BUSINESS PLANNING – ASSUMPTIONS
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INTRODUCTION 3
Following is a summary of key assumptions related to THESL’s financial projections
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included in the Application.
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ECONOMIC 7
Table 1: Interest and Bond Rates1 (percent, %) 8
2009 Bridge 2010 Test
3-Month T-Bills 0.60 2.14
Prime Rate 2.38 3.96
1-3 Year Government of Canada Bonds 1.05 2.13
3-10 Year Government of Canada Bonds 2.34 2.99
10+ Year Government of Canada Bonds 2.51 2.99
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Table 2: Other1 10
2009 Bridge 2010 Test
CPI 0.8% 2.3%
Cdn$/US$ Exchange Rate 1.26 1.23
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1
TAX RATES 1
Table 3: Tax Rates (percent, %) 2
2008 Historical 2009 Bridge 2010 Test
Federal Tax Rate2 19.50 19.00 18.00
Ontario Tax Rate3 14.00 14.00 14.00
Combined Statutory Tax Rate 33.50 33.00 32.00
Ontario Capital Tax Rate4 0.225 0.225 0.150
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COMPENSATION 5
Table 4: Full Time Equivalent (“FTE”) 6
(Number of FTE) 2009 Bridge 2010 Test
Total 1,630 1,785
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Table 5: Payroll Burden Rate (percent, %) 8
2009 Bridge 2010 Test
Benefit Burden Rate5 28.3 30.2
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2
Source: Income Tax Act (Canada).
3
Source: Taxation Act, 2007 (Ontario). The 2009 Ontario Budget proposed a decrease to the corporate income tax rate from 14 percent to 12 percent by July 1, 2010. This proposal has not yet been substantively enacted.
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Source: Taxation Act, 2007 (Ontario). Ontario capital tax is eliminated effective July 1, 2010. As a result, when calculating capital tax in respect of the 2010 taxation year, the calculated amount must be pro-rated for the number of days in the year after December 31, 2009 and before July 1, 2010.
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Percentage of base pay related to payroll benefits (including medical, dental, post-employment benefits, long-term disability, life insurance, pension, and workers compensation).
CAPITAL EXPENDITURES 1
Table 6: Allowance for Funds Used During Construction (“AFUDC”) (percent, %) 2
2009 Bridge 2010 Test
AFUDC Rate
(as per OEB prescribed rate for Q2 2009) (as per OEB prescribed rate for Q3 2009)
6.61
5.67
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AFUDC is calculated on quarterly construction work in progress (“CWIP”) closing
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balance for distribution plant, net of capital construction.
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Depreciation and Amortization Rates 7
The amortization rates outlined in Appendix B of the 2006 Electricity Distribution Rate
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Handbook6 (“DRH”) published by the OEB are applied to historical and projected
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capitalized expenditures.
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The DRH is silent on the amortization rates related to capitalized software and land rights
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expenditures. THESL’s current capitalization policy outlines the amortization period
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applicable to capitalized software costs to be over three to five years.Land rights are
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amortized over 50 years.
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Capital expenditures related to smart meter implementation are amortized over 15 years
17 beginning January 2008. 18 19 6 Dated May 11, 2005.
REVENUE 1
Distribution Revenue 2
Assuming “normal” weather conditions based on historic weather patterns.
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CUSTOMER AND SERVICE AREA 5
Table 7: By Class (mid-year) 6
2009 Bridge 2010 Test
Residential 608,236 614,841
General Service <50kW 65,911 65,747
General Service 50kW -999kW (non – interval) 12,213 12,276
General Service 1000kW - 4999kW 516 517
Large Users 47 47
Unmetered Scattered Load 1,124 1,124
Total 688,047 694,551
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Service Area 8
Assuming no significant changes to service area.
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REGULATORY 11
Table 8: Carrying Charges (percent, %) 12 2009 Bridge7 2010 Test8 Q1 2.45 1.55 Q2 1.00 2.13 Q3 1.07 3.10 Q4 1.12 4.12 13 14 7
Based on the OEB-prescribed rates for the first two quarters of 2009
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Remaining quarters are based on our latest available forecast of interest rates from the Conference Board of Canada
OPERATIONAL 1
Table 9: Operational (percent, %) 2 2010 Test Inventory Surcharge 8.64 Vehicle Surcharge 7.91 3 Smart Meters 4
Smart meter investments continue to be funded through the OEB rate adder and are not
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included in revenue requirement for 2010.
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IFRS 8
The application includes projected costs related to the International Financial Reporting
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Standards (“IFRS”) assessment and modifications of key processes. These costs, which
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include projected IT and Finance costs that can be reasonably projected given
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information available at the time the application was prepared, are included in a
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regulatory account and are not included in distribution expenses. Related projections will
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likely need to be revised as IFRS impact assessments are completed.
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Incremental and recurring costs resulting from the establishment and ongoing
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management of financial reporting and operating processes required to meet the new
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reporting standards are not included in the 2010 application as the information required to
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reasonably estimate such costs was not available at the time this application was
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prepared.
