MANAGEMENT’S DISCUSSION AND ANALYSIS  our rate of return would reduce our Transmission Business’ 2014 net income by approximately $20 million and our Hydro One Networks  distribution business’ 2014 net income by approximately $10 million. Our net income is adversely impacted by rising interest rates as our maturing long-term debt is refinanced at market rates. We periodically utilize interest-rate swap agreements to mitigate elements of interest rate risk. Financial assets create a risk that a counterparty will fail to discharge an obligation, causing a financial loss. Derivative financial instruments  result in exposure to credit risk, since there is a risk of counterparty default. We monitor and minimize credit risk through various techniques,  including dealing with highly-rated counterparties, limiting total exposure levels with individual counterparties, and by entering into master  agreements which enable net settlement and by monitoring the financial condition of counterparties. We do not trade in any energy derivatives.  We do, however, have interest-rate swap contracts outstanding from time to time. Currently, there are no significant concentrations of credit  risk with respect to any class of financial assets. We are required to procure electricity on behalf of competitive retailers and embedded LDCs  for resale to their customers. The resulting concentrations of credit risk are mitigated through the use of various security arrangements, including  letters of credit, which are incorporated into our service agreements with these retailers in accordance with the OEB’s Retail Settlements Code.  The failure to properly manage these risks could have a material adverse effect on our company. The transfer orders by which we acquired certain of Ontario Hydro’s businesses as of April 1, 1999, did not transfer title to some assets  located on Reserves. Currently, OEFC holds legal title to these assets and we manage them until we have obtained necessary authorizations to  complete the title transfer. To occupy Reserves, we must have valid permits issued by Her Majesty the Queen in the Right of Canada. For each  permit, we must negotiate an agreement (in the form of a Memorandum of Understanding) with the First Nation, OEFC and any members of  the First Nation who have occupancy rights. The agreement includes provisions whereby the First Nation consents to the federal Department of  Aboriginal Affairs and Northern Development issuing a permit. Where the agreement and permit are for transmission assets, we must negotiate  rental terms. It is difficult to predict the aggregate amount that we may have to pay, either on an annual or one-time basis, to obtain the required  agreements from First Nations. In 2013, we paid approximately $2 million to First Nations in respect of these agreements. OEFC will continue  to hold these assets until we are able to negotiate agreements with First Nations and occupants. If we cannot reach satisfactory agreements and  obtain federal permits, we may have to relocate these assets to other locations at a cost that could be substantial. In a limited number of cases,  it may be necessary to abandon a line and replace it with diesel generation facilities. In either case, the costs relating to these assets could  have a material adverse effect on our net income if we are not able to recover them in future rate orders.  Pursuant to the Reliable Energy and Consumer Protection Act, 2002, the Province acquired ownership of our transmission corridor lands  underlying our transmission system. Although we have the statutory right to use the transmission corridors, we may be limited in our ability to  expand our systems. Also, other uses of the transmission corridors by third parties in conjunction with the operation of our systems may increase  safety or environmental risks, which could have an adverse effect on our company. Risk from Transfer of Assets Located on Reserves  Risk from Provincial Ownership of Transmission Corridors CRITICAL ACCOUNTING ESTIMATES The preparation of our Consolidated Financial Statements requires us to make estimates and judgements that affect the reported amounts of  assets, liabilities, revenues and costs, and related disclosures of contingencies. We base our estimates and judgements 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 judgements about the carrying values of assets and liabilities, as well as identifying and assessing our accounting treatment with  respect to commitments and contingencies. Actual results may differ from these estimates and judgements. We have identified the following  critical accounting estimates used in the preparation of our Consolidated Financial Statements: Revenues Our monthly distribution revenue is estimated based on wholesale electricity purchases. At the end of each month, the electricity delivered to  customers, but not billed, is estimated and revenue is recognized. The newly implemented CIS phase of our entity-wide system improvement  project will allow us to use historical trends at a customer level to better estimate our unbilled revenue each period. This change in methodology  for estimating revenue is anticipated to be implemented in 2014. Any changes in estimate will be accounted for prospectively. 40 HYDRO ONE ANNUAL REPORT 2013