule 3, Page 67 of 167
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. lncome Toxes
lncome loxes / provision for PlLs dif{ers from the omount thot would hove been recorded using the combined Conodion federol ond Ontorio
stotutory income tox rote. The reconciliotion between the stotutory ond the effective tox roles is provided os follows:
Yeor ended December 3 I
lmillions of dollors) 2016 20]5
lncome toxes / provision for PlLs ot stotutory rote
lncreose (decreose) resulting from:
Nel temporory dilferences recoveroble in future roles chorged to cuslomers:
Copitol cost ollowonce in excess ol depreciotion ond omortizotion
Pension contributions in excess of pension expense
Overheods copitolized for occountlng but deducted for tox purposes
Interest copitolized lor occounting but deducted for tox purposes
Environmentol expenditures
Other
235 217
(ss)
(16)
(t 6)
(14)
(5)
5
t37l
t25l
(t s)
(t 3)
(5)
(6)
Net temporory differences
Nel tox benefit resulting from tronsition from Plls Regime lo Federol Tox Regime
Hydro One Brompton spinoff
Net permonent differences
(ee)(r0r)
(t e)
7
IJ
Tolol income toxes ,/ provision for PlLs r39 r05
The mo jor componenls of income lox expense ore os follows
Yeor ended December 3l
lnillions of dollors)2016 201 5
Current income toxes ,/ provision for Plls
Delerred income loxes ,/ provision for (recovery of) Plls
2,949
t2.8441
Totol income toxes / provision lor PlLs r39 r05
Effective income tox rote 15.7%12.8%
The provision for current income toxes / PlLs is remitted lo the CRA
(Federol Tox Regime) ond the OEFC (PlLs Regimel. At December 31,
20,l 6, $ I 4 million (201 5 - $ I millionl receivoble from rhe CRA wos
included in other current ossets ond $6 milllon (20I 5 - $ I 2 million)
receivoble from the OEFC wos included in due {rom reloted porties
on the Consolidoted Bolonce Sheet.
In connection with the IPO in 2015, Hydro One's exemplion lrom tox
under the Federol Tox Regime ceosed to opply. Under the PlLs
Regime, Hydro One wos deemed to hove disposed o[ ils ossels
lmmediotely before it lost its tox exempt slolus under the Federol Tox
Regime, resultlng in Hydro One moking poyments in lieu of lox
(Deporture Tox) totolling $2.6 billion. To enoble Hydro One to moke
the Deporture Tox poyment, lhe Province subscribed for common
shores o[ Hydro One for $2.6 billion in 20 ,l 5 (see note 2 I ). Hydro
One used the proceeds of this shore subscription to poy the
Deporlure Tox.
The 2015 totol income toxes / provision for PlLs included o current
provision of $2,600 million ond o defened recovery of
$2,810 million resulting from lhe tronsition from the PlLs Regime to the
Federol Tox Regime. The deferred recovery wos not included in lhe
rolesetting process. Deferred income tox bolonces expected to be
included in the rotesetting process ore offset by regulotory ossets ond
liobilities to reflect the onticipoted recovery or disposition o[ these
bolonces witl'ir furure electricity rotes.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 68 of 167
66 HYDRO ONE tllllTED 2016 ANNUAT REPORT TSX: H
25
114
Deferred lncome Tox Assets ond Liobilities
Deferred income tox ossels ond liobilities orise from differences between the corrying omounts ond lox bosis of the Compony's ossets ond
liobilities. At December 3I , 20.l6 ond 20 15, deferred income tox ossets ond liobilities consisted of the following:
December 3 I
lnillions of dollors) 2016
Defened income tox ossets
Depreciotion ond omortizolion in excess of copitol cost ollowonce
Non-deprecioble copitol property
Posl-retirement ond postemployment bene{its expense in excess o[ cosh poyments
Environmentol expenditures
Noncopitol losses
lnvestment in subsidiories
Other
20t5
495
271
607
74
213
75
30
937
271
578
75
62
55
t0
Less: voluotion ollowonce
1,765 r,988
{3 33)ta 2l5
Totol defened income tox ossets
Less: cunenl portion
1,413 1,655
l9
1,413 r,636
December 3 I
(nillions of dollors)2016 20r5
Deferred income tox liobilities
Regulotory omounts thot ore not recognized for lox purposes
Goodwill
Copitol cost ollowonce in excess of depreciotion ond omortizotion
Other
(r 53)
(10)
(641
(t l)
(rs3)
(10)
l42l
t2t
Totol defened income tox liobilities
Less: currenl portion
(23 8)l2o7)
3
1,175 1,448Net deferred incone tox ossets
The net deferred income tox ossels ore presented on the Consolidoted Bolonce Sheets os follows:
December 3l
lmillions of dollors)2016 20r5
Current:
Other current ossets
Long-term:
Deferred income tox ossets
Deferred income tox liobilities
1,235
(60)
l9
r,636
l2o7l
azzo.>r
6-.
EdaOi,2fra
=oMEzar>a1m(f,
Net deferred income 'ox ossets 1,175 1,448
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-I7-_
HYDRo oNE umrrED oNE oF NoRTH AMERrg',q.!0trd;rrfl!Qlf6:giHgrEs 67
Schedule 3, Page 69 of 167
l2o7)
3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The voluotion ollowonce for deferred tox ossets os ot December 3 i
2016 wos $352 million {2015 - $333 million). The voluotion
ollowonce primorily reloles to temporory differences for
non-deprecioble ossets ond investments in subsidiories. As o[
Yeor of expiry
lmillions of dollors)
December 3 I , 20,l 6, the Compony hod noncopitol losses corried
forword ovoiloble to reduce future yeors' toxoble income, which
expire os follows:
2016 20r5
2034
2035
2036
2
222
580
232
2
Totol losses 804 234
B. Accounts Receivoble
December 3l
(millions of dollors)2016 20r5
Accounts receivoble - billed
Accounts receivoble - unbilled
431
442
379
458
Accounts receivoble, gross
Allowonce for doubtful occounts
873
l35l
837
{6r)
Accounts receivoble, nel 838 776
The following toble shows the movements in the ollowonce for doubtful occounts for the yeors ended December 3 ] , 20 I 6 ond 20I 5
Yeor ended December 3 I
(millions of dollors) 2016 20 r5
Allowonce for doubtful occounts -.lonuory 1
Writeoffs
Addilions to ollowonce lor doubtful occounts
(61)
37
(ll)
(66)
3/
{3 2)
Allowonce for doubtful occounts - December 3l (35)(61)
9. Other Current Assets
Decenber 3 I
lmillions of dollors)2016 20t 5
Regulotory ossets /Note l2i
Moleriols ond supplies
Deferred income tox ossets /Notes 3, Zi
Prepoid expenses ond olher ossets
37
t9
46
36
21
t9
29
102 r05
Exhibit No. 4
Case Nos. AVU-E-I7- and AVU-G-I7-
C. Lop"r, Hydro One68 HYDRO ONE tlMlTED 2016 ANNUAT REPORT TSX: H
Schedule 3, Page 70 of 167
10. Properly, Plont And Equipment
December 31, 2016
(millions of dollors)
Property, Plont
ond Equipment
Accumuloted
Depreciotion
Construction
in Progress Totol
Tronsmission
Distribution
Communicotion
Adminiskotion ond service
Eosemenls
14,692
9,656
1,233
1,632
628
4,862
3,305
777
924
67
9r0
243
20
6l
\o,740
6,594
476
769
561
27,841 9,935 1,234 1 9,1 40
December 31, 2015
(millions of dollors)
Property, Plont
ond Equipment
Accumuloted
Depreciolion
Conskuclion
in Progress Tolol
Tronsmission
Distribution
Communicotion
Administrotion ond service
Eosements
13,704
9,205
1,165
r,531
622
4,621
3,177
704
B48
64
853
238
28
36
9,936
6,266
489
719
558
lo,ll/9,414 I ,155 17,968
Finoncing chorges copitolized on property, plont ond equipment under construction were $52 million in 20.l6 (20.l5 - $50 millionl
11.IntongibleAssels
December 31,2016
(millions of dollors)
lnlongible
Assets
Accumuloted
Amortizotion
Development
in Progress Totol
Computer opplicotions softwore
Other
621 326 53
5 4
626 330 53 349
December 31, 201 5
(millions of dollors)
lntongible
Assets
Accumuloted
Amortizotion
Development
in Progress Totol
Com puter oppl icotions softwore
Other
579
7
270 a/211
4 3
586 274 24 336
Finoncingchorgescopltolizedtointongibleossetsunderdevelopmentwere$2millionin20l6(20,15-$1 millionl Theestimotedonnuol
omortizotion expense for intongible ossets is os follows: 201Z - $54 mllhon; 20'l8 - $54 million; 20 19 - $45 million; 2O2O - $27 nillton
ond 2O2l - $26 million.
Exhibit No.4
Case Nos. AVU-E-17-_ and AVU-G-17-_
HYDno oNE LrrrilrED oNE oF NoRTH AMERre',ilbUi#TFllQilEgn+grrs oc
Schedule 3, Page 71 of 167
az70_>i
6-.
E6aO
,,2fr@
=om=zar>a1mg
3
348
I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Regulotory Assets And Liobilities
Regulotory ossets ond liobilities orise os o result of the roteselling process. Hydro One hos recorded the following regulotory ossets ond liobilities:
December 3 I
lmillions of dollors) 2016 201 5
Regulotory ossets:
Deferred income lox regulotory osset
Pension benefit regulotory ossel
Post-retirement ond posl-employmenl benefits
Environmenlol
Retoil settlement vorionce occount
Debt premium
Shorebosed compensotion
Distribution system code exemption
2Ol5-2017 rote rider
B2M LP stort-up costs
Pension cosl vorionce
Other
1,587
900
243
204
145
32
3l
t0
7
5
4
14
1,445
952
240
207
r10
r0
t0
20
8
37
12
Totol regulotory ossets
Less: current portion
3,182
37
3,05 r
36
3,r45 3,0r5
Regulotory liobilities:
Green Energy expendilure vorionce
Externol revenue vorionce
CDM defenol vorionce
Deferred income tox regulotory liobility
Other
69
64
54
4
r8
76
87
53
t6
Totol regulotory liobilities
Less: current portion
209 255
t9
209 236
Deferred lncome Tox Regulotory Asset ond
Liobility
Deferred income toxes ore recognlzed on lemporory differences
between the corrying omount of ossets ond liobilities in the finonciol
stolements ond the conesponding tox boses used in the compulotion
o[ toxoble income. The Compony hos recognized regulolory ossets
ond liobilities thot correspond to deferred income toxes thot flow
through the rotesetting process. In the obsence of rolereguloled
occounling, the Compony's income tox expense would hove been
recognized using the liobility method ond there would be no
regulotory occounts estoblished lor toxes to be recovered through
fulure rotes. As o result, the 20,l6 income tox expense would hove
been higher by opproximotely $104 million (2015 - $lOl mlllion).
Pension Benefit Regulotory Asset
In occordonce with OEB rote orders, pension cosls ore recovered on
o cosh bosis os employer contributions ore poid to the pension fund
in occordonce with the Pension Benelits Acr (Ontorio). The Compony
recognizes the net unfunded stotus of pension obligolions on the
Consolldoted Bolonce Sheets with on offset to the ossocloted
regulotory osset. A regulotory osset is recognized becouse
monogement considers it to be proboble thot pension benefit costs
will be recovered in the future through the rotesetting process. The
pension benefit obligotion is remeosured to its foir volue ot eoch yeor
end bosed on on onnuol ocluoriol report, with on offset to the
ossocioled regulolory osset, to the extenl of the remeosuremenl
odjustment. ln the obsence of rote-reguloted occounling, 2016 OCI
would hove been higher by $52 million (20,i5 - $284 millionl
Post-Retirement ond PostEmployment Benefits
The Compony recognizes the net unfunded slotus of posl-retirement
ond postemployment obligotions on the Consolidoted Bolonce
Sheets with on incrementol offset to the ossocioted regulotory ossets.
A regulotory ossel is recognized becouse monogement considers it to
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C. Lopez, Hydro One
Schedule 3, Page 72 of 167
70 HYDRO ONE II'IIITED 20I6 ANNUAL REPORT TSX: H
be proboble thot post-retirement ond postemployment benefit costs
will be recovered in the future through the roteselting process. The
post-retirement ond postemployment benefit obligotion is remeosured
to its foir volue ot eoch yeor end bosed on on onnuol octuoriol
report, with on offset to fie ossocioted regulotory osset, to the exlent
of lhe rqmeosurement odiustment. ln lhe obsence of rotereguloted
occounting, 20,16 OCI would hove been lower by $3 million (20'l 5
- higher by $33 million).
Environmentol
Hydro One records o liobility for the estimoted future expenditures
required to remediote environmentol conlominolion. Becouse such
expenditures ore expected to be recoveroble in future rotes, the
Compony hos recorded on equivolent omount os o regulotory osset.
ln 20,16, the environmenlol regulolory osset decreosed by $ 1 million
(20,15 - $24 million) to reflect reloted chonges in the Compony's
PCB liobiliry, ond increosed by $10 million (2015 - $1 million) due
to chonges in the lond ossessment ond remediotion liobilil/. The
environmentol regulotory osset is omortized to results of operotions
bosed on the pottern of octuol expenditures incurred ond chorged to
environmentol liobilities. The OEB hos the discretion to exomine ond
ossess the prudency ond the timing of recovery of oll of Hydro One's
octuol environmentol expenditures. ln the obsence ol rolereguloted
occounting, 2O'l 6 operotion, mointenonce ond odministrotion
expenses would hove been higher by $9 million (20,15 - lower by
$23 million). In oddition, 20,l6 omortizotion expense would hove
been lower by $20 million (20.l5 - $19 millionl, ond 20.l6
[inoncing chorges would hove been higher by $8 million (20,l5 -
$ l0 million).
Retoil Settlement Vorionce Account (RSVA)
Hydro One hos deferred certoin retoil settlemenl vorionce omounts
under the provisions of Article 490 of the OEB's Accounting
Procedures Hondbook. ln Morch 20,l5, the OEB opproved the
disposition of the totol RSVA bolonce occumuloted from Jonuory
2Ol2to December 2013, includlng occrued interest, to be
recovered through the 2015-2017 Rote Rider.
Debt Premium
The volue of debt ossumed in the ocquisition of Greot Lokes Power
hos been recorded ot foir volue in occordonce with US GAAP -
Business Combinotions. The OEB ollows for recovery of interest ot lhe
coupon rote of the Senior Secured Bonds ond o regulotory osset hos
been recorded for the difference between the foir volue ond foce
volue of this debt. The debt premium is recovered over the remoining
term o[ the debt {see note 15).
Shore-bosed Com pensotion
The Compony recognizes costs ossocioted with shore gront plons in
o regulotory osset os monogemenl considers it proboble thot shore
gront plons costs will be recovered in the future through the rote
setting process. ln the obsence of rotereguloled occounting, 20 I 6
operotion, moinlenonce ond odminlstrotion expenses would hove
been higher by $9 million (2015 - $5 million).
Distribution System Code (DSC) Exemption
ln lune 20,1 O, Hydro One Neiworks [iled on opplicotion with the
OEB regording the OEB's new cost responsibility rules conloined in
the OEB's October 2009 Notlce of Amendment to the DSC, with
respecl to lhe connection of certoin renewoble generotors thot were
olreody connected or thot hod received o connection impoct
ossessmenl prior to October 21 ,2009. The opplicotion sought
opprovol to record ond defer lhe unonticipoted costs incurred by
Hydro One Networks thot resulted from the connection of certoin
renewoble generotion focilities. The OEB ruled thot identified specific
expenditures con be recorded in o delerrol occount subiect to the
OEB's review in subsequent Hydro One Nelwork distribution
oppllcolions. In Morch 20.l 5, the OEB opproved the disposition o[
the DSC exemption deferrol occount ot December 31 , 20,1 3,
including occrued interest, which is being recovered through the
2Ol 5-2012 Rote Rider. ln oddition, the OEB olso opproved Hydro
One's request to discontinue this deferrol occount. There were no
odditions to this regulotory occount in 2Ol5 or 2016.
2015-2OlZ Rote Rider
ln Morch 20 l5, os port o[ its decision on Hydro One Networks'
distribution rote opplicotion for 201 5-20 I 9, the OEB opproved the
disposition of certoin de{errol ond vorionce occounls, including
RSVAs ond occrued interest. Ihe 2015-2017 Rote Rider occount
includes the bolonces opproved for disposition by the OEB ond is
being disposed in occordonce with the OEB decision over o
32-month period ending on December 31 , 2017.
B2M LP Stort-up Costs
ln December 2015, OEB issued its decision on B2M LP's opplicotion
for 20 I 5-20 I 9 ond os port of the decision opproved the recovery of
$8 million of stort-up costs reloting to B2M LP. The costs ore being
recovered over o fouryeor period which begon in 2016, in
occordonce with the OEB decision.
Pension Cost Vorionce
A pension cost vorionce occount wos estoblished for Hydro One
Networks' lronsmission ond distribution businesses to trock the
difference between the oduol pension expenses incurred ond
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
HYDRo oNE LrryilrED oNE oF NoRTH AMERre\',qj0triDrFlltl6€EHrrs zr
Schedule 3, Page 73 of 167
zo,>l
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
estimoted pension costs opproved by the OEB. The bolonce in this
regulotory occount reflects lhe excess of pension costs poid os
compored lo OEBopproved omounls. In Morch 2015, the OEB
opproved the disposition of the dislribution business portion of the
totol pension cost vorionce occounl ot December 3l, 20.l3,
including occrued interest, which is being recovered through the
2015-2012 Rote Rider. ln the obsence of rotereguloted occounting,
2016 revenue would hove been higher by $25 million (20,l5 -
lower by $6 million).
Green Energy Expenditure Vorionce
ln April 2010, the OEB requested the estoblishment of defenol
occounts which copture lhe difference between the revenue recorded
on lhe bosis o[ Green Energy Plon expenditures incuned ond the
octuol recoveries received.
Exiernol Revenue Vorionce
ln Moy 2009, the OEB opproved forecosted omounts reloted lo
export service revenue, externol revenue from secondory lond use,
ond externol revenue from stotion moinlenonce ond engineering ond
construction work. In November 2012, the OEB ogoin opproved
13. Accounts Poyoble ond Other Current Liobilities
December 3 I
forecosted omounls reloted to these revenue cotegories ond extended
the scope lo encomposs oll other externol revenues. The externol
revenue vorionce occount bolonce reflects the excess o[ ocluol
externol revenues compored lo the OEB-opproved forecosted
omounts.
CDM Deferrol Vorionce Account
As port o[ Hydro One Neworks' opplicotion for 20 1 3 ond 20,1 4
lronsmission roles, Hydro One ogreed to estoblish o new regulotory
defenol vorionce occount to trock the impoct of octuol Conservotion
ond Demond Monogement {CDM} ond demond response results on
the lood forecost compored to the estimoted lood forecost included in
the revenue requirement. The bolonce ln the CDM deferrol vorionce
occounl relotes to the octuol 20 1 3 ond 201 4 CDM compored to the
omounts included in 201 3 ond 20 I 4 revenue requirements,
respectively. There were no odditions io this regulotory occount in
2016.
lmillions ofdollorsl 2016 20r5
Accounts poyoble
Accrued liobilities
Accrued interest
Regulorory liobiliries lNote l2)
i 8r
659
r05
155
598
s6
t9
945 868
14. Other Long-Term Liobllities
December 3l
(millions of dollors)201 6 2015
Post-retirement ond postemployment benefit liobiliv /Note l8/
Pension benefit liobiliry /Nore I8l
Environmentol liobilities lNote I 9)
Asset relirement obligotions (Note 20)
Longlerm occout! poyoble ond other liobilities
1,641
900
177
9
25
r,560
952
r85
9
l7
2,752 l,/ lJ
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 74 of \67
72 HYDRO ONE tlIlUIED 2016 ANNUAL REPORT TSX: H
.l5. Debt ond Credit Agreements
Short-Term Notes ond Credit Focilities
Hydro One meets ils short-term liquidiry requirements in port firough
the issuonce of commerciol poper under Hydro One lnc.'s
Commerciol Poper Progrom which hos o moximum outhorized
omount of $ I .5 billion. These short-lerm notes ore denominoled in
Conodion dollors with vorying moturities up to 365 doys. The
Commerciol Poper Progrom is supported by Hydro One Inc.'s
committed revolving credit focillties totolling $2.3 billion.
On August 1 5, 2016, Hydro One lnc. terminoted its $ I .5 billion
revolvlng stondby credit focili! moturing inJune 2020 ond its
$800 million threeyeor senior, revolving term credit locility moturing
in October 2018 {collectively Prior Credit Focilities). On the some
dote, Hydro One lnc. entered into o new credit ogreemenl for o
$2.3 bllion revolving credit focility moturing inJune 2021 {New
Credit Foctlity). The New Credit Focility ronks equolly with ony
existing ond future senior debt of Hydro One lnc., ond hos cuslomory
covenonts substontiolly similor to the covenonts under the Prior Credit
Focilities. In oddition, on November 7, 2016, the moturity dote ol
Hydro One's $250 million credit focility wos extended lrom
November 2O2Oto November 202,l.
At December 3,l, 20.16, Hydro One's consolidoted commiiled, unsecured ond undrown credit focilities totolling $2,550 million consisted of the
following:
(millions of dollorsl MgtuQ 4. ynt
Hydro One lnc.
Revolving stondby credit locility
Hydro One
Fivayeor senior, revolving term credit focility
)une 2021
November 202 I
2,300
250
Tolol 2,550
The Compony moy use the credlt focilities for working copitol ond
generol corporote purposes. lf used, inlerest on the credit focilities
would opply bosed on Conodion benchmork rotes. The obligotion o[
eoch lender to moke ony credil extension under its credit focility is
subiect to vorious conditions including thot no event of defoult hos
occurred or would result from such credit exlension.
Long-Term Debt
At December 3 l , 2016, $ .]0,523 million long-term debt wos issued
by Hydro One Inc. under Hydro One lnc.'s Medium-Term Note
(MTN| Progrom. The moximum outhorlzed principol omount o[ notes
issuoble under the cunent MTN Progrom prospectus filed in
December 20.l5 ls $3.5 billion. At December 31 , 2016,
$'l .2 billion remoined ovoiloble for issuonce untillonuory 20 18. ln
oddition, ot December 3 I , 201 6, the Compony hod longrerm debt
of $ I 84 million ossumed os port of the Greot Lokes Power
ocquisilion.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-I7-_
HYDRo oNE umrrED oNE oF NoRTH AMERTg'qjoUifrrFl!&lfEgligrrs zs
Schedule 3, Page 75 of 167
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following toble presents outstonding long-term debt ot December 31 , 20,)6 ond 20 15:
December 3l
(millions of dollors)2016 20r5
4.64%Series lO notes due 2016
Flooting-rote Series 27 noles due 20'l 6r
5.lB% Series I 3 notes due 2017
2.78%Series 28 notes due 2018
Flooting-rote Series 3 I notes due 20l 9r
L48% Series 37 notes dve 20192
4.40% Series 2O notes due 2O2O
1.62% Series 33 notes due 20202
l.B4% Series 34 notes due 2021
3.20% Series 25 notes due 2022
2.77% Series 35 notes due 2026
2.35% Debentures due 2030
6.93% Series 2 notes due 2032
6.35% Series 4 noles due 2034
5.36% Series 9 notes due 2036
4.89% Series l2 notes dve 2037
6.03% Series l7 notes due 2039
5.49% Series lB notes due 2O4O
4.39% Series 23 notes due 2041
6.59% Series 5 notes due 2043
4.59% Series 29 notes doe 2043
4.17% Series 32 notes dve 2044
5.00% Serles I I notes due2046
3.91% Series 36 notes due 2046
3.72% Series 38 notes due 2047
4.00% Series 24 notes due 205 I
3.79% Series 26 notes due 2062
4.29%Series 30 notes due2064
6o;
750
228
s00
300
350
500
600
500
400
s00
385
600
400
300
500
300
315
435
350
325
350
450
225
310
50
450
50
600
750
228
300
350
400
500
385
600
400
300
500
300
315
435
350
325
600
225
310
50
Hydro One Inc. Iong-term debt r 0,523 8,723
6.6% Senior Secured Bonds due 2023 (Foce volue - $ l 1 2 million)
46% Note Poyoble due 2023 lFoce volue - $36 million)
144
40
Greol Lokes Power long-term debt t84
10,707 8723
Add: Net unomortized debt premiums3
Add: Unreolized mork-tomorket loss (goin)2
Less: Deferred debt issuonce costs3
l5
(2t
(40)
17
(34)
Totol long-term debt r 0,680 8,707
I The interest rotes of the flootinglole notes ore referenced to the 3-month Conodion dollor bonkers'occeptonce rote, plus o morgin.
2 The unreolized mork-fomorket netgoin relotes to $50 million of the Series 33 notes due 2020ond $500 million Series 37 notes due 20'19 (2015 - los
relotesto$50millionof theSeries33notesdue2020l. Iheunreolizedmork-temorketnetgoinisoffsetbyo$2millionl20l5-$l millionl unreolized
mork-tomorket net loss (2015 - goin) on the reloted fixed-toflooting interest-rote swop ogreements, which ore occounled for os foir volue hedges. See note
I 6 - Foir Volue of Finonciol lnstruments ond Risk Monogement for detoils of foir volue hedges.
3 Effective Jonuory I , 201 6, deferred debt issuonce costs ond net unomortized debt premiums were reclossified from other long-term ossets ond other long-term
liobililies, respectively, os on offset to longJerm debt upon odoption ofASU 2015O3 (see note 3). Bolonces os ot December 31, 2015 were updoted to
reflect the rehospective odoption of ASU 2015O3.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C. Lopez, Hydro One
Schedule 3, Page 76 of 167
74 HYDRO ONE LIMITED 2016 ANNUAL REPORT TSX: H
The totol long-term debt is presented on the consolidoted bolonce sheets os follows
Decembr 3l
{millions of dollors)2016 20 r5
Current liobilities:
Long-lerm debt poyoble within one yeor
Long-term liobilities:
Long-term debt
602 500
10,078 8,207
Totol long-term debt t0,680 8,707
In 20.l6, HydroOne issued $2,300 million (2015 - $350 million) o{ long-term debt undertheMTN Progrom, ond repoid $502 million (20,l5-
$550 million) of totol long+erm debt.
Principol repoyments ond reloted weighted overoge interest rotes ore summorized by the number of yeors to moturity in the following toble:
Long-term Debt Weighted Averoge
Principol Repoyments lnlerest Rote
Yeors to Moturity lmillions of dollors) l%)
1 yeor 602 5.2
2 yeors 753 2.8
3 yeors 731 1.4
4 yeors 653 2.9
5 yeors 503 1.9
3,242
1,234
6,r95
6 - 10 yeors
Over 10 yeors
2.8
3.3
5.2
10,671 4.3
Interest poyment obligotions reloted to long-term debt ore summorized by yeor in the following toble:
lnterest Poyments
Y^^, t^illi^." ^{ A^ll^^t
2017 456
201 I 425
2019 402
2020 384
2021 370
2,037
1,703
4,405
2022-2026
2027+
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.l6. Foir Volue of Finonciol lnstruments ond Risk
Monogement
Foir volue is considered to be the exchonge price in on orderly
lronsoclion between morket porticiponts to sell on osset or lronsfer o
liobility ot the meosurement dote. The foir volue definition focuses on
on exit price, which is the price thot would be received in the sole o{
on osset or the omount thol would be poid to tronsfer o liobility.
145
Hydro One clossifies its foir volue meosurements bosed on the
following hierorchy, os prescribed by the occounting guidonce for
foir volue, which prioritizes the inputs to voluotion techniques used to
meosure foir volue into three levels:
Level 1 inputs ore unodlusted quoled prices ln oclive morkets lor
identicol ossets or liobilities thot Hydro One hos the obility to occess.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
HYDRo oNE LrmrrED oNE oF NoRTH AMERr(}',qjoBgrrFI'QIf6glgtes zs
Schedule 3, Page 77 of '167
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
An octive morket for the osset or liobility is one in which tronsoctlons
for the osset or liobility occur with sufficient frequency ond volume to
provide ongoing pricing informotion.
Level 2 inputs ore those other thon quoted morket prices thot ore
observoble, either directly or indirectly, for on osset or liobility.
Level 2 inputs include, but ore not limiled to, quoted prices for similor
ossels or liobilities in on octive morket, quoled prices for identicol or
similor ossets or liobllities in morkets thot ore not octive ond inputs
other thon quoled morket prices thot ore obsenvoble for the osset or
llobility, such os interest-rote curves ond yield curves observoble ol
commonly quoted intervols, volotilities, credit risk ond defoult rotes. A
Level 2 meosurement connol hove more thon on insignificont portion
o[ lhe voluotion bosed on unobservoble inputs.
Foir Volue Meosurements of Long-Term Debt
The foir volues ond corrying volues of the Compony's long-term debt ot December 3 l
Decenber 31 2016
lmillions of dollors) Corrying Volue
Level 3 inputs ore ony [oir volue meosurements lhol include
unobservoble inputs lor the osset or liobility lor more thon on
insignificont portion o{ the voluotion. A Level 3 meosurement moy be
bosed primorily on Level 2 inputs.
Non-Derivotive Finonciol Assets ond Liobilities
At December 3 I , 20,1 6 ond 20 I 5, the Compony's corrying
omounts of cosh ond cosh equivolenls, occounls receivoble, due from
reloted porties, shorllerm noles poyoble, occounts poyoble, ond due
to reloted porties ore representotive of foir volue becouse o[ the short-
term noture o[ these instrumenls.
20,l 6 ond 20I 5 ore os follows:
2016 2015
Foir Volue Corrying Volue
20 r5
Foir Volue
Long-lerm debt
$50 million of MTN Series 33 notes
$500 million o[ MTN Series 32 notes
Other noles ond debentures
50
498
10,r32
50
498
11 ,462
5l
8,656 9,942
Foir Volue Meosurements of Derivotive
lnstruments
At December 31, 2016, Hydro One lnc. hod interest-rote swops in
the omount of $550 million (2015 - $50 million) thot wos used to
convert fixed-rote debt to flooting-rote debt. These swops ore
clossified os o [oir volue hedges. Hydro One lnc.'s foir volue hedge
exposure wos equol to obout 5% l2O1 5 - 1%) o( its totol long-term
debl. At December 3 I , 201 6, Hydro One Inc. hod the following
interest-rote swops designoted os {oir volue hedges:
. o $50 million fixed-toflooting interestrote swop ogreement to
convert $50 million of the $350 million MTN Series 33 notes
moturing April 30, 2020 into threemonth vorioble role debl; ond
r 2,010 8,707 9,993
o two $125 million ond one $250 million fixed-toflooting interest-
rote swop ogreemenls to convert the $5OO million MTN Series 37
notes moturing November 18, 2019 inlo threemonth vorioble rote
debt.
At December 3 I , 20,1 6 ond 20 1 5, the Compony hod no interest-
role swops clossified os undesignoted controcts.
Level 2 Level 3
Foir Volue Hierorchy
The {oir volue hierorchy of finonciol ossets ond liobilities ol December 3,l, 2016 ond 20,15 is os follows:
Decembr 3l , 2Ol 6 Corrying Foir
(millions of dollorsl Volue Volue Level I
Assets:
Cosh ond cosh equivolents 50 50 50
50 50 50
Liobilities:
Short-term notes poyoble
Longlerm debt, including current portion
Derivotive instruments
Foir volue hedges - interesl-rote swops
469
10,680
469
r 2,0r 0
2
469
r 2,0r 0
2 2
76 HYDRO ONE LI'IIITED 20]6 ANNUAI- REPORT TSX: H
I l,t5t 12,481 471 12,0r 0
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C. Lopez, Hydro One
Schedule 3, Page 78 of 167
,]
r 0,680
December3l,2Ol5
(millions of dollors)
Corrying
Volue
Foir
Volue Level I Level 2 Level 3
fusets:
Cosh ond cosh equivolents
Derivolive instrumenls
Foir volue h.dg":lt et.lq,ytp
9494s4
95 95 95
Liobilities:
Short-term notes poyoble 1,491
Longl.qCebt, inclrdi ng .r,re.
1,491
9,993
1,491
9,993
r0,t98 tt,434 ),491 9,993
Cosh ond cosh equivolents include cosh ond shorl-term investments
The corrying volues ore representotive of foir volue becouse of the
short-lerm nolure of these instruments.
The [oir volue of the hedged portion of the long-term debt is primorily
bosed on the presenl volue of future cosh flows using o swop yield
curve lo delermine the ossumption lor interest rotes. The foir volue ol
the unhedged portion of the long-term debt is bosed on unodiusted
period-end morket prices for the some or similor debt ol the some
remoining moturities.
There were no significont tronsfers between ony o{ the foir volue
levels during the yeors ended December 31 ,2016 ond 20,l5.
Risk Monogement
Exposure to morket risk, credit risk ond liquidity risk orises in the
normol course of the Compony's business.
Morket Risk
Morket risk refers primorily to the risk o[ loss thot results from chonges
in costs, foreign exchonge rotes ond interest rotes. The Compony is
exposed lo fluctuotions in interest rotes os its reguloted return on
equity is derived using o formuloic opprooch thot tokes into occount
onticipoted interest rotes. The Compony is not cunenlly exposed to
moteriol commodity price risk or moleriol foreign exchonge risk.
The Compony uses o combinotion of fixed ond vorioblerote debt to
monoge the mix of its debt portfolio. The Compony olso uses
derivotive finonciol instruments to monoge interesl-role risk. The
Compony utilizes interest-rote swops, which ore typicolly deslgnoted
os foir volue hedges, os o meons lo monoge its interest rote exposure
to ochieve o lower cosl of debt. The Compony moy olso utilize
interest-rote derivotive instruments to lock in inleresl-role levels in
onticipotion o[ future finoncing.
A hypotheticol 100 bosis poinls increose in inlerest rotes ossocioted
with vorioblerote debt would not hove resulted in o significont
decreose in Hydro One's net income for the yeors ended
December 3 l, 2Ol 6 or 2Ol 5.
For derivotive instruments thot ore designoted ond quolify os foir volue
hedges, the goin or loss on the derivotive inskument os well os the
offsetting loss or goin on the hedged item ottributoble to the hedged
risk ore recognized in the Consolidoted Slotements of Operotions
ond Comprehensive Income. The net unreolized loss (goin) on the
hedged debt ond the reloted interest-rote swops for the yeors ended
December 3'l , 20.1 6 ond 20 l5 wos nol significont.
Credit Risk
Finonciol ossets creote o risk thot o counterporiy will Ioil lo dischorge
on obligotion, cousing o [inonciol loss. At December 3,1, 2016 ond
20 1 5, there were no significont concentrotions of credit risk with
respecl to ony closs of finonciol ossets. The Compony's revenue is
eorned from o brood bose of customers. As o result, Hydro One did
not eorn o significont omount of revenue from ony single customer. At
December 3 I , 201 6 ond 20 I 5, there wos no significonl occounts
receivoble bolonce due lrom ony single customer.
At December 3 'l , 201 6, the Compony's provision for bod debts wos
$35 million (20 I 5 - $61 million). Adiustments ond writeoffs were
determined on the bosis of o review of overdue occounls, toking inlo
considerolion historicol experience. At December 31, 20,16,
opproximotely 6% ,2015 - 6%J ol lhe Compony's nel occounts
receivoble were oged more thon 60 doys.
Hydro One monoges its counlerporty credit risk through vorious
techniques including: entering into tronsoctions wlth highly roted
counterporlies; lirniting totol exposure levels with individuol
counterporlies; entering into moster ogreements which enoble net
sefllement ond the controctuol right of offset; ond monitoring the
[inonciol condition of counterporties. The Compony monitors current
Exhibit No.4
Case Nos. AVU-E-17-_ and AVU-G-17-_
HYDRo oNE LrrrilrED oNE oF NoRTH AMERte\',qjotriffrH!QJF6reiHgrEs 77
Schedule 3, Page 79 of 167
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
credit exposure to counterporties both on on individuol ond on
oggregole bosis. The Compony's credit risk for occounts receivoble is
limited to the corrying omounts on the Consolidoted Bolonce Sheets.
Derivotive finonciol inslruments result in exposure to credit risk since
there is o risk o[ counlerporty defoult. The credit exposure o[
derivotive controcts, before colloterol, is represented by the foir volue
of controcts ot the reporting dote. At December 3 I , 20 I 6 ond
20 I 5, the counterporty credit risk exposure on lhe foir volue of these
interest-role swop controcts wos not significont. At December 3l ,
2016, Hydro One's credit exposure for oll derivotive instruments,
ond opplicoble poyobles ond receivobles, hod o credit roting of
investment grode, with four finonciol institutions os lhe counterporty.
Liquidity Risk
Liquidity risk refers to the Compony's obility to meet its [inonciol
obligotions os they come due. Hydro One meets its short-term
liquidity requirements using cosh ond cosh equivolents on hond, funds
December 3 I
(nillions of dollors)
Irom operotions, the issuonce o[ commerciol poper, ond the revolving
stondby credit focilities. The short-term liquidity under the Commerciol
Poper Progrom, revolving stondby credit focilities, ond onticipoted
levels of lunds from operotions ore expected to be sufficient to lund
normol operoting requirenerts.
At December 3,l, 20,16, occounts poyoble ond occrued Iiobilities in
the omount of $840 million (20,)5 - $753 million) were expected to
be settled in cosh ot their corrying omounts within lhe next l2 months.
12. Copilol Monogement
The Compony's oblectives with respect to its copitol structure ore lo
moinloin effective occess to copitol on o longlerm bosis ot
reosonoble rotes, ond to deliver oppropriole finonciol returns. ln
order to ensure ongoing occess to copitol, the Compony torgels to
mointoin strong credit quolity. At December 3 1 , 201 6 ond 20 I 5,
the Compony's copitol structure wos os follows:
201 6 20r5
Long-term debt poyoble within one yeor
Short-term notes poyoble
602
469
500
1,491
94Less: cosh ond cosh uivolents 50
Long-term debt
Prefened shores
Common shores
Retoined eorninos
1,021
10,078
418
5,623
3,950
1,897
8,207
418
5,623
3,806
Totol copitol 21,090 19,95 1
Hydro One Inc. ond Greot Lokes Power hove customory covenonts
typicolly ossocioted with long-term debt. Hydro One lnc.'s long-term
debt ond credit focility covenonts limit permisslble debt to 75% of its
totol copitolizotion, limit the obility to sell ossets ond impose o
negotive pledge provision, sublect lo cuslomory exceptions. At
December 3l, 2016, Hydro One lnc. ond Greot Lokes Power were
in complionce wilh oll covenonts ond limitotions.
,l8. Pension ond Posl-retirement ond
Post-em ployment Benefits
Hydro One hos o defined benefit pension plon (Pension Plon], o
defined contribution pension plon (DC Plon), o supplementory
pension plon, ond posf-retirement ond postemployment benefit plons
Defined Contribution Pension Plon
Hydro One estoblished o DC Plon effective Jonuory I , 20 I 6. The
DC Plon is mondotory ond covers eligible monogement employees
hired on or ofterJonuory 1 ,2016, os well os monogement
employees hired before lonuory I , 20 I 6 who were not eligible or
hod not irrevocobly elected to ioin the Pension Plon os of
September 30, 2015. Members of the DC Plon hove on option to
con[ibule 4%, 5% or 6% o{ their pensionoble eornings, with motching
contributions by Hydro One.
Hydro One contributions to the DC Plon for the yeor ended
December 3,1, 20l6 were less thon $l million (20,l5 - $nil). At
December 3l , 20.16, Compony contributions poyoble included in
occrued liobilities on the Consolidoted Bolonce Sheets were less thon
$l million (2015 - $nill.
Exhibit No. 4
Case Nos. AVU-E-I7- and AVU-G-I7-
i.Lop"r,Hydro one78 HYDIO ONE LIMITED 2016 ANNUAL REPORT TSX: H
Schedule 3, Page 80 of 167
Defined Benefit Pension Plon, Supplementory
Pension Plon, ond Post-Retirement ond
Post-Employment Plons
The Pension Plon is o defined benefit contributory plon which covers
oll regulor employees of Hydro One ond its subsidiories. The Pension
Plon provides benefits bosed on highest threeyeor overoge
pensionoble eornings. For Monogement employees who commenced
employment on or ofterJonuory 1,2OO4, ond {or Society of Energy
Professionols-represented stoff hired oher November 17, 2005,
benefits ore bosed on highest fiveyeor overoge pensionoble
eornings. After retirement, pensions ore indexed to inflotion.
Membership in lhe Pension Plon wos closed to Monogement
employees who were not eligible or hod not irrevocobly elected to
ioin the Pension Plon os of September 30, 2015. These employees
ore eligible to join the DC Plon.
Compony ond employee contributions lo the Pension Plon ore bosed
on octuoriol voluolions perlormed ot leosl every lhree yeors. Annuol
Pension Plon conftiburions for 2O16 of $ 108 million (2015 - $ l ZZ
million) were bosed on on octuoriol voluotion effeclive December 3'l ,
2015 {2015 - bosed on on octuoriol voluotion effective
December 3,l, 20.l3) ond the level of pensionoble eornings.
Estimoted onnuol Pension Plon conhibutions for 2017 ond 20l8 ore
opproximotely $'l 05 million ond $ .102 million, respectivety, bosed
on the octuoriol voluotion os ol December 31, 2015 ond projected
levels o[ pensionoble eornings.
Yeor ended December 3l
(millions of dollors)
Future mlnimum contributions beyond 2018 will be bosed on on
ocluoriol voluotion effective no loter thon December 3l , 20'l B.
Conkibutions ore poyoble one month in orreors. All of the
contributions ore expected lo be in the form of cosh.
The Hydro One Supplementol Pension Plon (Supplementol Plonl
provides members of the Pension Plon with benefits thot would hove
been eorned ond poyoble under the Pension Plon but for limitotions
imposed by the /ncome Iox Act (Conodo). The Supplementol Plon
obligotion is included with other posl-retirement ond postemployment
benefit obligotlons on the Consolidoted Bolonce Sheets.
Hydro One recognizes the overfunded or underfunded stotus of the
Pension Plon, ond posl-retirement ond postemployment benefit plons
(Plons) os on osset or llobility on its Consolidoted Bolonce Sheets,
wilh offsetting regulotory ossets ond liobilities os opproprlote. The
underfunded benefit obligotions for the Plons, in the obsence of
regulotory occounting, would be recognized in AOCI. The impoct of
chonges in ossumptions used to meosure pension, post-retirement ond
postemployment benefit obligotions is generolly recognized over the
expected overoge remoining service period of the employees. The
meosurement dote for the Plons is December 3l .
Pension Benefits
2016 2015
Post-Retiremenl ond
Post-Employment Benefits
2016 2015
Chonge in proiected benefit obligotion
Proiected beneflt obligotion, beginning of yeor
Cunent service cost
Employee contributions
Interest cost
Benefits poid
Net octuoriol loss (goin)
Chonoe due to Hvdro One Brompton spinoff
7,683
144
45
308
(3s4)
ls2l
7,535
146
40
302
(334)
(61
1,610
42
1,582
43
67
(431
14
64
l47l
l27l
{5)
a7zo>=
6-.E0oO>Y1Zfra
=o-=zar>a4mo
3
Proiected benelit obligotion, end of yeor 7,774 7,683 1,690 1,610
Chonge in plon ossets
Foir volue o{ plon ossels, beginning of yeor
Actuol return on plon ossels
Benefits poid
Employer contributions
Employee conlributions
Administrotive expenses
(43)
43
6,731
370
(3s4)
108
45
126l
6,299
582
(334)
177
40
{3 3l
900 952 t,690 r,61 0Unfunded stotus
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
HYDno oNE LmrrED oNE oF NoRTH AMERre',qjo?erTFl!flf6gHges zc
Schedule 3, Page 8l of 167
Foir volue o[ plon ossets, end of veor 6,874 6,731
l47l
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hydro One presents its benefit obligotions ond plon ossets net on its Consolidoted Bolonce Sheets os follows:
December 3l
lmillions of dollors)
Pension Benefits
2016
Post-Retirement ond
PostEmployment Bene[its
2016 2015201 5
Other ossets
Accrued liobilities
Pension benefit liobiliry
Posfretirement ond postemployment benefil liobility
tr
50
1 ,6412 1,560
56
900 Y)l
Net unfunded stolus
I Represenls the funded stotus of Greot Lokes Power's defined benefit pension plon.
2 lncludes $Z million 120,l5 - $nil) reloting to Greot lokes Power's postcmployment benefit plons
The {unded or unfunded stotus o[ the pension, post-retiremenl ond
postemployment benefit plons refers to the difference between the foir
volue of plon ossets ond the projected benelit obligotions lor the
899 952 6r0
Plons. The funded,/unfunded slolus chonges over time due lo severol
foctors, includlng contribution levels, ossumed discounl rotes ond
octuol returns on plon ossels.
The following toble provides the proiected beneflt obligotion {PBO), occumuloted benefit obligotion {ABO} ond foir volue of plon ossets for the
Pension Plon:
December 3 I
lmillions of dollors) 2016 2015
PBO
ABO
Foir volue of plon ossets
7,774
7,094
6,874
7,683
7,O20
6,731
On on ABO bosis, the Pension Plon wos funded ot 97% ol
December 3.1, 2016 (2015 - 96"/"1. On o PBO bosis, the Pension
Plon wos lunded ot 88% ot December 3,], 2016 (20] 5 - 88%). The
ABO differs from the PBO in thot the ABO includes no ossumption
obout future compensotion levels.
Components of Net Periodic Benefit Cosls
The following toble provides the components of the net periodic benelit costs for the yeors ended December 31, 2016 ond 2015 lor the Pension
Plon:
Yeor ended December 3l
lmillions of dollors) 2016 20,]5
Current service cost, nel of employee contributions
lnterest cost
Expected return on plon ossets, net of expenses
Anorlizolion o[ octuoriol losses
Prior service cost omortizotion
144
308
14321
96
146
302
(406I
il9
2
Net periodic benelit costs I l6 r63
Chorged to results of operotionsr 48
I The Compony follows the cosh bosis of occounting consistenl with the inclusion o[ pension costs in OEBcpproved rotes. During the yeor ended
Deember 3 I , 201 6, pension costs of $ I 08 million .2015 - $177 millionl were ottributed to lobour, o{ which $48 million (201 5 - $8'l million) wos
chorged to operotions, ond $60 million (2015 - $96 million) wos copitolized os port of the cost of property, plont ond equipment ond intongible ossets.
BI
Exhibit No. 4
Case Nos. AVU-E-I7- and AVU-G-I7-
i.Lop"r,Hydro one80 HYDRO ONE LlIlllTED 2016 ANNUAI- REPORT TSX: H
Schedule 3, Page 82 of 167
1,697
The following toble provides he components of the net periodic benefit costs for the yeors ended December 3 I , 20,) 6 ond 20 I 5 for the post-
retirement ond postemploymenl benefit plons:
Year ended December 3l
lmillions of dollors) 2016 2Ol5
Cunent service cost, net of employee contributions
Interest cost
Amorlizotion o[ octuoriol losses
Prior service cost omorlizotion
42
67
15
43
64
14
Net periodic benefit cosls 124 121
Chorged to results of operotions 55 55
Assumptions
The meosurement of the obligolions of the Plons ond the costs of
providing benefits under the Plons involves vorious foctors, including
the development of voluotion ossumptions ond occounting policy
elections. When developing the required ossumptions, the Compony
considers historicol in{ormotion os well os future expectotions. The
meosurement of benefit obligotions ond costs is impocted by severol
ossumptions including the discount rote opplied to benefit obligotions,
the long-term expected rote of return on plon ossels, Hydro One's
expected level of contributions to the Plons, the incidence of mortolity,
the expected remoining service period of plon porticiponts, the level
The following weighted overoge ossumptions were used lo determine the benefit obligotions ot December 3 I , 20,l 6 ond 201 5:
Post-Retirement ond
Pension Benefits Post-Employment Benefits
YeorenddDecenber3l 2016 2015 2016 2015
Significont ossumptions:
Weighted overoge discount rote
Role o[ compensolion scole escolotion (longlerm]
Rote of cost o{ living increose
Rote of increose in heolth core cost trendsl
f6.25%peronnumin2OlT,grodingdownb4.36Toperonnuminondofter203l (2015-6.38%in20l6,grodingdownto4.36%peronnuminond
ofter 2031).
The following weighted overoge ossumptions were used lo determine the net periodic benefit costs for lhe yeors ended December 3'l , 2016 ond
20'l 5. Assumptions used to delermine currenl yeorend benefit obligotions ore the ossumptions used to estimote the subsequent yeor's net periodic
benefit costs.
Yeor ended December 31 2016 20] 5
Pension Benefits:
Weighted overoge expected rote of return on plon ossets
Weighted overoge discount rote
Rote of compensotion scole escolotion (long-term)
Rote of cost of living increose
Averoge remoining service life o[ employees /yeors/
ol compensotion ond rote of compensotlon increoses, employee oge,
length of service, ond the onticipoted rote o[ increose of heolth core
costs, omong other foctors. The impoct of chonges in ossumptions
used to meosure the obligotions o[ the Plons is generolly recognized
over the expecled overoge remoining service period of the plon
porticiponts. ln selecting the expecled rote of return on plon ossets,
Hydro One considers historicol economic indicolors thot impoct osset
relurns, os well os expectotlons regording future longlerm copitol
morket performonce, weighted by torget ossel closs ollocotions. ln
generol, equity securities, reol estote ond privote equlty investments
ore forecosted to hove higher returns thon fixed-income securities.
3.90%
2.50%
2.00%
4.OO%
2.50%
2.OO%
3.907"
2.50y"
2.00%
4.36%
4.10%
2.50%
2.OO%
4.36%
6.50"/"
4.OO%
2.50%
2.OO%
t5
6.50%
4.OO%
250%
2.OO%
l3
az70.>r
62IooO
i,9fr(U
=om=zar>a1mU
3
Post-Retirement ond Post-Employment Benefits:
Weighted overoge discount role
Rote of compensotion scole escolotion (long-term)
Rote of cosf o{ llving increose
Averoge remoining service life ol employees /yeorsi
Rote o[ increose in heolth core cost trends]
4.10y"
2.s0%
2.0O7"
15.3
4.367"
4.OO%
2.50%
2.O0%
r 3.8
4.36%
t 6.38% per onnum in 201 6, groding down to 4.36% per onnum in ond ofter 203 I (2015 - 6.52% in 201 5, groding down to 4.36% per onnum in ond ofter
203 r ).
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-I7-_
HYDro oNC LImIIED oNE oF NoRTH AMERr@',[!0tfffTFIlQIf6eHgrrs sr
Schedule 3, Page 83 of 167
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The discount role used to determine the current yeor pension
obligotion ond the subsequent yeor's net periodic benefit costs is
bosed on o yield curve opprooch. Under the yield curve opprooch,
expected future benefit poyments for eoch plon ore discounted by o
rote on o third-porty bond yield curve corresponding to eoch
durotion. The yield curve is bosed on "AA" long-term corporote
bonds. A single discount rote is colculoted thotwould yield the some
present volue os the sum of the discounted cosh flows.
The effect of o l% chonge in heolth core cosl trends on the proiected benefit obligotion for the posl-refirement ond postemploymenl benefib ot
December 3,l, 201 6 ond 2Ol5 is os follows:
Decembr 3l
lmillions of dollorsl 2016 20]5
Proiected benefit obligotion:
Effeo of o 'l% increose in heolth core cost kends
Effect of o I % decreose ln heolth core cost trends
The effect of o 1 % chonge in heolth core cost kends on the service cost ond interest cosl for the post-retirement ond postemployment benefits for
the yeors ended December 3I , 2016 ond 2015 is os follows:
2016 201 5
Yeor ended December 3l
lmillions of dollors)
Service cost ond interest cost:
Effect of o l% increose in heolth core cosl trends
Effect o[ o l% decreose in heolth core cost trends
23
(171
tl
{r 6)
The following opproximote life expectoncies were used in the mortolity ossumptions to determine the proiected benefit obligotions for the pension
ond post-retiremenl ond postemployment plons ot December 31 , 20.l6 ond 201 5:
December 3'l , 2016
Life expectoncy ot 65 for o member currently ot
Age 65 Age 45
December 3 1, 20,] 5
Life expectoncy ot 65 for o member currently ot
Age 65 Age 45
Mole Femole Mole Femole
24
Mole Femole
25
Mole Femole
262423232422
Estimoted Future Benefit Poyments
At December 3,1, 2016, estimoted future benelit poyments to the porticiponts of the Plons were
(millions of dollors)
Post-Retiremenl ond
Pension Benefits Post-Employment Benefits
2017
20r B
2015
2020
2021
2022 tlrough to 2026
321
331
340
349
358
I ,910
56
57
60
62
64
355
Totol estimoted future benefit poyments through to 2026 3,609 654
Exhibit No. 4
Case Nos. AVU-E-I7- and AVU-G-I7-
i.top"r,Hydro One82 HYDRO ONE LIIIITED 2016 ANNUAL REPORT TSX: H
Schedule 3, Page 84 of 167
289
'221]|
2s2
(r961
Yeor ended December 3l
lnillions of dollors)
omounts in future rotes, which would othewise be recorded in OCl.
The following toble provides the octuoriol goins ond losses ond prior
service costs recorded within regulotory ossets:
2016 201 5
Pension Benefils:
Acluoriol loss (goin) for the yeor
Amortizotion of ocluoriol losses
Prior service cost omortizotion
35
P:)
(r 81)
(ilel
t2)
(61)(302)
Post-Retirement o nd Post-Employment Benefits:
Actuoriol loss (goin) lor the yeor
Amortizotion of octuoriol losses
Prior service cost omortizotion
14
(l sl
127)
(14)
(1)
The following toble provides the components of regulotory ossets ihot hove nol been recognized os components of net periodic benelil costs for
the yeors ended December 3l , 2016 ond 20'l 5:
(4t)
Yeor ended December 3l
(millions of dollors)2016 2015
Pension Benefits:
Prior service cost
Acluoriol loss 900 952
900 952
Post-Reti rement ond Posl-Employment Benef its:
Actuoriol loss 243 240
243 240
The following toble provldes lhe components of regulotory ossets ot December 3'l thot ore expected to be omortized os componenls of net
periodic benefit costs in the following yeor:
December 3l
lmillions of dollors)
Pension Benefits2016 2015
Post-Retirement ond
Post-Employment Benefits2016 2015
=zzo->r
6-.
E6aO
,,2fra
=oz9r>6j mU
3
Prior service cost
Actuoriol loss 869679
79 96 B6
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-I7-_
HYDRo oNE LrxilrED oNE oF NoRTH AMERre',*oUUrrFI5&lf6eftgrrs ss
Schedule 3, Page 85 of 167
Components of Regulotory Assets
A portion o[ octuoriol goins ond losses ond prior service costs is
recorded within regulotory ossets on Hydro One's Consolidoted
Bolonce Sheets to reflect the expected regulotory incluslon of these
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pension Plon Assets
lnvestment Strotegy
On o regulor bosis, Hydro One evoluotes its investment strotegy to
ensure lhot Pension Plon ossets will be sufficient to poy Pension Plon
benefits when due. As port of this ongoing evoluotion, Hydro One
moy moke chonges to its torgeted osset ollocotion ond inveslmenl
slrotegy. The Pension Plon is monoged ot o net ossel level. The moin
objective of the Pension Plon is to susloin o certoin level of net ossets
in order to meet lhe pension obligotions of the Compony. The
Pension Plon ful{ills its primory obiective by odhering to specilic
investment policies outlined in its Summory o[ Inveslment Policies ond
Procedures {SIPP}, which is reviewed ond opproved by the Humon
Resource Committee o{ Hydro One's Boord of Directors. The
Compony monoges nel ossels by engoging knowledgeoble externol
inveslment monogers who ore chorged with the responsibility of
investing existing funds ond new funds (current yeor's employee ond
employer conkibutions) in occordonce with the opproved SIPP. The
performonce of the monogers is monitored through o governonce
struclure. lncreoses in nel ossels ore o direct result o[ investment
income generoted by investmenls held by the Pension Plon ond
conhibulions to ihe Pension Plon by eligible employees ond by the
Compony. The moin use of net ossets is for benefit poyments to
eligible Persion Plon nembers.
Pension Plon Asset Mix
At December 31, 20,16, the Pension Plon torget osset ollocotions ond weighled overoge osset ollocotions were os follows:
Allocotion l%l Pension Plon Assets %t
Equity securities
Debt securilies
Otherr
55.0
35.0
r 0.0
58.7
33.6
7.7
100.0 r 00.0
r Other investments include reol eslote ond infrostructure investments.
At December 31, 2016, the Pension Plon held $11 million (20.l5 -
$9 million) Hydro One corporote bonds ond $450 million (2015 -
$420 million) of debt securities of the Province.
Concentrotions of Credit Risk
Hydro One evoluoted its Pension Plon's osset portfolio for the
existence o[ significont concentrotions of credit risk os ot
December 3 I , 20,] 6 ond 20 1 5. Concenlrotions thot were evoluoted
include, bul ore not limiled to, investment concentrolions in o single
entity, concenkolions in o type of industry, ond concentrotions in
individuol funds. At December 3 I , 20,l 6 ond 201 5, there were no
significont concentrotions {defined os greoter thon 1O% o[ plon ossets)
of risk in the Pension Plon's ossets.
The Pension Plon monoges ils counterporly credit risk wilh respect to
bonds by invesflng in lnveslment-grode ond government bonds ond
with respect to derivotive instruments by tronsocting only with linonciol
inslilutions roted ot leost "A+" by Stondord & Poor's Roting Services,
DBRS Limited, ond Fitch Rotings lnc., ond "Al" by Moody's lnvestors
Service, ond olso by utilizing exposure limits to eoch counterporty
ond ensuring thot exposure is diversified ocross counterporties. The
risk o[ defoult on tronsoctions in lisled securifies is considered
minimol, os the lrode will foil if either porty to the lronsoclion does not
meet its obligotion.
Foir Volue Meosurements
The following iobles present the Pension Plon ossets meosured ond recorded ot foir volue on o recurring bosis ond lheir level within the foir volue
hierorchy ot December 3l , 20.16 ond 20,15:
December 31, 2016
lmillions of dollorsi Level I Level 2 Level 3 Totol
Pooled funds
Cosh ond cosh eouivolents
Shorllerm securities
Corporole shores - Conodion
Coroorote shores - Foreion
Bonds ond debentures -"Corodion
Bonds ond debgntures - Foreign
20
127
ilt
1,943
193
445
146
127
911
3,098
1,943
193
146
9lt
2,985
ort_
Totol foir volue ol plon ossetsr 4,042 2,396 425 6,863
r At December 31, 20,J6, the btol foir volue of Pension Plon ossets excludes $22 million o{ interest ond dlvidends receivoble, $15 million of purchosed
investments poyoble, $9 million of pension odminishotion expenses poyoble, ond $7 million of sold inveslments receivoble.
Exhibit No. 4
Case Nos. AVU-E-I7- and AVU-G-I7-
i.Lop"r,Hydro one84 HYDRO ONE LI'VIITED 2016 ANNUAI. REPORT TsX: H
Schedule 3, Page 86 of 167
December 31, 2Ol5
(millions of dollors)Level I Level 2 Level 3 Totol
Pooled funds
Cosh ond cosh equivolents
Short-term securities
Corporole shores - Conodion
Corporote shores - Foreign
Bonds ond debentures - Conodion
Bonds ond debentures - Foreign
r9t
IJ
80
30r 324
19r
BO
807
3,047
2,072
201
807
2,931 il6
2,O72
201
Tolol foir volue of ossetsl
Chonoes in the Foir Volue of Finonciol
lnstruients Clossified in Level 3
The following toble summorizes the chonges in loir volue of finonciol
inslruments clossified in Level 3 for the yeors ended December 3,l,
20,l6 ond 20,]5. The Pension Plon clossifies finonciol instruments os
Yeor ended December 3l
lnillions of dollors)
Level 3 when the foir volue is meosured bosed on ol leost one
significont input thot is not observoble in the morkets or due to lock o[
liquidity in certoin morkets. The goins ond losses presented in the
toble below moy include chonges in foir volue bosed on both
observoble ond unobservoble inputs.
2016 20 t5
929 301 7223
rAtDecember3l,20l5,thetotol foirvolueof PensionPlonossetsexcludes$2Tmillionof interestonddividendsreceivoble,ond$lSmillionrelolingto
occruols for pension odminiskotion expense ond foreign exchonge controcts poyoble.
See note l6 - Foir Volue o[ Finonciol lnstruments ond Risk Monogement for o description of levels within the foir volue hierorchy.
Foir volue, beginning of yeor
Reolized ond unreolized goins
Purchoses
Soles ond disbursements
301
23
l5't
(so)
144
5l
106
Foir volue, end of yeor 425 30r
There were no significont tronsfers between ony o[ lhe foir volue
levels during the yeors ended December 3 I , 20 I 6 ond 20 I 5.
The Compony performs sensitivily onolysis for foir volue meosurements
clossified in Level 3, substituting the unobsevoble inputs with one or
more reosonobly possible olternotive ossumplions. These sensitivily
onolyses resulted in negligible chonges in the foir volue of {inonciol
instruments clossified in this level.
Voluotion Techniques Used to Determine Foir
Volue
Pooled funds moinly consisl o[ privote equily, reol estote ond
inf rostructure investrnents. Privote equity investments rePresent privole
equity funds thot invest in operoting componies thot ore not publicly
troded on o stock exchonge. lnveslment strotegies in privote equily
include limited portnerships in businesses thot ore chorocterized by
high internol growth ond operotionol efficlencies, venture copilol,
leveroged buyouts ond speciol siluotions such os distressed
investments. Reol estote ond infrostructure investments represenl [unds
thot invest in reol ossets which ore not publicly troded on o stock
exchonge. lnveslment strotegies in reol estote include limited
portnerships thot seek to generote o totol return through income ond
copitol growlh by investing primorily in globol ond Conodion limited
portnerships. Investment strotegies in infrostructure include limited
portnerships in core infrostruclure ossels focusing on ossets thot
generole stoble, long-term cosh flows ond deliver incrementol returns
relotive lo conventionol fixed-income investments. Privole equity, reol
eslote ond infroslructure voluolions ore reporled by lhe fund monoger
ond ore bosed on lhe voluolion o[ the underlying investments which
includes inputs such os cost, operoting results, discounled future cosh
flows ond morket-bosed comporoble doto. Slnce these voluolion
inputs ore nol highly observoble, privote equity ond in{roskucture
investments hove been cotegorized os Level 3 within pooled funds.
Cosh equivolents consist o[ demond cosh deposits held with bonks
ond cosh held by the investment monogers. Cosh equivolents ore
cotegorized os Level I .
Short-term securities ore volued ot cosl plus occrued interest, which
opproximotes foir volue due to their shod-term noture. Short-term
securilies ore cotegorized os Level 2.
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-I7-_
HYDRo oNE LrryilrED oNE oF NoRTH AMERre\',il0uifrrFlltilEeElgtrs as
Schedule 3, Page 87 of 167
=z70.>r
62PoaOi,9fi@30m=zor>o4m(,
3
2,492
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Corporote shores ore volued bosed on quoted prices in octive
morkets ond ore cotegorized os Level I . lnvestments denominoted in
foreign cunencies ore tronsloted into Conodion currency ot yeorend
rotes of exchonge.
Yeor ended December 31, 2016
lmillions of dollors)
Bonds ond debentures ore presented ot published closing trode
quotolions, ond ore cotegorized os Level 2.
PCB
Lond
Assessment ond
Remediotion
I 9. Environmentol Liobilities
The following tobles show the movements in environmentol liobilities for the yeors ended December 3 I , 20,1 6 ond 20 I 5
Totol
Environmentol liobilities, Jonuory'l
lnterest occretion
Expenditures
Revoluotion odiustmenl
148
7
(lt)
(l)
59
I
(e)
l0
207
8
(20)
9
Environmentol liobilities, December 3 I
Less: currenl portion
143
l8
6t
9
204
27
125 52 177
Yeor ended December 31, 2015
(nillions of dollors)PCB
Lond
Assessment ond
Remediotion Totol
Environmentol l;obilities, Jonuory 1
Inleresl occretion
Expenditures
Revoluotion odiustment
)72
8
(8)
124)
67
2
(111
I
235
t0
(1e)
123)
Environmentol liobilities, December 3 I
Less: current porlion
t48
12
59
t0
207
22
r36 49
The following tobles show the reconciliotion between the undiscounted bosis of the environmentol liobilities ond lhe omount recognized on the
Consolidoted Bolonce Sheets olter foctoring in the discount rote:
r85
December3l,20l6
lmillions of dollors)PCB
Lond
Assessment ond
Remediotion Totol
Undiscounted environmentol liobilities
Less: discounting occumuloted liobilities to present volue
r58
I5 20
66
5
224
Discounted environmentol liobilities r43 61 204
December 31,2015
lmillions of dollors)PCB
Lond
Assessment ond
Remediotion Totol
Undiscounled environmentol liobilities
Less: discounting occumuloted liobilities to present volue
r68
20
61
2
229
22
Discounted environmentol liobilities r48 59 207
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-I7-_
C. Lopez, Hydro One
Schedule 3, Page 88 of 167
86 HYORO ONE LI'IIITED 20]6 ANNUAL REPORT TSX: H
At December 3l , 20,l6, the estimoted future environmentol expenditures were os follows
lmillions of dollors)
tut/
20rB
2019
2020
2021
Thereofter
27
26
25
29
36
81
224
Hydro One records o liobillty for the estimoted future expenditures for
lond ossessment ond remediotion ond for the phoseout ond
destruction o[ PCBcontominoted minerol oil removed from eleclricol
equipment when it is determined thol future environmentol remediotion
expenditures ore proboble under existing stotute or regulotion ond the
omount ol the future expenditures con be reosonobly estimoted.
There ore uncerlointies in estimoting future environmentol cosls due to
potentiol externol events such os chonges in legislotion or regulotlons,
ond odvonces in remediotion technologies. ln delermining the
omounts to be recorded os environmentol liobllities, the Compony
estimotes the current cost of completing required work ond mokes
ossumptions os to when the future expenditures will octuolly be
incuned, in order lo generole future cosh llow informotion. A long-
term inflotion rote ossumption of opproximotely 2% hos been used to
express these current cost estimotes os estimoted future expenditures.
Fulure expenditures hove been discounted using foctors ronging from
opproximotely 2.0% lo 6.3%, depending on the oppropriote rote for
the period when expenditures ore expected to be incurred. All foctors
used in estimoting the Compony's environmenlol liobilities represenl
monogement's best estimotes of the present volue of cosls required to
meet existing legislotion or regulolions. However, it is reosonobly
possible thot numbers or volumes o{ contominoted ossets, cost
eslimotes to perlorm work, inflotion ossumptions ond the ossumed
pottern ol onnuol cosh flows moy differ significontly from the
Compony's current ossumptions. ln oddition, with respect to lhe PCB
environmentol liobility, the ovoilobility of criticol resources such os
skilled lobour ond replocement ossets ond the obility to toke
moinlenonce outoges in criticol focilities moy influence the timing of
expenditures.
PCBs
The Environment Conodo regulollons, enocted under the Conodion
Environmentol Protection Act, 1999, govern the monogement,
storoge ond disposol of PCBs bosed on certoin criterio, including
type of equipment, in-use stolus, ond PCBcontominotion thresholds.
Under current regulotions, Hydro One's PCBs hove to be disposed of
by the end ol 2025, with the exception of specificolly exempted
equipment. Contominoted equipment will generolly be reploced, or
will be decontominoted by removing PCBcontominoted insuloting oil
ond retro filllng with replocement oil thot contoins PCBs in
concentrotions of less thon 2 ppm.
The Compony's best estimote o{ the totol estimoted future
expenditures to comply with current PCB regulotions is $ 158 million
(20,15 - $168 million). These expenditures ore expected to be
incurred over the period ftom 2017 to 2025. As o result o[ its onnuol
review of environmentol liobilities, the Compony recorded o
revoluolion odiustment in 2016 to reduce the PCB environmentol
liobiliry by $ I million (2015 - $24 milhonl.
Lond Assessment ond Remediotion
The Compony's best estimote o[ the totol estimoted future
expenditures to complete its lond ossessment ond remediotlon
progrom is $66 million (201 5 - $6 I million). These expenditures ore
expected to be incurred over the period fron 2017 to 2032. As o
result of its onnuol review o[ environmentol liobilities, the Compony
recorded o revoluotion odiustment in 20,16 to increose the lond
ossessment ond remediotion environmentol ltobility by $ 10 million
(2015 - $l millionl.
20. Asset Retirement Obligotions
Hydro One records o liobilily for the estimoted future expenditures for
the removol ond disposol o[ osbestoscontoining moteriols instolled in
some of its focilities ond for the decommissioning of specilic switching
stotions locoted on unowned siies. Assel relirement obligotions, which
represenl legol obligotions ossocloted with the retirement of certoin
tongible longJived ossels, ore computed os the present volue of the
proiected expenditures for the future retirement of specific ossets ond
ore recognized in the period in whtch the liobtlity is incuned, if o
reosonoble estimote of Ioir volue con be mode. lf the osset remoins in
service ot the recognition dote, the present volue of the liobility is
odded to the corrying omount ol the ossocioted osset in lhe period
the liobiliry is incurred ond lhis odditionol corrying omount is
deprecioted over the remoining life of the osset. lf on osset retirement
obligotion is recorded in respect of on outof-service osset, the osset
retirement cost is chorged to results of operotions. Subsequent to the
Exhibir No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
HYDRo oNE LrMrrED oNE oF NoRTH AMERrg',qj0UifrrFl!QIr6:gfllgrEs 87
Schedule 3, Page 89 of 167
azzo>r
6-.>daOigma
=om=zod\mg
3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
initiol recognition, the liobiliry is odjusted for ony revisions to the
estimoled fulure cosh flows ossocioted wilh the osset retirement
obligotion, which con occur due to o number o{ foctors including, but
not limited to, cost escolotion, chonges in technology opplicoble to
the ossels lo be retired, chonges in legislotion or regulotions, os well
os lor occretion of the liobihty due to the possoge o[ time unlil the
obligotion is settled. Depreciotion expense is odlusted prospectively
for ony increoses or decreoses lo the corrying omount o[ the
ossocioted osset.
At December 3 I , 201 6, Hydro One hod recorded osset retirement
obligotions of $9 million (20,15 - $9 rrillion), primorily consisting o[
the estimoted fulure expendilures ossocioted wilh the removol ond
disposol of osbestoscontoining moteriols instolled in some of ils
focilities. The omount of interest recorded is nominol.
2l . Shore Copitol
Common Shores
The Compony is outhorized to issue on unlimited number o[ common
shores. At December 3 I , 20 I 6 ond 20 I 5, the Compony hod
595 million common shores issued ond outstonding.
The omount ond timing o[ ony dividends poyoble by Hydro One is ot
the discretion o{ the Hydro One Boord of Directors ond ls esloblished
on the bosis of Hydro One's results ol operotions, mointenonce of its
deemed regulotory copitol skucture, finonciol condition, cosh
requirements, the sotisfoction of solvency tesls imposed by corporole
lows for the declorotion ond poyment o[ dividends ond other foctors
thot the Boord of Directors moy consider relevont.
Common Shore Offerings
In November 2015, Hydro One ond lhe Province compleled on
initiol public offering {lPO) on the Toronto Stock Exchonge of
opproximotely 15% of its 595 million outstonding common shores. In
April 201 6, lhe Province completed o secondory offering of
opproximotely 83.3 million or l4% common shores of Hydro One on
the Toronto Stock Exchonge. Hydro One did not receive ony of the
proceeds from the sole o[ the common shores by the Province.
Pre{erred Shores
The Compony is outhorized to issue on unlimited number of preferred
shores, issuoble in series. At December 3l , 20,l6, lwo series o{
preferred shores ore outhorized for issuonce; the Series 1 preferred
shores ond the Series 2 preferred shores. At Decernber 3,l, 2016,
the Compony hod 16,720,000 Series l preferred shores ond no
Series 2 preferred shores issued ond outstonding.
Hydro One moy from time to time issue prefened shores in one or
more series. Prior to issuing shores in o series, the Hydro One Boord
o[ Directors is required to fix the number o[ shores in lhe series ond
determine the designotion, rights, privileges, reslrictions ond
conditions ottoching to thot series o[ preferred shores. Holders o[
Hydro One's prelerred shores ore not entitled to receive notice of, to
ottend or to vote ot ony meeling of the shoreholders o[ Hydro One
except thot votes moy be gronted to o series of preferred shores
when dividends hove not been poid on ony one or more series os
determined by the opplicoble series provisions. Eoch series of
preferred shores ronks on pority with every other series o[ prefened
shores, ond ore entitled to o preference over the common shores ond
ony other shores ronking iunior to the prelerred shores, with respect to
dividends ond the distribution of ossets ond return of copitol in the
event of the liquidotion, dissolution or winding up o[ Hydro One.
For the period commencing from the dote of issue ol the Series I
preferred shores ond ending on ond including November 19,2020,
the holders of Series 1 prelened shores ore entitled to receive fixed
cumulolive prelerentiol dividends of $ I .0625 per shore per yeor, if
ond when declored by the Boord of Directors, poyoble quorterly. The
dividend rote will reset on November 20,2O2O ond every five yeors
thereofter ot o rote equol to the sum of the then fiveyeor Government
of Conodo bond yleld ond 3.53%. The Series I preferred shores will
not be redeemoble by Hydro One prior to November 20, 2020, but
will be redeemoble by Hydro One on November 20, 2020 ond on
November 20 of every fihh yeor thereofter ot o redemption price
equol to $25.00 for eoch Series 1 prefened shore redeemed, plus
ony occrued or unpoid div;dends. The holders of Series 1 preferred
shores will hove the right, ot their option, on November 20,2020
ond on November 20 ol every fihh yeor thereofter, to convert oll or
ony of their Series 1 preferred shores into Series 2 preferred shores
Exhibit No. 4
Case Nos. AVU-E-17- and AVU-G-I7-
C. Lop"r, Hydro One88 HYDRO ONE tlltlTED 2016 ANNUAL REPORT TSX: H
Schedule 3, Page 90 of 167
ln determining the omounls to be recorded os osset retirement
obligotions, the Compony estimotes lhe current foir volue for
completing required work ond mokes ossumptions os to when the
fulure expenditures will octuolly be incurred, in order to generole
future cosh flow informotion. A longlerm inflotion ossumption of
opproximotely 2% hos been used lo express these currenl cost
eslimotes os estimoted future expenditures. Fufure expendilures hove
been discounted using foctors ronging lrom opproximotely 3.0% to
5.0%, depending on the oppropriote rote for the period when
expenditures ore expected lo be incurred. All foctors used in
estimoling the Compony's osset retirernent obligotions represent
monogement's Gst estimotes of the cost required to meel existing
legislotion or regulotions. However, it is reosonobly possible thot
numbers or volumes of contominoled ossels, cost eslimotes to perform
work, inflotion ossumptions ond the ossumed pottern of onnuol cosh
flows moy differ significontly from the Compony's current ossumptions.
Asset retlrement obligotions ore reviewed onnuolly or more frequently
i[ significont chonges in regulotions or other relevont foclors occur.
Estimote chonges ore occounled for prospectively.
on o oneJorone bosis, subject to certoin restrictions on conversion. At
December 3.l, 20,l6, no prefened shore dividends were in orreors.
The holders of Series 2 preferred shores will be entitled to receive
quorterly flooting rote cumulolive dividends, if ond when declored by
the Boord of Direclors, ol o rote equol to the sum of he then three
month Government of Conodo treosury blll rote ond 3.53% os reset
quorterly. The Series 2 prelerred shores will not be redeemoble by
Hydro One prior to November 20, 2020, but will be redeemoble
by Hydro One ot o redemption price equol to $25.00 for eoch
Series 2 preferred shore redeemed, if redeemed on November 20,
2025 or on November 20 ol every fifth yeor thereofter, or $25.50
for eoch Series 2 prefened shore redeemed, if redeemed on ony
other dote ofter November 20,2020, in eoch cose plus ony
occrued or unpoid dividends. The holders o[ Series 2 preferred
shores will hove the right, ot their option, on November 20, 2025
ond on November 2O of every fifth yeor fiereofter, lo convert oll or
ony of their Series 2 preferred shores lnto Series 1 preferred shores
on o oneforone bosis, subiect lo certoin restrictions on conversion.
Reorgonizotion
Prior to the completion of the lPO, Hydro One ond Hydro One lnc.
completed o series of tronsoctions (PrelPO Tronsoctions) thot resulted
in, omong other things, on October 31, 2015, Hydro One ocquiring
oll of the issued ond oulslonding shores o[ Hydro One lnc. from the
Province ond issuing new common shores ond prefened shores to the
Province.
The following tobles present the chonges to common ond preferred shores os o resull of Pre-lPO Tronsoctions, os well os the movement in the
number of common ond prelerred shores during the yeor ended December 3 1 , 20,l 5. There wos no movement in common or prefened shores
during the yeor ended December 3 I , 20.l 6.
Preferred Shores
(milliory of dollors) _ Common Shores Equity Temporory Equity
Common shores issued - purchose ond concellotion of prefened shores /c/
Acquisition of Hydro One lnc. /di
Common shores of Hydro One lnc. ocquired by Hydro One
Common shores of Hydro One issued to Province
Prefened shores of Hydro One issued to Province
Common shores issued /eJ
141
13,4411
3,023
2,600
(323)
4tB
Totol PrelPO Tronsoctions odiustment 2,545 418 (323)
Preferred Shores
of Common Shores
100,000
r 00,000
2,640
lt02,640l
12, r 97,500,000
2,600,000,000
(r 4,202,600,000)
i2,920,000
(r 2,920,000)
Number of shores -Jonuory 1 , 2015 (o)
Common shores issued /b/
PrelPO Tronsoctions:
Common shores issued - purchose ond concellotion o[ prefened shores /c/
Acquisition of Hydro One lnc. /di
Common shores of Hydro One lnc. ocquired by Hydro One
Common shores of Hydro One issued to Province
Preferred shores of Hydro One issued to Province
Common shores issued /e/
Common shores consolidotion /fi
16,720,000
azzo>i
62PoaOi9fr6<om=z0r>@1mI
3
Number o[ shores - December 3 l, 20i 5 595,000,000 16,720,000
(o) AtJonuory l, 2015, oll common ond prefered shores represenlthe shores ofHydro One lnc.
(b) On August 3 I , 201 5, Hydro One wos incorporoted under the Business Corporotions Acl {Ontorio) ond issued I 00,000 common shores to the Province for
proceeds of $100,000.
(c) On October 3l , 2015, Hydro One lnc. purchosed ond concelled 12,92O,O@ prefened shores of Hydro One lnc. previously held by the Province for
concellotion ot o price equol to the redemption price of the preferred shores totolling $323 million, which wos sotisfied by lhe issuonce to the Province of
2,640 common shores of Hydro One lnc.
(d) On October 3l , 2015, oll of the issued ond outstonding common shores of Hydro One lnc. were ocquired by Hydro One from the Province in relurn for
12,197,5OO,OOO common shores of Hydro One ond 16,220,000 Series 'l preferred shores of Hydro One.
(e) On November 4, 2015, Hydro One issued 2.6 billion common shores to the Province for proceeds of $2.6 billion.
(f) On November 4,2O15, the common shores of Hydro One were consolidoted by woy of orticles of omendment opproved by the Province os sole
shoraholder so thol, ofter such consolidotion, 595,000,000 common shores of Hydro One were issued ond outstonding.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
HYDRo oNE LrMrrED oNE oF NoRTH AMERre\',qjlol€rrFIIQIFEgpgres 0e
Schedule 3, Page 9l of167
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shore Ownership Restrictions
the Electricily Acl imposes shore ownership restriclions on securities of
Hydro One corrying o voting right (Voting Securities). These
restrictions provide thot no person or compony {or combinotion o[
persons or componies octing iointly or in concert) moy beneficiolly
own or exercise conlrol or direction over more thon I O% o[ ony closs
or series of Voting Securities, including common shores o[ the
Compony (Shore Ownership Restrictlons). The Shore Ownership
Restrictions do not opply to Voting Securitles held by the Province, nor
to on undewriter who holds Voting Securilies solely for the purpose of
dlstributing those securities to purchosers who comply with the Shore
Ownership Restrictions.
22. Dividends
In 2016, prefened shore dividends in the omount of $19 million
{2015 - $ I 3 million) ond common shore dividends in the omount o[
$577 million (20,l5 - $B25 millionl were declored. The 2016
common shore dividends include $77 million for the post-lPO period
Yeor ended December 3 I
from November 5 to December 3.l, 2015, ond $500 million for the
yeor ended December 31, 20.16.
In August 2015, Hydro One declored o dividend in-kind on its
common shores poyoble in oll o[ the issued ond outstonding shores of
Hydro One Brompton (see note 4).
23. Eornings Per Shore
Bosic eornings per common shore {EPS) is colculoted by dividing net
income ottribuloble to common shoreholders of Hydro One by the
weighted overoge number of common shores outstonding. Diluted
EPS is colculoted by dividing net income ottributoble to common
shoreholders of Hydro One by the weighted overoge number of
common shores outstonding odiusted for the effects of polentiolly
dilutive stock-bosed compensotion plons, including the shore gront
plons ond the Longlerm lncentive Plon, which ore colculoted using
the treosury stock method.
2016 2015
Net income ottributoble to common shoreholders lnillions of dollors)
Weighted overoge number of shores
Bosic
Effect of dilutive stock-bosed compensotion plons (Note 24)
721
595,000,000
1,700,823
690
496,272,733
94,691
Diluted
EPS
Bosic
Diluted
596,700,823 496,367,424
$1.21
$r.2r
$
$
39
39
Pro formo Adiusted non-GAAP Bosic ond
Diluted EPS
The lollowing pro formo odjusted non-GAAP bosic ond diluted EPS
hos been prepored by monogement on o supplemenlory bosis which
ossumes thol the totol number o[ common shores outslonding wos
595,000,000 in eoch of the yeors ended December 3 I , 20 I 6 ond
20,15. The supplementory pro formo disclosure is used internolly by
monogemenl subsequent to the IPO of Hydro One to ossess the
Yeor ended Decenber 3l
(unoudited)
Compony's performonce ond is consldered useful becouse it
eliminotes the impoct o[ o different number o[ shores outstonding ond
held by the Province prior to the lPO. EPS is considered on importont
meosure ond monogement believes thot presenting it for oll periods
bosed on the number o[ outstonding shores on, ond subsequent to, the
IPO provides users with o comporoble bosis lo evoluole lhe operotions
of the Compony.
2016 2015
Net income ottributoble to common shoreholders (millions of dollors)
Pro formo we;ghted overoge number of common shores
Bosic
Effect of dilutive .tock-bor.d .o*p"nrotion plons/Note24i
721 690
595,000,000 595,000,0001,700,823 94,691
Diluted
Pro formo odlusted nonGAAP EPS
Bosic
Diluted
596,700,823 595,094,691
$1.21
$r.2r
$r.16
$t.to
The obove pro formo od justed non-GAAP bosic ond diluted EPS does not hove ony stondordized meoning in US GAAP
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 92 of 167
90 HYDRO ONE tlMlTED 2016 ANNUAL REPORT TSXI H
24. Stock-bosed Compensotion
Shore Gronl Plons
At December 3 I , 20,l 6, Hydro One hod two shore gront plons
(Shore Gront Plons), one for the benelit of certoin members of the
Power Workers' Union (the PWU Shore Gront Plon) ond one for lhe
benefit of certoin members ol The Society of Energy Professionols (the
Society Shore Gront Plon).
The PWU Shore Gront Plon provides {or the issuonce of common
shores of Hydro One from treosury to certoln eligible members of the
Power Workers' Union onnuolly, commencing on April 1 ,2017 ond
continuing until the eorlier ol April I , 2028 or the dote on eligible
employee no longer meets the eligibility criterio of the PWU Shore
Gront Plon. To be eligible, on employee must be o member of the
Pension Plon on April 1, 20,l5, be employed on the dote onnuol
shore issuonce occurs ond continue to hove under 35 yeors of service.
The requisite service period for the PWU Shore Gronl Plon begins on
July 3, 20,l5, which is the dote the shore gront plon wos rotified by
the PWU. The number of common shores issued onnuolly to eoch
eligible employee will be equol to 27% of such eligible employee's
solory os ot April l , 20 I 5, divided bv $2O.SO, being the price of the
common shores of Hydro One in the lPO. The oggregote number of
common shores issuoble under the PWU Shore Gront Plon sholl not
exceed 3,98 I ,263 common shores. In 201 5, 3,979,062 common
shores were gronted under the PWU Shore Gront Plon.
The Society Shore Gront Plon provides for lhe issuonce o[ common
shores of Hydro One from lreosury to cerloin eligible members of The
Society of Energy Professionols onnuolly, commencing on April 'l
,
Yeor ended December 31, 2016
20 18 ond continuing until the eorlier of April I , 2029 or the dote on
eligible employee no longer meets the eligibility criterio of the Sociely
Shore Gront Plon. To be eligible, on employee must be o member of
the Pension Plon on Seplember l, 2015, be employed on the dote
onnuol shore issuonce occurs ond continue to hove under 35 yeors of
service. Therefore the requisite service period for the Society Shore
Gront Plon begins on September l, 20.l5. The number of common
shores issued onnuolly lo eoch eligible employee will be equol to
2.0% of such eligible employee's solory os ot September I , 2015,
divided by $20.50, being the price o[ the common shores of Hydro
One in the lPO. The oggregote number o[ common shores issuoble
under the Society Shore Gront Plon sholl not exceed I ,434,686
common shores. ln 20,l5, I ,433,292 common shores were gronled
under the Sociely Shore Gront Plon.
The foir volue of the Hydro One Limited 20,1 5 shore gronts of
$l I 'l mlllion wos estimoted bosed on the gront dote shore price o[
$20.50 ond is recognized using the groded-vesting ottribution
method os the shore gront plons hove both o performonce condition
ond o service condition. No shores were gronled under the Shore
Gront Plons in 20,16. Totol shore bosed compensotion recognized
during 2Ol6 wos $2,l million (2015 - $10 million) ond wos
recorded os o regulotory osset.
A summory of shore gront octivity under the Shore Gront Plons during
yeors ended December 3 I , 201 6 ond 201 5 is presented below:
Shore
Gronls
lnumber of common shores)
Weighted-
Averoge
Price
Shore gronts outstonding -Jonuory 1 ,2016
Gronted (nonvested)
Forleited
5,412,354
177,939)
$20.s0
$20.50
Shore gronts oulstonding - December 3l , 20,]6 5,334,415 $20.s0
azzo.Dl
34.>daO
42fra
=oMEz0r>a1mI
3
Yeor ended December 31, 2Ol 5
Shore
Gronts
(number of common shores)
Weighted-
Averoge
Price
Shore gronts outstonding -Jonuory 1, 2015
Gronted (non-vestedl 5,412,354 $20.50
Shore gronts outstonding - December 3.1, 2015 5,412,354 $20.s0
Directors' DSU Plon
Under the Compony's Directors' DSU Plon, directors con elect to
receive credil for lheir onnuol cosh retoiner in o notionol occounl of
DSUs in lieu of cosh. Hydro One's Boord of Directors moy olso
determine from time to time thot speciol circumstonces exisl thot would
reosonobly iustify the gront of DSUs to o director os compensotion in
oddition to ony regulor retoiner or fee to which the direclor is entitled.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
HYDRo oNE urvilIED oNE oF NoRTH AMERre\',qjouifrTFI!fl16€Hgrs cr
Schedule 3, Page 93 of 167
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Eoch DSU represents o unit with on underlying volue equivolent to the volue of one common shore o[ the Compony ond is entitled to occrue
common shore dividend equivolents in the form of odditionol DSUs ot the time dividends ore poid, subsequent to declorotion by Hydro One's
Boord of Directors.
Year ended Decenber 3l
lnumber of DSUs)201 6 201 5
DSUs outstonding -Jonuory 1
DSUs gronted
20,525
78,558 20,525
DSUs oulstonding - December 3l 99,083 20,525
For the yeor ended December 31 ,2016, on expense of $2 million
{2015 - less thon $l million) wos recognized in eornings with
respect to the DSU Plon. At December 3 I , 20 I 6, o liobiliry of
$2 million (December 3l , 2015 - less thon $ I million), reloted to
outstonding DSUs hos been recorded ot the closing price of the
Compony's common shores of $23.58 ond is lncluded in occrued
liobilities on the Consolidoted Bolonce Sheets.
Employee Shore Ownership Plon
Effective December .15, 20,l5, Hydro One esloblished on Employee
Shore Ownership Plon (ESOP). Under the ESOP, certoin eligible
monogement ond non-represented employees moy contribute
between 1% ond 6% of their bose solory towords purchosing
common shores of Hydro One. The Compony motches 50% of the
employee's conlributions, up to o moximum Compony conkibution of
$25,000 per colendor yeor. In 2016, Compony contributions mode
under the ESOP were $2 million (201 5 - $nill.
Long-term lncentive Plon
Effective August 31 , 20l5, lhe Boord of Directors of Hydro One
odopted on LTIP. Under the LTIP, long-term incentives ore gronted to
cerloin executive ond monogement employees of Hydro One ond its
subsidiories, ond oll equiybosed owords will be settled in newly
issued shores of Hydro One from treosury, consistent wilh lhe
provisions of the plon. The oggregote number of shores issuoble
under the LTIP sholl not exceed I ,1,900,000 shores o[ Hydro One.
The LTIP provides flexibilily to oword o ronge of vehicles, including
restricted shore units (RSUs), performonce shore units (PSUs), stock
options, shore oppreciotion rights, restricted shores, deferred shore
units ond other shorebosed owords. The mix of vehicles is intended
to vory by role to recognize the level o[ executive occountobility for
overoll business performonce.
During 2016, the Compony gronted owords under its LTIP, consisting
of PSUs ond RSUs, oll of which ore equity settled, os follows:
Yeor ended December 3 I 20t6
Number of
PSUs
Number of
RSUs
Units outstonding -Jonuory 1 , 2016
Units gronted
Unils forfeited
235,420
'4,8201
258,970
14,82Ol
Units outstondinq - December 3l , 2016 230,600 254,150
The gront dote totol foir volue of the owords wos $ I2 million
(2015 - $nil). The compensotion expense recognized by the
Compony reloting to these owords during 20 l6 wos $3 million
(2015 - $nil).
25. Noncontrolling lnterest
On December 16,2014, tronsmission ossets totolling $526 million
were tronsferred from Hydro One Nelworks to B2M LP. This wos
finonced by 60% debt ($316 millionl ond 40% equiV ($2'lO million)
On December 17 , 2014, the Sougeen Oiibwoy Notion {SON)
ocquired o 34.2"/" equity interest in B2M LP for considerotion of
$72 million, representing the loir volue of the equity interest ocquired.
The SON's initiol ;nvestmenl in B2M LP consists of $50 million of
Closs A units ond $22 million of Closs B units.
The Closs B units hove o mondotory put option which requires thot upon
the occurrence o[ on enforcement event {i.e. on event o[ defoull such os
o debt defoult h7 the SON or insolvenry event), Hydro One purchose
the Closs B units o[ B2M LP for net book volue on the redemption dote.
The noncontrolling inleresl reloting to the Closs B units is clossified on the
Consolidoted Bolonce Sheet os temporory equity becouse the
redemption feoture is outside the control of the Compony. The bolonce
of the noncontrolling interest is clossified within equity.
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 94 of167
92 HYDRO ONE LlmlrED 2016 ANNUAT REPORT TSX: H
The following tobles show the movements in noncontrolling interest {or lhe yeors ended December 31, 20l6 ond 2Ol5
Yeor ended December 31, 2Ol6
lnillions of dollors)
Temporory
Equity Equity Totol
Noncontrolling interest -lonuory 1, 201 6
Distrlbutions to noncontrolling inlerest
Nel income ottributoble lo noncontrol
23
(3)
2
52
(61
4
75
(e)
6interest
Noncontrolling interesl - December 31, 20,16 725022
Yeor ended December 31, 2Ol5
lmillions of dollors)
Temporory
Equity EquiV Totol
Noncontrolling interest -Jonuory I , 20,l5
Distributions to noncontrolling interest
Nel i ncome ottri buto ble to non gen tq!]]!gi nterell
21
(t)
3
49
14)
7
70
(s)
t0
Noncontrolling interest - D{g.b.L! L2Q]l 23 52 75
26. Reloted Porty Tronsoctions
The Province is fie moiority shoreholder o[ Hydro One. The IESO, Ontorio Power Generotion Inc. (OPG), OEFC, OEB, ond Hydro One Brompton
ore reloted porties to Hydro One becouse they ore conkolled or significontly influenced by the Province.
Reloted Porty Tronsoction
Yeor ended December 3l
2016 2015
(millions of dollors)
Provincel Dividends poid
Common shores issued2
IPO costs subsequently reimbursed by the Province3
451 888
2,600
7
IESO Power purchosed
Revenues for tronsmission services
Distribution revenues reloted to rurol rote protection
Disiribution revenues reloted to the supply of electricity to remole northern communilies
2,096
1,549
125
32
63
2,318
1,548
127
1a
70Fundi ng received reloted to Conservotion ond Demond Monoqement proqroms azzo>r
62PoqO
i,9fra
=om=zar>@1mC,
3
OPG Power purchosed
Revenues reloted to provision o{ conshuclion ond equipment mointenonce services
6
5
I
1t
7
ICosts expensed reloted to the purchose of
OEFC Poymenls in lieu o[ corporote income toxesa
Power purchosed lrom power controcls odministered by the OEFC
Indemnilicotion fee poid (terminoted effeclive October 3l , 20l5)
I
2,933
6
I
OEB OEB fees il 12
Hvdro One Bromotonl Revenues from monooement. odminiskolive ond smort meler network services 3 I
rOnAugust3l,20l5,HydroOnelnc.completedfiespinoffof ilssubsidiory,HydroOneBrompton,totheProvince.
2 On November 4,2015, Hydro One issued common shores lo the Province for proceeds of $2.6 billion.
3ln20l5,HydroOneincurredcerloinlPOreloledexpensestotolling$Tmillion,whichweresubsequentlyreimbursedtotheComponybytheProvince.
a ln 2015, Hydro One mode Plls to the OEFC lotolling $2.9 billion, including Deporture Tox of $2.6 billion.
Soles to ond purchoses from reloted porties ore bosed on the requirements of the OEB's Affiliote Relotionships Code. Outstonding bolonces ot
period end ore interest free ond settled in cosh.
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-I7-_
HYDro oNE LrmrED oNE or NoRTH AMERre\',qJdUiff]Fllftlf6eHgres ss
Schedule 3, Page 95 of 167
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The omounts due to ond from reloted porties os o result of the tronsoctions referred lo obove ore os follows:
December 3 I
lnillions of dollors)2016 20 r5
Due from reloted porties
Due lo reloled portiesr
rlncludedinduetorelotedportiesotDecember3l ,2Ol6oreomountsowlngbthelESOinrespectof powerpurchosesof $l43million(2015-
$134 million).
r58
11A7l
t9t
1r 38)
27. Consolidoted Stotements of Cosh Flows
The chonges in non-cosh bolonces reloled to operotions consist of the following
Yeor ended Decenber 3l
(nillions of dollors)2016 20t 5
Accounts receivoble
Due from reloted porties
Moleriols ond supplies
Prepoid expenses ond other ossets
Accounts poyoble
Accrued liobilities
Due to reloted porties
Accrued interest
Longlerm occounts poyoble ond other liobilities
Post-retirement ond postemployment benefit liobility
245
2
4
123)
(t 5)
(8e)
t4)
60
(60)
33
2
(15)
r9
53
I
9
6
78
134 213
Copitol Expenditures
The following toble reconciles belween investments ln property, plont ond equipment ond the omounl presented in the Consolidoted Stotements of
Cosh Flows ofter occounting for copitolized depreciotion ond the net chonge in reloled occruols:
Yeor ended December 3 I
lnillions of dollors) 2016 2015
Copitol investments in property, plont ond equipment
Copitolized depreciotion ond net chonge in occruols included in copilol inveslments
in property, plonl ond equipmenl
(r,630) (r ,6231
2B30
Copitol expenditures - property, plont ond equipment (r,600) (1 ,sesl
The following toble reconciles between investments in intongible ossets ond the omount presented in the Consolidoted Stotements of Cosh Flows
oher occounting for the net chonge in reloted occruols:
Yeor ended December 3l
(millions of dollors) ZOI O 20 I 5
Copitol investments in intongible ossets
Net chonge in occruols included ln copitol investments in intongible ossets
(671
6
(40)
3
Copitol expenditures - intongible ossets (61)l37l
Exhibit No. 4
Case Nos. AVU-E-I7- and AVU-G-17-
i-top"r,Hydro One94 HYDRO ONE tlillIED 2016 ANNUAL REPORT TSX: H
Schedule 3, Page 96 of 167
Copitol Contributions
Hydro One enters into controcts governed by the OEB Tronsmission
System Code when o tronsmission customer requests o new or
upgroded tronsmission connection. The cuslomer is required to moke
o copitol contribution to Hydro One bosed on the shortfoll between
the present volue of the costs of the connection focility ond the present
volue of revenues. The present volue of revenues is bosed on on
estimote of lood forecost for the period of the controct with Hydro
One. Once fie connection focility is commissioned, in occordonce
Supplementory I nformotion
Yeor ended December 3l
lmillions of dollors)
with the OEB Tronsmission System Code, Hydro One will periodicolly
reossess the estimoted of lood forecost which will leod to o decreose,
or on increose in the copitol conkibulions from the customer. The
increose or decreose in copitol contributions is recorded directly to
fixed ossets in service. ln 201 6, copitol contributions lrom fiese
reossessments totolled $2,| million (20,|5 - $57 million), which
represents the difference between the revised lood forecost o[
electricity tronsmitted compored to the lood lorecost in the originol
conlroct, sublect to certoin odiuslments.
2016 20r5
Net interest poid
Income toxes / PlLs poid
418
32
416
2,933
28. Contingencies
Legol Proceedings
Hydro One is involved in vorious lowsuits, cloims ond regulotory
proceedings in the normol course of business. ln the opinion of
monogement, the outcome of such motters will not hove o moteriol
odverse effect on the Compony's consolidoted finonciol posilion,
results of operolions or cosh flows.
Hydro One Inc., Hydro One Networks, Hydro One Remote
Communities, ond Norfolk Power Distribution lnc. ore defendonts in o
closs oction suit in which the representotive plointiff is seeking up lo
$ I 25 million in domoges reloted to ollegotions of improper billing
proctices. A certificotion molion in the closs oction is pending. Due to
the preliminory stoge o[ legol proceedings, on estimote of o possible
loss reloted to this cloim connot be mode.
Tronsfer of Assets
The tronsfer orders by which the Compony ocquired certoin of
Ontorio Hydro's businesses os of April I , 1999 did not tronsfer title
lo some ossets locoled on Reserves (os defined in lhe lndion Act
(Conodo)). Currently, the OEFC holds these ossets. Under the terms
of the tronsfer orders, the Compony is required to monoge these
ossets until it hos obtoined oll consenls necessory to complete the
tronsfer of title of these ossets to itself. The Compony connot predict
the oggregote omount thot it moy hove to poy, either on on onnuol or
onetime bosis, to obtoin the required consents. ln 20,l6, the
Compony poid opproximotely $l million (20,15 - $l million) in
respect of consents obtoined. lf the Compony connot obtoin the
required consents, the OEFC will continue to hold these ossets for on
indefinite period of time. lf the Compony connot reoch o sotisfoctory
seillement, it moy hove lo relocote these ossets to other locolions ot o
cosl thot could be substonliol or, in o limited number of coses, to
obondon o line ond reploce it with dieselgenerotion focilities. The
costs reloting to these ossets could hove o moteriol odverse effect on
the Compony's results o[ operotions if the Compony is not oble to
recover them in future role orders.
2019 2020 2021 Thereofter
29. Commitments
The following loble presents o summory of Hydro One's commitmenls under leoses, outsourcing ond other ogreements due in the next 5 yeors ond
thereofter.
December 31, 2016
(millions of dollors)2017 20'i 8
azzo.>r
6-.
E6oO
1,9fi6<om=ZAr>@amI
3
Outsourcing ogreements
Longlerm softwore/meter ogreement
Operotino leose commitments
r65
17
ll
102
t7
t0
94
t6
6
2
17
r0
9
5
2
2
I
3
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-I7-_
HYDRo oNE LrmrrED oNE oF NoRrH AMERte',qJbUiffJFlltilEgHgrs cs
Schedule 3, Page 97 of 167
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Outsourcing Agreements
lnergi LP (lnergi), on offiliote o{ Copgemini Conodo lnc., provides
services to Hydro One, including settlemenls, source to poy services,
poy operotions sevices, informotion technology, [inonce ond
occounting services. The ogreement wilh lnergi for these services
expires in December 20 19. ln oddition, lnergi provides customer
sevice operotions oulsourcing services to Hydro One. The ogreement
{or these services expires in Februory 2018.
Brookfield Globol lntegroted Solutions (formerly Brookfield.Johnson
Controls Conodo LPI (Brookfieldl provides services to Hydro One,
including locilities monogement ond execution of certoin copitol
proiects os deemed required by the Compony. The ogreement with
Brookfield for these services expires in December 2024.
Long{erm softwore/meter ogreement
Trilliont Holdlngs Inc. ond Trilliont Networks {Conodol lnc.
(collectively Trilliont) provide services to Hydro One for the supply,
mointenonce ond support services for smort meters ond reloted
hordwore ond softwore, including odditionol softwore licences, os
well os certoin professionol services. The ogreement with Trilliont for
these services expires in December 2025, 6ut Hydro One hos the
option to renew for on odditionol term of Iive yeors ol ils sole
discrelion.
Operoting Leoses
Hydro One is committed os lessee to irrevocoble operoting leose
controcts for buildings used in odministrotive ond servicereloted
functions ond storing telecommunicotions equipment. These leoses
hove lypicol terms of Gtween three ond five yeors, but severol leoses
hove lesser or greoler terms to oddress speciol circumstonces ond,/or
opportunities. Renewol options, which ore generolly prevolent in most
leoses, hove similor lerms of three to five yeors. All leoses include o
clouse to enoble upword revision of the rentol chorge on on onnuol
bosis or on renewol occording to prevoiling morket condilions or
preestoblished rents. There ore no restrictions ploced upon Hydro
One by entering into these leoses. During the yeor ended
December 3l , 20,l6, the Compony mode leose poyments totolling
$ 1 I million (2015 - $Z million|.
Other Commitments
Prudentiol Support
Purchosers of eleclricity in Ontorio, through the IESO, ore required to
provide securily to mitigote the risk of their deloult bosed on their
expected octivity in the morket. As ot December 3 1 , 20 I 6, Hydro
One lnc. provided prudentiol support to the IESO on beholf o[ its
subsidiories using porentol guorontees of $329 million (2015 -
$329 million), ond on beholf o{ o dtstributor using guorontees o[
$l million (2015 - $l million). ln oddition, os ot December 31,
201 6, Hydro One lnc. provided letters o[ credit in the omount of
$24 million (20.15 - $15 millionl, including $lZ million {2015 -
$ l5 million) to the IESO. The IESO could drow on these guorontees
ond,/or letters of credit il these subsidiories or distributor foil to moke
o poyment required by o deloult notice issued by the IESO. The
moximum potentiol poyment is the foce volue of ony letters of credit
plus the omount of the porentol guorontees.
Retirement Compensotion Arrongements
Bonk letters of credit hove been issued to provide securi! for Hydro
One lnc.'s liobility under the terms of o kust fund estoblished pursuont
lo the supplementory pension plon for eligible employees o[ Hydro
One lnc. The supplementory pension plon trustee is required to drow
upon these letters o[ credtt if Hydro One lnc. is in defoult of its
obligotions under the terms of this plon. Such obligotions include the
requirement to provide the trustee with on onnuol octuoriol report os
well os letters of credit sufficient to secure Hydro One Inc.'s liobility
under lhe plon, to poy benefits poyoble under the plon ond to poy
the letter o[ credit fee. The moximum potentiol poyment is lhe {oce
volue of the letters of credit. At December 3 1, 20,l6, Hydro One
lnc. hod leters of credit of $ 150 million {2015 - $ I 39 million}
outstonding reloting to retiremenl compensotion orrongements.
30. Segmented Reporting
Hydro One hos three reportoble segments:
r The Tronsmission Business, which comprises the tronsmission of
high voltoge electricily ocross the province, interconnecling more
thon Z0 locol distribution componies ond certoin lorge directly
connected industriol customers throughout the Ontorio
electriciry grid;
r The Distribution Business, which comprises the delivery o[ electricity
to end cuslomers ond certoin other municipol electricity distributors;
ond
o Other Business, which includes certoin corporote octivities ond the
operolions of the Compony's telecommunicotions business.
The designotion of segments hos been bosed on o combinotion of
regulotory slotus ond the noture of the services provided. Operoting
segmenls o[ the Compony ore determined bosed on informotion used
by the chief operoling decision moker in deciding how to ollocote
resources ond evoluote the performonce of eoch of he segments. The
Compony evoluoles segment performonce bosed on income before
finoncing chorges ond income toxes from continuing operotions
(excluding certoin ollocoted corporote governonce costs).
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-I7-_
C.Lopez, Hydro One
Schedule 3, Page 98 of 167
96 HYDRO ONE tlMlTED 2016 ANNUAL REPORT TSX: H
The occounting policies followed by the segments ore the some os those described in the summory of significont occounting policies (see note 2).
Yeor ended December 31, 2016
(millions of dollors)Tronsmission Dishibution Other Consolidoted
Revenues
Purchosed power
Operotion, mointenonce ond odministrotion
Depreciotion ond omortizotion
1,584
382
390
4,915
3,427
608
379
6,552
3,427
1,069
778
53
79
9
Copitol investments 988 703 6 1,697
Yeor ended December 31, 2015
lmillions of dollors)Tronsmission Diskibution Olher Consolidoted
Revenues
Purchosed power
Operotion, mointenonce ond odministrotion
Depreciotion ond omortizolion
r,536
414
374
4,949
3,450
633
380
53
5
6,538
3,450
1,1 35
759
lncome (loss) before finoncing chogelld lllgrng lglgg 748 486 (40)1,194
Copilol investments 943 711 9 1,663
Totol Assets by Segment
December 3 I
(millions of dollors)2016 201 5
Tronsmission
Distribulion
Other
13,007
9,337
3,OO7
12,045
9,200
3,049
Totol ossets 25,351 24,294
31. SubsequentEvents
Dividends
On Februory 9, 2017, preferred shore dividends in the omount of
$4 million ond common shore dividends in the omounl of
$ I 25 million ($0.2,l per common shore| were declored.
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-I7-_
HYDRo oNE Lr'rtrED oNE oF NoRTH AMERr(}',qJotriD]FI5&lf6€FlHrrs ez
Schedule 3, Page 99 of 167
zo->i
6@
E6oOi.2fra
=om=zadIm(,
3
lncome (loss) before finoncing chorges ond income toxes 812 501 (35) 1,278
All revenues, costs ond ossets, os the cose moy be, ore eorned, incurred or held in Conodo.
BOARD OF DIRECTORS
& SENIOR LEADERSHIP TEAM
BOARD OF DIRECTORS
I Dovid Denison, o.c., FCPA, FcA
Choir of the Boord
2 lon Bourne, rcD.D, F.tcD
Boord Choir, Bollord Power Systems
3 Chorles Brindomour
CEO, lntoct Finonciol Corporotion
a Morcello (Morcl Coiro
Vice Choirmon,
Restouronts Bronds lnternotionol
5 Christie Clork, rcr, rcpr
Director, Loblow Componies
6 GeorgeCooke
Boord Choir,
OMERS Administrotion Corp
7 Morgoret (Morionnel Horris
Boord Choir, IIROC
g Jomes Hinds
Former Boord Choir, IESO ond OPA
9 Kothryn J. Jockson, en.o
Director, Portlond Generol Eleckic
l0 Robedo Jomieson o.c., c.M., r.p.c, u.B, rr.D {HoNl
President ond CEO, lndsplre
ll Hon. Fronces [. lonkin, o.c., p.c., c.M.
Member of Senote of Conodo
12 Philip 5. Orcino, o.c., rcPA, rcA
Director, Bonk of Montreol
13 Jone Peverell, FcMA, rcD.D
Director, Conodion lmperiol
Bonk of Commerce
la Gole Rubenstein
Portner, Goodmons LLP
15 Mop fthmidt
President ond CEO, Hydro One Limited
for detoiled biogrophicol informotion
of Hydro One Linited boord members
ond senior leodership, go to
) HydroOne.com/lnvestors
SEN IOR LEADERSHIP TEAII
15 Mop fthmidt
President ond CEO
16 Pou! H. Borry
EVP, Strotegy
& Corporote Development
17 Greg Kiroly
Chief Operoting Officer
ls Judy McKellor
EVB Chief Humon
Resources Officer
19 Ferio Pugliese
EVP, Customer Core
& Corporote Affoirs
20 Jomes Uomiel ftorlett
EVP, Chief Legol Officer
zt Michoel Vels
Chief Finonciol Of f icer
Exhibit No. 4
Case Nos. AVU-E-I7- and AVU-G-I7-
C. Lop"r, Hydro One
(9
T
10
98 HYDRO ONE LllllIED 2016 ANNUAL REPORT TSX: H
Schedule 3, Page 100 of 167
2 3
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4 )17l6
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2t9
,8
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4
CORPORATE & SHAREHOLDER
INFORMATION
CORPORATE OFFICES
483 Boy Streel, South Tower
Toronio, Ontorio, M5G 2P5
r.4r6 345.5000
www.HydroOne.com
CUSTOMER INQUIRIES
Cuslomer Service:
1.888.664.9376 or
[e-mail]
Reporl on Emergency 124 hours):
1 800 434 1235
SHAREHOLDER SERVICES
l[ you ore o registered shoreholder ond hove
inquiries regording your occouni, wish to chonge
your nome or oddress, or hove queslions
oboul divldends, duplicote moilings, lost slock
certificotes, shore konsfers or eslole settlements,
conlocl our tronsfer ogeni ond regiskor:
Compulershore Trust Compony of Conodo
100 University Avenue, 8th Floor
Toronto, ON M5 2Yl
1 51 4 982.7 555 or 1.800.564 6253
[e-mail]
INSTITUTIONAL I NVESTORS AND ANALYSTS
lnstitutionol investors, securilles ono ysls ond
others requiring odditionol finonciol informolion
con visit HydroOne.com/lnveslors
or contoct us ot:
1416.345.6867
[e-mail] or
Bruce. Mon [e-mail]
MEDIA INQUIRIES
1.416 345 6868 or 1.877.5067584
[e-mail]
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(cusrP #44881 1208)
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DEBT SECURITIES
For deloils of the pub ic debt securities ol
Hydro One ond its subsidiories, pleose refer
to lhe "Debt lnformolion" seclion under
HydroOne.com/l nvestors
INDEPENDENT AUDITORS
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ON-LINE INFORMATION
Hydro One is commilted lo open ond [u I
finonciol disclosure ond besl proctices in
corporoie governonce. We invite you lo
visil lhe lnveslor Relotions seclion of
HydroOne.com/lnvestorRelotions where you
will find odditionol informoiion obout our
buslness, including events ond presentotions,
news releoses, regulotory filings, governonce
proctices, corporole sociol responsibilily ond
our continuous disclosure molerjols, including
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You moy olso subscribe to our news by emoil
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COMMON SHARE DIVIDEND INFORMATION
2017 Expected Dividend Dotes
Record Dole': Poyment Dote*:
Morcl, 14,2017
)une 13,2017
Sepfember 12,2017
December 12,2Ol7
Morch 31, 20lZ
June 30,2Ol7
Seplember 29,2017
December 29,2017
* Sobiecl to Boord opprovol
Unless indicoted otherwise, oll common shore
dividends poid by Hydro One ore designoied
os "eligible" dividends for the purposes of
lhe lncome Iox Act (Conodo) ond ony similor
provinciol egislolion,
DIVIDEND REINVESTMENT PLAN IDRIP)
Hydro One ollers o convenient dividend
reinvestmenl progrom for e igible shoreholders
io purchose odditionol Hydro One shores by
reinvesting their cosh dividends wilhoul incurring
brokeroge or odminislrolion lees. For plon
inlormotion ond enrolment moleriols or lo
eorn more oboul lhe Hydro One DRIB visit
HydroOne.com/DR|P or Compuiershore Trust
Compony of Conodo ol lnveslorCenlre.com/
HydroOne
SOCIAL MEDIA
Follow Hydro One on:
Fl rwrrrrn
!,j uitt"...om/Hydroone
E 6ff.,??lneor,cior
@ u;m*nhydroone
Iil ttNKEDtN
f|,[ link"din..omlcompony/hydro-one
(9 Stoy up-to-dote wifh lhe lofesf
Hydro One investor informotion ot
) HydroOne.com/lnveslors
SUSTAINABILITY
Hydro One is committed lo conlinuing lo
grow responsibly ond we locus our sociol
ond environmenlol sustoinobility efforls where
we con moke the mosl meoningful impocts
on tolh. To leorn more, vlsit HydroOne.com/
OurCommitment
CAUTION REGARDING FORWAND-LOOKING INFORIIATION AND OTHER RISKS
Thts onnuol rcport includes forword-looking slolements oboul lhe finonciol condition, plons ond prospects
of Hydro One thot involve risks ond uncerlointies ond non-GAAP meosures thol ore detoiled in the "Risk
Monogement ond Risk Foclors", "Forword{ooking Slolements ond nformotion", ond "Non-GAAP Meosures"
sections of the MD&A contoined herein, which should be rmd in conjunclion with oll sections o[ this dmument.
&THIS DOCUMENT IS PRIMARITY PUBTISHED IN EI-ECTRONIC TORMAT TO MINIMIZE ITS
ENVIRONMENTAL IMPACT. PLEASE THINK BEIORE PRINTING.
THE FIBRE USED IN THE MANUFACTURE OF THE STOCK OF THE PRINTED VERSION COMES
FROM WEtt.MANAGED FORESTS, CONTROTLED SOURCES AND RECYCTED WOOD OR FIBRE.
@ 2Ol7 Nydro One Limited
Printed in Conodo
Design by Bould Creotive
bouldcreotive.com
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
HYDro oNE LmrrED oNE oF NoRTH AMERrg',sLdFittT lfjAl6 Ul\ErEs ee
Schedule 3, Page l0l of 167
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HYDRO ONE TI'YIITED IS ONE OF NORTH AMERICA'S LARGEST
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TRANSMITTING 98 PERCENT OF ONTARIO'S ELECTRIC POWER,
AND A REGULATED LOCAT DISTRIBUTION OPERATION DETIVERING
ELECTRICITY TO MORE THAN I.3 MILLION RESIDENTIAL AND BUSINESS
CUSTOMERS ACROSS 75 PERCENT OF THE GEOGRAPHY OF THE PROVINCE
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C. Lopez, Hydro One
Schedule 3, Page 102 of 167
hydro e
ANNUAL INFORMATION FORM
FOR HYDRO ONE LIMITED
FOR THE YEAR ENDED DECEMBER 31, 2016
March 27,2017
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C. Lopez, Hydro One
Schedule 3, Page 103 of 167
TABLE OF CONTENTS
GLOSSARY
PRESENTATION OF INFORMATION
FORWARD.LOOKING INFORMATION..............
ELECTRICITY INDUSTRY OVERVIEW...............
General Overview
THE ELECTRICITY INDUSTRY IN ONTARIO
Regulation of Transmission and Distribution
Transmission ........
Distribution
I
4
4
7
7
7
7
7
8
9
9
Recent Legislative Amendments Affecting the Electricity Industry Generally
RATE-REGULATED UTILITIES. ...........12
Rate Applications in Ontario...l2
CORPORATE STRUCTURE ................l2
Incorporation and Office
Legislative Provisions Specific to Hydro One
Elimination of Certain Legislation With Respect to Hydro One...............
Acquisition of Hydro One Inc.......
Hydro One Brampton Networks Inc.................
Secondary Common Share Offering ...................
First Nations and Hydro One Limited Shares
Agreement to Acquire Orillia Power
Acquisition of Great Lakes Power
Integration of Haldimand Hydro and Woodstock Hydro.............
Acquisitions Generally......
t0
r0
l2
t3Corporate Structure and Subsidiaries .................
GENERAL DEVELOPMENT OF THE BUSINESS..............l4
Incorporation and Initial Public Offering l4
14
l4
14
l5
l5
t5
l5
BUSINESS OF HYDRO ONE.............
Business Segments
Transmission Business
Distribution Business
Other Business ..............
First Nations and Mitis Communities
l7
Outsourced Services........
.17
.17
.22
.26
.27
.27
.27
.28
.28
.29
.30
Employees
Health, Safety and Environmental Management........................
Environmental Regulation..
Insurance
Reorganizations
Dividend Policy .31
.31Dividend Reinvestment Plan
I
Exhibit No. 4
CaseNos. AVU-E-I7- and AVU-G-I7-
i.top"r,Hydro one
DESCRIPTION OF CAPITAL STRUCTURE
Schedule 3, Page 104 of 167
General Description of Capital Structure 3l
32
32
Common Shares
Preferred Shares
CREDIT RATINGS 33
MARKET FOR SECURITIEs 33
Trading Price and Volume JJ
DIRECTORS AND OFFICERS.. ...............34
Directors and Executive Officers .......................3 4
Information Regarding Certain Directors and Executive Officers
Corporate Cease Trade Orders and Bankruptcies.
Penalties or Sanctions..
..3 8
.38
.39
.39
.39Indebtedness of Directors and Executive Officers
AUDIT COMMITTEE 19
Relevant Education and Experience.................40
.41
.42
Pre-Approval Policies and Procedures
Auditors'Fees
PROMOTERS A)
Governance Agreement .43
Registration Rights Agreement 48
INTEREST OF MANAGEMENT AND OTHERS IN MATERIALTRANSACTIONS .............48
Relationships with the Province and Other Parties 48
LEGAL PROCEEDINGS AND REGULATORY ACTIONS.................... ...............5
INTEREST OF EXPERTS...................
TRANSFER AGENT AND REGISTRAR..........
ADDITIONAL INFORMATION............52
SCHEDULE "A" HYDRO ONE LIMITED AUDIT COMMITTEE MANDATE..........................................53
Exhibit No. 4
Case Nos. AVU-E-I7- and AVU-G-I7-
i.Lop".,Hydro One
ll
Schedule 3, Page 105 of 167
GLOSSARY
When used in this annual information form, the following terms have the meanings set forth below unless
expressly indicated otherwise:
"$" or "dollar" means Canadian Dollars.
"2015 Underwriting Agreement" has the meaning given to it under "Material Contracts".
"2016 Underwriting Agreement" has the meaning given to it under "Material Contracts".
"Annual MD&A" means management's discussion and analysis for Hydro One Limited for the year
ended December 31, 2016, as filed on SEDAR under Hydro One Limited's profile at www.sedar.com.
"Board" means the Board of Directors of Hydro One Limited.
"CDM" means conservation and demand management.
"common shares" means the common shares in the capital of Hydro One Limited.
"Custom IR Method" has the meaning given to it under "Business of Hydro One - Transmission
Business - Regulation - Transmission Rate Setting.
"DMS" has the meaning given to it under "Business of Hydro One - Distribution Business - Regulation -
Capital Expenditures".
"Electricity Act" means the Electricity Act, 1998 (Ontario).
"Great Lakes Power" means Great Lakes Power Transmission LP.
"Governance Agreement" means the governance agreement dated November 5,2015 between Hydro
One Limited and the Province.
"G\ryh" means gigawaff-hours.
"Haldimand Hydro" means Haldimand County Utilities Inc.
"Hydro One" or the "Company" have the meanings given to such terms set out under "Presentation of
Information".
"Hydro One Limited" has the meaning given to it under "Presentation of Information".
"Hydro One Inc." has the meaning given to it under "Presentation of Information".
"IESO" means the Independent Electricity System Operator.
"kV" means kilovolt.
"kW" means kilowatt.
"management" has the meaning given to it under "Presentation of Information".
"Market Rules" means the rules made under section 32 of the Electricity Act that are administered by the
IESO.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 106 of 167
I
"NERC" has the meaning given to it under "The Electricity Industry in Ontario - Regulation of
Transmission and Distribution - IESO".
"Norfolk Power" means Norfolk Power Inc.
"NPCC" has the meaning given to it under "The Electricity Industry in Ontario - Regulation of
Transmission and Distribution - IESO".
"OBCA" means the Business Corporations lcl (Ontario).
"OEB" means the Ontario Energy Board.
"Ontario" or the "province" has the meaning given to it under "Presentation of Information"
"Ontario Energy Board Act" means the Ontario Energy Board Act, 1998 (Ontario).
"Orillia Power" means Orillia Power Distribution Corporation.
"PCB" means polychlorinated biphenyls.
"Province" has the meaning given to it under "Presentation of Information"
"Registration Rights Agreement" means the registration rights agreement dated November 5,2015
between Hydro One Limited and the Province.
"Removal Notice" has the meaning given to it under "Agreements with Principal Shareholder -
Governance Agreement - Governance Matters - Election and Replacement of Directors - Province's
Right to Replace the Board".
"Reserve" means a "reserve" as that term is defined in the Indian Act (Canada).
"Revenue Cap Index" has the meaning given to it under "Business of Hydro One - Transmission
Business - Regulation - Transmission Rate Setting".
"RRF" has the meaning given to it under "Business of Hydro One - Distribution Business - Regulation -
Distribution Rates".
"Share Ownership Restrictions" has the meaning given to it under "The Electricity Industry in Ontario
- Legislative Provisions Specific to Hydro One - l0% Ownership Restriction".
"shares" has the meaning given to it under "Agreements with Principal Shareholder - Registration Rights
Agreement - Demand Registration".
"Special Board Resolution" has the meaning given to it under "Agreements with Principal Shareholder -
Governance Agreement - Governance Matters - Board Approvals Requiring a Special Resolution of the
Directors".
"Specified Provincial Entity" has the meaning given to it under "Agreements with Principal Shareholder
- Governance Agreement - Governance Matters - Nomination of Directors - Independence".
"trust assets" has the meaning given to it under "Interests of Management and Others in Material
Transactions - Relationships with the Province and Other Parties - Transfer Orders".
Exhibit No. 4
Case Nos. AVU-E-I7- and AVU-G-I7-
i. Lop"r, Hydro one
2
"TS" means transmission station.
Schedule 3, Page 107 of 167
"TSX" means the Toronto Stock Exchange.
"TWh" means terawatt-hours.
"U.S. GAAP" means United States Generally Accepted Accounting Principles.
"Voting Securities" means a security of Hydro One Limited carrying a voting right either under all
circumstances or under some circumstances that have occurred and are continuing.
"Woodstock Hydro" means Woodstock Hydro Holdings Inc.
Exhibit No.4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 108 of 167
3
PRESENTATION OF INFOR]T{ATION
Unless otherwise specified, all information in this annual information form is presented as at December
31,2016.
Capitalized terms used in this annual information form are defined under "Glossary". Words importing
the singular number include the plural, and vice versa, and words importing any gender include all
genders. The Annual MD&A and the audited consolidated financial statements of Hydro One Limited as
at and for the year ended December 31, 2016, are specifically incorporated by reference into and form an
integral part of this annual information form. Copies of these documents have been filed with the
Canadian securities regulatory authorities and are available on SEDAR at www.sedar.com.
Unless otherwise noted or the context otherwise requires, references to "Hydro One" or the "Company"
refer to Hydro One Limited and its subsidiaries taken together as a whole. References to "Hydro One
Inc." refer only to Hydro One Inc. and references to "Hydro One Limited" refer only to Hydro One
Limited.
In addition, "Province" refers to the Province of Ontario as a provincial government entity, and
"Ontario" or the "province" in lower case type refers to the Province of Ontario as a geographical area.
References to "management" in this annual information form mean the persons who are identified as
executive officers of Hydro One Limited and its subsidiaries, as applicable, in this annual information
form. Any statements made by or on behalf of management are made in such persons' respective
capacities as executive officers of Hydro One Limited and its subsidiaries, as applicable, and not in their
personal capacities. See "Directors and Officers" for more information.
This annual information form refers to certain terms commonly used in the electricity industry, such as
"rate-regulated", "rate base" and "return on equit5r". For a description of these terms, see "Rate-
Regulated Utilities". Rate base is an amount that a utility is required to calculate for regulatory purposes,
and refers to the net book value of the utility's assets for regulatory purposes. Return on equity is a
percentage that is set or approved by a utility's regulator and represents the rate ofreturn that a regulator
allows the utility to earn on the equity component of the utility's rate base.
In this annual information form, all dollar amounts are expressed in Canadian dollars unless otherwise
indicated. All references to "$" or "dollars" refers to Canadian dollars. Hydro One Limited and Hydro
One Inc. prepare and present their financial statements in accordance with U.S. GAAP.
FORWARD-LOOKING INFORMATION
Certain information in this annual information form contains "forward-looking information" within the
meaning of applicable Canadian securities laws. Forward-looking information in this annual information
form is based on current expectations, estimates, forecasts and projections about Hydro One's business
and the industry in which Hydro One operates and includes beliefs of and assumptions made by
management. Such statements include, but are not limited to, statements related to: the Company's
transmission and distribution rate applications, and resulting rates and impacts; expected impacts of
changes to the electricity industry; the Company's maturing debt and standby credit facilities;
expectations regarding the Company's financing activities; credit ratings; ongoing and planned projects
and/or initiatives, including expected results and timing; expected future capital expenditures, the nature
and timing of these expenditures, including the Company's plans for sustaining and development capital
expenditures for its distribution and transmission systems; expectations regarding allowed return on
equity; expectations regarding the ability of the Company to recover expenditures in future rates; the
OEB; future pension contributions, the pension plan and valuations; expectations regarding the ability to
negotiate collective agreements consistent with rate orders and to maintain stable outsourcing
arrangements; expectations related to work force demographics; expectations regarding taxes;
Exhibit No. 44 Case Nos. AVU-E-I7-- and AVU-G-I7--
C.Lopez, Hydro One
Schedule 3, Page 109 of 167
occupational rights; expectations regarding load growth; the regional planning process; expectations
related to Hydro One's CDM requirements and targets; the Company's customer focus and related
initiatives; statements related to the Company's relationships with First Nations and Mdtis communities;
statements related to environmental matters, and the Company's expected future environmental
expenditures; expectations related to the effect of interest rates; the Company's reputation; cyber and data
security; the Company's relationship with the Province; future sales of shares of Hydro One; acquisitions.
including the Company's acquisition of Orillia Power; expectations regarding the Governance Agreement
and other agreements with the Province, expectations regarding the manner in which Hydro One will
operate; expectations regarding Hydro One's dividend policy and the Company's intention to declare and
pay dividends, including the target payout ratio of 70o/o to 80% of net income; and legal proceedings in
which Hydro One is currently involved.
Words such as "aim", "could", "would", "expect", "anticipate", "intend", "attempt", "ma)", "plan",
"will", "believe", "seek", "estimate", "goal", "target", and variations of such words and similar
expressions are intended to identiff such forward-looking information. These statements are not
guarantees of future performance and involve assumptions and risks and uncertainties that are difficultto
predict. Therefore, actual outcomes and results may differ materially from what is expressed, implied or
forecasted in such forward-looking information. Hydro One does not intend, and it disclaims any
obligation to update any forward-looking information, except as required by law.
The forward-looking information in this annual information form is based on a variety of factors and
assumptions including, but not limited to: no unforeseen changes in the legislative and operating
framework for Ontario's electricity market; favourable decisions from the OEB and other regulatory
bodies concerning outstanding and future rate and other applications; no unexpected delays in obtaining
the required approvals; no unforeseen changes in rate orders or rate setting methodologies for Hydro
One's distribution and transmission businesses; no unfavourable changes in environmental regulation;
continued use of U.S. GAAP; a stable regulatory environment; and no significant event occurring outside
the ordinary course of business. These assumptions are based on information currently available to Hydro
One, including information obtained from third-party sources. Actual results may differ materially from
those predicted by such forward-looking information. While Hydro One does not know what impact any
of these differences may have, Hydro One's business, results of operations, financial condition and credit
stability may be materially adversely affected if any such differences occur. Factors that could cause
actual results or outcomes to differ materially from the results expressed or implied by forward-looking
information include, among other things:
risks associated with the Province's share ownership of Hydro One and other relationships
with the Province, including potential conflicts of interest that may arise between Hydro
One, the Province and related parties;
regulatory risks and risks relating to Hydro One's revenues, including risks relating to rate
orders, actual performance against forecasts and capital expenditures;
the risk that the Company may be unable to comply with regulatory and legislative
requirements or that the Company may incur additional costs for compliance that are not
recoverable through rates;
the risk of exposure.of the Company's facilities to the effects of severe weather conditions,
natural disasters or other unexpected occurrences for which the Company is uninsured or
for which the Company could be subject to claims for damage;
public opposition to and delays or denials of the requisite approvals and accommodations
for the Company's planned projects;
the risk that Hydro One may incur significant costs associated with transferring assets
Pxhi6it No. +5 Case Nos. AVU-E-17- and AVU-G-I7-
i.top"r,Hydro one
Schedule 3, Page I l0 of 167
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located on Reserves;
the risks associated with information system security and with maintaining a complex
in form ati on technol ogy system i nfrastructure ;
the risks related to the Company's work force demographic and its potential inability to
attract and retain qualified personnel;
the risk of labour disputes and inability to negotiate appropriate collective agreements on
acceptable terms consistent with the Company's rate decisions;
the risk that the Company is not able to arrange sufficient cost-effective financing to repay
maturing debt and to fund capital expenditures;
risks associated with fluctuations in interest rates and failure to manage exposure to credit
risk;
the risk that the Company may not be able to execute plans for capital projects necessary
to maintain the performance of the Company's assets or to carry out projects in a timely
manner;
the risk of non-compliance with environmental regulations or failure to mitigate
significant health and safety risks and inability to recover environmental expenditures in
rate applications;
the risk that assumptions that form the basis of the Company's recorded environmental
liabilities and related regulatory assets may change;
the risk of not being able to recover the Company's pension expenditures in future rates
and uncertainty regarding the future regulatory treatment of pension, other post-
employment benefits and post-retirement benefits costs;
the potential that Hydro One may incur significant expenses to replace functions currently
outsourced if agreements are terminated or expire before a new service provider is
selected;
the risks associated with economic uncertainty and financial market volatility;
the inability to prepare financial statements using U.S. GAAP; and
the impact of the ownership by the Province of lands underlying the Company's
transmission system.
Hydro One cautions the reader that the above list of factors is not exhaustive. Some of these and other
factors are discussed in more detail under the heading "Risk Management and Risk Factors" in the
Annual MD&A. You should review such section in detail, including the matters referenced therein.
In addition, Hydro One cautions the reader that information provided in this annual information form
regarding Hydro One's outlook on certain matters, including potential future expenditures, is provided in
order to give context to the nature of some of Hydro One's future plans and may not be appropriate for
other purposes.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page I I I of 167
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ELECTRICITY INDUSTRY OVERVIEW
General Overview
The electricity industry is made up of businesses that generate, transmit, distribute and sell electricity.
While traditionally a mature and stable industry, innovation and technological change are expected to
have a significant impact on the industry in the foreseeable future. Hydro One's business is focused on the
transmission and distribution of electricity.
Transmission refers to the delivery of electricity over high voltage lines, typically over long
distances, from generating stations to local areas and large industrial customers.
Distribution refers to the delivery of electricity over low voltage power lines to end users such as
homes, businesses and institutions.
Overview of an Electricity System
The basic configuration of a typical electricity system showing electricity generation, transmission and
distribution is illustrated in the following diagram:
a
W8#*#*##-T;#g,*ffm,
Generutor
Transmission and distribution networks are sometimes referred to as the "electricity grid" or simply "the
grid". For simpliciry, the diagram above does not show customers directly connected to the transmission
system or distributed generation sources or other distributors that may be connected to the distribution
system.
THE ELECTRICITY INDUSTRY IN ONTARIO
Regulation of Transmission and Distribution
General
The Electricity Act and the Ontario Energy Board Act establish the general legislative framework for
Ontario's electricity market. The activities of transmitters and distributors in Ontario are overseen by
three main regulatory authorities: (i) the OEB, (ii) the IESO, and (iii) the National Energy Board.
Ontario Energt Board
The OEB is an independent and impartial public regulatory agency. The Ontario Energy Board Act
provides the OEB with the authority to regulate Ontario's electricity market, including the activities of
transmitters and distributors.
The OEB has the following objectives in relation to the electricity industry:
to protect the interests of consumers with respect to prices and the adequacy, reliability and
quality of electricity service, Exhibit No. 47 Case Nos. AVU-E-17-- and AVU-G-I7--
C.Lopez, Hydro One
Schedule 3, Page 112 of 167
TronJonner
(lncrcor.d b
Highce \ehogc)
Ironrmisrim
Syrkm
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lDxreo*d to
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Dirtribution
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a to promote economic efficiency and cost effectiveness in the generation, transmission,
distribution, sale and demand management of electricity and to facilitate the maintenance of a
fi nancially viable electricity industry,
to promote electricity conservation and demand management in a manner consistent with the
policies of the Province, including having regard to the consumer's economic circumstances,
a
to facilitate the implementation of a smart grid in Ontario, and
to promote the use and generation of electricity from renewable energy sources in a manner
consistent with the policies of the Province, including the timely expansion or reinforcement of
transmission systems and distribution systems to accommodate the connection of renewable
energy generation facilities.
The OEB is responsible for, among other things, approving transmission and distribution rates in Ontario.
It also approves the construction, expansion, or reinforcement of transmission lines greater than two
kilometres in length, as well as mergers, acquisitions, amalgamations and divestitures involving
distributors, transmitters and other entities which it licenses. The activities of transmitters and distributors
are subject to the conditions of their licenses and a number of industry codes issued by the OEB. These
codes and other requirements prescribe minimum standards of conduct and service for licensed
parlicipants in the electricity market.
IESO
The IESO manages the operation and reliability of Ontario's bulk power system and administers the
wholesale electricity market. It is governed by a board whose chair and directors are appointed by the
Province. The IESO also coordinates province-wide conservation efforts.
Transmitters and other wholesale market participants must comply with the Market Rules issued by the
IESO. The Market Rules require transmitters to comply with mandatory North American reliability
standards for transmission issued by the North American Electric Reliability Corporation ('NERC") and
the Northeast Power Coordinating Council, Inc. ("NPCC"). The IESO enforces these reliability standards
and coordinates with system operators and reliability agencies in other jurisdictions to ensure energy
adequacy and security across the interconnected bulk electricity system in North America.
National Energt Board
The National Energy Board is an independent federal regulatory agency, governed by the National
Energ,, Board Act (Canada) and has jurisdiction over the construction and operation of intemational
power lines, as well as interprovincial lines that are designated as being under federal jurisdiction (of
which there are currently none). As Hydro One owns and operates I I active international power lines
connecting Ontario's transmission system with transmission systems in Michigan, Minnesota and New
York, Hydro One is required to hold several certificates and permits issued by the National Energy Board
and is subject to its mandatory electricity reliability standards and reporting requirements.
Transmission
Transmission companies own and operate transmission systems that deliver electricity over high voltage
lines. Hydro One's transmission system accounts for approximately 98o/o of Ontario's electricity
transmission capacity based on the revenues approved by the OEB. The Company's transmission system
is interconnected to systems in Manitoba, Michigan, Minnesota, New York and Quebec and is part of the
North American electricity grid's Eastern Interconnection. The Eastern Interconnection is a contiguous
electricity transmission system that extends from Manitoba to Florida and from east of the Rocky
Mountains to the North American east coast. Being part of the Eastern Interconnection provides benefits
Exhibit No. 48 Case Nos. AVU-E-I7-- and AVU-G-I7--
C.Lopez, Hydro One
Schedule 3, Page I l3 of 167
a
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to Ontario, such as greater security and stability for Ontario's transmission system, emergency support
when there are generation constraints or shoftages in Ontario, and the ability to exchange electricity with
other jurisdictions.
Distribution
Distributors own and operate distribution systems that deliver electricity over power lines at voltages of
50kV or less to end users. In Ontario, as at December 31, 2015,71local distribution companies provided
electricity to approximately five million customers. During 2016, Hydro One completed integration of
two local distribution companies. The distribution industry in Ontario is fragmented, with the l5 largest
local distribution companies accounting for approximately 78%o of the province's customers.
Through its wholly-owned subsidiary Hydro One Inc., Hydro One owns the largest local distribution
company in Ontario, which serves over 1.3 million, predominantly rural customers, or approximately
260/o of the total number of customers in Ontario.
A local distribution company is responsible for distributing electricity to customers in its OEB-licensed
service territory, and in some cases to other distributors. A service territory may cover large portions or
all of a particular municipality, or an otherwise-defined geographic area. Distribution customers include
homes, commercial and industrial businesses and institutions such as governments, schools and hospitals.
Legislative Provisions Specific to Hydro One
In addition to legislation in Ontario that impacts all transmitters and distributors, there is legislation that is
specific to Hydro One. Specifically, the Electricity Act requires Hydro One's head office and principal
grid control centre to be maintained in Ontario, restricts the disposition of substantially all of its OEB-
regulated transmission or distribution business, prohibits any change to its jurisdiction of incorporation,
requires the Company to have an ombudsman, contains a l0o/o ownership restriction with respect to
Voting Securities and restricts the Province from selling Voting Securities if it would own less than40oh
of the Voting Securities of any class or series as a result of the sale.
Ombudsman
The Electricity Act requires the Company to have an ombudsman to act as a liaison with customers and to
establish procedures for the ombudsman to inquire into and report to the Board on matters raised with the
ombudsman by or on behalf of customers. See "General Development of the Business - Customer Focus
- Ombudsman" for more information.
1 0% Ownership Restriction
The Electricity Act imposes share ownership restrictions on the Voting Securities. These restrictions
provide that no person or company (or combination of persons or companies acting jointly or in concert)
may beneficially own or exercise control or direction over more than 10%o of any class or series of Voting
Securities, including common shares of the Company (the "Share Ownership Restrictions"). The Share
Ownership Restrictions do not apply to Voting Securities held by the Province, nor to an underwriter who
holds Voting Securities solely for the purpose of distributing those securities to purchasers who comply
with the Share Ownership Restrictions. The articles of Hydro One Limited provide for comprehensive
enforcement mechanisms that are applicable in the event of a contravention of the Share Ownership
Restrictions.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page ll4 of 167
9
Maintenance of 40% Ownership
As of December 31,2016, the Province owned approximately 70.1% of Hydro One Limited's common
shares. The Province has indicated that it intends to sell further common shares over time, until it holds
approximately 40% of Hydro One Limited. See the Annual MD&A under the heading "Risk Management
and Risk Factors" for more information.
The Electricity Act restricts the Province from selling Voting Securities (including common shares of
Hydro One Limited) if it would own less than 40o/o of the outstanding number of Voting Securities of that
class or series after the sale. If as a result of the issuance of additional Voting Securities by Hydro One
Limited, the Province owns less than40o/o of the outstanding number of Voting Securities of any class or
series, the Province must, subject to the approval ofthe Lieutenant Governor in Council and the necessary
appropriations from the Legislature, take steps to acquire as many Voting Securities of that class or series
as are necessary to increase the Province's ownership to not less than 40o/o of the outstanding number of
Voting Securities of that class or series. The manner in which, and the time by which, the Province must
acquire these additional Voting Securities will be determined by the Lieutenant Governor in Council.
The Province has been granted pre-emptive rights by Hydro One Limited to assist it in meeting its
ownership requirements under the Electricity Act as described under "Agreements with Principal
Shareholder - Governance Agreement - Other Matters - Pre-emptive Rights".
Elimination of Certain Legislation With Respect to Hydro One
Ln2015, priorto completion of the initial public offering of Hydro One Limited, Hydro One Inc. and its
subsidiaries ceased to be subject to a number of Ontario statutes that apply to entities owned by the
Province. Hydro One Limited is similarly not subject to those statutes. In making the transition, the
Auditor General of Ontario, the Financial Accountability Officer, the Information and Privacy
Commissioner and the Provincial Ombudsman continued to exercise certain of their powers with respect
to the Company in ceftain limited circumstances until December 4,2015. The Information and Privacy
Commissioner could also continue to issue certain orders with respect to the Company until lune 4,2016.
The Company is required under the Financial Administration Act (Ontario) and the Auditor General Act
(Ontario) to provide financial information to the Province for the Province's public reporting purposes.
Recent Legislative Amendments Affecting the Electricity Industry Generally
Tax Incentives
Tax incentives were included in the 2015 Ontario Budget to promote consolidation in the electricify
distribution sector. The 2015 Ontario Budget announced a reduction in the tax rate for transfers of
electricity assets from 33%o to 22%o and to NIL for distributors with fewer than 30,000 customers. In
addition, the budget also introduced a capital gains exemption where capital gains arise as a result from
exiting the payments in lieu of corporate taxes regime. These changes apply for the period beginning
January 1,2016, and ending December 31,2018.
Ontario Rebate for Electricity Consumers Act, 201 6
The Ontario Rebate for Electricity Consumers program commenced on January 1, 2017 . This program
provides financial assistance to residential, farm, small business and other eligible consumers in respect of
electricity costs equalto a rebate of eight percent (8%) of the base invoice amount for each billing period.
This rebate appears as a line item on eligible consumers' electricity bills.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page I 15 of 167
t0
Energt Statute Law Amendment Act, 2016
The Energt Statute Law Amendment AcL20l6 came into force on January 1,2017. This Act affects the
transmission and distribution sector of the electricity industry in Ontario, amending various sections of
the Ontario Energy Board Act, the Electricity Act and the Green Energy Act, 2009 (Ontario). The Energt
Statute Law Amendment Act, 2016 amended the Electricity Act to require the Minister of Energy to
produce long-term energy plans that may require the OEB and the IESO to issue implementation plans to
achieve the objectives of those plans and the OEB would be guided by such plans' objectives in
exercising its powers and performing its duties. The plans may require the IESO to enter into contracts to
procure or develop, among other things, transmission systems or any part of such systems. Once the IESO
has commenced the procurement process, the OEB is prohibited from granting leave to construct except
where the applicant is the parly with whom the IESO has entered into a contract for the development or
construction of the transmission project. The Energy Statute Low Amendment Act,20l6 also prohibits
new feed-in tariffprograms, but grandfathers existing ones.
Climate Change Mitigation ond Low-carbon Economy Act,2016
Pursuant to the Climate Change Mitigation and Low-carbon Economy Act, 2016, the Province introduced
a cap and trade program in Ontario beginning January l, 2017. The program caps the amount of
greenhouse gas emissions that Ontario homes and businesses are allowed to emit, and lowers that limit
over time. Hydro One Networks Inc., an indirect wholly-owned subsidiary of Hydro One Limited, is
deemed a mandatory participant in the cap and trade program based on its annual carbon dioxide
equivalent emissions. As required, Hydro One Networks Inc. registered under the program in November
2016, and will comply with its requirements.
Bill 27 - Burden Reduction Act, 2016
Bill 27 was introduced into the Legislative Assembly of Ontario in September 2016 and received Royal
Assent on March 22,2017. This is an omnibus bill amending various statutes, including the Ontario
Energy Board Act and the Electricity Act. Bill 27, among other things, amends the Ontario Energy Board
Act in a number of ways related to deferral and variance account review and oversight and review of
transactions between transmitters and distributors and electricity generators.
Bill 95 - An Act to amend the Ontario Energt Board Act, 1998
Bill 95 was introduced into the Legislative Assembly of Ontario and received Royal Assent on February
22, 2017. Bill 95 impacts a distributor's ability to disconnect customers by broadening the power of the
OEB to prescribe, as a condition of a distributor's licence, periods during which disconnections of low-
volume consumers may not take place. At the end of February 2017, the OEB issued a decision and order
amending the licenses of all Ontario electricity distributors prohibiting the disconnection of residential
customers by reason of non-payment for the balance of the 2017 winter period. See "General
Development of the Business - Customer Focus - Winter Moratorium and Winter Relief Program" for
more information.
Exhibit No. 4
Case Nos. AVU-E-l 7-_ and AVU-G-17-_
C. Lopez, Hydro One
Schedule 3, Page 116 of 167
ll
RATE-REG ULATED UTILITIES
Rate Applications in Ontario
Framework
The term "rate-regulated" is used to refer to an electricity business whose rates for transmission,
distribution or other services are subject to approval by a regulator. The rate base of a rate-regulated
utility refers to the net book value of the utility's assets for regulatory purposes. Rate base differs from a
utility's total assets for accounting purposes, primarily because it includes the regulated assets of a utility.
The OEB is the regulator that approves electricity transmission and distribution rates in Ontario.
Transmission rates have historically been determined based on a cost-of-service model, while distribution
rates are generally determined using a performance-based model. These models are reviewed and
modified by the OEB from time to time.
In February 2016, the OEB updated the filing requirements for electricity transmission applications and
introduced new revenue requirement setting options. The requirements changed the framework for setting
a transmitter's revenue requirement from a cost-of-service approach to a performance-based approach
similar to that outlined in the RRF for electricity distributors. To facilitate the transition to the new
framework, existing transmitters may still apply for revenue requirement approval based on a one or two
year cost-of-service application for their first application following the issuance of the new filing
requirements.
In a cost-of-service model, a utility charges rates for its services that allow it to recover the costs of
providing its services and earn an allowed return on equity. A utility's return on equity or "ROE" is the
rate of return that a regulator allows the utility to earn on the equity portion of the utility's rate base. The
costs of providing its services must be prudently incurred. Cost savings are typically passed on to
customers in the form of lower rates reflected in future rate decisions. In a cost-of-seruice model, the
utility has the potential to retain cost savings that are achieved in the intervening years between rate
decisions.
Cost of Service ($) + Return on Equity (S)Revenue Requirement ($)
In a performance-based model, a utility also charges rates for its services that allow it to recover the costs
of providing its services and earn an allowed return on equity. However, the rates charged by the utility in
a performance-based model assume that the utility becomes increasingly efficient over time, resulting in
lower costs to provide the same service. If a utility achieves cost savings in excess of those established by
the regulator, the utility may retain some or all of the benefits of those cost savings, which may permit the
utility to earn more than its allowed return on equity.
CORPORATE STRUCTURE
Incorporation and Office
Hydro One Limited was incorporated on August 31,2015, under the OBCA. Its registered office and head
office is located at 483 Bay Street, 8th Floor, South Tower, Toronto, Ontario M5G 2P5.
On October 30,2015, the articles of Hydro One Limited were amended to authorize the creation of an
unlimited number of Series I preferred shares and an unlimited number of Series 2 preferred shares, with
the Series I preferred shares to be issued to the Province.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page ll7 of'167
l2
On October 31,2015, all of the issued and outstanding shares of Hydro One Inc. were acquired by Hydro
One Limited from the Province in exchange for the issuance to the Province of common shares and Series
I preferred shares of Hydro One Limited.
On November 4,2015, the articles of Hydro One Limited were amended to authorize the consolidation of
its outstanding common shares such that 595,000,000 common shares of Hydro One Limited were issued
and outstanding.
Corporate Structure and Subsidiaries
The following is a simplified chart showing the organizational structure of Hydro One and the name and
jurisdiction of incorporation of certain of its subsidiaries. This chart does not include all legal entities
within Hydro One's organizational structure. Hydro One Limited owns, directly or indirectly, 100% of
the voting securities of all of the subsidiaries listed below.
Crxnrurrn sluti:s arxl
Sr'tier I prufcmtd shrcs
f'ommon shorr=
Puhlrc l)r'ht
I{.rU",,IOU'ri,rl'
Rrtt-Rqiulrlul llusinrssr:\on-Rltc-Rcaulrterl
llurinsxr
Notes
(l)As of Decernber 31,2016, the Province directly owned approximately 70.1%o of Hydro One Limited's outstanding
common shares and 100% ofthe outstanding Series I preferred shares.
Indirectly held through a wholly-owned subsidiary of Hydro One Limited that acts as a holding company for H1'dro
One's non-rate-regulated businesses.
(2)
Certain of Hydro One's subsidiaries are described below:
Hydro One Inc. - acts as a holding company for Hydro One's rate-regulated businesses. Its
publicly-issued debt continues to be outstanding.
Exhibit No. 4l3 Case Nos. AVU-E-I7-- and AVU-G-I7--
C.Lopez, Hydro One
Schedule 3, Page I I 8 of 167
l'rorincc'l'l'uhltc
Shurultlklurs
llydro 0nr'Linut*d
((-)ntariu I
llydnr Onc lrtc.
{Ontario}
llltlru Onc Rcmolr:
('r"rmmunitics lnc.
lOnrariol
Hydru Otre
Nctrvorts lnc
(Ontariol
l{1,rlnr (}nc
'['c["-corn lnc
{Oilllriol
a
Hydro One Networks Inc. - the principal operating subsidiary that carries on Hydro One's rate-
regulated transmission and distribution businesses.
a Hydro One Telecom Inc. - carries on Hydro One's non-rate-regulated telecommunications
business.
GENERAL DEVELOPMENT OF THE BUSINESS
The following key events occurred in 20 I 5, 2016 and early 2017 in respect of Hydro One.
Incorporation and Initial Public Offering
On August 31,2015, Hydro One Limited was incorporated by the Province as its sole shareholder
On November 5,2015, Hydro One Limited completed its initial public offering on the TSX by way of a
secondary offering of 81,100,000 common shares by the Province at a price of $20.50 per share for
aggregate gross proceeds to the Province of $1,662,550,000. On November 12,2015, the underwriters in
the initial public offering exercised their option to purchase an additional 8,150,000 common shares from
the Province at a price of $20.50 per share for additional aggregate gross proceeds to the Province of
$167,075,000. Hydro One Limited did not receive any proceeds from the initialpublic offering.
Acquisition of Hydro One Inc.
Prior to the closing of the initial public offering, all of the issued and outstanding common shares of
Hydro One Inc. were acquired by Hydro One Limited. Under applicable Canadian securities laws, the
acquisition of all of the issued and outstanding shares of Hydro One Inc. was considered a "significant
acquisition". Hydro One Limited filed a business acquisition report in respect of the acquisition on
January 14,2016. See "Business of Hydro One - Reorganizations" for more information.
Hydro One Brampton Networks Inc.
On August 31 , 2015, all of the issued and outstanding shares of Hydro One Brampton Networks Inc. were
transferred to the Province. Hydro One was not a participant in nor did it receive any proceeds from the
transfer of Hydro One Brampton Networks Inc. to the Province.
Following the transfer to the Province, Hydro One provided certain management, administrative and
smart meter network services to Hydro One Brampton Networks Inc. pursuant to service level
agreements. These agreements terminated as of Febrtary 28,2017.
Secondary Common Share Offering
On April 14,2016, the Province completed a secondary offering of 72,434,800 common shares of Hydro
One Limited at a price of $23.65 per share for aggregate gross proceeds to the Province of
$1,713,083,020. On April29,2016,the underwriters in the secondary offering exercised their option to
purchase an additional 10,865,200 common shares from the Province at a price of $23.65 per share for
additional aggregate gross proceeds to the Province of $256,961,980. Following the completion of the
transaction, the Province held approximately 70.1% of total issued and outstanding common shares.
Hydro One Limited did not receive any proceeds from the sale of the common shares by the Province.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 119 of 167
a
a
14
Hydro One Remote Communities Inc. - generates and supplies electricify to remote
communities in northern Ontario.
First Nations and Hydro One Limited Shares
In July 2016, the Province and First Nations in Ontario, as represented by the Chiefs-in-Assembly,
announced an agreement-in-principle for the Province to sell to First Nations up to approximately l5
million shares of Hydro One Limited, depending on the level of First Nation participation. All First
Nations have been invited to participate. A minimum threshold of 80% First Nation participation by the
end of 201 7 is required for this transaction to close. Hydro One Limited is not a parfy to this transaction.
Agreement to Acquire Orillia Power
In August 2016,the Company reached an agreement to acquire Orillia Power, an electricity distribution
company located in Simcoe County, Ontario, for approximately $41 million, including the assumption of
approximately $ I 5 million in outstanding indebtedness and regulatory liabilities, subject to closing
adjustments. The acquisition is subject to regulatory approval by the OEB.
Acquisition of Great Lakes Power
On October 31,2016, following receipt of regulatory approvalof the transaction by the OEB, Hydro One
completed the acquisition of Great Lakes Power, an Ontario regulated electricity transmission business
operating along the eastern shore of Lake Superior, north and east of Sault Ste. Marie, Ontario. The total
purchase price for Great Lakes Power was approximately $376 million, including the assumption of
approximately $150 million in outstanding indebtedness. On January 16,2017,Great Lakes Power's
name was changed to Hydro One Sault Ste. Marie LP.
Integration of Haldimand Hydro and Woodstock Hydro
In 2015, the Company acquired Haldimand Hydro and Woodstock Hydro, two Ontario-based local
distribution companies. In September 2016, the Company successfully completed the integration of both
entities, including the integration of employees, customer and billing information, business processes, and
operations.
Acquisitions Generally
The Company intends to continue to evaluate local distribution company consolidation opportunities in
Ontario and intends to pursue those acquisitions which deliver value to the Company and its shareholders.
Over time, the Company may also consider larger-scale acquisition opportunities or other strategic
initiatives outside of Ontario to diversiff its asset base and leverage its strong operational expertise. These
acquisition opportunities may include other providers of electrical transmission, distribution and other
similar services in Canada and in the United States.
Customer Focus
Hydro One is transitioning into a corporation which is more commercially oriented; that is, one that has a
greater focus on customers, greater corporate accountability for performance outcomes, and company-
wide increase in productivity and efficiency.
Customer Service
Hydro One is committed to delivering significant value to customers by becoming easier to do business
with, being available when customers need assistance, and always staying connected. This includes
specific, measurable commitments to customers that encompass all areas of service. Hydro One's billing
system is stable and outperforming its previous system in terms of timeliness, accuracy and reliability. In
2017, the Company intends to launch a new corporate website, improve its self-service portal, and
introduce a newly designed customer bill. Additionally, the Company is committed to increasing the
Exhibit No.4l5 CaseNos. AVU-E-I7--and AVU-G-I7--
C. Lopez, Hydro One
Schedule 3, Page 'i,20 of 167
availability of customer service at the local level, and increasing face to face customer engagement.
Review of Operations
Hydro One has been focused on the identification of opportunities for improved corporate performance
and the development of strategies to drive more efficient, cost-effective operations. Hydro One conducts
regular reviews of key corporate activities and programs, covering areas such as construction services and
project management practices, asset deployment and controls, information technology and cybersecurity,
vegetation management practices, fleet services and utilization, supply chain management and business
continuity planning. Operational improvements in capital planning and execution have already been
observed, and improvements have been made to work execution process. The OEB's rate decisions also
contain directions to Hydro One to become more cost efficient and improve value to customers.
l{inter Moratorium und Winter Relief Program
Hydro One has an existing policy (the winter disconnection moratorium) that from December I to March
3l it will not disconnect residential customers whose accounts are in arrears. In 2016, Hydro One
instituted its winter disconnection moratorium as of November 25.
Hydro One announced its new Winter Relief Program in December 2016, as an extension of its existing
winter disconnection moratorium. This new initiative is intended to help residential customers facing
extreme hardship and who have had their electricity service disconnected by reaching out to these
customers directly to help re-connect their electricity service for the remainder of the winter. As part of
the program, Hydro One will waive reconnection fees and also work with customers to determine
payment options to bring their accounts up-to-date and to evaluate various support programs in which
certain customers may be eligible to participate.
Ontario Re bate for E lectricity Consu mers Program
See "The Electricity Industry in Ontario - Recent Legislative Amendments Affecting the Electricity
Industry Generally - Ontario Rebate for Electricity Consumers Act, 2016" for information on the Ontario
Rebate for Electricity Consumers program.
Ombudsman
The Electricity Act requires that the Company have an ombudsman to act as a liaison with customers and
to establish procedures for the ombudsman to inquire into and repoft to the Board on matters raised with
the ombudsman by or on behalf of customers. These procedures are set out in a written mandate and
terms of reference.
The role of the ombudsman is to facilitate resolution of complaints by customers of the Company that
remain unresolved after having been processed through the Company's complaints handling process. The
ombudsman is an impartial and independent investigator, who makes recommendations to facilitate the
resolution of both individual and systemic issues with a view to achieving a resolution that is fair to both
the customer and the Company. The main purposes of the ombudsman are to address procedural and
substantive unfairness, handle unresolved complaints, conduct systemic reviews that will lead to
improvements in programs and systems, suppoft the Company in holding its employees accountable for
carrying out the Company's directives and their responsibilities, and support the Board in its mandate to
govern in a just, fair, and equitable manner. The ombudsman also works with the OEB to maintain
integrated procedures for liaising with the Company and inquiring into matters raised by customers with
the ombudsman. The ombudsman is an office of last resort within the Company.
Exhibit No. 4
Case Nos. AVU-E-t 7-_ and AVU-G-17-_
C. Lopez, Hydro One
Schedule 3, Page 121 of 167
16
BUSINESS OF HYDRO ONE
Business Segments
Through its wholly-owned subsidiary Hydro One Inc., Hydro One is Ontario's largest electricity
transmission and distribution utility with approximately $25.3 billion in assets and2016 revenues of over
$6.5 billion. Hydro One owns and operates substantially all of Ontario's electricity transmission network
and is the largest electricity distributor in Ontario by number of customers. The Company's regulated
transmission and distribution operations are owned by Hydro One Inc., a wholly-owned subsidiary of
Hydro One Limited. Hydro One delivers electricity safely and reliably to over 1.3 million customers
across the province of Ontario, and to large industrial customers and municipal utilities. Hydro One Inc.
owns and operates over 30,000 circuit kilometres of high-voltage transmission lines and approximately
123,000 circuit kilometres of primary low-voltage distribution lines.
Hydro One has three business segments: (i) transmission; (ii) distribution; and (iii) other business. Each
of the three segments is described below.
Hydro One's transmission and distribution businesses are both operated primarily through Hydro One
Networks Inc. This allows both businesses to utilize common operating platforms, technology, work
processes, equipment and field staff and thereby take advantage of operating efficiencies and synergies.
For regulatory purposes, Hydro One Networks Inc. files separate rate applications with the OEB for each
of its licensed transmission and distribution businesses.
Transmission Business
Overview
Hydro One's transmission business consists of owning, operating and maintaining Hydro One's
transmission system, which accounts for approximately 98% of Ontario's transmission capacity based on
revenue approved by the OEB. All of the Company's transmission business is carried out by its wholly-
owned subsidiary Hydro One Inc., through its wholly-owned subsidiary Hydro One Networks Inc. and
through other wholly-owned subsidiaries of Hydro One Inc. that own and control Great Lakes Power
(now Hydro One Sault Ste. Marie LP), as well as through the Company's 66o/o interest in B2M Limited
Partnership. B2M Limited Partnership is a limited partnership between Hydro One and the Saugeen
Ojibway Nation, which owns the transmission line assets relating to two circuits between Bruce TS and
Milton TS. Hydro One's transmission business represented approximately 51%, of its total assets as at
December 31,2016, and accounted for approximately 5l% of its total revenue in 2016, net of purchased
power and 50%o of its total revenue in 201 5, net of purchased power.
The Company's transmission business is one of the largest in North America and is a rate-regulated
business that earns revenues mainly from charging transmission rates that are subject to approval by the
OEB. In February 2016,the OEB updated the filing requirements for electricity transmission applications
and introduced new revenue requirement setting options. During the transition period from the cost-of-
service model to the performance-based model, the Company's transmission rates are determined based
on a cost-of-service model. Transmission rates are collected by the IESO and are remitted by the IESO to
Hydro One on a monthly basis, which means that Hydro One's transmission business has no direct
exposure to end-customer counterparty risk.
Transmission rates are based on monthly peak electricity demand across Hydro One's transmission
network. This gives rise to seasonal variations in Hydro One's transmission revenues, which are generally
higher in the summer and winter due to increased demand, and lower during other periods of reduced
demand. Hydro One's transmission revenues also include revenues associated with exporting energy to
markets outside of Ontario. Ancillary revenue includes revenues from providing maintenance services to
generators and from third parfy land use.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-l 7-_
C.Lopez, Hydro One
Schedule 3, Page 122 of 167
17
Business
The Company's transmission system seryes substantially all of Ontario, with the exception of the James
Bay and Fort Erie areas, and transported approximately 137 TWh of energy throughout the province in
20 16. Hydro One's transmission customers consist of 44 local distribution companies (including Hydro
One's own distribution business) and 87 large industrial customers connected directly to the transmission
network, including automotive, manufacturing, chemical and natural resources businesses. Electricity
delivered over the Company's transmission network is supplied by 126 generators in Ontario and
electricity imported into the province through interties. Interties are transmission interconnections
between neighbouring electric systems that allow power to be imported and exported.
The high voltage power lines in Hydro One's transmission network are categorized as either lines which
form part of the "bulk electricity system" or "area supply lines". Power lines which form part of the bulk
electricity system typically connect major generation facilities with transmission stations and often cover
long distances, while area supply lines serve a local region. Ontario's transmission system is connected to
the transmission systems of Manitoba, Michigan, Minnesota, New York and Quebec through the use of
interties, allowing for the import and export of electricity to and from Ontario.
Hydro One's transmission assets were approximately Sl3 billion as at December 31,2016 and include
transmission stations, transmission lines, a control centre and telecommunications facilities. Hydro One
has approximately 306 in-service transmission stations and over 30,000 circuit kilometres of high voltage
lines whose major components include cables, conductors and wood or steel suppoft structures. All of
these lines are overhead power lines except for approximately 277 circuit kilometres of underground
cables located in certain urban areas.
B2M Limited Partnership is Hydro One's partnership with the Saugeen Ojibway Nation with respect to
the Bruce-to-Milton transmission line. B2M Limited Partnership owns the transmission line assets
relating to two circuits between Bruce TS and Milton TS, while Hydro One owns the transmission
stations where the lines terminate. Hydro One maintains and operates the Bruce-to-Milton line. Hydro
One has a 66%o economic interest in the partnership.
Hydro One's transmission network is managed from a central location. This centre monitors and controls
the Company's entire transmission network, and has the capability to remotely monitor and operate
transmission equipment, respond to alarms and contingencies and restore and reroute interrupted power.
There is also a backup facility which would be staffed in the event of an evacuation of the centre.
Hydro One uses telecommunications systems for the protection and operation of its transmission and
distribution networks. These systems are subject to very stringent reliability and security requirements,
which help the Company meet its reliability obligations and facilitate the restoration of power following
service interruptions.
On October 31,2016, following receipt of regulatory approval of the transaction by the OEB, Hydro One
completed the acquisition of Great Lakes Power, an Ontario regulated electricity transmission business
operating along the eastem shore of Lake Superior, north and east of Sault Ste. Marie, Ontario. The total
purchase price for Great Lakes Power was approximately 5376 million, including the assumption of
approximately $150 million in outstanding indebtedness. On January 16,2017, Great Lakes Power's
name was changed to Hydro One Sault Ste. Marie LP.
See "General Development of the Business - Acquisitions Generally" for more information.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C. Lopez, Hydro One
Schedule 3, Page 123 of 167
l8
Regulation
Transmission Rate Setting
As discussed under "Rate-Regulated Utilities", transmission rate setting in Ontario has changed. The
OEB has created two new revenue plan options: the Custom Incentive Rate Setting Plan (the "Custom IR
Method") and the Incentive Index Rate Setting Plan (the "Revenue Cap Index"). Transmitters may still
apply for revenue requirement approval based on a one or two year cost-of-service application for their
first application following the issuance of the filing requirements, as the OEB has recognized that a
transition period may be needed.
Under the Custom IR Method, the revenue requirement is adjusted though the rate term to reflect
forecasts, the OEB's inflation analysis, and intemal and extemal benchmarking evidence.
Under the Revenue Cap Index the first year's revenue requirement reflects the transmitter's cost of
service, and annually thereafter, this amount is subject to a formulaic increase reflecting productivity and
stretch commitments proposed by the transmitter. Revenue Cap Index applicants can request incremental
capital funding.
The OEB sets transmission rates based on a two-step process. First, all transmitters apply to the OEB for
the approval of their revenue requirements. Second, the OEB aggregates the total revenue requirements of
all transmitters in Ontario and applies a formula to arrive at a single set of rates that are charged to
ratepayers for the three types of transmission services applicable in Ontario, namely: network services,
line connection services and transformation connection services. The three separate rates charged for
these services are the same for all transmitters and are referred to as "uniform transmission rates".
Uniform transmission rates for all transmitters are set by the OEB on an annual basis, using the revenue
requirements set out in the most recent rate decision issued for each transmitter.
The updated filing requirements for transmitters mandate that steps be made towards the integration of
core RRF concepts into revenue requirement applications. Transmitters applying for revenue
requirements under the Custom IR Method or Revenue Cap Index must include (i) evidence of the
continuous improvement and efficiency gains anticipated to be achieved over the rate term; (ii) a
mechanism to protect ratepayers in the event of eamings significantly in excess of the regulatory net
income supported by the return on equity established in the approved revenue requirement; and (iii)
proposed performance metrics applicable to their individual circumstances. A key component of rate-
setting under the RRF is benchmarking evidence to support cost forecasts and system planning proposals.
A transmitter must apply for the approval of its revenue requirement for an initial base year covered by
the rate decision. The revenue requirement for subsequent years is determined based on a formula that
accounts for inflation and certain productivity factors set by the regulator. The revenue requirement in
these subsequent years is set on the assumption that the transmitter is lowering its cost of service over the
period covered by the rate decision due to efficiency or productivity improvements. A transmitter is
permitted to retain all or a portion of the cost savings achieved in excess of the estimate established by the
regulator during the period covered by the rate decision.
Recent Transmission Rate Applications
Hydro One Networks Inc., B2M Limited Partnership and Great Lakes Power (now Hydro One Sault Ste.
Marie LP) file separate applications for the approval of their revenue requirements for transmission
services.
In January2015, the OEB approved Hydro One Networks Inc.'s 2015 transmission rate order for
transmission services, which provided for a revenue requirement of 51 ,477 million for 2015 and
Sl,5l6million for 2016 (excluding B2M Limited Partnership). These revenue requirements reflect an
Exhibit No. 4l9 Case Nos. AVU-E-I7-- and AVU-G-I7--
C. Lopez, Hydro One
Schedule 3, Page 'I24 of 167
approved rate base of $9,65 I million, retum on equity of 9.30Yo and deemed capital structure of 60%o debt
and 40%o equity. In January 2016, the OEB issued its decision and order on 2016 transmission revenue
requirement for Hydro One Networks Inc. approving a revenue requirement of approximately $1,480
million based on an approved rate base of $10,040 million and a return on equity of 9.19Y".
InMay 2016, Hydro OneNetworks Inc. filed a transmission rate application with the OEB for its 2017-
2018 revenue requirements on a cost of service basis, electing to take advantage of the transition period
available to transmitters before the OEB requires transmitters to choose between the two incentive-based
revenue plan options. In its application, Hydro One Networks Inc. requested the OEB's approval of rates
revenue requirements of $1,505 million for 2017 and S1,586 million for 2018. These rates revenue
requirements reflect the requested rate base of S10,554 million for 2017 and $11,226 million for 2018,
and reflect an allowed ROE of 9.19%o for eachyear.
In December 2016, pursuant to the OEB's publication of its cost of capital parameters for 2017 rate year,
Hydro One Networks Inc. updated its transmission rate application to reflect the change. The revised rates
revenue requirement for 2017 is $1,487 million and $1,558 million for 2018. Furthermore, the cost of
capital update reflects ROE, short-term and long-term debt cost updates. As a result, the ROE in the
application has been updated to 8.'18%o for 2017 and the same rate is being a placeholder for 201 8.
In preparing its application, Hydro One Networks Inc. carried out customer engagement and incorporated
the feedback into its application. As part of the transmission rate application, Hydro One Networks Inc.
also filed its proposed five-year transmission system capital plan.
In March 2015,B2M Limited Partnership filed an application for revenue requirements covering the 2015
to 2019 period. B2M Limited Partnership requested revenue requirements of $39 million for 2015,
536 million for 2016, $37 million for 2017, 538 million for 2018 and $37 million for 2019.ln January
2016, the B2M Limited Partnership revenue requirement was approved. In December 2016, B2M Limited
Partnership filed a draft rate order with a revised 2017 revenue requirement of $34 million. See also the
Annual MD&A under the subheading "Regulation - B2M LP".
In December 2016, Great Lakes Power filed an application with the OEB for 2017 rates, requesting an
increase to the approved 2016 revenue requirement of l.9o/o, resulting in an updated revenue requirement
of$41 million.
Rel iabi I itv Standards for Transmission
The Company's transmission business is required to comply with various rules and standards for
transmission reliability, including mandatory standards established by the NERC and the NPCC, both of
which are industry organizations involved in promoting and improving the reliability of transmission
networks in North America. These reliability standards are enforced by both the IESO and the National
Energy Board.
Among its standards, the NERC has also established and continues to issue revised requirements to
ensure that utilities and other users, owners and operators of the bulk electricity system in North America
have appropriate procedures in place to protect critical infrastructure from cyber-attacks. Hydro One's
physical, electronic and information security processes have been and are being upgraded to meet these
revised requirements. Hydro One expects to continue to perform additional work and incur further costs
to comply with the NERC's updated and revised standards. Hydro One anticipates that these costs will be
incurred annually over a number of years and will be recovered in rates. See the Annual MD&A under the
subheadings "Risk Management and Risk Factors - Compliance with Laws and Regulations; - Risk
Associated with Information Technology Infrastructure and Data Security; - Risks Relating to Asset
Condition and Capital Projects" for more information.
Exhibit No. 4
Case Nos. AVU-E-I7- and AVU-G-I7-
i.Lop".,Hydro one
20
Schedule 3, Page 125 of 167
Regional Planning
The OEB oversees regional planning processes to ensure that transmission and distribution investments
are coordinated at a regional level. The OEB has indicated it will rely on regional planning studies and
reports to support rate applications submitted by transmitters and distributors and "leave to construct"
applications submitted by transmitters. In Ontario, the regional planning process is led by the transmitter
responsible for a particular geographic region. For this purpose, the province is divided into 2l regions.
As the largest transmitter in Ontario, Hydro One plays a key role in the regional planning process and is
responsible for leading the regional planning process in 20 ofthe 2l designated regions. The first cycle of
the regional planning process for all of the 2l regions is expected to be completed in 201'7. Once a
transmission and distribution infrastructure plan is finalized, the transmitter responsible for each region
will take steps to implement the recommended transmission investments and distributors in the region
will implement the recommended distribution investments in their respective service territories.
In conducting regional planning, Hydro One works closely with the IESO and all distributors in the
region to jointly identif needs and develop transmission and distribution investment options. Hydro One
also coordinates with the IESO on its Integrated Regional Resource Planning process.
The Company incurs both sustaining capital expenditures and development capital expenditures.
Sustaining capital expenditures are those investments required to replace or refurbish lines or station
components to ensure that transmission assets continue to function as originally designed. Hydro One's
plans to maintain, refurbish or replace existing assets are based upon risk assessments, asset condition
assessments and end-of-service life criteria specific to each type of asset. Priorities are assigned to each
type of investment based upon the extent of the risks that it mitigates.
Investments to sustain Hydro One's transmission assets are critical to maintain the safety, reliability and
integrity of its existing transmission network. Hydro One's sustainment capital plan is designed to
maintain Hydro One's transmission reliability performance, as determined by measures such as the
average length (in minutes) of unplanned interuptions per delivery point. The Company expects that
significant investments will be required in its existing infrastructure over the long term.
The Company's development capital expenditure plan is designed to address Ontario's changing
generation profile, accommodate load growth in areas throughout Ontario and support the expected
change in generation mix. Development capital expenditures include those investments required to
develop and build new large-scale projects such as new transmission lines and stations and smaller
projects such as transmission line or station reinforcements, extensions or additions.
The Company engages with various stakeholders, including its customers, as it develops its capital plans.
It also engages affected communities and parties who may be impacted by individual projects. The
Company also consults with First Nations and Mdtis communities whose rights may be affected by its
projects.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C. Lopez, Hydro One
Schedule 3, Page 126 of 167
2t
Capital Expenditures
The Company anticipates that it will spend approximately S I ,086 million to $ 1,486 million per year, over
the next five years, on capital expenditures relating to its transmission business. The Company's capital
expenditure plans are included in Hydro One's applications to the OEB for transmission rates. See
"Capital Investments - Future Capital Investments" in the Annual MD&A for more information on future
capital expenditures.
Competitive Co nditions
The Company's operations are currently limited to Ontario, where the Company operates and maintains
substantially all of Ontario's transmission system. Competition for transmission services in Ontario is
currently limited. The adoption by the OEB of uniform transmission rates that apply to all transmitters
also reduces the financial incentive for customers to seek alternative transmission providers, since each
transmitter in Ontario charges the same uniform rate for transmission services. Hydro One competes with
other transmitters for the opportunity to build new large-scale transmission facilities in Ontario.
Management believes that Hydro One is well-positioned to pursue the development of such facilities.
However, the competitive process was amended by the proclamation of the Energt Statute Law
Amendment Act, 2016 to allow for the selection of a transmitter outside the existing competitive process.
See "The Electricity Industry in Ontario - Recent Legislative Amendments Affecting the Electricity
Industry Generally- Energt Statute Low Amendment Act, 2016" for more information.
Hydro One does not compete with other transmitters with respect to investments which are made to
sustain or develop its existing transmission infrastructure.
Distribution Business
Overview
Hydro One's distribution business consists of owning, operating and maintaining Hydro One's
distribution system, which Hydro One, through Hydro One Inc., owns primarily through its wholly-
owned subsidiary, Hydro One Networks Inc., the largest local distribution company in Ontario. The
Company's distribution system is also the largest in Ontario. The Company's distribution business is a
rate-regulated business that earns revenues mainly by charging distribution rates that are subject to
approval by the OEB. The Company's distribution rates are generally determined using a performance-
based model, except for the distribution rates of Hydro One Remote Communities Inc., which are set on a
cost-recovery basis and do not include a return on equify.
Hydro One's distribution business represented approximately 37o/o of its total assets as at December3l,
2016, and accounted for approximately 47oh of its total revenue in 2016, net of purchased power and 48o/o
of its total revenue in20l5, net of purchased power. Hydro One's distribution business also includes the
business of its wholly-owned subsidiary, Hydro One Remote Communities Inc., which supplies electricity
to customers in remote communities in northern Ontario. Distribution revenues include distribution rates
approved by the OEB and amounts to reimburse Hydro One for the cost of purchasing electricity
delivered to its distribution customers. Distribution revenues also include minor ancillary service
revenues, such as fees related to the joint use of the Company's distribution poles by participants in the
telecommunications and cable television industries, as well as miscellaneous charges such as charges for
late payments.
As at December 3 I , 201 6, Hydro One's distribution assets were $9,337 million.
Business
Hydro One delivers electricity through its distribution network to over l 3 million residential and business
customers, most of whom are located in rural areas, as well as 53 local distribution companies (including
Hydro One's own distribution business).
Hydro One's distribution system includes approximately 123,000 circuit kilometres of primary low-
voltage distribution lines and approximately 1,000 distribution and regulating stations. Other distribution
assets include poles, transformers, service centres and equipment.
Hydro One's distribution system services a predominantly rural territory. As a result of the lower
Exhibit No. 422 Case Nos. AVU-E-I7-- and AVU-G-17--
C.Lopez, Hydro One
Schedule 3, Page 127 of 167
population density in the Company's service territory, the Company's costs to provide distribution
services may be higher than those of distributors who service urban areas. Furthermore, unlike the
distribution systems found in urban areas, most of Hydro One's distribution system was not designed with
redundancy, to be interconnected in loops with other distribution lines, with the result that interruptions
experienced at any point along a distribution line in Hydro One's network can cause all customers
downstream of the interruption point to lose power. Accordingly, the reliability of Hydro One's
distribution system is lower than that of local distribution companies which service urban territories that
typically have redundancy built into their systems. The Company engages in vegetation management
activities to maintain the reliability of Hydro One's distribution system on a preventive basis and to
protect public health and safety. This consists of the trimming or removal of trees to lower the risk of
contact with distribution lines, thereby reducing the risk of power outages, and preventing potential injury
to the public or employees. The Company's monitoring systems assist with determining areas of priority
and with system restoration. The Company relies on its local line crews for these restoration activities.
Hydro One's distribution business is involved in the connection of new sources of electricity generation.
including renewable energy. Hydro One invests in upgrades and modifications to its distribution system
to accommodate these new sources of generation and ensure the continued reliability of its distribution
network. As at December 3 I , 2016, there were approximately 15,000 small, mid-size and large embedded
generators connected to Hydro One's distribution network, including approximately 14,000 generators
with capacities of up to l0 kW. As at December 31,2016, Hydro One also had approximately
1,500 generators pending connection.
Hydro One has played a significant role in the installation of smaft meters and the migration of
distribution customers to time of use pricing in Ontario. Smart meters are regarded as an integral means of
promoting a culture of conservation, and they allow customers to change their electricity consumption
patterns and reduce their costs. Hydro One has completed all material activities associated with the
implementation of smarl meters, and has transitioned the vast majority of its customers to time of use
pricing.
Acquisitions
Agreement to Acquire Orillia Power
In August 2016, the Company reached an agreement to acquire Orillia Power, an electricity distribution
company located in Simcoe County, Ontario, for approximately $41 million, including the assumption of
approximately $15 million in outstanding indebtedness and regulatory liabilities, subject to closing
adjustments. The acquisition is subject to regulatory approval by the OEB.
Integration of Haldimand Hydro and Woodstock Hydro
In 2015, the Company acquired Haldimand Hydro and Woodstock Hydro, two Ontario-based local
distribution companies. In September 2016, the Company successfully completed the integration of both
entities, including the integration of employees, customer and billing information, business processes, and
operations.
See "General Development of the Business - Acquisitions Generally" for more information.
Regulation
Distribution Rates
Distribution rates in Ontario are determined using a performance-based model set out in the OEB's
Renewed Regulatory Frameworkfor Electricity Distributors: A Performance-Based Approach, which is
Exhibit No. 423 Case Nos. AVU-E-I7-- and AVU-G-17--
C.Lopez, Hydro One
Schedule 3, Page 128 of'167
sometimes referred to as the "RRF". Under the RRF, distributors in Ontario may choose one of three rate-
setting methods, depending on their capital requirements: 4ft Generation Incentive Rate-setting (now
known as Price Cap IR), Custom Incentive Rate-Setting, or Annual Incentive Rate-Setting Index.
The RRF contemplates that a distributor will apply for the approval of its revenue requirement for an
initial base year covered by the rate decision. The revenue requirement for subsequent years is determined
based on a formula that accounts for inflation and certain productivity factors set by the regulator. The
revenue requirement in these subsequent years is set on the assumption that the distributor is lowering its
cost of service over the period covered by the rate decision due to efficiency or productivity
improvements. The RRF allows the distributor to retain all or a portion of the cost savings achieved in
excess of the estimate established by the regulator during the period covered by the rate decision. This
allows the distributor an ability to earn more than its allowed return on equity. The RRF provides
incentives for distributors to achieve certain performance outcomes, namely: customer focus, operational
effectiveness, public policy responsiveness and financial performance. The OEB has indicated that
customer focused outcomes and continuous performance improvements by distributors are central to the
RRF framework objectives. The OEB has further indicated that distributors should develop plans that
respond to customer service needs.
A distributor must submit proposed performance measures as part of its application for distribution rates
under the RRF. Distributors may also propose their own performance measures for approval by the OEB.
In its most recent distribution application, Hydro One submitted eight additional quantitative measures
relating to areas that will be the subject ofincreased spending levels over the next few years, such as pole
replacements, distribution station refurbishments and vegetation management. Distributors are required to
report to the OEB on their performance against the performance measures approved as part of their most
recent rate decision.
The OEB's review process under the RRF follows a process similar to that of a transmission rate
application for the review ofthe anticipated cost ofservice for providing distribution services, other than
as noted above. Once the revenue requirement for distribution services is determined, it is allocated across
the distributor's customer rate classes using a methodology approved by the OEB resulting in the setting
of individual rates for distribution services based on each customer rate class. Hydro One currently has l3
customer rate classes.
Distribution rates in Ontario are not the same for all distributors and reflect the particular circumstances
of each distributor, including its own costs of providing electricity service to its own particular customers.
The OEB policy, A New Distribution Rate Design for Residential Electricity Customers, changes the
current distribution rate design for residential customers (a combination of a fixed monthly rate and a
variable charge) to a fixed monthly charge only. In December 2015, the OEB increased the transition
period for certain customer classes of Hydro One Networks Inc. to eight years to mitigate bill impacts.
Implementation will occur over the next three to seven years for Hydro One Networks Inc.'s residential
customers.
The OEB has also initiated a working group to consider possible changes to the design of rates for
commercial industrial customers. Changes to rate design will not impact the rates revenue requirement to
be collected for each customer class.
Distribution Rate Applications
The Company's distribution rates, other than the distribution rates of Hydro One Remote Communities
Inc., are determined using a performance-based model.
In March 2015, the OEB issued a decision regarding Hydro One Networks Inc.'s distribution rates for the
three-year period from 2015 to2017, providing for a revenue requirement of $1,326 million for 2015,
$1,430 million for2016 and $1,486 million for2017. The 2015 revenue requirement reflects an approved
Exhibit No. 424 Case Nos. AVU-E-17-- and AVU-G-I7--
C.Lopez, Hydro One
Schedule 3, Page 129 of 167
rate base of 56,552 million, retum on equity of 9.30% and a deemed capital structure of 60'/o debt and
40%o equity. The rates are effective as of January I in each year. On January 14,2016, the OEB issued its
final decision and order approving Hydro One Nefworks Inc.'s draft rate order for 2016 rates.
In December 2016, the OEB issued its decision and order approving Hydro One Networks Inc.'s
distribution rates effective January 1,2017. The overall impact of this decision is a reduction of the
proposed 2017 revenue requirement to approximately $1,415 million from $1,486 million. The 2017
revenue requirement reflects an approved rate base of $7,190 million, return on equity of 8.78o/o and a
deemed capital structure of 60% debt and 40% equity. The overall impact of the new rates is a reduction
in distribution delivery charges for most residential customers.
In December 2016, the OEB approved increases to the rates charged in the service areas for the former
Haldimand Hydro, Woodstock Hydro and Norfolk Hydro, effective January 2017.
Hydro One Networks Inc. expects to file a distribution rate application for 2018 to 2022 in the first
quarter of2017.
Hydro One Remote Communities Inc.'s business is exempt from a number of sections of the Electricity
Act which relate to the competitive market. For example, Hydro One Remote Communities Inc. continues
to apply bundled rates to customers in remote communities. Hydro One Remote Communities Inc.'s
business is operated on a break-even basis, without a return on equity included in rates. As a result, any
net income or loss in the year related to the regulated operations of Hydro One Remote Communities Inc.
is recorded in a regulatory variance account for inclusion in the calculation of future customer rates.
For more information, see the Annual MD&A under the heading "Regulation"
Conservation and Demand Management
CDM requirements in Ontario require distributors to achieve specific energy savings targets by
encouraging their customers to reduce their energy usage. Distributors seek to achieve these targets
through a number of different initiatives, including by offering customers energy saving devices for use at
home, cash rebates for the purchase ofenergy efficient light bulbs and other products. Incentive programs
are also offered to small, medium, and large businesses, as well as industrial customers. Distributors are
responsible for developing and submitting CDM plans and reporting on their progress towards achieving
specific energy-savings targets. The IESO oversees compliance with CDM requirements in Ontario and
also reimburses distributors for the costs of complying with CDM requirements. Hydro One expects that
its costs of complying with CDM requirements will be fully reimbursed by the IESO. As a result, CDM-
related costs that are reimbursed by the IESO are not included in Hydro One's rate applications to the
OEB.
Distributors in Ontario are collectively required to achieve a total of 7 TWh of electricity savings by
December 31, 2020, with each local distribution company being allocated individual energy-savings
targets and budgets.
Targets and budgets for CDM were allocated to distributors in October 2014. Hydro One Networks Inc.'s
2015-2020 CDM energy savings target is 1,159 GWh and its CDM plan was approved by the IESO on
July 8, 201 5. In December 2016, Hydro One Networks Inc.'s 2015-2020 CDM energy savings target was
revised to l,221GWh to reflect the integration of the CDM targets of Norfolk Power, Haldimand Hydro
and Woodstock Hydro. In December 2016, Hydro One Networks Inc. also submitted a joint CDM plan
with another local distribution company to the IESO for approval. The joint target for Hydro One
Networks Inc. increased by 35 GWh to 1,256 GWh by 2020.
Exhibit No. 4
Case Nos. AVU-E-I7- and AVU-G-I7-
i.Lop".,Hydro One
25
Schedule 3, Page 130 of 167
Capital Expenditures
Hydro One's asset sustainment activities are based on an assessment of asset condition. Distribution asset
renewals are underlaken when assessments indicate there is a high risk of failure and where further
maintenance activities are not appropriate. Capital expenditures for the Company's distribution business
in the near term are anticipated to focus on new load connections, storm damage, wood pole replacement,
and system capability reinforcement. In addition, the Company expects to continue to construct new
distribution lines and stations in the future in response to system growth forecasts, continued suburban
community development, high load relief requirements and requirements to connect new sources of
generation. The Company expects that it will spend approximately $647 million to $771 million per year
over the next five years on capital expenditures relating to its distribution business.
Hydro One is continuing to modernize its distribution system through the deployment of smart devices
(including remotely controllable switches and breakers as well as faulted circuit indicators) as power
system assets are renewed. Hydro One is also implementing a new Distribution Management System
("DMS") at its Ontario Grid Control Centre. The DMS will enable distribution components to be
monitored and controlled, perform real-time analysis and determine, with greater precision, the location
of equipment failures. Additional functionality is planned, in future, to allow field staff to view system
conditions remotely in real-time. Smart metering data will also be used to deliver operational and asset
management benefits such as better notification of outages and their scope, asset loading information and
other data.
For more information on future capital expenditures, see the Annual MD&A under the subheading
"Capital Investments - Future Capital Investments".
Competitive Conditions
Hydro One's distribution service area is set out in its licence issued by the OEB. Only one distributor is
permitted to provide distribution services in a service territory, and distributors have exclusive rights to
provide service to new customers located within their service territory. As a result, there is very little
direct competition for distribution services in Ontario, except near the borders of adjoining service
territories, where a distributor may apply to the OEB to claim the right to serve new customers who are
not cumently connected to its distribution grid.
In March 20l6,the OEB directed all local distribution companies to eliminate load transfer arrangements
by June 21,2017. Load transfer arrangements arise when a customer is within one distributor's service
area but is served by a second distributor. The Company has load transfer arrangements with over 50 local
distribution companies. Hydro One Networks Inc. has developed an implementation plan to eliminate
load transfer arrangements. As a result, some of the Company's customers will be transferred to the
adjacent local distribution companies and other customers will be added to the Company's customer base.
To create more efficiency in the distribution sector, the Premier's Advisory Council on Government
Assets endorsed the need for faster consolidation among local distribution companies in Ontario, which
may result in competition for acquisition or merger opportunities. Potential acquirers may include
strategic and financial buyers, in addition to other local distribution companies.
Other Business
Hydro One's other business segment consists of principally its telecommunications business, which
provides telecommunications support for the Company's transmission and distribution businesses as well
as certain corporate activities including a deferred tax asset. The telecommunication business is carried
out by its wholly-owned subsidiary Hydro One Telecom Inc. It also offers communications and
information technology solutions to organizations with broadband network requirements utilizing Hydro
One Telecom Inc.'s fibre optic network to provide diverse, secure and highly reliable connectiviry.
Exhibit No. 426 Case Nos. AVU-E-I7-- and AVU-G-I7--
C.Lopez, Hydro One
Schedule 3, Page l3l of 167
Hydro One Telecom Inc. is not regulated by the OEB. However, Hydro One Telecom Inc. is registered
with the Canadian Radio-television and Telecommunications Commission as a non-dominant, facilities-
based carrier, providing broadband telecommunications services in Ontario with connections to Montreal,
Quebec, Buffalo, New York and Detroit, Michigan.
The other business segment represented approximately l2Yo of Hydro One's total assets as at
December 31, 2016, and accounted for approximately 2o/o of its total revenue, net of purchased power in
each of 2016 and2015. The deferred tax asset arose on the transition from the provincial payments in lieu
of tax regime to the federal tax regime in connection with the Company's initial public offering and
reflects the revaluation of the tax basis of Hydro One's assets to fair market value.
First Nations and M6tis Communities
Hydro One believes that building and maintaining respectful, positive and mutually beneficial
relationships with First Nations and Mdtis communities across the province is important to achieving the
Company's corporate objectives. Hydro One is committed to working with First Nations and Mdtis
communities in a spirit of cooperation, partnership and shared responsibility. Hydro One's equity
partnership with the Saugeen Ojibway Nation in respect of the Bruce-to-Milton transmission line
demonstrates the Company's commitment to these principles. In keeping with the Company's First
Nations and Mdtis Relations Policy, Hydro One's First Nations and M6tis Relations team provides
guidance and advice to support the Company in developing and advancing positive relationships. Hydro
One also has several programs related to First Nations and Mdtis communities and their citizens. These
include educational and training opportunities which provide opportunities for work terms, First Nations
and Mdtis procurement partnership agreements along with community investments, customer support and
outreach. Together, Hydro One Networks Inc. and Hydro One Remote Communities Inc. serve
approximately 90 First Nation communities.
The Company's Health, Safety, Environment and First Nations & Mdtis Committee of the Board is
responsible for assisting the Board in discharging the Board's oversight of responsibilities relating to
effective occupational health and safefy and environmental policies and practices at Hydro One, and its
relationship with First Nations and Mdtis communities.
Outsourced Services
To gain efficiencies and cost reductions, Hydro One has outsourced certain non-core functions, including
facilities management services with respect to its stations and other facilities, and certain back-office
services such as information technology, payroll, supply chain, call centre and accounting services. The
Company's back-office services and call centre services are provided by a third party service provider
under an agreement that expires on December3l,2019 for back-office services, and on February28,
201 8 for call centre services. The Company has an option to renew the agreement for two additional terms
of approximately one year each. The Company's facilities management services are provided by a third
party service provider under an agreement that expires on December31,2024 with an option for the
Company to renew the agreement for an additional term of three years.
Employees
As at December 31,2016, Hydro One had approximately 5,500 regular employees and over 2,000 non-
regular employees province-wide comprised of a mix of skilled trades, engineering, professional,
managerial and executive personnel. Hydro One's regular employees are supplemented primarily by
accessing a large external labour force available through arrangements with the Company's trade unions
for variable workers, sometimes referred to as "hiring halls", and also by access to contract personnel.
The hiring halls offer Hydro One the ability to access highly trained and appropriately skilled workers on
a project-by-project basis. This provides the Company with more flexibility to address seasonal needs and
unanticipated changes to its budgeted work programs. The Company also offers apprenticeship and
Exhibit No. 427 Case Nos. AVU-E-I7-- and AVU-G-I7--
C.Lopez, Hydro One
Schedule 3, Page 132 of \67
technical training programs to ensure that future staffing needs will continue to be met.
For more information on employees, see the Annual MD&A under the heading "Hydro One Work
Force".
Health, Safety and Environmental Management
Hydro One has an integrated Health, Safety and Environment Management System that includes key
elements for the successful minimization of risk and continued performance improvements. Health, safety
and environmental hazards and risks are identified and assessed and controls are implemented to mitigate
significant risks. The Company has policies in place regarding Health and Safety, Environment,
Workplace Violence and Harassment and Public Safety.
Hydro One Networks Inc. is a designated "Sustainable Electricity Company" by the Canadian Electricity
Association. The brand demonstrates Hydro One's commitment to responsible environmental, social and
economic practices, and to the principles of sustainable development.
Given the nature of the work undertaken by Hydro One employees, health and safety remains one of the
Company's top priorities. The Company is committed to creating and maintaining a safe workplace which
is one of Hydro One's stated core values, and maintaining safety through a concentrated focus on the
elimination of serious incidents or "near-misses" which have the potential to cause serious injuries. The
Company has developed and is continuing to develop a number of programs and initiatives for accident
prevention and to minimize the risk of injury to the public associated with its facilities and operations.
Measures are in place to monitor, on a regular basis, health, safety and environment performance using
proactive and reactive measures and/or qualitative and quantitative measures. Since 2004,the evolution of
Hydro One's recordable rate, its key health and safety perfornance measure, has seen a reduction of
approximately 85% in the number of recordable rate incidents. All measures are monitored by
management and by the Health, Safety, Environment and First Nations & Mdtis Committee. Management
compensation has been tied, in part, to success in achieving annual health and safety performance targets.
A program allowing for an effective early and safe return to work has allowed the Company to ensure
that, when injuries occur, employees recover and return to the workplace as soon as possible.
ln 2016, Hydro One continued with its "Journey lo Zero" safety initiative that began in 2009. This
initiative compares Hydro One to other companies to identiff performance gaps. Safety perception
assessments were completed in 2009,2013 and 20 15. The assessment identified opportunities for
improvement and foms the development of new health and safety initiatives using cross-functional teams
from across the province.
Environmental Regulation
Hydro One is subject to extensive federal, provincial and municipal regulation relating to the protection of
the environment that governs, among other things, environmental assessments, discharges to water and
land and the generation, storage, transportation, disposal and release of various hazardous substances.
Estimated environmental liabilities are reviewed annually or more frequently if significant changes in
regulation or other relevant factors occur. Estimated changes are accounted for prospectively.
Permits and Approvals
The Company is required to obtain and maintain specified permits and approvals from federal, provincial
and municipal authorities relating to the design, construction and operation of new and upgraded
transmission and distribution facilities. Examples include environmental assessment approvals, permits
for facilities to be located in parks or other regulated areas, water crossing permits, and approvals to
discharge to air and water. Some projects may require environmental approvals from the federal
Exhibit No. 428 Case Nos. AVU-E-17-- and AVU-G-I7--
C.Lopez, Hydro One
Schedule 3, Page 133 of 167
government. Interconnections with neighbouring utilities in other provinces and states also require federal
approval and will be subject to federal regulatory review.
In general, larger projects are subject to an individual environmental assessment process, pursuant to the
Environmental Assessment Act (Ontario). The majority of approvals fall under a class environmental
assessment process which provides for more streamlined approvals. The scope, timing and cost of
environmental assessments are dependent on the scale and type of project, the location (urban versus
rural), the environmental sensitivity of affected lands and the significance of potential environmental
effects.
Regulation of Releases
Federal, provincial and municipal environmental legislation regulates the release of specific substances
into the environment through the prohibition of discharges that will or may have an adverse effect on the
environment, which can include liquids, gasses and noise. Releases occur in the course of the Company's
normal operations. Accordingly, Hydro One has spill, leak prevention and leak mitigation programs
involving the testing, replacement, repair and installation of containment systems including re-gasketting
of transformers and sulphur-hexafluoride-filled equipment. In addition, the Company has an emergency
response capability which the Company believes is sufficient to minimize the environmental impact of
spills and to comply with its legal obligations.
Pursuant to the Climate Change Mitigation and Low-carbon Economy Act, 2016, the Province introduced
a cap and trade program in Ontario beginning January 1,2017 . For more information, see "The Electricity
Industry in Ontario - Recent Legislative Amendments Affecting the Electricity Industry Generally -
Climate Change Mitigation and Low-carbon Economy Act, 2016".
Hazardous Substances
Hydro One manages a number of hazardous substances, such as PCBs, herbicides, and wood
preservatives. In addition, some facilities have substances present which are designated for special
treatment under occupational health and safety legislation, such as asbestos, lead and mercury. The
Company has environmental management programs in place to deal with PCBs, herbicides, asbestos, and
other hazardous substances.
Land Assessment and Remediation
Hydro One has a pro-active land assessment and remediation program in place to identiff and, where
necessary, remediate historical contamination that has resulted from past operational practices and uses of
certain long-lasting chemicals at the Company's facilities. These programs involve the systematic
identification of contamination at or from these facilities and, where necessary, the development of
remediation plans for the Company's properties and affected adjacent private properties. As at December
31,2016, future consolidated expenditures related to Hydro One's land assessment and remediation
program were estimated at approximately $61 million, and undiscounted liabilities were estimated at
approximately $66 million. These consolidated expenditures are expected to be spent over the period
ending 2032. Addilional acquisitions could add to land assessment and remediation expenditures. The
consolidated expenditures on this program for 2016 were approximately $9 million. These costs are
expected to be recovered in the Company's transmission and distribution rates.
Insurance
Hydro One maintains insurance coverage, including liability, all risk property, boiler and machinery and
directors' and officers' insurance. The Company also maintains other insurance coverage that is required
by law, covering risks such as automobile liability, pesticide liability and aircraft liability. The Company
does not have insurance for damage to its transmission and distribution wires, poles or towers located
Exhibit No. 429 Case Nos. AVU-E-I7-- and AVU-G-I7--
C. Lopez, Hydro One
Schedule 3, Page 134 of 167
outside transmission and distribution stations, including damage caused by severe weather, other natural
disasters or catastrophic events or for environmental remediation costs. The OEB has generally permitted
the recovery of costs associated with extreme weather events, such as the ice storm that occurred in 1998.
Reorganizations
In 2015, prior to the closing of the initial public offering of Hydro One Limited, Hydro One completed a
series of transactions resulting in, among otherthings, the acquisition by Hydro One Limited of all of the
issued and outstanding shares of Hydro One Inc. and the issuance of new common shares and preferred
shares of Hydro One Limited to the Province. The Province then sold a portion of its common shares of
Hydro One Limited pursuant to the initial public offering. A series of pre-closing steps occurred,
including:
On October 31,2015, Hydro One Inc. repurchased its existing preferred shares held by the
Province for cancellation at a price equal to the redemption price of the preferred shares (being
equal to approximately $323 million) satisfied by the issuance to the Province of common shares
of Hydro One Inc. having an aggregate fair market value equal to the price to be paid for the
preferred shares.
Allof the issued and outstanding common shares of Hydro One Inc. were acquired by Hydro One
Limited in retum for the issuance to the Province of 12,197,500,000 common shares and
16,720,000 Series I preferred shares of Hydro One Limited.
Hydro One Inc. and certain of its subsidiaries were required to pay a $2.6 billion "departure tax"
to the Ontario Electricity Financial Corporation as a consequence of the initial public offering.
The outstanding common shares of Hydro One Limited were consolidated such that 595,000,000
common shares were issued and outstanding immediately prior to the closing of the initial public
offering.
Under applicable Canadian securities laws, the acquisition of all of the issued and outstanding shares of
Hydro One Inc. was considered a "significant acquisition". Hydro One Limited filed a business
acquisition report in respect of the acquisition on January 14,2016. See also "General Development of the
Business" for more information.
RISK FACTORS
A discussion of Hydro One Limited's risk factors can be found under the heading "Risk Management and
Risk Factors" in the Annual MD&A.
DIVIDENDS
The Company did not declare or pay cash dividends in 2015. In 2016, the Company declared and paid
cash dividends to common shareholders as follows:
I This was the lirst common share dividend declared by the Company following the completion of its initial public ofl'ering in
November 2015. The $0.34 per share dividend included $0.13 for the post-IPO period from November 5 to December 31, 2015,
and $0.2 I for the quarter ended March 3 I , 201 6.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-I7-_
C. Lopez, Hydro One
Schedule 3, Page 135 of 167
a
a
a
Date Declared Record Date Payment Date Amount per Common Share
February 11.2016 March 17,2016 March 31,2016 s0.34r
May 5,2016 June 14,2016 June 30,2016 $0.21
August 11,2016 September 14,2016 September 30.2016 $0.21
November 10,2016 December 14,2016 December 30.2016 s0.21
30
On February 9,2017, the Board declared a dividend of 50.21 per share on each of its outstanding
common shares to be paid on March 31,2017 to shareholders of record on March 14,2017 . The dividend
represents payment for the first quarter ending March 31,2017 .
ln2016, the Company declared and paid cash dividends to the Province, the sole holder of the Series I
preferred shares as follows:
On February 9, 2017, the Board declared a dividend of $0.265625 per share on each of its Series I
preferred shares and it was paid on February 21,2017.
Dividend Policy
The Board has established a dividend policy pursuant to which Hydro One Limited expects to pay an
annualised dividend amount on its common shares, based on atarget payout ratio of 70ohto 80% of net
income. The amount and timing of any dividends payable by Hydro One Limited will be at the discretion
of the Board and will be established on the basis of Hydro One's results of operations, maintenance of its
deemed regulatory capital structure, financial condition, cash requirements, the satisfaction of solvency
tests imposed by corporate laws for the declaration and payment of dividends and other factors that the
Board may consider relevant.
The preferred shares of Hydro One Limited are entitled to a preference over the common shares with
respect to the payment of dividends. Other than the foregoing, there is currently no restriction that would
prevent the Company from paying dividends at current levels.
For more information on dividends, see the notes to the audited consolidated financial statements of
Hydro One Limited as at and for the years ended December 31,2016 and 2015 under the headings
"Dividends" and "Subsequent Events".
Dividend Reinvestment Plan
On February ll, 2016, the Board approved the creation of a Dividend Reinvestment Plan which is
currently in place. The Dividend Reinvestment Plan enables eligible shareholders to have their regular
quarterly cash dividends automatically reinvested in additional Hydro One common shares acquired on
the open market.
DESCRIPTION OF CAPITAL STRUCTURE
General Description of Capital Structure
The following description may not be complete and is subject to, and qualified in its entirefy by reference
to, the terms and provisions of Hydro One Limited's articles, as they may be amended from time to time.
Hydro One Limited's authorized share capital consists of an unlimited number of common shares and an
unlimited number of preferred shares, issuable in series. As at December 31,2016, there were
595,000,000 common shares, 16,720,000 Series I preferred shares and no Series 2 preferred shares issued
and outstanding.
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 136 of 167
Date Declared Record Date Pavment Date Amount Der Preferred Share
February 11,2016 N/A February 22,2016 $0.32602139
May 5,2016 N/A May 20,2016 $0.265625
August 11,2016 N/A Ausust 22,2016 s0.265625
November 10.2016 N/A November 21,2016 s0.265625
3t
Common Shares
Holders of common shares are entitled to receive notice of and to attend all meetings of shareholders,
except meetings at which only the holders of another class or series of shares are entitled to vote
separately as a class or series, and holders of common shares are entitled to one vote per share at all such
meetings of shareholders. Hydro One Limited's common shares are not redeemable or retractable. Subject
to the rights, privileges, restrictions and conditions attaching to any other class or series of shares,
including the Series I preferred shares and Series 2 preferred shares, holders of common shares are
entitled to receive dividends if, as, and when declared by the Board. Subject to the rights, privileges,
restrictions and conditions attaching to any other class or series ofshares, including the Series 1 preferred
shares and Series 2 preferred shares, holders of common shares are also entitled to receive the remaining
assets of Hydro One Limited upon its liquidation, dissolution or winding-up or other distribution of
Hydro One Limited's assets for the purposes of winding-up its affairs. See "Dividends - Dividend
Policy" for a description of Hydro One Limited's dividend policy.
The Voting Securities of Hydro One Limited, which include the common shares, are subject to share
ownership restrictions under the Electricity Act and certain other provisions contained in the articles of
Hydro One Limited related to the enforcement of those share ownership restrictions. The share ownership
restrictions provide that no person or company (or combination of persons or companies acting jointly or
in concert), other than the Province or an underwriter who holds Voting Securities solely for the purposes
of distributing them to purchasers who comply with the share ownership restrictions, may beneficially
own or exercise control or direction over more than l0% of any class or series of Voting Securities of
Hydro One Limited.
Preferred Shares
Hydro One Limited may from time to time issue preferred shares in one or more series. Prior to issuing
shares in a series, the Board is required to fix the number of shares in the series and determine the
designation, rights, privileges, restrictions and conditions attaching to that series ofpreferred shares.
Subject to the OBCA, holders of Hydro One Limited's preferred shares or a series thereof are not entitled
to receive notice of, to attend or to vote at any meeting of the shareholders of Hydro One Limited except
that votes may be granted to a series ofpreferred shares when dividends have not been paid on any one or
more series as determined by the applicable series provisions. Each series of preferred shares ranks on
parity with every other series of preferred shares with respect to dividends and the distribution of assets
and return of capital in the event of the liquidation, dissolution or winding up of Hydro One Limited. The
preferred shares are entitled to a preference over the common shares and any other shares ranking junior
to the preferred shares with respect to payment of dividends and the distribution of assets and return of
capital in the event of the liquidation, dissolution or winding up of Hydro One Limited.
Series I Preferred Shares and Series 2 Prefened Shares
For the period commencing from October 31, 2015, and ending on and including November 19,2020, the
holders of Series I preferred shares will be entitled to receive fixed cumulative preferential dividends of
$1.0625 per share per year, if and when declared by the Board, payable quarterly on the 20n day of
November, February, May and August in each year. The dividend rate will reset on November 20,2020
and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada
bond yield and3.53o/o. The Series I preferred shares will not be redeemable by Hydro One Limited prior
to November 20, 2020, but will be redeemable by Hydro One Limited on November 20, 2020 and on
November 20 every fifth year thereafter at a redemption price equal to $25.00 for each Series I preferred
share redeemed, plus any accrued orunpaid dividends. The holders of Series I preferred shares will have
the right, at their option, on November 20, 2020 and on November 20 every fifth year thereafter, to
convert all or any oftheir Series I preferred shares into Series 2 preferred shares on a one-for-one basis,
subject to certain restrictions on conversion.
Exhibit No. 432 Case Nos. AVU-E-I7-- and AVU-G-I7--
C. Lopez, Hydro One
Schedule 3, Page 137 of 167
The holders of Series 2 preferred shares will be entitled to receive quarterly floating rate cumulative
dividends, if and when declared by the Board, at a rate equal to the sum of the then three-month
Government of Canada treasury bill rate and3.53Yo as reset quarterly. The Series 2 preferred shares will
be redeemable by Hydro One Limited at a redemption price equal to 525.00 for each Series 2 preferred
share redeemed if redeemed on November 20,2025, or on November 20 every fifth year thereafter or
$25.50 for each Series 2 preferred share redeemed if redeemed on any other date after November 20,
2020, in each case plus any accrued or unpaid dividends. The holders of Series 2 preferred shares will
have the right, at their option, on November 20,2025, and on November 20 every fifth year thereafter, to
convert all or any oftheir Series 2 preferred shares into Series I preferred shares on a one-for-one basis,
subject to certain restrictions on conversion.
In the event of the liquidation, dissolution or winding-up of Hydro One Limited, or any other distribution
of assets of Hydro One Limited for the purpose of winding-up its affairs, the holders of Series 1 preferred
shares and Series 2 preferred shares will be entitled to receive $25.00 for each Series I preferred share
and each Series 2 preferred share held by them, plus any unpaid dividends, before any amounts are paid
or any assets of Hydro One Limited are distributed to holders of common shares and any shares ranking
junior to the Series I preferred shares and Series 2 preferred shares. After payment of those amounts, the
holders of Series I preferred shares and Series 2 preferred shares will not be entitled to share in any
further distribution of the property or assets of Hydro One Limited.
Except as required by the OBCA, neither the holders of Series I preferred shares nor the holders of
Series 2 preferred shares shall be entitled to receive notice of, or to attend meetings of shareholders of
Hydro One Limited and shall not be entitled to vote at any such meeting, unless Hydro One Limited fails
for eight quarters, whether or not consecutive, to pay in full the dividends payable on the Series I
preferred shares or Series 2 preferred shares, as applicable, whereupon the holders of Series I preferred
shares and Series 2 preferred shares, as applicable, shall become entitled to receive notice of and attend
all meetings of shareholders, except class meetings of any other class of shares, and shall have one vote
for each Series I preferred share or Series 2 preferred share held at such meetings, as applicable.
CREDIT RATINGS
For a description of Hydro One Limited's credit ratings, see the Annual MD&A under the heading
"Liquidity and Financing Strategy".
MARKET FOR SECURITIES
Trading Price and Volume
The common shares are listed on the TSX under the symbol "H". The following table sets forth the high
and low reported trading prices and the trading volume of the common shares on the TSX for each month
commencing Jantary 2016:
Period Hieh ($) Low ($) Volume
January 2016
February 2016
March 2016
April20l6..
May 2016.
June 2016.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-I7-_
C.Lopez, Hydro One
Schedule 3, Page 138 of 167
22.60
23.31
24.50
24.50
24.84
25.98
21.85
21.90
23.r5
23.50
23.56
24.14
3,929,776
4,489,699
7,835,876
21,127,653
23,222,353
30,645,553
33
Period Hieh ($) Low ($) Volume
July 2016...
August 2016
September 201 6.........
October 2016.........
November 2016
December 2016.
January 2017.........
February 2017.........
March 1 to March 242017......
Position/Title Independent
25.51
25.10
25.36
24.02
22.06
22.59
23.49
23.22
23.04
Principal 0ccupation
8,548,768
7,138,631
7,031,417
6,765,511
11,932,522
9,719,103
8,368,1 l6
g,4oo,ooo
8,400,000
Committees
26.80
26.48
26.54
26.02
24.58
23.65
24.49
24.17
24.08
The Series I preferred shares and Series 2 preferred shares of Hydro One Limited are not listed or quoted
on any marketplace.
DIRECTORS AND OFFICERS
Directors and Executive Officers
The following table sets forth information regarding the directors and executive officers of Hydro One as
of December 31,2016. Each of the directors was first appointed on August 31, 2015. Each director is
elected annually to serve for one year or until his or her successor is elected or appointed.
Name, Province or State
and Country of
Residence Age
Mayo Schmidt
Ontario, Canada
Paul Barry
North Carolina. United
States
Gregory Kiraly
Ontario. Canada
Judy McKellar
Ontario, Canada
Ferio Pugliese
Ontario, Canada
James Scarlett
Ontario, Canada
Michael Vels
Ontario. Canada
59 President and Chief
Executive Officer and
Director
59 Executive Vice
President, Strategy and
Corporate Development
52 Chief Operating Officer
60 Executive Vice
President. Chief Human
Resources Officer
48 Executive Vice
President, Customer
Care and Corporate
Affairs
63 Executive Vice
President, ChiefLegal
Officer
No President and Chief Executive
Officer
Executive Vice President,
Strategy and Corporate
Development
Chief Operating Officer
Executive Vice President, Chief -Human Resources Officer
Executive Vice President.
Customer Care and Corporate
Affairs
Executive Vice President. Chief -Legal Officer
Chief Financial Officer
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C. Lopez, Hydro One
Schedule 3, Page 139 of 167
55 Chief Financial Officer
34
Name, Province or State
and Country of
Residence Position/Title Independent Principal 0ccupationAge Committees
David F. Denison
Ontario. Canada
Ian Bourne'r)
Alberta. Canada
Charles Brindamour
Ontario. Canada
Marcello (Marc) Caira' r,
Ontario, Canada
Christie Clark
Ontario, Canada
George Cooke'r)
Ontario, Canada
Margaret (Marianne)
Harris
Ontario, Canada
James Hinds
Ontario. Canada
Kathryn Jackson(r)
Pennsylvania. United
States
Roberta Jamieson
Ontario. Canada
Frances Lankin
Ontario. Canada
Philip S. Orsino
Ontario, Canada
64 Director and Chair of the Yes
Board
69 Director Yes
46 Director Yes
62 Director Yes
63 Director Yes
63 Director Yes
59 Director Yes
59 Director Yes
59 Director Yes
64 Director Yes
62 Director Yes
62 Director Yes
Board Chair, Hydro One
Limited and Hydro One Inc.
Chair, Ballard Power Systems
Inc.
Chief Executive Officer, Intact
Financial Corporation
Vice-Chairman, Restaurant
Brands International Inc.
Corporate Director
President, Martello Associates
Consulting / Chair, OMERS
Administration Corporation
Human Resources
Committee (Chair);
Nominating, Corporate
Governance, Public Policy
& Regulatory Committee
Audit Committee; Human
Resources Comrnittee
Human Resources
Committee; Nominating.
Corporate Governance,
Public Policy & Regulatory
Committee
Human Resources
Committee; Nominating.
Corporate Governance,
Public Policy & Regulatory
Committee
Audit Committee; Health,
Safety, Environment and
First Nations & M6tis
Committee
Corporate Director
Corporate Director
Corporate Director
President and Chief Executive
Of'ficer, Indspire
Human Resources
Committee: Health, Safety,
Environment and First
Nations & Mdtis
Committee (Chair)
Audit Committee; Health,
Safety, Environment and
First Nations & Mdtis
Committee
Nominating, Corporate
Governance. Public Pol icy
& Regulatory Committee;
Health, Safety,
Environment and First
Nations & Mdtis
Committee
Audit Committee; Health.
Sal'ety, Environment and
First Nations & Mdtis
Committee
Corporate Director Audit Committee;
Nominating, Corporate
Governance. Public Policy
& Regulatory Committee
Corporate Director Audit Committee (Chair);
Nominating, Corporate
Governance, Public Policy
& Regulatory Committee
Corporate Director HumannR'esources
Case Nos. AVU-E-I7- and AVU-G-I7-
i.top"r,Hydro one
Schedule 3, Page 140 of 167
Jane Peverett(i)58 Director Yes
35
l*ame, Province or State
and Country of
Residence Age Position/Title Independent Principal Occupation Committees
British Columbia, Canada
Gale Rubenstein(r)
Ontario. Canada
63 Director
Committee; Nominating.
Corporate Govemance,
Public Policy & Regulatory
Committee (Chair)
Human Resources
Committee; Health, Safety,
Environment and First
Nations & Mdtis
Committee
Yes Partner, Goodmans LLP
Notes:
(l) These directors have been designated as the Province's nominees to the board ofdirectors of Hydro One fbr the purpose of
the Governance Agreement.
The following includes a brief profile of each of the executive officers of Hydro One, which include a
description oftheir present occupation and their principal occupations for the past five years. For profiles
of each of the directors of Hydro One, see Hydro One Limited's Management Information Circular under
the subheading "About the Nominated Directors - Director Profiles".
Mayo Schmidt is the President and Chief Executive Officer of Hydro One. Prior to joining Hydro One,
Mr. Schmidt served as President and Chief Executive Officer at Viterra Inc., a global food ingredients
company operating in 14 countries. Early in his career, Mr. Schmidt held a number of key management
positions of increasing responsibility at General Mills, Inc. until he joined ConAgra as President of their
Canadian operations and spearheaded ConAgra's expansion into Canada.ln2007, he led a S2.0 billion
acquisition of Agricore United, then a $2.2 billion acquisition of ABB, Australia's leading agriculture
corporation, growing Viterra Inc. from a S200 million market capitalization to finally a sale in 2012 for
over $7.5 billion. Mr. Schmidt currently sits on the Board of Directors of Agrium Inc. as Chairman of the
Governance Committee and Chairman of the Special Committee for the Merger of Equals of Agrium and
Potash Corp. forming a $38 billion global fertilizer giant. He is a member of Harvard University Private
and Public, Scientific, Academic and Consumer Food Policy Group, and is on Washburn University's
Foundation Board of Trustees. Mr. Schmidt received his Honorary Doctorate of Commerce from
Washburn in2016 and his B.B.A. from Washburn in 1980.
Effective September 1,2016, Paul Barry was appointed to the role of Executive Vice President, Strategy
and Corporate Development of Hydro One Networks Inc. Mr. Barry has significant strategy, business
development and financial expertise in the electric power, natural gas, and water utility sectors. Mr. Barry
was recently Chief Executive Officer and founding partner of Public Infrastructure Partners LLC, a power
and utility strategic advisor to leading private equity, infrastructure, and pension funds in the U.S.,
Canada, and Europe. Mr. Barry's prior executive leadership roles include Senior Vice President and Chief
Development Officer, Head of Mergers & Acquisitions, and President of the commercial and
international business for Duke Energy Corporation. At Duke Energy, Mr. Barry was responsible for
executing over $50 billion of strategic transactions that transformed the company into the largest electric
utility in North America. He served as CFO for Pepco Holdings, a Fortune 500 mid-Atlantic utility based
in Washington, D.C., and was Vice President, Business Development, Energy Financial Services, for
General Electric Company. Mr. Barry also served as Senior Advisor, City of Los Angeles, Department of
Water and Power (LADWP), the largest municipal electric and water utility in the U.S., and as Executive
Vice-President and Chief Financial Officer of Kinross Gold Corporation. Mr. Barry eamed an MBA
from Harvard Business School, where he also attended the Executive Program, and a Bachelor of Science,
magna cum laude, in Finance from Northeastern University.
Effective September 12, 2016, Gregory Kiraly was appointed to the role of Chief Operating Officer
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 141 of 167
36
(COO) of Hydro One. As COO, Mr. Kiraly oversees the transmission and distribution value chain
including Planning, Engineering, Construction, Operations, Maintenance, and Forestry; Shared Services
functions including Facilities, Real Estate, Fleet, and Procurement; and the Telecom and Remote
Communities subsidiaries. Mr. Kiraly is a power and utilities executive with 30 years of experience. He
has an extensive background in energy transmission and distribution, in both electricity and gas, having
served in various executive leadership roles across three of the largest investor-owned utilities in the U.S.;
Pacific Gas and Electric (PG&E), Commonwealth Edison (ComEd), and Public Service Electric & Gas
Company (PSE&G). Mr. Kiraly most recently held the role of Senior Vice President, Electric
Transmission and Distribution for PG&E in San Francisco, and also served in several other key executive
assignments over the past eight years. Prior to joining PG&E, Mr. Kiraly held executive-level positions at
Capital Commonwealth Edison (Exelon) in Chicago from 2000-2008 in the areas of Distribution System
Operations, Construction and Maintenance, and Energy Delivery. Prior to ComEd, Mr. Kiraly started his
career at PSE&G in New Jersey, having served in various leadership roles over 15 years, where his
accountabilities focused on Health and Safety, Electric and Gas Distribution.
Judy McKellar is the Executive Vice President, Chief Human Resources Officer of Hydro One Inc. She
was appointed to this position onNovember 11,2016. Ms. McKellar has held various roles of increasing
responsibility at Hydro One Networks Inc., an indirect subsidiary of Hydro One Limited, in the Human
Resources department over her 30+ year career and was appointed VP of Human Resources in 2010. In
2014, she assumed the additional responsibility of Senior Vice President of People and Culture/Health,
Safety and Environment and serves as the accountable executive for the Human Resources Committee of
the Board of Directors. Ms. McKellar earned a Bachelor of Arts degree from Victoria College, University
of Toronto and was recently named as one of 2015's 100 Most Powerful Women in Canada by
PricewaterhouseCoopers in the "Public Sector" category.
Effective September 9, 2016, Ferio Pugliese was appointed to the role of Executive Vice President,
Customer Care and Corporate Affairs of Hydro One Networks Inc. Prior to his appointment, Mr. Pugliese
held progressively senior leadership roles in hospitality, pulp and paper and airline industries with
responsibility for human resources, operations and customer service. Since 2007, Mr. Pugliese was a
member of the Executive Leadership team at Wesdet Airlines serving as WestJet's Executive Vice
President People, Culture and Inflight Services and in 2013 led the launch and successful operation of the
company's regional airline as President of WestJet Encore. WestJet Encore was recognized for having the
continent's top on-time performance for regional airlines in2015. Mr. Pugliese is highly recognized as a
market leader in customer service and brings expertise in building and leading a winning culture focused
on serving customers and communities. Mr. Pugliese was recognized by Caldwell Partners as one of
Canada's Top 40 under 40 in 2007. He holds a Master of Arts degree in Adult Education from Central
Michigan University, an Honours Bachelor of Arts degree in Social Science and an Honours Bachelor of
Commerce degree from the University of Windsor.
Effective September 1,2016, James Scarlett was appointed as Executive Vice President and Chief Legal
Officer of Hydro One. Prior to joining Hydro One, Mr. Scarlett was a Senior Partner at Torys LLP. He
joined Torys in March 2000 and held a number of leadership roles at the firm, including head of Torys'
Capital Markets Group, Mining Group and Intemational Business Development Strategy. Mr. Scarlett
was also a member of the firm's Executive Committee from 2009-2015. Prior to joining Torys, Mr.
Scarlett was a partner at another major Canadian law firm. While at that firm Mr. Scarlett held leadership
roles as head of its Corporate Group, Securities Group and as a member of its Board. Mr. Scarlett was
also seconded to the Ontario Securities Commission in 1987 and was appointed as the first Director of
Capital Markets in 1988, a position he held until his return to private law practice in 1990. Mr. Scarlett is
currently a director of Camp Oochigeas, a charity for kids with cancer. Mr. Scarlett eamed his law degree
(J.D.) from the Universify of Toronto in I 981 and his Bachelor of Commerce Degree from the University
of McGill in 1975. He is highly recognized in his profession having been consistently and repeatedly
named to numerous prestigious lists and rankings. ln 2015, Mr. Scarlett earned his ICD.D (lnstitute of
Corporate Directors) designation.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C. Lopez, Hydro One
Schedule 3, Page 142 of 167
37
Michael Vels is the Chief Financial Officer of Hydro One. Before joining Hydro One, Mr. Vels was the
Chief Financial Officer for Maple Leaf Foods Inc. Mr. Vels had over 20 years of experience with Maple
Leaf Foods Inc. where he was responsible for leading organizational change, multiple capital market
transactions, business acquisitions and divestitures, information technology transformations and
restructurings. He also served on the board of directors of Maple Leaf Foods Inc.'s public traded
subsidiary, Canada Bread Company, Limited. Mr. Vels led complex multi-divisional finance teams,
information solutions and communications and investor relations functions and has considerable
experience with mergers, acquisitions and divestitures. He currently serves on the Board of Directors of
Canada's National Ballet School. Mr. Vels earned a Bachelor of Accountancy from the University of
Witwatersrand, in Johannesburg, South Africa. He is a Chartered Accountant (South African Institute of
Charlered Accountants) and he has earned his ICD.D (lnstitute of Corporate Directors) designation.
Information Regarding Certain Directors and Executive Officers
As at December 31, 2016, the directors and executive officers of Hydro One Limited beneficially owned,
controlled or directed, directly or indirectly, as a group, 128,608 common shares, which represented
approximately 2'h of the outstanding common shares.
Corporate Cease Trade Orders and Bankruptcies
Except as described below:
none of the directors or executive officers of Hydro One Limited is, or within the last l0 years
has served as, a director or executive officer of any company that, during such service or within a
year after the end of such service, became bankrupt, made a proposal under any legislation
relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement
or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its
assets;
none of the directors or executive officers of Hydro One Limited is, or within the last l0 years
has served as, a director, chief executive officer or chief financial officer of any company that,
during such service or as a result ofan event that occurred during such service, was subject to an
order (including a cease trade order, or similar order or an order that denied access to any
exemption under securities legislation), for a period of more than 30 consecutive days; or
a
a
a none of the directors or executive officers of Hydro One Limited nor any shareholder holding
shares sufficient to materially affect control of Hydro One Limited, within the last l0 years has
become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or
become subject to or instituted any proceedings, arrangement or compromise with creditors, or
had a receiver, receiver manager or trustee appointed to hold the assets ofthe director.
In May 2004, Saskatchewan Wheat Pool Inc., a predecessor to Viterra Inc., initiated a disposition of its
hog operations, which had been carried on through certain of its subsidiaries, through a court supervised
process under the Companies' Creditors Arrangement Act (Canada). On April 12, 2005, the
Saskatchewan Financial Services Commission issued a cease trade order against four of these subsidiaries
for failing to file the required annual continuous disclosure documents. The cease trade order was revoked
on October 18,2010 pursuant to Viterra Inc.'s application to effect a re-organization of the entities in
question. Mr. Schmidt served as an officer and/or director of these entities at the time.
Mr. Orsino was a director of CFM Corporation from July 2007 until his resignation in March 2008. In
April 2008, CFM filed for protection under the Companies' Creditors Arrangement Act (Canada).
Exhibit No. 4
Case Nos. AVU-E-I7- and AVU-G-I7-
i.Lop"r,Hydro one
38
Schedule 3, Page 143 of 167
Ms. Peverett was a director of Postmedia Network Canada Corp. between April 2013 and January 2016.
On October 5,2016, within one year of Ms. Peverett's resignation from the board of directors, Postmedia
compfeted a recapitalization transaction (the recapitolization transaclion) pursuant to a court approved
plan of arrangement under the Canada Business Corporations Act. As part of the recapitalization
transaction, approximately US $268.6 million of debt was exchanged for shares that represented
approximately 98% of the outstanding shares at that time. Additionally, Postmedia repaid, extended and
amended the terms of its outstanding debt obligations pursuant to the recapitalizalion transaction.
Penalties or Sanctions
None of the directors or executive officers of Hydro One Limited, nor any shareholder holding shares
sufficient to materially affect control of Hydro One Limited, has been subject to any penalties or
sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has
entered into a settlement agreement with a securities regulatory authority or been subject to any other
penalties or sanctions imposed by a courl or regulatory body that would likely be considered important to
a reasonable investor making an investment decision.
Conflicts of Interest
To the best of the Company's knowledge, there are no existing potential conflicts of interest among the
Company and the directors or executive officers of the Company as a result of their outside business
interests as at the date of this annual information form. Certain of the directors and executive officers
serve as directors and executive officers of other public companies. Accordingly, conflicts of interest may
arise which could influence these persons in evaluating possible acquisitions or in generally acting on
behalf of the Company.
Indebtedness of Directors and Executive Officers
No director, executive officer, employee, former director, former executive officer or former employee or
associate of any director or executive officer of Hydro One Limited or any of its subsidiaries had any
outstanding indebtedness to Hydro One Limited or any of its subsidiaries except routine indebtedness or
had any indebtedness that was the subject of a guarantee, support agreement, letter of credit or other
similar arrangement or understanding provided by Hydro One Limited or any of its subsidiaries.
AUDIT COMMITTEE
The Audit Committee must consist of at least three directors, all of whom are persons determined by
Hydro One to be both "independent" (within the meaning of all Canadian securities laws and stock
exchange requirements and the Governance Agreement) and "financially literate" (within the meaning of
other applicable requirements or guidelines for audit committee service under securities laws or the rules
of any applicable stock exchange, including National Instrument 52-ll0 - Audit Committees). At least
one member of the Audit Committee will qualifu as an "audit committee financial expert" as defined by
the applicable rules of the United States Securities and Exchange Commission. The Audit Committee
comprises Philip S. Orsino (Chair), Charles Brindamour, George Cooke, James Hinds, Roberta Jamieson
and Frances Lankin. Each of the audit committee members has an understanding of the accounting
principles used to prepare Hydro One's financial statements and varied experience as to the general
application of such accounting principles, as well as an understanding of the internal controls and
procedures necessary for financial reporting.
The Board has adopted a written charter for the Audit Committee, in the form set out under Schedule "A"
hereto, which sets out the Audit Committee's responsibilities.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 144 of 167
39
Relevant Education and Experience
Charles Brindamour
Mr. Charles Brindamour is the Chief Executive Officer of Intact Financial Corporation, Canada's largest
property and casualty insurance provider. Mr. Brindamour began his career with Intact in 1992 as an
actuary and held over the years a number of progressive management positions. Under Mr. Brindamour's
leadership, the company became an independent and widely-held Canadian company in 2009 and two
years later engineered the acquisition of AXA Canada; the largest acquisition in the history of Canada's
property and casualty insurance industry. Mr. Brindamour is a board member of Intact Financial
Corporation, the C.D. Howe Institute, the Geneva Association, the Business Council of Canada and
Branksome Hall. He is also a member of the Advisory Committee of the University of Waterloo's
Climate Change Adaptation Project, serves on the advisory board of Gibraltar Growth Corporation and is
co-chair of Laval University's "Grande Campagne". Mr. Brindamour is a graduate of Laval University in
Actuarial Sciences and an associate of the Casualry Actuarial Sociery.
George L. Cooke
Mr. George Cooke is a corporate director and the Chair of the board of directors of the OMERS
Administration Corporation, CANATICS (Canadian National Insurance Crime Services) and the Ontario
Lottery and Gaming Corporation. OMERS is one of Canada's largest pension funds and OMERS
Administration Corporation is responsible for pension services and administration, investments, and plan
valuation. Mr. Cooke is the former President and CEO of The Dominion of Canada General Insurance
Company (The Dominion), formerly a property and casualty insurance company. a position he held from
1992to August 2012.ln August 2012,Mr. Cooke retired from his role as President of The Dominion and
continued to hold the position of Chief Executive Officer of the company until December 31, 2012. Mr.
Cooke obtained a Bachelor of Arts degree (Hons.) in Political Studies and a Masters of Business
Administration degree from Queen's University. He also holds an Honorary Doctor of Laws degree from
Assumption University in Windsor. Mr. Cooke was a member of the Board of Directors of The Dominion
(1992-2013), the Insurance Bureau of Canada (1992-2013), E-L Financial Corporation (1992-2012),
Empire Life (1992-2002) and Atomic Energy of Canada Limited (1995-1999), and he was also Executive
Vice-President with E-L Financial Corporation Limited (1992-2013).
James Hinds
Mr. James Hinds is a corporate director. He is also a director of Allbanc Split Corp., a mutual fund
company. He is a retired investment banker, having previously served as Managing Director of TD
Securities Inc., prior to which he held positions at CIBC Wood Gundy Inc. and Newcrest Capital Inc. Mr.
Hinds was the past chair of the Independent Electricity System Operator (IESO), a Crown corporation
responsible for operating the electricity market, and was also chair of the former Ontario Power Authority
Board of Directors (2010-2014) until its merger with the IESO effective January 1,2015. Mr. Hinds was a
member of the Audit Committee of the Board of Directors of both the IESO and Ontario Power
Authority. Mr. Hinds received a Bachelor of Arls degree from Victoria College at the University of
Toronto, a Master of Business Administration from the Wharton School of Business and a law degree
from the University of Toronto Law School.
Roberta L. Jomieson
Ms. Roberta Jamieson is a Mohawk woman from the Six Nations of the Grand River Territory in Ontario,
where she still resides. She is also President and Chief Executive Officer of Indspire, Canada's premiere
Indigenous-led charity, and Executive Producer of the Indspire Awards, a nationally broadcast gala
honoring Indigenous achievement. Ms. Jamieson was the first First Nations woman to earn a law degree
in Canada; the first non-parliamentarian appointed an ex-officio member of a House of Commons
Committee; the first woman Ombudsman of Ontario (1989-1999); and in December 2011, she was the
Exhibit No. 440 Case Nos. AVU-E-I7-- and AVU-G-I 7--
C.Lopez, Hydro One
Schedule 3, Page 145 of 167
first woman elected Chief of the Six Nations of the Grand River Territory. She was also a Director of the
Ontario Power Generation Inc. Board of Directors (2012-2015) and served on its Risk Oversight
Committee. Ms. Jamieson was appointed a Member of the Order of Canada in 1994 and promoted to an
Officer in2016. Ms. Jamieson holds a Bachelor of Laws from the University of Western Ontario.
Hon. Frances L. Lankin, P.C., C.M.
Hon. Frances Lankin is a corporate director. She was the former President and CEO of the United Way
Toronto (2001-2010), a Toronto-based charity. ln2009, Ms. Lankin was appointed to the Queen's Privy
Council for Canada and served for five years as a member of the Security Intelligence Review
Committee. ln 2014, Ms. Lankin was appointed to the Premier's Advisory Council on Government Assets
whose mandate was to review and identifu opportunities to modernize government business enterprises,
and in 201I and 2012, she co-led a review of Ontario's social assistance system as part of the province's
poverty reduction strategy. During her first term as an elected Member of Provincial Parliament, Ms.
Lankin served in a variety of Cabinet roles including Chair of Management Board, Minister of Health and
Long-Term Care, and Minister of Economic Development and Trade. Ms. Lankin is a Director of the
Ontario Lottery and Gaming Corporation and Chair of the Social Responsibility Committee of the Board.
She is the former Chair of the National NewsMedia Council, and a former Director of the Institute of
Corporate Directors, where she sat on the Audit Committee. Additionally, she sat on the Ontario Hospital
Association's Audit Committee from2012-2013. Ms. Lankin was appointed a Member of the Order of
Canada in 2012. In April of 2016, Ms. Lankin was appointed to the Senate of Canada where she sits as an
Independent Senator from Ontario. Ms. Lankin serves on the Senate Committee on Internal Economy,
Budgets and Administration.
Philip S. Orsino, O.C., FCPA, FCA
Mr. Philip S. Orsino is a corporate director. He was the President and Chief Executive Officer of Jeld-
Wen Inc., a global integrated manufacturer of building products from 2011 until he retired in 2014.
Formerly until October 2005, Mr. Orsino was the President and Chief Executive Officer of Masonite
Intemational Corporation for 22years. Mr. Orsino is a director of The Bank of Montreal and Chair of its
Audit and Conduct Review Committee and a director of The Minto Group, a private real estate developer,
and chair of the Audit Committee. He was the recipient of the 2003 Canada's Outstanding CEO of the
Year Award and received the University of Toronto's Distinguished Business Alumni Award for 2002.He
is a Fellow of the Institute of Chartered Accountants and holds a degree from Victoria College at the
University of Toronto. Mr. Orsino was appointed an Officer of the Order of Canada in2004.
Pre-Approval Policies and Procedures
The Audit Committee Charter requires that all non-audit services to be provided to Hydro One Limited or
any of its subsidiaries by the extemal auditors or any of its affiliates are subject to pre-approval by the
Audit Committee.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 146 of 167
41
Auditors'Fees
The aggregate fees billed by KPMG to Hydro One and its subsidiaries in 2016 and 2015 for professional
services are presented below:
Audit
Audit-Related Fees(a)
Tax Fees:
SR&ED(5) Tax Credit Claim
General Tax Advice
Other Fees(6)
Total
Year ended
December 31,2016
$1,524,814
$488,854
$90,000
$57,500
s413,643
Year ended
December 31, 2015
S 1,3
$ 4 r2,200
$90,000
N/A
N/A
$2,574,81I $1,878,700
Notes:(r) The nature of the services rendered was: audit of annual financial statements of the Company and its subsidiaries, and
statutory and regulatory filings.
(2) Additional services in 2016 included: IFRS reporting to the Province, audit of annual financial statements of acquired
companies and audit offinancial system enhancements and cornplex accounting.(3) $475,000 of these fees related to the company's initial public offering completed on November 5. 2015, which are
recoverable lrom the Province.
(4) The nature of the services rendered was: translations and audit of the Hydro One Pension Plan and related services
reasonably related to the performance of the audit or review of the Company's financial statements that are not reported
under Audit Fees.
(s) Scientific Research and Experimental Development.(6) The nature ofthe services rendered was: due diligence activities.
PROMOTERS
Hydro One Inc. has taken the initiative in founding and organizing Hydro One Limited and may therefore
be considered a promoter of Hydro One Limited for the purposes of applicable securities legislation. In
connection with a series of pre-closing transactions completed in connection with the initial public
offering of Hydro One Limited, on October 31,2015, Hydro One Limited acquired all of the issued and
outstanding common shares of Hydro One Inc. from the Province in exchange for the issuance to the
Province of 16,720,000 Series I preferred shares and 12,197,500,000 common shares. See "Corporate
Structure - Corporate Structure and Subsidiaries", "General Development of the Business" and "Business
of Hydro One - Reorganizations".
Although the Province was identified as a promoter of Hydro One for purposes of the initial public
offering, as a result of the entering into of the Govemance Agreement and completion of the initial public
offering, Hydro One no longer believes the Province is a promoter of Hydro One.
AGREEMENTS WITH PRINCIPAL SHAREHOLDER
In connection with the November 2015 completion of the initial public offering of Hydro One Limited, on
November 5,2015, Hydro One and the Province entered into:
the Governance Agreement to address the Province's role in the governance of Hydro One
Limited; and
the Registration Rights Agreement to provide the Province with the right to require Hydro One
Limited to facilitate future secondary offerings of common shares or preferred shares owned or
controlled by the Province.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-I7-_
C.Lopez, Hydro One
Schedule 3, Page 147 of 167
a
42
The material terms of the Governance Agreement and the Registration Rights Agreement are summarized
below. A copy of each of the Governance Agreement and the Registration Rights Agreement has been
filed on SEDAR and is available under Hydro One Limited's profile at www.sedar.com. The discussion
in this annual information form concerning the Governance Agreement and the Registration Rights
Agreement is not complete, and is qualified in its entirety to the text of the Governance Agreement and
the Registration Rights Agreement, each of which should be referred to. Not all of the terms of the
Governance Agreement and the Registration Rights Agreement are described in this annual information
form.
Governance Agreement
Governance Matters
The Governance Agreement specifically addresses the following governance matters
The governance principles under which Hydro One Limited and its subsidiaries will be managed
and operated.
The nomination of directors, which includes: (i) the requirement for a fully independent board of
directors (other than the Chief Executive Officer), and (ii) the maximum number of directors that
may be nominated by the Province.
The election and replacement of directors.
Approvals requiring a special resolution of the directors.
a
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a
a
a
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Governance Principles
The Governance Agreement provides that the business and affairs of Hydro One Limited will be managed
and operated in accordance with certain govemance principles.
The governance principles provide that:
Hydro One Limited will maintain corporate govemance policies, procedures and practices
consistent with the best practices of leading Canadian publicly listed companies, having regard to
Hydro One Limited's ownership structure and the Governance Agreement.
The board of directors of Hydro One Limited is responsible for the management of the business
and affairs of Hydro One Limited.
With respect to its ownership interest in Hydro One Limited, the Province will engage in the
business and affairs of Hydro One Limited as an investor and not a manager, and the Province
intends to achieve its policy objectives through legislation and regulation, as it would with respect
to any other utility operating in Ontario.
Nomination of Directors
The Govemance Agreement establishes qualification standards for director nominees, provides for the
number of directors that may be nominated and establishes a process for confirming nominees. The
Governance Agreement recognizes that the Board is to be a fully independent board (independent of both
Hydro One and the Province), except the Chief Executive Officer, as described under the subheading " -
Independence" below.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-l 7-_
C.Lopez, Hydro One
Schedule 3, Page 148 of 167
43
D i r e c t or Qual ifi c at i on St andards
Under the Governance Agreement, the Province and the Nominating, Corporate Governance, Public
Policy & Regulatory Committee have agreed to nominate as directors, qualified individuals of high
quality and integrity who have the experience, expertise and leadership appropriate to manage a business
of the complexiry, size and scale of the business of Hydro One Limited, on a basis consistent with the
highest standards for directors of Canada's leading public companies.
In addition, a majority of the directors must be resident Canadians (as defined in the OBCA).
Independence
Each director nominee must, among other things
be independent of Hydro One Limited (other than the Chief Executive Officer) within the
meaning of Ontario securities laws governing the disclosure of corporate governance practices;
be independent of the Province (other than the Chief Executive Officer). A director will be
independent of the Province if he or she would be independent of Hydro One Limited within the
meaning of Ontario securities laws governing the disclosure of corporate governance practices if
the Province and each Specified Provincial Entity were treated as Hydro One Limited's parent
under that definition, but excluding, in the case only for the current directors, any prior
relationship that ended before August 31,2015.In addition, he or she may not be an employee or
official of the Province or any Specified Provincial Entity, either: (i) currently or, (ii) within the
last three years (excluding in the case of (ii), the current directors whose prior relationship ended
before August 31,2015); and
meet the requirements of applicable securities and other laws and any exchange on which the
voting securities are listed.
a
a
A "Specified Provincial Entity" means (l)(a) the Ontario Financing Authority, (b) the IESO, (c) Ontario
Power Generation Inc., (d) the Electrical Safety Authority, (e) Ontario Electricity Financial Corporation,
(f) Infrastructure Ontario, or (g) a subsidiary of, or a person controlled by, any organization listed in (a) to
(f); and (2) the OEB.
Number of Direclors
Under the articles of Hydro One Limited and pursuant to the terms of the Govemance Agreement, the
Board will consist of no fewer than l0 and no more than l5 directors, with the initial Board consisting of
l5 directors until the first annual meeting of shareholders following the completion of the initial public
offering of Hydro One Limited.
Board Nominees
The nominees to be proposed for election to the Board by Hydro One Limited at annual meetings of
shareholders will be determined as follows:
The Chief Executive Officer will be nominated.
The Province will be entitled to nominate that number of nominees equal to 40Yo of the number
of directors to be elected (rounded to the nearest whole number), subject to certain exceptions.
The Nominating, Corporate Governance, Public Policy & Regulatory Committee will nominate
the remaining directors.
Exhibit No.444 Case Nos. AVU-E-I7-- and AVU-G-17--
C.Lopez, Hydro One
Schedule 3, Page 149 of 167
o
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Board Nomination Process
Under the Governance Agreement, the Province and representatives of the Nominating, Corporate
Govemance, Public Policy & Regulatory Committee are to meet after each annual meeting of
shareholders to discuss expected upcoming departures from the Board (whether due to resignation,
retirement or otherwise) and the impact such departures will have on the Board, having regard to
continued compliance with the Govemance Agreement and the ability of the Board to satisfr the Board's
skills matrix, diversity policy and other governance standards. Under the Governance Agreement, at this
meeting the Nominating, Corporate Governance, Public Policy & Regulatory Committee is to make
recommendations to the Province respecting potential candidates for director, including potential
candidates for nomination by the Province. The Province has no obligation to nominate any of the
individuals recommended as one of its director nominees.
Not later than 60 days prior to the date by which proxy solicitation materials must be mailed for Hydro
One's annual meeting of shareholders, each of the Province and theNominating, Corporate Governance,
Public Policy & Regulatory Committee will notifu the other of its proposed director nominees. If a
proposed nominee is not already a director of Hydro One or is then a director but whose circumstances
have materially changed in a way that would affect whether she or he would continue to meet the director
qualification standards under the Governance Agreement, then the Province or the committee, as the case
may be, will have l0 business days to confirm that nominee or reject that nominee on the basis that the
nominee does not meet those director qualification standards.
If a director nominee of the Province or the Nominating, Corporate Governance, Public Policy &
Regulatory Committee is rejected, then the Province or the committee will be entitled to nominate
additional candidates until a nominee is confirmed by the other. If no replacement nominee is confirmed
for a director who was expected to depart from the board and that director does not resign, that director
shall be re-nominated. The Province and the committee will use commercially reasonable efforts to
confirm director nominees prior to the date by which proxy solicitation materials must be mailed for the
annual meeting of shareholders.
Election and Replacement of Directors
The Governance Agreement provides for how:
the Province will vote with respect to director nominees, including its nominees and those of the
Nominating, Corporate Governance, Public Policy & Regulatory Committee,
a
the Province may vote at contested elections,
the Province may seek to replace the Board by withholding votes or voting for removal, and
a Board vacancies will be filled
Voting on Director Elections
At any meeting of shareholders to elect directors, the Province is required to vote in favour of the
nominees selected by the Province and the Nominating, Corporate Governance, Public Policy &
Regulatory Committee in accordance with the board nomination process set out in the Governance
Agreement, except in the case of contested director elections or where the Province seeks to replace the
Board in accordance with the Governance Agreement.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-I7-_
C.Lopez, Hydro One
Schedule 3, Page 150 of 167
a
a
45
Contested Elections
At any meeting of shareholders to elect directors of Hydro One Limited at which there are more nominees
for directors than there are directors to be elected, the Province may vote its Voting Securities in its sole
discretion (including to vote in favour of other candidates instead of the Province's nominees), except that
the Province will vote in favour of the election of the Chief Executive Officer as a director.
Right to Withhold Votes
The Province is required under the Governance Agreement to vote in favour of all director nominees of
Hydro One Limited, subject to the Province's overriding right to withhold from voting in favour of all
director nominees and its right to seek to remove and replace the entire Board, including in each case its
own director nominees but excluding the Chief Executive Officer and, at the Province's discretion, the
Chair. Depending on the number of withheld votes a director nominee receives at a meeting of
shareholders at which directors are to be elected, that director nominee may be required to tender his or
her resignation to the Board in accordance with Hydro One Limited's majority voting policy.
Province's Right to Replace the Board
The Province may at any time notify Hydro One Limited that it intends to request that Hydro One
Limited hold a meeting of shareholders for the purposes removing all of the directors in office, including
those nominated by the Province, with the exception of the Chief Executive Officer and, at the sole
discretion of the Province, the Chair (a "Removal Notice"). If the Province gives Hydro One a Removal
Notice, then the Chair shall coordinate the establishment of an ad hoc nominating commiftee comprising
one representative of each of the five largest beneficial owners of Voting Securities known to the
Company (or if at least three such owners are not willing to provide a representative, then the individuals
the Province proposes to nominate as replacement directors). The Province and the ad hoc nominating
committee will identifu and confirm replacement directors to be nominated at the shareholders' meeting
pursuant in accordance with the process set out in the Governance Agreement. Each replacement director
nominee must meet the same qualification and independence standards under the Governance Agreement
as for any director nominee. Hydro One Limited will call the shareholders' meeting once the replacement
director nominees are confirmed pursuant to this process, and will hold the shareholders' meeting within
60 days of this confirmation. At the shareholders'meeting, the Province will vote in favour of removing
the current directors with the exception of the Chief Executive Officer and, at the Province's discretion,
the Chair, and will vote in favour of the new independent director nominees.
Board Approvals Requiring a Special Resolution of the Directors
The Governance Agreement provides that certain actions require approval by a resolution of the Board
passed by at least two-thirds of the votes cast at a meeting of the directors, or consented to in writing by
all of the directors (a "Special Board Resolution"). Matters requiring approval by a Special Board
Resolution include:
the appointment and annual confirmation of the Chair,
the appointment and annual confirmation of the Chief Executive Officer, and
changes to certain specified governance standards specified in the Governance Agreement to be
"Hydro One's govemance standards".
The governance standards subject to this special approval requirement include the Board's skills matrix,
the Ombudsman's Mandate, the Diversity Policy and the Majority Voting Policy, the Corporate
Governance Guidelines, the mandates of the Board and its committees, position descriptions for the Chief
Executive Officer, the Chair, the directors and committee chairs, and the Stakeholder Engagement Policy.
Exhibit No. 446 Case Nos. AVU-E-17-- and AVU-G-I7--
C.Lopez, Hydro One
Schedule 3, Page 151 of 167
a
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Other Matters
In addition to the governance matters noted above, the Governance Agreement also addresses the
following matters:
o Restrictions on the right of the Province to initiate fundamental changes.
a Pre-emptive rights provided to the Province with respect to future issuances of Voting Securities
by Hydro One Limited.
Acquisition limits with respect to the Province's acquisition of outstanding Voting Securities.a
Restrictions on Province's Right to Initiate Fundamental Changes
The Province has agreed not to initiate a fundamental change to Hydro One Limited (as defined in Part
XIV of the OBCA), including not to initiate any arrangement or amalgamation involving Hydro One
Limited or any amendment to the articles of Hydro One Limited. The Province may, however, vote its
Voting Securities as it sees fit in the event any fundamental change is initiated by Hydro One Limited or
another shareholder of Hydro One Limited.
Pre-emptive Rights
Hydro One Limited has granted to the Province a pre-emptive right to acquire additional Voting
Securities as part of future offerings by Hydro One Limited of Voting Securities. If Hydro One Limited
proposes to issue Voting Securities in the future, whether pursuant to a public offering or a private
placement, Hydro One Limited must notifu the Province of the proposal and provide information in
accordance with the provisions of the Governance Agreement at least 30 days in advance and must offer
the Province the right to purchase tp to 45Yo of the Voting Securities being offered. Any Voting
Securities not purchased by the Province pursuant to the offer may be purchased by any other person
pursuant to the proposed offering.
The pre-emptive right also applies with respect to any proposed issuance by Hydro One Limited of
securities convertible into or exchangeable for Voting Securities except securities convertible into or
exchangeable for Voting Securities: (i) pursuant to certain employee or director compensation plans; (ii)
pursuant to any dividend re-investment arrangement of the Company that is consistent with dividend
reinvestment arrangements of other publicly traded utilities in Canada (including as to discount rates) and
that does not include a cash purchase option; (iii) pursuant to a rights offering that is open to all
shareholders of Hydro One Limited; or (iv) pursuant to any business combination, take-over bid,
arrangement, asset purchase transaction or other acquisition ofassets or securities ofa third party.
45% Acqujsilla! Itlnrt
The Province has agreed in the Governance Agreement, subject to certain exceptions, not to acquire
previously issued Voting Securities if after that acquisition, the Province would own more lhan 45Yo of
any class or series of Voting Securities. This restriction does not limit the Province from acquiring Voting
Securities on an issuance by Hydro One Limited, including pursuant to the exercise by the Province of its
pre-emptive right. See "Agreements with Principal Shareholder - Governance Agreement - Other Matters
- Pre-emptive Rights" above.
41 Exhibit No. 4
Case Nos. AVU-E-I7- and AVU-G-I7-
C. Lop.r, Hydro One
Schedule 3, Page 152 of 167
Registration Rights Agreement
Demand Registrotion
Pursuant to the Registration Rights Agreement, Hydro One Limited has granted the Province certain
demand registration rights providing that, from time to time while the Province is a "control person" of
Hydro One Limited within the meaning of applicable Canadian securities laws, the Province can require
Hydro One Limited to file, at the expense of the Province (except for internal expenses of Hydro One
Limited or other expenses that Hydro One Limited would have incurred in the absence of such a request),
and subject to certain exceptions, one or more prospectuses and take other procedural steps as may be
reasonably necessary to facilitate a secondary offering in Canada of all or any portion of the common
shares or preferred shares ("shares") held by the Province.
" Piggt- Back" Registration
If Hydro One Limited proposes to undertake a Canadian public offering by prospectus, the Province is
entitled, while it is a "control person" of Hydro One Limited within the meaning of applicable Canadian
securities laws, to include shares owned by it as part of that offering, provided that the underwriters may
reduce the number of shares proposed to be sold if in their reasonable judgment all of the shares proposed
to be offered by Hydro One Limited and the Province may not be sold in an orderly manner within a price
range reasonably acceptable to Hydro One Limited. In that case, the shares to be sold will be allocated pro
rata between Hydro One Limited and the Province based on their relative proportionate number of shares
requested to be included in the offering. Hydro One Limited and the Province will share the expenses of
the offering (except for internal expenses of Hydro One Limited) in proportion to the gross proceeds they
each receive from the offering.
Private Placements
Hydro One Limited has also agreed to use commercially reasonable effofts to assist, at the Province's
expense, the Province in any sale by it of shares of Hydro One Limited pursuant to an exemption from the
prospectus requirements, in the preparation of an offering memorandum and other documentation and by
facilitating due diligence by the prospective buyer.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
Other than as noted below and elsewhere in this annual information form, there are no material interests,
direct or indirect, of any director or executive officer of the Company, any shareholder that beneficially
owns, or controls or directs (directly or indirectly), more than l0% of any class or series of Hydro One
Limited's outstanding voting securities, or any associate or affiliate of any of the foregoing persons, in
any transaction within the three years before the date hereof that has materially affected or is reasonably
expected to materially affect the Company.
Relationships with the Province and Other Parties
Overview
The Province is Hydro One Limited's principal shareholder. The OEB is the principal regulator of
Exhibit No. 448 Case Nos. AVU-E-I7-- and AVU-G-I7--
C.Lopez, Hydro One
Schedule 3, Page 153 of 167
Customary Agreements
Hydro One Limited and the Province have also agreed to enter into customary agreements, including
"lock-up" agreements, on customary market terms in connection with such transactions. Hydro One
Limited also agreed to certain indemnification and contribution covenants in favour of the Province and
any underwriters involved in such transactions.
Ontario's electricity industry. The Province appoints the board members of the OEB and fills any
vacancies on the OEB. The OEB is obligated to implement approved directives of the Province
conceming general policy and objectives to be pursued by the OEB and other directives aimed at
addressing existing or potential abuses of market power by industry participants. The IESO, among other
matters, directs the operation of the Ontario power system by balancing supply and demand of electricity
and directing electricity flow and assumed the responsibility for forecasting supply and demand of
electricity over the medium and long term to meet the needs of the province. The board of directors of the
IESO, other than its Chief Executive Officer, is appointed by the Province in accordance with the
regulations in effect from time to time under the Electricity Act.
In connection with the initial public offering of Hydro One Limited, the Company entered into the
Governance Agreement and the Registration Rights Agreement with the Province. See "Agreements with
Principal Shareholder".
Transfer Orders
The transfer orders pursuant to which Hydro One Inc. acquired Ontario Hydro's electricity transmission,
distribution and energy services businesses as of April 1, 1999, did not transfer certain assets, rights,
liabilities or obligations where the transfer would constitute a breach of the terms of any such asset, right,
liability or obligation or a breach ofany law or order (the "trust assets"). The transfer orders also did not
transfer title to assets located on Reserves, which assets are held by the Ontario Energy Financial
Corporation. For more information, see the Annual MD&A under the subheading "Risk Management and
Risk Factors - Risk from Transfer of Assets Located on Reserves".
Hydro One is obligated under the transfer orders to manage both the trust assets (until it has obtained all
consents necessary to complete the transfer of title to these assets to Hydro One) and the assets otherwise
retained by the Ontario Electricity Financial Corporation that relate to Hydro One's businesses. Hydro
One has entered into an agreement with the Ontario Electricity Financial Corporation under which it is
obligated, in managing these assets, to take instructions from the Ontario Electricity Financial
Corporation if Hydro One's actions could have a material adverse effect on the Ontario Electricity
Financial Corporation. The Ontario Electricity Financial Corporation has retained the right to take control
of and manage the assets, although it must notiff and consult with Hydro One before doing so and must
exercise its powers relating to the assets in a manner that will facilitate the operation of Hydro One's
businesses. The consent of the Ontario Electricity Financial Corporation is also required prior to any
disposition of these assets.
The Province also transferred officers, employees, assets, liabilities, rights and obligations of Ontario
Hydro in a similar manner to its other successor transferees. These transfer orders include a dispute
resolution mechanism to resolve any disagreement among the various transferees with respect to the
transfer of specific assets, liabilities, rights or obligations.
The transfer orders do not contain any representations or warranties from the Province or the Ontario
Electricity Financial Corporation with respect to the transferred officers, employees, assets, liabilities,
rights and obligations. Furthermore, under the Electricity Act, the Ontario Electricity Financial
Corporation was released from liability in respect of all assets and liabilities transferred by the transfer
orders, except for liability under Hydro One's indemnity from the Ontario Electricity Financial
Corporation. The parties, with the consent of the Minister of Finance, agreed to terminate such indemnity
effective October 31,2015. By the terms of the transfer orders, each transferee indemnifies the Ontario
Electricity Financial Corporation with respect to any assets and liabilities related to that transferee's
business not effectively transferred, and is obligated to take all reasonable measures to complete the
transfers where the transfers were not effective.
Hydro One has indemnified the Ontario Electricity Financial Corporation in respect of the damages,
losses, obligations, liabilities, claims, encumbrances, penalties, interest, taxes, deficiencies, costs and
Exhibit No. 449 Case Nos. AVU-E-I7-- and AVU-G-I7--
C. Lopez, Hydro One
Schedule 3, Page 154 of 167
expenses arising from matters relating to the Company's business and any failure by Hydro One to
comply with its obligations to the Ontario Electricity Financial Corporation under agreements dated as of
April l,1999. These obligations include obligations to employ the employees transferred to Hydro One
under the transfer orders, make and remit employee source deductions (including tax withholding
amounts, and employer contributions), manage the real and personal properlies which the Ontario
Electricity Financial Corporation continues to hold in trust or otherwise and take any necessary action to
transfer all of these properties to the Company, to pay realty taxes and other costs, provide access to
books and records and to assume other responsibilities in respect of the assets held by the Ontario
Electricity Financial Corporation in trust for the Company.
Departure Taxes
By virtue of being wholly owned by the Province, Hydro One was exempt from tax under the Income Tax
Act (Canada) and the Taxation Act, 2007 (Ontario). However, under the Electricity Act, Hydro One was
required to make payments in lieu of tax to the Ontario Electricity Financial Corporation. The payments
in lieu of tax were, in general, based on the amount of tax that Hydro One would otherwise be liable to
pay under the Income Tax Act (Canada) and the Taxation Act, 2007 (Ontario) if it was not exempt from
taxes under those statutes.
In connection with the initial public offering of Hydro One Limited, Hydro One's exemption from tax
under the Income Tax Act (Canada) and the Tuation Act, 2007 (Ontario) ceased to apply. Under the
Income Tax Act (Canada) and the Tmation Act, 2007 (Ontario), Hydro One was deemed to have disposed
of its assets immediately before it lost its tax exempt status resulting in Hydro One making payments in
lieu of tax under the Electricity Act totalling $2.6 billion in respect thereof, calculated by reference to the
Income Tax Act (Canada) ("departure tax").
Hydro One Inc. also paid the Ontario Electricity Financial Corporation approximately $0.2 billion in
additional payments in lieu of tax in connection with the initial public offering and approximately $0.1
billion in other payments in lieu of tax instalments.
For a discussion of the departure tax and the related financial implications on the Company, see the
Annual MD&A under the heading "Related Parfy Transactions".
MATERIAL CONTRACTS
The following are the only material contracts, other than those contracts entered into in the ordinary
course of business, which Hydro One Limited has entered into since the beginning of the last financial
year, or entered into prior to such date but which contract is still in effect:
(a) the underwriting agreement (the "20l6 Underwriting Agreement") dated April 7,2016, between
Hydro One Limited, the Province and a syndicate of underwriters pursuant to which the
underwriters agreed to purchase, and the Province agreed lo sell 72,434,800 common shares (such
number of shares subsequently increased to an aggregate of 83,300,000 common shares) of
Hydro One Limited at a price of $23.65 per share. The 2016 Underwriting Agreement provides
that Hydro One Limited will indemnifu the underwriters and each of their respective affiliates,
and their directors, officers, partners, employees, agents and controlling persons against ceftain
I iabilities, including liabilities under Canadian securities legislation;
(b) the underwriting agreement (the "2015 Underwriting Agreement") dated October 29,2015,
between Hydro One Limited, Hydro One Inc., the Province and a syndicate of underwriters
pursuant to which the underwriters agreed to purchase, and the Province agreed to sell 81,100,000
common shares (such number of shares subsequently increased to an aggregate of 89,250,000
common shares) of Hydro One Limited at a price of $20.50 per share. The 2015 Underwriting
Agreement provides that Hydro One Limited and Hydro One Inc. will jointly and severallvExhibit No.4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 155 of 167
50
indemnifu the underwriters and each of their respective affiliates, and their directors, officers,
partners, employees, agents and controlling persons against certain liabilities, including liabilities
under Canadian securities legislation;
(c) the Governance Agreement, described under "Agreements with Principal Shareholder"; and
(d) the Registration Rights Agreement, described under "Agreements with Principal Shareholder"
Copies of the foregoing material agreements have been filed with the Canadian securities regulatory
authorities and are available on SEDAR at www.sedar.com.
LEGAL PROCEEDINGS AND REGULATORY ACTIONS
The Company is from time to time involved in legal proceedings of a nature considered normal to its
business. Except as disclosed below, Hydro One believes that none of the litigation in which it is
currently involved, or has been involved since the beginning of the most recently completed financial
year, individually or in the aggregate, is material to its consolidated financial condition or results of
operations. The Company is not subject to any material regulatory actions.
Hydro One Inc., Hydro One Networks, Hydro One Remote Communities Inc., and Norfolk Power
Distribution Inc. are defendants in a class action suit in which the representative plaintiff is seeking up to
$125 million in damages related to allegations of improperbilling practices. A certification motion in the
class action is pending. Due to the preliminary stage of legal proceedings, an estimate of a possible loss
related to this claim cannot be made.
In connection with the reorganization of Ontario Hydro, Hydro One Inc. succeeded Ontario Hydro as a
parry to various pending legal proceedings relating to the businesses, assets, real estate and employees
transferred to it. Hydro One Inc. also assumed responsibility for future claims relating to the businesses,
assets, real estate and employees acquired by Hydro One Inc. and arising out of events occurring prior to,
as well as after, April l, 1999.|n addition to claims assumed by the Company, it is, from time to time,
named as a defendant in legal actions arising in the normal course of business. There are currently no
actions that are outstanding which are expected to have a material adverse effect on the Company.
INTEREST OF EXPERTS
KPMG LLP, Chartered Professional Accountants, located at 333 Bay Street, Suite 4600, Bay Adelaide
Centre, Toronto, Ontario M5H 2S5, is the auditor of Hydro One Limited. and has audited the
consolidated financial statements of Hydro One Limited as at and for the years ended December 31,2016
and December 31,2015. KPMG LLP has confirmed that it is independent of Hydro One Limited and
Hydro One Inc. within the meaning of the relevant rules and related interpretations prescribed by the
relevant professional bodies in Canada and any applicable legislation or regulation.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Hydro One Limited's common shares is Computershare Trust
Company of Canada at its principal office in Toronto, Ontario.
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 156 of 167
5l
ADDITIONAL INFORMATION
Additional information relating to Hydro One Limited may be found on SEDAR at www.sedar.com.
Additional information, including with respect to directors' and officers' remuneration and indebtedness,
principal holders of Hydro One Limited's securities and shares authorized for issuance under equity
compensation plans, is contained in the Company's management information circular for its most recent
annual meeting of shareholders that involves the election of directors.
Additional financial information is provided in the Annual MD&A and in the consolidated financial
statements and notes to the consolidated financial statements of Hydro One Limited for 2016.
Exhibit No. 4
Case Nos. AVU-E-I7- and AVU-G-I7-
i.Lop".,Hydro one
52
Schedule 3, Page 157 of 167
SCHEDULE "A"
HYDRO ONE LIMITED
AUDIT COMMITTEE MANDATE
Purpose
The Audit Committee (the "Committee") is a committee appointed by the board of directors (the
"Board") of Hydro One Limited (including its subsidiaries, the "Company"). The Committee is
established to fulfill applicable public company obligations and to assist the Board in fulfilling its
oversight responsibilities with respect to financial reporting including responsibility to oversee:
(a) the independence, qualification and appointment ofexternal auditors;
(b) the integrity of the Company's financial statements and financial reporting process, including the
audit process and the Company's internal control over financial reporting, disclosure controls and
procedures and compliance with other related legal and regulatory requirements;
(c) the performance of the Company's financial finance function, internal auditors and extemal
auditors; and
(d) the auditing, accounting and financial reporting process.
The function of the Committee is oversight. It is not the dury or responsibility of the Committee or its
members: (a) to plan or conduct audits; (b) to determine that the Company's financial statements are
complete and accurate and are in accordance with generally accepted accounting principles; or (c) to
conduct other rypes of auditing or accounting reviews or similar procedures or investigations. The
Committee, its Chair and its members with accounting or finance expertise are members of the Board,
appointed to the Committee to provide broad oversight of the financial, risk and control related activities
of the Company, and are specifically not accountable or responsible for the day to day operation or
performance of such activities.
Procedures
l. Number of Members - The members of the Committee shall be appointed by the Board. The
Committee will be composed of not less than three (3) Board members.
2. Independence - The Committee shall be constituted at all times of directors who are
"independent" (a) within the meaning of all Canadian securities laws and stock exchange
requirements, each as in effect and applicable to Hydro One Limited from time to time; and (b) of
the Province of Ontario within the meaning of the Governance Agreement between the Company
and the Province of Ontario (as amended, revised or replaced from time to time, the
"Governance Agreement").
3. Financial Literacy - Each member shall be "financially literate" within the meaning of other
applicable requirements or guidelines for audit committee service under securities laws or the
rules of any applicable stock exchange, includingNl 52-110. At leastone memberwill otherwise
quali! as an o'audit committee financial expert" as defined by applicable rules of the Securities
and Exchange Commission.
4. Cross-Appointment - No member may serve on the audit committee of more than two other
Exhibit No. 453 Case Nos. AVU-E-17-- and AVU-G-I 7--
C.Lopez, Hydro One
Schedule 3, Page 158 of 167
public companies, unless the Board determined that this simultaneous service would not impair
the ability of the member to serve effectively on the Committee.
5. Appointment and Replacement of Committee Members - Any member of the Committee may
be removed or replaced at any time by the Board and shall automatically cease to be a member of
the Committee upon ceasing to be a director. The Board shall fill any vacancy if the membership
of the Committee is less than three directors. Whenever there is a vacancy on the Committee, the
remaining members may exercise all its power as long as a quorum remains in office. Subject to
the foregoing, the members of the Committee shall be appointed by the Board annually and each
member of the Committee shall remain on the Committee until his or her successor shall be dulv
appointed and qualified or his or her earlier resignation or removal.
6. Committee Chair - Unless a Committee Chair is designated by the full Board, the members of
the Committee may designate a Chair by majority vote of the full Committee. The Committee
Chair shall be responsible for leadership of the Committee and reporting to the Board. If the
Committee Chair is not present at any meeting of the Committee, one of the other members of the
Committee who is present shall be chosen by the Committee to preside at the meeting. The
Committee Chair shall also appoint a secretary who need not be a director.
7. Conflicts of Interest - If a Committee member faces a potential or actual conflict of interest
relating to a matter before the Committee, other than matters relating to the compensation of
directors, that member shall be responsible for alerting the Committee Chair. If the Committee
Chair faces a potential or actual conflict of interest, the Committee Chair shall advise the Board
Chair. If the Committee Chair, or the Board Chair, as the case may be, concurs that a potential or
actual conflict of interest exists, the member faced with such conflict shall disclose to the
Committee the member's interest and shall not be present for or participate in any discussion or
other consideration of the matter and shall not vote on the matter.
8. Meetings - The Committee shall meet regularly and as often as it deems necessary to perform the
duties and discharge its responsibilities as described herein in a timely manner, but not less than
four (4) times a year. The Committee shall maintain written minutes of its meetings, which will
be filed within the Company's corporate minute books. The Board Chair may attend and speak at
all meetings of the Committee, whether or not the Board Chair is a member of the Committee.
9. Separate Private Meetings - The Committee shall meet regularly, but no less than quarterly,
with the Chief Financial Officer, the head of the internal audit function (if other than the Chief
Financial Officer) and the external auditors in separate private sessions to discuss any matters that
the Committee or any of these groups believes should be discussed privately and such persons
shall have access to the Committee to bring forward matters requiring its attention. The
Committee shall also meet at each meeting of the Committee without management or non-
independent directors present, unless otherwise determined by the Committee Chair.
10. Professional Assistance - The Committee may require the external auditors to perform such
supplemental reviews or audits as the Committee may deem desirable and may retain such special
legal, accounting, financial or other consultants as the Committee may determine to be necessary
to carry out the Commiftee's duties, in each case at the Company's expense and inform the Chair
of the Nominating and Corporate Governance Committee of any such retainer. The Company's
external auditors will have direct access to the Committee at their own initiative.
I l. Reliance - Absent actual knowledge to the contrary (which shall be promptly reported to the
Board), each member of the Committee shall be entitled to rely on: (a) the integrity of those
persons or organizations within and outside the Company from which it receives information;
(b) the accuracy of the financial and other information provided to the Committee by such
s4 caseNos. AVU-E-I7- ""0 otr}l-oo:l;:
o
-. Lop.r. Hydro One
Schedule 3, Page 159 of 167
3
persons or organizations; and (c) representations made by management and the external auditors
as to any information technology, internal audit and other permissible non-audit services provided
by the external auditors to the Company and its subsidiaries.
12. Reporting to the Board - The Committee will report through the Committee Chair to the Board
following meetings of the Committee on matters considered by the Committee, its activities and
compliance with this Mandate.
Responsibilities
The principal responsibilities of the Committee are
Selection and Oversight of the External Auditors
l. approve the terms of engagement and, if the shareholders authorize the Board to do so, the
compensation to be paid by the Company to the extemal auditors with respect to the conduct of
the annual audit. The extemal auditors are ultimately accountable to the Committee and the Board
as the representatives of the shareholders of the Company and shall report directly to the
Committee and the Committee shall so instruct the extemal auditors.
2.evaluate the quality of service, independence, objectivity, professional skepticism and
performance of the external auditors and make recommendations to the Board on the
reappointment or appointment of the external auditors of the Company to be proposed for
shareholder approval and shall have authority to terminate the extemal auditors. If a change in
external auditors is proposed by the Committee or management of the Company, the Committee
shall review the reasons for the change and any other significant issues related to the change,
including the response of the incumbent extemal auditors, and enquire on the qualifications of the
proposed external auditors before making its recommendation to the Board.
review and approve policies and procedures for the pre-approval ofservices to be rendered by the
external auditors. All permissible non-audit services to be provided to the Company or any of its
affiliates by the external auditors or any of their affiliates that are not covered by pre-approval
policies and procedures approved by the Committee shall be subject to pre-approval by the
Committee. The Committee shall have the sole discretion regarding the prohibition of the extemal
auditor providing certain non-audit services to the Company and its affiliates. The Committee
shall also review and approve disclosures with respect to permissible non-audit services.
review the independence and professional skepticism of the external auditors and make
recommendations to the Board on appropriate actions to be taken which the Committee deems
necessary to protect and enhance the independence of the external auditors. In connection with
such review, the Committee shall:
actively engage in a dialogue with the external auditors about all relationships or services
that may impact the objectivity and independence of the extemal auditors, including
whether there are any disputes, restrictions or limitations placed on their work;
(b)obtain from external auditors at least annually, a formal written statement delineating all
relationships between the Company and the external auditors and their affiliates;
(c)ensure the rotation of the lead (and concurring) audit partner having primary
responsibility for the audit and the audit partner responsible for reviewing the audit as
required by applicable law or professional practice; and
(d)consider the auditor independence standards promulgated by applicable auditing
Exhibit No. 455 Case Nos. AVU-E-I7- and AVU-G-I7-
i.Lop"r,Hydro One
Schedule 3, Page 160 of 167
4
(a)
5
6
7
8
regulatory and professional bodies
review and approve policies for the hiring by the Company of employees or former employees of
the external auditors.
require the extemal auditors to provide to the Committee, and review and discuss with the
extemal auditors, all notices and reports which the external auditors are required to provide to the
Committee or the Board under rules, policies or practices of professional or regulatory bodies
applicable to the extemal auditors, and any other reports which the Committee may require. Such
reports shall include:
(a)a description of the external auditors' internal quality-control procedures, any material issues
respecting the external auditors raised by the most recent internal quality-control review, peer
review or review body with auditing oversight responsibility over the external auditors, or by any
inquiry or investigation by governmental or professional authorities, within the preceding five
years, respecting one or more independent audits carried out by the external auditors, and any
steps taken to deal with any such issues; and
(b)a report describing: (i) the proposed audit plan and approach, (ii) all critical accounting policies
and practices to be used by the Company; (iii) all alternative treatments of financial information
within generally accepted accounting principles related to material items that have been discussed
with management, ramifications of the use of such altemative disclosures and treatments, and the
treatment preferred by the external auditors; and (iv) other material written communication
between the external auditors and management, such as any management letter or schedule of
unadjusted differences.
meet periodically with the external auditors to discuss their audit plan for the year, progress of
their activities, any significant findings stemming from the external audit, any changes required in
the planned scope of their audit plan, whether there are any disputes or any restrictions or
limitations on the external auditors.
review the experience and qualifications of the audit team and review the performance of the
external auditors, including assessing their effectiveness and quality of service, annually and,
every five (5) years, perform a comprehensive review of the performance of the external auditors
over multiple years to provide further insight on the audit firm, its independence and application
of professional standards.
Appointment and Oversight of Internal Auditors9. review and approve the appointment, terms of engagement, compensation, replacement or
dismissal of the internalauditors. When the internal audit function is performed by employees of
the Company, the Committee may delegate responsibility for approving the employment, terms of
employment, compensation and termination of employees engaged in such function other than the
head of the Company's internal audit function.
l0 meet periodically with the internal auditors to review and approve their audit plan for the year,
and discuss progress of their activities, any significant findings stemming from internal audits,
any changes required in the planned scope oftheir audit plan and whether there are any disputes,
restrictions or limitations on internal audit.
il review summaries of the significant reports to management prepared by the intemal auditors, or
the actual reports if requested by the Committee, and management's responses to such reports.
communicate with, as it deems necessary, the intemal auditors with respect to their reports and
Exhibit No. 456 Case Nos. AVU-E-I7-- and AVU-G-I7--
C.Lopez, Hydro One
Schedule 3, Page 16l of167
12.
recommendations, the extent to which prior recommendations have been implemented and any
other matters that the internal auditor brings to the attention of the Committee. The head of the
internal audit function shall have unrestricted access to the Committee.
13. evaluate, annually or more frequently as it deems necessary, the internal audit function, including
its activities, organizational structure, independence and the qualifications, effectiveness and
adequacy of the function.
Oversight and Review of Accounting Principles and Practices
14. review and discuss with management, the external auditors and the internal auditors (together and
separately as it deems necessary), among other items and matters:
(a) the quality, appropriateness and acceptability of the Company's accounting principles,
practices and policies used in its financial reporting, its consistency from period to
period, changes in the Company's accounting principles or practices and the application
of particular accounting principles and disclosure practices by management to new
transactions or events;
(b) all significant financial reporting issues and judgments made in connection with the
preparation of the financial statements, including the effects of alternative methods within
generally accepted accounting principles on the financial statements and any "second
opinions" sought by management from an external auditor with respect to the accounting
treatment of a particular item;
(c) any material change to the Company's auditing and accounting principles and practices
as recommended by management, the external auditors or the internal auditors or which
may result from proposed changes to applicable generally accepted accounting principles;
(d) the extent to which any changes or improvements in accounting or financial practices, as
approved by the Committee, have been implemented;
(e) any reserves, accruals, provisions or estimates that may have a material effect upon the
financial statements of the Company;
(f) the use of any "pro forma" or "adjusted" information which is not in accordance with
generally accepted accounting principles;
(g) the effect of regulatory and accounting initiatives on the Company's financial statements
and other financial disclosures; and
(h) legal matters, claims and contingencies that could have a significant impact on the
Company's fi nancial statements.
15. review and resolve disagreements between management and the external auditors regarding
financial reporting or the application ofany accounting principles or practices.
Oversight and Monitoring of Internal Controls16. exercise oversight of, review and discuss with management, the external auditors and the internal
auditors (together and separately), as it deems necessary:
(a) the adequacy and effectiveness ofthe Company's internal control over financial reporting
and disclosure controls and procedures designed to ensure compliance with applicable
laws and regulations;
Exhibit No. 4
Case Nos. AVU-E-I7- and AVU-G-I7-
i.Lop".,Hydro One
57
Schedule 3, Page 162 of 167
(b)any significant deficiencies or material weaknesses in intemal control over financial
reporting or disclosure controls and procedures, and the status of any plans for their
remediation;
(c)the adequacy of the Company's internal controls and any related significant findings and
recommendations of the external auditors and internal auditors together with
management's responses thereto; and
(d)management's compliance with the Company's processes, procedures and internal
controls.
Oversight and Monitoring of the Company's Financial Reporting and Disclosures17. review with the external auditors and management and recommend to the Board for approval the
audited annual financial statements and unaudited interim financial statements, and the notes and
Management's Discussion and Analysis accompanying all such financial statements, the
Company's annual report and any other disclosure documents or regulatory filings containing or
accompanying financial information of the Company, prior to the release of any summary of the
financial results or the filing of such reports with applicable regulators.
t8.discuss earnings press releases prior to their distribution, as well as financial information and
earnings guidance prior to public disclosure, it being understood that such discussions may, in the
discretion of the Committee, be done generally (i.e., by discussing the types of information to be
disclosed and the type of presentation to be made) and that the Committee need not discuss in
advance each earnings release or each instance in which the Company gives earning guidance.
l9 review with management the Company's disclosure controls and procedures and material changes
to the design of the Company's disclosure controls and procedures.
receive and review the financial statements and other financial information of material
subsidiaries of the Company and any auditor recommendations concerning such subsidiaries.
21.meet with management to review the adequacy of the process and systems in place for ensuring
the reliability of public disclosure documents that contain audited and unaudited financial
information.
Oversight of Finance Matters22. periodically review matters pertaining to the Company's material policies and practices
respecting cash management and material financing strategies or policies or proposed financing
arrangements and objectives of the Company.
periodically review the Company's major financial risk exposures (including foreign exchange
and interest rate) and management's initiatives to control such exposures, including the use of
financial derivatives and hedging activities.
review and discuss with management all material off-balance sheet transactions, arrangements,
obligations (including contingent obligations), leases and other relationships of the Company with
unconsolidated entities or other persons, that may have a material current or future effect on
financial condition, changes in financial condition, results of operations, liquidiry, capital
resources, capital reserves, or significant components ofrevenues or expenses.
review and discuss with management any equity investments, acquisitions and divestitures that
may have a material current or future effect on financial condition, changes in financial condition,
results of operations, liquidity, capital resources, capital reseryes, or significant components of
Exhibit No. 458 Case Nos. AVU-E-I7-- and AVU-G-17--
C.Lopez, Hydro One
Schedule 3, Page 163 of 167
20.
24
25
26.
27.
28.
revenues or expenses.
review and discuss with management the Company's effective tax rate, adequacy of tax reserves,
tax payments and reporting of any pending tax audits or assessments, and material tax policies
and tax planning initiatives.
review the organizational structure of the finance function and satisff itself as to the
qualifications, effectiveness and adequacy of the function.
review the work plan and progress on implementation of major information technology system
changes and satisfr itself as to the adequacy of the information system infrastructure.
Regulatory Matters29. review the financial impact to the Company of electrical regulatory initiatives.
30. review the financial implications of Company initiatives which may have a material impact on
transmission and distribution rate filing applications.
Code of Business Conduct and Whistleblower Policy31. review and recommend to the Board for approval any changes to the Code of Business Conduct
for employees, officers and directors of the Company.
32 review and approve changes to the whistleblower policy or other procedures for: (a) the receipt,
retention, and treatment of complaints received by the Company regarding accounting, internal
accounting controls, or auditing matters; and (b) the confidential, anonymous submission by
employees of the Company of concerns regarding questionable accounting or auditing matters.
JJ oversee management's monitoring of, compliance with the Company's Code of Business Conduct
and the Whistleblower Policy.
Enterprise Risk Management34. review the Enterprise Risk Management framework for the Company and assess the adequacy
and completeness of the process for identiffing and assessing the key risks facing the Company.
meet with the head of the Enterprise Risk Management function at least semi-annually.
ensure that primary oversight responsibility for each of the key risks identified in the Enterprise
Risk Management framework is assigned to the Board or one of its Committees.
Additional Responsibilities37. review the Company's privacy and data security risk exposures and measures taken to protect the
security and integrity of its management information systems and Company and customer data.
38 review and approve in advance any proposed related-parfy transactions and required disclosures
of such in accordance with applicable securities laws and regulations and consistent with the
Company's related party transaction policy, and report to the Board on any approved transactions.
39 review on an annual basis reports on the expense accounts of the Chief Executive Officer and his
or her direct reports.
undertake on behalf of the Board such other initiatives as may be necessary or desirable to assist
the Board in fulfilling its oversight responsibilities with respect to financial reporling and perform
such other functions as required by law, stock exchange rules or the Company's constating
ss caseNos. Avu-E-r7- ",0 ffl:t:i): '
-. Lop.r. Hydro One
Schedule 3, Page 164 of 167
35.
36.
40.
41.
documents.
review annually the adequacy of this Mandate and ensure that it is disclosed in compliance with
applicable securities laws and stock exchange rules and posted on the Company's website.
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-17-_
C.Lopez, Hydro One
Schedule 3, Page 165 of 167
60
hydro e
Exhibit No. 4
Case Nos. AVU-E-17-_ and AVU-G-17-_
C. Lopez, Hydro One
Schedule 3, Page 166 of 167
61
Exhibit No. 4
Case Nos. AVU-E-I7-_ and AVU-G-17-_
C. Lopez, Hydro One
Schedule 3, Page 167 of 167