CORPORATE STAFF LEVELS

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1 .0 OVERVIEW CORPORATE STAFF LEVELS Filed: August, 00 RP /EB-00-0 Tab Page of The effective deployment of human resources is critical to any organization, and is particularly so in a technically complex and geographically diverse an organization as Hydro One. An effective staffing strategy must consider not only the amount of work to be done, but also the nature the work, the skills required, and the most effective means of acquiring those skills in the face of a fluctuating work program. Both demographic and skills analysis is required on an ongoing basis to ensure the Corporation not only retains the appropriate talent in the present, but is positioned to attract and develop talent through recruitment and training in the future. Much work has been done since the inception of Hydro One to identify the appropriate number and mix of staff. While much has been achieved within pre-existing and continuing constraints, significant challenges remain. 0.0 STAFFING STRATEGY Subsequent to the demerger of Ontario Hydro, Hydro One inherited the employees whose main job accountabilities were related to the operation of the transmission and distribution business. In addition, Hydro One was allocated the financial liabilities associated with pensioners whose last job prior to retirement, was related to Ontario Hydro s transmission and distribution business.

2 Filed: August, 00 RP /EB-00-0 Tab Page of In addition to inheriting staff, Hydro One inherited collective agreements and pension and benefit plans which were incorporated by reference into the collective agreements, and therefore, subject to change only through collective bargaining. Shortly after becoming operational as a new company, it became evident that there were three immediate staffing challenges: ) Total staff allocated to Hydro One exceeded what could be supported if the company were to operate in a commercially viable fashion. ) The workforce was aging, which is a fact of particular concern in trades positions requiring considerable physical exertion. ) Work programs, often driven by customer demand, fluctuated significantly throughout the year. Collective agreements applicable to more than 0% of staff required that junior (and typically younger) staff be laid off first, which would have exacerbated the problem of aging demographics. Consequently, a Voluntary Retirement Program (VRP) was implemented in 00 and ultimately accepted by,0 employees. 0 The immediate impact of the VRP was to reduce the average age of the workforce by approximately two years. Such a dramatic reduction in numbers caused considerable strain in some areas, because of the need to meet work demands. However, it also afforded an opportunity to bring new skills into the Corporation, and to alter the staff mix through three key means: i) The Corporation commenced an annual apprentice hiring program to maintain trades skills, and lower the average age of employees. In addition, the use of apprentices reduced labour costs relative to the use of seasoned journeypersons.

3 ii) iii) Filed: August, 00 RP /EB-00-0 Tab Page of Graduate trainee hiring from universities was stepped up to replace departed or soon to be departed Society of Energy Professionals ( the Society ) represented staff and Management staff. Again, this lowered the average age of employees, and introduced new skills and reduced costs, as salaries were lower than those paid to more senior staff. Increased utilization of a hiring hall arrangement with the Power Workers Union ( PWU ) that allowed for skilled contingent workers to be used in the event that the numbers of full time staff were insufficient to meet work program demands. Under this arrangement, skilled trades could be promptly and effectively deployed anywhere in the Province for the duration of the work, and be laid off at no cost upon completion of the work. To ensure that staff levels were strategically managed in the future, strict hiring controls on regular staff were implemented. Re-employment of former employees was prohibited except in unusual circumstances supported by a business case, and approved by the President. As well, all external hiring had to be approved by the President. 0 Subsequent downsizing of approximately 0 staff in 00 and approximately 0 staff in 00 occurred as the Corporation continued to refine the number and mix of staff required to effectively carry out the work program, while balancing the need to meet shareholder expectations. In addition to examining the staff required for the work it was doing, Hydro One examined the work itself, and concluded that it should exit from functions that were not core to the operation of the wires business. Hydro One Networks also sought to operate more completely as an integrated Transmission and Distribution business. This integration would (and has) allowed for maximum utilization of resources. The labour

4 Filed: August, 00 RP /EB-00-0 Tab Page of force can be effectively deployed from one work program to the other, based upon customer need and other operational drivers. With respect to the focus on core work, Hydro One had the following objectives: provision of defined service levels provision of services at lower cost access to state of the art processes, change management, and intellectual knowledge opportunity to focus on core business skills related to maintaining the Transmission and Distribution system. Ultimately, an agreement was reached with Inergi LP to outsource some or all work within the following functions: Finance, Human Resources, Customer Care, Information Technology and Supply Management. On March, 00, Hydro One Networks employees were transferred to Inergi LP. Five hundred and sixty-nine were represented by the PWU, were represented by the Society, and were Management staff. 0 In addition to identifying the appropriate total staff complement, Hydro One continues to undertake ongoing examinations of the best mix of staff resources, in light of the company s interest in establishing and maintaining a flexible and integrated workforce..0 LABOUR TYPES The staff categories utilized over time in varying ratios are:

5 Filed: August, 00 RP /EB-00-0 Tab Page of ) Regular Employees, (of which there are three categories): (i) (ii) (iii) PWU represented staff: The PWU is an industrial union that represents the trades, operators, technicians and clerical workers. They perform line work, forestry, electrical, mechanical, protection and control, meter reading, stock keeping, system operating, technical and clerical/administrative work. Society represented staff: The Society is a professional union that represents engineers, technical, administrative and supervisory staff. They perform engineering, high level technical and administrative work as well as supervisory functions. Management staff, who are excluded from representation because they carry out managerial duties or work on confidential labour relations matters or legal matters. ) Temporary Employees Staff in any of the three categories set out above, engaged in work that is not of a continuing nature. 0 ) Hiring Hall Employees (PWU) These employees are utilized to meet fluctuating work demands. They perform primarily supplemental construction and maintenance work. ) Building Trade Unions (BTUs) There are construction BTUs that negotiate their collective agreements with the Electrical Power Sector Construction Association (EPSCA), which is an employers

6 Filed: August, 00 RP /EB-00-0 Tab Page of association made up of Hydro One, Ontario Power Generation, Bruce Power and the major contractors in the electrical sector in Ontario. The BTUs supply a contingent workforce through their hiring halls. ) Canadian Union of Skilled Workers (CUSW) CUSW is a construction union that represents lines and electrical tradespersons who work primarily on transmission construction. Their members are contingent workers and are accessed through the CUSW hiring hall. ) Contract staff These are individuals who are engaged as independent contractors and are not on the payroll of the Corporation. They are retained typically to bring in particular skill sets on projects, or to perform other work that is not of an ongoing nature. With the exception of Management staff, and Contract staff, all employees in the categories outlined above are employed pursuant to the terms of collective agreements between the Corporation and its respective unions. 0.0 STAFFING LEVEL/MIX The Corporation has had significant success in maintaining tight control on regular staffing levels, while deploying a contingent (non-regular) workforce to meet peak work demands. The utilization of non-regular staff has increased from % of total staff in 00 to 0% of total staff in 00. Annual staff levels have been closely monitored, and have increased at a slower rate than the Transmission and Distribution work program has increased, reflecting an improved overall utilization of the workforce.

7 Filed: August, 00 RP /EB-00-0 Tab Page of Recruitment: Over the next five years, Hydro One will see the onset of a significant wave of retirements in critical trades, technical and engineering populations. The Corporation is committed to recruiting top new graduates through on-campus programs. New graduates are highly ambitious and possess the latest training and education in their fields. These new resources play a critical part in future success by rejuvenating the Company and establishing a pool of candidates for succession planning. Hydro One's new Graduate Training Program is managed by the Human Resources Department. Training and development is identified in consultation with the line organization and each new graduate takes part in an extensive training program which involves rotations through various units, in-house and external workshops, seminars and courses. 0 Hydro One has already increased its rate of recruitment into its trades apprenticeships and technical training programs and is working on developing partnerships with targeted universities and colleges to develop curricula that educate students in areas where we face a shortage of skilled professionals and trades people. Training: In addition to the Graduate Training Program outlined above, Hydro One offers considerable training and development opportunities that are critical to the retention and motivation of staff.

8 Filed: August, 00 RP /EB-00-0 Tab Page of Trades and Technical Training: The Work Methods and Training department provides a comprehensive selection of trades and technical training, designed to target the specific needs of field staff. Leadership and Senior Management Development: The primary objective of this program is to ensure that Hydro One has a systematic management development framework. This helps ensure we retain a competitive advantage by developing, maintaining, and enhancing those management competencies deemed to be essential. Hydro One has established a Management Development Steering Committee to oversee the identification of Management Development needs in the Company. The committee includes senior managers from both line and support functions, and is also responsible for the succession planning process. Each year a Management Development Program Schedule is created based on the developmental needs of management staff. 0 Succession Planning: A Succession Planning Process has been developed for all senior management staff within the Company. The program s goal is to ensure that for each of the senior management positions, at least two successor candidates have been identified, and that a developmental plan for each of the candidates is developed and implemented. Hydro One has a preference for promoting from within, however, there may be situations where Hydro One will recruit externally for certain positions..0 SUMMARY Attracting and retaining the right people is still a fundamental corporate requirement. Despite the various undertakings to alter the demographics of the workforce, by 00

9 Filed: August, 00 RP /EB-00-0 Tab Page of there will still be approximately % (00) Hydro One employees eligible for undiscounted retirement. In addition to replacing retiring employees, it is expected that a further 00 new staff will be required to meet planned work programs. Immediately prior to the VRP, the average age of the workforce was. years. Almost years later, at year end 00, it was., demonstrating that there has been a slowing in the aging of the workforce, but it nevertheless remains a concern. In an industry with aging demographics and an anticipated tight labour market, the Corporation needs to be positioned as an employer of choice, if it is to succeed in recruiting and retaining staff with the requisite skills. To so do, it must be perceived as offering an attractive compensation package and challenging and rewarding job opportunities.

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