EX-4.5



 Exhibit 4.5 

HYDRO ONE LIMITED 
 MANAGEMENT’S DISCUSSION AND ANALYSIS 

For the three months ended March 31, 2018 and 2017 
 The
following Management’s Discussion and Analysis (MD&A) of the financial condition and results of operations should be read together with the condensed interim unaudited consolidated financial statements and accompanying notes thereto
(Consolidated Financial Statements) of Hydro One Limited (Hydro One or the Company) for the three months ended March 31, 2018, as well as the Company’s audited consolidated financial statements and MD&A for the year ended
December 31, 2017. The Consolidated Financial Statements are presented in Canadian dollars and have been prepared in accordance with United States (US) Generally Accepted Accounting Principles (GAAP). All financial information in this MD&A
is presented in Canadian dollars, unless otherwise indicated. 
 The Company has prepared this MD&A in accordance with National Instrument 51-102 – Continuous Disclosure Obligations of the Canadian Securities Administrators. This MD&A provides information for the three months ended March 31, 2018, based on information available to
management as of May 14, 2018. 
 CONSOLIDATED FINANCIAL HIGHLIGHTS AND STATISTICS 

 

													
	  Three months ended March 31 (millions of dollars, except as otherwise noted) 	  	2018	 	  	2017	 	  	Change	 
	 Revenues
	  	 	1,576	 	  	 	1,658	 	  	 	(4.9%)	 
	 Purchased power
	  	 	751	 	  	 	889	 	  	 	(15.5%)	 
	 Revenues, net of purchased power1
	  	 	825	 	  	 	769	 	  	 	7.3% 	 
	 Operation, maintenance and administration costs
	  	 	270	 	  	 	271	 	  	 	(0.4%)	 
	 Depreciation and amortization
	  	 	197	 	  	 	195	 	  	 	1.0% 	 
	 Financing charges
	  	 	88	 	  	 	103	 	  	 	(14.6%)	 
	 Income tax expense
	  	 	42	 	  	 	27	 	  	 	55.6% 	 
	 Net income attributable to common shareholders of Hydro One
	  	 	222	 	  	 	167	 	  	 	32.9% 	 
				
	 Basic earnings per common share (EPS)
	  	 	$0.37	 	  	 	$0.28	 	  	 	32.1% 	 
	 Diluted EPS
	  	 	$0.37	 	  	 	$0.28	 	  	 	32.1% 	 
	 Basic adjusted non-GAAP EPS (Adjusted EPS)1
	  	 	$0.35	 	  	 	$0.28	 	  	 	25.0% 	 
	 Diluted Adjusted EPS1
	  	 	$0.35	 	  	 	$0.28	 	  	 	25.0% 	 
				
	 Net cash from operating activities
	  	 	376	 	  	 	471	 	  	 	(20.2%)	 
	 Funds from operations (FFO)1
	  	 	414	 	  	 	389	 	  	 	6.4% 	 
				
	 Capital investments
	  	 	305	 	  	 	350	 	  	 	(12.9%)	 
	 Assets placed in-service
	  	 	145	 	  	 	228	 	  	 	(36.4%)	 
				
	 Transmission: Average monthly Ontario 60-minute peak demand (MW) 
	  	 	19,815	 	  	 	19,795	 	  	 	0.1% 	 
	 Distribution:    Electricity distributed to Hydro One customers (GWh) 
	  	 	7,406	 	  	 	6,967	 	  	 	6.3% 	 
	 	 	 	 
	  	  	  	 	  	2018	 	  	2017	 
	 Debt to capitalization ratio2
	  	 	 	 	  	 	52.8%	 	  	 	52.9%	 

  

	1	 See section
“Non-GAAP Measures” for description and reconciliation of basic and diluted Adjusted EPS, FFO and Revenues, net of purchased power. 



 

	2	 Debt to capitalization ratio has been presented at March 31,
2018 and December 31, 2017, and has been calculated as total debt (includes total long-term debt, convertible debentures and short-term borrowings, net of cash and cash equivalents) divided by total debt plus total shareholders’ equity,
including preferred shares but excluding any amounts related to noncontrolling interest. 


 OVERVIEW 

For the three months ended March 31, 2018, Hydro One’s business segments accounted for the Company’s total revenues, net of purchased power, as follows:

  

													
	  	  	Transmission	 	  	Distribution	 	  	Other	 
	 Percentage of Company’s total revenues, net of purchased
power
	  	 	51%	 	  	 	48%	 	  	 	1%	 

 At March 31, 2018, Hydro One’s business segments accounted for the Company’s total assets as follows: 

 

													
	  	  	Transmission	 	  	Distribution	 	  	Other	 
	 Percentage of Company’s total assets
	  	 	53%	 	  	 	36%	 	  	 	11%	 


  

					
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 HYDRO ONE LIMITED 

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) 

For the three months ended March 31, 2018 and 2017 
  

 RESULTS OF OPERATIONS 
 Net
Income 
 Net income attributable to common shareholders for the quarter ended March 31, 2018 of $222 million is an increase of $55 million or 32.9%
from the prior year. Significant influences on net income included: 
  

	 	•	 	 increase in transmission and distribution revenues due to higher energy consumption resulting from colder winter in 2018;



  

	 	•	 	 higher transmission revenues driven by timing of the Ontario Energy Board (OEB)‘s decision on the 2017-2018
transmission rate filing and increased OEB-approved transmission rates for 2018; 


  

	 	•	 	 lower operation, maintenance and administration (OM&A) costs primarily resulting from lower corporate support costs,
which were partially offset by costs relating to Hydro One’s response to the Northeastern storms; and 


  

	 	•	 	 lower financing charges primarily due to revaluation of the deal-contingent foreign exchange forward contract and a
decrease in interest expense on long-term debt, partially offset by interest incurred on the Convertible Debentures issued in August 2017. 


 EPS
and Adjusted EPS 
 EPS was $0.37 in the first quarter of 2018, compared to $0.28 in the first quarter of 2017. The increase in EPS was driven by
higher net income for the first quarter of 2018, as discussed above. Adjusted EPS, which adjusts for income related to Avista Corporation acquisition, was $0.35 in the first quarter of 2018, compared to $0.28 in the first quarter of 2017. The
increase in Adjusted EPS was driven by higher net income for the first quarter of 2018, as discussed above, but exclude the impact of items related to Avista Corporation acquisition. See section “Non-GAAP
Measures” for description of Adjusted EPS. 
 Revenues 
  

													
	  Three months ended March 31 (millions of dollars, except as otherwise noted) 	  	2018	 	  	2017	 	  	Change	 
	 Transmission
	  	 	421	 	  	 	367	 	  	 	14.7% 	 
	 Distribution
	  	 	1,145	 	  	 	1,279	 	  	 	(10.5%)	 
	 Other
	  	 	10	 	  	 	12	 	  	 	(16.7%)	 
	 Total revenues
	  	 	1,576	 	  	 	1,658	 	  	 	(4.9%)	 
				
	 Transmission
	  	 	421	 	  	 	367	 	  	 	14.7% 	 
	 Distribution, net of purchased power
	  	 	394	 	  	 	390	 	  	 	1.0% 	 
	 Other
	  	 	10	 	  	 	12	 	  	 	(16.7%)	 
	 Total revenues, net of purchased power
	  	 	825	 	  	 	769	 	  	 	7.3% 	 
				
	 Transmission: Average monthly Ontario 60-minute peak demand (MW) 
	  	 	19,815	 	  	 	19,795	 	  	 	0.1% 	 
	 Distribution: Electricity distributed to Hydro One customers (GWh) 
	  	 	7,406	 	  	 	6,967	 	  	 	6.3% 	 

 Transmission Revenues 
 Transmission revenues
increased by 14.7% during the quarter ended March 31, 2018 primarily due to the following: 
  

	 	•	 	 higher revenues driven by timing of the OEB’s decision on the 2017-2018 transmission rate filing and increased OEB-approved transmission rates for 2018; 


  

	 	•	 	 higher average monthly Ontario 60-minute peak demand primarily due to colder
winter in 2018; and 


  

	 	•	 	 increased 2018 allowed return on equity (ROE) for the transmission business. 



Distribution Revenues, Net of Purchased Power 
 Distribution revenues, net of
purchased power, increased by 1.0% during the quarter ended March 31, 2018 primarily due to the following: 
  

	 	•	 	 higher energy consumption resulting from colder winter in 2018; partially offset by 



 

	 	•	 	 lower deferred regulatory adjustments. 



OM&A Costs 
  

													
	  Three months ended March 31 (millions of dollars) 	  	2018	 	  	2017	 	  	Change	 
	 Transmission
	  	 	105	 	  	 	102	 	  	 	2.9% 	 
	 Distribution
	  	 	145	 	  	 	145	 	  	 	—% 	 
	 Other
	  	 	20	 	  	 	24	 	  	 	(16.7%)	 
	 	  	 	270	 	  	 	271	 	  	 	(0.4%)	 


  

					
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 HYDRO ONE LIMITED 

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) 

For the three months ended March 31, 2018 and 2017 
  

 Transmission OM&A Costs 

The increase of 2.9% in transmission OM&A costs for the quarter ended March 31, 2018 was primarily due to: 

 

	 	•	 	 higher volume of maintenance work for operation facilities and real estate; and 



 

	 	•	 	 higher rights payments associated with transmission occupations as a result of recent rent reviews.



 Distribution OM&A Costs 
 Distribution OM&A costs
for the quarter ended March 31, 2018 were consistent with prior year. Main factors included the following: 
  

	 	•	 	 lower corporate support costs; 



 

	 	•	 	 lower emergency power and storm restoration costs; 



 

	 	•	 	 lower spend on vegetation management as a result of hiring delays of temporary trade resources; 



 

	 	•	 	 increased costs as a result of Nova Scotia, Baltimore and Boston storm restoration efforts. These restoration efforts had
no impact on the Company’s net income, as related revenues were recorded in distribution revenues during the quarter; and 


  

	 	•	 	 project and inventory write-offs due to revision of asset replacement strategies, alternatives not pursued, and obsolete
inventory and technology. 


 Other OM&A Costs 

The decrease in other OM&A costs for the quarter ended March 31, 2018 was primarily due to lower costs related to strategy development. 

Financing Charges 
 The decrease of $15 million or 14.6% in financing
charges for the quarter ended March 31, 2018 was primarily due to the following: 
  

	 	•	 	 an unrealized gain recorded in the first quarter of 2018 due to revaluation of the deal-contingent foreign exchange
forward contract related to the Avista Corporation merger; and 


  

	 	•	 	 a decrease in interest expense on long-term debt driven by a lower weighted average long-term debt portfolio during the
first quarter of 2018; partially offset by 


  

	 	•	 	 an increase in interest expense related to the Convertible Debentures issued in August 2017. 



Income Tax Expense 
 Income tax expense for the quarter ended
March 31, 2018 increased by $15 million compared to the first quarter in 2017, and the Company realized an effective tax rate of approximately 15.6% in the quarter, compared to approximately 13.5% realized in the same period last year. The
higher tax expense and the effective tax rate are attributable to higher income before taxes in the first quarter of 2018. 
 Common Share Dividends 

In 2018, the Company declared and paid cash dividends to common shareholders as follows: 
  

													
	  Date Declared	  	Record Date	  	Payment Date	  	Amount per Share	 	  	 Total Amount

(millions of dollars)
	 
	 February 12, 2018
	  	March 13, 2018	  	March 29, 2018	  	 	$0.22	 	  	 	131	 

 Following the conclusion of the first quarter of 2018, the Company declared a cash dividend to common shareholders reflecting an
increase of 5% as follows: 
  

													
	  Date Declared	  	Record Date	  	Payment Date	  	Amount per Share	 	  	 Total Amount

(millions of dollars)
	 
	 May 14, 2018
	  	June 12, 2018	  	June 29, 2018	  	 	$0.23	 	  	 	137	 


  

					
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 HYDRO ONE LIMITED 

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) 

For the three months ended March 31, 2018 and 2017 
  

 QUARTERLY RESULTS OF OPERATIONS 
  

																																	
	  Quarter ended (millions of dollars, except EPS) 	 	Mar 31, 2018	 	 	Dec 31, 2017	 	 	Sep 30, 2017	 	 	Jun 30, 2017	 	 	Mar 31, 2017	 	 	Dec 31, 2016	 	 	Sep 30, 2016	 	 	Jun 30, 2016	 
	 Revenues
	 	 	1,576	 	 	 	1,439	 	 	 	1,522	 	 	 	1,371	 	 	 	1,658	 	 	 	1,614	 	 	 	1,706	 	 	 	1,546	 
	 Purchased power
	 	 	751	 	 	 	662	 	 	 	675	 	 	 	649	 	 	 	889	 	 	 	858	 	 	 	870	 	 	 	803	 
	 Revenues, net of purchased power
	 	 	825	 	 	 	777	 	 	 	847	 	 	 	722	 	 	 	769	 	 	 	756	 	 	 	836	 	 	 	743	 
	 Net income to common shareholders
	 	 	222	 	 	 	155	 	 	 	219	 	 	 	117	 	 	 	167	 	 	 	128	 	 	 	233	 	 	 	152	 
									
	 Basic EPS
	 	 	$0.37	 	 	 	$0.26	 	 	 	$0.37	 	 	 	$0.20	 	 	 	$0.28	 	 	 	$0.22	 	 	 	$0.39	 	 	 	$0.26	 
	 Diluted EPS
	 	 	$0.37	 	 	 	$0.26	 	 	 	$0.37	 	 	 	$0.20	 	 	 	$0.28	 	 	 	$0.21	 	 	 	$0.39	 	 	 	$0.25	 
	 Basic Adjusted EPS1
	 	 	$0.35	 	 	 	$0.29	 	 	 	$0.40	 	 	 	$0.20	 	 	 	$0.28	 	 	 	$0.22	 	 	 	$0.39	 	 	 	$0.26	 
	 Diluted Adjusted
EPS1
	 	 	$0.35	 	 	 	$0.28	 	 	 	$0.40	 	 	 	$0.20	 	 	 	$0.28	 	 	 	$0.21	 	 	 	$0.39	 	 	 	$0.25	 


	1 	 See section “Non-GAAP Measures” for
description of Adjusted EPS. 


 Variations in revenues and net income over the quarters are primarily due to the impact of
seasonal weather conditions on customer demand and market pricing. 
 CAPITAL INVESTMENTS 

The Company makes capital investments to maintain the safety, reliability and integrity of its transmission and distribution system assets and to provide
for the ongoing growth and modernization required to meet the expanding and evolving needs of its customers and the electricity market. This is achieved through a combination of sustaining capital investments, which are required to support the
continued operation of Hydro One’s existing assets, and development capital investments, which involve both additions to existing assets and large scale projects such as new transmission lines and transmission stations. 

Assets Placed In-Service 

The following table presents Hydro One’s assets placed in-service during the three months ended
March 31, 2018 and 2017: 
  

													
	  Three months ended March 31 (millions of dollars) 	  	2018	 	  	2017	 	  	Change	 
	 Transmission
	  	 	38	 	  	 	82	 	  	 	(53.7%)	 
	 Distribution
	  	 	105	 	  	 	146	 	  	 	(28.1%)	 
	 Other
	  	 	2	 	  	 	—	 	  	 	100.0%	 
	 Total assets placed
in-service
	  	 	145	 	  	 	228	 	  	 	(36.4%)	 

 Transmission Assets Placed In-Service 

Transmission assets placed in-service decreased by $44 million or 53.7% during the first quarter of 2018
primarily due to the following: 
  

	 	•	 	 timing of assets placed in-service for the station sustainment investments,
primarily at the Richview, Nepean, Bruce A and Birch transmission stations; and the Hinchinbrooke switching station; 


  

	 	•	 	 a major local area supply project, 115kV switchyard upgrade at Manby transmission station, that was placed in-service in the first quarter of 2017; and 


  

	 	•	 	 lower volume of spare transformer purchases; partially offset by 



 

	 	•	 	 cumulative investments that were placed in-service for the Source-to-Order Transformation project, which aims to modernize the Company’s sourcing and procurement capabilities. 



Distribution Assets Placed In-Service 

Distribution assets placed in-service decreased by $41 million or 28.1% during the first quarter of 2018
primarily due to the following: 
  

	 	•	 	 the completion of an operation center in Bolton in February 2017; 



 

	 	•	 	 higher volume of lines large sustainment carryover work in the first quarter of 2017; 



 

	 	•	 	 lower volume of distribution station refurbishments and spare transformer purchases; and 



 

	 	•	 	 lower volume of emergency power and storm restorations work; partially offset by 



 

	 	•	 	 increased assets placed in-service for the Advanced Distribution System project;
and 


  

	 	•	 	 cumulative investments that were placed in-service for the Source-to-Order Transformation project, which aims to modernize the Company’s sourcing and procurement capabilities. 



  

					
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 HYDRO ONE LIMITED 

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) 

For the three months ended March 31, 2018 and 2017 
  

 Capital Investments 
 The
following table presents Hydro One’s capital investments during the three months ended March 31, 2018 and 2017: 
  

													
	  Three months ended March 31 (millions of dollars) 	  	2018	 	  	2017	 	  	Change	 
	 Transmission
	  				  				  			
	 Sustaining
	  	 	155	 	  	 	162	 	  	 	(4.3%)	 
	 Development
	  	 	23	 	  	 	37	 	  	 	(37.8%)	 
	 Other
	  	 	12	 	  	 	10	 	  	 	20.0% 	 
	 	  	 	190	 	  	 	209	 	  	 	(9.1%)	 
	 Distribution
	  				  				  			
	 Sustaining
	  	 	59	 	  	 	72	 	  	 	(18.1%)	 
	 Development
	  	 	46	 	  	 	47	 	  	 	(2.1%)	 
	 Other
	  	 	9	 	  	 	19	 	  	 	(52.6%)	 
	 	  	 	114	 	  	 	138	 	  	 	(17.4%)	 
	 Other
	  	 	1	 	  	 	3	 	  	 	(66.7%)	 
	 Total capital investments
	  	 	305	 	  	 	350	 	  	 	(12.9%)	 

 Transmission Capital Investments 
 Transmission
capital investments decreased by $19 million or 9.1% during the first quarter of 2018. Principal impacts on the levels of capital investments included: 
  

	 	•	 	 timing of project activities on major development projects; 



 

	 	•	 	 lower volume of transmission station refurbishments and replacements work; and 



 

	 	•	 	 lower volume of wood pole replacements; partially offset by 



 

	 	•	 	 higher volume of overhead lines refurbishments and replacements; and 



 

	 	•	 	 timing of work on load customer connections. 



Distribution Capital Investments 
 Distribution capital investments decreased by
$24 million or 17.4% during the first quarter of 2018. Principal impacts on the levels of capital investments included: 
  

	 	•	 	 lower volume of lines and station refurbishments and replacements work; and 



 

	 	•	 	 lower volume of emergency power and storm restorations work. 



  

					
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 HYDRO ONE LIMITED 

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) 

For the three months ended March 31, 2018 and 2017 
  

 Major Transmission Capital Investment Projects 

The following table summarizes the status of significant transmission projects as at March 31, 2018: 

 

											
	  Project Name	  	Location	  	Type	  	Anticipated
In-Service Date	  	 Estimated

Cost
	  	 Capital Cost

To Date

	 Development Projects:
	  		  		  		  		  	
						
	 Supply to Essex County
Transmission Reinforcement
	  	 Windsor-Essex area Southwestern Ontario
	  	 New transmission line and station
	  	2018	  	$57 million	  	$53 million
						
	 Clarington Transmission Station
	  	 Oshawa area
Southwestern Ontario
	  	 New transmission station
	  	2018	  	$252 million	  	$228 million
						
	 East-West Tie Station Expansion
	  	Northern Ontario	  	New transmission connection
and station expansion	  	2021	  	$157 million	  	$9 million
						
	 Northwest Bulk Transmission Line
	  	 Thunder Bay-Atikokan Northwestern Ontario
	  	 New transmission line
	  	2024	  	$350 million	  	$1 million
						
	 Niagara Reinforcement Project
	  	 Niagara area
Southwestern Ontario
	  	 New transmission line
	  	2019	  	$119 million	  	$102 million
	 Sustainment Projects:
	  		  		  		  		  	
						
	 Bruce A Transmission Station
	  	 Tiverton
Southwestern Ontario
	  	 Station sustainment
	  	2020	  	$109 million1	  	$109 million
						
	 Richview Transmission Station
Circuit Breaker Replacement
	  	 Toronto
Southwestern Ontario
	  	 Station sustainment
	  	2019	  	$103 million	  	$88 million
						
	 Beck #2 Transmission Station
Circuit Breaker Replacement
	  	 Niagara area
Southwestern Ontario
	  	 Station sustainment
	  	2022	  	$93 million	  	$54 million
						
	 Lennox Transmission Station
Circuit Breaker
Replacement
	  	 Napanee
Southeastern Ontario
	  	 Station sustainment
	  	2023	  	$95 million	  	$48 million


	1 	 The estimated cost to complete the Bruce A Transmission Station project is currently under
review. 


 SUMMARY OF SOURCES AND USES OF CASH 

Hydro One’s primary sources of cash flows are funds generated from operations, capital market debt issuances and bank credit facilities that are
used to satisfy Hydro One’s capital resource requirements, including the Company’s capital expenditures, servicing and repayment of debt, and dividend payments. 
  

									
	  Three months ended March 31 (millions of dollars) 	  	2018	 	 	2017	 
	 Cash provided by operating activities
	  	 	376	 	 	 	471	 
	 Cash used in financing activities
	  	 	(76	) 	 	 	(148	) 
	 Cash used in investing activities
	  	 	(297	) 	 	 	(350	) 
	 Increase (decrease) in cash and cash equivalents
	  	 	3	 	 	 	(27	) 

 Cash provided by operating activities 

Cash from Operating Activities for the first quarter of 2018 decreased by $95 million compared to the first quarter of 2017, primarily due to lower
payables to the Independent Electricity System Operator (IESO) for energy purchases which decreased as a result of milder weather in March 2018, as well as lower commodity rates. 

Cash provided by financing activities 
 Sources of cash 

 

	 	•	 	 The Company received proceeds of $1,172 million from the issuance of short-term notes in the first quarter of 2018,
compared to $572 million received in the prior year. 


 Uses of cash 

 

	 	•	 	 Dividends paid in the first quarter of 2018 were $136 million, consisting of $131 million common share
dividends and $5 million of preferred share dividends, compared to dividends of $130 million paid in the prior year, consisting of $125 million common share dividends and $5 million of preferred share dividends.



  

	 	•	 	 The Company repaid $1,109 million of short-term notes in the first quarter of 2018, compared to $590 million
repaid in the prior year. 



  

					
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 HYDRO ONE LIMITED 

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) 

For the three months ended March 31, 2018 and 2017 
  

 Cash used in investing activities 

Uses of cash 
  

	 	•	 	 Capital expenditures were $49 million lower in the first quarter of 2018, primarily due to lower volume and timing
of capital investment work. 


 LIQUIDITY AND FINANCING STRATEGY 

Short-term liquidity is provided through funds from operations, Hydro One Inc.’s commercial paper program, and the Company’s consolidated bank
credit facilities. Under the commercial paper program, Hydro One Inc. is authorized to issue up to $1.5 billion in short-term notes with a term to maturity of up to 365 days. At March 31, 2018, Hydro One Inc. had $989 million in
commercial paper borrowings outstanding, compared to $926 million outstanding at December 31, 2017. In addition, the Company has revolving bank credit facilities totalling $2,550 million maturing in 2021 and 2022. The Company may use
the credit facilities for working capital and general corporate purposes. The short-term liquidity under the commercial paper program, the credit facilities and anticipated levels of funds from operations are expected to be sufficient to fund the
Company’s normal operating requirements. 
 At March 31, 2018, the Company’s long-term debt in the principal amount of
$10,069 million included $9,923 million of long-term debt, the majority of which was issued under Hydro One Inc.’s Medium Term Note (MTN) Program, and long-term debt in the principal amount of $146 million held by Hydro One Sault
Ste. Marie LP (HOSSM). At March 31, 2018, the maximum authorized principal amount of notes issuable under the current MTN Program prospectus filed in March 2018 was $4.0 billion, with the entire amount remaining available for issuance
until April 2020. The long-term debt consists of notes and debentures that mature between 2018 and 2064, and at March 31, 2018, had an average term to maturity of approximately 15.5 years and a weighted average coupon rate of 4.2%. 

Hydro One’s universal short form shelf prospectus (Universal Base Shelf Prospectus) filed in March 2016, which allowed the Company to offer, from
time to time in one or more public offerings, up to $8.0 billion of debt, equity or other securities, or any combination thereof, expired on April 30, 2018. The Company plans to file a new Universal Base Shelf Prospectus in the second
quarter of 2018. 
 To mitigate the foreign currency risk related to the portion of the Avista Corporation acquisition purchase price financed by the
issuance of Convertible Debentures, in October 2017, the Company entered into a deal-contingent foreign exchange forward contract to convert $1.4 billion Canadian to US dollars. For the three months ended March 31, 2018, a fair value gain
of $27 million was recorded related to this contract, compared to a fair value loss of $3 million recorded for the year ended December 31, 2017. At March 31, 2018, the corresponding derivative asset was $24 million, compared
to a derivative liability of $3 million at December 31, 2017. 
 At March 31, 2018, the Company was in compliance with all financial
covenants and limitations associated with the outstanding borrowings and credit facilities. 
 OTHER OBLIGATIONS 

Off-Balance Sheet Arrangements 

There are no off-balance sheet arrangements that have, or are reasonably likely to have, a material current or
future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. 

  

					
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 HYDRO ONE LIMITED 

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) 

For the three months ended March 31, 2018 and 2017 
  

 Summary of Contractual Obligations and Other Commercial Commitments 

The following table presents a summary of Hydro One’s debt and other major contractual obligations and commercial commitments: 

 

																					
	  March 31, 2018 (millions of dollars) 	  	Total	 	  	Less than
1 year	 	  	1-3 years	 	  	3-5 years	 	  	More than
5 years	 
	 Contractual obligations (due by year) 
	  				  				  				  				  			
	 Long-term debt – principal repayments
	  	 	10,069	 	  	 	981	 	  	 	1,656	 	  	 	606	 	  	 	6,826	 
	 Long-term debt – interest payments
	  	 	7,629	 	  	 	427	 	  	 	785	 	  	 	711	 	  	 	5,706	 
	 Convertible debentures - principal
repayments1
	  	 	513	 	  	 	—	 	  	 	—	 	  	 	—	 	  	 	513	 
	 Convertible debentures - interest payments
	  	 	586	 	  	 	62	 	  	 	123	 	  	 	123	 	  	 	278	 
	 Short-term notes payable
	  	 	989	 	  	 	989	 	  	 	—	 	  	 	—	 	  	 	—	 
	 Pension contributions2
	  	 	130	 	  	 	71	 	  	 	59	 	  	 	—	 	  	 	—	 
	 Environmental and asset retirement obligations
	  	 	211	 	  	 	30	 	  	 	61	 	  	 	57	 	  	 	63	 
	 Outsourcing agreements
	  	 	351	 	  	 	145	 	  	 	196	 	  	 	5	 	  	 	5	 
	 Operating lease commitments
	  	 	36	 	  	 	12	 	  	 	16	 	  	 	5	 	  	 	3	 
	 Long-term software/meter agreement
	  	 	52	 	  	 	17	 	  	 	30	 	  	 	2	 	  	 	3	 
	 Total contractual obligations
	  	 	20,566	 	  	 	2,734	 	  	 	2,926	 	  	 	1,509	 	  	 	13,397	 
						
	 Other commercial commitments (by year of expiry) 
	  				  				  				  				  			
	 Credit facilities
	  	 	2,550	 	  	 	—	 	  	 	—	 	  	 	2,550	 	  	 	—	 
	 Letters of credit3
	  	 	173	 	  	 	173	 	  	 	—	 	  	 	—	 	  	 	—	 
	
Guarantees4
	  	 	325	 	  	 	325	 	  	 	—	 	  	 	—	 	  	 	—	 
	 Total other commercial commitments
	  	 	3,048	 	  	 	498	 	  	 	—	 	  	 	2,550	 	  	 	—	 

  

	1	 The Company expects that the
Convertible Debentures will be converted to common shares upon closing of the Avista Corporation acquisition. 


  

	2	 Contributions to the Hydro One
Pension Fund are generally made one month in arrears. The 2018 and 2019 minimum pension contributions are based on an actuarial valuation as at December 31, 2016 and projected levels of pensionable earnings. 



 

	3	 Letters of credit consist of a
$154 million letter of credit related to retirement compensation arrangements, a $12 million letter of credit provided to the IESO for prudential support, $6 million in letters of credit to satisfy debt service reserve requirements,
and $1 million in letters of credit for various operating purposes. 


  

	4	 Guarantees consist of prudential
support provided to the IESO by Hydro One Inc. on behalf of its subsidiaries. 


 REGULATION 

The OEB approves both the revenue requirements of and the rates charged by Hydro One’s regulated transmission and distribution businesses. The rates
are designed to permit the Company’s transmission and distribution businesses to recover the allowed costs and to earn a formula-based annual rate of return on its deemed 40% equity level invested in the regulated businesses. This is done by
applying a specified equity risk premium to forecasted interest rates on long-term bonds. In addition, the OEB approves rate riders to allow for the recovery or disposition of specific regulatory deferral and variance accounts over specified time
frames. 
 The following table summarizes the status of Hydro One’s major regulatory proceedings: 

 

							
	  Application	  	Years	  	Type	  	Status
	 Electricity Rates
	  		  		  	
	 Hydro One Networks
	  	2017-2018	  	Transmission – Cost-of-service	  	OEB decision received1
	 Hydro One Networks
	  	2018-2022	  	Distribution – Custom	  	OEB decision pending
	 B2M LP
	  	2015-2019	  	Transmission – Cost-of-service	  	OEB decision received
	 HOSSM
	  	2017-2018	  	Transmission – Revenue Cap	  	OEB decision received
	  
   Mergers
Acquisitions Amalgamations and Divestitures (MAAD)

	 Orillia Power Distribution Corporation
	  	n/a	  	Acquisition	  	 OEB decision received
 - approval denied2

	  
 Leave to Construct
	  		  		  	
	 East-West Tie Station Expansion
	  	n/a	  	Section 92	  	OEB decision pending
	 Lake Superior Link Project
	  	n/a	  	Section 92	  	OEB decision pending

  

	1 	 In October 2017, the Company filed a Motion to Review and Vary the OEB’s decision and filed an appeal with the
Divisional Court of Ontario. 



	2	 In May 2018, Hydro One and Orillia Power Distribution Corporation
both filed a Motion to Review and Vary the OEB’s decision. 



  

					
		 	8	 	



      










 HYDRO ONE LIMITED 

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) 

For the three months ended March 31, 2018 and 2017 
  

 The following table summarizes the key elements and status of Hydro One’s electricity rate
applications: 
  

													
	  Application	  	Year	 	  	 ROE
 Allowed
(A)
 or Forecast (F)
	  	 Rate Base

Allowed (A)
 or Forecast (F)
	  	Rate Application Status	  	Rate Order Status
	  
 Transmission
	  				  		  		  		  	
	 Hydro One Networks
	  	 	2018	 	  	9.00% (A)	  	$11,148 million (A)	  	Approved in September 2017	  	Approved in December 2017
	  
 B2M LP
	  	 	2018	 	  	9.00% (A)	  	$502 million (A)	  	Approved in December 2015	  	Filed in December 2017
	 	  	 	2019	 	  	9.00% (F)	  	$496 million (A)	  	Approved in December 2015	  	To be filed in 2018 Q4
	  

HOSSM
	  	 	2018	 	  	9.19% (A)	  	$218 million (A)	  	Approved in September 2017	  	n/a
	  
 Distribution
	  				  		  		  		  	
	 Hydro One Networks
	  	 	2018	 	  	9.00% (A)	  	$7,666 million (F)	  	Filed in March 20171	  	To be filed in 2018 Q4
		  	 	2019	 	  	9.00% (F)	  	$8,027 million (F)	  	Filed in March 20171	  	To be filed in 2018 Q4
		  	 	2020	 	  	9.00% (F)	  	$8,430 million (F)	  	Filed in March 20171	  	To be filed in 2019 Q4
		  	 	2021	 	  	9.00% (F)	  	$8,960 million (F)	  	Filed in March 20171	  	To be filed in 2020 Q4
	 	  	 	2022	 	  	9.00% (F)	  	$9,327 million (F)	  	Filed in March 20171	  	To be filed in 2021 Q4

  

	1	 On June 7 and December 21, 2017, Hydro One Networks filed
updates to the application reflecting recent financial results and other adjustments. 


 Electricity Rates Applications 

Hydro One Networks - Transmission 
 On September 28, 2017,
the OEB issued its Decision and Order on Hydro One Networks’ 2017 and 2018 transmission rates revenue requirements (Decision), with 2017 rates effective January 1, 2017. Key changes to the application as filed included reductions in
planned capital expenditures of $126 million and $122 million for 2017 and 2018, respectively, in OM&A expenses related to compensation by $15 million for each year, and in estimated tax savings from the IPO by $24 million
and $26 million for 2017 and 2018, respectively. On October 10, 2017, Hydro One Networks filed a Draft Rate Order reflecting the changes outlined in the Decision. 

In its Decision, the OEB concluded that the net deferred tax asset resulting from transition from the payments in lieu of tax regime under the
Electricity Act (Ontario) to tax payments under the federal and provincial tax regime should not accrue entirely to Hydro One’s shareholders and that a portion should be shared with ratepayers. On November 9, 2017, the OEB issued a
Decision and Order that calculated the portion of the tax savings that should be shared with ratepayers. The OEB’s calculation would result in an impairment of Hydro One Networks’ transmission deferred income tax regulatory asset of up to
approximately $515 million. If the OEB were to apply the same calculation for sharing in Hydro One Networks’ 2018-2022 distribution rates, for which a decision is currently outstanding, it would result in an additional impairment of up to
approximately $370 million related to Hydro One Networks’ distribution deferred income tax regulatory asset. 
 In October 2017, the Company
filed a Motion to Review and Vary (Motion) the Decision and filed an appeal with the Divisional Court of Ontario (Appeal). In both cases, the Company’s position is that the OEB made errors of fact and law in its determination of allocation of
the tax savings between the shareholders and ratepayers. The Appeal is being held in abeyance pending the outcome of the Motion. If the Decision is upheld, based on the facts known at this time, the exposure from the potential impairments would be a
one-time decrease in net income of up to approximately $885 million, resulting in an annual decrease to FFO in the range of $50 million to $60 million. Based on the assumptions that the OEB
applies established rate making principles in a manner consistent with its past practice and does not exercise its discretion to take other policy considerations into account, management is of the view that it is likely that the Company’s
Motion will be granted and the aforementioned tax savings will be allocated to the benefit of Hydro One shareholders. An OEB hearing of the merits of the Motion was held on February 12, 2018. 

In October 2017, the intervenor Anwaatin Inc. also filed a Motion to Review and Vary the OEB Decision (Anwaatin Motion) alleging that the OEB breached its
duty of procedural fairness, failed to respond to certain evidence, and failed to provide reasons on the capital budget as it related to reliability issues impacting Anwaatin Inc.’s constituents. The Anwaatin Motion was heard by the OEB on
February 13, 2018. 
 On November 23, 2017, the OEB approved the 2017 rates revenue requirement of $1,438 million. On December 20,
2017, the OEB approved the 2018 rates revenue requirement of $1,511 million, which included a $25 million increase from the approved amount, as a result of the OEB-updated cost of capital parameters.
Uniform Transmission Rates (UTRs), reflecting these approved amounts, were approved by the OEB on February 1, 2018 to be effective as of January 1, 2018. 

In March 2017, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU)
2017-07, which limits capitalization of post-employment benefit related costs to the service cost component. Hydro One filed an application requesting the OEB to approve a deferral account, to record the
amounts no longer permitted for capitalization under the new standard, effective January 1, 2018. In May 2018, the OEB approved the deferral account. 

  

					
		 	9	 	



      










 HYDRO ONE LIMITED 

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) 

For the three months ended March 31, 2018 and 2017 
  

 On March 16, 2018, the OEB issued a letter requesting Hydro One to file the transmission revenue
requirement application for a four-year test period from 2019 to 2022, rather than the minimum 5-year period allowed under existing OEB policy. The OEB indicated that it is more appropriate to consider rates
for Hydro One’s distribution and transmission businesses in a single application, and stated that it expected Hydro One to file a single application for distribution rates (including Hydro One Remote Communities Inc.) and transmission revenue
requirement for the period from 2023 to 2027. 
 Hydro One plans to file an application with the OEB for 2019-2022 transmission rates in mid-2018. 
 Hydro One Networks - Distribution 

On March 9, 2018, the OEB issued a procedural order stating that the oral hearing related to Hydro One Networks’ application for 2018-2022
distribution rates will commence on June 4, 2018. 
 B2M LP 

On May 10, 2018, the OEB issued its Decision and Rate Order on B2M LP’s 2018 transmission application reflecting revenue requirement of
$36 million, effective January 1, 2018. 
 Hydro One Remote Communities Inc. 

On March 19, 2018, the OEB approved the settlement agreement related to the 2018 rates application reached by Hydro One Remote Communities Inc. and
the intervenors in the rate proceeding. On March 26, 2018, a draft rate order was filed with the OEB for 2018 rates. The OEB approved the draft rate order on April 12, 2018, and the new rates were implemented effective May 1, 2018.

 MAAD Application 
 Orillia Power MAAD Application 

On April 12, 2018, the OEB issued a decision denying Hydro One’s proposed acquisition of Orillia Power Distribution Corporation from the City of
Orillia, Ontario. On May 2, 2018, Hydro One and Orillia Power Distribution Corporation both filed a Motion to Review and Vary the OEB’s decision. 
 Other
Applications 
 Lake Superior Link Project 
 On
February 15, 2018, Hydro One filed a Leave to Construct application with the OEB to construct the east-west tie line in northwestern Ontario (Lake Superior Link Project), which will compete with an application filed by NextBridge Infrastructure
to construct this line. 
 OTHER DEVELOPMENTS 
 Collective Agreements

 On March 1, 2018, Hydro One insourced its customer service operations, which had been previously outsourced to Inergi LP and Vertex Customer
Management (Canada) Limited since 2002. The insourcing was facilitated through labour agreements reached with the Power Workers’ Union (PWU) and The Society of Energy Professionals (now known as the Society of United Professionals) in 2017.

 The current collective agreement with the PWU expired on March 31, 2018. On March 26, 2018, Hydro One and the PWU reached a tentative
agreement that is now subject to ratification by the PWU. 
 US GAAP - Exemptive Relief 

On March 27, 2018, Hydro One was granted exemptive relief by securities regulators in each province and territory of Canada which allows Hydro One to
continue to report its financial results in accordance with US GAAP (Exemptive Relief). The Exemptive Relief will remain in effect until the earlier of: (i) January 1, 2024; (ii) the first day of Hydro One’s financial year that
commences after Hydro One ceases to have activities subject to rate regulation; and (iii) the effective date prescribed by the International Accounting Standards Board for the mandatory application of a standard within International Financial
Reporting Standards specific to entities with activities subject to rate regulation. 

  

					
		 	10	 	



      










 HYDRO ONE LIMITED 

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) 

For the three months ended March 31, 2018 and 2017 
  

 Avista Corporation Merger 

In July 2017, Hydro One reached an agreement to acquire Avista Corporation (Merger). The following table summarizes the status of the Merger approval
process: 
  

			
	  Approval Required	  	Status
	 Alaska1
	  	Settlement agreement filed on April 3, 20185
	 Washington1
	  	Settlement agreement filed on March 27, 20184
	 Idaho1
	  	Settlement agreement filed on April 13, 20188
	 Oregon1
	  	Evidentiary hearing scheduled for June 21, 201810
	 Montana1
	  	Evidentiary hearing scheduled for May 17, 2018
	 Federal Communications Commission
	  	Consent received on May 4, 20189
	 Committee on Foreign Investment in the United States
	  	Filed for clearance on April 10, 20187
	 Hart-Scott-Rodino Antitrust
	  	Clearance received on April 5, 20186
	 Federal Energy Regulatory Commission
	  	Approval received on January 16, 20183
	 Avista shareholders
	  	Approval received on November 21, 20172

  

	1	 On September 14, 2017, Hydro One and Avista Corporation
filed applications with the state utility commissions in Alaska, Washington, Idaho, Oregon, and Montana, requesting regulatory approval of the Merger on or before August 14, 2018. 



	2	 On November 21, 2017, the Merger was approved by the
shareholders of Avista Corporation. 



	3	 On January 16, 2018, the Federal Energy Regulatory
Commission approved the Merger application. 



	4	 On March 27, 2018, an
all-parties, all-issues settlement agreement was filed with the Washington Utilities and Transportation Commission. 



	5	 On April 3, 2018, an
all-parties, all-issues settlement agreement was filed with the Regulatory Commission of Alaska. 



	6	 On April 5, 2018, the
30-day waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, for the Merger expired. This expiration of the waiting period means that the parties have received
antitrust clearance for the Merger and satisfies one of the closing conditions of the transaction. 



	7	 On April 10, 2018, Hydro One and Avista Corporation filed
for clearance of the Merger with the Committee on Foreign Investment in the United States (CFIUS). Hydro One and Avista Corporation had previously pre-filed with the CFIUS on February 9, 2018.




	8	 On April 13, 2018, an
all-parties, all-issues settlement agreement was filed with the Idaho Public Utilities Commission. 



	9	 On May 4, 2018, consent for the transfer of control of the
wireless licences held by Avista Corporation and one of its subsidiaries to Hydro One as a result of the Merger was received from the Federal Communications Commission. 



	10	 On May 8, 2018, a settlement in principle with all parties
in the Oregon proceeding was reached. The parties intend to file the full settlement agreement with the Oregon Public Utility Commission for review. 



Applications for regulatory approval of the Merger are pending with utility commissions in Alaska, Washington, Idaho, Oregon, and Montana. The settlement
agreements remain subject to approval by the respective commissions. Also required is clearance by the Committee on Foreign Investment in the United States and the satisfaction of customary closing conditions. Hydro One anticipates closing the
Merger in the second half of 2018. 
 Litigation 
 Class Action Lawsuit

 Hydro One Inc., Hydro One Networks, Hydro One Remote Communities Inc., and Norfolk Power Distribution Inc. are defendants in a class action suit
in which the representative plaintiff is seeking up to $125 million in damages related to allegations of improper billing practices. The plaintiff’s motion for certification was dismissed by the court on November 28, 2017, but the
plaintiff has appealed the court’s decision. The appeal is scheduled to be heard on October 16, 2018, and it is possible that no decision will be rendered by the appeal court until the first quarter of 2019. At this time, an estimate of a
possible loss related to this claim cannot be made. 
 Litigation Relating to the Merger 

To date, four putative class action lawsuits were filed by purported Avista Corporation shareholders in relation to the Merger. First, Fink v. Morris,
et al., was filed in Washington state court and the amended complaint names as defendants Avista Corporation’s directors, Hydro One, Olympus Holding Corp., Olympus Corp., and Bank of America Merrill Lynch. The suit alleges that Avista
Corporation’s directors breached their fiduciary duties in relation to the Merger, aided and abetted by Hydro One, Olympus Holding Corp., Olympus Corp. and Bank of America Merrill Lynch. The Washington state court issued an order staying the
litigation until after the plaintiffs file an amended complaint, which must be no later than 30 days after Avista Corporation or Hydro One publicly announces that the Merger has closed. Second, Jenß v. Avista Corp., et al., Samuel v. Avista
Corp., et al., and Sharpenter v. Avista Corp., et al., were each filed in the US District Court for the Eastern District of Washington and named as defendants Avista Corporation and its directors; Sharpenter also named Hydro One, Olympus
Holding Corp., and Olympus Corp. The lawsuits alleged that the preliminary proxy statement omitted material facts necessary to make the statements therein not false or misleading. Jenß, Samuel, and Sharpenter were all voluntarily
dismissed by the respective plaintiffs with no consideration paid by any of the defendants. The one remaining class action is consistent with expectations for US merger transactions and, while there is no certainty as to outcome, Hydro One believes
that the lawsuit is not material to Hydro One. 

  

					
		 	11	 	



      










 HYDRO ONE LIMITED 

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) 

For the three months ended March 31, 2018 and 2017 
  

 Appointment of Chief Financial Officer 

On January 28, 2018, Mr. Paul Dobson was appointed to the position of Chief Financial Officer of Hydro One, effective March 1, 2018.
Mr. Dobson was most recently the Chief Financial Officer at Direct Energy Ltd. in Houston, Texas. 
 NON-GAAP MEASURES

 FFO 
 FFO is defined as net cash from operating
activities, adjusted for (i) changes in non-cash balances related to operations, (ii) dividends paid on preferred shares, and (iii) distributions to noncontrolling interest. Management believes
that FFO is helpful as a supplemental measure of the Company’s operating cash flows as it excludes timing-related fluctuations in non-cash operating working capital and cash flows not attributable to
common shareholders. As such, FFO provides a consistent measure of the cash generating performance of the Company’s assets. 
  

									
	  Three months ended March 31 (millions of dollars) 	  	2018	 	 	2017	 
	 Net cash from operating activities
	  	 	376	 	 	 	471	 
	 Changes in non-cash balances related to operations
	  	 	46	 	 	 	(77	) 
	 Preferred share dividends
	  	 	(5	) 	 	 	(5	) 
	 Distributions to noncontrolling interest
	  	 	(3	) 	 	 	—	 
	 FFO
	  	 	414	 	 	 	389	 

 Adjusted Net Income and Adjusted EPS 

The following basic and diluted Adjusted EPS has been calculated by management on a supplementary basis which excludes income related to the Avista
Corporation acquisition from net income. Adjusted EPS is used internally by management to assess the Company’s performance and is considered useful because it excludes the impact of acquisition-related costs and provides users with a
comparative basis to evaluate the current ongoing operations of the Company compared to prior year. 
  

									
	  Three months ended March 31	  	2018	 	 	2017	 
	 Net income attributable to common shareholders (millions of dollars)

	  	 	222	 	 	 	167	 
	 Income related to acquisition of Avista Corporation (millions of dollars) 
	  	 	(12	) 	 	 	—	 
	 Adjusted net income attributable to common shareholders (millions of
dollars) 
	  	 	210	 	 	 	167	 
			
	 Weighted average number of shares
	  				 			
	 Basic
	  	 	595,386,711	 	 	 	595,000,000	 
	 Effect of dilutive stock-based compensation plans
	  	 	2,322,393	 	 	 	2,257,005	 
	 Diluted
	  	 	597,709,104	 	 	 	597,257,005	 
			
	 Adjusted EPS
	  				 			
	 Basic
	  	 	$0.35	 	 	 	$0.28	 
	 Diluted
	  	 	$0.35	 	 	 	$0.28	 

 Revenues, Net of Purchased Power 

Revenues, net of purchased power is defined as revenues less purchased power. Management believes that revenue, net of purchased power is helpful as a
measure of net revenues for the Distribution segment, as purchased power is fully recovered through revenues. 
  

									
	  Three months ended March 31 (millions of dollars) 	  	2018	 	  	2017	 
	 Revenues
	  	 	1,576	 	  	 	1,658	 
	 Less: Purchased power
	  	 	751	 	  	 	889	 
	 Revenues, net of purchased power
	  	 	825	 	  	 	769	 
			
	  Three months ended March 31 (millions of dollars) 	  	2018	 	  	2017	 
	 Distribution revenues
	  	 	1,145	 	  	 	1,279	 
	 Less: Purchased power
	  	 	751	 	  	 	889	 
	 Distribution revenues, net of purchased power
	  	 	394	 	  	 	390	 

 FFO, basic and diluted Adjusted EPS, Adjusted Net Income, and Revenues, Net of Purchased Power are not recognized measures
under US GAAP and do not have a standardized meaning prescribed by US GAAP. They are therefore unlikely to be directly comparable to similar measures presented by other companies. They should not be considered in isolation nor as a
substitute for analysis of the Company’s financial information reported under US GAAP. 

  

					
		 	12	 	



      










 HYDRO ONE LIMITED 

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) 

For the three months ended March 31, 2018 and 2017 
  

 RELATED PARTY TRANSACTIONS 

The Province is a shareholder of Hydro One with approximately 47.4% ownership at March 31, 2018. The IESO, Ontario Power Generation Inc. (OPG),
Ontario Electricity Financial Corporation (OEFC), and the OEB, are related parties to Hydro One because they are controlled or significantly influenced by the Province. The following is a summary of the Company’s related party transactions
during the three months ended March 31, 2018 and 2017: 
  

											
	  Three months ended March 31 (millions of dollars) 	  	 	  	 	 	  	 	 
	Related Party	  	Transaction	  	2018	 	  	2017	 
	 Province
	  	Dividends paid	  	 	67	 	  	 	92	 
	 IESO
	  	Power purchased	  	 	513	 	  	 	651	 
		  	Revenues for transmission services	  	 	405	 	  	 	369	 
		  	Amounts related to electricity rebates	  	 	137	 	  	 	77	 
		  	Distribution revenues related to rural rate protection	  	 	57	 	  	 	61	 
		  	Distribution revenues related to the supply of electricity to remote northern communities	  	 	8	 	  	 	8	 
	 	  	Funding received related to Conservation and Demand Management programs	  	 	12	 	  	 	16	 
	 OPG
	  	Power purchased	  	 	4	 	  	 	4	 
	 	  	Revenues related to provision of construction and equipment maintenance services	  	 	2	 	  	 	—	 
	 OEFC
	  	Power purchased from power contracts administered by the OEFC	  	 	1	 	  	 	1	 
	 OEB
	  	OEB fees	  	 	2	 	  	 	2	 

 DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING 

Management is responsible for establishing and maintaining adequate disclosure controls and procedures and internal control over financial reporting as
defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings. Internal control, no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives and due to its inherent limitations, may not prevent or detect all misrepresentations. 
 Paul Dobson
assumed the role of Chief Financial Officer on March 1, 2018. However, there were no changes in the Company’s internal control over financial reporting in the first quarter of 2018 that materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial reporting. 
 NEW ACCOUNTING PRONOUNCEMENTS 

The following tables present ASUs and Accounting Standards Codification (ASC) guidance issued by the FASB that are applicable to Hydro One: 

Recently Adopted Accounting Guidance 
  

									
	  ASU	  	Date issued	  	Description	  	Effective date	  	Impact on Hydro One
	 ASC

Topic 606
	  	May 2014 –
November
2017	  	ASC Topic 606 Revenue from Contracts with Customers replaced ASC Topic 605 Revenue Recognition. ASC Topic 606 provides guidance on revenue recognition relating
to the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.	  	January 1, 2018	  	Hydro One adopted ASC 606 on January 1, 2018 using the retrospective method, without the election of any practical expedients. The Company has included the disclosure requirements of
ASC 606 for interim periods in the year of adoption.
	 ASU

2017-07
	  	March
2017	  	Service cost components of net benefit cost associated with defined benefit plans are required to be reported in the same line as other compensation costs arising from services rendered by
the Company’s employees. All other components of net benefit cost are to be presented in the income statement separately from the service cost component. Only the service cost component is eligible for capitalization where applicable.	  	January 1, 2018	  	Hydro One applied for a regulatory deferral account to maintain the capitalization of post-employment benefit related costs and as such, there is no material impact upon adoption.


  

					
		 	13	 	



      










 HYDRO ONE LIMITED 

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) 

For the three months ended March 31, 2018 and 2017 
  

 Recently Issued Accounting Guidance Not Yet Adopted 

 

											
	  ASU	  	Date issued	  	Description	  	Effective date	 	  	Anticipated impact on Hydro One
	
2016-02

2018-01
	  	February 2016 – January 2018	  	Lessees are required to recognize the rights and obligations resulting from operating leases as assets (right to use the underlying asset for the term of
the lease) and liabilities (obligation to make future lease payments) on the balance sheet. ASU 2018-01 permits an entity to elect an optional practical expedient to not evaluate under ASC Topic 842 land
easements that exist or expired before the entity’s adoption of ASC Topic 842 and that were not previously accounted for as leases under ASC Topic 840.	  	 	January 1, 2019	 	  	An initial assessment is currently underway encompassing a review of existing leases, which will be followed by a review of relevant contracts. No
quantitative determination has been made at this time. The Company is on track for implementation of this standard by the effective date.

 FORWARD-LOOKING STATEMENTS AND INFORMATION 

The Company’s oral and written public communications, including this document, often contain forward-looking statements that are based on current
expectations, estimates, forecasts and projections about the Company’s business and the industry, regulatory and economic environments in which it operates, and include beliefs and assumptions made by the management of the Company. Such
statements include, but are not limited to, statements regarding: the Company’s transmission and distribution rate applications, including resulting decisions, rates and expected impacts and timing; the Company’s liquidity and capital
resources and operational requirements; the standby credit facilities; expectations regarding the Company’s financing activities; the Company’s maturing debt; ongoing and planned projects, including expected results and completion dates;
expected future capital investments, including expected timing and investment plans; contractual obligations and other commercial commitments; the OEB; the Motion and the Appeal; the Anwaatin Motion; the Lake Superior Link Project and related
regulatory application; collective agreements; the pension plan, future pension contributions, valuations and expected impacts; impacts of OEB treatment of post-employment benefit costs; dividends; non-GAAP
measures; internal control over financial reporting; recent accounting-related guidance; a new Universal Base Shelf Prospectus; the Convertible Debentures; the Exemptive Relief; the Company’s acquisitions and mergers, including Orillia Power
and Avista Corporation; the Company’s financing strategy and foreign currency hedging relating to the acquisition of Avista Corporation; and class action litigation, including litigation relating to the Merger. Words such as “expect”,
“anticipate”, “intend”, “attempt”, “may”, “plan”, “will”, “believe”, “seek”, “estimate”, “goal”, “aim”, “target”, and variations
of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve assumptions and risks and uncertainties that are difficult to predict. Therefore,
actual outcomes and results may differ materially from what is expressed, implied or forecasted in such forward-looking statements. Hydro One does not intend, and it disclaims any obligation, to update any forward-looking statements, except as
required by law. 
 These forward-looking statements are based on a variety of factors and assumptions including, but not limited to, the following: no
unforeseen changes in the legislative and operating framework for Ontario’s electricity market; favourable decisions from the OEB and other regulatory bodies concerning outstanding and future rate and other applications; no unexpected delays in
obtaining the required approvals; no unforeseen changes in rate orders or rate setting methodologies for the Company’s distribution and transmission businesses; continued use of US GAAP; a stable regulatory environment; no unfavourable
changes in environmental regulation; and no significant event occurring outside the ordinary course of business. These assumptions are based on information currently available to the Company, including information obtained from third party sources.
Actual results may differ materially from those predicted by such forward-looking statements. While Hydro One does not know what impact any of these differences may have, the Company’s business, results of operations, financial condition and
credit stability may be materially adversely affected. Factors that could cause actual results or outcomes to differ materially from the results expressed or implied by forward-looking statements include, among other things: 

 

	•	 	 risks associated with the Province’s share ownership of Hydro One and other relationships with the Province,
including potential conflicts of interest that may arise between Hydro One, the Province and related parties; 


  

	•	 	 regulatory risks and risks relating to Hydro One’s revenues, including risks relating to rate orders, actual
performance against forecasts and capital expenditures; 


  

	•	 	 the risk that the Company may be unable to comply with regulatory and legislative requirements or that the Company may
incur additional costs for compliance that are not recoverable through rates; 


  

	•	 	 risks relating to the Merger, including (i) the risk that Hydro One may fail to complete the Merger,
(ii) uncertainty regarding the length of time required to complete the Merger, (iii) the risk that the purchase price for Avista Corporation could increase, and (iv) the risk that the anticipated benefits of the Merger may not
materialize or may not occur within the time periods contemplated by Hydro One; 


  

	•	 	 the risk of exposure of the Company’s facilities to the effects of severe weather conditions, natural disasters or
other unexpected occurrences for which the Company is uninsured or for which the Company could be subject to claims for damage; 


  

	•	 	 public opposition to and delays or denials of the requisite approvals and accommodations for the Company’s planned
projects; 



  

					
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 HYDRO ONE LIMITED 

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) 

For the three months ended March 31, 2018 and 2017 
  


	•	 	 the risk that Hydro One may incur significant costs associated with transferring assets located on reserves (as defined
in the Indian Act (Canada)); 


  

	•	 	 the risks associated with information system security and maintaining a complex information technology system
infrastructure; 


  

	•	 	 the risks related to the Company’s work force demographic and its potential inability to attract and retain
qualified personnel; 


  

	•	 	 the risk of labour disputes and inability to negotiate appropriate collective agreements on acceptable terms consistent
with the Company’s rate decisions; 


  

	•	 	 risk that the Company is not able to arrange sufficient cost-effective financing to repay maturing debt and to fund
capital expenditures; 


  

	•	 	 risks related to the financing of the Merger; 



 

	•	 	 risks associated with fluctuations in interest rates and failure to manage exposure to credit risk;



  

	•	 	 the risk that the Company may not be able to execute plans for capital projects necessary to maintain the performance of
the Company’s assets or to carry out projects in a timely manner; 


  

	•	 	 the risk of non-compliance with environmental regulations or failure to mitigate
significant health and safety risks and inability to recover environmental expenditures in rate applications; 


  

	•	 	 the risk that assumptions that form the basis of the Company’s recorded environmental liabilities and related
regulatory assets may change; 


  

	•	 	 the risk of not being able to recover the Company’s pension expenditures in future rates and uncertainty regarding
the future regulatory treatment of pension, other post-employment benefits and post-retirement benefits costs; 


  

	•	 	 the potential that Hydro One may incur significant expenses to replace functions currently outsourced if agreements are
terminated or expire before a new service provider is selected; 


  

	•	 	 the risks associated with economic uncertainty and financial market volatility; 



 

	•	 	 the inability to prepare financial statements using US GAAP; and 



 

	•	 	 the impact of the ownership by the Province of lands underlying the Company’s transmission system.



 Hydro One cautions the reader that the above list of factors is not exhaustive. Some of these and other factors are discussed in
more detail in the section “Risk Management and Risk Factors” in the 2017 MD&A. 
 In addition, Hydro One cautions the reader that
information provided in this MD&A regarding the Company’s outlook on certain matters, including potential future investments, is provided in order to give context to the nature of some of the Company’s future plans and may not be
appropriate for other purposes. 
 Additional information about Hydro One, including the Company’s Annual Information Form, is available on SEDAR
at www.sedar.com and the Company’s website at www.HydroOne.com/Investors. 

  

					
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