MANAGEMENT’S DISCUSSION AND ANALYSIS MANAGEMENT’S  DISCUSSION AND ANALYSIS For the years ended December 31, 2013 and 2012 The following Management’s Discussion and Analysis (MD&A) of the financial condition and results of operations should be read together with  the consolidated financial statements and accompanying notes (the Consolidated Financial Statements) of Hydro One Inc. (the Company) for  the year ended December 31, 2013. The Consolidated Financial Statements are presented in Canadian dollars and have been prepared in  accordance with United States (US) Generally Accepted Accounting Principles (GAAP). All financial information in this MD&A is presented in  Canadian dollars, unless otherwise indicated. The Company has prepared this MD&A with reference to National Instrument 51-102 – Continuous Disclosure Obligations of the Canadian  Securities Administrators. Under the US/Canada Multijurisdictional Disclosure System, the Company is permitted to prepare this MD&A in  accordance with the disclosure requirements of Canada, which are different from those of the US. This MD&A provides information for the year  ended December 31, 2013. We are wholly owned by the Province of Ontario (Province), and our transmission and distribution businesses are regulated by the Ontario  Energy Board (OEB). Our mission and vision reflects the unique role we play in the economy of the Province and as a provider of critical  infrastructure to all our customers. We strive to be an innovative and trusted company, delivering electricity safely, reliably and efficiently to  create value for our customers. We operate as a commercial enterprise with an independent Board of Directors. Our strategic plan is driven by  our values: health and safety; excellence; stewardship; and innovation. Safety is of utmost importance to us because we work in an environment  that can be hazardous. We take our responsibility as stewards of critical provincial assets seriously. We demonstrate sound stewardship by  managing our assets in a manner that is commercial, transparent and which values our customers. We strive for excellence by being trained,  prepared and equipped to deliver high-quality service. We value innovation because it allows us to increase our productivity and develop  enhanced methods to meet the needs of our customers. In 2013, we continued to focus on our core businesses and our commitment to our  customers, and made important contributions to the rebuilding of Ontario’s core infrastructure while continuing to meet the requirements of the  Green Energy Act  (GEA). We manage our business using the following framework: Our corporate strategy is based on our mission and vision and our values. Our strategic objectives, which are discussed in the section “Our Strategy,” encompass the core values that drive our business. Our strategy touches every part of our core business: health and safety; our  customers; innovation; the reliability and efficiency of our systems; the environment; our workforce; shareholder value; and productivity.  Performance drivers have been identified that relate to achieving certain of our company’s strategic objectives. We establish specific  performance targets for each driver aimed at measuring the achievement of our strategic objectives over time. For example, we track the  duration of unplanned customer interruptions per delivery point as an indication of our commitment to provide a reliable transmission system for  our customers. We measure transmission and distribution unit costs as an indication of our commitment to increasing productivity. These and  other key performance drivers are included in the discussion of our performance measures in the section “Performance Measures and Targets.” 15 HYDRO ONE ANNUAL REPORT 2013 Core Business and Strategy Key Performance Drivers EXECUTIVE SUMMARY Core Business  and Strategy Key Performance  Drivers Results and  Outlook Capability to  Deliver Results