Archives

Hydro One Announces Second Quarter 2002 Financial Results

TORONTO, August 8, 2002 - Hydro One Inc. today released it second quarter results, which show net income of $99 million for the second quarter and $205 million for the six months ended June 30, 2002.

"Our second quarter performance is in line with expectations," said Ken Hartwick, Chief Financial Officer. "Hydro One's financial ratios and fundamentals continue to be sound, which positions us well to deliver stable returns. We will remain focused on strengthening our core transmission and distribution business."

Compared to the same period in 2001, net income decreased by $15 million, or 13%, in the second quarter and by $43 million, or 17%, in the first six months. A key reason for this decrease is continued improvements that allow work to be released and performed early in the year as opposed to previous years. This change compared to the historical work patterns will level related expenditures throughout the year, but results in an increase in second quarter expenditures compared to 2001.

In addition net income continued to be affected by Hydro One's three-year customer rate mitigation plan introduced to help customers offset other energy cost pressures. This plan will continue to impact net income in fiscal 2002 and 2003. These impacts on 2002 second quarter net income were partially offset by an increase in the volume of electricity the company distributed compared to the same period last year.

Operation, maintenance and administration costs increased by $39 million, or 25%, to $193 million in the second quarter and by $48 million, or 15% to $373 million in the first six months, compared to the same periods in 2001. The increase is due to the levelling out of work programs and maintenance related to an unusually high level of storm activity. In addition, Hydro One's costs are higher because it is serving a larger territory and customer base as result of integrating the 89 local utilities it purchased.

Overall, total revenue increased $166 million to $888 million for the second quarter, an increase of 23% over 2001. Distribution revenues accounted for the largest share of the increase, rising $152 million over the same period last year, reflecting increased sales and the recent rate increases. The higher volume of sales was primarily a result of the higher customer base associated with Hydro One's acquisition of 89 local utilities. Transmission revenues increased by $14 million.

Net cash generated from operations for the six-month period was $187 million compared with $460 million in the same period last year, primarily reflecting lower operating cash flow and increased cash requirements to fund working capital. Short-term liquidity is expected to be sufficient to fund normal operating requirements.

During the second quarter:

• Hydro One concluded an agreement on April 30, 2002 to sell all of Ontario Hydro Energy's electricity, natural gas and water heater customer contracts and rental agreements to Union Energy Inc., thereby recording a gain of $2 million. As a result of this transaction, Hydro One has eliminated its exposure to the inherent commodity price and volume risks associated with the retail energy sales business.
• Hydro One successfully made the transition to a competitive electricity market place on May 1, 2002, and the company's operations are continuing to respond effectively. Hydro One has now processed the new unbundled bills to distribution customers including residential, farm and commercial customers and to complex interval billing customers including, local distribution companies and direct commercial customers.
• Effective June 4, the Province of Ontario, Hydro One's sole shareholder, announced the interim appointment of 11 individuals to the company's Board of Directors. It is expected that a permanent board of directors will be appointed no later than August 15, 2002.
• On June 12, 2002 the Ontario Energy Board approved the company's January 19, 2001 application for distribution rates and gave final approval for the distribution revenue requirements for setting retail rates for the periods beginning: October 1, 2001; March 1, 2002 and March 1, 2003.

Subsequent to quarter end, on July 5, 2002 the Province of Ontario announced it would begin a process to seek a strategic partner or partners for a minority interest in Hydro One. On July 19, 2002, Tom Parkinson was appointed as President and Chief Operating Officer.

Management's Discussion and Analysis

For further information, please contact:

Terry Young
(416) 345-6072