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Hydro One announces an increase in third quarter results

Toronto, November 15, 2002 … Hydro One Inc. announced today that third quarter net income increased 9%, or $9 million, to $112 million compared to the same quarter in 2001.

Net income in 2002 continues to be affected by the rate mitigation plan, introduced in 2001, to help offset other energy cost pressures that customers are facing. Net income for the nine months ended September 30, 2002 is $317 million, a decrease of $34 million, or 10%, compared to $351 million for the same period in 2001. The negative impact of the rate mitigation plan on net income was offset this quarter by increased transmission revenue related to higher summer electricity demand.

Hydro One uses funds generated from our operations primarily for paying dividends to the Government of Ontario and for further investment into the electricity system. For the first nine months of the year Hydro One had net cash from operations of $368 million. The company has paid $133 million in dividends to the Province this year to date. For the nine months ended September 30, 2002, Hydro One used $350 million for investing activities, primarily capital expenditures on the transmission and distribution systems.

Revenues for the third quarter increased $364 million to $1,244 million compared to the same period in 2001. For the nine months ended September 30, 2002, revenues reached $3,154 million, an increase of $736 million over the same nine months in 2001. The increase in revenues is partially a result of the higher demand for, and higher price of, electricity consumed this summer. The extreme hot weather conditions experienced throughout July, August and September resulted in heavy use of the transmission and distribution systems. Transmission revenues increased by $37 million to $367 million while third quarter distribution revenues were up $333 million over the same period last year to $873 million this quarter. Hydro One's distribution revenues include recovery for power used by our customers. The company's purchased power costs went up $352 million for the third quarter compared to 2001.

Third quarter operation, maintenance and administration (OM&A) costs declined $4 million to $200 million and increased by $44 million, or 8% to $573 million in the first nine months, compared to the same periods in 2001. Third quarter costs included a one-time provision of $21 million for a staff reduction program that will affect approximately 140 employees.

Recent Developments

• On November 11, 2002, the Province announced an action plan to lower hydro bills. This plan, if passed by the Legislative Assembly of Ontario, will lower and freeze the price consumers pay for electricity and retroactively refund consumers the difference between 4.3 cents per kilowatt hour and the price they have paid for the commodity since May 1, 2002. In addition, the plan calls for a cap on delivery charges.
• On September 17, 2002, Hydro One successfully placed an oversubscribed $500 million debt issue. The issue was comprised of $300 million in 10-year bonds and $200 million in 30-year bonds. The proceeds from this issue will be used to pay down the company's short-term notes.
• New President and Chief Operating Officer Tom Parkinson introduced a new organizational structure addressing the need to streamline management, eliminate bureaucracy and reduce costs. Part of the changes will include the combination of the company's two largest subsidiaries, Hydro One Networks and Hydro One Network Services, effective January 1, 2003. Approximately 140 jobs will be eliminated, mainly from Head Office, as a result of the reorganization.
• Hydro One and Transenergie US, partners on the Lake Erie Link underwater transmission cable project, have completed the initial bidding process for the project. While interest was expressed, no agreements have been reached and therefore the project has been delayed. The project developers will continue to engage in further discussions with potential customers.
• The Province of Ontario is proceeding with the process of seeking a strategic partner(s) to purchase a minority interest in Hydro One.

Hydro One Inc. is a holding company that operates through its subsidiaries in electricity transmission and distribution and telecom businesses.

Management's Discussion and Analysis

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For further information, please contact:

Terry Young,
(416) 345-6072

Investor Relations
(416) 345-6136