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Annual Report 2022

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Enabling a Clean Energy Future 2022 Annual Report Corporate Profile Hydro One Limited (TSX: H) Hydro One Limited, through its wholly-owned subsidiaries, is Ontario’s largest electricity transmission and distribution provider with approximately 1.5 million valued customers, $31.5 billion in assets as of December 31, 2022, and annual revenues in 2022 of $7.8 billion. Our team of approximately 9,300 skilled and dedicated employees proudly build and maintain a safe and reliable electricity system which is essential to supporing strong and successful communities. In 2022, Hydro One invested $2.1 billion in its transmission and distribution networks, and suppored the economy through buying $1.9 billion of goods and services. We are commited to the communities where we live and work, through community investment, sustainability and diversity initiatives. We are designated as a Sustainable Electricity LeaderTM by Electricity Canada. Hydro One Limited’s common shares are listed on the TSX and cerain of Hydro One Inc.’s medium-term notes are listed on the NYSE. Additional information can be accessed at www.hydroone.com, www.sedar.com or www.sec.gov. 2022 Highlights Guided by our purpose of energizing life in Ontario, we look to the future and what we can do today to beneft all Ontarians in the energy transition. Outstanding Safety Perormance We achieved the best safety record in our history, posting a recordable injury rate of 0.616 per 200,000 hours. Hydro One saw a signifcant reduction in the number of high-energy serious injuries from four in 2021 compared to one employee sadly sustaining a high energy serious injury in 2022. This equates to a High Energy Serious Injury and Fatality (HSIF) rate of 0.012 per 200,000 hours, well below our annual target of 0.066. - - Parnership with First Nations We launched our equity parnership model on new capital transmission line projects with a value exceeding $100 million. This model will ofer First Nations a 50% equity stake in all new, future large-scale capital transmission line projects. This model will be applied to the development of the Waasigan Transmission Line project in norhwestern Ontario and to fve transmission lines Hydro One is developing in southwestern Ontario. Progressive Indigenous Relations As par of our commitment to being a trusted parner to Indigenous communities, this year we also increased total procurement with Indigenous businesses to $95.9 million, our highest spend to date. This is a signifcant increase from last year s total of $58.3 million and has us well on our journey to achieve our procurement target for Indigenous businesses at 5% of our purchases of materials and services by 2026. ’ All fgures in this document are approximate fgures that are rounded to the nearest decimal place. Hydro One Limited Annual Report 2022 Critical Capital Investments To atract new businesses, create jobs and help communities grow, we invested $2.1 billion in capital to expand the electricity grid and renew and modernize existing infrastructure. The Ontario Energy Board (OEB) approved the setlement agreement for our 2023 2027 Investment Plan for Hydro One s transmission and distribution systems. The plan, informed by feedback from almost 50,000 customers, will reduce the impacts of power outages, renew and replace critical transmission and distribution infrastructure, enable economic growth and prepare for climate change. - ’ Contents IFC 2022 Highlights 2 4 6 8 A Message from Our Chair A Message from Our President & CEO Powering Parnership Energizing Life Across Ontario 9 Corporate Governance 11 Hydro One’s Business Network 12 Why Invest? 13 Financial Highlights 14 Financial Repor Energizing Life in Ontario Communities Our 2022 Power to Give campaign was our most successful fundraising year for our employee giving program. Thanks to the generous spirit of Hydro One employees and retirees, we, including Hydro One s corporate match, increased the total contribution of Power to Give to $2.2 million. Each and every one of us has the Power to Give and it is initiatives like these that build, strengthen and energize life in communities across Ontario. ’ Focusing on Customer Satisfaction We continued to demonstrate our commitment to customers and communities through our restoration work and keeping our customers informed during major storms, as well as initiatives including the Energizing Life Community Fund and the Winter Relief Fund. Residential and small business customer satisfaction stood at 87%. Large customer satisfaction stood at 88%. Commitment to Sustainability In January 2023, we became the frst utility in Canada to publish a Sustainable Financing Framework, which allows us to issue sustainable fnancing instruments, such as green bonds, and allocate the net proceeds to investments in eligible green and social project categories – such as clean energy and transporation, biodiversity conservation, climate change adaptation, socio economic advancement of Indigenous people and access to essential services i.e. high speed broadband internet. - - Best Employer, 8th Year For the eighth year in a row, Hydro One has been recognized on Forbes’ annual list of Canada s Best Employers. The company s perormance ranking is based on employees and other professionals recommending Hydro One as a desirable employer. ’ ’ - - More Productivity Savings In 2022, we achieved an approximately 9% increase in year over year productivity savings with $373.6 million saved in 2022 as compared to $343.9 million in 2021. We also delivered on our multi year commitment to keep costs as low as possible with a total of $1.5 billion in productivity savings since 2015. - 13th Emergency Response Award Hydro One earned two emergency response awards bringing the total to 13 emergency response awards from the Edison Electric Institute for restoring power. These awards demonstrate our longstanding commitment to storm response and restoration efors. Hydro One Limited Annual Report 2022 111 A Message from Our Chair With the approval of the investment plan, we will be reinvesting in existing infrastructure to maintain the health of the system, sustain perormance and address safety and environmental risk. Timothy Hodgson Chair Hydro One is well- positioned to enable our clean energy future while continuing to deliver exceptional customer service and suppor economic growth for communities across our service territories. It was a year in which Hydro One went from strength to strength, delivering greater value for our customers, investors, communities, and other stakeholders. We delivered strong perormance; parnered with First Nations on a landmark equity agreement; and created a clear path forward for renewing Hydro One’s aging electricity infrastructure, supporing economic growth and preparing for climate change. On behalf of the Board of Directors, I want to welcome David Lebeter as Hydro One’s new President and CEO. David is a highly regarded leader with a proven record of building strong teams and improving safety, reliability, customer experience and productivity. As a result of Hydro One’s robust succession planning, we identifed the right candidate to lead us into the future – an experienced operator who will deliver the biggest capital program in Hydro One’s history. I also want to thank Mark Poweska for his three years of strategic leadership and Bill Shefeld who kept our teams aligned on executing our focused strategy in his role as interim leader. Safety remains a Board priority and we recognize there is more work to do to achieve a workplace free of life-altering injuries and fatalities. We are pleased that in 2022, Hydro One posted the best safety results in the company’s history. This strong perormance was matched by our sustainability perormance and enhanced environmental, social and governance (ESG) reporing, which now also aligns with the United Nations Sustainable Development Goals (UN SDGs). We continue to work with the executive team to ensure the company is making progress along the pathway to net-zero, improving workplace diversity and inclusion and taking meaningful action toward Reconciliation. 2 Hydro One Limited Annual Report 2022 Landmark Equity Agreement with First Nations “ Today marks a signifcant step towards reconciliation for Ontario First Nations. This new opporunity for parnership with Hydro One that will see First Nations beneft equally in future transmission line development. For far too long, First Nations have not had access to these types of parnerships and today marks an exciting change and I am proud of the community Leaders who have worked with Hydro One to reach this milestone! ” - Glen Hare, Ontario Regional Chief Hydro One’s 50-50 equity parnership agreement with First Nations on new large- scale transmission line projects is a signifcant milestone on our journey of Reconciliation – one that builds a renewed relationship with Indigenous people based on the recognition of rights, respect, and parnership. We believe this equity model, and collaborative approach to working with First Nations, will help unlock future development opporunities to address energy transition. In the near term, the OEB’s approval of Hydro One’s 2023-2027 Investment Plan will create regulatory cerainty, suppor economic growth, and enable Ontario’s clean energy future. Hydro One continued to achieve positive outcomes for stakeholders during a challenging period in 2022. This resilient perormance was recognized by our shareholders with an appreciating stock price that outperormed most of our peers. The resulting robust total shareholder return demonstrated the market’s confdence in our ability to deliver on our promises. During the year, we continued to enhance Board diversity, welcoming Mark Podlasly, a member of the Nlaka’pamux Nation in British Columbia, who has extensive experience in economic policy, major power generation and transmission project development, and climate strategy. He joins Cherie Brant in providing Indigenous perspectives at the Board level, underscoring our commitment to act at all levels of our organization to advance meaningful Reconciliation. We thank Jessica McDonald, who did not stand for re-election, for her many years of leadership and service to the Board of Directors. Lastly, on behalf of my Board colleagues, I want to thank all 9,300 talented team members who continue to inspire and energize life for the people and communities we serve. We enter 2023 ready to enable a clean energy future, deliver exceptional customer service and suppor economic growth for communities across this province. Timothy Hodgson, Chair 3 Hydro One Limited Annual Report 2022 A Message from Our President & CEO David Lebeter President & Chief Executive Ofcer I am proud to lead this remarkable company and strong team as we maintain our current strategy that focuses on safety, maintenance & construction, economic growth, reliability and enabling Ontario’s clean energy future. Together, we will continue to put people first, improve the customer experience, and support economic growth for the people of this province. I want to thank everyone at Hydro One – our Board, executive leadership, and employees – for their valuable guidance as I transition into the President and CEO role. I look forward to engaging with our employees, customers, Indigenous communities, investors and industry parners as we energize life for all Ontarians. Safest & Most Efcient Utility: I am pleased to repor that in 2022, we achieved the best safety record in Hydro One’s history and made signifcant progress to preventing life- altering injuries and fatalities. However, we recognize there is more work to do to ensure our entire team’s safety in the workplace. We continued to deliver on our multi- year commitment to keep costs as low as possible through our ongoing efciency and productivity initiatives, beating our productivity targets and achieving productivity savings of $373.6 million in 2022. Total productivity savings since 2015 now amount to $1.5 billion dollars. Enable our Customers & Be a Trusted Parner: We continued to improve the customer experience and provide more choices that protect the planet, while helping our most vulnerable customers fnd the right relief programs. Whether it was our Winter Relief Fund or the tireless work of our storm response crews who restored power for hundreds of thousands of customers – the appreciation of Ontarians is refected in strong customer satisfaction scores. Hydro One is commited to becoming a trusted parner to Indigenous communities by respecting, engaging, and most imporantly, listening to Indigenous people. In 2022, following extensive engagements, we launched our equity parnership model on major new capital transmission line projects. This model will ofer First Nations a 50% equity stake in all new, future large- scale capital transmission line projects and transform the benefts of infrastructure development for First Nation communities for generations to come. For too long, First Nations have borne the impacts of infrastructure development in their traditional territories without seeing the benefts. This equity model signals a signifcant shift in how Hydro One will work with First Nations. Plan, Design & Build a Grid for the Future: Over the coming years, we know that our customers will make decisions driven by climate change. We understand the needs of our customers and we share their concerns for the climate. The investments we make today in the grid will serve as a key enabler of the energy transition and will prepare for the efects of climate change and the increase in severe weather events. Our commitment to investing in our system is anchored on addressing aging infrastructure, enabling electrifcation and ensuring resiliency of the electricity grid. 4 Hydro One Limited Annual Report 2022 Our recently approved 2023–2027 Investment Plan will do just that, helping to reduce the impacts of power outages, renew or replace critical infrastructure in almost every community across Ontario, suppor customer choice and build a grid for the future. I commend all paries for the constructive regulatory and stakeholder outreach process that resulted in this balanced agreement, which will see signifcant investments in our infrastructure to improve reliability, prepare for climate change and enable economic growth. In 2022, we invested in critical infrastructure to meet the growing electricity demand in Ontario, advancing plans to develop fve new transmission lines in the southwest and one in the norh that will fuel industry and job creation in those regions. We also invested $2.1 billion to improve the perormance of Ontario’s electricity transmission and distribution systems and address aging power infrastructure, facilitate connectivity to new load customers and generation sources, and improve service to customers. Innovate & Grow the Business: In the coming years, we expect to see a signifcant increase in demand for electricity infrastructure and new customer connections as we help decarbonize the economy and meet our collective net zero goals. As par of that expected growth, we are investing in smarer, more fexible system infrastructure, which will play an imporant role in integrating additional electricity-generating capacity – such as small modular nuclear reactors, large-scale wind, solar generation assets, and smaller decentralized renewable sources and bateries – and ensure security of supply and a resilient grid. We also recently introduced an innovative sustainable fnancing framework, one that aligns our funding strategy with our sustainability goals and suppors the shift to a low-carbon economy through expenditures that contribute to the well-being of the people, planet, and communities we serve. Early in 2023, we issued $1.05 billion of sustainable bonds, the largest aggregate amount of sustainable bonds by a corporate issuer in Canada, under this new framework, with investments targeting new or existing eligible green and social projects. Our fnancial results refect several positive facets of our business including higher demand, enhanced relationships with community parners, reduced risk due to regulatory approval of our fve year investment plan, low volatility, a strong balance sheet and robust credit ratings. Strong teams: Our ability to deliver greater value is thanks to the dedication, generous spirit and resilience of Hydro One employees. Your remarkable willingness to put the needs of fellow Ontarians and Canadians frst – by raising $2.2 million for more than 900 charities and working around the clock to restore power to your neighbours – continues to inspire us all. It is no wonder that for the 8th consecutive year Forbes recognized Hydro One as one of Canada’s Best Employers. I look forward to an exciting 2023 as we work together to energize life in communities across Ontario. David Lebeter President & Chief Executive Ofcer 5 Hydro One Limited Annual Report 2022 Powering Partnership Hydro One, in partnership with First Nation leaders from across Ontario, set a historic precedent in 2022 that will transform the benefits of infrastructure development for First Nation communities for generations to come. This precedent is a significant milestone in the journey toward meaningful Reconciliation and in rebuilding economic prosperity for Indigenous people. In 2022, we launched a 50% equity parnership model with First Nations that allows for joint ownership of all new, future large-scale transmission line projects with a value exceeding $100 million. This industry- leading agreement will increase opporunities for First Nation communities to work with Hydro One to atract economic opporunities to the norh, as we collectively build the electricity grid of the future. This new model is already being applied to the development of the Waasigan Transmission Line in norhwestern Ontario. Hydro One has an equity agreement with Gwayakocchigewin Limited Parnership (GLP), which represents eight First Nations, as well with Lac des Mille Lacs First Nation. When completed, the nine First Nations will own 50% of the transmission line parnership. The line, which traverses across the traditional territories of these First Nations, will bolster capacity and suppor economic growth in the region, while providing revenues for their communities for generations to come. Waasigan Transmission Line Map Legend Existing Transformer Station (TS) Preliminary Preferred Route Existing Transmission Line Highway International Border Red Sky Métis Independent Nation Office Métis Nation of Ontario (MNO) Council Office Treaty Boundary First Nation Reserve Provincial Park 6 Ojibway Nation Ojibway Nation of Saugeen of Saugeen Lac Seul Lac Seul Sioux Lookout Sioux Lookout 1 77 1 Dryden TS Dryden TS Dryden Dryden 7272 Eagle Lake Eagle Lake MNO No—hwest MNO Northwest Métis Council O–ce Métis Council Ofÿce Wabigoon Lake Wabigoon Lake Treaty No.3 Treaty No.3 d d a o a R o y R a B y e a k B a n e S k a n S Turtle River- Tu—le River- White Otter Lake White O‰er Lake Provincial Park Provincial Park Ignace Ignace 177 1 TTreaty No.9 reaty No.9 622 622 Lac des Mille Lacs Lac des Mille Lacs Robinson Superior Robinson Superior Treaty Treaty Couchiching Couchiching Mitaanjigamiing Mitaanjigamiing Nigigoonsiminikaaning Nigigoonsiminikaaning Seine River Seine River 111 1 MNO Sunset Country MNO Sunset Country Métis Council Ofÿce Métis Council O–ce Lac La Croix Lac La Croix Mackenzie TS Mackenzie TS Lac des Mille Lacs Lac des Mille Lacs 1177 Atikokan Atikokan MNO Atikokan Métis MNO Atikokan Métis Council O–ce Council Ofÿce Quetico Provincial Park Quetico Provincial Park Red Sky Métis Red Sky Métis Independent Nation Office Independent Nation Office USA USA MNO Thunder Bay MNO Thunder Bay Métis Council Office Métis Council Office Lakehead TS Lakehead TS Shuniah Shuniah 1717 110022 Thunder Bay Thunder Bay 1717 6161 113030 6161 Fo— Fort WilliamWilliam Lake Lake Superior Superior Hydro One Limited Annual Report 2022 Southwestern Ontario Transmission Projects Under Development and to be Constructed 1 2 Between Chatham and Lakeshore 230 kV Transmission Line (before the end of 2025) St. Clair 230 kV Transmission Line (before the end of 2028) Exact route has not been determined To be Developed and Prioritized for Construction 3 Between Longwood and Lakeshore 500 kV Transmission Line (2030) We have commenced development Exact route has not been determined To be Developed 4 5 Between Longwood and Lakeshore 500 kV Transmission Line We have commenced development Exact route has not been determined Between Windsor and Lakeshore 230 kV Transmission Line Pre-Development activities have commenced Exact route has not been determined Map Legend Transformer Station City/Town Highway First Nation USA Aamjiwnaang First Nation Lambton TS Sarnia COUNTY OF LAMBTON COUNTY OF MIDDLESEX London Longwood TS Munsee- Delaware Nation Oneida Nation of the Thames Chippewas of the Thames Walpole Island First Nation Lake St. Clair Windsor 2 Hwy 40 3 4 Moravian of the Thames Hwy 401 Chatham Chatham SS 5 Lakeshore 1 MUNICIPALITY OF CHATHAM-KENT Lakeshore TS COUNTY OF ESSEX Leamington Kingsville Caldwell First Nation Lake Erie Early engagement with Indigenous communities, municipalities and residents was vital to the success of this equity model. Going forward, we are committed to working with all communities throughout the lifecycle of development projects as we advance critical infrastructure. We believe this approach will create predictability, consistency, and a greater number of opportunities for our partners, while enabling industry and economic growth in the province. Progressive Indigenous Relations: We established procurement targets in 2021 that set a new record for purchases with Indigenous businesses for materials and services. In 2022, we increased total procurement spending with Indigenous businesses to $95.9 million, our highest spend to date. This has us well on our way to achieve Hydro One’s procurement target for Indigenous businesses at 5% of our purchases of materials and services by 20261. Powering Growth in Norhwestern Ontario: The norhwest has long advocated for an increase in power to meet growing electricity demand. Once built, the Waasigan Transmission Line will bring an additional 350 megawats of low-carbon electricity to suppor the region’s electricity needs. The proposed development is for a new double-circuit 230 kilovolt transmission line between Thunder Bay, Atikokan and Dryden in norhwestern Ontario. We are completing development work now, including an environmental assessment, so that we’re ready to power growth for local communities and businesses. Powering Growth in Southwestern Ontario: To meet the growing electricity demand in southwestern Ontario, we are developing fve new transmission lines that will fuel industry and job creation in the Windsor-Essex region. These lines will meet the needs of new and growing industries, including batery plants, the greenhouse sector and the booming agri- food industry, while ensuring continued local and global investment. Like Waasigan, these fve transmission lines will be developed using the new equity parnership model with First Nation communities. 1 All Requests for Proposals require a consideration for Indigenous businesses and communities. We informed our suppliers of our commitment to advance Indigenous procurement and made it clear that we expect the same level of commitment from our suppliers. 7 Hydro One Limited Annual Report 2022 Energizing Life Across Ontario We are commited to supporing Hydro One customers and communities, striving to help all Ontarians achieve a cleaner, more equitable and more inclusive future. We continue to suppor customers who are experiencing fnancial difculty by helping them access the relief, fexibility and choice available to them. Through our Connected for Life Program and Winter Relief Fund, we ofer customized payment plans and other services to help families stay connected to safe and reliable power and keep costs down. Since 2020, our customer service team has helped tens of thousands of customers access fnancial relief from both Hydro One and government programs. Our 2022 Power to Give campaign was our most successful fundraising year for our employee giving program. Thanks to the generous spirit of Hydro One employees and retirees, we, including Hydro One’s corporate match, increased the total contribution of Power to Give to $2.2 million. Our signature Community Investment platforms include Building Safe Communities, Hydro One Energizing Community Life Community Fund, and Hydro One Indigenous Entrepreneurship Grant. Building Safe Communities is dedicated to teaching young people to play safely and to save a life in the communities where we live, work and play. In 2022, we increased our fnancial suppor to the ACT Foundation to expand its new Opioid Overdose Response Training to 80% of Ontario high schools over the next three years; suppored Jack.org in breaking down barriers to mental health resources and education; funded the Return to Coaching Community Grant to help coaches cover the rising costs for organized spors and make them more accessible; and funded 70 Ontario Scout Troops to embark on safe once- in-a-lifetime outdoor adventures that build confdence and resilience. Hydro One Energizing Life Community Fund suppors initiatives that promote community safety and wellbeing, providing up to $25,000 in fnancial suppor. Last year, 24 recipients providing critical local services and driving positive change in their communities were selected, including service dog training for children with autism, diversifed oferings at a food bank to beter serve Halal residents, and therapeutic equestrian programming for students with disabilities and unique needs in rural communities. Hydro One Indigenous Entrepreneurship Grant is our parnership with the Canadian Council for Aboriginal Business (CCAB) to invest in the success of Indigenous- owned businesses and to foster Indigenous prosperity. In 2022, 28 recipients received grants, including a wide range of businesses such as food suppliers, adverising and marketing specialists, wellness services and environmental services. Hydro One is proud to power the communities where we live, work and play, but we’re also proud of all the ways in which our employees suppor the well-being of those communities. 8 Hydro One Limited Annual Report 2022 Hydro One’s Corporate Governance We continue to advance diversity, equity and inclusion at all levels of Hydro One to beter refect where we work and the communities we represent across the province. We are forunate to beneft from diverse perspectives, with Indigenous representation (20%) and near gender parity at the Board1 level. The current composition of our Independent Non-Executive Board is four women (40%) and six men (60%). We believe this near balance makes us one of the most gender progressive boards in Norh America, refecting best practices in board diversity and surpassing our Catalyst Accord commitment to maintaining at least 30% female board members. Strong corporate governance practices are the hear of how we manage our day-to-day operations in the interest of all stakeholders. Hydro One and its independent Board of Directors recognize the imporance of corporate governance in the efective management of the company. A governance agreement between Hydro One and the Province of Ontario was executed in advance of the November 2015 Initial Public Ofering of the company. The agreement suppors strong corporate governance centered on independence, integrity and accountability, which is in the best interests of shareholders and promotes and strengthens relationships with our customers, employees, the communities where we operate and other stakeholders. Hydro One’s Board of Directors is composed of a diverse and accomplished group of independent, proven business leaders with deep corporate governance experience. The Board’s primary role is overseeing corporate perormance and the quality, depth and continuity of management required to meet the company’s strategic objectives. Hydro One is commited to establishing and maintaining best corporate governance practices. The company’s practices are fully aligned with the rules and regulations issued by Canadian Securities Administrators and the Toronto Stock Exchange. Board Structure: The Chair is responsible for leading the Board of Directors in carrying out its duties and responsibilities efectively, efciently and independent of management. The Chair is nominated and confrmed annually by special resolution of the Board. Consistent with best practices, Hydro One’s Board Chair is separate from the role of President and Chief Executive Ofcer and is independent of Hydro One and the Province of Ontario. In 2022, the Board continued to enhance its oversight of Hydro One’s approach to ESG maters relating to the long-term health and sustainability of the company. This oversight includes reviewing and approving the company’s key sustainability priorities, its programs, and its annual sustainability repor. The sustainability repor is aligned with the Sustainability Accounting Standards Board (SASB), United Nations Sustainability Development Goals (UNSDGs) and the Global Reporing Initiative (GRI), and prepared broadly following the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Board Gender Diversity1 Board of Directors and Committees (as of February 14, 2023) 40% Female Directors 40% Female 60% Male Chair • Committee Member Commitees Timothy Hodgson2 (Chair) David Lebeter2 (President & CEO) Cherie Brant Blair Cowper-Smith David Hay Stacey Mowbray Mark Podlasly Russel Roberson William Shefeld Melissa Sonberg Susan Wolburgh Jenah Audit Governance & Regulatory Human Resources Indigenous Peoples, Safety & Operations • • • • • • • • • • • • • • To learn more about the Directors, commitee mandates and composition, go to www.hydroone.com/about/corporate-information/governance Hydro One’s Independent Non-Executive Board Members. 1 2 Timothy Hodgson and David Lebeter are not members of any of the Commitees, but atend all Commitee meetings. 9 Hydro One Limited Annual Report 2022 Board of Directors 1. Timothy Hodgson, MBA, FCPA, ICD.D Corporate Director, Chair of Hydro One Limited and the New Self-Regulatory Organization of Canada. Director Dialogue Health Technologies, Ontario Teachers’ Pension Plan and Propery and Casualty Insurance Compensation Corporation. Former Director Public Sector Pension Investment Board (PSP Investments), Alignvest Acquisition Corporation, Alignvest Acquisition II Corporation, Sagicor Financial Corporation, Sagicor Group Jamaica, MEG Energy, The Global Risk Institute, KGS- Alpha Capital Markets, Next Canada, the Ivey School of Business and Bridgepoint Health. Retired Managing Parner Alignvest Management Corporation, Former Special Advisor to the then Bank of Canada Governor Mark Carney, and Former CEO Goldman Sachs Canada 2. Cherie Brant, BES, J.D. Parner, Borden Ladner Gervais LLP, Director Toronto- Dominion Bank, Canadian Club of Toronto, Canadian Council for Aboriginal Business. Former Director Women’s College Hospital, Director Trillium Gift of Life and Anishnawbe Health Foundation 3. Blair Cowper-Smith, LLB, LLM, ICD.D Principal and founder Erin Park Business Solutions, Former Chief Corporate Afairs Ofcer OMERS, Former Senior Parner at McCarhy Tetrault LLP. Director Porer Airlines, Financial Services Regulatory Authority of Ontario, Face the Future Foundation and Advisory Board Chair of Timbercreek Capital. Faculty, Directors College McMaster University. Former Public Policy Commitee Member of the Canadian Coalition for Good Governance and Former Member of Securities Advisory Commitee of the Ontario Securities Commission. Former Director 407 ETR, Golf Town and the Global Strategic Investment Alliance 4. David Hay, LLB, ICD.D Managing Director Delgatie Incorporated, Former President and CEO New Brunswick Power Corporation, Former Vice-Chair and Managing Director of CIBC World Markets Inc., Director EPCOR Utilities Inc., Member of the Exper Panel on Churchill Falls 2041 and the Council of Clean & Reliable Energy. Former Director Toronto Hydro-Electric System Limited and Former Director Associated Electric & Gas Insurance Services Limited (AEGIS). Former Chair Beaverbrook Ar Gallery and SHAD Canada 5. Stacey Mowbray, MBA, ICD.D Corporate Director, Former President Norh America WW International (formerly Weight Watchers), Former President and CEO at The Second Cup Ltd., Director Currency Exchange International/Exchange Bank of Canada, Sleep Country Canada Holdings Inc., Bonne O Holdings, Director dentalcorp Holdings Ltd. Former Director Trillium Health Parners, Second Cup Cofee, Liquor Control Board of Ontario and Niagara Ventures Corporation and Former Chair of the Cofee Association of Canada 6. Mark Podlasly, Chief Sustainability Ofcer at the First Nations Major Projects Coalition, member of the Indigenous Advisory Council at CN Rail, a member of the External Exper Panel of the Manitoba Government (Crown Services), Chair of the First Nations Limited Parnership (Gas Pipeline), a Trustee of the Nlaka’pamux Nation Legacy Trust, and a member of the Climate Strategy Advisory Board at the Institute of Corporate Directors, and an Adjunct Professor at the University of British Columbia Sauder School of Business Russel Roberson, FCPA, FCA, ICD Corporate Director, Director Bausch Health Companies Inc. and Bausch & Lomb Corporation. Former Director Turquoise Hill Resources Ltd. and Virus Investment Parners Inc., former CFO, BMO Financial Group, former Vice-Chair, Deloite & Touche LLP (Canada), former Canadian Managing Parner, Arhur Andersen LLP (Canada) 7. 8. William Shefeld, BSC, MBA, ICD.D Corporate Director, Director Atlantic Packaging, former CEO Sappi Fine Papers, former Director Ontario Power Generation, Canada Post Corporation, Velan Inc., Houston Wire & Cable Company, Pan Asia Paper, Corby Distilleries, Royal Group Technologies, 4iiii Innovations Inc., Family Enterprise Canada, and SHAD 9. Melissa Sonberg, BSC, MHA, ICD.D Professor of Practice, McGill University, Desautels Faculty of Management. Director Exchange Income Corporation, Athennian, Enghouse Systems Ltd. and Montreal Children’s Hospital Foundation. Former Director Group Touchete, Via Rail Canada, MD Financial Holdings Inc., Rideau, Inc., McGill University Health Centre. Former Senior Vice President, Human Resources & Corporate Afairs and Senior Vice President, Global Brands, Communications and External Afairs at AIMIA 10. Susan Wolburgh Jenah, J.D., ICD.D Corporate Director, Former President & CEO of the Investment Industry Regulatory Organization of Canada. Director Laurentian Bank of Canada and Aecon Group Inc., Vice-Chair Humber River Hospital. Member of the Independent Review Commitee of Vanguard Investments Canada. Former Public Governor of the U.S. Financial Industry Regulatory Authority (FINRA), former Chair of the NEO Exchange, former Director of The Global Risk Institute, former Director of Aequitas Innovations. Former Vice-Chair, Acting Chair, General Counsel and Head of International Afairs at the Ontario Securities Commission. Member of the C.D. Howe National Advisory Council and former Mentor to the Catalyst Women on Board Program Executive Leadership Team 11. David Lebeter, President and Chief Executive Ofcer 12. Brad Bowness, Chief Information Ofcer 13. Paul Harricks, Chief Legal Ofcer 14. Chris Lopez, Chief Financial Ofcer 15. Megan Telford, Chief Human Resources Ofcer 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 For detailed biographical information of Hydro One Limited Board members, visit www.HydroOne.com/Investors. The biographical information of Hydro One Limited Board members is based on information available as of February 14, 2023. Hydro One Limited Annual Report 2022 Hydro One’s Business Network & Role in Ontario’s Electricity System Our Rate Regulated Business Transmission: Our transmission system transmits high-voltage electricity from nuclear, hydroelectric, natural gas, wind and solar sources to local distribution companies and industrial customers across Ontario. Our system accounts for approximately 92%1 of Ontario’s transmission capacity with approximately 30,000 circuit kilometres of high-voltage transmission lines. We also own and operate 25 cross-border interconnections with neighbouring provinces and the United States, which allow electricity to fow into and out of Ontario. Distribution: Our distribution system is the largest2 in Ontario. It consists of approximately 125,000 circuit kilometres of primary low-voltage power lines serving approximately 1.5 million customers, mostly in rural areas. As well, Hydro One Remote Communities Inc. serves customers in three grid-connected and 19 of-grid communities in Ontario’s far norh. Our Other Businesses In addition to supporing Hydro One’s regulated business segments, Acronym Solutions Inc. ofers a comprehensive suite of information and communications technology within a number of categories including: Network and Internet; Operations; Cloud; Managed Security; and Voice and Collaboration, that extend beyond its fbre optic network, in a competitive commercial market. We also invested in Ivy™ Charging Network (“Ivy”), a joint venture between Hydro One and Ontario Power Generation Inc. (OPG), which provides electric vehicle (EV) charging network services. We have also established an Energy Management Services business and are providing behind- the-meter batery energy storage system solutions to commercial and industrial customers, in parnership with PowerFlex, an EDF Renewables company. Our Role as a Transmission and Distribution Company Our transmission and distribution system safely and reliably serves communities throughout Ontario. Hydro One’s transmission business operates and maintains most of the high-voltage transmission system that carries electricity from generators to local distribution companies or large industrial customers, such as manufacturers. Through our distribution business, we also operate and maintain low-voltage distribution systems that carry electricity from transformer stations to distribution stations, to pole-top transformers through power lines, and into homes and businesses. A mix of private companies and government-owned entities generate power for all of Ontario and the sources of power are managed by the Independent Electricity System Operator (IESO). m e t s y s r e w o p c i r t c e e o i r a t n O e h t n l i l e o r s ’ e n O o r d y H Electricity Generation Sources Transformer (increased to higher voltage) Transmission System Transformer (decreased to medium voltage) i i n o s s m s n a r T n o i t u b i r t s D i Distribution System Transformer (decreased to lower voltage) Industrial, Commercial and Residential Customers 1 Based on revenue approved by the OEB 2 Based on customers (per OEB yearbook) The above image shows a typical electricity system with transmission-connected generation. 11 Hydro One Limited Annual Report 2022 Why Invest in Hydro One? Everyone Uses Electricity One of the largest electric utilities in North America, with significant scale and leadership position across Canada’s most populated province. Strong Balance Sheet Investment grade balance sheet with one of the lowest debt costs in the utility sector. - Hydro One is a unique low risk opportunity to participate in a premium large scale electric utility as it addresses the needs from energy transition. - Pure-play Transmission and Distribution Unique combination of electric power transmission and local distribution, with no power generation assets. Stable Operations Stable and growing cash flows with 99% of overall revenues fully rate-regulated in a constructive, transparent and collaborative regulatory environment. Attractive Dividend Annualized dividend of $1.1184 per share with an attractive 70%–80% target payout ratio. Rate Base Expansion Opportunity for continued rate base growth with a forward approved regulatory application, new transmission lines, broadband initiative and continued consolidation. Transparent ESG Reporting Transparency in our environmental, social and governance reporting with public policies and sustainability targets. Financial Performance Predictable self-funding organic growth profile with expanding rate base and strong cash flows, together with broad support for refurbishment of aging infrastructure. No external equity required to fund planned growth. 1212 12345678Hydro One Limited Annual Report 2022 Financial Highlights Year ended December 31 (millions of dollars, except as otherwise noted) Revenues Purchased power Revenues, net of purchased power1 Operation, maintenance and administration (OM&A) costs Depreciation, amorization and asset removal costs Financing charges Income tax expense (recovery) Net income to common shareholders of Hydro One Basic earnings per common share (EPS) Diluted EPS Net cash from operating activities Funds from operations (FFO)1 Capital investments Assets placed in-service Transmission: Average monthly Ontario 60-minute peak demand (MW) Distribution: Electricity distributed to Hydro One customers (GWh) As at December 31 Debt to capitalization ratio2 2022 7,780 3,724 4,056 1,258 966 486 288 1,050 $ 1.75 $ 1.75 2,260 2,189 2,132 2,267 20,368 30,803 2022 56.4% 2021 7,225 3,579 3,646 1,112 922 461 178 965 $ 1.61 $ 1.61 2,149 2,041 2,125 1,757 19,915 29,966 2021 56.5% 1 The Company prepares and presents its fnancial statements in accordance with United States (US) generally accepted accounting principles (GAAP). The Company also utilizes non-GAAP fnancial measures to assess its business and measure overall underlying business perormance. Revenues, net of purchased power and FFO are non-GAAP fnancial measures. Non-GAAP fnancial measures do not have a standardized meaning under GAAP, which is used to prepare the Company’s fnancial statements and might not be comparable to similar fnancial measures presented by other entities. Additional disclosure for these non- GAAP fnancial measures is incorporated by reference herein and can be found in the section titled “Non-GAAP Financial Measures” of Hydro One Limited’s management’s discussion and analysis for the years ended December 31, 2022 and 2021 (the Annual MD&A) available on SEDAR under the company’s profle at www.sedar.com. 2 Debt 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 Consolidated Financial Statements, and might not be comparable to similar fnancial measures presented by other entities. The Debt to capitalization ratio has been calculated as total debt (including total long-term debt and shor-term borrowings, net of cash and cash equivalents) divided by total debt plus total shareholders’ equity, but excluding any amounts related to non-controlling interest. Additional disclosure for this non-GAAP ratio is incorporated by reference herein and can be found under the section titled “Non-GAAP Financial Measures” in the Annual MD&A available on SEDAR under the Company’s profle at www.sedar.com. Total Assets Rate Base 2% 60% 39% 61% Revenues1 (Net of purchased power costs) 1% 51% Regulated Earnings (Before financing charges and income taxes) 40% 60% $31.5b $23.6b $4.1b $1.9b 38% Transmission Distribution Other 48% Total Shareholder Return (TSR) January 1, 2022 to December 31, 2022 Hydro One +13.7% S&P/TSX Capped Utilities Index -10.6% S&P/TSX Composite Index -5.8% S&P 500 Electric Utilities Index S&P 500 Index -18.1% +2.3% This repor contains forward-looking information within the meaning of applicable Canadian securities laws that are based on current expectations, estimates, forecasts and projections about our business and the industry in which we operate, and includes beliefs and assumptions made by the management of Hydro One. Such information includes, but is not limited to, statements relating to: Hydro One’s new equity parnership model with First Nations and expected infrastructure benefts for First Nation communities; expectations regarding Hydro One’s 2023–2027 Investment Plan for our transmission and distribution systems and expected outcomes and impacts; Hydro One’s commitments to increasing Indigenous procurement spend, including the company’s procurement target for Indigenous businesses at 5% of our purchases of materials and services by 2026; the company’s expectations to becoming the safest and most efcient utility, and to diversity, equity and inclusion; Hydro One’s investments in infrastructure, technology and innovation to build a more sustainable and resilient grid, and expected outcomes; Hydro One’s stable and growing cash fows, our 70%–80% target dividend payout ratio, continued dividend growth, organic growth profle, expanding rate base, and expectations regarding funding of planned growth; Hydro One’s strategy and focus, including anticipated outcomes and impacts. Words such as “expect” and “will” are intended to identify such forward- looking statements. These statements are not guarantees of future perormance and involve assumptions and risks and uncerainties that are difcult to predict. Therefore, actual outcomes and results may difer materially from what is expressed, implied or forecasted in such forward-looking statements. Some of the factors that could cause actual results or outcomes to difer materially from the results expressed, implied or forecasted by such forward-looking information, including some of the assumptions used in making such statements, are discussed more fully in Hydro One Limited’s and Hydro One Inc.’s flings with the securities regulatory authorities in Canada, which are available on SEDAR at www.sedar.com. We do not intend, and we disclaim any obligation, to update any forward-looking statements, except as required by law. All fgures in this document are approximate fgures that are rounded to the nearest decimal place. 13 Hydro One Limited Annual Report 2022 Financial Report Contents 15 Management’s Discussion and Analysis 52 Consolidated Financial Statements 56 Notes to Consolidated Financial Statements 97 Corporate and Shareholder Information 14 Hydro One Limited Annual Report 2022 Management’s Discussion and Analysis For the years ended December 31, 2022 and 2021 The following Management’s Discussion and Analysis (MD&A) of the fnancial condition and results of operations should be read together with the consolidated fnancial statements and accompanying notes thereto of Hydro One Limited (Hydro One or the Company) for the year ended December 31, 2022 (together, the Consolidated Financial Statements). The Consolidated Financial Statements have been prepared in accordance with United States (US) Generally Accepted Accounting Principles (GAAP). All fnancial information in this MD&A is presented in Canadian dollars, unless otherwise indicated. Consolidated Financial Highlights and Statistics Year ended December 31 (millions of dollars, except as otherwise noted) Revenues Purchased power Revenues, net of purchased power1 Operation, maintenance and administration (OM&A) costs Depreciation, amorization and asset removal costs Financing charges Income tax expense Net income to common shareholders of Hydro One Basic earnings per common share (EPS) Diluted EPS Net cash from operating activities Funds from operations (FFO)1 Capital investments Assets placed in-service Transmission: Average monthly Ontario 60-minute peak demand (MW) Distribution: Electricity distributed to Hydro One customers (GWh) As at December 31 Debt to capitalization ratio2 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 permited 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, 2022, based on information available to management as of February 13, 2023. 2022 7,780 3,724 4,056 1,258 966 486 288 1,050 2021 7,225 3,579 3,646 1,112 922 461 178 965 $ 1.75 $ 1.75 $ 1.61 $ 1.61 2,260 2,189 2,132 2,267 20,368 30,803 2022 56.4% 2,149 2,041 2,125 1,757 19,915 29,966 2021 56.5% Change 7.7% 4.1% 11.2% 13.1% 4.8% 5.4% 61.8% 8.8% 8.7% 8.7% 5.2% 7.3% 0.3% 29.0% 2.3% 2.8% 1 The Company prepares and presents its fnancial statements in accordance with US GAAP. The Company also utilizes non-GAAP fnancial measures to assess its business and measure overall underlying business perormance. Revenues, net of purchased power and FFO are non-GAAP fnancial measures. Non-GAAP fnancial measures do not have a standardized meaning under GAAP, which is used to prepare the Company’s Consolidated Financial Statements and might not be comparable to similar fnancial measures presented by other entities. See section “Non-GAAP Financial Measures” for a discussion of these non-GAAP fnancial measures and a reconciliation of such measures to the most directly comparable GAAP measure. 2 Debt 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 Consolidated Financial Statements, and might not be comparable to similar fnancial measures presented by other entities. See section “Non-GAAP Financial Measures” for a discussion of this non-GAAP ratio and its component elements. 15 Hydro One Limited Annual Report 2022 Overview Through its wholly-owned subsidiary Hydro One Inc., 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 Inc. 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; (ii) distribution; and (iii) other. For the years ended December 31, 2022 and 2021, Hydro One's segments accounted for the Company's total revenues, as follows: Year ended December 31 Transmission Distribution Other 2022 26% 73% 1% 2021 25% 74% 1% When adjusted for the recovery of purchased power costs, Hydro One’s segments accounted for the Company’s total revenues, net of purchased power,1 for the years ended December 31, 2022 and 2021 as follows: Year ended December 31 Transmission Distribution Other At December 31, 2022 and 2021, Hydro One’s segments accounted for the Company’s total assets as follows: Year ended December 31 Transmission Distribution Other 2022 51% 48% 1% 2022 60% 38% 2% 2021 50% 49% 1% 2021 60% 38% 2% Transmission Segment Hydro One’s transmission business owns, operates and maintains Hydro One's transmission system, which accounts for approximately 92% (2021 - 98%) of Ontario’s transmission capacity based on revenue approved by the Ontario Energy Board (OEB). As at December 31, 2022, the Company's transmission business consists of the transmission system operated by subsidiaries of Hydro One Inc. (a wholly owned subsidiary of the Company), 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 Parnership (B2M LP), and an approximately 55% interest in Niagara Reinforcement Limited Parnership (NRLP). 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 Electricity transmited1 (MWh) Transmission lines spanning the province (circuit-kilometres) Rate base (millions of dollars) Capital investments (millions of dollars) Assets placed in-service (millions of dollars) 1 Electricity transmited represents total electricity transmited in Ontario by all transmiters. 2022 2021 137,569,865 133,844,210 29,910 14,450 1,209 1,405 30,023 13,745 1,320 1,008 1 Revenues, net of purchased power, is a non-GAAP fnancial measure. See section “Non-GAAP Financial Measures”. 16 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 Distribution Segment Hydro One’s distribution business is the largest in Ontario and consists of the distribution systems operated by Hydro One Inc.'s subsidiaries, Hydro One Networks, and Hydro One Remote Communities Inc. (Hydro One Remotes). The Company’s distribution business is rate- regulated and earns revenues mainly by charging distribution rates that are approved by the OEB, as well as amounts to recover the cost of purchased power. As at and for the year ended December 31 Electricity distributed to Hydro One customers (GWh) Electricity distributed through Hydro One lines (GWh)1 Distribution lines spanning the province (circuit-kilometres) Distribution customers (number of customers) Rate base (millions of dollars) Capital investments (millions of dollars) Assets placed in-service (millions of dollars) 2022 30,803 40,875 125,013 1,492,404 9,155 899 853 2021 29,966 40,433 124,825 1,476,491 8,854 787 738 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). 2022 Distribution Revenues Residential 57% General Service 27% Large Users 9% Embedded Distributors 7% Other Segment Hydro One's other segment consists principally of its telecommunications business, which provides telecommunications suppor for the Company’s transmission and distribution businesses, as well as cerain corporate activities. The telecommunication business is carried out by Hydro One's wholly- owned subsidiary, Acronym Solutions Inc. (Acronym). In addition to supporing Hydro One's regulated business segments, Acronym ofers a comprehensive suite of Information Communications Technology solutions within a number of categories (including: Internet & Network, Security, Voice & Collaboration, Cloud and Managed IT) that extend beyond its fbre optic network, in a competitive commercial market. Acronym is not regulated by the OEB, however Acronym is registered with the Canadian Radio-television and Telecommunications Commission as a non-dominant, facilities-based carrier, providing broadband telecommunications services in Ontario with connections to Montreal, Quebec; Bufalo, New York; and Detroit, Michigan. Hydro One's 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 Company’s initial public ofering in 2015. Furhermore, Hydro One's other segment also includes Aux Energy Inc., a wholly-owned subsidiary that provides energy solutions to commercial and industrial clients, and Ontario Charging Network LP, a joint venture that owns and operates electric vehicle fast charging stations across Ontario under the Ivy Charging Network brand, as well as cerain corporate activities, and is not rate-regulated. Primary Factors Afecting 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 suppor a transmission system with sufcient capacity to accommodate maximum forecasted demand and a regulated return on the Company’s investment. Peak electricity demand is primarily infuenced by weather and economic conditions. Transmission revenues also include expor revenues associated with transmiting electricity to markets outside of Ontario as well as ancillary revenues associated with providing maintenance services to power generators and from third-pary 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 suppor the local distribution system with sufcient capacity to accommodate existing and new customer demand and a regulated return on the Company’s investment. Accordingly, distribution revenues are infuenced 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 diference between the guaranteed price and the money the generators earn in the wholesale 17 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 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 suppor the operation and maintenance of the transmission and distribution systems, and include other costs such as propery taxes related to transmission and distribution stations and buildings, and the operation of 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 efciency and productivity initiatives, while continuing to complete planned work programs associated with the development and maintenance of its transmission and distribution networks. Depreciation, Amorization and Asset Removal Costs Depreciation and amorization costs relate primarily to depreciation of the Company’s propery, plant and equipment, and amorization of cerain intangible assets and regulatory assets. Asset removal costs consist of costs incurred to remove propery, plant and equipment where no asset retirement obligations have been recorded on the balance sheet. Financing Charges Financing charges relate to the Company’s fnancing activities, and include interest expense on the Company’s long-term debt and shor- term borrowings, as well as gains and losses on interest rate swap agreements, foreign exchange or other similar contracts, net of interest earned on shor-term investments. A porion of fnancing charges incurred by the Company is capitalized to the cost of propery, plant and equipment associated with the periods during which such assets are under construction before being placed in-service. Results of Operations Net Income Net income atributable to common shareholders of Hydro One for the year ended December 31, 2022 of $1,050 million is an increase of $85 million, or 8.8%, from the prior year. Signifcant infuences on the change in net income atributable to common shareholders of Hydro One included: ● higher revenues, net of purchased power,2 resulting from: — an increase in transmission revenues due to OEB-approved 2022 transmission rates, higher peak demand and the recognition of conservation and demand management (CDM) revenues following receipt of the OEB's Decision and Order approving Hydro One's Joint Rate Application (JRAP) Setlement Proposal in November 2022 (JRAP Decision); and — an increase in distribution revenues, net of purchased power,2 mainly due to OEB-approved 2022 distribution rates. ● higher OM&A costs primarily resulting from higher work program expenditures including environmental management, stations and lines maintenance, and IT initiatives. ● higher depreciation, amorization 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 asset removal costs primarily resulting from storm restoration efors, parially ofset by a gain realized on the sale of surplus propery. ● higher fnancing charges atributable to the recognition of carrying charges associated with the recovery of deferred tax asset (DTA) amounts previously shared with ratepayers (DTA Recovery Amounts) pursuant to the OEB's decision in April 2021 (DTA Implementation Decision) in the second quarer of 2021, as well as higher weighted- average interest rates on shor-term notes. ● higher income tax expense primarily atributable to: — higher pre-tax earnings adjusted for the impact of the DTA Recovery Amounts pursuant to the DTA Implementation Decision; parially ofset by — higher deductible timing diferences compared to the prior year. Revenue was also positively impacted by the DTA Implementation Decision. In its decision, the OEB approved recovery of 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. In addition, the DTA Implementation Decision required that Hydro One adjust the transmission revenue requirement and base distribution rates efective January 1, 2022 to eliminate any furher tax savings fowing to customers. These impacts are parially ofset by the impact of a regulatory adjustment recognized following receipt of the JRAP decision which resulted from the deduction of capitalized overheads for tax purposes in excess of those deducted for rate making purposes (Capitalized Overhead Tax Variance). Together these items are ofset by a net increase in tax expense and are therefore net income neutral in the period. See section "Regulation" for additional details. EPS EPS was $1.75 for the year ended December 31, 2022, compared to EPS of $1.61 in 2021. The increase in EPS was primarily driven by the impact of higher earnings year over year, as noted above. 2 Revenues, net of purchased power, is a non-GAAP fnancial measure. See the section “Non-GAAP Financial Measures”. 18 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 Revenues Year ended December 31 (millions of dollars, except as otherwise noted) Transmission Distribution Other Total revenues Transmission Distribution revenues, net of purchased power1 Other Total revenues, net of purchased power1 2022 2,077 5,660 43 7,780 2,077 1,936 43 4,056 2021 1,824 5,359 42 7,225 1,824 1,780 42 3,646 Transmission: Average monthly Ontario 60-minute peak demand (MW) Distribution: Electricity distributed to Hydro One customers (GWh) 20,368 30,803 19,915 29,966 1 Revenues, net of purchased power, is a non-GAAP fnancial measure. See section “Non-GAAP Financial Measures”. Change 13.9% 5.6% 2.4% 7.7% 13.9% 8.8% 2.4% 11.2% 2.3% 2.8% Transmission Revenues Transmission revenues increased by 13.9% compared to the year ended December 31, 2021, primarily due to the following: Distribution Revenues Distribution revenues increased by 5.6% compared to the year ended December 31, 2021, primarily due to the following: ● higher revenues resulting from OEB-approved 2022 rates; ● higher purchased power costs, which are fully recovered from ● higher peak demand; and ● positive regulatory adjustments, including the recognition of CDM revenues following the receipt of the JRAP Decision which was parially ofset by a deferred adjustment associated with the OEB- approved Earnings Sharing Mechanism; parially ofset by ● net income neutral items, including DTA Recovery Amounts and the adjustment to transmission revenue requirement efective January 1, 2022 to cease sharing of DTA amounts going forward, pursuant to the DTA Implementation Decision which was parially ofset by a regulatory adjustment associated with the Capitalized Overhead Tax Variance. The net increase in revenue is ofset by a corresponding net increase in tax expense.. OM&A Costs Year ended December 31 (millions of dollars) Transmission Distribution Other ratepayers and are thus net income neutral; ● higher revenues resulting from OEB-approved 2022 rates; and ● a lower deferred regulatory adjustment associated with the Earnings Sharing Mechanism in 2022; parially ofset by ● net income neutral items, including DTA Recovery Amounts and the adjustment to base distribution rates efective January 1, 2022 to cease sharing of DTA amounts going forward, pursuant to the DTA Implementation Decision which was parially ofset by a regulatory adjustment associated with the Capitalized Overhead Tax Variance. The net increase in revenue is ofset by a corresponding net increase in tax expense. Distribution revenues, net of purchased power,3 increased by 8.8% during the year ended December 31, 2022, primarily due to the reasons noted above, adjusted for the recovery of purchased power costs. 3 Revenues, net of purchased power, is a non-GAAP fnancial measure. See section “Non-GAAP Financial Measures”. 2022 445 739 74 1,258 2021 397 658 57 1,112 Change 12.1% 12.3% 29.8% 13.1% Transmission OM&A Costs Transmission OM&A costs were 12.1% higher than the year ended December 31, 2021, primarily due to: Distribution OM&A Costs Distribution OM&A costs were 12.3% higher than the year ended December 31, 2021, primarily due to: ● higher work program expenditures including those related to a higher volume of maintenance work on stations, lines and facilities; ● higher propery taxes; and ● higher corporate suppor costs; parially ofset by ● lower project write-ofs. ● higher work program expenditures related to emergency restoration, environmental management, IT initiatives and customer programs as well as increased spend on technical studies; ● costs related to storm restoration efors that have been recovered from third paries and are ofset in revenue, therefore net income neutral; 19 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 ● higher project write-ofs; and ● higher allowance for doubtful accounts; parially ofset by ● costs associated with the integration of the Peterborough Distribution and Orillia Power operations in the prior year. Depreciation, Amorization and Asset Removal Costs Depreciation, amorization and asset removal costs increased by $44 million, or 4.8%, for the year ended December 31, 2022, primarily due to growth in capital assets as the Company continues to place new assets in-service, consistent with its ongoing capital investment program, and higher asset removal costs primarily resulting from storm-related asset replacements. These increases were parially ofset by a gain realized on the sale of surplus propery in the fourh quarer of 2022. Financing Charges Financing charges increased by $25 million, or 5.4%, for the year ended December 31, 2022, primarily due to higher weighted-average interest rates on shor-term notes and the recognition of carrying charges associated with the DTA Recovery Amounts pursuant to the DTA Implementation Decision in the prior year, which were parially ofset by the change in gains and losses on interest-rate swap agreements year over year. 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 atributable to temporary diferences between the fnancial statement carrying amounts and the respective tax basis of assets and liabilities including carryforward 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 ofset 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 ofset to deferred tax expense arising from temporary diferences recoverable from or refundable to customers in the future. Income tax expense was $288 million for the year ended December 31, 2022, compared to $178 million in 2021. The $110 million increase in income tax expense for the year ended December 31, 2022 was primarily atributable to: ● net income neutral items, including incremental tax expense relating to the DTA Implementation Decision which was parially ofset by the tax recovery relating to Capitalized Overhead Tax Variance. The net tax expense is ofset by a corresponding net increase in revenue; and ● higher pre-tax earnings adjusted for the DTA Implementation Decision and Capitalized Overhead Tax Variance; parially ofset by ● higher deductible timing diferences compared to the prior year. The Company realized an efective tax rate (ETR) of approximately 21.4% for the year ended December 31, 2022 compared to approximately 15.5% realized in 2021. The increase of 5.9% was primarily atributable to the factors noted above. Common Share Dividends In 2022, the Company declared and paid cash dividends to common shareholders as follows: Date Declared February 24, 2022 May 4, 2022 August 8, 2022 November 10, 2022 Record Date March 16, 2022 June 8, 2022 September 14, 2022 December 14, 2022 Payment Date March 31, 2022 June 30, 2022 September 29, 2022 December 30, 2022 Amount per Share Total Amount (millions of dollars) $ 0.2663 $ 0.2796 $ 0.2796 $ 0.2796 159 168 167 168 662 Following the conclusion of the fourh quarer of 2022, the Company declared a cash dividend to common shareholders as follows: Date Declared February 13, 2023 Record Date March 15, 2023 Payment Date March 31, 2023 Amount per Share $ 0.2796 Total Amount (millions of dollars) 167 20 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 Selected Annual Financial Statistics Year ended December 31 (millions of dollars, except per share amounts) Revenues Net income to common shareholders of Hydro One Basic EPS Diluted EPS Basic Adjusted EPS1 Diluted Adjusted EPS1 Dividends per common share declared Dividends per preferred share declared2 As at December 31 (millions of dollars) Total assets Total non-current financial liabilities3 2022 7,780 1,050 $ 1.75 $ 1.75 $ 1.75 $ 1.75 $ 1.11 n/a 2022 31,457 13,073 2021 7,225 965 $ 1.61 $ 1.61 $ 1.61 $ 1.61 $ 1.05 n/a 2021 30,383 13,066 2020 7,290 1,770 $ 2.96 $ 2.95 $ 1.51 $ 1.51 $ 1.00 $ 1.20 2020 30,294 12,813 1 Adjusted EPS (basic and diluted) are non-GAAP fnancial measures. See the section "Non-GAAP Financial Measures". 2 Preferred dividends per share are calculated using the weighted average number of preferred shares outstanding during each year. The preferred share dividends paid in 2020 were $18 million. All the preferred shares were redeemed on November 20, 2020. 3 Total non-current fnancial liabilities include long-term debt, long-term lease obligations, derivative liabilities, and long-term accounts payable. Net Income - 2021 compared to 2020 Net income atributable to common shareholders of Hydro One for the year ended December 31, 2021 of $965 million is a decrease of $805 million, or 45.5%, from the prior year. Signifcant infuences on net income included: ● higher depreciation, amorization 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 revenues, net of purchased power4, primarily resulting from: ● higher income tax expense primarily atributable to: — — an increase in distribution revenues, net of purchased power4 , primarily due to OEB-approved distribution rates, DTA Recovery Amounts pursuant to the DTA Implementation Decision, and the temporary suspension of late payment charges in the prior year, which were accompanied by the Company's efors to help customers access relief programs, including fexible 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, parially ofset by the recognition of CDM revenues in the prior year following receipt of the 2020 OEB's 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 efors, and vegetation management; — higher project write-ofs in 2021; and — lower insurance proceeds received in 2021; parially ofset by — lower costs related to COVID-19. — — — income tax recovery recorded in the prior year following the July 2020 decision of the Ontario Divisional Cour (ODC Decision) (see section "Regulation - Deferred Tax Asset"); 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 diferences. Furher contributing to the year-over-year impact on net income atributable to common shareholders was the redemption of the Series 1 Preferred Shares announced in the third quarer of 2020. EPS and Adjusted EPS - 2021 compared to 2020 EPS was $1.61 for the year ended December 31, 2021, compared to EPS of $2.96 in 2020. The decrease in EPS was primarily driven by the impact of lower earnings year over year, as noted above. Adjusted EPS5, which adjusts for impacts of the ODC Decision, was $1.61 for the year ended December 31, 2021 compared to $1.51 in 2020. The increase in Adjusted EPS5 was driven by changes in net income for the year ended December 31, 2021, as discussed above, but excluding the impacts of the ODC Decision. 4 Revenues, net of purchased power, is a non-GAAP fnancial measure. See section “Non-GAAP Financial Measures”. 5 Adjusted EPS, is a non-GAAP fnancial measure. See section “Non-GAAP Financial Measures”. 21 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 Quarerly Results of Operations Quarer ended (millions of dollars, except EPS and ratio) Revenues Purchased power Revenues, net of purchased power1 Net income to common shareholders Dec 31, 2022 Sep 30, 2022 Jun 30, 2022 Mar 31, 2022 Dec 31, 2021 Sep 30, 2021 Jun 30, 2021 Mar 31, 2021 1,862 895 967 178 2,031 963 1,068 307 1,840 852 988 255 2,047 1,014 1,033 310 1,779 1,913 1,722 1,811 914 865 159 933 980 300 838 884 238 894 917 268 Basic EPS Diluted EPS $ 0.30 $ 0.30 $ 0.51 $ 0.51 $ 0.43 $ 0.42 $ 0.52 $ 0.52 $ 0.27 $ 0.26 $ 0.50 $ 0.50 $ 0.40 $ 0.40 $ 0.45 $ 0.45 Earnings coverage ratio2 3.3 3.3 3.3 3.2 3.1 3.1 3.0 2.9 1 Revenues, net of purchased power is a non-GAAP fnancial measure. See section “Non-GAAP Financial Measures”. 2 Earnings 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 Consolidated Financial Statements and might not be comparable to similar fnancial measures presented by other entities. See 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 quarers 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 suppor 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, 2022 and 2021: Year ended December 31 (millions of dollars) Transmission Distribution Other Total assets placed in-service 2022 1,405 853 9 2,267 2021 1,008 738 11 1,757 Change 39.4% 15.6% (18.2%) 29.0% Transmission Assets Placed In-Service Transmission assets placed in-service increased by $397 million, or 39.4%, during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to the following: Distribution Assets Placed In-Service Distribution assets placed in-service increased by $115 million, or 15.6%, during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to the following: ● ● substantial completion of the end-of-life air blast circuit breakers replacement at Bruce B Switching Station; timing of assets placed in-service for major development projects including the new Lakeshore Transmission Station (TS) and the Wataynikaneyap Line to Pickle Lake Connection, parially ofset by the East-West Tie Connection; ● higher investments associated with customer connections placed in-service; and ● higher volume of transmission line refurbishments and replacements; parially ofset by ● substantial completion of the new Ontario grid control centre in the City of Orillia in 2021. ● higher volume of storm-related asset replacements following storms in May and December 2022; ● parial in-service of the South Middle Road feeder development project; ● higher volume of assets placed in-service associated with customer connections; and ● ● ● investment placed in-service for the Dunnville Operation Centre; parially ofset by substantial completion of the new Ontario grid control centre in the City of Orillia in 2021; and lower volume of work on line refurbishments and wood pole replacements. 22 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 Capital Investments The following table presents Hydro One’s capital investments during the years ended December 31, 2022 and 2021: Year ended December 31 (millions of dollars) 2022 2021 Change Transmission Sustaining Development Other Distribution Sustaining Development Other Other Total capital investments 897 214 98 1,209 433 383 83 899 24 906 296 118 1,320 335 332 120 787 18 2,132 2,125 (1.0%) (27.7%) (16.9%) (8.4%) 29.3% 15.4% (30.8%) 14.2% 33.3% 0.3% Total 2022 capital investments of $2,132 million were largely in-line with the previously disclosed expected amount of $2,045 million. Transmission Capital Investments Transmission capital investments decreased by $111 million, or 8.4%, in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to the following: ● ● ● timing of work on major development projects; lower volume of station refurbishments and replacements; investment in the new Ontario grid control centre in the City of Orillia in 2021; and ● lower volume of work on customer connections; parially ofset by ● higher spend on demand capital investment. Distribution Capital Investments Distribution capital investments increased by $112 million, or 14.2%, in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to the following: ● higher spend on storm-related asset replacements following the storms in May and December 2022; ● higher volume of work on customer connections; and ● higher spend on system capability reinforcement projects; parially ● higher volume of transmission line refurbishments and ofset by replacements; ● higher spend on minor fxed asset and spare transformer purchases; and ● ● lower volume of line refurbishments and wood pole replacements; and investment in the new Ontario grid control centre in the City of Orillia in the prior year. Major Transmission Capital Investment Projects The following table summarizes the status of signifcant transmission projects at December 31, 2022: Project Name Location Type Development Projects: Barrie Area Transmission Upgrade Barrie-Innisfl Southern Ontario Upgraded transmission line and stations Anticipated In-Service Date Estimated Cost Capital Cost To Date (year) 2023 (millions of dollars) 62 125 East-West Tie Station Expansion1 Norhern Ontario New transmission connection 2024 191 182 Waasigan Transmission Line2 Thunder Bay-Atikokan-Dryden Norhwestern Ontario Southwestern Ontario and station expansion New transmission line and station expansion 2024 68 New transmission line and 2025 268 station expansion Chatham to Lakeshore Transmission Line3 St. Clair Transmission Line4 Longwood to Lakeshore Transmission Line5 Southwestern Ontario New transmission line and 2025 Southwestern Ontario New transmission line and station expansion station expansion Second Longwood to Lakeshore Southwestern Ontario New transmission line and Transmission Line5 Lakeshore to Windsor Transmission Line5 Southwestern Ontario New transmission line and station expansion station expansion 38 TBD TBD TBD TBD TBD TBD 38 30 48 TBD TBD TBD 23 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 Sustainment Projects: Beck #2 Transmission Station Niagara area Station sustainment Circuit Breaker Replacement Southwestern Ontario Cherrywood Transmission Station Pickering Station sustainment Circuit Breaker Replacement Central Ontario Bruce B Switching Station Tiveron Station sustainment Circuit Breaker Replacement Southwestern Ontario Middlepor Transmission Station Middlepor Station sustainment Circuit Breaker Replacement Southwestern Ontario Lennox Transmission Station Napanee Station sustainment Circuit Breaker Replacement Southeastern Ontario Esplanade x Terauley Toronto Line sustainment Underground Cable Replacement Southwestern Ontario 2023 2023 2024 2025 2026 2026 135 115 185 184 152 117 113 90 166 117 116 11 1 The East-West Tie Station Expansion project has been placed in-service in phases, with signifcant porions of the project placed in-service over the 2021-22 period, and fnal project in-service expected in 2024. 2 The estimated cost of the Waasigan Transmission Line relates to the development phase of the project and the anticipated in-service date refects the anticipated completion date of the development phase only. On May 4, 2022 and November 18, 2022, Hydro One entered into agreements with First Nations communities that provide them the opporunity to acquire 50% ownership in the project. Completion of the line remains subject to stakeholder consultation and regulatory approvals. 3 The Chatham to Lakeshore Transmission Line project includes the line and associated facilities and is furher discussed in the section “Other Developments - Supporing Critical Infrastructure in Southwestern Ontario”. 4 The estimated cost of the St. Clair Transmission Line relates to the development phase of the project and the anticipated in-service date refects the anticipated completion date of the development phase only. Completion of the line remains subject to stakeholder consultation and regulatory approvals. 5 The scope and timing of these Southwestern Ontario transmission reinforcements are currently under review. 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 efcient, reliable, and provide value for customers, consistent with the OEB’s Renewed Regulatory Framework. The 2023 to 2027 capital estimates difer from prior disclosures as the Company has updated its plan for timing and pacing of future capital investments, as well as re-prioritization of work. The overall increase in the transmission business is primarily related to projects outside of the OEB-approved JRAP investment plan. The following tables summarize Hydro One’s annual projected capital investments for 2023 to 2027 by business segment and by category: By business segment: (millions of dollars) Transmission1 Distribution Other Total capital investments3 By category: (millions of dollars) Sustainment Development1 Other2 Total capital investments3 2023 1,565 924 23 2,512 2023 1,534 693 285 2,512 2024 1,547 1,027 18 2,592 2024 1,658 711 223 2,592 2025 1,446 1,043 15 2,504 2025 1,629 669 206 2,504 2026 1,475 1,001 11 2,487 2026 1,548 730 209 2,487 2027 1,539 989 10 2,538 2027 1,480 891 167 2,538 1 Figures include investments in cerain development projects of Hydro One Networks not included in the investment plan approved by the OEB in the JRAP decision. 2 "Other" capital expenditures include investments in feet, real estate, IT, and operations technology and related functions. 3 On March 29, 2021, the IESO requested Hydro One initiate work to develop and construct a new transmission line between Chatham and Lambton (the St Clair Line) to suppor agricultural growth in Southwestern Ontario. On March 31, 2022, the Minister of Energy directed the OEB to amend Hydro One Networks' transmission licence to require it to develop and seek approvals for this and three other priority transmission lines to meet growing demand in Southwestern Ontario (see section “Other Developments”). The future capital investments presented do not include capital expenditures of the three additional lines, as Hydro One is currently evaluating the scope and timing of this work. 24 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 Summary of Sources and Uses of Cash Hydro One’s primary sources of cash fows 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) Net cash from operating activities Net cash used in fnancing activities Net cash used in investing activities Decrease in cash and cash equivalents Net cash from operating activities Cash from operating activities increased by $111 million for the year ended December 31, 2022 compared to the same period of 2021. The increase was impacted by various factors, including the following: ● higher pre-tax earnings; and ● the impacts of the DTA Implementation Decision recognized in the year; parially ofset by ● decrease in net working capital defciency primarily atributable to higher receivables including those from the IESO associated with provincial funding programs, parially ofset by a higher cost of power payable to the IESO related to the global adjustment rate; and ● changes to regulatory account balances. Net cash used in fnancing activities Cash used in fnancing activities decreased by $106 million for the year ended December 31, 2022, compared to the same period of 2021. This was impacted by various factors, including the following: Uses of cash ● ● the Company repaid $6,000 million of shor-term notes in 2022, compared to $3,905 million repaid in 2021. the Company repaid $603 million of long-term debt in 2022, compared to $804 million repaid in 2021. ● common share dividends paid in 2022 were $662 million, compared to dividends of $629 million paid in 2021. Sources of cash ● ● the Company received proceeds of $6,335 million from the issuance of shor-term notes in 2022, compared to $4,150 million received in 2021. the Company issued $750 million of long-term debt in 2022, compared to $900 million of long-term debt issued in 2021. Net cash used in investing activities Cash used in investing activities for the year ended December 31, 2022 was $10 million higher than the same period of 2021 as a result of higher capital investments in the current year. See section “Capital Investments” for comparability of capital investments made by the Company during the year ended December 31, 2022 compared to the prior year. 2022 2,260 (197) (2,073) (10) 2021 2,149 (303) (2,063) (217) Liquidity and Financing Strategy Shor-term liquidity is provided through FFO,6 Hydro One Inc.’s commercial paper program, and the Company’s consolidated bank credit facilities. Under the commercial paper program, Hydro One Inc. is authorized to issue up to $2,300 million in shor-term notes with a term to maturity of up to 365 days. At December 31, 2022, Hydro One Inc. had $1,374 million in commercial paper borrowings outstanding, compared to $1,045 million outstanding at December 31, 2021. The Company also has revolving bank credit facilities (Operating Credit Facilities) with a total available balance of $2,550 million at December 31, 2022. 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 perormance on cerain Sustainability Perormance Measures, which are related to Hydro One's sustainability goals. On January 12, 2023, Hydro One published a Sustainable Financing Framework (Framework), which allows the Company and its subsidiaries to issue sustainable fnancing instruments and allocate the net proceeds to investments in eligible green and social project categories. On June 1, 2022, the maturity date for the Operating Credit Facilities was extended from 2026 to 2027. No amounts were drawn on the Operating Credit Facilities at December 31, 2022 or 2021. The Company may use the Operating Credit Facilities for working capital and general corporate purposes. The shor-term liquidity under the commercial paper program, the Operating Credit Facilities, available cash on hand and anticipated levels of FFO6 are expected to be sufcient to fund the Company’s operating requirements. At December 31, 2022, the Company had long-term debt outstanding in the principal amount of $13,801 million, which included $425 million of long-term debt issued by Hydro One, $13,245 million of long-term debt issued by Hydro One Inc., and long-term debt in the principal amount of $131 million issued by HOSSM. The long-term debt issued by Hydro One was issued under its shor form base shelf prospectus (Universal Base Shelf Prospectus), as furher described below. The majority of long- term debt issued by Hydro One Inc. has been issued under its Medium Term Note (MTN) Program, as furher described below. The Company's total long-term debt consists of notes and debentures that mature between 2023 and 2064, and at December 31, 2022, had a weighted- average term to maturity of approximately 14.0 years (2021 - 14.8 years) and a weighted-average coupon rate of 3.9% (2021 - 3.8%). 6 FFO is a non-GAAP fnancial measure. See section “Non-GAAP Financial Measures”. 25 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 In June 2022, Hydro One Inc. fled a shor 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 July 2024. At December 31, 2022, $3,250 million remained available for issuance under the MTN Program prospectus. On January 27, 2023, Hydro One Inc. issued $1,050 million of long-term debt under its MTN program, consisting of $300 million (Series 53 notes) maturing in 2029 with a coupon rate of 3.93%, $450 million (Series 54 notes) maturing in 2033 with a coupon rate of 4.16% and $300 million (Series 55 notes) maturing in 2053 with a coupon rate of 4.46%. This represents Hydro One's frst issuance of medium-term notes pursuant to the Framework. On August 15, 2022, Hydro One fled the Universal Base Shelf Prospectus with securities regulatory authorities in Canada to replace a previous prospectus that would otherwise have expired in September 2022. The Universal Base Shelf Prospectus allows Hydro One to ofer, from time to time in one or more public oferings, up to $2,000 million of debt, equity or other securities, or any combination thereof, during the 25-month period ending on September 16, 2024. At December 31, 2022, no securities have been issued under the Universal Base Shelf Prospectus. On November 22, 2022, Hydro One Holdings Limited (HOHL) fled a shor form base shelf prospectus (US Debt Shelf Prospectus) with securities regulatory authorities in Canada and the US to replace a previous prospectus that would otherwise have expired in January 2023. The US Debt Shelf Prospectus allows HOHL to ofer, from time to time in one or more public oferings, up to US$3,000 million of debt securities, unconditionally guaranteed by Hydro One, expiring in December 2024. At December 31, 2022, no securities have been issued under the US Debt Shelf Prospectus. Compliance At December 31, 2022, the Company was in compliance with all fnancial covenants and limitations associated with the outstanding borrowings and credit facilities. Credit Ratings Various ratings organizations review the Company’s and Hydro One Inc.’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 afect the Company’s fnancial 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, 2022, Hydro One’s long-term credit ratings were as follows: Rating Agency DBRS S&P Long-term Debt Rating A BBB+ At December 31, 2022, Hydro One Inc.’s long-term and shor-term debt ratings were as follows: Rating Agency Shor-term Debt Rating Long-term Debt Rating DBRS Moody's S&P R-1 (low) Prime-2 A-1 (low) A (high) A3 A- Efect of Interest Rates The Company is exposed to fuctuations 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 corporate bond yield spread. The Company issues debt from time to time to refnance maturing debt and for general corporate purposes. The Company is therefore exposed to fuctuations 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 2022, Hydro One made cash contributions of $89 million to its pension plan, compared to cash contributions of $62 million in 2021, and incurred $53 million in net periodic pension beneft costs, compared to $194 million incurred in 2021. In September 2022, Hydro One fled a triennial actuarial valuation of its pension plan at December 31, 2021. Based on this valuation, Hydro One estimates that total Company pension contributions for 2023, 2024, 2025, 2026 and 2027 are approximately $91 million, $101 million, $103 million, $106 million, and $109 million, respectively. Future minimum contributions beyond 2024 will be updated following the actuarial funding valuation as of December 31, 2024, which is expected to be fled by no later than September 30, 2025. Should Hydro One elect to fle a valuation earlier than required, contributions for 2023 and 2024 would also be updated, as applicable. 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 benefts 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 morality assumptions. A full discussion of the signifcant assumptions and estimates can be found in the section “Critical Accounting Estimates - Employee Future Benefts”. 26 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022Other Obligations Of-Balance Sheet Arrangements There are no of-balance sheet arrangements that have, or are reasonably likely to have, a material current or future efect on the Company’s fnancial condition, changes in fnancial 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, 2022 (millions of dollars) Contractual obligations (due by year) Long-term debt - principal repayments Long-term debt - interest payments Shor-term notes payable Pension contributions1 Environmental and asset retirement obligations Outsourcing and other agreements Lease obligations Long-term software/meter agreement Total contractual obligations Other commercial commitments (by year of expiry) Operating Credit Facilities2 Letters of credit3 Guarantees4 Total other commercial commitments Total 13,801 8,117 1,374 510 138 222 59 32 Less than 1 year 731 518 1,374 91 28 191 14 12 1-3 years 3-5 years 1,450 1,008 — 204 40 17 21 15 925 952 — 215 4 1 17 2 More than 5 years 10,695 5,639 — — 66 13 7 3 24,253 2,959 2,755 2,116 16,423 2,550 188 517 3,255 — 186 517 703 — 2 — 2 2,550 — — 2,550 — — — — 1 Contributions to the Hydro one Pension Plan are based on actuarial repors, including valuations perormed at least every three years, and actual or projected levels of pensionable earnings, as applicable. The most recent actuarial valuation was perormed efective December 31, 2021 and fled on September 26, 2022. See section "Liquidity and Financing Strategy - Pension Plan" 2 On June 1, 2022, the maturity dates for the Operating Credit Facilities were extended from June 2026 to June 2027. 3 Leters of credit consist of $163 million leters of credit related to retirement compensation arrangements, a $18 million leter of credit provided to the IESO for prudential suppor, $4 million in leters of credit to satisfy debt service reserve requirements, and $3 million in leters of credit for various operating purposes. 4 Guarantees consist of $475 million prudential suppor provided to the IESO by Hydro One Inc. on behalf of its subsidiaries, as well as guarantees provided by Hydro One to the Minister of Natural Resources (Canada) and ONroute of $7 million and $30 million, respectively, relating to OCN LP (OCN Guarantee) and $5 million relating to Aux Energy Inc., the Company's indirect subsidiary. Ontario Power Generation Inc. (OPG) has provided a $2.5 million guarantee to Hydro One related to the OCN Guarantee. Share Capital The common shares of Hydro One are publicly traded on the Toronto Stock Exchange (TSX) under the trading symbol "H". 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, fnancial 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 13, 2023, Hydro One had 598,714,704 issued and outstanding common shares. The Company is authorized to issue an unlimited number of preferred shares, issuable in series. At February 13, 2023, the Company had no preferred shares issued and outstanding. The number of additional common shares of Hydro One that would be issued if all outstanding awards under the share grant plans were vested and exercised at February 13, 2023 was 2,225,740. Regulation Electricity Rates - Joint Rate Application In March 2018, the OEB issued a leter (OEB Leter) requesting Hydro One Networks fle a single application for distribution rates and transmission revenue requirement for the period from 2023 to 2027. The OEB Leter had indicated that Hydro One Remotes should be included in the single application, however, this requirement was later removed by the OEB. On August 5, 2021, Hydro One Networks fled a custom JRAP for 2023- 2027. The JRAP included a proposed investment plan supporing the transmission and distribution revenue requirements. On March 31, 2022, Hydro One Networks fled updated evidence refecting the impacts of updated infation assumptions on the proposed investment plan as well as updated load forecasts. On October 24, 2022, Hydro One and the other paries involved in the JRAP proceeding entered into a Setlement Agreement, which was submited to the OEB for approval. On November 16, 2022, Hydro One updated its revenue requirement to refect the OEB's cost of capital parameters which were issued October 20, 2022. On November 29, the OEB issued a Decision and Order approving the JRAP Setlement Proposal in full. This marks the end of the JRAP proceeding. The following table lists the rate base and revenue requirements arising from the approved setlement: 27 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 Year 2023 2024 2025 2026 2027 Hydro One Networks - Transmission Hydro One Networks - Distribution Rate Base Revenue Requirement Rate Base Revenue Requirement $14,534 million $15,342 million $16,271 million $17,148 million $17,940 million $1,952 million $2,073 million $2,168 million $2,277 million $2,362 million $9,460 million $9,979 million $10,573 million $11,153 million $11,656 million Other Developments $1,727 million $1,813 million $1,886 million $1,985 million $2,071 million Following the OEB approval of the JRAP Setlement and the pending completion of the recovery of DTA amounts previously shared with ratepayers in 2023, Hydro One's efective tax rate over the next fve years is expected to be between 13% and 16%. Deferred Tax Asset On March 7, 2019, the OEB issued its reconsideration decision (DTA Decision) with respect to Hydro One's rate-seting treatment of the benefts 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 fled an appeal with the ODC with respect to the DTA Decision. On July 16, 2020, the ODC rendered its decision in which it agreed with the submissions of Hydro One that the DTA should be allocated to shareholders in its entirety. 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. The recovery of the previously shared DTA amounts plus carrying charges resulted in a $135 million increase in FFO7 for the twelve months ended December 31, 2022 (2021 - $65 million) and is expected to result in FFO7 of approximately $65 million in 2023. In addition, the DTA Implementation Decision required that Hydro One adjust the transmission revenue requirement and the base distribution rates beginning January 1, 2022 to eliminate any furher tax savings fowing to customers. This resulted in an incremental $49 million of FFO7 in 2022 and is expected to result in additional FFO7 of approximately $46 million in 2023, but will decline annually thereafter. Hydro One Remotes On November 3, 2021, Hydro One Remotes fled an application with the OEB seeking approval for a 2.2% increase to 2021 base rates, efective May 1, 2022. The application was subsequently updated to request a 3.3% increase to 2021 base rates to refect the OEB’s annually updated infation parameters for electricity distributors for 2022. On March 24, 2022, the OEB approved the application for rates and other charges which became efective on May 1, 2022. On August 31, 2022, Hydro One Remotes fled its price cap incentive rate application for 2023-2027 which includes a proposed 3.72% overall rate increase. A decision is anticipated in the frst quarer of 2023. 7 FFO is a non-GAAP fnancial measure. See section “Non-GAAP Financial Measures”. 28 Equity Parnership Model with First Nation Communities On September 22, 2022, Hydro One announced its new equity parnership model pursuant to which it will ofer First Nations a 50 per cent equity stake in all new, future large-scale capital transmission line projects with a value exceeding $100 million. Exemptive Relief Disclosure of Ownership by the Province On July 28, 2022, the Canadian securities regulatory authorities granted (i) the Minister of Energy, (ii) OPG (on behalf of itself and the segregated funds established as required by the Nuclear Fuel Waste Act) and (iii) agencies of the Crown, provincial Crown corporations and other provincial entities (collectively, the "Non-Aggregated Holders") exemptive relief, subject to cerain conditions, to enable each Non- Aggregated Holder to treat securities of Hydro One and debt securities of Hydro One Inc. and Hydro One Holdings Limited that it owns or controls separately from securities of Hydro One and debt securities of Hydro One Inc. and Hydro One Holdings Limited owned or controlled by the other Non-Aggregated Holders for purposes of cerain take- over bid, early warning reporing, insider reporing and control person distribution rules and cerain distribution restrictions under Canadian securities laws. Hydro One was also granted relief permiting it to rely solely on insider repors and early warning repors fled by Non- Aggregated Holders when reporing benefcial ownership or control or direction over securities of Hydro One and debt securities of Hydro One Inc. and Hydro One Holdings Limited in any information circular or annual information form in respect of such securities benefcially owned or controlled by any Non-Aggregated Holder, subject to cerain conditions. Substantially similar relief had previously been granted on June 6, 2017, which terminated in 2022. US GAAP On October 13, 2022, Hydro One was granted exemptive relief by the securities regulators in each province and territory of Canada that allows Hydro One to continue to repor its fnancial results in accordance with US GAAP (the "Exemptive Relief"). The Exemptive Relief will remain in efect until the earliest to occur of the following: (i) January 1, 2027; (ii) if Hydro One ceases to have rate-regulated activities, the frst day of Hydro One’s fnancial year that commences after it ceases to have such rate-regulated activities; and (iii) the frst day of Hydro One’s fnancial year that commences on or following the later of: (a) the efective date prescribed by the International Accounting Standards Board (IASB) for the mandatory application of a standard within International Financial Reporing Standards specifc to entities with rate-regulated activities (the "Mandatory Rate-regulated Standard"); and (b) two years after the IASB publishes the fnal version Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 of a Mandatory Rate-regulated Standard. In January 2021, the IASB published Exposure Draft – Regulatory Assets and Liabilities (the “Exposure Draft”). The efective date for mandatory application of the eventual fnal standard, if any, is not yet determinable and the Company continues to monitor the developments of the Exposure Draft and determine the potential impacts to the Company’s fnancial statements. Hydro One is also permited to repor its fnancial results in accordance with US GAAP by virue of being, and for so long as it remains, an “SEC issuer” (within the meaning of National Instrument 52-107 – Acceptable Accounting Principles and Auditing Standards). There can be no assurance that Hydro One will remain an SEC issuer indefnitely. Building Broadband Faster Act, 2021 In March 2021, the Province introduced Bill 257, Supporing Broadband and Infrastructure Expansion Act, 2021, to create a new act entitled the Building Broadband Faster Act, 2021 that is aimed at supporing the timely deployment of broadband infrastructure within unserved and underserved rural Ontario communities. Bill 257 received Royal Assent on April 12, 2021. Bill 257 amended 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. The Building Broadband Faster Act Guideline and three regulations informing the legislative changes were published in 2021. In March 2022, the Province introduced Bill 93, Geting Ontario Connected Act, 2022. Bill 93 received Royal Assent on April 14, 2022. Bill 93 amended the Building Broadband Faster Act to ensure that organizations that own underground utility infrastructure near a designated high-speed internet project provide timely access to their infrastructure data, which would allow internet service providers to quickly star work on laying down underground high-speed internet infrastructure. The regulation regarding electricity infrastructure and designated broadband projects under the Ontario Energy Board Act came into force in April 2022. This regulation substantially adopted Hydro One's proposed approach to allocation of the costs of broadband-related work on utility assets. It also directed the OEB to establish a deferral account for rate-regulated distributors to record incremental costs associated with carrying out activities peraining to designated broadband projects, which the OEB completed in July 2022. The Company continues to be engaged with the Province and the OEB on implementing an appropriate regulatory framework to suppor the published Building Broadband Faster Act Guideline and regulations, including arrangements to sustain the Company’s revenues and recovery of reasonable associated costs. In September 2022, the Company launched its choice-based operating model to provide internet service providers with choices on how to access the Company’s infrastructure in order to efectively execute designated broadband projects. Supporing Critical Transmission Infrastructure in Southwestern Ontario On March 31, 2022, the Minister of Energy directed the OEB to amend Hydro One Networks’ licence to require it to develop and seek approvals for four priority transmission line projects to meet growing electricity demand in Southwestern Ontario: the St. Clair Line (a 230kV line from Lambton TS to Chatham Switching Station (SS)); two 500 kV lines from Longwood TS to Lakeshore TS; and a 230kV line connecting the Windsor area to the Lakeshore TS. On May 9, 2022, Hydro One fled a leave-to-construct application seeking OEB approval for the Chatham to Lakeshore Transmission Line project in Southwestern Ontario. In December 2020, the Minister of Energy issued a directive to the OEB to amend Hydro One Networks’ transmission licence to include a requirement that Hydro One proceed to develop and seek all necessary approvals for the project. The cost of this project is estimated at $268 million (see section “Major Transmission Capital Investment Projects”). On November 24, 2022, the OEB issued its Decision and Order granting leave to construct as requested in the application, with standard conditions of approval. On December 28, 2022, the Haudenosaunee Development Institute fled an appeal to the Divisional Cour, under s.22 of the Ontario Energy Board Act, 1998, of this decision. The appeal, amongst other items, asked to set aside the OEB's decision granting Hydro One approval to construct the Chatham to Lakeshore Transmission Line project and to deny the application. Sustainability Repor The Hydro One 2021 Sustainability Repor entitled “Energizing life for people & communities” is available on the Company’s website at www.hydroone.com/sustainability. The 2021 Sustainability Repor discloses the Company’s environmental, social and governance perormance and provides a beter understanding of how Hydro One manages the opporunities and challenges associated with its business. The repor also includes disclosure relating to the Company’s current efors in its priority areas of People, Planet and Community. Hydro One Board of Directors and Executive Ofcers Board of Directors On June 8, 2022, Jessica McDonald resigned from the Board of Hydro One. On the same day, Mark Podlasly was elected to the Board of Hydro One. Executive Ofcers On June 21, 2022, Mark Poweska resigned as a director and President and Chief Executive Ofcer of Hydro One. On the same day, William (Bill) Shefeld was appointed as Interim President and Chief Executive Ofcer of Hydro One. Upon his resignation, Mr. Poweska remained with Hydro One as an advisor until such time as he assumed the role of President of Enmax Corporation in September 2022. On August 26, 2022, Lyla Garzouzi resigned as Chief Safety Ofcer of Hydro One. On September 16, 2022, Jason Fitzsimmons resigned as Chief Corporate Afairs & Customer Care Ofcer of Hydro One. On January 10, 2023, the Board of Directors of Hydro One announced the appointment of David Lebeter as President and Chief Executive Ofcer efective February 1, 2023. On February 1, 2023, Mr. Shefeld stepped down from his role as Interim President and Chief Executive Ofcer, however continues in his role as a director of Hydro One, but will not stand for re-election at the Company's upcoming Annual General Meeting. 29 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 Hydro One Work Force At December 31, 2022, Hydro One had a skilled and fexible work force of approximately 6,500 (2021 - 6,300) regular employees and 1,100 (2021 - 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 ofer Hydro One the ability to fexibly 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 at December 31, 2022: Power Workers' Union (PWU)1 Society of United Professionals (Society) Canadian Union of Skilled Workers (CUSW) and construction building trade unions Total employees represented by unions Management and non-represented employees Total employees2 Regular Employees Non-Regular Employees 3,818 1,848 — 5,666 837 6,503 844 44 169 1,057 23 1,080 Total 4,662 1,892 169 6,723 860 7,583 1 Includes 732 non-regular “hiring hall” employees covered by the PWU agreement. 2 The average number of Hydro One employees in 2022 was approximately 9,300, consisting of approximately 6,500 regular employees and approximately 2,800 non-regular employees. Collective Agreements In March 2022, Hydro One and the CUSW commenced collective bargaining with the ofcial exchange of bargaining agendas. The agreement was ratifed by the CUSW membership in May. The term of the agreement is for four years, expiring on April 30, 2026. Hydro One’s collective agreement with the PWU for Customer Service Operations expired on September 30, 2022. Collective bargaining to renew this agreement commenced on August 29, 2022 and is ongoing. Hydro One’s collective agreements with the PWU and Society will expire on March 31, 2023. Collective bargaining to renew these agreements commenced on January 11, 2023 and January 16, 2023, respectively, and are ongoing. Stock-based Compensation The Company granted Deferred Stock Units (DSUs) to Directors and Management and Restricted Stock Units (RSUs) related to the new collective agreement with the Society (Society RSUs). At December 31, 2022 and 2021, the following Long-Term Incentive Plan and other awards were outstanding: December 31 (number of units) Management DSUs Director DSUs Society RSUs 2022 118,505 99,939 36,124 2021 90,240 80,813 71,053 30 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 Non-GAAP Financial Measures Hydro One uses a number of fnancial measures to assess its perormance. Adjusted measures, which include Adjusted EPS (basic and diluted) and Adjusted net income (collectively, adjusted measures), remove items from repored results for EPS (basic and diluted) and net income to calculate the adjusted measures. The Company presents FFO or “funds from operations” to refect a measure of the Company’s cash fow; and revenues, net of purchased power to refect revenues net of the cost of purchased power. Adjusted EPS (basic and diluted), Adjusted net income, FFO and revenues, net of purchased power are non- GAAP fnancial 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 fnancial information repored under GAAP. Hydro One also uses fnancial 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 fnancial information repored under US GAAP. FFO FFO is defned 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 fows as it excludes timing-related fuctuations in non-cash operating working capital and cash fows not atributable to common shareholders. As such, management believes that FFO provides a consistent measure of the cash generating perormance of the Company’s assets. The following table provides a reconciliation of GAAP (repored) results to non-GAAP (adjusted) results on a consolidated basis. Year ended December 31 (millions of dollars) Net cash from operating activities Changes in non-cash balances related to operations Distributions to noncontrolling interest FFO 2022 2,260 (61) (10) 2,189 2021 2,149 (100) (8) 2,041 Adjusted Net Income and Adjusted EPS The following Adjusted net income, and Adjusted EPS (basic and diluted) have been calculated by management on a supplementary basis which adjusts net income under US GAAP for impacts related to the ODC Decision on Hydro One Networks' distribution and transmission businesses. Adjusted net income and Adjusted EPS are used internally by management to assess the Company’s perormance and are considered useful because they exclude the impacts of the ODC Decision as noted above. Adjusted net income and Adjusted EPS provide users with a comparative basis to evaluate the current ongoing operations of the Company compared to prior year. The following tables provide a reconciliation of GAAP (repored) results to non-GAAP (adjusted) results on a consolidated basis. Year ended December 31 (millions of dollars, except number of shares and EPS) Net income atributable to common shareholders Impacts related to the ODC Decision Adjusted net income atributable to common shareholders Weighted average number of shares Basic Efect of dilutive stock-based compensation plans Diluted Adjusted EPS Basic Diluted 2022 1,050 — 1,050 2021 965 — 965 2020 1,770 (867) 903 598,616,561 598,080,111 597,421,127 1,971,291 2,278,030 2,497,161 600,587,852 600,358,141 599,918,288 $ 1.75 $ 1.75 $ 1.61 $ 1.61 $ 1.51 $ 1.51 31 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 Revenues, Net of Purchased Power Revenues, net of purchased power is defned as revenues less the cost of purchased power; distribution revenues, net of purchased power is defned as distribution revenues less the cost of purchased power. These measures are used internally by management to assess the impacts of revenue on net income and are considered useful because they exclude the cost of power that is fully recovered through revenues and therefore net income neutral. The following tables provide a reconciliation of GAAP (repored) revenues to non-GAAP (adjusted) revenues, net of purchased power on a consolidated basis. Year ended December 31 (millions of dollars) Revenues Less: Purchased power Revenues, net of purchased power Year ended December 31 (millions of dollars) Distribution revenues Less: Purchased power Distribution revenues, net of purchased power 2022 7,780 3,724 4,056 2022 5,660 3,724 1,936 2021 7,225 3,579 3,646 2021 5,359 3,579 1,780 Quarer ended (millions of dollars) Dec 31, 2022 Sep 30, 2022 Jun 30, 2022 Mar 31, 2022 Dec 31, 2021 Sep 30, 2021 Jun 30, 2021 Mar 31, 2021 Revenues Less: Purchased power Revenues, net of purchased power 1,862 895 967 2,031 963 1,068 1,840 852 988 2,047 1,014 1,033 1,779 1,913 1,722 1,811 914 865 933 980 838 884 894 917 Quarer ended (millions of dollars) Dec 31, 2022 Sep 30, 2022 Jun 30, 2022 Mar 31, 2022 Dec 31, 2021 Sep 30, 2021 Jun 30, 2021 Mar 31, 2021 Distribution revenues Less: Purchased power Distribution revenues, 1,371 895 1,458 963 1,314 852 1,517 1,014 1,347 914 1,395 933 1,263 838 1,354 894 net of purchased power 476 495 462 503 433 462 425 460 Debt to Capitalization Ratio The Company believes that the debt to capitalization ratio is an imporant 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 shor-term borrowings, net of cash and cash equivalents) divided by total debt plus total shareholders’ equity, but excluding any amounts related to noncontrolling interest. Management believes that the debt to capitalization ratio is helpful as a measure of the proporion of debt in the Company's capital structure. Year ended December 31 (millions of dollars) Shor-term notes payable Less: cash and cash equivalents Long-term debt (current porion) Long-term debt (long-term porion) Total debt (A) Shareholders' equity (excluding noncontrolling interest) Total debt plus shareholders' equity (B) 2022 1,374 (530) 733 13,030 14,607 11,306 25,913 2021 1,045 (540) 603 13,017 14,125 10,888 25,013 Debt-to-capitalization ratio (A/B) 56.4% 56.5% 32 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 Earnings Coverage Ratio Earnings coverage ratio is defned as earnings before income taxes and fnancing charges atributable to shareholders, divided by the sum of fnancing charges and capitalized interest, and is calculated on a rolling twelve-month basis. The Company believes that the earnings coverage ratio is an imporant 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. Quarer ended (millions of dollars) Net income to common shareholders Income tax expense Financing charges Earnings before income taxes and fnancing charges atributable to common shareholders Twelve months ended (millions of dollars) Earnings before income taxes and fnancing charges atributable to common shareholders (A) Dec 31, 2022 Sep 30, 2022 Jun 30, 2022 Mar 31, 2022 Dec 31, 2021 Sep 30, 2021 Jun 30, 2021 Mar 31, 2021 178 178 41 128 307 307 100 122 255 255 68 119 310 310 79 117 159 159 55 123 300 300 71 118 238 238 26 104 268 268 26 116 347 529 442 506 337 489 368 410 Dec 31, 2022 Sep 30, 2022 Jun 30, 2022 Mar 31, 2022 Dec 31, 2021 Sep 30, 2021 Jun 30, 2021 Mar 31, 2021 1,824 1,814 1,774 1,700 1,604 1,574 1,511 1,520 Quarer ended (millions of dollars) Financing charges Capitalized interest Financing charges and capitalized Dec 31, 2022 Sep 30, 2022 122 16 128 16 Jun 30, 2022 Mar 31, 2022 Dec 31, 2021 Sep 30, 2021 118 15 117 15 123 16 119 16 Jun 30, 2021 Mar 31, 2021 116 13 104 16 interest 144 138 135 132 139 133 120 129 Twelve months ended (millions of dollars) Financing charges and Dec 31, 2022 Sep 30, 2022 Jun 30, 2022 Mar 31, 2022 Dec 31, 2021 Sep 30, 2021 Jun 30, 2021 Mar 31, 2021 capitalized interest (B) Earnings coverage ratio = A/B 549 3.3 544 3.3 539 3.3 524 3.2 521 3.1 514 3.1 509 3.0 520 2.9 Related Pary Transactions The Province is a shareholder of Hydro One with approximately 47.2% ownership at December 31, 2022. The IESO, OPG, Ontario Electricity Financial Corporation (OEFC), and the OEB are related paries to Hydro One because they are controlled or signifcantly infuenced by the Ministry of Energy. OCN LP is a joint-venture limited parnership between a subsidiary of Hydro One and OPG. The following is a summary of the Company’s related pary transactions during the years ended December 31, 2022 and 2021: Year ended December 31 (millions of dollars) Related Pary Province IESO OPG1 OEFC OEB OCN LP2 Transaction Dividends paid Power purchased Revenues for transmission services Amounts related to electricity rebates Distribution revenues related to rural rate protection Distribution revenues related to supply of electricity to remote norhern communities Funding received related to CDM programs Power purchased Revenues related to provision of services and supply of electricity Capital contribution received from OPG Costs related to the purchase of services Power purchased from power contracts administered by the OEFC OEB fees Investment in OCN LP 2022 312 2,374 2,062 1,031 247 35 3 20 8 5 2 2 10 4 2021 297 2,238 1,832 1,065 245 35 1 13 8 3 2 1 8 4 1 OPG has provided a $2.5 million guarantee to Hydro One related to the OCN Guarantee. See section "Other Obligations - Summary of Contractual Obligations and Other Commercial Commitments" for details related to the OCN Guarantee. 2 OCN LP owns and operates electric vehicle fast charging stations across Ontario, under the Ivy Charging Network brand. 33 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 Risk Management and Risk Factors Hydro One is subject to numerous risks and uncerainties. Critical to Hydro One’s success is the identifcation, 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 opporunities. The material risks relating to Hydro One and its business that the Company believes would be the most likely to infuence 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 efect on the Company or its business, fnancial condition, or results of operations. This list is not a comprehensive list of all the risks to the Company, and the actual efect of any of the risks cited below could be materially diferent 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 Actual Perormance 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-seting process. Actual costs could exceed the approved forecasts if, for example, the Company incurs operations, maintenance, administration, capital and fnancing costs above those included in the Company’s approved revenue requirement. The inability to recover any signifcant diference between forecast and actual expenses and to obtain associated regulatory approvals to recover the diference could materially adversely afect the Company’s fnancial condition and results of operations. Furher, 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 fows for either, or both, of these businesses could be materially adversely afected. The Company’s current revenue requirements for its transmission and distribution businesses are based on cost and other assumptions, including infation, that may not materialize. There is no assurance that the OEB would allow rate increases sufcient to ofset unfavourable fnancial 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 infuence the demand for electricity. The Company’s overall operating results may fuctuate 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 fows as compared to the same period of the previous year. 34 The Company’s load could also be negatively afected by successful CDM programs whose results exceed forecasted expectations. Risks Relating to Non-Rate Applications to the OEB In addition to the maters described in the “Risks Relating to Obtaining Rate Orders” subsection below, 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 maters, such as leave to construct applications, applications for mergers, acquisitions, amalgamations and divestitures, and environmental approvals. Appeals of OEB decisions and/or the need to obtain required occupation rights may result in signifcant delays, which could also lead to increased costs and project delays. Decisions to acquire or divest other regulated businesses licensed by the OEB are subject to OEB approval. Accordingly, there is the risk that such maters may not be approved, that the Company may not be selected to build new transmission as par of the competitive process, or that unfavourable conditions will be imposed by the OEB. Hydro One may face increased competition with other transmiters for opporunities 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. Risks Relating to Rate-Seting Models for Transmission and Distribution The OEB approves and periodically changes the rate-seting models and methodology for the transmission and distribution businesses. Changes to the application type, fling requirements, rate-seting 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 afect Hydro One’s revenue and net income. The OEB’s Custom Incentive Rate-seting 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 efect 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 furher 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 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022period of a rate decision and no corresponding changes were permited to the Company’s revenue requirement (including cost of capital parameters), then the result could be a decrease in the Company’s fnancial perormance. 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 porion 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 including infation, 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 efect on the Company. 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 paricipation 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 paricular 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 afect: Hydro One’s transmission and distribution businesses, the underaking or timing of capital expenditures, ratings assigned by credit rating agencies, the cost and issuance of long-term debt, and other maters, any of which may in turn have a material adverse efect on the Company. In addition, there is no assurance that the Company will receive regulatory decisions in a timely manner and, therefore, the Company may incur costs before having an approved revenue requirement and cash fows could be impacted. The Company is also subject to the risk that the OEB could change the regulatory treatment of cerain costs which may afect the Company’s accounting treatment of and ability to recover such costs. 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 benefts (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 par 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 efect on the Company. The OEB Act prohibits Hydro One from recovering specifed executive compensation costs in its rates. The Company provides OPEBs, including workers' compensation benefts and long-term disability benefts 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 diferent 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 diference 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 post-retirement beneft costs are not recoverable could have a material adverse efect 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 confict from time to time as a result of being an investor in Hydro One Limited and also being a government actor seting 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 efects 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 afect the governance of Hydro One. Such government actions could adversely afect the Company’s fnancial 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. The Province has in the past passed legislation to place limits on executive compensation at Hydro One and there is no guarantee they may not do so in the future. Potential involvement by the Province in the Company’s executive compensation practices may inhibit the Company’s ability to atract and retain qualifed executive talent, which may also impact the Company’s perormance, strategy and/or objectives. The failure to atract and retain qualifed executives could have a material adverse efect on the Company. Government action may also impact the Company’s credit ratings as the Company’s credit ratings refect, in par, 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 afect the Company’s fnancial 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. 35 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 Indigenous Claims Risk Some of the Company’s current and proposed transmission and distribution assets are or may be located on reserve (as defned 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 asserions related to sovereignty and jurisdiction over Reserve lands and traditional territories (land traditionally occupied or used by a First Nation, Métis or Inuit group) and are increasingly willing to asser their claims through the cours, tribunals, or direct action. These claims, and/or the setlement or resolution of these claims could have a material adverse efect 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 sufciently 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 efect on the Company. Risk from Transfer of Assets Located on Reserves The transfer orders by which the Company acquired cerain 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 difcult 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 efect on the Company if the costs are not recoverable in future rate orders. 36 Compliance with Laws and Regulations Hydro One must comply with numerous laws and regulations afecting 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 efect 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 Norh American Electric Reliability Corporation (NERC) and Norheast 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 efect 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 efects of severe weather conditions, natural disasters, man-made events including, but not limited to, cyber and physical terrorist type atacks, events which originate from third-pary connected systems, and any other potentially catastrophic events. The Company’s facilities may not withstand occurrences of these types in all circumstances. 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 fres), 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 efect on the Company. Risk Associated with Information Technology (IT), Operational Technology (OT) Infrastructure, and Data Security The Company’s ability to operate efectively in the Ontario electricity market is, in par, 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, fnancial and billing systems and other business systems. The Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 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 cerain of the Company’s assets (generally being those whose failure could impact the functioning of the bulk electricity system). The Company may maintain diferent 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-atacks or unauthorized access to corporate IT and OT systems could result in service disruptions and system failures, which could have a material adverse efect 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-atacks from third paries (including state run or controlled paries) that could impair or incapacitate its assets. In addition, in the course of its operations, the Company 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, counterparies, employees and other third paries. 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 efect 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 fnes or other penalties. In addition, the presence or release of hazardous or other harmful substances could lead to claims by third paries or governmental orders requiring the Company to take specifc actions such as investigating, controlling and remediating the efects of these substances. Although Hydro One is not a large emiter of greenhouse gases, the Company monitors its emissions to track and repor on all sources, including sulphur hexafuoride or “SF6”. The Company could be subject to costs and other risks related to emissions. Contamination of the Company’s properies 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 fnancial 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 efect on the Company. The Company’s facilities are exposed to the efects 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 efect of shifting weather paterns 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 efors to adapt and increase grid resilience, the Company’s facilities are exposed to risks which may have an adverse efect 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 fres), 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 efect on the Company. 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, signifcant efor has been expended to increase Hydro One’s fexibility to conduct operations in a more cost-efcient manner. Although the Company has achieved improved fexibility in its collective agreements, the Company may not be able to achieve furher 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 efective 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 CUSW, covering the period from May 1, 2022 to April 30, 2026. 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. Future negotiations with unions present the risk of a labour disruption or dispute, risk to the Company’s ability to sustain the continued supply 37 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 of electricity to customers, as well as potential risks to public safety and reputation. The Company also faces fnancial risks related to its ability to negotiate collective agreements consistent with its rate orders. Any of these could have a material adverse efect on the Company. Negotiations with the PWU for the renewal of the CSO collective agreement that expired on September 30, 2022 remain ongoing. Collective agreements requiring renewal in 2023 include the Society collective agreement and the main PWU collective agreement, both expiring on March 31, 2023. Failure to renew these agreements on terms acceptable to Hydro One could have a material adverse efect on its business and results of operations and expose Hydro One to the risks noted above. 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 efect on the Company, including a reduction in revenue. Execution of the Company’s capital expenditure programs is parially dependent on external factors, such as OEB approvals; environmental approvals; municipal permits; equipment outage schedules that accommodate the IESO, generators and customers; other interrelated projects being on schedule; supply chain availability and/or cost and schedule variability for equipment suppliers, contracted services, and consulting services; and availability of contractor resources including in relation to workforce and equipment. 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, appropriate engagement with Indigenous communities, OEB approvals of expropriation or early access to propery, 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, or at all, could materially adversely afect transmission reliability or customers’ service quality or increase maintenance costs which could have a material adverse efect 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 foreit the anticipated return on investment. The assets involved may be considered impaired and result in the write of 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 perormance 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 efect on the Company. Increased competition for the development of large transmission projects and legislative changes relating to the selection of transmiters could impact the Company’s ability to expand its existing transmission system, which may have an adverse efect on the Company. To the extent that other paries 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 transmiters’ projects may impact the Company’s own projects that it is underaking to in-service these new transmission assets. Infectious Disease Risk An outbreak of infectious disease, in the form of an epidemic, a pandemic (such as COVID-19 and the emergence of its variants), or a similar public health threat, could materially adversely impact the Company. The extent of any such adverse impact on the Company is uncerain, 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 paricular: the Company’s operations and workforce, including security of supply, both with respect to availability and afordability, which individually or collectively may impact the Company's ability to complete operating and capital work programs as planned, including within scope and budget; cerain fnancial obligations of the Company, including pension contributions and other post-retirement benefts, as a result of changes in prevailing market conditions; the Company’s expected revenues; reductions in overall electricity consumption and load, both shor 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 Company’s ability to pay or increase dividends; 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 fle regulatory flings 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 modifed 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. Furhermore, the Company is dependent on third pary providers for cerain activities, and relies on a strong international supply chain. Any signifcant disruption to those providers or the supply chain resulting from an outbreak of infectious disease could materially adversely impact the Company. Work Force Demographic Risk By the end of 2022, approximately 10% of the Company’s employees who are members of the Company’s defned beneft and defned contribution pension plans were eligible for retirement, and by the end of 2023, approximately 11% could be eligible. These percentages are not evenly spread across the Company’s work force, but tend to be most signifcant in the most senior levels of the Company’s staf and among management staf. During 2022, approximately 4% of the Company’s work force (remaining consistent with 2021) elected to retire. Accordingly, the Company’s continued success will be tied to its ability to continue to atract and retain sufcient qualifed staf to replace the capability lost through retirements and meet the demands of the Company’s work programs. 38 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 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 atract, retain and deploy qualifed personnel for Hydro One’s business could have a material adverse efect on the Company. Risk Associated with Arranging Debt Financing The Company expects to borrow to repay its existing indebtedness and to fund a porion of capital expenditures. Hydro One Inc. has substantial debt principal repayments coming due, including $731 million in 2023, $700 million in 2024 and $750 million in 2025. In addition, from time to time, the Company may draw on its syndicated bank lines and/or issue shor-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 2023 and 2024. Cash generated from operations, after the payment of expected dividends, will not be sufcient to fund the repayment of the Company’s existing indebtedness and capital expenditures. The Company’s ability to arrange sufcient and cost- efective debt fnancing could be materially adversely afected by numerous factors, including the regulatory environment in Ontario, the Company’s results of operations and fnancial 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 par 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 efect on the Company. Increasing investor interest in ESG perormance and reporing also has the potential to impact the cost and availability of the Company’s funding, as these factors may be increasingly connected to the quality of the Company’s ESG practices and related reporing, including repors addressing the allocation of funds and impact reporing under Hydro One’s Sustainable Financing Framework. 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 fuctuations 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 refnance maturing debt and for general corporate purposes. The Company is therefore exposed to fuctuations in interest rates in relation to such issuances of debt. Fluctuations in interest rates may also impact the funded position of Hydro One’s Defned Beneft Pension Plan, and associated pension asset or 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, during the Custom Incentive Rate period from 2023 to 2027, the OEB does not expect to address annual rate applications for updates to allowed ROE, so fuctuations will have no impact to net income. The Company has interest rate exposure in 2023 and beyond associated with the refnancing of maturing shor- and long-term debt, as well as with debt issued for general corporate purposes and under the Sustainable Financing Framework 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 counterpary will fail to discharge an obligation, causing a fnancial loss. Derivative fnancial instruments result in exposure to credit risk, since there is a risk of counterpary default. Hydro One monitors and minimizes credit risk through various techniques, including dealing with highly rated counterparies, limiting total exposure levels with individual counterparies, entering into agreements which enable net setlement, and monitoring the fnancial condition of counterparies. The Company does not trade in any energy derivatives. The Company is required to procure electricity on behalf of competitive electricity retailers and cerain local distribution companies for resale to their customers. The resulting concentrations of credit risk are mitigated through the use of various security arrangements, including leters of credit, which are incorporated into the Company’s service agreements with these retailers in accordance with the OEB’s Retail Setlement Code. The failure to properly manage these risks could have a material adverse efect on the Company. 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 fnancial 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 fnes or other penalties. Any regulatory decision to disallow or limit the recovery of such costs could have a material adverse efect on the Company. Pension Plan Risk Hydro One has the Hydro One Defned Beneft 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 fled with the Financial Services Regulatory Authority of Ontario on a triennial basis. The most recently fled valuation was prepared as at December 31, 2021, and was fled in September 2022, covering a three-year period from 2022 to 2024. The next required valuation will be prepared as at December 31, 2024 and is expected to be fled by no later than September 2025. Hydro One’s contributions to its pension plan satisfy, and are expected to continue to satisfy, minimum funding requirements. Contributions beyond 2023 will depend on the funded position of the plan, which is determined by investment returns, interest rates and changes in benefts 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 efect on the Company, and this risk may be exacerbated if the amount of required pension contributions increases. 39 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022Hydro One currently repors 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 paries in conjunction with the operation of the Company’s systems, or adjacent land use by third paries, may increase safety or environmental risks, which could have a material adverse efect on the Company. Litigation Risks In the normal course of the Company’s operations, it becomes involved in, is named as a pary 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, propery damage, propery 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 cerainty and may be determined adversely to the Company, which could have a material adverse efect on the Company. Even if the Company prevails in any such legal proceeding, the proceedings could be costly and time-consuming and would diver the atention of management and key personnel from the Company’s business operations, which could adversely afect the Company. Transmission Assets on Third-Pary Lands Risk Some of the lands on which the Company’s transmission assets are located are owned by third paries, 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-pary 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 efect 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 fnancial condition leading to a deterioration of Hydro One’s reputation. Hydro One’s reputation could be negatively impacted by changes in public opinion, atitudes towards 40 the Company’s privatization, failure to deliver on its customer and/ or stakeholder promises, failure to comply with mandatory reliability regulations established by the NERC and NPCC, failure to adequately respond to social issues raised by employees, parners and/stakeholders and other external forces. Adverse reputational events or political actions could have a material adverse efect 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, fnancial condition and results of operations. Risk Associated with Outsourcing Arrangements Hydro One has entered into an outsourcing arrangement with a third pary for the provision of cerain back ofce and IT services. If the services are disrupted, it could have a material adverse efect 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 efect on the Company’s business, operating results, fnancial condition or prospects. Risks Associated with Acquisitions Acquisitions include inherent risks that some or all of the expected benefts 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 benefts would depend, in par, on the Company’s ability to successfully integrate the acquired business, including the requirement to devote management atention and resources to integrating business practices and suppor functions. The failure to realize the anticipated benefts, the diversion of management’s atention, or any delays or difculties encountered in connection with the integration could have an adverse efect on the Company’s business, results of operations, fnancial condition or cash fows. Risks Relating to the Common Shares of Hydro One Limited Hydro One’s common shares trade on the TSX. The trading price of the common shares has in the past been, and may in the future be, subject to signifcant fuctuations. These fuctuations may be caused by events or factors related or unrelated to Hydro One’s operating perormance and/or beyond its control, including: the risk factors described herein; general economic conditions within Ontario and Canada, including changes in interest rates; infation; changes in electricity prices; changes in electricity demand; weather conditions; actual or anticipated fuctuations in Hydro One’s quarerly and annual results and the results of public companies similar to Hydro One; Hydro One’s businesses, operations, results and prospects; Hydro One’s reputation and its relationship with the Province; the timing and amount of dividends, if any, declared on the common shares; future issuances of common shares or other securities by Hydro One or Hydro One Inc.; Hydro One’s relationship with its regulator; changes in government regulation, taxes, legal proceedings or other developments; shorfalls in Hydro One’s operating results from levels forecasted by securities analysts; investor sentiment toward energy companies in general or companies adopting ESG perormance and reporing practices; maintenance of acceptable Management’s Discussion and AnalysisHydro One Limited Annual Report 2022credit ratings or credit quality; the impact of COVID-19 on Hydro One and the Province; and the general state of the securities markets. These and other factors may impair the development or sustainability of a liquid market for the common shares and the ability of investors to sell common shares at an atractive price. Risks Relating to the Company’s Relationship with the Province Ownership and Continued Infuence by the Province and Voting Power; Share Ownership Restrictions The Province currently owns approximately 47.2% of the outstanding common shares of Hydro One. The Electricity Act, 1998 (Ontario) (Electricity Act) restricts the Province from selling voting securities of Hydro One (including common shares) of any class or series if it would own less than 40% of the outstanding number of voting securities of that class or series after the sale and in cerain circumstances also requires the Province to take steps to maintain that level of ownership. Accordingly, the Province is expected to continue to maintain a signifcant ownership interest in voting securities of Hydro One for an indefnite period. As a result of its signifcant ownership of the common shares of Hydro One, the Province has, and is expected indefnitely to have, the ability to determine or signifcantly infuence the outcome of shareholder votes, subject to the restrictions in the Governance Agreement between Hydro One 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 afairs of the Company as an investor and not as a manager, there is a risk that the Province’s engagement in the business and afairs of the Company as an investor will be informed by its policy objectives and may infuence the conduct of the business and afairs of the Company in ways that may not be aligned with the interests of other investors. 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. See “Risks Relating to Government Action” above. The share ownership restrictions in the Electricity Act (Share Ownership Restrictions) and the Province’s signifcant ownership of common shares of Hydro One together efectively prohibit one or more persons acting together from acquiring control of Hydro One. They also may limit or discourage transactions involving other fundamental changes to Hydro One and the ability of other shareholders to successfully contest the election of the directors proposed for election pursuant to the Governance Agreement. The Share Ownership Restrictions may also discourage trading in, and may limit the market for, the common shares and other voting securities. Nomination of Directors and Confrmation of Chief Executive Ofcer (CEO) and Chair Although director nominees (other than the CEO) are required to be independent of both the Company and the Province pursuant to the Governance Agreement, there is a risk that the Province will nominate or confrm individuals who satisfy the independence requirements but who it considers are disposed to suppor and advance its policy objectives and give disproporionate weight to the Province’s interests in exercising their business judgment and balancing the interests of the stakeholders of Hydro One. This, combined with the fact cerain maters require a two-thirds vote of the Board, could allow the Province to unduly infuence cerain Board actions such as confrmation of the Chair and confrmation of the CEO. Board Removal Rights Under the Governance Agreement, the Province has the right to withhold from voting in favour of all director nominees and has the right to seek to remove and replace the entire Board, including in each case its own director nominees but excluding the CEO and, at the Province’s discretion, the Chair. In exercising these rights in any paricular circumstance, the Province is entitled to vote in its sole interest, which may not be aligned with the interests of other stakeholders of Hydro One. More Extensive Regulation Although under the Governance Agreement, the Province has agreed to engage in the business and afairs of Hydro One 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 efect on the Company. See “Risks Relating to Government Action” above. Prohibitions on Selling the Company’s Transmission or Distribution Business The Electricity Act prohibits the Company from selling all or substantially all of the business, propery 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 the Company to engage in sale transactions involving a substantial porion of either system, even where such a transaction may otherwise be considered to provide substantial benefts to the Company and the holders of the common shares. Future Sales of Common Shares by the Province Although the Province has indicated that it does not intend to sell furher common shares of Hydro One, the registration rights agreement between Hydro One and the Province dated November 5, 2015 (available on SEDAR at www.sedar.com) grants the Province the right to request that Hydro One fle one or more prospectuses and take other procedural steps to facilitate secondary oferings by the Province of the common shares of Hydro One. Future sales of common shares of Hydro One by the Province, or the perception that such sales could occur, may materially adversely afect market prices for these common shares and impede Hydro One’s ability to raise capital through the issuance of additional common shares, including the number of common shares that Hydro One may be able to sell at a paricular time or the total proceeds that may be realized. Limitations on Enforcing the Governance Agreement The Governance Agreement includes commitments by the Province restricting the exercise of its rights as a holder of voting securities, including with respect to the maximum number of directors that the Province may nominate and on how the Province will vote with respect 41 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022to other director nominees. Hydro One’s ability to obtain an efective remedy against the Province, if the Province were not to comply with these commitments, is limited as a result of the Proceedings Against the Crown Act (Ontario). This legislation provides that the remedies of injunction and specifc perormance are not available against the Province, although a cour may make an order declaratory of the rights of the paries, which may infuence the Province’s actions. A remedy of damages would be available to Hydro One, but damages may not be an efective remedy, depending on the nature of the Province’s non- compliance with the Governance Agreement. Critical Accounting Estimates and Judgments The preparation of Hydro One Consolidated Financial Statements requires the Company to make key estimates and critical judgments that afect the repored 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 difer from these estimates and judgments. Hydro One has identifed the following critical accounting estimates and judgements used in the preparation of its Consolidated Financial Statements: Revenues Distribution revenues atributable 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 afected by energy consumption, weather, and changes in the composition of customer classes. Regulatory Assets and Liabilities Hydro One’s regulatory assets represent cerain 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 beneft liability, post-retirement and post-employment non-service costs, deferred tax asset sharing, environmental liabilities and share-based compensation costs. The Company’s regulatory liabilities represent cerain amounts that are refundable to future electricity customers. They perain primarily to deferral and variance accounts, and includes amounts related to the pension asset in the current year. The regulatory assets and liabilities can be recognized for rate-seting and fnancial reporing 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 refected 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. 42 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 chemically contaminated lands. There are uncerainties 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 fow 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 perorm work, infation assumptions and the assumed patern of annual cash fows may difer signifcantly from the Company’s current assumptions. Environmental liabilities are reviewed annually or more frequently if signifcant changes in regulations or other relevant factors occur. Estimate changes are accounted for prospectively. Employee Future Benefts Hydro One’s employee future benefts consist of pension and post- retirement and post-employment plans, and include pension, group life insurance, health care, and long-term disability benefts provided to the Company’s current and retired employees. Employee future benefts costs are included in Hydro One’s labour costs that are either charged to results of operations or capitalized as par of the cost of propery, plant and equipment and intangible assets. Changes in assumptions afect the beneft obligation of the employee future benefts and the amounts that will be charged to results of operations or capitalized in future years. The following signifcant assumptions and estimates are used to determine employee future beneft costs and obligations: Weighted Average Discount Rate The weighted average discount rate used to calculate the employee future benefts obligation is determined at each year end by referring to the most recently available market interest rates based on “AA”- rated corporate bond yields refecting the duration of the applicable employee future beneft plan. The discount rate at December 31, 2022 increased to 5.06% (from 3.00% at December 31, 2021) for pension benefts and increased to 5.07% (from 3.00% at December 31, 2021) for the post-retirement and post-employment plans. The increase in the discount rate has resulted in a corresponding decrease in employee future benefts liabilities for the pension, post-retirement and post-employment plans for accounting purposes. The liabilities are determined by independent actuaries using the projected beneft method prorated on service and based on assumptions that refect management’s best estimates. Expected Rate of Return on Plan Assets The expected rate of return on pension plan assets of 6.00% (2021 - 5.40%) is based on expectations of long-term rates of return at the beginning of the year and refects the current pension plan asset mix dated November 8, 2022. The expected rate of return for the December 31, 2022 disclosures and the 2023 registered pension plan expense is based on the plan’s ultimate target asset mix. Management’s Discussion and AnalysisHydro One Limited Annual Report 2022Rates of return on the respective porfolios are determined with reference to respective published market indices. The expected rate of return on pension plan assets refects 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 ofset by the greater stability of fxed-income and shor-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 shor term, the pension plan can experience fuctuations in actual rates of return. Rate of Cost of Living Increase The rate of cost of living increase is determined by considering diferences between long-term Government of Canada nominal bonds and real return bonds, which increased from 1.80% per annum as at December 31, 2021 to approximately 2.12% per annum as at December 31, 2022. Based on the Bank of Canada’s commitment to keep long-term infation between 1.00% and 3.00%, in addition to current and anticipated trends, management believes that a long-term assumption of 2.00% per annum is reasonable for employee future benefts liability valuation purposes as at December 31, 2022 (1.75% per annum was used for the purpose of December 31, 2021 disclosures and 2022 beneft cost). Salary Increase Assumptions Salary increases should refect 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 infation and real wage growth in the economy. The merit and promotion scale was developed based on the salary increase assumption review perormed 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 refects negotiated salary increases over the contract period as well as slightly lower expected increases in the shor term. Morality Assumptions The Company’s employee future benefts liability is also impacted by changes in life expectancies used in morality assumptions. Increases in life expectancies of plan members result in increases in the employee future benefts liability. For the pension and post-retirement plans, the morality assumption used at December 31, 2022 is 90% of the 2014 Canadian Pensioners Morality Private Sector table projected generationally using improvement Scale B. The multiplier applied to the assumed morality table is based on the result of a morality experience study that was conducted in 2021. For the post-employment plan, the morality assumption used at December 31, 2022 is the disability morality table from the 2009-2015 Canadian Institute of Actuaries Group Long Term Disability Termination Study, which is the most recent publicly available table that refects 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 benefts are determined at the beginning of the year and are based on assumptions for expected claims experience and future health care cost infation. For the post-retirement beneft plans, a study of Hydro One’s historical per capita health care cost trend experience was conducted in 2017. The health and dental trends refect the results of this study as well as macroeconomic inputs such as the expected long-term rates of general infation and real GDP growth. The current environment of high general infation in Canada is resulting in shor-term upward pressure on the cost of cerain medical services covered by Hydro One's post- retirement and post-employment beneft plans. However, these efects are muted somewhat by plan design and government regulation. Based on this, Hydro One has adopted a modest increase of 25 basis points to its health care trend assumptions for the purpose of the December 31, 2022 disclosures. This adjustment aligns with the adjustment to the assumed long-term rate of cost of living increase being adopted at December 31, 2022. Disclosure Controls and Procedures and Internal Control Over Financial Reporing Disclosure controls and procedures are the processes designed to ensure that information is recorded, processed, summarized and repored 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 fnancial 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 repor. Based on that evaluation, management concluded that the Company’s disclosure controls and procedures were efective as at December 31, 2022. Internal control over fnancial reporing is designed by, or under the direction of the CEO and CFO to provide reasonable assurance regarding the reliability of fnancial reporing and the preparation of consolidated fnancial statements for external purposes in accordance with US GAAP. The Company’s internal control over fnancial reporing framework includes those policies and procedures that (i) perain to the maintenance of records that, in reasonable detail, accurately and fairly refect 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 fnancial 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 efect on the Company’s consolidated fnancial statements. The Company’s management, at the direction of the CEO and CFO, evaluated the efectiveness of the design and operation of internal control over fnancial reporing based on the criteria established in the Internal Control - Integrated Framework (2013) issued by the Commitee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, management concluded that the Company’s internal control over fnancial reporing was efective as at December 31, 2022. Internal controls, no mater 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. Furhermore, the efectiveness of internal control is afected by change and subject to the risk that internal control efectiveness may change over time. 43 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022There were no changes in the design of the Company’s internal control over fnancial reporing during the three months ended December 31, 2022 that have materially afected, or are reasonably likely to materially afect, the operation of the Company’s internal control over fnancial reporing. Management will continue to monitor its systems of internal control over reporing and disclosure and may make modifcations from time to time as considered necessary. New Accounting Pronouncements The following tables present Accounting Standards Updates (ASUs) issued by the Financial Accounting Standards Board (FASB) that are applicable to Hydro One: Recently Adopted Accounting Guidance Guidance Date issued Description Efective date Impact on Hydro One ASU 2020-06 August 2020 The update addresses the complexity associated with applying US GAAP January 1, 2022 for cerain fnancial instruments with characteristics of liabilities and equity. The amendments reduce the number of accounting models for converible debt instruments and converible preferred stock. No impact upon adoption ASU 2021-05 July 2021 The amendments are intended to align lease classifcation requirements January 1, 2022 for lessors under Topic 842 with Topic 840's practice. No impact upon adoption ASU 2021-10 November The update addresses diversity on the recognition, measurement, presentation and disclosure of government assistance received by 2021 business entities. Recently Issued Accounting Guidance Not Yet Adopted Guidance Date issued Description ASU 2021-08 2021 October The amendments address how to determine whether a contractual obligation represents a liability to be recognized by the acquirer in a business combination. ASU 2022-02 2022 March The amendments eliminate the troubled debt restructuring (TDR) accounting model for entities that have adopted Topic 326 Financial Instrument – Credit Losses and modifes the guidance on vintage disclosure requirements to require disclosure of current-period gross write-ofs by year of origination. January 1, 2022 No impact upon adoption Efective date Anticipated Impact on Hydro One January 1, 2023 No expected impact upon adoption January 1, 2023 Upon adoption, the Company will disclose the current period gross write-ofs by year of origination relating to its accounts receivable 44 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 Summary of Fourh Quarer Results of Operations Three months ended December 31 (millions of dollars, except EPS) 2022 2021 Change Revenues Distribution Transmission Other Costs Purchased power OM&A Distribution Transmission Other Depreciation, amorization and asset removal costs Income before fnancing charges and income tax expense Financing charges Income before income tax expense Income tax expense Net income Net income to common shareholders of Hydro One Basic EPS Diluted EPS Assets Placed In-Service Distribution Transmission Other Capital Investments Distribution Transmission Other Net Income Net income atributable to common shareholders for the quarer ended December 31, 2022 of $178 million is an increase of $19 million, or 11.9%, from the prior year. Signifcant infuences on net income included: ● ● higher revenues, net of purchased power,8 primarily resulting from: — — an increase in transmission and distribution OEB-approved 2022 rates; and positive regulatory adjustments, including the recognition of CDM revenues following the receipt of the JRAP Decision and a lower deferred adjustment as a result of the Earnings Sharing Mechanism in 2022. ● higher OM&A costs primarily resulting from: — higher work program expenditures including stations and lines maintenance, environmental management, IT initiatives and storm restoration; and — higher corporate suppor costs. 1,371 480 11 1,862 895 222 143 23 388 231 1,347 421 11 1,779 914 161 103 15 279 247 1,514 1,440 348 128 220 41 179 178 339 123 216 55 161 159 $ 0.30 $ 0.30 $ 0.27 $ 0.26 326 761 3 1,090 253 310 7 570 257 526 3 786 221 303 8 532 1.8% 14.0% 0.0% 4.7% (2.1%) 37.9% 38.8% 53.3% 39.1% (6.5%) 5.1% 2.7% 4.1% 1.9% (25.5%) 11.2% 11.9% 11.1% 15.4% 26.8% 44.7% 0.0% 38.7% 14.5% 2.3% (12.5%) 7.1% lower depreciation, amorization and asset removal costs primarily resulting from a gain realized on the sale of surplus propery, parially ofset by higher depreciation resulting from the growth in capital assets as the Company continues to place new assets in-service, consistent with its ongoing capital investment program, and higher asset removal costs. ● lower income tax expense primarily resulting from: — higher deductible timing diferences compared to the prior year; parially ofset by — higher pre-tax earnings. 8 Revenues, net of purchased power, is a non-GAAP fnancial measure. See section "Non-GAAP Financial Measures." 45 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 EPS Basic EPS was $0.30 in the fourh quarer of 2022, compared to basic EPS of $0.27 in the fourh quarer of 2021. Revenues The year-over-year increase of $59 million or 14.0% in transmission revenues during the quarer was primarily due to the following: ● positive regulatory adjustments, including the recognition of CDM revenues following receipt of the JRAP Decision, parially ofset by a deferred adjustment associated with the OEB-approved Earnings Sharing Mechanism; and ● higher revenues resulting from OEB-approved 2022 rates; parially ofset by ● a regulatory adjustment associated with the Capitalized Overhead Tax Variance and an adjustment to transmission revenue requirement efective January 1, 2022 to cease sharing of DTA amounts pursuant to the DTA Implementation Decision, the net impact of which is ofset by a decrease in income tax and therefore net income neutral. The year-over-year increase of $24 million or 1.8% in distribution revenues during the quarer was primarily due to the following: ● higher revenues resulting from OEB-approved 2022 rates; and ● positive regulatory adjustments including a lower adjustment to the Earnings Sharing Mechanism in 2022; parially ofset by ● lower purchased power costs, which are fully recovered from ratepayers and are thus net income neutral; and ● a regulatory adjustment associated with the Capitalized Overhead Tax Variance and an adjustment to base distribution rates efective January 1, 2022 to cease sharing of DTA amounts pursuant to the DTA Implementation Decision, the net impact of which is ofset by a decrease in income tax and therefore net income neutral. Distribution revenues, net of purchased power,9 increased by 9.9% during the fourh quarer of 2022 compared to the prior year, primarily due to the reasons noted above, adjusted for the recovery of purchased power costs. OM&A Costs The year-over-year increase of $40 million or 38.8% in transmission OM&A costs during the quarer was primarily due to the following: ● higher work program expenditures, including higher volume of maintenance work on stations, as well as higher spend on lines and facilities; ● higher corporate suppor costs; and ● higher propery taxes; parially ofset by ● lower project write-ofs. The year-over-year increase of $61 million or 37.9% in distribution OM&A costs during the quarer was primarily due to the following: ● higher work program expenditures, including higher volume of emergency restoration and environmental management as well as higher spend associated with IT initiatives and customer programs; ● higher corporate suppor costs; ● higher project write-ofs; and ● costs related to storm restoration efors that have been recovered from third paries and are ofset in revenue, therefore net income neutral. Depreciation, Amorization and Asset Removal Costs The decrease of $16 million or 6.5%, in depreciation, amorization and asset removal costs in the fourh quarer of 2022 was primarily due to a gain realized on the sale of surplus propery, parially ofset by higher depreciation resulting from the growth in capital assets as the Company continues to place new assets in-service, consistent with its ongoing capital investment program, and higher asset removal costs. Financing Charges The $5 million or 4.1% increase in fnancing charges for the quarer ended December 31, 2022, was primarily due to higher weighted- average interest rates on shor-term notes, parially ofset by gains on interest rate swap agreements. Income Taxes Income tax expense for the fourh quarer of 2022 decreased by $14 million compared to the same period in 2021. This resulted in a realized efective tax rate of approximately 18.6% in the fourh quarer of 2022, compared to approximately 25.5% in the fourh quarer of the prior year. The decrease in income tax expense for the three months ended December 31, 2022 was primarily atributable to: ● higher deductible timing diferences compared to the prior year; and ● net income neutral items, including incremental tax recovery relating to the Capitalized Overhead Tax Variance which was parially ofset by the tax expense relating to the DTA Implementation Decision. This decrease in tax expense is ofset by a corresponding decrease in revenue and therefore net income neutral; parially ofset by ● higher earnings adjusted for the DTA Implementation Decision and impacts of the JRAP Decision. 9 Revenues, net of purchased power, is a non-GAAP fnancial measure. See section "Non-GAAP Financial Measures." 46 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 Assets Placed In-Service The increase in transmission assets placed in-service during the fourh quarer was primarily due to the following: ● timing of investments placed in-service for information technology initiatives; and ● higher volume of assets placed in-service associated with customer ● substantial completion of the end-of-life air blast circuit breakers replacement at Bruce B Switching Station; ● higher investments associated with customer connections placed in-service; ● timing of investments placed in-service for information technology initiatives; and ● higher volume of transmission line refurbishments and replacements; parially ofset by ● timing of investments placed in-service for major development projects. The increase in distribution assets placed in-service during the fourh quarer was primarily due to the following: ● parial in-service of South Middle Road feeder development project; ● higher volume of storm-related asset replacements; connections; parially ofset by ● lower volume of line refurbishments and replacements. Capital Investments The increase in transmission capital investments during the fourh quarer was primarily due to the following: ● higher volume of refurbishment and replacement work on transmission stations and lines; and ● higher volume of work on wood poles; parially ofset by ● lower volume of work on customer connections. The increase in distribution capital investments during the fourh quarer was primarily due to the following: ● higher spend on storm-related asset replacements; and ● higher volume of work on customer connections. Hydro One Holdings Limited – Consolidating Summary Financial Information Hydro One Limited fully and unconditionally guarantees the payment obligations of its wholly-owned subsidiary, HOHL, issuable under the shor form base shelf prospectus dated November 22, 2022. Accordingly, the following consolidating summary fnancial information is provided in compliance with the requirements of section 13.4 of National Instrument 51-102 - Continuous Disclosure Obligations providing for an exemption for cerain credit suppor issuers. The tables below contain consolidating summary fnancial information at December 31, 2022 and December 31, 2021 and for the years ended December 31, 2022 and December 31, 2021 for: (i) Hydro One Limited; (ii) HOHL; (iii) the subsidiaries of Hydro One Limited, other than HOHL, on a combined basis, (iv) consolidating adjustments, and (v) Hydro One Limited and all of its subsidiaries on a consolidated basis, in each case for the periods indicated. Such summary fnancial information is intended to provide investors with meaningful and comparable fnancial information about Hydro One Limited and its subsidiaries. This summary fnancial information should be read in conjunction with Hydro One Limited's most recently issued annual and interim fnancial statements. This summary fnancial information has been prepared in accordance with US GAAP, as issued by the FASB. Year ended December 31 (millions of dollars) Revenue Net Income (Loss) Atributable to Common Shareholders Hydro One Limited 2022 662 2021 629 661 630 — — HOHL Subsidiaries of Hydro One Limited, other than HOHL Consolidating Adjustments Total Consolidated Amounts of Hydro One Limited 2022 2021 2022 2021 2022 2021 2022 2021 — 8,567 7,983 (1,449) (1,387) 7,780 7,225 — 1,767 1,665 (1,378) (1,330) 1,050 965 Subsidiaries of Hydro One Limited, other than HOHL Consolidating Adjustments Total Consolidated Amounts of Hydro One Limited 2021 2022 2021 2022 2021 2022 2021 2022 2021 As at December 31 (millions of dollars) Hydro One Limited HOHL Current Assets Non-Current Assets Current Liabilities Non-Current Liabilities 2022 117 97 3,469 3,450 509 425 475 425 — — — — — — — — 3,067 2,742 (1,324) (1,013) 1,860 1,826 45,973 45,019 (19,845) (19,912) 29,597 28,557 4,455 3,507 (1,312) (1,004) 3,652 2,978 28,801 28,892 (12,813) (12,888) 16,413 16,429 47 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 Forward-looking Statements and Information The Company’s oral and writen 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 and Hydro One Remotes' 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; expected timing of the Company's update to its transmission and distribution revenue requirements; expected timing for a decision in respect of Hydro One Remotes’ price cap incentive rate application; expectations about the Company’s liquidity and capital resources and operational requirements; the Operating Credit Facilities; expectations regarding the Company’s fnancing 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; contractual obligations and other commercial commitments; the number of Hydro One common shares issuable in connection with outstanding awards under the share grant plans; collective bargaining and agreements and expectations regarding the ability to negotiate renewal collective agreements; the US GAAP exemptive relief and the potential impacts of the Exposure Draft; the Company's status as an SEC issuer; Bill 257 and Bill 93, related regulations and the expected impacts; future pension contributions; dividends; non-GAAP fnancial measures; internal controls over fnancial reporing and disclosure; recent accounting-related guidance and anticipated impacts; the MTN Program; the Universal Base Shelf Prospectus; and the US Debt Shelf Prospectus. Words such as “expect”, “anticipate”, “intend”, “atempt”, “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 perormance and involve assumptions and risks and uncerainties that are difcult to predict. Therefore, actual outcomes and results may difer 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 efect 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 specifcally; 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 seting methodologies for the Company’s distribution and transmission businesses; no unfavourable changes in environmental regulation; continued use of US GAAP; a stable regulatory environment; no signifcant 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 signifcant event occurring outside the ordinary course of business. These assumptions are based on information currently available to the Company, including information obtained from third-pary sources. Actual results may difer materially from those predicted by such forward-looking statements. While Hydro One does not know what impact any of these diferences may have, the Company’s business, results of operations, fnancial condition and credit stability may be materially adversely afected if any such diferences occur. Factors that could cause actual results or outcomes to difer materially from the results expressed or implied by forward-looking statements include, among other things: ● ● ● ● ● ● ● regulatory risks and risks relating to Hydro One’s revenues, including risks relating to actual perormance against forecasts, competition with other transmiters and other applications to the OEB, the rate- seting models for transmission and distribution, the recoverability of capital expenditures, obtaining rate orders or recoverability of total compensation costs; risks associated with the Province’s share ownership of Hydro One and other relationships with the Province, including potential conficts of interest that may arise between Hydro One, the Province and related paries, risks associated with the Province’s exercise of furher legislative and regulatory powers, risks relating to the ability of the Company to atract and retain qualifed 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, that the company’s operations and activities may give rise to the Crown’s duty to consult and potentially accommodate Indigenous communities, and the risk that Hydro One may incur signifcant 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 efects 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-atacks or unauthorized access to corporate information technology and operational technology systems; 48 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 ● ● ● ● ● ● ● ● ● ● the risk that the Company may not be able to execute plans for capital projects necessary to maintain the perormance 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 afecting the selection of transmiters; risks relating to an outbreak of infectious disease, including the COVID-19 pandemic (including a signifcant expansion in length or severity of the COVID-19 pandemic, including the spread of its variants, restricting or prohibiting the Company’s operations or signifcantly 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; and the regulatory and accounting treatment of incremental costs and lost revenues of the Company related to the COVID-19 pandemic); 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 atract and retain qualifed personnel; the risk that the Company is not able to arrange sufcient cost- efective fnancing to repay maturing debt and to fund capital expenditures or the risk of a downgrade in the Company’s credit ratings; risks associated with fuctuations in interest rates and failure to manage exposure to credit and fnancial instrument risk; risks associated with economic uncerainty and fnancial market volatility; 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 signifcant health and safety risks; the risk of not being able to recover the Company’s pension expenditures in future rates and uncerainty regarding the future regulatory treatment of pension, other post-employment benefts and post-retirement benefts 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 diver the atention of management and key personnel from the Company’s business operations; the impact if the Company does not have valid occupational rights on third-pary 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 signifcant 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 benefts of such transactions at all, or within the time periods anticipated, and unexpected costs incurred in relation thereto; the inability to continue to prepare fnancial 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 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 cerain maters, 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. 49 Management’s Discussion and AnalysisHydro One Limited Annual Report 2022 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 Repor of Independent Registered Public Accounting Firm outlines the scope of their examination and their opinion. The Hydro One Board of Directors, through its Audit Commitee, is responsible for ensuring that management fulflls its responsibilities for fnancial reporing and internal control over fnancial reporing and disclosure. The Audit Commitee 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 Commitee, with and without the presence of management, to discuss their audit fndings. On behalf of Hydro One’s management: David Lebeter Christopher Lopez President and Chief Executive Ofcer Chief Financial Ofcer Management’s Repor The Consolidated Financial Statements, Management’s Discussion and Analysis (MD&A) and related fnancial information have been prepared by the management of Hydro One Limited (Hydro One or the Company). Management is responsible for the integrity, consistency and reliability of all such information presented. The Consolidated Financial Statements for the year ended December 31, 2022 and accompanying notes thereto (together, 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, paricularly when transactions afecting the current accounting period cannot be fnalized with cerainty 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 signifcant 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 uncerainties. Actual results in the future may difer 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 fnancial reporing as described in the annual MD&A. Management evaluated the efectiveness of the design and operation of disclosure controls and procedures, and internal control over fnancial reporing based on the framework and criteria established in the Internal Control - Integrated Framework (2013) issued by the Commitee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, management concluded that the Company’s internal control over fnancial reporing was efective at a reasonable level of assurance as at December 31, 2022. As required, the results of that evaluation were repored to the Audit Commitee of the Hydro One Board of Directors and the external auditors. 50 Hydro One Limited Annual Report 2022Repor of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of Hydro One Limited Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Hydro One Limited (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive income, changes in equity, and cash fows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively, the consolidated fnancial statements). In our opinion, the consolidated fnancial statements present fairly, in all material respects, the fnancial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash fows for each of the years in the two-year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These consolidated fnancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated fnancial statements based on our audits. We are a public accounting frm 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 perorm the audits to obtain reasonable assurance about whether the consolidated fnancial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perorm, an audit of its internal control over fnancial reporing. As par of our audits, we are required to obtain an understanding of internal control over fnancial reporing but not for the purpose of expressing an opinion on the efectiveness of the Company’s internal control over fnancial reporing. Accordingly, we express no such opinion. Our audits included perorming procedures to assess the risks of material misstatement of the consolidated fnancial statements, whether due to error or fraud, and perorming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated fnancial statements. Our audits also included evaluating the accounting principles used and signifcant estimates made by management, as well as evaluating the overall presentation of the consolidated fnancial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Mater The critical audit mater communicated below is a mater arising from the current period audit of the consolidated fnancial statements that was communicated or required to be communicated to the audit commitee and that: (1) relates to accounts or disclosures that are material to the consolidated fnancial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit mater does not alter in any way our opinion on the consolidated fnancial statements, taken as a whole, and we are not, by communicating the critical audit mater below, providing a separate opinion on the critical audit mater 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 fnancial statements As discussed in Note 2 to the consolidated fnancial statements, the Company accounts for its regulated operations in accordance with Financial Accounting Standards Board Accounting Standard Codifcation 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 diferent 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 propery, 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 12 to the consolidated fnancial statements, as of December 31, 2022, the Company’s regulatory assets were $3,153 million and regulatory liabilities were $1,262 million. We identifed the evaluation of regulatory assets and liabilities and the impact of rate regulation as a critical audit mater. Accounting for regulated operations under ASC 980 afects multiple fnancial statement accounts and disclosures in the Company’s consolidated fnancial statements. Assessing the accounting for regulated operations requires industry knowledge and signifcant 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 propery, plant and equipment, and imposition of regulatory liabilities. The following are the primary procedures we perormed to address this critical audit mater. We evaluated the design and tested the operating efectiveness of cerain 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 repored as regulatory liabilities, and controls over the monitoring and evaluation of regulatory developments that may afect the probability of recovering costs in future rates or imposing of regulatory liabilities. We evaluated the Company’s assessment of the probability of recovery of the carrying amount of regulatory assets and propery, 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. 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 fnancial statements. Charered Professional Accountants, Licensed Public Accountants We have served as the Company’s auditor since 2008. Toronto, Canada February 13, 2023 51 Hydro One Limited Annual Report 2022 Consolidated Statements of Operations and Comprehensive Income For the years ended December 31, 2022 and 2021 Year ended December 31 (millions of Canadian dollars, except per share amounts) 2022 2021 Revenues Distribution (includes $287 related party revenues; 2021 - $286) (Note 28) Transmission (includes $2,064 related party revenues; 2021 - $1,833) (Note 28) Other (Note 28) Costs Purchased power (includes $2,396 related party costs; 2021 - $2,252) (Note 28) Operation, maintenance and administration (Note 28) Depreciation, amortization and asset removal costs (Note 4) Income before financing charges and income tax expense Financing charges (Note 5) Income before income tax expense Income tax expense (Note 6) Net income Other comprehensive income (Note 7) Comprehensive income Net income attributable to: Noncontrolling interest (Note 27) Common shareholders Comprehensive income attributable to: Noncontrolling interest (Note 27) Common shareholders Earnings per common share (Note 25) Basic Diluted Dividends per common share declared (Note 24) See accompanying notes to Consolidated Financial Statements. 5,660 2,077 43 7,780 3,724 1,258 966 5,948 1,832 486 1,346 288 1,058 23 1,081 8 1,050 1,058 8 1,073 1,081 5,359 1,824 42 7,225 3,579 1,112 922 5,613 1,612 461 1,151 178 973 17 990 8 965 973 8 982 990 $ 1.75 $ 1.75 $ 1.11 $ 1.61 $ 1.61 $ 1.05 52 Hydro One Limited Annual Report 2022 Consolidated Balance Sheets At December 31, 2022 and 2021 As at December 31 (millions of Canadian dollars) 2022 2021 Assets Current assets: Cash and cash equivalents Accounts receivable (Note 8) Due from related paries (Note 28) Other current assets (Note 9) Propery, plant and equipment (Note 10) Other long-term assets: Regulatory assets (Note 12) Deferred income tax assets (Note 6) Intangible assets (Note 11) Goodwill Other assets (Note 13) Total assets Liabilities Current liabilities: Shor-term notes payable (Notes 16, 18) Long-term debt payable within one year (Notes 16, 17, 18) Accounts payable and other current liabilities (Note 14) Due to related paries (Note 28) Long-term liabilities: Long-term debt (Notes 16, 17) Regulatory liabilities (Note 12) Deferred income tax liabilities (Note 6) Other long-term liabilities (Note 15) Total liabilities Contingencies and Commitments (Notes 30, 31) Subsequent Events (Note 33) Noncontrolling interest subject to redemption (Note 27) Equity Common shares (Note 23) Additional paid-in capital (Note 26) Retained earnings Accumulated other comprehensive income (loss) Hydro One shareholders’ equity Noncontrolling interest (Note 27) Total equity See accompanying notes to Consolidated Financial Statements. On behalf of the Board of Directors: Timothy Hodgson Chair Stacey Mowbray Chair, Audit Commitee 530 767 282 281 1,860 25,077 540 699 284 303 1,826 23,842 2,964 3,561 114 608 373 461 4,520 31,457 1,374 733 1,274 271 3,652 13,030 1,123 715 1,545 16,413 20,065 118 570 373 93 4,715 30,383 1,045 603 1,064 266 2,978 13,017 362 367 2,683 16,429 19,407 20 20 5,699 34 5,562 11 11,306 66 11,372 31,457 5,688 38 5,174 (12) 10,888 68 10,956 30,383 53 Hydro One Limited Annual Report 2022 Consolidated Statements of Changes in Equity For the years ended December 31, 2022 and 2021 Year ended December 31, 2022 (millions of Canadian dollars) January 1, 2022 Net income Other comprehensive income (Note 7) Distributions to noncontrolling interest (Note 27) Dividends on common shares (Note 24) Common shares issued Stock-based compensation December 31, 2022 Year ended December 31, 2021 (millions of Canadian dollars) January 1, 2021 Net income Other comprehensive income (Note 7) Distributions to noncontrolling interest (Note 27) Dividends on common shares (Note 24) Common shares issued Stock-based compensation December 31, 2021 See accompanying notes to Consolidated Financial Statements. Additional Paid-in Capital 38 — — — — (8) 4 34 Accumulated Other Comprehensive Income Hydro One Shareholders’ Equity Non- controlling Interest (Note 27) Total Equity (12) 10,888 68 10,956 — 23 — — — — 1,050 23 — (662) 3 4 6 — (8) — — — 1,056 23 (8) (662) 3 4 Retained Earnings 5,174 1,050 — — (662) — — 5,562 11 11,306 66 11,372 Additional Paid-in Capital 47 — — — — (10) 1 38 Retained Earnings 4,838 965 — — (629) — — 5,174 Accumulated Other Comprehensive Loss (29) — 17 — — — — Hydro One Shareholders’ Equity 10,534 965 17 — (629) — 1 Non- controlling Interest (Note 27) 72 6 — (10) — — — Total Equity 10,606 971 17 (10) (629) — 1 (12) 10,888 68 10,956 Common Shares 5,688 — — — — 11 — 5,699 Common Shares 5,678 — — — — 10 — 5,688 54 Hydro One Limited Annual Report 2022 Consolidated Statements of Cash Flows For the years ended December 31, 2022 and 2021 Year ended December 31 (millions of Canadian dollars) 2022 2021 Operating activities Net income Environmental expenditures Adjustments for: Depreciation and amorization (Note 4) Regulatory assets and liabilities Deferred income tax expense Other Changes in non-cash balances related to operations (Note 29) Net cash from operating activities Financing activities Long-term debt issued Long-term debt repaid Shor-term notes issued Shor-term notes repaid Dividends paid (Note 24) Distributions paid to noncontrolling interest Common shares issued Costs to obtain fnancing Net cash used in fnancing activities Investing activities Capital expenditures (Note 29) Propery, plant and equipment Intangible assets Capital contributions received (Note 29) Other Net cash used in investing activities Net change in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year See accompanying notes to Consolidated Financial Statements. 1,058 (33) 831 44 260 39 61 973 (30) 815 70 154 67 100 2,260 2,149 750 (603) 6,335 (6,000) (662) (10) 3 (10) (197) (1,966) (120) 12 1 900 (804) 4,150 (3,905) (629) (8) — (7) (303) (1,928) (143) 14 (6) (2,073) (2,063) (10) 540 530 (217) 757 540 55 Hydro One Limited Annual Report 2022 Notes to Consolidated Financial Statements For the years ended December 31, 2022 and 2021 1. DESCRIPTION OF THE BUSINESS Hydro One Limited (Hydro One or the Company) was incorporated on August 31, 2015, under the Business Corporations Act (Ontario). On October 31, 2015, the Company acquired Hydro One Inc., a company previously wholly-owned by the Province of Ontario (Province). At December 31, 2022, the Province held approximately 47.2% (2021 - 47.2%) of the common shares of Hydro One. The principal businesses of Hydro One are the transmission and distribution of electricity to customers within Ontario. Rate Seting The Company's transmission business consists of the transmission system operated by Hydro One Inc.’s subsidiaries, which include 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 Parnership (B2M LP), and an approximately 55% interest in Niagara Reinforcement Limited Parnership (NRLP). Hydro One’s distribution business consists of the distribution systems operated by Hydro One Inc.'s subsidiaries, Hydro One Networks, and Hydro One Remote Communities Inc. (Hydro One Remotes). Transmission On March 7, 2019, the Ontario Energy Board (OEB) issued its reconsideration decision (DTA Decision) with respect to Hydro One's rate-seting treatment of the benefts 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 Cour 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 (DTA Implementation Decision) regarding the recovery of the DTA amounts allocated to ratepayers for the 2017 to 2022 period. See Note 12 - 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 fnal 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 seting the fnal 2021 UTRs efective 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 fled 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 fled 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 efective January 1, 2020. On April 9, 2020, fnal OEB approval was received. 56 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. On August 5, 2021 Hydro One Networks fled a custom joint rate application (JRAP) for 2023-2027 transmission and distribution rates. On November 29, 2022 the OEB approved the application and issued its rate order for 2023-2027 transmission rates approving revenue requirement for Hydro One Networks' Transmission Business of $1,952 million for 2023, $2,073 million for 2024, $2,168 million for 2025, $2,277 million for 2026 and $2,362 million for 2027. Distribution In March 2017, Hydro One Networks fled 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 fled its draft rate order refecting 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 confrming these updated revenue requirements. On August 28, 2017, Hydro One Remotes fled a distribution rate application for 2018-2022. On April 12, 2018 the OEB approved Hydro One Remotes’ 2018 revenue requirement of $54 million efective May 1, 2018, with a price cap escalator index for 2019-2022. On November 3, 2020, Hydro One Remote Communities fled an application with the OEB seeking approval for a 2% increase to 2020 base rates, efective May 1, 2021, which was subsequently updated to 2.2% in accordance with the OEB’s 2021 infation 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 efective May 1, 2021. On November 3, 2021, Hydro One Remotes fled an application with the OEB seeking approval for a 2.2% increase to 2021 base rates, efective May 1, 2022. The application was subsequently updated to request a 3.3% increase to 2021 base rates to refect the OEB’s annually updated infation parameters for electricity distributors for 2022. On March 24, 2022, the OEB approved the application for rates and other charges which became efective on May 1, 2022. On August 5, 2021 Hydro One Networks fled a JRAP for 2023-2027 transmission and distribution rates. On November 29, 2022, as par of the approval of the JRAP application, the OEB issued its rate order for 2023-2027 distribution rates approving revenue requirement for Hydro One Networks' Distribution Business of $1,727 million for 2023, $1,813 million for 2024, $1,886 million for 2025, $1,985 million for 2026 and $2,071 million for 2027. 2. SIGNIFICANT ACCOUNTING POLICIES Basis of Consolidation and Presentation These consolidated fnancial 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. Hydro One Limited Annual Report 2022 Use of Management Estimates The preparation of fnancial statements requires management to make estimates and assumptions that afect the repored amounts of assets and liabilities at the date of the fnancial statements and the repored amounts of revenues, expenses, gains and losses during the reporing 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. Signifcant estimates relate to unbilled revenues, regulatory assets and regulatory liabilities, environmental liabilities, pension benefts, and post-retirement and post-employment benefts. Actual results may difer signifcantly from these estimates. Regulatory Accounting The OEB has the general power to include or exclude revenues, costs, gains or losses in the rates of a specifc 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 in accordance with Financial Accounting Standards Board Accounting Standard Codifcation Topic 980, Regulated Operations. within the Company's regulated business, giving rise to the recognition of regulatory assets and liabilities. The Company’s regulatory assets represent cerain 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 seting 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 seting future rates, the appropriate carrying amount would be refected 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 shor-term investments with an original maturity of three months or less. Revenue Recognition Transmission revenues predominantly consist of transmission tarifs, 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 tarifs are designed to recover revenues necessary to suppor the Company's transmission system with sufcient capacity to accommodate the maximum expected demand which is infuenced by weather and economic conditions. Transmission revenues are recognized as electricity is transmited and delivered to customers. Distribution revenues atributable 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 afected 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 refects 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 on an undiscounted basis. Loss rates applied to the accounts receivable balances are based on historical overdue balances, customer payments and write-ofs, which may be furher supplemented from time to time to refect management's best estimate of the loss. Accounts receivable are writen-of against the allowance when they are deemed uncollectible. The allowance for doubtful accounts is afected by changes in volume, prices and economic conditions. Noncontrolling interest Noncontrolling interest represents the porion of equity ownership in subsidiaries that is not atributable to shareholders of Hydro One. Noncontrolling interest is initially recorded at fair value and subsequently the amount is adjusted for the proporionate share of net income and other comprehensive income (OCI) or other comprehensive loss (OCL) atributable to the noncontrolling interest and any dividends or distributions paid to the noncontrolling interest. If a transaction results in the acquisition of all, or par, 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 benefts associated with income tax positions are recorded only when the more-likely-than-not recognition threshold is satisfed and are measured at the largest amount of beneft that has a greater than 50% likelihood of being realized upon setlement. 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. Signifcant management judgment is required to determine recognition thresholds and the related amount of tax benefts 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. 57 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 Deferred Income Taxes Deferred income tax assets and liabilities are recognized on all temporary diferences 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 setled 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 ofset 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 beneft will be realized. Materials and Supplies Materials and supplies represent consumables, small spare pars and construction materials held for internal construction and maintenance of propery, plant and equipment. These assets are carried at average cost less any impairments recorded. Propery, Plant and Equipment Propery, plant and equipment is recorded at original cost, net of customer contributions, and any accumulated impairment losses. The cost of additions, including beterments and replacement asset components, is included on the consolidated balance sheets as propery, plant and equipment. The original cost of propery, plant and equipment includes direct materials, direct labour (including employee benefts), contracted services, atributable capitalized fnancing costs, asset retirement costs, and direct and indirect overheads that are related to the capital project or program. Indirect overheads include a porion of corporate costs such as fnance, treasury, human resources, and information technology. Overhead costs, including corporate functions and feld services costs, are capitalized on a fully allocated basis, consistent with an OEB-approved methodology. Propery, plant and equipment in service consists of transmission, distribution, communication, administration and service assets and land easements. Propery, plant and equipment also includes future use assets, such as land, major components and spare pars, 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, suppor structures, foundations, insulators, connecting hardware and grounding systems, and assets used to step up the voltage of electricity from generating 58 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 fbre 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, transpor and work equipment, tools and other minor assets. Easements Easements include a statutory easement for the use of transmission corridor and related abuting lands pursuant to Par IX.1 of the Electricity Act, 1998 (Ontario) (Electricity Act), as well as other land rights for occupation. Intangible Assets Intangible assets separately acquired or internally developed are measured on initial recognition at cost, which comprises purchased software, direct labour (including employee benefts), consulting, engineering, overheads and atributable capitalized fnancing charges. Following initial recognition, intangible assets are carried at cost, net of any accumulated amorization and accumulated impairment losses. The Company’s intangible assets primarily represent major computer applications. Capitalized Financing Costs Capitalized fnancing costs represent interest costs atributable to the construction of propery, plant and equipment or development of intangible assets. The fnancing cost of atributable borrowed funds is capitalized as par of the acquisition cost of such assets. The capitalized fnancing costs are a reduction of fnancing charges recognized in the consolidated statements of operations and comprehensive income. Capitalized fnancing costs are calculated using the Company’s weighted average efective 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 Amorization The cost of propery, plant and equipment and intangible assets is depreciated or amorized on a straight-line basis based on the estimated remaining service life of each asset category, except for transpor and work equipment, which is depreciated on a declining balance basis. The Company periodically initiates an external independent review of its propery, plant and equipment and intangible asset depreciation and amorization rates, as required by the OEB. Any changes arising from OEB approval of such a review are implemented on a remaining service Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 life basis, consistent with their inclusion in electricity rates. The most recent reviews resulted in changes to rates efective 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 amorization rates for the various classes of assets is included below: Propery, plant and equipment: Transmission Distribution Communication Administration and service Intangible assets In accordance with group depreciation practices, the original cost of propery, 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 refected in results of operations. Where a disposition of propery, 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 identifable 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 perorms a qualitative assessment to determine whether it is more likely than not that the fair value of the applicable reporing 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 reporing unit is less than its carrying value, no furher 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 reporing unit is less than its carrying amount, a quantitative goodwill impairment assessment is perormed. The quantitative assessment compares the fair value of the applicable reporing 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 perormed as at September 30, 2022 and with no signifcant events since, the Company has concluded that goodwill was not impaired at December 31, 2022. 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 fows expected to result from the use and eventual disposition of the asset. When Average Service Life Range Average Rate 55 years 46 years 16 years 25 years 10 years 1% - 3% 1% - 7% 1% - 15% 1% - 20% 10% 2% 2% 5% 3% 7% 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 fows. If the carrying value of the long-lived asset is not recoverable based on the estimated future undiscounted cash fows, 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 par, or if such a disallowance is judged to be probable. Hydro One regularly monitors the assets of its unregulated subsidiary Acronym Solutions Inc. for indications of impairment. 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-pary comparable sales for reference and internally developed discounted cash fow analysis. Signifcant 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 fows related to these long-lived assets. As at December 31, 2022 and 2021, no asset impairment had been recorded for assets within either the Company’s regulated or unregulated businesses. Costs of Arranging Debt Financing For fnancial liabilities classifed as other than held-for-trading, the Company defers the external transaction costs related to obtaining fnancing and presents such amounts net of related debt on the consolidated balance sheets. Deferred issuance costs are amorized over the contractual life of the related debt on an efective-interest basis and the amorization is included within fnancing charges in the consolidated statements of operations and comprehensive income. Transaction costs for items classifed as held-for-trading are expensed immediately. Comprehensive Income Comprehensive income is comprised of net income and OCI. Hydro One presents net income and OCI in a single continuous consolidated statement of operations and comprehensive income. 59 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 Financial Assets and Liabilities All fnancial assets and liabilities are classifed into one of the following fve categories: held-to-maturity; loans and receivables; held-for- trading; other liabilities; or available-for-sale. Financial assets and liabilities classifed as held-for-trading are measured at fair value. All other fnancial assets and liabilities are measured at amorized cost. Accounts receivable and amounts due from related paries are classifed as loans and receivables. The Company considers the carrying amounts of accounts receivable and amounts due from related paries to be reasonable estimates of fair value because of the shor 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 writen-of against the allowance when they are deemed uncollectible. All fnancial instrument transactions are recorded at trade date. The Company determines the classifcation of its fnancial assets and liabilities at the date of initial recognition. The Company designates cerain of its fnancial assets and liabilities to be held at fair value, when it is consistent with the Company’s risk management policy disclosed in Note 17 - Fair Value of Financial Instruments and Risk Management. 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 defnition 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, 2022 or 2021. 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 specifc risk exposure being hedged, and the method for assessing the efectiveness of the hedging relationship. The Company also assesses, both at the inception of the hedge and on a quarerly basis, whether the hedging instruments are efective in ofseting changes in fair values or cash fows of the hedged items. 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. Cerain 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 par of economic hedging relationships. The accounting guidance for derivative instruments requires the recognition of all derivative instruments not identifed 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 fow hedges or fair value hedges. The Company ofsets fair value amounts recognized on its consolidated balance sheets related to derivative instruments executed with the same counterpary under the same master neting agreement. For derivative instruments that qualify for hedge accounting and which are designated as cash fow hedges, any unrealized gain or loss, net of tax, is recorded as a component of accumulated OCI (AOCI). Amounts in AOCI are reclassifed to results of operations in the same period or periods during which the hedged transaction afects results of operations and presented in the same line item as the earnings efect of the hedged item. Any gains or losses on the derivative instrument that represent hedge components excluded from the assessment of efectiveness 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 ofseting 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 refected in results of operations. Employee Future Benefts Employee future benefts provided by Hydro One include pension, post- retirement and post-employment benefts. The costs of the Company’s pension, post-retirement and post-employment beneft plans are recorded over the periods during which employees render service. The Company recognizes the funded status of its defned beneft 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 reporing year. Defned beneft pension, post-retirement and post-employment plans are considered to be underunded when the projected beneft obligation (PBO) exceeds the fair value of the plan assets. Liabilities are recognized on the consolidated balance sheets for any net underunded PBO. The net underunded PBO may be disclosed as a current liability, long-term liability, or both. The current porion is the amount by which the actuarial present value of benefts included in the beneft 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 overunded PBO. The post- retirement and post-employment beneft plans are unfunded because there are no related plan assets. Hydro One recognizes its contributions to the defned contribution pension plan (DC Plan) as pension expense, with a porion being capitalized as par 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. Defned Beneft Pension Defned beneft pension costs are recorded on an accrual basis for fnancial reporing purposes. Pension costs are actuarially determined using the projected beneft method prorated on service and are based on assumptions that refect management’s best estimate of the efect of future events, including future compensation increases. Past service costs from plan amendments and all actuarial gains and losses are amorized on a straight-line basis over the expected average remaining 60 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022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 and unlisted 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 or liability equal to the net underunded or overunded PBO for its pension plan. Defned beneft pension costs are atributed to labour costs on a cash basis and a porion directly related to acquisition and development of capital assets is capitalized as par of the cost of propery, plant and equipment and intangible assets. The remaining defned beneft pension costs are charged to results of operations (OM&A costs). Post-retirement and Post-employment Benefts Post-retirement and post-employment benefts are recorded and included in rates on an accrual basis. Costs are determined by independent actuaries using the projected beneft method prorated on service and based on assumptions that refect management’s best estimates. For post-retirement benefts, past service costs from plan amendments are amorized to results of operations based on the expected average remaining service period. For post-retirement benefts, all actuarial gains or losses are deferred using the “corridor” approach. The amount calculated above the “corridor” is amorized 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 beneft obligation is remeasured to its fair value at each year end based on an annual actuarial repor, with an ofset to the associated regulatory account, to the extent of the remeasurement adjustment. 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 beneft obligation is remeasured to its fair value at each year end based on an annual actuarial repor, with an ofset to the associated regulatory account, to the extent of the remeasurement adjustment. All post-retirement and post-employment beneft costs are atributed to labour costs and are either charged to results of operations (OM&A costs) or capitalized as par of the cost of propery, plant and equipment and intangible assets (applies to the service cost component of beneft cost) and to regulatory assets for all other components of the beneft 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 the grant date common share price. The costs are recognized in the fnancial statements using the graded- vesting atribution method for share grant plans that have both a perormance 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. Foreitures 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 reporing date until setlement, recognizing compensation expense over the vesting period on a straight-line basis. The fair value of the DSU liability is based on the Company’s common share closing price at the end of each reporing 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 the grant date common share price. The costs are recognized over the vesting period using the straight-line atribution 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. Foreitures are recognized as they occur. Long-term Incentive Plan (LTIP) The Company measures the awards issued under its LTIP, at fair value based on the grant date common share price. The related compensation expense is recognized over the vesting period on a straight-line basis. Foreitures are recognized as they occur. Loss Contingencies Hydro One is involved in cerain legal and environmental maters 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 beter 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 paries, such as federal, provincial and local cours or regulators. Contingent liabilities are often resolved over long periods of time. Amounts recorded in the Consolidated Financial Statements may difer from the actual outcome once the contingency is resolved. Such diferences could have a material impact on future results of operations, fnancial position and cash fows of the Company. Provisions are based upon current estimates and are subject to greater uncerainty where the projection period is lengthy. A signifcant upward or downward trend in the number of claims fled, 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 setlement could also change the estimated liability. Legal fees are expensed as incurred. 61 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022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 setled in an arm’s length transaction with a third pary. As the Company anticipates that the future expenditures will continue to be recoverable in future rates, an ofseting regulatory asset has been recorded to refect 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 perorm a future asset retirement activity but where the timing and/or method of setlement 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 perorm the asset retirement activity is unconditional even though uncerainty exists about the timing and/or method of setlement. This uncerainty 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. 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 cerain 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 reporing 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 amorization of the ROU assets is calculated as the diference between the lease expense and the accretion of interest, which is calculated using the efective interest method. Lease modifcations and impairments are assessed at each reporing 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 ASU 2020-06 2020 August The update addresses the complexity associated with applying US GAAP for cerain fnancial instruments with characteristics of liabilities and equity. The amendments reduce the number of accounting models for converible debt instruments and converible preferred stock. Efective date Impact on Hydro One January 1, 2022 No impact upon adoption ASU 2021-05 2021 July The amendments are intended to align lease classifcation requirements for lessors under Topic 842 with Topic 840's practice. January 1, 2022 No impact upon adoption ASU 2021-10 2021 November The update addresses diversity on the recognition, measurement, presentation and disclosure of government assistance received by business entities. January 1, 2022 No impact upon adoption 62 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 Recently Issued Accounting Guidance Not Yet Adopted Guidance Date issued Description ASU 2021-08 October 2021 The amendments address how to determine whether a contractual obligation represents a liability to be recognized by the acquirer in a business combination. ASU 2022-02 March 2022 The amendments eliminate the troubled debt restructuring (TDR) accounting model for entities that have adopted Topic 326 Financial Instrument – Credit Losses and modifes the guidance on vintage disclosure requirements to require disclosure of current-period gross write-ofs by year of origination. Efective date Anticipated Impact on Hydro One January 1, 2023 No expected impact upon adoption January 1, 2023 Upon adoption, the Company will disclose the current period gross write-ofs by year of origination relating to its accounts receivable 4. DEPRECIATION, AMORTIZATION AND ASSET REMOVAL COSTS Year ended December 31 (millions of dollars) Depreciation of propery, plant and equipment1 Amorization of intangible assets Amorization of regulatory assets Depreciation and amorization Asset removal costs 1 Includes gain on sale of assets of $39 million (2021 - $8 million). 5. FINANCING CHARGES Year ended December 31 (millions of dollars) Interest on long-term debt Interest on shor-term notes Interest on regulatory accounts Realized (gain) loss on cash fow hedges (interest-rate swap agreements) (Notes 7, 17) Other Less: Interest capitalized on construction and development in progress DTA carrying charges Interest earned on cash and cash equivalents 2022 717 81 33 831 135 966 2022 505 27 8 (3) 17 (63) 2 (7) 486 2021 709 76 30 815 107 922 2021 505 1 5 12 13 (60) (12) (3) 461 6. 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 ofset 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 ofset to deferred income tax expense arising from temporary diferences to be recovered from, or refunded to, customers in future rates. Thus, the Company’s income tax expense or recovery difers from the amount that would have been recorded using the combined Canadian federal and Ontario statutory income tax rate. 63 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 The reconciliation between the statutory and the efective tax rates is provided as follows: Year ended December 31 (millions of dollars) Income before income tax expense Income tax expense at statutory rate of 26.5% (2021 - 26.5%) Increase (decrease) resulting from: Net temporary diferences recoverable in future rates charged to customers: Impact of DTA Implementation Decision1 Capital cost allowance in excess of depreciation and amorization Overheads capitalized for accounting but deducted for tax purposes Interest capitalized for accounting but deducted for tax purposes Pension and post-retirement beneft contributions in excess of pension expense Environmental expenditures Net temporary diferences atributable to regulated business Net permanent diferences Total income tax expense Efective income tax rate 2022 1,346 357 96 (90) (35) (17) (11) (9) (66) (3) 288 21.4% 2021 1,151 305 9 (81) (22) (16) (9) (8) (127) — 178 15.5% 1 Pursuant to the DTA Implementation Decision, the impact represents the amounts recovered from ratepayers in respect of tax deductions previously shared with the ratepayers. See Note 12 - Regulatory Assets and Liabilities. The major components of income tax expense are as follows: Year ended December 31 (millions of dollars) Current income tax expense Deferred income tax expense Total income tax expense 2022 36 252 288 2021 30 148 178 Deferred Income Tax Assets and Liabilities Deferred income tax assets and liabilities refect the future tax consequences atributable to temporary diferences between the tax bases and the fnancial 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 atributable to the Company’s regulated business are recognized with a corresponding ofset in deferred income tax regulatory assets and liabilities to refect the anticipated recovery or repayment of these balances in the future electricity rates. At December 31, 2022 and 2021, deferred income tax assets and liabilities consisted of the following: As at December 31 (millions of dollars) Deferred income tax assets Post-retirement and post-employment benefts expense in excess of cash payments Pension obligations Regulatory assets and liabilities Non-capital losses Non-depreciable capital propery Tax credit carryforwards Investment in subsidiaries Environmental expenditures Less: valuation allowance Total deferred income tax assets Deferred income tax liabilities Capital cost allowance in excess of depreciation and amorization Pension assets Regulatory assets and liabilities Other Total deferred income tax liabilities Net deferred income tax liabilities 64 2022 2021 506 — 301 245 273 182 102 34 1,643 (381) 1,262 1,728 129 — 6 1,863 (601) 659 257 — 265 273 148 99 44 1,745 (378) 1,367 1,304 — 308 4 1,616 (249) Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 The net deferred income tax liabilities are presented on the consolidated balance sheets as follows: As at December 31 (millions of dollars) Long-term: Deferred income tax assets Deferred income tax liabilities Net deferred income tax liabilities 2022 2021 114 (715) (601) 118 (367) (249) The valuation allowance for deferred tax assets as at December 31, 2022 was $381 million (2021 - $378 million). The valuation allowance primarily relates to temporary diferences for non-depreciable assets and investments in subsidiaries. As of December 31, 2022 and 2021, 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) 2035 2036 2037 2038 2039 2040 2041 2042 Total losses 7. OTHER COMPREHENSIVE INCOME Year ended December 31 (millions of dollars) Gain on cash fow hedges (interest-rate swap agreements) (Notes 5, 17)1 Gain on transfer of other post-employment benefts (OPEB) (Note 19) Other 1 Includes $2 million after-tax realized gain (2021 - $8 million loss) and $3 million before-tax (2021 - $12 million loss) on cash fow hedges reclassifed to fnancing charges. 8. ACCOUNTS RECEIVABLE As at December 31 (millions of dollars) Accounts receivable - billed Accounts receivable - unbilled Accounts receivable, gross Allowance for doubtful accounts Accounts receivable, net 2022 357 473 830 (63) 767 The following table shows the movements in the allowance for doubtful accounts for the years ended December 31, 2022 and 2021: Year ended December 31 (millions of dollars) Allowance for doubtful accounts – beginning Write-ofs Additions to allowance for doubtful accounts Allowance for doubtful accounts – ending 2022 (56) 25 (32) (63) 2022 1 138 227 230 228 18 26 37 905 2021 1 483 172 95 199 18 29 — 997 2022 2021 10 2 11 23 12 — 5 17 2021 346 409 755 (56) 699 2021 (46) 15 (25) (56) 65 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 9. OTHER CURRENT ASSETS As at December 31 (millions of dollars) Regulatory assets (Note 12) Prepaid expenses and other assets Materials and supplies Derivative assets (Note 17) 2022 189 62 25 5 281 10. PROPERTY, PLANT AND EQUIPMENT As at December 31, 2022 (millions of dollars) Propery, Plant and Equipment Accumulated Depreciation Construction in Progress Transmission Distribution Communication Administration and service Easements 20,162 12,707 1,528 2,120 701 37,218 6,641 4,380 1,197 1,065 88 938 107 100 85 — 2021 226 55 22 — 303 Total 14,459 8,434 431 1,140 613 As at December 31, 2021 (millions of dollars) Propery, Plant and Equipment Accumulated Depreciation Transmission Distribution Communication Administration and service Easements 18,970 12,045 1,466 1,963 679 35,123 13,371 1,230 25,077 Construction in Progress 1,183 95 61 78 — Total 13,846 7,977 405 1,019 595 6,307 4,163 1,122 1,022 84 12,698 1,417 23,842 Financing charges capitalized on propery, plant and equipment under construction were $57 million in 2022 (2021 - $57 million). 11. INTANGIBLE ASSETS As at December 31, 2022 (millions of dollars) Computer applications software Other As at December 31, 2021 (millions of dollars) Computer applications software Other Intangible Assets 1,178 6 1,184 Intangible Assets 1,097 5 1,102 Accumulated Amorization Development in Progress 738 5 743 167 — 167 Accumulated Amorization Development in Progress 657 5 662 130 — 130 Total 607 1 608 Total 570 — 570 Financing charges capitalized to intangible assets under development were $6 million in 2022 (2021 - $3 million). The estimated annual amorization expense for intangible assets is as follows: 2023 - $74 million; 2024 - $64 million; 2025 - $62 million; 2026 - $59 million; and 2027 - $53 million. 66 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 12. REGULATORY ASSETS AND LIABILITIES Regulatory assets and liabilities arise as a result of the rate-seting process. Hydro One has recorded the following regulatory assets and liabilities: As at December 31 (millions of dollars) Regulatory assets: Deferred income tax regulatory asset Post-retirement and post-employment benefts - non-service cost Environmental Deferred tax asset sharing Stock-based compensation Conservation and Demand Management (CDM) variance Rural and Remote Rate Protection (RRRP) variance Pension beneft regulatory asset Foregone revenue deferral Other Total regulatory assets Less: current porion Regulatory liabilities: Post-retirement and post-employment benefts Pension beneft regulatory liability Tax rule changes variance Earnings sharing mechanism deferral Retail setlement variance account (RSVA) External revenue variance Asset removal costs cumulative variance Pension cost diferential Capitalized overhead tax variance Green energy expenditure variance Deferred income tax regulatory liability Other Total regulatory liabilities Less: current porion Deferred Income Tax Regulatory Asset and Liability Deferred income taxes are recognized on temporary diferences between the carrying amount of assets and liabilities in the fnancial 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 fow through the rate-seting 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 2022 income tax expense would have been higher by approximately $66 million (2021 - $127 million). The $66 million (2021 - $127 million) impact is ofset against deferred income tax regulatory asset and liability, deferred tax asset sharing, and post-retirement and post- employment benefts - non-service cost. 2022 2021 2,724 141 93 73 34 25 25 — — 38 3,153 (189) 2,964 506 358 100 75 53 50 41 26 16 5 4 28 1,262 (139) 1,123 2,509 125 122 204 38 8 10 713 25 33 3,787 (226) 3,561 33 — 86 42 58 52 36 30 — 13 4 18 372 (10) 362 Post-Retirement and Post-Employment Benefts - Non-Service Cost Hydro One has recorded a regulatory asset relating to the future recovery of its post-retirement and post-employment benefts other than service costs. The regulatory asset includes the applicable tax impact to refect taxes payable. Prior to adoption of ASU 2017-07 in 2018, these amounts were capitalized to propery, plant and equipment and intangible assets. As par 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. Furhermore, Hydro One Networks distribution continued to record the non-service cost component of OPEBs in this account until the end of 2022. As par of the JRAP Decision received in November 2022, the OEB approved the disposition of Hydro One Networks' transmission and distribution account balances as at December 31, 2020, including accrued interest, which will be recovered from ratepayers over a one- year period ending December 31, 2023 and a three-year period ending December 31, 2025, respectively. 67 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 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-seting process. The Company has recorded an equivalent amount as a regulatory asset. In 2022, the revaluation adjustment increased the environmental regulatory asset by $3 million (2021 - $18 million) to refect changes in the recoverable porion of the Company’s PCB and LAR environmental liabilities. The environmental regulatory asset is amorized to results of operations based on the patern of actual expenditures incurred and charged to environmental liabilities. The OEB has the discretion to examine and assess the prudence 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, 2022 OM&A expenses would have been higher by $3 million (2021 - higher by $18 million). In addition, 2022 amorization expense would have been lower by $33 million (2021 - lower by $30 million), and 2022 fnancing charges would have been higher by $1 million (2021 - higher by $1 million). Deferred Tax Asset Sharing On October 2, 2020, the OEB issued a procedural order to implement the direction of the Ontario Divisional Cour 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 furher amounts of future tax savings fowing to customers. As at December 31, 2022, Hydro One has a regulatory asset of $73 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 $73 million (2021 - $204 million) consists of $24 million (2021 - $72 million) and $49 million (2021 - $132 million) for Hydro One Networks’ distribution and transmission segments, respectively. As a result of the OEB’s procedural order, the $73 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 6 months. 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-seting process. In the absence of rate- regulated accounting, OM&A expenses would be lower by $2 million (2021 - $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. 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. In April 2020, the 2017 balance, plus accrued interest through December 31, 2018 was approved for disposition over a three- year period that ended on December 31, 2022. CDM variance amounts for 2018 and 2019 were calculated and proposed for disposition in the Hydro One Networks JRAP application. In November 2022, the amount as at December 31, 2020, including accrued interest, was approved for disposition by the OEB. The amount was approved to be recovered from ratepayers over a one-year period ending December 31, 2023. Since CDM revenues qualify as a Type A program under the Alternative Revenue Program, $23 million was recognized in transmission revenues. RRRP Variance Hydro One Remotes receives RRRP amounts from the Independent Electricity System Operator (IESO). At December 31, 2022, the Company recognized a regulatory asset representing the amounts required to achieve breakeven net income, as regulated under the cost recovery model, in excess of cumulative RRRP amounts received. In 2022, RRRP amounts received were lower (2021 - lower) than amounts required to achieve breakeven net income, and as such, the regulatory asset was increased by $15 million (2021 - $4 million). In the absence of rate-regulated accounting, 2022 revenue would have been lower by $15 million (2021 - lower by $4 million). Foregone Revenue Deferral As at December 31, 2021, the foregone revenue deferral account was made up of the remaining balance refecting Hydro One Networks transmission business' foregone revenue, based on the diference between approved 2020 UTRs and interim 2020 UTRs, which was approved by the OEB to be collected from ratepayers over a two-year period that ended on December 31, 2022. Post-Retirement and Post-Employment Benefts In accordance with OEB rate orders, post-retirement and post- employment benefts costs are recovered on an accrual basis. The Company recognizes the net unfunded or overunded status of post- retirement and post-employment obligations on the consolidated balance sheets with an incremental ofset 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 beneft costs will be recovered or returned in the future through the rate-seting process. The post-retirement and post-employment beneft obligation is remeasured to the present value of the actuarially determined beneft obligation at each year end based on an annual actuarial repor, with an ofset 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, 2022 OCI would have been higher by $473 million (2021 - OCI higher by $94 million). 68 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022Pension Beneft Regulatory Asset / Liability In accordance with OEB rate orders, pension costs recovered on a cash basis as employer contributions are paid to the pension fund in accordance with the Pension Benefts Act (Ontario). The Company recognizes the net unfunded or overunded status of pension obligations on the consolidated balance sheets with an ofset to the associated regulatory asset or liability. The pension beneft obligation is remeasured to the present value of the actuarially determined beneft obligation at each year end based on an annual actuarial repor, with an ofset to the associated regulatory asset or liability, to the extent of the remeasurement adjustment. In the absence of rate-regulated accounting, OCI would have been higher by $1,035 million (2021 - OCI higher by $1,017 million) and OM&A expenses would have been lower by $36 million (2021 - higher by $132 million). Tax Rule Changes Variance The 2019 federal and Ontario budgets (Budgets) provided cerain time-limited investment incentives permiting Hydro One to deduct accelerated capital cost allowance of up to three times the frst-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 quarer of 2019, the OEB directed all Ontario regulated utilities including Hydro One to track the full revenue impact of the tax benefts related to the Accelerated Depreciation rules to ratepayers. The tax beneft 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 beneft of the Accelerated Depreciation; therefore, the revenue subject to refund cannot be recognized. As par of the JRAP Decision received in November 2022, the OEB approved the disposition of Hydro One Networks' transmission and distribution account balances as at December 31, 2020, including accrued interest, which will be returned to ratepayers over a one-year period ending December 31, 2023 and a three-year period ending December 31, 2025, respectively. 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. A similar account was also approved for B2M LP in January 2020, and Hydro One Networks transmission and NRLP in April 2020. HOSSM's account was approved as par of the acquisition decision in October 2016 and became efective in 2022. The balance in the account as at December 31, 2022 mostly relates to Hydro One Networks distribution and transmission. As par of the JRAP Decision received in November 2022, the OEB approved the disposition of Hydro One networks' distribution business' balance as at December 31, 2020, including accrued interest, over a three-year period ending December 31, 2025. RSVA Hydro One has deferred cerain retail setlement variance amounts under the provisions of Aricle 490 of the OEB’s Accounting Procedures Handbook. The RSVA account tracks the diference between the cost of power purchased from the IESO and the cost of power recovered from ratepayers. As par of the JRAP Decision received in November 2022, the OEB approved the disposition of Hydro One networks' distribution business' balance as at December 31, 2020, including accrued interest, over a three-year period ending December 31, 2025. External Revenue Variance The external revenue variance account balance refects the diference between Hydro One Networks' transmission business' actual expor service revenue and external revenues from secondary land use, and the OEB-approved amounts. The account also records the diference between actual net external station maintenance, engineering and construction services revenue, and other external revenue, and the OEB-approved amounts. As par of the JRAP Decision received in November 2022, the OEB approved the disposition of Hydro One networks' transmission business' balance as at December 31, 2020, including accrued interest, over a one-year period ending December 31, 2023. 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 business to record the diference 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 beneft of ratepayers on a cumulative basis over the 2020-2022 rate period. As par of the JRAP Decision received in November 2022, the OEB approved the disposition of Hydro One networks' transmission business' balance as at December 31, 2020, including accrued interest, over a one-year period ending December 31, 2023. Pension Cost Diferential Variances between the pension cost recognized and the cost embedded in rates as par of the rate-seting process for Hydro One Networks' transmission and distribution businesses are recognized as a regulatory asset or regulatory liability, as the case may be. As par of the JRAP Decision received in November 2022, the OEB approved the disposition of Hydro One Networks' transmission and distribution account balances as at December 31, 2020, including accrued interest, which will be returned to ratepayers over a one-year period ending December 31, 2023 and a three-year period ending December 31, 2025, respectively. In the absence of rate-regulated accounting, 2022 revenue would have been lower by $4 million (2021 - higher by $1 million). Capitalized Overhead Tax Variance In November 2022, the OEB approved the establishment of a capitalized overhead tax variance account to capture the diference between the capitalized overheads deducted in calculating the regulatory tax expense included in rates and the actual capitalized overhead costs deducted in Hydro One's tax returns for Hydro One Networks' transmission and distribution businesses for the 2016 to 2027 period. Variance amounts are recognized at the earlier of (i) when the tax year has been audited by the Canada Revenue Agency or (ii) when the taxation year is statute barred. Green Energy Expenditure Variance In April 2010, the OEB requested the establishment of deferral accounts which capture the diference between the revenue recorded on the basis of Green Energy Plan expenditures incurred and the actual recoveries received. 69 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 202213. OTHER LONG-TERM ASSETS As at December 31 (millions of dollars) Deferred pension assets (Note 19) Right-of-Use assets (Note 22) Investments Other long-term assets 14. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES As at December 31 (millions of dollars) Accrued liabilities Accounts payable Regulatory liabilities (Note 12) Accrued interest Environmental liabilities (Note 20) Lease obligations (Note 22) Derivative liabilities (Note 17) 15. OTHER LONG-TERM LIABILITIES As at December 31 (millions of dollars) Post-retirement and post-employment beneft liability (Note 19) Environmental liabilities (Note 20) Lease obligations (Note 22) Asset retirement obligations (Note 21) Pension beneft liability (Note 19) Long-term accounts payable Other long-term liabilities 2022 358 56 35 12 461 2022 683 295 139 120 25 12 — 2021 — 57 22 14 93 2021 619 255 10 124 34 14 8 1,274 1,064 2022 1,376 68 43 28 — — 30 2021 1,800 88 46 14 713 3 19 1,545 2,683 16. DEBT AND CREDIT AGREEMENTS Shor-Term Notes and Credit Facilities Hydro One meets its shor-term liquidity requirements in par through the issuance of commercial paper under Hydro One Inc.’s Commercial Paper Program which has a maximum authorized amount of $2,300 million. These shor-term notes are denominated in Canadian dollars with varying maturities up to 365 days. The Commercial Paper Program is suppored by Hydro One Inc.’s revolving standby credit facilities totaling $2,300 million. At December 31, 2022, Hydro One’s consolidated commited and unsecured credit facilities (Operating Credit Facilities) consisted of the following: (millions of dollars) Hydro One Inc. Revolving standby credit facilities Hydro One Five-year senior, revolving term credit facility Total Maturity June 20271 June 20271 Total Amount 2,300 250 2,550 Amount Drawn — — — 1 On June 1, 2022, the maturity dates for the Operating Credit Facilities were extended from June 2026 to June 2027. 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. Subsidiary Debt Guarantee Hydro One Holdings Limited (HOHL) is an indirect wholly-owned subsidiary of Hydro One that may ofer and sell debt securities. Any debt securities issued by HOHL are fully and unconditionally guaranteed by the Company. At December 31, 2022 and 2021, no debt securities have been issued by HOHL. 70 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 Long-Term Debt The following table presents long-term debt outstanding at December 31, 2022 and 2021: As at December 31 (millions of dollars) 3.20% Series 25 notes due 2022 0.71% Series 48 notes due 2023 2.54% Series 42 notes due 2024 1.76% Series 45 notes due 2025 2.97% Series 40 notes due 2025 2.77% Series 35 notes due 2026 4.91% Series 52 notes due 2028 3.02% Series 43 notes due 2029 2.16% Series 46 notes due 2030 7.35% Debentures due 2030 1.69% Series 49 notes due 2031 2.23% Series 50 notes due 2031 6.93% Series 2 notes due 2032 6.35% Series 4 notes due 2034 5.36% Series 9 notes due 2036 4.89% Series 12 notes due 2037 6.03% Series 17 notes due 2039 5.49% Series 18 notes due 2040 4.39% Series 23 notes due 2041 6.59% Series 5 notes due 2043 4.59% Series 29 notes due 2043 4.17% Series 32 notes due 2044 5.00% Series 11 notes due 2046 3.91% Series 36 notes due 2046 3.72% Series 38 notes due 2047 3.63% Series 41 notes due 2049 2.71% Series 47 notes due 2050 3.64% Series 44 notes due 2050 3.10% Series 51 notes due 2051 4.00% Series 24 notes due 2051 3.79% Series 26 notes due 2062 4.29% Series 30 notes due 2064 Hydro One Inc. long-term debt (a) 1.41% Series 2020-1 notes due 2027 Hydro One long-term debt (b) 6.6% Senior Secured Bonds due 2023 (Principal amount - $95 million) 4.6% Note Payable due 2023 (Principal amount - $36 million) HOSSM long-term debt (c) Add: Net unamorized debt premiums Less: Unamorized deferred debt issuance costs Total long-term debt 2022 2021 — 600 700 400 350 500 750 550 400 400 400 450 500 385 600 400 300 500 300 315 435 350 325 350 450 750 500 250 450 225 310 50 600 600 700 400 350 500 — 550 400 400 400 450 500 385 600 400 300 500 300 315 435 350 325 350 450 750 500 250 450 225 310 50 13,245 13,095 425 425 97 36 133 425 425 105 37 142 13,803 13,662 8 (48) 9 (51) 13,763 13,620 71 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 (a) Hydro One Inc. long-term debt (b) Hydro One long-term debt At December 31, 2022, long-term debt of $13,245 million (2021 - $13,095 million) was outstanding, the majority of which was issued under Hydro One Inc.’s Medium Term Note (MTN) Program. In June 2022, Hydro One Inc. fled a shor 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 July 2024. At December 31, 2022, $3,250 million remained available for issuance under the MTN Program prospectus. In 2022, Hydro One Inc. issued long-term debt totaling $750 million (2021 - $900 million) and repaid long-term debt of $600 million (2021 - $800 million) under the MTN Program. At December 31, 2022, long-term debt of $425 million (2021 - $425 million) was outstanding under Hydro One's shor form base shelf prospectus (Universal Base Shelf Prospectus). On August 15, 2022, Hydro One fled the Universal Base Shelf Prospectus with securities regulatory authorities in Canada to replace a previous prospectus that would otherwise have expired in September 2022. The Universal Base Shelf Prospectus allows Hydro One to ofer, from time to time in one or more public oferings, up to $2,000 million of debt, equity or other securities, or any combination thereof, during the 25-month period ending on September 16, 2024. At December 31, 2022, no securities have been issued under the Universal Base Shelf Prospectus. During the years ended December 31, 2022 and 2021, no long-term debt was issued or repaid. (c) HOSSM long-term debt At December 31, 2022, HOSSM long-term debt of $133 million (2021 - $142 million), with a principal amount of $131 million (2021 - $134 million) was outstanding. In 2022, no long-term debt was issued (2021 - $nil), and $3 million (2021 - $4 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) Current liabilities: Long-term debt payable within one year Long-term liabilities: Long-term debt Total long-term debt 2022 733 13,030 13,763 2021 603 13,017 13,620 Principal and Interest Payments At December 31, 2022, 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) 731 700 750 500 425 3,106 3,450 7,245 13,801 518 513 495 479 473 2,478 1,976 3,663 8,117 (%) 1.7 2.5 2.3 2.8 1.4 2.2 4.1 4.5 3.9 Year 1 Year 2 Year 3 Year 4 Year 5 Years 6-10 Thereafter 72 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 17. FAIR VALUE OF FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Fair value is considered to be the exchange price in an orderly transaction between market paricipants to sell an asset or transfer a liability at the measurement date. The fair value defnition 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. 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 insignifcant porion of the valuation based on unobservable inputs. Hydro One classifes 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 3 inputs are any fair value measurements that include unobservable inputs for the asset or liability for more than an insignifcant porion of the valuation. A Level 3 measurement may be based primarily on Level 2 inputs. 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 sufcient 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 Non-Derivative Financial Assets and Liabilities At December 31, 2022 and 2021, the Company’s carrying amounts of cash and cash equivalents, accounts receivable, due from related paries, shor-term notes payable, accounts payable, and due to related paries are representative of fair value due to the shor-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, 2022 and 2021 are as follows: As at December 31 (millions of dollars) Long-term debt, including current porion Fair Value Measurements of Derivative Instruments Fair Value Hedges At December 31, 2022 and 2021, Hydro One Inc. had no fair value hedges. Cash Flow Hedges At December 31, 2022 and 2021, Hydro One Inc. had a total of $800 million in pay-fxed, receive-foating interest-rate swap 2022 Carrying Value 13,763 2022 Fair Value 13,026 2021 Carrying Value 13,620 2021 Fair Value 15,573 agreements designated as cash fow hedges. These cash fow hedges are intended to ofset the variability of interest rates on the issuances of shor-term commercial paper between January 9, 2020 and March 9, 2023. At December 31, 2022 and 2021, the Company had no derivative instruments classifed as undesignated contracts. Fair Value Hierarchy The fair value hierarchy of fnancial assets and liabilities at December 31, 2022 and 2021 is as follows: As at December 31, 2022 (millions of dollars) Carrying Value Fair Value Level 1 Level 2 Level 3 Assets: Derivative instruments (Note 9) Cash fow hedges, including current porion 5 5 Liabilities: Long-term debt, including current porion 13,763 13,026 — — 5 13,026 — — As at December 31, 2021 (millions of dollars) Carrying Value Fair Value Level 1 Level 2 Level 3 Liabilities: Long-term debt, including current porion 13,620 15,573 Derivative instruments (Note 14) Cash fow hedges, including current porion 8 13,628 8 15,581 — — — 15,573 8 15,581 — — — The fair value of the interest rate swaps designated as cash fow hedges is determined using a discounted cash fow method based on period-end swap yield curves. 73 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 The fair value 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, 2022 or 2021. 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 fuctuations in interest rates, as its regulated return on equity 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 fxed and variable-rate debt to manage the mix of its debt porfolio. The Company also uses derivative fnancial 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 fow hedges, to manage its exposure to shor-term interest rates or to lock in interest-rate levels on forecasted fnancing. A hypothetical 100 basis point increase in interest rates associated with variable-rate debt would not have resulted in a signifcant decrease to Hydro One’s net income for the years ended December 31, 2022 and 2021, respectively. For derivative instruments that are designated and qualify as cash fow hedges, the unrealized gain or loss, after tax, on the derivative instrument is recorded as OCI or OCL and is reclassifed to results of operations in the same period during which the hedged transaction afects results of operations. During the year ended December 31, 2022, a $12 million after-tax unrealized gain (2021 - $4 million loss), $17 million before-tax (2021 - $5 million loss), was recorded in OCI, and a $2 million after-tax realized gain (2021 - $8 million loss), $3 million before-tax (2021 - $12 million loss), was reclassifed to fnancing charges. This resulted in an accumulated other comprehensive income (AOCI) of $4 million related to cash fow hedges at December 31, 2022 (2021 - accumulated other comprehensive loss (AOCL) - $6 million). The Company estimates that the amount of AOCI, after tax, related to cash fow hedges to be reclassifed to results of operations in the next 12 months is $4 million. Actual amounts reclassifed to results of operations depend on the interest rate risk in efect until the derivative contracts mature. For all forecasted transactions, at December 31, 2022, the maximum term over which the Company is hedging exposures to the variability of cash fows is less than three months. The Pension Plan manages market risk by diversifying investments in accordance with the Pension Plan’s Statement of Investment Policies and Procedures. Interest rate risk arises from the possibility that changes in interest rates will afect the fair value of the Pension Plan’s fnancial instruments. In addition, changes in interest rates can also impact discount rates which impact the valuation of the pension and post- retirement and post-employment liabilities. Currency risk is the risk that the value of the Pension Plan’s fnancial instruments will fuctuate 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 fuctuate 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 19 - Pension and Post-Retirement and Post-Employment Benefts for furher details. Credit Risk Financial assets create a risk that a counterpary will fail to discharge an obligation, causing a fnancial loss. At December 31, 2022 and 2021, there were no signifcant concentrations of credit risk with respect to any class of fnancial 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, 2022 and 2021, there was no material accounts receivable balance due from any single customer. At December 31, 2022, the Company’s allowance for doubtful accounts was $63 million (2021 - $56 million). The allowance for doubtful accounts refects the Company's CECL for all accounts receivable balances, which are based on historical overdue balances, customer payments and write-ofs. At December 31, 2022, approximately 4% (2021 - 5%) of the Company’s net accounts receivable were outstanding for more than 60 days. Hydro One manages its counterpary credit risk through various techniques including (i) entering into transactions with highly rated counterparies, (ii) limiting total exposure levels with individual counterparies, (iii) entering into master agreements which enable net setlement and the contractual right of ofset, and (iv) monitoring the fnancial condition of counterparies. The Company monitors current credit exposure to counterparies 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 fnancial instruments result in exposure to credit risk since there is a risk of counterpary default. The maximum credit exposure of derivative contracts, before collateral, is represented by the fair value of contracts in an asset position at the reporing date. At December 31, 2022 and 2021, the counterpary credit risk exposure on the fair value of these interest-rate swap contracts was not material. At December 31, 2022, Hydro One’s credit exposure for all derivative instruments, and applicable payables and receivables, was with two fnancial institutions with investment grade credit ratings as counterparies. The Pension Plan manages its counterpary 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 fnancial institutions and by ensuring that exposure is diversifed across counterparies. 74 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 Liquidity Risk Liquidity risk refers to the Company’s ability to meet its fnancial obligations as they come due. Hydro One meets its shor-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 shor-term liquidity under the commercial paper program, the Operating Credit Facilities, and anticipated levels of funds from operations are expected to be sufcient to fund the Company’s operating requirements. The Company's currently available liquidity is also expected to be sufcient to address any reasonably foreseeable impacts that the COVID-19 pandemic may have on the Company’s cash requirements. In June 2022, Hydro One Inc. fled a shor 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 July 2024. At December 31, 2022, $3,250 million remained available for issuance under the MTN Program prospectus. See Note 33 - Subsequent Events for long-term debt issued under Hydro One Inc.'s MTN Program subsequent to December 31, 2022. On August 15, 2022, Hydro One fled the Universal Base Shelf Prospectus with securities regulatory authorities in Canada to replace a previous prospectus that would otherwise have expired in September 2022. The Universal Base Shelf Prospectus allows Hydro One to ofer, from time to time in one or more public oferings, up to $2,000 million of debt, equity or other securities, or any combination thereof, during the 25-month period ending on September 16, 2024. At December 31, 2022, no securities have been issued under the Universal Base Shelf Prospectus. On November 22, 2022, HOHL fled a shor form base shelf prospectus (US Debt Shelf Prospectus) with securities regulatory authorities in Canada and the US to replace a previous prospectus that would otherwise have expired in January 2023. The US Debt Shelf Prospectus allows HOHL to ofer, from time to time in one or more public oferings, up to US$3,000 million of debt securities, unconditionally guaranteed by Hydro One, expiring in December 2024. At December 31, 2022, no securities have been issued under the US Debt Shelf Prospectus. The Pension Plan’s shor-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. 18. CAPITAL MANAGEMENT The Company’s objectives with respect to its capital structure are to maintain efective access to capital on a long-term basis at reasonable rates, and to deliver appropriate fnancial returns. In order to ensure ongoing access to capital, the Company targets to maintain strong credit quality. At December 31, 2022 and 2021, the Company’s capital structure was as follows: As at December 31 (millions of dollars) Shor-term notes payable Long-term debt payable within one year Less: cash and cash equivalents Long-term debt Common shares Retained earnings Total capital 2022 1,374 733 (530) 1,577 13,030 5,699 5,562 25,868 2021 1,045 603 (540) 1,108 13,017 5,688 5,174 24,987 Hydro One Inc. 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, 2022, the Company was in compliance with all fnancial covenants and limitations associated with the outstanding borrowings and credit facilities. 75 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 19. 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 beneft plans. DC Plan Hydro One established a DC Plan efective 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’s contributions to the DC Plan for the year ended December 31, 2022 were $3 million (2021 - $2 million). Pension Plan, Supplementary Plan, and Post-Retirement and Post-Employment Plans The Pension Plan is a defned beneft contributory plan which covers eligible regular employees of Hydro One and its subsidiaries. The Pension Plan provides benefts 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 staf hired after November 17, 2005, benefts are based on highest fve-year average pensionable earnings. After retirement, pensions are indexed to infation. Membership in the Pension Plan was closed to management employees who were not eligible 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 repors, including valuations perormed at least every three years, and actual or projected levels of pensionable earnings, as applicable. The most recent actuarial valuation was perormed efective December 31, 2021 and fled on September 26, 2022. Total annual cash Pension Plan employer contributions for 2022 were $89 million (2021 - $62 million). Estimated annual Pension Plan employer contributions for the years 2023, 2024, 2025, 2026 and 2027 are approximately $91 million, $101 million, $103 million, $106 million, and $109 million, respectively. The Supplementary Plan provides members of the Pension Plan with benefts 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 beneft obligations on the consolidated balance sheets. Hydro One recognizes the overunded or underunded status of the Pension Plan, and post-retirement and post-employment beneft plans (Plans) as an asset or liability on its consolidated balance sheets, with ofseting regulatory assets and liabilities as appropriate. The overunded beneft asset and underunded beneft 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 beneft obligations is generally recognized over the expected average remaining service period of the employees and using the corridor approach for the post-retirement beneft plan. For post-employment beneft plan, the impact of changes in assumptions are recognized immediately in the net periodic beneft cost. The measurement date for the Plans is December 31. 76 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 The following tables provide the components of the unfunded status of the Company's Plans at December 31, 2022 and 2021: Year ended December 31 (millions of dollars) Change in projected beneft obligation Projected beneft obligation, beginning of year Current service cost Employee contributions Interest cost Benefts paid Net actuarial loss Transfers from other plans1 Projected beneft obligation, end of year Change in plan assets Fair value of plan assets, beginning of year Actual return on plan assets Benefts paid Employer contributions Employee contributions Administrative expenses Fair value of plan assets, end of year Unfunded (funded) status Pension Benefts Post-Retirement and Post-Employment Benefts 2022 2021 2022 2021 9,358 214 63 283 (402) (1,970) — 7,546 8,645 (470) (402) 89 63 (21) 7,904 (358) 9,763 1,863 1,857 240 61 257 (392) (571) — 9,358 8,103 834 (392) 62 61 (23) 8,645 713 63 — 58 (51) (499) 8 1,442 — — (51) 51 — — — 66 — 51 (47) (98) 34 1,863 — — (47) 47 — — — 1,442 1,863 1 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 Hydro One and Inergi LP agreed to transfer the employment of cerain Inergi LP employees (Transferred Employees) to Hydro One Networks. Employees related to the Information Technology Operations, Finance and Accounting, Payroll, Source to Pay, Setlements and cerain Shared Services functions were transferred over a period ending January 1, 2022. The Transferred Employees who were paricipants in the Inergi LP Pension Plan (Inergi Plan) became paricipants in the Hydro One Pension Plan upon transfer to Hydro One Networks. In December 2022, approval was granted by the Financial Services Regulatory Authority of Ontario to transfer the assets and liabilities of the Inergi Plan, however, the assets and liabilities have not yet been transferred to the Hydro One Pension 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 in Q1 or Q2 2023. 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 beneft 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 beneft liability with an ofset to OCL, and cash totaling $27 million was transferred to Hydro One and recorded as an asset with an ofset 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 beneft 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 beneft liability with an ofset to OCL, and cash totaling $6 million was transferred to Hydro One and recorded as an asset with an ofset 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 beneft liability are being recognized in net income over the EARSL of the S2P Employees. The transfer of Finance and Accounting, Payroll and cerain Shared Services functions occurred on January 1, 2022 and the transfer of the OPEB liability of $9 million related to these Employees was completed in the frst quarer. The liability was recorded as a post-retirement and post-employment beneft liability with an ofset to OCL, and cash totaling $10 million was transferred to Hydro One and recorded as an asset with an ofset 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 beneft liability are being recognized in net income over the EARSL of the Finance and Accounting, Payroll and cerain Shared Services employees. 77 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 Hydro One presents its beneft obligations and plan assets net on its consolidated balance sheets as follows: As at December 31 (millions of dollars) Other assets1 Deferred pension assets Accrued liabilities Pension beneft liability Post-retirement and post-employment beneft liability Net unfunded (funded) status 1 Represents the funded status of HOSSM defned beneft pension plan. 2022 9 358 — — — (367) Pension Benefts 2021 10 — — 713 — 703 Post-Retirement and Post-Employment Benefts 2022 2021 — — 66 — 1,376 1,442 — — 63 — 1,800 1,863 The funded or unfunded status of the Plans refers to the diference 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 beneft obligation (ABO) and fair value of plan assets for the Pension Plan: As at December 31 (millions of dollars) PBO ABO Fair value of plan assets 2022 7,546 7,002 7,904 2021 9,358 8,451 8,645 On an ABO basis, the Pension Plan was funded at 113% as at December 31, 2022 (2021 - 102%). On a PBO basis, the Pension Plan was funded at 105% at December 31, 2022 (2021 - 92%). The ABO difers from the PBO in that the ABO includes no assumption about future compensation levels. Components of Net Periodic Beneft Costs The following table provides the components of the net periodic beneft costs for the years ended December 31, 2022 and 2021 for the Pension Plan: Year ended December 31 (millions of dollars) Current service cost Interest cost Expected return on plan assets, net of expenses Prior service cost amorization Amorization of actuarial losses Net periodic beneft costs Charged to results of operations1 2022 214 283 (507) 2 61 53 35 1 The Company accounts for pension costs consistent with their inclusion in OEB-approved rates. During the year ended December 31, 2022, pension costs of $89 million (2021 - $74 million) were atributed to labour, of which $35 million (2021 - $27 million) was charged to operations, and $54 million (2021 - $47 million) was capitalized as par of the cost of propery, plant and equipment and intangible assets. The following table provides the components of the net periodic beneft costs for the years ended December 31, 2022 and 2021 for the post- retirement and post-employment beneft plans: Year ended December 31 (millions of dollars) Current service cost Interest cost Prior service cost amorization Amorization of actuarial losses Net periodic beneft costs Charged to results of operations1,2 2022 63 58 11 (8) 124 71 2021 240 257 (430) 2 125 194 27 2021 66 51 7 (2) 122 64 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, 2022, post- retirement and post-employment costs of $124 million (2021 - $122 million) were atributed to labour, of which $71 million (2021 - $64 million) was charged to operations, $15 million (2021 - $14 million) was recorded in the Hydro One Networks distribution post-retirement and post-employment benefts non-service cost regulatory asset, and $38 million (2021 - $44 million) was capitalized as par of the cost of propery, 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 benefts as par 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, 2022, additional other post-retirement and post-employment costs of $14 million (2021 - $14 million) atributed to labour were charged to operations. 78 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 Assumptions The measurement of the obligations of the Plans and the costs of providing benefts 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 beneft obligations and costs is impacted by several assumptions including the discount rate applied to beneft obligations, the long-term expected rate of return on plan assets, Hydro One’s expected level of contributions to the Plans, the incidence of morality, the expected remaining service period of plan paricipants, 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 paricipants. 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 perormance, weighted by target asset class allocations. In general, equity securities, real estate and private equity investments are forecasted to have higher returns than fxed-income securities. The following weighted average assumptions were used to determine the beneft obligations at December 31, 2022 and 2021: Year ended December 31 Signifcant assumptions: Weighted average discount rate Rate of compensation scale escalation (long-term) Rate of cost of living increase Rate of increase in health care cost trends1 Pension Benefts Post-Retirement and Post-Employment Benefts 2022 2021 2022 2021 5.06% 2.50% 2.00% — 3.00% 2.25% 1.75% — 5.07% 2.50% 2.00% 4.19% 3.04% 2.25% 1.75% 3.97% 1 5.02% per annum in 2023, grading down to 4.19% per annum in and after 2031 (2021 - 4.88% per annum in 2022, grading down to 3.97% per annum in and after 2031) The following weighted average assumptions were used to determine the net periodic beneft costs for the years ended December 31, 2022 and 2021. Assumptions used to determine current year-end beneft obligations are the assumptions used to estimate the subsequent year’s net periodic beneft costs. Year ended December 31 Pension Benefts: Weighted average expected rate of return on plan assets Weighted average discount rate Rate of compensation scale escalation (long-term) Rate of cost of living increase Average remaining service life of employees (years) Post-Retirement and Post-Employment Benefts: Weighted average discount rate Rate of compensation scale escalation (long-term) Rate of cost of living increase Average remaining service life of employees (years) Rate of increase in health care cost trends1 2022 2021 6.00% 3.00% 2.25% 1.75% 14 3.04% 2.25% 1.75% 14.9 3.97% 5.40% 2.60% 2.25% 1.75% 14 2.60% 2.25% 1.75% 15.3 3.70% 1 4.88% per annum in 2022, grading down to 3.97% per annum in and after 2031 (2021 - 4.74% per annum in 2021, grading down to 3.70% per annum in and after 2031) The discount rate used to determine the current year pension obligation and the subsequent year’s net periodic beneft costs is based on a yield curve approach. Under the yield curve approach, expected future beneft payments for each plan are discounted by a rate on a third-pary 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 fows. 79 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 The following approximate life expectancies were used in the morality assumptions to determine the PBO for the pension and post-retirement and post-employment plans at December 31, 2022 and 2021: As at December 31 Life expectancy at age 65 for a member currently at: Age 65 - male Age 65 - female Age 45 - male Age 45 - female Estimated Future Beneft Payments At December 31, 2022, estimated future beneft payments to the paricipants of the Plans were: (millions of dollars) 2023 2024 2025 2026 2027 2028 through to 2032 Total estimated future beneft payments through to 2032 2022 (years) 23 25 24 26 2021 (years) 23 25 24 26 Pension Benefts Post-Retirement and Post-Employment Benefts 395 405 414 420 424 2,187 4,245 67 68 70 71 72 370 718 Components of Regulatory Accounts A porion of actuarial gains and losses and prior service costs is recorded within regulatory accounts on Hydro One’s consolidated balance sheets to refect the expected regulatory inclusion of these amounts in future rates, which would otherwise be recorded in OCI. These amounts are refected in the following table: Year ended December 31 (millions of dollars) Pension Benefts: Net actuarial gain for the year Amorization of actuarial losses Amorization of prior service cost Post-Retirement and Post-Employment Benefts: Actuarial gain for the year Amorization of actuarial losses 2022 2021 (972) (61) (2) (1,035) (471) (2) (473) (891) (124) (2) (1,017) (91) (3) (94) The following table provides the components of regulatory accounts that have not been recognized as components of net periodic beneft costs for the years ended December 31, 2022 and 2021: Year ended December 31 (millions of dollars) Pension Benefts: Actuarial (gain) loss Post-Retirement and Post-Employment Benefts: Actuarial gain 2022 2021 (358) (506) 713 (33) 80 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 Pension Plan Assets Investment Strategy On a regular basis, Hydro One evaluates its investment strategy to ensure that Pension Plan assets will be sufcient to pay Pension Plan benefts when it comes due. As par 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 cerain level of net assets in order to meet the pension obligations of the Company. The Pension Plan fulfls its primary objective by adhering to specifc investment policies outlined in its Statement of Investment Policies and Procedures (SIPP), which is reviewed and approved annually by the Human Resource Commitee of Hydro One’s Board of Directors. The Company manages net assets by engaging external investment managers who are charged with the fduciary responsibility of investing existing funds and new funds (current year’s employee and employer contributions) in accordance with the approved SIPP. The perormance 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 beneft payments to eligible Pension Plan members. Pension Plan Asset Mix At December 31, 2022, the Pension Plan actual weighted average, target, and range asset allocations were as follows: Equity securities Debt securities Real Estate and Infrastructure Actual (%) Target Allocation (%) Range Allocation (%) 48 33 19 100 40 35 25 100 25 - 55 30 – 40 0 - 35 At December 31, 2022, the Pension Plan held $21 million (2021 - $22 million) Hydro One corporate bonds and $425 million (2021 - $603 million) of debt securities of the Province. Concentrations of Credit Risk Hydro One evaluated its Pension Plan’s asset porfolio for the existence of signifcant concentrations of credit risk as at December 31, 2022 and 2021. 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, 2022 and 2021, there were no signifcant concentrations (defned 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 counterpary 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 fnancial institutions, and also by ensuring that exposure is diversifed across counterparies. The risk of default on transactions in listed securities is considered minimal, as the trade will fail if either pary to the transaction does not meet its obligation. 81 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 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, 2022 and 2021: As at December 31, 2022 (millions of dollars) Pooled funds Cash and cash equivalents Shor-term securities Derivative instruments Corporate shares - Canadian Corporate shares - Foreign Bonds and debentures - Canadian Bonds and debentures - Foreign Total fair value of plan assets1 Derivative instruments Total fair value of plan liabilities1 Level 1 — 233 — — 139 2,702 — — 3,074 — — Level 2 26 — 116 — — 204 2,044 84 2,474 1 1 Level 3 2,315 — — — — — — — 2,315 — — Total 2,341 233 116 — 139 2,906 2,044 84 7,863 1 1 1 At December 31, 2022, the total fair value of Pension Plan assets and liabilities excludes $44 million of interest and dividends receivable, $5 million of pension administration expenses payable, $2 million of taxes payable, $3 million receivable from paricipants, $4 million of sold investments receivable, and $2 million of purchased investments payable. As at December 31, 2021 (millions of dollars) Level 1 Level 2 Pooled funds Cash and cash equivalents Shor-term securities Derivative instruments Corporate shares - Canadian Corporate shares - Foreign Bonds and debentures - Canadian Bonds and debentures - Foreign Total fair value of plan assets1 Derivative instruments Total fair value of plan liabilities1 — 144 — — 167 3,412 — — 3,723 — — 21 — 86 2 — 258 2,491 97 2,955 1 1 Level 3 1,937 — — — — — — — 1,937 — — Total 1,958 144 86 2 167 3,670 2,491 97 8,615 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 paricipants, $6 million of sold investments receivable, and $3 million of purchased investments payable. See Note 17 - Fair Value of Financial Instruments and Risk Management for a description of levels within the fair value hierarchy. 82 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 Changes in the Fair Value of Financial Instruments Classifed in Level 3 The following table summarizes the changes in fair value of fnancial instruments classifed in Level 3 for the years ended December 31, 2022 and 2021. The Pension Plan classifes fnancial instruments as Level 3 when the fair value is measured based on at least one signifcant input that is not observable in the markets or due to lack of liquidity in cerain 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 fnancial 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) Fair value, beginning of year Realized and unrealized gains Purchases Sales and disbursements Fair value, end of year There were no signifcant transfers between any of the fair value levels during the years ended December 31, 2022 and 2021. 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 parnerships in businesses that are characterized by high internal growth and operational efciencies, 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 parnerships that seek to generate a total return through income and capital growth by investing primarily in global and Canadian limited parnerships. Investment strategies in infrastructure include limited parnerships in core infrastructure assets focusing on assets that are expected to generate stable, long-term cash fows and deliver incremental returns relative to conventional fxed-income investments. Private equity, real estate and infrastructure valuations are repored 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 fows and market-based comparable data. Private debt valuations are repored 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 fnancing, investments secured by real estate assets, and securitized lease/loan obligations suppored 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. 2022 1,937 128 336 (86) 2,315 2021 1,429 307 308 (107) 1,937 Cash equivalents consist of demand cash deposits held with banks and cash held by the investment managers. Cash equivalents are categorized as Level 1. Shor-term securities are valued at cost plus accrued interest, which approximates fair value due to their shor-term nature. Shor-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, 2022 was $355 million (2021 - $414 million), the most signifcant currencies being hedged against the Canadian dollar are the United States dollar, euro, British pound sterling, Swedish krona and Japanese yen. The net realized loss on contracts for the year ended December 31, 2022 was $4 million (2021 $2 million net realized gain). The terms to maturity of the forward exchange contracts at December 31, 2022 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. 83 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 20. ENVIRONMENTAL LIABILITIES The following tables show the movements in environmental liabilities for the years ended December 31, 2022 and 2021: Year ended December 31, 2022 (millions of dollars) Environmental liabilities - beginning Interest accretion Expenditures Revaluation adjustment Environmental liabilities - ending Less: current porion Year ended December 31, 2021 (millions of dollars) Environmental liabilities - beginning Interest accretion Expenditures Revaluation adjustment Environmental liabilities - ending Less: current porion PCB 68 1 (40) 20 49 (20) 29 PCB 76 1 (24) 15 68 (27) 41 LAR 54 — (6) (4) 44 (5) 39 LAR 57 — (6) 3 54 (7) 47 Total 122 1 (46) 16 93 (25) 68 Total 133 1 (30) 18 122 (34) 88 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, 2022 (millions of dollars) Undiscounted environmental liabilities Less: discounting environmental liabilities to present value Discounted environmental liabilities As at December 31, 2021 (millions of dollars) Undiscounted environmental liabilities Less: discounting environmental liabilities to present value Discounted environmental liabilities At December 31, 2022, the estimated future environmental expenditures were as follows: PCB 50 (1) 49 PCB 70 (2) 68 LAR 44 — 44 LAR 54 — 54 (millions of dollars) 2023 2024 2025 2026 2027 Thereafter Total 94 (1) 93 Total 124 (2) 122 25 25 14 2 2 26 94 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 uncerainties 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 fow information. A long- term infation 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% (2021 - 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, 84 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 cost estimates to perorm work, infation assumptions and the assumed patern of annual cash fows may difer signifcantly 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 infuence the timing of expenditures. 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 setled. Depreciation expense is adjusted prospectively for any increases or decreases to the carrying amount of the associated asset. PCBs The Environment Canada regulations, enacted under the Canadian Environmental Protection Act, 1999, govern the management, storage and disposal of PCBs based on cerain 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 specifcally exempted equipment. Contaminated equipment will generally be replaced, or will be decontaminated by removing PCB-contaminated insulating oil and retro flling with replacement oil that contains PCBs in concentrations of less than 2 ppm. At December 31, 2022, the Company’s best estimate of the total estimated future expenditures to comply with current PCB regulations was $50 million (2021 - $70 million). These expenditures are expected to be incurred over the period from 2023 to 2025. As a result of its annual review of environmental liabilities, the Company recorded a revaluation adjustment in 2022 to increase the PCB environmental liability by $20 million (2021 - $15 million). LAR At December 31, 2022, the Company’s best estimate of the total estimated future expenditures to complete its LAR program was $44 million (2021 - $54 million). These expenditures are expected to be incurred over the period from 2023 to 2049. As a result of its annual review of environmental liabilities, the Company recorded a revaluation adjustment in 2022 to decrease the LAR environmental liability by $4 million (2021 - increase of $3 million). 21. 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, as well as for the estimated expenditure for the future decommissioning and removal of some diesel generating stations and related assets operated by its subsidiary, Hydro One Remotes. Asset retirement obligations, which represent legal obligations associated with the retirement of cerain tangible long-lived assets, are computed as the present value of the projected expenditures for the future retirement of specifc 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 fows associated with the asset retirement Some of the Company’s transmission and distribution assets, paricularly 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 fnite 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 paricular 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. 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 fow information. A long-term infation 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% (2021 - 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 perorm work, infation assumptions and the assumed patern of annual cash fows may difer signifcantly from the Company’s current assumptions. Asset retirement obligations are reviewed annually or more frequently if signifcant changes in regulations or other relevant factors occur. Estimate changes are accounted for prospectively. During the year, the Company recorded an asset retirement obligation associated with the decommissioning and removal of diesel generating stations within the Hydro One Remotes operating territory. As a result of its annual review of asset retirement obligations, the Company also recorded a revaluation adjustment in 2022 to increase the asset retirement obligations related to the removal and disposal of asbestos- containing materials installed in some of its facilities by $3 million (2021 - no revaluation adjustment to the asset retirement obligations was recorded). At December 31, 2022, Hydro One had recorded a total asset retirement obligation of $28 million (2021 - $14 million), primarily consisting of the estimated future expenditures associated with the removal and disposal of asbestos-containing materials installed in some of its facilities of $17 million (2021 - $14 million), and the decommissioning and removal of diesel generating stations of $11 million. 85 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 22. LEASES Hydro One has operating lease contracts for buildings used in administrative and service-related functions and storing telecommunications equipment. These leases have terms between three and eight years with renewal options of additional three- to fve-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 cerain. Other information related to the Company's operating leases was as follows: Year ended December 31 (millions of dollars) Lease expense Lease payments made As at December 31 Weighted-average remaining lease term1 (years) Weighted-average discount rate 1 Includes renewal options that are reasonably cerain to be exercised. At December 31, 2022, future minimum operating lease payments were as follows: 2022 13 16 2022 5 2.4% (millions of dollars) 2023 2024 2025 2026 2027 Thereafter Total undiscounted minimum lease payments Less: discounting minimum lease payments to present value Total discounted minimum lease payments At December 31, 2021, future minimum operating lease payments were as follows: (millions of dollars) 2022 2023 2024 2025 2026 Thereafter Total undiscounted minimum lease payments Less: discounting minimum lease payments to present value Total discounted minimum lease payments Hydro One presents its ROU assets and lease obligations on the consolidated balance sheets as follows: 2021 17 16 2021 6 2.3% 14 12 9 9 8 7 59 (4) 55 16 11 10 7 7 13 64 (4) 60 As at December 31 (millions of dollars) Other long-term assets (Note 13) Accounts payable and other current liabilities (Note 14) Other long-term liabilities (Note 15) 2022 56 12 43 2021 57 14 46 86 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 23. SHARE CAPITAL Common Shares The Company is authorized to issue an unlimited number of common shares. At December 31, 2022, the Company had 598,714,704 (2021 - 598,217,549) common shares issued and outstanding. 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, fnancial 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. The following tables presents the changes to common shares during the years ended December 31, 2022 and 2021: Year ended December 31, 2022 (number of shares) Common shares - beginning Common shares issued - LTIP1 Common shares issued - share grants2 Common shares - ending Ownership by Public Province Total 315,804,901 282,412,648 598,217,549 108,710 388,445 — — 108,710 388,445 316,302,056 282,412,648 598,714,704 52.8% 47.2% 100% 1 In 2022, Hydro One issued from treasury 108,710 common shares in accordance with provisions of the LTIP. 2 In 2022, Hydro One issued from treasury 388,445 common shares in accordance with provisions of the Power Workers’ Union (PWU) and the Society Share Grant Plans. Year ended December 31, 2021 (number of shares) Common shares - beginning Common shares issued - LTIP1 Common shares issued - share grants2 Common shares - ending3 Ownership by Public Province Total 315,199,139 282,412,648 597,611,787 188,388 417,374 — — 188,388 417,374 315,804,901 282,412,648 598,217,549 52.8% 47.2% 100% 1 In 2021, Hydro One issued from treasury 188,388 common shares in accordance with provisions of the LTIP. 2 In 2021, Hydro One issued from treasury 417,374 common shares in accordance with provisions of the PWU and the Society Share Grant Plans. 3 On December 30th, 2021, stock options of 108,710 under the Company's LTIP were exercised with a setlement date of January 4th, 2022. Preferred Shares The Company is authorized to issue an unlimited number of preferred shares, issuable in series. At December 31, 2022 and 2021, two series of preferred shares were authorized for issuance: the Series 1 preferred shares and the Series 2 preferred shares. At December 31, 2022, and 2021, the Company had no Preferred Shares and no Series 2 preferred shares issued and outstanding. Hydro One may from time to time issue preferred shares in one or more series. Prior to issuing shares in a series, the Hydro One Board of Directors is required to fx the number of shares in the series and determine the designation, rights, privileges, restrictions and conditions ataching to that series of preferred shares. Holders of Hydro One’s preferred shares are not entitled to receive notice of, to atend or to vote at any meeting of the shareholders of Hydro One except that votes may be granted to a series of preferred shares when dividends have not been paid on any one or more series as determined by the applicable series provisions. Each series of preferred shares ranks on parity with every other series of preferred shares, and are entitled to a preference over the common shares and any other shares ranking junior to the preferred shares, with respect to dividends and the distribution of assets and return of capital in the event of the liquidation, dissolution or winding up of Hydro One. Share Ownership Restrictions The Electricity Act imposes share ownership restrictions on securities of Hydro One carrying a voting right (Voting Securities). These restrictions provide that no person or company (or combination of persons or companies acting jointly or in concer) may benefcially own or exercise control or direction over more than 10% of any class or series of Voting Securities, including common shares of the Company (Share Ownership Restrictions). The Share Ownership Restrictions do not apply to Voting Securities held by the Province, nor to an underwriter who holds Voting Securities solely for the purpose of distributing those securities to purchasers who comply with the Share Ownership Restrictions. 24. DIVIDENDS In 2022, common share dividends in the amount of $662 million (2021 - $629 million) were declared and paid. See Note 33 - Subsequent Events for dividends declared subsequent to December 31, 2022. 87 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 25. EARNINGS PER COMMON SHARE Basic earnings per common share (EPS) is calculated by dividing net income atributable to common shareholders of Hydro One by the weighted-average number of common shares outstanding. Diluted EPS is calculated by dividing net income atributable to common shareholders of Hydro One by the weighted-average number of common shares outstanding adjusted for the efects of potentially dilutive stock-based compensation plans, including the share grant plans and the LTIP, which are calculated using the treasury stock method. Year ended December 31 Net income atributable to common shareholders (millions of dollars) Weighted-average number of shares Basic Efect of dilutive stock-based compensation plans Diluted EPS Basic Diluted 2022 1,050 2021 965 598,616,561 598,080,111 1,971,291 2,278,030 600,587,852 600,358,141 $ 1.75 $ 1.75 $ 1.61 $ 1.61 26. STOCK-BASED COMPENSATION Share Grant Plans Hydro One has two share grant plans (Share Grant Plans), one for the beneft of cerain members of the PWU (PWU Share Grant Plan) and one for the beneft of cerain members of the Society (Society Share Grant Plan). The PWU Share Grant Plan provides for the issuance of common shares of Hydro One from treasury to cerain 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 ratifed 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 in its Initial Public Ofering (IPO). The aggregate number of common shares issuable under the PWU Share Grant Plan shall not exceed 3,981,763 common shares. In 2015, 3,979,062 common shares were granted under the PWU Share Grant Plan. The Society Share Grant Plan provides for the issuance of common shares of Hydro One from treasury to cerain 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 in its IPO. The aggregate number of common shares issuable under the Society Share Grant Plan shall not exceed 1,434,686 common shares. In 2015, 1,433,292 common shares were granted under the Society Share Grant Plan. The fair value of the Hydro One 2015 share grants of $111 million was estimated based on the grant date share price of $20.50 and is recognized using the graded-vesting atribution method as the share grant plans have both a perormance condition and a service condition. In 2022, 388,445 common shares (2021 - 417,374) were issued under the Share Grant Plans. Total share-based compensation recognized during 2022 was $4 million (2021 - $5 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, 2022 and 2021 is presented below: Year ended December 31, 2022 Share grants outstanding - beginning Vested and issued1 Foreited Share grants outstanding - ending (number of common shares) Share Grants Weighted-Average Price 2,662,000 $ 20.50 (388,445) (83,939) 2,189,616 — $ 20.50 $ 20.50 1 In 2022, Hydro One issued 388,445 common shares from treasury to eligible employees in accordance with provisions of the Share Grant Plans. Year ended December 31, 2021 Share grants outstanding - beginning Vested and issued1 Foreited Share grants outstanding - ending (number of common shares) Share Grants Weighted-Average Price 3,154,805 $ 20.50 (417,374) (75,431) 2,662,000 — $ 20.50 $ 20.50 1 In 2021, Hydro One issued 417,374 common shares from treasury to eligible employees in accordance with provisions of the Share Grant Plans. 88 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 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’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 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 Directors' DSU Plan during the years ended December 31, 2022 and 2021 is presented below: Year ended December 31 (number of DSUs) DSUs outstanding - beginning Granted Setled DSUs outstanding - ending For the year ended December 31, 2022, an expense of $1 million (2021 - $1 million) was recognized in earnings with respect to the Directors' DSU Plan. At December 31, 2022, a liability of $4 million (2021 - $3 million) related to Directors' DSUs has been recorded at the closing price of the Company's common shares of $36.27. This liability is included in other long-term liabilities on the consolidated balance sheets. 2022 80,813 19,126 — 99,939 2021 65,240 20,888 (5,315) 80,813 Management DSU Plan Under the Management DSU Plan, eligible executive employees can elect to receive a specifed proporion of their annual shor-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, 2022 and 2021 is presented below: Year ended December 31 (number of DSUs) DSUs outstanding - beginning Granted Paid DSUs outstanding - ending 2022 90,240 37,524 (9,259) 118,505 2021 61,880 28,360 — 90,240 For the year ended December 31, 2022, an expense of $1 million (2021 - $1 million) was recognized in earnings with respect to the Management DSU Plan. At December 31, 2022, a liability of $4 million (2021 - $3 million) related to Management DSUs has been recorded at the closing price of the Company's common shares of $36.27. This liability is included in other long-term liabilities on the consolidated balance sheets. Employee Share Ownership Plan In 2015, Hydro One established Employee Share Ownership Plans (ESOP) for cerain eligible management and non-represented employees (Management ESOP) and for cerain eligible Society-represented staf (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. 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 staf may contribute between 1% and 4% of their base salary towards purchasing common shares of Hydro One. The Company matches 25% of their contributions, with no maximum Company contribution per calendar year. In 2022, Company contributions made under the ESOP were $2 million (2021 - $2 million). LTIP Efective August 31, 2015, the Board of Directors of Hydro One adopted an LTIP. Under the LTIP, long-term incentives were granted to cerain executive and management employees of Hydro One and its subsidiaries, and all equity-based awards would be setled in newly issued shares of Hydro One from treasury, consistent with the provisions of the plan which also permit the paricipants to surrender a porion 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. The LTIP provides fexibility to award a range of vehicles, including Perormance Share Units (PSUs), 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 perormance. 89 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 PSUs and RSUs A summary of PSU and RSU awards activity under the LTIP during the years ended December 31, 2022 and 2021 is presented below: Year ended December 31 (number of units) Units outstanding - beginning Vested and issued Setled Units outstanding - ending PSUs 2022 — — — — 2021 111,920 (111,920) — — RSUs 2022 — — — — 2021 139,730 (104,970) (34,760) — No awards were granted in 2022 or 2021. The compensation expense related to the PSU and RSU awards recognized by the Company during 2022 was $nil (2021 - less than $1 million). 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 cerain eligible members. The equity compensation provides for the purchase of common shares of Hydro One from the open market, efective March 1, 2021 in one equity grant vesting in equal porions 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 ratifed 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 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, 2022 and 2021 is presented below: Year ended December 31 (number of RSUs) RSUs outstanding - beginning Granted Vested and issued Setled Foreited RSUs outstanding - ending 2022 71,053 1,667 (34,346) (1,106) (1,144) 36,124 2021 — 71,053 — — — 71,053 Stock Options The Company is authorized to grant stock options under its LTIP to cerain eligible employees. No stock options were granted in 2022 or 2021. 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, 2022 and 2021 is presented below: Stock options outstanding - January 1, 2021 Exercised1 Stock options outstanding - December 31, 2021 Stock options outstanding - December 31, 2022 1 The stock options exercised in 2021 had an aggregate intrinsic value of $1 million. No compensation expense related to stock options was recognized by the Company during 2022 or 2021. Number of Stock Weighted-average exercise price Options 108,710 (108,710) — — $ 20.66 $ 20.66 $ $ — — 90 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 27. NONCONTROLLING INTEREST Total noncontrolling interest consists of noncontrolling interest atributable to B2M LP and NRLP. The following tables show the movements in total noncontrolling interest during the years ended December 31, 2022 and 2021: Year ended December 31, 2022 (millions of dollars) Temporary Equity Equity Noncontrolling interest - beginning Distributions to noncontrolling interest Net income atributable to noncontrolling interest Noncontrolling interest - ending 20 (2) 2 20 68 (8) 6 66 Year ended December 31, 2021 (millions of dollars) Temporary Equity Equity Noncontrolling interest - beginning Distributions to noncontrolling interest Net income atributable to noncontrolling interest Noncontrolling interest - ending 22 (4) 2 20 72 (10) 6 68 Total 88 (10) 8 86 Total 94 (14) 8 88 B2M LP On December 16, 2014, transmission assets totaling $526 million were transferred from Hydro One Networks to B2M LP. This was fnanced 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 classifed 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 classifed within equity. The following tables show the movements in B2M LP noncontrolling interest during the years ended December 31, 2022 and 2021: Year ended December 31, 2022 (millions of dollars) Temporary Equity Equity Noncontrolling interest - beginning Distributions to noncontrolling interest Net income atributable to noncontrolling interest Noncontrolling interest - ending 20 (2) 2 20 46 (5) 4 45 Year ended December 31, 2021 (millions of dollars) Temporary Equity Equity Noncontrolling interest - beginning Distributions to noncontrolling interest Net income atributable to noncontrolling interest Noncontrolling interest - ending 22 (4) 2 20 49 (7) 4 46 Total 66 (7) 6 65 Total 71 (11) 6 66 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 parnership 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 parnership units from Hydro One Networks for total cash consideration of $9 million. Following this transaction, Hydro One's interest in the equity porion of NRLP parnership 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 parnership units. The First Nations Parners' noncontrolling interest in NRLP is classifed within equity. The following table shows the movements in NRLP noncontrolling interest during the years ended December 31, 2022 and 2021: Year ended December 31 (millions of dollars) Noncontrolling interest - beginning Distributions to noncontrolling interest Net income atributable to noncontrolling interest Noncontrolling interest - ending 2022 2021 22 (3) 2 21 23 (3) 2 22 91 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 28. RELATED PARTY TRANSACTIONS The Province is a shareholder of Hydro One with approximately 47.2% ownership at December 31, 2022. The IESO, Ontario Power Generation Inc. (OPG), Ontario Electricity Financial Corporation (OEFC), and the OEB are related paries to Hydro One because they are controlled or signifcantly infuenced by the Ministry of Energy. Ontario Charging Network (OCN LP) is a joint-venture limited parnership between OPG and a subsidiary of Hydro One. The following is a summary of the Company’s related pary transactions during the years ended December 31, 2022 and 2021: Year ended December 31 (millions of dollars) Related Pary Transaction Province Dividends paid IESO Power purchased Revenues for transmission services Amounts related to electricity rebates Distribution revenues related to rural rate protection Distribution revenues related to supply of electricity to remote norhern communities Funding received related to CDM programs OPG1 Power purchased Revenues related to provision of services and supply of electricity Capital contribution received from OPG Costs related to the purchase of services OEFC OEB Power purchased from power contracts administered by the OEFC OEB fees OCN LP2 Investment in OCN LP 2022 312 2,374 2,062 1,031 247 35 3 20 8 5 2 2 10 4 2021 297 2,238 1,832 1,065 245 35 1 13 8 3 2 1 8 4 1 OPG has provided a $2.5 million guarantee to Hydro One related to the OCN Guarantee. See Note 31 - Commitments for details related to the OCN Guarantee. 2 OCN LP owns and operates electric vehicle fast charging stations across Ontario, under the Ivy Charging Network brand. Sales to and purchases from related paries are based on the requirements of the OEB’s Afliate Relationships Code. Outstanding balances at period end are interest-free and setled in cash. Invoices are issued monthly, and amounts are due and paid on a monthly basis. 92 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 29. 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) Accounts receivable Due from related paries Materials and supplies (Note 9) Prepaid expenses and other assets (Note 9) Other long-term assets (Note 13) Accounts payable Accrued liabilities (Note 14) Due to related paries Accrued interest (Note 14) Long-term accounts payable and other long-term liabilities (Note 15) Post-retirement and post-employment beneft liability 2022 (72) 2 (3) (7) 1 27 64 5 (4) 8 40 61 2021 18 42 1 (2) (4) (3) 53 (63) 6 2 50 100 Capital Expenditures The following tables reconcile investments in propery, plant and equipment and intangible assets and the amounts presented in the consolidated statements of cash fows for the years ended December 31, 2022 and 2021. The reconciling items include net change in accruals and capitalized depreciation. Year ended December 31, 2022 (millions of dollars) Capital investments Reconciling items Cash outfow for capital expenditures Year ended December 31, 2021 (millions of dollars) Capital investments Reconciling items Cash outfow for capital expenditures Propery, Plant and Equipment Intangible Assets (2,010) 44 (1,966) (122) 2 (120) Propery, Plant and Equipment Intangible Assets (1,983) 55 (1,928) (142) (1) (143) Total (2,132) 46 (2,086) Total (2,125) 54 (2,071) 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 shorfall 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 propery, plant and equipment in service. In 2022, there were $12 million capital contributions from these assessments (2021 - $14 million). Supplementary Information Year ended December 31 (millions of dollars) Net interest paid Income taxes paid 2022 523 33 2021 506 20 93 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 30. 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 maters will not have a material adverse efect on the Company’s consolidated fnancial position, results of operations or cash fows. Transfer of Assets The transfer orders by which the Company acquired cerain of Ontario Hydro’s businesses as of April 1, 1999 did not transfer title to some assets located on Reserves (as defned 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 2022, the Company paid approximately $5 million (2021 - $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 indefnite period of time. If the Company cannot reach a satisfactory setlement, 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 efect on the Company’s results of operations if the Company is not able to recover them in future rate orders. 31. COMMITMENTS The following table presents a summary of Hydro One’s commitments under outsourcing and other agreements due in the next fve years and thereafter: As at December 31, 2022 (millions of dollars) Outsourcing and other agreements Long-term software/meter agreement Year 1 191 12 Year 2 Year 3 Year 4 Year 5 Thereafter 17 11 — 4 — 1 1 1 13 3 Outsourcing and Other Agreements In February 2021, Hydro One entered into a three-year agreement for information technology 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. Brookfeld Global Integrated Solutions (BGIS) provides services to Hydro One, including facilities management and execution of cerain 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. Anixter Power Solutions Canada Inc. (Wesco) provides services to Hydro One to suppor its Broadband Development Project. Under the agreement with Wesco, as at December 31, 2022, Hydro One has commited to purchases in the amount of $61 million. 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 suppor services for smar meters and related hardware and software, including additional software licences, as well as cerain 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 fve years and thereafter: As at December 31, 2022 (millions of dollars) Year 1 Year 2 Year 3 Year 4 Operating Credit Facilities1 Letters of credit2 Guarantees3 — 186 517 — 2 — — — — — — — Year 5 2,550 — — Thereafter — — — 1 On June 1, 2022, the maturity date for the Operating Credit Facilities was extended to 2027. 2 Leters of credit consist of $163 million leters of credit related to retirement compensation arrangements, a $18 million leter of credit provided to the IESO for prudential suppor, $4 million in leters of credit to satisfy debt service reserve requirements, and $3 million in leters of credit for various operating purposes. 3 Guarantees consist of $475 million prudential suppor provided to the IESO by Hydro One Inc. on behalf of its subsidiaries, as well as guarantees provided by Hydro One to the Minister of Natural Resources (Canada) and ONroute of $7 million and $30 million, respectively, relating to OCN LP (OCN Guarantee) and $5 million relating to Aux Energy Inc., the Company's indirect subsidiary. OPG has provided a $2.5 million guarantee to Hydro One related to the OCN Guarantee. Prudential Suppor 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 leters 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 leters of credit plus the amount of the parental guarantees. 94 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 Retirement Compensation Arrangements Bank leters of credit have been issued to provide security for Hydro One Inc.’s liability under the terms of a trust fund established pursuant to the supplementary pension plan for eligible employees of Hydro One Inc. The supplementary pension plan trustee is required to draw upon these leters of credit if Hydro One Inc. 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 repor as well as leters of credit sufcient to secure Hydro One Inc.’s liability under the plan, to pay benefts payable under the plan and to pay the leter of credit fee. The maximum potential payment is the face value of the leters of credit. 32. SEGMENTED REPORTING Hydro One has three reporable segments: ● The Transmission Segment, which comprises the transmission of high voltage electricity across the province, interconnecting local distribution companies and cerain large directly connected industrial customers throughout the Ontario electricity grid; ● The Distribution Segment, which comprises the delivery of electricity to end customers and cerain other municipal electricity distributors; and ● Other Segment, which includes cerain corporate activities, investments including a joint venture that owns and operates electric vehicle fast charging stations across Ontario under the Ivy Charging Network brand, and the operations of the Company’s telecommunications business and of a wholly-owned subsidiary that provides energy solutions to commercial and industrial clients. The Other Segment includes 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 ofering in 2015. This DTA is not required to be shared with ratepayers, the Company considers it to not be par 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 perormance of each of the segments. The Company evaluates segment perormance based on income before fnancing charges and income tax expense from continuing operations (excluding cerain allocated corporate governance costs). Year ended December 31, 2022 (millions of dollars) Transmission Distribution Other Consolidated Revenues Purchased power Operation, maintenance and administration Depreciation, amorization and asset removal costs Income (loss) before fnancing charges and income tax expense Capital investments 2,077 — 445 509 1,123 1,209 5,660 3,724 739 448 749 899 43 — 74 9 (40) 24 7,780 3,724 1,258 966 1,832 2,132 Year ended December 31, 2021 (millions of dollars) Transmission Distribution Other Consolidated 1,824 — 397 485 942 1,320 5,359 3,579 658 428 694 787 Revenues Purchased power Operation, maintenance and administration Depreciation, amorization and asset removal costs Income (loss) before fnancing charges and income tax expense Capital investments Total Assets by Segment: As at December 31 (millions of dollars) Transmission Distribution Other Total assets Total Goodwill by Segment: As at December 31 (millions of dollars) Transmission Distribution Total goodwill All revenues, assets and substantially all costs, as the case may be, are earned, held or incurred in Canada. 42 — 57 9 (24) 18 2022 18,778 11,893 786 31,457 2022 157 216 373 7,225 3,579 1,112 922 1,612 2,125 2021 18,138 11,487 758 30,383 2021 157 216 373 95 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 33. SUBSEQUENT EVENTS Sustainable Financing Framework On January 12, 2023, Hydro One Limited published a Sustainable Financing Framework, which allows Hydro One Limited and its subsidiaries to issue sustainable fnancing instruments. Debt Issuance On January 27, 2023, Hydro One Inc. issued sustainable bonds totaling $1,050 million under its MTN Program as follows: a. $300 million Series 53 notes with a maturity date of November 30, 2029 and a coupon rate of 3.93%; and b. $450 million Series 54 notes with a maturity date of January 27, 2033 and a coupon rate of 4.16%; and c. $300 million Series 55 notes with a maturity date of January 27, 2053 and a coupon rate of 4.46%. Dividends On February 13, 2023, common share dividends of $167 million ($0.2796 per common share) were declared. 96 Notes to Consolidated Financial Statements (continued)For the years ended December 31, 2022 and 2021Hydro One Limited Annual Report 2022 Corporate and Shareholder Information Corporate Ofce 483 Bay Street, South Tower Toronto, ON M5G 2P5 1.416.345.5000 www.HydroOne.com Customer Inquiries Customer Service: 1.888.664.9376 Repor an Emergency (24 hours): 1.800.434.1235 Shareholder Services If you are a registered shareholder and have inquiries regarding your account, wish to change your name or address, or have questions about dividends, duplicate mailings, lost stock cerifcates, share transfers or estate setlements, contact our transfer agent and registrar: Computershare Trust Company of Canada 100 University Avenue, 8th Floor Toronto, ON M5J 2Y1 1.514.982.7555 or 1.800.564.6253 service@computershare.com Institutional Investors and Analysts Institutional investors, securities analysts and others requiring additional fnancial information can visit www.HydroOne.com/ Investors or contact us at: 1.416.345.6867 Investor.Relations@HydroOne.com or Omar.Javed@HydroOne.com Media Inquiries 1.416.345.6868 or 1.877.506.7584 Media.Relations@HydroOne.com Sustainability Hydro One is commited to continuing to grow responsibly and we focus our social and environmental sustainability efors where we can make the most meaningful impacts on both. To learn more, visit htps://www.hydroone.com/sustainability or email Sustainability@HydroOne.com Stock Exchange Listing Toronto Stock Exchange (TSX): H (CUSIP #448811208) Independent Auditors KPMG LLP Equity Index Inclusions Dow Jones Select Utilities (Canada) Index FTSE All-World Index Series MSCI World (Canada) Index S&P/TSX Composite Index S&P/TSX 60 Index S&P/TSX Utilities Index S&P/TSX Composite Dividend Index S&P/TSX Composite Low Volatility Index S&P/TSX Composite High Dividend Index S&P/TSX Canadian Dividend Aristocrats Index Debt Securities For details of the public debt securities of Hydro One and its subsidiaries, please refer to the “Debt Information” section under www.HydroOne.com/Investors Online Information Hydro One is commited to open and full fnancial disclosure and best practices in corporate governance. We invite you to visit the Investor Relations section of www.HydroOne.com/Investors where you will fnd additional information about our business, including events and presentations, news releases, regulatory flings, governance practices, sustainability and our continuous disclosure materials, including quarerly fnancial releases, annual information forms and management information circulars. You may also subscribe to our news by email to automatically receive Hydro One news releases electronically. Common Share Dividend Information 2023 Expected Dividend Dates Declaration Date Record Date Payment Date February 13, 2023 March 15, 2023 March 31, 2023 May 4, 2023 June 7, 2023 June 30, 2023 August 8, 2023 September 13, 2023 September 29, 2023 November 7, 2023 December 13, 2023 December 29, 2023 Unless indicated otherwise, all common share dividends paid by Hydro One are designated as “eligible” dividends for the purposes of the Income Tax Act (Canada) and any similar provincial legislation. Dividend Reinvestment Plan (DRIP) Hydro One ofers a convenient dividend reinvestment program for eligible shareholders to purchase additional Hydro One shares by reinvesting their cash dividends without incurring brokerage or administration fees. For plan information and enrolment materials or to learn more about the Hydro One DRIP, visit www.HydroOne.com/DRIP or Computershare Trust Company of Canada at www.InvestorCentre.com/HydroOne Regulatory Stakeholders Hydro One is committed to maintaining and enhancing constructive long-term relationships with its regulatory stakeholders. Provincial Government, Ministry of Energy Policy, legislation, regulations Ontario Energy Board (OEB) Independent electric utility price and service quality regulation Independent Electricity System Operator (IESO) Wholesale power market rules, intermediary, North American reliability standards Canadian Energy Regulator Federal regulator, international power lines and substations North American Electric Reliability Corporation (NERC) Continent-wide bulk power reliability standards, certification, monitoring Northeast Power Coordinating Council (NPCC) Northeastern North American grid reliability, standards, compliance For more information, visit www.HydroOne.com/Regulatory Hydro One Limited Annual Report 2022 97 www.HydroOne.com 

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