40-F

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 40-F

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒ ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2021 Commission File Number 001-36115

Hydro One Inc.

(Exact name of Registrant as specified in its charter)

Ontario, Canada	4911	Not Applicable
(Province or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

483 Bay Street

South Tower, 8th Floor

Toronto, Ontario M5G 2P5

Canada

(416) 345-5000

(Address and telephone number of Registrant’s principal executive offices)

CT Corporation System

28 Liberty St., New York, NY 10005

(212) 894-8940

(Name, address, (including zip code) and telephone number (including area code)

of agent for service in the United States)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

4.59% Medium-Term Notes due 2043

Title of each class: Medium Term Notes

Name of each exchange on which registered: New York Stock Exchange LLC

Trading Symbol: HYDO43

Securities registered or to be registered pursuant to Section 12(g) of the Act: Not applicable

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

Not applicable

Information filed with this Form:

☒ Annual Information Form ☒ Audited annual financial statements

Number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2021:

142,239	Common Shares outstanding
0 (Nil)	Series A Preferred Shares
0 (Nil)	Series B Preferred Shares

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

☒ Yes ☐ No

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.

Emerging growth company ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure controls and procedures are defined in Rule 13a-15(e) under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), to mean controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the United States Securities and Exchange Commission’s (the “Commission”) rules and forms.

At the direction of Hydro One Inc.’s (the “Registrant”) Chief Executive Officer and Chief Financial Officer, management evaluated disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, management concluded that the Registrant’s disclosure controls and procedures were effective as at December 31, 2021.

See the disclosure provided under the heading “Disclosure Controls and Procedures and Internal Control over Financial Reporting” on page 29 of Exhibit 99.3, the Registrant’s Management’s Discussion and Analysis (the “MD&A”) which is incorporated by reference herein.

Management’s Annual Report on Internal Control over Financial Reporting and Attestation Report of the Registered Public Accounting Firm

Management is responsible for establishing and maintaining adequate disclosure controls and procedures and internal control over financial reporting as described in the MD&A. Management evaluated the effectiveness of the design and operation of internal control over financial reporting based on the framework and criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, management concluded that the Registrant's internal control over financial reporting was effective as of December 31, 2021.

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. Furthermore, the effectiveness of internal control is affected by change and subject to the risk that internal control effectiveness may change over time.

This annual report does not include an attestation report of the Registrant’s registered public accounting firm regarding internal control over financial reporting.

The report of management on our internal control over financial reporting is provided under the heading “Management’s Report” in the Registrant’s audited consolidated financial statements, which is filed as Exhibit 99.2 and is incorporated by reference herein.

Changes in Internal Control Over Financial Reporting

There were no significant changes in the design of the Registrant’s internal control over financial reporting during the year ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, the operation of the Registrant’s internal control over financial reporting.

IDENTIFICATION OF THE AUDIT COMMITTEE

The Registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act (the “Audit Committee”). The Audit Committee comprises Russel Robertson (Chair), Blair Cowper-Smith, Jessica McDonald, Stacey Mowbray, and Melissa Sonberg. The board of directors of the Registrant has determined that each member of the Audit Committee is “independent” as defined in the Exchange Act and the New York Stock Exchange’s listing standards applicable to the Registrant. Each of the Audit Committee members has an understanding of the accounting principles used to prepare the Registrant’s financial statements and varied experience as to the general application of such accounting principles, as well as an understanding of the internal controls and procedures necessary for financial reporting.

AUDIT COMMITTEE FINANCIAL EXPERT

The board of directors of the Registrant has determined that it has at least one audit committee financial expert serving on its audit committee. Russel Robertson and Stacey Mowbray have each been designated as an audit committee financial expert and are each independent, as such term is defined in the New York Stock Exchange’s listing standards applicable to the Registrant. The Commission has indicated that the designation or identification of an audit committee financial expert does not deem that audit committee financial expert an “expert” for any purpose, impose any duties, obligations or liability on such audit committee financial expert that are greater than those imposed on members of the audit committee and board of directors who do not carry this designation or identification, or affect the duties, obligations or liability of any other member of the audit committee or board of directors.

AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES

The charter of the Audit Committee requires that the Audit Committee review and approve all policies and procedures for the pre-approval of services to be rendered by external auditors. All permissible non-audit services to be provided to the Registrant or any of its affiliates by external auditors or any of their affiliates that are not covered by pre-approval policies and procedures approved by the Audit Committee, are subject to pre-approval by the Audit Committee. During the fiscal year ended December 31, 2021, the waiver of pre-approval provisions set forth in the applicable rules of the Commission was not utilized for any services related to Audit-Related Fees, Tax Fees or All Other Fees and the Audit Committee did not approve any such fees subject to the waiver of pre-approval provisions.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The aggregate fees billed by KPMG LLP to Hydro One Inc. and its subsidiaries in 2021 and 2020 for professional services are presented below (in Canadian dollars):

	Year ended December 31, 2021		Year ended December 31, 2020
Audit Fees(1)	$	1,604,867	$	1,521,850
Audit-Related Fees(2)	$	321,147	$	307,945
Tax Fees(3)	$	21,351	$	15,750
Total	$	1,947,365	$	1,845,545

Notes:

(1)The nature of the services rendered were: audit of annual financial statements of the Registrant and its subsidiaries, statutory and regulatory filings including reporting to the Province and services related to securities offerings.

(2)The nature of services rendered were: translations, audit of the Hydro One Pension Plans, and services reasonably related to the performance of the audit or review of the Registrant’s financial statements that are not reported under Audit Fees.

(3)The nature of services rendered was general tax advice.

CODE OF ETHICS

The Registrant has adopted a Code of Business Conduct (the “Code”) that applies to all directors, officers and employees of the Registrant, including the Chief Executive Officer and Chief Financial Officer, or persons performing similar functions. A copy of the Code has been posted on the Registrant’s website at https://www.hydroone.com/about/corporate-information/governance. A copy of the Code is available in print to any person, without charge, upon written request to Investor Relations at the executive office address of the Registrant shown above.

OFF BALANCE SHEET ARRANGEMENTS

The disclosure provided under the heading “Other Obligations-Off-Balance Sheet Arrangements” on page 12 of Exhibit 99.3, the MD&A, is incorporated by reference herein.

CONTRACTUAL OBLIGATIONS

The tabular disclosure provided under the heading “Other Obligations-Summary of Contractual Obligations and Other Commercial Commitments” on page 12 of Exhibit 99.3, the MD&A, is incorporated by reference herein.

INTERACTIVE DATA FILE

Concurrent with this filing, the Registrant has submitted to the Commission and posted on its corporate website an Interactive Data File.

MINE SAFETY DISCLOSURE

Not applicable.

UNDERTAKING AND CONSENT TO SERVICE OF PROCESS

Undertaking

The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to the securities in relation to which the obligation to file an annual report on Form 40-F arises.

Consent to Service of Process

The Registrant has previously filed a Form F-X in connection with the class of securities in relation to which the obligation to file this report arises.

Any change to the name or address of the agent for service of process of the Registrant shall be communicated promptly to the Commission by an amendment to the Form F-X referencing the file number of the Registrant.

SIGNATURES

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereto duly authorized.

DATED this 25th day of February, 2022.

HYDRO ONE INC.
By:	/s/ Mark Poweska
	Name: Mark Poweska
	Title:   President and Chief Executive Officer

EXHIBIT INDEX

Exhibit Number	Description
99.1	2021 Annual Information Form dated February 25, 2022 for the fiscal year ended December 31, 2021.
99.2	Consolidated Financial Statements as at December 31, 2021 and December 31, 2020 and for the years then ended, and the accompanying auditors’ report.
99.3	Management’s Discussion and Analysis for the fiscal year ended December 31, 2021.
99.4	Consent of KPMG LLP (KPMG LLP, Toronto, ON, Canada, Auditor Firm ID: 85).
99.5	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the U.S. Securities Exchange Act of 1934, as amended.
99.6	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the U.S. Securities Exchange Act of 1934, as amended.
99.7	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.8	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Interactive Data File (formatted as Inline XBRL).
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

EX-99.1

ANNUAL INFORMATION FORM

FOR HYDRO ONE INC.

FOR THE YEAR ENDED DECEMBER 31, 2021

        February 25, 2022

TABLE OF CONTENTS

GLOSSARY	1
PRESENTATION OF INFORMATION	6
FORWARD-LOOKING INFORMATION	7
ELECTRICITY INDUSTRY OVERVIEW	11
General Overview	11
Overview of an Electricity System	12
THE ELECTRICITY INDUSTRY IN ONTARIO	13
Regulation of Transmission and Distribution	13
Transmission	14
Distribution	15
Issues Affecting the Electricity Industry Generally	15
Legislative Provisions Specific to Hydro One	17
Elimination of Certain Legislation With Respect to Hydro One	18
Cybersecurity	18
RECENT DEVELOPMENTS AT HYDRO ONE	18
Sustainability-linked Loan Amendments to Hydro One Credit Facilities	18
RATE-REGULATED UTILITIES	19
Rate Applications in Ontario	19
CORPORATE STRUCTURE	19
Incorporation and Office	19
Corporate Structure and Subsidiaries	21
GENERAL DEVELOPMENT OF THE BUSINESS	28
Chronological Development of the Business	22
General Development of the Business	28
BUSINESS OF HYDRO ONE	29
Segments	29
Transmission Business Segment	30
Distribution Business Segment	38
Other Segment	44
Indigenous Communities	44
Outsourced Services	45
Employees	45
Health, Safety and Environmental Management	46
Environmental Regulation	47
Insurance	48
Ombudsman	48
Share Subscription	49
RISK FACTORS	49
DIVIDENDS	49
DESCRIPTION OF CAPITAL STRUCTURE	49
General Description of Capital Structure	49
Common Shares	50
Class A Preference Shares	50
Class B Preference Shares	51
CREDIT RATINGS	53
MARKET FOR SECURITIES	54

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Prior Sales	55
Trading Price and Volume	55
DIRECTORS AND OFFICERS	55
Directors and Executive Officers	55
Information Regarding Certain Directors and Executive Officers	64
Corporate Cease Trade Orders and Bankruptcies	64
Penalties or Sanctions	65
Conflicts of Interest	65
Indebtedness of Directors and Executive Officers	65
CORPORATE GOVERNANCE	65
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS	66
Relationships with the Province and Other Parties	66
MATERIAL CONTRACTS	69
LEGAL PROCEEDINGS AND REGULATORY ACTIONS	73
INTEREST OF EXPERTS	73
TRUSTEE AND REGISTRAR	74
ADDITIONAL INFORMATION	74
STATEMENT OF EXECUTIVE COMPENSATION	74

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GLOSSARY

When used in this annual information form, the following terms have the meanings set forth below unless expressly indicated otherwise:

“$” or “dollar” means Canadian Dollars, unless otherwise indicated.

“2017 Long-Term Energy Plan” has the meaning given to it under “The Electricity Industry in Ontario – Issues Affecting the Electricity Industry Generally – Ontario 2017 Long-Term Energy Plan”.

“2018 MTN Shelf Prospectus” has the meaning given to it under “General Development of the Business – Chronological Development of the Business –2020 MTN Shelf Prospectus and Related Offerings”.

“2020 MTN Shelf Prospectus” has the meaning given to it under “General Development of the Business – Chronological Development of the Business –2020 MTN Shelf Prospectus and Related Offerings”.

“2020 Ontario Budget”has the meaning given to it under “The Electricity Industry in Ontario – Issues Affecting the Electricity Industry Generally – 2020 Ontario Budget”.

“ACI” has the meaning given to it under “The Electricity Industry in Ontario – Regulation of Transmission and Distribution – Ontario Energy Board”.

“Annual MD&A” means the management’s discussion and analysis for Hydro One Inc. for the years ended December 31, 2021 and 2020 filed on SEDAR under Hydro One Inc.’s profile at www.sedar.com.

“Approved Banks” has the meaning given to it under “Description of Capital Structure – Class B Preference Shares”.

“Auditor General Act” means the Auditor General Act, RSO 1990, c A-35.

“Board” means the Board of Directors of Hydro One Inc.

“Building Broadband Faster Act” means the Building Broadband Faster Act, 2021, S.O. 2021, c. 2, Schedule 1.

“Canadian Energy Regulator Act” means the Canadian Energy Regulator Act, SC 2019, c 28, s 10.

“CCAA” means the Companies’ Creditors Arrangement Act, RSC 1985, c C-36.

“CDM” means conservation and demand management.

“CDOR Rate” has the meaning given to it under “Description of Capital Structure – Class B Preference Shares”.

“CEO” means Chief Executive Officer.

“CFO” means Chief Financial Officer.

“Class A Preference Shares” means the Class A Preference Shares in the capital of Hydro One Inc.

“Class A Redemption Date”has the meaning given to it under “Description of Capital Structure – Class A Preference Shares”.

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“Class BDividend Payment Date” has the meaning given to it under “Description of Capital Structure –Class B Preference Shares”.

“Class B Preference Shares” means the Class B Preference Shares in the capital of Hydro One Inc.

“Class BRedemption Date” has the meaning given to it under “Description of Capital Structure – Class B Preference Shares”.

“common shares” means the common shares in the capital of Hydro One Inc.

“CSO” has the meaning given to it under “Business of Hydro One – Employees”.

“Custom IR Method” has the meaning given to it under “Business of Hydro One – Transmission Business Segment – Regulation – Transmission Rate Setting”.

“CUSW” has the meaning given to it under “Business of Hydro One – Employees”.

“DBRS” has the meaning given to it under “Credit Ratings”.

“Dealer Agreement” has the meaning given to it under “Material Contracts”.

“Dealers” has the meaning given to it under “Material Contracts”.

“DERs” has the meaning given to it under “The Electricity Industry in Ontario – Regulation of Transmission and Distribution – Ontario Energy Board”.

“DMS” has the meaning given to it under “Business of Hydro One – Distribution Business Segment –Capital Expenditures”.

“Electricity Act” means the Electricity Act, 1998, SO 1998, c 15, Schedule A.

“Energy Statute Law Amendment Act” means the Energy Statute Law Amendment Act, 2016, SO 2016, c 10.

“Environmental Assessment Act” means the Environmental Assessment Act, RSO 1990, c E-18.

“EPSCA” has the meaning given to it under “Business of Hydro One – Employees”.

“ESG” means environmental, social and governance.

“Executive Compensation Exemptive Relief”has the meaning given to it under “General Development of Business – Chronological Development of Business – Exemptive Relief – Executive Compensation Disclosure”.

“FEI” has the meaning given to it under “The Electricity Industry in Ontario – Regulation of Transmission and Distribution – Ontario Energy Board”.

“Financial Administration Act” means the Financial Administration Act, RSO 1990, c F-12.

“Floating Quarterly Dividend Rate” has the meaning given to it under “Description of Capital Structure – Class B Preference Shares”.

“Floating Rate Calculation Date” means November 20, 2017 and each Class B Dividend Payment Date

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thereafter.

“Golf Town” has the meaning given to it under “Directors and Officers – Corporate Cease Trade Orders and Bankruptcies”.

“Governance Agreement” means the governance agreement dated November 5, 2015 between Hydro One Limited and the Province.

“Great Lakes Power” means Great Lakes Power Transmission LP.

“HCCC” has the meaning given to it under “General Development of the Business – Chronological Developments of the Business – Niagara Reinforcement Limited Partnership – 2019”.

“HOSSM” means Hydro One Sault Ste. Marie LP.

“Hydro One” or the “Company” have the meanings given to such terms set out under “Presentation of Information”.

“Hydro One Accountability Act” means the Hydro One Accountability Act, 2018, SO 2018, c 10, Schedule 1.

“Hydro One Inc.” has the meaning given to it under “Presentation of Information”.

“Hydro OneLimited” has the meaning given to it under “Presentation of Information”.

“Hydro One Networks”means Hydro One Networks Inc.

“Hydro One Remote Communities” means Hydro One Remote Communities Inc.

“Hydro One Telecom” means Hydro One Telecom Inc., now Acronym Solutions Inc.

“ICD.D” means the “Institute of Corporate Directors, Director” designation.

“IESO” means the Independent Electricity System Operator.

“Income Tax Act” means the Income Tax Act, RSC 1985, c 1 (5th Supp).

“Indian Act” means the Indian Act, RSC 1985, c I-5.

“kV” means kilovolt.

“kW” means kilowatt.

“Letter Agreement” means the agreement dated July 11, 2018 between Hydro One Limited and the Province.

“MAADapplication” means an OEB Mergers, Acquisitions, Amalgamations and Divestitures application.

“management” has the meaning given to it under “Presentation of Information”.

“Market Rules” means the rules made under section 32 of the Electricity Act that are administered by the IESO.

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“Minister of Energy”means the Minister of Energy, Northern Development and Mines for the Province or the Minister of Energy for the Province, as applicable at the relevant time.

“Moody’s” has the meaning given to it under “Credit Ratings”.

“National Energy Board Act” means the National Energy Board Act, RSC 1985, c N-7.

“NERC” means the North American Electric Reliability Corporation.

“Niagara Line” has the meaning given to it under “General Development of the Business – Chronological Development of the Business – Niagara Reinforcement Limited Partnership – 2019”.

“NPCC” means the Northeast Power Coordinating Council, Inc.

“NRLP” has the meaning given to it under “General Development of the Business – Chronological Development of the Business – Niagara Reinforcement Limited Partnership – 2019”.

“NYSE” means the New York Stock Exchange.

“OBCA” means the Business Corporations Act, RSO 1990, c B-16.

“OEB” means the Ontario Energy Board.

“OEFC” means Ontario Electricity Financial Corporation.

“Ontario” or the “province” has the meaning given to it under “Presentation of Information”.

“Ontario Energy Board Act” means the Ontario Energy Board Act, 1998, SO 1998, c 15, Schedule B.

“Orillia Power” means Orillia Power Distribution Corporation.

“PCBs” means polychlorinated biphenyls.

“PDI” means Peterborough Distribution Inc.

“Price Cap IR” has the meaning given to it under “Business of Hydro One – Distribution Business Segment – Regulation – Distribution Rates”.

“Province” has the meaning given to it under “Presentation of Information”.

“PWU” has the meaning given to it under “Business of Hydro One – Employees”.

“Quarterly Floating Rate Period” has the meaning given to it under “Description of Capital Structure – Class B Preference Shares”.

“rate base” has the meaning given to it under “Presentation of Information”.

“rate-regulated” has the meaning given to it under “Rate-Regulated Utilities – Rate Applications in Ontario – Framework”.

“Reliability Standards” has the meaning given to it under “Business of Hydro One – Transmission Business Segment – Regulation – Reliability Standards and Regulations for Transmission”.

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“Reserve” means a “reserve” as that term is defined in the Indian Act.

“Retraction Date” has the meaning given to it under “Description of Capital Structure – Class B Preference Shares”.

“Retraction Demand” has the meaning given to it under “Description of Capital Structure – Class B Preference Shares”.

“return on equity” has the meaning given to it under “Presentation of Information”.

“revenue cap escalator factor” has the meaning given to it under “Business of Hydro One – Transmission Business Segment – Regulation – Recent Transmission Rate Applications – HOSSM”.

“Revenue Cap Index” has the meaning given to it under “Business of Hydro One – Transmission Business Segment – Regulation – Transmission Rate Setting”.

“ROE” has the meaning given to it under “Rate-Regulated Utilities – Rate Applications in Ontario – Framework”.

“RPPAG” has the meaning given to it under “Business of Hydro One – Transmission Business Segment – Regulation – Regional Planning”.

“RRF” means the performance-based model set out in the OEB’s Renewed Regulatory Framework for Electricity Distributors.

“S&P” has the meaning given to it under “Credit Ratings”.

“Society” has the meaning given to it under “Business of Hydro One – Employees”.

“Taxation Act” means the Taxation Act, 2007, SO 2007, c 11, Schedule A.

“trust assets” has the meaning given to it under “Interest of Management and Others in Material Transactions – Relationships with the Province and Other Parties – Transfer Orders”.

“Trust Indenture” has the meaning given to it under “Material Contracts”.

“TS” means transmission station.

“TWh” means terawatt-hours.

“U.S.” means the United States of America.

“U.S. GAAP” means United States Generally Accepted Accounting Principles.

“uniform transmission rates” has the meaning given to it under “Business of Hydro One – Transmission Business Segment – Regulation – Transmission Rate Setting”.

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PRESENTATION OF INFORMATION

Unless otherwise specified, all information in this annual information form is presented as at December 31, 2021.

Capitalized terms used in this annual information form are defined under “Glossary”. Words importing the singular number include the plural, and vice versa, and words importing any gender include all genders. The Annual MD&A and the audited consolidated financial statements of Hydro One Inc. as at and for the years ended December 31, 2021 and 2020, are specifically incorporated by reference into and form an integral part of this annual information form. Copies of these documents have been filed with the Canadian securities regulatory authorities and are available on SEDAR under Hydro One Inc.’s profile at www.sedar.com.

Unless otherwise noted or the context otherwise requires, references to “Hydro One” or the “Company” refer to Hydro One Inc. and its subsidiaries taken together as a whole. References to “Hydro One Limited” refer only to Hydro One Limited and references to “Hydro One Inc.” refer only to Hydro One Inc.

In addition, “Province” refers to the Province of Ontario as a provincial government entity, and “Ontario” or the “province” in lower case type refers to the Province of Ontario as a geographical area. References to “management” in this annual information form mean the persons who are identified as executive officers of Hydro One Inc. and its subsidiaries, as applicable, in this annual information form. Any statements made by or on behalf of management are made in such persons’ respective capacities as executive officers of Hydro One Inc. and its subsidiaries, as applicable, and not in their personal capacities. See “Directors and Officers” for more information.

This annual information form refers to certain terms commonly used in the electricity industry, such as “rate-regulated”, “rate base” and “return on equity”. Rate base is an amount that a utility is required to calculate for regulatory purposes, and refers to the net book value of the utility’s assets for regulatory purposes. Return on equity is a percentage that is set or approved by a utility’s regulator and represents the rate of return that a regulator allows the utility to earn on the equity component of the utility’s rate base. See also “Rate-Regulated Utilities”.

In this annual information form, all dollar amounts are expressed in Canadian dollars unless otherwise indicated. Hydro One Limited and Hydro One Inc. prepare and present their financial statements in accordance with U.S. GAAP.

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FORWARD-LOOKING INFORMATION

Certain information in this annual information form contains “forward-looking information” within the meaning of applicable Canadian securities laws. Forward-looking information in this annual information form is based on current expectations, estimates, forecasts and projections about Hydro One’s business and the industry, and the regulatory and economic environments, in which Hydro One operates and includes beliefs of and assumptions made by management. Such statements include, but are not limited to, statements related to: the Company’s transmission and distribution rate applications, and resulting decisions, rates and impacts; expected impacts and timing of changes to the electricity industry; the potential impact of COVID-19, including its variants, on the Company’s business and operations; the Company’s maturing debt and standby credit facilities; expectations regarding the Company’s financing activities; expectations regarding the use of proceeds under Hydro One Inc.’s commercial paper program; credit ratings; ongoing and planned projects and/or initiatives; expected future capital investments and expenditures, the nature and timing of these investments and expenditures, including the Company’s plans for sustaining and development capital expenditures for its distribution and transmission systems; expectations regarding allowed return on equity; expectations regarding the ability of the Company to recover expenditures in future rates; expectations relating to the recoverability of incremental costs and lost revenues from ratepayers in connection with the COVID-19 pandemic; expectations regarding the ability to negotiate collective agreements consistent with rate orders; expectations related to work force demographics; expectations regarding taxes; expectations regarding load growth; the regional planning process; expectations related to Hydro One’s CDM requirements and targets; new legislation and regulatory initiatives relating to the electricity industry and the expected impacts of such, including the impacts of legislative changes resulting from the introduction of Bill 257; expectations regarding the Company’s DMS; expectations regarding the Company’s plans to build and operationalize a new Ontario grid control centre by 2022; the Company’s customer focus and related initiatives; statements related to the Company’s relationships with Indigenous communities; statements related to environmental matters, and the Company’s expected future environmental and remediation expenditures; statements related to the Company’s commitment to releasing an annual sustainability report and to increase the transparency of ESG disclosures; expectations related to the effect of interest rates; the Company’s reputation; cyber and data security; Hydro One Limited’s relationship with the Province; acquisitions and consolidation opportunities and other strategic initiatives; expectations regarding the Governance Agreement and other agreements with the Province; the status of litigation; expectations regarding the manner in which Hydro One will operate and the Company’s strategy; potential conflicts of interest; and legal proceedings in which Hydro One is currently involved.

Words such as “aim”, “could”, “would”, “expect”, “anticipate”, “intend”, “attempt”, “may”, “plan”, “will”, “believe”, “seek”, “estimate”, “goal”, “target”, and variations of such words and similar expressions are intended to identify such forward-looking information. 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 information. Hydro One does not intend, and it disclaims any obligation to update any forward-looking information, except as required by law.

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The forward-looking information in this annual information form is based on a variety of factors and assumptions including, but not limited to: the scope of the COVID-19 pandemic and duration thereof as well as the effect and severity of corporate and other mitigation measures on the Company’s operations, supply chain or employees; 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 required regulatory approvals; no unforeseen changes in rate orders or rate setting methodologies for Hydro One’s distribution and transmission businesses; no unfavourable changes in environmental regulation; continued use of U.S. GAAP; a stable regulatory environment; no significant changes to the Company’s current credit ratings; no unforeseen impacts of new accounting pronouncements; no changes to expectations regarding electricity consumption; no unforeseen changes to economic and market conditions; recoverability of costs and expenses related to the COVID-19 pandemic, including the costs of customer defaults resulting from the pandemic; completion of operating and capital projects that have been deferred; and no significant event occurring outside the ordinary course of business. These assumptions are based on information currently available to Hydro One, including information obtained from third-party sources. Actual results may differ materially from those predicted by such forward-looking information. While Hydro One does not know what impact any of these differences may have, Hydro One’s business, results of operations, financial condition and credit stability may be materially adversely affected if any such differences occur. Factors that could cause actual results or outcomes to differ materially from the results expressed or implied by forward-looking information include, among other things:

•a significant expansion in length or severity of the COVID-19 pandemic, including the spread of its variants, restricting or prohibiting the Company’s operations or significantly impacting the Company’s supply chain or workforce;

•severity of mitigation measures relating to the COVID-19 pandemic and delays in completion of and increases in costs of operating and capital projects;

•the regulatory and accounting treatment of incremental costs and lost revenues of the Company related to the COVID-19 pandemic;

•regulatory risks and risks relating to Hydro One’s revenues, including risks relating to rate orders and the rate-setting models for transmission and distribution, actual performance against forecasts and capital expenditures, competition with other transmitters and other applications to the OEB, the regulatory treatment of the deferred tax asset, the recoverability of total compensation costs or denials of applications;

•risks associated with the Province’s share ownership of Hydro One Limited and other relationships with the Province, including potential conflicts of interest that may arise between Hydro One, the Province and related parties, risks associated with the Province’s exercise of further legislative and regulatory powers in the implementation of the Hydro One Accountability Act, risks relating to the ability of the Company to attract and retain

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qualified executive talent or the risk of a credit rating downgrade for the Company and its impact on the Company’s funding and liquidity;

•risks relating to the location of the Company’s assets on Reserve lands and the risk that Hydro One may incur significant costs associated with transferring assets located on Reserves;

•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;

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

•the risk of non-compliance with environmental regulations and inability to recover environmental expenditures in rate applications and the risk that assumptions that form the basis of the Company’s recorded environmental liabilities and related regulatory assets may change;

•risks associated with information system security and maintaining complex information technology and operational technology system infrastructure, including system failures or risks of cyber-attacks or unauthorized access to corporate information technology and operational technology systems;

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

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

•the risk that the Company is not able to arrange sufficient cost-effective financing to repay maturing debt and to fund capital expenditures or the risk of a downgrade in the Company’s credit ratings;

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

•risks associated with economic uncertainty and financial market volatility;

•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

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manner or the risk of increased competition for the development of large transmission projects or legislative changes affecting the selection of transmitters;

•risks associated with asset condition, capital projects and innovation, including public opposition to or delays or denials of the requisite approvals and accommodations for the Company’s planned projects;

•the risk of failure to mitigate significant health and safety risks;

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

•the risk associated with legal proceedings that could be costly, time-consuming or divert the attention of management and key personnel from the Company’s business operations;

•the impact if the Company does not have valid occupational rights on third-party owned or controlled lands and the risks associated with occupational rights of the Company that may be subject to expiry;

•risks relating to adverse reputational events or political actions;

•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;

•risks relating to acquisitions, including the failure to realize the anticipated benefits of such transactions at all, or within the time periods anticipated, and unexpected costs incurred in relation thereto;

•the inability to continue to prepare financial statements using U.S. GAAP; and

•the risk related to the impact of any new accounting pronouncements.

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 under the heading “Risk Management and Risk Factors” in the Annual MD&A. You should review such section in detail, including the matters referenced therein.

In addition, Hydro One cautions the reader that information provided in this annual information form regarding Hydro One’s outlook on certain matters, including potential future expenditures, is provided in

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order to give context to the nature of some of Hydro One’s future plans and may not be appropriate for other purposes.

ELECTRICITY INDUSTRY OVERVIEW

General Overview

The electricity industry is made up of businesses that generate, transmit, distribute and sell electricity. While traditionally a mature and stable industry, the electricity industry is facing rapid and dramatic technological change and increasing innovation. Hydro One’s business is focused on the transmission and distribution of electricity.

•Transmission refers to the delivery of electricity over high voltage lines, typically over long distances, from generating stations to local areas and large industrial customers.

•Distribution refers to the delivery of electricity over low voltage lines to end users such as homes, businesses and institutions.

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Overview of an Electricity System

The basic configuration of a typical electricity system, showing electricity generation, transmission and distribution, is illustrated in the following diagram:

Note:

The above image shows a typical electricity system with transmission-connected generation.

Transmission and distribution networks are sometimes referred to as the “electricity grid” or simply “the grid”.

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THE ELECTRICITY INDUSTRY IN ONTARIO

Regulation of Transmission and Distribution

General

The Electricity Act and the Ontario Energy Board Actestablish the general legislative framework for Ontario’s electricity market. The activities of transmitters and distributors in Ontario are overseen by three main regulatory authorities: (i) the OEB, (ii) the IESO, and (iii) the Canadian Energy Regulator. The Minister of Energy is responsible for developing long-term energy plans and has the power to issue directives to the IESO and the OEB regarding implementation of such plans.

Ontario Energy Board

The OEB is an independent regulatory agency. The Ontario Energy Board Act provides the OEB with the authority to regulate Ontario’s electricity market, including the activities of transmitters and distributors.

The OEB has the following legislated objectives in relation to the electricity industry:

•to inform consumers and protect their interests with respect to prices and the adequacy, reliability and quality of electricity service,

•to promote economic efficiency and cost effectiveness in the generation, transmission, distribution, sale and demand management of electricity and to facilitate the maintenance of a financially viable electricity industry,

•to promote electricity conservation and demand management in a manner consistent with the policies of the Province, including having regard to the consumer’s economic circumstances, and

•to facilitate innovation in the electricity sector.

The OEB is responsible for, among other things, approving transmission and distribution rates in Ontario. It also approves the construction, expansion, or reinforcement of transmission lines greater than two kilometres in length, as well as mergers, acquisitions, amalgamations and divestitures involving distributors, transmitters and other entities which it licenses. The activities of transmitters and distributors are subject to the conditions of their licences and a number of industry codes issued by the OEB. These codes and other requirements prescribe minimum standards of conduct and service for licensed participants in the electricity market.

In December 2017, the OEB posted its Strategic Blueprint: Keeping Pace with the Evolving Energy Sector, setting out the OEB’s commitment to modernize its approach to regulation over the next five years and established the Advisory Committee on Innovation (“ACI”). The ACI was tasked with identifying steps to develop a modern regulatory framework in response to technological changes occurring in the energy sector. In response to recommendations made by the ACI, in 2019, the OEB

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initiated two consultation processes, Utility Remuneration and Responding to Distributed Energy Resources (“DERs”). In March 2021, the OEB issued a letter which renamed and consolidated these two consultations into a single consultation named Framework for Energy Innovation: Distributed Resources and Utility Incentives (“FEI”). The FEI consultation focuses on: (i) investigating and supporting utilities’ use of DERs they do not own as alternatives to traditional wires solutions to meet distribution needs; and (ii) ensuring that utilities’ planning is appropriately informed by DER penetration and forecasts. The FEI consultation is ongoing.

IESO

The IESO delivers key services across the electricity sector, including managing the power system in real time, planning for Ontario’s future energy needs, enabling conservation and designing a more efficient electricity marketplace to support sector evolution. Transmitters and other wholesale market participants must comply with the Market Rules issued by the IESO. The Market Rules require transmitters to comply with mandatory North American reliability standards for transmission issued by the NERC and the NPCC. The IESO enforces these reliability standards and coordinates with system operators and reliability agencies in other jurisdictions to ensure energy adequacy and security across the interconnected bulk electricity system in North America.

Canadian Energy Regulator

In August 2019, the Canadian Energy Regulator Act came into force, replacing the National Energy Board Act. As a result of the new statute, the National Energy Board became the Canadian Energy Regulator. Any decision or order made by the National Energy Board is considered to have been made under the Canadian Energy Regulator Act and may be enforced as such.

The Canadian Energy Regulator has jurisdiction over the construction and operation of international power lines, as well as interprovincial lines that are designated as being under federal jurisdiction (of which there are currently none). As Hydro One owns and operates 11 active international power lines connecting Ontario’s transmission system with transmission systems in Michigan, Minnesota and New York, Hydro One holds several certificates and permits with the Canadian Energy Regulator.

Transmission

Transmission companies own and operate transmission systems that deliver electricity over high voltage lines. Hydro One’s transmission system accounts for approximately 98% of Ontario’s electricity transmission capacity based on the revenues approved by the OEB. The Company’s transmission system is interconnected to systems in Manitoba, Michigan, Minnesota, New York and Quebec and is part of the North American electricity grid’s Eastern Interconnection. The Eastern Interconnection is a contiguous electricity transmission system that extends from Manitoba to Florida and from east of the Rocky Mountains to the North American east coast. Being part of the Eastern Interconnection provides benefits to Ontario, such as greater security and stability for Ontario’s transmission system, emergency support when there are generation constraints or shortages in Ontario, and the ability to exchange electricity with other jurisdictions.

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Distribution

Distributors own and operate distribution systems that deliver electricity over power lines at voltages of 50 kV or less to end users. A local distribution company is responsible for distributing electricity to customers in its OEB-licensed service territory, and in some cases to other distributors. A service territory may cover large portions or all of a particular municipality, or an otherwise-defined geographic area. Distribution customers include homes, commercial and industrial businesses and institutions such as governments, schools and hospitals.

In Ontario, as per the OEB’s 2020 Yearbook of Electricity Distributors, as at December 31, 2020, 59 local distribution companies provided electricity to over five million customers. The distribution industry in Ontario is fragmented, with the 10 largest local distribution companies accounting for approximately 80% of the province’s customers.

Hydro One owns the largest local distribution business in Ontario, which serves approximately 1.5 million predominantly rural customers, or approximately 28% of the total number of customers in Ontario.

Issues Affecting the Electricity Industry Generally

Tax Incentives

Tax incentives were included in the 2015 Ontario budget to promote consolidation in the electricity distribution sector. The 2015 Ontario budget announced a reduction in the tax rate for transfers of electricity assets from 33% to 22% and to nil for distributors with fewer than 30,000 customers. In addition, the budget introduced a capital gains exemption where capital gains arise as a result of exiting the payments in lieu of corporate taxes regime. These incentives are in place until December 31, 2022.

Ontario 2017 Long-Term Energy Plan

In October 2017, the Province released its 2017 Long-Term Energy Plan (the “2017 Long-Term Energy Plan”), which set out a number of initiatives for Ontario’s energy system, including: ensuring affordable and accessible energy, ensuring a flexible energy system, innovating to meet the future, improving value and performance for consumers, strengthening its commitment to energy conservation and efficiency, responding to the challenge of climate change, supporting First Nation and Métis capacity and leadership, and supporting regional solutions and infrastructure. The IESO and the OEB developed implementation plans in support of the objectives of the 2017 Long-Term Energy Plan, and each implementation plan was approved by the Minister of Energy in February 2018. The Province is currently consulting industry and stakeholders on a long-term system-planning process to replace the 2017 Long-Term Energy Plan.

2020 Ontario Budget

In November 2020, the Province released its 2020 Ontario Budget: Ontario’s Action Plan: Protect, Support, Recover (the “2020 Ontario Budget”), which included a rate mitigation plan to help certain

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business and industrial customers. Starting on January 1, 2021, a portion of non-hydro renewable energy contracts (including wind, solar, bioenergy) is funded by the Province and not ratepayers. According to the 2020 Ontario Budget, this represents approximately 25% of the current cost of the “Global Adjustment”. The Global Adjustment is the difference between the guaranteed price and the money the generators earn in the wholesale marketplace. This reduction in the Global Adjustment does not benefit regulated price plan customers (households, farms, small businesses), who instead continue to be protected by means of the Ontario Electricity Rebate program.

OEB Actions on Electricity Pricing

Since March 2020, the Province has taken a number of actions related to the pricing of electricity to support regulated price plan customers in dealing with the impacts of the COVID-19 pandemic. These government mandated actions include providing different fixed electricity prices for various periods of time. All of these COVID-19 related pricing changes mandated by the Province have been implemented by the OEB and details are available on the OEB’s website.

In response to direction provided by the Province, in September 2020 the OEB announced that as of October 13, 2020, all utilities were required to give regulated price plan electricity customers the choice to opt out of time-of-use pricing and to elect instead to be charged on the basis of tiered (or fixed) electricity pricing.

On December 15, 2020, the OEB reset the regulated price plan prices effective January 1, 2021, to reflect a decrease in the regulated price plan supply cost as a result of the reduction in the Global Adjustment as set out in the 2020 Ontario Budget. These regulated price plan prices came into effect at the conclusion of the electricity price changes established to assist customers in dealing with the impacts of the COVID-19 pandemic. In April 2021, the OEB reset the regulated price plan prices effective May 1, 2021 for households and small businesses. In October 2021, the OEB announced that as of November 1, 2021, the electricity prices would not change under the regulated price plan. In January 2022, the OEB temporarily changed the regulated price plan prices for the period from January 18, 2022 to February 7, 2022, fixing the price for this period to the off-peak rate in order to provide temporary electricity rate relief as directed by the Province.It is anticipated that the OEB will review the regulated price plan prices in 2022 and will reset them if required in accordance with the OEB’s usual practice.

Supporting Broadband and Infrastructure Expansion Act, 2021

On March 4, 2021, the Province introduced Bill 257 (Supporting Broadband and Infrastructure Expansion Act, 2021) to create a new act entitled the Building Broadband Faster Act, 2021 that is aimed at supporting the timely deployment of broadband infrastructure within unserved and underserved rural Ontario communities. Bill 257 received Royal Assent on April 12, 2021. Bill 257 amends the Ontario Energy Board Act to provide the Province with regulation-making authority regarding the development of, access to, or use of electricity infrastructure for non-electricity purposes, including to reduce or fix the annual rental charge that telecommunications service providers must pay to attach their wireline broadband telecommunications attachments to utility poles, establish performance standards and timelines for how utilities must respond to attachment requests and require utilities to consider joint use of poles

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during planning processes. The Building Broadband Faster Act Guideline (“BBFA Guideline”) and regulations informing the legislative changes were published on November 30, 2021. The Company continues to be engaged with the Province on implementing an appropriate regulatory framework to support the BBFA Guideline and regulations, including arrangements to sustain the Company’s revenues and recovery of reasonable associated costs. The Company will continue to assess the impact as more details become available.

Legislative Provisions Specific to Hydro One

In addition to legislation in Ontario that impacts all transmitters and distributors, there is legislation that is specific to Hydro One. Specifically, the Electricity Act requires Hydro One’s head office and principal grid control centre to be maintained in Ontario, restricts the disposition of substantially all of its OEB-regulated transmission or distribution business, prohibits any change to its jurisdiction of incorporation and requires the Company to have an ombudsman.

Ombudsman

The Electricity Act requires the Company to have an ombudsman to act as a liaison with customers and to establish procedures for the ombudsman to inquire into and report to the board of directors of Hydro One Limited on matters raised with the ombudsman by or on behalf of customers. See “Business of Hydro One – Ombudsman” for more information.

Hydro One Accountability Act

In August 2018, the Province passed the Hydro One Accountability Act, requiring the board of directors of Hydro One Limited to establish a new compensation framework for the board, CEO and certain other executives, as defined in the legislation, in consultation with the Province and the other five largest shareholders of Hydro One Limited. In accordance with this legislation, the Province was required to approve the new executive compensation framework and is required to approve any amendments to it. In February 2019, pursuant to the Hydro One Accountability Act, the Province issued a directive to Hydro One Limited which set out certain compensation-related requirements for the CEO, other executives and the board of directors of Hydro One Limited that Hydro One Limited is required to follow when developing its board and executive compensation framework, and in March 2019, the Province approved a new compensation framework that Hydro One submitted in compliance with the directive. Key highlights of the new compensation framework include, among other things, a maximum total direct compensation for the CEO and other executives and a cap on annual board compensation. Also in accordance with the Hydro One Accountability Act, the Ontario Energy Board Act was amended to preclude the OEB from approving or fixing rates for Hydro One Limited or any of its subsidiaries that include any amount in respect of compensation paid to the CEO and certain other executives. The executive and director compensation framework requirements in the Hydro One Accountability Act expire on January 1, 2023.

The Hydro One Accountability Act also requires Hydro One Limited to annually provide public disclosure concerning compensation paid to certain executives. Hydro One’s current executive

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compensation framework can be found on its website at www.hydroone.com. The information contained on Hydro One’s website is not incorporated by reference into this annual information form.

Elimination of Certain Legislation With Respect to Hydro One

In 2015 and 2016, Hydro One ceased to be subject to a number of Ontario statutes that apply to entities owned by the Province. Hydro One Limited is similarly not subject to those statutes. Notwithstanding the elimination of certain legislation with respect to Hydro One, the Company is required under the Financial Administration Act and the Auditor General Act to provide financial information to the Province for the Province’s public reporting purposes.

Cybersecurity

The Company is exposed to potential risks related to cyberattacks, supply chain compromises and unauthorized access to our systems. As the Company continues to make investments in and rely on additional, more complex and interconnected digital technology to enable efficient operations, the likelihood of a cyber-breach impacting our business increases. In addition, the critical nature of our business further increases the likelihood of a sophisticated cyber attacker taking advantage of our people, processes and technology. The Company takes a risk-aligned approach to cyber related investments to reduce the likelihood of an impactful cyber related breach. Despite having strong security measures in place, a breach could occur. A breach has the ability to corrupt our information technology systems, compromise our sensitive information, effect the integrity of our financial controls, disrupt operations or have impacts to the safety of our work environment. The Company manages these risks by establishing a common set of cybersecurity standards, periodic security testing, program maturity objectives, security partnerships and a unified security strategy built on a set of cybersecurity standards driven by the OEB. This Ontario specific set of standards is in alignment with the National Institute of Standards and Technology’s Cyber Security Framework. In addition to provincial regulatory requirements of the OEB, critical systems that support the North American Bulk Electric System are regulated by the North American Electric Reliability Critical Infrastructure Protection Standards. These two foundational frameworks establish strong security measures across all aspects of our operations.

RECENT DEVELOPMENTS AT HYDRO ONE

Sustainability-linked Loan Amendments to Hydro One Credit Facilities

In January 2022, Hydro One successfully amended its syndicated credit facilities to incorporate ESG targets. The facilities now include a pricing adjustment which can increase or decrease Hydro One’s cost of funding based on its performance on certain Sustainability Performance Measures, which are related to Hydro One's sustainability goals.

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RATE-REGULATED UTILITIES

Rate Applications in Ontario

Framework

The term “rate-regulated” is used to refer to an electricity business whose rates for transmission, distribution and other services are subject to approval by a regulator. The rate base of a rate-regulated utility means the net book value of the regulated assets of the utility, plus an allowance for working capital. The OEB is the regulator that approves electricity transmission and distribution rates in Ontario. Transmission and distribution rates have historically been determined using either a cost-of-service model or a performance-based model, which typically includes a cost-of-service base year. These models are reviewed and modified by the OEB from time to time. The OEB is currently considering alternative approaches to utility remuneration and incentives.

In a cost-of-service model, a utility charges rates for its services that allow it to recover the costs of providing its services and earn an allowed return on equity. A utility’s return on equity, or “ROE”, is the rate of return that a regulator allows the utility to earn on the equity portion of the utility’s rate base. The utility’s costs of providing its services must be prudently incurred. Cost savings are typically passed on to customers in the form of lower rates reflected in future rate decisions.

Cost of Service ($) + Return on Equity ($) = Revenue Requirement ($)

In a performance-based model, a utility also charges rates for its services that allow it to recover the costs of providing its services and earn an allowed return on equity. However, rates are adjusted formulaically in years subsequent to the initial rebasing of costs. The formulaic adjustments in a performance-based model consider inflation and expectations regarding productivity. They assume that the utility becomes increasingly efficient over time. If a utility achieves cost savings in excess of those established by the regulator, the utility may retain some or all of the benefits of those cost savings, which may permit the utility to earn more than its allowed return on equity. In Ontario, transmission and distribution rates, including those of Hydro One, are now generally determined using a performance-based model.

CORPORATE STRUCTURE

Incorporation and Office

Hydro One Inc. was incorporated as Ontario Hydro Services Company Inc. by articles of incorporation dated December 1, 1998, under the OBCA. On May 1, 2000, it changed its name to Hydro One Inc. Its registered office and head office is located at 483 Bay Street, 8th Floor, South Tower, Toronto, Ontario M5G 2P5. Hydro One Inc. is a wholly-owned subsidiary of Hydro One Limited.

On August 31, 2015, the articles of Hydro One Inc. were amended to provide for certain share ownership restrictions required under amendments to the Electricity Act that came into force that day. On October

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30, 2015, the articles of Hydro One Inc. were amended to remove restrictions on the Company’s ability to issue additional shares in its subsidiaries without the prior approval of the Minister of Energy, Science and Technology (predecessor to the Minister of Energy).

On October 31, 2015, the Province revoked all existing unanimous shareholder agreements, shareholder resolutions and shareholder declarations that restricted the powers of the directors to manage or supervise the business and affairs of Hydro One Inc.

Thereafter, on October 31, 2015, Hydro One Inc. repurchased for cancellation all of the outstanding Series A preferred shares in its capital and all of the remaining issued and outstanding shares of Hydro One Inc. were subsequently acquired by Hydro One Limited from the Province in exchange for the issuance to the Province of common shares and Series 1 preferred shares of Hydro One Limited.

On November 2, 2015, the articles of Hydro One Inc. were amended to remove the share ownership restrictions, revise the authorized capital of Hydro One Inc. to be an unlimited number of common shares and an unlimited number of Class A Preference Shares and to modernize the transfer restrictions on its securities.

On November 16, 2017, the articles of Hydro One Inc. were amended to revise the authorized capital of Hydro One Inc. to be an unlimited number of common shares, an unlimited number of Class A Preference Shares and an unlimited number of Class B Preference Shares.

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Corporate Structure and Subsidiaries

The following is a simplified chart showing the organizational structure of Hydro One and the name and jurisdiction of incorporation of certain of its subsidiaries. This chart does not include all legal entities within Hydro One’s organizational structure. Hydro One Inc. owns, directly or indirectly, 100% of the voting securities of all of the subsidiaries listed below.

Notes:

(1)As of December 31, 2021, the Province directly owned approximately 47.2% of Hydro One Limited’s outstanding common shares.

Certain of Hydro One’s subsidiaries are described below:

•Hydro One Networks – the principal operating subsidiary that carries on Hydro One’s rate-regulated transmission and distribution businesses.

•Hydro One Remote Communities – generates and supplies electricity to remote communities in northern Ontario.

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GENERAL DEVELOPMENT OF THE BUSINESS

Chronological Development of the Business

Background

In August 2015, Hydro One Limited was incorporated by the Province as its sole shareholder. In 2015, prior to the closing of the initial public offering of Hydro One Limited, all of the issued and outstanding common shares of Hydro One Inc. were acquired by Hydro One Limited.

The following key events occurred from 2019 to 2021 in respect of Hydro One, beginning in 2019.

Directors and Executive Officers – 2019

In April 2019, Greg Kiraly, Chief Operating Officer, and Jamie Scarlett, Executive Vice President and Chief Legal Officer, left the Company following a period of planned leadership transition.

Effective May 1, 2019, Darlene Bradley was appointed as Acting Chief Operating Officer of Hydro One Networks and effective October 1, 2019, Ms. Bradley was appointed Chief Safety Officer of Hydro One Networks.

Effective May 9, 2019, Chris Lopez was appointed as CFO of Hydro One Limited and Hydro One Inc.

Effective May 10, 2019, Mark Poweska was appointed as President and CEO and a director of Hydro One Limited and Hydro One Inc.

Effective July 10, 2019, Saylor Millitz-Lee was appointed as Chief Human Resources Officer of Hydro One Networks.

On July 31, 2019, Tom Woods stepped down as Chair of the boards of directors of Hydro One Limited and Hydro One Inc.

Effective August 1, 2019, Tim Hodgson was appointed as Chair of the boards of directors of Hydro One Limited and Hydro One Inc.

Effective September 9, 2019, Paul Harricks was appointed as Chief Legal Officer of Hydro One Limited and Hydro One Inc.

Niagara Reinforcement Limited Partnership – 2019

In September 2018, the Niagara Reinforcement Limited Partnership (“NRLP”) was formed for the purpose of owning a new 230 kV transmission line in the Niagara region (the “Niagara Line”) to enable generators in the Niagara area to connect to load centres of the Greater Toronto and Hamilton areas.

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In September 2018, Hydro One Networks filed a transmission licence application with the OEB for NRLP. In October 2018, Hydro One Networks filed two other applications with the OEB relating to NRLP requesting approval for Hydro One Networks to sell the Niagara Line to NRLP, and approval of interim rates to include in the 2019 uniform transmission rates. On December 20, 2018, the OEB issued a decision finding that the request for approval for an interim revenue requirement effective January 1, 2019 was premature but indicated that there would be an opportunity to adjudicate the matter at a later date.

In January 2019, construction on the Niagara Line was halted due to a land dispute with the Haudenosaunee Confederacy Chiefs Council (“HCCC”). In March 2019, Hydro One Networks filed a letter with the OEB requesting that the three previously-filed applications be heard together once the land dispute was resolved. Also in March 2019, the OEB put the NRLP applications in abeyance per Hydro One Networks’ request. Hydro One Networks filed a Statement of Claim with the Ontario Superior Court of Justice for injunctive relief against members of the HCCC, among others. In July 2019, Hydro One Networks was granted the injunction and resumed construction of the Niagara Line shortly thereafter. The construction of the Niagara Line was completed at the end of August 2019.

In August 2019, Hydro One Networks filed an update to the three previously-filed OEB applications and asked that the OEB resume adjudication of the applications. In September 2019, the OEB granted NRLP a transmission licence and also granted Hydro One Networks leave to sell the Niagara Line to NRLP.

In September 2019, the Niagara Line was transferred from Hydro One Networks to NRLP for $119 million and operation of the Niagara Line was contracted to Hydro One Networks. Subsequently, on the same date, Hydro One Networks sold to the Six Nations of the Grand River Development Corporation and, through a trust, to the Mississaugas of the Credit First Nation a 25.0% and 0.1%, respectively, equity interest in NRLP for total consideration of approximately $12 million, representing the fair value of the equity interest acquired. At the time of this sale, the Mississaugas of the Credit First Nation received an option to purchase an additional 19.9% equity interest in NRLP from Hydro One Networks at a price based on the value of the Niagara Line on the date of closing. The Mississaugas of the Credit First Nation exercised this option in December 2019, for a total cash consideration of approximately $9 million. This purchase transaction closed in January 2020. Following this transaction, Hydro One’s interest in NRLP was reduced from 75% to 55% with the Six Nations of the Grand River Development Corporation and, through a trust, the Mississaugas of the Credit First Nation owning 25% and 20%, respectively, of the equity interest in NRLP. See “Business of Hydro One – Transmission Business Segment – Regulation – Recent Transmission Rate Applications – Niagara Reinforcement Limited Partnership” for more information.

Executive Compensation

On March 8, 2019, Hydro One Limited released a revised executive compensation framework for the Board, the CEO and other executives that was approved by the Management Board of Cabinet of the Province.

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Exemptive Relief – Executive Compensation Disclosure

In March 2019, Hydro One Inc. was granted exemptive relief (the “Executive Compensation Exemptive Relief”) by securities regulatory authorities in each of the provinces of Canada, exempting Hydro One Inc. from the requirement to provide executive compensation disclosure required by securities laws in its annual information form, for so long as: (i) Hydro One Inc. files such executive compensation disclosure as a stand-alone document with the securities regulatory authorities in each of the provinces of Canada no later than 140 days after its most recently completed financial year and (ii) Hydro One Inc. includes in its annual information form in respect of a financial year a notice that its executive compensation disclosure in respect of that financial year, when filed, is deemed to be incorporated by reference in its annual information form.

Increase to Commercial Paper Program

On March 25, 2019, Hydro One Inc. increased the authorized aggregate principal amount issuable under its commercial paper program from $1.5 billion to $2.3 billion. The commercial paper program is supported by Hydro One Inc.’s committed revolving credit facilities totaling $2.3 billion. The short-term liquidity made available under this program is expected to be used by the Company for general corporate purposes.

Strategy

In November 2019, Hydro One released its updated corporate strategy which reaffirms the Company’s commitment to Ontario and the provision of safe, reliable and affordable electricity. The strategy focuses on five key aspirational priorities:

•Plan, Design And Build A Grid For The Future

We will plan, design and build a reliable grid taking into account changing technologies to prevent future outages. There will be increased focus on grid resilience in order to restore power after events. Climate change and sustainability factors will be taken into consideration in our planning processes to increase resilience and lower our environmental footprint. We will incorporate distributed energy resources to enable customer choice while delivering exceptional value to customers through best-in-class asset management practices.

•Be The Safest And Most Efficient Utility

We will transform and improve our safety culture through robust safety analytics as well as grass-roots engagement with our employees. Field operations will be more empowered to drive efficiency, productivity and reliability and provided with efficient corporate support. There will be a focus on efficient capital delivery to support an ongoing growing work program.

•Be A Trusted Partner

We will make concerted efforts to build and grow relationships with Indigenous peoples, government and industry partners. We will proactively address community concerns and establish

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strong partnerships with our customers through local investment and economic development for the benefit of Ontarians.

•Advocate For Our Customers And Help Them Make Informed Decisions

We will make it easier to do business with Hydro One by strengthening the customer experience through innovative customer-centric practices. We will help our customers make informed decisions with deeper insights and leverage our position as energy experts. We will expand access to energy offerings to become the provider of choice to our customers.

•Innovate And Grow The Business

We will continue to invest responsibly in our core transmission and distribution business. In addition, we will pursue incremental regulated and unregulated business opportunities through innovation and our focused presence in Ontario.

Directors and Executive Officers – 2020

Effective January 1, 2020, Susan Wolburgh Jenah was appointed as a director of the boards of directors of Hydro One Limited and Hydro One Inc.

Effective January 2, 2020, David Lebeter was appointed Chief Operating Officer of Hydro One Networks.

Effective July 23, 2020, Stacey Mowbray was appointed as a director of the boards of directors of Hydro One Limited and Hydro One Inc.

Effective September 28, 2020, Megan Telford was appointed Chief Human Resources Officer of Hydro One Networks.

COVID-19 Pandemic and Related Developments

Throughout the COVID-19 pandemic, the Company’s decisions and actions have continuously been guided by two priorities: to protect Hydro One’s employees; and to maintain the safe and reliable supply of electricity to Hydro One’s customers. To date, Hydro One has been successful in achieving these priorities as the Company continues to operate-in-line with the evolving safety procedures and practices implemented since the start of the pandemic. The Company continues to monitor and adhere to guidance provided by the Province and public health experts in an effort to ensure employee, customer and public safety.

As an essential service, Hydro One's teams have continued to ensure the delivery of reliable power to energize life for all Ontarians since the start of the pandemic. The Company continues to take actions to protect its employees against the spread of COVID-19 in the workplace. Like most organizations, Hydro One experienced a modest increase in the number of employees who needed time off following the onset of the Omicron sub-variant in late 2021, however employee absenteeism has improved in the recent months and there has been no significant impact to any of its services or its work programs.

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Notwithstanding this improvement, Hydro One has proactively prepared contingency plans in the event of significant labour reductions in any of its lines of business. Strategies implemented would depend on the severity and duration of a reduction in employees.

The rapidly spreading Omicron variant is causing global staffing shortages which has led to supply chain issues in many industries. Hydro One has not been immune to the growing global supply chain disruptions and pricing pressures that are being experienced across the utility industry. However, it has managed these disruptions by shifting projects and taking proactive measures to ensure it has the materials and equipment necessary to complete its capital work program. As a result, there has not been a material impact to the overall work program.

In keeping with the Company’s ongoing commitment to customers, and to assist those customers significantly impacted by the pandemic, the Company continues to offer a number of customer relief measures including the Pandemic Relief Fund, increased payment flexibility to residential and small business customers, and assistance in securing other financial assistance.

While Hydro One continues to take the necessary steps to mitigate the impact of COVID-19 on the Company’s operations, the development of new variants and constantly changing public health restrictions make it very difficult to determine or estimate the future impacts of COVID-19 on Hydro One’s operations. Potential impacts will be largely dependent on the duration of the pandemic, the attributes of the variants, and the severity of the measures that may be implemented to combat them.

Hydro One will continue to actively monitor the impacts of the COVID-19 pandemic, including guidance provided by the Province and public health experts, and may take further actions that it determines to be in the best interest of its operations, employees, customers, partners and stakeholders, or as required by federal or provincial authorities.

2020 MTN Shelf Prospectus and Related Offerings

On April 14, 2020, Hydro One Inc. filed a short form base shelf prospectus in each of the provinces of Canada qualifying for issuance of up to $4 billion of medium term notes of Hydro One Inc. from time to time during the 25-month period ending May 14, 2022 (the “2020 MTN Shelf Prospectus”). The 2020 MTN Shelf Prospectus replaced the short form base shelf prospectus of Hydro One Inc. that expired on April 9, 2020 (the “2018 MTN Shelf Prospectus”). To date, Hydro One Inc. has issued the following medium term notes pursuant to the 2020 MTN Shelf Prospectus on the dates indicated:

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MTN Series	Aggregate Principal Amount	Issuance Date
Series 47 Notes due 2050	$200 million	October 9, 2020
Series 48 Notes due 2023	$600 million	October 9, 2020
Series 49 Notes due 2031	$400 million	October 9, 2020
Series 50 Notes due 2031	$450 million	September 17, 2021
Series 51 Notes due 2051	$450 million	September 17, 2021

On February 28, 2020, Hydro One Inc. issued $400 million aggregate principal amount of Series 45 Notes due 2025, $400 million aggregate principal amount of Series 46 Notes due 2030 and $300 million aggregate principal amount of Series 47 Notes due 2050 pursuant to the 2018 MTN Shelf Prospectus.

Acquisition of Orillia Power – 2020

In August 2016, Hydro One Inc. reached an agreement to acquire Orillia Power, an electricity distribution company located in Simcoe County, Ontario, from the Corporation of the City of Orillia, subject to the satisfaction of customary closing conditions as well as approval by the OEB. In April 2020, the OEB issued its decision approving Hydro One Inc.’s acquisition of Orillia Power from the City of Orillia. In September 2020, Hydro One Inc. completed the acquisition for a purchase price of approximately $28 million inclusive of closing adjustments. See “Business of Hydro One – Distribution Business Segment – Acquisitions – Acquisition of Orillia Power” for more information.

Acquisition of the Business and Distribution Assets of Peterborough Distribution Inc. – 2020

In July 2018, Hydro One Inc. reached an agreement to acquire the business and distribution assets of PDI, an electricity distribution company located in the County of Peterborough, from the Corporation of the City of Peterborough, subject to the satisfaction of customary closing conditions as well as approval by the OEB. In April 2020, the OEB issued its decision approving Hydro One Inc.’s acquisition of the business and distribution assets of PDI from the City of Peterborough. In August 2020, Hydro One Inc. completed the acquisition for a purchase price of approximately $104 million, including the assumption of agreed upon liabilities and final closing adjustments. See “Business of Hydro One – Distribution Business Segment – Acquisitions – Acquisition of the Business and Distribution Assets of Peterborough Distribution Inc.” for more information.

Integration of Orillia Power – 2021

In June 2021, Hydro One completed the integration of Orillia Power, which was acquired in September 2020.See “Business of Hydro One – Distribution Business Segment – Acquisitions – Acquisition of Orillia Power” for more information.

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Integration of the Business and Distribution Assets of Peterborough Distribution Inc. – 2021

In June 2021, Hydro One completed the integration of the business and distribution assets of Peterborough Distribution, including the integration of employees, customer and billing information, business processes and operations. The business and distribution assets of Peterborough Distribution were acquired in August 2020.See “Business of Hydro One – Distribution Business Segment – Acquisitions – Acquisition of the Business and Distribution Assets of Peterborough Distribution Inc.” for more information.

General Development of the Business

In addition to the chronological development of the business, the following general developments in the business have occurred and continue to be relevant.

Customer Focus

Hydro One’s continued focus on customer service remains a critical aspect of its success as a company. Greater corporate accountability for performance outcomes, and company-wide improvements in productivity and efficiency, align with customers’ expectations of how Hydro One should operate. Hydro One intends to continue to offer affordable and reliable electricity, advocate for its customers and empower them to make informed decisions about their energy usage and respond to emerging customer needs.

Customer Service

Hydro One is committed to delivering value to its customers by becoming easier to do business with, being available when customers need assistance and always staying connected. This includes specific, measurable commitments that encompass all areas of service. Residential and small business customer satisfaction scores in 2021 were the highest in ten years at 89%, transmission customer satisfaction saw an increase from 2020 results from 83% to 92%, and commercial and industrial satisfaction has seen a decrease from 86% in 2020 to 80%. Overall, these results reflect our company-wide dedication to customer service.

Hydro One is on a multi-year journey to transform the customer experience by creating digital channels that introduce or enhance new services in order to meet customers’ expectations while reducing operational costs and increasing customer satisfaction. In 2021, Hydro One began to offer customers the option to report power outages by text.

As part of the Company’s continued commitment to customers, Hydro One again extended a number of the customer relief measures implemented at the onset of the COVID-19 pandemic. See “General Development of the Business – Chronological Development of the Business – COVID-19 Pandemic and Related Developments”.

Review of Operations

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Hydro One is committed to providing value to its customers and shareholders by identifying and acting on opportunities to become the safest and most efficient utility. Hydro One has been focused on the identification of opportunities for improved corporate performance and the development of strategies to drive safer, more efficient and cost-effective operations. Hydro One conducts regular reviews of key corporate activities and programs, covering areas such as construction services and project management practices, asset deployment and controls, asset planning, information technology and cybersecurity, vegetation management practices, fleet services and utilization, supply chain management and business continuity planning. The Company has and continues to observe and implement operational and cost improvements across work planning and execution.

Sustainability Report

In August 2021, Hydro One Limited published its 2020 Sustainability Report, highlighting its progress in 2020 and its plans for future years. The 2020 Sustainability Report provides an account of our ESG performance. The Sustainability Report provides stakeholders, partners, our customers, and communities with a better understanding of how Hydro One manages the opportunities and challenges associated with our business. Hydro One is committed to releasing an annual sustainability report and to continuously increasing the transparency of our ESG disclosures. Our annual sustainability reporting is aligned with the Sustainability Accounting Standards Board and the Global Reporting Initiative Standards, and prepared broadly following the recommendations of the Task Force on Climate-related Financial Disclosures.

BUSINESS OF HYDRO ONE

Segments

Hydro One is Ontario’s largest electricity transmission and distribution utility with approximately $30 billion in assets and 2021 revenues of approximately $7.2 billion. Hydro One owns and operates substantially all of Ontario’s electricity transmission network and is the largest electricity distributor in Ontario by number of customers. Hydro One delivers electricity safely and reliably to approximately 1.5 million customers across the province of Ontario, and to large industrial customers and municipal utilities. Through its subsidiaries, Hydro One Inc. owns and operates approximately 30,000 circuit kilometres of high-voltage transmission lines and approximately 125,000 circuit kilometres of primary low-voltage distribution lines.

Hydro One has three segments: (i) transmission business; (ii) distribution business; and (iii) other. Each of the three segments is described below.

Hydro One’s transmission and distribution businesses are both operated primarily by Hydro One Networks. This allows both businesses to utilize common operating platforms, technology, work processes, equipment and field staff and thereby take advantage of operating efficiencies and synergies. For regulatory purposes, Hydro One Networks has historically filed separate rate applications with the OEB for each of its licensed transmission and distribution businesses. In 2021, a single application was filed for the Hydro One Networks transmission and distribution businesses for the period 2023 to 2027.

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Transmission Business Segment

Overview

Hydro One’s transmission business consists of owning, operating and maintaining Hydro One’s transmission system, which accounts for approximately 98% of Ontario’s transmission capacity based on revenue approved by the OEB. All of the Company’s transmission business is carried out through its wholly-owned subsidiaries, Hydro One Networks and HOSSM (formerly Great Lakes Power), as well as through the Company’s approximately 66% interest in B2M Limited Partnership and approximately 55% interest in NRLP.

Hydro One’s transmission business represented approximately 60% of its total assets as at December 31, 2021, and accounted for approximately 51% of its total revenue, net of purchased power1 in 2021 and approximately 25% of its total revenue in 2021, and approximately 51% of its total revenue, net of purchased power in 2020 and approximately 24% of its total revenue in 2020.

The Company’s transmission business is a rate-regulated business that earns revenues mainly from transmission rates that are subject to approval by the OEB. Transmission rates are generally determined using a performance-based model, which typically includes a cost-of-service base year. Transmission rates are administered and collected by the IESO and are remitted by the IESO to Hydro One on a monthly basis, which means that Hydro One’s transmission business has no direct exposure to end-customer counterparty risk.

Transmission rates are based on monthly peak electricity demand across Ontario’s transmission network. This gives rise to seasonal variations in Hydro One’s transmission revenues, which are generally higher in the summer and winter due to increased demand, and lower during other periods of reduced demand. Hydro One’s transmission revenues also include revenues associated with exporting energy to markets outside of Ontario. Ancillary revenue includes revenues from providing maintenance services to generators and from third-party land use.

Business

The Company’s transmission system serves substantially all of Ontario and transported approximately 134 TWh of energy throughout the province in 2021. Hydro One’s transmission customers consist of 37 local distribution companies (including Hydro One’s own distribution business) and 85 large industrial customers connected directly to the transmission network, including automotive, manufacturing, chemical and natural resources businesses. Electricity delivered over the Company’s transmission network is

1 Revenues, net of purchased power is a non-GAAP financial measure. Non-GAAP financial measures do not have a standardized meaning under U.S. GAAP, which is used to prepare the Company’s financial statements, and accordingly, these measures may not be comparable to similar measures used by other companies. Additional disclosure for this non-GAAP financial measure is incorporated by reference herein and can be found in the section titled “Non-GAAP Measures” of the Annual MD&A available on SEDAR under Hydro One Limited’s profile at www.sedar.com.

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supplied by 135 generators in Ontario and electricity imported into the province through interties. Interties are transmission interconnections between neighbouring electric systems that allow power to be imported and exported.

The high voltage power lines in Hydro One’s transmission network are categorized as either lines which form part of the “bulk electricity system” or “area supply lines”. Power lines which form part of the bulk electricity system typically connect major generation facilities with transmission stations and often cover long distances, while area supply lines serve a local region. Ontario’s transmission system is connected to the transmission systems of Manitoba, Michigan, Minnesota, New York and Quebec through the use of interties, allowing for the import and export of electricity to and from Ontario.

Hydro One’s transmission assets were approximately $18 billion as at December 31, 2021 and include transmission stations, transmission lines, a control centre and telecommunications facilities. Hydro One has approximately 306 in-service transmission stations and approximately 30,000 circuit kilometres of high voltage lines whose major components include cables, conductors and wood or steel support structures. All of these lines are overhead power lines except for approximately 270 circuit kilometres of underground cables located in primarily urban areas.

Hydro One’s transmission network is managed from a central location. This centre monitors and controls the Company’s entire transmission network and has the capability to remotely monitor and operate transmission equipment, respond to alarms and contingencies and restore and reroute interrupted power. There is also a backup facility which would be staffed in the event of an evacuation of the centre. In September 2019, Hydro One Inc. announced plans to build a new Ontario grid control centre, which is expected to become operational as Hydro One’s primary control centre in 2022.

Hydro One uses telecommunications systems for the protection and operation of its transmission and distribution networks. These systems are subject to very stringent reliability and security requirements, which help the Company meet its reliability obligations and facilitate the restoration of power following service interruptions.

B2M Limited Partnership is Hydro One’s partnership with the Saugeen Ojibway Nation with respect to the Bruce-to-Milton transmission line. B2M Limited Partnership owns the transmission line assets relating to two circuits between Bruce TS and Milton Switching Station. Hydro One Networks owns the stations where the lines terminate. Hydro One maintains and operates the Bruce-to-Milton line and has an approximately 66% economic interest in the partnership.

NRLP is Hydro One’s partnership with Six Nations of the Grand River Development Corporation and, through a trust, the Mississaugas of the Credit First Nation. NRLP owns the Niagara Line. Hydro One maintains and operates the Niagara Line, and has an approximately 55% interest in the partnership. See “General Development of the Business – Chronological Development of the Business – Niagara Reinforcement Limited Partnership – 2019” for more information.

In 2018, Hydro One completed the operational integration of HOSSM (formerly Great Lakes Power), which was acquired in October 2016.

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Regulation

Transmission Rate Setting

The OEB provides two revenue plan options for transmission rates in Ontario: the Custom Incentive Rate Setting Plan (the “Custom IR Method”) and the Incentive-Based Revenue Index Rate Setting Plan (the “Revenue Cap Index”).

Under the Revenue Cap Index, the first year’s revenue requirement reflects the transmitter’s cost of service; and annually thereafter, this amount is subject to a formulaic increase reflecting inflation, partially offset by a productivity factor. The revenue requirement in these subsequent years is set on the assumption that the transmitter will achieve efficiency or productivity improvements to offset the productivity factor imposed by the regulator. Under the Custom IR Method, a similar methodology to the Revenue Cap Index may be used; however, applications are multi-year and are designed to reflect a transmitter-specific revenue trend for the application term. For example, a transmitter may request incremental capital funding beyond amounts established in the base year revenue requirement.

The OEB sets transmission rates based on a two-step process. First, all transmitters apply to the OEB for approval of their revenue requirements. Second, the OEB aggregates the total revenue requirements of all transmitters in Ontario and applies a formula to arrive at a single set of rates that are charged to ratepayers for the three types of transmission services applicable in Ontario, namely: network services, line connection services and transformation connection services. The three separate rates charged for these services are the same for all transmitters and are referred to as “uniform transmission rates”. Uniform transmission rates for all transmitters are set by the OEB on an annual basis, using the revenue requirements set out in the most recent rate decision issued for each transmitter.

The filing requirements for transmitters mandate the integration of core RRF (defined below under “Business of Hydro One – Distribution Business Segment – Regulation – Distribution Rates”) concepts into revenue requirement applications. Transmitters applying for revenue requirements under the Custom IR Method or Revenue Cap Index must include: (i) evidence of the continuous improvement and efficiency gains anticipated to be achieved over the rate term; (ii) a mechanism to protect ratepayers in the event of earnings significantly in excess of the regulatory net income supported by the return on equity established in the approved revenue requirement; and (iii) proposed performance metrics applicable to their individual circumstances. A key component of rate-setting under the RRF is benchmarking evidence to support cost forecasts and system planning proposals.

Recent Transmission Rate Applications

Hydro One Networks, B2M Limited Partnership, HOSSM and NRLP file separate applications to the OEB for the approval of their transmission revenue requirement for transmission services.

Hydro One Networks

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In September 2017, the OEB issued its decision on Hydro One Networks’ application for Hydro One Networks’ 2017-2018 transmission revenue requirement. In the decision, the OEB concluded that the net deferred tax asset resulting from the transition from the payments in lieu of tax regime under the Electricity Act to the federal and provincial tax regimes in connection with Hydro One Limited’s 2015 initial public offering should not accrue entirely to Hydro One Limited’s shareholders, but rather a portion should be shared with Hydro One Networks’ ratepayers. The OEB proposed a basis for sharing a portion of the tax savings resulting from the deferred tax asset with Hydro One Networks’ ratepayers by reducing the amount of taxes approved for recovery in Hydro One Networks’ 2017-2018 transmission revenue requirement. In November 2017, the OEB issued a decision and order that established the portion of the tax savings that should be shared with Hydro One Networks’ ratepayers.

In October 2017, Hydro One Networks filed with the OEB a motion to review and vary the OEB’s decision, and filed an appeal with the Ontario Divisional Court. The motion, among other things, sought allocation to Hydro One Limited’s shareholders of the full amount of the future tax savings arising from the deferred tax asset. In both the motion and the appeal, Hydro One Networks’ position was that the OEB made errors of fact and law in its determination of the allocation of the tax savings between Hydro One Limited’s shareholders and Hydro One Networks’ ratepayers. An OEB hearing of the merits of the motion was held in February 2018. In August 2018, the OEB granted the motion and returned the portion of the decision relating to the deferred tax asset to an OEB panel for reconsideration. In March 2019, the OEB upheld its original decision on the allocation of the deferred tax asset between Hydro One Limited’s shareholders and Hydro One Networks’ ratepayers. As a result, the Company recorded impairment charges relating to Hydro One Networks’ distribution and transmission deferred income tax regulatory asset.

In April 2019, Hydro One Networks filed an appeal with the Ontario Divisional Court with respect to the OEB’s deferred tax asset decision. The appeal was heard in November 2019, and in July 2020, the Ontario Divisional Court rendered its decision. The Ontario Divisional Court set aside the OEB decision, holding that the OEB decision was incorrect in law because the OEB had failed to apply the correct legal test. The Ontario Divisional Court held that the deferred tax asset should be allocated to shareholders in its entirety. However, the Ontario Divisional Court concluded that it did not have jurisdiction to substitute its own decision for that of the OEB and, with clear directions as to what the OEB’s decision must be, ordered that the matter be returned to the OEB. The OEB did not appeal the Ontario Divisional Court’s decision. As a result, the Company has recorded a reversal of the previously recognized impairment charge of Hydro One Networks’ distribution and transmission deferred income tax regulatory asset.

In September 2020, the Ontario Divisional Court issued its final order with respect to its decision. In October 2020, the OEB issued a procedural order to implement the direction of the Ontario Divisional Court and required Hydro One to submit its proposal for the recovery of the deferred tax asset amounts allocated to Hydro One Networks’ ratepayers for the 2017 to 2022 period.

In April 2021, the OEB issued its decision on the implementation of the recovery of the deferred tax asset amounts allocated to Hydro One Networks’ ratepayers for the 2017 to 2022 period. The OEB approved recovery of the deferred tax asset amounts that had been allocated to Hydro One Networks’ ratepayers and included in customer rates for the 2017 to 2021 period plus carrying charges over a two-year recovery

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period commencing on July 1, 2021. In addition, Hydro One Networks was required to adjust its transmission revenue requirement and its base distribution rates beginning January 1, 2022 to eliminate any further tax savings flowing to its customers.

In March 2019, Hydro One Networks filed a three-year custom incentive rate application with the OEB for its 2020-2022 transmission revenue requirements. The application requested the OEB’s approval of revenue requirements of $1,623 million for 2020. In June 2019, Hydro One Networks filed updates to the application reflecting recent financial results and other adjustments.

In April 2020, the OEB issued its decision on Hydro One Networks’ 2020-2022 transmission rate application. In July 2020, the OEB issued its final rate order for the 2020-2022 transmission rates approving a revenue requirement of $1,630 million, $1,701 million and $1,772 million for 2020, 2021 and 2022, respectively.

In July 2020, the OEB issued its decision for the uniform transmission rates. The 2020 uniform transmission rates that were put in place on an interim basis on January 1, 2020 continued for the remainder of 2020 in light of the COVID-19 pandemic.

In December 2020, the OEB issued its decision and order setting the final 2021 uniform transmission rates effective January 1, 2021, which included the approval of a two-year disposition period for Hydro One Networks’ 2020 forgone revenue including interest, beginning on January 1, 2021.

In March 2018, the OEB requested that Hydro One Networks file a single application for distribution and transmission revenue requirements for the period from 2023 to 2027. In August 2021, Hydro One Networks filed a custom joint rate application for 2023-2027 which included a proposed investment plan supporting the transmission and distribution revenue requirements. The application requested the OEB’s approval of transmission revenue requirements of $1,823 million for 2023, $1,938 million for 2024, $2,028 million for 2025, $2,140 million for 2026 and $2,219 million for 2027. A decision is anticipated in the latter half of 2022. See also “Business of Hydro One – Distribution Business Segment – Regulation – Recent Distribution Rate Applications – Hydro One Networks”.

B2M Limited Partnership

In July 2019, B2M Limited Partnership filed a transmission rate application for 2020-2024, seeking a base revenue requirement of $36 million for 2020 (subsequently updated to $33 million for lower ROE and interest rates), and a 1.4% revenue cap escalator index for 2021 to 2024. On December 9, 2019, B2M Limited Partnership reached a settlement on all issues with OEB staff and intervenors on the five-year revenue cap rate application for 2020-2024 to be effective January 1, 2020. The settlement accepts all of B2M Limited Partnership’s cost submissions but includes additional reliability reporting and a capital adjustment (reduction) factor of 0.6% to account for the decreasing rate base value. In January 2020, the OEB approved the settlement agreement, including a 2020 base revenue requirement of $33 million, and a revenue cap escalator index for 2021 to 2024. In December 2021, the OEB approved a rate increase of 1.9% effective January 1, 2022.

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HOSSM

HOSSM is under a ten-year deferred rebasing period for years 2017-2026, following receipt of approval by the OEB of Hydro One’s acquisition of HOSSM in October 2016. In July 2018, HOSSM filed a 2019 application to allow for inflationary increase (“revenue cap escalator factor”) to its previously approved revenue requirement. The revenue cap escalator factor is designed to add inflationary increases to the revenue requirement on an annual basis. In June 2019, the OEB approved the revenue cap escalator index at 1.1% (net), which was applied to HOSSM’s base revenue requirement for 2019, effective February 1, 2019, and also approved the 2019-2026 revenue cap framework. In December 2019, the OEB issued a decision on HOSSM’s request for transmission revenue requirement for 2020. The OEB approved the revenue cap adjustment requesting an increase to the 2020 revenue requirement of 1.5% (inflation factor of 1.8% less stretch factor of 0.3%). In December 2021, the OEB approved a rate increase of 2.2% effective January 1, 2022.

Niagara Reinforcement Limited Partnership

In October 2019, NRLP filed its revenue cap incentive rate application for 2020-2024. In December 2019, the OEB approved NRLP’s proposed 2020 revenue requirement of $9 million on an interim basis effective January 1, 2020. In February 2020, NRLP reached a settlement on all issues, accepting the 2020 base costs and the 2019 incurred costs as presented. The settlement included a 50% reduction to the inflation component and a 0.6% capital adjustment factor to account for a decreasing rate base value. In April 2020, the OEB approved the settlement agreement. In December 2021, the OEB approved a rate increase of 0.65% effective January 1, 2022.See “General Development of the Business – Chronological Development of the Business – Niagara Reinforcement Limited Partnership – 2019” for more information.

Reliability Standards and Regulations for Transmission

The Company’s transmission business is required to comply with various mandatory regulations for transmission reliability, including mandatory standards, directories and market rules (collectively, the “Reliability Standards”) established by NERC, NPCC, the OEB and the IESO, which are international, regional and Ontario reliability regulatory authorities, respectively, involved in regulating, promoting and otherwise improving the reliability of transmission networks in North America. Hydro One’s compliance with these Reliability Standards is enforced by both the IESO and the Canadian Energy Regulator.

In addition to the currently enforced Reliability Standards, NERC, NPCC, the OEB and IESO continue to develop and issue new and revised Reliability Standards and other regulations, including Critical Infrastructure Protection Standards and Cybersecurity Regulations with which Hydro One and other utilities, owners and operators of the bulk electricity system in North America must comply. Hydro One expects to continue to perform work, and to incur associated costs, in order to achieve, sustain and demonstrate compliance with all of these Reliability Standards. Hydro One anticipates that these costs will be recovered in rates. See the Annual MD&A under the subheadings “Risk Management and Risk Factors – Risks Relating to Hydro One’s Business – Compliance with Laws and Regulations”, “Risk Management and Risk Factors – Risks Relating to Hydro One’s Business – Risk Associated with

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Information Technology (IT), Operational Technology (OT) Infrastructure and Data Security” and “Risk Management and Risk Factors – Risks Relating to Hydro One’s Business – Risks Relating to Asset Condition, Capital Projects and Innovation” for more information.

Regional Planning

The OEB oversees regional planning processes to ensure that transmission and distribution investments are coordinated at a regional level. One of the OEB objectives for regional planning is to review and/or rely on the recommendations within the regional planning reports to support rate applications submitted by transmitters and distributors and “leave to construct” applications submitted by transmitters. In Ontario, the first and last phases (Needs Assessment and Regional Infrastructural Plan) of the regional planning process are led by the transmitter responsible for a particular geographic region. Hydro One also coordinates with the IESO on its Integrated Regional Resource Planning, which is another phase of the regional planning process. For this purpose, the province is divided into 21 regions. As the largest transmitter in Ontario, Hydro One plays a key role in the regional planning process and is responsible for leading the regional planning process in 20of the 21 designated regions.

In conducting regional planning, Hydro Oneworks closely with the IESO and all distributors in the region through study teams to jointly identify needs and develop transmission and distribution investment options.

In December 2020, the OEB announced that it was initiating a consultation to undertake a review of the regional planning process that applies to Ontario’s electricity sector, to improve the efficiency and effectiveness of the current regional planning process. As a result, the OEB re-established its Regional Planning Process Advisory Group (“RPPAG”), comprised of a number of interested stakeholders, including Hydro One, to assist in its review. In December 2021, RPPAG provided its report to the OEB with recommendations intended to improve the regional planning process in Ontario. The RPPAG’s report is the first step in the OEB’s Regional Planning Process Review consultation.

Capital Expenditures

The Company anticipates that it will spend in the range of approximately $1,172 million to $1,596 million per year, over the next six years, on capital expenditures relating to its transmission business. The Company’s capital expenditure plans are included in Hydro One’s applications to the OEB for transmission and distribution rates and are subject to approval by the OEB. See the Annual MD&A under the subheadings “Capital Investments – Future Capital Investments” and “Capital Investments – Major Transmission Capital Investment Projects” for more information on future capital expenditures.

The Company incurs both sustaining capital expenditures and development capital expenditures. Sustaining capital expenditures are those investments required to replace or refurbish our assets and facilities to ensure that the transmission system continues to function as originally designed. Hydro One’s plans to maintain, refurbish or replace existing assets are based upon risk assessments, asset condition assessments and end-of-service life criteria specific to each type of asset. Priorities are assigned to each type of investment based upon the extent of the risks that it mitigates.

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Investments to sustain Hydro One’s transmission assets are critical to maintain the safety, reliability and integrity of its existing transmission network. Hydro One’s sustainment capital plan is designed to maintain Hydro One’s transmission reliability performance, as determined by measures such as the average frequency and duration (in minutes) of unplanned interruptions per delivery point. The Company expects that significant investments will be required to sustain its existing infrastructure over the long term.

The Company’s development capital expenditure plan is designed to address Ontario’s expected change in the generation profile, accommodate load growth in areas throughout Ontario and support the economic growth in Ontario including industrial and agricultural growth and connection of the remote communities in the northern part of the province. Development capital expenditures include those investments required to develop and build new large-scale projects such as new transmission lines and stations as well as smaller projects such as transmission line or station reinforcements, extensions or additions to connect generation or serve load.

The Company engages with various stakeholders, including its customers and the IESO, as it develops its capital plans. It also engages affected communities and parties who may be impacted by individual projects. The Company also consults with Indigenous communities whose rights may be affected by its projects.

Competitive Conditions

Within our principal market of Ontario, the Company operates and maintains substantially all of the transmission system. Competition for transmission services in Ontario is currently limited. The adoption by the OEB of uniform transmission rates that apply to all transmitters also reduces the financial incentive for customers to seek alternative transmission providers, since each transmitter in Ontario charges the same uniform rate for transmission services. Hydro One competes with other transmitters for the opportunity to build new large-scale transmission facilities in Ontario. The competitive process was amended in 2016 by the proclamation of the Energy Statute Law Amendment Act to allow for the selection of a transmitter outside the existing competitive process. The 2017 Long-Term Energy Plan directed the IESO to develop a transmission procurement process that is clear, cost-effective, efficient and able to respond to changing policy, market and system needs. In October 2020, the IESO, Infrastructure Ontario and the Canada Infrastructure Bank issued a written market sounding to obtain views and insights of various parties regarding potential IESO-led competitive transmission procurement transaction structures, including the role of government, project development activities, allocation of risks and potential financing arrangements. In early 2021, the IESO initiated an engagement to formalize the bulk system planning process. The IESO has noted that the output of the process will inform competitive mechanisms to meet Ontario’s resource adequacy needs.The IESO has not provided any further direction.

Hydro One does not compete with other transmitters with respect to investments which are made to sustain or develop its existing transmission infrastructure.

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Distribution Business Segment

Overview

Hydro One’s distribution business consists of owning, operating and maintaining Hydro One’s distribution system, which Hydro One Inc. owns primarily through its wholly-owned subsidiary, Hydro One Networks, the largest local distribution company in Ontario. The Company’s distribution system is also the largest in Ontario. The Company’s distribution business is a rate-regulated business that earns revenues mainly by charging distribution rates that are subject to approval by the OEB. Hydro One’s distribution business also includes the business of its wholly-owned subsidiary, Hydro One Remote Communities, which supplies electricity to customers in remote communities in northern Ontario. The Company’s distribution rates are generally determined using a performance-based model, except for the distribution rates of Hydro One Remote Communities, which are set on a cost-recovery basis and do not include a return on equity.

Hydro One’s distribution business represented approximately 38%of its total assets as at December 31, 2021, and accounted for approximately 49% of its total revenue in 2021, net of purchased power,2 and approximately 75% of its total revenue in 2021 and approximately 49% of its total revenue in 2020, net of purchased power and approximately 76% of its total revenue in 2020. Distribution revenues include distribution rates approved by the OEB and amounts to reimburse Hydro One for the cost of purchasing electricity delivered to its distribution customers. Distribution revenues also include minor ancillary service revenues, such as fees related to the joint use of the Company’s distribution poles by participants in the telecommunications and cable television industries, as well as miscellaneous charges such as charges for late payments.

As at December 31, 2021, Hydro One’s distribution assets were approximately $11 billion.

Business

Hydro One delivers electricity through its distribution network to approximately 1.5million residential and business customers, most of whom are located in rural areas, as well as 45 local distribution companies (including Hydro One’s own distribution business).

Hydro One’s distribution system includes approximately 125,000 circuit kilometres of primary low-voltage distribution lines and approximately 1,000 distribution and regulating stations. Other distribution assets include poles, transformers, service centres and equipment.

Hydro One’s distribution system services a predominantly rural territory. As a result of the lower population density in the Company’s service territory, the Company’s costs to provide distribution services may be higher than those of distributors who service urban areas. Furthermore, unlike the distribution systems found in urban areas, most of Hydro One’s distribution system was not designed with redundancy, to be interconnected in loops with other distribution lines, with the result that interruptions

2 Revenues, net of purchased power is a non-GAAP financial measure.

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experienced at any point along a distribution line in Hydro One’s network can cause all customers downstream of the interruption point to lose power. Accordingly, the reliability of Hydro One’s distribution system is lower than that of local distribution companies which service urban territories that typically have redundancy built into their systems.

The Company engages in vegetation management activities to maintain the reliability of Hydro One’s distribution system on a preventive basis and to protect public health and safety. This consists of the trimming or removal of trees to lower the risk of contact with distribution lines, thereby reducing the risk of power outages, and preventing potential injury to the public or employees. The Company’s monitoring systems assist with determining areas of priority and with system restoration. The Company relies on its local line crews for these restoration activities.

Hydro One’s distribution business is involved in the connection of new sources of electricity generation, including renewable energy. Hydro One invests in upgrades and modifications to its distribution system to accommodate these new sources of generation and ensure the continued reliability of its distribution network. As at December 31, 2021, there were approximately 17,500 small, mid-size and large embedded generators connected to Hydro One’s distribution network, including approximately 16,000 generators with capacities of up to 10 kW. As at December 31, 2021, Hydro One also had approximately 118 generators pending connection.

Hydro One has played a significant role in the installation of smart meters and the migration of distribution customers to time-of-use pricing in Ontario. Smart meters are regarded as an integral means of promoting a culture of conservation and allow customers to change their electricity consumption patterns and reduce their costs. Hydro One has completed all material activities associated with the implementation of smart meters and has transitioned the vast majority of its customers to Time-of-Use pricing.Hydro One Networks’ recent regulatory application has proposed a capital program to modernize the entire smart metering infrastructure as system and assets reach their end of service over the next several years. The new systems will further enable customer interaction and grid operation capabilities. See “Business of Hydro One – Transmission Business Segment – Regulation – Recent Transmission Rate Applications” and “Business of Hydro One – Distribution Business Segment – Regulation – Recent Distribution Rate Applications – Hydro One Networks” for more information on Hydro One Networks’ application.

Acquisitions

Acquisition of Orillia Power

In August 2016, Hydro One Inc. reached an agreement to acquire Orillia Power, an electricity distribution company located in Simcoe County, Ontario, from the Corporation of the City of Orillia. The acquisition was completed in September 2020. Hydro One Inc. paid the Corporation of the City of Orillia cash consideration of approximately $28 million, inclusive of closing adjustments. In June 2021, the Company successfully completed the integration of Orillia Power.

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Acquisition of Business and Distribution Assets of Peterborough Distribution Inc.

In July 2018, Hydro One Inc. reached an agreement to acquire the business and distribution assets of PDI, an electricity distribution company located in the County of Peterborough, from the Corporation of the City of Peterborough. The acquisition was completed in August 2020. Hydro One Inc. paid the Corporation of the City of Peterborough approximately $104 million, including the assumption of agreed upon liabilities and closing adjustments. In June 2021, the Company successfully completed the integration of the business and distribution assets of Peterborough Distribution, including the integration of employees, customer and billing information, business processes and operations.

Regulation

Distribution Rates

Distribution rates in Ontario are determined using a performance-based model set out in the OEB’s Renewed Regulatory Framework for Electricity Distributors: A Performance-Based Approach, which is sometimes referred to as the “RRF”. Under the RRF, distributors in Ontario may choose one of three rate-setting methods, depending on their capital requirements: 4th Generation Incentive Rate-Setting (now known as “Price Cap IR”), Custom IR Method, or Annual Incentive Rate-Setting Index.

The RRF contemplates that under the Price Cap IR method, a distributor will apply for the approval of its revenue requirement for an initial base year, reflecting the distributor’s cost of service. The revenue requirement for subsequent years is determined based on a formula that accounts for inflation and certain productivity factors set by the regulator. The revenue requirement in these subsequent years is set on the assumption that the distributor will achieve efficiency or productivity improvements to offset the productivity factor imposed by the regulator.

Under the Custom IR Method, a similar methodology to the Price Cap IR may be used; however, applications are multi-year and are designed to reflect a distributor-specific revenue trend for the application term. For example, a distributor may request incremental capital funding beyond amounts established in the base year revenue requirement.

The scope of applications under the Annual Incentive Rate-Setting Index option is limited to formulaic adjustments to prior year OEB-approved rates. The adjustment provides an increase based on inflation, partially offset by a productivity factor. Distributors under this plan do not have access to mechanisms for additional capital funding beyond the formulaic adjustment.

The RRF allows the distributor to retain all or a portion of the cost savings achieved in excess of the estimate established by the regulator during the period covered by the rate decision, subject to any sharing mechanisms that may be required by the OEB, as indicated in the decision of each rate application. This approach allows the distributor an ability to earn more than its allowed return on equity. The RRF also requires distributors to demonstrate certain performance outcomes, namely: customer focus, operational effectiveness, public policy responsiveness and financial performance. The OEB has stated that customer-

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focused outcomes and continuous performance improvements by distributors are central to the RRF framework objectives and are considered as part of a distributor rate application.

Performance measures are an important part of the RRF, and the OEB has established a standard performance scorecard for all distributors, which is reported annually. Distributors may also propose additional performance measures for approval by the OEB. In its most recently approved distribution application for 2018-2022, Hydro One Networks submitted additional measures relating to areas that are of particular interest, such as customer service and reliability, as well as operational efficiency in key areas like pole replacements, distribution station refurbishments and vegetation management. In subsequent rate applications, distributors are required to report to the OEB on their performance against the performance measures approved.

The OEB’s review process of the anticipated cost of service for providing distribution services under the RRF follows a process similar to that of a transmission rate application. Once the revenue requirement for distribution services is determined, it is allocated across the distributor’s customer rate classes using a methodology approved by the OEB resulting in the setting of individual rates for distribution services based on each customer rate class. Distribution rates in Ontario are not the same for all distributors and reflect the particular circumstances of each distributor, including its own costs of providing electricity service to its own particular customers. The OEB policy, A New Distribution Rate Design for Residential Electricity Customers, changes the current distribution rate design for residential customers (a combination of a fixed monthly rate and a variable charge) to a fixed monthly charge only. In December 2015, the OEB increased the transition period for certain customer classes of Hydro One Networks to mitigate bill impacts. Implementation will be completed by 2024 for the majority of Hydro One Networks’ residential customers, depending on rate class. The OEB is considering possible changes to the design of rates for commercial and industrial customers. Changes to rate design will not impact the total revenue to be collected from these customer classes.

Recent Distribution Rate Applications

The Company’s distribution rates, other than the distribution rates of Hydro One Remote Communities, are determined by using a performance-based model.

Hydro One Networks

In March 2017, Hydro One Networks filed a custom application with the OEB for its 2018-2022 distribution rates. The application reflects the level of capital investments required to minimize degradation in overall system asset condition, to meet regulatory requirements, and to maintain current reliability levels. In accordance with the OEB decision rendered in March 2019, Hydro One Networks filed its draft rate order reflecting updated revenue requirements of $1,459 million for 2018, $1,498 million for 2019, $1,532 million for 2020, $1,578 million for 2021, and $1,624 million for 2022. In June 2019, the OEB approved the rate order confirming these updated revenue requirements which include impacts of both the 2018-2022 distribution rate decision and the OEB’s deferred tax asset decision.

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In March 2018, the OEB issued a letter stating that the OEB expected Hydro One Networks to file a joint distribution-transmission rate application for the period from 2023 to 2027. In August 2021, Hydro One Networks filed a custom joint rate application for 2023-2027 which included a proposed investment plan supporting the transmission and distribution revenue requirements. The application requested the OEB’s approval of distribution revenue requirements of $1,632 million for 2023, $1,711 million for 2024, $1,785 million for 2025, $1,881 million for 2026 and $1,965 million for 2027. A decision is anticipated in the latter half of 2022. See “Business of Hydro One – Transmission Business Segment – Regulation – Recent Transmission Rate Applications – Hydro One Networks” for more information.

Hydro One Remote Communities

In April 2020, the OEB approved a 2% increase to Hydro One Remote Communities’ 2019 base rates for new rates effective May 1, 2020, with a deferred implementation date of November 1, 2020 due to the COVID-19 pandemic. In October 2020, the OEB authorized Hydro One Remote Communities to implement a rate rider for the recovery of forgone revenues resulting from postponing rate implementation. The rider was effective until April 30, 2021. In November 2020, Hydro One Remote Communities filed an application with the OEB seeking approval for a 2% increase to 2020 base rates, effective May 1, 2021, which was subsequently updated to 2.2% in accordance with the OEB’s 2021 inflation parameters for electricity distributors issued on November 9, 2020. In March 2021, the OEB approved Hydro One Remote Communities’ application for rates and other charges to be effective May 1, 2021. In November 2021, Hydro One Remote Communities filed an application with the OEB seeking approval for a 2.2% increase to 2021 base rates, effective May 1, 2022, which is expected to be updated to 3.3% based on revised OEB inflation factors. A decision is anticipated in the first half of 2022.

Hydro One Remote Communities’ business is exempt from a number of sections of the Electricity Act which relate to the competitive market. For example, Hydro One Remote Communities continues to apply bundled rates to customers in remote communities. Hydro One Remote Communities’ business is operated on a break-even basis, without a return on equity included in rates. As a result, any net income or loss in the year related to the regulated operations of Hydro One Remote Communities is recorded in a regulatory variance account for inclusion in the calculation of future customer rates.

Conservation and Demand Management

Until March 2019, under the IESO’s 2015-2020 Conservation First Framework, distributors in Ontario offered CDM programs to customers to achieve specific energy savings targets. Distributors were responsible for developing and delivering CDM plans approved and funded by the IESO and reporting on their progress towards achieving projected energy savings targets.

In March 2019, the Province directed the IESO to cancel the 2015-2020 Conservation First Framework and assume accountability for centralized delivery of conservation programs under an interim framework. The interim framework was in effect from April 1, 2019 to December 31, 2020 and offered energy-efficiency incentives and rebates to electricity customers. This was further extended to December 31, 2021 and again to August 31, 2022 by directives from the Minister of Energy in relation to the impacts of COVID-19.Under the interim framework, distributors, including Hydro One, were allowed to offer local

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programs that do not overlap with the IESO’s program offerings. Hydro One continues to deliver CDM programs to those customers for whom CDM project applications were approved.

In September 2020, the Minister of Energy issued a directive to the IESO establishing a $692 million CDM framework for the 2021-2024 period, effective January 1, 2021. The CDM framework focuses on cost-effectively meeting the needs of Ontario’s electricity system, regional and/or local electricity systems, including provincial peak demand reductions, which will be reassessed after the first two years. All programs will be centrally delivered by IESO and will address system needs identified in bulk, regional or distributor planning processes. Where possible, delivery is to be coordinated with natural gas demand side management programs. Under the new framework, local distribution company participation will occur through the IESO’s competitive process. Hydro One will assess opportunities under the new framework.

Capital Expenditures

Hydro One’s asset sustainment activities are based on an assessment of asset condition. Distribution asset renewals are undertaken when assessments indicate there is a high risk of failure and where further maintenance activities are not appropriate. The Company expects capital expenditures for its distribution business in the near term to focus on new load connections, storm damage, wood pole replacement, and system capability reinforcement. In addition, the Company expects to continue to construct new distribution lines and stations in response to system growth forecasts, continued suburban community development, high load relief requirements and requirements to connect new sources of generation. The Company expects that it will spend in the range of approximately $677 million to $1,138 million per year over the next six years on capital expenditures relating to its distribution business. The projections are subject to approval by the OEB.

Hydro One is continuing to modernize its distribution system through the deployment of smart devices (including remotely controllable switches and breakers as well as faulted circuit indicators) as power system assets are renewed. Hydro One has implemented a Distribution Management System (“DMS”) at its Ontario Grid Control Centre. The DMS has enabled distribution components to be monitored and controlled, perform real-time analysis and determine, with greater precision, the location of equipment failures. Additional functionality is planned to allow field staff to view system conditions remotely in real-time. Smart metering data will also be used to deliver operational and asset management benefits such as better notification of outages and their scope, asset loading information and other data. See the Annual MD&A under the subheading “Capital Investments – Future Capital Investments” for more information on future capital expenditures.

Competitive Conditions

Hydro One’s distribution service area is described in its distribution licence issued by the OEB. Only one distributor is permitted to provide distribution services in a service territory, and distributors have exclusive rights to provide service to new customers located within their service territory. As a result, there is very little direct competition for distribution services in Ontario, except near the borders of adjoining service territories, where a distributor may apply to the OEB to claim the right to serve new

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customers or new loads not currently connected to its distribution grid.

Ontario remains an active environment for local distribution company consolidation, resulting in competition for acquisition or merger opportunities. Potential acquirers may include strategic and financial buyers, in addition to other local distribution companies. Hydro One believes that it is well-positioned to continue to pursue consolidation opportunities within Ontario that are beneficial to all stakeholders. Consolidation continues within Ontario.

Other Segment

Hydro One’s other segment consists of certain corporate activities, including a deferred tax asset and is not rate regulated. The deferred tax asset arose from the revaluation of the tax bases of Hydro One’s assets to fair market value when the Company transitioned from the provincial payments in lieu of tax regime to the federal tax regime at the time of the Company’s initial public offering in 2015. Prior to November 6, 2015, Hydro One’s other segment principally consisted of its telecommunications business, run through Hydro One Telecom. As of November 6, 2015, Hydro One Telecom became an indirect wholly-owned subsidiary of Hydro One Limited and was no longer owned by Hydro One Inc.

The other segment represented approximately 2% of Hydro One’s total assets as at December 31, 2021, and accounted for approximately 0% of its total revenue, net of purchased power,3 in 2021 and 2020 and approximately 0% of its total revenue in 2021 and 2020.

Indigenous Communities

Hydro One believes that building and maintaining respectful, positive and mutually beneficial relationships with Indigenous communities across the province is important to achieving the Company’s corporate objectives. Hydro One has established an Indigenous Relations Policy, demonstrating the Company’s desire to work proactively to build relationships with Indigenous communities based on understanding, respect and mutual trust. Hydro One is committed to working with Indigenous communities in a spirit of cooperation, partnership and shared responsibility. Hydro One’s equity partnerships with the Saugeen Ojibway Nation in respect of the Bruce-to-Milton transmission line and with the Six Nations of the Grand River Development Corporation and the Mississaugas of the Credit First Nation in respect of the Niagara Line demonstrate the Company’s commitment to these principles. In keeping with the Company’s Indigenous Relations Policy, Hydro One’s Indigenous Relations team provides guidance and advice to support the Company in developing and advancing positive relationships. Hydro One also has several programs related to Indigenous communities and their citizens. These include educational and training opportunities which provide opportunities for work terms, Indigenous procurement partnership agreements along with community investments, customer support and outreach. Together, Hydro One Networks and Hydro One Remote Communities serve approximately 100 First Nation communities.

The Company’s Indigenous Peoples, Safety & Operations Committee of the Board is responsible for

3 Revenues, net of purchased power is a non-GAAP financial measure.

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assisting the Board in discharging the Board’s oversight of responsibilities relating to effective occupational health and safety and environmental policies and practices at Hydro One, and its relationship with Indigenous communities.

Outsourced Services

Hydro One has outsourced certain non-core functions, including facilities management services with respect to its stations and other facilities, and certain back-office services such as information technology, payroll, supply chain, and finance and accounting services. The Company’s back-office services were provided by a third-party service provider under an agreement that expired on October 31, 2021 for supply chain services with such services then being insourced back to Hydro One and expired on December 31, 2021 for payroll, and finance and accounting services, with the finance and accounting services being insourced back to Hydro One in 2022. In addition, Hydro One has entered into a new third-party services agreement to provide pay operations services for a five-year period. The commencement date for services under the new third-party pay operations services agreement is expected to be in 2023. The Company has entered into a new third-party services agreement for information technology services that expires on February 29, 2024 with an option to extend for two additional one year terms, each at the Company’s discretion. The Company’s facilities management services are provided by a third-party service provider under an agreement that expires on December 31, 2024, with an option for the Company to renew the agreement for an additional term of three years, at the Company’s discretion.

Employees

As at December 31, 2021,Hydro One had approximately 6,100 regular and 2,100 non-regular employees province-wide comprised of a mix of skilled trades, engineering, professional, managerial and executive personnel. The average number of Hydro One employees in 2021 was approximately 9,200, consisting of approximately 6,100regular employees and approximately 3,100non-regular employees. Hydro One’s regular employees are supplemented primarily by accessing a large external labour force available through arrangements with the Company’s trade unions for contingent workers, sometimes referred to as “hiring halls”, and also by access to contract personnel. The hiring halls offer Hydro One the ability to access highly trained and appropriately skilled workers on a project-by-project basis. This arrangement provides the Company with more flexibility to address seasonal needs and unanticipated changes to its budgeted work programs. The Company also offers apprenticeship and technical training programs to ensure that future staffing needs will continue to be met.

In February 2021, Hydro One finalized agreements with the Power Workers’ Union (the “PWU”), the Society of United Professionals (the “Society”), Inergi LP, and Capgemini Canada Inc. to transfer approximately 234 represented Inergi LP employees to Hydro One by January 1, 2022.

The collective agreement with the Society expired on March 31, 2021. On June 25, 2021, Hydro One and the Society reached a tentative agreement, and the agreement was ratified on July 30, 2021. The new agreement expires on March 31, 2023.

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The collective agreement between Hydro One Inc. and the PWU (for classifications excluding Customer Service Operations (“CSO”)) expires on March 31, 2023 and the CSO agreement expires on September 30, 2022.

The construction building trade unions have collective agreements with the Electrical Power Systems Construction Association (the “EPSCA”). EPSCA is an employers’ association of which Hydro One is a member. The EPSCA construction collective agreements, which bind Hydro One, were renewed for a five-year period, covering May 1, 2020 to April 30, 2025. The Canadian Union of Skilled Workers (the “CUSW”) is an electrical construction union that represents Hydro One’s direct hire construction electrician and linespersons. The Hydro One-CUSW collective agreement expires April 30, 2022.

See the Annual MD&A under the headings “Hydro One Work Force” and “Collective Agreements” for more information on employees.

Health, Safety and Environmental Management

Hydro One has an integrated Health, Safety and Environment Management System that includes key elements for the successful minimization of risk and continued performance improvements. Health, safety and environmental hazards and risks are identified and assessed, and controls are implemented to mitigate significant risks. The Company has policies in place regarding Health and Safety, Environment, Workplace Violence and Harassment and Public Safety.

Hydro One Networks is a designated “Sustainable Electricity Company” by the Canadian Electricity Association. This designation demonstrates Hydro One’s commitment to responsible environmental, social and economic practices, and to the principles of sustainable development.

Given the nature of the work undertaken by Hydro One employees, health and safety remains one of the Company’s top priorities. Safety is one of Hydro One’s core values. The Company has developed and is continuing to develop a number of programs and initiatives for incident prevention and to minimize the risk of injury to its employees and the public associated with its facilities and operations.

Since 2004, Hydro One’s recordable incident rate, its key health and safety performance measure, has seen a reduction of approximately 90%. While the Company will continue to monitor and focus on reducing our recordable incident rate, the Company’s primary focus will be on the elimination of all life altering serious injuries and fatalities as our key Health & Safety performance measure. The Company will also be raising the profile of our near miss incident reporting to ensure that the Company learns from and addresses the procedures, training and policies that lead to a safer workplace. All measures are monitored by management and by the Indigenous Peoples, Safety & Operations Committee, a committee of the Board. Management compensation has been tied, in part, to meaningfully improving annual health and safety performance targets. In the event of a fatality and subject to a system investigation, this component of management compensation would not be paid. A program allowing for an effective early and safe return to work has allowed the Company to ensure that, when injuries occur, employees recover and return to the workplace as soon as possible.

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Hydro One continues with its “Journey to Zero” safety initiative that began in 2009. This initiative compares Hydro One to other companies to identify performance gaps. Safety perception assessments were completed in 2009, 2013, 2015, 2017, 2019, and 2021. The assessment identified opportunities for improvement and a cross-functional team from across the Company will use this, and other inputs, to recommend activities that will make a significant difference to safety in the workplace.

Environmental Regulation

Hydro One is subject to extensive federal, provincial and municipal regulation relating to the protection of the environment that governs, among other things, environmental assessments, discharges to water, air and land, and the generation, storage, transportation, disposal and release of various hazardous substances. Estimated environmental liabilities are reviewed annually or more frequently if significant changes in regulation or other relevant factors occur. Estimated changes are accounted for prospectively.

Permits and Approvals

The Company is required to obtain and maintain specified permits and approvals from federal, provincial and municipal authorities relating to the design, construction and operation of new and upgraded transmission and distribution facilities. Examples include environmental assessment approvals, permits for facilities to be located in parks or other regulated areas, water crossing permits, and approvals to discharge to air and water. Some projects may require environmental approvals from the federal government. Interconnections with neighbouring utilities in other provinces and states also require federal approval and will be subject to federal regulatory review. Hydro One makes every effort during consultation to ensure that Indigenous communities are engaged and that their issues and concerns are reflected in the Company’s environmental assessment process and planning.

In general, larger projects are subject to a comprehensive environmental assessment process, pursuant to the Environmental Assessment Act. The majority of approvals fall under a class environmental assessment process which provides for more streamlined approvals. The scope, timing and cost of environmental assessments are dependent on the scale and type of project, the location (urban versus rural), the environmental sensitivity of affected lands and the significance of potential environmental effects.

Regulation of Releases

Federal, provincial and municipal environmental legislation regulates the release of specific substances into the environment through the prohibition of discharges that will or may have an adverse effect on the environment, which can include liquids, gasses and noise. Releases occur in the course of the Company’s normal operations. Accordingly, Hydro One has spill, leak prevention and leak mitigation programs involving the testing, replacement, repair and installation of containment systems including re-gasketting of transformers and sulphur-hexafluoride-filled equipment. In addition, the Company has an emergency response capability which the Company believes is sufficient to minimize the environmental impact of spills and to comply with its legal obligations.

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Hazardous Substances

Hydro One manages a number of hazardous substances, such as PCBs, herbicides, and wood preservatives. In addition, some facilities have substances present which are designated for special treatment under occupational health and safety legislation, such as asbestos, lead and mercury. The Company has environmental management programs in place to deal with PCBs, herbicides, asbestos, and other hazardous substances.

Land Assessment and Remediation

Hydro One has a proactive land assessment and remediation program in place to identify and, where necessary, remediate historical contamination that has resulted from past operational practices and uses of certain long-lasting chemicals at the Company’s facilities. These programs involve the systematic identification of contamination at or from these facilities and, where necessary, the development of remediation plans for the Company’s properties and affected adjacent private properties. As at December 31, 2021, future expenditures related to Hydro One’s land assessment and remediation program were estimated at approximately $54 million. These expenditures are expected to be spent over the period ending 2054. Additional acquisitions could add to land assessment and remediation expenditures. The expenditures on this program for 2021 were approximately $6 million. These costs are expected to be recovered in the Company’s transmission and distribution rates and amounts payable to the Company pursuant to the Remote Electricity Rate Protection Program.

Insurance

Hydro One maintains insurance coverage, including liability, all risk property, boiler and machinery and directors’ and officers’ insurance. The Company also maintains other insurance coverage that is required by law, covering risks such as automobile liability, pesticide liability and aircraft liability. The Company does not have insurance for damage to its transmission and distribution wires, poles or towers located outside transmission and distribution stations, including damage caused by severe weather, other natural disasters or catastrophic events or for environmental remediation costs. The OEB has generally permitted the recovery of costs associated with extreme weather events.

Ombudsman

The Electricity Act requires that the Company have an ombudsman to act as a liaison with customers and to establish procedures for the ombudsman to inquire into and report to the Board on matters raised with the ombudsman by or on behalf of customers. These procedures are set out in a written mandate and terms of reference.

The role of the ombudsman is to facilitate resolution of complaints by customers of the Company that remain unresolved after having been processed through the Company’s complaints handling process. The ombudsman is an impartial and independent investigator, who makes recommendations to facilitate the resolution of both individual and systemic issues with a view to achieving a resolution that is fair to both the customer and the Company. The main purposes of the ombudsman are to address procedural and

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substantive unfairness, handle unresolved complaints, conduct systemic reviews that will lead to improvements in programs and systems, support the Company in holding its employees accountable for carrying out the Company’s directives and their responsibilities, and support the Board in its mandate to govern in a just, fair, and equitable manner. The ombudsman is mandated to work with the OEB to maintain integrated procedures for liaising with the Company and inquiring into matters raised by customers with the ombudsman. The ombudsman is an office of last resort within the Company.

Share Subscription

On November 20, 2017, 2587264 Ontario Inc., a wholly-owned subsidiary of Hydro One Limited, subscribed for 485,870 Class B Preference Shares of Hydro One Inc. for an aggregate redemption price of $486 million plus $2 million of accrued and unpaid dividends. On January 24, 2019, all Class B Preference Shares were redeemed. This transaction was part of the planned purchase of Avista Corporation by Hydro One Limited.

RISK FACTORS

A discussion of Hydro One Inc.’s risk factors can be found under the heading “Risk Management and Risk Factors” in the Annual MD&A.

DIVIDENDS

Dividends on Hydro One Inc.’s common shares are declared at the discretion of the Board and are recommended by management based on Hydro One Inc.’s results of operations, maintenance of the deemed regulatory capital structure, financial condition, cash requirements and other relevant factors, such as industry practice and shareholder expectations.

In 2021, Hydro One Inc. paid no dividends on its Class A Preference Shares or Class B Preference Shares and paid $620 million of dividends on its common shares.

In 2020, Hydro One Inc. paid no dividends on its Class A Preference Shares or Class B Preference Shares and $1 million of dividends on its common shares.

In 2019, Hydro One Inc. paid approximately $1 million of dividends on its common shares. On January 24, 2019, Hydro One Inc. redeemed all of its Class B Preference Shares for an aggregate redemption price of approximately $486 million plus approximately $2 million of accrued and unpaid dividends.

DESCRIPTION OF CAPITAL STRUCTURE

General Description of Capital Structure

The following description may not be complete and is subject to, and qualified in its entirety by reference to, the terms and provisions of Hydro One Inc.’s articles, as they may be amended from time to time.

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Hydro One Inc.’s authorized share capital consists of an unlimited number of common shares, an unlimited number of Class A Preference Shares and an unlimited number of Class B Preference Shares. As at December 31, 2021, there were 142,239 common shares, no Class A Preference Shares, and no Class B Preference Shares issued and outstanding.

All of the outstanding common shares of Hydro One Inc. (all of Hydro One Inc.’s voting securities) are owned by Hydro One Limited.

On November 20, 2017, 2587264 Ontario Inc., a wholly-owned subsidiary of Hydro One Limited, subscribed for 485,870 Class B Preference Shares of Hydro One Inc. for an aggregate redemption price of $486 million plus $2 million of accrued and unpaid dividends. On January 24, 2019, all the Class B Preference Shares were redeemed.

Common Shares

Holders of common shares are entitled to receive notice of and to attend all meetings of shareholders and to vote thereat, except meetings at which only the holders of a specified class of shares are entitled to vote separately as a class or series. On each occasion when holders of common shares are entitled to vote, holders of common shares are entitled to one vote per share at all such meetings of shareholders. Subject to the rights, privileges, restrictions and conditions attaching to any other class of shares of Hydro One Inc., including the Class A Preference Shares and the Class B Preference Shares, holders of the common shares are entitled to receive dividends if, as, and when declared by the Board. Holders of common shares are also entitled to receive the remaining property of Hydro One Inc. upon its liquidation, dissolution or winding-up.

Class A Preference Shares

Hydro One Inc. may from time to time issue Class A Preference Shares. Subject to the rights, privileges, restrictions and conditions attaching to the Class B Preference Shares, the holders of the Class A Preference Shares shall be entitled to receive, as and when declared by the Board, non-cumulative preferential dividends at a rate per share per annum to be determined by the Board.

Subject to the OBCA, holders of Class A Preference Shares are not entitled to receive notice of, or to attend or to vote at, any meeting of the shareholders of Hydro One Inc. The Class A Preference Shares rank junior to the Class B Preference Shares, but are entitled to a preference over the common shares and any other shares ranking junior to the Class A Preference Shares with respect to payment of dividends and the distribution of assets and return of capital in the event of the liquidation, dissolution or winding up of Hydro One Inc.

Subject to the OBCA, Hydro One Inc., at its option, is entitled to redeem at any time or times all or any part of the Class A Preference Shares with or without the consent of such holder by giving notice in writing, (unless such notice is waived by the holder) specifying the number of shares to be redeemed, the redemption price and the date on which Hydro One Inc. wishes to redeem such Class A Preference Shares (the “Class A Redemption Date”). The Class A Redemption Date shall be 30 day(s) after the date on

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which the notice is given by the Company or such other date as Hydro One Inc. and such holder may agree. From and after the Class A Redemption Date, subject to certain conditions, such Class A Preference Shares shall cease to be entitled to dividends and the holder thereof shall not be entitled to exercise any of the rights of holders of Class A Preference Shares in respect thereof.

Class B Preference Shares

Hydro One Inc. may from time to time issue Class B Preference Shares. The holders of the Class B Preference Shares shall be entitled to receive, as and when declared by the Board, cumulative preferential cash dividends payable quarterly on the 20th day of the months of February, May, August and November in each year commencing February 20, 2018 (each a “Class B Dividend Payment Date”) at the Floating Quarterly Dividend Rate as calculated from time to time as set out in the Company’s articles.

For purposes of the forgoing:

•“Floating Quarterly Dividend Rate” means, for any Quarterly Floating Rate Period, the rate (expressed as a percentage rate rounded down to the nearest one hundred-thousandth of one percent (with 0.000005% being rounded up)) equal to the sum of the CDOR Rate on the applicable Floating Rate Calculation Date plus 0.25%.

•“CDOR Rate” means, for any Quarterly Floating Rate Period, the average rate for Canadian dollar bankers’ acceptances with a term of three months which appears on the Bloomberg Screen CDOR Page as of 10:00 a.m. (Toronto time) on the applicable Floating Rate Calculation Date, provided that if the CDOR Rate does not appear on the Bloomberg Screen CDOR Page as contemplated on a Floating Rate Calculation Date, then the CDOR Rate applicable for the applicable Quarterly Floating Rate Period shall be calculated by Hydro One Inc. as the average of the rates applicable to Canadian dollar bankers’ acceptances with a term of three months quoted by four chartered banks listed on Schedule I of the Bank Act (Canada) (the “Approved Banks”) at 10:00 a.m. (Toronto time) on the applicable Floating Rate Calculation Date, provided that if fewer that four of the Approved Banks quote the aforementioned rate on the applicable Floating Rate Calculation Date and at the time described above, then the CDOR Rate for the applicable Quarterly Floating Rate Period shall be the average of the rates of the Approved Banks so quoting on the applicable Floating Rate Calculation Date or the rate so quoted by a single Approved Bank if only one such Approved Bank quotes the aforementioned rate on the applicable Floating Rate Calculation Date.

•“Quarterly Floating Rate Period” means the period commencing on each Floating Rate Calculation Date (November 20, 2017 and each Class B Dividend Payment Date thereafter) to, but excluding, the next Floating Rate Calculation Date. Accordingly, on each Class B Dividend Payment Date, the dividend payable on the Class B Preference Shares, if declared, will be in the amount per Class B Preference Share determined by multiplying: (i) the product obtained by multiplying the amount paid up thereon in respect of each Class B Preference Share by the Floating Quarterly Dividend Rate applicable to the Quarterly Floating Rate Period immediately preceding such Class B Dividend Payment Date; by (ii) a fraction, the numerator of which is the actual number of days elapsed in such Quarterly Floating Rate Period and the denominator of which is 365 or 366, depending upon the actual number of days in the applicable year. Dividends

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on the Class B Preference Shares shall be in priority to any dividends declared on the Class A Preference Shares, the common shares or any other shares of the Company ranking junior to the Class B Preference Shares.

Subject to the OBCA, holders of Class B Preference Shares are not entitled to receive notice of, or to attend or to vote at, any meeting of the shareholders of Hydro One Inc. The Class B Preference Shares are entitled to a preference over the Class A Preference Shares, the common shares and any other shares ranking junior to the Class B Preference Shares with respect to payment of dividends and the distribution of assets and return of capital in the event of the liquidation, dissolution or winding up of Hydro One Inc.

Subject to the OBCA, Hydro One Inc., at its option, is entitled to redeem at any time or times all or any part of the Class B Preference Shares with or without the consent of such holder by giving notice in writing, unless such notice is waived by the holder, specifying the number of shares to be redeemed, the redemption price and the date on which Hydro One Inc. wishes to redeem such Class B Preference Shares (the “Class B Redemption Date”). The Class B Redemption Date shall be 30 days after the date on which the notice is given by the Company or such other date as Hydro One Inc. and such holder may agree. From and after the Class B Redemption Date, subject to certain conditions, such Class B Preference Shares shall cease to be entitled to dividends and the holder thereof shall not be entitled to exercise any of the rights of holders of Class B Preference Shares in respect thereof.

Subject to the OBCA, a holder of any Class B Preference Shares is entitled to require Hydro One Inc. to redeem at any time or times any Class B Preference Shares registered in the name of such holder by tendering to the Company at its registered office a share certificate representing the Class B Preference Shares which the holder desires to have the Company redeem together with a request in writing (the “Retraction Demand”), unless such request is waived by the Company, specifying the number of shares to be redeemed and the business day (the “Retraction Date”) on which the holder wishes to have the Company redeem such Class B Preference Shares. The Retraction Date shall be the date that is one business day after the date on which the Retraction Demand is tendered to the Company or such other date as the holder and Hydro One Inc. may agree. From and after the Retraction Date, subject to certain conditions, such Class B Preference Shares shall cease to be entitled to dividends and the holder thereof shall not be entitled to exercise any of the rights of holders of Class B Preference Shares in respect thereof.

Except with the consent in writing of the holders of all the Class B Preference Shares outstanding, no dividends shall at any time be declared and paid, or declared and set aside for payment, and no other distributions shall at any time be made on or in respect of the Class A Preference Shares, the common shares, or any other shares of the Company ranking junior to the Class B Preference Shares, if the payment or setting aside for payment of such dividend or the making of such distribution would impair the ability of Hydro One Inc. to redeem any Class B Preference Shares on the Class B Redemption Date or the Retraction Date.

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CREDIT RATINGS

As of December 31, 2021, Hydro One Inc.’s long-term and short-term debt ratings were as follows:

Rating Agency	Short-term Debt Rating	Long-term Debt Rating
DBRS Limited (“DBRS”)	R-1 (low)	A (high)
Moody’s Investors Service (“Moody’s”)	Prime-2	A3
S&P Global Ratings (“S&P”)	A-1 (low)	A-

Credit ratings are intended to provide investors with an independent measure of the credit quality of an issue of securities and are indicators of the likelihood of payment and of the capacity and willingness of a company to meet its financial commitment on an obligation in accordance with the terms of the obligation.

The rating agencies rate long-term debt instruments by rating categories ranging from a high of AAA to a low of D (C in the case of Moody’s). Long-term debt instruments which are rated in the A category by S&P are in the third highest category and mean the obligor’s capacity to meet its financial commitments and obligations is strong but is considered somewhat more susceptible to the adverse effects of changes in circumstances and adverse economic conditions than obligations in higher rated categories. S&P may modify the ratings from AA to CCC using a plus (+) or minus (-) sign to show relative standing within the major rating categories. The addition of a rating outlook such as “stable”, “positive”, “negative” or “developing” assesses the potential direction of a long-term credit rating over the intermediate term (typically six months to two years). An outlook is not necessarily a precursor of a ratings change. Long-term debt instruments which are rated in the A category by DBRS are in the third highest category and are considered to be of a good credit quality, with substantial capacity for the payment of financial obligations. Entities in the A category are considered to be vulnerable to future events, but qualifying negative factors are considered manageable. The “high” or “low” modifier indicates relative standing within this rating category by DBRS. The assignment of a “positive”, “stable” or “negative” trend provides guidance in respect of DBRS’ opinion regarding the trend for the rating. The rating trend indicates the direction in which DBRS considers the rating may move if present circumstances continue, or in certain cases, unless challenges are addressed by the issuer. Long-term debt instruments which are rated in the A category by Moody’s are in the third highest category and are considered upper-medium-grade and are subject to low credit risk. Moody’s applies numerical modifiers 1, 2 and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates a ranking in the higher end of that generic rating category and a modifier 3 indicates a ranking in the lower end of that generic rating category. The addition of a rating outlook such as “stable”, “positive”, “negative” or “developing” indicates Moody’s opinion regarding the likely rating direction over the medium term.

DBRS’ short-term debt rating is based on its commercial paper and short-term debt rating scale that ranges from R-1 (high) to D. Commercial paper and short-term debt which are rated in the R-1 (low) category by DBRS are in the third highest category and are considered by DBRS to be of good credit quality. The capacity of the issuer for the payment of short-term financial obligations as they fall due is substantial. The overall strength of the obligation is not as favorable as higher rating categories and may

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be vulnerable to future events, but qualifying negative factors are considered manageable. S&P’s Canada national scale commercial paper ratings range from A-1 (high) to D. A short-term obligation rated A-1 (low) by S&P are in the third highest of eight available ratings categories and mean that such obligations are slightly more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor’s capacity to meet its financial commitments on the obligation is satisfactory. Moody’s short-term debt rating is employed on a scale ranging that ranges from P-1 to NP. Short-term debt instruments which are rated in the P-2 category by Moody’s are in the second highest category. The issuer is considered to have a strong ability to repay short-term debt obligations.

The ratings mentioned above are not a recommendation to purchase, sell or hold Hydro One Inc.’s debt securities and do not comment as to market price or suitability for a particular investor. There can be no assurance that the ratings will remain in effect for any given period of time or that the ratings will not be revised or withdrawn entirely by any or all of S&P, DBRS and Moody’s at any time in the future if in their judgment circumstances so warrant.

Hydro One Inc. has made, and anticipates making, payments to each of S&P, DBRS and Moody’s pursuant to the ratings agency services agreements entered into with such credit rating organizations. In addition, as debt securities are issued, Hydro One Inc. expects to make payments to such credit rating organizations pursuant to the ratings agency services agreements entered into with such credit rating organizations for the ratings they assign to such debt securities.

Various ratings organizations review the Company’s debt ratings from time to time. These ratings organizations may take various actions, positive or negative. The Company cannot predict what actions rating agencies may take in the future. The failure to maintain the Company’s current credit ratings could adversely affect the Company’s financial condition and results of operations, and a downgrade in the Company’s credit ratings could restrict the Company’s ability to access debt capital markets and increase the Company’s cost of debt.

MARKET FOR SECURITIES

Hydro One Inc.’s Debentures (7.35%) due 2030, Series 2 Notes (6.93%) due 2032, Series 4 Notes (6.35%) due 2034, Series 5 Notes (6.59%) due 2043, Series 9 Notes (5.36%) due 2036, Series 11 Notes (5.00%) due 2046, Series 12 Notes (4.89%) due 2037, Series 17 Notes (6.03%) due 2039, Series 18 Notes (5.49%) due 2040, Series 23 Notes (4.39%) due 2041, Series 24 Notes (4.00%) due 2051, Series 26 Notes (3.79%) due 2062, Series 29 Notes (4.59%) due 2043, Series 30 Notes (4.29%) due 2064, Series 32 Notes (4.17%) due 2044, Series 35 Notes (2.77%) due 2026, Series 36 Notes (3.91%) due 2046, Series 38 Notes (3.72%) due 2047, Series 40 Notes (2.97%) due 2025, Series 41 Notes (3.63%) due 2049, Series 42 Notes (2.54%) due 2024, Series 43 Notes (3.02%) due 2029, Series 44 Notes (3.64%) due 2050, Series 45 Notes (1.76%) due 2025, Series 46 Notes (2.16%) due 2030, Series 47 Notes (2.71%) due 2050, Series 48 Notes (0.71%) due 2023, Series 49 Notes (1.69%) due 2031, Series 50 Notes (2.23%) due 2031, and Series 51 Notes (3.10%) due 2051 are currently outstanding and, except for the Series 29 Notes, are not listed on any exchange or similar market for securities. Hydro One Inc.’s Series 29 Notes are listed for trading on the NYSE.

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Prior Sales

In 2021, Hydro One Inc. issued the following tranches of medium term notes:

Note	Issue Date	Principal Amount (million)($)	Sale Price ($) / $100 principal amount	Gross Proceeds ($)
Series 50 Notes (2.23%) due 2031	September 17, 2021	450	99.929	449,680,500
Series 51 Notes (3.10%) due 2051	September 17, 2021	450	99.922	449,649,000

Trading Price and Volume

Hydro One Inc.’s Series 29 Notes (4.59%) due 2043 are listed on the NYSE under the symbol “HYDO43”. During the period from their date of issuance to December 31, 2021, there have beenno reported trades of the Series 29 Notes on the NYSE.

DIRECTORS AND OFFICERS

Directors and Executive Officers

The following table sets forth information regarding the directors and executive officers as of December 31, 2021. Each of the directors was first appointed effective August 14, 2018, unless otherwise noted. Each director is elected annually to serve until the earlier of his or her resignation or until his or her successor is elected or appointed.

Name, Province or State and Country of Residence	Age	Position/Title	Independent Board Member	Principal Occupation	Committees
Mark Poweska Ontario, Canada	52	President and CEO and Director		President and CEO
Chris Lopez Alberta, Canada	47	CFO		CFO
Jason Fitzsimmons Ontario, Canada	51	Chief Corporate Affairs and Customer Care Officer		Chief Corporate Affairs and Customer Care Officer
Paul Harricks Ontario, Canada	67	Chief Legal Officer		Chief Legal Officer
Megan Telford Ontario, Canada	47	Chief Human Resources Officer		Chief Human Resources Officer
David Lebeter Ontario, Canada	62	Chief Operating Officer		Chief Operating Officer
Timothy Hodgson Ontario, Canada	61	Director and Chair of the Board	Yes	Director
Cherie Brant(1) Ontario, Canada	47	Director	Yes	Partner, Borden Ladner Gervais LLP	Governance & Regulatory Committee, Indigenous Peoples, Safety & Operations Committee

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Blair Cowper-Smith(1) Ontario, Canada	73	Director	Yes	Director	Audit Committee; Human Resources Committee
David Hay New Brunswick, Canada	66	Director	Yes	Managing Director, Delgatie Incorporated	Governance & Regulatory Committee; Indigenous Peoples, Safety & Operations Committee (Chair)
Jessica McDonald British Columbia, Canada	52	Director	Yes	Director	Audit Committee; Human Resources Committee
Stacey Mowbray(2) Ontario, Canada	59	Director	Yes	Director	Audit Committee; Indigenous Peoples, Safety & Operations Committee
Russel Robertson(1) Ontario, Canada	74	Director	Yes	Director	Audit Committee (Chair); Human Resources Committee
William Sheffield Ontario, Canada	73	Director	Yes	Director	Governance & Regulatory Committee; Indigenous Peoples, Safety & Operations Committee
Melissa Sonberg Québec, Canada	61	Director	Yes	Adjunct Professor, McGill University	Audit Committee; Human Resources Committee (Chair)
Susan Wolburgh(1) (3) Jenah Ontario, Canada	66	Director	Yes	Director	Governance & Regulatory Committee (Chair); Indigenous Peoples, Safety & Operations Committee

Notes:

(1)These directors have been designated as the Province’s nominees to the board of directors of Hydro One for the purpose of the Governance Agreement.

(2)Ms. Mowbray was appointed on July 23, 2020.

(3)Ms. Wolburgh Jenah was appointed on January 1, 2020.

The following includes a brief profile of each of the executive officers and directors of Hydro One Inc., which includes a description of their present occupation and their principal occupations for the past five years:

Mark Poweska – President and CEO

Mark Poweska is President and CEO of Hydro One Limited. With approximately 1.5 million valued customers, over $30billion in assets and 2021 annual revenues of approximately $7.2 billion, Mr. Poweska leads Ontario’s largest electricity transmission and distribution provider and is a proven leader with a reputation for prioritizing safety, exceeding customer expectations, cutting costs and improving operational performance.

With a team of approximately 9,200 skilled and dedicated employees (on average during 2021), Mr. Poweska has devised a corporate strategy that sets a clear vision for the future of Hydro One. Mr. Poweska has deep industry knowledge and an ability to develop enduring relationships with industry partners, unions, Indigenous communities, regulators and all levels of government.

Prior to joining Hydro One in 2019, Mr. Poweska served as Executive Vice President, Operations at BC Hydro. During his tenure in the role, Mr. Poweska successfully led the merger of the former Transmission

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and Distribution organization with the Generation organization. During his 30 years in the industry at BC Hydro and Hydro One, Mr. Poweska has proven that he can build a strong safety culture, put customers first, improve efficiency, and increase shareholder value. Mr. Poweska is a mechanical engineer with experience at all levels of the electricity industry, from the front line to the executive team.

Mr. Poweska is the Chair of the Board of Directors of the Ontario Energy Association and serves on the Board of the Western Energy Institute. He was recognized by the Ontario Energy Association as Leader of the Year for 2020 for his leadership of Hydro One’s transformation to be more customer-driven, sustainable, safe, and efficient.

Chris Lopez – CFO

Chris Lopez is the Chief Financial Officer (CFO) of Hydro One Limited and Hydro One Inc., a position he assumed after being appointed as Acting CFO in late 2018. Mr. Lopez joined Hydro One in 2016 as the Senior Vice President of Finance and has more than 22 years of progressive experience in the utilities industry in Canada, the United States and Australia. As CFO, Mr. Lopez is responsible for the corporate finance function, including treasury and tax, as well as internal audit, investor relations, risk, pensions and shared services, including supply chain, strategy and growth, including Acronym Solutions Inc.,and mergers and acquisitions.

Prior to joining the organization, Mr. Lopez was the Vice President, Corporate Planning and Mergers & Acquisitions at TransAlta Corporation from 2011 to 2015, and the Director of Operations Finance at TransAlta from 2007 to 2011 in Alberta, Canada. He also held senior financial roles for TransAlta in his native Australia, from 1999 to 2007. At the start of his career, he worked as a financial accountant with Rio Tinto in Australia.

Mr. Lopez holds a Bachelor of Business degree from Edith Cowan University in Australia, and a Chartered Accountant designation. He received a graduate diploma in corporate governance and directorships from the Australian Institute of Company Directors in 2007.

Jason Fitzsimmons – Chief Corporate Affairs and Customer Care Officer

Jason Fitzsimmons is the Chief Corporate Affairs and Customer Care Officer of Hydro One Networks. In this role, held since August 2018, Mr. Fitzsimmons has oversight of the company’s customer service, external relations, communications and marketing, sustainability and Indigenous relations functions. Prior to his current role, he served as the company’s Vice President of Labour Relations.

With more than 27 years of experience in the electricity sector, Mr. Fitzsimmons is a highly regarded leader with a proven track record for executing large-scale transformations and building strong relationships with key stakeholders.

Before joining the company in 2016, Mr. Fitzsimmons was the Chief Negotiations Officer at the Ontario Hospital Association and held a number of executive roles at Ontario Power Generation, including Vice President of Human Resources for its Nuclear division.

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He is a Certified Human Resource Executive known for his broad experience in labour management, as well as his passion for health and safety in the workplace. Mr. Fitzsimmons currently serves on the Board of Directors of the Electricity Distributors Association and on the Advisory Board of the Ivey Energy Policy and Management Centre. He is also a member of the Canadian Chamber of Commerce’s Net Zero Council. He is a former member of the Advisory Board for Ryerson University’s Centre for Labour Management Relations and has served on the Board of Directors for the Electrical Power Sector Construction Association.

Paul Harricks – Chief Legal Officer

Paul Harricks is the Executive Vice-President and Chief Legal Officer of Hydro One Limited and Hydro One Inc., leading all aspects of the organization’s regulatory, legal, compliance, corporate governance and business ethics activities. Prior to joining Hydro One in September 2019, Mr. Harricks practiced law for about 40 years, working extensively in the energy and infrastructure industries and serving as a partner and leader of the Energy Sector Industry Group of Gowling WLG Canada LLP, a major Canadian law firm.

A seasoned and trusted legal and strategic advisor, Mr. Harricks has delivered effective results in the fields of electricity distribution, transmission and generation and has led a range of public and private mergers and acquisitions.

Mr. Harricks is a past Director of the Association of Power Producers of Ontario and is a current member and past Chair of the Energy Transition Committee of the Toronto Region Board of Trade. He has been an active member of the International Bar Association. He is also a Director and Audit Committee and Compensation Committee member of Pioneering Technology Corp.

He holds a Bachelor’s Degree from the University of Toronto and an LLB from Osgoode Hall Law School.

Megan Telford – Chief Human Resources Officer

Megan Telford is the Chief Human Resources Officer at Hydro One Networks Inc., a role she assumed in September 2020. Ms. Telford is responsible for all areas of human resources across Hydro One, including labour relations, talent management, total rewards and change and culture.

Ms. Telford is an experienced leader with deep expertise in law and human resources. Before joining Hydro One, Ms. Telford held the position of Head of Human Resources at Toronto Dominion (TD) Insurance from 2019 to 2020, and also held a number of increasingly senior roles across the TD Bank in both legal and human resources since 2007. Prior to TD, Ms. Telford practised labour and employment law at a national law firm and worked at the Permanent Court of Arbitration in The Hague.

Ms. Telford holds an Honours Bachelor of Arts degree in Industrial Relations from McMaster University, a Master of Industrial Relations and Juris Doctor from Queen’s University and she was a law clerk for Justices Stone and Strayer at the Federal Court of Appeal.

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David Lebeter – Chief Operating Officer

David Lebeter is the Chief Operating Officer (COO) of Hydro One Networks Inc. (Hydro One Networks), a role he assumed in January 2020. Mr. Lebeter is responsible for transmission and distribution at the utility including construction, maintenance, vegetation management as well as system operations, asset planning and engineering. He is also responsible for Hydro One Remote Communities Inc., which serves remote communities in Ontario’s far north.

Mr. Lebeter has over 40 years’ experience in the utility and forestry sectors, and has been a vocal leader and a strong advocate for a safe and engaged workforce.

Before joining the organization, he held executive positions at BC Hydro from 2010 to 2019, including Senior Vice-President of Safety and Vice-President of Transmission & Distribution Field Operations. Mr. Lebeter spent 23 years in the forest industry prior to joining the utility sector, working in leadership positions responsible for operations.

He has previously served as an Executive Board Member for Smart Grid Northwest, as an Operations Board Member for Western Energy Institute, and as the Chairman of the Distribution Council with the Canadian Electricity Association. He currently serves on the Board of the Canadian Electricity Association. He holds his ICD.D from the Institute of Corporate Directors.

Mr. Lebeter holds a Bachelor’s degree in Forestry from the University of British Columbia, and is a registered professional forester. In addition, Mr. Lebeter holds an Executive Masters of Business Administration from Simon Fraser University.

Timothy E. Hodgson – Board Chair

Timothy Hodgson is a corporate director and currently serves as Chair of Hydro One. Mr. Hodgson also serves on the boards of Dialogue Health Technologies and the Public Sector Pension Investment Board (PSP Investments). Mr. Hodgson was formerly Managing Partner of Alignvest Management Corporation from 2012 until his retirement in August 2019. He was Special Advisor to Mr. Mark Carney, Governor of the Bank of Canada from 2010 to 2012. From 1990 to 2010, Mr. Hodgson held various positions in New York, London, Silicon Valley and Toronto with Goldman Sachs and served as Chief Executive Officer of Goldman Sachs Canada from 2005 to 2010, with overall responsibilities for the firm’s operations, client relationships and regulatory matters.

His prior directorships include Sagicor Financial Corporation, Sagicor Group Jamaica, MEG Energy, Alignvest Acquisition Corporation, Alignvest Acquisition II Corporation, The Global Risk Institute, KGS-Alpha Capital Markets, Next Canada, the Ivey School of Business and Bridgepoint Health.

Mr. Hodgson holds a Masters of Business Administration from The Ivey School of Business at Western University and a Bachelor of Commerce from the University of Manitoba. He is a Fellow of the Institute of Chartered Professional Accountants (FCPA) and holds his ICD.D.

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Cherie L. Brant – Member of Governance & Regulatory Committee, Member of Indigenous Peoples, Safety & Operations Committee

Cherie Brant is a partner and national leader for Indigenous law group at Borden Ladner Gervais LLP. Ms. Brant has a commercial practice across a wide variety of sectors, including energy and transmission, land development and financing on First Nations lands, franchising, cannabis and economic development. She also provides strategic policy and governance counsel to Indigenous groups. Prior to joining Borden Ladner Gervais LLP, Ms. Brant was a partner at another major Canadian law firm, where she had been practicing since 2013.

Ms. Brant is both Mohawk and Ojibway from the Mohawks of the Bay of Quinte and Wiikwemkoong Unceded Indian Territory. She serves on the boards of Toronto-Dominion Bank, the Anishnawbe Health Foundation, Canadian Council for Aboriginal Business, Canadian Club of Toronto and participates on the Aboriginal Education Council for Centennial College. Her previous directorships include Women’s College Hospital and Trillium Gift of Life.

Ms. Brant holds a Bachelor of Environmental Studies, Urban and Regional Planning Program from the University of Waterloo and a Juris Doctor from the University of Toronto. She is a member of the Ontario Bar Association and the Law Society of Ontario.

In 2017, Ms. Brant received the Lexpert Zenith Award, a national award recognizing women’s contributions in the law and in 2012, she was named one of Lexpert’s “Rising Stars: Leading Lawyers Under 40”.

Blair Cowper-Smith – Member of Audit Committee, Member of Human Resources Committee

Blair Cowper-Smith is the principal of Canadian advisory firm Erin Park Business Solutions. Previously, Mr. Cowper-Smith was Corporate Affairs Officer of Ontario Municipal Employees Retirement System (OMERS) where he also served as a member of the Senior Executive Team from 2008 to 2017 where his responsibilities included regulatory affairs, law and governance. Prior to joining OMERS, he was a Senior Partner at McCarthy Tetrault LLP, where his practice focused on mergers and acquisitions, infrastructure, governance and private equity.

Mr. Cowper-Smith’s current board appointments include Porter Airlines, the Financial Services Regulatory Authority of Ontario, Face the Future Foundation and Advisory Board Chair of Timbercreek Capital. Prior board appointments include 407 ETR, Golf Town and the Global Strategic Investment Alliance. He has served on the Public Policy Committee of the Canadian Coalition for Good Governance and on the Securities Advisory Committee of the Ontario Securities Commission. Mr. Cowper-Smith regularly delivers lectures on governance at the Directors College at McMaster University.

Mr. Cowper Smith holds a Bachelor of Laws (LLB) and Master of Laws (LLM) from Osgoode Hall Law School at York University and holds his ICD.D.

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David Hay – Chair of Indigenous Peoples, Safety & Operations Committee, Member of Governance & Regulatory Committee

David Hay is the Managing Director of Delgatie Incorporated, a strategic advisory firm. He is the former Vice-Chair and Managing Director of CIBC World Markets Inc., a role he held until 2015. From 2004 until 2010, he was President and Chief Executive Officer of New Brunswick Power Corporation. Prior to that Mr. Hay held senior investment banking roles as Senior Vice-President and Director responsible for mergers and acquisitions with Merrill Lynch Canada and Managing Director of European mergers and acquisitions with Merrill Lynch International based in London, England. Mr. Hay spent the early part of his career as a practicing lawyer at Osler, Hoskin & Harcourt LLP and taught at both the University of Toronto and University of New Brunswick. Mr. Hay was a Law Clerk to the Chief Justice of the High Court of the Supreme Court of Ontario from 1981 until 1982.

Mr. Hay also sits on the boards of EPCOR Utilities Inc., and the Council of Clean and Reliable Energy. Prior directorships include Toronto Hydro-Electric System Limited, where he was Vice Chair, and Associated Electric & Gas Insurance Services Limited (AEGIS). Mr. Hay also chaired both the Beaverbrook Art Gallery and SHAD Canada.

Mr. Hay holds a Bachelor of Laws from Osgoode Hall Law School, York University and a Bachelor of Arts from the University of Toronto (Victoria College). He is a Fellow of the Ivey Energy and Policy Institute and holds his ICD.D.

Jessica L. McDonald – Member of Audit Committee, Member of Human Resources Committee

Jessica McDonald is an independent corporate director serving on the boards of publicly traded companies in Canada and the United States. Ms. McDonald currently sits on the boards of GFL Environmental, Coeur Mining, Sustainable Development Technology Canada and the Greater Vancouver Board of Trade. She previously served as Chair of the Board for Canada Post from 2017 to 2020 as well as serving as President and CEO of Canada Post on an interim basis for a year during that time.

From 2014 to 2017, Ms. McDonald held the role of President and CEO at BC Hydro. Her prior experience also includes Chair of Powertech Labs, and Board Director for Powerex. She was previously a Visiting Fellow at Stanford’s Center for Energy Policy and Finance and has extensive experience in government, including Deputy Minister to the Premier and Head of the Public Service of British Columbia.

Ms. McDonald has been named to Canada’s Top 100 Most Powerful Women Hall of Fame, Canada’s Diversity 50, and Canada’s Top 40 Under 40. She holds her ICD.D and CERT Certificate in Cybersecurity Oversight.

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Stacey Mowbray – Member of Audit Committee, Member of Indigenous Peoples, Safety & Operations Committee

Stacey Mowbray is a corporate director. Ms. Mowbray served as President of North America at WW International (formerly Weight Watchers) and as President of WW Canada, from 2014 to 2019. Prior to that, Ms. Mowbray served as President and Chief Executive Officer at The Second Cup Ltd. Ms. Mowbray has extensive marketing and brand experience from years of leading those functions at high profile brands such as Molson Coors Brewing Company, Cara Operations and Pepsi Cola. 

Currently, Ms. Mowbray serves on the board of Currency Exchange International/Exchange Bank of Canada, Sleep Country Canada Holdings Inc., Bonne O Holdings Company and dentalcorp Holdings Ltd. Prior directorships have included Trillium Health Partners, Second Cup Coffee, Liquor Control Board of Ontario, Niagara Ventures Corporation and Coffee Association of Canada as Chair. 

Ms. Mowbray has received numerous recognitions including Diversity Champion, Inaugural CEO in Residence for Wilfrid Laurier, Top 100 Women’s Executive Network, Top 20 Women’s Post and Schulich School of Business Outstanding Progress and Achievement Award. Ms. Mowbray holds a Master of Business Administration in Finance and Marketing from Schulich School of Business - York University, as well as a Bachelor of Business Administration from Wilfrid Laurier University. Ms. Mowbray holds her ICD.D.

Russel C. Robertson – Chair of Audit Committee, Member of Human Resources Committee

Russel Robertson served as Executive Vice-President and Head, Anti-Money Laundering, at BMO Financial Group from 2014 to 2016. Prior to this Mr. Robertson served as Executive Vice-President, Business Integration from 2011 to 2014, where he oversaw the integration of Harris Bank and Marshall & Ilsley Bank to form BMO Harris Bank and as Chief Financial Officer, BMO Financial Group from 2008 to 2011. Before joining BMO, he spent over 35 years as a Chartered Professional Accountant holding various senior positions, including the positions of Vice-Chair, Deloitte & Touche LLP (Canada) and Canadian Managing Partner, Arthur Andersen LLP (Canada).

Mr. Robertson sits on the board of Bausch Health Companies Inc. and on the Board of Turquoise Hill Resources Ltd., where he chairs both audit committees. Previous directorships include Virtus Investment Partners Inc.

Mr. Robertson holds a Bachelor of Arts (Honours) in Business Administration from the Ivey School of Business at the Western University. He is a Chartered Professional Accountant (FCPA, FCA), a Fellow of the Institute of Chartered Accountants (Ontario) and holds his ICD.

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William H. Sheffield – Member of Governance & Regulatory Committee, Member of Indigenous Peoples, Safety & Operations Committee

William Sheffield has been a corporate director since 2004. Mr. Sheffield is the former CEO of Sappi Fine Papers, headquartered in the UK & South Africa. Previously, he held senior roles with Abitibi-Consolidated Inc. and Abitibi-Price Inc. He began his career in the steel industry with Stelco Inc.

Mr. Sheffield currently sits on the board of Velan Inc. Previous directorships include Houston Wire & Cable Company, Canada Post Corporation, Ontario Power Generation, Corby Distilleries, Royal Group Technologies, Family Enterprise Canada, and SHAD. In addition to having served on the boards of a number of public companies, Mr. Sheffield is also a member of several significant family enterprise advisory boards.

Mr. Sheffield holds a Bachelor of Science (Chemistry) from Carleton University, an MBA from McMaster University and holds his ICD.D. In 2015, he was awarded a Fellowship from the National Association of Corporate Directors in the U.S. He also completed the Family Enterprise Advisors Program (FEA) at the University of British Columbia.

Melissa Sonberg – Chair of Human Resources Committee, Member of Audit Committee

Melissa Sonberg is Professor of Practice at McGill University’s Desautels Faculty of Management, where she has been on the faculty since 2014. She spent the early part of her career in the healthcare industry before joining Air Canada, where she held leadership positions in a range of customer facing, operational and corporate functions. Ms. Sonberg was part of the founding executive team of Aeroplan, which became part of AIMIA Inc. Ms. Sonberg held positions of Senior Vice President, Human Resources & Corporate Affairs and Senior Vice President, Global Brands, Communications and External Affairs at AIMIA from 2001 to 2013.

Ms. Sonberg sits on the boards of Exchange Income Corporation, Athennian, and the Montreal Children’s Hospital Foundation. Previous directorships include Via Rail Canada, MD Financial Holdings, Inc., Rideau, Inc., Group Touchette, Women in Capital Markets and the McGill University Health Centre.

Ms. Sonberg holds a Bachelor of Science (Psychology) from McGill University, a Masters of Health Administration from the University of Ottawa and holds her ICD.D. She is a Certified Human Resource Executive (CHRE).

Susan Wolburgh Jenah – Chair of Governance & Regulatory Committee, Member of Indigenous Peoples, Safety & Operations Committee

Susan Wolburgh Jenah has over 30 years’ experience as a senior regulator, executive and lawyer. Throughout her career, she has served on numerous corporate, Crown corporation and not-for-profit boards and expert advisory committees.

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Ms. Wolburgh Jenah currently holds board positions at Laurentian Bank of Canada, Aecon Group Inc. and is Vice-Chair of Humber River Hospital. She is a member of the Independent Review Committee of Vanguard Investments Canada. Recent prior directorships include serving as a Public Governor of the U.S. Financial Industry Regulatory Authority, as Chair of the NEO Exchange, and as a director of Aequitas Innovations, The Global Risk Institute, and the Investment Industry Regulatory Organization of Canada (IIROC).

Ms. Wolburgh Jenah was the founding President and CEO of IIROC and held numerous executive roles at the Ontario Securities Commission, including Vice-Chair, Acting Chair, General Counsel and Head of International Affairs.

Ms. Wolburgh Jenah holds a Bachelor of Arts from the University of Toronto and a Juris Doctor from Osgoode Hall Law School. She is also a member of the C.D. Howe National Advisory Council and served as Mentor to the Catalyst Women on Board Program. She is a prior Fellow and Adjunct Professor at Osgoode Hall Law School and recipient of the Osgoode Hall Gold Key for Achievement in 2011. Ms. Wolburgh Jenah holds her ICD.D.

Information Regarding Certain Directors and Executive Officers

As at December 31, 2021, none of the directors or executive officers of Hydro One Inc. beneficially owned, controlled or directed, directly or indirectly, any common shares of Hydro One Inc.

Corporate Cease Trade Orders and Bankruptcies

Except as described below:

•none of the directors or executive officers of Hydro One Inc. nor any shareholder holding shares sufficient to materially affect control of Hydro One Inc. is, or within the last 10 years has served as, a director or executive officer of any company that, during such service or within a year after the end of such service, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets;

•none of the directors or executive officers of Hydro One Inc. is, or within the last 10 years has served as, a director, CEO or CFO of any company that, during such service or as a result of an event that occurred during such service, was subject to an order (including a cease trade order, or similar order or an order that denied access to any exemption under securities legislation), for a period of more than 30 consecutive days; or

•none of the directors or executive officers of Hydro One Inc. nor any shareholder holding shares sufficient to materially affect control of Hydro One Inc., within the last 10 years has become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a

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receiver, receiver manager or trustee appointed to hold the assets of the director, executive officer or shareholder.

Blair Cowper-Smith served as a director of Golfsmith International Holdings GP Inc. and Golf Town Canada Inc. (“Golf Town”) from 2016 to 2018. On September 14, 2016, Golf Town filed for and was granted Court bankruptcy protection under the CCAA. Golf Town emerged from Court protection after being sold to Fairfax Financial Holdings Limited and CI Investments Inc. in October 2016.

Penalties or Sanctions

None of the directors or executive officers of Hydro One Inc., nor any shareholder holding shares sufficient to materially affect control of Hydro One Inc., has been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority or been subject to any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor making an investment decision.

Conflicts of Interest

To the best of the Company’s knowledge, there are no existing material potential conflicts of interest among the Company and the directors or executive officers of the Company as a result of their outside business interests as at the date of this annual information form. Certain of the directors and executive officers serve as directors and executive officers of other public companies. Accordingly, conflicts of interest may arise which could influence these persons in evaluating possible acquisitions or in generally acting on behalf of the Company. Where conflicts arise, they are managed through a variety of measures, including declaration of the conflict, recusal from meetings and/or portions of meetings, and the creation of separate board materials for the affected directors.

Indebtedness of Directors and Executive Officers

No director, executive officer, employee, former director, former executive officer or former employee or associate of any director or executive officer of Hydro One Inc. or any of its subsidiaries had any outstanding indebtedness to Hydro One Inc. or any of its subsidiaries except routine indebtedness or had any indebtedness that was the subject of a guarantee, support agreement, letter of credit or other similar arrangement or understanding provided by Hydro One Inc. or any of its subsidiaries.

CORPORATE GOVERNANCE

Hydro One and the Board recognize the importance of corporate governance to the effective long-term management of the Company. Independence, integrity and accountability are the foundation of the

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Company’s approach to corporate governance.

Hydro One Inc.’s corporate governance practices are influenced by, and to the extent applicable, largely mimic the corporate governance practices of Hydro One Limited. Hydro One Inc.’s corporate governance practices are also influenced by the obligations of Hydro One Limited under the Governance Agreement.

The Governance Agreement requires the Board to be constituted to have the same members as the board of directors of Hydro One Limited unless the board of directors of Hydro One Limited determines otherwise. The Governance Agreement also requires, among other things, that Hydro One Limited cause its subsidiaries, including Hydro One Inc., to manage and operate their business and affairs on a basis that permits Hydro One Limited to maintain, and act in accordance with corporate governance policies, procedures and practices that are consistent with the best practices of leading Canadian publicly listed companies, having regard to Hydro One Limited’s ownership structure and the Governance Agreement.

For further details on Hydro One Limited’s corporate governance practices, including information about its various board committees, please refer to the management information circular of Hydro One Limited for its upcoming annual meeting which, once filed, can be found under Hydro One Limited’s profile on SEDAR at www.sedar.com.

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

Other than as noted below and elsewhere in this annual information form, there are no material interests, direct or indirect, of any director or executive officer of the Company, any shareholder that beneficially owns, or controls or directs (directly or indirectly), more than 10% of any class or series of Hydro One Inc.’s outstanding voting securities, or any associate or affiliate of any of the foregoing persons, in any transaction within the three most recently completed financial years or during the current financial year, up to the date of this annual information form, that has materially affected or is reasonably expected to materially affect the Company.

Relationships with the Province and Other Parties

Overview

The Province is Hydro One Limited’s principal shareholder, and Hydro One Limited directly or indirectly owns all of the issued and outstanding shares of Hydro One Inc. The OEB is the principal regulator of Ontario’s electricity industry. The Province appoints the board members of the OEB and fills any vacancies on the OEB. The OEB is obligated to implement approved directives of the Province concerning general policy and objectives to be pursued by the OEB and other directives aimed at addressing existing or potential abuses of market power by industry participants. The IESO, among other matters, directs the operation of the Ontario power system by balancing supply and demand of electricity and directing electricity flow and assumed the responsibility for forecasting supply and demand of electricity over the medium and long term to meet the needs of the province. The board of directors of the IESO, other than its CEO, is appointed by the Province in accordance with the regulations in effect from time to time under the Electricity Act.

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In connection with the initial public offering of Hydro One Limited, Hydro One Limited entered into the Governance Agreement with the Province, which, among other things, addressed the Province’s role in the governance of Hydro One Limited. The Governance Agreement requires the Board to be constituted to have the same members as the board of directors of Hydro One Limited unless the board of directors of Hydro One Limited determines otherwise. The Governance Agreement also requires, among other things, that Hydro One Limited cause its subsidiaries, including Hydro One Inc., to manage and operate their business and affairs on a basis that permits Hydro One Limited to maintain, and act in accordance with corporate governance policies, procedures and practices that are consistent with the best practices of leading Canadian publicly listed companies, having regard to Hydro One Limited’s ownership structure and the Governance Agreement. For a complete description of the Governance Agreement, and the other details of the relationship between Hydro One Limited and the Province, please refer to Hydro One Limited’s annual information form dated February 25, 2022 which is available under Hydro One Limited’s profile on SEDAR at www.sedar.com.

A copy of the Governance Agreement can also be found under Hydro One Limited’s profile on SEDAR at www.sedar.com. Also see the Annual MD&A under the heading “Related Party Transactions”.

Letter Agreement

In July 2018, Hydro One Limited, on behalf of itself and Hydro One Inc., announced that it had entered into the Letter Agreement for the purpose of the orderly replacement of the board of directors of Hydro One Limited and Hydro One Inc. and the retirement of Mayo Schmidt as the CEO effective July 11, 2018.

For a description of the Letter Agreement, and the other details of the relationship between Hydro One Limited and the Province, please refer to Hydro One Limited’s annual information form dated February 25, 2021 which is available under Hydro One Limited’s profile on SEDAR at www.sedar.com.

A copy of the Letter Agreement can also be found under Hydro One Limited’s profile on SEDAR at www.sedar.com.

Transfer Orders

The transfer orders pursuant to which Hydro One Inc. acquired Ontario Hydro’s electricity transmission, distribution and energy services businesses as of April 1, 1999, did not transfer certain assets, rights, liabilities or obligations where the transfer would constitute a breach of the terms of any such asset, right, liability or obligation or a breach of any law or order (the “trust assets”). The transfer orders did not transfer title to assets located on Reserves, which assets are held by OEFC. See the Annual MD&A under the subheading “Risk Management and Risk Factors – Risks Relating to Hydro One’s Business – Risk from Transfer of Assets Located on Reserves” for more information.

Until it has obtained all consents necessary to complete the transfer of title to these assets to Hydro One, Hydro One is obligated under the transfer orders to manage both the trust assets and the assets otherwise retained by OEFC that relate to Hydro One’s businesses. Hydro One has entered into an agreement with

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OEFC under which it is obligated, in managing these assets, to take instructions from OEFC if Hydro One’s actions could have a material adverse effect on OEFC. OEFC has retained the right to take control of and manage the assets, although it must notify and consult with Hydro One before doing so and must exercise its powers relating to the assets in a manner that will facilitate the operation of Hydro One’s businesses. The consent of OEFC is also required prior to any disposition of these assets.

The Province also transferred officers, employees, assets, liabilities, rights and obligations of Ontario Hydro in a similar manner to its other successor transferees. These transfer orders include a dispute resolution mechanism to resolve any disagreement among the various transferees with respect to the transfer of specific assets, liabilities, rights or obligations.

The transfer orders do not contain any representations or warranties from the Province or OEFC with respect to the transferred officers, employees, assets, liabilities, rights and obligations. Furthermore, under the Electricity Act, OEFC was released from liability in respect of all assets and liabilities transferred by the transfer orders, except for liability under Hydro One’s indemnity from OEFC. The parties, with the consent of the Minister of Finance, agreed to terminate such indemnity effective October 31, 2015. By the terms of the transfer orders, each transferee indemnifies OEFC with respect to any assets and liabilities related to that transferee’s business not effectively transferred, and is obligated to take all reasonable measures to complete the transfers where the transfers were not effective.

Hydro One has indemnified OEFC in respect of the damages, losses, obligations, liabilities, claims, encumbrances, penalties, interest, taxes, deficiencies, costs and expenses arising from matters relating to the Company’s business and any failure by Hydro One to comply with its obligations to OEFC under agreements dated as of April 1, 1999. These obligations include obligations to employ the employees transferred to Hydro One under the transfer orders, make and remit employee source deductions (including tax withholding amounts, and employer contributions), manage the real and personal properties which OEFC continues to hold in trust or otherwise and take any necessary action to transfer all of these properties to the Company, to pay realty taxes and other costs, provide access to books and records and to assume other responsibilities in respect of the assets held by OEFC in trust for the Company.

Departure Taxes

By virtue of being wholly-owned by the Province, Hydro One was exempt from tax under the federal Income Tax Act and the Province’s Taxation Act (the “Tax Acts”). However, under the Electricity Act, Hydro One was required to make payments in lieu of tax to OEFC. The payments in lieu of tax were, in general, equivalent to the amount of tax that Hydro One would otherwise be liable to pay under the Tax Acts if it was not exempt from taxes under those statutes.

In connection with the initial public offering of Hydro One Limited, Hydro One’s exemption from tax under the Tax Actsceased to apply. Under the Tax Acts, Hydro One was deemed to have disposed of its assets immediately before it lost its tax exempt status resulting in Hydro One making payments in lieu of tax under the Electricity Act totalling approximately $2.6 billion in respect thereof, calculated by reference to the federal Income Tax Act.

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Hydro One Inc. also paid OEFC approximately $0.3 billion in additional payments in lieu of tax in connection with the period prior to the initial public offering.

MATERIAL CONTRACTS

The following are the only material contracts that Hydro One Inc. has entered into since January 1, 2002 that remain in effect, other than contracts entered into by Hydro One Inc. in the ordinary course of business:

(a)	(i)	a third supplemental trust indenture dated as of January 31, 2003 relating to the issuance of Series 4 Notes in the aggregate principal amount of $1,000,000,000, of which $200,000,000 was drawn down on January 31, 2003, $120,000,000 was drawn down on June 25, 2004 and $65,000,000 was drawn down on August 24, 2004, pursuant to the Trust Indenture dated as of June 4, 2001 between Hydro One Inc. and Computershare Trust Company of Canada (the “Trust Indenture”);
	(ii)	a fourth supplemental trust indenture dated as of April 22, 2003 relating to the issuance of Series 5 Notes in the aggregate principal amount of $1,000,000,000, of which $250,000,000 was drawn down on April 22, 2003 and $65,000,000 was drawn down on August 20, 2004, pursuant to the Trust Indenture;
	(iii)	an eighth supplemental indenture dated as of May 19, 2005 relating to the issuance of Series 9 Notes in the aggregate principal amount of $1,000,000,000, of which $350,000,000 was drawn down on May 19, 2005 and $250,000,000 was drawn down on April 24, 2006, pursuant to the Trust Indenture;
	(iv)	a tenth supplemental trust indenture dated as of October 19, 2006 relating to the issuance of Series 11 Notes in the aggregate principal amount of $1,000,000,000, of which $75,000,000 was drawn down on October 19, 2006, and $250,000,000 was drawn down on September 13, 2010, pursuant to the Trust Indenture;
	(v)	an eleventh supplemental trust indenture dated as of March 13, 2007 relating to the issuance of Series 12 Notes in the aggregate principal amount of $1,000,000,000, of which $400,000,000 was drawn on March 13, 2007, pursuant to the Trust Indenture;
	(vi)	a sixteenth supplemental trust indenture dated as of March 3, 2009 relating to the issuance of Series 17 Notes in the aggregate principal amount of $1,000,000,000, of which $300,000,000 was drawn down on March 3, 2009, pursuant to the Trust Indenture;

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(vii)	a seventeenth supplemental trust indenture dated as of July 16, 2009 relating to the issuance of Series 18 Notes in the aggregate principal amount of $1,000,000,000, of which $300,000,000 was drawn down on July 16, 2009 and $200,000,000 was drawn on March 15, 2010, pursuant to the Trust Indenture;
(viii)	a twenty-second supplemental trust indenture dated as of July 29, 2011 amending the definition of “Canadian GAAP” in the Trust Indenture;
(ix)	a twenty-third supplemental trust indenture dated as of September 26, 2011 relating to the issuance of Series 23 Notes in the aggregate principal amount of $1,000,000,000, of which $300,000,000 was drawn down on September 26, 2011, pursuant to the Trust Indenture;
(x)	a twenty-fourth supplemental trust indenture dated as of December 22, 2011 relating to the issuance of Series 24 Notes in the aggregate principal amount of $1,000,000,000, of which $100,000,000 was drawn down on December 22, 2011, and $125,000,000 was drawn down on May 22, 2012, pursuant to the Trust Indenture;
(xi)	a twenty-sixth supplemental trust indenture dated as of July 31, 2012 relating to the issuance of Series 26 Notes in the aggregate principal amount of $1,000,000,000, of which $75,000,000 was drawn down on July 31, 2012, and $235,000,000 was drawn down on August 16, 2012, pursuant to the Trust Indenture;
(xii)	a twenty-ninth supplemental trust indenture dated as of October 9, 2013 relating to the issuance of Series 29 Notes in the aggregate principal amount of $1,000,000,000, of which $435,000,000 was drawn down on October 9, 2013, pursuant to the Trust Indenture;
(xiii)	a thirtieth supplemental trust indenture dated as of January 29, 2014 relating to the issuance of Series 30 Notes in the aggregate principal amount of $1,000,000,000, of which $50,000,000 was drawn down on January 29, 2014, pursuant to the Trust Indenture;
(xiv)	a thirty-second supplemental trust indenture dated as of June 6, 2014 relating to the issuance of Series 32 Notes in the aggregate principal amount of $1,000,000,000 of which $350,000,000 was drawn down on June 6, 2014, pursuant to the Trust Indenture;

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(xv)	a thirty-fifth supplemental trust indenture dated as of February 24, 2016 relating to the issuance of Series 35 Notes in the aggregate principal amount of $1,000,000,000 of which $500,000,000 was drawn down on February 24, 2016, pursuant to the Trust Indenture;
(xvi)	a thirty-sixth supplemental trust indenture dated as of February 24, 2016 relating to the issuance of Series 36 Notes in the aggregate principal amount of $1,000,000,000 of which $350,000,000 was drawn down on February 24, 2016, pursuant to the Trust Indenture;
(xvii)	a thirty-eighth supplemental trust indenture dated as of November 18, 2016 relating to the issuance of Series 38 Notes in the aggregate principal amount of $1,000,000,000 of which $450,000,000 was drawn down on November 18, 2016, pursuant to the Trust Indenture;
(xviii)	a fortieth supplemental trust indenture dated as of June 26, 2018 relating to the issuance of Series 40 Notes in the aggregate principal amount of $1,000,000,000 of which $350,000,000 was drawn down on June 26, 2018, pursuant to the Trust Indenture;
(xix)	a forty-first supplemental trust indenture dated as of June 26, 2018 relating to the issuance of Series 41 Notes in the aggregate principal amount of $1,000,000,000 of which $750,000,000 was drawn down on June 26, 2018, pursuant to the Trust Indenture;
(xx)	a forty-second supplemental trust indenture dated as of April 5, 2019 relating to the issuance of Series 42 Notes in the aggregate principal amount of $1,000,000,000 of which $700,000,000 was drawn down on April 5, 2019, pursuant to the Trust Indenture;
(xxi)	a forty-third supplemental trust indenture dated as of April 5, 2019 relating to the issuance of Series 43 Notes in the aggregate principal amount of $1,000,000,000 of which $550,000,000 was drawn down on April 5, 2019, pursuant to the Trust Indenture;
(xxii)	a forty-fourth supplemental trust indenture dated as of April 5, 2019 relating to the issuance of Series 44 Notes in the aggregate principal amount of $1,000,000,000 of which $250,000,000 was drawn down on April 5, 2019, pursuant to the Trust Indenture;

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(xxiii)	a forty-fifth supplemental trust indenture dated as of February 28, 2020 relating to the issuance of Series 45 Notes in the aggregate principal amount of $1,000,000,000 of which $400,000,000 was drawn down on February 28, 2020, pursuant to the Trust Indenture;
(xxiv)	a forty-sixth supplemental trust indenture dated as of February 28, 2020 relating to the issuance of Series 46 Notes in the aggregate principal amount of $1,000,000,000 of which $400,000,000 was drawn down on February 28, 2020, pursuant to the Trust Indenture;
(xxv)	a forty-seventh supplemental trust indenture dated as of February 28, 2020 relating to the issuance of Series 47 Notes in the aggregate principal amount of $1,000,000,000 of which $300,000,000 was drawn down on February 28, 2020 and $200,000,000 was drawn on October 9, 2020, in each case pursuant to the Trust Indenture;
(xxvi)	a forty-eighth supplemental trust indenture dated as of October 9, 2020 relating to the issuance of Series 48 Notes in the aggregate principal amount of $1,000,000,000 of which $600,000,000 was drawn down on October 9, 2020, pursuant to the Trust Indenture;
(xxvii)	a forty-ninth supplemental trust indenture dated as of October 9, 2020 relating to the issuance of Series 49 Notes in the aggregate principal amount of $1,000,000,000 of which $400,000,000 was drawn down on October 9, 2020, pursuant to the Trust Indenture;
(xxviii)	a fiftieth supplemental trust indenture dated as of September 17, 2021 relating to the issuance of Series 50 Notes in the aggregate principal amount of $1,000,000,000 of which $450,000,000 was drawn down on September 17, 2021, pursuant to the Trust Indenture; and
(xxix)	a fifty-first supplemental trust indenture dated as of September 17, 2021 relating to the issuance of Series 51 Notes in the aggregate principal amount of $1,000,000,000 of which $450,000,000 was drawn down on September 17, 2021, pursuant to the Trust Indenture.

Each of these supplemental trust indentures supplement the terms of the Trust Indenture, which contains customary covenants and representations by Hydro One Inc. for the public issuance of debt securities in the Canadian market.

(b)a dealer agreement (the “Dealer Agreement”) dated April 14, 2020 between Hydro One Inc. and BMO Nesbitt Burns Inc., Casgrain & Company Limited, CIBC World Markets Inc., Desjardins Securities Inc., Laurentian Bank Securities Inc., National Bank Financial Inc., RBC Dominion Securities Inc., Scotia Capital Inc. and TD Securities Inc. (collectively, the

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“Dealers”), relating to the public offering of unsecured medium term notes of Hydro One Inc. in a maximum aggregate principal amount of up to $4,000,000,000. The Dealer Agreement provides for the appointment of the Dealers as non-exclusive agents of Hydro One Inc. to solicit, from time to time, offers to purchase its medium term notes in Canada, the United States and, in certain circumstances, other jurisdictions.

Copies of the foregoing material agreements have been filed with the Canadian securities regulatory authorities and are available on SEDAR at www.sedar.com.

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

The Company is from time to time involved in legal proceedings of a nature considered normal to its business. Except as disclosed below, Hydro One believes that none of the litigation in which it is currently involved, or has been involved since the beginning of the most recently completed financial year, individually or in the aggregate, is material to its consolidated financial condition or results of operations. The Company is not subject to any material regulatory actions.

In connection with the reorganization of Ontario Hydro, Hydro One Inc. and certain of its subsidiaries succeeded Ontario Hydro as party to various pending legal proceedings relating to the businesses, assets, real estate and employees transferred to them. Hydro One Inc. and certain of its subsidiaries also assumed responsibility for future claims relating to the businesses, assets, real estate and employees acquired by them respectively and arising out of events occurring prior to, as well as after, April 1, 1999. In addition to claims assumed by the Company, it is, from time to time, named as a defendant in legal actions arising in the normal course of business. There are currently no actions that are outstanding which are expected to have a material adverse effect on the Company.

See the Annual MD&A under the heading “Risk Management and Risk Factors – Risks Relating to Hydro One’s Business – Litigation Risks” for more information.

See “Business of Hydro One – Transmission Business Segment – Regulation – Recent Transmission Rate Applications – Hydro One Networks” for information on the deferred tax asset.

INTEREST OF EXPERTS

KPMG LLP, Chartered Professional Accountants, located at 333 Bay Street, Suite 4600, Bay Adelaide Centre, Toronto, Ontario M5H 2S5, is the auditor of Hydro One Inc. and has audited the consolidated financial statements of Hydro One Inc. as at and for the years ended December 31, 2021 and 2020. KPMG LLP has confirmed that it is independent of Hydro One Inc. within the meaning of the relevant rules and related interpretations prescribed by the relevant professional bodies in Canada and any applicable legislation or regulation and also that they are independent accountants with respect to Hydro One Inc. under all relevant US professional and regulatory standards.

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TRUSTEE AND REGISTRAR

The trustee and registrar for Hydro One Inc.’s debt securities is Computershare Trust Company of Canada, located in Toronto, Ontario. The U.S. trustee and registrar for certain of Hydro One Inc.’s debt securities is Computershare Trust Company, N.A., located in New York, New York.

ADDITIONAL INFORMATION

Additional information relating to Hydro One Inc. may be found on SEDAR at www.sedar.com.

Additional financial information is provided in the Annual MD&A and in the consolidated financial statements and notes thereto of Hydro One Inc. for 2021.

STATEMENT OF EXECUTIVE COMPENSATION

In accordance with the Executive Compensation Exemptive Relief, the Statement of Executive Compensation for Hydro One Inc. in respect of 2021, when filed with the securities regulatory authorities in each of the provinces of Canada, will be deemed to be incorporated by reference into and form an integral part of this annual information form. The Statement of Executive Compensation for Hydro One Inc. in respect of 2021, when filed, will be available under Hydro One Inc.’s profile on SEDAR at www.sedar.com.

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EX-99.2

HYDRO ONE INC.

MANAGEMENT’S REPORT

The Consolidated Financial Statements, Management’s Discussion and Analysis (MD&A) and related financial information have been prepared by the management of Hydro One Inc. (Hydro One or the Company). Management is responsible for the integrity, consistency and reliability of all such information presented. The Consolidated Financial Statements have been prepared in accordance with United States Generally Accepted Accounting Principles and applicable securities legislation. The MD&A has been prepared in accordance with National Instrument 51-102.

The preparation of the Consolidated Financial Statements and information in the MD&A involves the use of estimates and assumptions based on management’s judgment, particularly when transactions affecting the current accounting period cannot be finalized with certainty until future periods. Estimates and assumptions are based on historical experience, current conditions and various other assumptions believed to be reasonable in the circumstances, with critical analysis of the significant accounting policies followed by the Company as described in Note 2 to the Consolidated Financial Statements. The preparation of the Consolidated Financial Statements and the MD&A includes information regarding the estimated impact of future events and transactions. The MD&A also includes information regarding sources of liquidity and capital resources, operating trends, risks and uncertainties. Actual results in the future may differ materially from the present assessment of this information because future events and circumstances may not occur as expected.

Management is responsible for establishing and maintaining adequate disclosure controls and procedures and internal control over financial reporting as described in the annual MD&A. Management evaluated the effectiveness of the design and operation of disclosure controls and procedures and internal control over financial reporting based on the framework and criteria established in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, management concluded that the Company’s internal control over financial reporting was effective at a reasonable level of assurance as of December 31, 2021. As required, the results of that evaluation were reported to the Audit Committee of the Hydro One Board of Directors and the external auditors.

The Consolidated Financial Statements have been audited by KPMG LLP, independent external auditors appointed by the shareholders of the Company. The external auditors’ responsibility is to express their opinion on whether the Consolidated Financial Statements are fairly presented in all material respects in conformity with United States Generally Accepted Accounting Principles. The Report of Independent Registered Public Accounting Firm outlines the scope of their examination and their opinion.

The Hydro One Board of Directors, through its Audit Committee, is responsible for ensuring that management fulfills its responsibilities for financial reporting and internal control over financial reporting and disclosure. The Audit Committee of Hydro One met periodically with management, the internal auditors and the external auditors to satisfy itself that each group had properly discharged its respective responsibility with respect to the Consolidated Financial Statements before recommending approval by the Board of Directors. The external auditors had direct and full access to the Audit Committee, with and without the presence of management, to discuss their audit findings.

On behalf of Hydro One’s management:

Mark Poweska	Christopher Lopez
President and Chief Executive Officer	Chief Financial Officer

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HYDRO ONE INC.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholder and Board of Directors of Hydro One Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Hydro One Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of regulatory assets and liabilities and the impact of rate regulation on the consolidated financial statements

As discussed in Note 2 to the consolidated financial statements, the Company accounts for its regulated operations in accordance with Financial Accounting Standards Board Accounting Standard Codification Topic 980, Regulated Operations (ASC 980). Under ASC 980, the actions of the Company’s regulator may result in the recognition of revenue and costs in time periods that are different than non-rate-regulated enterprises. When this occurs, the Company records incurred and allowed costs that it has assessed are probable of recovery in future electricity rates as regulatory assets or property, plant and equipment. Obligations imposed or probable to be imposed by the regulator to refund previously collected revenue or expenditure of revenue collected from customers on future costs are recorded as regulatory liabilities. As disclosed in Note 13 to the consolidated financial statements, as of December 31, 2021, the Company’s regulatory assets were $3,787 million and regulatory liabilities were $372 million.

We identified the evaluation of regulatory assets and liabilities and the impact of rate regulation as a critical audit matter. Accounting for regulated operations under ASC 980 affects multiple financial statement accounts and disclosures in the Company’s consolidated financial statements. Assessing the accounting for regulated operations requires industry knowledge and significant auditor judgment due to interpretations of regulatory decisions and judgments involved in evaluating the Company’s assessment of the probability associated with recovery of regulatory assets and property, plant and equipment, and imposition of regulatory liabilities.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s regulatory accounting process. This included controls over the evaluation of the probability of (1) the recovery in future rates of costs deferred as regulatory assets, and (2) a refund of previously collected revenue or expenditure of revenue collected from customers on future costs that should be reported as regulatory liabilities, and controls over the monitoring and evaluation of regulatory developments that may affect the probability of recovering costs in future rates or imposing of regulatory liabilities. We evaluated the Company’s assessment of the probability of

2

HYDRO ONE INC.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

recovery of the carrying amount of regulatory assets and property, plant and equipment and the imposition of regulatory liabilities, through consideration of selected on-going regulatory proceedings and decisions. For a selection of regulatory proceedings and decisions, we read the Company’s assessment and interpretations and any written advice of management’s external specialists with respect to the selected assessments and interpretations. For a selection of regulatory assets and liabilities, we recalculated the amounts recorded based on methodologies approved by the regulator and agreed the data used in the calculations to the Company’s underlying books and records. We compared the amounts calculated by the Company to the amounts recorded in the consolidated financial statements.

Chartered Professional Accountants, Licensed Public Accountants

We have served as the Company’s auditor since 2008.

Toronto, Canada

February 24, 2022

3

HYDRO ONE INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

For the years ended December 31, 2021 and 2020

Year ended December 31 (millions of Canadian dollars, except per share amounts)	2021	2020
Revenues
Distribution (includes $286 related party revenues; 2020 - $283) (Note 29)	5,359	5,507
Transmission (includes $1,835 related party revenues; 2020 - $1,721) (Note 29)	1,826	1,743
	7,185	7,250
Costs
Purchased power (includes $2,252 related party costs; 2020 - $2,513) (Note 29)	3,579	3,854
Operation, maintenance and administration (Note 29)	1,081	1,034
Depreciation, amortization and asset removal costs (Note 5)	913	876
	5,573	5,764
Income before financing charges and income tax expense	1,612	1,486
Financing charges (Note 6)	453	469
Income before income tax expense	1,159	1,017
Income tax expense (recovery) (Note 7)	179	(783)
Net income	980	1,800
Other comprehensive income (loss) (Note 8)	16	(24)
Comprehensive income	996	1,776
Net income attributable to:
Noncontrolling interest (Note 28)	8	8
Common shareholder	972	1,792
	980	1,800
Comprehensive income attributable to:
Noncontrolling interest (Note 28)	8	8
Common shareholder	988	1,768
	996	1,776
Earnings per common share (Note 26)
Basic	$6,834	$12,599
Diluted	$6,834	$12,599

See accompanying notes to Consolidated Financial Statements.

4

HYDRO ONE INC.

CONSOLIDATED BALANCE SHEETS

At December 31, 2021 and 2020

As at December 31 (millions of Canadian dollars)	2021	2020
Assets
Current assets:
Cash and cash equivalents	499	712
Accounts receivable (Note 9)	697	719
Due from related parties (Note 29)	399	422
Other current assets (Note 10)	301	181
	1,896	2,034
Property, plant and equipment (Note 11)	23,748	22,548
Other long-term assets:
Regulatory assets (Note 13)	3,561	4,571
Deferred income tax assets (Note 7)	10	16
Intangible assets (Note 12)	567	512
Goodwill (Note 4)	373	373
Other assets (Note 14)	66	79
	4,577	5,551
Total assets	30,221	30,133
Liabilities
Current liabilities:
Short-term notes payable (Note 17)	1,045	800
Long-term debt payable within one year (includes $nil measured at fair value; 2020 - $303) (Notes 17, 18)	603	806
Accounts payable and other current liabilities (Note 15)	1,042	1,026
Due to related parties (Note 29)	255	328
	2,945	2,960
Long-term liabilities:
Long-term debt (Notes 17, 18)	12,593	12,302
Regulatory liabilities (Note 13)	362	231
Deferred income tax liabilities (Note 7)	367	56
Other long-term liabilities (Note 16)	2,694	3,686
	16,016	16,275
Total liabilities	18,961	19,235
Contingencies and Commitments (Notes 31, 32)
Subsequent Events (Note 34)
Noncontrolling interest subject to redemption (Note 28)	20	22
Equity
Common shares (Note 24)	2,957	2,957
Retained earnings	8,229	7,877
Accumulated other comprehensive loss	(14)	(30)
Hydro One shareholder’s equity	11,172	10,804
Noncontrolling interest (Note 28)	68	72
Total equity	11,240	10,876
	30,221	30,133

See accompanying notes to Consolidated Financial Statements.

On behalf of the Board of Directors:

Timothy Hodgson	Russel Robertson
Chair	Chair, Audit Committee

5

HYDRO ONE INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the years ended December 31, 2021 and 2020

Year ended December 31, 2021 (millions of Canadian dollars)	Common Shares	Retained Earnings	Accumulated Other Comprehensive Loss	Hydro One Shareholder’s Equity	Non- controlling Interest (Note 28)	Total Equity
January 1, 2021	2,957	7,877	(30)	10,804	72	10,876
Net income	—	972	—	972	6	978
Other comprehensive income (Note 8)	—	—	16	16	—	16
Distributions to noncontrolling interest	—	—	—	—	(10)	(10)
Dividends on common shares	—	(620)	—	(620)	—	(620)
December 31, 2021	2,957	8,229	(14)	11,172	68	11,240

Year ended December 31, 2020 (millions of Canadian dollars)	Common Shares	Retained Earnings	Accumulated Other Comprehensive Loss	Hydro One Shareholder’s Equity	Non- controlling Interest (Note 28)	Total Equity
January 1, 2020	3,564	6,086	(6)	9,644	59	9,703
Net income	—	1,792	—	1,792	6	1,798
Other comprehensive loss (Note 8)	—	—	(24)	(24)	—	(24)
Distributions to noncontrolling interest	—	—	—	—	(2)	(2)
Contributions from sale of     noncontrolling interest (Note 4)	—	—	—	—	9	9
Dividends on common shares	—	(1)	—	(1)	—	(1)
Return of stated capital (Note 24)	(607)	—	—	(607)	—	(607)
December 31, 2020	2,957	7,877	(30)	10,804	72	10,876

See accompanying notes to Consolidated Financial Statements.

6

HYDRO ONE INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31, 2021 and 2020

Year ended December 31 (millions of Canadian dollars)	2021	2020
Operating activities
Net income	980	1,800
Environmental expenditures	(30)	(23)
Adjustments for non-cash items:
Depreciation and amortization (Note 5)	806	775
Regulatory assets and liabilities	70	68
Deferred income tax expense (recovery)	155	(821)
Other	58	39
Changes in non-cash balances related to operations (Note 30)	69	159
Net cash from operating activities	2,108	1,997
Financing activities
Long-term debt issued	900	2,300
Long-term debt repaid	(804)	(653)
Short-term notes issued	4,150	4,070
Short-term notes repaid	(3,905)	(4,413)
Short-term debt repaid (Note 4)	—	(20)
Return of stated capital	—	(607)
Dividends paid	(620)	(1)
Distributions paid to noncontrolling interest	(8)	(2)
Contributions received from sale of noncontrolling interest (Note 4)	—	9
Costs to obtain financing	(7)	(12)
Net cash from (used in) financing activities	(294)	671
Investing activities
Capital expenditures (Note 30)
Property, plant and equipment	(1,908)	(1,709)
Intangible assets	(142)	(126)
Capital contributions received (Note 30)	14	—
Acquisitions (Note 4)	—	(126)
Other	9	(2)
Net cash used in investing activities	(2,027)	(1,963)
Net change in cash and cash equivalents	(213)	705
Cash and cash equivalents, beginning of year	712	7
Cash and cash equivalents, end of year	499	712

See accompanying notes to Consolidated Financial Statements.

7

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2021 and 2020

1.    DESCRIPTION OF THE BUSINESS

Hydro One Inc. (Hydro One or the Company) was incorporated on December 1, 1998, under the Business Corporations Act (Ontario) and is wholly-owned by Hydro One Limited. The principal businesses of Hydro One are the transmission and distribution of electricity to customers within Ontario.

Rate Setting

The Company's transmission business consists of the transmission system operated by its subsidiaries, Hydro One Networks Inc. (Hydro One Networks) and Hydro One Sault Ste. Marie LP (HOSSM), as well as an approximately 66% interest in B2M Limited Partnership (B2M LP), a limited partnership between Hydro One and the Saugeen Ojibway Nation (SON), and an approximately 55% interest in Niagara Reinforcement Limited Partnership (NRLP), a limited partnership between Hydro One and Six Nations of the Grand River Development Corporation and the Mississaugas of the Credit First Nation (collectively, the First Nations Partners).

Hydro One’s distribution business consists of the distribution system operated by its subsidiaries, Hydro One Networks, inclusive of the distribution system of Orillia Power Distribution Corporation (Orillia Power) and the business and distribution assets of Peterborough Distribution Inc., (Peterborough Distribution) and Hydro One Remote Communities Inc. (Hydro One Remote Communities).

Transmission

On March 7, 2019, the Ontario Energy Board (OEB) issued its reconsideration decision (DTA Decision) with respect to Hydro One's rate-setting treatment of the benefits of the deferred tax asset (DTA) resulting from the transition from the payments in lieu of tax regime to tax payments under the federal and provincial tax regimes. On July 16, 2020, the Ontario Divisional Court rendered its decision (ODC Decision) on the Company's appeal of the OEB's DTA Decision. On April 8, 2021, the OEB rendered its decision and order regarding the recovery of the DTA amounts allocated to ratepayers for the 2017 to 2022 period (DTA Implementation Decision). See Note 13 - Regulatory Assets and Liabilities for additional details.

On April 23, 2020, the OEB rendered its decision on Hydro One Networks' 2020-2022 transmission rate application (2020-2022 Transmission Decision). On July 16, 2020, the OEB issued its final rate order for the 2020-2022 transmission rates approving a revenue requirement of $1,630 million, $1,701 million and $1,772 million for 2020, 2021 and 2022, respectively. On July 30, 2020, the OEB issued its decision for Uniform Transmission Rates (UTRs). The 2020 UTRs that were put in place on an interim basis on January 1, 2020 continued for the remainder of 2020 in light of the COVID-19 pandemic. On December 17, 2020, the OEB issued its decision and order setting the final 2021 UTRs effective January 1, 2021, which included the approval of a two-year disposition period for Hydro One Network's 2020 foregone revenue including interest, beginning on January 1, 2021.

On July 31, 2019, B2M LP filed a transmission rate application for 2020-2024. On January 16, 2020, the OEB approved the 2020 base revenue requirement of $33 million, and a revenue cap escalator index for 2021 to 2024.

On October 25, 2019, NRLP filed its revenue cap incentive rate application for 2020-2024. On December 19, 2019, the OEB approved NRLP’s proposed 2020 revenue requirement of $9 million on an interim basis effective January 1, 2020. On April 9, 2020, final OEB approval was received.

HOSSM is under a 10-year deferred rebasing period for years 2017-2026, as approved in the OEB Mergers Acquisitions Amalgamations and Divestitures (MAAD) decision dated October 13, 2016.

Distribution

In March 2017, Hydro One Networks filed an application with the OEB for 2018-2022 distribution rates. On March 7, 2019, the OEB rendered its decision on the distribution rates application. In accordance with the OEB decision, the Company filed its draft rate order reflecting updated revenue requirements of $1,459 million for 2018, $1,498 million for 2019, $1,532 million for 2020, $1,578 million for 2021, and $1,624 million for 2022. On June 11, 2019, the OEB approved the rate order confirming these updated revenue requirements.

On April 16, 2020, the OEB approved a 2% increase to Hydro One Remote Communities' 2019 base rates for new rates effective May 1, 2020, with a deferred implementation date of November 1, 2020 due to COVID-19. On October 8, 2020, the OEB authorized Hydro One Remote Communities to implement a rate rider for the recovery of foregone revenues resulting from postponing rate implementation, effective until April 30, 2021. On November 3, 2020, Hydro One Remote Communities filed an application with the OEB seeking approval for a 2% increase to 2020 base rates, effective May 1, 2021, which was subsequently updated to 2.2% in accordance with the OEB’s 2021 inflation parameters for electricity distributors issued on November 9, 2020. On March 25, 2021, the OEB approved Hydro One Remote Communities’ application for rates and other charges to be effective May 1, 2021.

8

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

2.    SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation and Presentation

These Consolidated Financial Statements (Consolidated Financial Statements) include the accounts of the Company and its subsidiaries. Inter-company transactions and balances have been eliminated.

Basis of Accounting

These Consolidated Financial Statements are prepared and presented in accordance with United States (US) Generally Accepted Accounting Principles (GAAP) and in Canadian dollars.

Use of Management Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, gains and losses during the reporting periods. Management evaluates these estimates on an ongoing basis based upon historical experience, current conditions, and assumptions believed to be reasonable at the time the assumptions are made, with any adjustments being recognized in results of operations in the period they arise. Significant estimates relate to regulatory assets and regulatory liabilities, environmental liabilities, pension benefits, post-retirement and post-employment benefits, and unbilled revenues. Actual results may differ significantly from these estimates.

Since late March 2020, the impact of the COVID-19 pandemic (COVID-19 or the pandemic) has been reflected in the Consolidated Financial Statements. The Company has analyzed the impact of the pandemic on its estimates and assumptions that affect its financial results as at and for the year ended December 31, 2021 and has determined that there was no material impact. Additional details regarding the impact of the pandemic on the Consolidated Financial Statements are available in Note 9 - Accounts Receivable and Note 13 - Regulatory Assets and Liabilities.

As the duration of the pandemic remains uncertain, the Company continues to assess its impact to the Company’s financial results and operations.

Regulatory Accounting

The OEB has the general power to include or exclude revenues, costs, gains or losses in the rates of a specific period, resulting in a change in the timing of accounting recognition from that which would have been applied in an unregulated company. Such change in timing involves the application of rate-regulated accounting, giving rise to the recognition of regulatory assets and liabilities. The Company’s regulatory assets represent certain amounts receivable from future electricity customers and costs that have been deferred for accounting purposes because it is probable that they will be recovered in future rates. In addition, the Company has recorded regulatory liabilities that generally represent amounts that are refundable to electricity customers in future rates. The Company continually assesses the likelihood of recovery of each of its regulatory assets and continues to believe that it is probable that the OEB will include its regulatory assets and liabilities in setting future rates. If, at some future date, the Company judges that it is no longer probable that the OEB will include a regulatory asset or liability in setting future rates, the appropriate carrying amount would be reflected in results of operations prospectively from the date the Company’s assessment is made, unless the change meets the requirements for a subsequent event adjustment.

Cash and Cash Equivalents

Cash and cash equivalents include cash and short-term investments with an original maturity of three months or less.

Revenue Recognition

Transmission revenues predominantly consist of transmission tariffs, which are collected through OEB-approved UTRs which are applied against the monthly peak demand for electricity across Hydro One's high-voltage network. OEB-approved UTRs are based on an approved revenue requirement that includes a rate of return. The transmission tariffs are designed to recover revenues necessary to support the Company's transmission system with sufficient capacity to accommodate the maximum expected demand which is influenced by weather and economic conditions. Transmission revenues are recognized as electricity is transmitted and delivered to customers.

Distribution revenues attributable to the delivery of electricity are based on OEB-approved distribution rates and are recognized on an accrual basis and include billed and unbilled revenues. Billed revenues are based on electricity delivered as measured from customer meters. At the end of each month, electricity delivered to customers since the date of the last billed meter reading is estimated, and the corresponding unbilled revenue is recorded. The unbilled revenue estimate is affected by energy consumption, weather, and changes in the composition of customer classes.

Revenues also include amounts related to sales of other services and equipment. Such revenue is recognized as services are rendered or as equipment is delivered. Revenues are recorded net of indirect taxes.

9

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

Accounts Receivable and Allowance for Doubtful Accounts

Billed accounts receivable are recorded at the invoiced amount, net of allowance for doubtful accounts. Unbilled accounts receivable are recorded at their estimated value, net of allowance for doubtful accounts. Overdue amounts related to regulated billings bear interest at OEB-approved rates. The allowance for doubtful accounts reflects the Company’s current lifetime expected credit losses (CECL) for all accounts receivable balances. The Company estimates the CECL by applying internally developed loss rates to all outstanding receivable balances by aging category. Loss rates applied to the accounts receivable balances are based on historical overdue balances, customer payments and write-offs, which may be further supplemented from time to time to reflect management's best estimate of the loss. Accounts receivable are written-off against the allowance when they are deemed uncollectible. The allowance for doubtful accounts is affected by changes in volume, prices and economic conditions.

Noncontrolling interest

Noncontrolling interest represents the portion of equity ownership in subsidiaries that is not attributable to shareholders of Hydro One. Noncontrolling interest is initially recorded at fair value and subsequently the amount is adjusted for the proportionate share of net income and other comprehensive income (OCI) or other comprehensive loss (OCL) attributable to the noncontrolling interest and any dividends or distributions paid to the noncontrolling interest.

If a transaction results in the acquisition of all, or part, of a noncontrolling interest in a subsidiary, the acquisition of the noncontrolling interest is accounted for as an equity transaction. No gain or loss is recognized in consolidated net income or comprehensive income as a result of changes in the noncontrolling interest, unless a change results in the loss of control by the Company.

Income Taxes

Income taxes are accounted for using the asset and liability method. Current tax assets and liabilities are recognized based on the taxes payable or refundable on the current and prior year’s taxable income. Current and deferred income taxes are computed based on the tax rates and tax laws enacted as at the balance sheet date. Tax benefits associated with income tax positions are recorded only when the more-likely-than-not recognition threshold is satisfied and are measured at the largest amount of benefit that has a greater than 50% likelihood of being realized upon settlement. Management evaluates each position based solely on the technical merits and facts and circumstances of the position, assuming the position will be examined by a taxing authority having full knowledge of all relevant information. Significant management judgment is required to determine recognition thresholds and the related amount of tax benefits to be recognized in the Consolidated Financial Statements. Management re-evaluates tax positions each period using new information about recognition or measurement as it becomes available.

Deferred Income Taxes

Deferred income tax assets and liabilities are recognized on all temporary differences between the tax bases and carrying amounts of assets and liabilities, including the carry forward unused tax credits and tax losses to the extent that it is more-likely-than-not that these deductions, credits, and losses can be utilized. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized, based on the tax rates and tax laws that have been enacted as at the balance sheet date.

Deferred income taxes associated with its regulated operations which are considered to be more-likely-than-not to be recoverable or refunded in the future regulated rates charged to customers are recognized as deferred income tax regulatory assets and liabilities with an offset to deferred income tax expense.

Investment tax credits are recorded as a reduction of the related expenses or income tax expense in the current or future period to the extent it is more likely than not that the credits can be utilized.

Management reassesses the deferred income tax assets at each balance sheet date and reduces the amount to the extent that it is more likely than not that the deferred income tax asset will not be realized. Previously unrecognized deferred income tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become more likely than not that the tax benefit will be realized.

Materials and Supplies

Materials and supplies represent consumables, small spare parts and construction materials held for internal construction and maintenance of property, plant and equipment. These assets are carried at average cost less any impairments recorded.

Property, Plant and Equipment

Property, plant and equipment is recorded at original cost, net of customer contributions, and any accumulated impairment losses. The cost of additions, including betterments and replacement asset components, is included on the consolidated balance sheets as property, plant and equipment.

The original cost of property, plant and equipment includes direct materials, direct labour (including employee benefits), contracted services, attributable capitalized financing costs, asset retirement costs, and direct and indirect overheads that are

10

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

related to the capital project or program. Indirect overheads include a portion of corporate costs such as finance, treasury, human resources, and information technology (IT). Overhead costs, including corporate functions and field services costs, are capitalized on a fully allocated basis, consistent with an OEB-approved methodology.

Property, plant and equipment in service consists of transmission, distribution, communication, administration and service assets and land easements. Property, plant and equipment also includes future use assets, such as land, major components and spare parts, and capitalized project development costs associated with deferred capital projects.

Transmission

Transmission assets include assets used for the transmission of high-voltage electricity, such as transmission lines, support structures, foundations, insulators, connecting hardware and grounding systems, and assets used to step up the voltage of electricity from generating stations for transmission and to step down voltages for distribution, including transformers, circuit breakers and switches.

Distribution

Distribution assets include assets related to the distribution of low-voltage electricity, including lines, poles, switches, transformers, protective devices and metering systems.

Communication

Communication assets include fibre optic and microwave radio systems, optical ground wire, towers, telephone equipment and associated buildings.

Administration and Service

Administration and service assets include administrative buildings, personal computers, transport and work equipment, tools and other minor assets.

Easements

Easements include statutory rights of use for transmission corridors and abutting lands granted under the Reliable Energy and Consumer Protection Act, 2002, as well as other land access rights.

Intangible Assets

Intangible assets separately acquired or internally developed are measured on initial recognition at cost, which comprises purchased software, direct labour (including employee benefits), consulting, engineering, overheads and attributable capitalized financing charges. Following initial recognition, intangible assets are carried at cost, net of any accumulated amortization and accumulated impairment losses. The Company’s intangible assets primarily represent major computer applications.

Capitalized Financing Costs

Capitalized financing costs represent interest costs attributable to the construction of property, plant and equipment or development of intangible assets. The financing cost of attributable borrowed funds is capitalized as part of the acquisition cost of such assets. The capitalized financing costs are a reduction of financing charges recognized in the consolidated statements of operations and comprehensive income. Capitalized financing costs are calculated using the Company’s weighted average effective cost of debt.

Construction and Development in Progress

Construction and development in progress consists of the capitalized cost of constructed assets that are not yet complete and which have not yet been placed in service.

Depreciation and Amortization

The cost of property, plant and equipment and intangible assets is depreciated or amortized on a straight-line basis based on the estimated remaining service life of each asset category, except for transport and work equipment, which is depreciated on a declining balance basis.

11

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

The Company periodically initiates an external independent review of its property, plant and equipment and intangible asset depreciation and amortization rates, as required by the OEB. Any changes arising from OEB approval of such a review are implemented on a remaining service life basis, consistent with their inclusion in electricity rates. The most recent reviews resulted in changes to rates effective January 1, 2015 and January 1, 2020 for Hydro One Networks’ distribution and transmission businesses, respectively. A summary of average service lives and depreciation and amortization rates for the various classes of assets is included below:

	Average	Rate
	Service Life	Range	Average
Property, plant and equipment:
Transmission	55 years	1% - 3%	2	%
Distribution	47 years	1% - 7%	2	%
Communication	16 years	1% - 15%	4	%
Administration and service	24 years	1% - 20%	4	%
Intangible assets	10 years	10%	7	%

In accordance with group depreciation practices, the original cost of property, plant and equipment, or major components thereof, and intangible assets that are normally retired, is charged to accumulated depreciation, with no gain or loss being reflected in results of operations. Where a disposition of property, plant and equipment occurs through sale, a gain or loss is calculated based on proceeds and such gain or loss is included in depreciation expense.

Acquisitions and Goodwill

The Company accounts for business acquisitions using the acquisition method of accounting and, accordingly, the assets and liabilities of the acquired entities are primarily measured at their estimated fair value at the date of acquisition. Costs associated with pending acquisitions are expensed as incurred. Goodwill represents the cost of acquired companies that is in excess of the fair value of the net identifiable assets acquired at the acquisition date. Goodwill is not included in rate base.

Goodwill is evaluated for impairment on an annual basis, or more frequently if circumstances require. The Company performs a qualitative assessment to determine whether it is more likely than not that the fair value of the applicable reporting unit is less than its carrying amount. If the Company determines, as a result of its qualitative assessment, that it is not more likely than not that the fair value of the applicable reporting unit is less than its carrying value, no further testing is required. If the Company determines, as a result of its qualitative assessment, that it is more likely than not that the fair value of the applicable reporting unit is less than its carrying amount, a quantitative goodwill impairment assessment is performed. The quantitative assessment compares the fair value of the applicable reporting unit to its carrying amount, including goodwill. If the fair value of goodwill is less than the carrying amount, an impairment loss is recorded as a reduction to goodwill and as a charge to results of operations.

Based on the assessment performed as at September 30, 2021 and with no significant events since, the Company has concluded that goodwill was not impaired at December 31, 2021.

Long-Lived Asset Impairment

When circumstances indicate the carrying value of long-lived assets may not be recoverable, the Company evaluates whether the carrying value of such assets, excluding goodwill, has been impaired. For such long-lived assets, the Company evaluates whether impairment may exist by estimating future estimated undiscounted cash flows expected to result from the use and eventual disposition of the asset. When alternative courses of action to recover the carrying amount of a long-lived asset are under consideration, a probability-weighted approach is used to develop estimates of future undiscounted cash flows. If the carrying value of the long-lived asset is not recoverable based on the estimated future undiscounted cash flows, an impairment loss is recorded, measured as the excess of the carrying value of the asset over its fair value. As a result, the asset’s carrying value is adjusted to its estimated fair value.

Within its regulated business, the carrying costs of most of Hydro One’s long-lived assets are included in rate base where they earn an OEB-approved rate of return. Asset carrying values and the related return are recovered through approved rates. As a result, such assets are only tested for impairment in the event that the OEB disallows recovery, in whole or in part, or if such a disallowance is judged to be probable.

Management assesses the fair value of such long-lived assets using commonly accepted techniques. Techniques used to determine fair value include, but are not limited to, the use of recent third-party comparable sales for reference and internally developed discounted cash flow analysis. Significant changes in market conditions, changes to the condition of an asset, or a change in management’s intent to utilize the asset are generally viewed by management as triggering events to reassess the cash flows related to these long-lived assets. As at December 31, 2021 and 2020, no asset impairment had been recorded.

Costs of Arranging Debt Financing

For financial liabilities classified as other than held-for-trading, the Company defers the external transaction costs related to obtaining financing and presents such amounts net of related debt on the consolidated balance sheets. Deferred issuance costs are amortized over the contractual life of the related debt on an effective-interest basis and the amortization is included within

12

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

financing charges in the consolidated statements of operations and comprehensive income. Transaction costs for items classified as held-for-trading are expensed immediately.

Comprehensive Income / Loss

Comprehensive income/loss is comprised of net income/loss and OCI/OCL. Hydro One presents net income/loss and OCI/OCL in a single continuous consolidated statement of operations and comprehensive income/loss.

Financial Assets and Liabilities

All financial assets and liabilities are classified into one of the following five categories: held-to-maturity; loans and receivables; held-for-trading; other liabilities; or available-for-sale. Financial assets and liabilities classified as held-for-trading are measured at fair value. All other financial assets and liabilities are measured at amortized cost. Accounts receivable and amounts due from related parties are classified as loans and receivables. The Company considers the carrying amounts of accounts receivable and amounts due from related parties to be reasonable estimates of fair value because of the short time to maturity of these instruments. The Company estimates the CECL for all accounts receivable balances, which are recognized as adjustments to the allowance for doubtful accounts. Accounts receivable are written-off against the allowance when they are deemed uncollectible. All financial instrument transactions are recorded at trade date.

The Company determines the classification of its financial assets and liabilities at the date of initial recognition. The Company designates certain of its financial assets and liabilities to be held at fair value, when it is consistent with the Company’s risk management policy disclosed in Note 18 - Fair Value of Financial Instruments and Risk Management.

Derivative Instruments and Hedge Accounting

The Company closely monitors the risks associated with changes in interest rates on its operations and, where appropriate, uses various instruments to hedge these risks. Certain of these derivative instruments qualify for hedge accounting and are designated as accounting hedges, while others either do not qualify as hedges or have not been designated as hedges (hereinafter referred to as undesignated contracts) as they are part of economic hedging relationships.

The accounting guidance for derivative instruments requires the recognition of all derivative instruments not identified as meeting the normal purchase and sale exemption as either assets or liabilities recorded at fair value on the consolidated balance sheets. For derivative instruments that qualify for hedge accounting, the Company may elect to designate such derivative instruments as either cash flow hedges or fair value hedges. The Company offsets fair value amounts recognized on its consolidated balance sheets related to derivative instruments executed with the same counterparty under the same master netting agreement.

For derivative instruments that qualify for hedge accounting and which are designated as cash flow hedges, any unrealized gain or loss, net of tax, is recorded as a component of accumulated OCI (AOCI). Amounts in AOCI are reclassified to results of operations in the same period or periods during which the hedged transaction affects results of operations and presented in the same line item as the earnings effect of the hedged item. Any gains or losses on the derivative instrument that represent hedge components excluded from the assessment of effectiveness are recognized in the same line item of the consolidated statements of operations as the hedged item. For fair value hedges, changes in fair value of both the derivative instrument and the underlying hedged exposure are recognized in the consolidated statements of operations and comprehensive income in the current period. The gain or loss on the derivative instrument is included in the same line item as the offsetting gain or loss on the hedged item in the consolidated statements of operations and comprehensive income. The changes in fair value of the undesignated derivative instruments are reflected in results of operations.

Embedded derivative instruments are separated from their host contracts and are carried at fair value on the consolidated balance sheets when: (a) the economic characteristics and risks of the embedded derivative are not clearly and closely related to the economic characteristics and risks of the host contract; (b) the hybrid instrument is not measured at fair value, with changes in fair value recognized in results of operations each period; and (c) the embedded derivative itself meets the definition of a derivative. The Company does not engage in derivative trading or speculative activities and had no embedded derivatives that required bifurcation at December 31, 2021 or 2020.

Hydro One periodically develops hedging strategies taking into account risk management objectives. At the inception of a hedging relationship where the Company has elected to apply hedge accounting, Hydro One formally documents the relationship between the hedged item and the hedging instrument, the related risk management objective, the nature of the specific risk exposure being hedged, and the method for assessing the effectiveness of the hedging relationship. The Company also assesses, both at the inception of the hedge and on a quarterly basis, whether the hedging instruments are effective in offsetting changes in fair values or cash flows of the hedged items.

13

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

Employee Future Benefits

Employee future benefits provided by Hydro One include pension, post-retirement and post-employment benefits. The costs of the Company’s pension, post-retirement and post-employment benefit plans are recorded over the periods during which employees render service.

The Company recognizes the funded status of its defined benefit pension plan (Pension Plan) and its post-retirement and post-employment plans on its consolidated balance sheets and subsequently recognizes the changes in funded status at the end of each reporting year. Defined benefit pension, post-retirement and post-employment plans are considered to be underfunded when the projected benefit obligation (PBO) exceeds the fair value of the plan assets. Liabilities are recognized on the consolidated balance sheets for any net underfunded PBO. The net underfunded PBO may be disclosed as a current liability, long-term liability, or both. The current portion is the amount by which the actuarial present value of benefits included in the benefit obligation payable in the next 12 months exceeds the fair value of plan assets. If the fair value of plan assets exceeds the PBO of the plan, an asset is recognized equal to the net overfunded PBO. The post-retirement and post-employment benefit plans are unfunded because there are no related plan assets.

Hydro One recognizes its contributions to the defined contribution pension plan (DC Plan) as pension expense, with a portion being capitalized as part of labour costs included in capital expenditures. The expensed amount is included in operation, maintenance and administration (OM&A) costs in the consolidated statements of operations and comprehensive income.

Defined Benefit Pension

Defined benefit pension costs are recorded on an accrual basis for financial reporting purposes. Pension costs are actuarially determined using the projected benefit method prorated on service and are based on assumptions that reflect management’s best estimate of the effect of future events, including future compensation increases. Past service costs from plan amendments and all actuarial gains and losses are amortized on a straight-line basis over the expected average remaining service period of active employees in the plan, or over the estimated remaining life expectancy of inactive employees in the plan. Pension plan assets, consisting primarily of listed equity securities, marketable and private debt, corporate and government debt securities as well as unlisted real estate and unlisted infrastructure investments, are recorded at fair value at the end of each year. Hydro One records a regulatory asset equal to the net underfunded PBO for its pension plan. Defined benefit pension costs are attributed to labour costs on a cash basis and a portion directly related to acquisition and development of capital assets is capitalized as part of the cost of property, plant and equipment and intangible assets. The remaining defined benefit pension costs are charged to results of operations (OM&A costs).

Post-retirement and Post-employment Benefits

Post-retirement and post-employment benefits are recorded and included in rates on an accrual basis. Costs are determined by independent actuaries using the projected benefit method prorated on service and based on assumptions that reflect management’s best estimates. For post-retirement benefits, past service costs from plan amendments are amortized to results of operations based on the expected average remaining service period.

For post-retirement benefits, all actuarial gains or losses are deferred using the “corridor” approach. The amount calculated above the “corridor” is amortized to results of operations on a straight-line basis over the expected average remaining service life of active employees in the plan or over the remaining life expectancy of inactive employees in the plan. The post-retirement benefit obligation is remeasured to its fair value at each year end based on an annual actuarial report, with an offset to the associated regulatory account, to the extent of the remeasurement adjustment.

For post-employment obligations, the associated regulatory liabilities representing actuarial gains on transition to US GAAP are amortized to results of operations based on the "corridor" approach. The actuarial gains and losses on post-employment obligations that are incurred during the year are recognized immediately to results of operations. The post-employment benefit obligation is remeasured to its fair value at each year end based on an annual actuarial report, with an offset to the associated regulatory account, to the extent of the remeasurement adjustment.

All post-retirement and post-employment benefit costs are attributed to labour costs and are either charged to results of operations (OM&A costs) or capitalized as part of the cost of property, plant and equipment and intangible assets (applies to the service cost component of benefit cost) and to regulatory assets for all other components of the benefit cost, consistent with their inclusion in OEB-approved rates.

Stock-Based Compensation

Share Grant Plans

Hydro One measures share grant plans based on fair value of share grants as estimated based on Hydro One Limited's grant date common share price. The costs are recognized in the financial statements using the graded-vesting attribution method for share grant plans that have both a performance condition and a service condition. The Company records a regulatory asset equal to the accrued costs of share grant plans recognized in each period. Costs are transferred from the regulatory asset to labour costs at the time the share grants vest and are issued, and are recovered in rates. Forfeitures are recognized as they occur.

14

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

Deferred Share Unit (DSU) Plans

The Company records the liabilities associated with its Directors’ and Management DSU Plans at fair value at each reporting date until settlement, recognizing compensation expense over the vesting period on a straight-line basis. The fair value of the DSU liability is based on Hydro One Limited's common share closing price at the end of each reporting period.

Society Restricted Share Unit (RSU) Plan

The Company measures its Society RSU plan based on fair value of share grants as estimated based on Hydro One Limited's grant date common share price. The costs are recognized over the vesting period using the straight-line attribution method. The Company records a regulatory asset equal to the accrued costs of the Society RSU plan recognized in each period. Costs are transferred from the regulatory asset to labour costs at the time the share grants vest and are issued, and are recovered in rates. Forfeitures are recognized as they occur.

Long-term Incentive Plan (LTIP)

The Company measures the awards issued under Hydro One Limited's LTIP, at fair value based on Hydro One Limited grant date common share price. The related compensation expense is recognized over the vesting period on a straight-line basis. Forfeitures are recognized as they occur.

Loss Contingencies

Hydro One is involved in certain legal and environmental matters that arise in the normal course of business. In the preparation of its Consolidated Financial Statements, management makes judgments regarding the future outcome of contingent events and records a loss for a contingency based on its best estimate when it is determined that such loss is probable and the amount of the loss can be reasonably estimated. Where the loss amount is recoverable in future rates, a regulatory asset is also recorded. When a range estimate for the probable loss exists and no amount within the range is a better estimate than any other amount, the Company records a loss at the minimum amount within the range.

Management regularly reviews current information available to determine whether recorded provisions should be adjusted and whether new provisions are required. Estimating probable losses may require analysis of multiple forecasts and scenarios that often depend on judgments about potential actions by third parties, such as federal, provincial and local courts or regulators. Contingent liabilities are often resolved over long periods of time. Amounts recorded in the Consolidated Financial Statements may differ from the actual outcome once the contingency is resolved. Such differences could have a material impact on future results of operations, financial position and cash flows of the Company.

Provisions are based upon current estimates and are subject to greater uncertainty where the projection period is lengthy. A significant upward or downward trend in the number of claims filed, the nature of the alleged injuries, and the average cost of resolving each claim could change the estimated provision, as could any substantial adverse or favourable verdict at trial. A federal or provincial legislative outcome or structured settlement could also change the estimated liability. Legal fees are expensed as incurred.

Environmental Liabilities

Environmental liabilities are recorded in respect of past contamination when it is determined that future environmental remediation expenditures are probable under existing statute or regulation and the amount of the future expenditures can be reasonably estimated. Hydro One records a liability for the estimated future expenditures associated with contaminated land assessment and remediation (LAR) and for the phase-out and destruction of polychlorinated biphenyl (PCB)-contaminated mineral oil removed from electrical equipment, based on the present value of these estimated future expenditures. The Company determines the present value with a discount rate that produces an amount at which the environmental liabilities could be settled in an arm’s length transaction with a third party. As the Company anticipates that the future expenditures will continue to be recoverable in future rates, an offsetting regulatory asset has been recorded to reflect the future recovery of these environmental expenditures from customers. Hydro One reviews its estimates of future environmental expenditures annually, or more frequently if there are indications that circumstances have changed. Estimate changes are accounted for prospectively.

Asset Retirement Obligations

Asset retirement obligations are recorded for legal obligations associated with the future removal and disposal of long-lived assets. Such obligations may result from the acquisition, construction, development and/or normal use of the asset. Conditional asset retirement obligations are recorded when there is a legal obligation to perform a future asset retirement activity but where the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Company. In such a case, the obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. This uncertainty is incorporated in the fair value measurement of the obligation.

When recording an asset retirement obligation, the present value of the estimated future expenditures required to complete the asset retirement activity is recorded in the period in which the obligation is incurred, if a reasonable estimate can be made. In general, the present value of the estimated future expenditures is added to the carrying amount of the associated asset and the resulting asset retirement cost is depreciated over the estimated useful life of the asset. The present value is    determined with a

15

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

discount rate that equates to the Company’s credit-adjusted risk-free rate. Where an asset is no longer in service when an asset retirement obligation is recorded, the asset retirement cost is recorded in results of operations.

Some of the Company’s transmission and distribution assets, particularly those located on unowned easements and rights-of-way, may have asset retirement obligations, conditional or otherwise. The majority of the Company’s easements and rights-of-way are either of perpetual duration or are automatically renewed annually. Land rights with finite terms are generally subject to extension or renewal. As the Company expects to use the majority of its facilities in perpetuity, no asset retirement obligations have been recorded for these assets. If, at some future date, a particular facility is shown not to meet the perpetuity assumption, it will be reviewed to determine whether an estimable asset retirement obligation exists. In such a case, an asset retirement obligation would be recorded at that time.

The Company’s asset retirement obligations recorded to date relate to estimated future expenditures associated with the removal and disposal of asbestos-containing materials installed in some of its facilities.

Leases

At the commencement date of a lease, the minimum lease payments are discounted and recognized as a lease obligation. Discount rates used correspond to the Company's incremental borrowing rates. Renewal options are assessed for their likelihood of being exercised and are included in the measurement of the lease obligation when it is reasonably certain they will be exercised. The Company does not recognize leases with a term of less than 12 months. A corresponding Right-of-Use (ROU) asset is recognized at the commencement date of a lease. The ROU asset is measured as the lease obligation adjusted for any lease payments made and/or any lease incentives and initial direct costs incurred. ROU assets are included in other long-term assets, and corresponding lease obligations are included in other current liabilities and other long-term liabilities on the consolidated balance sheets.

Subsequent to the commencement date, the lease expense recognized at each reporting period is the total remaining lease payments over the remaining lease term. Lease obligations are measured as the present value of the remaining unpaid lease payments using the discount rate established at commencement date. The amortization of the ROU assets is calculated as the difference between the lease expense and the accretion of interest, which is calculated using the effective interest method. Lease modifications and impairments are assessed at each reporting period to assess the need for a remeasurement of the lease obligations or ROU assets.

3.    NEW ACCOUNTING PRONOUNCEMENTS

The following tables present Accounting Standard Updates (ASUs) issued by the Financial Accounting Standards Board that are applicable to Hydro One:

Recently Adopted Accounting Guidance

Guidance	Date issued	Description	Effective date	Impact on Hydro One
ASU 2018-14	August 2018	Disclosure requirements related to single-employer defined benefit pension or other post-retirement benefit plans are added, removed or clarified to improve the effectiveness of disclosures in financial statement notes.	January 1, 2021	Resulted in the modification of certain disclosures associated with post-retirement and post-employment benefits that were previously included in the annual financial statements.
ASU 2019-12	December 2019	The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles and improving consistent application of Topic 740 by clarifying and amending existing guidance.	January 1, 2021	No impact upon adoption
ASU 2020-01	January 2020	The amendments clarify the interaction of the accounting for equity securities under Topic 321, investments under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815.	January 1, 2021	No impact upon adoption
ASU 2020-10	October 2020	The amendments are intended to improve the Codification by ensuring the guidance required for an entity to disclose information in the notes of financial statements are codified in the disclosure sections to reduce the likelihood of disclosure requirements being missed.	January 1, 2021	No impact upon adoption

16

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

Recently Issued Accounting Guidance Not Yet Adopted

Guidance	Date issued	Description	Effective date	Anticipated Impact on Hydro One
ASU 2020-06	August 2020	The update addresses the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. The amendments reduce the number of accounting models for convertible debt instruments and convertible preferred stock.	January 1 2022	No impact upon adoption
ASU 2021-05	July 2021	The amendments are intended to align lease classification requirements for lessors under Topic 842 with Topic 840's practice.	January 1, 2022	No impact upon adoption
ASU 2021-08	October 2021	The amendments address how to determine whether a contract liability is recognized by the acquirer in a business combination.	January 1, 2023	Under assessment
ASU 2021-10	November 2021	The update addresses the diversity on the recognition, measurement, presentation and disclosure of government assistance received by business entities.	January 1, 2022	Under assessment

4.    BUSINESS COMBINATIONS

Acquisition of Peterborough Distribution Assets

On August 1, 2020, Hydro One completed the acquisition of the business and distribution assets of Peterborough Distribution, an electricity distribution company located in east central Ontario, from the City of Peterborough, for a purchase price of $104 million, including the assumption of agreed upon liabilities and closing adjustments. The purchase price is comprised of a cash payment of $105 million, including a deposit of $4 million paid in 2018 and $101 million paid on closing of the transaction, partially offset by a purchase price adjustment of $1 million. As the acquired business and distribution assets of Peterborough Distribution meet the definition of a business, the acquisition has been accounted for as a business acquisition.

The following table summarizes the determination of the fair value of the assets acquired and liabilities assumed:

(millions of dollars)
Working capital	7
Property, plant and equipment	64
Regulatory assets	1
Goodwill	33
Other long-term liabilities	(1)
	104

The determination of the fair value of assets acquired and liabilities assumed is based upon management’s estimates and assumptions and reflects the fair value of consideration paid.

The goodwill of $33 million arising from the Peterborough Distribution acquisition consists largely of the synergies and economies of scale expected from combining the operations of Hydro One and Peterborough Distribution. All of the goodwill was assigned to Hydro One’s Distribution Business segment. Peterborough Distribution contributed revenues of $51 million and net income of $nil to the Company’s consolidated financial results for the year ended December 31, 2020. All costs related to the acquisition have been expensed through the statement of operations and comprehensive income.

Acquisition of Orillia Power

On September 1, 2020, Hydro One completed the acquisition of Orillia Power, an electricity distribution company located in Simcoe County, Ontario, from the City of Orillia for a purchase price of $28 million, including closing adjustments. The purchase price is comprised of a cash payment of $26 million, including a deposit of $1 million paid in 2016, $25 million paid on closing of the transaction, as well as a purchase price adjustment of $2 million.

The following table summarizes the determination of the fair value of the assets acquired and liabilities assumed:

(millions of dollars)
Working capital	2
Property, plant and equipment	32
Deferred income tax assets	1
Goodwill	15
Short-term debt	(20)
Regulatory liabilities	(1)
Other long-term liabilities	(1)
	28

17

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

The determination of the fair value of assets acquired and liabilities assumed is based upon management’s estimates and assumptions and reflects the fair value of consideration paid. In September 2020, Hydro One repaid the $20 million of short-term debt assumed as part of the Orillia Power acquisition.

The goodwill of $15 million arising from the Orillia Power acquisition consists largely of the synergies and economies of scale expected from combining the operations of Hydro One and Orillia Power. All of the goodwill was assigned to Hydro One’s Distribution Business segment. Orillia Power contributed revenues of $15 million and net income of $nil to the Company’s consolidated financial results for the year ended December 31, 2020. All costs related to the acquisition have been expensed through the statement of operations and comprehensive income.

NRLP

On January 31, 2020, the Mississaugas of the Credit First Nation purchased an additional 19.9% equity interest in NRLP partnership units from Hydro One Networks for total cash consideration of $9 million. Following this transaction, Hydro One's interest in the equity portion of NRLP partnership units was reduced to 55%, with the Six Nations of the Grand River Development Corporation and the Mississaugas of the Credit First Nation owning 25% and 20%, respectively, of the equity interest in NRLP partnership units.

NRLP is fully consolidated in these Consolidated Financial Statements as it is controlled by Hydro One. The First Nations Partners' noncontrolling interest in NRLP is classified within equity. See Note 28 - Noncontrolling Interest for additional information.

5.     DEPRECIATION, AMORTIZATION AND ASSET REMOVAL COSTS

Year ended December 31 (millions of dollars)	2021	2020
Depreciation of property, plant and equipment	700	683
Amortization of intangible assets	76	69
Amortization of regulatory assets	30	23
Depreciation and amortization	806	775
Asset removal costs	107	101
	913	876

6.    FINANCING CHARGES

Year ended December 31 (millions of dollars)	2021	2020
Interest on long-term debt	499	495
Realized loss on cash flow hedges (interest-rate swap agreements) (Notes 8, 18)	12	7
Interest on short-term notes	1	8
Interest on regulatory accounts	5	3
Other	11	10
Less: Interest capitalized on construction and development in progress	(60)	(49)
DTA carrying charges (Note 13)	(12)	—
Interest earned on cash and cash equivalents	(3)	(5)
	453	469

18

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

7.    INCOME TAXES

As a rate regulated utility company, the Company recovers income taxes from its ratepayers based on estimated current income tax expense in respect of its regulated business. The amounts of deferred income taxes related to regulated operations which are considered to be more likely-than-not to be recoverable from, or refundable to, ratepayers in future periods are recognized as deferred income tax regulatory assets or liabilities, with an offset to deferred income tax recovery or expense, respectively. The Company’s consolidated tax expense or recovery for the period includes all current and deferred income tax expenses for the period net of the regulated accounting offset to deferred income tax expense arising from temporary differences to be recovered from, or refunded to, customers in future rates. Thus, the Company’s income tax expense or recovery differs from the amount that would have been recorded using the combined Canadian federal and Ontario statutory income tax rate.

The reconciliation between the statutory and the effective tax rates is provided as follows:

Year ended December 31 (millions of dollars)	2021	2020
Income before income tax expense	1,159	1,017
Income tax expense at statutory rate of 26.5% (2020 - 26.5%)	307	270
Increase (decrease) resulting from:
Net temporary differences recoverable in future rates charged to customers:
Capital cost allowance in excess of depreciation and amortization	(81)	(102)
Impact of tax deductions from deferred tax asset sharing1	(38)	(41)
Impact of tax recovery from deferred tax asset sharing2	47	—
Overheads capitalized for accounting but deducted for tax purposes	(22)	(21)
Interest capitalized for accounting but deducted for tax purposes	(16)	(13)
Environmental expenditures	(8)	(6)
Pension and post-retirement benefit contributions in excess of pension expense	(9)	(4)
Other	(1)	—
Net temporary differences attributable to regulated business	(128)	(187)
Net permanent differences	—	1
Recognition of deferred income tax regulatory asset (Note 13)	—	(867)
Total income tax expense (recovery)	179	(783)

Effective income tax rate 15.4  % (77.0) %

1 Prior to the ODC Decision, the impact represents tax deductions from deferred asset tax sharing given to ratepayers as previously mandated by the OEB. Subsequent to the ODC Decision, and pursuant to the DTA Implementation Decision, the impact represents the additional amounts shared in respect of the fiscal period that is recoverable from ratepayers. See Note 13 - Regulatory Assets and Liabilities.

2 Pursuant to the DTA Implementation Decision, the impact represents the amounts recovered from ratepayers in respect of tax deductions previously shared with ratepayers. See Note 13 – Regulatory Assets and Liabilities.

The major components of income tax expense are as follows:

Year ended December 31 (millions of dollars)	2021	2020
Current income tax expense	30	29
Deferred income tax expense (recovery)	149	(812)
Total income tax expense (recovery)	179	(783)

19

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

Deferred Income Tax Assets and Liabilities

Deferred income tax assets and liabilities reflect the future tax consequences attributable to temporary differences between the tax bases and the financial statement carrying amounts of the assets and liabilities including the carry forward amounts of tax losses and tax credits. Deferred income tax assets and liabilities attributable to the Company’s regulated business are recognized with a corresponding offset in deferred income tax regulatory assets and liabilities to reflect the anticipated recovery or repayment of these balances in the future electricity rates. At December 31, 2021 and 2020, deferred income tax assets and liabilities consisted of the following:

As at December 31 (millions of dollars)	2021	2020
Deferred income tax assets
Post-retirement and post-employment benefits expense in excess of cash payments	655	680
Pension obligations	257	607
Non-capital losses	213	275
Non-depreciable capital property	273	271
Tax credit carryforwards	147	118
Investment in subsidiaries	99	100
Environmental expenditures	44	48
	1,688	2,099
Less: valuation allowance	(378)	(380)
Total deferred income tax assets	1,310	1,719
Deferred income tax liabilities
Capital cost allowance in excess of depreciation and amortization	1,354	1,029
Regulatory assets and liabilities	308	728
Other	5	2
Total deferred income tax liabilities	1,667	1,759
Net deferred income tax liabilities	(357)	(40)

The net deferred income tax assets are presented on the consolidated balance sheets as follows:

As at December 31 (millions of dollars)	2021	2020
Long-term:
Deferred income tax assets	10	16
Deferred income tax liabilities	(367)	(56)
Net deferred income tax liabilities	(357)	(40)

The valuation allowance for deferred tax assets as at December 31, 2021 was $378 million (2020 - $380 million). The valuation allowance primarily relates to temporary differences for non-depreciable assets and investments in subsidiaries. As of December 31, 2021 and 2020, the Company had non-capital losses carried forward available to reduce future years’ taxable income, which expire as follows:

Year of expiry (millions of dollars)	2021	2020
2035	—	170
2036	481	550
2037	121	121
2038	5	5
2039	183	185
2040	2	5
2041	8	—
Total losses	800	1,036

8.    OTHER COMPREHENSIVE INCOME (LOSS)

Year ended December 31 (millions of dollars)	2021	2020
Gain (loss) on cash flow hedges (interest-rate swap agreements) (Notes 6, 18)1	12	(20)
Gain (loss) on transfer of other post-employment benefits (OPEB) (Note 20)	—	(6)
Other	4	2
	16	(24)

1 Includes $8 million after-tax realized loss (2020 - $5 million), $12 million before-tax (2020 - $7 million), on cash flow hedges reclassified to financing charges.

20

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

9.    ACCOUNTS RECEIVABLE

As at December 31 (millions of dollars)	2021	2020
Accounts receivable - billed	344	344
Accounts receivable - unbilled	409	421
Accounts receivable, gross	753	765
Allowance for doubtful accounts	(56)	(46)
Accounts receivable, net	697	719

The following table shows the movements in the allowance for doubtful accounts for the years ended December 31, 2021 and 2020:

Year ended December 31 (millions of dollars)	2021	2020
Allowance for doubtful accounts – beginning	(46)	(22)
Write-offs	15	11
Additions to allowance for doubtful accounts1	(25)	(35)
Allowance for doubtful accounts – ending	(56)	(46)

1 Additions to allowance for doubtful accounts for the year ended December 31, 2020 included an incremental $14 million related to the COVID-19 pandemic. There were no additional COVID-19 related amounts included in the allowance for doubtful accounts for the year ended December 31, 2021.

10.     OTHER CURRENT ASSETS

As at December 31 (millions of dollars)	2021	2020
Regulatory assets (Note 13)	226	105
Prepaid expenses and other assets	53	50
Materials and supplies	22	23
Derivative assets (Note 18)	—	3
	301	181

11.    PROPERTY, PLANT AND EQUIPMENT

As at December 31, 2021 (millions of dollars)	Property, Plant  and Equipment	Accumulated Depreciation	Construction in Progress	Total
Transmission	18,970	6,307	1,183	13,846
Distribution	12,045	4,163	95	7,977
Communication	1,246	981	46	311
Administration and service	1,963	1,022	78	1,019
Easements	679	84	—	595
	34,903	12,557	1,402	23,748
As at December 31, 2020 (millions of dollars)	Property, Plant  and Equipment	Accumulated Depreciation	Construction in Progress	Total
Transmission	18,213	5,989	876	13,100
Distribution	11,544	3,949	101	7,696
Communication	1,184	945	39	278
Administration and service	1,729	959	113	883
Easements	671	80	—	591
	33,341	11,922	1,129	22,548

Financing charges capitalized on property, plant and equipment under construction were $57 million in 2021 (2020 - $46 million).

21

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

12.    INTANGIBLE ASSETS

As at December 31, 2021 (millions of dollars)	Intangible Assets	Accumulated Amortization	Development in Progress	Total
Computer applications software	1,094	657	130	567
Other	5	5	—	—
	1,099	662	130	567
As at December 31, 2020 (millions of dollars)	Intangible Assets	Accumulated Amortization	Development in Progress	Total
Computer applications software	1,033	581	59	511
Other	6	5	—	1
	1,039	586	59	512

Financing charges capitalized to intangible assets under development were $3 million in 2021 (2020 - $3 million). The estimated annual amortization expense for intangible assets is as follows: 2022 - $76 million; 2023 - $65 million; 2024 - $55 million; 2025 - $53 million; and 2026 - $50 million.

13.    REGULATORY ASSETS AND LIABILITIES

Regulatory assets and liabilities arise as a result of the rate-setting process. Hydro One has recorded the following regulatory assets and liabilities:

As at December 31 (millions of dollars)	2021	2020
Regulatory assets:
Deferred income tax regulatory asset	2,509	2,343
Pension benefit regulatory asset	713	1,660
Deferred tax asset sharing	204	204
Post-retirement and post-employment benefits - non-service cost	125	113
Environmental	122	133
Stock-based compensation	38	41
Foregone revenue deferral	25	63
Conservation and Demand Management (CDM) variance	8	16
Debt premium	7	12
Post-retirement and post-employment benefits	—	59
Other	36	32
Total regulatory assets	3,787	4,676
Less: current portion	(226)	(105)
	3,561	4,571
Regulatory liabilities:
Tax rule changes variance	86	70
Retail settlement variance account	58	92
External revenue variance	52	7
Earnings sharing mechanism deferral	42	37
Asset removal costs cumulative variance	36	19
Post-retirement and post-employment benefits	33	—
Pension cost differential	30	31
Green energy expenditure variance	13	22
Deferred income tax regulatory liability	4	4
Other	18	15
Total regulatory liabilities	372	297
Less: current portion	(10)	(66)
	362	231

Deferred Income Tax Regulatory Asset and Liability

Deferred income taxes are recognized on temporary differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable income. The Company has recognized regulatory assets and liabilities that correspond to deferred income taxes that flow through the rate-setting process. In the absence of rate-regulated accounting, the Company’s income tax expense would have been recognized using the liability

22

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

method and there would be no regulatory accounts established for taxes to be recovered through future rates. As a result, the 2021 income tax expense would have been higher by approximately $127 million (2020 - $187 million). The $127 million (2020 - $187 million) impact is offset against deferred income tax regulatory asset and liability, deferred tax asset sharing, and post-retirement and post-employment benefits - non-service cost.

On July 16, 2020, the Ontario Divisional Court rendered its decision on the Company's appeal of the OEB's DTA Decision, which was initially issued on September 28, 2017.

In connection with the ODC Decision, the Company recorded a reversal of the previously recognized impairment charge of Hydro One Networks' distribution and transmission deferred income tax regulatory asset in its financial statements for the year ended December 31, 2020. The reversal of the previously recognized impairment charge included the regulatory asset relating to the cumulative deferred tax asset amounts shared with ratepayers (deferred tax asset sharing) up to and including June 30, 2020 by Hydro One Networks' distribution and transmission segments of $58 million and $118 million, respectively. Hydro One recognized deferred income tax regulatory assets of $504 million and $673 million for Hydro One Networks distribution and transmission segments, respectively, and associated deferred income tax liability of $310 million. The Company also recorded an increase in net income of $867 million as deferred income tax recovery during the year ended December 31, 2020.

Pension Benefit Regulatory Asset

In accordance with OEB rate orders, pension costs are recovered on a cash basis as employer contributions are paid to the pension fund in accordance with the Pension Benefits Act (Ontario). The Company recognizes the net unfunded status of pension obligations on the consolidated balance sheets with an offset to the associated regulatory asset. A regulatory asset is recognized because management considers it to be probable that pension benefit costs will be recovered in the future through the rate-setting process. The pension benefit obligation is remeasured to the present value of the actuarially determined benefit obligation at each year end based on an annual actuarial report, with an offset to the associated regulatory asset, to the extent of the remeasurement adjustment. In the absence of rate-regulated accounting, OCI would have been higher by $1,017 million (2020 - OCL higher by $470 million) and OM&A expenses would have been higher by $132 million (2020 - $89 million).

Deferred Tax Asset Sharing

On October 2, 2020, the OEB issued a procedural order to implement the direction of the Ontario Divisional Court which required Hydro One to submit its proposal for the recovery of the DTA amounts allocated to ratepayers for the 2017 to 2022 period. On April 8, 2021, the OEB rendered the DTA Implementation Decision, in which the OEB approved recovery of the DTA amounts allocated to ratepayers for the 2017 to 2021 period, plus carrying charges over a two-year period, commencing on July 1, 2021. In addition, Hydro One was approved to adjust the transmission revenue requirement and the base distribution rates beginning January 1, 2022 to eliminate any further amounts of future tax savings flowing to customers. As at December 31, 2021, Hydro One has a regulatory asset of $204 million for the cumulative DTA amounts shared with ratepayers since 2017 to date, net of the amount recovered from ratepayers pursuant to the DTA Implementation Decision. The regulatory asset of $204 million (2020 - $204 million) consists of $74 million (2020 - $70 million) and $130 million (2020 - $134 million) for Hydro One Networks’ distribution and transmission segments, respectively. As a result of the OEB’s procedural order, the $204 million regulatory asset relating to the cumulative DTA amounts allocated to ratepayers since 2017 has been separately presented from the deferred income tax regulatory asset. The balance of this regulatory account will continue to decrease as amounts are recovered over the next 18 months.

Post-Retirement and Post-Employment Benefits - Non-Service Cost

Hydro One has recorded a regulatory asset relating to the future recovery of its post-retirement and post-employment benefits other than service costs. The regulatory asset includes the applicable tax impact to reflect taxes payable. Prior to adoption of ASU 2017-07 in 2018, these amounts were capitalized to property, plant and equipment and intangible assets. As part of Hydro One Networks' 2020-2022 Transmission Decision, the OEB concluded that the non-service cost component of Hydro One's OPEB costs shall be recognized as OM&A for both its transmission and distribution businesses. Furthermore, Hydro One Networks distribution will continue to record the non-service cost component of OPEBs in this account until the end of 2022. The OEB approved the disposition of Hydro One Networks transmission's account balance as at December 31, 2018, including accrued interest, which is being collected from ratepayers over a three-year period ending December 31, 2022.

Environmental

Hydro One records a liability for the estimated future expenditures required to remediate environmental contamination. A regulatory asset is recognized because management considers it to be probable environmental expenditures will be recovered in the future through the rate-setting process. The Company has recorded an equivalent amount as a regulatory asset. In 2021, the revaluation adjustment increased the environmental regulatory asset by $18 million (2020 - increased by $12 million) to reflect related changes in the Company’s PCB and LAR environmental liabilities. The environmental regulatory asset is amortized to results of operations based on the pattern of actual expenditures incurred and charged to environmental liabilities. The OEB has the discretion to examine and assess the prudency and the timing of recovery of all of Hydro One’s actual environmental expenditures. In the absence of rate-regulated accounting, with respect to the revaluation adjustment, 2021 OM&A expenses would have been higher by $18 million (2020 - higher by $12 million). In addition, 2021 amortization expense would have been

23

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

lower by $30 million (2020 - lower by $23 million), and 2021 financing charges would have been higher by $1 million (2020 - higher by $3 million).

Stock-based Compensation

The Company recognizes costs associated with share grant plans and Society RSUs in a regulatory asset as management considers it probable that share grant plans' and Society RSU costs will be recovered in the future through the rate-setting process. In the absence of rate-regulated accounting, OM&A expenses would be lower by $1 million (2020 - $1 million). Share grant and Society RSU costs are transferred to labour costs at the time they vest and are issued, and are recovered in rates in accordance with recovery of these labour costs.

Foregone Revenue Deferral

As at December 31, 2020, the foregone revenue deferral account was primarily made up of the difference between revenue earned by Hydro One Networks transmission, NRLP, B2M LP, and HOSSM under the approved UTRs based on OEB-approved 2020 rates revenue requirement and load forecast and the revenues earned under interim 2020 UTRs. Hydro One Networks transmission's foregone revenue, including accrued interest, is being collected from ratepayers over a two-year period ending December 31, 2022. NRLP, B2M LP, and HOSSM's foregone revenue, including accrued interest, was collected from ratepayers over a one-year period ended December 31, 2021. The December 31, 2021 balance in this account is comprised of the remaining Hydro One Networks transmission foregone revenue to be collected from ratepayers by December 31, 2022.

CDM Variance

The CDM variance account tracks the impact of actual CDM and demand response programs on the actual load forecast compared to the estimated load forecast included in revenue requirement. As per the OEB's decision on Hydro One Networks' transmission rates for 2017 to 2019, this account was maintained to record any variances for 2017, 2018, and 2019. A CDM variance amount for 2017 was calculated and proposed for disposition in Hydro One Networks' 2020-2022 transmission rate application. In April 2020, the amount as at December 31, 2018, including accrued interest, was approved for disposition by the OEB and was recognized as a regulatory asset. The amount was approved to be recovered from ratepayers over a three-year period ending December 31, 2022.

Debt Premium

The value of debt assumed in the acquisition of HOSSM has been recorded at fair value in accordance with US GAAP - Business Combinations. The OEB allows for recovery of interest at the coupon rate of the Senior Secured Bonds and a regulatory asset has been recorded for the difference between the fair value and face value of this debt. The debt premium is recovered over the remaining term of the debt.

Tax Rule Changes Variance

The 2019 federal and Ontario budgets (Budgets) provided certain time-limited investment incentives permitting Hydro One to deduct accelerated capital cost allowance of up to three times the first-year rate for capital investments acquired after November 20, 2018 and placed in-service before January 1, 2028 (Accelerated Depreciation). Following the enactment of the Budget measures in the second quarter of 2019, the OEB directed all Ontario regulated utilities including Hydro One to track the full revenue impact of the tax benefits related to the Accelerated Depreciation rules to ratepayers. The tax benefit to be returned to ratepayers in the future gave rise to a regulatory liability and resulted in a decrease in revenues as current rates do not include the benefit of the Accelerated Depreciation; therefore, the revenue subject to refund cannot be recognized.

Retail Settlement Variance Account (RSVA)

Hydro One has deferred certain retail settlement variance amounts under the provisions of Article 490 of the OEB’s Accounting Procedures Handbook. The RSVA account tracks the difference between the cost of power purchased from the Independent Electricity System Operator (IESO) and the cost of power recovered from ratepayers. The balance as at December 31, 2019, including accrued interest, was approved by the OEB for disposition over a one-year period ending December 31, 2021 as part of Hydro One Networks distribution 2021 annual update rate application.

External Revenue Variance

The external revenue variance account balance reflects the difference between Hydro One Networks transmission's actual export service revenue and external revenues from secondary land use, and the OEB-approved amounts. The account also records the difference between actual net external station maintenance, engineering and construction services revenue, and other external revenue, and the OEB-approved amounts. In April 2020, the OEB approved the disposition of the external revenue variance account as at December 31, 2018, including accrued interest, which is being returned to ratepayers over a three-year period ending December 31, 2022.

24

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

Earnings Sharing Mechanism Deferral

In March 2019, the OEB approved the establishment of an earnings sharing mechanism deferral account for Hydro One Networks' distribution segment to record over-earnings including tax impacts, if any, realized for any year from 2018 to 2022. Under this mechanism, Hydro One shares 50% of regulated earnings that exceed the OEB-approved regulatory return-on-equity by more than 100 basis points with distribution ratepayers. This account is asymmetrical to the benefit of ratepayers. The balance as at December 31, 2019, including accrued interest, was approved by the OEB for disposition on an interim basis over a one year period ending December 31, 2021 as part of Hydro One Networks distribution 2021 annual update rate application. A similar account was also approved for B2M LP in January 2020, and Hydro One Networks transmission and NRLP in April 2020. The balance in the account as at December 31, 2021 primarily relates to Hydro One Networks distribution.

Asset Removal Costs Cumulative Variance

In April 2020, the OEB approved the establishment of an asset removal costs cumulative variance account for Hydro One Networks transmission to record the difference between the revenue requirement associated with forecast asset removal costs included in depreciation expense and actual asset removal costs incurred from 2020 to 2022. This account is asymmetrical to the benefit of ratepayers on a cumulative basis over the 2020-2022 rate period.

Post-Retirement and Post-Employment Benefits

In accordance with OEB rate orders, post-retirement and post-employment benefits costs are recovered on an accrual basis. The Company recognizes the net unfunded status of post-retirement and post-employment obligations on the consolidated balance sheets with an incremental offset to the associated regulatory asset or regulatory liability, as the case may be. A regulatory asset or liability is recognized because management considers it to be probable that post-retirement and post-employment benefit costs will be recovered or returned in the future through the rate-setting process. The post-retirement and post-employment benefit obligation is remeasured to the present value of the actuarially determined benefit obligation at each year end based on an annual actuarial report, with an offset to the associated regulatory asset or liability as the case may be, to the extent of the remeasurement adjustment. In the absence of rate-regulated accounting, 2021 OCI would have been higher by $94 million (2020 - OCL lower by $46 million).

Pension Cost Differential

Variances between the pension cost recognized and the cost embedded in rates as part of the rate-setting process for Hydro One Networks' transmission and distribution businesses are recognized as a regulatory asset or regulatory liability, as the case may be. In March 2019, the OEB approved the disposition of the distribution business portion of the balance as at December 31, 2016, including accrued interest, and the balance was recovered from ratepayers by the end of 2020. In April 2020, the OEB approved the disposition of the transmission business portion of the balance as at December 31, 2018, including accrued interest, which is being returned to ratepayers over a three-year period ending December 31, 2022. In the absence of rate-regulated accounting, 2021 revenue would have been higher by $1 million (2020 - higher by $1 million).

Green Energy Expenditure Variance

In April 2010, the OEB requested the establishment of deferral accounts which capture the difference between the revenue recorded on the basis of Green Energy Plan expenditures incurred and the actual recoveries received. The smart grid variance account balance as at December 31, 2016, including accrued interest, was approved for disposition by the OEB in March 2019, and the balance was returned to ratepayers by the end of 2020.

COVID-19 Emergency Deferral

On June 17, 2021, the OEB issued its Report: Regulatory Treatment of Impact Arising from the COVID-19 Emergency which outlines the OEB’s final guidance on the rules and operation of the deferral account established for utilities to track the impacts arising from the COVID-19 pandemic. The OEB has determined that eligibility for recovery of most balances recorded in the account will be subject to a means test based on a utility’s achieved regulatory return on equity (ROE). Based on management's assessment of the OEB’s final guidance, no amounts related to the COVID-19 pandemic have been recognized as regulatory assets.

14.    OTHER LONG-TERM ASSETS

As at December 31 (millions of dollars)	2021	2020
Right-of-Use assets (Note 23)	53	71
Other long-term assets	13	8
	66	79

25

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

15.    ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES

As at December 31 (millions of dollars)	2021	2020
Accrued liabilities	606	557
Accounts payable	249	232
Accrued interest	123	116
Environmental liabilities (Note 21)	34	33
Regulatory liabilities (Note 13)	10	66
Lease obligations (Note 23)	12	11
Derivative liabilities (Note 18)	8	11
	1,042	1,026

16.    OTHER LONG-TERM LIABILITIES

As at December 31 (millions of dollars)	2021	2020
Post-retirement and post-employment benefit liability (Note 20)	1,784	1,781
Pension benefit liability (Note 20)	713	1,660
Environmental liabilities (Note 21)	88	100
Lease obligations (Note 23)	44	65
Due to related parties (Note 29)	29	32
Asset retirement obligations (Note 22)	14	13
Derivative liabilities (Note 18)	—	14
Long-term accounts payable	3	5
Other long-term liabilities	19	16
	2,694	3,686

17.    DEBT AND CREDIT AGREEMENTS

Short-Term Notes and Credit Facilities

Hydro One meets its short-term liquidity requirements in part through the issuance of commercial paper under its Commercial Paper Program which has a maximum authorized amount of $2,300 million. These short-term notes are denominated in Canadian dollars with varying maturities up to 365 days. The Commercial Paper Program is supported by the Company’s committed and unsecured revolving standby credit facilities totalling $2,300 million (Operating Credit Facilities).

At December 31, 2021, Hydro One’s Operating Credit Facilities consisted of the following:

(millions of dollars)	Maturity	Total Amount	Amount Drawn
Revolving standby credit facilities	June 20261	2,300	—

1 On June 1, 2021, the maturity dates for the Operating Credit Facilities was extended from June 2024 to June 2026.

The Company may use the Operating Credit Facilities for working capital and general corporate purposes. If used, interest on the Operating Credit Facilities would apply based on Canadian benchmark rates. The obligation of each lender to make any credit extension under its credit facility is subject to various conditions including that no event of default has occurred or would result from such credit extension.

26

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

Long-Term Debt

The following table presents long-term debt outstanding at December 31, 2021 and 2020:

As at December 31 (millions of dollars)	2021	2020
1.84% Series 34 notes due 2021	—	500
2.57% Series 39 notes due 20211	—	300
3.20% Series 25 notes due 2022	600	600
0.71% Series 48 notes due 2023	600	600
2.54% Series 42 notes due 2024	700	700
1.76% Series 45 notes due 2025	400	400
2.97% Series 40 notes due 2025	350	350
2.77% Series 35 notes due 2026	500	500
3.02% Series 43 notes due 2029	550	550
2.16% Series 46 notes due 2030	400	400
7.35% Debentures due 2030	400	400
1.69% Series 49 notes due 2031	400	400
2.23% Series 50 notes due 2031	450	—
6.93% Series 2 notes due 2032	500	500
6.35% Series 4 notes due 2034	385	385
5.36% Series 9 notes due 2036	600	600
4.89% Series 12 notes due 2037	400	400
6.03% Series 17 notes due 2039	300	300
5.49% Series 18 notes due 2040	500	500
4.39% Series 23 notes due 2041	300	300
6.59% Series 5 notes due 2043	315	315
4.59% Series 29 notes due 2043	435	435
4.17% Series 32 notes due 2044	350	350
5.00% Series 11 notes due 2046	325	325
3.91% Series 36 notes due 2046	350	350
3.72% Series 38 notes due 2047	450	450
3.63% Series 41 notes due 2049	750	750
2.71% Series 47 notes due 2050	500	500
3.64% Series 44 notes due 2050	250	250
3.10% Series 51 notes due 2051	450	—
4.00% Series 24 notes due 2051	225	225
3.79% Series 26 notes due 2062	310	310
4.29% Series 30 notes due 2064	50	50
Hydro One long-term debt (a)	13,095	12,995
6.6% Senior Secured Bonds due 2023 (Principal amount - $98 million)	105	113
4.6% Note Payable due 2023 (Principal amount - $36 million)	37	38
HOSSM long-term debt (b)	142	151
	13,237	13,146
Add: Net unamortized debt premiums	9	10
Add: Unrealized mark-to-market loss1	—	3
Less: Unamortized deferred debt issuance costs	(50)	(51)
Total long-term debt	13,196	13,108

1 At December 31, 2021, there was no unrealized mark-to-market loss. At December 31, 2020, the unrealized mark-to-market net loss of $3 million related to $300 million Series 39 notes repaid in June 2021. At December 31, 2020, the unrealized mark-to-market net loss was offset by a $3 million unrealized mark-to-market net gain on the related fixed-to-floating interest-rate swap agreements, which were accounted for as fair value hedges.

(a) Hydro One long-term debt

At December 31, 2021, long-term debt of $13,095 million (2020 - $12,995 million) was outstanding, the majority of which was issued under Hydro One’s Medium Term Note (MTN) Program. In April 2020, Hydro One filed a short form base shelf prospectus in connection with its MTN Program, which has a maximum authorized principal amount of notes issuable of $4,000 million, expiring in May 2022. At December 31, 2021, $1,900 million remained available for issuance under the MTN Program prospectus.

27

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

In 2021, Hydro One issued long-term debt totalling $900 million (2020 - $2,300 million) and repaid long-term debt of $800 million (2020 - $650 million) under the MTN Program.

(b) HOSSM long-term debt

At December 31, 2021, HOSSM long-term debt of $142 million (2020 - $151 million), with a principal amount of $134 million (2020 - $138 million) was outstanding. In 2021, no long-term debt was issued (2020 - $nil), and $4 million (2020 - $3 million) of long-term debt was repaid.

The total long-term debt is presented on the consolidated balance sheets as follows:

As at December 31 (millions of dollars)	2021	2020
Current liabilities:
Long-term debt payable within one year	603	806
Long-term liabilities:
Long-term debt	12,593	12,302
Total long-term debt	13,196	13,108

Principal and Interest Payments

At December 31, 2021, future principal repayments, interest payments, and related weighted-average interest rates were as follows:

	Long-Term Debt Principal Repayments	Interest Payments	Weighted-Average Interest Rate
	(millions of dollars)	(millions of dollars)	(%)
Year 1	603	501	3.2
Year 2	731	485	1.7
Year 3	700	470	2.5
Year 4	750	452	2.3
Year 5	500	437	2.8
	3,284	2,345	2.5
Years 6-10	2,200	2,046	3.2
Thereafter	7,745	4,004	4.6
	13,229	8,395	3.9

18.    FAIR VALUE OF FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Fair value is considered to be the exchange price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement date. The fair value definition focuses on an exit price, which is the price that would be received in the sale of an asset or the amount that would be paid to transfer a liability.

Hydro One classifies its fair value measurements based on the following hierarchy, as prescribed by the accounting guidance for fair value, which prioritizes the inputs to valuation techniques used to measure fair value into three levels:

Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that Hydro One has the ability to access. An active market for the asset or liability is one in which transactions for the asset or liability occur with sufficient frequency and volume to provide ongoing pricing information.

Level 2 inputs are those other than quoted market prices that are observable, either directly or indirectly, for an asset or liability. Level 2 inputs include, but are not limited to, quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted market prices that are observable for the asset or liability, such as interest-rate curves and yield curves observable at commonly quoted intervals, volatilities, credit risk and default rates. A Level 2 measurement cannot have more than an insignificant portion of the valuation based on unobservable inputs.

Level 3 inputs are any fair value measurements that include unobservable inputs for the asset or liability for more than an insignificant portion of the valuation. A Level 3 measurement may be based primarily on Level 2 inputs.

Non-Derivative Financial Assets and Liabilities

At December 31, 2021 and 2020, the Company’s carrying amounts of cash and cash equivalents, accounts receivable, due from related parties, short-term notes payable, accounts payable, and due to related parties are representative of fair value due to the short-term nature of these instruments.

28

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

Fair Value Measurements of Long-Term Debt

The fair values and carrying values of the Company’s long-term debt at December 31, 2021 and 2020 are as follows:

	2021	2021	2020	2020
As at December 31 (millions of dollars)	Carrying Value	Fair Value	Carrying Value	Fair Value
Long-term debt measured at fair value - $300 million MTN Series 39 notes	—	—	303	303
Other notes and debentures	13,196	15,162	12,805	15,795
Long-term debt, including current portion	13,196	15,162	13,108	16,098

Fair Value Measurements of Derivative Instruments

Fair Value Hedges

At December 31, 2021, Hydro One had no fair value hedges. At December 31, 2020, Hydro One had interest-rate swaps with a total notional amount of $300 million that were used to convert fixed-rate debt to floating-rate debt. These swaps were designated as fair value hedges. Hydro One’s fair value hedge exposure at December 31, 2020 was approximately 2% of its total long-term debt.

Cash Flow Hedges

At December 31, 2021 and 2020, Hydro One had a total of $800 million in pay-fixed, receive-floating interest-rate swap agreements designated as cash flow hedges. These cash flow hedges are intended to offset the variability of interest rates on the issuances of short-term commercial paper between January 9, 2020 and March 9, 2023.

At December 31, 2021 and 2020, the Company had no derivative instruments classified as undesignated contracts.

Fair Value Hierarchy

The fair value hierarchy of financial assets and liabilities at December 31, 2021 and 2020 is as follows:

As at December 31, 2021 (millions of dollars)	Carrying Value	Fair  Value	Level 1	Level 2	Level 3
Liabilities:
Long-term debt, including current portion	13,196	15,162	—	15,162	—
Derivative instruments (Notes 15,16)
Cash flow hedges, including current portion	8	8	—	8	—
	13,204	15,170	—	15,170	—

As at December 31, 2020 (millions of dollars)	Carrying Value	Fair  Value	Level 1	Level 2	Level 3
Assets:
Derivative instruments (Note 10)
Fair value hedges	3	3	—	3	—
	3	3	—	3	—
Liabilities:
Long-term debt, including current portion	13,108	16,098	—	16,098	—
Derivative instruments (Notes 15,16)
Cash flow hedges, including current portion	25	25	—	25	—
	13,133	16,123	—	16,123	—

The fair value of the hedged portion of the long-term debt is primarily based on the present value of future cash flows using a swap yield curve to determine the assumption for interest rates. The fair value of the unhedged portion of the long-term debt is based on unadjusted period-end market prices for the same or similar debt of the same remaining maturities.

There were no transfers between any of the fair value levels during the years ended December 31, 2021 or 2020.

Risk Management

Exposure to market risk, credit risk and liquidity risk arises in the normal course of the Company’s business.

Market Risk

Market risk refers primarily to the risk of loss which results from changes in values, foreign exchange rates and interest rates. The Company is exposed to fluctuations in interest rates, as its regulated ROE is derived using a formulaic approach that takes anticipated interest rates into account. The Company is not currently exposed to material commodity price risk or material foreign exchange risk.

29

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

The Company uses a combination of fixed and variable-rate debt to manage the mix of its debt portfolio. The Company also uses derivative financial instruments to manage interest-rate risk. The Company may utilize interest-rate swaps designated as fair value hedges as a means to manage its interest rate exposure to achieve a lower cost of debt. The Company may also utilize interest-rate derivative instruments, such as cash flow hedges, to manage its exposure to short-term interest rates or to lock in interest-rate levels on forecasted financing.

A hypothetical 100 basis points increase in interest rates associated with variable-rate debt would not have resulted in a significant decrease in Hydro One’s net income for the years ended December 31, 2021 and 2020.

For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in the consolidated statements of operations and comprehensive income. The net unrealized loss (gain) on the hedged debt and the related interest-rate swaps for the years ended December 31, 2021 and 2020 were not material.

For derivative instruments that are designated and qualify as cash flow hedges, the unrealized gain or loss, after tax, on the derivative instrument is recorded as OCI or OCL and is reclassified to results of operations in the same period during which the hedged transaction affects results of operations. During the year ended December 31, 2021, a $4 million after-tax unrealized gain (2020 - $28 million loss), $5 million before-tax (2020 - $38 million loss), was recorded in OCI, and a $8 million after-tax realized loss (2020 - $5 million), $12 million before-tax (2020 - $7 million), was reclassified to financing charges. This resulted in an accumulated other comprehensive loss (AOCL) of $6 million related to cash flow hedges at December 31, 2021 (2020 - $18 million). The Company estimates that the amount of AOCL, after tax, related to cash flow hedges to be reclassified to results of operations in the next 12 months is $6 million. Actual amounts reclassified to results of operations depend on the interest rate risk in effect until the derivative contracts mature. For all forecasted transactions, at December 31, 2021, the maximum term over which the Company is hedging exposures to the variability of cash flows is approximately one year.

The Pension Plan manages market risk by diversifying investments in accordance with the Pension Plan’s Statement of Investment Policies and Procedures (SIPP). Interest rate risk arises from the possibility that changes in interest rates will affect the fair value of the Pension Plan’s financial instruments. In addition, changes in interest rates can also impact discount rates which impact the valuation of the pension and post-retirements and post-employment liabilities. Currency risk is the risk that the value of the Pension Plan’s financial instruments will fluctuate due to changes in foreign currencies relative to the Canadian dollar. Other price risk is the risk that the value of the Pension Plan’s investments in equity securities will fluctuate as a result of changes in market prices, other than those arising from interest rate risk or currency risk. All three factors may contribute to changes in values of the Pension Plan investments. See Note 20 - Pension and Post-Retirement and Post-Employment Benefits for further details.

Credit Risk

Financial assets create a risk that a counterparty will fail to discharge an obligation, causing a financial loss. At December 31, 2021 and 2020, there were no significant concentrations of credit risk with respect to any class of financial assets. The Company’s revenue is earned from a broad base of customers. As a result, Hydro One did not earn a material amount of revenue from any single customer. At December 31, 2021 and 2020, there was no material accounts receivable balance due from any single customer.

At December 31, 2021, the Company’s allowance for doubtful accounts was $56 million (2020 - $46 million). The allowance for doubtful accounts reflects the Company's CECL for all accounts receivable balances, which are based on historical overdue balances, customer payments and write-offs. At December 31, 2021, approximately 5% (2020 - 4%) of the Company’s net accounts receivable were outstanding for more than 60 days. Please see Note 9 - Accounts Receivable for additions to allowance for doubtful accounts related to the impact of the COVID-19 pandemic.

Hydro One manages its counterparty credit risk through various techniques including (i) entering into transactions with highly rated counterparties, (ii) limiting total exposure levels with individual counterparties, (iii) entering into master agreements which enable net settlement and the contractual right of offset, and (iv) monitoring the financial condition of counterparties. The Company monitors current credit exposure to counterparties on both an individual and an aggregate basis. The Company’s credit risk for accounts receivable is limited to the carrying amounts on the consolidated balance sheets.

Derivative financial instruments result in exposure to credit risk since there is a risk of counterparty default. The maximum credit exposure of derivative contracts, before collateral, is represented by the fair value of contracts in an asset position at the reporting date. At December 31, 2021 and 2020, the counterparty credit risk exposure on the fair value of these interest-rate swap contracts was not material. At December 31, 2021, Hydro One’s credit exposure for all derivative instruments, and applicable payables and receivables, was with two financial institutions with investment grade credit ratings as counterparties.

The Pension Plan manages its counterparty credit risk with respect to bonds by investing in investment-grade corporate and government bonds and with respect to derivative instruments by transacting only with highly rated financial institutions and by ensuring that exposure is diversified across counterparties.

30

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

Liquidity Risk

Liquidity risk refers to the Company’s ability to meet its financial obligations as they come due. Hydro One meets its short-term operating liquidity requirements using cash and cash equivalents on hand, funds from operations, the issuance of commercial paper, and the Operating Credit Facilities. The short-term liquidity under the commercial paper program, the Operating Credit Facilities, and anticipated levels of funds from operations are expected to be sufficient to fund the Company’s operating requirements. The Company's currently available liquidity is also expected to be sufficient to address any reasonably foreseeable impacts that the COVID-19 pandemic may have on the Company’s cash requirements.

In April 2020, Hydro One filed a short form base shelf prospectus in connection with its MTN Program, which has a maximum authorized principal amount of notes issuable of $4,000 million, expiring in May 2022. At December 31, 2021, $1,900 million remained available for issuance under the MTN Program prospectus. A new MTN Program prospectus is expected to be filed in the first half of 2022.

The Pension Plan’s short-term liquidity is provided through cash and cash equivalents, contributions, investment income and proceeds from investment transactions. In the event that investments must be sold quickly to meet current obligations, the majority of the Pension Plan’s assets are invested in securities that are traded in an active market and can be readily disposed of as liquidity needs arise.

19.     CAPITAL MANAGEMENT

The Company’s objectives with respect to its capital structure are to maintain effective access to capital on a long-term basis at reasonable rates, and to deliver appropriate financial returns. In order to ensure ongoing access to capital, the Company targets to maintain strong credit quality. At December 31, 2021 and 2020, the Company’s capital structure was as follows:

As at December 31 (millions of dollars)	2021	2020
Long-term debt payable within one year	603	806
Short-term notes payable	1,045	800
Less: cash and cash equivalents	(499)	(712)
	1,149	894
Long-term debt	12,593	12,302
Common shares	2,957	2,957
Retained earnings	8,229	7,877
Total capital	24,928	24,030

Hydro One and HOSSM have customary covenants typically associated with long-term debt. Long-term debt and credit facility covenants limit permissible debt to 75% of its total capitalization, limit the ability to sell assets and impose a negative pledge provision, subject to customary exceptions. At December 31, 2021, the Company was in compliance with all financial covenants and limitations associated with the outstanding borrowings and credit facilities.

20.    PENSION AND POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS

Hydro One has a Pension Plan, a DC Plan, a supplementary pension plan (Supplementary Plan), and post-retirement and post-employment benefit plans.

DC Plan

Hydro One established a DC Plan effective January 1, 2016. The DC Plan covers eligible management employees hired on or after January 1, 2016, as well as management employees hired before January 1, 2016 who were not eligible to join the Pension Plan as of September 30, 2015. Members of the DC Plan have an option to contribute 4%, 5% or 6% of their pensionable earnings, with matching contributions by Hydro One up to an annual contribution limit. There is also a Supplementary DC Plan that provides members of the DC Plan with employer contributions beyond the limitations imposed by the Income Tax Act (Canada) in the form of credits to a notional account. Hydro One contributions to the DC Plan for the year ended December 31, 2021 were $2 million (2020 - $2 million).

Pension Plan, Supplementary Plan, and Post-Retirement and Post-Employment Plans

The Pension Plan is a defined benefit contributory plan which covers eligible regular employees of Hydro One and its subsidiaries. The Pension Plan provides benefits based on highest three-year average pensionable earnings. For management employees who commenced employment on or after January 1, 2004, and for the Society of United Professionals (Society)-represented staff hired after November 17, 2005, benefits are based on highest five-year average pensionable earnings. After retirement, pensions are indexed to inflation. Membership in the Pension Plan was closed to management employees who were not eligible or had not irrevocably elected to join the Pension Plan as of September 30, 2015. These employees are eligible to join the DC Plan.

31

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

Company and employee contributions to the Pension Plan are based on actuarial reports, including valuations performed at least every three years, and actual or projected levels of pensionable earnings, as applicable. The most recent actuarial valuation was performed effective December 31, 2018 and filed on September 30, 2019. The new valuation is expected to be filed by no later than September 30, 2022, which may result in a change to the estimated contributions for 2022-2027. Total annual cash Pension Plan employer contributions for 2021 were $62 million (2020 - $57 million). Estimated annual Pension Plan employer contributions for the years 2022, 2023, 2024, 2025, 2026 and 2027 are approximately $93 million, $107 million, $111 million, $111 million, $113 million and $118 million respectively.

The Supplementary Plan provides members of the Pension Plan with benefits that would have been earned and payable under the Pension Plan beyond the limitations imposed by the Income Tax Act (Canada). The Supplementary Plan obligation is included with other post-retirement and post-employment benefit obligations on the consolidated balance sheets.

Hydro One recognizes the overfunded or underfunded status of the Pension Plan, and post-retirement and post-employment benefit plans (Plans) as an asset or liability on its consolidated balance sheets, with offsetting regulatory assets and liabilities as appropriate. The underfunded benefit obligations for the Plans, in the absence of regulatory accounting, would be recognized in AOCI. The impact of changes in assumptions used to measure pension and post-retirement benefit obligations is generally recognized over the expected average remaining service period of the employees and using the corridor approach for the post-retirement benefit plan. For post-employment benefit plan, the impact of changes in assumptions are recognized immediately in the net periodic benefit cost. The measurement date for the Plans is December 31.

The following tables provide the components of the unfunded status of the Company's Plans at December 31, 2021 and 2020:

	Pension Benefits		Post-Retirement and Post-Employment Benefits
Year ended December 31 (millions of dollars)	2021	2020	2021	2020
Change in projected benefit obligation
Projected benefit obligation, beginning of year	9,763	8,973	1,841	1,768
Current service cost	240	215	65	70
Employee contributions	61	56	—	—
Interest cost	257	284	51	57
Benefits paid	(392)	(381)	(47)	(45)
Net actuarial loss (gain)	(571)	465	(98)	(42)
Transfers from other plans1,2	—	151	34	33
Projected benefit obligation, end of year	9,358	9,763	1,846	1,841
Change in plan assets
Fair value of plan assets, beginning of year	8,103	7,848	—	—
Actual return on plan assets	834	425	—	—
Benefits paid	(392)	(381)	(47)	(45)
Employer contributions	62	57	47	45
Employee contributions	61	56	—	—
Administrative expenses	(23)	(22)	—	—
Transfers from other plans1	—	120	—	—
Fair value of plan assets, end of year	8,645	8,103	—	—
Unfunded status	713	1,660	1,846	1,841

1 In 2020, assets and liabilities associated with the Inergi LP Pension Plan and post-employment benefit plans were transferred to the Hydro One Pension Plan and
post-employment benefit plans, related to the 2018 transfer of customer service operations employees to Hydro One.

2 See below for information related to the transfer from other plans in 2021 as well as future transfers from other plans for employees transferred in 2021 and 2022.

Future Transfers from Other Plans

In January 2021, Hydro One and Inergi LP (Inergi) executed a letter of understanding (LOU) for the transfer of certain Inergi employees (Transferred Employees) to Hydro One Networks over a period of time. Employees related to the Information Technology Operations, Finance and Accounting, Payroll and certain Shared Services functions transferred over a period ending January 1, 2022. The Transferred Employees who are participants in the Inergi LP Pension Plan (Inergi Plan) became participants in the Hydro One Pension Plan upon transfer to Hydro One. Subject to all necessary regulatory approvals, the assets and liabilities of the Inergi Plan will transfer to the Plan. The values of assets and liabilities of the Inergi Plan to be transferred to the Plan will be determined at the date of transfer, which is expected to occur sometime in 2023. In accordance with the LOU, Inergi and Hydro One Networks also agreed to transfer OPEB liabilities related to the Transferred Employees to Hydro One’s post-retirement and post-employment benefit plans.

On March 1, 2021, Transferred Employees associated with information technology operations (ITO Employees) transferred to Hydro One Networks, and the transfer of the OPEB liability of $28 million related to the ITO Employees was completed. The liability was recorded as a post-retirement and post-employment benefit liability with an offset to OCL, and cash totaling

32

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

$27 million was transferred to Hydro One and recorded as an asset with an offset to OCI. Both, the OCI resulting from the transfer of the cash asset and the OCL resulting from the transfer of the other post-retirement benefit liability are being recognized in net income over the expected average remaining service lifetime (EARSL) of the ITO Employees.

On November 1, 2021, Transferred Employees associated with source to pay operations (S2P Employees) transferred to Hydro One Networks, and the transfer of the OPEB liability of $6 million related to the S2P Employees was completed. The liability was recorded as a post-retirement and post-employment benefit liability with an offset to OCL, and cash totaling $6 million was transferred to Hydro One and recorded as an asset with an offset to OCI. Both, the OCI resulting from the transfer of the cash asset and the OCL resulting from the transfer of the other post-retirement benefit liability are being recognized in net income over the EARSL of the S2P Employees.

The transfer of Finance and Accounting, Payroll and certain Shared Services functions occurred on January 1, 2022 and the transfer of the OPEB liability will be recorded in the first quarter of 2022.

Hydro One presents its benefit obligations and plan assets net on its consolidated balance sheets as follows:

	Pension Benefits		Post-Retirement and Post-Employment Benefits
As at December 31 (millions of dollars)	2021	2020	2021	2020
Other assets1	10	6	—	—
Accrued liabilities	—	—	62	60
Pension benefit liability	713	1,660	—	—
Post-retirement and post-employment benefit liability	—	—	1,784	1,781
Net unfunded status	703	1,654	1,846	1,841

1 Represents the funded status of HOSSM defined benefit pension plan.

The funded or unfunded status of the Plans refers to the difference between the fair value of plan assets and the PBO for the Plans. The funded/unfunded status changes over time due to several factors, including contribution levels, assumed discount rates and actual returns on plan assets.

The following table provides the PBO, accumulated benefit obligation (ABO) and fair value of plan assets for the Pension Plan:

As at December 31 (millions of dollars)	2021	2020
PBO	9,358	9,763
ABO	8,451	8,817
Fair value of plan assets	8,645	8,103

On an ABO basis, the Pension Plan was funded at 102% at December 31, 2021 (2020 - 92%). On a PBO basis, the Pension Plan was funded at 92% at December 31, 2021 (2020 - 83%). The ABO differs from the PBO in that the ABO includes no assumption about future compensation levels.

Components of Net Periodic Benefit Costs

The following table provides the components of the net periodic benefit costs for the years ended December 31, 2021 and 2020 for the Pension Plan:

Year ended December 31 (millions of dollars)	2021	2020
Current service cost	240	215
Interest cost	257	284
Expected return on plan assets, net of expenses	(430)	(450)
Prior service cost amortization	2	2
Amortization of actuarial losses	125	95
Net periodic benefit costs	194	146
Charged to results of operations1	26	24

1    The Company accounts for pension costs consistent with their inclusion in OEB-approved rates. During the year ended December 31, 2021, pension costs of $73 million (2020 - $68 million) were attributed to labour, of which $26 million (2020 - $24 million) was charged to operations, and $47 million (2020 - $44 million) was capitalized as part of the cost of property, plant and equipment and intangible assets.

33

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

The following table provides the components of the net periodic benefit costs for the years ended December 31, 2021 and 2020 for the post-retirement and post-employment benefit plans:

Year ended December 31 (millions of dollars)	2021	2020
Current service cost	65	70
Interest cost	51	57
Prior service cost amortization	7	2
Amortization of actuarial losses	(2)	5
Net periodic benefit costs	121	134
Charged to results of operations1,2	63	71

1    The Company accounts for post-retirement and post-employment costs consistent with their inclusion in OEB-approved rates. During the year ended December 31, 2021, post-retirement and post-employment costs of $121 million (2020 - $133 million) were attributed to labour, of which $63 million (2020 - $71 million) was charged to operations, $14 million (2020 - $17 million) was recorded in the Hydro One Networks distribution post-retirement and post-employment benefits non-service cost regulatory asset, and $44 million (2020 - $45 million) was capitalized as part of the cost of property, plant and equipment and intangible assets.

2     In the 2020-2022 Transmission Decision, the OEB approved the recovery of the non-service cost component of post-retirement and post-employment benefits as part of operation, maintenance and administration costs for the Company's transmission business. These costs were previously capitalized and recovered through rate base. As a result, during the year ended December 31, 2021, additional other post-retirement and post-employment costs of $14 million (2020 - $22 million) attributed to labour were charged to operations.

Assumptions

The measurement of the obligations of the Plans and the costs of providing benefits under the Plans involves various factors, including the development of valuation assumptions and accounting policy elections. When developing the required assumptions, the Company considers historical information as well as future expectations. The measurement of benefit obligations and costs is impacted by several assumptions including the discount rate applied to benefit obligations, the long-term expected rate of return on plan assets, Hydro One’s expected level of contributions to the Plans, the incidence of mortality, the expected remaining service period of plan participants, the level of compensation and rate of compensation increases, employee age, length of service, and the anticipated rate of increase of health care costs, among other factors. The impact of changes in assumptions used to measure the obligations of the Plans is generally recognized over the expected average remaining service period of the plan participants. In selecting the expected rate of return on plan assets, Hydro One considers historical economic indicators that impact asset returns, as well as expectations regarding future long-term capital market performance, weighted by target asset class allocations. In general, equity securities, real estate and private equity investments are forecasted to have higher returns than fixed-income securities.

The following weighted average assumptions were used to determine the benefit obligations at December 31, 2021 and 2020:

	Pension Benefits				Post-Retirement and Post-Employment Benefits
Year ended December 31	2021		2020		2021		2020
Significant assumptions:
Weighted average discount rate	3.00	%	2.60	%	3.00	%	2.60	%
Rate of compensation scale escalation (long-term)	2.25	%	2.25	%	2.25	%	2.25	%
Rate of cost of living increase	1.75	%	1.75	%	1.75	%	1.75	%
Rate of increase in health care cost trends1	—		—		3.97	%	3.70	%

1 4.88% per annum in 2022, grading down to 3.97% per annum in and after 2031 (2020 - 4.74% per annum in 2021, grading down to 3.70% per annum in and after 2031)

34

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

The following weighted average assumptions were used to determine the net periodic benefit costs for the years ended December 31, 2021 and 2020. Assumptions used to determine current year-end benefit obligations are the assumptions used to estimate the subsequent year’s net periodic benefit costs.

Year ended December 31	2021		2020
Pension Benefits:
Weighted average expected rate of return on plan assets	5.40	%	5.75	%
Weighted average discount rate	2.60	%	3.10	%
Rate of compensation scale escalation (long-term)	2.25	%	2.50	%
Rate of cost of living increase	1.75	%	2.00	%
Average remaining service life of employees (years)	14		15
Post-Retirement and Post-Employment Benefits:
Weighted average discount rate	2.60	%	3.10	%
Rate of compensation scale escalation (long-term)	2.25	%	2.50	%
Rate of cost of living increase	1.75	%	2.00	%
Average remaining service life of employees (years)	15.3		15.5
Rate of increase in health care cost trends1	3.70	%	4.04	%

1 4.74% per annum in 2021, grading down to 3.70% per annum in and after 2031 (2020 - 5.09% per annum in 2020, grading down to 4.04% per annum in and after 2031)

The discount rate used to determine the current year pension obligation and the subsequent year’s net periodic benefit costs is based on a yield curve approach. Under the yield curve approach, expected future benefit payments for each plan are discounted by a rate on a third-party bond yield curve corresponding to each duration. The yield curve is based on “AA” long-term corporate bonds. A single discount rate is calculated that would yield the same present value as the sum of the discounted cash flows.

The following approximate life expectancies were used in the mortality assumptions to determine the PBO for the pension and post-retirement and post-employment plans at December 31, 2021 and 2020:

As at December 31	2021	2020
Life expectancy at age 65 for a member currently at:	(years)	(years)
Age 65 - male	23	22
Age 65 - female	25	25
Age 45 - male	24	23
Age 45 - female	26	26

Estimated Future Benefit Payments

At December 31, 2021, estimated future benefit payments to the participants of the Plans were:

(millions of dollars)	Pension Benefits	Post-Retirement and Post-Employment Benefits
2022	362	64
2023	369	65
2024	375	66
2025	379	66
2026	383	68
2027 through to 2031	1,962	345
Total estimated future benefit payments through to 2031	3,830	674

Components of Regulatory Accounts

35

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

A portion of actuarial gains and losses and prior service costs is recorded within regulatory accounts on Hydro One’s consolidated balance sheets to reflect the expected regulatory inclusion of these amounts in future rates, which would otherwise be recorded in OCI. These amounts are reflected in the following table:

Year ended December 31 (millions of dollars)	2021	2020
Pension Benefits:
Actuarial (gain) loss for the year	(891)	536
Prior service cost for the year	—	31
Amortization of actuarial losses	(124)	(95)
Amortization of prior service cost	(2)	(2)
	(1,017)	470
Post-Retirement and Post-Employment Benefits:
Actuarial gain for the year	(91)	(44)
Amortization of actuarial losses	(3)	(2)
	(94)	(46)

The following table provides the components of regulatory accounts that have not been recognized as components of net periodic benefit costs for the years ended December 31, 2021 and 2020:

Year ended December 31 (millions of dollars)	2021	2020
Pension Benefits:
Actuarial loss	713	1,660
Post-Retirement and Post-Employment Benefits:
Actuarial (gain) loss	(33)	59

Pension Plan Assets

Investment Strategy

On a regular basis, Hydro One evaluates its investment strategy to ensure that Pension Plan assets will be sufficient to pay Pension Plan benefits when it comes due. As part of this ongoing evaluation, Hydro One may make changes to its targeted asset allocation and investment strategy. The Pension Plan is managed at a net asset level. The main objective of the Pension Plan is to sustain a certain level of net assets in order to meet the pension obligations of the Company. The Pension Plan fulfils its primary objective by adhering to specific investment policies outlined in its Statement of Investment Policies and Procedures (SIPP), which is reviewed and approved annually by the Human Resource Committee of Hydro One’s Board of Directors. The Company manages net assets by engaging external investment managers who are charged with the fiduciary responsibility of investing existing funds and new funds (current year’s employee and employer contributions) in accordance with the approved SIPP. The performance of the underlying investment managers is monitored through a governance structure. Increases in net assets are a direct result of investment income generated by investments held by the Pension Plan and contributions to the Pension Plan by eligible employees and by the Company. The main use of net assets is for benefit payments to eligible Pension Plan members. 

Pension Plan Asset Mix

At December 31, 2021, the Pension Plan actual weighted average, target, and range asset allocations were as follows:

	Actual (%)	Target Allocation (%)	Range Allocation (%)
Equity securities	51	40	25 - 55
Debt securities	33	35	30 - 40
Real Estate and Infrastructure	16	25	0 - 35
	100	100

At December 31, 2021, the Pension Plan held $22 million (2020 - $23 million) Hydro One corporate bonds and $603 million (2020 - $565 million) of debt securities of the Province of Ontario (Province).

Concentrations of Credit Risk

Hydro One evaluated its Pension Plan’s asset portfolio for the existence of significant concentrations of credit risk as at December 31, 2021 and 2020. Concentrations that were evaluated include, but are not limited to, investment concentrations in a single entity, concentrations in a type of industry, and concentrations in individual funds. At December 31, 2021 and 2020, there were no significant concentrations (defined as greater than 10% of plan assets) of risk in the Pension Plan’s assets.

36

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

The Pension Plan's Statement of Investment Beliefs and Guidelines provides guidelines and restrictions for eligible investments taking into account credit ratings, maximum investment exposure and other controls in order to limit the impact of this risk. The Pension Plan manages its counterparty credit risk with respect to bonds by investing in investment-grade and government bonds and with respect to derivative instruments by transacting only with highly rated financial institutions, and also by ensuring that exposure is diversified across counterparties. The risk of default on transactions in listed securities is considered minimal, as the trade will fail if either party to the transaction does not meet its obligation.

Fair Value Measurements

The following tables present the Pension Plan assets and liabilities measured and recorded at fair value on a recurring basis and their level within the fair value hierarchy at December 31, 2021 and 2020:

As at December 31, 2021 (millions of dollars)	Level 1	Level 2	Level 3	Total
Pooled funds	—	21	1,937	1,958
Cash and cash equivalents	144	—	—	144
Short-term securities	—	86	—	86
Derivative instruments	—	2	—	2
Corporate shares - Canadian	167	—	—	167
Corporate shares - Foreign	3,412	258	—	3,670
Bonds and debentures - Canadian	—	2,491	—	2,491
Bonds and debentures - Foreign	—	97	—	97
Total fair value of plan assets1	3,723	2,955	1,937	8,615

Derivative instruments	—	1	—	1
Total fair value of plan liabilities1	—	1	—	1

1 At December 31, 2021, the total fair value of Pension Plan assets and liabilities excludes $39 million of interest and dividends receivable, $5 million of pension administration expenses payable, $2 million of taxes payable, $4 million payable to participants, $6 million of sold investments receivable, and $3 million of purchased investments payable.

As at December 31, 2020 (millions of dollars)	Level 1	Level 2	Level 3	Total
Pooled funds	—	21	1,429	1,450
Cash and cash equivalents	163	—	—	163
Short-term securities	—	175	—	175
Derivative instruments	—	2	—	2
Corporate shares - Canadian	142	—	—	142
Corporate shares - Foreign	3,335	209	—	3,544
Bonds and debentures - Canadian	—	2,499	—	2,499
Bonds and debentures - Foreign	—	96	—	96
Total fair value of plan assets1	3,640	3,002	1,429	8,071

Derivative instruments	—	1	—	1
Total fair value of plan liabilities1	—	1	—	1

1 At December 31, 2020, the total fair value of Pension Plan assets and liabilities excludes $39 million of interest and dividends receivable, $6 million of pension administration expenses payable, $2 million of taxes payable, $6 million payable to participants, $17 million of sold investments receivable, and $9 million of purchased investments payable.

See Note 18 - Fair Value of Financial Instruments and Risk Management for a description of levels within the fair value hierarchy.

Changes in the Fair Value of Financial Instruments Classified in Level 3

The following table summarizes the changes in fair value of financial instruments classified in Level 3 for the years ended December 31, 2021 and 2020. The Pension Plan classifies financial instruments as Level 3 when the fair value is measured based on at least one significant input that is not observable in the markets or due to lack of liquidity in certain markets. The gains and losses presented in the table below could, therefore, include changes in fair value based on both observable and unobservable inputs. The Level 3 financial instruments are comprised of pooled funds whose valuations are provided by the investment managers. Sensitivity analysis is not provided as the underlying assumptions used by the investment managers are not available.

Year ended December 31 (millions of dollars)	2021	2020
Fair value, beginning of year	1,429	1,079
Realized and unrealized gains	307	97
Purchases	308	288
Sales and disbursements	(107)	(35)
Fair value, end of year	1,937	1,429

37

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

There were no significant transfers between any of the fair value levels during the years ended December 31, 2021 and 2020.

Valuation Techniques Used to Determine Fair Value

Pooled funds mainly consist of private equity, real estate infrastructure and private debt investments. Private equity investments represent private equity funds that invest in operating companies that are not publicly traded on a stock exchange. Investment strategies in private equity include limited partnerships in businesses that are characterized by high internal growth and operational efficiencies, venture capital, leveraged buyouts and special situations such as distressed investments. Real estate and infrastructure investments represent funds that invest in real assets which are not publicly traded on a stock exchange. Investment strategies in real estate include limited partnerships that seek to generate a total return through income and capital growth by investing primarily in global and Canadian limited partnerships. Investment strategies in infrastructure include limited partnerships in core infrastructure assets focusing on assets that are expected to generate stable, long-term cash flows and deliver incremental returns relative to conventional fixed-income investments. Private equity, real estate and infrastructure valuations are reported by the fund manager and are based on the valuation of the underlying investments which includes inputs such as cost, operating results, discounted future cash flows and market-based comparable data. Private debt valuations are reported by the fund manager. Private debt is credit that is extended to companies on a bilaterally negotiated basis. It is not readily marketable and takes a wide range of forms, such as senior secured and unsecured loans, infrastructure project financing, investments secured by real estate assets, and securitized lease/loan obligations supported by a pool of assets. Since these valuation inputs are not highly observable, private equity, real estate infrastructure and private debt investments have been categorized as Level 3 within pooled funds.

Cash equivalents consist of demand cash deposits held with banks and cash held by the investment managers. Cash equivalents are categorized as Level 1.

Short-term securities are valued at cost plus accrued interest, which approximates fair value due to their short-term nature. Short-term securities are categorized as Level 2.

Derivative instruments are used to hedge the Pension Plan’s foreign currency exposure back to Canadian dollars. The notional principal amount of contracts outstanding as at December 31, 2021 was $414 million (2020 - $423 million), the most significant currencies being hedged against the Canadian dollar are the United States dollar, euro, British pound sterling, Swedish krona and Japanese yen. The net realized gain on contracts for the year ended December 31, 2021 was $2 million (2020 - $8 million net realized loss). The terms to maturity of the forward exchange contracts at December 31, 2021 are within three months. The fair value is determined using standard interpolation methodology primarily based on the World Markets exchange rates. Derivative instruments are categorized as Level 2.

Corporate shares are valued based on quoted prices in active markets and are categorized as Level 1. Corporate shares which are valued based on quoted prices in active markets, but held within a pension investment holding company, are categorized as Level 2. Investments denominated in foreign currencies are translated into Canadian currency at year-end rates of exchange.

Bonds and debentures are presented at published closing trade quotations, and are categorized as Level 2.

21.    ENVIRONMENTAL LIABILITIES

The following tables show the movements in environmental liabilities for the years ended December 31, 2021 and 2020:

Year ended December 31, 2021 (millions of dollars)	PCB	LAR	Total
Environmental liabilities - beginning	76	57	133
Interest accretion	1	—	1
Expenditures	(24)	(6)	(30)
Revaluation adjustment	15	3	18
Environmental liabilities - ending	68	54	122
Less: current portion	(27)	(7)	(34)
	41	47	88

Year ended December 31, 2020 (millions of dollars)	PCB	LAR	Total
Environmental liabilities - beginning	90	51	141
Interest accretion	3	—	3
Expenditures	(17)	(6)	(23)
Revaluation adjustment	—	12	12
Environmental liabilities - ending	76	57	133
Less: current portion	(25)	(8)	(33)
	51	49	100

38

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

The following tables show the reconciliation between the undiscounted basis of the environmental liabilities and the amount recognized on the consolidated balance sheets after factoring in the discount rate:

As at December 31, 2021 (millions of dollars)	PCB	LAR	Total
Undiscounted environmental liabilities	70	54	124
Less: discounting environmental liabilities to present value	(2)	—	(2)
Discounted environmental liabilities	68	54	122

As at December 31, 2020 (millions of dollars)	PCB	LAR	Total
Undiscounted environmental liabilities	80	57	137
Less: discounting environmental liabilities to present value	(4)	—	(4)
Discounted environmental liabilities	76	57	133

At December 31, 2021, the estimated future environmental expenditures were as follows:

(millions of dollars)
2022	34
2023	21
2024	22
2025	12
2026	2
Thereafter	33
	124

Hydro One records a liability for the estimated future expenditures for LAR and for the phase-out and destruction of PCB-contaminated mineral oil removed from electrical equipment when it is determined that future environmental remediation expenditures are probable under existing statute or regulation and the amount of the future expenditures can be reasonably estimated.

There are uncertainties in estimating future environmental costs due to potential external events such as changes in legislation or regulations, and advances in remediation technologies. In determining the amounts to be recorded as environmental liabilities, the Company estimates the current cost of completing required work and makes assumptions as to when the future expenditures will actually be incurred, in order to generate future cash flow information. A long-term inflation rate assumption of approximately 2% has been used to express these current cost estimates as estimated future expenditures. Future expenditures have been discounted using factors ranging from approximately 2.0% to 6.3%, depending on the appropriate rate for the period when expenditures are expected to be incurred. All factors used in estimating the Company’s environmental liabilities represent management’s best estimates of the present value of costs required to meet existing legislation or regulations. However, it is reasonably possible that numbers or volumes of contaminated assets, cost estimates to perform work, inflation assumptions and the assumed pattern of annual cash flows may differ significantly from the Company’s current assumptions. In addition, with respect to the PCB environmental liability, the availability of critical resources such as skilled labour and replacement assets and the ability to take maintenance outages in critical facilities may influence the timing of expenditures.

PCBs

The Environment Canada regulations, enacted under the Canadian Environmental Protection Act, 1999, govern the management, storage and disposal of PCBs based on certain criteria, including type of equipment, in-use status, and PCB-contamination thresholds. Under current regulations, Hydro One’s PCBs have to be disposed of by the end of 2025, with the exception of specifically exempted equipment. Contaminated equipment will generally be replaced, or will be decontaminated by removing PCB-contaminated insulating oil and retro filling with replacement oil that contains PCBs in concentrations of less than 2 ppm.

At December 31, 2021, the Company’s best estimate of the total estimated future expenditures to comply with current PCB regulations was $70 million (2020 - $80 million). These expenditures are expected to be incurred over the period from 2022 to 2025. As a result of its annual review of environmental liabilities, the Company recorded a revaluation adjustment in 2021 to increase the PCB environmental liability by $15 million (2020 - no revaluation adjustment was recorded).

LAR

At December 31, 2021, the Company’s best estimate of the total estimated future expenditures to complete its LAR program was $54 million (2020 - $57 million). These expenditures are expected to be incurred over the period from 2022 to 2054. As a result of its annual review of environmental liabilities, the Company recorded a revaluation adjustment in 2021 to increase the LAR environmental liability by $3 million (2020 - $12 million).

39

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

22.    ASSET RETIREMENT OBLIGATIONS

Hydro One records a liability for the estimated future expenditures for the removal and disposal of asbestos-containing materials installed in some of its facilities. Asset retirement obligations, which represent legal obligations associated with the retirement of certain tangible long-lived assets, are computed as the present value of the projected expenditures for the future retirement of specific assets and are recognized in the period in which the liability is incurred, if a reasonable estimate can be made. If the asset remains in service at the recognition date, the present value of the liability is added to the carrying amount of the associated asset in the period the liability is incurred and this additional carrying amount is depreciated over the remaining life of the asset. If an asset retirement obligation is recorded in respect of an out-of-service asset, the asset retirement cost is charged to results of operations. Subsequent to the initial recognition, the liability is adjusted for any revisions to the estimated future cash flows associated with the asset retirement obligation, which can occur due to a number of factors including, but not limited to, cost escalation, changes in technology applicable to the assets to be retired, changes in legislation or regulations, as well as for accretion of the liability due to the passage of time until the obligation is settled. Depreciation expense is adjusted prospectively for any increases or decreases to the carrying amount of the associated asset.

In determining the amounts to be recorded as asset retirement obligations, the Company estimates the current fair value for completing required work and makes assumptions as to when the future expenditures will actually be incurred, in order to generate future cash flow information. A long-term inflation assumption of approximately 2% has been used to express these current cost estimates as estimated future expenditures. Future expenditures have been discounted using factors ranging from approximately 2.0% to 4.0%, depending on the appropriate rate for the period when expenditures are expected to be incurred. All factors used in estimating the Company’s asset retirement obligations represent management’s best estimates of the cost required to meet existing legislation or regulations. However, it is reasonably possible that numbers or volumes of contaminated assets, cost estimates to perform work, inflation assumptions and the assumed pattern of annual cash flows may differ significantly from the Company’s current assumptions. Asset retirement obligations are reviewed annually or more frequently if significant changes in regulations or other relevant factors occur. Estimate changes are accounted for prospectively. As a result of its annual review of asset retirement obligations, no revaluation adjustment to the asset retirement obligations was recorded in 2021 (2020 - revaluation adjustment was recorded to increase the asset retirement obligations by $3 million).

At December 31, 2021, Hydro One had recorded asset retirement obligations of $14 million (2020 - $13 million), primarily consisting of the estimated future expenditures associated with the removal and disposal of asbestos-containing materials installed in some of its facilities.

23.    LEASES

Hydro One has operating lease contracts for buildings used in administrative and service-related functions. These leases have terms between three and nine years with renewal options of additional three- to five-year terms at prevailing market rates at the time of extension. All leases include a clause to enable upward revision of the rental charge on an annual basis or on renewal according to prevailing market conditions or pre-established rents. There are no restrictions placed upon Hydro One by entering into these leases. Renewal options are included in the lease term when their exercise is reasonably certain. Other information related to the Company's operating leases was as follows:

Year ended December 31 (millions of dollars)	2021		2020
Lease expense	13		12
Lease payments made	13		11
As at December 31	2021		2020
Weighted-average remaining lease term1 (years)	6		7
Weighted-average discount rate	2.3	%	2.6	%

1 Includes renewal options that are reasonably certain to be exercised.

At December 31, 2021, future minimum operating lease payments were as follows:

(millions of dollars)
2022	14
2023	10
2024	9
2025	7
2026	7
Thereafter	13
Total undiscounted minimum lease payments	60
Less: discounting minimum lease payments to present value	(4)
Total discounted minimum lease payments	56

40

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

At December 31, 2020, future minimum operating lease payments were as follows:

(millions of dollars)
2021	14
2022	12
2023	11
2024	11
2025	10
Thereafter	27
Total undiscounted minimum lease payments	85
Less: discounting minimum lease payments to present value	(8)
Total discounted minimum lease payments	77

Hydro One presents its ROU assets and lease obligations on the consolidated balance sheets as follows:

As at December 31 (millions of dollars)	2021	2020
Other long-term assets (Note 14)	53	71
Accounts payable and other current liabilities (Note 15)	12	11
Other long-term liabilities (Note 16)	44	65

24.    SHARE CAPITAL

Common Shares

The Company is authorized to issue an unlimited number of common shares. At December 31, 2021 and 2020, the Company had 142,239 common shares issued and outstanding. No return of stated capital was paid in 2021. During the year ended December 31, 2020, a return of stated capital in the amount of $607 million was paid.

The amount and timing of any dividends payable by Hydro One is at the discretion of the Hydro One Board of Directors and is established on the basis of Hydro One’s results of operations, maintenance of its deemed regulatory capital structure, financial condition, cash requirements, the satisfaction of solvency tests imposed by corporate laws for the declaration and payment of dividends and other factors that the Board of Directors may consider relevant.

Preferred Shares

The Company is authorized to issue an unlimited number of preferred shares, issuable in series. At December 31, 2021 and 2020, the Company had no preferred shares issued and outstanding.

25.     DIVIDENDS

In 2021, common share dividends in the amount of $620 million (2020 - $1 million) were declared and paid and no preferred share dividends (2020 - $nil) were paid. See Note 34 - Subsequent Events for dividends declared subsequent to December 31, 2021.

26.    EARNINGS PER COMMON SHARE

Basic and diluted earnings per common share is calculated by dividing net income attributable to common shareholder of Hydro One by the weighted-average number of common shares outstanding. The weighted-average number of common shares outstanding at December 31, 2021 and 2020 were 142,239. There were no dilutive securities during 2021 and 2020.

27.    STOCK-BASED COMPENSATION

The following compensation plans were established by Hydro One Limited, however they represent components of compensation costs of Hydro One in current and future periods.

Share Grant Plans

Hydro One Limited has two share grant plans (Share Grant Plans), one for the benefit of certain members of the Power Workers’ Union (PWU) (PWU Share Grant Plan) and one for the benefit of certain members of the Society (Society Share Grant Plan). Hydro One and Hydro One Limited entered into an intercompany agreement, such that Hydro One will pay Hydro One Limited for the compensation costs associated with these plans.

The PWU Share Grant Plan provides for the issuance of common shares of Hydro One Limited from treasury to certain eligible members of the PWU annually, commencing on April 1, 2017 and continuing until the earlier of April 1, 2028 or the date an

41

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

eligible employee no longer meets the eligibility criteria of the PWU Share Grant Plan. To be eligible, an employee must be a member of the Pension Plan on April 1, 2015, be employed on the date annual share issuance occurs and continue to have under 35 years of service. The requisite service period for the PWU Share Grant Plan began on July 3, 2015, which is the date the share grant plan was ratified by the PWU. The number of common shares issued annually to each eligible employee will be equal to 2.7% of such eligible employee’s salary as at April 1, 2015, divided by $20.50, being the price of the common shares of Hydro One Limited in the Initial Public Offering (IPO). The aggregate number of Hydro One Limited common shares issuable under the PWU Share Grant Plan shall not exceed 3,981,763 common shares. In 2015, 3,952,212 Hydro One Limited common shares were granted under the PWU Share Grant Plan relevant to the total share-based compensation recognized by Hydro One.

The Society Share Grant Plan provides for the issuance of common shares of Hydro One Limited from treasury to certain eligible members of the Society annually, commencing on April 1, 2018 and continuing until the earlier of April 1, 2029 or the date an eligible employee no longer meets the eligibility criteria of the Society Share Grant Plan. To be eligible, an employee must be a member of the Pension Plan on September 1, 2015, be employed on the date annual share issuance occurs and continue to have under 35 years of service. Therefore, the requisite service period for the Society Share Grant Plan began on September 1, 2015. The number of common shares issued annually to each eligible employee will be equal to 2.0% of such eligible employee’s salary as at September 1, 2015, divided by $20.50, being the price of the common shares of Hydro One Limited in the IPO. The aggregate number of Hydro One Limited common shares issuable under the Society Share Grant Plan shall not exceed 1,434,686 common shares. In 2015, 1,367,158 Hydro One Limited common shares were granted under the Society Share Grant Plan relevant to the total share-based compensation recognized by Hydro One.

The fair value of the Hydro One Limited 2015 share grants of $111 million was estimated based on the grant date Hydro One Limited share price of $20.50 and is recognized using the graded-vesting attribution method as the share grant plans have both a performance condition and a service condition. In 2021, 410,575 common shares of Hydro One Limited (2020 - 434,653) were issued under the Share Grant Plans to eligible employees of Hydro One. Total share-based compensation recognized during 2021 was $5 million (2020 - $7 million) and was recorded as a regulatory asset.

A summary of share grant activity under the Share Grant Plans during the years ended December 31, 2021 and 2020 is presented below:

Year ended December 31, 2021	Share Grants (number of common shares)		Weighted-Average Price
Share grants outstanding - beginning		3,100,165	$20.50
Vested and issued1		(410,575)	—
Forfeited		(73,239)	$20.50
Share grants outstanding - ending		2,616,351	$20.50

1    In 2021, Hydro One Limited issued from treasury 410,575 common shares to eligible Hydro One employees in accordance with provisions of the Share Grant Plans. In accordance with the intercompany agreement between Hydro One and Hydro One Limited, Hydro One made payments to Hydro One Limited for the common shares issued.

Year ended December 31, 2020	Share Grants (number of common shares)		Weighted-Average Price
Share grants outstanding - beginning		3,611,178	$20.50
Vested and issued1		(434,653)	—
Forfeited		(76,360)	$20.50
Share grants outstanding - ending		3,100,165	$20.50

1    In 2020, Hydro One Limited issued from treasury 434,653 common shares to eligible Hydro One employees in accordance with provisions of the Share Grant Plans. In accordance with the intercompany agreement between Hydro One and Hydro One Limited, Hydro One made payments to Hydro One Limited for the common shares issued.

42

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

Directors' DSU Plan

Under the Directors’ DSU Plan, directors can elect to receive credit for their annual cash retainer in a notional account of DSUs in lieu of cash. Hydro One Limited’s Board of Directors may also determine from time to time that special circumstances exist that would reasonably justify the grant of DSUs to a director as compensation in addition to any regular retainer or fee to which the director is entitled. Each DSU represents a unit with an underlying value equivalent to the value of one common share of Hydro One Limited and is entitled to accrue Hydro One Limited common share dividend equivalents in the form of additional DSUs at the time dividends are paid, subsequent to declaration by Hydro One Limited’s Board of Directors.

A summary of DSU awards activity under the Directors' DSU Plan during the years ended December 31, 2021 and 2020 is presented below:

Year ended December 31 (number of DSUs)	2021	2020
DSUs outstanding - beginning	65,240	52,620
Granted	20,888	22,481
Settled	(5,315)	(9,861)
DSUs outstanding - ending	80,813	65,240

For the year ended December 31, 2021, an expense of $1 million (2020 - $1 million) was recognized in earnings with respect to the Directors' DSU Plan. At December 31, 2021, a liability of $3 million (2020 - $2 million) related to Directors' DSUs has been recorded at the closing price of Hydro One Limited common shares of $32.91. This liability is included in other long-term liabilities on the consolidated balance sheets.

Management DSU Plan

Under the Management DSU Plan, eligible executive employees can elect to receive a specified proportion of their annual short-term incentive in a notional account of DSUs in lieu of cash. Each DSU represents a unit with an underlying value equivalent to the value of one common share of the Company and is entitled to accrue common share dividend equivalents in the form of additional DSUs at the time dividends are paid, subsequent to declaration by Hydro One’s Board of Directors.

A summary of DSU awards activity under the Management DSU Plan during the years ended December 31, 2021 and 2020 is presented below:

Year ended December 31 (number of DSUs)	2021	2020
DSUs outstanding - beginning	61,880	52,186
Granted	28,360	22,132
Paid	—	(12,438)
DSUs outstanding - ending	90,240	61,880

For the year ended December 31, 2021, an expense of $1 million (2020 - $1 million) was recognized in earnings with respect to the Management DSU Plan. At December 31, 2021, a liability of $1 million (2020 - $2 million) related to Management DSUs has been recorded at the closing price of Hydro One Limited common shares of $32.91. This liability is included in other long-term liabilities on the consolidated balance sheets.

Employee Share Ownership Plan

In 2015, Hydro One Limited established Employee Share Ownership Plans (ESOP) for certain eligible management and non-represented employees (Management ESOP) and for certain eligible Society-represented staff (Society ESOP). Under the Management ESOP, the eligible management and non-represented employees may contribute between 1% and 6% of their base salary towards purchasing common shares of Hydro One Limited. The Company matches 50% of their contributions, up to a maximum Company contribution of $25,000 per calendar year. Under the Society ESOP, the eligible Society-represented staff may contribute between 1% and 4% of their base salary towards purchasing common shares of Hydro One Limited. The Company matches 25% of their contributions, with no maximum Company contribution per calendar year. In 2021, Company contributions made under the ESOP were $2 million (2020 - $2 million).

LTIP

Effective August 31, 2015, the Board of Directors of Hydro One Limited adopted an LTIP. Under the LTIP, long-term incentives are granted to certain executive and management employees of Hydro One Limited and its subsidiaries, and all equity-based awards will be settled in newly issued shares of Hydro One Limited from treasury, consistent with the provisions of the plan which also permit the participants to surrender a portion of their awards to satisfy related withholding taxes requirements. The aggregate number of shares issuable under the LTIP shall not exceed 11,900,000 shares of Hydro One Limited.

The LTIP provides flexibility to award a range of vehicles, including Performance Share Units (PSUs), Restricted Share Units (RSUs), stock options, share appreciation rights, restricted shares, DSUs, and other share-based awards. The mix of vehicles is intended to vary by role to recognize the level of executive accountability for overall business performance.

43

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

PSUs and RSUs

A summary of PSU and RSU awards activity under the LTIP during the years ended December 31, 2021 and 2020 is presented below:

	PSUs		RSUs
Year ended December 31 (number of units)	2021	2020	2021	2020
Units outstanding - beginning	106,070	162,344	133,620	200,883
Vested and issued	(106,070)	(49,477)	(98,860)	(3,728)
Forfeited	—	(6,797)	—	(7,125)
Settled	—	—	(34,760)	(56,410)
Units outstanding - ending	—	106,070	—	133,620

No awards were granted in 2021 or 2020. The compensation expense related to the PSU and RSU awards recognized by the Company during 2021 was less than $1 million (2020 - $3 million).

At December 31, 2021, $9 million (2020 - $9 million) payable to Hydro One Limited relating to PSU and RSU awards was included in due to related parties on the consolidated balance sheets.

Society RSU Plan

As a result of the renewal of the Company's prior collective agreement with members of the Society, the Company provided equity compensation in the form of RSUs to certain eligible members. The equity compensation provides for the purchase of common shares of Hydro One Limited from the open market, effective March 1, 2021 in one equity grant vesting in equal portions over a two-year period. To be eligible, an employee must be an employee of the Company as of July 30, 2021, the date the plan was ratified by the Society; the grant date. The number of common shares issued to each eligible employee will be equal to 1.0% of such eligible employee’s salary as at April 1, 2021, divided by $30.80, being the price of the common shares of Hydro One Limited at the grant date. Each RSU is entitled to accrue common share dividend equivalents in the form of additional RSUs at the time dividends are paid, subsequent to declaration by Hydro One’s Board of Directors.

A summary of RSU awards activity under the Society RSU Plan during the years ended December 31, 2021 and 2020 is presented below:

Year ended December 31 (number of RSUs)	2021	2020
RSUs outstanding - beginning	—	—
Granted	68,005	—
RSUs outstanding - ending	68,005	—

Stock Options

Hydro One Limited is authorized to grant stock options under its LTIP to certain eligible employees. No stock options were granted in 2021 or 2020.

The fair value-based method is used to measure compensation expense related to stock options and the expense was recognized over the vesting period on a straight-line basis. The fair value of the stock option awards granted was estimated on the date of grant using a Black-Scholes valuation model.

A summary of stock options activity during the years ended December 31, 2021 and 2020 is presented below:

	Number of Stock Options	Weighted-average exercise price
Stock options outstanding - January 1, 2020	403,550	$	20.66
Exercised1	(294,840)	$	20.66
Stock options outstanding - December 31, 2020	108,710	$	20.66
Exercised1	(108,710)	$	20.66
Stock options outstanding - December 31, 2021	—	—

1 Stock options exercised in 2021 had an aggregate intrinsic value of $1 million (2020 - $2 million).

No compensation expense related to stock options was recognized by the Company during 2021 or 2020. At December 31, 2021 and 2020, no amounts were payable to Hydro One Limited relating to stock options awards.

44

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

28.    NONCONTROLLING INTEREST

Total noncontrolling interest consists of noncontrolling interest attributable to B2M LP and NRLP. The following tables show the movements in total noncontrolling interest during the years ended December 31, 2021 and 2020:

Year ended December 31, 2021 (millions of dollars)	Temporary Equity		Equity	Total
Noncontrolling interest - beginning		22	72	94
Distributions to noncontrolling interest		(4)	(10)	(14)
Net income attributable to noncontrolling interest		2	6	8
Noncontrolling interest - ending		20	68	88

Year ended December 31, 2020 (millions of dollars)	Temporary Equity		Equity	Total
Noncontrolling interest - beginning		20	59	79
Contributions from sale of noncontrolling interest (Note 4)		—	9	9
Distributions to noncontrolling interest		—	(2)	(2)
Net income attributable to noncontrolling interest		2	6	8
Noncontrolling interest - ending		22	72	94

B2M LP

On December 16, 2014, transmission assets totalling $526 million were transferred from Hydro One Networks to B2M LP. This was financed by 60% debt ($316 million) and 40% equity ($210 million). On December 17, 2014, the SON acquired a 34.2% equity interest in B2M LP for consideration of $72 million, representing the fair value of the equity interest acquired. The SON’s initial investment in B2M LP consists of $50 million of Class A units and $22 million of Class B units.

The Class B units have a mandatory put option which requires that upon the occurrence of an enforcement event (i.e., an event of default such as a debt default by the SON or insolvency event), Hydro One purchase the Class B units of B2M LP for net book value on the redemption date. The noncontrolling interest relating to the Class B units is classified on the consolidated balance sheet as temporary equity because the redemption feature is outside the control of the Company. The balance of the noncontrolling interest is classified within equity.

The following tables show the movements in B2M LP noncontrolling interest during the years ended December 31, 2021 and 2020:

Year ended December 31, 2021 (millions of dollars)	Temporary Equity		Equity	Total
Noncontrolling interest - beginning		22	49	71
Distributions to noncontrolling interest		(4)	(7)	(11)
Net income attributable to noncontrolling interest		2	4	6
Noncontrolling interest - ending		20	46	66

Year ended December 31, 2020 (millions of dollars)	Temporary Equity		Equity	Total
Noncontrolling interest - beginning		20	47	67
Distributions to noncontrolling interest		—	(2)	(2)
Net income attributable to noncontrolling interest		2	4	6
Noncontrolling interest - ending		22	49	71

NRLP

On September 18, 2019, Hydro One Networks sold to the Six Nations of the Grand River Development Corporation and, through a trust, to the Mississaugas of the Credit First Nation a 25.0% and 0.1%, respectively, equity interest in NRLP partnership units for total consideration of $12 million, representing the fair value of the equity interest acquired. On January 31, 2020, the Mississaugas of the Credit First Nation purchased an additional 19.9% equity interest in NRLP partnership units from Hydro One Networks for total cash consideration of $9 million. Following this transaction, Hydro One's interest in the equity portion of NRLP partnership units was reduced to 55%, with the Six Nations of the Grand River Development Corporation and the Mississaugas of the Credit First Nation owning 25% and 20%, respectively, of the equity interest in NRLP partnership units. The First Nations Partners' noncontrolling interest in NRLP is classified within equity.

45

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

The following table shows the movements in NRLP noncontrolling interest during the years ended December 31, 2021 and 2020:

Year ended December 31 (millions of dollars)	2021	2020
Noncontrolling interest - beginning	23	12
Contributions from sale of noncontrolling interest (Note 4)	—	9
Distributions to noncontrolling interest	(3)	—
Net income attributable to noncontrolling interest	2	2
Noncontrolling interest - ending	22	23

29.    RELATED PARTY TRANSACTIONS

Hydro One is owned by Hydro One Limited. The Province is a shareholder of Hydro One Limited with approximately 47.2% ownership at December 31, 2021. The IESO, Ontario Power Generation Inc. (OPG), Ontario Electricity Financial Corporation (OEFC), the OEB, Acronym Solutions Inc., formerly Hydro One Telecom Inc. (Acronym Solutions) and Hydro One Broadband Solutions Inc, (HOBSI) are related parties to Hydro One because they are controlled or significantly influenced by the Ministry of Energy or by Hydro One Limited. The following is a summary of the Company’s related party transactions during the years ended December 31, 2021 and 2020:

Year ended December 31 (millions of dollars)
Related Party	Transaction	2021	2020
IESO	Power purchased	2,238	2,506
	Revenues for transmission services	1,832	1,717
	Amounts related to electricity rebates	1,065	1,588
	Distribution revenues related to rural rate protection	245	242
	Distribution revenues related to supply of electricity to remote northern communities	35	35
	Funding received related to CDM programs	1	26
OPG	Power purchased	13	6
	Revenues related to provision of services and supply of electricity	7	7
	Capital contribution received from OPG	3	3
	Costs related to the purchase of services	2	3
OEFC	Power purchased from power contracts administered by the OEFC	1	1
OEB	OEB fees	8	9
Hydro One Limited	Return of stated capital	—	607
	Dividends paid	620	1
	Stock-based compensation costs	6	10
	Cost recovery for services provided	7	9
Acronym Solutions	Services received – costs expensed	24	21
	Revenues for services provided	2	3
Hydro One Broadband Solutions Inc.	Capital contribution accrued from HOBSI	3	—

Sales to and purchases from related parties are based on the requirements of the OEB’s Affiliate Relationships Code. Outstanding balances at period end are interest-free and settled in cash. Invoices are issued monthly, and amounts are due and paid on a monthly basis.

46

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

30.    CONSOLIDATED STATEMENTS OF CASH FLOWS

The changes in non-cash balances related to operations consist of the following:

Year ended December 31 (millions of dollars)	2021	2020
Accounts receivable	17	13
Due from related parties	26	78
Materials and supplies (Note 10)	1	—
Prepaid expenses and other assets (Note 10)	(3)	(14)
Other long-term assets (Note 14)	(3)	(2)
Accounts payable	(3)	36
Accrued liabilities (Note 15)	49	(61)
Due to related parties	(73)	20
Accrued interest (Note 15)	7	12
Long-term accounts payable and other long-term liabilities (Note 16)	1	3
Post-retirement and post-employment benefit liability	50	74
	69	159

Capital Expenditures

The following tables reconcile investments in property, plant and equipment and intangible assets and the amounts presented in the consolidated statements of cash flows for the years ended December 31, 2021 and 2020. The reconciling items include net change in accruals and capitalized depreciation.

Year ended December 31, 2021 (millions of dollars)	Property, Plant and Equipment	Intangible Assets	Total
Capital investments	(1,963)	(141)	(2,104)
Reconciling items	55	(1)	54
Cash outflow for capital expenditures	(1,908)	(142)	(2,050)

Year ended December 31, 2020 (millions of dollars)	Property, Plant and Equipment	Intangible Assets	Total
Capital investments	(1,742)	(127)	(1,869)
Reconciling items	33	1	34
Cash outflow for capital expenditures	(1,709)	(126)	(1,835)

Capital Contributions

Hydro One enters into contracts governed by the OEB Transmission System Code when a transmission customer requests a new or upgraded transmission connection. The customer is required to make a capital contribution to Hydro One based on the shortfall between the present value of the costs of the connection facility and the present value of revenues. The present value of revenues is based on an estimate of load forecast for the period of the contract with Hydro One. Once the connection facility is commissioned, in accordance with the OEB Transmission System Code, Hydro One will periodically reassess the estimated load forecast which will lead to a decrease, or an increase in the capital contributions from the customer. The increase or decrease in capital contributions is recorded directly to property, plant and equipment in service. In 2021, there were $14 million capital contributions from these assessments (2020 - $nil).

Supplementary Information

Year ended December 31 (millions of dollars)	2021	2020
Net interest paid	500	493
Income taxes paid	20	33

47

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

31.    CONTINGENCIES

Legal Proceedings

Hydro One is involved in various lawsuits and claims in the normal course of business. In the opinion of management, the outcome of such matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

Transfer of Assets

The transfer orders by which the Company acquired certain of Ontario Hydro’s businesses as of April 1, 1999 did not transfer title to some assets located on Reserves (as defined in the Indian Act (Canada)). Currently, the OEFC holds these assets. Under the terms of the transfer orders, the Company is required to manage these assets until it has obtained all consents necessary to complete the transfer of title of these assets to itself. The Company cannot predict the aggregate amount that it may have to pay, either on an annual or one-time basis, to obtain the required consents. In 2021, the Company paid approximately $2 million (2020 - $2 million) in respect of consents obtained. If the Company cannot obtain the required consents, the OEFC will continue to hold these assets for an indefinite period of time. If the Company cannot reach a satisfactory settlement, it may have to relocate these assets to other locations at a cost that could be substantial or, in a limited number of cases, to abandon a line and replace it with diesel-generation facilities. The costs relating to these assets could have a material adverse effect on the Company’s results of operations if the Company is not able to recover them in future rate orders.

32.     COMMITMENTS

The following table presents a summary of Hydro One’s commitments under outsourcing and other agreements due in the next five years and thereafter:

As at December 31, 2021 (millions of dollars)	Year 1	Year 2	Year 3	Year 4	Year 5	Thereafter
Outsourcing and other agreements	114	50	11	3	2	15
Long-term software/meter agreement	2	1	2	1	1	5

Outsourcing and Other Agreements

Hydro One had an agreement with Inergi for the provision of IT and back-office outsourcing services, including supply chain, finance and accounting and payroll services. The agreement expired on February 28, 2021 for IT services and October 31, 2021 for supply chain services. The provision of finance and accounting and payroll services under the Inergi contract terminated on December 31, 2021. A new agreement with Inergi was entered into for the provision of management oversight of the payroll employees transferred to Hydro One for a one-year period effective January 1, 2022. In February 2021, Hydro One entered into a three-year agreement for IT services with Capgemini Canada Inc., which expires on February 29, 2024, and includes an option to extend for two additional one-year terms at Hydro One’s discretion. This agreement resulted in commitments of $143 million over the initial three-year term of the agreement. On September 30, 2020, Hydro One entered into an agreement with Ceridian Canada Ltd. to provide pay operations services for a five-year term which is expected to commence in 2023.

BGIS provides services to Hydro One, including facilities management and execution of certain capital projects as deemed required by the Company. The agreement with BGIS for these services expires in December 2024, with an option for the Company to renew the agreement for an additional term of three years.

Long-term Software/Meter Agreement

Trilliant Holdings Inc. and Trilliant Networks (Canada) Inc. (collectively Trilliant) provide services to Hydro One for the supply, maintenance and support services for smart meters and related hardware and software, including additional software licences, as well as certain professional services. The agreement with Trilliant for these services expires in December 2030. 

48

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

Other Commitments

The following table presents a summary of Hydro One’s other commercial commitments by year of expiry in the next five years and thereafter:

As at December 31, 2021 (millions of dollars)	Year 1	Year 2	Year 3	Year 4	Year 5	Thereafter
Operating Credit Facilities1	—	—	—	—	2,300	—
Letters of credit2	182	2	—	—	—	—
Guarantees3	475	—	—	—	—	—

1 On June 1, 2021, the maturity date for the Operating Credit Facilities was extended to 2026.

2 Letters of credit consist of $160 million letters of credit related to retirement compensation arrangements, a $17 million letter of credit provided to the IESO for prudential support, $4 million in letters of credit to satisfy debt service reserve requirements, and $3 million in letters of credit for various operating purposes.

3 Guarantees consist of $475 million prudential support provided to the IESO by Hydro One on behalf of its subsidiaries.

Prudential Support

Purchasers of electricity in Ontario, through the IESO, are required to provide security to mitigate the risk of their default based on their expected activity in the market. The IESO could draw on these guarantees and/or letters of credit if these purchasers fail to make a payment required by a default notice issued by the IESO. The maximum potential payment is the face value of any letters of credit plus the amount of the parental guarantees.

Retirement Compensation Arrangements

Bank letters of credit have been issued to provide security for Hydro One’s liability under the terms of a trust fund established pursuant to the supplementary pension plan for eligible employees of Hydro One. The supplementary pension plan trustee is required to draw upon these letters of credit if Hydro One is in default of its obligations under the terms of this plan. Such obligations include the requirement to provide the trustee with an annual actuarial report as well as letters of credit sufficient to secure Hydro One’s liability under the plan, to pay benefits payable under the plan and to pay the letter of credit fee. The maximum potential payment is the face value of the letters of credit.

33.    SEGMENTED REPORTING

Hydro One has three reportable segments:

•The Transmission Segment, which comprises the transmission of high voltage electricity across the province, interconnecting local distribution companies and certain large directly connected industrial customers throughout the Ontario electricity grid;

•The Distribution Segment, which comprises the delivery of electricity to end customers and certain other municipal electricity distributors; and

•Other Segment, which includes certain corporate activities. The Other Segment includes a portion of the DTA which arose from the revaluation of the tax bases of Hydro One’s assets to fair market value when the Company transitioned from the provincial payments in lieu of tax regime to the federal tax regime at the time of Hydro One’s initial public offering in 2015. This DTA is not required to be shared with ratepayers, the Company considers it to not be part of the regulated transmission and distribution segment assets, and it is included in the other segment.

The designation of segments has been based on a combination of regulatory status and the nature of the services provided. Operating segments of the Company are determined based on information used by the chief operating decision-maker in deciding how to allocate resources and evaluate the performance of each of the segments. The Company evaluates segment performance based on income before financing charges and income tax expense from continuing operations (excluding certain allocated corporate governance costs).

49

HYDRO ONE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the years ended December 31, 2021 and 2020

Year ended December 31, 2021 (millions of dollars)	Transmission	Distribution	Other	Consolidated
Revenues	1,826	5,359	—	7,185
Purchased power	—	3,579	—	3,579
Operation, maintenance and administration	414	664	3	1,081
Depreciation, amortization and asset removal costs	485	428	—	913
Income (loss) before financing charges and income tax expense	927	688	(3)	1,612
Capital investments	1,320	784	—	2,104

Year ended December 31, 2020 (millions of dollars)	Transmission	Distribution	Other	Consolidated
Revenues	1,743	5,507	—	7,250
Purchased power	—	3,854	—	3,854
Operation, maintenance and administration	406	623	5	1,034
Depreciation, amortization and asset removal costs	459	417	—	876
Income (loss) before financing charges and income tax expense	878	613	(5)	1,486
Capital investments	1,157	712	—	1,869

Total Assets by Segment:

As at December 31 (millions of dollars)	2021	2020
Transmission	18,109	17,620
Distribution	11,475	11,294
Other	637	1,219
Total assets	30,221	30,133

Total Goodwill by Segment:

As at December 31 (millions of dollars)	2021	2020
Transmission	157	157
Distribution (Note 4)	216	216
Total goodwill	373	373

All revenues, assets and costs, as the case may be, are earned, held or incurred in Canada.

34.     SUBSEQUENT EVENTS

Dividends

On February 24, 2022, common share dividends of $157 million were declared.

50

EX-99.3

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

For the years ended December 31, 2021 and 2020

The following Management’s Discussion and Analysis (MD&A) of the financial condition and results of operations should be read together with the consolidated financial statements and accompanying notes thereto (together the Consolidated Financial Statements) of Hydro One Inc. (Hydro One or the Company) for the year ended December 31, 2021. The Consolidated Financial Statements 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. Under the US/Canada Multijurisdictional Disclosure System, the Company is permitted to prepare this MD&A in accordance with the disclosure requirements of Canadian securities laws and regulations, which can vary from those of the US. This MD&A provides information as at and for the year ended December 31, 2021, based on information available to management as of February 24, 2022.

CONSOLIDATED FINANCIAL HIGHLIGHTS AND STATISTICS

Year ended December 31(millions of dollars, except as otherwise noted)	2021	2020	Change
Revenues	7,185	7,250	(0.9	%)
Purchased power	3,579	3,854	(7.1	%)
Revenues, net of purchased power1	3,606	3,396	6.2	%
Operation, maintenance and administration (OM&A) costs	1,081	1,034	4.5	%
Depreciation, amortization and asset removal costs	913	876	4.2	%
Financing charges	453	469	(3.4	%)
Income tax expense (recovery)	179	(783)	122.9	%
Net income to common shareholder of Hydro One	972	1,792	(45.8	%)
Basic earnings per common share (EPS)	$6,834	$12,599	(45.8	%)
Diluted EPS	$6,834	$12,599	(45.8	%)
Net cash from operating activities	2,108	1,997	5.6	%
Funds from operations (FFO)1	2,031	1,836	10.6	%
Capital investments	2,104	1,869	12.6	%
Assets placed in-service	1,746	1,632	7.0	%
Transmission: Average monthly Ontario 60-minute peak demand (MW)	19,915	20,091	(0.9	%)
Distribution: Electricity distributed to Hydro One customers (GWh)	29,966	28,379	5.6	%

As at December 31	2021		2020
Debt to capitalization ratio2	55.2	%	55.0	%

1The Company prepares and presents its financial statements in accordance with US GAAP. The Company also utilizes non-GAAP financial measures to assess its business and measure overall underlying business performance. FFO and Revenues, net of purchased power are non-GAAP financial measures. Non-GAAP financial measures do not have a standardized meaning under GAAP, which is used to prepare the Company’s financial statements and might not be comparable to similar financial measures presented by other entities. See the section “Non-GAAP Financial Measures” for a discussion of these non-GAAP financial measures and a reconciliation of such measures to the most directly comparable GAAP measure.

2Debt to capitalization ratio is a non-GAAP ratio. Non-GAAP ratios do not have a standardized meaning under GAAP, which is used to prepare the Company’s financial statements and might not be comparable to similar financial measures presented by other entities. See the section “Non-GAAP Financial Measures” for a discussion of this non-GAAP ratio and its component elements.

OVERVIEW

Hydro One is Ontario’s largest electricity transmission and distribution utility. Hydro One owns and operates substantially all of Ontario’s electricity transmission network and is the largest electricity distributor in Ontario by number of customers. The Company’s regulated transmission and distribution operations are owned by Hydro One. Hydro One delivers electricity safely and reliably to approximately 1.5 million customers across the province of Ontario, and to large industrial customers and municipal utilities. Hydro One Inc. owns and operates approximately 30,000 circuit kilometres of high-voltage transmission lines and approximately 125,000 circuit kilometres of primary low-voltage distribution lines. Hydro One has three segments: (i) transmission; (ii) distribution; and (iii) other.

For the years ended December 31, 2021 and 2020, Hydro One’s segments accounted for the Company’s total revenues, net of purchased power1 , as follows:

1Revenues, net of purchased power, is a non-GAAP financial measure. See the section “Non-GAAP Financial Measures”.

1

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

Year ended December 31	2021		2020
Transmission	51	%	51	%
Distribution	49	%	49	%
Other	—	%	—	%

As at December 31, 2021 and 2020, Hydro One’s segments accounted for the Company’s total assets as follows:

As at December 31	2021		2020
Transmission	60	%	58	%
Distribution	38	%	38	%
Other	2	%	4	%

Transmission Segment

Hydro One’s transmission business owns, operates and maintains Hydro One's transmission system, which accounts for approximately 98% of Ontario’s transmission capacity based on revenue approved by the Ontario Energy Board (OEB). As at December 31, 2021, the Company's transmission business consists of the transmission system operated by its subsidiaries, Hydro One Networks Inc. (Hydro One Networks) and Hydro One Sault Ste. Marie LP (HOSSM), as well as an approximately 66% interest in B2M Limited Partnership (B2M LP), a limited partnership between Hydro One and the Saugeen Ojibway Nation (SON), and an approximately 55% interest in Niagara Reinforcement Limited Partnership (NRLP), a limited partnership between Hydro One and Six Nations of the Grand River Development Corporation and the Mississaugas of the Credit First Nation (collectively, the First Nations Partners). The Company’s transmission business is rate-regulated and earns revenues mainly by charging transmission rates that are approved by the OEB.

As at and for the year ended December 31	2021	2020
Electricity transmitted1 (MWh)	133,844,210	132,225,424
Transmission lines spanning the province (circuit-kilometres)	30,023	30,093
Rate base (millions of dollars)	13,745	13,185
Capital investments (millions of dollars)	1,320	1,157
Assets placed in-service (millions of dollars)	1,008	948

1Electricity transmitted represents total electricity transmitted in Ontario by all transmitters.

Distribution Segment

Hydro One’s distribution business is the largest in Ontario and consists of the distribution system operated by its subsidiaries, Hydro One Networks, inclusive of the distribution system of Orillia Power Distribution Corporation (Orillia Power) and the business and distribution assets of Peterborough Distribution Inc., (Peterborough Distribution) and Hydro One Remote Communities Inc. (Hydro One Remote Communities). The Company’s distribution business is rate-regulated and earns revenues mainly by charging distribution rates that are approved by the OEB.

As at and for the year ended December 31	2021	2020
Electricity distributed to Hydro One customers (GWh)	29,966	28,379
Electricity distributed through Hydro One lines (GWh)1	40,433	39,131
Distribution lines spanning the province (circuit-kilometres)	124,825	124,571
Distribution customers (number of customers)	1,476,491	1,449,629
Rate base (millions of dollars)	8,854	8,505
Capital investments (millions of dollars)	784	712
Assets placed in-service (millions of dollars)	738	684

1 Units distributed through Hydro One lines represent total distribution system requirements and include electricity distributed to consumers who purchased power directly from the Independent Electricity System Operator (IESO).

2

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

Other Segment

Hydro One's other segment consists of certain corporate activities, and is not rate-regulated. The other segment also includes the deferred tax asset which arose from the revaluation of the tax bases of Hydro One’s assets to fair market value when the Company transitioned from the provincial payments in lieu of tax regime to the federal tax regime at the time of the initial public offering of Hydro One Limited in 2015.

PRIMARY FACTORS AFFECTING RESULTS OF OPERATIONS

Transmission Revenues

Transmission revenues primarily consist of regulated transmission rates approved by the OEB which are charged based on the monthly peak electricity demand across Hydro One’s high-voltage network. Transmission rates are designed to generate revenues necessary to construct, upgrade, extend and support a transmission system with sufficient capacity to accommodate maximum forecasted demand and a regulated return on the Company’s investment. Peak electricity demand is primarily influenced by weather and economic conditions. Transmission revenues also include export revenues associated with transmitting electricity to markets outside of Ontario as well as ancillary revenues associated with providing maintenance services to power generators and from third-party land use.

Distribution Revenues

Distribution revenues primarily consist of regulated distribution rates approved by the OEB, as well as the recovery of purchased power costs. Distribution rates are designed to generate revenues necessary to construct and support the local distribution system with sufficient capacity to accommodate existing and new customer demand and a regulated return on the Company’s investment. Accordingly, distribution revenues are influenced by distribution rates, the cost of purchased power, and the amount of electricity the Company distributes. Distribution revenues also include ancillary distribution service revenues, such as fees related to the joint use of Hydro One’s distribution poles by the telecommunications and cable television industries, as well as miscellaneous revenues such as charges for late payments.

Purchased Power Costs

Purchased power costs are incurred by the distribution business and represent the cost of the electricity purchased by the Company for delivery to customers within Hydro One’s distribution service territory. These costs are comprised of: (i) the wholesale commodity cost of energy; (ii) the Global Adjustment, which is the difference between the guaranteed price and the money the generators earn in the wholesale marketplace; and (iii) the wholesale market service and transmission charges levied by the IESO. Hydro One passes on the cost of electricity that it delivers to its customers, and is therefore not exposed to wholesale electricity commodity price risk.

Operation, Maintenance and Administration Costs

OM&A costs are incurred to support the operation and maintenance of the transmission and distribution systems, and include other costs such as property taxes related to transmission and distribution stations and buildings, and the operation of information technology (information technology (IT) systems. Transmission OM&A costs are required to sustain the Company’s high-voltage transmission stations, lines, and rights-of-way, and include preventive and corrective maintenance costs related to power equipment, overhead transmission lines, transmission station sites, and forestry control to maintain safe distances between line spans and trees. Distribution OM&A costs are required to maintain the Company’s low-voltage distribution system to provide safe and reliable electricity to the Company's residential, small business, commercial, and industrial customers across the province. These include costs related to distribution line clearing and forestry control to reduce power outages caused by trees, line maintenance and repair, land assessment and remediation, as well as issuing timely and accurate bills and responding to customer inquiries.

Hydro One manages its costs through ongoing efficiency and productivity initiatives, while continuing to complete planned work programs associated with the development and maintenance of its transmission and distribution networks.

Depreciation, Amortization and Asset Removal Costs

Depreciation and amortization costs relate primarily to depreciation of the Company’s property, plant and equipment, and amortization of certain intangible assets and regulatory assets. Asset removal costs consist of costs incurred to remove property, plant and equipment where no asset retirement obligations have been recorded on the balance sheet.

Financing Charges

Financing charges relate to the Company’s financing activities, and include interest expense on the Company’s long-term debt and short-term borrowings, as well as gains and losses on interest rate swap agreements, foreign exchange or other similar contracts, net of interest earned on short-term investments. A portion of financing charges incurred by the Company is capitalized to the cost of property, plant and equipment associated with the periods during which such assets are under construction before being placed in-service.

3

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

RESULTS OF OPERATIONS

Net Income

Net income attributable to the common shareholder for the year ended December 31, 2021 of $972 million is a decrease of $820 million, or 45.8%, from the prior year. Significant influences on net income attributable to common shareholder of Hydro One included:

•higher revenues, net of purchased power2, primarily resulting from:

•an increase in distribution revenues, net of purchased power2, primarily due to OEB-approved distribution rates, recovery of deferred tax asset (DTA) amounts (DTA Recovery Amounts) pursuant to the April 2021 OEB decision (DTA Implementation Decision), and the temporary suspension of late payment charges in the prior year, which were accompanied by the Company's efforts to help customers access relief programs, including flexible payment options; and

•an increase in transmission revenues mainly due to OEB-approved 2021 transmission rates and DTA Recovery Amounts pursuant to the DTA Implementation Decision, partially offset by the recognition of Conservation and Demand Management (CDM) revenues in the prior year following receipt of the 2020 OEB Decision on transmission rates as well as higher regulatory adjustments.

•higher OM&A costs primarily resulting from:    

•higher work program expenditures including IT initiatives, emergency restoration efforts, and vegetation management;

•higher project write-offs in 2021; and

•lower insurance proceeds received in 2021; partially offset by

•lower costs related to COVID-19.

•higher depreciation, amortization and asset removal costs due to growth in capital assets as the Company continues to place new assets in-service, consistent with its ongoing capital investment program, as well as higher environmental spend and higher asset removal cost.

•higher income tax expense primarily attributable to:

•income tax recovery recorded in the prior year following the July 2020 decision of the Ontario Divisional Court (ODC Decision);

•income tax expense relating to the DTA Recovery Amounts pursuant to the DTA Implementation Decision; and

•higher pre-tax earnings and lower net deductible timing differences.

Included in the Company's results for the year ended December 31, 2021 are costs incurred as a result of the COVID-19 pandemic. Total COVID-19 related costs of $15 million (2020 - $50 million) consist primarily of additional janitorial fees and facility-related cleaning supplies to facilitate more frequent cleaning of our buildings and offices, as well as hand sanitizer and rapid-antigen tests to help reduce the spread of the virus. The prior year costs also included costs associated with the temporary stand-down of the Company's workforce as well as the impact of incremental bad debt provisions. For additional disclosure related to the impact of COVID-19 on the Company's operations for the year ended December 31, 2021, please see section "Other Developments - COVID-19".

Revenues

Year ended December 31 (millions of dollars, except as otherwise noted)	2021	2020	Change
Transmission	1,826	1,743	4.8	%
Distribution	5,359	5,507	(2.7	%)
Total revenues	7,185	7,250	(0.9	%)
Transmission	1,826	1,743	4.8	%
Distribution revenues, net of purchased power1	1,780	1,653	7.7	%
Total revenues, net of purchased power1	3,606	3,396	6.2	%
Transmission: Average monthly Ontario 60-minute peak demand (MW)	19,915	20,091	(0.9	%)
Distribution: Electricity distributed to Hydro One customers (GWh)	29,966	28,379	5.6	%

1Revenues, net of purchased power is a non-GAAP financial measure. See the section “Non-GAAP Financial Measures”.

Transmission Revenues

Transmission revenues increased by 4.8% during theyear ended December 31, 2021, primarily due to the following:

2Revenues, net of purchased power, is a non-GAAP financial measure. See the section “Non-GAAP Financial Measures”.

4

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

•higher revenues resulting from OEB-approved 2021 rates;

•higher revenues associated with DTA Recovery Amounts pursuant to the DTA Implementation Decision; and

•higher peak demand; partially offset by

•the recognition of CDM revenues in the prior year as a result of the OEB decision on 2020 rates; and

•higher regulatory adjustments.

Distribution Revenues, Net of Purchased Power

Distribution revenues, net of purchased power3 , increased by 7.7% during the year ended December 31, 2021, primarily due to the following:

•higher revenues resulting from OEB-approved 2021 rates;

•higher revenues associated with the DTA Recovery Amounts pursuant to the DTA Implementation Decision;

•higher revenues year-over-year following the temporary suspension of late payment charges in the prior year, which were accompanied by the Company's efforts to help customers access relief programs, including flexible payment options;

•distribution revenues related to the Peterborough Distribution and Orillia Power acquisitions which closed during the third quarter of 2020; and

•higher energy consumption.

OM&A Costs

Year ended December 31(millions of dollars)	2021	2020	Change
Transmission	414	406	2.0	%
Distribution	664	623	6.6	%
Other	3	5	(40.0	%)
	1,081	1,034	4.5	%

Transmission OM&A Costs

Transmission OM&A costs increased by 2.0% for the year ended December 31, 2021, primarily due to the following:

•higher project write-offs;

•lower insurance proceeds received in 2021; and

•higher work program expenditures related to IT initiatives and a higher volume of work on vegetation management; partially offset by

•lower corporate support costs;

•lower other post-employment benefit (OPEB) costs that are recognized in OM&A following the 2020-2022 OEB transmission decision and recovered through rates and therefore net income neutral; and

•lower COVID-19 related expenditures.

Distribution OM&A Costs

Distribution OM&A costs increased by 6.6% for the year ended December 31, 2021, primarily due to:

•higher work program expenditures related to emergency power restoration efforts,a higher volume of work on vegetation management execution, IT initiatives and customer care initiatives;

•incremental costs of the Peterborough Distribution and Orillia Power operations; and

•higher corporate support costs; partially offset by

•lower COVID-19 related expenditures; and

•lower bad debt expense.

Depreciation, Amortization and Asset Removal Costs

Depreciation, amortization and asset removal costs increased by $37 million or 4.2% in 2021, primarily due to growth in capital assets as the Company continues to place new assets in-service, consistent with its ongoing capital investment program, as well as higher environmental spend and higher asset removal costs.

Financing Charges

Financing charges decreased by $16 million, or 3.4%, for the year ended December 31, 2021, primarily due to:

3Revenues, net of purchased power, is a non-GAAP financial measure. See the section “Non-GAAP Financial Measures”

5

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

•the recognition of carrying charges associated with the DTA Recovery Amounts pursuant to the DTA Implementation Decision; and

•higher capitalized interest due to higher average balance of assets under construction; partially offset by

•higher interest expense on long-term debt due to higher debt levels; and.

•higher realized losses on cash flow hedges.

Income Tax Expense

Income taxes are accounted for using the asset and liability method. Current taxes are recorded based on the taxes expected to be paid in respect of the current and prior years’ taxable income. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts and the respective tax basis of assets and liabilities including carry forward unused tax losses and credits.

As prescribed by the regulators, the Company recovers income taxes in revenues from ratepayers based on estimate of current tax expense in respect of regulated operations. The amounts of deferred income taxes related to regulated operations, which are considered to be more likely-than-not of recovery from, or refund to, ratepayers in future periods are recognized as deferred income tax regulatory assets or liabilities, with an offset to deferred tax expense. Therefore the consolidated tax expense or recovery for the current period is based on the total current and deferred tax expense or recovery, net of the regulatory accounting offset to deferred tax expense arising from temporary differences recoverable from or refundable to customers in the future.

Income tax expense was $179 million for the year ended December 31, 2021, compared to income tax recovery of $783 million in 2020. The $962 million increase in income tax expense for the year ended December 31, 2021 was primarily attributable to:

•income tax recovery in 2020 following the July 2020 ODC Decision;

•tax expense relating to the DTA Recovery Amounts pursuant to the OEB’s DTA Implementation Decision, which is offset by a corresponding increase in revenue and is net income neutral;

•higher pre-tax earnings; and

•lower net deductible timing differences.

The Company realized an effective tax rate (ETR) of approximately 15.4% compared to approximately (77.0%) realized in 2020.

SELECTED ANNUAL FINANCIAL STATISTICS

Year ended December 31 (millions of dollars, except per share amounts)	2021	2020	2019
Revenues	7,185	7,250	6,442
Net income to common shareholder of Hydro One	972	1,792	950
Basic EPS	$6,834	$12,599	$6,679
Diluted EPS	$6,834	$12,599	$6,679
Dividends per common share declared	$4,359	$7	$7
Dividends per preferred share declared	n/a	n/a	$4

As at December 31 (millions of dollars)	2021	2020	2019
Total assets	30,221	30,133	26,917
Total non-current financial liabilities1	12,640	12,387	10,889

1 Total non-current financial liabilities include long-term debt, long-term lease obligations, derivative liabilities, and long-term accounts payable.

Net Income - 2020 compared to 2019

Net income attributable to common shareholder for the year ended December 31, 2020 of $1,792 million is an increase of $842 million, or 88.6%, from the prior year. Significant influences on net income included:

•higher revenues, net of purchased power4, primarily resulting from:

•an increase in transmission revenues primarily due to the OEB's decision on 2020 rates; partially offset by

•a decrease in distribution revenues, net of purchased power4, mainly due to 2018 foregone revenue recognized in March 2019 following the receipt of the OEB decision on rates; partially offset by the OEB's decision on 2020 rates and revenues related to the Peterborough Distribution and Orillia Power acquisitions which closed during the third quarter of 2020.

•higher OM&A costs primarily resulting from:

•costs related to COVID-19, as discussed below;

4Revenues, net of purchased power, is a non-GAAP financial measure. See the section “Non-GAAP Financial Measures”.

6

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

•additional other post-employment benefit (OPEB) costs that are recognized in OM&A following the 2020-2022 OEB transmission decision and recovered in rates, therefore net income neutral; and

•lower insurance proceeds received in 2020; partially offset by

•lower vegetation management and work program expenditures, and the 2019 write-off of the Lake Superior Link project.

•higher income tax recovery primarily attributable to:

•income tax recovery recorded following the July 2020 decision of the ODC Decision; partially offset by

•lower incremental tax deductions and deductible temporary differences.

QUARTERLY RESULTS OF OPERATIONS

Quarter ended (millions of dollars, except EPS and ratio)	Dec 31, 2021			Sep 30, 2021		Jun 30, 2021	Mar 31, 2021	Dec 31, 2020	Sep 30, 2020	Jun 30, 2020	Mar 31, 2020
Revenues		1,768		1,903		1,712	1,802	1,857	1,894	1,660	1,839
Purchased power		914		933		838	894	1,046	993	808	1,007
Revenues, net of purchased power1		854		970		874	908	811	901	852	832
Net income to common shareholder		159		302		240	271	164	290	1,108	230
Basic and diluted EPS		$	1,118	$	2,123	$1,687	$1,905	$1,153	$2,039	$7,790	$1,617
Earnings coverage ratio2		3.1		3.1		3.0	3.0	2.9	2.9	2.8	2.6

1Revenues, net of purchased power is a non-GAAP financial measure. See the section “Non GAAP Financial Measures”.

2Earnings coverage ratio is a non-GAAP ratio. Non-GAAP ratios do not have a standardized meaning under GAAP, which is used to prepare the Company’s financial statements and might not be comparable to similar financial measures presented by other entities. See the section “Non-GAAP Financial Measures” for a discussion of this non-GAAP ratio and its component elements.

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, as well as timing of regulatory decisions.

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 additions to both 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 years ended December 31, 2021 and 2020:

Year ended December 31(millions of dollars)	2021	2020	Change
Transmission	1,008	948	6.3	%
Distribution	738	684	7.9	%
Total assets placed in-service	1,746	1,632	7.0	%

Transmission Assets Placed In-Service

Transmission assets placed in-service increased by $60 million or 6.3% during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to the following:

•substantial completion of the new Ontario grid control centre in the City of Orillia in the current year;

•higher volume of work required to adhere to the North American Electric Reliability Corporation (NERC) Critical Infrastructure Protection standards placed in-service; and

•timing of assets placed in-service (including the East-West Tie Connection, Stanley transmission station, and the new shunter reactors at Lennox transmission station, partially offset byLennox transmission station, Elgin transmission station, Sheppard transmission station and Gage transmission station); partially offset by

•the placement in-service of the High-Voltage Underground Cable replacement in Toronto in 2020;

•lower spend on spare transformer purchases; and

•lower volume of assets placed in-service for IT projects.

Distribution Assets Placed In-Service

Distribution assets placed in-service increased by $54 million or 7.9% during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to the following:

•substantial completion of the new Ontario grid control centre in the City of Orillia in the current year;

7

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

•higher volume of work on customer connections and wood poles;

•higher volume of work on station refurbishments and replacements; and

•higher volume of storm-related asset replacements; partially offset by

•lower volume of assets placed in-service for IT projects;

•completion of the Woodstock Operation Centre in 2020; and

•timing of assets placed in-service for system capability reinforcement projects.

Capital Investments

The following table presents Hydro One’s capital investments during the years ended December 31, 2021 and 2020:

Year ended December 31 (millions of dollars)	2021	2020	Change
Transmission
Sustaining	906	819	10.6	%
Development	296	226	31.0	%
Other	118	112	5.4	%
	1,320	1,157	14.1	%
Distribution
Sustaining	332	317	4.7	%
Development	332	289	14.9	%
Other	120	106	13.2	%
	784	712	10.1	%
Total capital investments	2,104	1,869	12.6	%

Total 2021 capital investments of $2,104 million were largely in-line with the previously disclosed expected amount of $2,069 million.

Transmission Capital Investments

Transmission capital investments increased by $163 million or 14.1% in the year ended December 31, 2021 compared to the year ended December 31, 2020. Principal impacts on the levels of capital investments included:

•higher volume of station refurbishments and replacements;

•higher investments in multi-year development projects (including; the new Lakeshore switching station, transformer replacement and upgrade at St. Lawrence transmission station, and Barrie area transmission upgrade, partially offset by the East-West Tie Connection);

•higher spend on line refurbishments and wood pole replacements;

•higher volume of work on customer connections; and

•investment in the new Ontario grid control centre in the City of Orillia; partially offset by

•lower volume of spare transformer purchases, demand capital related to equipment failures, power quality and risk mitigation projects and facility sustainment investments.

Distribution Capital Investments

Distribution capital investments increased by $72 million or 10.1% in the year ended December 31, 2021 compared to the year ended December 31, 2020. Principal impacts on the levels of capital investments included:

•higher volume of work on customer connections;

•higher investments in system capability reinforcement projects;

•higher volume of wood pole replacements;

•investment in the new Ontario grid control centre in the City of Orillia; and

•higher volume of storm-related asset replacements; partially offset by

•completion of the Woodstock Operation Centre in 2020.

8

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

Major Transmission Capital Investment Projects

The following table summarizes the status of significant transmission projects as at December 31, 2021:

Project Name	Location	Type	Anticipated In-Service Date	Estimated Cost	Capital Cost To Date
			(year)	(millions of dollars)
Development Projects:
Wataynikaneyap Power LP Line      Connection	Pickle Lake   Northwestern Ontario	New stations and   transmission connection	2022	33	13
East-West Tie Station Expansion	Northern Ontario	New transmission connection   and station expansion	20231	181	167
Waasigan Transmission Line	Thunder Bay-Atikokan-Dryden   Northwestern Ontario	New transmission line	20242	682	17
Leamington Area Transmission Reinforcement3,4	Leamington   Southwestern Ontario	New transmission line   and stations	20263,4	5253,4	182
Sustainment Projects:
Richview Transmission Station      Circuit Breaker Replacement5	Toronto   Southwestern Ontario	Station sustainment	2021	120	120
Bruce A Transmission Station5	Tiverton   Southwestern Ontario	Station sustainment	2021	149	149
Beck #2 Transmission Station      Circuit Breaker Replacement	Niagara area   Southwestern Ontario	Station sustainment	2023	135	102
Cherrywood Transmission Station      Circuit Breaker Replacement	Pickering   Central Ontario	Station sustainment	2023	115	81
Bruce B Switching Station      Circuit Breaker Replacement	Tiverton   Southwestern Ontario	Station sustainment	2024	185	135
Middleport Transmission Station      Circuit Breaker Replacement	Middleport   Southwestern Ontario	Station sustainment	2025	113	94
Lennox Transmission Station      Circuit Breaker Replacement	Napanee   Southeastern Ontario	Station sustainment	2026	152	103
Esplanade x Terauley      Underground Cable Replacement	Toronto   Southwestern Ontario	Line sustainment	2026	117	7

1 Due to a revised timeline of project activities, part of the East-West Tie Station Expansion project, enabling the connection and energization of the new East-West Tie transmission line, was placed in-service in 2021. A significant portion of the project is expected to be placed in-service in 2022, with final project in-service expected in 2023.

2The estimated cost of the Waasigan Transmission Line relates to the development phase of the project and the anticipated in-service date reflects the anticipated completion date of the development phase only.

3 The Leamington Area Transmission Reinforcement project consists of the construction of a new double-circuit line between Chatham and Lakeshore and associated transmission stations and connections. The project is currently in the development stage and as such the estimated cost is subject to change. The anticipated in-service dates for the line and stations are between 2022 and 2026.

4On March 29, 2021, the IESO requested Hydro One initiate work to develop and construct a new transmission line between Chatham and Lambton to support agricultural growth in Southwest Ontario; Hydro One is currently evaluating the scope and timing of this work.

5Major portions of the Richview Transmission Station and Bruce A Transmission Stations projects were completed and placed in-service.

9

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

Future Capital Investments

The Company estimates future capital investments based on management’s expectations of the amount of capital expenditures that will be required to provide transmission and distribution services that are efficient, reliable, and provide value for customers, consistent with the OEB’s Renewed Regulatory Framework.

The 2022 transmission and distribution capital investment estimates below differ from the prior year disclosures, reflecting updated timing and pacing of future capital investments, as well as the re-prioritization and acceleration of work occurring in 2021. The 2023 to 2027 capital investment estimates have been updated to primarily reflect changes to estimated future capital investments of Hydro One's non-regulated investments and subsidiaries. The projections and timing of transmission and distribution expenditures included in Hydro One's rate application for years 2023 to 2027 are subject to approval by the OEB.

The following tables summarize Hydro One’s annual projected capital investments for 2022 to 2027, by business segment and by category:

By business segment: (millions of dollars)	2022	2023	2024	2025	2026	2027
Transmission1	1,172	1,515	1,577	1,596	1,568	1,473
Distribution	677	1,026	1,049	1,138	1,088	1,085
Total capital investments	1,849	2,541	2,626	2,734	2,656	2,558

By category: (millions of dollars)	2022	2023	2024	2025	2026	2027
Sustainment	1,203	1,754	1,801	1,827	1,831	1,799
Development1	483	529	609	688	598	556
Other2	163	258	216	219	227	203
Total capital investments	1,849	2,541	2,626	2,734	2,656	2,558

1 Figures include investments in certain development projects of Hydro One Networks not included in the investment plan filed with the JRAP.

2 "Other" capital expenditures include investments in fleet, real estate, IT, and operations technology and related functions.

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.

Year ended December 31 (millions of dollars)	2021	2020
Cash provided by operating activities	2,108	1,997
Cash provided by (used in) financing activities	(294)	671
Cash used in investing activities	(2,027)	(1,963)
Increase (decrease) in cash and cash equivalents	(213)	705

Cash provided by operating activities

Cash from operating activities increased by $111 million for the year ended December 31, 2021 compared to 2020. The increase was impacted by various factors, including the following:

•higher pre-tax earnings; and

•DTA Recovery Amounts collected pursuant to the DTA Implementation Decision; partially offset by

•decrease in net working capital primarily attributable to higher receivables from the IESO associated with provincial funding programs implemented in early 2020 and a lower payable to the IESO due to the lower Global Adjustment rate.

Cash provided by (used in) financing activities

Cash provided by financing activities decreased by $965 million for the year ended December 31, 2021 compared to 2020. This was impacted by various factors, including the following:

Sources of cash

•The Company issued $900 million of long-term debt in 2021, compared to $2,300 million of long-term debt issued in 2020.

•The Company received proceeds of $4,150 million from the issuance of short-term notes in 2021, compared to $4,070 million received in 2020.

Uses of cash

•The Company repaid $3,905 million of short-term notes in 2021 compared to $4,413 million repaid in 2020.

•The Company repaid $804 million of long-term debt in 2021, compared to $653 million repaid in 2020.

•In 2021, the Company did not make any returns of stated capital, compared to $607 million made in 2020.

•Common share dividends paid in 2021 were $620 million, compared to $1 million paid in 2020.

10

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

Cash used in investing activities

Cash used in investing activities increased by $64 million for the year ended December 31, 2021, compared to 2020 as a result of higher capital investments in the current year, partially offset by the acquisitions of Orillia Power and the business and distribution assets of Peterborough Distribution in 2020. Please see section "Capital Investments" for comparability of capital investments made by the Company during the year ended December 31, 2021 compared to prior year.

LIQUIDITY AND FINANCING STRATEGY

Short-term liquidity is provided through FFO5, Hydro One’s commercial paper program, and the Company’s consolidated bank credit facilities. Under the commercial paper program, Hydro One is authorized to issue up to $2,300 million in short-term notes with a term to maturity of up to 365 days.

At December 31, 2021, Hydro One had $1,045 million in commercial paper borrowings outstanding, compared to $800 million outstanding at December 31, 2020. In addition, the Company has revolving bank credit facilities (Operating Credit Facilities) with a total available balance of $2,300 million as at December 31, 2021. On June 1, 2021, the maturity date for the Operating Credit Facilities was extended from 2024 to 2026. No amounts were drawn on the Operating Credit Facilities as at December 31, 2021 or 2020. In January 2022, Hydro One successfully amended its Operating Credit Facilities to incorporate environmental, social and governance (ESG) targets. The facilities now include a pricing adjustment which can increase or decrease Hydro One’s cost of funding based on its performance on certain Sustainability Performance Measures, which are related to Hydro One's sustainability goals. The Company may use the Operating Credit Facilities for working capital and general corporate purposes. The short-term liquidity under the commercial paper program, the Operating Credit Facilities, available cash on hand and anticipated levels of FFO5 are expected to be sufficient to fund the Company’s operating requirements. The Company's currently available liquidity is also expected to be sufficient to address any reasonably foreseeable impacts that the COVID-19 pandemic may have on the Company’s cash requirements. See section "Other Developments - COVID-19" for additional information on the impact of COVID-19 on the Company's operations.

At December 31, 2021, the Company had long-term debt outstanding in the principal amount of $13,229 million, which included $13,095 million of long-term debt issued by Hydro One and long-term debt in the principal amount of $134 million issued by HOSSM. The majority of long-term debt issued by Hydro One has been issued under its Medium Term Note (MTN) Program, as further described below. The Company's total long-term debt consists of notes and debentures that mature between 2022 and 2064, and as at December 31, 2021, had a weighted-average term to maturity of approximately 15.1 years (2020 - 14.8 years) and a weighted-average coupon rate of 3.9% (2020 - 3.8%).

In April 2020, Hydro One filed a short form base shelf prospectus in connection with its MTN Program, which has a maximum authorized principal amount of notes issuable of $4,000 million, and expires in May 2022. At December 31, 2021, $1,900 million remained available for issuance under the MTN Program prospectus. A new MTN Program prospectus is expected to be filed in the first half of 2022.

Compliance

At December 31, 2021, the Company was in compliance with all financial covenants and limitations associated with the outstanding borrowings and credit facilities.

Credit Ratings

Various ratings organizations review the Company’s debt ratings from time to time. These ratings organizations may take various actions, positive or negative. The Company cannot predict what actions rating agencies may take in the future. The failure to maintain the Company’s current credit ratings could adversely affect the Company’s financial condition and results of operations, and a downgrade in the Company’s credit ratings could restrict the Company’s ability to access debt capital markets and increase the Company’s cost of debt.

At December 31, 2021, Hydro One’s long-term and short-term debt ratings were as follows:

Rating Agency	Short-term Debt Rating	Long-term Debt Rating
DBRS	R-1 (low)	A (high)
Moody's	Prime-2	A3
S&P	A-1 (low)	A-

Effect of Interest Rates

The Company is exposed to fluctuations of interest rates as its regulated return on equity (ROE) is derived using a formulaic approach that takes into account changes in benchmark interest rates for Government of Canada debt and the A-rated utility

5FFO is a non-GAAP financial measure. See the section “Non-GAAP Financial Measures”.

11

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

corporate bond yield spread. The Company issues debt from time to time to refinance maturing debt and for general corporate purposes. The Company is therefore exposed to fluctuations in interest rates in relation to such issuances of debt. See section “Risk Management and Risk Factors - Risks Relating to Hydro One’s Business - Market, Financial Instrument and Credit Risk” for more details.

Pension Plan

In 2021, Hydro One made cash contributions of $62 million to its pension plan, compared to cash contributions of $57 million in 2020, and incurred $194 million in net periodic pension benefit costs, compared to $146 million incurred in 2020.

In September 2019, Hydro One filed a triennial actuarial valuation of its pension plan as at December 31, 2018. Based on this valuation, Hydro One estimates that total Company pension contributions for 2022, 2023, 2024, 2025, 2026 and 2027 are approximately $93 million, $107 million, $111 million, $111 million, $113 million, and $118 million respectively. The estimated pension contributions for years beyond 2021 increased from amounts provided in the last valuation due to a remeasurement of the Company's contributions at the end of 2020, reflecting a decrease in the discount rate and an increase in the number of employees. Future minimum contributions beyond 2021 will be updated following the actuarial funding valuation as of December 31, 2021, which is expected to be filed by no later than September 30, 2022.

As a result of the transfer of 234 Inergi LP employees to Hydro One that occurred over a period ending January 1, 2022, the assets and liabilities of the Inergi Pension Plan will be transferred to the Hydro One Pension Plan (the Plan). The value of these assets and liabilities will be included in the Plan as of the date of transfer, which is expected to occur sometime in 2023.

The Company’s pension benefits obligation is impacted by various assumptions and estimates, such as the discount rate, rate of return on plan assets, rate of cost of living increase and mortality assumptions. A full discussion of the significant assumptions and estimates can be found in the section “Critical Accounting Estimates - Employee Future Benefits”.

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.

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:

As at December 31, 2021 (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	13,229	603	1,431	1,250	9,945
Long-term debt - interest payments	8,395	501	955	889	6,050
Short-term notes payable	1,045	1,045	—	—	—
Pension contributions	653	93	218	224	118
Environmental and asset retirement obligations	147	35	43	14	55
Outsourcing and other agreements	195	114	61	5	15
Lease obligations	60	14	19	14	13
Long-term software/meter agreement	12	2	3	2	5
Total contractual obligations	23,736	2,407	2,730	2,398	16,201
Other commercial commitments (by year of expiry)
Operating Credit Facilities1	2,300	—	—	2,300	—
Letters of credit2	184	182	2	—	—
Guarantees3	475	475	—	—	—
Total other commercial commitments	2,959	657	2	2,300	—

1On June 1, 2021, the maturity date for the Operating Credit Facilities was extended to 2026.

2Letters of credit consist of $160 million letters of credit related to retirement compensation arrangements, a $17 million letter of credit provided to the IESO for prudential support, $4 million in letters of credit to satisfy debt service reserve requirements, and $3 million in letters of credit for various operating purposes.

3Guarantees consist of $475 million prudential support provided to the IESO by Hydro One on behalf of its subsidiaries.

12

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

SHARE CAPITAL

Hydro One is authorized to issue an unlimited number of common shares. The amount and timing of any dividends payable by Hydro One is at the discretion of the Hydro One Board of Directors (Board) and is established on the basis of Hydro One’s results of operations, maintenance of its deemed regulatory capital structure, financial condition, cash requirements, the satisfaction of solvency tests imposed by corporate laws for the declaration and payment of dividends and other factors that the Board may consider relevant. At February 24, 2022, Hydro One had 142,239 issued and outstanding common shares.

The Company is authorized to issue an unlimited number of preferred shares, issuable in series. At February 24, 2022, the Company had no preferred shares issued and outstanding.

REGULATION

Electricity Rates - Joint Rate Application (JRAP)

In March 2018, the OEB issued a letter (OEB Letter) requesting Hydro One file a single application for distribution rates and transmission revenue requirement for the period from 2023 to 2027. The OEB Letter had indicated that Hydro One Remote Communities should be included in the single application, however, this requirement was later removed by the OEB.

On August 5, 2021, Hydro One Networks filed a custom JRAP for 2023-2027. The JRAP includes a proposed investment plan supporting the transmission and distribution revenue requirements. A decision is anticipated in the latter half of 2022. The following table summarizes the key elements of Hydro One’s JRAP filed with the OEB:

	Hydro One Networks - Transmission		Hydro One Networks - Distribution
Year	Rate Base (Forecast)	Revenue Requirement1	Rate Base (Forecast)	Revenue Requirement1
2023	$14,593 million	$1,823 million	$9,372 million	$1,632 million
2024	$15,450 million	$1,938 million	$9,963 million	$1,711 million
2025	$16,449 million	$2,028 million	$10,641 million	$1,785 million
2026	$17,394 million	$2,140 million	$11,302 million	$1,881 million
2027	$18,256 million	$2,219 million	$11,880 million	$1,965 million

1 Revenue requirement for 2023 to 2027 represents filing estimates utilizing the OEB's 2021 Allowed ROE of 8.34%. The ROE is calculated based on the Cost of Capital Parameters released by the OEB on November 9, 2020. ROE will be finalized towards the end of 2022.

Deferred Tax Asset

On March 7, 2019, the OEB issued its reconsideration decision (DTA Decision) with respect to Hydro One's rate-setting treatment of the benefits of the DTA resulting from the transition from the payments in lieu of tax regime to tax payments under the federal and provincial tax regimes. On April 5, 2019, the Company filed an appeal with the Ontario Divisional Court with respect to the DTA Decision. The appeal was heard on November 21, 2019.

On July 16, 2020, the Ontario Divisional Court rendered its ODC Decision on the Company's appeal of the DTA Decision. In its decision, the Ontario Divisional Court set aside the DTA Decision. The Ontario Divisional Court found that the DTA Decision was incorrect in law because the OEB had failed to apply the correct legal test. In its decision, the Ontario Divisional Court agreed with the submissions of Hydro One that the DTA should be allocated to shareholders in its entirety.

On September 21, 2020, the Ontario Divisional Court issued its final order (ODC Order) with respect to the ODC Decision. Following the ODC Order, on October 2, 2020, the OEB issued a procedural order to implement the direction of the Ontario Divisional Court and required Hydro One to submit its proposal for the recovery of the DTA amounts allocated to ratepayers for the 2017 to 2022 period.

On April 8, 2021, the OEB rendered its DTA Implementation Decision regarding the recovery of the DTA amounts allocated to ratepayers for the 2017 to 2022 period. In its DTA Implementation Decision, the OEB approved recovery of the DTA amounts allocated to ratepayers and included in customer rates for the 2017 to 2021 period plus carrying charges over a two-year recovery period commencing on July 1, 2021. For the period 2017 to 2021, due to OEB mandated sharing of DTA amounts as reflected in approved rates, Hydro One’s annual FFO6 was lowered by approximately $31 million, $54 million, $62 million, $57 million and $53 million in each year from 2017 to 2021, respectively. The recovery of the previously shared DTA amounts plus carrying charges resulted in an annual increase in FFO6 of approximately $65 million in 2021 and is expected to result in an annual increase in FFO6 of approximately $135 million and $65 million in 2022 and 2023, respectively. In addition, the DTA Implementation Decision requires that Hydro One adjust the transmission revenue requirement and the base distribution rates beginning January 1, 2022 to eliminate any further tax savings flowing to customers. This is expected to further increase FFO6 by approximately $50 million in 2022, but will decline over time. The DTA Implementation Decision is also expected to result in an

6FFO is a non-GAAP financial measure. See the section “Non-GAAP Financial Measures

13

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

increase in the Company’s ETR to approximately 14% to 22% over the next five years, with the most significant impacts expected over the recovery period.

Hydro One Remote Communities

On November 3, 2020, Hydro One Remote Communities filed an application with the OEB seeking approval for a 2% increase to 2020 base rates, effective May 1, 2021, which was subsequently updated to 2.2% in accordance with the OEB’s 2021 inflation parameters for electricity distributors issued on November 9, 2020. On March 25, 2021, the OEB-approved Hydro One Remote Communities’ application for rates and other charges to be effective May 1, 2021.

Leave to Construct

On October 27, 2020, Hydro One Networks filed a Leave to Construct application with the OEB seeking approval to upgrade five circuit kilometres of transmission cable facilities in the downtown Toronto area. These facilities are required to ensure that the area continues to receive a safe and reliable supply of electricity. On February 25, 2021, the OEB approved the Leave to Construct application with standard conditions of approval.

OTHER DEVELOPMENTS

COVID-19

Throughout the COVID-19 pandemic, the Company's decisions and actions have continuously been guided by two priorities: to protect Hydro One's employees and to maintain the safe and reliable supply of electricity to Hydro One's customers. To date, Hydro One has been successful in achieving these priorities as the Company continues to operate-in-line with the evolving safety procedures and practices implemented since the start of the pandemic. The Company continues to monitor and adhere to guidance provided by the Province of Ontario (Province) and public health experts.

As an essential service, Hydro One's teams have continued to ensure the delivery of reliable power to energize life for all Ontarians since the start of the pandemic. The Company continues to take actions to protect its employees against the spread of COVID-19 in the workplace. Like most organizations, Hydro One experienced a modest increase in the number of employees who needed time off following the onset of the Omicron sub-variant in late 2021, however employee absenteeism has improved in the recent months and there has been no significant impact to any of its services or its work programs. Notwithstanding this improvement, Hydro One has proactively prepared contingency plans in the event of significant labour reductions in any of its lines of business. Strategies implemented would depend on the severity and duration of a reduction in employees.

The latest wave of COVID-19 is also causing global staffing shortages which has contributed to supply chain issues in many industries. Hydro One has not been immune to the growing global supply chain disruptions and pricing pressures that are being experienced across the utility industry. However, it has managed these disruptions by shifting projects and taking proactive measures to ensure it has the materials and equipment necessary to complete its capital work program. As a result, there has not been a material impact to the overall work program.

In keeping with the Company's ongoing commitment to customers, and to assist those customers significantly impacted by the pandemic, the Company continues to offer a number of customer relief measures including increased payment flexibility to residential and small business customers, and assistance in securing other financial assistance.

While Hydro One continues to take the necessary steps to mitigate the impact of COVID-19 on the Company's operations, the development of new variants and constantly changing public health restrictions make it very difficult to determine or estimate the future impacts of COVID-19 on Hydro One's operations. Potential impacts will be largely dependent on the duration of the pandemic, the attributes of the variants, and the severity of the measures that may be implemented to combat them.

Hydro One will continue to actively monitor the impacts of the COVID-19 pandemic, including guidance provided by the Province and public health experts, and may take further actions that it determines to be in the best interest of its operations, employees, customers, partners and stakeholders, or as required by federal or provincial authorities.

Supporting Broadband and Infrastructure Expansion Act, 2021

On March 4, 2021, the Province introduced Bill 257 (Supporting Broadband and Infrastructure Expansion Act, 2021) to create a new act entitled the Building Broadband Faster Act, 2021 that is aimed at supporting the timely deployment of broadband infrastructure within unserved and underserved rural Ontario communities. Bill 257 received Royal Assent on April 12, 2021. Bill 257 amends the Ontario Energy Board Act, 1998 (OEB Act) to provide the Province with regulation-making authority regarding the development of, access to, or use of electricity infrastructure for non-electricity purposes, including to reduce or fix the annual rental charge that telecommunications service providers must pay to attach their wireline broadband telecommunications attachments to utility poles, establish performance standards and timelines for how utilities must respond to attachment requests and require utilities to consider joint use of poles during planning processes. The Building Broadband Faster Act (BBFA) Guideline and regulations informing the legislative changes were published on November 30, 2021. The Company continues to be engaged with the Province on implementing an appropriate regulatory framework to support the published BBFA Guideline

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HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

and regulations, including arrangements to sustain the Company’s revenues and recovery of reasonable associated costs. The Company will continue to assess the impact as more details become available.

Acquisitions

In June 2021, the Company successfully completed the integration of Orillia Power and the business and distribution assets of Peterborough Distribution, including the integration of employees, customer and billing information, business processes and operations.

Sustainability Report

The Hydro One Limited 2020 Sustainability Report entitled "Building a better & brighter future" is available on the Company’s website at www.hydroone.com/sustainability.

The 2020 Sustainability Report discloses the Company’s ESG performance and provides a better understanding of how Hydro One manages the opportunities and challenges associated with its business. The report also includes disclosure relating to the Company’s current efforts in its priority areas of People, Planet and Community.

Hydro One Telecom Rebranding

In October 2021, Hydro One Limited rebranded its subsidiary, Hydro One Telecom Inc., as Acronym Solutions., (Acronym Solutions).

Supporting Critical Transmission Infrastructure in Southwestern Ontario

On January 20, 2022, the Ministry of Energy posted a public proposal to facilitate the timely development of critical transmission projects in Southwestern Ontario. If approved, this proposal would: (1) Prioritize the work on three transmission lines (the Chatham to Lakeshore Line, the St. Clair Line, and the Longwood to Lakeshore Line); (2) Prioritize development work on two additional transmission lines (a second Longwood to Lakeshore Line, and the Windsor to Lakeshore Line); and, (3) Designate Hydro One as the licensed transmitter to undertake all of these major projects (except the Chatham to Lakeshore Line which has already been designated to Hydro One). The comment period closes on March 7, 2022. If final approval by the government is obtained, the Ministry of Energy proposes to issue a ministerial direction to the OEB to amend Hydro One Networks’ transmission licence in order to undertake the work.

HYDRO ONE WORK FORCE

At December 31, 2021, Hydro One had a skilled and flexible work force of approximately 6,100 (2020 - 5,800) regular employees and 2,100 (2020 - 2,100) non-regular employees province-wide, comprising a mix of skilled trades, engineering, professional, managerial and executive personnel. Hydro One’s regular employees are supplemented primarily by accessing a large external labour force available through arrangements with the Company’s trade unions for contingent workers, sometimes referred to as “hiring halls”, and also by access to contract personnel. The hiring halls offer Hydro One the ability to flexibly use highly trained and appropriately skilled workers on a project-by-project and seasonal basis.

The following table sets out the number of Hydro One employees as at December 31, 2021:

	Regular Employees	Non-Regular Employees	Total
Power Workers' Union (PWU)1, 2	3,700	520	4,220
Society of United Professionals (Society)2	1,679	40	1,719
Canadian Union of Skilled Workers (CUSW) and construction building trade unions	—	1,529	1,529
Total employees represented by unions	5,379	2,089	7,468
Management and non-represented employees	767	35	802
Total employees3	6,146	2,124	8,270

1Includes 429 non-regular “hiring hall” employees covered by the PWU agreement.

2In February 2021, Hydro One finalized agreements with the PWU, the Society, Inergi LP, and Capgemini Canada Inc. to transfer 234 represented Inergi LP employees to Hydro One by January 1, 2022.

3    The average number of Hydro One employees in 2021 was approximately 9,200, consisting of approximately 6,100 regular employees and approximately 3,100 non-regular employees.

Collective Agreements

The priorcollective agreement with the Society expired on March 31, 2021. In February 2021, Hydro One and the Society commenced collective bargaining with the official exchange of bargaining agendas. On June 25, 2021, Hydro One and the Society reached a tentative agreement, and on July 30, 2021, the agreement was ratified by the Society membership. The term of the agreement is for two years ending on March 31, 2023.

15

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

Stock-based Compensation

Hydro One Limited granted awards under its LTIP, consisting of Performance Share Units (PSUs), Restricted Share Units (RSUs), and Stock Options. In addition, it has granted Deferred Stock Units (DSUs) to Directors and Management and RSUs related to the new collective agreement with the Society (Society RSUs). At December 31, 2021 and 2020, the following LTIP and other awards were outstanding:

December 31(number of units)	2021	2020
Management DSUs	90,240	61,880
Director DSUs	80,813	65,240
Society RSUs	68,005	—
RSUs	—	133,620
Stock Options	—	108,710
PSUs	—	106,070

NON-GAAP FINANCIAL MEASURES

Hydro One uses a number of financial measures to assess its performance. The Company presents FFO or “funds from operations” to reflect a measure of the Company’s cash flow and revenues, net of purchased power to reflect revenues net of the cost of purchased power. FFO, and revenues, net of purchased power are non-GAAP financial measures which do not have a standardized meaning prescribed by GAAP and might not be comparable to similar measures presented by other entities. They should not be considered in isolation nor as a substitute for analysis of the Company’s financial information reported under GAAP.

Hydro One also uses financial ratios that are non-GAAP ratios such as debt to capitalization ratio and earnings coverage ratio. Non-GAAP ratios do not have a standardized meaning prescribed by GAAP and might not be comparable to similar measures presented by other entities. They should not be considered in isolation nor as a substitute for analysis of the Company’s financial information reported under GAAP.

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, management believes that FFO provides a consistent measure of the cash generating performance of the Company’s assets.

The following table provides a reconciliation of GAAP (reported) results to non-GAAP (adjusted) results on a consolidated basis.

Year ended December 31 (millions of dollars)	2021	2020
Net cash from operating activities	2,108	1,997
Changes in non-cash balances related to operations	(69)	(159)
Distributions to noncontrolling interest	(8)	(2)
FFO	2,031	1,836

Revenues, Net of Purchased Power

Revenues, net of purchased power is defined as revenues less the cost of purchased power; distribution revenues, net of purchased power is defined as distribution revenues less the cost of purchased power. Revenues, net of purchased power is used internally by management to assess the impacts of revenue on net income and is considered useful because it excludes the cost of power that is fully recovered through revenues and therefore net income neutral.

The following tables provide a reconciliation of GAAP (reported) revenues to non-GAAP (adjusted) revenues, net of purchased power on a consolidated basis.

Year ended December 31 (millions of dollars)	2021	2020
Revenues	7,185	7,250
Less: Purchased power	3,579	3,854
Revenues, net of purchased power	3,606	3,396

Year ended December 31 (millions of dollars)	2021	2020
Distribution revenues	5,359	5,507
Less: Purchased power	3,579	3,854
Distribution revenues, net of purchased power	1,780	1,653

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HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

Quarter ended (millions of dollars)	Dec 31, 2021	Sep 30, 2021	Jun 30, 2021	Mar 31, 2021	Dec 31, 2020	Sep 30, 2020	Jun 30, 2020	Mar 31, 2020
Revenues	1,768	1,903	1,712	1,802	1,857	1,894	1,660	1,839
Less: Purchased power	914	933	838	894	1,046	993	808	1,007
Revenues, net of purchased power	854	970	874	908	811	901	852	832

Quarter ended (millions of dollars)	Dec 31, 2021	Sep 30, 2021	Jun 30, 2021	Mar 31, 2021	Dec 31, 2020	Sep 30, 2020	Jun 30, 2020	Mar 31, 2020
Distribution revenues	1,347	1,395	1,263	1,354	1,457	1,410	1,201	1,439
Less: Purchased power	914	933	838	894	1,046	993	808	1,007
Distribution revenues, net of purchased power	433	462	425	460	411	417	393	432

Debt to Capitalization Ratio

The Company believes that the debt to capitalization ratio is an important non-GAAP ratio in the management of its debt levels. This non-GAAP ratio does not have a standardized meaning under US GAAP and may not be comparable to similar measures presented by other entities. Debt to capitalization ratio has been calculated as total debt (including total long-term debt and short-term borrowings, net of cash and cash equivalents) divided by total debt plus total shareholder's equity, but excluding any amounts related to noncontrolling interest. Management believes that the debt to capitalization ratio is helpful as a measure of the proportion of debt in the Company's capital structure.

Year ended December 31 (millions of dollars)	2021	2020
Short-term notes payable	1,045	800
Less: cash and cash equivalents	(499)	(712)
Long-term debt (current portion)	12,593	12,302
Long-term debt (long-term portion)	603	806
Total debt (A)	13,742	13,196
Shareholder's equity (excluding noncontrolling interest)	11,172	10,804
Total debt plus shareholder's equity (B)	24,914	24,000

Debt-to-capitalization ratio (A/B) 55.2 % 55.0 %

Earnings Coverage Ratio

Earnings coverage ratio is defined as earnings before income taxes and financing charges attributable to shareholder, divided by the sum of financing charges and capitalized interest, and is calculated on a rolling twelve-month basis. The Company believes that the earnings coverage ratio is an important non-GAAP measure in the management of its liquidity. This non-GAAP ratio does not have a standardized meaning under US GAAP and may not be comparable to similar measures presented by other entities.

Quarter ended (millions of dollars)	Dec 31, 2021	Sep 30, 2021	Jun 30, 2021	Mar 31, 2021	Dec 31, 2020	Sep 30, 2020	Jun 30, 2020	Mar 31, 2020
Year-to-date net income to common shareholder	972	813	511	271	1,792	1,628	1,338	230
Year-to-date income tax expense	179	125	54	27	(783)	(812)	(834)	15
Year-to-date financing charges	453	331	215	114	469	352	238	119
Earnings before income taxes and financing charges attributable to common shareholder	1,604	1,269	780	412	1,478	1,168	742	364
Twelve months ended (millions of dollars)	Dec 31, 2021	Sep 30, 2021	Jun 30, 2021	Mar 31, 2021	Dec 31, 2020	Sep 30, 2020	Jun 30, 2020	Mar 31, 2020
Earnings before income taxes and financing charges attributable to common shareholder (A)	1,604	1,579	1,516	1,526	1,478	1,503	1,457	1,352
Quarter ended (millions of dollars)	Dec 31, 2021	Sep 30, 2021	Jun 30, 2021	Mar 31, 2021	Dec 31, 2020	Sep 30, 2020	Jun 30, 2020	Mar 31, 2020
Financing charges	453	331	215	114	469	352	238	119
Capitalized interest	60	44	29	13	49	36	22	10
Financing charges and capitalized interest	513	375	244	127	518	388	260	129
Twelve months ended (millions of dollars)	Dec 31, 2021	Sep 30, 2021	Jun 30, 2021	Mar 31, 2021	Dec 31, 2020	Sep 30, 2020	Jun 30, 2020	Mar 31, 2020
Financing charges and capitalized interest (B)	513	505	502	516	518	516	518	516
Earnings coverage ratio = A/B	3.1	3.1	3.0	3.0	2.9	2.9	2.8	2.6

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HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

RELATED PARTY TRANSACTIONS

Hydro One is owned by Hydro One Limited. The Province is a shareholder of Hydro One Limited with approximately 47.2% ownership at December 31, 2021. The IESO, Ontario Power Generation Inc. (OPG), Ontario Electricity Financial Corporation (OEFC), the OEB, Acronym Solutions and Hydro One Broadband Solutions Inc, (HOBSI), are related parties to Hydro One because they are controlled or significantly influenced by the Ministry of Energy or by Hydro One Limited. The following is a summary of the Company’s related party transactions during the years ended December 31, 2021 and 2020:

Year ended December 31 (millions of dollars)
Related Party	Transaction	2021	2020
IESO	Power purchased	2,238	2,506
	Revenues for transmission services	1,832	1,717
	Amounts related to electricity rebates	1,065	1,588
	Distribution revenues related to rural rate protection	245	242
	Distribution revenues related to supply of electricity to remote northern communities	35	35
	Funding received related to CDM programs	1	26
OPG	Power purchased	13	6
	Revenues related to provision of services and supply of electricity	7	7
	Capital contribution received from OPG	3	3
	Costs related to the purchase of services	2	3
OEFC	Power purchased from power contracts administered by the OEFC	1	1
OEB	OEB fees	8	9
Hydro One Limited	Return of stated capital	—	607
	Dividends paid	620	1
	Stock-based compensation costs	6	10
	Cost recovery for services provided	7	9
Acronym Solutions	Services received – costs expensed	24	21
	Revenues for services provided	2	3
Hydro One Broadband Solutions Inc.	Capital contribution accrued from HOBSI	3	—

RISK MANAGEMENT AND RISK FACTORS

Hydro One is subject to numerous risks and uncertainties. Critical to Hydro One’s success is the identification, management, and to the extent possible, mitigation of these risks. Hydro One’s Enterprise Risk Management (ERM) program assists decision-makers throughout the organization with the management of key business risks, including new and emerging risks and opportunities.

The material risks relating to Hydro One and its business that the Company believes would be the most likely to influence an investor’s decision to purchase Hydro One’s securities are set out in the risk factors below. These risks, if they materialize, could have a materially adverse effect on the Company or its business, financial condition, or results of operations. This list is not a comprehensive list of all the risks to the Company, and the actual effect of any of the risks cited below could be materially different from what is described below. Additionally, other risks may arise or risks currently not considered material may become material in the future.

Risks Relating to Hydro One’s Business

Regulatory Risks and Risks Relating to Hydro One’s Revenues

Risks Relating to Obtaining Rate Orders

The Company is subject to the risk that the OEB will not approve the Company’s transmission and distribution revenue requirements requested in outstanding or future applications for rates. Rate applications for revenue requirements are subject to the OEB’s review process, usually involving participation from intervenors and a public hearing process. There can be no assurance that resulting decisions or rate orders issued by the OEB will permit Hydro One to recover all costs actually incurred, including the costs of debt and income taxes, or to earn a particular ROE. A failure to obtain acceptable rate orders, or approvals of appropriate returns on equity and the ability to recover in rates costs actually incurred, may materially adversely affect: Hydro One’s transmission and distribution businesses, the undertaking or timing of capital expenditures, ratings assigned by credit rating agencies, the cost and issuance of long-term debt, and other matters, any of which may in turn have a material adverse effect on the Company. In addition, there is no assurance that the Company will receive regulatory decisions in a timely manner

18

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

and, therefore, the Company may incur costs before having an approved revenue requirement and cash flows could be impacted. The Company is also subject to the risk that the OEB could change the regulatory treatment of certain costs which may affect the Company’s accounting treatment of and ability to recover such costs.

Risks Relating to Actual Performance Against Forecasts

The Company’s ability to recover the actual costs of providing service and earn the allowed ROE depends on the Company achieving its forecasts established and approved in the rate-setting process. Actual costs could exceed the approved forecasts if, for example, the Company incurs operations, maintenance, administration, capital and financing costs above those included in the Company’s approved revenue requirement. The inability to recover any significant difference between forecast and actual expenses and to obtain associated regulatory approvals to recover the difference could materially adversely affect the Company’s financial condition and results of operations.

Further, the OEB approves the Company’s transmission and distribution rates based on projected electricity load and consumption levels, among other factors. If actual load or consumption materially falls below projected levels, the Company’s revenue, net income and cash flows for either, or both, of these businesses could be materially adversely affected. Also, the Company’s current revenue requirements for its transmission and distribution businesses are based on cost and other assumptions that may not materialize. There is no assurance that the OEB would allow rate increases sufficient to offset unfavourable financial impacts from unanticipated changes in electricity demand or in the Company’s costs.

The Company is subject to risk of revenue loss from other factors, such as economic trends and conditions, changes in service territory, and weather conditions that influence the demand for electricity. The Company’s overall operating results may fluctuate substantially on a seasonal and year-to-year basis based on these trends and weather conditions. For instance, a cooler than normal summer or warmer than normal winter can be expected to reduce demand for electricity below that forecast by the Company, causing a decrease in the Company’s revenues, net income and cash flows as compared to the same period of the previous year.

The Company’s load could also be negatively affected by successful CDM programs whose results exceed forecasted expectations.

Risks Relating to Other Applications to the OEB

Hydro One may face increased competition with other transmitters for opportunities to build new, large-scale transmission facilities in Ontario. The Company is subject to the risk that it will not be selected to build new transmission in Ontario, which could impair growth, disrupt operations and/or development, or have other adverse impacts. The Company is also subject to the risk that it will not obtain, or will not obtain in a timely manner, required regulatory approvals for other matters, such as leave to construct applications, applications for mergers, acquisitions, amalgamations and divestitures, and environmental approvals. Decisions to acquire or divest other regulated businesses licensed by the OEB are subject to OEB approval. Accordingly, there is the risk that such matters may not be approved, that the Company may not be selected to build new transmission as part of the competitive process, or that unfavourable conditions will be imposed by the OEB.

Risks Relating to Rate-Setting Models for Transmission and Distribution

The OEB approves and periodically changes the rate-setting models and methodology for the transmission and distribution businesses. Changes to the application type, filing requirements, rate-setting model or methodology, or revenue requirement determination may have a material negative impact on Hydro One’s revenue and net income. For example, the OEB may in the future decide to reduce the allowed ROE for either of these businesses, modify the formula or methodology it uses to determine the ROE, or reduce the weighting of the equity component of the deemed capital structure. Any such reduction could reduce the net income of the Company. Similarly, the OEB is currently considering other utility remuneration models, and any such change could affect Hydro One’s revenue and net income.

The OEB’s Custom Incentive Rate-setting model requires that the term of a custom rate application be for multi-year periods. There are risks associated with forecasting key inputs such as revenues, operating expenses and capital over such a long period. For instance, if unanticipated capital expenditures arise that were not contemplated in the Company’s most recent rate decision, the Company may be required to incur costs that may not be recoverable until a future period or not recoverable at all in future rates. This could have a material adverse effect on the Company.

When rates are set for a multi-year period, including under a Custom Incentive Rate application, the OEB expects there to be no further rate applications for annual updates within the multi-year period, unless there are exceptional circumstances, with the exception of the clearance of established deferral and variance accounts. For example, the OEB does not expect to address annual rate applications for updates for cost of capital (including ROE), working capital allowance or sales volumes. If there were an increase in interest rates over the period of a rate decision and no corresponding changes were permitted to the Company’s allowed cost of capital (including ROE), then the result could be a decrease in the Company’s financial performance.

19

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

To the extent that the OEB approves an in-service variance account for the transmission and/or distribution businesses, and should the Company fail to meet the threshold levels of in-service capital, the OEB may reclaim a corresponding portion of the Company’s revenues.

Risks Relating to Capital Expenditures

In order to be recoverable in rates, capital expenditures require the approval of the OEB. There can be no assurance that all capital expenditures, including any imposed by or resulting from government or regulatory bodies, incurred by Hydro One will be approved by the OEB. For example, capital cost overruns including those due to economic trends and conditions, unexpected capital expenditures in maintaining or improving the Company’s assets,unexpected costs as a result of proposed legislation, including that relating to the expansion of broadband service in Canada, may not be recoverable in transmission or distribution rates. To the extent possible, Hydro One aims to mitigate this risk by ensuring expenditures are reasonable and prudent, and also by seeking from the regulator clear policy direction on cost responsibility, and by obtaining pre-approval of the need for capital expenditures.

Any regulatory decision by the OEB to disallow or limit the recovery of any capital expenditures would lead to a lower-than-expected approved revenue requirement or rate base, potential asset impairment or charges to the Company’s results of operations, any of which could have a material adverse effect on the Company.

Risk of Recoverability of Total Compensation Costs

Hydro One manages all of its total compensation costs, including pension and other post-employment and post-retirement benefits (OPEBs), subject to restrictions and requirements imposed by the collective bargaining process and legislative requirements. Any element of total compensation costs which is disallowed in whole or part by the OEB and therefore not recoverable from customers in rates could result in costs which could be material and could decrease net income, which could have a material adverse effect on the Company. The OEB Act prohibits Hydro One from recovering specified executive compensation costs in its rates.

The Company provides OPEBs, including workers' compensation benefits and long-term disability benefits to qualifying employees. Hydro One currently maintains the accrual accounting method with respect to OPEBs. If the OEB directed Hydro One to transition to a different accounting method for OPEBs or otherwise adjusted the basis of recovery for OPEB costs, this could result in income volatility, due to an inability of the Company to book the difference between the accrual and cash as a regulatory asset, and the Company might not be able to recover some costs. A determination that some of the Company’s post-employment and postretirement benefit costs are not recoverable could have a material adverse effect on the Company.

Risks Relating to Government Action

The Province is, and is likely to remain, the largest shareholder in Hydro One Limited. The Province may be in a position of conflict from time to time as a result of being an investor in Hydro One Limited and also being a government actor setting broad policy objectives in the electricity industry. Government actions may not be in the interests of the Company or investors.

Governments may pass legislation or issue regulations at any time, including legislation or regulation impacting Hydro One, which could have potential material adverse effects on Hydro One and its business. Such government actions may include, but are not limited to, legislation, regulation, directives or shareholder action intended to reduce electricity rates, place constraints on compensation, or affect the governance of Hydro One. Such government actions could adversely affect the Company’s financial condition and results of operations, as well as public opinion and the Company’s reputation. Government action may also hinder Hydro One’s ability to pursue its strategy and/or objectives.

Additionally, involvement by the Province in placing constraints on executive compensation (through the compensation framework implemented as a result of the Hydro One Accountability Act, 2018) may inhibit the Company’s ability to attract and retain qualified executive talent, which may also impact the Company’s performance, strategy and/or objectives. The failure to attract and retain qualified executives could have a material adverse effect on the Company.

Government action may also impact the Company’s credit ratings as the Company’s credit ratings reflect, in part, the rating agencies’ assessment of government involvement in the business of Hydro One. The Company cannot predict what actions rating agencies may take in the future, positive or negative, including in response to government action or inaction relating to or impacting Hydro One. The failure to maintain the Company’s current credit ratings could adversely affect the Company’s financial condition and results of operations, and a downgrade in the Company’s credit ratings could restrict the Company’s ability to access debt capital markets and increase the Company’s cost of debt.

Indigenous Claims Risk

Some of the Company’s current and proposed transmission and distribution assets are or may be located on reserve (as defined in the Indian Act (Canada)) (Reserve) lands, or lands over which Indigenous people have Aboriginal, treaty, or other legal rights or claims. Some Indigenous leaders, communities, and their members have made assertions related to sovereignty and jurisdiction over Reserve lands and traditional territories (land traditionally occupied or used by a First Nation, Métis or Inuit

20

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

group) and are increasingly willing to assert their claims through the courts, tribunals, or direct action. These claims, and/or the settlement or resolution of these claims could have a material adverse effect on the Company or otherwise materially adversely impact the Company’s operations, including the development of current and future projects.

The Company’s operations and activities may give rise to the Crown having a duty to consult and potentially accommodate Indigenous communities. Procedural aspects of the Crown's duty to consult may be delegated to the Company by the Province or the federal government. A perceived failure by the Crown to sufficiently consult an Indigenous community, including communities with a traditional governance model not recognized under the Indian Act (Canada), or a perceived failure by the Company in relation to delegated consultation obligations, could result in legal challenges against the Crown or the Company, including judicial review or injunction proceedings, or could potentially result in direct action against the Company by a community or its citizens. If this occurs, it could disrupt or delay the Company’s operations and activities, including current and future projects, and have a material adverse effect on the Company.

Risk from Transfer of Assets Located on Reserves

The transfer orders by which the Company acquired certain of Ontario Hydro’s businesses as of April 1, 1999 did not transfer title to assets located on Reserves. The transfer of title to these assets did not occur because authorizations originally granted by the federal government for the construction and operation of these assets on Reserves could not be transferred without required consent. In several cases, the authorizations had either expired or had never been issued.

Currently, OEFC holds legal title to these assets and it is expected that the Company will manage them until it has obtained permits to complete the title transfer. To occupy Reserves, the Company must have valid permits as required by the Indian Act (Canada). For each permit, the Company may need to negotiate (an) agreement(s) with the First Nation, OEFC and any members of the First Nation who have occupancy rights. Any such agreement(s) include provisions whereby the First Nation consents to the issuance of a permit. For transmission assets, the Company must negotiate terms of payment. It is difficult to predict the aggregate amount that the Company may have to pay to obtain the required agreements from First Nations. If the Company cannot reach satisfactory agreements with the relevant First Nation to obtain federal permits, or is unable to obtain the actual federal permits for any other reason, it may have to relocate these assets to other locations and restore the lands at a cost that could be substantial. In a limited number of cases, it may be necessary to abandon a line and replace it with diesel generation facilities. In either case, the costs relating to these assets could have a material adverse effect on the Company if the costs are not recoverable in future rate orders.

Executive Recruitment and Retention Risk

Involvement by the Province relating to executive compensation, and Hydro One executive compensation constraints flowing from the Hydro One Accountability Act, 2018, may inhibit the Company’s ability to attract and retain qualified executive talent. The Company’s strategy is tied to its ability to continue to attract and retain qualified executives. The failure to attract and retain qualified executives could have a material adverse effect on the Company.

Compliance with Laws and Regulations

Hydro One must comply with numerous laws and regulations affecting its business, including requirements relating to transmission and distribution companies, environmental laws, employment laws and health and safety laws. The failure of the Company to comply with these laws could have a material adverse effect on the Company’s business. See also “- Environment Risk” and “- Health and Safety Risk”.

For example, Hydro One’s licensed transmission and distribution businesses are required to comply with the terms of their licences, with codes and rules issued by the OEB, and with other regulatory requirements. In Ontario, the Market Rules issued by the IESO require the Company to, among other things, comply with applicable reliability standards established by the NERC and Northeast Power Coordinating Council, Inc. (NPCC). The costs associated with compliance with these reliability standards are expected to be recovered through rates, but there can be no assurance that the OEB will approve the recovery of all of such costs. Failure to obtain such approvals could have a material adverse effect on the Company.

There is the risk that new legislation, regulations, requirements or policies will be introduced in the future. These may reduce Hydro One’s revenue, or may require Hydro One to incur additional costs, which may or may not be recovered in future transmission and distribution rates.

Risk of Natural and Other Unexpected Occurrences

The Company’s facilities are exposed to the effects of severe weather conditions, natural disasters, man-made events including, but not limited to, cyber and physical terrorist type attacks, events which originate from third-party connected systems, and any other potentially catastrophic events. The Company’s facilities may not withstand occurrences of these types in all circumstances.

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MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

The Company could also be subject to claims for damages from events which may be proximately connected with the Company’s assets (for example, forest fires), claims for damages caused by its failure to transmit or distribute electricity, costs related to ensuring its continued ability to transmit or distribute electricity or costs related to information or cyber security.

The Company does not have insurance for damage to its transmission and distribution wires, poles and towers located outside its transmission and distribution stations resulting from these or other events. Where insurance is available for the Company’s other assets and for damage claims and cyber security claims, such insurance coverage may have deductibles, limits and/or exclusions that may still expose the Company to material losses. Losses from lost revenues and repair costs could be substantial, especially for many of the Company’s facilities that are located in remote areas.

In the event that the Company is unable to recover such costs, this could have a material adverse effect on the Company.

Environment Risk

The Company is subject to extensive Canadian federal, provincial and municipal environmental regulation. Failure to comply could subject the Company to fines or other penalties. In addition, the presence or release of hazardous or other harmful substances could lead to claims by third parties or governmental orders requiring the Company to take specific actions such as investigating, controlling and remediating the effects of these substances. Although Hydro One is not a large emitter of greenhouse gases, the Company monitors its emissions to track and report on all sources, including sulphur hexafluoride or “SF6”. The Company could be subject to costs and other risks related to emissions. Contamination of the Company’s properties could limit its ability to sell or lease these assets in the future.

In addition, actual future environmental expenditures may vary materially from the estimates used in the calculation of the environmental liabilities provided for in the Company’s financial statements. The Company does not have insurance coverage for these environmental expenditures.

There is also risk associated with obtaining governmental approvals, permits, or renewals of existing approvals and permits related to constructing or operating facilities. This may require environmental assessment or result in the imposition of conditions, or both, which could result in delays and cost increases. Failure to obtain necessary approvals or permits could result in an inability to complete projects which may have a material adverse effect on the Company.

The Company’s facilities are exposed to the effects of severe weather conditions and natural disasters. The Company recognizes the risks associated with potential climate change and has developed plans to respond as appropriate. Climate change may have the effect of shifting weather patterns and increasing the severity and frequency of extreme weather events and natural disasters, which could impact Hydro One’s business. The Company’s facilities may not withstand occurrences of these types in all circumstances. Notwithstanding Hydro One’s efforts to adapt and increase grid resilience, the Company’s facilities are exposed to risks which may have an adverse effect on grid resilience. The Company could also be subject to claims for damages from events which may be proximately connected with the Company’s assets (for example, forest fires), claims for damages caused by its failure to transmit or distribute electricity or costs related to ensuring its continued ability to transmit or distribute electricity. The Company does not have insurance for damage to its transmission and distribution wires, poles and towers located outside its transmission and distribution stations resulting from these or other events. Where insurance is available for the Company’s other assets and for damage claims, such insurance coverage may have deductibles, limits and/or exclusions that may still expose the Company to material losses. Losses from lost revenues and repair costs could be substantial, especially for many of the Company’s facilities that are located in remote areas.

In the event that the Company is unable to recover such costs, this could have a material adverse effect on the Company.

Risk Associated with Information Technology (IT), Operational Technology (OT) Infrastructure and Data Security

The Company’s ability to operate effectively in the Ontario electricity market is, in part, dependent upon it developing, modernizing, maintaining and managing complex IT and OT systems which are employed to operate and monitor its transmission and distribution facilities, financial and billing systems and other business systems. The Company’s increasing reliance on information systems and expanding data networks, as well as growing volume and complexity of data, increases its vulnerability, and exposure to information security threats. The Company’s transmission business is required to comply with various rules and standards for transmission reliability, including mandatory standards established by the NERC and the NPCC. These include standards relating to cyber-security and OT, which only apply to certain of the Company’s assets (generally being those whose failure could impact the functioning of the bulk electricity system). The Company may maintain different or lower levels of security for its assets that are not subject to these mandatory standards. The Company must also comply with various cyber-security and privacy-related regulatory requirements under the OEB’s Ontario Cyber Security Framework and legislative and licence requirements relating to the collection, use and disclosure of personal information and information regarding consumers, wholesalers, generators and retailers.

Cyber-attacks or unauthorized access to corporate IT and OT systems could result in service disruptions and system failures, which could have a material adverse effect on the Company, including as a result of a failure to provide electricity to customers. Because it operates critical infrastructure, Hydro One may be at greater risk of cyber-attacks from third parties (including state run or controlled parties) that could impair or incapacitate its assets. In addition, in the course of its operations, the Company

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MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

collects, uses, processes and stores information which could be exposed in the event of a cyber-security incident or other unauthorized access or disclosure, such as information about customers, suppliers, counterparties, employees and other third parties.

Security and system disaster recovery controls are in place; however, there can be no assurance that there will not be system failures or security breaches or that such threats would be detected or mitigated on a timely basis. Upon occurrence and detection, the focus would shift from prevention to isolation, remediation and recovery until the incident has been fully addressed. Any such system failures or security breaches could have a material adverse effect on the Company.

Infectious Disease Risk

An outbreak of infectious disease, in the form of an epidemic, a pandemic (such as COVID-19), or a similar public health threat, could materially adversely impact the Company. The extent of any such adverse impact on the Company is uncertain, and may depend on the length and severity of any such infectious disease outbreak, any resultant government regulations, guidelines and actions, and any related adverse changes in general economic and market conditions. Such circumstances could impact, in particular: the Company’s operations and workforce, including security of supply, both with respect to availability and affordability, which individually or collectively may impact the Company's ability to complete operating and capital work programs as planned, including within scope and budget; certain financial obligations of the Company, including pension contributions and other post-retirement benefits, as a result of changes in prevailing market conditions; the Company’s expected revenues; reductions in overall electricity consumption and load, both short term and long term; overdue accounts and bad debt increases as a result of changes in the ability of the Company’s customers to pay; liquidity and the Company’s ability to raise capital; the timing of increased rates; the Company’s ability to recover incremental costs and lost revenues linked to the outbreak; the Company’s ability to file regulatory filings on a timely basis; timing of regulatory decisions and the impacts those decisions may have on the Company or its ability to implement them; and customer and stakeholder needs and expectations.

The Company also faces risks and costs associated with implementation of business continuity plans and modified work conditions, including the risks and costs associated with maintaining or reducing its workforce, making the required resources available to its workforce to enable essential work, including remotely where possible, and to keep its workforce healthy, as well as risks and costs associated with recovery of normal operations. Furthermore, the Company is dependent on third party providers for certain activities, and relies on a strong international supply chain. Any significant disruption to those providers or the supply chain resulting from an outbreak of infectious disease could materially adversely impact the Company. See also “Other Developments - COVID-19”.

Labour Relations Risk

A substantial majority of the Company’s employees are unionized and are primarily represented by either the PWU or the Society. Over the past several years, significant effort has been expended to increase Hydro One’s flexibility to conduct operations in a more cost-efficient manner. Although the Company has achieved improved flexibility in its collective agreements, the Company may not be able to achieve further improvements, or at least not without increasing the risk of labour disruption. The Company reached an agreement with the Society for a collective agreement, covering the period from April 1, 2021 to March 31, 2023. Agreements were also reached with the Society and the PWU to facilitate the insourcing of Customer Service Operations (CSO) services effective March 1, 2018, as well as all remaining services provided by Inergi LP (IT, Supply Chain, Finance and Accounting, and Payroll) on various dates between March 1, 2021 and January 1, 2022. The Company also reached a main collective agreement with the PWU, covering the period from April 1, 2020 to March 31, 2023, and a CSO collective agreement with the PWU covering the period from October 1, 2019 to September 30, 2022. The Company also reached a collective agreement with the Canadian Union of Skilled Workers (CUSW), covering the period from May 1, 2017 to April 30, 2022. Additionally, Electrical Power Systems Construction Association (EPSCA) and a number of building trade unions have agreements, to which Hydro One is bound, covering the period from May 1, 2020 to April 30, 2025 (see “Hydro One Work Force - Collective Agreements” for details). Future negotiations with unions present the risk of a labour disruption or dispute, risk to the Company’s ability to sustain the continued supply of electricity to customers, as well as potential risks to public safety and reputation. The Company also faces financial risks related to its ability to negotiate collective agreements consistent with its rate orders. Any of these could have a material adverse effect on the Company. Collective agreements requiring renewal in 2022 include the CUSW collective agreement and the CSO collective agreement with the PWU, expiring on April 30, 2022 and September 30, 2022, respectively. Failure to renew these agreements on terms acceptable to Hydro One could have a material adverse effect on its business and results of operations and expose Hydro One to the risks noted above.

Work Force Demographic Risk

By the end of 2021, approximately 11% of the Company’s employees who are members of the Company’s defined benefit and defined contribution pension plans were eligible for retirement, and by the end of 2022, approximately 13% could be eligible. These percentages are not evenly spread across the Company’s work force, but tend to be most significant in the most senior levels of the Company’s staff and among management staff. During 2021, approximately 4% of the Company’s work force (up from approximately 3% in 2020) elected to retire. Accordingly, the Company’s continued success will be tied to its ability to continue to attract and retain sufficient qualified staff to replace the capability lost through retirements and meet the demands of the Company’s work programs.

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MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

In addition, the Company expects the skilled labour market for its industry will remain highly competitive. Many of the Company’s current and potential employees are sought after as they possess skills and experience that are also highly coveted by other organizations inside and outside the electricity sector. The failure to attract, retain and deploy qualified personnel for Hydro One’s business could have a material adverse effect on the Company.

Risk Associated with Arranging Debt Financing

The Company expects to borrow to repay its existing indebtedness and to fund a portion of capital expenditures. Hydro One has substantial debt principal repayments coming due, including $603 million in 2022, $731 million in 2023 and $700 million in 2024. In addition, from time to time, the Company may draw on its syndicated bank lines and/or issue short-term debt under Hydro One Inc.’s $2,300 million commercial paper program which would mature within one year of issuance. The Company also plans to incur continued material capital expenditures for each of 2022 and 2023. Cash generated from operations, after the payment of expected dividends, will not be sufficient to fund the repayment of the Company’s existing indebtedness and capital expenditures. The Company’s ability to arrange sufficient and cost-effective debt financing could be materially adversely affected by numerous factors, including the regulatory environment in Ontario, the Company’s results of operations and financial position, market conditions, the ratings assigned to its debt securities by credit rating agencies, an inability of the Company to comply with its debt covenants, and general economic conditions (such as, among other things, changes in interest rates). A downgrade in the Company’s credit ratings could restrict the Company’s ability to access debt capital markets and increase the Company’s cost of debt. Any failure or inability on the Company’s part to borrow the required amounts of debt on satisfactory terms could impair its ability to repay maturing debt, fund capital expenditures and meet other obligations and requirements and, as a result, could have a material adverse effect on the Company.

Market, Financial Instrument and Credit Risk

Market risk refers primarily to the risk of loss that results from changes in costs, foreign exchange rates and interest rates, including potentially negative interest rates. The Company is exposed to fluctuations in interest rates as its regulated ROE is derived using a formulaic approach that takes into account anticipated interest rates. The Company issues debt from time to time to refinance maturing debt and for general corporate purposes. The Company is therefore exposed to fluctuations in interest rates in relation to such issuances of debt. Fluctuations in interest rates may also impact the funded position of Hydro One’s Defined Benefit Pension Plan, and associated pension liability (See also “- Pension Plan Risk”). The Company is not currently exposed to material foreign exchange risk.

The OEB-approved adjustment formula for calculating ROE in a deemed regulatory capital structure of 60% debt and 40% equity provides for increases and decreases depending on changes in benchmark interest rates for Government of Canada debt and the A-rated utility corporate bond yield spread. For the transmission and distribution businesses in 2022, the OEB does not expect to address annual rate applications for updates to allowed ROE, so fluctuations will have no impact to net income. The Company has interest rate exposure associated with the refinancing of short- and long-term debt maturing in 2022 and beyond, as well as with debt issued for general corporate purposes which may include debt issued in relation to growth in rate base. The Company periodically uses interest rate swap agreements to mitigate elements of interest rate risk.

Financial assets create a risk that a counterparty will fail to discharge an obligation, causing a financial loss. Derivative financial instruments result in exposure to credit risk, since there is a risk of counterparty default. Hydro One monitors and minimizes credit risk through various techniques, including dealing with highly rated counterparties, limiting total exposure levels with individual counterparties, entering into agreements which enable net settlement, and monitoring the financial condition of counterparties. The Company does not trade in any energy derivatives. The Company is required to procure electricity on behalf of competitive electricity retailers and certain local distribution companies for resale to their customers. The resulting concentrations of credit risk are mitigated through the use of various security arrangements, including letters of credit, which are incorporated into the Company’s service agreements with these retailers in accordance with the OEB’s Retail Settlement Code.

The failure to properly manage these risks could have a material adverse effect on the Company.

Risks Relating to Asset Condition, Capital Projects and Innovation

The Company continually incurs sustainment and development capital expenditures and monitors the condition of its assets to manage the risk of equipment failures and to determine the need for and timing of major refurbishments and replacements of its transmission and distribution infrastructure.

While traditionally a mature and stable industry, the electricity industry is facing rapid and dramatic technological change and increasing innovation, the consequences of which could have a material adverse effect on the Company, including a reduction in revenue.

Execution of the Company’s capital expenditure programs is partially dependent on external factors, such as OEB approvals, environmental approvals, municipal permits, equipment outage schedules that accommodate the IESO, generators and transmission-connected customers, other interrelated projects being on schedule, and supply chain availability for equipment suppliers and consulting services. Many of these external factors are beyond the Company’s control. There may also be a need for, among other things, Environmental Assessment Act (Ontario) approvals, approvals which require public meetings,

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HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

appropriate engagement with Indigenous communities, OEB approvals of expropriation or early access to property, and other activities. Obtaining approvals and carrying out these processes may also be impacted by opposition to the proposed site of the capital investments. Delays in obtaining required approvals or failure to complete capital projects on a timely basis could materially adversely affect transmission reliability or customers’ service quality or increase maintenance costs which could have a material adverse effect on the Company. Failure to receive approvals for projects when spending has already occurred would result in the inability of the Company to recover the investment in the project as well as forfeit the anticipated return on investment. The assets involved may be considered impaired and result in the write off of the value of the asset, negatively impacting net income. If the Company is unable to carry out capital expenditure plans in a timely manner, equipment performance may degrade, which may reduce network capacity, result in customer interruptions, compromise the reliability of the Company’s networks or increase the costs of operating and maintaining these assets. Any of these consequences could have a material adverse effect on the Company.

Increased competition for the development of large transmission projects and legislative changes relating to the selection of transmitters could impact the Company’s ability to expand its existing transmission system, which may have an adverse effect on the Company. To the extent that other parties are selected to construct, own and operate new transmission assets, the Company’s share of Ontario’s transmission network would be reduced. Any delays in these new transmitters’ projects may impact the Company’s own projects that it is undertaking to in-service these new transmission assets.

Health and Safety Risk

Hydro One’s work environment can be inherently dangerous and there is a risk to health and safety of both the public and our employees, as well as possible resultant operational and/or financial impacts. The Company is subject to federal and provincial legislation and regulations relating to health and safety. Findings of a failure to comply with these requirements could result in penalties and reputational risk, which could negatively impact the Company. Failure to comply could subject the Company to fines or other penalties. Any regulatory decision to disallow or limit the recovery of such costs could have a material adverse effect on the Company.

Pension Plan Risk

Hydro One has the Hydro One Defined Benefit Pension Plan in place for the majority of its employees. Contributions to the pension plan are established by actuarial valuations which are required to be filed with the Financial Services Regulatory Authority of Ontario on a triennial basis. The most recently filed valuation was prepared as at December 31, 2018, and was filed in September 2019, covering a three-year period from 2019 to 2021. The next required valuation will be prepared as at December 31, 2021 and is expected to be filed by no later than September 2022. Hydro One’s contributions to its pension plan satisfy, and are expected to continue to satisfy, minimum funding requirements. Contributions beyond 2022 will depend on the funded position of the plan, which is determined by investment returns, interest rates and changes in benefits and actuarial assumptions at that time. A determination by the OEB that some of the Company’s pension expenditures are not recoverable through rates could have a material adverse effect on the Company, and this risk may be exacerbated if the amount of required pension contributions increases.

Hydro One currently reports and recovers its pension costs on a cash basis, and maintains the accrual method with respect to OPEBs. Transitioning from the cash basis to an accrual method for pension costs may have material negative rate impacts for customers or material negative impacts on the Company should recovery of costs be disallowed by the OEB.

See also “- Regulatory Risks and Risks Relating to Hydro One’s Revenues - Risk of Recoverability of Total Compensation Costs” for risks relating to recovery of pension costs.

Risk from Provincial Ownership of Transmission Corridors

The Province owns some of the corridor lands underlying the Company’s transmission system. Although the Company has the statutory right to use these transmission corridors, the Company may be limited in its options to expand or operate its systems. Also, other uses of the transmission corridors by third parties in conjunction with the operation of the Company’s systems, or adjacent land use by third parties, may increase safety or environmental risks, which could have a material adverse effect on the Company.

Litigation Risks

In the normal course of the Company’s operations, it becomes involved in, is named as a party to and is the subject of, various legal proceedings, including regulatory proceedings, tax proceedings and legal actions, relating to actual or alleged violations of law, common law damages claims, personal injuries, property damage, property taxes, land rights, the environment, contract disputes, claims by former employees and claims and proceedings by Indigenous groups. The outcome of outstanding, pending or future proceedings cannot be predicted with certainty and may be determined adversely to the Company, which could have a material adverse effect on the Company. Even if the Company prevails in any such legal proceeding, the proceedings could be costly and time-consuming and would divert the attention of management and key personnel from the Company’s business operations, which could adversely affect the Company.

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HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

Transmission Assets on Third-Party Lands Risk

Some of the lands on which the Company’s transmission assets are located are owned by third parties, including the Province and federal Crown, and are or may become subject to land claims by First Nations. The Company requires valid occupation rights to occupy such lands (which may take the form of land use permits, easements or otherwise). If the Company does not have valid occupational rights on third-party owned or controlled lands or has occupancy rights that are subject to expiry, it may incur material costs to obtain or renew such occupancy rights, or if such occupancy rights cannot be renewed or obtained it may incur material costs to remove and relocate its assets and restore the subject land. If the Company does not have valid occupancy rights and must incur costs as a result, this could have a material adverse effect on the Company or otherwise materially adversely impact the Company’s operations.

Reputational, Public Opinion and Political Risk

Reputation risk is the risk of negative publicity or the public’s negative perceptions towards Hydro One that may result in a detrimental impact to Hydro One’s business, operations or financial condition leading to a deterioration of Hydro One’s reputation. Hydro One’s reputation could be negatively impacted by changes in public opinion, attitudes towards the Company’s privatization, failure to deliver on its customer promises, failure to comply with mandatory reliability regulations established by the NERC and NPCC, failure to adequately respond to social issues raised by employees, partners and/stakeholders and other external forces. Adverse reputational events or political actions could have a material adverse effect on Hydro One’s business and prospects including, but not limited to, delays or denials of requisite approvals, such as denial of requested rates, and accommodations for Hydro One’s planned projects, escalated costs, legal or regulatory action, and damage to stakeholder and community relationships. Any of these could have a material adverse impact on Hydro One and its business, financial condition and results of operations.

Risk Associated with Outsourcing Arrangements

Hydro One has entered into an outsourcing arrangement with a third party for the provision of certain back office and IT services. If the services are disrupted, it could have a material adverse effect on the Company. Additionally, if the outsourcing arrangement or statements of work thereunder are terminated for any reason or expire before a new supplier is selected and fully transitioned, the Company could be required to transfer to another service provider or insource, which could have a material adverse effect on the Company’s business, operating results, financial condition or prospects.

Risks Associated with Acquisitions

Acquisitions include inherent risks that some or all of the expected benefits may fail to materialize, or may not occur within the time periods anticipated, and Hydro One may incur material unexpected costs or liabilities. Realization of the anticipated benefits would depend, in part, on the Company’s ability to successfully integrate the acquired business, including the requirement to devote management attention and resources to integrating business practices and support functions. The failure to realize the anticipated benefits, the diversion of management’s attention, or any delays or difficulties encountered in connection with the integration could have an adverse effect on the Company’s business, results of operations, financial condition or cash flows.

Risks Relating to the Company’s Relationship with Hydro One Limited and the Province

Indirect Ownership and Continued Influence by the Province and Voting Power

The Province currently owns approximately 47.2% of the outstanding common shares of Hydro One Limited and it is expected to continue to maintain a significant ownership interest in voting securities of Hydro One Limited for an indefinite period.

As a result of its significant ownership of the common shares of Hydro One Limited, the Province has, and is expected indefinitely to have, the ability to determine or significantly influence the outcome of shareholder votes at Hydro One Limited, subject to the restrictions in the Governance Agreement between Hydro One Limited and the Province dated November 5, 2015 (Governance Agreement) (available on SEDAR at www.sedar.com). Despite the terms of the Governance Agreement in which the Province has agreed to engage in the business and affairs of Hydro One Limited as an investor and not as a manager, there is a risk that the Province’s engagement in the business and affairs of Hydro One Limited as an investor will be informed by its policy objectives and may influence the conduct of the business and affairs of Hydro One Limited in ways that may not be aligned with the interests of other investors in Hydro One Limited. Notwithstanding the Governance Agreement, and in light of actions historically taken by the Province, there can be no assurance that the Province will not take other actions in the future that could be detrimental to the interests of investors in Hydro One Limited. This influence may also extend to Hydro One. As a result, the Province may influence the conduct of the business and affairs of Hydro One, and decisions may be made by the Province as a shareholder of Hydro One Limited which may not be aligned with the interests of the other security holders of Hydro One. See “Risks Relating to Government Action” above.

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HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

Composition of the Board of Directors of Hydro One

Under the Governance Agreement, Hydro One Limited has agreed that the Board of Hydro One and Hydro One Networks will be constituted to have the same members as the Board of Hydro One Limited, unless the Board of Hydro One Limited determines otherwise. The Governance Agreement contains provisions governing the independence of the members of the Board of Hydro One Limited and the ability of the Province to nominate and, in certain circumstances, remove directors, which could indirectly impact the composition of the Board of Hydro One in a manner which may not be aligned with the interests of the other security holders of Hydro One. There is a risk that the Province will nominate or confirm individuals who satisfy the independence requirements but who it considers are disposed to support and advance its policy objectives and give disproportionate weight to the Province’s interests in exercising their business judgment and balancing the interests of the stakeholders of Hydro One Limited. Those same individuals, to the extent they are also on the Board of Hydro One, could similarly give disproportionate weight to the Province’s indirect interest in Hydro One in exercising their business judgment and balancing the interests of the stakeholders of Hydro One.

More Extensive Regulation

Although under the Governance Agreement, the Province has agreed to engage in the business and affairs of Hydro One Limited as an investor and not as a manager and has stated that its intention is to achieve its policy objectives through legislation and regulation as it would with respect to any other utility operating in Ontario, there is a risk that the Province will exercise its legislative and regulatory power to achieve policy objectives in a manner that has a material adverse effect on Hydro One Limited, which in turn could have a material adverse effect on Hydro One. See “Risks Relating to Government Action” above.

Prohibitions on Selling the Company’s Transmission or Distribution Business

The Electricity Act, 1998 (Ontario)prohibits Hydro One Limited from selling all or substantially all of the business, property or assets related to its transmission system or distribution system that is regulated by the OEB. There is a risk that these prohibitions may limit the ability of Hydro One Limited, and in turn, Hydro One, to engage in sale transactions involving a substantial portion of either system, even where such a transaction may otherwise be considered to provide substantial benefits to Hydro One Limited, Hydro One or their security holders.

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The preparation of Hydro One Consolidated Financial Statements requires the Company to make key estimates and critical judgments that affect the reported amounts of assets, liabilities, revenues and costs, and related disclosures of contingencies. Hydro One bases its estimates and judgments on historical experience, current conditions and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities, as well as identifying and assessing the Company’s accounting treatment with respect to commitments and contingencies. Actual results may differ from these estimates and judgments. Hydro One has identified the following critical accounting estimates used in the preparation of its Consolidated Financial Statements:

Revenues

Distribution revenues attributable to the delivery of electricity are based on OEB-approved distribution rates and are recognized on an accrual basis and include billed and unbilled revenues. Billed revenues are based on electricity delivered as measured from customer meters. At the end of each month, electricity delivered to customers since the date of the last billed meter reading is estimated, and the corresponding unbilled revenue is recorded. The unbilled revenue estimate is affected by energy consumption, weather, and changes in the composition of customer classes.

Regulatory Assets and Liabilities

Hydro One’s regulatory assets represent certain amounts receivable from future electricity customers and costs that have been deferred for accounting purposes because it is probable that they will be recovered in future rates. The regulatory assets mainly include amounts related to the deferred income taxes, pension benefit liability, post-retirement and post-employment non-service costs, environmental liabilities, share-based compensation costs and foregone revenue. The Company’s regulatory liabilities represent certain amounts that are refundable to future electricity customers. They pertain primarily to deferral and variance accounts. The regulatory assets and liabilities can be recognized for rate-setting and financial reporting purposes only if the amounts have been approved for inclusion in the electricity rates by the OEB, or if such approval is judged to be probable by management. If, at some future date, management judges that it is no longer probable that the OEB will allow the inclusion of a regulatory asset or liability in future electricity rates, the appropriate carrying amount would be reflected in results of operations prospectively from the date the Company’s assessment is made, unless the change meets the requirements for a subsequent event adjustment.

Environmental Liabilities

Hydro One records a liability for the estimated future expenditures associated with the removal and destruction of polychlorinated biphenyl (PCB)-contaminated insulating oils and related electrical equipment, and for the assessment and remediation of

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HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

chemically contaminated lands. There are uncertainties in estimating future environmental costs due to potential external events such as changes in legislation or regulations and advances in remediation technologies. In determining the amounts to be recorded as environmental liabilities, the Company estimates the current cost of completing required work and makes assumptions as to when the future expenditures will actually be incurred, in order to generate future cash flow information. All factors used in estimating the Company’s environmental liabilities represent management’s best estimates of the present value of costs required to meet existing legislation or regulations. However, it is reasonably possible that numbers or volumes of contaminated assets, cost estimates to perform work, inflation assumptions and the assumed pattern of annual cash flows may differ significantly from the Company’s current assumptions. Environmental liabilities are reviewed annually or more frequently if significant changes in regulations or other relevant factors occur. Estimate changes are accounted for prospectively.

Employee Future Benefits

Hydro One’s employee future benefits consist of pension and post-retirement and post-employment plans, and include pension, group life insurance, health care, and long-term disability benefits provided to the Company’s current and retired employees. Employee future benefits costs are included in Hydro One’s labour costs that are either charged to results of operations or capitalized as part of the cost of property, plant and equipment and intangible assets. Changes in assumptions affect the benefit obligation of the employee future benefits and the amounts that will be charged to results of operations or capitalized in future years. The following significant assumptions and estimates are used to determine employee future benefit costs and obligations:

Weighted Average Discount Rate

The weighted average discount rate used to calculate the employee future benefits obligation is determined at each year end by referring to the most recently available market interest rates based on “AA”-rated corporate bond yields reflecting the duration of the applicable employee future benefit plan. The discount rate at December 31, 2021 increased to 3.00% (from 2.60% at December 31, 2020) for pension benefits and increased to 3.00% (from 2.60% at December 31, 2020) for the post-retirement and post-employment plans. The increase in the discount rate has resulted in a corresponding decrease in employee future benefits liabilities for the pension, post-retirement and post-employment plans for accounting purposes. The liabilities are determined by independent actuaries using the projected benefit method prorated on service and based on assumptions that reflect management’s best estimates.

Expected Rate of Return on Plan Assets

The expected rate of return on pension plan assets of 5.40% (2020 - 5.75%) is based on expectations of long-term rates of return at the beginning of the year and reflects the current pension plan asset mix. A new investment policy was adopted by Hydro One effective May 6, 2021. The expected rate of return for the December 31, 2021 disclosures and the 2022 registered pension plan expense is based on the plan’s ultimate target asset mix.

Rates of return on the respective portfolios are determined with reference to respective published market indices. The expected rate of return on pension plan assets reflects the Company’s long-term expectations. The Company believes that this assumption is reasonable because, with the pension plan’s balanced investment approach, the higher volatility of equity investment returns is intended to be offset by the greater stability of fixed-income and short-term investment returns. The net result, on a long-term basis, is a lower return than might be expected by investing in equities alone. In the short term, the pension plan can experience fluctuations in actual rates of return.

Rate of Cost of Living Increase

The rate of cost of living increase is determined by considering differences between long-term Government of Canada nominal bonds and real return bonds, which increased from 1.40% per annum as at December 31, 2020 to approximately 1.80% per annum as at December 31, 2021. Based on the Bank of Canada’s commitment to keep long-term inflation between 1.00% and 3.00%, in addition to current and anticipated trends, management believes that a long-term assumption of 1.75% per annum is reasonable for employee future benefits liability valuation purposes as at December 31, 2021 (1.75% per annum was used for the purpose of December 31, 2020 disclosures and 2021 benefit cost).

Salary Increase Assumptions

Salary increases should reflect general wage increases plus an allowance for merit and promotional increases for current members of the plan and should be consistent with the assumptions for consumer price inflation and real wage growth in the economy. The merit and promotion scale was developed based on the salary increase assumption review performed in 2017. The review considers actual salary experience from 2002 to 2016 using valuation data for all active members as at December 31, 2016, based on age and service and Hydro One’s expectation of future salary increases. Additionally, the salary scale reflects negotiated salary increases over the contract period as well as slightly lower expected increases in the short term.

Mortality Assumptions

The Company’s employee future benefits liability is also impacted by changes in life expectancies used in mortality assumptions. Increases in life expectancies of plan members result in increases in the employee future benefits liability. For the pension and post-retirement plans, the mortality assumption used at December 31, 2021 is 90% of the 2014 Canadian Pensioners Mortality

28

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

Private Sector table projected generationally using improvement Scale B. The multiplier applied to the assumed mortality table has reduced from 95% at December 31, 2020 to 90% at December 31, 2021 based on the result of a mortality experience study that was conducted in 2021. For the post-employment plan, the mortality assumption used at December 31, 2021 is the disability mortality table from the 2009-2015 Canadian Institute of Actuaries Group Long Term Disability Termination Study, which is the most recent publicly available table that reflects Canadian experience and is commonly used by Canadian plan sponsors.

Rate of Increase in Health Care Cost Trends

The costs of post-retirement and post-employment benefits are determined at the beginning of the year and are based on assumptions for expected claims experience and future health care cost inflation. For the post-retirement benefit plans, a study of Hydro One’s historical per capita health care cost trend experience was conducted in 2017. The health and dental trends reflect the results of this study as well as macroeconomic inputs such as the expected long-term rates of general inflation and real GDP growth. For the post-retirement plans, based on observed dental fee guide increases and recent historical experience, Hydro One has increased its long term dental trend assumption for the purpose of the December 31, 2021 disclosures from 2.75% at December 31, 2020 to 4.00% at December 31, 2021.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

Disclosure controls and procedures are the processes designed to ensure that information is recorded, processed, summarized and reported on a timely basis to the Company’s management, including its CEO and CFO, as appropriate, to make timely decisions regarding required disclosure in the MD&A and consolidated financial statements. At the direction of the Company’s CEO and CFO, management evaluated disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, management concluded that the Company’s disclosure controls and procedures were effective as at December 31, 2021.

Internal control over financial reporting is designed by, or under the direction of the CEO and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with US GAAP. The Company’s internal control over financial reporting framework includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with US GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s consolidated financial statements.

The Company’s management, at the direction of the CEO and CFO, evaluated the effectiveness of the design and operation of internal control over financial reporting based on the criteria established in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, management concluded that the Company’s internal control over financial reporting was effective as at December 31, 2021.

Internal controls, 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. Furthermore, the effectiveness of internal control is affected by change and subject to the risk that internal control effectiveness may change over time.

There were no changes in the design of the Company’s internal control over financial reporting during the three months ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, the operation of the Company’s internal control over financial reporting.

Management will continue to monitor its systems of internal control over reporting and disclosure and may make modifications from time to time as considered necessary.

29

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

NEW ACCOUNTING PRONOUNCEMENTS

The following tables present Accounting Standards Updates (ASUs) issued by the Financial Accounting Standards Board that are applicable to Hydro One:

Recently Adopted Accounting Guidance

Guidance	Date issued	Description	Effective date	Impact on Hydro One
ASU 2018-14	August 2018	Disclosure requirements related to single-employer defined benefit pension or other post-retirement benefit plans are added, removed or clarified to improve the effectiveness of disclosures in financial statement notes.	January 1, 2021	Resulted in the modification of certain disclosures associated with post-retirement and post-employment benefits that were previously included in the annual financial statements.
ASU 2019-12	December 2019	The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles and improving consistent application of Topic 740 by clarifying and amending existing guidance.	January 1, 2021	No impact upon adoption
ASU 2020-01	January 2020	The amendments clarify the interaction of the accounting for equity securities under Topic 321, investments under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815.	January 1, 2021	No impact upon adoption
ASU 2020-10	October 2020	The amendments are intended to improve the Codification by ensuring the guidance required for an entity to disclose information in the notes of financial statements are codified in the disclosure sections to reduce the likelihood of disclosure requirements being missed.	January 1, 2021	No impact upon adoption

Recently Issued Accounting Guidance Not Yet Adopted

Guidance	Date issued	Description	Effective date	Anticipated Impact on Hydro One
ASU 2020-06	August 2020	The update addresses the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. The amendments reduce the number of accounting models for convertible debt instruments and convertible preferred stock.	January 1 2022	No impact upon adoption
ASU 2021-05	July 2021	The amendments are intended to align lease classification requirements for lessors under Topic 842 with Topic 840's practice.	January 1, 2022	No impact upon adoption
ASU 2021-08	October 2021	The amendments address how to determine whether a contract liability is recognized by the acquirer in a business combination.	January 1, 2023	Under assessment
ASU 2021-10	November 2021	The update addresses the diversity on the recognition, measurement, presentation and disclosure of government assistance received by business entities.	January 1, 2022	Under assessment

30

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

SUMMARY OF FOURTH QUARTER RESULTS OF OPERATIONS

Three months ended December 31 (millions of dollars, except EPS)	2021	2020	Change
Revenues
Distribution	1,347	1,457	(7.5	%)
Transmission	421	400	5.3	%
	1,768	1,857	(4.8	%)
Costs
Purchased power	914	1,046	(12.6	%)
OM&A
Distribution	163	186	(12.4	%)
Transmission	107	77	39.0	%
Other	3	(1)	400.0	%
	273	262	4.2	%
Depreciation, amortization and asset removal costs	244	237	3.0	%
	1,431	1,545	(7.4	%)
Income before financing charges and income tax expense	337	312	8.0	%
Financing charges	122	117	4.3	%
Income before income tax expense	215	195	10.3	%
Income tax expense	54	29	86.2	%
Net income	161	166	(3.0	%)
Net income to common shareholder of Hydro One	159	164	(3.0	%)
Basic and Diluted EPS	$1,118	$1,153	(3.0	%)
Assets Placed In-Service
Distribution	257	308	(16.6	%)
Transmission	526	565	(6.9	%)
	783	873	(10.3	%)
Capital Investments
Distribution	218	210	3.8	%
Transmission	303	361	(16.1	%)
	521	571	(8.8	%)

Net Income

Net income attributable to common shareholder for the quarter ended December 31, 2021 of $159 million is a decrease of $5 million, or 3.0%, from the prior year. Significant influences on net income included:

•higher revenues, net of purchased power,7 primarily resulting from:

•an increase in transmission revenues primarily resulting from DTA Recovery Amounts pursuant to the DTA Implementation Decision and OEB-approved 2021 rates, partially offset by higher regulatory adjustments; and

•an increase in distribution revenues, net of purchased power, primarily resulting from 2021 OEB-approved rates and DTA Recovery Amounts pursuant to the DTA Implementation Decision, partially offset by higher regulatory adjustments.

•higher OM&A costs primarily resulting from:

•higher project write-offs; and

•lower insurance proceeds received in the current year; and

•higher corporate support costs; partially offset by

•lower bad debt expense.

•higher depreciation, amortization and asset removal costs primarily attributable togrowth in capital assets as the Company continues to place new assets in-service, consistent with its ongoing capital investment program.

7Revenues, net of purchased power is a non-GAAP financial measure. See section "Non-GAAP Financial Measures".

31

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

•higher income tax expense primarily attributable to the following:

•net tax expense relating to the DTA Recovery Amounts pursuant to the DTA Implementation Decision which is offset by a corresponding increase in revenue and is net income neutral; and

•higher pre-tax earnings.

Included in the Company's results for the quarter ended December 31, 2021 are costs incurred as a result of the COVID-19 pandemic. Total OM&A costs in the quarter of $4 million (2020 - $18 million),are primarily attributable to purchases of additional facility-related cleaning supplies and personal protective equipment.For additional disclosure related to the impact of COVID-19 on the Company's operations, please see section "Other Developments - COVID-19".

Revenues

The year-over-year increase of $21 million or 5.3% in quarterly transmission revenues was primarily due to the following:

•higher revenues resulting from the DTA Recovery Amounts pursuant to the DTA Implementation Decision; and

•OEB-approved 2021 rates; partially offset by

•higher regulatory adjustments, including those related to external revenues.

The year-over-year increase of $22 million or 5.4% in quarterly distribution revenues, net of purchased power8, was primarily due to the following:

•OEB-approved 2021 rates;

•higher revenues resulting from the DTA Recovery Amounts pursuant to the DTA Implementation Decision; and

•higher revenues year-over-year following the temporary suspension of late payment charges in the prior year, which were accompanied by the Company's efforts to help customers access relief programs, including flexible payment options; partially offset by

•higher regulatory adjustments mainly related to the Earnings Sharing Mechanism.

OM&A Costs

The year-over-year increase of $30 million or 39.0% in quarterly transmission OM&A costs was primarily due to the following:

•higher project write-offs;

•lower insurance proceeds received in 2021;

•higher corporate support costs; and

•higher volume of work on vegetation management.

The year-over-year decrease of $23 million or 12.4% in distribution OM&A costs during the quarter was primarily due to lower bad debt expenses andlower costs within the Peterborough Distribution and Orillia Power operations.

Depreciation, Amortization and Asset Removal Costs

The increase of $7 million or 3.0% in depreciation, amortization and asset removal costs in the fourth quarter of 2021 was primarily due to growth in capital assets as the Company continues to place new assets in-service, consistent with its ongoing capital investment program.

Financing Charges

The $5 million or 4.3% increase in financing charges for the quarter ended December 31, 2021, was primarily due to higher debt levels.

Income Taxes

Income tax expense for the fourth quarter of 2021 increased by $25 million compared to the same period in 2020. This resulted in a realized ETR of approximately 25.1% in the fourth quarter of 2021, compared to approximately 14.9% in the fourth quarter of the prior year.

The increase in income tax expense for the three months ended December 31, 2021 was primarily attributable to:

•tax expense relating to the DTA Recovery Amounts pursuant to the OEB’s DTA Implementation Decision which is offset by a corresponding increase in revenues and is net income neutral; and

•higher pre-tax earnings.

Assets Placed In-Service

The decrease in transmission assets placed in-service during the fourth quarter was primarily due to the following:

8Revenues, net of purchased power is a non-GAAP financial measure. See section "Non-GAAP Financial Measures".

32

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

•lower volume of assets placed in-service for overhead lines and component replacements and IT projects; and

•timing of assets placed in-service including Sheppard transmission station, Leaside transmission station,Gage transmission station, andChenaux transmission station, partially offset by the East-West Tie Connection,Stanley transmission station, andthe new shunter reactors at Lennox transmission station; partially offset by

•higher volume of work required to adhere to the NERC Critical Infrastructure Protection standards placed in service.

The decrease in distribution assets placed in-service during the fourth quarter was primarily due to the following:

•lower volume of IT projects; and

•completion of the Woodstock Operation Centre in the fourth quarter of 2020; partially offset by

•higher volume of work on storm-related asset replacements.

Capital Investments

The decrease in transmission capital investments during the fourth quarter was primarily due to the following:

•lower volume of station refurbishments and replacements;

•investment in the new Ontario grid control centre in the City of Orillia which was substantially completed in the third quarter of 2021;

•lower spend on facility sustainment investment;

•lower spend on work required to adhere to the NERC Critical Infrastructure Protection standards; and

•lower spend on investments in multi-year development projects.

The increase in distribution capital investments during the fourth quarter was primarily due to the following:

•higher investments in system capability reinforcement projects;

•higher volume of work on customer connections; and

•higher volume of storm-related asset replacements; partially offset by

•investment in the new Ontario grid control centre in the City of Orillia which was substantially completed in the third quarter of 2021;

•lower spend on IT projects;

•lower spend on minor fixed assets purchases; and

•completion of the Woodstock Operation Centre in the last quarter of 2020.

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, the industry, regulatory and economic environments in which it operates, and includes 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 the JRAP and its proposed investment plan, resulting and related decisions including the DTA Implementation Decision, as well as resulting rates, recovery and expected impacts and timing; expectations about the Company’s liquidity and capital resources and operational requirements, including as result of COVID-19; the Operating Credit Facilities; expectations regarding the Company’s financing activities; the Company’s maturing debt; the Company’s ongoing and planned projects, initiatives and expected capital investments, including expected results, costs and in-service and completion dates; the Company's response to the COVID-19 pandemic, including in relation to customer relief measures and safety; the potential impact of COVID-19, including its variants, on the Company’s business and operations, and potential future actions that the Company may take in response to the COVID-19 pandemic and its anticipated impacts; contractual obligations and other commercial commitments; the expected timing for the filing of actuarial valuations with the Financial Services Regulatory Authority of Ontario; collective agreements, including the renewal and expiry thereof; Bill 257, related regulations and the expected timing and impacts; future pension contributions; non-GAAP financial measures; risks relating to infectious disease outbreak; internal controls over financial reporting and disclosure; recent accounting-related guidance; and the MTN Program. Words such as “expect”, “anticipate”, “intend”, “attempt”, “may”, “plan”, “will”, “would”, “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: the scope of the COVID-19 pandemic and duration thereof as well as the effect and severity of corporate and other mitigation measures on the Company’s operations, supply chain or employees; no unforeseen changes in the legislative and operating framework for Ontario’s electricity market or for Hydro One specifically; 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;

33

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

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; no significant changes to the Company's current credit ratings; no unforeseen impacts of new accounting pronouncements; no changes to expectations regarding electricity consumption; no unforeseen changes to economic and market conditions; recoverability of costs and expenses related to the COVID-19 pandemic, including the costs of customer defaults resulting from the pandemic; completion of operating and capital projects that have been deferred; 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:

•a significant expansion in length or severity of the COVID-19 pandemic, including the spread of its variants, restricting or prohibiting the Company’s operations or significantly impacting the Company’s supply chain or workforce;

•severity of mitigation measures related to the COVID-19 pandemic;

•delays in completion of and increases in costs of operating and capital projects;

•regulatory risks and risks relating to Hydro One’s revenues, including risks relating to rate orders and the rate-setting models for transmission and distribution, actual performance against forecasts and capital expenditures, competition with other transmitters and other applications to the OEB, the recoverability of total compensation costs or denials of applications;

•risks associated with the Province’s share ownership of Hydro One's parent corporation and other relationships with the Province, including potential conflicts of interest that may arise between Hydro One, the Province and related parties, risks associated with the Province’s exercise of further legislative and regulatory powers in the implementation of the Hydro One Accountability Act, risks relating to the ability of the Company to attract and retain qualified executive talent or the risk of a credit rating downgrade and its impact on the Company’s funding and liquidity;

•risks relating to the location of the Company’s assets on reserve (as defined in the Indian Act (Canada)) (Reserve) lands and the risk that Hydro One may incur significant costs associated with transferring assets located on Reserves;

•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;

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

•the risk of non-compliance with environmental regulations and inability to recover environmental expenditures in rate applications and the risk that assumptions that form the basis of the Company’s recorded environmental liabilities and related regulatory assets may change;

•risks associated with information system security and maintaining complex information technology (IT) and operational technology (OT) system infrastructure, including system failures or risks of cyber-attacks or unauthorized access to corporate IT and OT systems;

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

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

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

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

•risks associated with economic uncertainty and financial market volatility;

•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 or the risk of increased competition for the development of large transmission projects or legislative changes affecting the selection of transmitters;

•risks associated with asset condition, capital projects and innovation, including public opposition to or delays or denials of the requisite approvals and accommodations for the Company’s planned projects;

•the risk of failure to mitigate significant health and safety risks;

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

•the risk associated with legal proceedings that could be costly, time-consuming or divert the attention of management and key personnel from the Company’s business operations;

•the impact if the Company does not have valid occupational rights on third-party owned or controlled lands and the risks associated with occupational rights of the Company that may be subject to expiry;

•risks relating to adverse reputational events or political actions;

•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;

34

HYDRO ONE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

For the years ended December 31, 2021 and 2020

•risks relating to acquisitions, including the failure to realize anticipated benefits of such transaction at all, or within the time periods anticipated, and unexpected costs incurred in relation thereto;

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

•the risk related to the impact of any new accounting pronouncements.

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 entitled “Risk Management and Risk Factors” in this 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, the US Securities and Exchange Commission’s EDGAR website at www.sec.gov/edgar.shtml, and the Company’s website at www.HydroOne.com/Investors.

35

EX-99.4

Exhibit 99.4

KPMG LLP is a Canadian limited liability partnership and a
member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services
to KPMG LLP.

EX-99.5

Exhibit 99.5

CERTIFICATION

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Mark Poweska, President and Chief Executive Officer, Hydro One Inc., certify that:

1.I have reviewed this annual report on Form 40-F of Hydro One Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

4.The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

5.The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.

Date: February 25, 2022	/s/ Mark Poweska
	Mark Poweska
	President and Chief Executive Officer

EX-99.6

Exhibit 99.6

CERTIFICATION

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Christopher Lopez, Chief Financial Officer, Hydro One Inc., certify that:

1.I have reviewed this annual report on Form 40-F of Hydro One Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

4.The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

5.The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.

Date: February 25, 2022	/s/ Christopher Lopez
	Christopher Lopez
	Chief Financial Officer

EX-99.7

Exhibit 99.7

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Hydro One Inc. (the “Company”) on Form 40-F for the year ended December 31, 2021 (the “Report”) as filed with the U.S. Securities and Exchange Commission,

I, Mark Poweska, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

i.The Report fully complies with the requirements of Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934; and

ii.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 25, 2022	/s/ Mark Poweska
	Mark Poweska
	President and Chief Executive Officer

EX-99.8

Exhibit 99.8

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Hydro One Inc. (the “Company”) on Form 40-F for the year ended December 31, 2021 (the “Report”) as filed with the U.S. Securities and Exchange Commission,

I, Christopher Lopez, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

i.The Report fully complies with the requirements of Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934; and

ii.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 25, 2022	/s/ Christopher Lopez
	Christopher Lopez
	Chief Financial Officer

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Document Period End Date	Dec. 31, 2021
Current Fiscal Year End Date	--12-31
Entity File Number	001-36115
Entity Registrant Name	Hydro One Inc.
Entity Incorporation, State or Country Code	A6
Entity Primary SIC Number	4911
Entity Address, Address Line One	483 Bay Street
Entity Address, Address Line Two	South Tower, 8th Floor
Entity Address, City or Town	Toronto
Entity Address, State or Province	ON
Entity Address, Postal Zip Code	M5G 2P5
Entity Address, Country	CA
City Area Code	416
Local Phone Number	345-5000
Title of 12(b) Security	Medium Term Notes
Security Exchange Name	NYSE
Trading Symbol	HYDO43
Annual Information Form	true
Audited Annual Financial Statements	true
Entity Common Stock, Shares Outstanding	142,239
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Emerging Growth Company	false
ICFR Auditor Attestation Flag	false
Entity Central Index Key	0001114445
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	FY
Amendment Flag	false
Business Contact
Document Information [Line Items]
Entity Address, Address Line One	28 Liberty St.
Entity Address, City or Town	New York
Entity Address, State or Province	NY
Entity Address, Postal Zip Code	10005
City Area Code	212
Local Phone Number	894-8940
Contact Personnel Name	CT Corporation System

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Audit Information	12 Months Ended
	Dec. 31, 2021
Audit Information [Abstract]
Auditor Name	Chartered Professional Accountants, Licensed Public Accountants
Auditor Location	Toronto, Canada
Auditor Firm ID	85

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Consolidated Statements of Operations and Comprehensive Income - CAD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Revenues
Revenues	$ 7,185	$ 7,250
Costs
Purchased power (includes $2,252 related party costs; 2020 - $2,513) (Note 29)	3,579	3,854
Operation, maintenance and administration (Note 29)	1,081	1,034
Depreciation, amortization and asset removal costs (Note 5)	913	876
Total costs	5,573	5,764
Income before financing charges and income tax expense	1,612	1,486
Financing charges (Note 6)	453	469
Income before income tax expense	1,159	1,017
Income tax expense (recovery) (Note 7)	179	(783)
Net income	980	1,800
Other comprehensive income (loss) (Note 8)	16	(24)
Comprehensive income	996	1,776
Net income attributable to:
Noncontrolling interest (Note 28)	8	8
Common shareholder	972	1,792
Net income (loss)	980	1,800
Comprehensive income attributable to:
Noncontrolling interest (Note 28)	8	8
Common shareholder	$ 988	$ 1,768
Earnings per common share (Note 26)
Basic (in dollars per share)	$ 6,834	$ 12,599
Diluted (in dollars per share)	$ 6,834	$ 12,599
Distribution [Member]
Revenues
Revenues	$ 5,359	$ 5,507
Transmission [Member]
Revenues
Revenues	$ 1,826	$ 1,743

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Consolidated Statements of Operations and Comprehensive Income (Parenthetical) - CAD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Revenues	$ 7,185	$ 7,250
Purchased power	3,579	3,854
Related Party [Member]
Purchased power	2,252	2,513
Distribution [Member]
Revenues	5,359	5,507
Distribution [Member] | Related Party [Member]
Revenues	286	283
Transmission [Member]
Revenues	1,826	1,743
Transmission [Member] | Related Party [Member]
Revenues	$ 1,835	$ 1,721

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Consolidated Balance Sheets - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020
Current assets:
Cash and cash equivalents	$ 499	$ 712
Accounts receivable (Note 9)	697	719
Due from related parties (Note 29)	399	422
Other current assets (Note 10)	301	181
Total current assets	1,896	2,034
Property, plant and equipment (Note 11)	23,748	22,548
Other long-term assets:
Regulatory assets (Note 13)	3,561	4,571
Deferred income tax assets (Note 7)	10	16
Intangible assets (Note 12)	567	512
Goodwill (Note 4)	373	373
Other assets (Note 14)	66	79
Total other long-term assets	4,577	5,551
Total assets	30,221	30,133
Current liabilities:
Short-term notes payable (Note 17)	1,045	800
Long-term debt payable within one year (includes $nil measured at fair value; 2020 - $303) (Notes 17, 18)	603	806
Accounts payable and other current liabilities (Note 15)	1,042	1,026
Due to related parties (Note 29)	255	328
Total current liabilities	2,945	2,960
Long-term liabilities:
Long-term debt (Notes 17, 18)	12,593	12,302
Regulatory liabilities (Note 13)	362	231
Deferred income tax liabilities (Note 7)	367	56
Other long-term liabilities (Note 16)	2,694	3,686
Total long-term liabilities	16,016	16,275
Total liabilities	18,961	19,235
Contingencies and Commitments (Notes 31, 32)
Subsequent Events (Note 34)
Noncontrolling interest subject to redemption (Note 28)	20	22
Equity
Common shares (Note 24)	2,957	2,957
Retained earnings	8,229	7,877
Accumulated other comprehensive loss	(14)	(30)
Hydro One shareholder’s equity	11,172	10,804
Noncontrolling interest (Note 28)	68	72
Total equity	11,240	10,876
Total liabilities, preferred shares, noncontrolling interest subject to redemption and equity	$ 30,221	$ 30,133

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Consolidated Balance Sheets (Parenthetical) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020
Current liabilities:
Long-term debt payable within one year measured at fair value	$ 0	$ 303

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Consolidated Statements of Changes in Equity - CAD ($) $ in Millions	Total	Hydro One [Member]	Common Stock [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Loss [Member]	Non-controlling Interest [Member]
Beginning balance at Dec. 31, 2019	$ 9,703	$ 9,644	$ 3,564	$ 6,086	$ (6)	$ 59
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	1,798	1,792		1,792		6
Other comprehensive income (loss) (Note 8)	(24)	(24)			(24)
Distributions to noncontrolling interest	(2)					(2)
Contributions from sale of noncontrolling interest (Note 4)	9					9
Dividends on common shares	(1)	(1)		(1)
Return of stated capital (Note 24)	(607)	(607)	(607)
Ending balance at Dec. 31, 2020	10,876	10,804	2,957	7,877	(30)	72
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	978	972		972		6
Other comprehensive income (loss) (Note 8)	16	16			16
Distributions to noncontrolling interest	(10)					(10)
Dividends on common shares	(620)	(620)		(620)
Ending balance at Dec. 31, 2021	$ 11,240	$ 11,172	$ 2,957	$ 8,229	$ (14)	$ 68

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Consolidated Statements of Cash Flows - CAD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Operating activities
Net income	$ 980	$ 1,800
Environmental expenditures	(30)	(23)
Adjustments for non-cash items:
Depreciation and amortization (Note 5)	806	775
Regulatory assets and liabilities	70	68
Deferred income tax expense (recovery)	155	(821)
Other	58	39
Changes in non-cash balances related to operations (Note 30)	69	159
Net cash from operating activities	2,108	1,997
Financing activities
Long-term debt issued	900	2,300
Long-term debt repaid	(804)	(653)
Short-term notes issued	4,150	4,070
Short-term notes repaid	(3,905)	(4,413)
Short-term debt repaid (Note 4)	0	(20)
Return of stated capital	0	(607)
Dividends paid	(620)	(1)
Distributions paid to noncontrolling interest	(8)	(2)
Contributions received from sale of noncontrolling interest (Note 4)	0	9
Costs to obtain financing	(7)	(12)
Net cash from (used in) financing activities	(294)	671
Investing activities
Property, plant and equipment	(1,908)	(1,709)
Intangible assets	(142)	(126)
Capital contributions received (Note 30)	14	0
Acquisitions (Note 4)	0	(126)
Other	9	(2)
Net cash used in investing activities	(2,027)	(1,963)
Net change in cash and cash equivalents	(213)	705
Cash and cash equivalents, beginning of year	712	7
Cash and cash equivalents, end of year	$ 499	$ 712

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Description of the Business

12 Months Ended

Dec. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Description of the Business

DESCRIPTION OF THE BUSINESS

Hydro One Inc. (Hydro One or the Company) was incorporated on December 1, 1998, under the Business Corporations Act (Ontario) and is wholly-owned by Hydro One Limited. The principal businesses of Hydro One are the transmission and distribution of electricity to customers within Ontario.

Rate Setting

The Company's transmission business consists of the transmission system operated by its subsidiaries, Hydro One Networks Inc. (Hydro One Networks) and Hydro One Sault Ste. Marie LP (HOSSM), as well as an approximately 66% interest in B2M Limited Partnership (B2M LP), a limited partnership between Hydro One and the Saugeen Ojibway Nation (SON), and an approximately 55% interest in Niagara Reinforcement Limited Partnership (NRLP), a limited partnership between Hydro One and Six Nations of the Grand River Development Corporation and the Mississaugas of the Credit First Nation (collectively, the First Nations Partners).

Hydro One’s distribution business consists of the distribution system operated by its subsidiaries, Hydro One Networks, inclusive of the distribution system of Orillia Power Distribution Corporation (Orillia Power) and the business and distribution assets of Peterborough Distribution Inc., (Peterborough Distribution) and Hydro One Remote Communities Inc. (Hydro One Remote Communities).

Transmission

On March 7, 2019, the Ontario Energy Board (OEB) issued its reconsideration decision (DTA Decision) with respect to Hydro One's rate-setting treatment of the benefits of the deferred tax asset (DTA) resulting from the transition from the payments in lieu of tax regime to tax payments under the federal and provincial tax regimes. On July 16, 2020, the Ontario Divisional Court rendered its decision (ODC Decision) on the Company's appeal of the OEB's DTA Decision. On April 8, 2021, the OEB rendered its decision and order regarding the recovery of the DTA amounts allocated to ratepayers for the 2017 to 2022 period (DTA Implementation Decision). See Note 13 - Regulatory Assets and Liabilities for additional details.

On April 23, 2020, the OEB rendered its decision on Hydro One Networks' 2020-2022 transmission rate application (2020-2022 Transmission Decision). On July 16, 2020, the OEB issued its final rate order for the 2020-2022 transmission rates approving a revenue requirement of $1,630 million, $1,701 million and $1,772 million for 2020, 2021 and 2022, respectively. On July 30, 2020, the OEB issued its decision for Uniform Transmission Rates (UTRs). The 2020 UTRs that were put in place on an interim basis on January 1, 2020 continued for the remainder of 2020 in light of the COVID-19 pandemic. On December 17, 2020, the OEB issued its decision and order setting the final 2021 UTRs effective January 1, 2021, which included the approval of a two-year disposition period for Hydro One Network's 2020 foregone revenue including interest, beginning on January 1, 2021.

On July 31, 2019, B2M LP filed a transmission rate application for 2020-2024. On January 16, 2020, the OEB approved the 2020 base revenue requirement of $33 million, and a revenue cap escalator index for 2021 to 2024.

On October 25, 2019, NRLP filed its revenue cap incentive rate application for 2020-2024. On December 19, 2019, the OEB approved NRLP’s proposed 2020 revenue requirement of $9 million on an interim basis effective January 1, 2020. On April 9, 2020, final OEB approval was received.

HOSSM is under a 10-year deferred rebasing period for years 2017-2026, as approved in the OEB Mergers Acquisitions Amalgamations and Divestitures (MAAD) decision dated October 13, 2016.

Distribution

In March 2017, Hydro One Networks filed an application with the OEB for 2018-2022 distribution rates. On March 7, 2019, the OEB rendered its decision on the distribution rates application. In accordance with the OEB decision, the Company filed its draft rate order reflecting updated revenue requirements of $1,459 million for 2018, $1,498 million for 2019, $1,532 million for 2020, $1,578 million for 2021, and $1,624 million for 2022. On June 11, 2019, the OEB approved the rate order confirming these updated revenue requirements.

On April 16, 2020, the OEB approved a 2% increase to Hydro One Remote Communities' 2019 base rates for new rates effective May 1, 2020, with a deferred implementation date of November 1, 2020 due to COVID-19. On October 8, 2020, the OEB authorized Hydro One Remote Communities to implement a rate rider for the recovery of foregone revenues resulting from postponing rate implementation, effective until April 30, 2021. On November 3, 2020, Hydro One Remote Communities filed an application with the OEB seeking approval for a 2% increase to 2020 base rates, effective May 1, 2021, which was subsequently updated to 2.2% in accordance with the OEB’s 2021 inflation parameters for electricity distributors issued on November 9, 2020. On March 25, 2021, the OEB approved Hydro One Remote Communities’ application for rates and other charges to be effective May 1, 2021.

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Significant Accounting Policies

12 Months Ended

Dec. 31, 2021

Accounting Policies [Abstract]

Significant Accounting Policies

SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation and Presentation

These Consolidated Financial Statements (Consolidated Financial Statements) include the accounts of the Company and its subsidiaries. Inter-company transactions and balances have been eliminated.

Basis of Accounting

These Consolidated Financial Statements are prepared and presented in accordance with United States (US) Generally Accepted Accounting Principles (GAAP) and in Canadian dollars.

Use of Management Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, gains and losses during the reporting periods. Management evaluates these estimates on an ongoing basis based upon historical experience, current conditions, and assumptions believed to be reasonable at the time the assumptions are made, with any adjustments being recognized in results of operations in the period they arise. Significant estimates relate to regulatory assets and regulatory liabilities, environmental liabilities, pension benefits, post-retirement and post-employment benefits, and unbilled revenues. Actual results may differ significantly from these estimates.

Since late March 2020, the impact of the COVID-19 pandemic (COVID-19 or the pandemic) has been reflected in the Consolidated Financial Statements. The Company has analyzed the impact of the pandemic on its estimates and assumptions that affect its financial results as at and for the year ended December 31, 2021 and has determined that there was no material impact. Additional details regarding the impact of the pandemic on the Consolidated Financial Statements are available in Note 9 - Accounts Receivable and Note 13 - Regulatory Assets and Liabilities.

As the duration of the pandemic remains uncertain, the Company continues to assess its impact to the Company’s financial results and operations.

Regulatory Accounting

The OEB has the general power to include or exclude revenues, costs, gains or losses in the rates of a specific period, resulting in a change in the timing of accounting recognition from that which would have been applied in an unregulated company. Such change in timing involves the application of rate-regulated accounting, giving rise to the recognition of regulatory assets and liabilities. The Company’s regulatory assets represent certain amounts receivable from future electricity customers and costs that have been deferred for accounting purposes because it is probable that they will be recovered in future rates. In addition, the Company has recorded regulatory liabilities that generally represent amounts that are refundable to electricity customers in future rates. The Company continually assesses the likelihood of recovery of each of its regulatory assets and continues to believe that it is probable that the OEB will include its regulatory assets and liabilities in setting future rates. If, at some future date, the Company judges that it is no longer probable that the OEB will include a regulatory asset or liability in setting future rates, the appropriate carrying amount would be reflected in results of operations prospectively from the date the Company’s assessment is made, unless the change meets the requirements for a subsequent event adjustment.

Cash and Cash Equivalents

Cash and cash equivalents include cash and short-term investments with an original maturity of three months or less.

Revenue Recognition

Transmission revenues predominantly consist of transmission tariffs, which are collected through OEB-approved UTRs which are applied against the monthly peak demand for electricity across Hydro One's high-voltage network. OEB-approved UTRs are based on an approved revenue requirement that includes a rate of return. The transmission tariffs are designed to recover revenues necessary to support the Company's transmission system with sufficient capacity to accommodate the maximum expected demand which is influenced by weather and economic conditions. Transmission revenues are recognized as electricity is transmitted and delivered to customers.

Distribution revenues attributable to the delivery of electricity are based on OEB-approved distribution rates and are recognized on an accrual basis and include billed and unbilled revenues. Billed revenues are based on electricity delivered as measured from customer meters. At the end of each month, electricity delivered to customers since the date of the last billed meter reading is estimated, and the corresponding unbilled revenue is recorded. The unbilled revenue estimate is affected by energy consumption, weather, and changes in the composition of customer classes.

Revenues also include amounts related to sales of other services and equipment. Such revenue is recognized as services are rendered or as equipment is delivered. Revenues are recorded net of indirect taxes.

Accounts Receivable and Allowance for Doubtful Accounts

Billed accounts receivable are recorded at the invoiced amount, net of allowance for doubtful accounts. Unbilled accounts receivable are recorded at their estimated value, net of allowance for doubtful accounts. Overdue amounts related to regulated billings bear interest at OEB-approved rates. The allowance for doubtful accounts reflects the Company’s current lifetime expected credit losses (CECL) for all accounts receivable balances. The Company estimates the CECL by applying internally developed loss rates to all outstanding receivable balances by aging category. Loss rates applied to the accounts receivable balances are based on historical overdue balances, customer payments and write-offs, which may be further supplemented from time to time to reflect management's best estimate of the loss. Accounts receivable are written-off against the allowance when they are deemed uncollectible. The allowance for doubtful accounts is affected by changes in volume, prices and economic conditions.

Noncontrolling interest

Noncontrolling interest represents the portion of equity ownership in subsidiaries that is not attributable to shareholders of Hydro One. Noncontrolling interest is initially recorded at fair value and subsequently the amount is adjusted for the proportionate share of net income and other comprehensive income (OCI) or other comprehensive loss (OCL) attributable to the noncontrolling interest and any dividends or distributions paid to the noncontrolling interest.

If a transaction results in the acquisition of all, or part, of a noncontrolling interest in a subsidiary, the acquisition of the noncontrolling interest is accounted for as an equity transaction. No gain or loss is recognized in consolidated net income or comprehensive income as a result of changes in the noncontrolling interest, unless a change results in the loss of control by the Company.

Income Taxes

Income taxes are accounted for using the asset and liability method. Current tax assets and liabilities are recognized based on the taxes payable or refundable on the current and prior year’s taxable income. Current and deferred income taxes are computed based on the tax rates and tax laws enacted as at the balance sheet date. Tax benefits associated with income tax positions are recorded only when the more-likely-than-not recognition threshold is satisfied and are measured at the largest amount of benefit that has a greater than 50% likelihood of being realized upon settlement. Management evaluates each position based solely on the technical merits and facts and circumstances of the position, assuming the position will be examined by a taxing authority having full knowledge of all relevant information. Significant management judgment is required to determine recognition thresholds and the related amount of tax benefits to be recognized in the Consolidated Financial Statements. Management re-evaluates tax positions each period using new information about recognition or measurement as it becomes available.

Deferred Income Taxes

Deferred income tax assets and liabilities are recognized on all temporary differences between the tax bases and carrying amounts of assets and liabilities, including the carry forward unused tax credits and tax losses to the extent that it is more-likely-than-not that these deductions, credits, and losses can be utilized. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized, based on the tax rates and tax laws that have been enacted as at the balance sheet date.

Deferred income taxes associated with its regulated operations which are considered to be more-likely-than-not to be recoverable or refunded in the future regulated rates charged to customers are recognized as deferred income tax regulatory assets and liabilities with an offset to deferred income tax expense.

Investment tax credits are recorded as a reduction of the related expenses or income tax expense in the current or future period to the extent it is more likely than not that the credits can be utilized.

Management reassesses the deferred income tax assets at each balance sheet date and reduces the amount to the extent that it is more likely than not that the deferred income tax asset will not be realized. Previously unrecognized deferred income tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become more likely than not that the tax benefit will be realized.

Materials and Supplies

Materials and supplies represent consumables, small spare parts and construction materials held for internal construction and maintenance of property, plant and equipment. These assets are carried at average cost less any impairments recorded.

Property, Plant and Equipment

Property, plant and equipment is recorded at original cost, net of customer contributions, and any accumulated impairment losses. The cost of additions, including betterments and replacement asset components, is included on the consolidated balance sheets as property, plant and equipment.

The original cost of property, plant and equipment includes direct materials, direct labour (including employee benefits), contracted services, attributable capitalized financing costs, asset retirement costs, and direct and indirect overheads that are

related to the capital project or program. Indirect overheads include a portion of corporate costs such as finance, treasury, human resources, and information technology (IT). Overhead costs, including corporate functions and field services costs, are capitalized on a fully allocated basis, consistent with an OEB-approved methodology.

Property, plant and equipment in service consists of transmission, distribution, communication, administration and service assets and land easements. Property, plant and equipment also includes future use assets, such as land, major components and spare parts, and capitalized project development costs associated with deferred capital projects.

Transmission

Transmission assets include assets used for the transmission of high-voltage electricity, such as transmission lines, support structures, foundations, insulators, connecting hardware and grounding systems, and assets used to step up the voltage of electricity from generating stations for transmission and to step down voltages for distribution, including transformers, circuit breakers and switches.

Distribution

Distribution assets include assets related to the distribution of low-voltage electricity, including lines, poles, switches, transformers, protective devices and metering systems.

Communication

Communication assets include fibre optic and microwave radio systems, optical ground wire, towers, telephone equipment and associated buildings.

Administration and Service

Administration and service assets include administrative buildings, personal computers, transport and work equipment, tools and other minor assets.

Easements

Easements include statutory rights of use for transmission corridors and abutting lands granted under the Reliable Energy and Consumer Protection Act, 2002, as well as other land access rights.

Intangible Assets

Intangible assets separately acquired or internally developed are measured on initial recognition at cost, which comprises purchased software, direct labour (including employee benefits), consulting, engineering, overheads and attributable capitalized financing charges. Following initial recognition, intangible assets are carried at cost, net of any accumulated amortization and accumulated impairment losses. The Company’s intangible assets primarily represent major computer applications.

Capitalized Financing Costs

Capitalized financing costs represent interest costs attributable to the construction of property, plant and equipment or development of intangible assets. The financing cost of attributable borrowed funds is capitalized as part of the acquisition cost of such assets. The capitalized financing costs are a reduction of financing charges recognized in the consolidated statements of operations and comprehensive income. Capitalized financing costs are calculated using the Company’s weighted average effective cost of debt.

Construction and Development in Progress

Construction and development in progress consists of the capitalized cost of constructed assets that are not yet complete and which have not yet been placed in service.

Depreciation and Amortization

The cost of property, plant and equipment and intangible assets is depreciated or amortized on a straight-line basis based on the estimated remaining service life of each asset category, except for transport and work equipment, which is depreciated on a declining balance basis.

The Company periodically initiates an external independent review of its property, plant and equipment and intangible asset depreciation and amortization rates, as required by the OEB. Any changes arising from OEB approval of such a review are implemented on a remaining service life basis, consistent with their inclusion in electricity rates. The most recent reviews resulted in changes to rates effective January 1, 2015 and January 1, 2020 for Hydro One Networks’ distribution and transmission businesses, respectively. A summary of average service lives and depreciation and amortization rates for the various classes of assets is included below:

	Average	Rate
	Service Life	Range	Average
Property, plant and equipment:
Transmission	55 years	1% - 3%	2	%
Distribution	47 years	1% - 7%	2	%
Communication	16 years	1% - 15%	4	%
Administration and service	24 years	1% - 20%	4	%
Intangible assets	10 years	10%	7	%

In accordance with group depreciation practices, the original cost of property, plant and equipment, or major components thereof, and intangible assets that are normally retired, is charged to accumulated depreciation, with no gain or loss being reflected in results of operations. Where a disposition of property, plant and equipment occurs through sale, a gain or loss is calculated based on proceeds and such gain or loss is included in depreciation expense.

Acquisitions and Goodwill

The Company accounts for business acquisitions using the acquisition method of accounting and, accordingly, the assets and liabilities of the acquired entities are primarily measured at their estimated fair value at the date of acquisition. Costs associated with pending acquisitions are expensed as incurred. Goodwill represents the cost of acquired companies that is in excess of the fair value of the net identifiable assets acquired at the acquisition date. Goodwill is not included in rate base.

Goodwill is evaluated for impairment on an annual basis, or more frequently if circumstances require. The Company performs a qualitative assessment to determine whether it is more likely than not that the fair value of the applicable reporting unit is less than its carrying amount. If the Company determines, as a result of its qualitative assessment, that it is not more likely than not that the fair value of the applicable reporting unit is less than its carrying value, no further testing is required. If the Company determines, as a result of its qualitative assessment, that it is more likely than not that the fair value of the applicable reporting unit is less than its carrying amount, a quantitative goodwill impairment assessment is performed. The quantitative assessment compares the fair value of the applicable reporting unit to its carrying amount, including goodwill. If the fair value of goodwill is less than the carrying amount, an impairment loss is recorded as a reduction to goodwill and as a charge to results of operations.

Based on the assessment performed as at September 30, 2021 and with no significant events since, the Company has concluded that goodwill was not impaired at December 31, 2021.

Long-Lived Asset Impairment

When circumstances indicate the carrying value of long-lived assets may not be recoverable, the Company evaluates whether the carrying value of such assets, excluding goodwill, has been impaired. For such long-lived assets, the Company evaluates whether impairment may exist by estimating future estimated undiscounted cash flows expected to result from the use and eventual disposition of the asset. When alternative courses of action to recover the carrying amount of a long-lived asset are under consideration, a probability-weighted approach is used to develop estimates of future undiscounted cash flows. If the carrying value of the long-lived asset is not recoverable based on the estimated future undiscounted cash flows, an impairment loss is recorded, measured as the excess of the carrying value of the asset over its fair value. As a result, the asset’s carrying value is adjusted to its estimated fair value.

Within its regulated business, the carrying costs of most of Hydro One’s long-lived assets are included in rate base where they earn an OEB-approved rate of return. Asset carrying values and the related return are recovered through approved rates. As a result, such assets are only tested for impairment in the event that the OEB disallows recovery, in whole or in part, or if such a disallowance is judged to be probable.

Management assesses the fair value of such long-lived assets using commonly accepted techniques. Techniques used to determine fair value include, but are not limited to, the use of recent third-party comparable sales for reference and internally developed discounted cash flow analysis. Significant changes in market conditions, changes to the condition of an asset, or a change in management’s intent to utilize the asset are generally viewed by management as triggering events to reassess the cash flows related to these long-lived assets. As at December 31, 2021 and 2020, no asset impairment had been recorded.

Costs of Arranging Debt Financing

For financial liabilities classified as other than held-for-trading, the Company defers the external transaction costs related to obtaining financing and presents such amounts net of related debt on the consolidated balance sheets. Deferred issuance costs are amortized over the contractual life of the related debt on an effective-interest basis and the amortization is included within

financing charges in the consolidated statements of operations and comprehensive income. Transaction costs for items classified as held-for-trading are expensed immediately.

Comprehensive Income / Loss

Comprehensive income/loss is comprised of net income/loss and OCI/OCL. Hydro One presents net income/loss and OCI/OCL in a single continuous consolidated statement of operations and comprehensive income/loss.

Financial Assets and Liabilities

All financial assets and liabilities are classified into one of the following five categories: held-to-maturity; loans and receivables; held-for-trading; other liabilities; or available-for-sale. Financial assets and liabilities classified as held-for-trading are measured at fair value. All other financial assets and liabilities are measured at amortized cost. Accounts receivable and amounts due from related parties are classified as loans and receivables. The Company considers the carrying amounts of accounts receivable and amounts due from related parties to be reasonable estimates of fair value because of the short time to maturity of these instruments. The Company estimates the CECL for all accounts receivable balances, which are recognized as adjustments to the allowance for doubtful accounts. Accounts receivable are written-off against the allowance when they are deemed uncollectible. All financial instrument transactions are recorded at trade date.

The Company determines the classification of its financial assets and liabilities at the date of initial recognition. The Company designates certain of its financial assets and liabilities to be held at fair value, when it is consistent with the Company’s risk management policy disclosed in Note 18 - Fair Value of Financial Instruments and Risk Management.

Derivative Instruments and Hedge Accounting

The Company closely monitors the risks associated with changes in interest rates on its operations and, where appropriate, uses various instruments to hedge these risks. Certain of these derivative instruments qualify for hedge accounting and are designated as accounting hedges, while others either do not qualify as hedges or have not been designated as hedges (hereinafter referred to as undesignated contracts) as they are part of economic hedging relationships.

The accounting guidance for derivative instruments requires the recognition of all derivative instruments not identified as meeting the normal purchase and sale exemption as either assets or liabilities recorded at fair value on the consolidated balance sheets. For derivative instruments that qualify for hedge accounting, the Company may elect to designate such derivative instruments as either cash flow hedges or fair value hedges. The Company offsets fair value amounts recognized on its consolidated balance sheets related to derivative instruments executed with the same counterparty under the same master netting agreement.

For derivative instruments that qualify for hedge accounting and which are designated as cash flow hedges, any unrealized gain or loss, net of tax, is recorded as a component of accumulated OCI (AOCI). Amounts in AOCI are reclassified to results of operations in the same period or periods during which the hedged transaction affects results of operations and presented in the same line item as the earnings effect of the hedged item. Any gains or losses on the derivative instrument that represent hedge components excluded from the assessment of effectiveness are recognized in the same line item of the consolidated statements of operations as the hedged item. For fair value hedges, changes in fair value of both the derivative instrument and the underlying hedged exposure are recognized in the consolidated statements of operations and comprehensive income in the current period. The gain or loss on the derivative instrument is included in the same line item as the offsetting gain or loss on the hedged item in the consolidated statements of operations and comprehensive income. The changes in fair value of the undesignated derivative instruments are reflected in results of operations.

Embedded derivative instruments are separated from their host contracts and are carried at fair value on the consolidated balance sheets when: (a) the economic characteristics and risks of the embedded derivative are not clearly and closely related to the economic characteristics and risks of the host contract; (b) the hybrid instrument is not measured at fair value, with changes in fair value recognized in results of operations each period; and (c) the embedded derivative itself meets the definition of a derivative. The Company does not engage in derivative trading or speculative activities and had no embedded derivatives that required bifurcation at December 31, 2021 or 2020.

Hydro One periodically develops hedging strategies taking into account risk management objectives. At the inception of a hedging relationship where the Company has elected to apply hedge accounting, Hydro One formally documents the relationship between the hedged item and the hedging instrument, the related risk management objective, the nature of the specific risk exposure being hedged, and the method for assessing the effectiveness of the hedging relationship. The Company also assesses, both at the inception of the hedge and on a quarterly basis, whether the hedging instruments are effective in offsetting changes in fair values or cash flows of the hedged items.

Employee Future Benefits

Employee future benefits provided by Hydro One include pension, post-retirement and post-employment benefits. The costs of the Company’s pension, post-retirement and post-employment benefit plans are recorded over the periods during which employees render service.

The Company recognizes the funded status of its defined benefit pension plan (Pension Plan) and its post-retirement and post-employment plans on its consolidated balance sheets and subsequently recognizes the changes in funded status at the end of each reporting year. Defined benefit pension, post-retirement and post-employment plans are considered to be underfunded when the projected benefit obligation (PBO) exceeds the fair value of the plan assets. Liabilities are recognized on the consolidated balance sheets for any net underfunded PBO. The net underfunded PBO may be disclosed as a current liability, long-term liability, or both. The current portion is the amount by which the actuarial present value of benefits included in the benefit obligation payable in the next 12 months exceeds the fair value of plan assets. If the fair value of plan assets exceeds the PBO of the plan, an asset is recognized equal to the net overfunded PBO. The post-retirement and post-employment benefit plans are unfunded because there are no related plan assets.

Hydro One recognizes its contributions to the defined contribution pension plan (DC Plan) as pension expense, with a portion being capitalized as part of labour costs included in capital expenditures. The expensed amount is included in operation, maintenance and administration (OM&A) costs in the consolidated statements of operations and comprehensive income.

Defined Benefit Pension

Defined benefit pension costs are recorded on an accrual basis for financial reporting purposes. Pension costs are actuarially determined using the projected benefit method prorated on service and are based on assumptions that reflect management’s best estimate of the effect of future events, including future compensation increases. Past service costs from plan amendments and all actuarial gains and losses are amortized on a straight-line basis over the expected average remaining service period of active employees in the plan, or over the estimated remaining life expectancy of inactive employees in the plan. Pension plan assets, consisting primarily of listed equity securities, marketable and private debt, corporate and government debt securities as well as unlisted real estate and unlisted infrastructure investments, are recorded at fair value at the end of each year. Hydro One records a regulatory asset equal to the net underfunded PBO for its pension plan. Defined benefit pension costs are attributed to labour costs on a cash basis and a portion directly related to acquisition and development of capital assets is capitalized as part of the cost of property, plant and equipment and intangible assets. The remaining defined benefit pension costs are charged to results of operations (OM&A costs).

Post-retirement and Post-employment Benefits

Post-retirement and post-employment benefits are recorded and included in rates on an accrual basis. Costs are determined by independent actuaries using the projected benefit method prorated on service and based on assumptions that reflect management’s best estimates. For post-retirement benefits, past service costs from plan amendments are amortized to results of operations based on the expected average remaining service period.

For post-retirement benefits, all actuarial gains or losses are deferred using the “corridor” approach. The amount calculated above the “corridor” is amortized to results of operations on a straight-line basis over the expected average remaining service life of active employees in the plan or over the remaining life expectancy of inactive employees in the plan. The post-retirement benefit obligation is remeasured to its fair value at each year end based on an annual actuarial report, with an offset to the associated regulatory account, to the extent of the remeasurement adjustment.

For post-employment obligations, the associated regulatory liabilities representing actuarial gains on transition to US GAAP are amortized to results of operations based on the "corridor" approach. The actuarial gains and losses on post-employment obligations that are incurred during the year are recognized immediately to results of operations. The post-employment benefit obligation is remeasured to its fair value at each year end based on an annual actuarial report, with an offset to the associated regulatory account, to the extent of the remeasurement adjustment.

All post-retirement and post-employment benefit costs are attributed to labour costs and are either charged to results of operations (OM&A costs) or capitalized as part of the cost of property, plant and equipment and intangible assets (applies to the service cost component of benefit cost) and to regulatory assets for all other components of the benefit cost, consistent with their inclusion in OEB-approved rates.

Stock-Based Compensation

Share Grant Plans

Hydro One measures share grant plans based on fair value of share grants as estimated based on Hydro One Limited's grant date common share price. The costs are recognized in the financial statements using the graded-vesting attribution method for share grant plans that have both a performance condition and a service condition. The Company records a regulatory asset equal to the accrued costs of share grant plans recognized in each period. Costs are transferred from the regulatory asset to labour costs at the time the share grants vest and are issued, and are recovered in rates. Forfeitures are recognized as they occur.

Deferred Share Unit (DSU) Plans

The Company records the liabilities associated with its Directors’ and Management DSU Plans at fair value at each reporting date until settlement, recognizing compensation expense over the vesting period on a straight-line basis. The fair value of the DSU liability is based on Hydro One Limited's common share closing price at the end of each reporting period.

Society Restricted Share Unit (RSU) Plan

The Company measures its Society RSU plan based on fair value of share grants as estimated based on Hydro One Limited's grant date common share price. The costs are recognized over the vesting period using the straight-line attribution method. The Company records a regulatory asset equal to the accrued costs of the Society RSU plan recognized in each period. Costs are transferred from the regulatory asset to labour costs at the time the share grants vest and are issued, and are recovered in rates. Forfeitures are recognized as they occur.

Long-term Incentive Plan (LTIP)

The Company measures the awards issued under Hydro One Limited's LTIP, at fair value based on Hydro One Limited grant date common share price. The related compensation expense is recognized over the vesting period on a straight-line basis. Forfeitures are recognized as they occur.

Loss Contingencies

Hydro One is involved in certain legal and environmental matters that arise in the normal course of business. In the preparation of its Consolidated Financial Statements, management makes judgments regarding the future outcome of contingent events and records a loss for a contingency based on its best estimate when it is determined that such loss is probable and the amount of the loss can be reasonably estimated. Where the loss amount is recoverable in future rates, a regulatory asset is also recorded. When a range estimate for the probable loss exists and no amount within the range is a better estimate than any other amount, the Company records a loss at the minimum amount within the range.

Management regularly reviews current information available to determine whether recorded provisions should be adjusted and whether new provisions are required. Estimating probable losses may require analysis of multiple forecasts and scenarios that often depend on judgments about potential actions by third parties, such as federal, provincial and local courts or regulators. Contingent liabilities are often resolved over long periods of time. Amounts recorded in the Consolidated Financial Statements may differ from the actual outcome once the contingency is resolved. Such differences could have a material impact on future results of operations, financial position and cash flows of the Company.

Provisions are based upon current estimates and are subject to greater uncertainty where the projection period is lengthy. A significant upward or downward trend in the number of claims filed, the nature of the alleged injuries, and the average cost of resolving each claim could change the estimated provision, as could any substantial adverse or favourable verdict at trial. A federal or provincial legislative outcome or structured settlement could also change the estimated liability. Legal fees are expensed as incurred.

Environmental Liabilities

Environmental liabilities are recorded in respect of past contamination when it is determined that future environmental remediation expenditures are probable under existing statute or regulation and the amount of the future expenditures can be reasonably estimated. Hydro One records a liability for the estimated future expenditures associated with contaminated land assessment and remediation (LAR) and for the phase-out and destruction of polychlorinated biphenyl (PCB)-contaminated mineral oil removed from electrical equipment, based on the present value of these estimated future expenditures. The Company determines the present value with a discount rate that produces an amount at which the environmental liabilities could be settled in an arm’s length transaction with a third party. As the Company anticipates that the future expenditures will continue to be recoverable in future rates, an offsetting regulatory asset has been recorded to reflect the future recovery of these environmental expenditures from customers. Hydro One reviews its estimates of future environmental expenditures annually, or more frequently if there are indications that circumstances have changed. Estimate changes are accounted for prospectively.

Asset Retirement Obligations

Asset retirement obligations are recorded for legal obligations associated with the future removal and disposal of long-lived assets. Such obligations may result from the acquisition, construction, development and/or normal use of the asset. Conditional asset retirement obligations are recorded when there is a legal obligation to perform a future asset retirement activity but where the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Company. In such a case, the obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. This uncertainty is incorporated in the fair value measurement of the obligation.

When recording an asset retirement obligation, the present value of the estimated future expenditures required to complete the asset retirement activity is recorded in the period in which the obligation is incurred, if a reasonable estimate can be made. In general, the present value of the estimated future expenditures is added to the carrying amount of the associated asset and the resulting asset retirement cost is depreciated over the estimated useful life of the asset. The present value is    determined with a

discount rate that equates to the Company’s credit-adjusted risk-free rate. Where an asset is no longer in service when an asset retirement obligation is recorded, the asset retirement cost is recorded in results of operations.

Some of the Company’s transmission and distribution assets, particularly those located on unowned easements and rights-of-way, may have asset retirement obligations, conditional or otherwise. The majority of the Company’s easements and rights-of-way are either of perpetual duration or are automatically renewed annually. Land rights with finite terms are generally subject to extension or renewal. As the Company expects to use the majority of its facilities in perpetuity, no asset retirement obligations have been recorded for these assets. If, at some future date, a particular facility is shown not to meet the perpetuity assumption, it will be reviewed to determine whether an estimable asset retirement obligation exists. In such a case, an asset retirement obligation would be recorded at that time.

The Company’s asset retirement obligations recorded to date relate to estimated future expenditures associated with the removal and disposal of asbestos-containing materials installed in some of its facilities.

Leases

At the commencement date of a lease, the minimum lease payments are discounted and recognized as a lease obligation. Discount rates used correspond to the Company's incremental borrowing rates. Renewal options are assessed for their likelihood of being exercised and are included in the measurement of the lease obligation when it is reasonably certain they will be exercised. The Company does not recognize leases with a term of less than 12 months. A corresponding Right-of-Use (ROU) asset is recognized at the commencement date of a lease. The ROU asset is measured as the lease obligation adjusted for any lease payments made and/or any lease incentives and initial direct costs incurred. ROU assets are included in other long-term assets, and corresponding lease obligations are included in other current liabilities and other long-term liabilities on the consolidated balance sheets.

Subsequent to the commencement date, the lease expense recognized at each reporting period is the total remaining lease payments over the remaining lease term. Lease obligations are measured as the present value of the remaining unpaid lease payments using the discount rate established at commencement date. The amortization of the ROU assets is calculated as the difference between the lease expense and the accretion of interest, which is calculated using the effective interest method. Lease modifications and impairments are assessed at each reporting period to assess the need for a remeasurement of the lease obligations or ROU assets.

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New Accounting Pronouncements

12 Months Ended

Dec. 31, 2021

Accounting Changes and Error Corrections [Abstract]

New Accounting Pronouncements

NEW ACCOUNTING PRONOUNCEMENTS

The following tables present Accounting Standard Updates (ASUs) issued by the Financial Accounting Standards Board that are applicable to Hydro One:

Recently Adopted Accounting Guidance

Guidance	Date issued	Description	Effective date	Impact on Hydro One
ASU 2018-14	August 2018	Disclosure requirements related to single-employer defined benefit pension or other post-retirement benefit plans are added, removed or clarified to improve the effectiveness of disclosures in financial statement notes.	January 1, 2021	Resulted in the modification of certain disclosures associated with post-retirement and post-employment benefits that were previously included in the annual financial statements.
ASU 2019-12	December 2019	The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles and improving consistent application of Topic 740 by clarifying and amending existing guidance.	January 1, 2021	No impact upon adoption
ASU 2020-01	January 2020	The amendments clarify the interaction of the accounting for equity securities under Topic 321, investments under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815.	January 1, 2021	No impact upon adoption
ASU 2020-10	October 2020	The amendments are intended to improve the Codification by ensuring the guidance required for an entity to disclose information in the notes of financial statements are codified in the disclosure sections to reduce the likelihood of disclosure requirements being missed.	January 1, 2021	No impact upon adoption

Recently Issued Accounting Guidance Not Yet Adopted

Guidance	Date issued	Description	Effective date	Anticipated Impact on Hydro One
ASU 2020-06	August 2020	The update addresses the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. The amendments reduce the number of accounting models for convertible debt instruments and convertible preferred stock.	January 1 2022	No impact upon adoption
ASU 2021-05	July 2021	The amendments are intended to align lease classification requirements for lessors under Topic 842 with Topic 840's practice.	January 1, 2022	No impact upon adoption
ASU 2021-08	October 2021	The amendments address how to determine whether a contract liability is recognized by the acquirer in a business combination.	January 1, 2023	Under assessment
ASU 2021-10	November 2021	The update addresses the diversity on the recognition, measurement, presentation and disclosure of government assistance received by business entities.	January 1, 2022	Under assessment

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Business Combinations

12 Months Ended

Dec. 31, 2021

Business Combination and Asset Acquisition [Abstract]

Business Combinations

BUSINESS COMBINATIONS

Acquisition of Peterborough Distribution Assets

On August 1, 2020, Hydro One completed the acquisition of the business and distribution assets of Peterborough Distribution, an electricity distribution company located in east central Ontario, from the City of Peterborough, for a purchase price of $104 million, including the assumption of agreed upon liabilities and closing adjustments. The purchase price is comprised of a cash payment of $105 million, including a deposit of $4 million paid in 2018 and $101 million paid on closing of the transaction, partially offset by a purchase price adjustment of $1 million. As the acquired business and distribution assets of Peterborough Distribution meet the definition of a business, the acquisition has been accounted for as a business acquisition.

The following table summarizes the determination of the fair value of the assets acquired and liabilities assumed:

(millions of dollars)
Working capital	7
Property, plant and equipment	64
Regulatory assets	1
Goodwill	33
Other long-term liabilities	(1)
	104

The determination of the fair value of assets acquired and liabilities assumed is based upon management’s estimates and assumptions and reflects the fair value of consideration paid.

The goodwill of $33 million arising from the Peterborough Distribution acquisition consists largely of the synergies and economies of scale expected from combining the operations of Hydro One and Peterborough Distribution. All of the goodwill was assigned to Hydro One’s Distribution Business segment. Peterborough Distribution contributed revenues of $51 million and net income of $nil to the Company’s consolidated financial results for the year ended December 31, 2020. All costs related to the acquisition have been expensed through the statement of operations and comprehensive income.

Acquisition of Orillia Power

On September 1, 2020, Hydro One completed the acquisition of Orillia Power, an electricity distribution company located in Simcoe County, Ontario, from the City of Orillia for a purchase price of $28 million, including closing adjustments. The purchase price is comprised of a cash payment of $26 million, including a deposit of $1 million paid in 2016, $25 million paid on closing of the transaction, as well as a purchase price adjustment of $2 million.

The following table summarizes the determination of the fair value of the assets acquired and liabilities assumed:

(millions of dollars)
Working capital	2
Property, plant and equipment	32
Deferred income tax assets	1
Goodwill	15
Short-term debt	(20)
Regulatory liabilities	(1)
Other long-term liabilities	(1)
	28

The determination of the fair value of assets acquired and liabilities assumed is based upon management’s estimates and assumptions and reflects the fair value of consideration paid. In September 2020, Hydro One repaid the $20 million of short-term debt assumed as part of the Orillia Power acquisition.

The goodwill of $15 million arising from the Orillia Power acquisition consists largely of the synergies and economies of scale expected from combining the operations of Hydro One and Orillia Power. All of the goodwill was assigned to Hydro One’s Distribution Business segment. Orillia Power contributed revenues of $15 million and net income of $nil to the Company’s consolidated financial results for the year ended December 31, 2020. All costs related to the acquisition have been expensed through the statement of operations and comprehensive income.

NRLP

On January 31, 2020, the Mississaugas of the Credit First Nation purchased an additional 19.9% equity interest in NRLP partnership units from Hydro One Networks for total cash consideration of $9 million. Following this transaction, Hydro One's interest in the equity portion of NRLP partnership units was reduced to 55%, with the Six Nations of the Grand River Development Corporation and the Mississaugas of the Credit First Nation owning 25% and 20%, respectively, of the equity interest in NRLP partnership units.

NRLP is fully consolidated in these Consolidated Financial Statements as it is controlled by Hydro One. The First Nations Partners' noncontrolling interest in NRLP is classified within equity. See Note 28 - Noncontrolling Interest for additional information.

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Depreciation, Amortization And Asset Removal Costs

12 Months Ended

Dec. 31, 2021

Property, Plant and Equipment [Abstract]

Depreciation, Amortization and Asset Removal Costs

DEPRECIATION, AMORTIZATION AND ASSET REMOVAL COSTS

Year ended December 31 (millions of dollars)	2021	2020
Depreciation of property, plant and equipment	700	683
Amortization of intangible assets	76	69
Amortization of regulatory assets	30	23
Depreciation and amortization	806	775
Asset removal costs	107	101
	913	876

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Financing Charges

12 Months Ended

Dec. 31, 2021

Banking and Thrift, Interest [Abstract]

Financing Charges

FINANCING CHARGES

Year ended December 31 (millions of dollars)	2021	2020
Interest on long-term debt	499	495
Realized loss on cash flow hedges (interest-rate swap agreements) (Notes 8, 18)	12	7
Interest on short-term notes	1	8
Interest on regulatory accounts	5	3
Other	11	10
Less: Interest capitalized on construction and development in progress	(60)	(49)
DTA carrying charges (Note 13)	(12)	—
Interest earned on cash and cash equivalents	(3)	(5)
	453	469

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Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

As a rate regulated utility company, the Company recovers income taxes from its ratepayers based on estimated current income tax expense in respect of its regulated business. The amounts of deferred income taxes related to regulated operations which are considered to be more likely-than-not to be recoverable from, or refundable to, ratepayers in future periods are recognized as deferred income tax regulatory assets or liabilities, with an offset to deferred income tax recovery or expense, respectively. The Company’s consolidated tax expense or recovery for the period includes all current and deferred income tax expenses for the period net of the regulated accounting offset to deferred income tax expense arising from temporary differences to be recovered from, or refunded to, customers in future rates. Thus, the Company’s income tax expense or recovery differs from the amount that would have been recorded using the combined Canadian federal and Ontario statutory income tax rate.

The reconciliation between the statutory and the effective tax rates is provided as follows:

Year ended December 31 (millions of dollars)	2021	2020
Income before income tax expense	1,159	1,017
Income tax expense at statutory rate of 26.5% (2020 - 26.5%)	307	270
Increase (decrease) resulting from:
Net temporary differences recoverable in future rates charged to customers:
Capital cost allowance in excess of depreciation and amortization	(81)	(102)
Impact of tax deductions from deferred tax asset sharing1	(38)	(41)
Impact of tax recovery from deferred tax asset sharing2	47	—
Overheads capitalized for accounting but deducted for tax purposes	(22)	(21)
Interest capitalized for accounting but deducted for tax purposes	(16)	(13)
Environmental expenditures	(8)	(6)
Pension and post-retirement benefit contributions in excess of pension expense	(9)	(4)
Other	(1)	—
Net temporary differences attributable to regulated business	(128)	(187)
Net permanent differences	—	1
Recognition of deferred income tax regulatory asset (Note 13)	—	(867)
Total income tax expense (recovery)	179	(783)

Effective income tax rate 15.4  % (77.0) %

1 Prior to the ODC Decision, the impact represents tax deductions from deferred asset tax sharing given to ratepayers as previously mandated by the OEB. Subsequent to the ODC Decision, and pursuant to the DTA Implementation Decision, the impact represents the additional amounts shared in respect of the fiscal period that is recoverable from ratepayers. See Note 13 - Regulatory Assets and Liabilities.

2 Pursuant to the DTA Implementation Decision, the impact represents the amounts recovered from ratepayers in respect of tax deductions previously shared with ratepayers. See Note 13 – Regulatory Assets and Liabilities.

The major components of income tax expense are as follows:

Year ended December 31 (millions of dollars)	2021	2020
Current income tax expense	30	29
Deferred income tax expense (recovery)	149	(812)
Total income tax expense (recovery)	179	(783)

Deferred Income Tax Assets and Liabilities

Deferred income tax assets and liabilities reflect the future tax consequences attributable to temporary differences between the tax bases and the financial statement carrying amounts of the assets and liabilities including the carry forward amounts of tax losses and tax credits. Deferred income tax assets and liabilities attributable to the Company’s regulated business are recognized with a corresponding offset in deferred income tax regulatory assets and liabilities to reflect the anticipated recovery or repayment of these balances in the future electricity rates. At December 31, 2021 and 2020, deferred income tax assets and liabilities consisted of the following:

As at December 31 (millions of dollars)	2021	2020
Deferred income tax assets
Post-retirement and post-employment benefits expense in excess of cash payments	655	680
Pension obligations	257	607
Non-capital losses	213	275
Non-depreciable capital property	273	271
Tax credit carryforwards	147	118
Investment in subsidiaries	99	100
Environmental expenditures	44	48
	1,688	2,099
Less: valuation allowance	(378)	(380)
Total deferred income tax assets	1,310	1,719
Deferred income tax liabilities
Capital cost allowance in excess of depreciation and amortization	1,354	1,029
Regulatory assets and liabilities	308	728
Other	5	2
Total deferred income tax liabilities	1,667	1,759
Net deferred income tax liabilities	(357)	(40)

The net deferred income tax assets are presented on the consolidated balance sheets as follows:

As at December 31 (millions of dollars)	2021	2020
Long-term:
Deferred income tax assets	10	16
Deferred income tax liabilities	(367)	(56)
Net deferred income tax liabilities	(357)	(40)

The valuation allowance for deferred tax assets as at December 31, 2021 was $378 million (2020 - $380 million). The valuation allowance primarily relates to temporary differences for non-depreciable assets and investments in subsidiaries. As of December 31, 2021 and 2020, the Company had non-capital losses carried forward available to reduce future years’ taxable income, which expire as follows:

Year of expiry (millions of dollars)	2021	2020
2035	—	170
2036	481	550
2037	121	121
2038	5	5
2039	183	185
2040	2	5
2041	8	—
Total losses	800	1,036

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Other Comprehensive Income (Loss)

12 Months Ended

Dec. 31, 2021

Equity [Abstract]

Other Comprehensive Income (Loss)

OTHER COMPREHENSIVE INCOME (LOSS)

Year ended December 31 (millions of dollars)	2021	2020
Gain (loss) on cash flow hedges (interest-rate swap agreements) (Notes 6, 18)1	12	(20)
Gain (loss) on transfer of other post-employment benefits (OPEB) (Note 20)	—	(6)
Other	4	2
	16	(24)

1 Includes $8 million after-tax realized loss (2020 - $5 million), $12 million before-tax (2020 - $7 million), on cash flow hedges reclassified to financing charges

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Accounts Receivable

12 Months Ended

Dec. 31, 2021

Receivables [Abstract]

Accounts Receivable

ACCOUNTS RECEIVABLE

As at December 31 (millions of dollars)	2021	2020
Accounts receivable - billed	344	344
Accounts receivable - unbilled	409	421
Accounts receivable, gross	753	765
Allowance for doubtful accounts	(56)	(46)
Accounts receivable, net	697	719

The following table shows the movements in the allowance for doubtful accounts for the years ended December 31, 2021 and 2020:

Year ended December 31 (millions of dollars)	2021	2020
Allowance for doubtful accounts – beginning	(46)	(22)
Write-offs	15	11
Additions to allowance for doubtful accounts1	(25)	(35)
Allowance for doubtful accounts – ending	(56)	(46)

1 Additions to allowance for doubtful accounts for the year ended December 31, 2020 included an incremental $14 million related to the COVID-19 pandemic. There were no additional COVID-19 related amounts included in the allowance for doubtful accounts for the year ended December 31, 2021.

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Other Current Assets

12 Months Ended

Dec. 31, 2021

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Other Current Assets

OTHER CURRENT ASSETS

As at December 31 (millions of dollars)	2021	2020
Regulatory assets (Note 13)	226	105
Prepaid expenses and other assets	53	50
Materials and supplies	22	23
Derivative assets (Note 18)	—	3
	301	181

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Property, Plant and Equipment

12 Months Ended

Dec. 31, 2021

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment

PROPERTY, PLANT AND EQUIPMENT

As at December 31, 2021 (millions of dollars)	Property, Plant  and Equipment	Accumulated Depreciation	Construction in Progress	Total
Transmission	18,970	6,307	1,183	13,846
Distribution	12,045	4,163	95	7,977
Communication	1,246	981	46	311
Administration and service	1,963	1,022	78	1,019
Easements	679	84	—	595
	34,903	12,557	1,402	23,748
As at December 31, 2020 (millions of dollars)	Property, Plant  and Equipment	Accumulated Depreciation	Construction in Progress	Total
Transmission	18,213	5,989	876	13,100
Distribution	11,544	3,949	101	7,696
Communication	1,184	945	39	278
Administration and service	1,729	959	113	883
Easements	671	80	—	591
	33,341	11,922	1,129	22,548

Financing charges capitalized on property, plant and equipment under construction were $57 million in 2021 (2020 - $46 million).

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Intangible Assets

12 Months Ended

Dec. 31, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets

INTANGIBLE ASSETS

As at December 31, 2021 (millions of dollars)	Intangible Assets	Accumulated Amortization	Development in Progress	Total
Computer applications software	1,094	657	130	567
Other	5	5	—	—
	1,099	662	130	567
As at December 31, 2020 (millions of dollars)	Intangible Assets	Accumulated Amortization	Development in Progress	Total
Computer applications software	1,033	581	59	511
Other	6	5	—	1
	1,039	586	59	512

Financing charges capitalized to intangible assets under development were $3 million in 2021 (2020 - $3 million). The estimated annual amortization expense for intangible assets is as follows: 2022 - $76 million; 2023 - $65 million; 2024 - $55 million; 2025 - $53 million; and 2026 - $50 million.

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Regulatory Assets and Liabilities

12 Months Ended

Dec. 31, 2021

Regulated Operations [Abstract]

Regulatory Assets and Liabilities

REGULATORY ASSETS AND LIABILITIES

Regulatory assets and liabilities arise as a result of the rate-setting process. Hydro One has recorded the following regulatory assets and liabilities:

As at December 31 (millions of dollars)	2021	2020
Regulatory assets:
Deferred income tax regulatory asset	2,509	2,343
Pension benefit regulatory asset	713	1,660
Deferred tax asset sharing	204	204
Post-retirement and post-employment benefits - non-service cost	125	113
Environmental	122	133
Stock-based compensation	38	41
Foregone revenue deferral	25	63
Conservation and Demand Management (CDM) variance	8	16
Debt premium	7	12
Post-retirement and post-employment benefits	—	59
Other	36	32
Total regulatory assets	3,787	4,676
Less: current portion	(226)	(105)
	3,561	4,571
Regulatory liabilities:
Tax rule changes variance	86	70
Retail settlement variance account	58	92
External revenue variance	52	7
Earnings sharing mechanism deferral	42	37
Asset removal costs cumulative variance	36	19
Post-retirement and post-employment benefits	33	—
Pension cost differential	30	31
Green energy expenditure variance	13	22
Deferred income tax regulatory liability	4	4
Other	18	15
Total regulatory liabilities	372	297
Less: current portion	(10)	(66)
	362	231

Deferred Income Tax Regulatory Asset and Liability

Deferred income taxes are recognized on temporary differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable income. The Company has recognized regulatory assets and liabilities that correspond to deferred income taxes that flow through the rate-setting process. In the absence of rate-regulated accounting, the Company’s income tax expense would have been recognized using the liability

method and there would be no regulatory accounts established for taxes to be recovered through future rates. As a result, the 2021 income tax expense would have been higher by approximately $127 million (2020 - $187 million). The $127 million (2020 - $187 million) impact is offset against deferred income tax regulatory asset and liability, deferred tax asset sharing, and post-retirement and post-employment benefits - non-service cost.

On July 16, 2020, the Ontario Divisional Court rendered its decision on the Company's appeal of the OEB's DTA Decision, which was initially issued on September 28, 2017.

In connection with the ODC Decision, the Company recorded a reversal of the previously recognized impairment charge of Hydro One Networks' distribution and transmission deferred income tax regulatory asset in its financial statements for the year ended December 31, 2020. The reversal of the previously recognized impairment charge included the regulatory asset relating to the cumulative deferred tax asset amounts shared with ratepayers (deferred tax asset sharing) up to and including June 30, 2020 by Hydro One Networks' distribution and transmission segments of $58 million and $118 million, respectively. Hydro One recognized deferred income tax regulatory assets of $504 million and $673 million for Hydro One Networks distribution and transmission segments, respectively, and associated deferred income tax liability of $310 million. The Company also recorded an increase in net income of $867 million as deferred income tax recovery during the year ended December 31, 2020.

Pension Benefit Regulatory Asset

In accordance with OEB rate orders, pension costs are recovered on a cash basis as employer contributions are paid to the pension fund in accordance with the Pension Benefits Act (Ontario). The Company recognizes the net unfunded status of pension obligations on the consolidated balance sheets with an offset to the associated regulatory asset. A regulatory asset is recognized because management considers it to be probable that pension benefit costs will be recovered in the future through the rate-setting process. The pension benefit obligation is remeasured to the present value of the actuarially determined benefit obligation at each year end based on an annual actuarial report, with an offset to the associated regulatory asset, to the extent of the remeasurement adjustment. In the absence of rate-regulated accounting, OCI would have been higher by $1,017 million (2020 - OCL higher by $470 million) and OM&A expenses would have been higher by $132 million (2020 - $89 million).

Deferred Tax Asset Sharing

On October 2, 2020, the OEB issued a procedural order to implement the direction of the Ontario Divisional Court which required Hydro One to submit its proposal for the recovery of the DTA amounts allocated to ratepayers for the 2017 to 2022 period. On April 8, 2021, the OEB rendered the DTA Implementation Decision, in which the OEB approved recovery of the DTA amounts allocated to ratepayers for the 2017 to 2021 period, plus carrying charges over a two-year period, commencing on July 1, 2021. In addition, Hydro One was approved to adjust the transmission revenue requirement and the base distribution rates beginning January 1, 2022 to eliminate any further amounts of future tax savings flowing to customers. As at December 31, 2021, Hydro One has a regulatory asset of $204 million for the cumulative DTA amounts shared with ratepayers since 2017 to date, net of the amount recovered from ratepayers pursuant to the DTA Implementation Decision. The regulatory asset of $204 million (2020 - $204 million) consists of $74 million (2020 - $70 million) and $130 million (2020 - $134 million) for Hydro One Networks’ distribution and transmission segments, respectively. As a result of the OEB’s procedural order, the $204 million regulatory asset relating to the cumulative DTA amounts allocated to ratepayers since 2017 has been separately presented from the deferred income tax regulatory asset. The balance of this regulatory account will continue to decrease as amounts are recovered over the next 18 months.

Post-Retirement and Post-Employment Benefits - Non-Service Cost

Hydro One has recorded a regulatory asset relating to the future recovery of its post-retirement and post-employment benefits other than service costs. The regulatory asset includes the applicable tax impact to reflect taxes payable. Prior to adoption of ASU 2017-07 in 2018, these amounts were capitalized to property, plant and equipment and intangible assets. As part of Hydro One Networks' 2020-2022 Transmission Decision, the OEB concluded that the non-service cost component of Hydro One's OPEB costs shall be recognized as OM&A for both its transmission and distribution businesses. Furthermore, Hydro One Networks distribution will continue to record the non-service cost component of OPEBs in this account until the end of 2022. The OEB approved the disposition of Hydro One Networks transmission's account balance as at December 31, 2018, including accrued interest, which is being collected from ratepayers over a three-year period ending December 31, 2022.

Environmental

Hydro One records a liability for the estimated future expenditures required to remediate environmental contamination. A regulatory asset is recognized because management considers it to be probable environmental expenditures will be recovered in the future through the rate-setting process. The Company has recorded an equivalent amount as a regulatory asset. In 2021, the revaluation adjustment increased the environmental regulatory asset by $18 million (2020 - increased by $12 million) to reflect related changes in the Company’s PCB and LAR environmental liabilities. The environmental regulatory asset is amortized to results of operations based on the pattern of actual expenditures incurred and charged to environmental liabilities. The OEB has the discretion to examine and assess the prudency and the timing of recovery of all of Hydro One’s actual environmental expenditures. In the absence of rate-regulated accounting, with respect to the revaluation adjustment, 2021 OM&A expenses would have been higher by $18 million (2020 - higher by $12 million). In addition, 2021 amortization expense would have been

lower by $30 million (2020 - lower by $23 million), and 2021 financing charges would have been higher by $1 million (2020 - higher by $3 million).

Stock-based Compensation

The Company recognizes costs associated with share grant plans and Society RSUs in a regulatory asset as management considers it probable that share grant plans' and Society RSU costs will be recovered in the future through the rate-setting process. In the absence of rate-regulated accounting, OM&A expenses would be lower by $1 million (2020 - $1 million). Share grant and Society RSU costs are transferred to labour costs at the time they vest and are issued, and are recovered in rates in accordance with recovery of these labour costs.

Foregone Revenue Deferral

As at December 31, 2020, the foregone revenue deferral account was primarily made up of the difference between revenue earned by Hydro One Networks transmission, NRLP, B2M LP, and HOSSM under the approved UTRs based on OEB-approved 2020 rates revenue requirement and load forecast and the revenues earned under interim 2020 UTRs. Hydro One Networks transmission's foregone revenue, including accrued interest, is being collected from ratepayers over a two-year period ending December 31, 2022. NRLP, B2M LP, and HOSSM's foregone revenue, including accrued interest, was collected from ratepayers over a one-year period ended December 31, 2021. The December 31, 2021 balance in this account is comprised of the remaining Hydro One Networks transmission foregone revenue to be collected from ratepayers by December 31, 2022.

CDM Variance

The CDM variance account tracks the impact of actual CDM and demand response programs on the actual load forecast compared to the estimated load forecast included in revenue requirement. As per the OEB's decision on Hydro One Networks' transmission rates for 2017 to 2019, this account was maintained to record any variances for 2017, 2018, and 2019. A CDM variance amount for 2017 was calculated and proposed for disposition in Hydro One Networks' 2020-2022 transmission rate application. In April 2020, the amount as at December 31, 2018, including accrued interest, was approved for disposition by the OEB and was recognized as a regulatory asset. The amount was approved to be recovered from ratepayers over a three-year period ending December 31, 2022.

Debt Premium

The value of debt assumed in the acquisition of HOSSM has been recorded at fair value in accordance with US GAAP - Business Combinations. The OEB allows for recovery of interest at the coupon rate of the Senior Secured Bonds and a regulatory asset has been recorded for the difference between the fair value and face value of this debt. The debt premium is recovered over the remaining term of the debt.

Tax Rule Changes Variance

The 2019 federal and Ontario budgets (Budgets) provided certain time-limited investment incentives permitting Hydro One to deduct accelerated capital cost allowance of up to three times the first-year rate for capital investments acquired after November 20, 2018 and placed in-service before January 1, 2028 (Accelerated Depreciation). Following the enactment of the Budget measures in the second quarter of 2019, the OEB directed all Ontario regulated utilities including Hydro One to track the full revenue impact of the tax benefits related to the Accelerated Depreciation rules to ratepayers. The tax benefit to be returned to ratepayers in the future gave rise to a regulatory liability and resulted in a decrease in revenues as current rates do not include the benefit of the Accelerated Depreciation; therefore, the revenue subject to refund cannot be recognized.

Retail Settlement Variance Account (RSVA)

Hydro One has deferred certain retail settlement variance amounts under the provisions of Article 490 of the OEB’s Accounting Procedures Handbook. The RSVA account tracks the difference between the cost of power purchased from the Independent Electricity System Operator (IESO) and the cost of power recovered from ratepayers. The balance as at December 31, 2019, including accrued interest, was approved by the OEB for disposition over a one-year period ending December 31, 2021 as part of Hydro One Networks distribution 2021 annual update rate application.

External Revenue Variance

The external revenue variance account balance reflects the difference between Hydro One Networks transmission's actual export service revenue and external revenues from secondary land use, and the OEB-approved amounts. The account also records the difference between actual net external station maintenance, engineering and construction services revenue, and other external revenue, and the OEB-approved amounts. In April 2020, the OEB approved the disposition of the external revenue variance account as at December 31, 2018, including accrued interest, which is being returned to ratepayers over a three-year period ending December 31, 2022.

Earnings Sharing Mechanism Deferral

In March 2019, the OEB approved the establishment of an earnings sharing mechanism deferral account for Hydro One Networks' distribution segment to record over-earnings including tax impacts, if any, realized for any year from 2018 to 2022. Under this mechanism, Hydro One shares 50% of regulated earnings that exceed the OEB-approved regulatory return-on-equity by more than 100 basis points with distribution ratepayers. This account is asymmetrical to the benefit of ratepayers. The balance as at December 31, 2019, including accrued interest, was approved by the OEB for disposition on an interim basis over a one year period ending December 31, 2021 as part of Hydro One Networks distribution 2021 annual update rate application. A similar account was also approved for B2M LP in January 2020, and Hydro One Networks transmission and NRLP in April 2020. The balance in the account as at December 31, 2021 primarily relates to Hydro One Networks distribution.

Asset Removal Costs Cumulative Variance

In April 2020, the OEB approved the establishment of an asset removal costs cumulative variance account for Hydro One Networks transmission to record the difference between the revenue requirement associated with forecast asset removal costs included in depreciation expense and actual asset removal costs incurred from 2020 to 2022. This account is asymmetrical to the benefit of ratepayers on a cumulative basis over the 2020-2022 rate period.

Post-Retirement and Post-Employment Benefits

In accordance with OEB rate orders, post-retirement and post-employment benefits costs are recovered on an accrual basis. The Company recognizes the net unfunded status of post-retirement and post-employment obligations on the consolidated balance sheets with an incremental offset to the associated regulatory asset or regulatory liability, as the case may be. A regulatory asset or liability is recognized because management considers it to be probable that post-retirement and post-employment benefit costs will be recovered or returned in the future through the rate-setting process. The post-retirement and post-employment benefit obligation is remeasured to the present value of the actuarially determined benefit obligation at each year end based on an annual actuarial report, with an offset to the associated regulatory asset or liability as the case may be, to the extent of the remeasurement adjustment. In the absence of rate-regulated accounting, 2021 OCI would have been higher by $94 million (2020 - OCL lower by $46 million).

Pension Cost Differential

Variances between the pension cost recognized and the cost embedded in rates as part of the rate-setting process for Hydro One Networks' transmission and distribution businesses are recognized as a regulatory asset or regulatory liability, as the case may be. In March 2019, the OEB approved the disposition of the distribution business portion of the balance as at December 31, 2016, including accrued interest, and the balance was recovered from ratepayers by the end of 2020. In April 2020, the OEB approved the disposition of the transmission business portion of the balance as at December 31, 2018, including accrued interest, which is being returned to ratepayers over a three-year period ending December 31, 2022. In the absence of rate-regulated accounting, 2021 revenue would have been higher by $1 million (2020 - higher by $1 million).

Green Energy Expenditure Variance

In April 2010, the OEB requested the establishment of deferral accounts which capture the difference between the revenue recorded on the basis of Green Energy Plan expenditures incurred and the actual recoveries received. The smart grid variance account balance as at December 31, 2016, including accrued interest, was approved for disposition by the OEB in March 2019, and the balance was returned to ratepayers by the end of 2020.

COVID-19 Emergency Deferral

On June 17, 2021, the OEB issued its Report: Regulatory Treatment of Impact Arising from the COVID-19 Emergency which outlines the OEB’s final guidance on the rules and operation of the deferral account established for utilities to track the impacts arising from the COVID-19 pandemic. The OEB has determined that eligibility for recovery of most balances recorded in the account will be subject to a means test based on a utility’s achieved regulatory return on equity (ROE). Based on management's assessment of the OEB’s final guidance, no amounts related to the COVID-19 pandemic have been recognized as regulatory assets.

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Other Long-Term Assets

12 Months Ended

Dec. 31, 2021

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Other Long-Term Assets

OTHER LONG-TERM ASSETS

As at December 31 (millions of dollars)	2021	2020
Right-of-Use assets (Note 23)	53	71
Other long-term assets	13	8
	66	79

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Accounts Payable and Other Current Liabilities

12 Months Ended

Dec. 31, 2021

Payables and Accruals [Abstract]

Accounts Payable and Other Current Liabilities

ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES

As at December 31 (millions of dollars)	2021	2020
Accrued liabilities	606	557
Accounts payable	249	232
Accrued interest	123	116
Environmental liabilities (Note 21)	34	33
Regulatory liabilities (Note 13)	10	66
Lease obligations (Note 23)	12	11
Derivative liabilities (Note 18)	8	11
	1,042	1,026

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Other Long-Term Liabilities

12 Months Ended

Dec. 31, 2021

Other Liabilities Disclosure [Abstract]

Other Long-Term Liabilities

OTHER LONG-TERM LIABILITIES

As at December 31 (millions of dollars)	2021	2020
Post-retirement and post-employment benefit liability (Note 20)	1,784	1,781
Pension benefit liability (Note 20)	713	1,660
Environmental liabilities (Note 21)	88	100
Lease obligations (Note 23)	44	65
Due to related parties (Note 29)	29	32
Asset retirement obligations (Note 22)	14	13
Derivative liabilities (Note 18)	—	14
Long-term accounts payable	3	5
Other long-term liabilities	19	16
	2,694	3,686

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Debt and Credit Agreements

12 Months Ended

Dec. 31, 2021

Debt Disclosure [Abstract]

Debt and Credit Agreements

DEBT AND CREDIT AGREEMENTS

Short-Term Notes and Credit Facilities

Hydro One meets its short-term liquidity requirements in part through the issuance of commercial paper under its Commercial Paper Program which has a maximum authorized amount of $2,300 million. These short-term notes are denominated in Canadian dollars with varying maturities up to 365 days. The Commercial Paper Program is supported by the Company’s committed and unsecured revolving standby credit facilities totalling $2,300 million (Operating Credit Facilities).

At December 31, 2021, Hydro One’s Operating Credit Facilities consisted of the following:

(millions of dollars)	Maturity	Total Amount	Amount Drawn
Revolving standby credit facilities	June 20261	2,300	—

1 On June 1, 2021, the maturity dates for the Operating Credit Facilities was extended from June 2024 to June 2026.

The Company may use the Operating Credit Facilities for working capital and general corporate purposes. If used, interest on the Operating Credit Facilities would apply based on Canadian benchmark rates. The obligation of each lender to make any credit extension under its credit facility is subject to various conditions including that no event of default has occurred or would result from such credit extension.

Long-Term Debt

The following table presents long-term debt outstanding at December 31, 2021 and 2020:

As at December 31 (millions of dollars)	2021	2020
1.84% Series 34 notes due 2021	—	500
2.57% Series 39 notes due 20211	—	300
3.20% Series 25 notes due 2022	600	600
0.71% Series 48 notes due 2023	600	600
2.54% Series 42 notes due 2024	700	700
1.76% Series 45 notes due 2025	400	400
2.97% Series 40 notes due 2025	350	350
2.77% Series 35 notes due 2026	500	500
3.02% Series 43 notes due 2029	550	550
2.16% Series 46 notes due 2030	400	400
7.35% Debentures due 2030	400	400
1.69% Series 49 notes due 2031	400	400
2.23% Series 50 notes due 2031	450	—
6.93% Series 2 notes due 2032	500	500
6.35% Series 4 notes due 2034	385	385
5.36% Series 9 notes due 2036	600	600
4.89% Series 12 notes due 2037	400	400
6.03% Series 17 notes due 2039	300	300
5.49% Series 18 notes due 2040	500	500
4.39% Series 23 notes due 2041	300	300
6.59% Series 5 notes due 2043	315	315
4.59% Series 29 notes due 2043	435	435
4.17% Series 32 notes due 2044	350	350
5.00% Series 11 notes due 2046	325	325
3.91% Series 36 notes due 2046	350	350
3.72% Series 38 notes due 2047	450	450
3.63% Series 41 notes due 2049	750	750
2.71% Series 47 notes due 2050	500	500
3.64% Series 44 notes due 2050	250	250
3.10% Series 51 notes due 2051	450	—
4.00% Series 24 notes due 2051	225	225
3.79% Series 26 notes due 2062	310	310
4.29% Series 30 notes due 2064	50	50
Hydro One long-term debt (a)	13,095	12,995
6.6% Senior Secured Bonds due 2023 (Principal amount - $98 million)	105	113
4.6% Note Payable due 2023 (Principal amount - $36 million)	37	38
HOSSM long-term debt (b)	142	151
	13,237	13,146
Add: Net unamortized debt premiums	9	10
Add: Unrealized mark-to-market loss1	—	3
Less: Unamortized deferred debt issuance costs	(50)	(51)
Total long-term debt	13,196	13,108

1 At December 31, 2021, there was no unrealized mark-to-market loss. At December 31, 2020, the unrealized mark-to-market net loss of $3 million related to $300 million Series 39 notes repaid in June 2021. At December 31, 2020, the unrealized mark-to-market net loss was offset by a $3 million unrealized mark-to-market net gain on the related fixed-to-floating interest-rate swap agreements, which were accounted for as fair value hedges.

(a) Hydro One long-term debt

At December 31, 2021, long-term debt of $13,095 million (2020 - $12,995 million) was outstanding, the majority of which was issued under Hydro One’s Medium Term Note (MTN) Program. In April 2020, Hydro One filed a short form base shelf prospectus in connection with its MTN Program, which has a maximum authorized principal amount of notes issuable of $4,000 million, expiring in May 2022. At December 31, 2021, $1,900 million remained available for issuance under the MTN Program prospectus.

In 2021, Hydro One issued long-term debt totalling $900 million (2020 - $2,300 million) and repaid long-term debt of $800 million (2020 - $650 million) under the MTN Program.

(b) HOSSM long-term debt

At December 31, 2021, HOSSM long-term debt of $142 million (2020 - $151 million), with a principal amount of $134 million (2020 - $138 million) was outstanding. In 2021, no long-term debt was issued (2020 - $nil), and $4 million (2020 - $3 million) of long-term debt was repaid.

The total long-term debt is presented on the consolidated balance sheets as follows:

As at December 31 (millions of dollars)	2021	2020
Current liabilities:
Long-term debt payable within one year	603	806
Long-term liabilities:
Long-term debt	12,593	12,302
Total long-term debt	13,196	13,108

Principal and Interest Payments

At December 31, 2021, future principal repayments, interest payments, and related weighted-average interest rates were as follows:

	Long-Term Debt Principal Repayments	Interest Payments	Weighted-Average Interest Rate
	(millions of dollars)	(millions of dollars)	(%)
Year 1	603	501	3.2
Year 2	731	485	1.7
Year 3	700	470	2.5
Year 4	750	452	2.3
Year 5	500	437	2.8
	3,284	2,345	2.5
Years 6-10	2,200	2,046	3.2
Thereafter	7,745	4,004	4.6
	13,229	8,395	3.9

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Fair Value of Financial Instruments and Risk Management

12 Months Ended

Dec. 31, 2021

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments and Risk Management

FAIR VALUE OF FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Fair value is considered to be the exchange price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement date. The fair value definition focuses on an exit price, which is the price that would be received in the sale of an asset or the amount that would be paid to transfer a liability.

Hydro One classifies its fair value measurements based on the following hierarchy, as prescribed by the accounting guidance for fair value, which prioritizes the inputs to valuation techniques used to measure fair value into three levels:

Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that Hydro One has the ability to access. An active market for the asset or liability is one in which transactions for the asset or liability occur with sufficient frequency and volume to provide ongoing pricing information.

Level 2 inputs are those other than quoted market prices that are observable, either directly or indirectly, for an asset or liability. Level 2 inputs include, but are not limited to, quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted market prices that are observable for the asset or liability, such as interest-rate curves and yield curves observable at commonly quoted intervals, volatilities, credit risk and default rates. A Level 2 measurement cannot have more than an insignificant portion of the valuation based on unobservable inputs.

Level 3 inputs are any fair value measurements that include unobservable inputs for the asset or liability for more than an insignificant portion of the valuation. A Level 3 measurement may be based primarily on Level 2 inputs.

Non-Derivative Financial Assets and Liabilities

At December 31, 2021 and 2020, the Company’s carrying amounts of cash and cash equivalents, accounts receivable, due from related parties, short-term notes payable, accounts payable, and due to related parties are representative of fair value due to the short-term nature of these instruments.

Fair Value Measurements of Long-Term Debt

The fair values and carrying values of the Company’s long-term debt at December 31, 2021 and 2020 are as follows:

	2021	2021	2020	2020
As at December 31 (millions of dollars)	Carrying Value	Fair Value	Carrying Value	Fair Value
Long-term debt measured at fair value - $300 million MTN Series 39 notes	—	—	303	303
Other notes and debentures	13,196	15,162	12,805	15,795
Long-term debt, including current portion	13,196	15,162	13,108	16,098

Fair Value Measurements of Derivative Instruments

Fair Value Hedges

At December 31, 2021, Hydro One had no fair value hedges. At December 31, 2020, Hydro One had interest-rate swaps with a total notional amount of $300 million that were used to convert fixed-rate debt to floating-rate debt. These swaps were designated as fair value hedges. Hydro One’s fair value hedge exposure at December 31, 2020 was approximately 2% of its total long-term debt.

Cash Flow Hedges

At December 31, 2021 and 2020, Hydro One had a total of $800 million in pay-fixed, receive-floating interest-rate swap agreements designated as cash flow hedges. These cash flow hedges are intended to offset the variability of interest rates on the issuances of short-term commercial paper between January 9, 2020 and March 9, 2023.

At December 31, 2021 and 2020, the Company had no derivative instruments classified as undesignated contracts.

Fair Value Hierarchy

The fair value hierarchy of financial assets and liabilities at December 31, 2021 and 2020 is as follows:

As at December 31, 2021 (millions of dollars)	Carrying Value	Fair  Value	Level 1	Level 2	Level 3
Liabilities:
Long-term debt, including current portion	13,196	15,162	—	15,162	—
Derivative instruments (Notes 15,16)
Cash flow hedges, including current portion	8	8	—	8	—
	13,204	15,170	—	15,170	—

As at December 31, 2020 (millions of dollars)	Carrying Value	Fair  Value	Level 1	Level 2	Level 3
Assets:
Derivative instruments (Note 10)
Fair value hedges	3	3	—	3	—
	3	3	—	3	—
Liabilities:
Long-term debt, including current portion	13,108	16,098	—	16,098	—
Derivative instruments (Notes 15,16)
Cash flow hedges, including current portion	25	25	—	25	—
	13,133	16,123	—	16,123	—

The fair value of the hedged portion of the long-term debt is primarily based on the present value of future cash flows using a swap yield curve to determine the assumption for interest rates. The fair value of the unhedged portion of the long-term debt is based on unadjusted period-end market prices for the same or similar debt of the same remaining maturities.

There were no transfers between any of the fair value levels during the years ended December 31, 2021 or 2020.

Risk Management

Exposure to market risk, credit risk and liquidity risk arises in the normal course of the Company’s business.

Market Risk

Market risk refers primarily to the risk of loss which results from changes in values, foreign exchange rates and interest rates. The Company is exposed to fluctuations in interest rates, as its regulated ROE is derived using a formulaic approach that takes anticipated interest rates into account. The Company is not currently exposed to material commodity price risk or material foreign exchange risk.

The Company uses a combination of fixed and variable-rate debt to manage the mix of its debt portfolio. The Company also uses derivative financial instruments to manage interest-rate risk. The Company may utilize interest-rate swaps designated as fair value hedges as a means to manage its interest rate exposure to achieve a lower cost of debt. The Company may also utilize interest-rate derivative instruments, such as cash flow hedges, to manage its exposure to short-term interest rates or to lock in interest-rate levels on forecasted financing.

A hypothetical 100 basis points increase in interest rates associated with variable-rate debt would not have resulted in a significant decrease in Hydro One’s net income for the years ended December 31, 2021 and 2020.

For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in the consolidated statements of operations and comprehensive income. The net unrealized loss (gain) on the hedged debt and the related interest-rate swaps for the years ended December 31, 2021 and 2020 were not material.

For derivative instruments that are designated and qualify as cash flow hedges, the unrealized gain or loss, after tax, on the derivative instrument is recorded as OCI or OCL and is reclassified to results of operations in the same period during which the hedged transaction affects results of operations. During the year ended December 31, 2021, a $4 million after-tax unrealized gain (2020 - $28 million loss), $5 million before-tax (2020 - $38 million loss), was recorded in OCI, and a $8 million after-tax realized loss (2020 - $5 million), $12 million before-tax (2020 - $7 million), was reclassified to financing charges. This resulted in an accumulated other comprehensive loss (AOCL) of $6 million related to cash flow hedges at December 31, 2021 (2020 - $18 million). The Company estimates that the amount of AOCL, after tax, related to cash flow hedges to be reclassified to results of operations in the next 12 months is $6 million. Actual amounts reclassified to results of operations depend on the interest rate risk in effect until the derivative contracts mature. For all forecasted transactions, at December 31, 2021, the maximum term over which the Company is hedging exposures to the variability of cash flows is approximately one year.

The Pension Plan manages market risk by diversifying investments in accordance with the Pension Plan’s Statement of Investment Policies and Procedures (SIPP). Interest rate risk arises from the possibility that changes in interest rates will affect the fair value of the Pension Plan’s financial instruments. In addition, changes in interest rates can also impact discount rates which impact the valuation of the pension and post-retirements and post-employment liabilities. Currency risk is the risk that the value of the Pension Plan’s financial instruments will fluctuate due to changes in foreign currencies relative to the Canadian dollar. Other price risk is the risk that the value of the Pension Plan’s investments in equity securities will fluctuate as a result of changes in market prices, other than those arising from interest rate risk or currency risk. All three factors may contribute to changes in values of the Pension Plan investments. See Note 20 - Pension and Post-Retirement and Post-Employment Benefits for further details.

Credit Risk

Financial assets create a risk that a counterparty will fail to discharge an obligation, causing a financial loss. At December 31, 2021 and 2020, there were no significant concentrations of credit risk with respect to any class of financial assets. The Company’s revenue is earned from a broad base of customers. As a result, Hydro One did not earn a material amount of revenue from any single customer. At December 31, 2021 and 2020, there was no material accounts receivable balance due from any single customer.

At December 31, 2021, the Company’s allowance for doubtful accounts was $56 million (2020 - $46 million). The allowance for doubtful accounts reflects the Company's CECL for all accounts receivable balances, which are based on historical overdue balances, customer payments and write-offs. At December 31, 2021, approximately 5% (2020 - 4%) of the Company’s net accounts receivable were outstanding for more than 60 days. Please see Note 9 - Accounts Receivable for additions to allowance for doubtful accounts related to the impact of the COVID-19 pandemic.

Hydro One manages its counterparty credit risk through various techniques including (i) entering into transactions with highly rated counterparties, (ii) limiting total exposure levels with individual counterparties, (iii) entering into master agreements which enable net settlement and the contractual right of offset, and (iv) monitoring the financial condition of counterparties. The Company monitors current credit exposure to counterparties on both an individual and an aggregate basis. The Company’s credit risk for accounts receivable is limited to the carrying amounts on the consolidated balance sheets.

Derivative financial instruments result in exposure to credit risk since there is a risk of counterparty default. The maximum credit exposure of derivative contracts, before collateral, is represented by the fair value of contracts in an asset position at the reporting date. At December 31, 2021 and 2020, the counterparty credit risk exposure on the fair value of these interest-rate swap contracts was not material. At December 31, 2021, Hydro One’s credit exposure for all derivative instruments, and applicable payables and receivables, was with two financial institutions with investment grade credit ratings as counterparties.

The Pension Plan manages its counterparty credit risk with respect to bonds by investing in investment-grade corporate and government bonds and with respect to derivative instruments by transacting only with highly rated financial institutions and by ensuring that exposure is diversified across counterparties.

Liquidity Risk

Liquidity risk refers to the Company’s ability to meet its financial obligations as they come due. Hydro One meets its short-term operating liquidity requirements using cash and cash equivalents on hand, funds from operations, the issuance of commercial paper, and the Operating Credit Facilities. The short-term liquidity under the commercial paper program, the Operating Credit Facilities, and anticipated levels of funds from operations are expected to be sufficient to fund the Company’s operating requirements. The Company's currently available liquidity is also expected to be sufficient to address any reasonably foreseeable impacts that the COVID-19 pandemic may have on the Company’s cash requirements.

In April 2020, Hydro One filed a short form base shelf prospectus in connection with its MTN Program, which has a maximum authorized principal amount of notes issuable of $4,000 million, expiring in May 2022. At December 31, 2021, $1,900 million remained available for issuance under the MTN Program prospectus. A new MTN Program prospectus is expected to be filed in the first half of 2022.

The Pension Plan’s short-term liquidity is provided through cash and cash equivalents, contributions, investment income and proceeds from investment transactions. In the event that investments must be sold quickly to meet current obligations, the majority of the Pension Plan’s assets are invested in securities that are traded in an active market and can be readily disposed of as liquidity needs arise.

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Capital Management

12 Months Ended

Dec. 31, 2021

Regulated Operations [Abstract]

Capital Management

CAPITAL MANAGEMENT

The Company’s objectives with respect to its capital structure are to maintain effective access to capital on a long-term basis at reasonable rates, and to deliver appropriate financial returns. In order to ensure ongoing access to capital, the Company targets to maintain strong credit quality. At December 31, 2021 and 2020, the Company’s capital structure was as follows:

As at December 31 (millions of dollars)	2021	2020
Long-term debt payable within one year	603	806
Short-term notes payable	1,045	800
Less: cash and cash equivalents	(499)	(712)
	1,149	894
Long-term debt	12,593	12,302
Common shares	2,957	2,957
Retained earnings	8,229	7,877
Total capital	24,928	24,030

Hydro One and HOSSM have customary covenants typically associated with long-term debt. Long-term debt and credit facility covenants limit permissible debt to 75% of its total capitalization, limit the ability to sell assets and impose a negative pledge provision, subject to customary exceptions. At December 31, 2021, the Company was in compliance with all financial covenants and limitations associated with the outstanding borrowings and credit facilities.

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Pension and Post-Retirement and Post-Employment Benefits

12 Months Ended

Dec. 31, 2021

Retirement Benefits [Abstract]

Pension and Post-Retirement and Post-Employment Benefits

PENSION AND POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS

Hydro One has a Pension Plan, a DC Plan, a supplementary pension plan (Supplementary Plan), and post-retirement and post-employment benefit plans.

DC Plan

Hydro One established a DC Plan effective January 1, 2016. The DC Plan covers eligible management employees hired on or after January 1, 2016, as well as management employees hired before January 1, 2016 who were not eligible to join the Pension Plan as of September 30, 2015. Members of the DC Plan have an option to contribute 4%, 5% or 6% of their pensionable earnings, with matching contributions by Hydro One up to an annual contribution limit. There is also a Supplementary DC Plan that provides members of the DC Plan with employer contributions beyond the limitations imposed by the Income Tax Act (Canada) in the form of credits to a notional account. Hydro One contributions to the DC Plan for the year ended December 31, 2021 were $2 million (2020 - $2 million).

Pension Plan, Supplementary Plan, and Post-Retirement and Post-Employment Plans

The Pension Plan is a defined benefit contributory plan which covers eligible regular employees of Hydro One and its subsidiaries. The Pension Plan provides benefits based on highest three-year average pensionable earnings. For management employees who commenced employment on or after January 1, 2004, and for the Society of United Professionals (Society)-represented staff hired after November 17, 2005, benefits are based on highest five-year average pensionable earnings. After retirement, pensions are indexed to inflation. Membership in the Pension Plan was closed to management employees who were not eligible or had not irrevocably elected to join the Pension Plan as of September 30, 2015. These employees are eligible to join the DC Plan.

Company and employee contributions to the Pension Plan are based on actuarial reports, including valuations performed at least every three years, and actual or projected levels of pensionable earnings, as applicable. The most recent actuarial valuation was performed effective December 31, 2018 and filed on September 30, 2019. The new valuation is expected to be filed by no later than September 30, 2022, which may result in a change to the estimated contributions for 2022-2027. Total annual cash Pension Plan employer contributions for 2021 were $62 million (2020 - $57 million). Estimated annual Pension Plan employer contributions for the years 2022, 2023, 2024, 2025, 2026 and 2027 are approximately $93 million, $107 million, $111 million, $111 million, $113 million and $118 million respectively.

The Supplementary Plan provides members of the Pension Plan with benefits that would have been earned and payable under the Pension Plan beyond the limitations imposed by the Income Tax Act (Canada). The Supplementary Plan obligation is included with other post-retirement and post-employment benefit obligations on the consolidated balance sheets.

Hydro One recognizes the overfunded or underfunded status of the Pension Plan, and post-retirement and post-employment benefit plans (Plans) as an asset or liability on its consolidated balance sheets, with offsetting regulatory assets and liabilities as appropriate. The underfunded benefit obligations for the Plans, in the absence of regulatory accounting, would be recognized in AOCI. The impact of changes in assumptions used to measure pension and post-retirement benefit obligations is generally recognized over the expected average remaining service period of the employees and using the corridor approach for the post-retirement benefit plan. For post-employment benefit plan, the impact of changes in assumptions are recognized immediately in the net periodic benefit cost. The measurement date for the Plans is December 31.

The following tables provide the components of the unfunded status of the Company's Plans at December 31, 2021 and 2020:

	Pension Benefits		Post-Retirement and Post-Employment Benefits
Year ended December 31 (millions of dollars)	2021	2020	2021	2020
Change in projected benefit obligation
Projected benefit obligation, beginning of year	9,763	8,973	1,841	1,768
Current service cost	240	215	65	70
Employee contributions	61	56	—	—
Interest cost	257	284	51	57
Benefits paid	(392)	(381)	(47)	(45)
Net actuarial loss (gain)	(571)	465	(98)	(42)
Transfers from other plans1,2	—	151	34	33
Projected benefit obligation, end of year	9,358	9,763	1,846	1,841
Change in plan assets
Fair value of plan assets, beginning of year	8,103	7,848	—	—
Actual return on plan assets	834	425	—	—
Benefits paid	(392)	(381)	(47)	(45)
Employer contributions	62	57	47	45
Employee contributions	61	56	—	—
Administrative expenses	(23)	(22)	—	—
Transfers from other plans1	—	120	—	—
Fair value of plan assets, end of year	8,645	8,103	—	—
Unfunded status	713	1,660	1,846	1,841

1 In 2020, assets and liabilities associated with the Inergi LP Pension Plan and post-employment benefit plans were transferred to the Hydro One Pension Plan and
post-employment benefit plans, related to the 2018 transfer of customer service operations employees to Hydro One.

2 See below for information related to the transfer from other plans in 2021 as well as future transfers from other plans for employees transferred in 2021 and 2022.

Future Transfers from Other Plans

In January 2021, Hydro One and Inergi LP (Inergi) executed a letter of understanding (LOU) for the transfer of certain Inergi employees (Transferred Employees) to Hydro One Networks over a period of time. Employees related to the Information Technology Operations, Finance and Accounting, Payroll and certain Shared Services functions transferred over a period ending January 1, 2022. The Transferred Employees who are participants in the Inergi LP Pension Plan (Inergi Plan) became participants in the Hydro One Pension Plan upon transfer to Hydro One. Subject to all necessary regulatory approvals, the assets and liabilities of the Inergi Plan will transfer to the Plan. The values of assets and liabilities of the Inergi Plan to be transferred to the Plan will be determined at the date of transfer, which is expected to occur sometime in 2023. In accordance with the LOU, Inergi and Hydro One Networks also agreed to transfer OPEB liabilities related to the Transferred Employees to Hydro One’s post-retirement and post-employment benefit plans.

On March 1, 2021, Transferred Employees associated with information technology operations (ITO Employees) transferred to Hydro One Networks, and the transfer of the OPEB liability of $28 million related to the ITO Employees was completed. The liability was recorded as a post-retirement and post-employment benefit liability with an offset to OCL, and cash totaling

$27 million was transferred to Hydro One and recorded as an asset with an offset to OCI. Both, the OCI resulting from the transfer of the cash asset and the OCL resulting from the transfer of the other post-retirement benefit liability are being recognized in net income over the expected average remaining service lifetime (EARSL) of the ITO Employees.

On November 1, 2021, Transferred Employees associated with source to pay operations (S2P Employees) transferred to Hydro One Networks, and the transfer of the OPEB liability of $6 million related to the S2P Employees was completed. The liability was recorded as a post-retirement and post-employment benefit liability with an offset to OCL, and cash totaling $6 million was transferred to Hydro One and recorded as an asset with an offset to OCI. Both, the OCI resulting from the transfer of the cash asset and the OCL resulting from the transfer of the other post-retirement benefit liability are being recognized in net income over the EARSL of the S2P Employees.

The transfer of Finance and Accounting, Payroll and certain Shared Services functions occurred on January 1, 2022 and the transfer of the OPEB liability will be recorded in the first quarter of 2022.

Hydro One presents its benefit obligations and plan assets net on its consolidated balance sheets as follows:

	Pension Benefits		Post-Retirement and Post-Employment Benefits
As at December 31 (millions of dollars)	2021	2020	2021	2020
Other assets1	10	6	—	—
Accrued liabilities	—	—	62	60
Pension benefit liability	713	1,660	—	—
Post-retirement and post-employment benefit liability	—	—	1,784	1,781
Net unfunded status	703	1,654	1,846	1,841

1 Represents the funded status of HOSSM defined benefit pension plan.

The funded or unfunded status of the Plans refers to the difference between the fair value of plan assets and the PBO for the Plans. The funded/unfunded status changes over time due to several factors, including contribution levels, assumed discount rates and actual returns on plan assets.

The following table provides the PBO, accumulated benefit obligation (ABO) and fair value of plan assets for the Pension Plan:

As at December 31 (millions of dollars)	2021	2020
PBO	9,358	9,763
ABO	8,451	8,817
Fair value of plan assets	8,645	8,103

On an ABO basis, the Pension Plan was funded at 102% at December 31, 2021 (2020 - 92%). On a PBO basis, the Pension Plan was funded at 92% at December 31, 2021 (2020 - 83%). The ABO differs from the PBO in that the ABO includes no assumption about future compensation levels.

Components of Net Periodic Benefit Costs

The following table provides the components of the net periodic benefit costs for the years ended December 31, 2021 and 2020 for the Pension Plan:

Year ended December 31 (millions of dollars)	2021	2020
Current service cost	240	215
Interest cost	257	284
Expected return on plan assets, net of expenses	(430)	(450)
Prior service cost amortization	2	2
Amortization of actuarial losses	125	95
Net periodic benefit costs	194	146
Charged to results of operations1	26	24

1    The Company accounts for pension costs consistent with their inclusion in OEB-approved rates. During the year ended December 31, 2021, pension costs of $73 million (2020 - $68 million) were attributed to labour, of which $26 million (2020 - $24 million) was charged to operations, and $47 million (2020 - $44 million) was capitalized as part of the cost of property, plant and equipment and intangible assets.

The following table provides the components of the net periodic benefit costs for the years ended December 31, 2021 and 2020 for the post-retirement and post-employment benefit plans:

Year ended December 31 (millions of dollars)	2021	2020
Current service cost	65	70
Interest cost	51	57
Prior service cost amortization	7	2
Amortization of actuarial losses	(2)	5
Net periodic benefit costs	121	134
Charged to results of operations1,2	63	71

1    The Company accounts for post-retirement and post-employment costs consistent with their inclusion in OEB-approved rates. During the year ended December 31, 2021, post-retirement and post-employment costs of $121 million (2020 - $133 million) were attributed to labour, of which $63 million (2020 - $71 million) was charged to operations, $14 million (2020 - $17 million) was recorded in the Hydro One Networks distribution post-retirement and post-employment benefits non-service cost regulatory asset, and $44 million (2020 - $45 million) was capitalized as part of the cost of property, plant and equipment and intangible assets.

2     In the 2020-2022 Transmission Decision, the OEB approved the recovery of the non-service cost component of post-retirement and post-employment benefits as part of operation, maintenance and administration costs for the Company's transmission business. These costs were previously capitalized and recovered through rate base. As a result, during the year ended December 31, 2021, additional other post-retirement and post-employment costs of $14 million (2020 - $22 million) attributed to labour were charged to operations.

Assumptions

The measurement of the obligations of the Plans and the costs of providing benefits under the Plans involves various factors, including the development of valuation assumptions and accounting policy elections. When developing the required assumptions, the Company considers historical information as well as future expectations. The measurement of benefit obligations and costs is impacted by several assumptions including the discount rate applied to benefit obligations, the long-term expected rate of return on plan assets, Hydro One’s expected level of contributions to the Plans, the incidence of mortality, the expected remaining service period of plan participants, the level of compensation and rate of compensation increases, employee age, length of service, and the anticipated rate of increase of health care costs, among other factors. The impact of changes in assumptions used to measure the obligations of the Plans is generally recognized over the expected average remaining service period of the plan participants. In selecting the expected rate of return on plan assets, Hydro One considers historical economic indicators that impact asset returns, as well as expectations regarding future long-term capital market performance, weighted by target asset class allocations. In general, equity securities, real estate and private equity investments are forecasted to have higher returns than fixed-income securities.

The following weighted average assumptions were used to determine the benefit obligations at December 31, 2021 and 2020:

	Pension Benefits				Post-Retirement and Post-Employment Benefits
Year ended December 31	2021		2020		2021		2020
Significant assumptions:
Weighted average discount rate	3.00	%	2.60	%	3.00	%	2.60	%
Rate of compensation scale escalation (long-term)	2.25	%	2.25	%	2.25	%	2.25	%
Rate of cost of living increase	1.75	%	1.75	%	1.75	%	1.75	%
Rate of increase in health care cost trends1	—		—		3.97	%	3.70	%

1 4.88% per annum in 2022, grading down to 3.97% per annum in and after 2031 (2020 - 4.74% per annum in 2021, grading down to 3.70% per annum in and after 2031)

The following weighted average assumptions were used to determine the net periodic benefit costs for the years ended December 31, 2021 and 2020. Assumptions used to determine current year-end benefit obligations are the assumptions used to estimate the subsequent year’s net periodic benefit costs.

Year ended December 31	2021		2020
Pension Benefits:
Weighted average expected rate of return on plan assets	5.40	%	5.75	%
Weighted average discount rate	2.60	%	3.10	%
Rate of compensation scale escalation (long-term)	2.25	%	2.50	%
Rate of cost of living increase	1.75	%	2.00	%
Average remaining service life of employees (years)	14		15
Post-Retirement and Post-Employment Benefits:
Weighted average discount rate	2.60	%	3.10	%
Rate of compensation scale escalation (long-term)	2.25	%	2.50	%
Rate of cost of living increase	1.75	%	2.00	%
Average remaining service life of employees (years)	15.3		15.5
Rate of increase in health care cost trends1	3.70	%	4.04	%

1 4.74% per annum in 2021, grading down to 3.70% per annum in and after 2031 (2020 - 5.09% per annum in 2020, grading down to 4.04% per annum in and after 2031)

The discount rate used to determine the current year pension obligation and the subsequent year’s net periodic benefit costs is based on a yield curve approach. Under the yield curve approach, expected future benefit payments for each plan are discounted by a rate on a third-party bond yield curve corresponding to each duration. The yield curve is based on “AA” long-term corporate bonds. A single discount rate is calculated that would yield the same present value as the sum of the discounted cash flows.

The following approximate life expectancies were used in the mortality assumptions to determine the PBO for the pension and post-retirement and post-employment plans at December 31, 2021 and 2020:

As at December 31	2021	2020
Life expectancy at age 65 for a member currently at:	(years)	(years)
Age 65 - male	23	22
Age 65 - female	25	25
Age 45 - male	24	23
Age 45 - female	26	26

Estimated Future Benefit Payments

At December 31, 2021, estimated future benefit payments to the participants of the Plans were:

(millions of dollars)	Pension Benefits	Post-Retirement and Post-Employment Benefits
2022	362	64
2023	369	65
2024	375	66
2025	379	66
2026	383	68
2027 through to 2031	1,962	345
Total estimated future benefit payments through to 2031	3,830	674

Components of Regulatory Accounts

A portion of actuarial gains and losses and prior service costs is recorded within regulatory accounts on Hydro One’s consolidated balance sheets to reflect the expected regulatory inclusion of these amounts in future rates, which would otherwise be recorded in OCI. These amounts are reflected in the following table:

Year ended December 31 (millions of dollars)	2021	2020
Pension Benefits:
Actuarial (gain) loss for the year	(891)	536
Prior service cost for the year	—	31
Amortization of actuarial losses	(124)	(95)
Amortization of prior service cost	(2)	(2)
	(1,017)	470
Post-Retirement and Post-Employment Benefits:
Actuarial gain for the year	(91)	(44)
Amortization of actuarial losses	(3)	(2)
	(94)	(46)

The following table provides the components of regulatory accounts that have not been recognized as components of net periodic benefit costs for the years ended December 31, 2021 and 2020:

Year ended December 31 (millions of dollars)	2021	2020
Pension Benefits:
Actuarial loss	713	1,660
Post-Retirement and Post-Employment Benefits:
Actuarial (gain) loss	(33)	59

Pension Plan Assets

Investment Strategy

On a regular basis, Hydro One evaluates its investment strategy to ensure that Pension Plan assets will be sufficient to pay Pension Plan benefits when it comes due. As part of this ongoing evaluation, Hydro One may make changes to its targeted asset allocation and investment strategy. The Pension Plan is managed at a net asset level. The main objective of the Pension Plan is to sustain a certain level of net assets in order to meet the pension obligations of the Company. The Pension Plan fulfils its primary objective by adhering to specific investment policies outlined in its Statement of Investment Policies and Procedures (SIPP), which is reviewed and approved annually by the Human Resource Committee of Hydro One’s Board of Directors. The Company manages net assets by engaging external investment managers who are charged with the fiduciary responsibility of investing existing funds and new funds (current year’s employee and employer contributions) in accordance with the approved SIPP. The performance of the underlying investment managers is monitored through a governance structure. Increases in net assets are a direct result of investment income generated by investments held by the Pension Plan and contributions to the Pension Plan by eligible employees and by the Company. The main use of net assets is for benefit payments to eligible Pension Plan members. 

Pension Plan Asset Mix

At December 31, 2021, the Pension Plan actual weighted average, target, and range asset allocations were as follows:

	Actual (%)	Target Allocation (%)	Range Allocation (%)
Equity securities	51	40	25 - 55
Debt securities	33	35	30 - 40
Real Estate and Infrastructure	16	25	0 - 35
	100	100

At December 31, 2021, the Pension Plan held $22 million (2020 - $23 million) Hydro One corporate bonds and $603 million (2020 - $565 million) of debt securities of the Province of Ontario (Province).

Concentrations of Credit Risk

Hydro One evaluated its Pension Plan’s asset portfolio for the existence of significant concentrations of credit risk as at December 31, 2021 and 2020. Concentrations that were evaluated include, but are not limited to, investment concentrations in a single entity, concentrations in a type of industry, and concentrations in individual funds. At December 31, 2021 and 2020, there were no significant concentrations (defined as greater than 10% of plan assets) of risk in the Pension Plan’s assets.

The Pension Plan's Statement of Investment Beliefs and Guidelines provides guidelines and restrictions for eligible investments taking into account credit ratings, maximum investment exposure and other controls in order to limit the impact of this risk. The Pension Plan manages its counterparty credit risk with respect to bonds by investing in investment-grade and government bonds and with respect to derivative instruments by transacting only with highly rated financial institutions, and also by ensuring that exposure is diversified across counterparties. The risk of default on transactions in listed securities is considered minimal, as the trade will fail if either party to the transaction does not meet its obligation.

Fair Value Measurements

The following tables present the Pension Plan assets and liabilities measured and recorded at fair value on a recurring basis and their level within the fair value hierarchy at December 31, 2021 and 2020:

As at December 31, 2021 (millions of dollars)	Level 1	Level 2	Level 3	Total
Pooled funds	—	21	1,937	1,958
Cash and cash equivalents	144	—	—	144
Short-term securities	—	86	—	86
Derivative instruments	—	2	—	2
Corporate shares - Canadian	167	—	—	167
Corporate shares - Foreign	3,412	258	—	3,670
Bonds and debentures - Canadian	—	2,491	—	2,491
Bonds and debentures - Foreign	—	97	—	97
Total fair value of plan assets1	3,723	2,955	1,937	8,615

Derivative instruments	—	1	—	1
Total fair value of plan liabilities1	—	1	—	1

1 At December 31, 2021, the total fair value of Pension Plan assets and liabilities excludes $39 million of interest and dividends receivable, $5 million of pension administration expenses payable, $2 million of taxes payable, $4 million payable to participants, $6 million of sold investments receivable, and $3 million of purchased investments payable.

As at December 31, 2020 (millions of dollars)	Level 1	Level 2	Level 3	Total
Pooled funds	—	21	1,429	1,450
Cash and cash equivalents	163	—	—	163
Short-term securities	—	175	—	175
Derivative instruments	—	2	—	2
Corporate shares - Canadian	142	—	—	142
Corporate shares - Foreign	3,335	209	—	3,544
Bonds and debentures - Canadian	—	2,499	—	2,499
Bonds and debentures - Foreign	—	96	—	96
Total fair value of plan assets1	3,640	3,002	1,429	8,071

Derivative instruments	—	1	—	1
Total fair value of plan liabilities1	—	1	—	1

1 At December 31, 2020, the total fair value of Pension Plan assets and liabilities excludes $39 million of interest and dividends receivable, $6 million of pension administration expenses payable, $2 million of taxes payable, $6 million payable to participants, $17 million of sold investments receivable, and $9 million of purchased investments payable.

See Note 18 - Fair Value of Financial Instruments and Risk Management for a description of levels within the fair value hierarchy.

Changes in the Fair Value of Financial Instruments Classified in Level 3

The following table summarizes the changes in fair value of financial instruments classified in Level 3 for the years ended December 31, 2021 and 2020. The Pension Plan classifies financial instruments as Level 3 when the fair value is measured based on at least one significant input that is not observable in the markets or due to lack of liquidity in certain markets. The gains and losses presented in the table below could, therefore, include changes in fair value based on both observable and unobservable inputs. The Level 3 financial instruments are comprised of pooled funds whose valuations are provided by the investment managers. Sensitivity analysis is not provided as the underlying assumptions used by the investment managers are not available.

Year ended December 31 (millions of dollars)	2021	2020
Fair value, beginning of year	1,429	1,079
Realized and unrealized gains	307	97
Purchases	308	288
Sales and disbursements	(107)	(35)
Fair value, end of year	1,937	1,429

There were no significant transfers between any of the fair value levels during the years ended December 31, 2021 and 2020.

Valuation Techniques Used to Determine Fair Value

Pooled funds mainly consist of private equity, real estate infrastructure and private debt investments. Private equity investments represent private equity funds that invest in operating companies that are not publicly traded on a stock exchange. Investment strategies in private equity include limited partnerships in businesses that are characterized by high internal growth and operational efficiencies, venture capital, leveraged buyouts and special situations such as distressed investments. Real estate and infrastructure investments represent funds that invest in real assets which are not publicly traded on a stock exchange. Investment strategies in real estate include limited partnerships that seek to generate a total return through income and capital growth by investing primarily in global and Canadian limited partnerships. Investment strategies in infrastructure include limited partnerships in core infrastructure assets focusing on assets that are expected to generate stable, long-term cash flows and deliver incremental returns relative to conventional fixed-income investments. Private equity, real estate and infrastructure valuations are reported by the fund manager and are based on the valuation of the underlying investments which includes inputs such as cost, operating results, discounted future cash flows and market-based comparable data. Private debt valuations are reported by the fund manager. Private debt is credit that is extended to companies on a bilaterally negotiated basis. It is not readily marketable and takes a wide range of forms, such as senior secured and unsecured loans, infrastructure project financing, investments secured by real estate assets, and securitized lease/loan obligations supported by a pool of assets. Since these valuation inputs are not highly observable, private equity, real estate infrastructure and private debt investments have been categorized as Level 3 within pooled funds.

Cash equivalents consist of demand cash deposits held with banks and cash held by the investment managers. Cash equivalents are categorized as Level 1.

Short-term securities are valued at cost plus accrued interest, which approximates fair value due to their short-term nature. Short-term securities are categorized as Level 2.

Derivative instruments are used to hedge the Pension Plan’s foreign currency exposure back to Canadian dollars. The notional principal amount of contracts outstanding as at December 31, 2021 was $414 million (2020 - $423 million), the most significant currencies being hedged against the Canadian dollar are the United States dollar, euro, British pound sterling, Swedish krona and Japanese yen. The net realized gain on contracts for the year ended December 31, 2021 was $2 million (2020 - $8 million net realized loss). The terms to maturity of the forward exchange contracts at December 31, 2021 are within three months. The fair value is determined using standard interpolation methodology primarily based on the World Markets exchange rates. Derivative instruments are categorized as Level 2.

Corporate shares are valued based on quoted prices in active markets and are categorized as Level 1. Corporate shares which are valued based on quoted prices in active markets, but held within a pension investment holding company, are categorized as Level 2. Investments denominated in foreign currencies are translated into Canadian currency at year-end rates of exchange.

Bonds and debentures are presented at published closing trade quotations, and are categorized as Level 2.

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Environmental Liabilities

12 Months Ended

Dec. 31, 2021

Environmental Remediation Obligations [Abstract]

Environmental Liabilities

ENVIRONMENTAL LIABILITIES

The following tables show the movements in environmental liabilities for the years ended December 31, 2021 and 2020:

Year ended December 31, 2021 (millions of dollars)	PCB	LAR	Total
Environmental liabilities - beginning	76	57	133
Interest accretion	1	—	1
Expenditures	(24)	(6)	(30)
Revaluation adjustment	15	3	18
Environmental liabilities - ending	68	54	122
Less: current portion	(27)	(7)	(34)
	41	47	88

Year ended December 31, 2020 (millions of dollars)	PCB	LAR	Total
Environmental liabilities - beginning	90	51	141
Interest accretion	3	—	3
Expenditures	(17)	(6)	(23)
Revaluation adjustment	—	12	12
Environmental liabilities - ending	76	57	133
Less: current portion	(25)	(8)	(33)
	51	49	100

The following tables show the reconciliation between the undiscounted basis of the environmental liabilities and the amount recognized on the consolidated balance sheets after factoring in the discount rate:

As at December 31, 2021 (millions of dollars)	PCB	LAR	Total
Undiscounted environmental liabilities	70	54	124
Less: discounting environmental liabilities to present value	(2)	—	(2)
Discounted environmental liabilities	68	54	122

As at December 31, 2020 (millions of dollars)	PCB	LAR	Total
Undiscounted environmental liabilities	80	57	137
Less: discounting environmental liabilities to present value	(4)	—	(4)
Discounted environmental liabilities	76	57	133

At December 31, 2021, the estimated future environmental expenditures were as follows:

(millions of dollars)
2022	34
2023	21
2024	22
2025	12
2026	2
Thereafter	33
	124

Hydro One records a liability for the estimated future expenditures for LAR and for the phase-out and destruction of PCB-contaminated mineral oil removed from electrical equipment when it is determined that future environmental remediation expenditures are probable under existing statute or regulation and the amount of the future expenditures can be reasonably estimated.

There are uncertainties in estimating future environmental costs due to potential external events such as changes in legislation or regulations, and advances in remediation technologies. In determining the amounts to be recorded as environmental liabilities, the Company estimates the current cost of completing required work and makes assumptions as to when the future expenditures will actually be incurred, in order to generate future cash flow information. A long-term inflation rate assumption of approximately 2% has been used to express these current cost estimates as estimated future expenditures. Future expenditures have been discounted using factors ranging from approximately 2.0% to 6.3%, depending on the appropriate rate for the period when expenditures are expected to be incurred. All factors used in estimating the Company’s environmental liabilities represent management’s best estimates of the present value of costs required to meet existing legislation or regulations. However, it is reasonably possible that numbers or volumes of contaminated assets, cost estimates to perform work, inflation assumptions and the assumed pattern of annual cash flows may differ significantly from the Company’s current assumptions. In addition, with respect to the PCB environmental liability, the availability of critical resources such as skilled labour and replacement assets and the ability to take maintenance outages in critical facilities may influence the timing of expenditures.

PCBs

The Environment Canada regulations, enacted under the Canadian Environmental Protection Act, 1999, govern the management, storage and disposal of PCBs based on certain criteria, including type of equipment, in-use status, and PCB-contamination thresholds. Under current regulations, Hydro One’s PCBs have to be disposed of by the end of 2025, with the exception of specifically exempted equipment. Contaminated equipment will generally be replaced, or will be decontaminated by removing PCB-contaminated insulating oil and retro filling with replacement oil that contains PCBs in concentrations of less than 2 ppm.

At December 31, 2021, the Company’s best estimate of the total estimated future expenditures to comply with current PCB regulations was $70 million (2020 - $80 million). These expenditures are expected to be incurred over the period from 2022 to 2025. As a result of its annual review of environmental liabilities, the Company recorded a revaluation adjustment in 2021 to increase the PCB environmental liability by $15 million (2020 - no revaluation adjustment was recorded).

LAR

At December 31, 2021, the Company’s best estimate of the total estimated future expenditures to complete its LAR program was $54 million (2020 - $57 million). These expenditures are expected to be incurred over the period from 2022 to 2054. As a result of its annual review of environmental liabilities, the Company recorded a revaluation adjustment in 2021 to increase the LAR environmental liability by $3 million (2020 - $12 million).

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Asset Retirement Obligations

12 Months Ended

Dec. 31, 2021

Asset Retirement Obligation Disclosure [Abstract]

Asset Retirement Obligations

ASSET RETIREMENT OBLIGATIONS

Hydro One records a liability for the estimated future expenditures for the removal and disposal of asbestos-containing materials installed in some of its facilities. Asset retirement obligations, which represent legal obligations associated with the retirement of certain tangible long-lived assets, are computed as the present value of the projected expenditures for the future retirement of specific assets and are recognized in the period in which the liability is incurred, if a reasonable estimate can be made. If the asset remains in service at the recognition date, the present value of the liability is added to the carrying amount of the associated asset in the period the liability is incurred and this additional carrying amount is depreciated over the remaining life of the asset. If an asset retirement obligation is recorded in respect of an out-of-service asset, the asset retirement cost is charged to results of operations. Subsequent to the initial recognition, the liability is adjusted for any revisions to the estimated future cash flows associated with the asset retirement obligation, which can occur due to a number of factors including, but not limited to, cost escalation, changes in technology applicable to the assets to be retired, changes in legislation or regulations, as well as for accretion of the liability due to the passage of time until the obligation is settled. Depreciation expense is adjusted prospectively for any increases or decreases to the carrying amount of the associated asset.

In determining the amounts to be recorded as asset retirement obligations, the Company estimates the current fair value for completing required work and makes assumptions as to when the future expenditures will actually be incurred, in order to generate future cash flow information. A long-term inflation assumption of approximately 2% has been used to express these current cost estimates as estimated future expenditures. Future expenditures have been discounted using factors ranging from approximately 2.0% to 4.0%, depending on the appropriate rate for the period when expenditures are expected to be incurred. All factors used in estimating the Company’s asset retirement obligations represent management’s best estimates of the cost required to meet existing legislation or regulations. However, it is reasonably possible that numbers or volumes of contaminated assets, cost estimates to perform work, inflation assumptions and the assumed pattern of annual cash flows may differ significantly from the Company’s current assumptions. Asset retirement obligations are reviewed annually or more frequently if significant changes in regulations or other relevant factors occur. Estimate changes are accounted for prospectively. As a result of its annual review of asset retirement obligations, no revaluation adjustment to the asset retirement obligations was recorded in 2021 (2020 - revaluation adjustment was recorded to increase the asset retirement obligations by $3 million).

At December 31, 2021, Hydro One had recorded asset retirement obligations of $14 million (2020 - $13 million), primarily consisting of the estimated future expenditures associated with the removal and disposal of asbestos-containing materials installed in some of its facilities.

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Leases

12 Months Ended

Dec. 31, 2021

Leases [Abstract]

Leases

LEASES

Hydro One has operating lease contracts for buildings used in administrative and service-related functions. These leases have terms between three and nine years with renewal options of additional three- to five-year terms at prevailing market rates at the time of extension. All leases include a clause to enable upward revision of the rental charge on an annual basis or on renewal according to prevailing market conditions or pre-established rents. There are no restrictions placed upon Hydro One by entering into these leases. Renewal options are included in the lease term when their exercise is reasonably certain. Other information related to the Company's operating leases was as follows:

Year ended December 31 (millions of dollars)	2021		2020
Lease expense	13		12
Lease payments made	13		11
As at December 31	2021		2020
Weighted-average remaining lease term1 (years)	6		7
Weighted-average discount rate	2.3	%	2.6	%

1 Includes renewal options that are reasonably certain to be exercised.

At December 31, 2021, future minimum operating lease payments were as follows:

(millions of dollars)
2022	14
2023	10
2024	9
2025	7
2026	7
Thereafter	13
Total undiscounted minimum lease payments	60
Less: discounting minimum lease payments to present value	(4)
Total discounted minimum lease payments	56

At December 31, 2020, future minimum operating lease payments were as follows:

(millions of dollars)
2021	14
2022	12
2023	11
2024	11
2025	10
Thereafter	27
Total undiscounted minimum lease payments	85
Less: discounting minimum lease payments to present value	(8)
Total discounted minimum lease payments	77

Hydro One presents its ROU assets and lease obligations on the consolidated balance sheets as follows:

As at December 31 (millions of dollars)	2021	2020
Other long-term assets (Note 14)	53	71
Accounts payable and other current liabilities (Note 15)	12	11
Other long-term liabilities (Note 16)	44	65

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Share Capital

12 Months Ended

Dec. 31, 2021

Equity [Abstract]

Share Capital

SHARE CAPITAL

Common Shares

The Company is authorized to issue an unlimited number of common shares. At December 31, 2021 and 2020, the Company had 142,239 common shares issued and outstanding. No return of stated capital was paid in 2021. During the year ended December 31, 2020, a return of stated capital in the amount of $607 million was paid.

The amount and timing of any dividends payable by Hydro One is at the discretion of the Hydro One Board of Directors and is established on the basis of Hydro One’s results of operations, maintenance of its deemed regulatory capital structure, financial condition, cash requirements, the satisfaction of solvency tests imposed by corporate laws for the declaration and payment of dividends and other factors that the Board of Directors may consider relevant.

Preferred Shares

The Company is authorized to issue an unlimited number of preferred shares, issuable in series. At December 31, 2021 and 2020, the Company had no preferred shares issued and outstanding.

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Dividends	12 Months Ended
	Dec. 31, 2021
Equity [Abstract]
Dividends	DIVIDENDSIn 2021, common share dividends in the amount of $620 million (2020 - $1 million) were declared and paid and no preferred share dividends (2020 - $nil) were paid. See Note 34 - Subsequent Events for dividends declared subsequent to December 31, 2021.

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Earnings Per Common Share	12 Months Ended
	Dec. 31, 2021
Earnings Per Share [Abstract]
Earnings Per Common Share	EARNINGS PER COMMON SHAREBasic and diluted earnings per common share is calculated by dividing net income attributable to common shareholder of Hydro One by the weighted-average number of common shares outstanding. The weighted-average number of common shares outstanding at December 31, 2021 and 2020 were 142,239. There were no dilutive securities during 2021 and 2020.

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Stock-Based Compensation

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation

STOCK-BASED COMPENSATION

The following compensation plans were established by Hydro One Limited, however they represent components of compensation costs of Hydro One in current and future periods.

Share Grant Plans

Hydro One Limited has two share grant plans (Share Grant Plans), one for the benefit of certain members of the Power Workers’ Union (PWU) (PWU Share Grant Plan) and one for the benefit of certain members of the Society (Society Share Grant Plan). Hydro One and Hydro One Limited entered into an intercompany agreement, such that Hydro One will pay Hydro One Limited for the compensation costs associated with these plans.

The PWU Share Grant Plan provides for the issuance of common shares of Hydro One Limited from treasury to certain eligible members of the PWU annually, commencing on April 1, 2017 and continuing until the earlier of April 1, 2028 or the date an

eligible employee no longer meets the eligibility criteria of the PWU Share Grant Plan. To be eligible, an employee must be a member of the Pension Plan on April 1, 2015, be employed on the date annual share issuance occurs and continue to have under 35 years of service. The requisite service period for the PWU Share Grant Plan began on July 3, 2015, which is the date the share grant plan was ratified by the PWU. The number of common shares issued annually to each eligible employee will be equal to 2.7% of such eligible employee’s salary as at April 1, 2015, divided by $20.50, being the price of the common shares of Hydro One Limited in the Initial Public Offering (IPO). The aggregate number of Hydro One Limited common shares issuable under the PWU Share Grant Plan shall not exceed 3,981,763 common shares. In 2015, 3,952,212 Hydro One Limited common shares were granted under the PWU Share Grant Plan relevant to the total share-based compensation recognized by Hydro One.

The Society Share Grant Plan provides for the issuance of common shares of Hydro One Limited from treasury to certain eligible members of the Society annually, commencing on April 1, 2018 and continuing until the earlier of April 1, 2029 or the date an eligible employee no longer meets the eligibility criteria of the Society Share Grant Plan. To be eligible, an employee must be a member of the Pension Plan on September 1, 2015, be employed on the date annual share issuance occurs and continue to have under 35 years of service. Therefore, the requisite service period for the Society Share Grant Plan began on September 1, 2015. The number of common shares issued annually to each eligible employee will be equal to 2.0% of such eligible employee’s salary as at September 1, 2015, divided by $20.50, being the price of the common shares of Hydro One Limited in the IPO. The aggregate number of Hydro One Limited common shares issuable under the Society Share Grant Plan shall not exceed 1,434,686 common shares. In 2015, 1,367,158 Hydro One Limited common shares were granted under the Society Share Grant Plan relevant to the total share-based compensation recognized by Hydro One.

The fair value of the Hydro One Limited 2015 share grants of $111 million was estimated based on the grant date Hydro One Limited share price of $20.50 and is recognized using the graded-vesting attribution method as the share grant plans have both a performance condition and a service condition. In 2021, 410,575 common shares of Hydro One Limited (2020 - 434,653) were issued under the Share Grant Plans to eligible employees of Hydro One. Total share-based compensation recognized during 2021 was $5 million (2020 - $7 million) and was recorded as a regulatory asset.

A summary of share grant activity under the Share Grant Plans during the years ended December 31, 2021 and 2020 is presented below:

Year ended December 31, 2021	Share Grants (number of common shares)		Weighted-Average Price
Share grants outstanding - beginning		3,100,165	$20.50
Vested and issued1		(410,575)	—
Forfeited		(73,239)	$20.50
Share grants outstanding - ending		2,616,351	$20.50

1    In 2021, Hydro One Limited issued from treasury 410,575 common shares to eligible Hydro One employees in accordance with provisions of the Share Grant Plans. In accordance with the intercompany agreement between Hydro One and Hydro One Limited, Hydro One made payments to Hydro One Limited for the common shares issued.

Year ended December 31, 2020	Share Grants (number of common shares)		Weighted-Average Price
Share grants outstanding - beginning		3,611,178	$20.50
Vested and issued1		(434,653)	—
Forfeited		(76,360)	$20.50
Share grants outstanding - ending		3,100,165	$20.50

1    In 2020, Hydro One Limited issued from treasury 434,653 common shares to eligible Hydro One employees in accordance with provisions of the Share Grant Plans. In accordance with the intercompany agreement between Hydro One and Hydro One Limited, Hydro One made payments to Hydro One Limited for the common shares issued.

Directors' DSU Plan

Under the Directors’ DSU Plan, directors can elect to receive credit for their annual cash retainer in a notional account of DSUs in lieu of cash. Hydro One Limited’s Board of Directors may also determine from time to time that special circumstances exist that would reasonably justify the grant of DSUs to a director as compensation in addition to any regular retainer or fee to which the director is entitled. Each DSU represents a unit with an underlying value equivalent to the value of one common share of Hydro One Limited and is entitled to accrue Hydro One Limited common share dividend equivalents in the form of additional DSUs at the time dividends are paid, subsequent to declaration by Hydro One Limited’s Board of Directors.

A summary of DSU awards activity under the Directors' DSU Plan during the years ended December 31, 2021 and 2020 is presented below:

Year ended December 31 (number of DSUs)	2021	2020
DSUs outstanding - beginning	65,240	52,620
Granted	20,888	22,481
Settled	(5,315)	(9,861)
DSUs outstanding - ending	80,813	65,240

For the year ended December 31, 2021, an expense of $1 million (2020 - $1 million) was recognized in earnings with respect to the Directors' DSU Plan. At December 31, 2021, a liability of $3 million (2020 - $2 million) related to Directors' DSUs has been recorded at the closing price of Hydro One Limited common shares of $32.91. This liability is included in other long-term liabilities on the consolidated balance sheets.

Management DSU Plan

Under the Management DSU Plan, eligible executive employees can elect to receive a specified proportion of their annual short-term incentive in a notional account of DSUs in lieu of cash. Each DSU represents a unit with an underlying value equivalent to the value of one common share of the Company and is entitled to accrue common share dividend equivalents in the form of additional DSUs at the time dividends are paid, subsequent to declaration by Hydro One’s Board of Directors.

A summary of DSU awards activity under the Management DSU Plan during the years ended December 31, 2021 and 2020 is presented below:

Year ended December 31 (number of DSUs)	2021	2020
DSUs outstanding - beginning	61,880	52,186
Granted	28,360	22,132
Paid	—	(12,438)
DSUs outstanding - ending	90,240	61,880

For the year ended December 31, 2021, an expense of $1 million (2020 - $1 million) was recognized in earnings with respect to the Management DSU Plan. At December 31, 2021, a liability of $1 million (2020 - $2 million) related to Management DSUs has been recorded at the closing price of Hydro One Limited common shares of $32.91. This liability is included in other long-term liabilities on the consolidated balance sheets.

Employee Share Ownership Plan

In 2015, Hydro One Limited established Employee Share Ownership Plans (ESOP) for certain eligible management and non-represented employees (Management ESOP) and for certain eligible Society-represented staff (Society ESOP). Under the Management ESOP, the eligible management and non-represented employees may contribute between 1% and 6% of their base salary towards purchasing common shares of Hydro One Limited. The Company matches 50% of their contributions, up to a maximum Company contribution of $25,000 per calendar year. Under the Society ESOP, the eligible Society-represented staff may contribute between 1% and 4% of their base salary towards purchasing common shares of Hydro One Limited. The Company matches 25% of their contributions, with no maximum Company contribution per calendar year. In 2021, Company contributions made under the ESOP were $2 million (2020 - $2 million).

LTIP

Effective August 31, 2015, the Board of Directors of Hydro One Limited adopted an LTIP. Under the LTIP, long-term incentives are granted to certain executive and management employees of Hydro One Limited and its subsidiaries, and all equity-based awards will be settled in newly issued shares of Hydro One Limited from treasury, consistent with the provisions of the plan which also permit the participants to surrender a portion of their awards to satisfy related withholding taxes requirements. The aggregate number of shares issuable under the LTIP shall not exceed 11,900,000 shares of Hydro One Limited.

The LTIP provides flexibility to award a range of vehicles, including Performance Share Units (PSUs), Restricted Share Units (RSUs), stock options, share appreciation rights, restricted shares, DSUs, and other share-based awards. The mix of vehicles is intended to vary by role to recognize the level of executive accountability for overall business performance.

PSUs and RSUs

A summary of PSU and RSU awards activity under the LTIP during the years ended December 31, 2021 and 2020 is presented below:

	PSUs		RSUs
Year ended December 31 (number of units)	2021	2020	2021	2020
Units outstanding - beginning	106,070	162,344	133,620	200,883
Vested and issued	(106,070)	(49,477)	(98,860)	(3,728)
Forfeited	—	(6,797)	—	(7,125)
Settled	—	—	(34,760)	(56,410)
Units outstanding - ending	—	106,070	—	133,620

No awards were granted in 2021 or 2020. The compensation expense related to the PSU and RSU awards recognized by the Company during 2021 was less than $1 million (2020 - $3 million).

At December 31, 2021, $9 million (2020 - $9 million) payable to Hydro One Limited relating to PSU and RSU awards was included in due to related parties on the consolidated balance sheets.

Society RSU Plan

As a result of the renewal of the Company's prior collective agreement with members of the Society, the Company provided equity compensation in the form of RSUs to certain eligible members. The equity compensation provides for the purchase of common shares of Hydro One Limited from the open market, effective March 1, 2021 in one equity grant vesting in equal portions over a two-year period. To be eligible, an employee must be an employee of the Company as of July 30, 2021, the date the plan was ratified by the Society; the grant date. The number of common shares issued to each eligible employee will be equal to 1.0% of such eligible employee’s salary as at April 1, 2021, divided by $30.80, being the price of the common shares of Hydro One Limited at the grant date. Each RSU is entitled to accrue common share dividend equivalents in the form of additional RSUs at the time dividends are paid, subsequent to declaration by Hydro One’s Board of Directors.

A summary of RSU awards activity under the Society RSU Plan during the years ended December 31, 2021 and 2020 is presented below:

Year ended December 31 (number of RSUs)	2021	2020
RSUs outstanding - beginning	—	—
Granted	68,005	—
RSUs outstanding - ending	68,005	—

Stock Options

Hydro One Limited is authorized to grant stock options under its LTIP to certain eligible employees. No stock options were granted in 2021 or 2020.

The fair value-based method is used to measure compensation expense related to stock options and the expense was recognized over the vesting period on a straight-line basis. The fair value of the stock option awards granted was estimated on the date of grant using a Black-Scholes valuation model.

A summary of stock options activity during the years ended December 31, 2021 and 2020 is presented below:

	Number of Stock Options	Weighted-average exercise price
Stock options outstanding - January 1, 2020	403,550	$	20.66
Exercised1	(294,840)	$	20.66
Stock options outstanding - December 31, 2020	108,710	$	20.66
Exercised1	(108,710)	$	20.66
Stock options outstanding - December 31, 2021	—	—

1 Stock options exercised in 2021 had an aggregate intrinsic value of $1 million (2020 - $2 million).

No compensation expense related to stock options was recognized by the Company during 2021 or 2020. At December 31, 2021 and 2020, no amounts were payable to Hydro One Limited relating to stock options awards.

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Noncontrolling Interest

12 Months Ended

Dec. 31, 2021

Noncontrolling Interest [Abstract]

Noncontrolling Interest

NONCONTROLLING INTEREST

Total noncontrolling interest consists of noncontrolling interest attributable to B2M LP and NRLP. The following tables show the movements in total noncontrolling interest during the years ended December 31, 2021 and 2020:

Year ended December 31, 2021 (millions of dollars)	Temporary Equity		Equity	Total
Noncontrolling interest - beginning		22	72	94
Distributions to noncontrolling interest		(4)	(10)	(14)
Net income attributable to noncontrolling interest		2	6	8
Noncontrolling interest - ending		20	68	88

Year ended December 31, 2020 (millions of dollars)	Temporary Equity		Equity	Total
Noncontrolling interest - beginning		20	59	79
Contributions from sale of noncontrolling interest (Note 4)		—	9	9
Distributions to noncontrolling interest		—	(2)	(2)
Net income attributable to noncontrolling interest		2	6	8
Noncontrolling interest - ending		22	72	94

B2M LP

On December 16, 2014, transmission assets totalling $526 million were transferred from Hydro One Networks to B2M LP. This was financed by 60% debt ($316 million) and 40% equity ($210 million). On December 17, 2014, the SON acquired a 34.2% equity interest in B2M LP for consideration of $72 million, representing the fair value of the equity interest acquired. The SON’s initial investment in B2M LP consists of $50 million of Class A units and $22 million of Class B units.

The Class B units have a mandatory put option which requires that upon the occurrence of an enforcement event (i.e., an event of default such as a debt default by the SON or insolvency event), Hydro One purchase the Class B units of B2M LP for net book value on the redemption date. The noncontrolling interest relating to the Class B units is classified on the consolidated balance sheet as temporary equity because the redemption feature is outside the control of the Company. The balance of the noncontrolling interest is classified within equity.

The following tables show the movements in B2M LP noncontrolling interest during the years ended December 31, 2021 and 2020:

Year ended December 31, 2021 (millions of dollars)	Temporary Equity		Equity	Total
Noncontrolling interest - beginning		22	49	71
Distributions to noncontrolling interest		(4)	(7)	(11)
Net income attributable to noncontrolling interest		2	4	6
Noncontrolling interest - ending		20	46	66

Year ended December 31, 2020 (millions of dollars)	Temporary Equity		Equity	Total
Noncontrolling interest - beginning		20	47	67
Distributions to noncontrolling interest		—	(2)	(2)
Net income attributable to noncontrolling interest		2	4	6
Noncontrolling interest - ending		22	49	71

NRLP

On September 18, 2019, Hydro One Networks sold to the Six Nations of the Grand River Development Corporation and, through a trust, to the Mississaugas of the Credit First Nation a 25.0% and 0.1%, respectively, equity interest in NRLP partnership units for total consideration of $12 million, representing the fair value of the equity interest acquired. On January 31, 2020, the Mississaugas of the Credit First Nation purchased an additional 19.9% equity interest in NRLP partnership units from Hydro One Networks for total cash consideration of $9 million. Following this transaction, Hydro One's interest in the equity portion of NRLP partnership units was reduced to 55%, with the Six Nations of the Grand River Development Corporation and the Mississaugas of the Credit First Nation owning 25% and 20%, respectively, of the equity interest in NRLP partnership units. The First Nations Partners' noncontrolling interest in NRLP is classified within equity.

The following table shows the movements in NRLP noncontrolling interest during the years ended December 31, 2021 and 2020:

Year ended December 31 (millions of dollars)	2021	2020
Noncontrolling interest - beginning	23	12
Contributions from sale of noncontrolling interest (Note 4)	—	9
Distributions to noncontrolling interest	(3)	—
Net income attributable to noncontrolling interest	2	2
Noncontrolling interest - ending	22	23

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Related Party Transactions

12 Months Ended

Dec. 31, 2021

Related Party Transactions [Abstract]

Related Party Transactions

RELATED PARTY TRANSACTIONS

Hydro One is owned by Hydro One Limited. The Province is a shareholder of Hydro One Limited with approximately 47.2% ownership at December 31, 2021. The IESO, Ontario Power Generation Inc. (OPG), Ontario Electricity Financial Corporation (OEFC), the OEB, Acronym Solutions Inc., formerly Hydro One Telecom Inc. (Acronym Solutions) and Hydro One Broadband Solutions Inc, (HOBSI) are related parties to Hydro One because they are controlled or significantly influenced by the Ministry of Energy or by Hydro One Limited. The following is a summary of the Company’s related party transactions during the years ended December 31, 2021 and 2020:

Year ended December 31 (millions of dollars)
Related Party	Transaction	2021	2020
IESO	Power purchased	2,238	2,506
	Revenues for transmission services	1,832	1,717
	Amounts related to electricity rebates	1,065	1,588
	Distribution revenues related to rural rate protection	245	242
	Distribution revenues related to supply of electricity to remote northern communities	35	35
	Funding received related to CDM programs	1	26
OPG	Power purchased	13	6
	Revenues related to provision of services and supply of electricity	7	7
	Capital contribution received from OPG	3	3
	Costs related to the purchase of services	2	3
OEFC	Power purchased from power contracts administered by the OEFC	1	1
OEB	OEB fees	8	9
Hydro One Limited	Return of stated capital	—	607
	Dividends paid	620	1
	Stock-based compensation costs	6	10
	Cost recovery for services provided	7	9
Acronym Solutions	Services received – costs expensed	24	21
	Revenues for services provided	2	3
Hydro One Broadband Solutions Inc.	Capital contribution accrued from HOBSI	3	—

Sales to and purchases from related parties are based on the requirements of the OEB’s Affiliate Relationships Code. Outstanding balances at period end are interest-free and settled in cash. Invoices are issued monthly, and amounts are due and paid on a monthly basis.

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Consolidated Statement of Cash Flows

12 Months Ended

Dec. 31, 2021

Supplemental Cash Flow Information [Abstract]

Consolidated Statements of Cash Flows

CONSOLIDATED STATEMENTS OF CASH FLOWS

The changes in non-cash balances related to operations consist of the following:

Year ended December 31 (millions of dollars)	2021	2020
Accounts receivable	17	13
Due from related parties	26	78
Materials and supplies (Note 10)	1	—
Prepaid expenses and other assets (Note 10)	(3)	(14)
Other long-term assets (Note 14)	(3)	(2)
Accounts payable	(3)	36
Accrued liabilities (Note 15)	49	(61)
Due to related parties	(73)	20
Accrued interest (Note 15)	7	12
Long-term accounts payable and other long-term liabilities (Note 16)	1	3
Post-retirement and post-employment benefit liability	50	74
	69	159

Capital Expenditures

The following tables reconcile investments in property, plant and equipment and intangible assets and the amounts presented in the consolidated statements of cash flows for the years ended December 31, 2021 and 2020. The reconciling items include net change in accruals and capitalized depreciation.

Year ended December 31, 2021 (millions of dollars)	Property, Plant and Equipment	Intangible Assets	Total
Capital investments	(1,963)	(141)	(2,104)
Reconciling items	55	(1)	54
Cash outflow for capital expenditures	(1,908)	(142)	(2,050)

Year ended December 31, 2020 (millions of dollars)	Property, Plant and Equipment	Intangible Assets	Total
Capital investments	(1,742)	(127)	(1,869)
Reconciling items	33	1	34
Cash outflow for capital expenditures	(1,709)	(126)	(1,835)

Capital Contributions

Hydro One enters into contracts governed by the OEB Transmission System Code when a transmission customer requests a new or upgraded transmission connection. The customer is required to make a capital contribution to Hydro One based on the shortfall between the present value of the costs of the connection facility and the present value of revenues. The present value of revenues is based on an estimate of load forecast for the period of the contract with Hydro One. Once the connection facility is commissioned, in accordance with the OEB Transmission System Code, Hydro One will periodically reassess the estimated load forecast which will lead to a decrease, or an increase in the capital contributions from the customer. The increase or decrease in capital contributions is recorded directly to property, plant and equipment in service. In 2021, there were $14 million capital contributions from these assessments (2020 - $nil).

Supplementary Information

Year ended December 31 (millions of dollars)	2021	2020
Net interest paid	500	493
Income taxes paid	20	33

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Contingencies

12 Months Ended

Dec. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

Contingencies

CONTINGENCIES

Legal Proceedings

Hydro One is involved in various lawsuits and claims in the normal course of business. In the opinion of management, the outcome of such matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

Transfer of Assets

The transfer orders by which the Company acquired certain of Ontario Hydro’s businesses as of April 1, 1999 did not transfer title to some assets located on Reserves (as defined in the Indian Act (Canada)). Currently, the OEFC holds these assets. Under the terms of the transfer orders, the Company is required to manage these assets until it has obtained all consents necessary to complete the transfer of title of these assets to itself. The Company cannot predict the aggregate amount that it may have to pay, either on an annual or one-time basis, to obtain the required consents. In 2021, the Company paid approximately $2 million (2020 - $2 million) in respect of consents obtained. If the Company cannot obtain the required consents, the OEFC will continue to hold these assets for an indefinite period of time. If the Company cannot reach a satisfactory settlement, it may have to relocate these assets to other locations at a cost that could be substantial or, in a limited number of cases, to abandon a line and replace it with diesel-generation facilities. The costs relating to these assets could have a material adverse effect on the Company’s results of operations if the Company is not able to recover them in future rate orders.

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Commitments

12 Months Ended

Dec. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

Commitments

COMMITMENTS

The following table presents a summary of Hydro One’s commitments under outsourcing and other agreements due in the next five years and thereafter:

As at December 31, 2021 (millions of dollars)	Year 1	Year 2	Year 3	Year 4	Year 5	Thereafter
Outsourcing and other agreements	114	50	11	3	2	15
Long-term software/meter agreement	2	1	2	1	1	5

Outsourcing and Other Agreements

Hydro One had an agreement with Inergi for the provision of IT and back-office outsourcing services, including supply chain, finance and accounting and payroll services. The agreement expired on February 28, 2021 for IT services and October 31, 2021 for supply chain services. The provision of finance and accounting and payroll services under the Inergi contract terminated on December 31, 2021. A new agreement with Inergi was entered into for the provision of management oversight of the payroll employees transferred to Hydro One for a one-year period effective January 1, 2022. In February 2021, Hydro One entered into a three-year agreement for IT services with Capgemini Canada Inc., which expires on February 29, 2024, and includes an option to extend for two additional one-year terms at Hydro One’s discretion. This agreement resulted in commitments of $143 million over the initial three-year term of the agreement. On September 30, 2020, Hydro One entered into an agreement with Ceridian Canada Ltd. to provide pay operations services for a five-year term which is expected to commence in 2023.

BGIS provides services to Hydro One, including facilities management and execution of certain capital projects as deemed required by the Company. The agreement with BGIS for these services expires in December 2024, with an option for the Company to renew the agreement for an additional term of three years.

Long-term Software/Meter Agreement

Trilliant Holdings Inc. and Trilliant Networks (Canada) Inc. (collectively Trilliant) provide services to Hydro One for the supply, maintenance and support services for smart meters and related hardware and software, including additional software licences, as well as certain professional services. The agreement with Trilliant for these services expires in December 2030. 

Other Commitments

The following table presents a summary of Hydro One’s other commercial commitments by year of expiry in the next five years and thereafter:

As at December 31, 2021 (millions of dollars)	Year 1	Year 2	Year 3	Year 4	Year 5	Thereafter
Operating Credit Facilities1	—	—	—	—	2,300	—
Letters of credit2	182	2	—	—	—	—
Guarantees3	475	—	—	—	—	—

1 On June 1, 2021, the maturity date for the Operating Credit Facilities was extended to 2026.

2 Letters of credit consist of $160 million letters of credit related to retirement compensation arrangements, a $17 million letter of credit provided to the IESO for prudential support, $4 million in letters of credit to satisfy debt service reserve requirements, and $3 million in letters of credit for various operating purposes.

3 Guarantees consist of $475 million prudential support provided to the IESO by Hydro One on behalf of its subsidiaries.

Prudential Support

Purchasers of electricity in Ontario, through the IESO, are required to provide security to mitigate the risk of their default based on their expected activity in the market. The IESO could draw on these guarantees and/or letters of credit if these purchasers fail to make a payment required by a default notice issued by the IESO. The maximum potential payment is the face value of any letters of credit plus the amount of the parental guarantees.

Retirement Compensation Arrangements

Bank letters of credit have been issued to provide security for Hydro One’s liability under the terms of a trust fund established pursuant to the supplementary pension plan for eligible employees of Hydro One. The supplementary pension plan trustee is required to draw upon these letters of credit if Hydro One is in default of its obligations under the terms of this plan. Such obligations include the requirement to provide the trustee with an annual actuarial report as well as letters of credit sufficient to secure Hydro One’s liability under the plan, to pay benefits payable under the plan and to pay the letter of credit fee. The maximum potential payment is the face value of the letters of credit.

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Segmented Reporting

12 Months Ended

Dec. 31, 2021

Segment Reporting [Abstract]

Segmented Reporting

SEGMENTED REPORTING

Hydro One has three reportable segments:

•The Transmission Segment, which comprises the transmission of high voltage electricity across the province, interconnecting local distribution companies and certain large directly connected industrial customers throughout the Ontario electricity grid;

•The Distribution Segment, which comprises the delivery of electricity to end customers and certain other municipal electricity distributors; and

•Other Segment, which includes certain corporate activities. The Other Segment includes a portion of the DTA which arose from the revaluation of the tax bases of Hydro One’s assets to fair market value when the Company transitioned from the provincial payments in lieu of tax regime to the federal tax regime at the time of Hydro One’s initial public offering in 2015. This DTA is not required to be shared with ratepayers, the Company considers it to not be part of the regulated transmission and distribution segment assets, and it is included in the other segment.

The designation of segments has been based on a combination of regulatory status and the nature of the services provided. Operating segments of the Company are determined based on information used by the chief operating decision-maker in deciding how to allocate resources and evaluate the performance of each of the segments. The Company evaluates segment performance based on income before financing charges and income tax expense from continuing operations (excluding certain allocated corporate governance costs).

Year ended December 31, 2021 (millions of dollars)	Transmission	Distribution	Other	Consolidated
Revenues	1,826	5,359	—	7,185
Purchased power	—	3,579	—	3,579
Operation, maintenance and administration	414	664	3	1,081
Depreciation, amortization and asset removal costs	485	428	—	913
Income (loss) before financing charges and income tax expense	927	688	(3)	1,612
Capital investments	1,320	784	—	2,104

Year ended December 31, 2020 (millions of dollars)	Transmission	Distribution	Other	Consolidated
Revenues	1,743	5,507	—	7,250
Purchased power	—	3,854	—	3,854
Operation, maintenance and administration	406	623	5	1,034
Depreciation, amortization and asset removal costs	459	417	—	876
Income (loss) before financing charges and income tax expense	878	613	(5)	1,486
Capital investments	1,157	712	—	1,869

Total Assets by Segment:

As at December 31 (millions of dollars)	2021	2020
Transmission	18,109	17,620
Distribution	11,475	11,294
Other	637	1,219
Total assets	30,221	30,133

Total Goodwill by Segment:

As at December 31 (millions of dollars)	2021	2020
Transmission	157	157
Distribution (Note 4)	216	216
Total goodwill	373	373

All revenues, assets and costs, as the case may be, are earned, held or incurred in Canada.

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Subsequent Events	12 Months Ended
	Dec. 31, 2021
Subsequent Events [Abstract]
Subsequent Events	SUBSEQUENT EVENTSDividends On February 24, 2022, common share dividends of $157 million were declared.

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Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2021

Accounting Policies [Abstract]

Basis of Consolidation and Presentation

Basis of Consolidation and PresentationThese Consolidated Financial Statements (Consolidated Financial Statements) include the accounts of the Company and its subsidiaries. Inter-company transactions and balances have been eliminated.

Basis of Accounting

Basis of Accounting These Consolidated Financial Statements are prepared and presented in accordance with United States (US) Generally Accepted Accounting Principles (GAAP) and in Canadian dollars.

Use of Management Estimates

Use of Management EstimatesThe preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, gains and losses during the reporting periods. Management evaluates these estimates on an ongoing basis based upon historical experience, current conditions, and assumptions believed to be reasonable at the time the assumptions are made, with any adjustments being recognized in results of operations in the period they arise. Significant estimates relate to regulatory assets and regulatory liabilities, environmental liabilities, pension benefits, post-retirement and post-employment benefits, and unbilled revenues. Actual results may differ significantly from these estimates.

Regulatory Accounting

Regulatory AccountingThe OEB has the general power to include or exclude revenues, costs, gains or losses in the rates of a specific period, resulting in a change in the timing of accounting recognition from that which would have been applied in an unregulated company. Such change in timing involves the application of rate-regulated accounting, giving rise to the recognition of regulatory assets and liabilities. The Company’s regulatory assets represent certain amounts receivable from future electricity customers and costs that have been deferred for accounting purposes because it is probable that they will be recovered in future rates. In addition, the Company has recorded regulatory liabilities that generally represent amounts that are refundable to electricity customers in future rates. The Company continually assesses the likelihood of recovery of each of its regulatory assets and continues to believe that it is probable that the OEB will include its regulatory assets and liabilities in setting future rates. If, at some future date, the Company judges that it is no longer probable that the OEB will include a regulatory asset or liability in setting future rates, the appropriate carrying amount would be reflected in results of operations prospectively from the date the Company’s assessment is made, unless the change meets the requirements for a subsequent event adjustment.

Cash and Cash Equivalents

Cash and Cash EquivalentsCash and cash equivalents include cash and short-term investments with an original maturity of three months or less.

Revenue Recognition

Revenue Recognition

Transmission revenues predominantly consist of transmission tariffs, which are collected through OEB-approved UTRs which are applied against the monthly peak demand for electricity across Hydro One's high-voltage network. OEB-approved UTRs are based on an approved revenue requirement that includes a rate of return. The transmission tariffs are designed to recover revenues necessary to support the Company's transmission system with sufficient capacity to accommodate the maximum expected demand which is influenced by weather and economic conditions. Transmission revenues are recognized as electricity is transmitted and delivered to customers.

Distribution revenues attributable to the delivery of electricity are based on OEB-approved distribution rates and are recognized on an accrual basis and include billed and unbilled revenues. Billed revenues are based on electricity delivered as measured from customer meters. At the end of each month, electricity delivered to customers since the date of the last billed meter reading is estimated, and the corresponding unbilled revenue is recorded. The unbilled revenue estimate is affected by energy consumption, weather, and changes in the composition of customer classes.

Revenues also include amounts related to sales of other services and equipment. Such revenue is recognized as services are rendered or as equipment is delivered. Revenues are recorded net of indirect taxes.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts Receivable and Allowance for Doubtful AccountsBilled accounts receivable are recorded at the invoiced amount, net of allowance for doubtful accounts. Unbilled accounts receivable are recorded at their estimated value, net of allowance for doubtful accounts. Overdue amounts related to regulated billings bear interest at OEB-approved rates. The allowance for doubtful accounts reflects the Company’s current lifetime expected credit losses (CECL) for all accounts receivable balances. The Company estimates the CECL by applying internally developed loss rates to all outstanding receivable balances by aging category. Loss rates applied to the accounts receivable balances are based on historical overdue balances, customer payments and write-offs, which may be further supplemented from time to time to reflect management's best estimate of the loss. Accounts receivable are written-off against the allowance when they are deemed uncollectible. The allowance for doubtful accounts is affected by changes in volume, prices and economic conditions.

Noncontrolling interest

Noncontrolling interest

Noncontrolling interest represents the portion of equity ownership in subsidiaries that is not attributable to shareholders of Hydro One. Noncontrolling interest is initially recorded at fair value and subsequently the amount is adjusted for the proportionate share of net income and other comprehensive income (OCI) or other comprehensive loss (OCL) attributable to the noncontrolling interest and any dividends or distributions paid to the noncontrolling interest.

If a transaction results in the acquisition of all, or part, of a noncontrolling interest in a subsidiary, the acquisition of the noncontrolling interest is accounted for as an equity transaction. No gain or loss is recognized in consolidated net income or comprehensive income as a result of changes in the noncontrolling interest, unless a change results in the loss of control by the Company.

Income Taxes

Income Taxes

Income taxes are accounted for using the asset and liability method. Current tax assets and liabilities are recognized based on the taxes payable or refundable on the current and prior year’s taxable income. Current and deferred income taxes are computed based on the tax rates and tax laws enacted as at the balance sheet date. Tax benefits associated with income tax positions are recorded only when the more-likely-than-not recognition threshold is satisfied and are measured at the largest amount of benefit that has a greater than 50% likelihood of being realized upon settlement. Management evaluates each position based solely on the technical merits and facts and circumstances of the position, assuming the position will be examined by a taxing authority having full knowledge of all relevant information. Significant management judgment is required to determine recognition thresholds and the related amount of tax benefits to be recognized in the Consolidated Financial Statements. Management re-evaluates tax positions each period using new information about recognition or measurement as it becomes available.

Deferred Income Taxes

Deferred income tax assets and liabilities are recognized on all temporary differences between the tax bases and carrying amounts of assets and liabilities, including the carry forward unused tax credits and tax losses to the extent that it is more-likely-than-not that these deductions, credits, and losses can be utilized. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized, based on the tax rates and tax laws that have been enacted as at the balance sheet date.

Deferred income taxes associated with its regulated operations which are considered to be more-likely-than-not to be recoverable or refunded in the future regulated rates charged to customers are recognized as deferred income tax regulatory assets and liabilities with an offset to deferred income tax expense.

Investment tax credits are recorded as a reduction of the related expenses or income tax expense in the current or future period to the extent it is more likely than not that the credits can be utilized.

Management reassesses the deferred income tax assets at each balance sheet date and reduces the amount to the extent that it is more likely than not that the deferred income tax asset will not be realized. Previously unrecognized deferred income tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become more likely than not that the tax benefit will be realized.

Materials and Supplies

Materials and SuppliesMaterials and supplies represent consumables, small spare parts and construction materials held for internal construction and maintenance of property, plant and equipment. These assets are carried at average cost less any impairments recorded.

Property, Plant and Equipment

Property, Plant and Equipment

Property, plant and equipment is recorded at original cost, net of customer contributions, and any accumulated impairment losses. The cost of additions, including betterments and replacement asset components, is included on the consolidated balance sheets as property, plant and equipment.

The original cost of property, plant and equipment includes direct materials, direct labour (including employee benefits), contracted services, attributable capitalized financing costs, asset retirement costs, and direct and indirect overheads that are

related to the capital project or program. Indirect overheads include a portion of corporate costs such as finance, treasury, human resources, and information technology (IT). Overhead costs, including corporate functions and field services costs, are capitalized on a fully allocated basis, consistent with an OEB-approved methodology.

Property, plant and equipment in service consists of transmission, distribution, communication, administration and service assets and land easements. Property, plant and equipment also includes future use assets, such as land, major components and spare parts, and capitalized project development costs associated with deferred capital projects.

Transmission

Transmission assets include assets used for the transmission of high-voltage electricity, such as transmission lines, support structures, foundations, insulators, connecting hardware and grounding systems, and assets used to step up the voltage of electricity from generating stations for transmission and to step down voltages for distribution, including transformers, circuit breakers and switches.

Distribution

Distribution assets include assets related to the distribution of low-voltage electricity, including lines, poles, switches, transformers, protective devices and metering systems.

Communication

Communication assets include fibre optic and microwave radio systems, optical ground wire, towers, telephone equipment and associated buildings.

Administration and Service

Administration and service assets include administrative buildings, personal computers, transport and work equipment, tools and other minor assets.

Easements

Easements include statutory rights of use for transmission corridors and abutting lands granted under the Reliable Energy and Consumer Protection Act, 2002, as well as other land access rights.

Intangible Assets

Intangible Assets

Intangible assets separately acquired or internally developed are measured on initial recognition at cost, which comprises purchased software, direct labour (including employee benefits), consulting, engineering, overheads and attributable capitalized financing charges. Following initial recognition, intangible assets are carried at cost, net of any accumulated amortization and accumulated impairment losses. The Company’s intangible assets primarily represent major computer applications.

Capitalized Financing Costs

Capitalized Financing Costs

Capitalized financing costs represent interest costs attributable to the construction of property, plant and equipment or development of intangible assets. The financing cost of attributable borrowed funds is capitalized as part of the acquisition cost of such assets. The capitalized financing costs are a reduction of financing charges recognized in the consolidated statements of operations and comprehensive income. Capitalized financing costs are calculated using the Company’s weighted average effective cost of debt.

Construction and Development in Progress

Construction and Development in ProgressConstruction and development in progress consists of the capitalized cost of constructed assets that are not yet complete and which have not yet been placed in service.

Depreciation and Amortization

Depreciation and Amortization

The cost of property, plant and equipment and intangible assets is depreciated or amortized on a straight-line basis based on the estimated remaining service life of each asset category, except for transport and work equipment, which is depreciated on a declining balance basis.

The Company periodically initiates an external independent review of its property, plant and equipment and intangible asset depreciation and amortization rates, as required by the OEB. Any changes arising from OEB approval of such a review are implemented on a remaining service life basis, consistent with their inclusion in electricity rates. The most recent reviews resulted in changes to rates effective January 1, 2015 and January 1, 2020 for Hydro One Networks’ distribution and transmission businesses, respectively. A summary of average service lives and depreciation and amortization rates for the various classes of assets is included below:

	Average	Rate
	Service Life	Range	Average
Property, plant and equipment:
Transmission	55 years	1% - 3%	2	%
Distribution	47 years	1% - 7%	2	%
Communication	16 years	1% - 15%	4	%
Administration and service	24 years	1% - 20%	4	%
Intangible assets	10 years	10%	7	%

In accordance with group depreciation practices, the original cost of property, plant and equipment, or major components thereof, and intangible assets that are normally retired, is charged to accumulated depreciation, with no gain or loss being reflected in results of operations. Where a disposition of property, plant and equipment occurs through sale, a gain or loss is calculated based on proceeds and such gain or loss is included in depreciation expense.

Acquisitions and Goodwill

Acquisitions and Goodwill

The Company accounts for business acquisitions using the acquisition method of accounting and, accordingly, the assets and liabilities of the acquired entities are primarily measured at their estimated fair value at the date of acquisition. Costs associated with pending acquisitions are expensed as incurred. Goodwill represents the cost of acquired companies that is in excess of the fair value of the net identifiable assets acquired at the acquisition date. Goodwill is not included in rate base.

Goodwill is evaluated for impairment on an annual basis, or more frequently if circumstances require. The Company performs a qualitative assessment to determine whether it is more likely than not that the fair value of the applicable reporting unit is less than its carrying amount. If the Company determines, as a result of its qualitative assessment, that it is not more likely than not that the fair value of the applicable reporting unit is less than its carrying value, no further testing is required. If the Company determines, as a result of its qualitative assessment, that it is more likely than not that the fair value of the applicable reporting unit is less than its carrying amount, a quantitative goodwill impairment assessment is performed. The quantitative assessment compares the fair value of the applicable reporting unit to its carrying amount, including goodwill. If the fair value of goodwill is less than the carrying amount, an impairment loss is recorded as a reduction to goodwill and as a charge to results of operations.

Based on the assessment performed as at September 30, 2021 and with no significant events since, the Company has concluded that goodwill was not impaired at December 31, 2021.

Long-Lived Asset Impairment

Long-Lived Asset Impairment

When circumstances indicate the carrying value of long-lived assets may not be recoverable, the Company evaluates whether the carrying value of such assets, excluding goodwill, has been impaired. For such long-lived assets, the Company evaluates whether impairment may exist by estimating future estimated undiscounted cash flows expected to result from the use and eventual disposition of the asset. When alternative courses of action to recover the carrying amount of a long-lived asset are under consideration, a probability-weighted approach is used to develop estimates of future undiscounted cash flows. If the carrying value of the long-lived asset is not recoverable based on the estimated future undiscounted cash flows, an impairment loss is recorded, measured as the excess of the carrying value of the asset over its fair value. As a result, the asset’s carrying value is adjusted to its estimated fair value.

Within its regulated business, the carrying costs of most of Hydro One’s long-lived assets are included in rate base where they earn an OEB-approved rate of return. Asset carrying values and the related return are recovered through approved rates. As a result, such assets are only tested for impairment in the event that the OEB disallows recovery, in whole or in part, or if such a disallowance is judged to be probable.

Management assesses the fair value of such long-lived assets using commonly accepted techniques. Techniques used to determine fair value include, but are not limited to, the use of recent third-party comparable sales for reference and internally developed discounted cash flow analysis. Significant changes in market conditions, changes to the condition of an asset, or a change in management’s intent to utilize the asset are generally viewed by management as triggering events to reassess the cash flows related to these long-lived assets. As at December 31, 2021 and 2020, no asset impairment had been recorded.

Costs of Arranging Debt Financing

Costs of Arranging Debt Financing

For financial liabilities classified as other than held-for-trading, the Company defers the external transaction costs related to obtaining financing and presents such amounts net of related debt on the consolidated balance sheets. Deferred issuance costs are amortized over the contractual life of the related debt on an effective-interest basis and the amortization is included within

financing charges in the consolidated statements of operations and comprehensive income. Transaction costs for items classified as held-for-trading are expensed immediately.

Comprehensive Income (Loss)

Comprehensive Income / LossComprehensive income/loss is comprised of net income/loss and OCI/OCL. Hydro One presents net income/loss and OCI/OCL in a single continuous consolidated statement of operations and comprehensive income/loss.

Financial Assets and Liabilities

Financial Assets and Liabilities

All financial assets and liabilities are classified into one of the following five categories: held-to-maturity; loans and receivables; held-for-trading; other liabilities; or available-for-sale. Financial assets and liabilities classified as held-for-trading are measured at fair value. All other financial assets and liabilities are measured at amortized cost. Accounts receivable and amounts due from related parties are classified as loans and receivables. The Company considers the carrying amounts of accounts receivable and amounts due from related parties to be reasonable estimates of fair value because of the short time to maturity of these instruments. The Company estimates the CECL for all accounts receivable balances, which are recognized as adjustments to the allowance for doubtful accounts. Accounts receivable are written-off against the allowance when they are deemed uncollectible. All financial instrument transactions are recorded at trade date.

The Company determines the classification of its financial assets and liabilities at the date of initial recognition. The Company designates certain of its financial assets and liabilities to be held at fair value, when it is consistent with the Company’s risk management policy disclosed in Note 18 - Fair Value of Financial Instruments and Risk Management.

Derivative Instruments and Hedge Accounting

Derivative Instruments and Hedge Accounting

The Company closely monitors the risks associated with changes in interest rates on its operations and, where appropriate, uses various instruments to hedge these risks. Certain of these derivative instruments qualify for hedge accounting and are designated as accounting hedges, while others either do not qualify as hedges or have not been designated as hedges (hereinafter referred to as undesignated contracts) as they are part of economic hedging relationships.

The accounting guidance for derivative instruments requires the recognition of all derivative instruments not identified as meeting the normal purchase and sale exemption as either assets or liabilities recorded at fair value on the consolidated balance sheets. For derivative instruments that qualify for hedge accounting, the Company may elect to designate such derivative instruments as either cash flow hedges or fair value hedges. The Company offsets fair value amounts recognized on its consolidated balance sheets related to derivative instruments executed with the same counterparty under the same master netting agreement.

For derivative instruments that qualify for hedge accounting and which are designated as cash flow hedges, any unrealized gain or loss, net of tax, is recorded as a component of accumulated OCI (AOCI). Amounts in AOCI are reclassified to results of operations in the same period or periods during which the hedged transaction affects results of operations and presented in the same line item as the earnings effect of the hedged item. Any gains or losses on the derivative instrument that represent hedge components excluded from the assessment of effectiveness are recognized in the same line item of the consolidated statements of operations as the hedged item. For fair value hedges, changes in fair value of both the derivative instrument and the underlying hedged exposure are recognized in the consolidated statements of operations and comprehensive income in the current period. The gain or loss on the derivative instrument is included in the same line item as the offsetting gain or loss on the hedged item in the consolidated statements of operations and comprehensive income. The changes in fair value of the undesignated derivative instruments are reflected in results of operations.

Embedded derivative instruments are separated from their host contracts and are carried at fair value on the consolidated balance sheets when: (a) the economic characteristics and risks of the embedded derivative are not clearly and closely related to the economic characteristics and risks of the host contract; (b) the hybrid instrument is not measured at fair value, with changes in fair value recognized in results of operations each period; and (c) the embedded derivative itself meets the definition of a derivative. The Company does not engage in derivative trading or speculative activities and had no embedded derivatives that required bifurcation at December 31, 2021 or 2020.

Hydro One periodically develops hedging strategies taking into account risk management objectives. At the inception of a hedging relationship where the Company has elected to apply hedge accounting, Hydro One formally documents the relationship between the hedged item and the hedging instrument, the related risk management objective, the nature of the specific risk exposure being hedged, and the method for assessing the effectiveness of the hedging relationship. The Company also assesses, both at the inception of the hedge and on a quarterly basis, whether the hedging instruments are effective in offsetting changes in fair values or cash flows of the hedged items.

Employee Future Benefits

Employee Future Benefits

Employee future benefits provided by Hydro One include pension, post-retirement and post-employment benefits. The costs of the Company’s pension, post-retirement and post-employment benefit plans are recorded over the periods during which employees render service.

The Company recognizes the funded status of its defined benefit pension plan (Pension Plan) and its post-retirement and post-employment plans on its consolidated balance sheets and subsequently recognizes the changes in funded status at the end of each reporting year. Defined benefit pension, post-retirement and post-employment plans are considered to be underfunded when the projected benefit obligation (PBO) exceeds the fair value of the plan assets. Liabilities are recognized on the consolidated balance sheets for any net underfunded PBO. The net underfunded PBO may be disclosed as a current liability, long-term liability, or both. The current portion is the amount by which the actuarial present value of benefits included in the benefit obligation payable in the next 12 months exceeds the fair value of plan assets. If the fair value of plan assets exceeds the PBO of the plan, an asset is recognized equal to the net overfunded PBO. The post-retirement and post-employment benefit plans are unfunded because there are no related plan assets.

Hydro One recognizes its contributions to the defined contribution pension plan (DC Plan) as pension expense, with a portion being capitalized as part of labour costs included in capital expenditures. The expensed amount is included in operation, maintenance and administration (OM&A) costs in the consolidated statements of operations and comprehensive income.

Defined Benefit Pension

Defined benefit pension costs are recorded on an accrual basis for financial reporting purposes. Pension costs are actuarially determined using the projected benefit method prorated on service and are based on assumptions that reflect management’s best estimate of the effect of future events, including future compensation increases. Past service costs from plan amendments and all actuarial gains and losses are amortized on a straight-line basis over the expected average remaining service period of active employees in the plan, or over the estimated remaining life expectancy of inactive employees in the plan. Pension plan assets, consisting primarily of listed equity securities, marketable and private debt, corporate and government debt securities as well as unlisted real estate and unlisted infrastructure investments, are recorded at fair value at the end of each year. Hydro One records a regulatory asset equal to the net underfunded PBO for its pension plan. Defined benefit pension costs are attributed to labour costs on a cash basis and a portion directly related to acquisition and development of capital assets is capitalized as part of the cost of property, plant and equipment and intangible assets. The remaining defined benefit pension costs are charged to results of operations (OM&A costs).

Post-retirement and Post-employment Benefits

Post-retirement and post-employment benefits are recorded and included in rates on an accrual basis. Costs are determined by independent actuaries using the projected benefit method prorated on service and based on assumptions that reflect management’s best estimates. For post-retirement benefits, past service costs from plan amendments are amortized to results of operations based on the expected average remaining service period.

For post-retirement benefits, all actuarial gains or losses are deferred using the “corridor” approach. The amount calculated above the “corridor” is amortized to results of operations on a straight-line basis over the expected average remaining service life of active employees in the plan or over the remaining life expectancy of inactive employees in the plan. The post-retirement benefit obligation is remeasured to its fair value at each year end based on an annual actuarial report, with an offset to the associated regulatory account, to the extent of the remeasurement adjustment.

For post-employment obligations, the associated regulatory liabilities representing actuarial gains on transition to US GAAP are amortized to results of operations based on the "corridor" approach. The actuarial gains and losses on post-employment obligations that are incurred during the year are recognized immediately to results of operations. The post-employment benefit obligation is remeasured to its fair value at each year end based on an annual actuarial report, with an offset to the associated regulatory account, to the extent of the remeasurement adjustment.

All post-retirement and post-employment benefit costs are attributed to labour costs and are either charged to results of operations (OM&A costs) or capitalized as part of the cost of property, plant and equipment and intangible assets (applies to the service cost component of benefit cost) and to regulatory assets for all other components of the benefit cost, consistent with their inclusion in OEB-approved rates.

Stock-Based Compensation

Stock-Based Compensation

Share Grant Plans

Hydro One measures share grant plans based on fair value of share grants as estimated based on Hydro One Limited's grant date common share price. The costs are recognized in the financial statements using the graded-vesting attribution method for share grant plans that have both a performance condition and a service condition. The Company records a regulatory asset equal to the accrued costs of share grant plans recognized in each period. Costs are transferred from the regulatory asset to labour costs at the time the share grants vest and are issued, and are recovered in rates. Forfeitures are recognized as they occur.

Deferred Share Unit (DSU) Plans

The Company records the liabilities associated with its Directors’ and Management DSU Plans at fair value at each reporting date until settlement, recognizing compensation expense over the vesting period on a straight-line basis. The fair value of the DSU liability is based on Hydro One Limited's common share closing price at the end of each reporting period.

Society Restricted Share Unit (RSU) Plan

The Company measures its Society RSU plan based on fair value of share grants as estimated based on Hydro One Limited's grant date common share price. The costs are recognized over the vesting period using the straight-line attribution method. The Company records a regulatory asset equal to the accrued costs of the Society RSU plan recognized in each period. Costs are transferred from the regulatory asset to labour costs at the time the share grants vest and are issued, and are recovered in rates. Forfeitures are recognized as they occur.

Long-term Incentive Plan (LTIP)

The Company measures the awards issued under Hydro One Limited's LTIP, at fair value based on Hydro One Limited grant date common share price. The related compensation expense is recognized over the vesting period on a straight-line basis. Forfeitures are recognized as they occur.

Loss Contingencies

Loss Contingencies

Hydro One is involved in certain legal and environmental matters that arise in the normal course of business. In the preparation of its Consolidated Financial Statements, management makes judgments regarding the future outcome of contingent events and records a loss for a contingency based on its best estimate when it is determined that such loss is probable and the amount of the loss can be reasonably estimated. Where the loss amount is recoverable in future rates, a regulatory asset is also recorded. When a range estimate for the probable loss exists and no amount within the range is a better estimate than any other amount, the Company records a loss at the minimum amount within the range.

Management regularly reviews current information available to determine whether recorded provisions should be adjusted and whether new provisions are required. Estimating probable losses may require analysis of multiple forecasts and scenarios that often depend on judgments about potential actions by third parties, such as federal, provincial and local courts or regulators. Contingent liabilities are often resolved over long periods of time. Amounts recorded in the Consolidated Financial Statements may differ from the actual outcome once the contingency is resolved. Such differences could have a material impact on future results of operations, financial position and cash flows of the Company.

Provisions are based upon current estimates and are subject to greater uncertainty where the projection period is lengthy. A significant upward or downward trend in the number of claims filed, the nature of the alleged injuries, and the average cost of resolving each claim could change the estimated provision, as could any substantial adverse or favourable verdict at trial. A federal or provincial legislative outcome or structured settlement could also change the estimated liability. Legal fees are expensed as incurred.

Environmental Liabilities

Environmental LiabilitiesEnvironmental liabilities are recorded in respect of past contamination when it is determined that future environmental remediation expenditures are probable under existing statute or regulation and the amount of the future expenditures can be reasonably estimated. Hydro One records a liability for the estimated future expenditures associated with contaminated land assessment and remediation (LAR) and for the phase-out and destruction of polychlorinated biphenyl (PCB)-contaminated mineral oil removed from electrical equipment, based on the present value of these estimated future expenditures. The Company determines the present value with a discount rate that produces an amount at which the environmental liabilities could be settled in an arm’s length transaction with a third party. As the Company anticipates that the future expenditures will continue to be recoverable in future rates, an offsetting regulatory asset has been recorded to reflect the future recovery of these environmental expenditures from customers. Hydro One reviews its estimates of future environmental expenditures annually, or more frequently if there are indications that circumstances have changed. Estimate changes are accounted for prospectively.

Asset Retirement Obligations

Asset Retirement Obligations

Asset retirement obligations are recorded for legal obligations associated with the future removal and disposal of long-lived assets. Such obligations may result from the acquisition, construction, development and/or normal use of the asset. Conditional asset retirement obligations are recorded when there is a legal obligation to perform a future asset retirement activity but where the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Company. In such a case, the obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. This uncertainty is incorporated in the fair value measurement of the obligation.

When recording an asset retirement obligation, the present value of the estimated future expenditures required to complete the asset retirement activity is recorded in the period in which the obligation is incurred, if a reasonable estimate can be made. In general, the present value of the estimated future expenditures is added to the carrying amount of the associated asset and the resulting asset retirement cost is depreciated over the estimated useful life of the asset. The present value is    determined with a

discount rate that equates to the Company’s credit-adjusted risk-free rate. Where an asset is no longer in service when an asset retirement obligation is recorded, the asset retirement cost is recorded in results of operations.

Some of the Company’s transmission and distribution assets, particularly those located on unowned easements and rights-of-way, may have asset retirement obligations, conditional or otherwise. The majority of the Company’s easements and rights-of-way are either of perpetual duration or are automatically renewed annually. Land rights with finite terms are generally subject to extension or renewal. As the Company expects to use the majority of its facilities in perpetuity, no asset retirement obligations have been recorded for these assets. If, at some future date, a particular facility is shown not to meet the perpetuity assumption, it will be reviewed to determine whether an estimable asset retirement obligation exists. In such a case, an asset retirement obligation would be recorded at that time.

The Company’s asset retirement obligations recorded to date relate to estimated future expenditures associated with the removal and disposal of asbestos-containing materials installed in some of its facilities.

Leases

Leases

At the commencement date of a lease, the minimum lease payments are discounted and recognized as a lease obligation. Discount rates used correspond to the Company's incremental borrowing rates. Renewal options are assessed for their likelihood of being exercised and are included in the measurement of the lease obligation when it is reasonably certain they will be exercised. The Company does not recognize leases with a term of less than 12 months. A corresponding Right-of-Use (ROU) asset is recognized at the commencement date of a lease. The ROU asset is measured as the lease obligation adjusted for any lease payments made and/or any lease incentives and initial direct costs incurred. ROU assets are included in other long-term assets, and corresponding lease obligations are included in other current liabilities and other long-term liabilities on the consolidated balance sheets.

Subsequent to the commencement date, the lease expense recognized at each reporting period is the total remaining lease payments over the remaining lease term. Lease obligations are measured as the present value of the remaining unpaid lease payments using the discount rate established at commencement date. The amortization of the ROU assets is calculated as the difference between the lease expense and the accretion of interest, which is calculated using the effective interest method. Lease modifications and impairments are assessed at each reporting period to assess the need for a remeasurement of the lease obligations or ROU assets.

New Accounting Pronouncements

Recently Adopted Accounting Guidance

Guidance	Date issued	Description	Effective date	Impact on Hydro One
ASU 2018-14	August 2018	Disclosure requirements related to single-employer defined benefit pension or other post-retirement benefit plans are added, removed or clarified to improve the effectiveness of disclosures in financial statement notes.	January 1, 2021	Resulted in the modification of certain disclosures associated with post-retirement and post-employment benefits that were previously included in the annual financial statements.
ASU 2019-12	December 2019	The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles and improving consistent application of Topic 740 by clarifying and amending existing guidance.	January 1, 2021	No impact upon adoption
ASU 2020-01	January 2020	The amendments clarify the interaction of the accounting for equity securities under Topic 321, investments under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815.	January 1, 2021	No impact upon adoption
ASU 2020-10	October 2020	The amendments are intended to improve the Codification by ensuring the guidance required for an entity to disclose information in the notes of financial statements are codified in the disclosure sections to reduce the likelihood of disclosure requirements being missed.	January 1, 2021	No impact upon adoption

Recently Issued Accounting Guidance Not Yet Adopted

Guidance	Date issued	Description	Effective date	Anticipated Impact on Hydro One
ASU 2020-06	August 2020	The update addresses the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. The amendments reduce the number of accounting models for convertible debt instruments and convertible preferred stock.	January 1 2022	No impact upon adoption
ASU 2021-05	July 2021	The amendments are intended to align lease classification requirements for lessors under Topic 842 with Topic 840's practice.	January 1, 2022	No impact upon adoption
ASU 2021-08	October 2021	The amendments address how to determine whether a contract liability is recognized by the acquirer in a business combination.	January 1, 2023	Under assessment
ASU 2021-10	November 2021	The update addresses the diversity on the recognition, measurement, presentation and disclosure of government assistance received by business entities.	January 1, 2022	Under assessment

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Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2021

Accounting Policies [Abstract]

Average Service Lives and Depreciation and Amortization Rates

A summary of average service lives and depreciation and amortization rates for the various classes of assets is included below:

	Average	Rate
	Service Life	Range	Average
Property, plant and equipment:
Transmission	55 years	1% - 3%	2	%
Distribution	47 years	1% - 7%	2	%
Communication	16 years	1% - 15%	4	%
Administration and service	24 years	1% - 20%	4	%
Intangible assets	10 years	10%	7	%

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New Accounting Pronouncements (Tables)

12 Months Ended

Dec. 31, 2021

Accounting Changes and Error Corrections [Abstract]

Schedule of Accounting Standards Updates Issued by Financial Accounting Standards Board

The following tables present Accounting Standard Updates (ASUs) issued by the Financial Accounting Standards Board that are applicable to Hydro One:

Recently Adopted Accounting Guidance

Guidance	Date issued	Description	Effective date	Impact on Hydro One
ASU 2018-14	August 2018	Disclosure requirements related to single-employer defined benefit pension or other post-retirement benefit plans are added, removed or clarified to improve the effectiveness of disclosures in financial statement notes.	January 1, 2021	Resulted in the modification of certain disclosures associated with post-retirement and post-employment benefits that were previously included in the annual financial statements.
ASU 2019-12	December 2019	The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles and improving consistent application of Topic 740 by clarifying and amending existing guidance.	January 1, 2021	No impact upon adoption
ASU 2020-01	January 2020	The amendments clarify the interaction of the accounting for equity securities under Topic 321, investments under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815.	January 1, 2021	No impact upon adoption
ASU 2020-10	October 2020	The amendments are intended to improve the Codification by ensuring the guidance required for an entity to disclose information in the notes of financial statements are codified in the disclosure sections to reduce the likelihood of disclosure requirements being missed.	January 1, 2021	No impact upon adoption

Recently Issued Accounting Guidance Not Yet Adopted

Guidance	Date issued	Description	Effective date	Anticipated Impact on Hydro One
ASU 2020-06	August 2020	The update addresses the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. The amendments reduce the number of accounting models for convertible debt instruments and convertible preferred stock.	January 1 2022	No impact upon adoption
ASU 2021-05	July 2021	The amendments are intended to align lease classification requirements for lessors under Topic 842 with Topic 840's practice.	January 1, 2022	No impact upon adoption
ASU 2021-08	October 2021	The amendments address how to determine whether a contract liability is recognized by the acquirer in a business combination.	January 1, 2023	Under assessment
ASU 2021-10	November 2021	The update addresses the diversity on the recognition, measurement, presentation and disclosure of government assistance received by business entities.	January 1, 2022	Under assessment

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Business Combinations (Tables)

12 Months Ended

Dec. 31, 2021

Business Combination and Asset Acquisition [Abstract]

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed

The following table summarizes the determination of the fair value of the assets acquired and liabilities assumed:

(millions of dollars)
Working capital	7
Property, plant and equipment	64
Regulatory assets	1
Goodwill	33
Other long-term liabilities	(1)
	104

The following table summarizes the determination of the fair value of the assets acquired and liabilities assumed:

(millions of dollars)
Working capital	2
Property, plant and equipment	32
Deferred income tax assets	1
Goodwill	15
Short-term debt	(20)
Regulatory liabilities	(1)
Other long-term liabilities	(1)
	28

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Depreciation, Amortization And Asset Removal Costs (Tables)

12 Months Ended

Dec. 31, 2021

Property, Plant and Equipment [Abstract]

Schedule of Depreciation and Amortization

Year ended December 31 (millions of dollars)	2021	2020
Depreciation of property, plant and equipment	700	683
Amortization of intangible assets	76	69
Amortization of regulatory assets	30	23
Depreciation and amortization	806	775
Asset removal costs	107	101
	913	876

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Financing Charges (Tables)

12 Months Ended

Dec. 31, 2021

Banking and Thrift, Interest [Abstract]

Schedule of Financing Charges

Year ended December 31 (millions of dollars)	2021	2020
Interest on long-term debt	499	495
Realized loss on cash flow hedges (interest-rate swap agreements) (Notes 8, 18)	12	7
Interest on short-term notes	1	8
Interest on regulatory accounts	5	3
Other	11	10
Less: Interest capitalized on construction and development in progress	(60)	(49)
DTA carrying charges (Note 13)	(12)	—
Interest earned on cash and cash equivalents	(3)	(5)
	453	469

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Reconciliation between Statutory and Effective Tax Rates

The reconciliation between the statutory and the effective tax rates is provided as follows:

Year ended December 31 (millions of dollars)	2021	2020
Income before income tax expense	1,159	1,017
Income tax expense at statutory rate of 26.5% (2020 - 26.5%)	307	270
Increase (decrease) resulting from:
Net temporary differences recoverable in future rates charged to customers:
Capital cost allowance in excess of depreciation and amortization	(81)	(102)
Impact of tax deductions from deferred tax asset sharing1	(38)	(41)
Impact of tax recovery from deferred tax asset sharing2	47	—
Overheads capitalized for accounting but deducted for tax purposes	(22)	(21)
Interest capitalized for accounting but deducted for tax purposes	(16)	(13)
Environmental expenditures	(8)	(6)
Pension and post-retirement benefit contributions in excess of pension expense	(9)	(4)
Other	(1)	—
Net temporary differences attributable to regulated business	(128)	(187)
Net permanent differences	—	1
Recognition of deferred income tax regulatory asset (Note 13)	—	(867)
Total income tax expense (recovery)	179	(783)

Effective income tax rate 15.4  % (77.0) %

1 Prior to the ODC Decision, the impact represents tax deductions from deferred asset tax sharing given to ratepayers as previously mandated by the OEB. Subsequent to the ODC Decision, and pursuant to the DTA Implementation Decision, the impact represents the additional amounts shared in respect of the fiscal period that is recoverable from ratepayers. See Note 13 - Regulatory Assets and Liabilities.

2 Pursuant to the DTA Implementation Decision, the impact represents the amounts recovered from ratepayers in respect of tax deductions previously shared with ratepayers. See Note 13 – Regulatory Assets and Liabilities.

Major Components of Income Tax Expense

The major components of income tax expense are as follows:

Year ended December 31 (millions of dollars)	2021	2020
Current income tax expense	30	29
Deferred income tax expense (recovery)	149	(812)
Total income tax expense (recovery)	179	(783)

Schedule of Deferred Income Tax Assets and Liabilities

December 31, 2021 and 2020, deferred income tax assets and liabilities consisted of the following:

As at December 31 (millions of dollars)	2021	2020
Deferred income tax assets
Post-retirement and post-employment benefits expense in excess of cash payments	655	680
Pension obligations	257	607
Non-capital losses	213	275
Non-depreciable capital property	273	271
Tax credit carryforwards	147	118
Investment in subsidiaries	99	100
Environmental expenditures	44	48
	1,688	2,099
Less: valuation allowance	(378)	(380)
Total deferred income tax assets	1,310	1,719
Deferred income tax liabilities
Capital cost allowance in excess of depreciation and amortization	1,354	1,029
Regulatory assets and liabilities	308	728
Other	5	2
Total deferred income tax liabilities	1,667	1,759
Net deferred income tax liabilities	(357)	(40)

Major Categories of Net Deferred Income Tax Assets

The net deferred income tax assets are presented on the consolidated balance sheets as follows:

As at December 31 (millions of dollars)	2021	2020
Long-term:
Deferred income tax assets	10	16
Deferred income tax liabilities	(367)	(56)
Net deferred income tax liabilities	(357)	(40)

Non Capital Losses Carried Forward to Reduce Future Period Taxable Income

As of December 31, 2021 and 2020, the Company had non-capital losses carried forward available to reduce future years’ taxable income, which expire as follows:

Year of expiry (millions of dollars)	2021	2020
2035	—	170
2036	481	550
2037	121	121
2038	5	5
2039	183	185
2040	2	5
2041	8	—
Total losses	800	1,036

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Other Comprehensive Income (Loss) (Tables)

12 Months Ended

Dec. 31, 2021

Equity [Abstract]

Schedule of Other Comprehensive Income (Loss)

Year ended December 31 (millions of dollars)	2021	2020
Gain (loss) on cash flow hedges (interest-rate swap agreements) (Notes 6, 18)1	12	(20)
Gain (loss) on transfer of other post-employment benefits (OPEB) (Note 20)	—	(6)
Other	4	2
	16	(24)

1 Includes $8 million after-tax realized loss (2020 - $5 million), $12 million before-tax (2020 - $7 million), on cash flow hedges reclassified to financing charges

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Accounts Receivable (Tables)

12 Months Ended

Dec. 31, 2021

Receivables [Abstract]

Schedule of Accounts Receivable

As at December 31 (millions of dollars)	2021	2020
Accounts receivable - billed	344	344
Accounts receivable - unbilled	409	421
Accounts receivable, gross	753	765
Allowance for doubtful accounts	(56)	(46)
Accounts receivable, net	697	719

Schedule of Allowance for Doubtful Accounts

The following table shows the movements in the allowance for doubtful accounts for the years ended December 31, 2021 and 2020:

Year ended December 31 (millions of dollars)	2021	2020
Allowance for doubtful accounts – beginning	(46)	(22)
Write-offs	15	11
Additions to allowance for doubtful accounts1	(25)	(35)
Allowance for doubtful accounts – ending	(56)	(46)

1 Additions to allowance for doubtful accounts for the year ended December 31, 2020 included an incremental $14 million related to the COVID-19 pandemic. There were no additional COVID-19 related amounts included in the allowance for doubtful accounts for the year ended December 31, 2021.

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Other Current Assets (Tables)

12 Months Ended

Dec. 31, 2021

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Schedule of Other Current Assets

As at December 31 (millions of dollars)	2021	2020
Regulatory assets (Note 13)	226	105
Prepaid expenses and other assets	53	50
Materials and supplies	22	23
Derivative assets (Note 18)	—	3
	301	181

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Property, Plant and Equipment (Tables)

12 Months Ended

Dec. 31, 2021

Property, Plant and Equipment [Abstract]

Schedule of Property, Plant and Equipment

As at December 31, 2021 (millions of dollars)	Property, Plant  and Equipment	Accumulated Depreciation	Construction in Progress	Total
Transmission	18,970	6,307	1,183	13,846
Distribution	12,045	4,163	95	7,977
Communication	1,246	981	46	311
Administration and service	1,963	1,022	78	1,019
Easements	679	84	—	595
	34,903	12,557	1,402	23,748
As at December 31, 2020 (millions of dollars)	Property, Plant  and Equipment	Accumulated Depreciation	Construction in Progress	Total
Transmission	18,213	5,989	876	13,100
Distribution	11,544	3,949	101	7,696
Communication	1,184	945	39	278
Administration and service	1,729	959	113	883
Easements	671	80	—	591
	33,341	11,922	1,129	22,548

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Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Intangible Assets

As at December 31, 2021 (millions of dollars)	Intangible Assets	Accumulated Amortization	Development in Progress	Total
Computer applications software	1,094	657	130	567
Other	5	5	—	—
	1,099	662	130	567
As at December 31, 2020 (millions of dollars)	Intangible Assets	Accumulated Amortization	Development in Progress	Total
Computer applications software	1,033	581	59	511
Other	6	5	—	1
	1,039	586	59	512

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Regulatory Assets and Liabilities (Tables)

12 Months Ended

Dec. 31, 2021

Regulated Operations [Abstract]

Schedule of Regulatory Assets and Liabilities

Regulatory assets and liabilities arise as a result of the rate-setting process. Hydro One has recorded the following regulatory assets and liabilities:

As at December 31 (millions of dollars)	2021	2020
Regulatory assets:
Deferred income tax regulatory asset	2,509	2,343
Pension benefit regulatory asset	713	1,660
Deferred tax asset sharing	204	204
Post-retirement and post-employment benefits - non-service cost	125	113
Environmental	122	133
Stock-based compensation	38	41
Foregone revenue deferral	25	63
Conservation and Demand Management (CDM) variance	8	16
Debt premium	7	12
Post-retirement and post-employment benefits	—	59
Other	36	32
Total regulatory assets	3,787	4,676
Less: current portion	(226)	(105)
	3,561	4,571
Regulatory liabilities:
Tax rule changes variance	86	70
Retail settlement variance account	58	92
External revenue variance	52	7
Earnings sharing mechanism deferral	42	37
Asset removal costs cumulative variance	36	19
Post-retirement and post-employment benefits	33	—
Pension cost differential	30	31
Green energy expenditure variance	13	22
Deferred income tax regulatory liability	4	4
Other	18	15
Total regulatory liabilities	372	297
Less: current portion	(10)	(66)
	362	231

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Other Long-Term Assets (Tables)

12 Months Ended

Dec. 31, 2021

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Schedule of Other Non-Current Assets

As at December 31 (millions of dollars)	2021	2020
Right-of-Use assets (Note 23)	53	71
Other long-term assets	13	8
	66	79

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Accounts Payable and Other Current Liabilities (Tables)

12 Months Ended

Dec. 31, 2021

Payables and Accruals [Abstract]

Schedule of Accounts Payable and Other Current Liabilities

As at December 31 (millions of dollars)	2021	2020
Accrued liabilities	606	557
Accounts payable	249	232
Accrued interest	123	116
Environmental liabilities (Note 21)	34	33
Regulatory liabilities (Note 13)	10	66
Lease obligations (Note 23)	12	11
Derivative liabilities (Note 18)	8	11
	1,042	1,026

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Other Long-Term Liabilities (Tables)

12 Months Ended

Dec. 31, 2021

Other Liabilities Disclosure [Abstract]

Schedule of Other Long-Term Liabilities

As at December 31 (millions of dollars)	2021	2020
Post-retirement and post-employment benefit liability (Note 20)	1,784	1,781
Pension benefit liability (Note 20)	713	1,660
Environmental liabilities (Note 21)	88	100
Lease obligations (Note 23)	44	65
Due to related parties (Note 29)	29	32
Asset retirement obligations (Note 22)	14	13
Derivative liabilities (Note 18)	—	14
Long-term accounts payable	3	5
Other long-term liabilities	19	16
	2,694	3,686

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Debt and Credit Agreements (Tables)

12 Months Ended

Dec. 31, 2021

Debt Disclosure [Abstract]

Schedule of Credit Facilities

At December 31, 2021, Hydro One’s Operating Credit Facilities consisted of the following:

(millions of dollars)	Maturity	Total Amount	Amount Drawn
Revolving standby credit facilities	June 20261	2,300	—

1 On June 1, 2021, the maturity dates for the Operating Credit Facilities was extended from June 2024 to June 2026.

Schedule of Outstanding Long-Term Debt

The following table presents long-term debt outstanding at December 31, 2021 and 2020:

As at December 31 (millions of dollars)	2021	2020
1.84% Series 34 notes due 2021	—	500
2.57% Series 39 notes due 20211	—	300
3.20% Series 25 notes due 2022	600	600
0.71% Series 48 notes due 2023	600	600
2.54% Series 42 notes due 2024	700	700
1.76% Series 45 notes due 2025	400	400
2.97% Series 40 notes due 2025	350	350
2.77% Series 35 notes due 2026	500	500
3.02% Series 43 notes due 2029	550	550
2.16% Series 46 notes due 2030	400	400
7.35% Debentures due 2030	400	400
1.69% Series 49 notes due 2031	400	400
2.23% Series 50 notes due 2031	450	—
6.93% Series 2 notes due 2032	500	500
6.35% Series 4 notes due 2034	385	385
5.36% Series 9 notes due 2036	600	600
4.89% Series 12 notes due 2037	400	400
6.03% Series 17 notes due 2039	300	300
5.49% Series 18 notes due 2040	500	500
4.39% Series 23 notes due 2041	300	300
6.59% Series 5 notes due 2043	315	315
4.59% Series 29 notes due 2043	435	435
4.17% Series 32 notes due 2044	350	350
5.00% Series 11 notes due 2046	325	325
3.91% Series 36 notes due 2046	350	350
3.72% Series 38 notes due 2047	450	450
3.63% Series 41 notes due 2049	750	750
2.71% Series 47 notes due 2050	500	500
3.64% Series 44 notes due 2050	250	250
3.10% Series 51 notes due 2051	450	—
4.00% Series 24 notes due 2051	225	225
3.79% Series 26 notes due 2062	310	310
4.29% Series 30 notes due 2064	50	50
Hydro One long-term debt (a)	13,095	12,995
6.6% Senior Secured Bonds due 2023 (Principal amount - $98 million)	105	113
4.6% Note Payable due 2023 (Principal amount - $36 million)	37	38
HOSSM long-term debt (b)	142	151
	13,237	13,146
Add: Net unamortized debt premiums	9	10
Add: Unrealized mark-to-market loss1	—	3
Less: Unamortized deferred debt issuance costs	(50)	(51)
Total long-term debt	13,196	13,108

1 At December 31, 2021, there was no unrealized mark-to-market loss. At December 31, 2020, the unrealized mark-to-market net loss of $3 million related to $300 million Series 39 notes repaid in June 2021. At December 31, 2020, the unrealized mark-to-market net loss was offset by a $3 million unrealized mark-to-market net gain on the related fixed-to-floating interest-rate swap agreements, which were accounted for as fair value hedges.

(a) Hydro One long-term debt

At December 31, 2021, long-term debt of $13,095 million (2020 - $12,995 million) was outstanding, the majority of which was issued under Hydro One’s Medium Term Note (MTN) Program. In April 2020, Hydro One filed a short form base shelf prospectus in connection with its MTN Program, which has a maximum authorized principal amount of notes issuable of $4,000 million, expiring in May 2022. At December 31, 2021, $1,900 million remained available for issuance under the MTN Program prospectus.

In 2021, Hydro One issued long-term debt totalling $900 million (2020 - $2,300 million) and repaid long-term debt of $800 million (2020 - $650 million) under the MTN Program.

(b) HOSSM long-term debt

At December 31, 2021, HOSSM long-term debt of $142 million (2020 - $151 million), with a principal amount of $134 million (2020 - $138 million) was outstanding. In 2021, no long-term debt was issued (2020 - $nil), and $4 million (2020 - $3 million) of long-term debt was repaid.

Schedule of Long-Term Debt

The total long-term debt is presented on the consolidated balance sheets as follows:

As at December 31 (millions of dollars)	2021	2020
Current liabilities:
Long-term debt payable within one year	603	806
Long-term liabilities:
Long-term debt	12,593	12,302
Total long-term debt	13,196	13,108

Summary of Principal Repayments and Related Weighted Average Interest Rates

At December 31, 2021, future principal repayments, interest payments, and related weighted-average interest rates were as follows:

	Long-Term Debt Principal Repayments	Interest Payments	Weighted-Average Interest Rate
	(millions of dollars)	(millions of dollars)	(%)
Year 1	603	501	3.2
Year 2	731	485	1.7
Year 3	700	470	2.5
Year 4	750	452	2.3
Year 5	500	437	2.8
	3,284	2,345	2.5
Years 6-10	2,200	2,046	3.2
Thereafter	7,745	4,004	4.6
	13,229	8,395	3.9

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Fair Value of Financial Instruments and Risk Management (Tables)

12 Months Ended

Dec. 31, 2021

Fair Value Disclosures [Abstract]

Summary of Fair Values and Carrying Values of Long-Term Debt

The fair values and carrying values of the Company’s long-term debt at December 31, 2021 and 2020 are as follows:

	2021	2021	2020	2020
As at December 31 (millions of dollars)	Carrying Value	Fair Value	Carrying Value	Fair Value
Long-term debt measured at fair value - $300 million MTN Series 39 notes	—	—	303	303
Other notes and debentures	13,196	15,162	12,805	15,795
Long-term debt, including current portion	13,196	15,162	13,108	16,098

Summary of Fair Value Hierarchy of Financial Assets and Liabilities

The fair value hierarchy of financial assets and liabilities at December 31, 2021 and 2020 is as follows:

As at December 31, 2021 (millions of dollars)	Carrying Value	Fair  Value	Level 1	Level 2	Level 3
Liabilities:
Long-term debt, including current portion	13,196	15,162	—	15,162	—
Derivative instruments (Notes 15,16)
Cash flow hedges, including current portion	8	8	—	8	—
	13,204	15,170	—	15,170	—

As at December 31, 2020 (millions of dollars)	Carrying Value	Fair  Value	Level 1	Level 2	Level 3
Assets:
Derivative instruments (Note 10)
Fair value hedges	3	3	—	3	—
	3	3	—	3	—
Liabilities:
Long-term debt, including current portion	13,108	16,098	—	16,098	—
Derivative instruments (Notes 15,16)
Cash flow hedges, including current portion	25	25	—	25	—
	13,133	16,123	—	16,123	—

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Capital Management (Tables)

12 Months Ended

Dec. 31, 2021

Regulated Operations [Abstract]

Summary of Company's Capital Structure

At December 31, 2021 and 2020, the Company’s capital structure was as follows:

As at December 31 (millions of dollars)	2021	2020
Long-term debt payable within one year	603	806
Short-term notes payable	1,045	800
Less: cash and cash equivalents	(499)	(712)
	1,149	894
Long-term debt	12,593	12,302
Common shares	2,957	2,957
Retained earnings	8,229	7,877
Total capital	24,928	24,030

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Pension and Post-Retirement and Post-Employment Benefits (Tables)

12 Months Ended

Dec. 31, 2021

Defined Benefit Plan Disclosure [Line Items]

Change in Projected Benefit Obligation and Change in Plan Assets

The following tables provide the components of the unfunded status of the Company's Plans at December 31, 2021 and 2020:

	Pension Benefits		Post-Retirement and Post-Employment Benefits
Year ended December 31 (millions of dollars)	2021	2020	2021	2020
Change in projected benefit obligation
Projected benefit obligation, beginning of year	9,763	8,973	1,841	1,768
Current service cost	240	215	65	70
Employee contributions	61	56	—	—
Interest cost	257	284	51	57
Benefits paid	(392)	(381)	(47)	(45)
Net actuarial loss (gain)	(571)	465	(98)	(42)
Transfers from other plans1,2	—	151	34	33
Projected benefit obligation, end of year	9,358	9,763	1,846	1,841
Change in plan assets
Fair value of plan assets, beginning of year	8,103	7,848	—	—
Actual return on plan assets	834	425	—	—
Benefits paid	(392)	(381)	(47)	(45)
Employer contributions	62	57	47	45
Employee contributions	61	56	—	—
Administrative expenses	(23)	(22)	—	—
Transfers from other plans1	—	120	—	—
Fair value of plan assets, end of year	8,645	8,103	—	—
Unfunded status	713	1,660	1,846	1,841

1 In 2020, assets and liabilities associated with the Inergi LP Pension Plan and post-employment benefit plans were transferred to the Hydro One Pension Plan and
post-employment benefit plans, related to the 2018 transfer of customer service operations employees to Hydro One.

2 See below for information related to the transfer from other plans in 2021 as well as future transfers from other plans for employees transferred in 2021 and 2022.

Schedule of Benefit Obligations and Plan Assets

Hydro One presents its benefit obligations and plan assets net on its consolidated balance sheets as follows:

	Pension Benefits		Post-Retirement and Post-Employment Benefits
As at December 31 (millions of dollars)	2021	2020	2021	2020
Other assets1	10	6	—	—
Accrued liabilities	—	—	62	60
Pension benefit liability	713	1,660	—	—
Post-retirement and post-employment benefit liability	—	—	1,784	1,781
Net unfunded status	703	1,654	1,846	1,841

1 Represents the funded status of HOSSM defined benefit pension plan.

Schedule of Projected Benefit Obligation (PBO), Accumulated Benefit Obligation (ABO) and Fair Value of Plan Assets

The following table provides the PBO, accumulated benefit obligation (ABO) and fair value of plan assets for the Pension Plan:

As at December 31 (millions of dollars)	2021	2020
PBO	9,358	9,763
ABO	8,451	8,817
Fair value of plan assets	8,645	8,103

Schedule of Weighted Average Assumptions Used to Determine Benefit Obligations

The following weighted average assumptions were used to determine the benefit obligations at December 31, 2021 and 2020:

	Pension Benefits				Post-Retirement and Post-Employment Benefits
Year ended December 31	2021		2020		2021		2020
Significant assumptions:
Weighted average discount rate	3.00	%	2.60	%	3.00	%	2.60	%
Rate of compensation scale escalation (long-term)	2.25	%	2.25	%	2.25	%	2.25	%
Rate of cost of living increase	1.75	%	1.75	%	1.75	%	1.75	%
Rate of increase in health care cost trends1	—		—		3.97	%	3.70	%

1 4.88% per annum in 2022, grading down to 3.97% per annum in and after 2031 (2020 - 4.74% per annum in 2021, grading down to 3.70% per annum in and after 2031)

Schedule of Weighted Average Assumptions Used to Determine Net Periodic Benefit Costs

The following weighted average assumptions were used to determine the net periodic benefit costs for the years ended December 31, 2021 and 2020. Assumptions used to determine current year-end benefit obligations are the assumptions used to estimate the subsequent year’s net periodic benefit costs.

Year ended December 31	2021		2020
Pension Benefits:
Weighted average expected rate of return on plan assets	5.40	%	5.75	%
Weighted average discount rate	2.60	%	3.10	%
Rate of compensation scale escalation (long-term)	2.25	%	2.50	%
Rate of cost of living increase	1.75	%	2.00	%
Average remaining service life of employees (years)	14		15
Post-Retirement and Post-Employment Benefits:
Weighted average discount rate	2.60	%	3.10	%
Rate of compensation scale escalation (long-term)	2.25	%	2.50	%
Rate of cost of living increase	1.75	%	2.00	%
Average remaining service life of employees (years)	15.3		15.5
Rate of increase in health care cost trends1	3.70	%	4.04	%

1 4.74% per annum in 2021, grading down to 3.70% per annum in and after 2031 (2020 - 5.09% per annum in 2020, grading down to 4.04% per annum in and after 2031)

Approximate Life Expectancies Used to Determine Projected Benefit Obligations for Pension, Post-Retirement and Post-Employment Plans

The following approximate life expectancies were used in the mortality assumptions to determine the PBO for the pension and post-retirement and post-employment plans at December 31, 2021 and 2020:

As at December 31	2021	2020
Life expectancy at age 65 for a member currently at:	(years)	(years)
Age 65 - male	23	22
Age 65 - female	25	25
Age 45 - male	24	23
Age 45 - female	26	26

Schedule of Estimated Future Benefit Payments

At December 31, 2021, estimated future benefit payments to the participants of the Plans were:

(millions of dollars)	Pension Benefits	Post-Retirement and Post-Employment Benefits
2022	362	64
2023	369	65
2024	375	66
2025	379	66
2026	383	68
2027 through to 2031	1,962	345
Total estimated future benefit payments through to 2031	3,830	674

Schedule of Actuarial Gains and Losses and Prior Service Costs Recorded Within Regulatory Assets

These amounts are reflected in the following table:

Year ended December 31 (millions of dollars)	2021	2020
Pension Benefits:
Actuarial (gain) loss for the year	(891)	536
Prior service cost for the year	—	31
Amortization of actuarial losses	(124)	(95)
Amortization of prior service cost	(2)	(2)
	(1,017)	470
Post-Retirement and Post-Employment Benefits:
Actuarial gain for the year	(91)	(44)
Amortization of actuarial losses	(3)	(2)
	(94)	(46)

Components of Regulatory Assets That Have Not Been Recognized as Components of Net Periodic Benefit Costs

The following table provides the components of regulatory accounts that have not been recognized as components of net periodic benefit costs for the years ended December 31, 2021 and 2020:

Year ended December 31 (millions of dollars)	2021	2020
Pension Benefits:
Actuarial loss	713	1,660
Post-Retirement and Post-Employment Benefits:
Actuarial (gain) loss	(33)	59

Schedule of Pension Plan Target Asset and Weighted Average Asset Allocations

At December 31, 2021, the Pension Plan actual weighted average, target, and range asset allocations were as follows:

	Actual (%)	Target Allocation (%)	Range Allocation (%)
Equity securities	51	40	25 - 55
Debt securities	33	35	30 - 40
Real Estate and Infrastructure	16	25	0 - 35
	100	100

Pension Plan Assets Measured and Recorded at Fair Value on Recurring Basis

The following tables present the Pension Plan assets and liabilities measured and recorded at fair value on a recurring basis and their level within the fair value hierarchy at December 31, 2021 and 2020:

As at December 31, 2021 (millions of dollars)	Level 1	Level 2	Level 3	Total
Pooled funds	—	21	1,937	1,958
Cash and cash equivalents	144	—	—	144
Short-term securities	—	86	—	86
Derivative instruments	—	2	—	2
Corporate shares - Canadian	167	—	—	167
Corporate shares - Foreign	3,412	258	—	3,670
Bonds and debentures - Canadian	—	2,491	—	2,491
Bonds and debentures - Foreign	—	97	—	97
Total fair value of plan assets1	3,723	2,955	1,937	8,615

Derivative instruments	—	1	—	1
Total fair value of plan liabilities1	—	1	—	1

1 At December 31, 2021, the total fair value of Pension Plan assets and liabilities excludes $39 million of interest and dividends receivable, $5 million of pension administration expenses payable, $2 million of taxes payable, $4 million payable to participants, $6 million of sold investments receivable, and $3 million of purchased investments payable.

As at December 31, 2020 (millions of dollars)	Level 1	Level 2	Level 3	Total
Pooled funds	—	21	1,429	1,450
Cash and cash equivalents	163	—	—	163
Short-term securities	—	175	—	175
Derivative instruments	—	2	—	2
Corporate shares - Canadian	142	—	—	142
Corporate shares - Foreign	3,335	209	—	3,544
Bonds and debentures - Canadian	—	2,499	—	2,499
Bonds and debentures - Foreign	—	96	—	96
Total fair value of plan assets1	3,640	3,002	1,429	8,071

Derivative instruments	—	1	—	1
Total fair value of plan liabilities1	—	1	—	1

1 At December 31, 2020, the total fair value of Pension Plan assets and liabilities excludes $39 million of interest and dividends receivable, $6 million of pension administration expenses payable, $2 million of taxes payable, $6 million payable to participants, $17 million of sold investments receivable, and $9 million of purchased investments payable.

Changes in Fair Value of Financial Instruments Classified in Level 3

The following table summarizes the changes in fair value of financial instruments classified in Level 3 for the years ended December 31, 2021 and 2020. The Pension Plan classifies financial instruments as Level 3 when the fair value is measured based on at least one significant input that is not observable in the markets or due to lack of liquidity in certain markets. The gains and losses presented in the table below could, therefore, include changes in fair value based on both observable and unobservable inputs. The Level 3 financial instruments are comprised of pooled funds whose valuations are provided by the investment managers. Sensitivity analysis is not provided as the underlying assumptions used by the investment managers are not available.

Year ended December 31 (millions of dollars)	2021	2020
Fair value, beginning of year	1,429	1,079
Realized and unrealized gains	307	97
Purchases	308	288
Sales and disbursements	(107)	(35)
Fair value, end of year	1,937	1,429

Pension Benefits [Member]

Defined Benefit Plan Disclosure [Line Items]

Components of Net Periodic Benefit Costs

The following table provides the components of the net periodic benefit costs for the years ended December 31, 2021 and 2020 for the Pension Plan:

Year ended December 31 (millions of dollars)	2021	2020
Current service cost	240	215
Interest cost	257	284
Expected return on plan assets, net of expenses	(430)	(450)
Prior service cost amortization	2	2
Amortization of actuarial losses	125	95
Net periodic benefit costs	194	146
Charged to results of operations1	26	24

1    The Company accounts for pension costs consistent with their inclusion in OEB-approved rates. During the year ended December 31, 2021, pension costs of $73 million (2020 - $68 million) were attributed to labour, of which $26 million (2020 - $24 million) was charged to operations, and $47 million (2020 - $44 million) was capitalized as part of the cost of property, plant and equipment and intangible assets.

Post-Retirement and Post-Employment Benefits [Member]

Defined Benefit Plan Disclosure [Line Items]

Components of Net Periodic Benefit Costs

The following table provides the components of the net periodic benefit costs for the years ended December 31, 2021 and 2020 for the post-retirement and post-employment benefit plans:

Year ended December 31 (millions of dollars)	2021	2020
Current service cost	65	70
Interest cost	51	57
Prior service cost amortization	7	2
Amortization of actuarial losses	(2)	5
Net periodic benefit costs	121	134
Charged to results of operations1,2	63	71

1    The Company accounts for post-retirement and post-employment costs consistent with their inclusion in OEB-approved rates. During the year ended December 31, 2021, post-retirement and post-employment costs of $121 million (2020 - $133 million) were attributed to labour, of which $63 million (2020 - $71 million) was charged to operations, $14 million (2020 - $17 million) was recorded in the Hydro One Networks distribution post-retirement and post-employment benefits non-service cost regulatory asset, and $44 million (2020 - $45 million) was capitalized as part of the cost of property, plant and equipment and intangible assets.

2     In the 2020-2022 Transmission Decision, the OEB approved the recovery of the non-service cost component of post-retirement and post-employment benefits as part of operation, maintenance and administration costs for the Company's transmission business. These costs were previously capitalized and recovered through rate base. As a result, during the year ended December 31, 2021, additional other post-retirement and post-employment costs of $14 million (2020 - $22 million) attributed to labour were charged to operations.

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Environmental Liabilities (Tables)

12 Months Ended

Dec. 31, 2021

Environmental Remediation Obligations [Abstract]

Schedule of Movements in Environmental Liabilities

The following tables show the movements in environmental liabilities for the years ended December 31, 2021 and 2020:

Year ended December 31, 2021 (millions of dollars)	PCB	LAR	Total
Environmental liabilities - beginning	76	57	133
Interest accretion	1	—	1
Expenditures	(24)	(6)	(30)
Revaluation adjustment	15	3	18
Environmental liabilities - ending	68	54	122
Less: current portion	(27)	(7)	(34)
	41	47	88

Year ended December 31, 2020 (millions of dollars)	PCB	LAR	Total
Environmental liabilities - beginning	90	51	141
Interest accretion	3	—	3
Expenditures	(17)	(6)	(23)
Revaluation adjustment	—	12	12
Environmental liabilities - ending	76	57	133
Less: current portion	(25)	(8)	(33)
	51	49	100

Reconciliation between Undiscounted Basis of Environmental Liabilities and Amount Recognized on Consolidated Balance Sheets

The following tables show the reconciliation between the undiscounted basis of the environmental liabilities and the amount recognized on the consolidated balance sheets after factoring in the discount rate:

As at December 31, 2021 (millions of dollars)	PCB	LAR	Total
Undiscounted environmental liabilities	70	54	124
Less: discounting environmental liabilities to present value	(2)	—	(2)
Discounted environmental liabilities	68	54	122

As at December 31, 2020 (millions of dollars)	PCB	LAR	Total
Undiscounted environmental liabilities	80	57	137
Less: discounting environmental liabilities to present value	(4)	—	(4)
Discounted environmental liabilities	76	57	133

Schedule of Estimated Future Environmental Expenditures

At December 31, 2021, the estimated future environmental expenditures were as follows:

(millions of dollars)
2022	34
2023	21
2024	22
2025	12
2026	2
Thereafter	33
	124

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Leases (Tables)

12 Months Ended

Dec. 31, 2021

Leases [Abstract]

Schedule of Other Information Related to Operating Leases

All leases include a clause to enable upward revision of the rental charge on an annual basis or on renewal according to prevailing market conditions or pre-established rents. There are no restrictions placed upon Hydro One by entering into these leases. Renewal options are included in the lease term when their exercise is reasonably certain. Other information related to the Company's operating leases was as follows:

Year ended December 31 (millions of dollars)	2021		2020
Lease expense	13		12
Lease payments made	13		11
As at December 31	2021		2020
Weighted-average remaining lease term1 (years)	6		7
Weighted-average discount rate	2.3	%	2.6	%

1 Includes renewal options that are reasonably certain to be exercised.

Schedule of Future Minimum Operating Lease Payments After Adoption

At December 31, 2021, future minimum operating lease payments were as follows:

(millions of dollars)
2022	14
2023	10
2024	9
2025	7
2026	7
Thereafter	13
Total undiscounted minimum lease payments	60
Less: discounting minimum lease payments to present value	(4)
Total discounted minimum lease payments	56

At December 31, 2020, future minimum operating lease payments were as follows:

(millions of dollars)
2021	14
2022	12
2023	11
2024	11
2025	10
Thereafter	27
Total undiscounted minimum lease payments	85
Less: discounting minimum lease payments to present value	(8)
Total discounted minimum lease payments	77

Schedule of Supplementary Balance Sheet Information

Hydro One presents its ROU assets and lease obligations on the consolidated balance sheets as follows:

As at December 31 (millions of dollars)	2021	2020
Other long-term assets (Note 14)	53	71
Accounts payable and other current liabilities (Note 15)	12	11
Other long-term liabilities (Note 16)	44	65

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Stock-Based Compensation (Tables)

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

Summary of Share Grant Activity

A summary of share grant activity under the Share Grant Plans during the years ended December 31, 2021 and 2020 is presented below:

Year ended December 31, 2021	Share Grants (number of common shares)		Weighted-Average Price
Share grants outstanding - beginning		3,100,165	$20.50
Vested and issued1		(410,575)	—
Forfeited		(73,239)	$20.50
Share grants outstanding - ending		2,616,351	$20.50

1    In 2021, Hydro One Limited issued from treasury 410,575 common shares to eligible Hydro One employees in accordance with provisions of the Share Grant Plans. In accordance with the intercompany agreement between Hydro One and Hydro One Limited, Hydro One made payments to Hydro One Limited for the common shares issued.

Year ended December 31, 2020	Share Grants (number of common shares)		Weighted-Average Price
Share grants outstanding - beginning		3,611,178	$20.50
Vested and issued1		(434,653)	—
Forfeited		(76,360)	$20.50
Share grants outstanding - ending		3,100,165	$20.50

1    In 2020, Hydro One Limited issued from treasury 434,653 common shares to eligible Hydro One employees in accordance with provisions of the Share Grant Plans. In accordance with the intercompany agreement between Hydro One and Hydro One Limited, Hydro One made payments to Hydro One Limited for the common shares issued.

A summary of stock options activity during the years ended December 31, 2021 and 2020 is presented below:

	Number of Stock Options	Weighted-average exercise price
Stock options outstanding - January 1, 2020	403,550	$	20.66
Exercised1	(294,840)	$	20.66
Stock options outstanding - December 31, 2020	108,710	$	20.66
Exercised1	(108,710)	$	20.66
Stock options outstanding - December 31, 2021	—	—

1 Stock options exercised in 2021 had an aggregate intrinsic value of $1 million (2020 - $2 million).

Summary of Number of DSUs

A summary of DSU awards activity under the Directors' DSU Plan during the years ended December 31, 2021 and 2020 is presented below:

Year ended December 31 (number of DSUs)	2021	2020
DSUs outstanding - beginning	65,240	52,620
Granted	20,888	22,481
Settled	(5,315)	(9,861)
DSUs outstanding - ending	80,813	65,240

A summary of DSU awards activity under the Management DSU Plan during the years ended December 31, 2021 and 2020 is presented below:

Year ended December 31 (number of DSUs)	2021	2020
DSUs outstanding - beginning	61,880	52,186
Granted	28,360	22,132
Paid	—	(12,438)
DSUs outstanding - ending	90,240	61,880

Summary of Number of PSUs and RSUs

A summary of PSU and RSU awards activity under the LTIP during the years ended December 31, 2021 and 2020 is presented below:

	PSUs		RSUs
Year ended December 31 (number of units)	2021	2020	2021	2020
Units outstanding - beginning	106,070	162,344	133,620	200,883
Vested and issued	(106,070)	(49,477)	(98,860)	(3,728)
Forfeited	—	(6,797)	—	(7,125)
Settled	—	—	(34,760)	(56,410)
Units outstanding - ending	—	106,070	—	133,620

Summary of RSU Awards Activity

A summary of RSU awards activity under the Society RSU Plan during the years ended December 31, 2021 and 2020 is presented below:

Year ended December 31 (number of RSUs)	2021	2020
RSUs outstanding - beginning	—	—
Granted	68,005	—
RSUs outstanding - ending	68,005	—

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Noncontrolling Interest (Tables)

12 Months Ended

Dec. 31, 2021

Noncontrolling Interest [Abstract]

Schedule of Movements in Noncontrolling Interest

The following tables show the movements in total noncontrolling interest during the years ended December 31, 2021 and 2020:

Year ended December 31, 2021 (millions of dollars)	Temporary Equity		Equity	Total
Noncontrolling interest - beginning		22	72	94
Distributions to noncontrolling interest		(4)	(10)	(14)
Net income attributable to noncontrolling interest		2	6	8
Noncontrolling interest - ending		20	68	88

Year ended December 31, 2020 (millions of dollars)	Temporary Equity		Equity	Total
Noncontrolling interest - beginning		20	59	79
Contributions from sale of noncontrolling interest (Note 4)		—	9	9
Distributions to noncontrolling interest		—	(2)	(2)
Net income attributable to noncontrolling interest		2	6	8
Noncontrolling interest - ending		22	72	94

The following tables show the movements in B2M LP noncontrolling interest during the years ended December 31, 2021 and 2020:

Year ended December 31, 2021 (millions of dollars)	Temporary Equity		Equity	Total
Noncontrolling interest - beginning		22	49	71
Distributions to noncontrolling interest		(4)	(7)	(11)
Net income attributable to noncontrolling interest		2	4	6
Noncontrolling interest - ending		20	46	66

Year ended December 31, 2020 (millions of dollars)	Temporary Equity		Equity	Total
Noncontrolling interest - beginning		20	47	67
Distributions to noncontrolling interest		—	(2)	(2)
Net income attributable to noncontrolling interest		2	4	6
Noncontrolling interest - ending		22	49	71

The following table shows the movements in NRLP noncontrolling interest during the years ended December 31, 2021 and 2020:

Year ended December 31 (millions of dollars)	2021	2020
Noncontrolling interest - beginning	23	12
Contributions from sale of noncontrolling interest (Note 4)	—	9
Distributions to noncontrolling interest	(3)	—
Net income attributable to noncontrolling interest	2	2
Noncontrolling interest - ending	22	23

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Related Party Transactions (Tables)

12 Months Ended

Dec. 31, 2021

Related Party Transactions [Abstract]

Summary of Related Party Transactions

The following is a summary of the Company’s related party transactions during the years ended December 31, 2021 and 2020:

Year ended December 31 (millions of dollars)
Related Party	Transaction	2021	2020
IESO	Power purchased	2,238	2,506
	Revenues for transmission services	1,832	1,717
	Amounts related to electricity rebates	1,065	1,588
	Distribution revenues related to rural rate protection	245	242
	Distribution revenues related to supply of electricity to remote northern communities	35	35
	Funding received related to CDM programs	1	26
OPG	Power purchased	13	6
	Revenues related to provision of services and supply of electricity	7	7
	Capital contribution received from OPG	3	3
	Costs related to the purchase of services	2	3
OEFC	Power purchased from power contracts administered by the OEFC	1	1
OEB	OEB fees	8	9
Hydro One Limited	Return of stated capital	—	607
	Dividends paid	620	1
	Stock-based compensation costs	6	10
	Cost recovery for services provided	7	9
Acronym Solutions	Services received – costs expensed	24	21
	Revenues for services provided	2	3
Hydro One Broadband Solutions Inc.	Capital contribution accrued from HOBSI	3	—

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Consolidated Statement of Cash Flows (Tables)

12 Months Ended

Dec. 31, 2021

Supplemental Cash Flow Information [Abstract]

Schedule of Consolidated Statement of Cash Flows

The changes in non-cash balances related to operations consist of the following:

Year ended December 31 (millions of dollars)	2021	2020
Accounts receivable	17	13
Due from related parties	26	78
Materials and supplies (Note 10)	1	—
Prepaid expenses and other assets (Note 10)	(3)	(14)
Other long-term assets (Note 14)	(3)	(2)
Accounts payable	(3)	36
Accrued liabilities (Note 15)	49	(61)
Due to related parties	(73)	20
Accrued interest (Note 15)	7	12
Long-term accounts payable and other long-term liabilities (Note 16)	1	3
Post-retirement and post-employment benefit liability	50	74
	69	159

The following tables reconcile investments in property, plant and equipment and intangible assets and the amounts presented in the consolidated statements of cash flows for the years ended December 31, 2021 and 2020. The reconciling items include net change in accruals and capitalized depreciation.

Year ended December 31, 2021 (millions of dollars)	Property, Plant and Equipment	Intangible Assets	Total
Capital investments	(1,963)	(141)	(2,104)
Reconciling items	55	(1)	54
Cash outflow for capital expenditures	(1,908)	(142)	(2,050)

Year ended December 31, 2020 (millions of dollars)	Property, Plant and Equipment	Intangible Assets	Total
Capital investments	(1,742)	(127)	(1,869)
Reconciling items	33	1	34
Cash outflow for capital expenditures	(1,709)	(126)	(1,835)

Supplementary Information

Year ended December 31 (millions of dollars)	2021	2020
Net interest paid	500	493
Income taxes paid	20	33

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Commitments (Tables)

12 Months Ended

Dec. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

Summary of Commitments Under Leases, Outsourcing and Other Agreements Due

The following table presents a summary of Hydro One’s commitments under outsourcing and other agreements due in the next five years and thereafter:

As at December 31, 2021 (millions of dollars)	Year 1	Year 2	Year 3	Year 4	Year 5	Thereafter
Outsourcing and other agreements	114	50	11	3	2	15
Long-term software/meter agreement	2	1	2	1	1	5

Summary of Other Commitments

The following table presents a summary of Hydro One’s other commercial commitments by year of expiry in the next five years and thereafter:

As at December 31, 2021 (millions of dollars)	Year 1	Year 2	Year 3	Year 4	Year 5	Thereafter
Operating Credit Facilities1	—	—	—	—	2,300	—
Letters of credit2	182	2	—	—	—	—
Guarantees3	475	—	—	—	—	—

1 On June 1, 2021, the maturity date for the Operating Credit Facilities was extended to 2026.

2 Letters of credit consist of $160 million letters of credit related to retirement compensation arrangements, a $17 million letter of credit provided to the IESO for prudential support, $4 million in letters of credit to satisfy debt service reserve requirements, and $3 million in letters of credit for various operating purposes.

3 Guarantees consist of $475 million prudential support provided to the IESO by Hydro One on behalf of its subsidiaries.

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Segmented Reporting (Tables)

12 Months Ended

Dec. 31, 2021

Segment Reporting [Abstract]

Summary of Segment Information

Year ended December 31, 2021 (millions of dollars)	Transmission	Distribution	Other	Consolidated
Revenues	1,826	5,359	—	7,185
Purchased power	—	3,579	—	3,579
Operation, maintenance and administration	414	664	3	1,081
Depreciation, amortization and asset removal costs	485	428	—	913
Income (loss) before financing charges and income tax expense	927	688	(3)	1,612
Capital investments	1,320	784	—	2,104

Year ended December 31, 2020 (millions of dollars)	Transmission	Distribution	Other	Consolidated
Revenues	1,743	5,507	—	7,250
Purchased power	—	3,854	—	3,854
Operation, maintenance and administration	406	623	5	1,034
Depreciation, amortization and asset removal costs	459	417	—	876
Income (loss) before financing charges and income tax expense	878	613	(5)	1,486
Capital investments	1,157	712	—	1,869

Total Assets by Segment:

As at December 31 (millions of dollars)	2021	2020
Transmission	18,109	17,620
Distribution	11,475	11,294
Other	637	1,219
Total assets	30,221	30,133

Total Goodwill by Segment:

As at December 31 (millions of dollars)	2021	2020
Transmission	157	157
Distribution (Note 4)	216	216
Total goodwill	373	373

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Description of the Business (Detail) - CAD ($) $ in Millions	Dec. 17, 2020	Nov. 09, 2020	Nov. 03, 2020	Jul. 16, 2020	Apr. 16, 2020	Jan. 16, 2020	Dec. 19, 2019	Jun. 11, 2019	Oct. 13, 2016	Dec. 31, 2021
Hydro One Networks [Member]
Subsidiary of Limited Liability Company or Limited Partnership [Line Items]
Disposition period (in years)	2 years
Hydro One Sault Ste. Marie LP [Member]
Subsidiary of Limited Liability Company or Limited Partnership [Line Items]
Deferred rebasing period (in years)									10 years
Hydro One Remote Communities [Member]
Subsidiary of Limited Liability Company or Limited Partnership [Line Items]
Electrical distribution, increased base rate					2.00%
2018 Approved Revenue Requirement [Member] | Hydro One Networks [Member]
Subsidiary of Limited Liability Company or Limited Partnership [Line Items]
Distribution revenue requirement								$ 1,459
2019 Approved Revenue Requirement [Member] | Hydro One Networks [Member]
Subsidiary of Limited Liability Company or Limited Partnership [Line Items]
Distribution revenue requirement								1,498
2020 Approved Revenue Requirement [Member] | B2M Limited Partnership [Member]
Subsidiary of Limited Liability Company or Limited Partnership [Line Items]
Transmission revenue requirement						$ 33
2020 Approved Revenue Requirement [Member] | Niagara Reinforcement Limited Partnership [Member]
Subsidiary of Limited Liability Company or Limited Partnership [Line Items]
Transmission revenue requirement							$ 9
2020 Approved Revenue Requirement [Member] | Hydro One Networks [Member]
Subsidiary of Limited Liability Company or Limited Partnership [Line Items]
Transmission revenue requirement				$ 1,630
Distribution revenue requirement								1,532
2021 Approved Revenue Requirement [Member] | Hydro One Networks [Member]
Subsidiary of Limited Liability Company or Limited Partnership [Line Items]
Transmission revenue requirement				1,701
Distribution revenue requirement								1,578
2022 Approved Revenue Requirement [Member] | Hydro One Networks [Member]
Subsidiary of Limited Liability Company or Limited Partnership [Line Items]
Transmission revenue requirement				$ 1,772
Distribution revenue requirement								$ 1,624
2020 Electrical Distribution Rates | Hydro One Remote Communities [Member] | OEB [Member]
Subsidiary of Limited Liability Company or Limited Partnership [Line Items]
Proposed increase to base rate		2.20%	2.00%
B2M Limited Partnership [Member]
Subsidiary of Limited Liability Company or Limited Partnership [Line Items]
Ownership interest in related party										66.00%
Niagara Reinforcement Limited Partnership [Member]
Subsidiary of Limited Liability Company or Limited Partnership [Line Items]
Ownership interest in related party										55.00%

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Significant Accounting Policies - Average Service Lives and Depreciation and Amortization Rates (Detail)	12 Months Ended
	Dec. 31, 2021
Property Plant And Equipment Estimated Useful Lives [Line Items]
Average service life, intangible assets	10 years
Annual rate of amortization, intangible assets	1000.00%
Annual average rate of amortization, intangible assets	7.00%
Transmission [Member]
Property Plant And Equipment Estimated Useful Lives [Line Items]
Average service life, property, plant and equipment	55 years
Annual average rate of depreciation and amortization, property, plant and equipment	2.00%
Distribution [Member]
Property Plant And Equipment Estimated Useful Lives [Line Items]
Average service life, property, plant and equipment	47 years
Annual average rate of depreciation and amortization, property, plant and equipment	2.00%
Communication [Member]
Property Plant And Equipment Estimated Useful Lives [Line Items]
Average service life, property, plant and equipment	16 years
Annual average rate of depreciation and amortization, property, plant and equipment	4.00%
Administration and Service [Member]
Property Plant And Equipment Estimated Useful Lives [Line Items]
Average service life, property, plant and equipment	24 years
Annual average rate of depreciation and amortization, property, plant and equipment	4.00%
Minimum [Member] | Transmission [Member]
Property Plant And Equipment Estimated Useful Lives [Line Items]
Annual rate of depreciation and amortization, property, plant and equipment	0.01%
Minimum [Member] | Distribution [Member]
Property Plant And Equipment Estimated Useful Lives [Line Items]
Annual rate of depreciation and amortization, property, plant and equipment	0.01%
Minimum [Member] | Communication [Member]
Property Plant And Equipment Estimated Useful Lives [Line Items]
Annual rate of depreciation and amortization, property, plant and equipment	0.01%
Minimum [Member] | Administration and Service [Member]
Property Plant And Equipment Estimated Useful Lives [Line Items]
Annual rate of depreciation and amortization, property, plant and equipment	0.01%
Maximum [Member] | Transmission [Member]
Property Plant And Equipment Estimated Useful Lives [Line Items]
Annual rate of depreciation and amortization, property, plant and equipment	0.03%
Maximum [Member] | Distribution [Member]
Property Plant And Equipment Estimated Useful Lives [Line Items]
Annual rate of depreciation and amortization, property, plant and equipment	0.07%
Maximum [Member] | Communication [Member]
Property Plant And Equipment Estimated Useful Lives [Line Items]
Annual rate of depreciation and amortization, property, plant and equipment	0.15%
Maximum [Member] | Administration and Service [Member]
Property Plant And Equipment Estimated Useful Lives [Line Items]
Annual rate of depreciation and amortization, property, plant and equipment	0.20%

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Significant Accounting Policies - Additional Information (Detail) - CAD ($)	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Accounting Policies [Abstract]
Asset impairment charges	$ 0	$ 0
Embedded derivatives	$ 0	$ 0

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Business Combinations - Additional Information (Detail) - CAD ($)				1 Months Ended	12 Months Ended				31 Months Ended	56 Months Ended
	Sep. 01, 2020	Aug. 01, 2020	Jan. 31, 2020	Sep. 30, 2020	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2018	Dec. 31, 2016	Aug. 01, 2020	Sep. 01, 2020
Business Acquisition [Line Items]
Cash payment to acquire business					$ 0	$ 126,000,000
Goodwill					373,000,000	373,000,000
Peterborough Distribution Inc. [Member]
Business Acquisition [Line Items]
Consideration transferred		$ 104,000,000
Cash payment to acquire business		101,000,000					$ 4,000,000		$ 105,000,000
Purchase price adjustment					1,000,000
Goodwill		$ 33,000,000							$ 33,000,000
Revenue from acquiree						51,000,000
Net income (loss) from acquiree					0
Orillia Power Distribution Corporation [Member]
Business Acquisition [Line Items]
Consideration transferred	$ 28,000,000
Cash payment to acquire business	25,000,000							$ 1,000,000		$ 26,000,000
Purchase price adjustment					2,000,000
Goodwill	$ 15,000,000									$ 15,000,000
Revenue from acquiree						$ 15,000,000
Net income (loss) from acquiree					$ 0
Repayment of short-term debt assumed				$ 20,000,000
Mississaugas of the Credit First Nation [Member] | Niagara Reinforcement Limited Partnership [Member]
Business Acquisition [Line Items]
Non-controlling ownership percentage			20.00%
Mississaugas of the Credit First Nation [Member] | Niagara Reinforcement Limited Partnership [Member]
Business Acquisition [Line Items]
Consideration transferred			$ 9,000,000
Option to purchase additional equity interest (as a percent)			19.90%
Hydro One Inc. [Member] | Niagara Reinforcement Limited Partnership [Member]
Business Acquisition [Line Items]
Non-controlling ownership percentage			55.00%
Six Nations of the Grand River Development Corporation [Member] | Niagara Reinforcement Limited Partnership [Member]
Business Acquisition [Line Items]
Non-controlling ownership percentage			25.00%

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Business Combinations - Peterborough Distribution (Details) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020	Aug. 01, 2020
Business Acquisition [Line Items]
Goodwill	$ 373	$ 373
Peterborough Distribution Inc. [Member]
Business Acquisition [Line Items]
Working capital			$ 7
Property, plant and equipment			64
Regulatory assets			1
Goodwill			33
Other long-term liabilities			(1)
Fair value of assets acquired and liabilities assumed			$ 104

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Business Combinations - Orillia Power (Details) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020	Sep. 01, 2020
Business Acquisition [Line Items]
Goodwill	$ 373	$ 373
Orillia Power Distribution Corporation [Member]
Business Acquisition [Line Items]
Working capital			$ 2
Property, plant and equipment			32
Deferred income tax assets			1
Goodwill			15
Short-term debt			(20)
Regulatory liabilities			(1)
Other long-term liabilities			(1)
Fair value of assets acquired and liabilities assumed			$ 28

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Depreciation, Amortization And Asset Removal Costs - Schedule of Depreciation and Amortization (Detail) - CAD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Property, Plant and Equipment [Abstract]
Depreciation of property, plant and equipment	$ 700	$ 683
Amortization of intangible assets	76	69
Amortization of regulatory assets	30	23
Depreciation and amortization	806	775
Asset removal costs	107	101
Total depreciation and amortization	$ 913	$ 876

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Financing Charges - Schedule of Financing Charges (Detail) - CAD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Banking and Thrift, Interest [Abstract]
Interest on long-term debt	$ 499	$ 495
Realized loss on cash flow hedges (interest-rate swap agreements) (Notes 8, 18)	12	7
Interest on short-term notes	1	8
Interest on regulatory accounts	5	3
Other	11	10
Less: Interest capitalized on construction and development in progress	(60)	(49)
DTA carrying charges (Note 13)	(12)	0
Interest earned on cash and cash equivalents	(3)	(5)
Net financing charges	$ 453	$ 469

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Income Taxes - Reconciliation between Statutory and Effective Tax Rates (Detail) - CAD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Income Tax Disclosure [Abstract]
Statutory income tax rate	26.50%	26.50%
Income before income tax expense	$ 1,159	$ 1,017
Income tax expense at statutory rate of 26.5% (2020 - 26.5%)	307	270
Net temporary differences recoverable in future rates charged to customers:
Capital cost allowance in excess of depreciation and amortization	(81)	(102)
Impact of tax deductions from deferred tax asset sharing	(38)	(41)
Impact of tax recovery from deferred tax asset sharing	47	0
Overheads capitalized for accounting but deducted for tax purposes	(22)	(21)
Interest capitalized for accounting but deducted for tax purposes	(16)	(13)
Environmental expenditures	(8)	(6)
Pension and post-retirement benefit contributions in excess of pension expense	(9)	(4)
Other	(1)	0
Net temporary differences attributable to regulated business	(128)	(187)
Net permanent differences	0	1
Recognition of deferred income tax regulatory asset (Note 13)	0	(867)
Total income tax expense (recovery)	$ 179	$ (783)
Effective income tax rate	15.40%	(77.00%)

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Income Taxes - Major Components of Income Tax Expense (Detail) - CAD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Income Tax Disclosure [Abstract]
Current income tax expense	$ 30	$ 29
Deferred income tax expense (recovery)	149	(812)
Total income tax expense (recovery)	$ 179	$ (783)

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Income Taxes - Schedule of Deferred Income Tax Assets and Liabilities (Detail) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020
Deferred income tax assets
Post-retirement and post-employment benefits expense in excess of cash payments	$ 655	$ 680
Pension obligations	257	607
Non-capital losses	213	275
Non-depreciable capital property	273	271
Tax credit carryforwards	147	118
Investment in subsidiaries	99	100
Environmental expenditures	44	48
Deferred income tax assets gross	1,688	2,099
Less: valuation allowance	(378)	(380)
Total deferred income tax assets	1,310	1,719
Deferred income tax liabilities
Capital cost allowance in excess of depreciation and amortization	1,354	1,029
Regulatory assets and liabilities	308	728
Other	5	2
Total deferred income tax liabilities	1,667	1,759
Net deferred income tax liabilities	$ (357)	$ (40)

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Income Taxes - Major Categories of Net Deferred Income Tax Assets (Detail) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020
Long-term:
Deferred income tax assets	$ 10	$ 16
Deferred income tax liabilities	(367)	(56)
Net deferred income tax liabilities	$ (357)	$ (40)

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Income Taxes - Additional Information (Detail) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020
Income Tax Disclosure [Abstract]
Valuation allowance in respect of capital property	$ 378	$ 380

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Income Taxes - Non Capital Losses Carried Forward to Reduce Future Period Taxable Income (Detail) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020
Deferred Income Tax Assets And Liabilities [Line Items]
Total losses	$ 800	$ 1,036
2035 [Member]
Deferred Income Tax Assets And Liabilities [Line Items]
Total losses	0	170
2036 [Member]
Deferred Income Tax Assets And Liabilities [Line Items]
Total losses	481	550
2037 [Member]
Deferred Income Tax Assets And Liabilities [Line Items]
Total losses	121	121
2038 [Member]
Deferred Income Tax Assets And Liabilities [Line Items]
Total losses	5	5
2039 [Member]
Deferred Income Tax Assets And Liabilities [Line Items]
Total losses	183	185
2040 [Member]
Deferred Income Tax Assets And Liabilities [Line Items]
Total losses	2	5
2041 [Member]
Deferred Income Tax Assets And Liabilities [Line Items]
Total losses	$ 8	$ 0

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Other Comprehensive Income (Loss) (Details) - CAD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Equity [Abstract]
Gain (loss) on cash flow hedges (interest-rate swap agreements) (Notes 6, Note 18)	$ 12	$ (20)
Gain (loss) on transfer of other post-employment benefits (OPEB) (Note 20)	0	(6)
Other	4	2
Other comprehensive income (loss)	16	(24)
Amount reclassified, after-tax	8	5
Amount reclassified, before-tax	$ 12	$ 7

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Accounts Receivable - Schedule of Accounts Receivable (Detail) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts receivable, gross	$ 753	$ 765
Allowance for doubtful accounts	(56)	(46)	$ (22)
Accounts receivable, net	697	719
Accounts Receivable - Billed [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts receivable, gross	344	344
Accounts Receivable - Unbilled [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts receivable, gross	$ 409	$ 421

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Accounts Receivable - Schedule of Allowance for Doubtful Accounts (Detail) - CAD ($)	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Accounts Receivable, Allowance for Credit Loss [Roll Forward]
Allowance for doubtful accounts – beginning	$ (46,000,000)	$ (22,000,000)
Write-offs	15,000,000	11,000,000
Additions to allowance for doubtful accounts	(25,000,000)	(35,000,000)
Allowance for doubtful accounts – ending	(56,000,000)	(46,000,000)
Additions to allowance for doubtful accounts related to the COVID-19 pandemic	25,000,000	35,000,000
COVID-19 Pandemic
Accounts Receivable, Allowance for Credit Loss [Roll Forward]
Additions to allowance for doubtful accounts	0	(14,000,000)
Additions to allowance for doubtful accounts related to the COVID-19 pandemic	$ 0	$ 14,000,000

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Other Current Assets - Schedule of Other Current Assets (Detail) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Regulatory assets (Note 13)	$ 226	$ 105
Prepaid expenses and other assets	53	50
Materials and supplies	22	23
Derivative assets (Note 18)	0	3
Other current assets	$ 301	$ 181

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Property, Plant and Equipment - Schedule of Property, Plant and Equipment (Detail) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020
Property, Plant and Equipment [Line Items]
Property, Plant  and Equipment	$ 34,903	$ 33,341
Accumulated Depreciation	12,557	11,922
Construction in Progress	1,402	1,129
Total	23,748	22,548
Transmission [Member]
Property, Plant and Equipment [Line Items]
Property, Plant  and Equipment	18,970	18,213
Accumulated Depreciation	6,307	5,989
Construction in Progress	1,183	876
Total	13,846	13,100
Distribution [Member]
Property, Plant and Equipment [Line Items]
Property, Plant  and Equipment	12,045	11,544
Accumulated Depreciation	4,163	3,949
Construction in Progress	95	101
Total	7,977	7,696
Communication [Member]
Property, Plant and Equipment [Line Items]
Property, Plant  and Equipment	1,246	1,184
Accumulated Depreciation	981	945
Construction in Progress	46	39
Total	311	278
Administration and Service [Member]
Property, Plant and Equipment [Line Items]
Property, Plant  and Equipment	1,963	1,729
Accumulated Depreciation	1,022	959
Construction in Progress	78	113
Total	1,019	883
Easements [Member]
Property, Plant and Equipment [Line Items]
Property, Plant  and Equipment	679	671
Accumulated Depreciation	84	80
Construction in Progress	0	0
Total	$ 595	$ 591

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Property, Plant and Equipment - Additional Information (Detail) - CAD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Property, Plant and Equipment [Abstract]
Financing charges capitalized on property, plant and equipment	$ 57	$ 46

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Intangible Assets - Schedule of Intangible Assets (Detail) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020
Finite-Lived Intangible Assets [Line Items]
Intangible Assets	$ 1,099	$ 1,039
Accumulated Amortization	662	586
Development in Progress	130	59
Total	567	512
Computer Applications Software [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible Assets	1,094	1,033
Accumulated Amortization	657	581
Development in Progress	130	59
Total	567	511
Other [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible Assets	5	6
Accumulated Amortization	5	5
Development in Progress	0	0
Total	$ 0	$ 1

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Intangible Assets - Additional Information (Detail) - CAD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]
Financing charges related to intangible assets under development	$ 3	$ 3
Amortization expense for intangible assets, 2022	76
Amortization expense for intangible assets, 2023	65
Amortization expense for intangible assets, 2024	55
Amortization expense for intangible assets, 2025	53
Amortization expense for intangible assets, 2026	$ 50

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Regulatory Assets and Liabilities - Schedule of Regulatory Assets and Liabilities (Detail) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020
Regulatory assets:
Total regulatory assets	$ 3,787	$ 4,676
Less: current portion	(226)	(105)
Regulatory assets	3,561	4,571
Regulatory liabilities:
Total regulatory liabilities	372	297
Less: current portion	(10)	(66)
Regulatory liabilities	362	231
Tax Rule Changes Variance [Member]
Regulatory liabilities:
Total regulatory liabilities	86	70
Retail Settlement Variance Account [Member]
Regulatory liabilities:
Total regulatory liabilities	58	92
External Revenue Variance [Member]
Regulatory liabilities:
Total regulatory liabilities	52	7
Earnings Sharing Mechanism Deferral [Member]
Regulatory liabilities:
Total regulatory liabilities	42	37
Asset Removal Costs Cumulative Variance [Member]
Regulatory liabilities:
Total regulatory liabilities	36	19
Post-Retirement and Post-Employment Benefits [Member]
Regulatory liabilities:
Total regulatory liabilities	33	0
Pension Cost Differential [Member]
Regulatory liabilities:
Total regulatory liabilities	30	31
Green Energy Expenditure Variance [Member]
Regulatory liabilities:
Total regulatory liabilities	13	22
Deferred Income Tax Regulatory Liability [Member]
Regulatory liabilities:
Total regulatory liabilities	4	4
Other Regulatory Liabilities [Member]
Regulatory liabilities:
Total regulatory liabilities	18	15
Deferred Income Tax Regulatory Asset [Member]
Regulatory assets:
Total regulatory assets	2,509	2,343
Pension Benefit Regulatory Asset [Member]
Regulatory assets:
Total regulatory assets	713	1,660
Deferred Tax Asset Sharing [Member]
Regulatory assets:
Total regulatory assets	204	204
Post-Retirement and Post-Employment Benefits - Non-Service [Member]
Regulatory assets:
Total regulatory assets	125	113
Environmental [Member]
Regulatory assets:
Total regulatory assets	122	133
Stock-Based Compensation [Member]
Regulatory assets:
Total regulatory assets	38	41
Foregone Revenue Deferral [Member]
Regulatory assets:
Total regulatory assets	25	63
Conservation and Demand Management (CDM) Variance [Member]
Regulatory assets:
Total regulatory assets	8	16
Debt Premium [Member]
Regulatory assets:
Total regulatory assets	7	12
Post-Retirement and Post-Employment Benefits [Member]
Regulatory assets:
Total regulatory assets	0	59
Other Regulatory Assets [Member]
Regulatory assets:
Total regulatory assets	$ 36	$ 32

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Regulatory Assets and Liabilities - Additional Information (Detail) - CAD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Jun. 30, 2020
Regulatory Matters [Line Items]
Deferred income tax regulatory asset and liability	$ 127	$ 187
Regulatory assets	3,787	4,676
Regulatory liabilities	372	297
Deferred income tax recovery		867
Deferred Income Tax Regulatory Liability [Member]
Regulatory Matters [Line Items]
Regulatory liabilities	4	4
Deferred Income Tax Regulatory Liability [Member] | Hydro One Networks [Member]
Regulatory Matters [Line Items]
Regulatory liabilities	310
Deferred Income Tax Regulatory Asset [Member]
Regulatory Matters [Line Items]
Regulatory assets	2,509	2,343
Deferred Income Tax Regulatory Asset [Member] | Hydro One Networks [Member] | Distribution [Member]
Regulatory Matters [Line Items]
Regulatory assets	504
Deferred Income Tax Regulatory Asset [Member] | Hydro One Networks [Member] | Transmission [Member]
Regulatory Matters [Line Items]
Regulatory assets	673
Deferred Tax Asset Sharing [Member]
Regulatory Matters [Line Items]
Regulatory assets	204	204
Deferred Tax Asset Sharing [Member] | Hydro One Networks [Member] | Distribution [Member]
Regulatory Matters [Line Items]
Regulatory assets	74	70	$ 58
Deferred Tax Asset Sharing [Member] | Hydro One Networks [Member] | Transmission [Member]
Regulatory Matters [Line Items]
Regulatory assets	130	134	$ 118
Pension Benefit Regulatory Asset [Member]
Regulatory Matters [Line Items]
Regulatory assets	713	1,660
Increase (decrease) in other comprehensive income	1,017	470
Increase (decrease) to OM&A expenses	132	89
Polychlorinated Biphenyl Liability [Member]
Regulatory Matters [Line Items]
Increase (decrease) to OM&A expenses	18	12
Increase (decrease) to regulatory assets	18	12
Environmental [Member]
Regulatory Matters [Line Items]
Increase (decrease) in amortization expense	(30)	(23)
Increase (decrease) in financing chargers	1	3
Post-Retirement and Post-Employment Benefits [Member]
Regulatory Matters [Line Items]
Regulatory assets	0	59
Increase (decrease) in other comprehensive income	94	46
Stock-Based Compensation [Member]
Regulatory Matters [Line Items]
Regulatory assets	38	41
Increase (decrease) to OM&A expenses	(1)	(1)
Pension Cost Differential [Member]
Regulatory Matters [Line Items]
Increase (decrease) in revenue	$ 1	$ 1

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Other Long-Term Assets (Detail) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Right-of-Use assets (Note 23)	$ 53	$ 71
Other long-term assets	13	8
Total other assets	$ 66	$ 79

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Accounts Payable and Other Current Liabilities (Detail) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020
Payables and Accruals [Abstract]
Accrued liabilities	$ 606	$ 557
Accounts payable	249	232
Accrued interest	123	116
Environmental liabilities (Note 21)	34	33
Regulatory liabilities (Note 13)	10	66
Lease obligations (Note 23)	12	11
Derivative liabilities (Note 18)	8	11
Total	$ 1,042	$ 1,026

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Other Long-Term Liabilities (Detail) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020
Other Liabilities Disclosure [Abstract]
Post-retirement and post-employment benefit liability (Note 20)	$ 1,784	$ 1,781
Pension benefit liability (Note 20)	713	1,660
Environmental liabilities (Note 21)	88	100
Lease obligations (Note 23)	44	65
Due to related parties (Note 29)	29	32
Asset retirement obligations (Note 22)	14	13
Derivative liabilities (Note 18)	0	14
Long-term accounts payable	3	5
Other long-term liabilities	19	16
Other long-term liabilities	$ 2,694	$ 3,686

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Debt and Credit Agreements - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2021 CAD ($)
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Maximum borrowing capacity	$ 2,300,000,000
Commercial Paper Program [Member]
Debt Instrument [Line Items]
Maturities days of commercial paper	365 days
Hydro One Inc. [Member] | Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Maximum borrowing capacity	$ 2,300,000,000

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Debt and Credit Agreements - Schedule of Standby Credit Facilities (Detail)	Dec. 31, 2021 CAD ($)
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Amount Drawn	$ 0

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Debt and Credit Agreements - Schedule of Outstanding Long-Term Debt (Detail) - CAD ($)	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Apr. 30, 2020
Debt Instrument [Line Items]
Long-term debt, face amount	$ 13,229,000,000
Long-term debt, Total	13,237,000,000	$ 13,146,000,000
Add: Net unamortized debt premiums	9,000,000	10,000,000
Add: Unrealized mark-to-market loss (gain)	0	3,000,000
Less: Unamortized deferred debt issuance costs	(50,000,000)	(51,000,000)
Total long-term debt	13,196,000,000	13,108,000,000
Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, face amount	13,095,000,000	12,995,000,000
Debt instrument maximum borrowing capacity			$ 4,000,000,000
Debt instrument unused borrowing capacity	1,900,000,000
Long-term debt issued	900,000,000	2,300,000,000
Long-term debt repaid	800,000,000	650,000,000
Hydro One Sault Ste. Marie LP [Member]
Debt Instrument [Line Items]
Long-term debt, face amount	134,000,000	138,000,000
Long-term debt, market value	142,000,000	151,000,000
Long-term debt issued	0	0
Long-term debt repaid	$ 4,000,000	$ 3,000,000
1.84% Series 34 Notes Due 2021 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	1.84%	1.84%
Long-term debt, face amount	$ 0	$ 500,000,000
2.57% Series 39 Notes Due 2021 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	2.57%	2.57%
Long-term debt, face amount	$ 0	$ 300,000,000
3.20% Series 25 Notes Due 2022 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	3.20%	3.20%
Long-term debt, face amount	$ 600,000,000	$ 600,000,000
0.71% Series 48 Notes Due 2023 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	0.71%	0.71%
Long-term debt, face amount	$ 600,000,000	$ 600,000,000
2.54% Series 42 notes due 2024 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	2.54%	2.54%
Long-term debt, face amount	$ 700,000,000	$ 700,000,000
1.76% Series 45 Notes Due 2025 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	1.76%	1.76%
Long-term debt, face amount	$ 400,000,000	$ 400,000,000
2.97% Series 40 Notes Due 2025 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	2.97%	2.97%
Long-term debt, face amount	$ 350,000,000	$ 350,000,000
2.77% Series 35 Notes Due 2026 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	2.77%	2.77%
Long-term debt, face amount	$ 500,000,000	$ 500,000,000
3.02% Series 43 notes due 2029 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	3.02%	3.02%
Long-term debt, face amount	$ 550,000,000	$ 550,000,000
2.16% Series 46 Notes Due 2030 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	2.16%	2.16%
Long-term debt, face amount	$ 400,000,000	$ 400,000,000
7.35% Debentures Due 2030 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	7.35%	7.35%
Long-term debt, face amount	$ 400,000,000	$ 400,000,000
1.69% Series 49 Notes Due 2031 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	1.69%	1.69%
Long-term debt, face amount	$ 400,000,000	$ 400,000,000
2.23% Series 50 Notes Due 2031 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	2.23%
Long-term debt, face amount	$ 450,000,000	$ 0
6.93% Series 2 Notes Due 2032 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	6.93%	6.93%
Long-term debt, face amount	$ 500,000,000	$ 500,000,000
6.35% Series 4 Notes Due 2034 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	6.35%	6.35%
Long-term debt, face amount	$ 385,000,000	$ 385,000,000
5.36% Series 9 Notes Due 2036 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	5.36%	5.36%
Long-term debt, face amount	$ 600,000,000	$ 600,000,000
4.89% Series 12 Notes Due 2037 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	4.89%	4.89%
Long-term debt, face amount	$ 400,000,000	$ 400,000,000
6.03% Series 17 Notes Due 2039 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	6.03%	6.03%
Long-term debt, face amount	$ 300,000,000	$ 300,000,000
5.49% Series 18 Notes Due 2040 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	5.49%	5.49%
Long-term debt, face amount	$ 500,000,000	$ 500,000,000
4.39% Series 23 Notes Due 2041 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	4.39%	4.39%
Long-term debt, face amount	$ 300,000,000	$ 300,000,000
6.59% Series 5 Notes Due 2043 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	6.59%	6.59%
Long-term debt, face amount	$ 315,000,000	$ 315,000,000
4.59% Series 29 Notes Due 2043 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	4.59%	4.59%
Long-term debt, face amount	$ 435,000,000	$ 435,000,000
4.17% Series 32 Notes Due 2044 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	4.17%	4.17%
Long-term debt, face amount	$ 350,000,000	$ 350,000,000
5.00% Series 11 Notes Due 2046 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	5.00%	5.00%
Long-term debt, face amount	$ 325,000,000	$ 325,000,000
3.91% Series 36 Notes Due 2046 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	3.91%	3.91%
Long-term debt, face amount	$ 350,000,000	$ 350,000,000
3.72% Series 38 Notes Due 2047 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	3.72%	3.72%
Long-term debt, face amount	$ 450,000,000	$ 450,000,000
3.63% Series 41 Notes Due 2049 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	3.63%	3.63%
Long-term debt, face amount	$ 750,000,000	$ 750,000,000
2.71% Series 47 Notes Due 2050 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	2.71%	2.71%
Long-term debt, face amount	$ 500,000,000	$ 500,000,000
3.64% Series 44 notes due 2050 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	3.64%	3.64%
Long-term debt, face amount	$ 250,000,000	$ 250,000,000
3.10% Series 51 Notes Due 2051 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	3.10%
Long-term debt, face amount	$ 450,000,000	$ 0
4.00% Series 24 Notes Due 2051 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	4.00%	4.00%
Long-term debt, face amount	$ 225,000,000	$ 225,000,000
3.79% Series 26 Notes Due 2062 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	3.79%	3.79%
Long-term debt, face amount	$ 310,000,000	$ 310,000,000
4.29% Series 30 Notes Due 2064 [Member] | Medium Term Note Program [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	4.29%	4.29%
Long-term debt, face amount	$ 50,000,000	$ 50,000,000
6.6% Senior Secured Bonds due 2023 [Member] | Hydro One Sault Ste. Marie LP [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	6.60%	6.60%
Long-term debt, face amount	$ 98,000,000
Long-term debt, market value	$ 105,000,000	$ 113,000,000
4.6% Note Payable due 2023 [Member] | Hydro One Sault Ste. Marie LP [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	4.60%	4.60%
Long-term debt, face amount	$ 36,000,000
Long-term debt, market value	37,000,000	$ 38,000,000
$300 million of MTN Series 39 notes [Member]
Debt Instrument [Line Items]
Long-term debt, face amount	300,000,000
Total long-term debt	$ 0	303,000,000
$300 million of MTN Series 39 notes [Member] | Medium-term Notes [Member]
Debt Instrument [Line Items]
Hedged portion of debt		300,000,000
Interest Rate Swap [Member]
Debt Instrument [Line Items]
Add: Unrealized mark-to-market loss (gain)		$ (3,000,000)

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Debt and Credit Agreements - Schedule of Long-Term Debt (Detail) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020
Current liabilities:
Long-term debt payable within one year	$ 603	$ 806
Long-term liabilities:
Long-term debt	12,593	12,302
Total long-term debt	$ 13,196	$ 13,108

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Debt and Credit Agreements - Summary of Principal Repayments, Interest Payments and Related Weighted Average Interest Rates (Detail) $ in Millions	12 Months Ended
	Dec. 31, 2021 CAD ($)
Long-Term Debt Principal Repayments
Year 1	$ 603
Year 2	731
Year 3	700
Year 4	750
Year 5	500
During 5 years	3,284
Years 6-10	2,200
Thereafter	7,745
Total	13,229
Interest Payments	$ 8,395
Weighted Average Interest Rate (as a percent)	3.90%
Year 1 [Member]
Long-Term Debt Principal Repayments
Interest Payments	$ 501
Weighted Average Interest Rate (as a percent)	3.20%
Year 2 [Member]
Long-Term Debt Principal Repayments
Interest Payments	$ 485
Weighted Average Interest Rate (as a percent)	1.70%
Year 3 [Member]
Long-Term Debt Principal Repayments
Interest Payments	$ 470
Weighted Average Interest Rate (as a percent)	2.50%
Year 4 [Member]
Long-Term Debt Principal Repayments
Interest Payments	$ 452
Weighted Average Interest Rate (as a percent)	2.30%
Year 5 [Member]
Long-Term Debt Principal Repayments
Interest Payments	$ 437
Weighted Average Interest Rate (as a percent)	2.80%
5 Years, Total [Member]
Long-Term Debt Principal Repayments
Interest Payments	$ 2,345
Weighted Average Interest Rate (as a percent)	2.50%
Years 6-10 [Member ]
Long-Term Debt Principal Repayments
Interest Payments	$ 2,046
Weighted Average Interest Rate (as a percent)	3.20%
Thereafter [Member]
Long-Term Debt Principal Repayments
Interest Payments	$ 4,004
Weighted Average Interest Rate (as a percent)	4.60%

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Fair Value of Financial Instruments and Risk Management - Summary of Fair Values and Carrying Values of Long-Term Debt (Detail) - CAD ($)	Dec. 31, 2021	Dec. 31, 2020
Schedule Of Carrying Values And Estimated Fair Values Of Debt Instruments [Line Items]
Long-term debt, face amount	$ 13,229,000,000
Carrying Value	13,196,000,000	$ 13,108,000,000
Fair Value	15,162,000,000	16,098,000,000
$300 million of MTN Series 39 notes [Member]
Schedule Of Carrying Values And Estimated Fair Values Of Debt Instruments [Line Items]
Long-term debt, face amount	300,000,000
Carrying Value	0	303,000,000
Fair Value	0	303,000,000
Other Notes and Debentures [Member]
Schedule Of Carrying Values And Estimated Fair Values Of Debt Instruments [Line Items]
Carrying Value	13,196,000,000	12,805,000,000
Fair Value	$ 15,162,000,000	$ 15,795,000,000

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Fair Value of Financial Instruments and Risk Management - Fair Value of Financial Instruments - Additional Information (Detail) - CAD ($)	Dec. 31, 2021	Dec. 31, 2020
Schedule Of Carrying Values And Estimated Fair Values Of Debt Instruments [Line Items]
Fair value hedge exposure		2.00%
Interest Rate Swap [Member]
Schedule Of Carrying Values And Estimated Fair Values Of Debt Instruments [Line Items]
Fixed-to-floating interest-rate swap		$ 300,000,000
Notional value	$ 0	0
Designated as Hedging Instrument [Member] | Interest Rate Swap [Member]
Schedule Of Carrying Values And Estimated Fair Values Of Debt Instruments [Line Items]
Fixed-to-floating interest-rate swap	$ 800,000,000	$ 800,000,000

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Fair Value of Financial Instruments and Risk Management - Fair Value Hierarchy of Financial Assets and Liabilities (Detail) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020
Assets:
Derivative instruments	$ 0	$ 3
Liabilities:
Long-term debt, including current portion	15,162	16,098
Level 1 [Member]
Assets:
Total assets		0
Liabilities:
Long-term debt, including current portion	0	0
Total liabilities	0	0
Level 2 [Member]
Assets:
Total assets		3
Liabilities:
Long-term debt, including current portion	15,162	16,098
Total liabilities	15,170	16,123
Level 3 [Member]
Assets:
Total assets		0
Liabilities:
Long-term debt, including current portion	0	0
Total liabilities	0	0
Carrying Value [Member]
Assets:
Total assets		3
Liabilities:
Long-term debt, including current portion	13,196	13,108
Total liabilities	13,204	13,133
Fair Value [Member]
Assets:
Total assets		3
Liabilities:
Long-term debt, including current portion	15,162	16,098
Total liabilities	15,170	16,123
Fair Value Hedging [Member] | Level 1 [Member]
Assets:
Derivative instruments		0
Fair Value Hedging [Member] | Level 2 [Member]
Assets:
Derivative instruments		3
Fair Value Hedging [Member] | Level 3 [Member]
Assets:
Derivative instruments		0
Fair Value Hedging [Member] | Carrying Value [Member]
Assets:
Derivative instruments		3
Fair Value Hedging [Member] | Fair Value [Member]
Assets:
Derivative instruments		3
Cash Flow Hedging [Member] | Level 1 [Member]
Liabilities:
Derivative instruments	0	0
Cash Flow Hedging [Member] | Level 2 [Member]
Liabilities:
Derivative instruments	8	25
Cash Flow Hedging [Member] | Level 3 [Member]
Liabilities:
Derivative instruments	0	0
Cash Flow Hedging [Member] | Carrying Value [Member]
Liabilities:
Derivative instruments	8	25
Cash Flow Hedging [Member] | Fair Value [Member]
Liabilities:
Derivative instruments	$ 8	$ 25

XML

Fair Value of Financial Instruments and Risk Management - Risk Management - Additional Information (Detail) - CAD ($)	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Apr. 30, 2020	Dec. 31, 2019
Market Risk, Credit Risk And Liquidity Risk [Line Items]
Unrealized (loss) gain on cash flow hedges, net of tax	$ 4,000,000	$ (28,000,000)
Unrealized (loss) gain on cash flow hedges, before tax	5,000,000	(38,000,000)
Amount reclassified, after-tax	8,000,000	5,000,000
Amount reclassified, before-tax	12,000,000	7,000,000
Accumulated other comprehensive income (loss) related to cash flow hedges	11,240,000,000	10,876,000,000		$ 9,703,000,000
Reclassified within next twelve months	$ (6,000,000)
Maximum term for hedges (in years)	1 year
Provision for bad debts	$ 56,000,000	$ 46,000,000		$ 22,000,000
Medium Term Note Program [Member]
Market Risk, Credit Risk And Liquidity Risk [Line Items]
Debt instrument maximum borrowing capacity			$ 4,000,000,000
Debt instrument unused borrowing capacity	$ 1,900,000,000
Minimum [Member]
Market Risk, Credit Risk And Liquidity Risk [Line Items]
Account receivable, period (in days)	60 days	60 days
Aged More Than 60 Days [Member]
Market Risk, Credit Risk And Liquidity Risk [Line Items]
Account receivable, percentage	5.00%	4.00%
Accumulated Gain (Loss), Net, Cash Flow Hedge, Parent [Member]
Market Risk, Credit Risk And Liquidity Risk [Line Items]
Accumulated other comprehensive income (loss) related to cash flow hedges	$ (6,000,000)	$ 18,000,000

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Capital Management - Summary of Company's Capital Structure (Detail) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020
Regulated Operations [Abstract]
Long-term debt payable within one year	$ 603	$ 806
Short-term notes payable	1,045	800
Less: cash and cash equivalents	(499)	(712)
Net Long-term debt payable within one year	1,149	894
Long-term debt	12,593	12,302
Common shares	2,957	2,957
Retained earnings	8,229	7,877
Total capital	$ 24,928	$ 24,030

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Capital Management - Additional Information (Detail)	Dec. 31, 2021
Regulated Operations [Abstract]
Permissible limit on debt to total capital, percentage	75.00%

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Pension and Post-Retirement and Post-Employment Benefits - Additional Information (Detail) - CAD ($) $ in Millions				12 Months Ended
	Nov. 01, 2021	Mar. 01, 2021	Jan. 01, 2016	Dec. 31, 2021	Dec. 31, 2020
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Contributions by company to the plan				$ 2	$ 2
Pension plan average pensionable earnings (in years)				3 years
New pension plan average pensionable earnings (in years)				5 years
Annual pension plan contributions				$ 62	$ 57
Estimated annual pension plan contributions for 2022				93
Estimated annual pension plan contributions for 2023				107
Estimated annual pension plan contributions for 2024				111
Estimated annual pension plan contributions for 2025				111
Estimated annual pension plan contributions for 2026				113
Estimated annual pension plan contributions for 2027				$ 118
Percentage of assets to ascertain concentration of credit risk				10.00%	10.00%
Pension Benefits [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Annual pension plan contributions				$ 62	$ 57
Estimated annual pension plan contributions for 2023				369
Estimated annual pension plan contributions for 2024				375
Estimated annual pension plan contributions for 2025				379
Estimated annual pension plan contributions for 2026				383
Transfer of pension assets				0	120
Transfer of pension obligations				0	151
Unfunded status				713	1,660
Post-Retirement and Post-Employment Benefits [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Annual pension plan contributions				47	45
Estimated annual pension plan contributions for 2023				65
Estimated annual pension plan contributions for 2024				66
Estimated annual pension plan contributions for 2025				66
Estimated annual pension plan contributions for 2026				68
Transfer of pension assets				0	0
Transfer of pension obligations	$ 6	$ 28		34	33
Unfunded status				1,846	1,841
Cash as part of the transfer	$ 6	$ 27
Option One [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Percentage of employer matching contribution			4.00%
Option Two [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Percentage of employer matching contribution			5.00%
Option Three [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Percentage of employer matching contribution			6.00%
Corporate Debt Securities [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Pension plan				22	23
Province Of Ontario [Member] | Debt Securities [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Pension plan				603	565
Foreign Exchange Contract [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Notional value				414	423
Gain (loss) on derivative. net				$ 2	$ 8
ABO [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Funded percentage				102.00%	92.00%
PBO [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Funded percentage				92.00%	83.00%

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Pension and Post-Retirement and Post-Employment Benefits - Change in Projected Benefit Obligation and Change in Plan Assets (Detail) - CAD ($) $ in Millions			12 Months Ended
	Nov. 01, 2021	Mar. 01, 2021	Dec. 31, 2021	Dec. 31, 2020
Change in plan assets
Employer contributions			$ 62	$ 57
Pension Benefits [Member]
Change in projected benefit obligation
Projected benefit obligation, beginning of year			9,763	8,973
Current service cost			240	215
Employee contributions			61	56
Interest cost			257	284
Benefits paid			(392)	(381)
Net actuarial loss (gain)			(571)	465
Transfer from other plans			0	151
Projected benefit obligation, end of year			9,358	9,763
Change in plan assets
Fair value of plan assets, beginning of year			8,103	7,848
Actual return on plan assets			834	425
Benefits paid			(392)	(381)
Employer contributions			62	57
Employee contributions			61	56
Administrative expenses			(23)	(22)
Transfer from other plans			0	120
Fair value of plan assets, end of year			8,645	8,103
Unfunded status			713	1,660
Post-Retirement and Post-Employment Benefits [Member]
Change in projected benefit obligation
Projected benefit obligation, beginning of year			1,841	1,768
Current service cost			65	70
Employee contributions			0	0
Interest cost			51	57
Benefits paid			(47)	(45)
Net actuarial loss (gain)			(98)	(42)
Transfer from other plans	$ 6	$ 28	34	33
Projected benefit obligation, end of year			1,846	1,841
Change in plan assets
Fair value of plan assets, beginning of year			0	0
Actual return on plan assets			0	0
Benefits paid			(47)	(45)
Employer contributions			47	45
Employee contributions			0	0
Administrative expenses			0	0
Transfer from other plans			0	0
Fair value of plan assets, end of year			0	0
Unfunded status			$ 1,846	$ 1,841

XML

Pension and Post-Retirement and Post-Employment Benefits - Schedule of Benefit Obligations and Plan Assets (Detail) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Pension benefit liability	$ 713	$ 1,660
Pension Benefits [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Other assets	10	6
Accrued liabilities	0	0
Pension benefit liability	713	1,660
Post-retirement and post-employment benefit liability	0	0
Net unfunded status	703	1,654
Post-Retirement and Post-Employment Benefits [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Other assets	0	0
Accrued liabilities	62	60
Pension benefit liability	0	0
Post-retirement and post-employment benefit liability	1,784	1,781
Net unfunded status	$ 1,846	$ 1,841

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Pension and Post-Retirement and Post-Employment Benefits - Schedule of Projected Benefit Obligation (PBO), Accumulated Benefit Obligation (ABO) and Fair Value of Plan Assets (Detail) - Pension Benefits [Member] - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
PBO	$ 9,358	$ 9,763	$ 8,973
ABO	8,451	8,817
Fair value of plan assets	$ 8,645	$ 8,103	$ 7,848

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Pension and Post-Retirement and Post-Employment Benefits - Components of Net Periodic Benefit Costs (Detail) - CAD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Pension Benefits [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Current service cost	$ 240	$ 215
Interest cost	257	284
Expected return on plan assets, net of expenses	(430)	(450)
Prior service cost amortization	2	2
Amortization of actuarial losses	125	95
Net periodic benefit costs	194	146
Pension costs capitalized	47	44
Pension Benefits [Member] | Defined Benefit Plan, Labor [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Net periodic benefit costs	73	68
Pension Benefits [Member] | Charged to results of operations [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Net periodic benefit costs	26	24
Post-Retirement and Post-Employment Benefits [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Current service cost	65	70
Interest cost	51	57
Prior service cost amortization	7	2
Amortization of actuarial losses	(2)	5
Net periodic benefit costs	121	134
Pension costs charged to regulatory assets	14	17
Pension costs capitalized	44	45
Post-Retirement and Post-Employment Benefits [Member] | Defined Benefit Plan, Labor [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Net periodic benefit costs	121	133
Post-Retirement and Post-Employment Benefits [Member] | Charged to results of operations [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Net periodic benefit costs	63	71
Post-Retirement and Post-Employment Benefits [Member] | Charged to results of operations [Member] | 2020-2022 Transmission Decision [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Net periodic benefit costs	$ 14	$ 22

XML

Pension and Post-Retirement and Post-Employment Benefits - Schedule of Weighted Average Assumptions Used to Determine Benefit Obligations (Detail)	Dec. 31, 2021	Dec. 31, 2020
Pension Benefits [Member]
Schedule Of Weighted Average Assumption Determining Pension Plan And Other Post retirement Benefit Plan [Line Items]
Weighted average discount rate	3.00%	2.60%
Rate of compensation scale escalation (long-term)	2.25%	2.25%
Rate of cost of living increase	1.75%	1.75%
Rate of increase in health care cost trends	0.00%	0.00%
Assumed health care cost trend, percentage	4.88%	4.74%
Health care cost trend rate	3.97%	3.70%
Post-Retirement and Post-Employment Benefits [Member]
Schedule Of Weighted Average Assumption Determining Pension Plan And Other Post retirement Benefit Plan [Line Items]
Weighted average discount rate	3.00%	2.60%
Rate of compensation scale escalation (long-term)	2.25%	2.25%
Rate of cost of living increase	1.75%	1.75%
Rate of increase in health care cost trends	3.97%	3.70%
Assumed health care cost trend, percentage	4.74%	5.09%
Health care cost trend rate	3.70%	4.04%

XML

Pension and Post-Retirement and Post-Employment Benefits - Schedule of Weighted Average Assumptions Used to Determine Net Periodic Benefit Costs (Detail)	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Pension Benefits [Member]
Schedule Of Weighted Average Assumption Determining Pension Plan And Other Post retirement Benefit Plan [Line Items]
Weighted average expected rate of return on plan assets	5.40%	5.75%
Weighted average discount rate	2.60%	3.10%
Rate of compensation scale escalation (long-term)	2.25%	2.50%
Rate of cost of living increase	1.75%	2.00%
Average remaining service life of employees (years)	14 years	15 years
Assumed health care cost trend, percentage	4.88%	4.74%
Health care cost trend rate	3.97%	3.70%
Post-Retirement and Post-Employment Benefits [Member]
Schedule Of Weighted Average Assumption Determining Pension Plan And Other Post retirement Benefit Plan [Line Items]
Weighted average discount rate	2.60%	3.10%
Rate of compensation scale escalation (long-term)	2.25%	2.50%
Rate of cost of living increase	1.75%	2.00%
Average remaining service life of employees (years)	15 years 3 months 18 days	15 years 6 months
Rate of increase in health care cost trends	3.70%	4.04%
Assumed health care cost trend, percentage	4.74%	5.09%
Health care cost trend rate	3.70%	4.04%

XML

Pension and Post-Retirement and Post-Employment Benefits - Approximate Life Expectancies Used to Determine Projected Benefit Obligations for Pension, Post-Retirement and Post-Employment Plans (Detail)	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Life Expectancy At Age Sixty Five [Member] | Male [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Approximate life expectancy (in years) at particular age	23 years	22 years
Life Expectancy At Age Sixty Five [Member] | Female [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Approximate life expectancy (in years) at particular age	25 years	25 years
Life Expectancy At Age Forty Five [Member] | Male [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Approximate life expectancy (in years) at particular age	24 years	23 years
Life Expectancy At Age Forty Five [Member] | Female [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Approximate life expectancy (in years) at particular age	26 years	26 years

XML

Pension and Post-Retirement and Post-Employment Benefits - Schedule of Estimated Future Benefit Payments (Detail) $ in Millions	Dec. 31, 2021 CAD ($)
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
2023	$ 107
2024	111
2025	111
2026	113
Pension Benefits [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
2022	362
2023	369
2024	375
2025	379
2026	383
2027 through to 2031	1,962
Total estimated future benefit payments through to 2031	3,830
Post-Retirement and Post-Employment Benefits [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
2022	64
2023	65
2024	66
2025	66
2026	68
2027 through to 2031	345
Total estimated future benefit payments through to 2031	$ 674

XML

Pension and Post-Retirement and Post-Employment Benefits - Schedule of Actuarial Gains and Losses and Prior Service Costs Recorded Within Regulatory Assets (Detail) - CAD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Pension Benefits [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Actuarial gain for the year	$ (571)	$ 465
Prior service cost amortization	2	2
Post-Retirement and Post-Employment Benefits [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Actuarial gain for the year	(98)	(42)
Prior service cost amortization	7	2
Pension Benefit Regulatory Asset [Member] | Pension Benefits [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Actuarial gain for the year	(891)	536
Prior service cost for the year	0	31
Amortization of actuarial losses	(124)	(95)
Prior service cost amortization	(2)	(2)
Total actuarial gains and losses and prior service costs	(1,017)	470
Post Retirement and Employment Benefits Regulatory Assets [Member] | Post-Retirement and Post-Employment Benefits [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Actuarial gain for the year	(91)	(44)
Amortization of actuarial losses	(3)	(2)
Total actuarial gains and losses and prior service costs	$ (94)	$ (46)

XML

Pension and Post-Retirement and Post-Employment Benefits - Components of Regulatory Assets That Have Not Been Recognized as Components of Net Periodic Benefit Costs (Detail) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020
Pension Benefits [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Actuarial loss	$ 713	$ 1,660
Post-Retirement and Post-Employment Benefits [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Actuarial loss	$ (33)	$ 59

XML

Pension and Post-Retirement and Post-Employment Benefits - Schedule of Pension Plan Target Asset and Weighted Average Asset Allocations (Detail)	Dec. 31, 2021
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Pension Plan Assets (as a percent)	100.00%
Target Allocation (as a percent)	100.00%
Equity Securities [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Pension Plan Assets (as a percent)	51.00%
Target Allocation (as a percent)	40.00%
Equity Securities [Member] | Minimum [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Target Allocation (as a percent)	25.00%
Equity Securities [Member] | Maximum [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Target Allocation (as a percent)	55.00%
Debt Securities [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Pension Plan Assets (as a percent)	33.00%
Target Allocation (as a percent)	35.00%
Debt Securities [Member] | Minimum [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Target Allocation (as a percent)	30.00%
Debt Securities [Member] | Maximum [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Target Allocation (as a percent)	40.00%
Real Estate and Infrastructure [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Pension Plan Assets (as a percent)	16.00%
Target Allocation (as a percent)	25.00%
Real Estate and Infrastructure [Member] | Minimum [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Target Allocation (as a percent)	0.00%
Real Estate and Infrastructure [Member] | Maximum [Member]
Pension Plans, Postretirement and Other Employee Benefits [Line Items]
Target Allocation (as a percent)	35.00%

XML

Pension and Post-Retirement and Post-Employment Benefits - Pension Plan Assets Measured and Recorded at Fair Value on Recurring Basis (Detail) - CAD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
Defined Benefit Plan Disclosure [Line Items]
Interest and dividend receivable excluded from fair value of pension plan assets	$ 39	$ 39
Accruals for pension administration expense excluded from fair value of pension plan assets	5	6
Taxes payable excluded from pension plan assets fair value	2	2
Payable to participants excluded from pension plan assets fair value	4	6
Sale of investments receivable excluded from fair value of pension plan assets	6	17
Purchase of investments payable excluded from fair value of pension plan assets	3	9
Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	8,615	8,071
Total fair value of plan liabilities	1	1
Derivative Instruments [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan liabilities	1	1
Pooled Funds [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	1,958	1,450
Cash and Cash Equivalents [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	144	163
Short-term Securities [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	86	175
Derivative Instruments [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	2	2
Corporate Shares - Canadian [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	167	142
Corporate Shares - Foreign [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	3,670	3,544
Bonds and Debentures - Canadian [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	2,491	2,499
Bonds and Debentures - Foreign [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	97	96
Level 1 [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	3,723	3,640
Total fair value of plan liabilities	0	0
Level 1 [Member] | Derivative Instruments [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan liabilities	0	0
Level 1 [Member] | Pooled Funds [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	0	0
Level 1 [Member] | Cash and Cash Equivalents [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	144	163
Level 1 [Member] | Short-term Securities [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	0	0
Level 1 [Member] | Derivative Instruments [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	0	0
Level 1 [Member] | Corporate Shares - Canadian [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	167	142
Level 1 [Member] | Corporate Shares - Foreign [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	3,412	3,335
Level 1 [Member] | Bonds and Debentures - Canadian [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	0	0
Level 1 [Member] | Bonds and Debentures - Foreign [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	0	0
Level 2 [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	2,955	3,002
Total fair value of plan liabilities	1	1
Level 2 [Member] | Derivative Instruments [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan liabilities	1	1
Level 2 [Member] | Pooled Funds [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	21	21
Level 2 [Member] | Cash and Cash Equivalents [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	0	0
Level 2 [Member] | Short-term Securities [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	86	175
Level 2 [Member] | Derivative Instruments [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	2	2
Level 2 [Member] | Corporate Shares - Canadian [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	0	0
Level 2 [Member] | Corporate Shares - Foreign [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	258	209
Level 2 [Member] | Bonds and Debentures - Canadian [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	2,491	2,499
Level 2 [Member] | Bonds and Debentures - Foreign [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	97	96
Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	1,937	1,429	$ 1,079
Level 3 [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	1,937	1,429
Total fair value of plan liabilities	0	0
Level 3 [Member] | Derivative Instruments [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan liabilities	0	0
Level 3 [Member] | Pooled Funds [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	1,937	1,429
Level 3 [Member] | Cash and Cash Equivalents [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	0	0
Level 3 [Member] | Short-term Securities [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	0	0
Level 3 [Member] | Derivative Instruments [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	0	0
Level 3 [Member] | Corporate Shares - Canadian [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	0	0
Level 3 [Member] | Corporate Shares - Foreign [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	0	0
Level 3 [Member] | Bonds and Debentures - Canadian [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	0	0
Level 3 [Member] | Bonds and Debentures - Foreign [Member] | Fair Value, Recurring [Member]
Defined Benefit Plan Disclosure [Line Items]
Total fair value of plan assets	$ 0	$ 0

XML

Pension and Post-Retirement and Post-Employment Benefits - Changes in Fair Value of Financial Instruments Classified in Level 3 (Detail) - Level 3 [Member] - CAD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Change in plan assets
Fair value of plan assets, beginning of year	$ 1,429	$ 1,079
Realized and unrealized gains	307	97
Purchases	308	288
Sales and disbursements	(107)	(35)
Fair value of plan assets, end of year	$ 1,937	$ 1,429

XML

Environmental Liabilities - Schedule of Movements in Environmental Liabilities (Detail) - CAD ($)	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Accrual for Environmental Loss Contingencies [Roll Forward]
Environmental liabilities - beginning	$ 133,000,000	$ 141,000,000
Interest accretion	1,000,000	3,000,000
Expenditures	(30,000,000)	(23,000,000)
Revaluation adjustment	18,000,000	12,000,000
Environmental liabilities - ending	122,000,000	133,000,000
Less: current portion	(34,000,000)	(33,000,000)
Environmental liabilities non current portion	88,000,000	100,000,000
PCB [Member]
Accrual for Environmental Loss Contingencies [Roll Forward]
Environmental liabilities - beginning	76,000,000	90,000,000
Interest accretion	1,000,000	3,000,000
Expenditures	(24,000,000)	(17,000,000)
Revaluation adjustment	15,000,000	0
Environmental liabilities - ending	68,000,000	76,000,000
Less: current portion	(27,000,000)	(25,000,000)
Environmental liabilities non current portion	41,000,000	51,000,000
Land Assessment and Remediation [Member]
Accrual for Environmental Loss Contingencies [Roll Forward]
Environmental liabilities - beginning	57,000,000	51,000,000
Interest accretion	0	0
Expenditures	(6,000,000)	(6,000,000)
Revaluation adjustment	3,000,000	12,000,000
Environmental liabilities - ending	54,000,000	57,000,000
Less: current portion	(7,000,000)	(8,000,000)
Environmental liabilities non current portion	$ 47,000,000	$ 49,000,000

XML

Environmental Liabilities - Reconciliation between Undiscounted Basis of Environmental Liabilities and Amount Recognized on Consolidated Balance Sheets (Detail) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020
Environmental Liabilities [Line Items]
Undiscounted environmental liabilities	$ 124	$ 137
Less: discounting environmental liabilities to present value	(2)	(4)
Discounted environmental liabilities	122	133
PCB [Member]
Environmental Liabilities [Line Items]
Undiscounted environmental liabilities	70	80
Less: discounting environmental liabilities to present value	(2)	(4)
Discounted environmental liabilities	68	76
Land Assessment and Remediation [Member]
Environmental Liabilities [Line Items]
Undiscounted environmental liabilities	54	57
Less: discounting environmental liabilities to present value	0	0
Discounted environmental liabilities	$ 54	$ 57

XML

Environmental Liabilities - Schedule of Estimated Future Environmental Expenditures (Detail) $ in Millions	Dec. 31, 2021 CAD ($)
Environmental Remediation Obligations [Abstract]
2022	$ 34
2023	21
2024	22
2025	12
2026	2
Thereafter	33
Total	$ 124

XML

Environmental Liabilities - Additional Information (Detail) - CAD ($)	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Environmental Liabilities [Line Items]
Long-term inflation rate assumption of current costs (as a percent)	2.00%
Undiscounted environmental liabilities	$ 124,000,000	$ 137,000,000
Increase (decrease) of environmental liability due to revaluation adjustment	$ 18,000,000	12,000,000
Minimum [Member]
Environmental Liabilities [Line Items]
Future environmental expenditure discount rate	2.00%
Maximum [Member]
Environmental Liabilities [Line Items]
Future environmental expenditure discount rate	6.30%
PCB [Member]
Environmental Liabilities [Line Items]
Undiscounted environmental liabilities	$ 70,000,000	80,000,000
Increase (decrease) of environmental liability due to revaluation adjustment	15,000,000	0
Land Assessment and Remediation [Member]
Environmental Liabilities [Line Items]
Undiscounted environmental liabilities	54,000,000	57,000,000
Increase (decrease) of environmental liability due to revaluation adjustment	$ 3,000,000	$ 12,000,000

XML

Asset Retirement Obligations - Additional Information (Detail) - CAD ($)	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Asset Retirement Obligations [Line Items]
Long-term inflation assumption of current costs (as a percent)	2.00%
Revaluation adjustment	$ 0	$ 3,000,000
Asset retirement obligations recorded	$ 14,000,000	$ 13,000,000
Minimum [Member]
Asset Retirement Obligations [Line Items]
Discounted future expenditures (as a percent)	2.00%
Maximum [Member]
Asset Retirement Obligations [Line Items]
Discounted future expenditures (as a percent)	4.00%

XML

Leases - Additional Information (Detail)	Dec. 31, 2021
Minimum [Member]
Lessee, Lease, Description [Line Items]
Operating lease term (in years)	3 years
Operating lease renewal term (in years)	3 years
Maximum [Member]
Lessee, Lease, Description [Line Items]
Operating lease term (in years)	9 years
Operating lease renewal term (in years)	5 years

XML

Leases - Schedule of Other Information Related to Operating Leases (Detail) - CAD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Leases [Abstract]
Lease expense	$ 13	$ 12
Lease payments made	$ 13	$ 11
Weighted-average remaining lease term (in years)	6 years	7 years
Weighted-average discount rate (as a percent)	2.30%	2.60%

XML

Leases - Schedule of Future Minimum Operating Lease Payments After Adoption, Current Year (Detail) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020
Lessee, Operating Lease, Liability, Payment, Due [Abstract]
2022	$ 14	$ 14
2023	10	12
2024	9	11
2025	7	11
2026	7	10
Thereafter	13	27
Total undiscounted minimum lease payments	60	85
Less: discounting minimum lease payments to present value	(4)	(8)
Total discounted minimum lease payments	$ 56	$ 77

XML

Leases - Schedule of Future Minimum Operating Lease Payments After Adoption, Prior Year (Detail) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020
Lessee, Operating Lease, Liability, Payment, Due [Abstract]
2021	$ 14	$ 14
2022	10	12
2023	9	11
2024	7	11
2025	7	10
Thereafter	13	27
Total undiscounted minimum lease payments	60	85
Less: discounting minimum lease payments to present value	(4)	(8)
Total discounted minimum lease payments	$ 56	$ 77

XML

Leases - Schedule of Supplementary Balance Sheet Information (Detail) - CAD ($) $ in Millions	Dec. 31, 2021	Dec. 31, 2020
Leases [Abstract]
Other long-term assets (Note 14)	$ 53	$ 71
Accounts payable and other current liabilities (Note 15)	12	11
Other long-term liabilities (Note 16)	$ 44	$ 65
Operating Lease, Right-of-Use Asset, Statement of Financial Position [Extensible Enumeration]	Other assets (Note 14)	Other assets (Note 14)
Operating Lease, Liability, Current, Statement of Financial Position [Extensible Enumeration]	Accounts payable and other current liabilities (Note 15)	Accounts payable and other current liabilities (Note 15)
Operating Lease, Liability, Noncurrent, Statement of Financial Position [Extensible Enumeration]	Other long-term liabilities (Note 16)	Other long-term liabilities (Note 16)

XML

Share Capital - Additional Information (Detail) - CAD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Equity [Abstract]
Common stock issued (in shares)	142,239	142,239
Common stock outstanding (in shares)	142,239	142,239
Return of stated capital	$ 0	$ 607
Preferred shares issued (in shares)	0	0
Preferred shares outstanding (in shares)	0	0

XML

Dividends - Additional Information (Detail) - CAD ($)	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Equity [Abstract]
Common share dividends	$ 620,000,000	$ 1,000,000
Preferred share dividends	$ 0	$ 0

XML

Earnings Per Common Share - Additional Information (Detail) - shares	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Earnings Per Share [Abstract]
Weighted average number of shares outstanding (in shares)	142,239	142,239
Dilutive securities (in shares)	0	0

XML

Stock-Based Compensation - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2021 CAD ($) plan $ / shares shares	Dec. 31, 2020 CAD ($) $ / shares shares	Dec. 31, 2015 CAD ($) $ / shares shares	Sep. 01, 2015	Apr. 01, 2015
Share Grants (number of common shares)
Number of plans | plan	2
Weighted-average price, granted (in dollars per share) | $ / shares			$ 20.50
Shares granted (in shares) | shares	0	0
Compensation expenses	$ 0	$ 0
Closing share price of common shares (in dollars per share) | $ / shares	$ 32.91
Management Employee Share Ownership Plans [Member]
Share Grants (number of common shares)
Highest percentage of participant's salary towards purchasing common shares			6.00%
Lowest percentage of participant's salary towards purchasing common shares			1.00%
Employer matching contribution, percent of match			50.00%
Maximum amount contributed by employer			$ 25,000
Society Employee Share Ownership Plans [Member]
Share Grants (number of common shares)
Highest percentage of participant's salary towards purchasing common shares			4.00%
Lowest percentage of participant's salary towards purchasing common shares			1.00%
Employer matching contribution, percent of match			25.00%
Employee Share Ownership Plan (ESOP) [Member]
Share Grants (number of common shares)
Contribution under the plan	$ 2,000,000	$ 2,000,000
PWU Share Grant Plan [Member]
Share Grants (number of common shares)
Highest percentage of participant's salary towards purchasing common shares					2.70%
Weighted-average price, granted (in dollars per share) | $ / shares	$ 20.50
Shares granted (in shares) | shares			3,952,212
PWU Share Grant Plan [Member] | Maximum [Member]
Share Grants (number of common shares)
Requisite service period (in years)	35 years
Aggregate number of common shares issuable under the plan (in shares) | shares	3,981,763
Society Share Grant Plan [Member]
Share Grants (number of common shares)
Highest percentage of participant's salary towards purchasing common shares				2.00%
Weighted-average price, granted (in dollars per share) | $ / shares	$ 20.50
Shares granted (in shares) | shares			1,367,158
Society Share Grant Plan [Member] | Maximum [Member]
Share Grants (number of common shares)
Requisite service period (in years)	35 years
Aggregate number of common shares issuable under the plan (in shares) | shares	1,434,686
Share Grant Plans [Member]
Share Grants (number of common shares)
Weighted-average price, granted (in dollars per share) | $ / shares	$ 0	$ 0
Shares granted (in shares) | shares	410,575	434,653
Fair value of shares granted			$ 111,000,000
Compensation expenses	$ 5,000,000	$ 7,000,000
Directors' Deferred Share Units Plan [Member]
Share Grants (number of common shares)
DSU value equivalent to common shares (in shares) | shares	1
Directors' Deferred Share Units Plan [Member] | Deferred Share Units [Member]
Share Grants (number of common shares)
Compensation expenses	$ 1,000,000	1,000,000
Liability related to share based compensation	$ 3,000,000	2,000,000
Management Deferred Share Units Plan [Member]
Share Grants (number of common shares)
DSU value equivalent to common shares (in shares) | shares	1
Liability related to share based compensation	$ 1,000,000	2,000,000
Management Deferred Share Units Plan [Member] | Deferred Share Units [Member]
Share Grants (number of common shares)
Compensation expenses	$ 1,000,000	1,000,000
Long Term Incentive Plan [Member]
Share Grants (number of common shares)
Aggregate number of common shares issuable under the plan (in shares) | shares	11,900,000
Compensation expenses	$ 1,000,000	3,000,000
Grant date total fair value of awards	0	0
Performance Stock Units And Restricted Stock Units [Member]
Share Grants (number of common shares)
Liability related to share based compensation	9,000,000	9,000,000
Share-based Payment Arrangement, Option [Member]
Share Grants (number of common shares)
Payables for options included in related party activity	$ 0	$ 0
Restricted Stock Units (RSUs) [Member] | Society RSU Plan [Member]
Share Grants (number of common shares)
Highest percentage of participant's salary towards purchasing common shares	1.00%
Weighted-average price, granted (in dollars per share) | $ / shares	$ 30.80
Vesting period (in years)	2 years

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Stock-Based Compensation - Summary of Share Grant Activity (Detail) - $ / shares	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Outstanding, beginning (in shares)	108,710	403,550
Vested and issued (in shares)	0	0
Outstanding, ending (in shares)	0	108,710
Weighted-Average Price
Outstanding, beginning (in dollars per share)	$ 20.66	$ 20.66
Vested and issued (in dollars per share)			$ 20.50
Outstanding, ending (in dollars per share)	$ 0	$ 20.66
Share Grant Plans [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Outstanding, beginning (in shares)	3,100,165	3,611,178
Vested and issued (in shares)	(410,575)	(434,653)
Forfeited (in shares)	(73,239)	(76,360)
Outstanding, ending (in shares)	2,616,351	3,100,165
Weighted-Average Price
Outstanding, beginning (in dollars per share)	$ 20.50	$ 20.50
Vested and issued (in dollars per share)	0	0
Forfeited (in dollars per share)	20.50	20.50
Outstanding, ending (in dollars per share)	$ 20.50	$ 20.50

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Stock-Based Compensation - Summary of Number of DSUs (Detail) - Deferred Share Units [Member] - shares	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Directors' Deferred Share Units Plan [Member]
DSUs
Outstanding, beginning (in shares)	65,240	52,620
Granted (in shares)	20,888	22,481
Settled (in shares)	(5,315)	(9,861)
Outstanding, ending (in shares)	80,813	65,240
Management Deferred Share Units Plan [Member]
DSUs
Outstanding, beginning (in shares)	61,880	52,186
Granted (in shares)	28,360	22,132
Paid (in shares)	0	(12,438)
Outstanding, ending (in shares)	90,240	61,880

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Stock-Based Compensation - Summary of Number of PSUs and RSUs (Detail) - shares	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Performance Share Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Units outstanding - beginning (in shares)	106,070	162,344
Vested (in shares)	(106,070)	(49,477)
Forfeited (in shares)	0	(6,797)
Settled (in shares)	0	0
Units outstanding - ending (in shares)	0	106,070
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Units outstanding - beginning (in shares)	133,620	200,883
Vested (in shares)	(98,860)	(3,728)
Forfeited (in shares)	0	(7,125)
Settled (in shares)	(34,760)	(56,410)
Units outstanding - ending (in shares)	0	133,620

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Stock-Based Compensation - Summary of RSU Awards Under the Society RSU Plan (Details) - Restricted Stock Units (RSUs) [Member] - shares	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Units outstanding - beginning (in shares)	133,620	200,883
Units outstanding - ending (in shares)	0	133,620
Society RSU Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Units outstanding - beginning (in shares)	0	0
Granted (in shares)	68,005	0
Units outstanding - ending (in shares)	68,005	0

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Stock-Based Compensation Stock-Based Compensation - Summary of Stock Option Activity (Detail) - CAD ($) $ / shares in Units, $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Number of Stock Options
Outstanding, beginning (in shares)	108,710	403,550
Exercised (in shares)	(108,710)	(294,840)
Outstanding, ending (in shares)	0	108,710
Weighted-Average Price
Outstanding, beginning (in dollars per share)	$ 20.66	$ 20.66
Exercised (in dollars per share)	20.66	20.66
Outstanding, ending (in dollars per share)	$ 0	$ 20.66
Aggregate intrinsic value for options exercised	$ 1	$ 2

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Noncontrolling Interest - Schedule of Movements in Noncontrolling Interest (Detail) - CAD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Stockholders' Equity Attributable to Noncontrolling Interest [Roll Forward]
Noncontrolling interest - beginning balance, temporary equity	$ 22	$ 20
Contributions from sale of noncontrolling interest, temporary equity		0
Distributions to noncontrolling interest, temporary equity	(4)	0
Net income attributable to noncontrolling interest, temporary equity	2	2
Noncontrolling interest - ending balance, temporary equity	20	22
Noncontrolling interest - beginning balance, equity	72	59
Contributions from sale of noncontrolling interest, equity		9
Distributions to noncontrolling interest, equity	(10)	(2)
Net income attributable to noncontrolling interest, equity	6	6
Noncontrolling interest - ending balance, equity	68	72
Noncontrolling interest - beginning balance	94	79
Contributions from sale of noncontrolling interest		9
Distributions to noncontrolling interest	(14)	(2)
Net income attributable to noncontrolling interest	8	8
Noncontrolling interest - ending balance	88	94
B2M Limited Partnership [Member]
Stockholders' Equity Attributable to Noncontrolling Interest [Roll Forward]
Noncontrolling interest - beginning balance, temporary equity	22	20
Distributions to noncontrolling interest, temporary equity	(4)	0
Net income attributable to noncontrolling interest, temporary equity	2	2
Noncontrolling interest - ending balance, temporary equity	20	22
Noncontrolling interest - beginning balance, equity	49	47
Distributions to noncontrolling interest, equity	(7)	(2)
Net income attributable to noncontrolling interest, equity	4	4
Noncontrolling interest - ending balance, equity	46	49
Noncontrolling interest - beginning balance	71	67
Distributions to noncontrolling interest	(11)	(2)
Net income attributable to noncontrolling interest	6	6
Noncontrolling interest - ending balance	66	71
Niagara Reinforcement Limited Partnership [Member]
Stockholders' Equity Attributable to Noncontrolling Interest [Roll Forward]
Noncontrolling interest - beginning balance, equity	23	12
Contributions from sale of noncontrolling interest, equity	0	9
Distributions to noncontrolling interest, equity	(3)	0
Net income attributable to noncontrolling interest, equity	2	2
Noncontrolling interest - ending balance, equity	$ 22	$ 23

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Noncontrolling Interest - Additional Information (Detail) - CAD ($) $ in Millions	Jan. 31, 2020	Sep. 18, 2019	Dec. 17, 2014	Dec. 16, 2014
B2M Limited Partnership [Member]
Noncontrolling Interest [Line Items]
Consideration transferred				$ 526
B2M Limited Partnership [Member] | Debt [Member]
Noncontrolling Interest [Line Items]
Consideration transferred				$ 316
Business combination percentage transferred				60.00%
B2M Limited Partnership [Member] | Equity [Member]
Noncontrolling Interest [Line Items]
Consideration transferred				$ 210
Business combination percentage transferred				40.00%
B2M Limited Partnership [Member] | Saugeen Ojibway Nation (SON) [Member]
Noncontrolling Interest [Line Items]
Percentage of common shares acquired			34.20%
Business acquisition, consideration paid			$ 72
B2M Limited Partnership [Member] | Class A Units [Member] | Saugeen Ojibway Nation (SON) [Member]
Noncontrolling Interest [Line Items]
Capital units in initial investment			50
B2M Limited Partnership [Member] | Class B Units [Member] | Saugeen Ojibway Nation (SON) [Member]
Noncontrolling Interest [Line Items]
Capital units in initial investment			$ 22
Six Nations of the Grand River Development Corporation and Mississaugas of the Credit First Nation [Member]
Noncontrolling Interest [Line Items]
Consideration transferred		$ 12
Six Nations of the Grand River Development Corporation [Member] | Niagara Reinforcement Limited Partnership [Member]
Noncontrolling Interest [Line Items]
Percentage of common shares acquired		25.00%
Mississaugas of the Credit First Nation [Member] | Niagara Reinforcement Limited Partnership [Member]
Noncontrolling Interest [Line Items]
Consideration transferred	$ 9
Percentage of common shares acquired	19.90%	0.10%
Niagara Reinforcement Limited Partnership [Member] | Six Nations of the Grand River Development Corporation [Member]
Noncontrolling Interest [Line Items]
Non-controlling ownership percentage	25.00%
Niagara Reinforcement Limited Partnership [Member] | Mississaugas of the Credit First Nation [Member]
Noncontrolling Interest [Line Items]
Non-controlling ownership percentage	20.00%
Niagara Reinforcement Limited Partnership [Member] | Hydro One Inc. [Member]
Noncontrolling Interest [Line Items]
Non-controlling ownership percentage	55.00%

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Related Party Transactions - Summary of Related Party Transactions (Detail) - CAD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Related Party Transaction [Line Items]
Purchased power	$ 3,579	$ 3,854
Revenues for transmission services	7,185	7,250
Capital contribution received from OPG	14	0
IESO [Member]
Related Party Transaction [Line Items]
Purchased power	2,238	2,506
Funding received related to CDM programs	1	26
OPG [Member]
Related Party Transaction [Line Items]
Purchased power	13	6
Capital contribution received from OPG	3	3
Costs related to the purchase of services	2	3
OPG [Member] | Transmission [Member]
Related Party Transaction [Line Items]
Revenues related to provision of services and supply of electricity	7	7
OEFC [Member]
Related Party Transaction [Line Items]
Purchased power	1	1
OEB [Member]
Related Party Transaction [Line Items]
OEB fees	8	9
Hydro One Limited [Member]
Related Party Transaction [Line Items]
Return of stated capital	0	607
Dividends paid	620	1
Stock-based compensation costs	6	10
Hydro One Broadband Solutions Inc. [Member]
Related Party Transaction [Line Items]
Capital contribution accrued from HOBSI	3	0
Amounts Related To Electricity Rebates [Member] | IESO [Member]
Related Party Transaction [Line Items]
Related party transaction amount	1,065	1,588
Cost Recovery For Services Provided [Member] | Hydro One Limited [Member]
Related Party Transaction [Line Items]
Related party transaction amount	7	9
Transmission [Member]
Related Party Transaction [Line Items]
Revenues for transmission services	1,826	1,743
Transmission [Member] | IESO [Member]
Related Party Transaction [Line Items]
Revenues for transmission services	1,832	1,717
Electricity, US Regulated [Member] | IESO [Member]
Related Party Transaction [Line Items]
Revenues for transmission services	245	242
Distribution [Member]
Related Party Transaction [Line Items]
Revenues for transmission services	5,359	5,507
Distribution [Member] | IESO [Member]
Related Party Transaction [Line Items]
Revenues for transmission services	35	35
Energy Service [Member] | Hydro One Telecom [Member]
Related Party Transaction [Line Items]
Revenues for transmission services	2	3
Energy Service [Member] | Hydro One Telecom [Member] | Operating Expense [Member]
Related Party Transaction [Line Items]
Purchased power	$ 24	$ 21
Province Of Ontario [Member]
Related Party Transaction [Line Items]
Ownership percentage	47.20%

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Consolidated Statement of Cash Flows (Detail) - CAD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Supplemental Cash Flow Information [Abstract]
Accounts receivable	$ 17	$ 13
Due from related parties	26	78
Materials and supplies (Note 10)	1	0
Prepaid expenses and other assets (Note 10)	(3)	(14)
Other long-term assets (Note 14)	(3)	(2)
Accounts payable	(3)	36
Accrued liabilities (Note 15)	49	(61)
Due to related parties	(73)	20
Accrued interest (Note 15)	7	12
Long-term accounts payable and other long-term liabilities (Note 16)	1	3
Post-retirement and post-employment benefit liability	50	74
Changes in non-cash balances related to operations, Total	69	159
Capital Expenditure [Abstract]
Capital investments in property, plant and equipment	(1,963)	(1,742)
Capital investments in intangible assets	(141)	(127)
Capital Investments	(2,104)	(1,869)
Capitalized depreciation and net change in accruals included in capital investments in property, plant and equipment	55	33
Net change in accruals included in capital investments in intangible assets	(1)	1
Net change in accruals included in capital investments	54	34
Cash outflow for capital expenditures – property, plant and equipment	(1,908)	(1,709)
Cash outflow for capital expenditures – intangible assets	(142)	(126)
Cash outflow for capital expenditures	(2,050)	(1,835)
Net interest paid	500	493
Income taxes paid	$ 20	$ 33

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Consolidated Statement of Cash Flows - Additional Information (Detail) - CAD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Supplemental Cash Flow Information [Abstract]
Capital contribution received from OPG	$ 14	$ 0

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Contingencies - Additional Information (Detail) - CAD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Commitments and Contingencies Disclosure [Abstract]
Payments made	$ 2	$ 2

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Commitments - Summary of Commitments Under Leases, Outsourcing and Other Agreements Due (Detail) $ in Millions	Dec. 31, 2021 CAD ($)
Commitments and Contingencies Disclosure [Abstract]
Outsourcing and other agreements, Year 1	$ 114
Outsourcing and other agreements, Year 2	50
Outsourcing and other agreements, Year 3	11
Outsourcing and other agreements, Year 4	3
Outsourcing and other agreements, Year 5	2
Outsourcing and other agreements, Thereafter	15
Long-term software/meter agreement, Year 1	2
Long-term software/meter agreement, Year 2	1
Long-term software/meter agreement, Year 3	2
Long-term software/meter agreement, Year 4	1
Long-term software/meter agreement, Year 5	1
Long-term software/meter agreement, Thereafter	$ 5

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Commitments - Additional Information (Detail) $ in Millions		1 Months Ended	12 Months Ended
	Jan. 01, 2022	Feb. 28, 2021 renewal_term	Dec. 31, 2023	Dec. 31, 2021 CAD ($)
Management Oversight [Member] | Subsequent Event [Member]
Commitments [Line Items]
Agreement term (in years)	1 year
Information Technology Services [Member]
Commitments [Line Items]
Agreement term (in years)		3 years		3 years
Number of renewal terms | renewal_term		2
Agreement renewal term (in years)		1 year
Commitment amount | $				$ 143
Pay Operations Services [Member] | Forecast [Member]
Commitments [Line Items]
Agreement term (in years)			5 years
Other Services [Member]
Commitments [Line Items]
Agreement renewal term (in years)				3 years

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Commitments - Summary of Other Commitments (Detail) $ in Millions	Dec. 31, 2021 CAD ($)
Credit Facilities [Member]
Other Commitments [Line Items]
Other commitment, Year 1	$ 0
Other commitment, Year 2	0
Other commitment, Year 3	0
Other commitment, Year 4	0
Other commitment, Year 5	2,300
Other commitment, Thereafter	0
Letters Of Credit [Member]
Other Commitments [Line Items]
Other commitment, Year 1	182
Other commitment, Year 2	2
Other commitment, Year 3	0
Other commitment, Year 4	0
Other commitment, Year 5	0
Other commitment, Thereafter	0
Guarantees [Member]
Other Commitments [Line Items]
Other commitment, Year 2	0
Other commitment, Year 3	0
Other commitment, Year 4	0
Other commitment, Year 5	0
Other commitment, Thereafter	0
Retirement Compensation Arrangements [Member]
Other Commitments [Line Items]
Other commitment, Year 1	160
Prudential Support From IESO [Member]
Other Commitments [Line Items]
Other commitment, Year 1	17
Debt Service Reserve Requirements [Member]
Other Commitments [Line Items]
Other commitment, Year 1	4
Various Operating Purposes [Member]
Other Commitments [Line Items]
Other commitment, Year 1	3
Hydro One Inc. [Member] | Guarantees [Member]
Other Commitments [Line Items]
Other commitment, Year 1	$ 475

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Segmented Reporting - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2021 segment
Segment Reporting [Abstract]
Number of reportable segments	3

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Segmented Reporting - Summary of Segment Information (Detail) - CAD ($) $ in Millions	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Segment Reporting Information [Line Items]
Revenues	$ 7,185	$ 7,250
Purchased power	3,579	3,854
Operation, maintenance and administration	1,081	1,034
Depreciation, amortization and asset removal costs	913	876
Income before financing charges and income tax expense	1,612	1,486
Capital investments	2,104	1,869
Total assets	30,221	30,133
Goodwill	373	373
Transmission [Member]
Segment Reporting Information [Line Items]
Revenues	1,826	1,743
Purchased power	0	0
Operation, maintenance and administration	414	406
Depreciation, amortization and asset removal costs	485	459
Income before financing charges and income tax expense	927	878
Capital investments	1,320	1,157
Total assets	18,109	17,620
Goodwill	157	157
Distribution [Member]
Segment Reporting Information [Line Items]
Revenues	5,359	5,507
Purchased power	3,579	3,854
Operation, maintenance and administration	664	623
Depreciation, amortization and asset removal costs	428	417
Income before financing charges and income tax expense	688	613
Capital investments	784	712
Total assets	11,475	11,294
Goodwill	216	216
Other [Member]
Segment Reporting Information [Line Items]
Revenues	0	0
Purchased power	0	0
Operation, maintenance and administration	3	5
Depreciation, amortization and asset removal costs	0	0
Income before financing charges and income tax expense	(3)	(5)
Capital investments	0	0
Total assets	$ 637	$ 1,219

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Subsequent Events - Additional Information (Detail) - CAD ($) $ in Millions		12 Months Ended
	Feb. 24, 2022	Dec. 31, 2021	Dec. 31, 2020
Subsequent Event [Line Items]
Common share dividends		$ 620	$ 1
Subsequent Event [Member]
Subsequent Event [Line Items]
Common share dividends	$ 157