Slide 1: Hydro One Investor Presentation September 2004
HYDRO ONE Investor Presentation September 2004 0
Slide 2: Forward Looking Statements
Forward Looking Statements This presentation may contain forward-looking statements, including statements regarding the business and anticipated financial performance of Hydro One Inc. Although Hydro One believes that such statements are based on reasonable assumptions, such statements are subject t
Slide 3: Outline
Outline • Strategic direction • Financial results and outlook • Financing requirements & plan • Question & answer 2
Slide 4: Strategic Direction
Strategic Direction • Safety • Customer service Focus on • Reliability Core Business: Transmission & • Financial Distribution • Employees 3
Slide 5: Strategic Direction: Significant events
Strategic Direction Significant events: • August 2003 blackout • Ontario Energy Board Amendment Act - Bill 4 • OEB related 4
Slide 6: August 2003 blackout
Strategic Direction August 2003 blackout • Raised focus on transmission • Confirmed excellence of our system operations and staff • No material investment expected 5
Slide 7: OEB Amendment Act - Bill 4
Strategic Direction OEB Amendment Act - Bill 4 Implications of Bill 210 Implications of Bill 4 Dx 2003 increase of 2.8% deferred LDCs allowed full commercial return (conditional on reinvestment in demand management initiatives) Market ready asset impairment / recovery of LDCs allowed to recoup a por
Slide 8: OEB Related
Strategic Direction OEB Related: • Distribution rationalization • Demand side management - pilot projects • Approval to track deferred pension costs 7
Slide 9: OEB Related: smart meters and regulatory assets
Strategic Direction OEB Related: • MOE directive for implementation of smart meters – 800k meters by end of 2007, balance by end of 2010 – Anticipate recovery of Capex and operating costs • Prudence review for recovery of $160M of regulatory assets • Generic hearing for Dx rates in 2006 8
Slide 10: Transmission Development
Strategic Direction Transmission Development • Key drivers – New / diverse supply and retirements – Reliability – System efficiency • 10-year transmission plan 9
Slide 11: Development Requirements
Strategic Direction Development Requirements • Grid reinforcement and upgrade • Up to $4B over next decade – Parkway TS / Downtown underground cables for GTA – Medium-term - Niagara congestion relief – Generation dependent - 3rd supply to Toronto – Multi-jurisdictional - Manitoba / Hydro Quebec • Re
Slide 12: 2003 Financial Results
2003 Financial Results Net Income 400 • Net Income increased 15% to $396M 300 $ millions – Key contributors: sale of OHE, cost savings 200 from admin functions, lower payments in 100 lieu of taxes 0 1999 2000 2001 2002 2003 • Key ratios supporting credit quality – FFO interest coverage increase to 4
Slide 13: 2004 Second Quarter Results
2004 Second Quarter Results Six-months ended June 30 ($M) 2004 2003 Change Revenues 2,072 2,100 -1% Purchased power 995 1,000 -1% Operating costs 634 592 +7% Net income 190 224 -15% Net cash from operation 484 516 -6% 12
Slide 14: Financial Results and Outlook: Capital expenditures
Financial Results and Outlook Capital expenditures 671 700 566 570 597 Tx reinforcement & development 600 529 446 500 $ millions 400 Core 300 Capex 200 100 0 1999 2000 2001 2002 2003 2004 Tx Dx Other Tx Upgrades 13
Slide 15: Financing Requirements & Plan: Long-term Debt Maturities
Financing Requirements & Plan Long-term Debt Maturities (as at August 31, 2004) 698 700 600 600 539 500 500 illions 500 400 400 385 400 355 315 $m 300 250 250 200 100 0 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2030 2031 2032 2033 2034 2043 14
Slide 16: Financing Requirements & Plan
Financing Requirements & Plan • MTN main financing platform – Opportunistic financing • CP program to bridge requirements • Average term target 10-15 years 15
Slide 17: Financing Requirements & Plan: Term Selection
Financing Requirements & Plan Term Selection Investor Maturity Preference Profile Term Selection Process Target Cost Average Term Considerations 16
Slide 18: In Summary
In Summary • Focus on safety • Focus on expanding transmission system to maintain reliability and accommodate new supply • Address key risks going forward – Government directives – OEB related • Maintain financial profile and credit quality allowing for continuous access to the debt capital markets