Hydro One Networks Inc. 7th Floor, South Tower Tel: (416) 345-5700 483 Bay Street Fax: (416) 345-5870 Toronto, Ontario M5G 2P5 Cell: (416) 258-9383 www.HydroOne.com [email protected] Susan Frank Vice President and Chief Regulatory Officer Regulatory Affairs BY COURIER July 31, 2014 Ms. Kirsten Walli Secretary Ontario Energy Board Suite 2700, 2300 Yonge Street P.O. Box 2319 Toronto, ON. M4P 1E4 Dear Ms. Walli: EB-2014-0244 – MAAD S86 Hydro One Networks Inc. Application to Purchase Haldimand County Utilities Inc. I am attaching two (2) paper copies of Hydro One Inc’s MAAD Application for the acquisition of Haldimand County Utilities Inc. Please note that information has been redacted in Exhibit A, Tab 3, Schedule 1, Attachment 6 pertaining to employee, property owner, and account information. An electronic copy of the complete application has been filed using the Board’s Regulatory Electronic Submission System. Sincerely, ORIGINAL SIGNED BY SUSAN FRANK Susan Frank attach. Filed: 2014-07-31 EB-2014-0244 Exhibit A Tab 1 Schedule 1 Page 1 of 6 1 ONTARIO ENERGY BOARD 2 3 IN THE MATTER OF the Ontario Energy Board Act, 1998, S.O. 1998, c. 15 (the “Act”). 4 5 IN THE MATTER OF an application made by Hydro One Inc. for leave for Hydro One Inc., 6 acting through its subsidiary 1908872 Inc.. (referred to collectively hereinafter as “Hydro One 7 Inc.”) to purchase all of the issued and outstanding shares of Haldimand County Utilities Inc., 8 made pursuant to section 86(2)(b) of the Act. 9 10 AND IN THE MATTER OF an application made by Haldimand County Hydro Inc. to include 11 a rate rider in the 2014 Ontario Energy Board (“OEB”) approved rate schedule of Haldimand 12 County Hydro Inc. to give effect to a 1% rate reduction relative to 2014 base electricity delivery 13 rates (exclusive of rate riders), made pursuant to section 78 of the Act. 14 15 AND IN THE MATTER OF an application made by Haldimand County Hydro Inc. for leave to 16 transfer its distribution system to Hydro One Networks Inc., made pursuant to section 86(1)(a) of 17 the Act. 18 19 AND IN THE MATTER OF an application made by Haldimand County Hydro Inc. for leave to 20 transfer Haldimand County Hydro Inc.’s distribution licence and rate order to Hydro One 21 Networks Inc., made pursuant to section 18 of the Act. Filed: 2014-07-31 EB-2014-0244 Exhibit A Tab 1 Schedule 1 Page 2 of 6 1 APPLICATION 2 3 1.0 INTRODUCTION 4 5 Hydro One Inc. (“HOI”) is an Ontario corporation with its head office in the City of Toronto. 6 HOI is wholly-owned by the Province of Ontario and is the parent company of Hydro One 7 Networks Inc. (“Hydro One”), 1908872 Ontario Inc., Hydro One Brampton Networks Inc., 8 Hydro One Remote Communities Inc., Norfolk Power Distribution Inc. and Hydro One Telecom 9 Inc. 10 11 Hydro One’s distribution system serves approximately 1.2 million customers in its service 12 territory (see Exhibit A, Tab 3, Schedule 1, Section 1.3.3 for further customer details). 13 14 Haldimand County Hydro Inc. (“HCHI”) is a wholly-owned subsidiary, at the date of this 15 application, of Haldimand County Utilities Inc. (“HCUI”). HCUI is a holding company, 16 currently wholly-owned by The Corporation of Haldimand County (“Haldimand County”). 17 18 HCHI’s distribution system serves approximately 21,264 Residential and General Service 19 customers in the HCHI service territory (see Exhibit A, Tab 3, Schedule 1, Section 1.3.3 for 20 further customer details). 21 22 2.0 OVERVIEW OF APPLICATION 23 24 On June 10, 2014, Haldimand County (the "Vendor”) and HOI, through its wholly-owned 1 25 affiliate 1908872 Ontario Inc. (the “Purchaser”) , entered into a share purchase agreement (the 1 The Share Purchase Agreement is structured between The Corporation of Haldimand County, 1908872 Ontario Inc. and Hydro One Inc. 1908872 Ontario Inc. was used to allow for tax efficient integration of the two corporate structures. The shares held by 1908872 Ontario Inc. will be transferred to HOI after closing. As such, this OEB application has referenced the transaction as between HOI and The Corporation of Haldimand County Filed: 2014-07-31 EB-2014-0244 Exhibit A Tab 1 Schedule 1 Page 3 of 6 1 “Agreement”), under which the Vendor has agreed to sell, and the Purchaser has agreed to 2 purchase, all of the issued and outstanding shares of HCUI (the “Purchased Shares”). The 3 purchase price is $75.0 million, comprised of a cash payment of approximately $65.2 million for 4 the Purchased Shares and the assumption of HCUI’s short and long-term debt of approximately 5 $9.8 million. The Agreement contemplates the transaction closing after all conditions precedent 6 are met and within the 90 days following the Parties’ receipt of all required approvals, including 7 Ontario Energy Board (“the Board” or “OEB”) approval of this Application under sections 8 86(2) and 86(1) of the Act. 9 10 The Agreement (see Exhibit A, Tab 3, Schedule 1, Attachment 6) includes the following 11 customer-focused actions in addition to the sale of the shares: 12 13 (a) HCHI will apply to the OEB for approval to include a negative rate rider to HCHI’s 14 electricity rates (effective May 1, 2014) to reduce base delivery distribution rates by one per 15 cent across all Rate Classes, and to have such reduced rates apply for the next five years (see 16 Exhibit A, Tab 2, Schedule 1, Section 1.2 for further detail); 17 (b) During the period in which the negative rate rider is in effect, Hydro One and HCHI intend to 18 transfer HCHI’s regulated distribution system assets so that they are owned by, integrated 19 with, and form part of Hydro One’s existing distribution system. The Parties therefore seek 20 to have HCHI’s existing Electricity Distribution Licence (ED-2002-0539) and Rate Orders 21 transferred to Hydro One. Asset transfer and integration steps are expected to occur within 22 18 months after the close of the transaction; 23 (c) Following the effective period for the negative rate rider, Hydro One expects to apply to 24 harmonize HCHI rates with Hydro One’s revenue requirement. The rebasing and rate 25 harmonization application is expected to take effect in 2020 and will be based on then- 26 prevailing forecast costs as discussed in Exhibit A, Tab 2, Schedule 1, Section 2; 27 (d) The Purchaser or its affiliates shall offer all active employees of HCHI continued 28 employment in Haldimand County for a period of at least one year; Filed: 2014-07-31 EB-2014-0244 Exhibit A Tab 1 Schedule 1 Page 4 of 6 1 (e) The Purchaser and the Vendor shall establish an advisory committee (the “Advisory 2 Committee”) to provide a forum for communication between the Purchaser and the Vendor. 3 In establishing the Advisory Committee, the Purchaser shall select representatives, including 4 the local superintendent from Hydro One’s Zone 2 or equivalent, in consultation with 5 officials of the Vendor. The Vendor has the right to appoint at least three representatives to 6 the Advisory Committee; and 7 (f) If at any time during the period beginning on the closing date and continuing for the five 8 years following closing date, the five-year rolling average for reliability in HCHI's pre- 9 closing territory falls below the average reliability reported by HCHI to the OEB for the five 10 years prior to closing, the Purchaser shall make a payment to the Vendor in the amount of 11 $100,000, to be used to address charitable or other community interests. 12 13 The purchase price is subject to adjustment, within 90 days following closing, for working 14 capital, net fixed assets and long term debt, in accordance with the Agreement. 15 16 3.0 OEB APPROVAL REQUESTS 17 18 • HOI is applying to the Board pursuant to section 86(2)(b) of the Act, for leave to acquire all 19 the issued and outstanding shares of HCUI from the Vendor. 20 • HCHI is applying pursuant to section 86(1)(a) of the Act, for leave to transfer its distribution 21 system to Hydro One. 22 • HCHI is applying pursuant to section 18 of the Act, for leave to transfer HCHI’s distribution 23 licence and rate order to Hydro One. The rate base value of HCHI’s assets is approximately 24 $52.3 million and will be transferred to Hydro One Distribution’s rate base. 25 • HCHI is applying for approval to include a rate rider in the 2014 OEB-approved rate 26 schedule of HCHI to give effect to reducing the approved 2014 base delivery distribution 27 rates (EB-2013-0134) by one per cent. See Exhibit A, Tab 2, Schedule 1, Section 1.2 for 28 further information. Filed: 2014-07-31 EB-2014-0244 Exhibit A Tab 1 Schedule 1 Page 5 of 6 1 • HCHI is applying for approval to extend the rate rider Funding Adder for Renewable Energy 2 Generation to be in effect until the effective date of the next cost of service application. 2 3 • Hydro One is applying for approval to defer the rate rebasing of the Hydro One Haldimand 4 business unit for five years from the date of closing the proposed transaction, consistent with 5 the Report of the Board titled “Rate-making Associated with Distributor Consolidation” 6 issued July 23, 2007.
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