Updated: November 30, 2007 Date: 30-Nov-07 SUMMARY OF DISCOUNTED CASH FLOW CALCULATIONS EB Project # Exhibit B Tab 4 Schedule 4 page 1 of 5
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1 Date: 30-Nov-07 SUMMARY OF DISCOUNTED CASH FLOW CALCULATIONS Project # page 1 of 5 Facility Name: Bruce to Milton Reinforcement Project Scope: 500kV Line and related station modifications In-Service Date < Project year ended - annualized from In-Service Date > Month Dec-31 Dec-31 Dec-31 Dec-31 Dec-31 Dec-31 Dec-31 Dec-31 Dec-31 Dec-31 Dec-31 Dec-31 Dec-31 Year Revenue & Expense Forecast Load Forecast (MW) -- see Note Rate Applied ($/kw/month) Gross Revenue - $M OM&A Costs - $M (6.4) (6.4) (6.4) (6.4) (6.4) (6.4) (6.4) (6.4) (6.4) (6.4) (6.4) (6.4) Ontario Capital Tax and Municipal Tax - $M (4.4) (4.4) (4.4) (4.4) (4.3) (4.3) (4.3) (4.3) (4.3) (4.2) (4.2) (4.2) Net Revenue/(Costs) before taxes - $M (10.8) (10.8) (10.7) (10.7) (10.7) (10.7) (10.6) (10.6) (10.6) (10.6) (10.6) (10.6) Income Taxes (incl. LCT) Operating Cash Flow (after taxes) - $M (0.2) (0.2) (0.7) (1.2) Cumulative 5.47% PV Operating Cash Flow (after taxes) - $M (A) 1.8 (0.2) (0.1) (0.4) (0.7) Capital Expenditures - $M Upfront - capital cost before overheads & AFUDC (519.2) - Overheads (61.7) - AFUDC (54.1) Total upfront capital expenditures (635.0) On-going capital expenditures PV On-going capital expenditures 0.0 Total capital expenditures - $M (635.0) PV Proceeds on disposal of assets - $M 0.0 PV CCA Residual Tax Shield - $M 3.5 PV Working Capital - $M (0.2) PV Capital (after taxes) - $M (B) (631.7) (631.7) Cumulative PV Cash Flow (after taxes) - $M (A) + (B) (629.9) (631.7) (632.0) (626.3) (621.9) (618.5) (616.0) (614.2) (613.0) (612.4) (612.1) (612.2) (612.7) (613.3) Discounted Cash Flow Summary (Based on Economic Study Horizon - Years): 25.0 Discount Rate - % 5.47% Start Date: 1-Jan-09 Before After Impact of $M $M $M In-Service Date: 31-Dec-11 PV Incremental Revenue PV Incremental OM&A Costs (87.8) (87.8) PV Ontario Capital Tax and Municipal Tax (58.9) (58.9) Payback Year: N/A PV Income Taxes and LCT PV CCA Tax Shield PV Capital - Upfront (635.0) (635.0) No. of years required for payback: N/A Add: PV Capital 0.0 (635.0) 0.0 (635.0) PV Capital - On-going PV Proceeds on disposal of assets PV Working Capital (0.2) (0.2) PV Surplus / (Shortfall) (629.9) (629.9) N/A Profitability Index* *PV of total cash flow, excluding net capital expenditure & on-going capital & proceeds on disposal / PV of net capital expenditure & on-going capital & proceeds on disposal
2 Date: 30-Nov-07 SUMMARY OF DISCOUNTED CASH FLOW CALCULATIONS Project # page 2 of 5 Facility Name: Scope: Bruce to Milton Reinforcement Project 500kV Line and related station modifications Month Dec-31 Dec-31 Dec-31 Dec-31 Dec-31 Dec-31 Dec-31 Dec-31 Dec-31 Dec-31 Dec-31 Dec-31 Dec-31 Year Revenue & Expense Forecast Load Forecast (MW) -- see Note Rate Applied ($/kw/month) Gross Revenue - $M OM&A Costs - $M (6.4) (6.4) (6.4) (6.4) (6.4) (6.4) (6.4) (6.4) (6.4) (6.4) (6.4) (6.4) (6.4) Ontario Capital Tax and Municipal Tax - $M (4.2) (4.2) (4.2) (4.2) (4.2) (4.2) (4.2) (4.1) (4.1) (4.1) (4.1) (4.1) (4.1) Net Revenue/(Costs) before taxes - $M (10.6) (10.5) (10.5) (10.5) (10.5) (10.5) (10.5) (10.5) (10.5) (10.5) (10.5) (10.5) (10.5) Income Taxes (incl. LCT) Operating Cash Flow (after taxes) - $M (1.7) (2.1) (2.5) (2.8) (3.1) (3.4) (3.7) (4.0) (4.2) (4.4) (4.6) (4.8) (4.9) PV Operating Cash Flow (after taxes) - $M (A) (0.9) (1.0) (1.1) (1.2) (1.3) (1.4) (1.4) (1.4) (1.4) (1.4) (1.4) (1.4) (1.3) Capital Expenditures - $M Upfront - capital cost before overheads & AFUDC - Overheads - AFUDC Total upfront capital expenditures On-going capital expenditures PV On-going capital expenditures Total capital expenditures - $M PV Proceeds on disposal of assets - $M PV CCA Residual Tax Shield - $M PV Working Capital - $M PV Capital (after taxes) - $M (B) Cumulative PV Cash Flow (after taxes) - $M (A) + (B) (614.2) (615.2) (616.3) (617.6) (618.9) (620.2) (621.6) (623.0) (624.4) (625.8) (627.2) (628.6) (629.9)
3 page 3 of 5 REVENUE REQUIREMENT AND NETWORK POOL RATE IMPACT USING 2008 NETWORK POOL RATE AS THE BASE YEAR Project YE Project YE Project YE Project YE Project YE Project YE Project YE Project YE Project YE Project YE Project YE Project YE Bruce to Milton Reinforcement Project 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec Calculation of Incremental Revenue Requirement ($000) In-service date 31-Dec-11 Capital Cost 635,000 Less: Capital Required (0) Net Capital 635,000 Average Rate Base 314, , , , , , , , , , , ,074 Incremental OM&A Costs 1.0% 6,350 6,350 6,350 6,350 6,350 6,350 6,350 6,350 6,350 6,350 6,350 6,350 Ontario Capital Tax 0.285% Grants in Lieu of Municipal tax 0.63% 3,970 3,970 3,970 3,970 3,970 3,970 3,970 3,970 3,970 3,970 3,970 3,970 Depreciation 1.4% 6,689 6,689 6,689 6,689 6,689 6,689 6,689 6,689 6,689 6,689 6,689 6,689 Interest and Return on Rate Base 6.59% 20,694 41,168 40,727 40,287 39,846 39,405 38,965 38,524 38,083 37,643 37,202 36,761 Income Tax Provision 34.50% (1,379) (5,506) (4,022) (2,665) (1,427) (298) 732 1,670 2,524 3,300 4,004 4,643 Large Corporations Tax 0.000% REVENUE REQUIREMENT PRE-TAX 36,786 53,104 54,121 55,013 55,788 56,457 57,027 57,507 57,904 58,225 58,475 58,661 Incremental Revenue -- see Note SUFFICIENCY/(DEFICIENCY) (36,786) (53,104) (54,121) (55,013) (55,788) (56,457) (57,027) (57,507) (57,904) (58,225) (58,475) (58,661) Base Year* Network Pool Revenue Requirement including sufficiency/(deficiency) 595, , , , , , , , , , , , ,332 Network MW 257, , , , , , , , , , , , ,655 Network Pool Rate ($/kw/month) Increase/(Decrease) in Network Pool Rate ($/kw/month), relative to base year RATE IMPACT relative to base year 6.1% 9.1% 9.1% 9.5% 9.5% 9.5% 9.5% 10.0% 10.0% 10.0% 10.0% 10.0% * Base Year revenue requirement and charge determinants for rate impact analysis are OEB-approved amounts for 14-month period from Nov. 1/2007 to Dec. 31/2008, multiplied by 12/14ths to convert to an annualized basis. Assumptions Ontario Capital Tax 0.285% 2008 Ontario capital tax rate Grants in Lieu of Municipal tax 0.6% Transmission system average Depreciation 1.4% Reflects 74 year weighted average service life for towers, conductors and station equipment, excluding land Interest and Return on Rate Base 6.59% Includes OEB-approved ROE of 8.35% on common equity, 4.6% forecast short-term debt rate, 5.47% forecast long-term debt rate, and40/4/56 com equity/short-term/long-term/debt split Income Tax Provision 34.50% 2008 federal and provincial corporate income tax rate including surtax Large Corporations Tax 0.000% 2008 large corporations tax rate Capital Cost Allowance 8% 100% Class 47 assets (formerly Class 1) Incremental OM&A 1% 1% of Initial Capital per year
4 page 4 of 5 REVENUE REQUIREMENT AND NETWORK POOL RATE IMPACT USING 2008 NETWORK POOL RATE AS THE BASE YEAR Project YE Project YE Project YE Project YE Project YE Project YE Project YE Project YE Project YE Project YE Project YE Project YE Project YE Bruce to Milton Reinforcement Project 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec Calculation of Incremental Revenue Requirement ($000) In-service date 31-Dec-11 Capital Cost 635,000 Less: Capital Required (0) Net Capital 635,000 Average Rate Base 551, , , , , , , , , , , , ,115 Incremental OM&A Costs 1.0% 6,350 6,350 6,350 6,350 6,350 6,350 6,350 6,350 6,350 6,350 6,350 6,350 6,350 Ontario Capital Tax 0.285% Grants in Lieu of Municipal tax 0.63% 3,970 3,970 3,970 3,970 3,970 3,970 3,970 3,970 3,970 3,970 3,970 3,970 3,970 Depreciation 1.4% 6,689 6,689 6,689 6,689 6,689 6,689 6,689 6,689 6,689 6,689 6,689 6,689 6,689 Interest and Return on Rate Base 6.59% 36,321 35,880 35,440 34,999 34,558 34,118 33,677 33,236 32,796 32,355 31,915 31,474 31,033 Income Tax Provision 34.50% 5,221 5,744 6,215 6,639 7,020 7,361 7,665 7,936 8,175 8,386 8,571 8,731 8,869 Large Corporations Tax 0.000% REVENUE REQUIREMENT PRE-TAX 58,787 58,859 58,880 58,854 58,786 58,679 58,536 58,359 58,152 57,917 57,656 57,371 57,065 Incremental Revenue -- see Note SUFFICIENCY/(DEFICIENCY) (58,787) (58,859) (58,880) (58,854) (58,786) (58,679) (58,536) (58,359) (58,152) (57,917) (57,656) (57,371) (57,065) Base Year* Network Pool Revenue Requirement including sufficiency/(deficiency) 595, , , , , , , , , , , , , ,735 Network MW 257, , , , , , , , , , , , , ,655 Network Pool Rate ($/kw/month) Increase/(Decrease) in Network Pool Rate ($/kw/month), relative to base year RATE IMPACT relative to base year 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 9.5% 9.5% * Base Year revenue requirement and charge determinants for rate impact analysis are OEB-approved amounts for 14-month period from Nov. 1/2007 to Dec. 31/2008, multiplied by 12/14ths to convert to an annualized basis.
5 Page 5 of 5 Hydro One Networks -- Transmission Connection Economic Evaluation Model 2007 Parameters and Assumptions Transmission rates are based on 2007/2008 uniform provincial transmission rates, per EB Monthly Rate ($ per kw) Network 2.31 Transformation 1.61 Line 0.59 Grants in lieu of Municipal tax (% of up-front capital expenditure, a proxy for property value): 0.63% Ontario Capital tax based on currently enacted rates, per TSC Appendix 5 (% of UCC, a proxy for taxable capital) : 0.285% % % % % % Based on Transmission system average 2007 provincial rate Fully allocated overheads per TSC section (c) using Hydro One Networks forecast Transmission capitalized overhead rate AFUDC rate: Varies from year to year; latest forecast as follows: % % % % % Based on Hydro One Networks Transmission forecast embedded cost of debt. Charged on construction work in progress to in-service date of capital. Income taxes (based on currently enacted rates, per TSC Appendix 5): Basic Federal Tax Rate (before surtax) % % of taxable income: Federal Surtax - % of taxable income: % Ontario corporation income tax % % of taxable income: Large Corporation Tax - % of UCC (a proxy for taxable % capital) Capital Cost Allowance Rate, Class 47: % * Rate rhange retroactively enacted in 2006 to 8% for assets added after Feb. 22/05; formerly Class 1 After-tax Discount rate: % * Based on OEB-approved ROE of 8.35% on common equity, 4.6% forecast shortterm debt rate, 5.47% forecast long-term debt rate, 36/4/60 common equity/shortterm/long-term debt split, and 2008 enacted income tax rate of 34.5%
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