Exhibit 99.2
**MANAGEMENT’S DISCUSSION AND ANALYSIS**
**2003 HIGHLIGHTS**
***Robert A. Dunford Generating Stationin Ontario Completed***
Commercial operation of the 45 MWRobert A. Dunford Generating Stationlocated on the Michipicoten River nearWawa, Ontario commenced in April 2003.The Dunford Generating Station wascompleted on schedule and on budgetfor $72 million, and replaces theolder 27 MW High Falls station with alarger, more efficient facility withincreased peak power generatingcapability. The completion of thisproject increased the Company’sgenerating capacity in Ontario to 957MW, solidifying our position as a keyparticipant in Ontario’s competitiveenergy markets.
***Pingston Creek Generating Station inBritish Columbia Completed***
Commercial operation of the 30 MWPingston Creek Generating Station insouth-central British Columbia nearRevelstoke commenced in May 2003.This $65 million project was developedin a 50/50 joint venture with CanadianHydro Developers Inc. All of thestation’s power output is being soldto BC Hydro under a 20-year power salecontract. The completion of thisstation adds to the Company’sgenerating capacity in BritishColumbia and further enhances thegeographic diversification of itspower operations.
***Maine Power Interconnection Completed***
The expansion of the powerinterconnection between the Company’sMaine Power system, acquired in 2002,and the New England power grid throughthe construction of a new 115 kilovolt,24 mile long transmission line wascompleted in May 2003. This US$17million project increased the capacityof the interconnection from 20 MW to130 MW and greatly enhances our abilityto transmit Maine Power’s generationoutput into the New England powermarkets.
***New Hampshire Cogeneration Facility Started***
Construction commenced on a US$32million 25 MW natural gas-firedcogeneration station in New Hampshire,expected to commence operation in thefirst six months of 2004. This stationwill provide all the electricity andsteam it produces to the pulp andpaper facilities located inBerlin/Gorham, New Hampshire, whichare owned by Nexfor Inc., an affiliateof the Company’s principalshareholder, under a 10 year tollingagreement.
***$499 Million of Senior andSubordinate Secured Bonds Issued***
In June 2003, Great Lakes completed a$384 million 6.6% senior secured bondissue due June 16, 2023. Thebonds are rated A (low) by DominionBond Rating Service (“DBRS”) and aresecured by the assets of its powergeneration and transmission businessin Great Lakes Power. Backed primarilyby merchant power sales rather thanthe more traditional long-term powersales contracts, the financingreflects the high quality of theCompany’s hydroelectric generating andtransmission assets and the strengthof its operations in northern Ontario.In July, the Company continued thefinancing of these high quality assetsby issuing $115 million 7.8%subordinate bonds. These bonds carrythe same terms as the senior bonds andwere rated BBB by DBRS. The proceedsof the issues have been used to retireapproximately $300 million of maturingdebt and to finance capitalimprovements.
***Cedar Dam Generating Station in Quebec Approved***
During 2003, the Company advanced theconstruction of a new 9 MWhydroelectric generating station onthe Lièvre River to increase annualgeneration by 62 GWh of energy. Finalapproval for this $24 million projectwas received in December 2003 forexpected completion in the summer of2005. The station, to be built ontothe existing dam structure, willoptimize use of existing waterresources. All power produced by thisfacility will be sold to Hydro Québecunder a long-term power purchaseagreement.
***$175 million of First Mortgage Bonds Issued***
In November 2003, Great Lakescompleted a $175 million, 6.9% privateplacement bond issue. The bonds arerated A(low) by DBRS and are securedby the Mississagi Power assets inNorthern Ontario.
***Three Hydroelectric GeneratingStations in Brazil Completed***
Construction of three newhydroelectric generating stations insouthern Brazil was completed in thefourth quarter of 2003: the 30 MWPasso do Meio project in the State ofRio Grande do Sul, and the 15 MWPedrinho and15 MW Salto Natal projects stations inthe State of Paraná.
***Three New Hydroelectric Facilities inNew England Acquired***
In November 2003, the Companypurchased three hydroelectric powerplants located in northeastern UnitedStates for approximately US$28million. The assets include thePontook and Errol plants located onthe Androscoggin River in NewHampshire, and the Brassua plantlocated on the Moose River in Maine.These three power generatingfacilities are interconnected with theNew England power grid and have atotal generating capacity of 16.5 MW,producing approximately 95 gigawatthours (“GWh”) annually.
 

 

This purchase was made through theGreat Lakes Hydro Income Fund, and wasfunded initially through a US$30 million increase in the US$136 millionGreat Lakes Hydro America bridgefinancing facility. All power producedby the Errol and Brassua facilities issold under long-term power purchaseagreements to Public Service of NewHampshire and Central Maine Power,respectively. All power produced bythe Pontook station is sold into theNew England power pool. Theacquisition of these facilities bringsGreat Lakes’ total number ofgenerating stations to 45 and totalinstalled capacity to 1,761 MW.
**OPERATING RESULTS**
**Summary Financial Results**
For the year ended December 31, 2003,Great Lakes reported net operatingincome of $241 million, down from $247million in 2002. The decrease in netoperating income was the result oflower than average generation levelsin the first half of the year andmoderate summer temperatures impactingthe average price realized onuncommited power and the demand forancillary services. Generationreturned to average levels at most ofour hydro facilities with improvedwater conditions in Ontario, Quebecand the northeast United States duringthe last half of 2003. In particular,during the fourth quarter, ourfacilities in Ontario, Quebec and NewEngland all produced above long-termaverage. Electricity generation for2003 increased to 6,279 GWh comparedto 5,584 GWh last year, as theadditional capacity available as aresult of the acquisitions made lastyear offset weaker hydrology.
Power delivered and net operatingincome by geographic area for 2003compared to 2002 are shown below:           **2003** **2002****Power Generated***(gigawatt hours)*        Ontario  **3,069**   2,531 Quebec  **1,461**   1,585 Northeast United States  **710**   558 Other Power Operations  **1,039**   910          Total  **6,279**   5,584          **Net Operating Income***($ millions)*        Ontario **$****143**  $131 Quebec  **46**   70 Northeast United States  **22**   23 Other Power Operations  **30**   23            **$****241**  $247          
**Ontario**
Power generated by the Company’s operations inOntario increased by 21% to 3,069 GWh in 2003 from2,531 GWh in 2002. This reflected the acquisition ofMississagi Power in May 2002, the acquisition of theremaining interest in Lake Superior Power in November2002 and the completion of the Robert A. DunfordStation in May 2003.
Power generated by the Company’s operationsOntario in 2003 compared to 2002 is shown below:         **gigawatt hours** **2003** **2002**Great LakesPower – Generation  **1,542**   1,639 Mississagi Power  **636**   340 Valerie Falls Power  **30**   45 Lake Superior Power*1*  **861**   507             **3,069**   2,531          
 

 

*1. Includes electricity equivalents of contracted gas sales.*
**Quebec**
Power generated by the Company’s operations inQuebec decreased by 8% to 1,461 GWh from1,585 GWh in 2002. The decrease is related to belowaverage inflows during the first part of the year. Powergenerated by the Company’s operations in Quebec in2003 compared to 2002 is shown below:         **gigawatt hours** **2003** **2002**Lièvre River Power  **1,284**   1,399 Pontiac Power  **177**   186             **1,461**   1,585          
**Northeast United States**
Power generated by the Company’s operations in northeastUnited States increased by 27% from 558 GWh in2002 to 710 GWh in 2003, reflecting a full year of generationfor the assets acquired in February and May 2002and the acquisition of the new assets in November 2003.Despite improving water conditions, inflows remainedbelow long-term average at the beginning of the yearand as a result, generation at the New England facilitiesremained below their long-term average.
Power generated by the Company’s operations in northeastUnited States in 2003 and 2002 is shown below:         **gigawatt hours** **2003** **2002**Maine Power  **541**   477 New Hampshire Power  **169**   81             **710**   558          
**Other Power Operations**
Power generated by the Company’s other power operationsin North America increased by 14% to 1,039 GWhfrom 910 GWh in 2002. The increase reflectedimproved water flows on the lower Mississippi Riverwhich increased power generation at LouisianaHydroElectric Power by 5%. Pingston Creek, our newfacility in British Columbia generated 61 GWh since itscompletion in May 2003 and Brascan Energética, ournew facilities in Brazil, generated 42 GWh since theircompletion in the fourth quarter of 2003.
Power delivered by the Company’s other power operationsin 2003 compared to 2002 is shown below:         **gigawatt hours** **2003** **2002**Louisiana HydroElectric Power  **669**   639 Pingston Creek  **61**   — Powell River Energy  **267**   271 Brascan Énergética  **42**   —             **1,039**   910          
 

 

**INCOME ANALYSIS**
Great Lakes’ net income for 2003 decreased to$97 million from $167 million in 2002.
Financial results for the year ended December 31, 2003compared to 2002 are shown in the following table:         **millions** **2003** **2002**Revenue **$****448**  $340          Net operating income        Power generation  **215**   222 Transmission and distribution  **26**   25             **241**   247 Investment income and other  **80**   92 Expenses  **224**   172          Net income **$****97**  $167          
**Revenue**
Total revenue for 2003 was $448 million compared with$340 million in 2002, an increase of 32% due toincreased generation from additional capacity availableduring the year, and power sales to manage the loadsof our affiliates.
Great Lakes strives to maximize the stability andpredictability of power generating revenues throughthe use of fixed price contracts to minimize the impactof price fluctuations, and through diversification ofwatersheds and water storage reservoirs to managefluctuation in generation levels.
Approximately 82% of the Company’s projected 2004revenues are subject to fixed price contracts orregulated revenue requirements. The remainingrevenue is generated through the sale of power on awholesale basis. Due to the low cost of hydroelectricpower and the ability to increase generation duringpeak pricing periods, the Company is able to generateattractive margins on its uncommitted capacity. GreatLakes’ long-term sales contracts have an average durationof 13 years, and its counterparties are almost exclusivelycustomers with long-standing credit history orinvestment grade ratings.
**Net Operating Income**
Net operating income consists of revenues fromCompany’s power operations, net of operating andmaintenance costs, fuel purchases for our cogenerationplant in northern Ontario, power purchases and municipaland other generation taxes on hydroelectric facilities.
During 2003, operating and maintenance costs increasedto $62 million in 2003 compared with $45 million in2002. Operating and maintenance costs consist oflabour, materials and administrative support. The increasein operating and maintenance costs is primarily attributableto the addition of new facilities in 2002 and 2003.
Fuel purchases consist of the costs for natural gasrequired for the Lake Superior Power cogenerationplant. Fuel purchases were $34 million in 2003 comparedto $18 million in 2002. The increase in fuel purchases isdue to the purchase of the remaining 50% interest inLake Superior in December 2002.
Power purchases during the year amounted to $95million compared to $14 million in the prior year. Thedifference is the result of power procured on behalf ofan affiliate of the Company.
Cash taxes related to the Company’s generation totalled$16 million in the year, consistent with the prior year.
**Investment and Other Income**
Investment and other income for 2003 was $80 millioncompared with $92 million in 2002. Investment andother income consists of dividend income from longterminvestments and the Company’s securitiesportfolio, and interest on loans receivable. The decreasein investment and other income is attributed to loweraverage interest rates in Canada and the United States,and the sale of securities and long-term investments.
**Expenses**
Interest in 2003 was $93 million compared to $90million in 2002. Interest expense consists of the costsrelated to servicing property specific borrowings andcorporate term debt. The increase in interest expense isattributable to additional debt incurred fromrefinancing initiatives during the year. These costs werepartially offset by decreasing interest rates during theyear.
Depreciation in 2003 was $55 million compared to $40million in 2002. The increase is attributable to theacquisitions in 2003 and 2002.
 

 

Non-controlling interests increased to $22 million in2003 compared with $18 million in 2002. Non-controllinginterest consists of the allocation of income associatedwith the non-controlling interests in theCompany’s consolidated entities. The increase is relatedto the higher earnings recorded by the Great LakesHydro Income Fund (the “Income Fund”), which is 50%owned by other investors.
Non-cash taxes and other increased to $31 million in2003 compared with $9 million in 2002. The increase innon-cash taxes and others is primarily related to noncashprovisions for federal and provincial income taxes,which increased as a result of a change in tax rates inOntario. These are accounted for under the asset andliability method of accounting.
**BALANCE SHEET ANALYSIS**
The Company’s total assets increased during 2003 from$3,500 million to $3,580 million. Assets and liabilities atDecember 31, 2003 and 2002 are summarized in thefollowing table:         **millions** **2003** **2002**Assets        Cash & cash equivalents **$****31**  $10 Accounts receivable & other  **422**   186 Securities  **544**   590 Long-term investments  **444**   559 Power generating assets  **2,139**   2,155            **$****3,580**  $3,500          Liabilities        Accounts payable & other **$****114**  **$**158 Property specific borrowings  **1,116**   905 Corporate term debentures  **487**   593 Future income taxes  **152**   120 Non-controlling interests  **329**   350 Shareholders’ equity  **1,382**   1,374            **$****3,580**  $3,500          
**Power Generating Assets**
The depreciated cost of the Company’s power generatingassets decreased during 2003 from $2,155 millionto $2,139 million.
Power generating assets in Ontario and Québecdecreased by 1% from $1,366 million in 2002 to $1,346million in 2003.
We increased our presence in the northeast UnitedStates during the year with the construction of a US$17million transmission line and the acquisition of threegenerating stations in Maine and New Hampshire. Thiswas offset by the weakening of the U.S. dollar. Powergenerating assets in the northeast United States regiondecreased by 2% from $304 million at the end of 2002to $296 million at the end of 2003.
Other power operations increased 2% from$485 million in 2002 to $497 million in 2003. Theincrease reflects the completion of the Pingston CreekStation in British Columbia and the Brascan Energéticastations in Brazil.
**Financial Assets**
The Company’s accounts receivable and other assetsincreased to $422 million in 2003 from $186 million in2002. The increase is due to increased funds on deposit,resulting from the sales of securities and long-terminvestments.
The Company’s securities portfolio, which is comprisedprimarily of preferred shares of affiliated Canadiancompanies, decreased from $590 million to$544 million in 2003. The composition of theCompany’s securities portfolio by business sector atDecember 31, 2003 and 2002 is summarized below:         **millions** **2003** **2002**Property **$****151**  $160 Natural resources  **126**   161 Financial services & diversified  **242**   199 Other  **25**   70            **$****544**  $590          
 

 

The book values of the Company’s long-term investmentsand the underlying securities at December 31,2003 and 2002 are shown below:         **millions** **2003** **2002**Brascan Financial Corporation **$****195**  $195 Noranda Inc.  **146**   146 Other investments  **103**   218            **$****444**  $559          
**LIABILITIES**
Accounts payable and other decreased to $114 millionin 2003, compared to $158 million in 2002. GreatLakes’ borrowings includes property specific borrowings,corporate debentures, bank credit facilities andbridge loan facilities provided by Brascan.
At December 31, 2003, the Company’s total debt was$1,603 million, as detailed in the following table:                   ** ** **Interest****millions** **2003** **2002** **Rates**Great Lakes Power Ltd.            First Mortgage Bonds            Series 1 **$****384**  $—   6.60%Series 4  **—**   166   6.57%Series 5  **—**   150   4.58%Subordinated debt  **115**   —   7.80%Great Lakes Power Trust            Secured credit facility  **21**   7  Prime+ MarginFirst Mortgage Bonds            Series 1  **50**   50   7.33%Series 2  **25**   25   7.55%Series 3  **25**   25   7.78%Powell River  **38**   38   6.40%Lake Superior Power  **13**   19   9.41%Pontiac Power  **61**   62   10.52%Valerie Falls  **32**   33   6.84%Mississagi Power  **175**   151   6.92%GLHA bridge facility  **177**   179  US Prime+150bps                **1,116**   905                  Corporate term debentures  **487**   593   7.50%               **$****1,603**  $1,498                  
The maturity schedule of the Company’s propertyspecific borrowings is as follows:     **millions** **Annual Repayments**2004 $235 2005  494 2006  4 2007  2 2008  2 Thereafter  866        $1,603      
**CAPITAL BASE AND FINANCIAL POSITION**
The Company’s capital base at December31, 2003 of $1,382 million wascomprised of common equity with a bookvalue of $1,134 million or $11.19 pershare and a further $248 million ofsubordinated convertible debentures.The convertible debentures matureSeptember 2013 and interest andprincipal may be paid by the Companyin the form of its common shares. Thedebentures are therefore included aspart of the Company’s capital base.
 

 

The composition of the Company’scapital base at December 31, 2003 and2002 is summarized in the followingtable:         **millions** **2003** **2002**Subordinated convertibledebentures **$****248**  $248 Common shares  **1,134**   1,126            **$****1,382**  $1,374          
Regular dividends paid on the Company’s common shares in both 2003 and 2002 amounted to $64.9 million,representing an earnings payout ratioof 67% in 2003 and 39% in 2002.
The Company’s policy is to distributesurplus operating cash flows notrequired for investment in powergenerating facilities to its commonshareholders in the form of regularquarterly and special dividendpayments.
**LIQUIDITY AND CAPITAL RESOURCES**
The Company’s liquidity and capitalrequirements are affected primarily bythe results of operations, capitalexpenditures, debt servicerequirements and working capitalneeds. The net cash provided by orused in operating, financing andinvesting activities for 2003 and 2002was as follows:         **millions** **2003** **2002**Cash provided by (used in):        Operating activities **$****126**  $237 Financing activities  **102**   347 Investing activities  **(207****)**  (584)         
Cash provided by operating activitiesdecreased during 2003 to $126 millioncompared with $237 million in 2002 forthe reasons discussed under “IncomeAnalysis”.
Cash provided by financing activitiesdecreased during 2003 to $102 millioncompared with $347 million in 2002. In2002, new financing was obtained tofund the acquisition of Great LakesHydro America and Mississagi Powersystems. Financing activities in 2003included refinancing of the GreatLakes Power and Mississagi Powersystems in Ontario.
Cash utilized in investing activitiesdecreased in 2003 to $207 million from$584 million in 2002 due to thepurchase of Great Lakes Hydro Americaand Mississagi Power systems in 2002.
**BUSINESS ENVIRONMENT AND RISKS**
Operating income from hydroelectricpower generation fluctuates inrelation to the availability of waterand the ability to generate anddeliver power to markets with thehighest power rates. While changes inthe level of precipitation impact theamount of power generated byindividual operations, the diversifiedlocations of the Company’shydroelectric power stations acrossseveral different watershed areas inCanada and the United States help tobalance the financial impact of thesefluctuations.
Deregulated electricity markets innortheast Canada and the United Stateshave resulted in fluctuations in theprice of power based on supply anddemand dynamics. This volatility inprices is managed through long-termfixed price contracts on approximately82% of the Company’s power production.
Counterparty credit risk is inherentin the Company’s long-term fixed pricecontracts. The Company manages thisrisk by entering into contracts withcounterparties that are either (i)investment grade or (ii) have anestablished credit history.
Regulatory changes may result inuncertain power markets in the shortterm, which could impact the operatingincome from the Company’s powerbusinesses.
Investment income from a substantialportion of the Company’s preferredshareholdings varies generally withthe amount invested, as the rate ofreturn is generally fixed. Income fromother investments is sensitive tointerest rate changes; however, asimilar offsetting sensitivity existswith a portion of the Company’s debt.
 

 

**OPERATING STRATEGY AND OUTLOOK**
Since the beginning of 2002, GreatLakes has increased generatingcapacity through the acquisition of 19existing hydroelectric generatingfacilities in Ontario, Maine and NewHampshire and the completion of twonew hydroelectric generating stationsin Ontario and British Columbia.Together these initiatives increaseour power generation base to over1,700 MW. This expansion positions theCompany to diversify and strengthenoperations in 2004 and beyond.
The Company continues to explorefurther acquisition opportunities inthe North American power generationindustry. Our preference is forlong-life hydroelectric generatingfacilities with water storagereservoirs. We will also consider developing windpower projects or acquiring thermalgenerating stations, with aknowledgeable partner whereappropriate. Our guidelines ofinvestment are as follow: (i) investin areas where we possess a competitive advantage andnever bet the Company on any oneacquisition; (ii) acquire assets on avalue basis; (iii) build sustainablecash flows to provide certainty,reduce risk and lower the cost ofcapital; (iv) recognize that superiorreturn involves hard work and oftenrequires contrarian thinking.
We are measuring our success over thelong-term by total return on capitaland are seeking profitability ratherthan growth because size doesn’tnecessarily add value. We areprepared to sacrifice short-termprofit to achieve long-term growth andencourage taking calculated risk.
The Company has the followingstrategic priorities: (i) increase andstrengthen cash flow from thegeneration business and position theCompany to market power in openaccess, competitive markets; (ii)expand its production base through theacquisition of existing generatingassets (iii) develop greenfield sitesand expand existing transmissionnetwork in Ontario.
**FORWARD-LOOKING STATEMENTS**
The Company’s financial analysis andreview contains “forward-lookingstatements” within the meaning ofSection 27A of the Securities Act of1933, as amended, and Section 21E ofthe Securities Exchange Act of 1934,as amended. The words “believe”,“expect”, “anticipate”, “intend”,“estimate” and other expressions whichare predictions of or indicate futureevents and trends and which do notrelate to historical matters identifyforward-looking statements. Relianceshould not be placed onforward-looking statements becausethey involve known and unknown risks,uncertainties and other factors, whichmay cause the actual results,performance or achievements of theCompany to differ materially fromanticipated future results,performance or achievements expressedor implied by such forward-lookingstatements. Factors that could causeactual results to differ materiallyfrom those set forth in theforward-looking statements includegeneral economic conditions, weatherconditions, interest rates,availability of equity and debtfinancing and other risks. The Companyundertakes no obligation to publiclyupdate or revise any forward-lookingstatement, whether as a result of newinformation, future events orotherwise.