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Hydro One announces first quarter net income

Toronto, May 7, 2004 - Hydro One Inc. today released its first quarter results with net income of $125 million and revenues of $1,106 million for the three months ended March 31, 2004.

Net income decreased by $14 million, or 10%, compared to the first three months of 2003, primarily related to the impact of higher investments to upgrade, maintain and reinforce the high-voltage transmission network and low-voltage distribution system. Higher depreciation charges related to increased transmission and distribution investments were incurred as well as higher overall expenditures on work programs to sustain our electricity system. These included higher expenditures associated with our distribution forestry program and the funding requirements associated with our pension plan.

"Construction is well under way to complete our Parkway transformer station north of Toronto, which will enable us to safely and reliably supply the growing requirements of the Greater Toronto Area and York region" said Tom Parkinson, President and Chief Executive Officer of Hydro One. "Parkway is an example of the significant investment in system upgrades and expansion required to meet Ontario's electricity delivery needs in the future."

For the three months ended March 31, 2004, total revenue decreased by $41 million, or 4%, compared to last year, primarily due to lower distribution revenues from lower prices for purchased power and lower transmission revenues reflecting milder winter temperatures compared to last winter. Net cash from operations was $274 million for the first three months of 2004. During the first quarter, the company paid $80 million in dividends to the Ontario government and invested $147 million in capital expenditures, primarily in the transmission and distribution systems.

Recent Developments

• On April 22, 2004, Standard & Poor's Rating Service Inc. raised Hydro One's long-term corporate credit rating to "A" from "A-" and, at the same time, the CreditWatch with developing implications was removed. The outlook on the rating is stable.
• On April 5, 2004, the US-Canada Power System Outage Task Force established to identify the causes of the August 14, 2003 blackout released its final report. The report issued by the Task Force showed that the roots of the blackout were elsewhere. We were a key participant in the investigation and fully support the Task Force's recommendations. We currently employ many of the key recommendations and practices highlighted in the report and continue to make substantial investments to maintain and upgrade the electricity system to ensure continued reliability. In addition, we already adhere to rules and standards that are among the most rigorous in North America.
• Beth Summers was appointed Chief Financial Officer of Hydro One Inc., effective March 25, 2004.
  

CONSOLIDATED FINANCIAL HIGHLIGHTS AND STATISTICS

Hydro One Inc. is a holding company that operates through its subsidiaries in electricity transmission and distribution and telecom businesses. One of its subsidiaries, Hydro One Networks Inc., operates one of the largest transmission and distribution systems in North America. Hydro One Inc. is wholly owned by the Ontario government.

Management's Discussion and Analysis

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For further information, please contact:
Peter Gregg,
Vice President, Corporate Communications
416-345-6072