COST OF LONG-TERM DEBT

Transcription

1 Filed: 0-- EB-0-0 Exhibit B Tab Schedule Page of COST OF LONG-TERM DEBT.0 HYDRO ONE DISTRIBUTION LONG-TERM DEBT The debt portfolio for Hydro One Distribution, as set out in Exhibit B, Tab, Schedule, is based on debt issued by Hydro One Networks Inc. to Hydro One Inc., of which the Distribution business is mapped a portion. Hydro One Networks Inc. issues debt to Hydro One Inc., reflecting debt issues by Hydro One Inc. to third party public debt investors. 0 Third party public debt investors hold all of the long-term debt issued by Hydro One Inc. Hydro One Inc. s debt financing strategy takes into consideration the objectives of cost effectiveness, distributing debt maturities evenly over time, and ensuring the term of the debt portfolio is compatible with the long life of the Company s assets. 0 Hydro One Inc. has a Medium Term Note ("MTN") Program that provides ready access to issue debt with a term greater than one into the Canadian debt capital markets. The standard maturity terms of five, ten and 0 s are preferred by investors and represent the main financing which Hydro One Inc. utilizes to execute its financing strategy and raise the required funds. The short form base shelf prospectus for the current $.0 billion MTN Program is provided in Exhibit A, Tab, Schedule..0 CREDIT RATINGS As Hydro One Inc. issues medium term notes in the Canadian public debt markets, credit ratings are a requirement. The credit ratings of Hydro One Inc. s debt obligations by Dominion Bond Rating Service, Moody s Investors Service and Standard & Poor s Rating Services are as follows:

2 Updated: EB-0-0 Exhibit B Tab Schedule Page of Table Credit Ratings for Hydro One Inc. Rating Agency Short-term Debt Long-term Debt Standard & Poor s Rating Services (S&P) A- A+ Dominion Bond Rating Service (DBRS) R-(middle) A(high) Moody s Investors Service (Moody s) Prime- A The most recent rating agency reports are provided in Exhibit A, Tab, Schedule..0 COST OF LONG-TERM DEBT 0 The long-term debt rate is calculated as the weighted average rate on embedded debt, new debt (debt issued after the last OEB approved rate application) and forecast debt planned to be issued in 0, 0, 0, 0, 0 and 0. The weighted average rate on long-term debt is.% for 0,.0% for 0,.% for 0,.0% for 0,.% for 0, and.% for 0. Details of Hydro One Distribution s longterm debt rate calculation for the 0 bridge and 0 to 0 test s are identified at Exhibit B, Tab, Schedule, pages to 0. 0 The amount of each Hydro One Networks Inc. debt issue that is mapped to the Distribution business is based on its most recent forecast of borrowing requirements. Borrowing requirements are driven mainly by debt retirement, capital expenditures net of internally generated funds, and the maintenance of its capital structure. For example, in October of 0, Hydro One Inc. issued $0 million of five- notes with a.% coupon rate, of which $. million was mapped to Hydro One Distribution, as shown on line of Exhibit B, Tab, Schedule, page. The interest rates of debt issues mapped to the Distribution business, as shown in Exhibit B, Tab, Schedule, are equal to the actual interest rates on debt issued by Hydro One Networks Inc. to Hydro One Inc., and by Hydro One Inc. to third party public debt investors.

3 Filed: 0-- EB-0-0 Exhibit B Tab Schedule Page of. Embedded Debt 0 The Board has determined in its Cost of Capital Report that for embedded debt, the rate approved in prior Board decisions shall be maintained for the life of each active instrument, unless a new rate is negotiated, in which case it will be treated as new debt. Hydro One Distribution s embedded long-term debt, which was issued during the period from 000 to 00, is shown on lines to of Exhibit B, Tab, Schedule, page. The rates on these embedded debt issues were approved by the Board as part of EB New Debt The Board has determined in its Cost of Capital Report that the rate for new debt that is held by a third party will be the prudently negotiated contract rate. This would include recognition of premiums and discounts. The following discusses new debt issued from 0 to 0, which are shown on lines to of Exhibit B, Tab, Schedule, page. 0 In January of 0, Hydro One Inc. issued $0 million of notes maturing in September 0, of which $00 million was mapped to Hydro One Distribution. At the time of the issue Hydro One entered into a $0 million notional principal amount fixed to floating interest rate swap to convert this note into variable or floating rate debt paying an effective interest rate of three-month bankers acceptance rate plus basis points. This variable rate debt has been included as part of the deemed short-term debt amount equal to % of rate base.

4 Filed: 0-- EB-0-0 Exhibit B Tab Schedule Page of In January of 0, Hydro One Inc. also issued $0 million of four-and-a-half- floating rate notes maturing in July 0 paying an effective interest rate of three-month bankers acceptance rate plus basis points, of which $0 million was mapped to Hydro One Distribution. This variable rate debt has been included as part of the deemed shortterm debt amount equal to % of rate base. In September of 0, Hydro One Inc. issued $00 million of thirty- notes with a.% coupon rate, of which $ million was mapped to Hydro One Distribution, as shown on line of Exhibit B, Tab, Schedule, page. 0 In December of 0, Hydro One Inc. issued $00 million of forty- notes with a.00% coupon rate, of which $0 million was mapped to Hydro One Distribution, as shown on line of Exhibit B, Tab, Schedule, page. In January of 0, Hydro One Inc. issued $00 million of ten- notes with a.0% coupon rate, of which $ million was mapped to Hydro One Distribution, as shown on line of Exhibit B, Tab, Schedule, page. 0 In May of 0, Hydro One Inc. issued $00 million of ten- notes with a.0% coupon rate, of which $ million was mapped to Hydro One Distribution, as shown on line of Exhibit B, Tab, Schedule, page. In May of 0, Hydro One Inc. also issued $ million of forty- notes with a.00% coupon rate, of which $. million was mapped to Hydro One Distribution, as shown on line of Exhibit B, Tab, Schedule, page.

5 Filed: 0-- EB-0-0 Exhibit B Tab Schedule Page of In July of 0, Hydro One Inc. issued $ million of fifty- notes with a.% coupon rate, of which $. million was mapped to Hydro One Distribution, as shown on line of Exhibit B, Tab, Schedule, page. In August of 0, Hydro One Inc. issued $ million of fifty- notes with a.% coupon rate, of which $ million was mapped to Hydro One Distribution, as shown on line of Exhibit B, Tab, Schedule, page. The issue was a re-opening of the.% coupon note originally issued in July 0, bringing the total amount in that series to $0 million. 0 In December of 0, Hydro One Inc. also issued $0 million of four- floating rate notes maturing in December 0 paying an effective interest rate of three-month bankers acceptance rate plus basis points, of which $0 million was mapped to Hydro One Distribution. This variable rate debt has been included as part of the deemed shortterm debt amount equal to % of rate base. 0 In October of 0, Hydro One Inc. issued $ million of thirty- notes with a.% coupon rate, of which $. million was mapped to Hydro One Distribution, as shown on line 0 of Exhibit B, Tab, Schedule, page. This issue was offered on a registered basis in both Canada and the United States and was listed on the New York Stock Exchange. In October of 0, Hydro One Inc. also issued $0 million of five- notes with a.% coupon rate, of which $. million was mapped to Hydro One Distribution, as shown on line of Exhibit B, Tab, Schedule, page. This issue was also offered on a registered basis in both Canada and the United States and was listed on the New York Stock Exchange.

6 Updated: EB-0-0 Exhibit B Tab Schedule Page of. Forecast Debt Hydro One Distribution s forecast borrowing requirements are $. million for 0, $. million for 0, $.0 million for 0, $0. million for 0, $0. million for 0 and $. million for 0. For 0 to 0 planning purposes it is assumed that debt issuance will be evenly distributed over the standard five, ten and 0- terms, which are preferred by investors. 0 Table lists the fixed rate MTN's which Hydro One Distribution plans to issue in 0, as shown in lines to of Exhibit B, Tab, Schedule, page. Year 0 Table Forecast Debt Issues for 0 Principal Term Amount (Years) ($Millions) Coupon..0%. 0.0%. 0.%

7 Updated: EB-0-0 Exhibit B Tab Schedule Page of Table lists the fixed rate MTN's which Hydro One Distribution plans to issue in 0 to 0, as shown on lines to of Exhibit B, Tab, Schedule, page 0. Year Table Forecast Debt Issues for 0 to 0 Principal Term Amount (Years) ($Millions) Coupon..0%. 0.%. 0.%.0.0%.0 0.%.0 0.%..0%. 0.%. 0.%..0%. 0.%. 0.%..0%. 0.%. 0.%

8 Filed: 0-- EB-0-0 Exhibit B Tab Schedule Page of. Interest Rates for 0, 0 to 0 Forecast Debt Issues Distribution business borrowing will be financed at market rates applicable to Hydro One Inc. Table summarizes the derivation of the forecast Hydro One Inc. yield for each of the planned issuance terms for 0 to 0. Table Forecast Yield for 0-0 Issuance Terms Government of Canada.%.0%.0%.%.0%.0%.%.0%.0% Hydro One Spread 0.%.%.% 0.%.%.% 0.%.%.% Forecast Hydro One Yield.0%.0%.%.0%.%.%.0%.%.% Government of Canada.%.0%.00%.%.0%.0%.%.0%.0% Hydro One Spread 0.%.%.% 0.%.%.% 0.%.%.% Forecast Hydro One Yield.0%.%.%.0%.%.%.0%.%.% 0 Each rate is comprised of the forecast Canada bond yield plus the Hydro One Inc. credit spread applicable to that term. The ten- Government of Canada bond yield forecast for 0 is based on the average of the month and month forecast from the September 0 Consensus Forecast. The ten- Government of Canada bond yield forecast for 0 to 0 is based on the average of the October 0 Long Term Consensus Forecast. The five and 0- Government of Canada bond yield forecasts are derived by adding the September, 0 average spreads (five- to ten- for the five- forecast and 0- to ten- for the 0- forecast) to the ten-

9 Filed: 0-- EB-0-0 Exhibit B Tab Schedule Page of Government of Canada bond yield forecast. Hydro One s credit spreads over the Government of Canada bonds are based on the average of indicative new issue spreads for September, 0 obtained from the Company's MTN dealer group for each planned issuance term. 0 Hydro One assumes that forecast debt issuance interest rates for each test will be updated consistent with the ROE methodology, upon the final decision in this case. For rates effective January, 0, the forecast interest rate for Hydro One Transmission debt issues will based on the September 0 Consensus Forecasts and the average of indicative new issue spreads for September 0 which will be obtained from the Company's MTN dealer group for each planned issuance term. For rates effective January, 0 through 0, the forecast interest rate for Hydro One Transmission debt issues will be based on the September Consensus Forecasts and the average of indicative new issue spreads for September of the prior which will be obtained from the Company's MTN dealer group for each planned issuance term. In addition Hydro One assumes that long term debt rate will be updated to reflect and take into account the actual issuances of debt since the time of original application consistent with the OEB s Decision on Hydro One Transmission s 0 and 0 rate application in EB-0-00 and changes in the interest rate forecast. 0

10 Filed: 0-- EB-0-0 Exhibit B Tab Schedule Page 0 of. Treasury OM&A Costs Treasury OM&A costs are incurred to: execute borrowing plans and issue commercial paper and long-term debt; ensure compliance with securities regulations, bank and debt covenants; manage the company s daily liquidity position, control cash and manage the company s bank accounts; settle all transactions and manage the relationship with creditors; and communicate with debt investors, banks and credit rating agencies. 0 Treasury OM&A costs can be found in the long term debt schedules for the bridge and test s in Exhibit B, Tab, Schedule and are summaried in Table below: Table Forecast Treasury OM&A Costs Year Amount ($Millions) Line Page

11 Filed: 0-- EB-0-0 Exhibit B Tab Schedule Page of. Other Financing-Related Fees Column (e) of Exhibit B, Tab, Schedule ("Premium, Discount and Expenses") represents the costs of issuing debt. These costs are specific to each debt issue and include commissions, legal fees, debt discounts or premiums on issues or re-openings of issues relative to par, and hedge gains or losses. 0 Other financing related fees include the Distribution allocation of Hydro One Inc. s annual credit rating agency, letter of credit, banking, custodial and trustee fees. The amount of these fees can be found in the long term debt schedules for the bridge and test s in Exhibit B, Tab, Schedule and are summaried in Table below: Table Forecast Other Financing-Related Fees Year Amount ($Millions) Line Page