Schedule 2-1: Description of the Applicant

RP-2005-0020/EB-2005-0422/0423/0424/0425

Veridian Connections Inc.

2006 Distribution Rate Application

August 9, 2005

Page 1 of 2

Schedule 2-1: Description of the Applicant

Name of the Distributor:Veridian Connections Inc.

Current Licence No. of the Distributor:ED-2002-0503

Community or Communities Served:All or parts of:

• Ajax
• Belleville
• Brock Township
• Clarington
• Pickering
• Port Hope
• Scugog Township
• Township of Uxbridge

Adjacent Distributors:Hydro One Networks

Toronto Hydro Electric System

PowerStream Inc.

Whitby Hydro Electric Corporation

Characteristics of the Service Area:Mixed urban, suburban and rural

Embedded or Host Distributor:Combination of direct connections to the IESO controlled grid and embedded connections to Hydro One Networks’ host facilities

Mailing Address:Veridian Connections Inc.

55 Taunton Road East

Ajax, ONL1T 3V3

Key Contacts:Name:George Armstrong

Title:Manager of Regulatory Affairs

Veridian Corporation

55 Taunton Road East

Ajax, ONL1T 3V3

Tel.:(905) 427-9870, Ext. 2202

E-mail:

Fax:(905) 619-0210

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Name:Laurie Stickwood

Title:Manager of Corporate Planning

Veridian Corporation

55 Taunton Road East

Ajax, ONL1T 3V3

Tel.:(905) 427-9870, Ext. 2230

E-mail:

Fax:(905) 619-0210

Name:James C. Sidlofsky

Title:Counsel to the Applicant

Borden Ladner Gervais LLP

Suite 4100, 40 King Street West

Toronto, ONM5H 3Y4

Tel.:(416) 367-6277

E-mail:

Fax:(416) 361-2751

RP-2005-0020/EB-2005-0422/0423/0424/0425

Veridian Connections Inc.

2006 Distribution Rate Application

August 9, 2005

Page 1 of 1

Schedule 2-2: Corporate Structure

RP-2005-0020/EB-2005-0422/0423/0424/0425

Veridian Connections Inc.

2006 Distribution Rate Application

August 9, 2005

Page 1 of 5

Schedule 3-1: Tier 1 Adjustments

This form is to be used for all Tier 1 adjustments, except for non-routine/unusual and CDM adjustments, for which Schedules 3.2 and 3.4 should be used.

1.Standard Distribution Expense Adjustments

This table must be completed for the three standard distribution expense adjustments, outlined below:

2005 Actual (1) / 2004 Actual (2) / Adjustment (3)
(1) – (2)
OEB Annual Assessment and Other Fees Paid to Energy Regulators* / $345,012 / $190,867 / $154,145
Pensions / $311,059 / $340,690 / $29,631
Insurance / $231,192 / $239,096 / ($7,904)

*An applicant must provide a breakdown of costs being claimed, if it includes cost recoveries other than OEB annual assessments.

Other Fees Paid to Energy Regulators:

Name of Regulator/Fee:Electrical Safety Authority (ESA)

Amount of Fee:$21,627 (incremental to 2004 Fee)

Explanation:These fees are imposed by the ESA for 2005 Regulatory Oversight Cost Recovery. On February 11, 2004, the Ontario Government enacted Ontario Regulation 22/04, the Electrical Distribution Safety Regulation. The Electricity Act establishes the ESA’s authority to establish and collect fees to recover the cost of regulatory oversight. Oversight by the ESA is compulsory by law and Veridian is obligated to pay the assessed fees.

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2.Other Standard Distribution Expense and Rate Base Adjustments

State any adjustments that have been made for the following items in the sections below, and provide a full explanation for them.

Specify to which areas adjustments have been made (i.e. rate base, expenses). For rate base adjustments, also provide an explanation of the relevant depreciation adjustments.

If no adjustments have been made, explain why.

• Low voltage/wheeling adjustments
• Smart Meter initiatives
• New transformer stations with a 2005 in-service date
• Wholesale meters to the 2005 actuals
• Retirements without replacement

Adjustments have been made for:

Low voltage/wheeling adjustments – Distribution Expense

The Handbook provides[1] that the corresponding Tier 1 adjustment will be "calculated based on the currently approved LV charges as applied to the embedded distributor's 2004 consumption levels." Hydro One LV Charges of $1,754,815 have been included in Tier 1 adjustments on distribution expenses.

Calculation of Hydro One LV Charges - Tier 1 Adjustment
Actual kw / Calculated LV / Specific LV Line / Shared DS Charge
($0.56 per kw) / Charge / ($1.87 per kw)
Jan-04 / 234,651 / $131,404.52 / $12,054.80 / $2,977.04
Feb-04 / 277,059 / $155,152.93 / $12,054.80 / $2,594.06
Mar-04 / 201,883 / $113,054.67 / $12,054.80 / $2,336.75
Apr-04 / 194,405 / $108,866.95 / $12,054.80 / $2,175.18
May-04 / 338,650 / $189,644.25 / $12,054.80 / $1,687.49
Jun-04 / 240,064 / $134,435.88 / $12,054.80 / $1,783.23
Jul-04 / 259,507 / $145,323.67 / $12,054.80 / $1,965.37
Aug-04 / 245,838 / $137,669.08 / $12,054.80 / $1,872.99
Sep-04 / 226,704 / $126,954.47 / $12,054.80 / $1,980.70
Oct-04 / 192,525 / $107,814.20 / $12,054.80 / $2,043.54
Nov-04 / 198,011 / $110,885.89 / $12,054.80 / $2,348.72
Dec-04 / 218,300 / $122,248.20 / $12,054.80 / $2,937.77
Total 2004 / $1,583,454.71 / $144,657.60 / $26,702.85
Total Hydro One LV Charge - Tier 1 Adjustments / $1,754,815.16

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Smart Meter Initiatives – Distribution Expense

Veridian will incur smart meter related distribution expenses in 2006 beyond those that are set out in its CDM plan. Incremental operating expenses are calculated at $228,381 and details are provided in the table below.

Smart Meter Initiatives – Rate Base

Veridian will incur capital expenditures related to smart meters that are incremental to those that are set out in its CDM plan. A Tier 1 adjustment to Rate Base has been made in the amount of $4,619,350. The table below provides detail calculations for these incremental Rate Base expenditures.

RP-2005-0020/EB-2005-0422/0423/0424/0425

Veridian Connections Inc.

2006 Distribution Rate Application

August 9, 2005

Page 4 of 5

Calculation of 2005/06 Smart Meter Costs, Incremental to CDM Plan Expenditures
1.) Implementation Schedule
Total # / # to be / Conversions / Conversion Schedule for Remainder
of Customers / Converted / Incremental to
to be Converted / under CDM Plan / CDM Plan / 2006 / 2007 / 2008 / 2009 / 2010
Residential / 85577 / 500 / 85077 / 17015 / 17015 / 17015 / 17015 / 17015
G.S. < 50 kW / 7310 / 0 / 7310 / 1462 / 1462 / 1462 / 1462 / 1462
G.S. 50 kW to 200 kW / 709 / 709 / 0 / 0 / 0 / 0 / 0 / 0
G.S. > 200 kW / 120 / 120 / 0 / 0 / 0 / 0 / 0 / 0
Total / 93716 / 1329 / 92387 / 18477 / 18477 / 18477 / 18477 / 18477
Note: Conversion schedule for 2006 to 2010 incorporates the distributor targets detailed in section 2.5.7 of the OEB’s Smart Meter Implementation Plan
(i.e. 100% of G.S. > 50 kW conversions and 40% of residential conversions by Dec. 31st 2007)
2.) Cost Assumptions / Source
Per unit capital costs:
- Residential / $250 / OEB Smart meter implementation plan,
- G.S. < 50 kW / $250 / notes to Appendix C-2, table 2
- G.S. 50 kW to 200 kW / not applicable / Assume same as residential - see note above
- G.S. > 200 kW / not applicable
Annual per unit incremental OPEX:
- Residential / $12.36 / Based on the monthly operating cost of $1.42 per month less $0.39 per month operating benefits, as stated in appendix C-2, table 2 of the OEB's Smart Meter Implementation Plan.
- G.S. < 50 kW / $12.36
- G.S. 50 kW to 200 kW / $12.36
- G.S. > 200 kW / $12.36
Depreciation Period for Smart Meter Capital (years): / 15 / OEB Smart meter implementation plan, notes to Appendix C-2, Table 2
3.) Incremental 2006 Smart Meter Costs
Capital expenditures: / $4,619,350
Capital expenditures - back office CIS / $0 / Already assumed in $250 per meter costs
less depreciation @ 6.66% (15 year life) / $307,957
Net increase in distribution assets: / $4,311,393
Incremental operating costs: / $228,381
Depreciation expense: / $307,957
Incremental operating expense: / $536,337

RP-2005-0020/EB-2005-0422/0423/0424/0425

Veridian Connections Inc.

2006 Distribution Rate Application

August 9, 2005

Page 5 of 5

Wholesale Meters to the 2005 Actuals – Rate Base

Veridian has budgeted and has a workplan for wholesale metering installations in 2005. The Tier 1 adjustment to Rate Base for wholesale metering is $633,812.

These include:

a)completion of work begun in 2003 on 7 wholesale metering points in the amount of $138,543

b)completion of work begun in 2004 on 6 wholesale metering points in the amount of $190,269

c)completion of 2005 work on 4 wholesale metering points in the amount of $305,000.

Depreciation Adjustments relevant to Rate Base Adjustments

Net adjustment to amortization - $370.913

Tier 1 adjustments to amortization that relate to Tier 1 adjustments to the Rate Base are being made in the amount of $433,749.

Smart Meter Rate Base Adjustment - $4,619,350 - 15 year life assumed – depreciation calculated at 6.66% annually. Depreciation adjustment calculated at $307,957.

CDM – (capital amount - 3rd tranche) - $2,511,000 - 25 year life assumed – depreciation calculated at $100,440.

Wholesale Meter Rate Base Adjustment - $633,812 - 25 year life assumed – depreciation calculated at $25,352.

Other adjustments to amortization relate to the adjustment to Rate Base for the removal of Fair Market Value write up of distribution assets as outlined in Schedule 4.2.

The total of the amortization adjustment is a reduction in amortization expenses of ($62,836).

Veridian does not anticipate that any new transformer stations and directly-associated assets will come on line with an in-service date of 2005. Veridian does not anticipate that any asset will be retired without replacement in 2005, where the net book value of the retirement exceeds 0.2% of net fixed assets before adjustments.

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Schedule 3-2: Tier 1 Non-routine/unusual Adjustments

This form is to be used for Tier 1 Adjustments that are non-routine/unusual adjustments.

If the applicant is not making any such adjustments, a statement to that effect should be made in this Schedule.

Non-routine/unusual Adjustments – Distribution Expenses

Veridian has included a Tier 1 Adjustment to Distribution expenses that it considers non-routine/unusual. The adjustment is $87,147 in amount and adjusts the 2004 balance of Account 5335 – Bad Debt Expense.

It is Veridian’s opinion that although a bad debt expense amount is recorded for accounting purposes in Account 5335, a more appropriate measure of bad debt occurrences for inclusion in distribution expenses and subject to materiality review, is the level of bad debt occurrences written off.

Veridian, in accordance with GAAP, calculates bad debt expense (as recorded in Account 5335) annually at year end using the following formula: Bad Debt Expense = Allowance for Bad Debt (balance at YE) – Accounts written off in Year + Allowance for Bad Debt (level to be set for next fiscal year).

Allowance for Bad Debt is a credit balance sheet account which reduces Accounts Receivable by the estimated amount of uncollectable receivables. This estimate is based on historical experience, current market factors (such as changes in collection or disconnect policies) and management judgement. As the level of this contra asset may fluctuate from year to year, it can be seen that bad debt expense will fluctuate as well. An unrealized high estimate of uncollectable accounts in one year can serve to reduce bad debt expense in the subsequent year as the level of Allowance for Bad Debt is corrected for this next fiscal period.

The actual amount of write offs in any given year is the true value of ‘bad debt occurrences’, which Veridian believes is the ‘bad debt recovery sought’ and should be included in distribution expenses and subject to review for material bad occurrences.

Veridian confirms that this adjustment exceeds its materiality criteria for Tier 1 Distribution expense adjustments of $52,336.

Events for which Non-Routine/Unusual Adjustments have not been made:

A comparison of 2004 to 2003 distribution expense levels reveals a reduction in overall distribution expenses of over 10%. In 2004, Veridian achieved cost reductions of controllable expenses of approximately $3.4M or 16% over 2003 levels. These new expense levels are anticipated to continue, hence there are no identifiable variances in expense levels that need adjustment.

While these changes in expense levels from 2003 may appear “non-routine/unusual”, they are not.
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Schedule 3-3: Tier 2 Adjustments - Not Applicable

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Schedule 3-4: Conservation and Demand Management Adjustments

Veridian has included a Tier 1 adjustment to rate base related to capital expenditures for third tranche CDM spending. An adjustment is being made, as the amounts being claimed are not already included in the 2004 costs.

A copy of Veridian Connections’ approved CDM spending plan follows this Schedule. The amount of capital expenditures approved for the period January 1, 2005 to September 30, 2007 total $2,511,000 and are identified in the plan.

RP-2005-0020/EB-2005-0422/0423/0424/0425

Veridian Connections Inc.

2006 Distribution Rate Application

August 9, 2005

Page 1 of 3

Schedule 4-1: Capital Expenditures

An applicant must file detailed information on its 2004 capital expenditures in the following format. For any projects exceeding the materiality threshold, a detailed summary of the project should be attached to this form outlining key information about it. This would include its purpose, its cost, its timing, and other information that the applicant believes would be relevant to the Board and other interested parties.

Note:All Capital Expenditures recorded in 2004 are considered to have In-Service Date of 2004

Project$(000) AmountIn-Service Date

Intangible Plant14

Distribution Plant

• land and land rights
• buildings, fixtures, and leasehold improvements
• distribution equipment (itemized below by UsoA account # - details attached for all projects exceeding materiality of $150,000 - Note: Project costs include those cost components from many UsoA accounts)

1725692

1730413

173516

1740106

18151

182098

1830548

18351,014

1840499

18451,206

18501,570

18551,646

7,806

Less Contributed Capital3,406

Net Distribution Equipment4,400

• meters754

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General Plant

• land and land rights
• buildings, fixtures, and leasehold improvements
• equipment (non-IT)185
• IT equipment
• billing systems
• SCADA systems
• GIS/CIS systems420
• hardware/software2
• other

• load management controls174
• other (specify)

Other Capital Assets

• property under capital leases
• electric plant purchased or sold
• other (specify)

Total Capital Expenditures5,949

Projects Exceeding Materiality Criteria - $150,000

Distribution Equipment:

Project / Amount / Description
2004 District Allowance - Ajax / $277,460 / This amount represents the cumulative total of smaller capital work orders initiated by local staff. The work orders include replacements of individual or small groups (2-5) of poles, switches, switchgear, or transformer attachments discovered to be deficient in some manner during the course of routine local operations. Typical work orders can range from $1000 to $50,000 approximately.
2004 District Allowance – Belleville / $204,742 / This is the same as the above except it applies to the Belleville operating area.
Taunton Rd. Pole Relocation / $412,071 / This project is the relocation of approximately 2.0km of multi-circuit pole line necessitated by a major road project.
2004 Transformer Replacements / $156,505 / Transformers in the Ajax operating area, identified for replacement in 2004 through a testing program.
Whitby TS 40M23 & M24 Feeders / $214,977 / This is the construction of three new 44kV supply feeders involving approximately 2.5km of new underground and overhead lines.
Closed Capital Projects / $438,024 / This is a collection of various work orders for new and replacement poles, conductor, transformers and services under an older and terminated work order numbering system.
Capitalized Interest / $154,479 / This is the one collected total of finance charges applied to various projects during the year while those projects were active and accumulating charges.
Bowmanville South Voltage Conversion / $258,094 / The voltage conversion of a section of 4kV in the Bowmanville operating area was charged here. Costs include new insulators, pole top equipment, cable products and transformers and the labour and vehicle time allocated.
New Residential Services / $823,635 / All new underground and overhead residential services installed and connected during the year are collected here.

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Meters:

Project / Amount / Description
Collector Project-Various Capital-Metering / $344,190 / A collector project covering new 1-ph and 3-ph retail meters purchased/installed during the year.
2003 Wholesale Metering / $193,996 / Labour and equipment to upgrade/replace 7 wholesale metering points. Work completed to ensure IESO compliance.

GIS/CIS Systems:

Project / Amount / Description
GIS Project / $412,768 / Costs in 2004 to acquire new software, hardware and field data to build a Geographical Information System.

RP-2005-0020/EB-2005-0422/0423/0424/0425

Veridian Connections Inc.

2006 Distribution Rate Application

August 9, 2005

Page 1 of 3

Schedule 4-2: Adjustments to Rate Base

Summary of Inclusions/Exclusions to Rate Base using Sheet 2-4 ADJUSTED ACCOUNTING DATA
Account / Adjust Amt. / Reallocate / Remove 2004 YE
Assigned to / 2004 YE / Balance for
Distribution / Balance to / FMV - Belleville
by the Model / Classify as Dist. / (exc. From
(incl. In Rate Base) / Rate Base)
1606 - Organization / Non-Dist. / $ 1,590,581 / $ 1,590,581
1610 - Misc. Intangible Plant / Non-Dist. / $ (236,289) / $ (236,289)
1725 - Poles & Fixtures / Non-Dist. / $ (5,500,377) / $ (5,500,377)
1730 - Overhead Conductors & Devices / Non-Dist. / $ (1,022,146) / $ (1,022,146)
1735 - Underground Conduit / Non-Dist. / $ (688,449) / $ (688,449)
1740 - Underground Conductors & Devices / Non-Dist. / $ (1,192,117) / $ (1,192,117)
1805 - Land / Dist. / $ (78,000) / $ (78,000)
1820 - Distribution Station Equipment / Dist. / $ (69,951) / $ (69,951)
1830 - Poles, Towers and Fixtures / Dist. / $ 4,969,535 / $ 5,500,377 / $ (530,842)
1835 - Overhead Conductors & Devices / Dist. / $ 1,022,146 / $ 1,022,146
1840 - Underground Conduit / Dist. / $ 874,456 / $ 688,449 / $ 186,007
1845 - Underground Conductors & Devices / Dist. / $ 1,192,117 / $ 1,192,117
1850 - Line Transformers / Dist. / $ 95,976 / $ 95,976
1855 - Services / Dist. / $ (1,182,390) / $ (1,182,390)
1980 - System Supervisory Equipment / Dist. / $ (11,381) / $ (11,381)
1990 - Other Tangible Property / Dist. / $ 236,289 / $ 236,289
Balanced Entries for Adjustments / 0 / 0 / 0

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ADJ 1a (RATE BASE-TIER1) - Non Routine/Unusual Adjustments
Adjustments to 2003 YE Rate Base accounts as suggested to
provide 'workaround' for the absence of a 2003 'relief valve'
as per ‘Notes to EDR 2006 Model version 2.1’ / Reallocate / Remove 2003 YE
Account / Entered as / 2003 YE / Balance for
Non-Routine / Balance to / FMV - Belleville
Unusual Adj. / Classify as Dist. / (exc. from
(incl. in Rate Base) / Rate Base)
1805 - Land / Dist. / $ (78,000) / $ (78,000)
1820 - Distribution Station Equipment / Dist. / $ (69,951) / $ (69,951)
1830 - Poles, Towers and Fixtures / Dist. / $ 4,277,126 / $ 4,277,126
1835 - Overhead Conductors & Devices / Dist. / $ 609,461 / $ 609,461
1840 - Underground Conduit / Dist. / $ 857,921 / $ 857,921
1845 - Underground Conductors & Devices / Dist. / $ 1,086,425 / $ 1,086,425
1850 - Line Transformers / Dist. / $ 95,976 / $ 95,976
1855 - Services / Dist. / $ (1,182,390) / $ (1,182,390)
1980 - System Supervisory Equipment / Dist. / $ (11,381) / $ (11,381)
1990 - Other Tangible Property / Dist. / $ 222,730 / $ 222,730
5,807,917 / 7,053,663 / (1,245,746)

Inclusion of Assets in the Rate Base

Veridian had, during the mapping of its chart of accounts from the previous Municipal Utility accounting treatments to the UsoA accounting treatment, recorded distribution assets in accounts in the UsoA that are not treated as distribution assets within the Model. As per the “Instructions for Users of EDR 2006 Model- page 12 – dated June 15, 2005), adjustments have been on Sheet 2-4 ADJUSTED ACCOUNTING DATA (Column E) to Rate Base accounts to re-classify these amounts as distribution assets.

These adjustments are for assets recorded in Accounts 1725, 1730, 1735 and 1740. Veridian holds distribution assets under 50kV that it had previously classified (under the previous accounting treatment) as Sub-transmission Assets. As these are distribution assets, they have been reclassified to Accounts 1830, 1835, 1840 and 1845.

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Reduction of the Assets in Rate Base

In 2001, in the recording of the merger of Veridian Connections Inc. with Belleville Utilities, entries were made in the accounting books of Veridian Connections Inc. to increase distribution asset values by a portion of the Fair Market Value assessment of Veridian’s assets. This accounting treatment was recommended by Veridian’s external auditors and was in accordance with Generally Accepted Accounting Principles (GAAP). While this entry was acceptable for GAAP and for tax accounting, it is not in keeping with regulatory accounting and inclusion of these amounts would overstate Veridian’s regulated Rate Base as the increase in assets were not funded through distribution rate revenues. Accordingly, Veridian has removed the remaining undepreciated value of this accounting write up from the appropriate distribution asset values.

RP-2005-0020/EB-2005-0422/0423/0424/0425

Veridian Connections Inc.

2006 Distribution Rate Application

August 9, 2005

Page 1 of 1

Schedule 5-1: Weighted Debt Cost

[This Schedule is incorporated into the actual 2006 EDR model under Tab 3-4]

(1) / (2) / (3) / (4) / (5) / (6) / (7) / (8) / (9)
No. / Description / Debt Holder / Is Debt Holder Affiliated?
(Y/N) / Date of Issuance / Principal / Term (Years) / Actual Rate / Debt rate used for weighted debt rate cost
1 / Promissory Notes Payable / Municipality of Clarington / N / Nov 1, 2001 / $6,004,000 / 5 / 7.6% / 7.6%
2 / Promissory Notes Payable / City of Pickering / N / Nov 1, 2001 / $18,012,000 / 5 / 7.6% / 7.6%
3 / Promissory Notes Payable / Town of Ajax / N / Nov 1, 2001 / $13,984,000 / 5 / 7.6% / 7.6%
4 / Promissory Notes Payable / City of Belleville / N / Nov 1, 2001 / $5,588,000 / 5 / 7.6% / 7.6%
5 / Loan Payable / Veridian Corporation / Y / Jan 16, 2002 / $11,500,000 / 4 / 5.66% / 5.66%
6 / Loan Payable / Veridian Corporation / Y / Aug 23, 2002 / $3,000,000 / 4 / 5.54% / 5.54%
Total: / $58,088,000 / 7.11% / 7.11%

In column (8), use the Deemed DR from the first-generation PBR Distribution Rates Handbook (see Table 3-1 of that Handbook) for historical debt for the period March 2000 to May 13, 2005, rather than the updated DR shown in Table 5.1 of the 2006 Handbook. For new debt issued as of May 13, 2005, the updated deemed debt rate in Table 5.1 is used. For debt before 2000, the applicant may have to demonstrate that the debt rate was at, or below, market rates in effect at the time that the debt was issued. For debt held by an unaffiliated third party, use the actual debt rate.