Slide 1: Hydro One Limited Initial Public Offering
HYDRO ONE LIMITED INITIAL PUBLIC OFFERING October 9, 2015 A preliminary base PREP prospectus and an amended and restated preliminary base PREP prospectus containing important information relating to the securities described in this presentation has been filed with the securities regulatory authoriti
Slide 2: Disclaimers
DISCLAIMERS GENERAL Prospective investors should rely only on the information contained in the amended and restated preliminary base PREP prospectus dated October 9, 2015 (the “prospectus”). This presentation is qualified in its entirety by reference to, and must be read in conjunction with, the inf
Slide 3: Management Presentation Team
MANAGEMENT PRESENTATION TEAM Mayo Schmidt Michael Vels Gary Schneider President and CEO Chief Financial Officer Vice President, Shared Services CEO, President, Board Member Chief Financial Officer of Maple Leaf Broad experience at Hydro One since Viterra Inc. from January 2000 to Foods from 20
Slide 4: Investment Highlights
INVESTMENT HIGHLIGHTS Significant Scale and Leadership Position in Ontario Consistent and Stable, Rate-Regulated Environment Proven Senior Management Team and Experienced, Independent Board of Directors Stable Regulated Cash Flows and Strong Balance Sheet Robust and Predictable Organic Gro
Slide 5: Value Drivers for a Rate-Regulated Utility
VALUE DRIVERS FOR A RATE-REGULATED UTILITY Constructive relationship with regulator Rate base Deemed capital structure Allowed return on equity Capital expenditures that add to rate base Generation of efficiencies and cost savings 5
Slide 6: Hydro One at a Glance
HYDRO ONE AT A GLANCE Total Assets at June 30, 2015 2% 42% 56% $23.2 billion Transmission Distribution 2014 Net Income Other 28% 72% $747 million (1) See “Disclaimers—Non-GAAP Measures”. 6
Slide 7: Transmission Business
TRANSMISSION BUSINESS One of the largest transmission businesses in North America • Owns and operates 96% of Ontario’s transmission network In 2014, transported 139.8 TWh of electricity supplied by 116 generators and external suppliers No direct exposure to electricity price risk or end custom
Slide 8: Distribution Business
DISTRIBUTION BUSINESS Largest distribution business in Ontario Delivers electricity to ~1.3 million residential and business customers, and 56 LDCs No direct exposure to electricity price risk Distribution rates are cost of service basis to the end of 2017. We anticipate our rates beyond 201
Slide 9: Significant Scale and Leadership Position in Ontario
SIGNIFICANT SCALE AND LEADERSHIP POSITION IN ONTARIO Key Advantages Low cost of borrowing and broad access to debt capital markets • Debt rated in “A” category In-house teams of industry experts • Asset management • Project design • Operations • Engineering • Post-outage recovery • Project manag
Slide 10: Consistent and Stable, Rate-Regulated Environment
CONSISTENT AND STABLE, RATE-REGULATED ENVIRONMENT Stable and sophisticated regulator Transparent and predictable rate setting process • ROE set by a formula linked to long-term government bond yields and corporate bond spreads OEB-approved rates based on recovery of costs plus approved rate of
Slide 11: Proven Senior Management Team and Experienced, Independent Board
PROVEN SENIOR MANAGEMENT TEAM AND EXPERIENCED, INDEPENDENT BOARD Hydro One will operate as an independent, commercially- oriented public company whose leadership has demonstrated capability to drive performance improvements and shareholder returns • Experienced, independent Board of Directors • Pr
Slide 12: Stable Stakeholder Environment
STABLE STAKEHOLDER ENVIRONMENT Employees – new collective agreements with major unions providing labour certainty, alignment of interests with shareholders • “Net-zero” cost settlements • Employee Share Ownership initiative • Important pension reforms reduce future exposure and moves relative shar
Slide 13: Stable Regulated Cash Flows and Strong Balance Sheet
STABLE REGULATED CASH FLOWS AND STRONG BALANCE SHEET End-of-service life infrastructure must be Rate Base Growth upgraded and enhanced ($ millions) Essential rate-regulated infrastructure 20,084 19,249 services generate 99% of revenues 18,359 17,615 Stable, growing rate base underpins growth 1
Slide 14: Robust and Predictable Organic Growth Profile
ROBUST AND PREDICTABLE ORGANIC GROWTH PROFILE Rate base growth represents greatest near term opportunity Estimated average annual capital investments of ~$1.5 billion per year over the next 5 years, with the focus on improving existing assets All capital expenditures are included in rate base
Slide 15: Consistent Record of Strong Profitability and Cash Flow
CONSISTENT RECORD OF STRONG PROFITABILITY AND CASH FLOW Net Income Funds From Operations(1) ($ millions) ($ millions) 803 1,375 745 747 1,307 1,293 2012 A 2013 A 2014 A 2012 A 2013 A 2014 A Strong Cash Flow Supports Self Funding of Sustaining Capex and Dividends (1) See “Disclaimers—Non-GAAP Measure
Slide 16: Hydro One Inc. Pro Forma Net Income
HYDRO ONE INC. PRO FORMA NET INCOME $ millions Brampton Divestiture – $21 Net impact of all transactions relating to the divestiture of Hydro One Brampton Recapitalization – $18 Interest expense on additional $800 million of 2014 Pro Forma 2014A Net Income (1) debt raised at IPO Net Income(1)(2)
Slide 17: Corporate Structure and Capitalization
CORPORATE STRUCTURE AND CAPITALIZATION All existing debt outstanding at Hydro One Inc. No current debt outstanding at Hydro One Limited Preferred shares issued by Hydro One Limited 595 million common shares outstanding Public Company Hydro One Limited 100% 100% 60% debt to rate base Hydro On
Slide 18: Dividends
DIVIDENDS Initial aggregate annualized dividends of approximately $500 million Target payout ratio of 70% – 80% of net income Stable regulated cash flows and net income; strong balance sheet Capital investment in rate base expected to drive growth in dividends 18
Slide 19: Investment Highlights
INVESTMENT HIGHLIGHTS Significant Scale and Leadership Position in Ontario Consistent and Stable, Rate-Regulated Environment Proven Senior Management Team and Experienced, Independent Board of Directors Stable Regulated Cash Flows and Strong Balance Sheet Robust and Predictable Organic Gro
Slide 20: Offering Summary
OFFERING SUMMARY Issuer Hydro One Limited Selling Shareholder The Province of Ontario (the “Province”) 81.1 mm common shares to be sold by the Province (It is anticipated that the base offering will represent 13.63%; assuming full exercise of the 10% over-allotment Offering option the offering will
Slide 21: Public Market Benchmarks – Market Valuation Parameters
PUBLIC MARKET BENCHMARKS – MARKET VALUATION PARAMETERS In accordance with Section 13.7(4) of National Instrument 41-101 – General Prospectus Requirements, all the information relating to the Company’s comparables, and any disclosure relating to the comparables, which is contained in the presentation
Slide 22: Public Benchmarks
PUBLIC BENCHMARKS In accordance with Section 13.7(4) of National Instrument 41-101 – General Prospectus Requirements, all the information relating to the Company’s comparables, and any disclosure relating to the comparables, which is contained in the presentation to be provided to potential investor
Slide 23: Appendix
APPENDIX 23
Slide 24: New and Independent Board of Directors
NEW AND INDEPENDENT BOARD OF DIRECTORS David Denison, O.C., FCPA, FCA Currently a Director of Royal Bank of Canada James Hinds Currently a Corporate Director and the former Board Chair of the (Audit Committee Chair), Bell Canada, Allison Transmission and of Sinai Health Independent Electricity Syste