Quarterly Report

For the nine months ended December 31, 2012

• Financial Overview
• Electricity Operations
• Natural Gas Operations
• Final Unit Producing Power at Wuskwatim
• Manitoba Hydro Wins Urban Land Institute Global Award
• Riel Station Transformers
• PAYS Financing Program Makes Energy Efficiency More Accessible
• Power Smart Neighbourhood Program
• Consolidated Statement of Income
• Consolidated Balance Sheet
• Consolidated Cash Flow Statement
• Consolidated Statement of Comprehensive Income
• Segmented Information
• Generation and Delivery Statistics

Comments by
THE CHAIRMAN OF THE BOARD
and by
THE PRESIDENT AND CHIEF EXECUTIVE OFFICER

Financial Overview

Manitoba Hydro incurred a net loss on consolidated electricity and natural gas operations of $38 million for the first nine months of the 2012-13 fiscal year compared to net income of $29 million for the same period last year. The net loss was comprised of a $24 million loss in the electricity sector and a $14 million loss in the natural gas sector. The loss in the electricity sector was attributable to decreased revenues from electricity spot market sales and higher operating expenses mainly due to accounting changes and pension-related cost increases. The placing in-service of Wuskwatim Generating Station also contributed to cost increases over the nine-month period. The reduced electricity sector revenues and higher expenses were consistent with expectations for the third quarter. The loss in the natural gas sector is the result of seasonal variations in the demand for natural gas and is expected to be recouped over the winter heating season.

Manitoba Hydro is forecasting that financial results will improve over the balance of the fiscal year and net income should reach $30 million by March 31, 2013. The achievement of this level of net income is dependent on the approval of a rate increase application currently before the Public Utilities Board of Manitoba.

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Electricity Operations

Revenues from electricity sales within Manitoba totalled $906 million for the nine-month period, an increase of 3.2% or $28 million compared to the same nine-month period last year. The increase in domestic revenue was attributable to electricity rate increases, which are subject to final approval by the Public Utilities Board, and colder weather resulting in a higher heating load. Extraprovincial revenues of $280 million were $22 million or 7% lower than the same period last year reflecting decreased sales volumes partially offset by marginally increased prices. Energy sold in the export market was 7.6 billion kilowatt-hours compared to 8.8 billion kilowatt-hours sold in the same period last year.

Expenses attributable to electricity operations totalled $1 218 million for the nine-month period, an increase of $86 million or 8% higher than the previous year. The increase was the net result of a $27 million increase in operating and administrative expenses, a $45 million increase in finance expense and a $28 million increase in depreciation and amortization partially offset by a $14 million decrease in power purchases. The increase in operating and administrative expenses was mainly attributable to IFRS-related accounting changes and higher pension and benefit costs resulting from a change in discount rate. Finance expense increased primarily due to higher volumes of long-term debt and the financing costs associated with Wuskwatim Generating Station coming into service during the year. Depreciation and amortization increased primarily as a result of additions to plant and equipment coming into service, including the Wuskwatim Generating Station. Power purchases decreased primarily as a result of lower system merchant purchases due to lower arbitrage opportunities between markets.

Capital expenditures for the nine-month period amounted to $733 million compared to $738 million for the same period last year. Expenditures during the current period included $120 million related to future Keeyask and Conawapa generation, $77 million for Bipole projects, $63 million related to Wuskwatim generation, $58 million for Pointe du Bois projects, $60 million for the Riel Station and $20 million for demand-side management programs. The remaining capital expenditures were incurred for ongoing system additions and modifications necessary to meet the electrical service requirements of customers throughout the province.

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Natural Gas Operations

In the natural gas sector, a net loss of $14 million was incurred for the nine-month period compared to a $19 million net loss for the same period last year. Revenue, net of cost of gas sold, was $91 million which was $7 million higher than the same period last year. The increase in revenues was primarily attributable to higher weather-related demand over the current nine-month period. Delivered gas volumes were 1 207 million cubic metres compared to 1 169 million cubic metres in the prior period.

Expenses attributable to natural gas operations amounted to $105 million compared to $103 million for the same period last year. The $2 million increase was due to higher depreciation and amortization costs.

Capital expenditures in the natural gas sector were $29 million for the current nine-month period compared to $26 million for the same period last year. Capital expenditures included $23 million related to system improvements and other expenditures necessary to meet the natural gas service requirements of customers throughout the province and $6 million for demand-side management programs.

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Final Unit Producing Power at Wuskwatim

A major milestone was achieved at the Wuskwatim Generating Station on October 6, 2012 when the last of three generators entered commercial operation. The 200-megawatt Wuskwatim Generation Station on the Burntwood River was constructed over a six-year period. Wuskwatim is the first generation station to be built in Manitoba in nearly two decades and the first formal partnership agreement in Canada involving a First Nation and an electric utility for development of a major generation station.

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Manitoba Hydro Wins Urban Land Institute Global Award

Manitoba Hydro Place was one of fourteen real estate developments from around the world selected as a winner of the 2012 Urban Land Institute Global Awards for Excellence. Selected from nearly 200 entries throughout the world, Manitoba Hydro Place was recognized as a state-of-the art energy efficient, cost-effective structure exemplar of sustainable development.

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Riel Station Transformers

Three giant transformers were moved from their Winnipeg factory to their new home at Manitoba Hydro's Riel Station. The transformers were transported using a special 320-tire transporter similar to the unit used to recently move the space shuttle Endeavour through the streets of Los Angeles. The transformers are being installed as part of the reliability improvements on Manitoba Hydro's 500 000-volt transmission line linking Manitoba to Minnesota.

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PAYS Financing Program Makes Energy Efficiency More Accessible

Manitoba Hydro's new financing program, launched in early November 2012, makes energy efficiency accessible to more Manitoba homeowners or tenants who rent a home. The Power Smart* Pay as You Save (PAYS) Financing Program provides Manitoba Hydro residential customers a convenient option for completing energy efficiency upgrades to their homes while keeping upfront costs and future monthly finance payments as small as possible. PAYS financing allows a customer to use their estimated annual utility savings gained from installing energy efficiency measures, such as a high-efficiency furnace or attic insulation, to pay for those measures. Manitoba Hydro's new PAYS program is the first of its kind in Canada.

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Power Smart Neighbourhood Program

In late November 2012, Manitoba Hydro launched its Power Smart Neighbourhood Program to help lower income neighbourhoods become more energy efficient. Through this program, Manitoba Hydro will work with community organizations and groups to bring the benefits of energy efficiency and sustainability to residents of lower income neighbourhoods on a block-by-block project basis. The program includes free in-home energy reviews, improvements to sealing, caulking and weatherstripping, the installation of pipe wrapping and water efficiency devices, new high-efficiency furnaces and boilers and performing insulation upgrades.

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Bill Fraser, FCA Chairman of the Board	Scott A. Thomson President and Chief Executive Officer February 14, 2013

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Consolidated Statement of Income In Millions of Dollars (Unaudited)
	Nine Months Ended December 31		Three Months Ended December 31
	2012	2011	2012	2011
Revenues
Electric
Manitoba	906	878	331	304
Extraprovincial	280	302	73	76
Gas
Commodity	98	119	64	69
Distribution	91	84	46	38
	1,375	1,383	514	487
Cost of gas sold	98	119	64	69
	1,277	1,264	450	418
Expenses
Operating and administrative	384	357	118	115
Finance expense	361	316	131	106
Depreciation and amortization	316	286	109	93
Water rentals and assessments	87	90	30	29
Fuel and power purchased	96	110	37	34
Capital and other taxes	79	76	26	25
	1,323	1,235	451	402
Net (Loss) Income before non-controlling interest	(46)	29	(1)	16
Net Loss attributable to non-controlling interest	8	-	6	-
Net (Loss) Income	(38)	29	5	16

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Consolidated Balance Sheet In Millions of Dollars (Unaudited)
	As at December 31, 2012	As at December 31, 2011
Assets
Capital assets	12,297	11,500
Current assets	614	649
Other assets	1,130	1,129
	14,041	13,278
Liabilities and Equity
Long-term debt (net)	8,886	8,774
Current liabilities	1,227	711
Other liabilities	750	668
Non-controlling interest	99	98
Contributions in aid of construction	328	312
Retained earnings	2,412	2,418
Accumulated other comprehensive income	339	297
	14,041	13,278

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Consolidated Cash Flow Statement In Millions of Dollars (Unaudited)
	Nine Months Ended December 31		Three Months Ended December 31
	2012	2011	2012	2011
Operating Activities
Cash receipts from customers	1,384	1,469	459	463
Cash paid to suppliers and employees	(741)	(796)	(246)	(240)
Net interest	(299)	(270)	(48)	(26)
	344	403	165	197
Financing Activities	581	531	(53)	(210)
Investing Activities	(838)	(807)	(302)	(285)
Net increase (decrease) in cash	87	127	(190)	(298)
Cash at beginning of period	50	69	327	494
Cash at end of period	137	196	137	196

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Consolidated Statement of Comprehensive Income In Millions of Dollars (Unaudited)
	Nine Months Ended December 31		Three Months Ended December 31
	2012	2011	2012	2011
Net (Loss) Income	(38)	29	5	16
Other Comprehensive Income (Loss)
Unrealized foreign exchange gains (losses) on debt in cash flow hedges	8	(89)	(21)	42
Realized foreign exchange losses on debt in cash flow hedges reclassified to income	1	-	1	-
Unrealized fair value gains on available-for-sale U.S. sinking fund investments	3	18	-	(1)
	12	(71)	(20)	41
Comprehensive (Loss) Income	(26)	(42)	(15)	57

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Segmented Information In Millions of Dollars (Unaudited)
Nine Months Ended December 31	Electricity		Gas		Total
	2012	2011	2012	2011	2012	2011
Revenue (net cost of gas sold)	1,186	1,180	91	84	1,277	1,264
Expenses	1,218	1,132	105	103	1,323	1,235
Net (Loss) Income before non-controlling interest	(32)	48	(14)	(19)	(46)	29
Net Loss attributable to non-controlling interest	8	-	-	-	8	-
Net (Loss) Income	(24)	48	(14)	(19)	(38)	29
Three Months Ended December 31	Electricity		Gas		Total
	2012	2011	2012	2011	2012	2011
Revenue (net cost of gas sold)	404	380	46	38	450	418
Expenses	416	369	35	33	451	402
Net (Loss) Income before non-controlling interest	(12)	11	11	5	(1)	16
Net Loss attributable to non-controlling interest	6	-	-	-	6	-
Net (Loss) Income	(6)	11	11	5	5	16
Total Assets	13,425	12,677	616	601	14,041	13,278

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Generation and Delivery Statistics
	Nine Months Ended December 31		Three Months Ended December 31
	2012	2011	2012	2011
Electricity in gigawatt-hours
Hydraulic generation	24,421	25,292	8,135	8,213
Thermal generation	72	69	40	26
Scheduled energy imports	335	111	207	80
Wind purchases (MB)	622	654	222	270
Total system supply	25,450	26,126	8,604	8,589
Gas in millions of cubic metres
Gas sales	680	595	449	358
Gas transportation	527	574	224	219
	1,207	1,169	673	577