Financial Information Act Return

Transcription

1 Financial Information ct eturn Financial tatements Year Ended 31 arch 2002 (ublished in accordance with the Financial Information ct, hapter 131, tatutes of ritish olumbia, 1979)

2 ritish olumbia ataloguing in ublications ata Hydro Financial statements /63- nnual. over title varies: 1962/ /81, ublic odies Financial Information ct return: 1982/83- Financial Information ct return. eport year ends ar. 31. IN = Financial statements - ritish olumbia Hydro and ower uthority. 1. Hydro - ppropriations and expenditures. I. itle: ublic odies Financial Information ct return. II. itle: Financial Information ct return. H ev. ug '008'72

3 Financial Information ct eturn for year ended arch 31, 2002 E OF ONEN. udited onsolidated Financial tatements Hydro tatement of alaries and ages aid eneral tatement of emuneration and Expenses oard of irectors tatement of emuneration and Expenses - Employees tatement of ccounts aid. Hydro onstruction usiness Unit tatement of emuneration and Expenses tatement of ccounts aid. ritish olumbia ower Exchange orporation tatement of ccounts aid E. owertech abs Inc. tatement of alaries and ages aid eneral tatement of emuneration and Expenses tatement of ccounts aid F. estech Information ystems Inc. tatement of ccounts aid

4 udited onsolidated Financial tatements 2002

5 IIH OUI HYO N OE UHOIY anagement eport he consolidated financial statements of ritish olumbia Hydro and ower uthority ( Hydro) are the responsibility of management and have been prepared in accordance with anadian generally accepted accounting principles, consistently applied and appropriate in the circumstances. he preparation of financial statements necessarily involves the use of estimates which have been made using careful judgement. In management s opinion, the consolidated financial statements have been properly prepared within the framework of the accounting policies summarized in the consolidated financial statements and incorporate, within reasonable limits of materiality, all information available at ay 17, he consolidated financial statements have also been reviewed by the udit & isk anagement ommittee and approved by the oard of irectors. Financial information presented elsewhere in this nnual eport is consistent with that in the consolidated financial statements. anagement maintains systems of internal controls designed to provide reasonable assurance that assets are safeguarded and that reliable financial information is available on a timely basis. hese systems include formal written policies and procedures, careful selection and training of qualified personnel and appropriate delegation of authority and segregation of responsibilities within the organization. n internal audit function independently evaluates the effectiveness of these internal controls on an ongoing basis and reports its findings to management and the udit & isk anagement ommittee. he financial statements have been examined by independent external auditors. he external auditors responsibility is to express their opinion on whether the financial statements, in all material respects, fairly present Hydro s financial position, results of operations and cash flows in accordance with anadian generally accepted accounting principles. he uditors eport, which follows, outlines the scope of their examination and their opinion. he oard of irectors, through the udit & isk anagement ommittee, is responsible for ensuring that management fulfills its responsibility for financial reporting and internal controls. he udit & isk anagement ommittee, comprised of directors who are not employees, meets regularly with the external auditors, the internal auditors and management to satisfy itself that each group has properly discharged its responsibility to review the financial statements before recommending approval by the oard of irectors and appointment of external auditors. he internal and external auditors have full and open access to the udit & isk anagement ommittee, with and without the presence of management..i.(arry) ell ichael ostello ob Elton hair and hief Executive Officer resident and hief Operating Officer Executive Vice-resident Finance and hief Financial Officer Vancouver, anada ay 17, 2002

6 IIH OUI HYO N OE UHOIY uditors eport he ieutenant overnor in ouncil, rovince of ritish olumbia: e have audited the consolidated balance sheet of ritish olumbia Hydro and ower uthority as at arch 31, 2002 and the consolidated statements of operations, retained earnings and cash flows for the year then ended. hese financial statements are the responsibility of ritish olumbia Hydro and ower uthority s management. Our responsibility is to express an opinion on these financial statements based on our audit. e conducted our audit in accordance with anadian generally accepted auditing standards. hose standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. n audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. n audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of ritish olumbia Hydro and ower uthority as at arch 31, 2002 and the results of its operations and its cash flows for the year then ended in accordance with anadian generally accepted accounting principles. Ernst and Young hartered ccountants Vancouver, anada ay 17, 2002

7 IIH OUI HYO N OE UHOIY onsolidated tatement of Operations for the years ended arch 31 (in millions) evenues omestic esidential $ 930 $ 892 ight industrial and commercial arge industrial Other energy sales iscellaneous ,450 2,431 Electricity trade 3,861 5,458 6,311 7,889 Expenses Energy costs (Note 2) 4,407 5,162 Operations, maintenance and administration epreciation and amortization (Note 3) axes (Note 4) ,509 6,471 Income efore Finance harges, ustomer rofit haring and ransfer to/from ate tabilization ccount 802 1,418 Finance charges (Note 5) Income efore ustomer rofit haring and ransfer to/from ate tabilization ccount ustomer profit sharing (Note 6) 310 Income efore ransfer to/from ate tabilization ccount ransfer to (from) ate tabilization ccount (145) 103 Net Income $ 403 $ 446 onsolidated tatement of etained Earnings for the years ended arch 31 (in millions) etained earnings, beginning of year $ 1,459 $ 1,385 Net income ayment to the rovince (Note 1) (333) (372) etained Earnings, end of year $ 1,529 $ 1,459 ee accompanying notes to consolidated financial statements.

8 IIH OUI HYO N OE UHOIY onsolidated alance heet as at arch 31 (in millions) E apital ssets (Note 7) apital assets in service $ 14,608 $ 14,323 ess accumulated depreciation 5,557 5,256 9,051 9,067 Unfinished construction ,510 9,361 urrent ssets emporary investments ccounts receivable and accrued revenue (Note 11) aterials and supplies repaid expenses Unrealized gains on mark-to-market transactions ,307 Other ssets and eferred harges inking funds (Note 8) 1,073 1,148 emand-side management programs eferred debt costs (Note 9) Foreign currency contracts (Notes 10 and 11) Other ,812 1,947 $ 11,966 $ 12,615 IIIIE N EQUIY ong-term debt net of sinking funds $ 6,276 6,485 inking funds presented as assets 1,073 1,148 ong-erm ebt (Note 10) 7,349 7,633 Foreign urrency ontracts (Notes 10 and 11) 16 9 urrent iabilities urrent portion of long-term debt (Note 10) ccounts payable and accrued liabilities 708 1,121 ccrued interest ccrued ayment to the rovince (Note 1) Unrealized losses on mark-to-market transactions ,795 2,140 eferred redits and Other iabilities rovision for future removal and site restoration costs eferred revenue ate tabilization ccount ontributions in aid of construction ontributions arising from the olumbia iver reaty ,277 1,374 etained Earnings 1,529 1,459 ommitments and ontingencies (Notes 8, 10, 11 and 13) ee accompanying notes to consolidated financial statements. pproved on ehalf of the oard: $ 11,966 $ 12,615.I.(arry) ell hair and hief Executive Officer lice aberge hair, udit & isk anagement ommittee

9 IIH OUI HYO N OE UHOIY onsolidated tatement of ash Flows for the years ended arch 31 (in millions) Operating ctivities Net income $ 403 $ 446 djustments for: epreciation and amortization ransfer to (from) ate tabilization ccount (145) 103 Other non-cash items 27 (10) orking capital changes (458) 659 ash provided by operating activities 213 1,578 Investing ctivities apital asset expenditures (604) (375) ontributions in aid of construction emand-side management programs (14) (1) Future removal and site restoration costs (6) (7) Other 10 1 ash used for investing activities (560) (338) Financing ctivities onds, notes and debentures issued retired (622) (179) evolving borrowings 173 (504) inking funds 139 (3) eferred debt costs 8 17 ettlement of financial instruments 2 3 ash provided by (used for) financing activities 50 (216) ayment to the rovince (Note 1) (372) (343) Increase (decrease) in cash (669) 681 ash at beginning of year ash at end of year $ 17 $ 686 upplemental disclosure of cash flow information Interest paid $ 585 $ 642 ash consists of temporary investments. ee accompanying notes to consolidated financial statements.

10 IIH OUI HYO N OE UHOIY Notes to onsolidated Financial tatements For the Years Ended arch 31, 2002 and 2001 ignificant ccounting olicies urpose ritish olumbia Hydro and ower uthority ( Hydro ), established in 1962 as a rown corporation of the rovince of ritish olumbia (the rovince ) by enactment of the Hydro and ower uthority ct, has a corporate mission to provide integrated energy solutions to its customers in an environmentally and socially responsible manner. Hydro is subject to regulation (see Note 1) by the ritish olumbia Utilities ommission (the ommission ) which, among other things, approves the rates Hydro charges for its services. Hydro owns and operates electric generation, transmission and distribution facilities in the province of ritish olumbia. onsolidation he consolidated financial statements include the financial statements of Hydro and its principal wholly owned operating subsidiaries ritish olumbia Hydro International imited, owerex orp. ( owerex ), owertech abs Inc. and estech Information ystems Inc. evenues omestic revenues comprise sales to customers within the province and sales of firm energy to those outside the province under long-term contracts which are reflected in Hydro s domestic load requirements. Other sales outside the province are classified as electricity trade. evenue is recognized on the basis of cyclical billings and also includes electricity deliveries not yet billed. Foreign urrency ranslation Foreign currency denominated revenues and expenses are translated into anadian dollars at the rate of exchange in effect at the transaction date. Foreign currency denominated monetary assets and liabilities are translated into anadian dollars at the rate of exchange prevailing at the balance sheet date. ains and losses arising from the translation of long-term debt are deferred and amortized over the remaining term of the debt. nnual amortization is determined using a reverse sum-of-remaining-years amortization method, with straight-line amortization in the last four years. here foreign currency denominated long-term debt is refinanced in the same currency, any unamortized foreign currency translation gains and losses associated with the refinanced debt are amortized over the shorter of the term to maturity of the new debt or the refinanced debt. here partial refinancing occurs in the same currency, the unamortized foreign currency translation gains or losses continue to be deferred and amortized on a pro rata basis. here foreign currency denominated long-term debt is refinanced in a different currency, any unamortized foreign currency translation gains or losses are included in finance charges at the refinancing date.

11 IIH OUI HYO N OE UHOIY Notes to onsolidated Financial tatements For the Years Ended arch 31, 2002 and 2001 epreciation apital assets in service are depreciated on an individual or a pooled basis over the expected useful lives of the assets, generally using the straight-line method. he expected useful lives, in years, of Hydro s main classes of capital assets are: eneration Hydraulic hermal istribution ransmission lines ubstations uildings Equipment 3 20 ervice vehicles 7 20 undry Finance harges apitalized Finance charges are capitalized on construction in progress at rates equivalent to Hydro s average annual cost of borrowing ( per cent, per cent). he rate takes into consideration annual interest costs plus foreign exchange adjustments and amortization of premiums, discounts and issue costs. apital ssets apital assets in service are recorded at cost which includes materials, direct and indirect labour, an appropriate allocation of administration overhead and finance charges capitalized during construction. apital assets in service include the cost of plant financed by contributions in aid of construction and contributions arising from the olumbia iver reaty. Upon retirement or disposal, any gain or loss is charged to income for assets depreciated on an individual basis, or to accumulated depreciation for assets depreciated on a pooled basis. Unfinished construction consists of construction in progress and the unamortized balance of studies and abandoned or indefinitely deferred projects. he balance includes materials, direct and indirect labour, finance charges capitalized and an appropriate allocation of administration overhead. osts of construction in progress are transferred to capital assets in service when the asset is substantially complete and capable of operation at a significant level of capacity. osts of studies and abandoned or indefinitely deferred projects are deferred and amortized on a straightline basis over five years where it is management s intention to recover the costs through future rates. If the costs of an abandoned or indefinitely deferred project will not be recovered through continuing operations, the costs related to the project, including overhead and interest during construction, are expensed immediately. emporary Investments emporary investments consist of cash and units of the short-term unitized bonds held with the rovince and are valued at the lower of cost and market. aterials and upplies aterials and supplies are valued at average cost less provisions for decline in value to net realizable value.

12 IIH OUI HYO N OE UHOIY Notes to onsolidated Financial tatements For the Years Ended arch 31, 2002 and 2001 ark-to-arket Hydro follows mark-to-market accounting to value certain trading activities. Under mark-to-market accounting, these trade positions are recorded at fair value. hanges in the fair value of open positions, which result primarily from new transactions and the impact of price movements, are recognized as gains or losses in operating revenue in the period of change. he resulting unrealized gains and losses are recorded as trading assets and liabilities. he market prices used to determine fair value reflect management s best estimates considering various factors including closing exchange and over-the-counter quotations, time value and volatility factors. However, it is possible that future market prices could vary from those used in recording the assets and liabilities, and such variations could be material. evenues and cost of purchases associated with energy marketing and trading transactions, which meet the criteria for hedges, are recognized at the time of delivery of the underlying commodity. emand-side anagement rograms emand-side management ( ) programs comprise programs designed to reduce the energy requirements on Hydro s system. Expenditures on programs, including materials, direct labour and applicable portions of administration charges, equipment costs, program costs and incentives, are deferred and amortized on a straight-line basis over ten years, except for project feasibility studies which are expensed as incurred. Incentives provided to assist in the construction of third-party electric generation facilities are deferred and amortized on a straight-line basis over the expected period of operation of the facilities. eferred ebt osts iscount and issue costs arising from debt issues are deferred and amortized on a straight-line basis over the remaining term of the debt. remiums paid to call existing debt are deferred and amortized over the term to maturity of the new debt. erivative Financial Instruments Hydro uses derivative financial instruments, principally interest rate and foreign currency swaps, options and forward rate agreements, solely to manage interest rate and foreign exchange risks related to debt. ayments and receipts under interest rate and cross currency swap contracts are recognized as adjustments to finance charges. ains and losses on terminated derivative interest rate and cross currency swaps, options and forward rate agreements are deferred and amortized over the remaining term of the related contracts.

13 IIH OUI HYO N OE UHOIY Notes to onsolidated Financial tatements For the Years Ended arch 31, 2002 and 2001 Fair Value he fair value of bonds, notes and debentures, and sinking funds reflects changes in the general level of interest rates that have occurred since inception. he fair value of bonds, notes and debentures is based on quoted market values or, where no such information is available, is determined by discounting the expected future cash flows of this debt at market rates for debt with similar terms and conditions. he fair value of sinking fund assets is determined by discounting the expected future cash flows of these assets at market rates for assets with similar terms and conditions. he fair value of a derivative financial instrument reflects the amount that Hydro would receive (or pay) to terminate these instruments at the balance sheet date. he fair value of over-the-counter derivative contracts is determined using pricing models, which take into account market prices and contractual prices of the underlying instruments, as well as time value, yield curve and volatility factors underlying the positions. inking Funds inking funds are held as individual portfolios or units in a pooled bond fund. ecurities included in an individual portfolio are recorded at cost, adjusted by amortization of any discounts or premiums arising on purchase on a yield basis over the estimated term to settlement of the security. ealized gains and losses are included in sinking fund income. Unrealized gains and losses are not recognized. Units in the pooled bond fund are recorded at cost, adjusted by amortization of any realized and unrealized gains and losses on a straight-line basis over the weighted average term to maturity of the related debt portfolio. Foreign currency translation gains and losses are deferred and amortized over the weighted average term to maturity of the related debt portfolio. Future emoval and ite estoration osts rovisions for the costs net of expected recoveries for future removal and site restoration arising on the retirement of capital assets are made where they can be reasonably estimated. hese costs are charged to depreciation expense on a straight-line basis over the expected useful lives of the related assets. rovisions required are revised periodically in accordance with changes in Hydro s assumptions and estimates underlying the calculations and with experience arising from the removal of capital assets. eferred evenue eferred revenue consists principally of amounts received under the kagit iver greements. Under these agreements, Hydro is required to deliver a predetermined amount of electricity each year for an 80-year period ending in fiscal In return Hydro receives approximately U $22 million each year for a 35-year period ending in fiscal 2020 and U $100,000 (adjusted for inflation) each year for an 80-year period ending in fiscal he amounts received under the kagit iver greements are deferred and included in income on an annuity basis over the electricity delivery period ending in fiscal 2066.

14 IIH OUI HYO N OE UHOIY Notes to onsolidated Financial tatements For the Years Ended arch 31, 2002 and 2001 ontributions ontributions in aid of construction are amounts paid by certain customers toward the cost of capital assets required for the extension of services. hese amounts are amortized over the expected useful life of the related assets. ontributions arising from the olumbia iver reaty relate to three dams built by Hydro in the mid- 1960s to regulate the flow of the olumbia iver. he proceeds received were contributed to Hydro to assist in financing the dams construction. hese proceeds were deferred and are amortized to income over the period ending in fiscal 2025, the minimum term of the treaty. Employee enefit lans he cost of pensions and other post-retirement benefits earned by employees is actuarially determined using the projected benefit method prorated on service and management s best estimate of expected plan investment performance, salary escalation, retirement ages of employees and expected health care costs. For the purpose of calculating the expected return on plan assets, those assets are valued at fair value. ast service costs from plan amendments are amortized on a straight-line basis over the average remaining service period of employees active at the date of amendment. he excess of the net actuarial gain (loss) over 10 per cent of the greater of the benefit obligation and the fair value of plan assets is amortized over the average remaining service period of active employees. he average remaining service period of the active employees covered by the pension plan is 12 years ( years). he average remaining service period of the active employees covered by the other retirement benefits plan is 12 years ( years). hen the restructuring of a benefit plan gives rise to both a curtailment and a settlement of obligations, the curtailment is accounted for prior to the settlement. Environmental Expenditures and iabilities Environmental expenditures are incurred specifically to maintain or enhance the quality of the natural and social environment, or to minimize any adverse impact thereon. Environmental expenditures are expensed as part of operating activities, unless they constitute an asset improvement or act to mitigate or prevent possible future contamination, in which case the expenditures are capitalized and amortized to income. Environmental liabilities are accrued when environmental expenditures relating to activities of Hydro are considered likely and the costs can be reasonably estimated. Use of Estimates anagement of Hydro has made a number of estimates and assumptions relating to the reporting of assets and liabilities and to the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. ctual results could differ from these estimates.

15 IIH OUI HYO N OE UHOIY Notes to onsolidated Financial tatements For the Years Ended arch 31, 2002 and 2001 Note 1: egulation Hydro is regulated by the ommission, and they are both subject to general or special directions issued by order of the rovince. Orders in ouncil from the rovince establish the basis for determining Hydro s allowed return on equity, calculation of its revenue requirements, rates charged to customers and the annual ayment to the rovince. ayment to the rovince Hydro is required to make an annual ayment to the rovince on or before une 30 of each year, with respect to the financial results of the most recently completed fiscal year. he payment equals 85 per cent of Hydro s distributable surplus provided the debt:equity ratio of Hydro after deducting the payment is not greater than 80:20. istributable surplus is calculated as consolidated net income adjusted by deducting finance charges capitalized during the year, net of depreciation charged on capitalized finance charges. Equity is calculated as the sum of retained earnings, the ate tabilization ccount, deferred revenue, contributions arising from the olumbia iver reaty and contributions in aid of construction at the end of the fiscal year. ebt is calculated as the sum of revolving borrowings, bonds, notes and debentures, net of related sinking funds, temporary investments and repurchased debt at the end of the fiscal year. evenue equirements, eturn on Equity and ates harged to ustomers he ommission is required to ensure electricity rates are sufficient to allow Hydro to achieve an annual rate of return on equity equal to the return allowed, on a pre-income tax basis, by the most comparable investor-owned energy utility regulated under the Utilities ommission ct. he allowed annual rate of return on equity calculated for 2002 is per cent ( per cent). verage electricity rate increases for each year are limited to the projected rate of inflation for ritish olumbia plus two percentage points. For rate setting purposes, the rate of return on equity projected to be achieved by Hydro is determined after taking into account any available transfer from the ate tabilization ccount. Hydro s basic tariffs for all customers have been frozen until arch 31, ate tabilization ccount he current ate tabilization ccount was established on arch 30, 2000, to mitigate the impact of volatile earnings on ratepayers. ransfers are made to the ate tabilization ccount during high-income years to reduce the need for rate increases in lower-income years. here consolidated net income, before any ate tabilization ccount transfers, is greater than the amount needed by Hydro to achieve the annual rate of return on equity allowed by the ommission, then consolidated net income is decreased accordingly by an appropriate transfer to the ate tabilization ccount. here consolidated net income, before any ate tabilization ccount transfers, is less than the amount needed to achieve the allowed rate of return on equity, then consolidated net income is increased by a transfer from the ate tabilization ccount. ransfers from the ate tabilization ccount are subject to a positive balance existing in the account, provided Hydro s debt:equity ratio, after the transfers, is not greater than 80:20.

16 IIH OUI HYO N OE UHOIY Notes to onsolidated Financial tatements For the Years Ended arch 31, 2002 and 2001 Note 2: Energy osts (in millions) ater rentals $ 228 $ 255 Electricity purchases 3,638 4,158 Fuel hird-party transmission charges ompensation and mitigation costs 6 6 $4,407 $5,162 Electricity purchases include $356 million (2001 $677 million) in energy transactions with the rovince related to anadian Entitlement energy under the olumbia iver reaty. hese energy transactions are in the normal course of operations and are recorded based on market prices. Note 3: epreciation and mortization (in millions) epreciation of capital assets in service $ 363 $ 348 mortization of contributions arising from the olumbia iver reaty and contributions in aid of construction (42) (41) mortization of studies and abandoned or indefinitely deferred projects 7 8 mortization of demand-side management programs Future removal and site restoration costs apital asset write-offs 9 14 $ 386 $ 380 Note 4: axes (in millions) chool taxes and grants $ 140 $ 137 orporation capital taxes and other $ 166 $ 174 chool taxes and grants and corporation capital taxes are paid to the rovince unless otherwise noted. chool taxes of $35 million (2001 $34 million) and grants of $38 million (2001 $37 million) were paid to municipalities and regional districts. ll school taxes paid to municipalities and regional districts are remitted to the rovince. s a rown corporation, Hydro is exempt from anadian federal and provincial income tax.

17 IIH OUI HYO N OE UHOIY Notes to onsolidated Financial tatements For the Years Ended arch 31, 2002 and 2001 Note 5: Finance harges (in millions) Interest on debt securities bonds, notes and debentures $ 568 $ 631 revolving borrowings 3 8 mortization of deferred debt costs and other expenses ess: inking fund income (58) (76) Other income (18) (42) Finance charges capitalized to unfinished construction (16) (13) (92) (131) $ 544 $ 559 Included in interest on debt securities is $557 million (2001 $596 million) in interest paid to the rovince. Note 6: ustomer rofit haring On February 7, 2001, under an Order in ouncil, the rovince directed Hydro to pay its residential tariff customers, Utiliorp Networks anada (formerly est ootenay ower) and the orporation of the ity of New estminster payments equivalent to $200 per residential customer. hese payments totaling $310 million were deducted from income in fiscal Note 7: apital ssets (in millions) apital omposite apital omposite ssets in ccumulated Unfinished epreciation ssets in ccumulated Unfinished epreciation ervice epreciation onstruction ate ervice epreciation onstruction ate eneration Hydraulic $ 5,142 $ 1,570 $ % $ 5,105 $ 1,495 $ % hermal ,541 1, ,474 1, istribution 3,258 1, ,142 1, ransmission lines 2,740 1, ,709 1, ubstations 1, , Other and and buildings Equipment ervice vehicles undry , , otal $ 14,608 $ 5,557 $ 459 $ 14,323 $ 5,256 $ 294

18 IIH OUI HYO N OE UHOIY Notes to onsolidated Financial tatements For the Years Ended arch 31, 2002 and 2001 Note 8: inking Funds inking funds are held by the rustee (the inister of Finance for the rovince) for the redemption of long-term debt. inking fund income is recorded as a reduction of finance charges. he sinking fund balances at the balance sheet date include the following investments: (in millions) eighted verage eighted verage arrying Effective arrying Effective Value ate 1 Value ate 1 oney market unitized funds 2 $ % $ % rovince of and rown orporation bonds Federal and other provincial government securities ate calculated on market yield to maturity. $1,073 $1,148 2 Investments held in money market unitized funds consist of federal and provincial government paper and high-grade commercial paper with a maturity of one year or less. Fair value information for sinking funds is presented in Note 11. inking Fund equirements ubstantially all of Hydro s debt issues have annual sinking fund cash requirements. he annual sinking fund cash requirements for the next five years are: (in millions) anadian $45 $41 $36 $34 $29 U $6 ($9) $6 ($9) $6 ($9) $6 ($9) $6 ($9) Note 9: eferred ebt osts (in millions) Unrealized foreign exchange losses $ 492 $ 517 iscount and issue costs $ 587 $ 633

19 IIH OUI HYO N OE UHOIY Notes to onsolidated Financial tatements For the Years Ended arch 31, 2002 and 2001 Note 10: ong-erm ebt and ebt anagement Hydro s long-term debt comprises bonds, notes and debentures, substantially all of which have annual sinking fund requirements (see Note 8), and revolving borrowings obtained under an agreement with the rovince. Hydro s debt is either held or guaranteed by the rovince. Under the Hydro and ower uthority ct, Hydro is subject to a borrowing limit of $8,800 million after deduction of sinking funds. s at arch 31, 2002, Hydro s total debt under the borrowing limit totaled $6,906 million (2001 $6,900 million). uring fiscal 2002, Hydro issued bonds and debentures totaling $350 million (2001 $450 million) with a weighted average effective interest rate of 5.1 per cent ( per cent) and a weighted average term to maturity of 18.3 years ( years). ong-term debt, expressed in anadian dollars, is summarized in the following table by year of maturity. (in millions) eighted eighted verage verage Interest Interest anadian Foreign otal ate 1 otal ate 1 aturing in fiscal: 2002 $ $ $ % $ % otal 1 5 years 1,315 1,176 2, , years , , years , years years , , years Over 30 years onds, notes and debentures 4,188 3,607 7, , evolving borrowings $ 4,356 $ 3,623 7,979 8,048 ess: urrent portion ong-term debt $ 7,349 $ 7,633 1 he weighted average interest rate represents the effective rate of interest on fixed-rate bonds and notes and the current interest rate in effect at arch 31 for floating-rate bonds and notes, all before considering the effect of derivative financial instruments used to manage interest rate risk. Under an agreement with the rovince, Hydro indemnifies the rovince for any credit losses incurred from contracts entered into by the rovince on Hydro s behalf. Hydro has not experienced any losses due to the indemnity.

20 IIH OUI HYO N OE UHOIY Notes to onsolidated Financial tatements For the Years Ended arch 31, 2002 and 2001 he following interest rate contracts were in place at arch 31, 2002 and 2001, with a carrying value of nil at both dates. verage variable rates are based on the effective rates at the balance sheet date and vary over time. (dollar amounts in millions) eceive fixed, pay floating rate swaps Notional amount 1 $ 1,267 $ 915 eighted average receive rate 5.59% 5.95% eighted average pay rate 2.13% 5.06% emaining terms 4 years 1 year eceive floating, pay fixed rate swaps Notional amount 1 $ 1,210 $ 331 eighted average receive rate 2.04% 6.51% eighted average pay rate 3.70% 6.28% emaining terms 1 year 4 years 1 Notional amount for a derivative instrument is defined as the contractual amount on which payments are calculated. he following foreign currency contracts with a net carrying value of $16 million (2001 $19 million) were in place at arch 31, 2002 and uch contracts are used to hedge foreign dollar principal and interest payments. (dollar amounts in millions) ross urrency waps 1 Hydro receives foreign currency: United tates dollar notional amount 2 U $243 U $195 United tates dollar weighted average exchange rate emaining term 4 years 5 years apanese yen notional amount 2 10,000 10,000 apanese yen weighted average exchange rate emaining term 2 years 3 years 1 Under these arrangements, Hydro receives or pays the foreign currency in exchange for anadian currency. 2 Notional amount for a derivative instrument is defined as the contractual amount on which payments are calculated.

21 IIH OUI HYO N OE UHOIY Notes to onsolidated Financial tatements For the Years Ended arch 31, 2002 and 2001 otal long-term debt, sinking funds and foreign currency contracts are stated in the following table showing the anadian dollar equivalent of the currency in which they are payable. (in millions) t the closing Net rincipal In exchange rates Foreign Net rincipal Outstanding Outstanding urrency at the balance urrency inking efore fter fter Units sheet date ($) ontracts Funds Hedging Hedging Hedging anadian $ 4,356 $4,356 $ $ (401) $ 3,955 $ 4,561 $4,287 U $ 2,151 3,427 (30) (661) 2,736 2,329 2,594 tructured Yen 10, (11) 124 tructured U $ (1) 75 ong-term debt $7,979 $ (16) $ (1,073) $ 6,890 $ 6,890 $6,881 Foreign ebt anagement s at arch 31, 2002, Hydro hedged U dollar debt, including sinking funds and cross currency swaps totaling U $710 million with a anadian dollar equivalent of $1,101 million (2001 U $581 million with a anadian dollar equivalent of $888 million). his results in a net foreign currency exposure of U $1,440 million (2001 U $1,641 million) with a anadian dollar equivalent of $2,295 million (2001 $2,589 million). evolving orrowings evolving borrowings outstanding at arch 31, 2002 have a weighted average remaining term to maturity of 70 days ( days). he authorized commercial paper borrowing program, which includes revolving borrowings, is limited to $1,400 million under the Fiscal gency greement. Interest is charged based on prevailing money market rates. edeemable by the ond Holder ertain debt held by the anada ension lan Investment Fund and by the inister of Finance for the rovince contains provisions allowing holders to redeem the debt prior to maturity, in whole or in part, subject to certain restrictions. t arch 31, 2002 this debt totaled $233 million (2001 $242 million), net of related sinking funds, with maturity dates ranging from fiscal 2005 to fiscal 2010 (2001 fiscal 2005 to fiscal 2010). edeemable by Hydro Hydro debt of $97 million (2001 $102 million), net of related sinking funds, with a coupon rate of 13.5 per cent ( per cent), is callable at Hydro s option on anuary 15, 2004 (2001 anuary 15, 2004).

22 IIH OUI HYO N OE UHOIY Notes to onsolidated Financial tatements For the Years Ended arch 31, 2002 and 2001 Note 11: Financial Instruments Fair Value t arch 31, 2002 and 2001, Hydro s financial instruments included temporary investments, accounts receivable and accrued revenue, sinking funds, accounts payable and accrued liabilities, accrued interest, accrued ayment to the rovince, long-term debt, and interest rate and foreign exchange derivative financial instruments. erivative financial instruments are held with the rovince, which enters into such agreements with third parties on Hydro s behalf. he fair value of Hydro s financial instruments approximates carrying amounts where applicable, except as shown in the following table: (in millions) arrying Value 1 Fair Value 2 arrying Value 1 Fair Value 2 onds, notes and debentures $ (7,795) $ (8,527) $(8,037) $(8,964) evolving borrowings 3 (184) (184) (11) (11) ong-term debt before current portion $ (7,979) $ (8,711) $(8,048) $(8,975) inking funds $ 1,073 $ 1,094 $ 1,148 $ 1,170 erivative financial instruments Net foreign currency contracts $ 16 $ 43 $ 19 $ 47 Interest rate swaps (2) (4) 1 arrying value represents the amount which is recorded in Hydro s financial statements. racketed amounts represent liabilities. 2 arket rates and prices used in determining fair value are as of the closing balance sheet date. 3 ue to the short-term nature of revolving borrowings, fair value approximates carrying value. redit isk anagement Hydro is directly exposed to counterparty credit risk as a result of the purchase and sale of electricity and natural gas by its subsidiary, owerex. owerex s principal markets for power marketing services are power exchanges, power pools, utilities and their affiliates in the western United tates and western anada. owerex has concentrations of credit exposure to these parties throughout these regions. hese concentrations of risk exposure may affect Hydro s overall credit risk in that certain owerex customers may be similarly affected by changes in economic, regulatory, political and other factors. Hydro and owerex manage credit risk by authorizing transactions with only credit-worthy counterparties as determined by Hydro oard-approved policies, and by monitoring the credit risk and credit standing of counterparties on a regular basis. he rapid rise of wholesale power prices and in-state supply shortages caused significant financial hardship for a number of utilities in alifornia during fiscal hese utilities have defaulted on payments to the alifornia ower Exchange (al x) and the alifornia Independent ystem Operator (al IO). s a result of the payment defaults by these utilities, the al x and al IO have been unable to pay amounts owing to owerex. t arch 31, 2002, the amount owing from al x and al IO was U $285 million (dn $454 million). portion of this amount was not recognized as revenue due to market uncertainty. Hydro has recorded provisions for uncollectible amounts, which in management s best estimate are sufficient to provide for any remaining exposure.

23 IIH OUI HYO N OE UHOIY Notes to onsolidated Financial tatements For the Years Ended arch 31, 2002 and 2001 In addition, the tate of alifornia has requested the Federal egulatory ommission (FE) to consider whether refunds should be made to al x, al IO and the alifornia epartment of ater esources by various suppliers, including owerex (see Note 13). ue to the instability in the alifornia market and ongoing developments in regulatory and legal proceedings, management cannot predict the outcome, and the amount ultimately collected may differ materially from management s current estimate. s a result of defaults by the alifornia utilities and certain related government action, management has not disclosed the provision amount or range of expected outcomes due to the potentially adverse effect on the collection process. Note 12: Employee enefit lans Employee enefits Hydro provides a defined benefit pension plan to virtually all employees. ension benefits are based on years of membership service and highest five-year average pensionable earnings. Employees make basic and indexing contributions to the plan funds based on a percentage of current pensionable earnings. nnual cost-of-living increases are provided to pensioners to the extent that funds are available in the indexing fund. Hydro contributes amounts as prescribed by an independent actuary. Hydro provides post-retirement benefits other than pensions including medical, extended health and life insurance coverage for retirees that have at least 10 years of service and qualify to receive pension benefits. Hydro also provides post-employment benefits other than pensions including the short-term continuation of health care and life insurance to terminated employees or to survivors on the death of an employee. ost-employment benefits also include the pay out of benefits that vest or accumulate, such as banked vacation. Information about the defined benefit plans, post-retirement benefits and post-employment benefits other than pensions are as follows: (a) he net expense for Hydro s defined benefit plans is as follows: ension enefit lans Other enefit lans (in millions) efined benefit plans $ 7 $ 6 $ 21 $ 20 (b) Information about Hydro s defined benefit plans as at arch 31, in aggregate, is as follows: ension enefit lans Other enefit lans (in millions) ccrued benefit obligation $ 1,875 $ 1,775 $ 133 $ 128 Fair value of plan assets 1,906 1,986 Funded tatus-lan surplus (deficit) $ 31 $ 211 $ (133) $(128) ccrued benefit asset (liability) $ 79 $ 61 $ (31) $ (16) No valuation allowance was required in 2002.

24 IIH OUI HYO N OE UHOIY Notes to onsolidated Financial tatements For the Years Ended arch 31, 2002 and 2001 (c) Included in the above accrued benefit obligation and fair value of plan assets at year-end are the following amounts in respect of plans that are not fully funded: ension enefit lans Other enefit lans (in millions) ccrued benefit obligation $ 59 $ 55 $ 133 $ 128 Fair value of plan assets Funded tatus-lan deficit $ (59) $ (55) $ (133) $(128) (d) he significant assumptions adopted in measuring the company s accrued benefit obligations are as follows: ension enefit lans Other enefit lans iscount rate 7% 7% 7% 7% Expected long-term rate of return on plan assets 7% 7% projected projected ate of compensation increase inflation + inflation + 1.5% 1.5% For measurement purposes, a 6% health care cost trend rate was assumed for (e) Other information about Hydro s defined benefit plans are as follows: ension enefit lans Other enefit lans (in millions) Employer contributions $ 24 $ 20 $ $ Employees contributions $ 13 $ 9 $ $ enefits paid $ 89 $ 85 $ 6 $ 5 No amendments or curtailments occurred in the pension plans during the year.

25 IIH OUI HYO N OE UHOIY Notes to onsolidated Financial tatements For the Years Ended arch 31, 2002 and 2001 Note 13: ommitments and ontingencies Energy urchase ommitments Hydro has entered into long-term contracts to purchase energy to meet a portion of its expected annual electricity requirements. he minimum obligations to purchase energy under these contracts have a total net present value of approximately $7,563 million of which approximately $1,329 million relates to transportation contracts and the purchase of natural gas at market prices over 30 years. he remaining commitments are at predetermined prices. ayments for the next five years are approximately (in millions): 2003 $1,010; 2004 $688; 2005 $607; 2006 $631; 2007 $634. egal ontingencies (a) owerex, a wholly-owned subsidiary of Hydro, has been named, along with other energy providers, as a defendant in a number of lawsuits which allege that the alifornia wholesale markets were unlawfully manipulated and that the energy prices were not just and reasonable. Estimates of claims against all of the market participants arising from alleged market manipulations range from hundreds of millions of U dollars to several billion U dollars. everal investigations and regulatory proceedings at the state and federal levels are also looking into the causes of the high wholesale electricity prices in the western United tates. ue to the ongoing developments in regulatory and legal proceedings relating to the problems experienced in the alifornia wholesale power market, management cannot predict the outcome of the various claims against owerex. owerex believes the terms of its sales were just and reasonable and do not reflect any alleged market manipulation or other unlawful market conduct. owerex is vigorously defending itself against these claims and prosecuting its claims for unpaid accounts for power sales (see Note 11). (b) On ecember 2, 2001, Enron orp. (Enron) and certain of its subsidiaries filed for bankruptcy protection. s a result, the long-term ower urchase greement between owerex and Enron terminated. Under a 1997 agreement between lcan, Enron ower arketing Inc. (EI), owerex and Hydro, lcan agreed to remain liable to owerex for the payment obligations of EI for which lcan was originally responsible. owerex has initiated a claim against lcan amounting to approximately U $100 million in respect of the value associated with the future energy deliveries to owerex required under the contract. t this time, the outcome of the claim is not determinable. (c) ue to the size, complexity and nature of Hydro s operations, various other legal matters are pending. It is not possible at this time to predict with any certainty the outcome of such litigation. anagement believes that any settlements related to these matters will not have a material effect on Hydro s consolidated financial position or results of operations. Note 14: evenues by eographic ocation (in millions) ritish olumbia $2,450 $ 2,431 est of anada United tates 3,669 5,285 $6,311 $ 7,889

26 Hydro

27 IIH OUI HYO & OE UHOIY EEN OF IE N E I ENE he statement of salaries and wages paid to employees during the year ended 31 arch 2002 lists gross remuneration which includes, besides regular salaries and wages, payments for overtime, shift premiums, isolation and other allowances and payout of earned entitlements. EVENE N uring the fiscal year ended 31 arch 2002 there were 14 severance agreements made between Hydro (including onstruction usiness Unit) and its non-unionized employees. hese agreements represented from 3 to 20 months compensation.

28 IIH OUI HYO & OE UHOIY EEN OF EUNEION N EXENE O OF IEO FI YE ENIN H 31, 2002 NE OIION EUNEION EXENE ell, I hair $ 214,303 $ 30,087 mith, hair 149,494 28,963 ellringer, ember, oar 11,000 est, ember, oard 1, han, ember, oard 4,800 osturos, ember, oard 14,750 errick, E ember, oard 13,250 4,469 Fairweather, ember, oard 20,435 Finch, ember, oard 11,750 1,488 erow, ember, oard 4,900 reen, ember, oard 5,600 2,544 Headley, V ember, oard 3,400 ohansson, ember, oard 5,200 7,385 abarge, ember, oard 13,500 ane, ember, oard 3,300 artin, ember, oard 4,800 5,362 Olewiler, N ember, oard 12,250 ierre, ember, oard 3,400 7,512 owell, ember, oard 14,500 inclair, ember, oard 2,700 tubbs, O ember, oard 5, alsh, E ember, oard 810 eisgerber, ember, oard 13,750 3,242 O $ 534,335 $ 93,489

29 eport I: HYFI001 HYO tatement of emuneration paid to employees and Expenses paid on behalf of employees during the year ended arch 2002 un ate: 1 un ime: 10:50:24 I I O I H NE I O E E O H EH H HF F H V V bbott be bel bernethy beyewardene bramson charya cton dair dair dair dams dams dams dams dams dams dams dams damschek dderley ddie ddo gbayani h am had hlfield insworth irey itken kers kkerman lberti lbinson lbrecht ldeguer lexander lexander lexander lexander lexander lgar lger lger llden lle llen llison lmasch lvarado mbrosi mies mjadi naka naya ndersen ndersen ndersen ndersen ndersen nderson nderson nderson nderson nderson nderson nderson nderson nderson EUNEION EXENE EUNEION EXENE 94, , , ,754 9,278 65, ,184 1,100 85,556 15,579 56,389 82, , ,320 4,895 78,739 12,079 89,879 13,234 66,895 77,517 1,696 93, ,586 2,349 51,982 1, ,014 32,564 50,958 1, ,323 11,554 92,120 3, ,133 19,731 55,409 68, ,915 4,177 84,476 2, , ,110 1,351 57,853 66, , ,495 12,883 98,617 7,124 51, ,189 14,725 69,722 1,455 69,675 1,823 71,905 1,223 61, , ,430 4,240 69, , ,593 62,976 8,873 61, ,246 2,712 68,068 8,612 61,228 3,877 69,422 1,992 56,135 2,996 91, ,194 8,363 53,819 59,422 4,763 67, ,592 6,444 76, ,423 2, ,837 7, ,939 4,460 73, ,884 10,741 69,902 4,856 67,823 5, , ,855 6,201 57,119 9,639 Z V O V V N VE U N H Y H H nderson nderson nderson nderson nderson nderson ndrade ndrews ndrews ndrews ndries ndrijaszyn ndrosky ngman ngus ngus ntal ntao nton ntoniades polzer polzer polzer pps raki rce rcher rdiel rishenkoff rishenkoff rmanini rmatage rmstrong rmstrong rndt rnold rnold rnott rthur shley shton shurst shurst shworth sleson ssaf ssman stells tanackovic therton tzenberger u u ujla uld ustrom uyoung vent vis vren y yling achman achman achmeier ackmo ackmo ackus adenhorst ae 88,005 1,027 52,448 1,451 64,136 2,451 74, , ,254 5,556 78, ,758 4,328 59, , , ,453 2,320 79,398 2,114 71,233 5, ,085 4,525 61,212 3,582 55, ,810 7,033 55,257 3,633 94,784 2,234 53,547 59, ,134 5, ,678 4,731 61, , , ,855 1,309 88,432 16,186 60,273 1, ,775 7,355 67, , ,055 17,634 59,132 2,212 52,687 55,523 5,367 50, ,332 1,802 76, , ,385 2, ,786 2,943 60, ,810 3,340 85,693 3,283 63,970 31,010 62,823 72,611 97,900 16,607 67,890 4,524 52,852 1,234 95, ,044 1,422 67,178 80, , ,445 5,261 68, ,067 1,412 78,826 6,171 59,075 2, ,489 3,637 54,877 4,902 90, , , , ,401 7,280 96,228 38,257