COMMON CORPORATE FUNCTIONS AND SERVICES & OTHER OM&A

Transcription

1 Filed: September 0, 00 EB-00-0 Exhibit C Tab Page of 0 0 COMMON CORPORATE FUNCTIONS AND SERVICES & OTHER OM&A The Corporation has identified certain functions that provide common services to all business units. It was determined that these functions could be shared effectively by all business units, avoiding costly and unnecessary duplication. Included in this exhibit is Other OM&A which is comprised of Capitalized Overhead, Environmental Provisions, Indirect Depreciation and Other Costs..0 COMMON CORPORATE FUNCTIONS AND SERVICES Table presents, for comparison purposes, the total Common Corporate Functions and Services ( CCFS ) costs over the Historic, Bridge and Test years as well as the 00 and 00 Transmission allocation amounts.

2 Updated: February, 00 EB-00-0 Exhibit C Tab Page of 0 0 Table Total CCF&S Costs and 00/00 Allocation to Transmission ($ Millions) Description Historic Bridge Test TX Allocation Corporate Management Finance Human Resources Corporate Communications General Counsel and Secretariat Regulatory Affairs Corporate Security Internal Audit Total CCF&S Costs The Total CCFS Costs remained relatively stable in the timeframe. The cost increase of approximately $.M in 00 as compared to 00 is driven by Corporate Finance s compliance including Bill work, International Financial Reporting Standards (IFRS) conversion project and the establishment of the Enablement unit (described in Section.. below).

3 Updated: February, 00 EB-00-0 Exhibit C Tab Page of 0. Corporate Management The following Table provides a summary of Corporate Management costs: Table Corporate Management Function ($ Millions) Description Historic Bridge Test TX Allocation Total Cost Corporate Management represents those functions responsible for providing overall strategic direction to the corporation, including the Board of Directors, Treasurer s Office the Chief Executive Officer ("CEO"), Chief Financial Officer ( CFO ), the General Counsel and Secretary as well as the costs of certain supporting functions, such as Executive Office support and External Relations. The President, CFO and General Counsel & Secretary are considered to be part of Hydro One Inc. and provide services to Hydro One Networks Inc.

4 Filed: September 0, 00 EB-00-0 Exhibit C Tab Page of 0 The General Counsel and Secretary functions in Hydro One consist of: 0 Provision of advice and support to the Board of Directors and Corporate Officers. Provision of advice, training and reports on Code of Conduct and activities. Managing all donations, sponsorships and Community Citizenship programs. Managing and supporting all activities related to the Freedom of Information and Privacy Act and the Federal Personal Information Protection & Electronic Documents Acts (PIPEDA). Managing corporate archives. Carrying out the functions of Chief Ethics Officer. The CFO functions in Hydro One Inc. consist of: 0 Review and approval of financial and investment decisions. Provision of input to strategy and business plans. Oversight of Finance functions and provision of reporting information to Hydro One, subsidiaries, regulators, investors and the shareholder. Ensuring financial services are provided efficiently and reliably. Ensuring integrity of, and compliance with, internal controls over regulatory, financial, accounting activities. Monitoring of performance against operational, financial and regulatory targets. Ensuring sufficient revenue for operating, financial and regulatory needs. Supporting Hydro One s Board of Directors. Ensuring access to capital on reasonable terms. The costs associated with the activities of the Treasurer s Office are charged to the company s costs of debt as discussed at Exhibit B, Tab, Schedule.

5 Updated: February, 00 EB-00-0 Exhibit C Tab Page of 0 The allocation of the costs associated with the activities of Corporate Management are governed by a Service Level Agreement between Hydro One Inc. (HOI), Hydro One Networks Inc. (HONI) and the legal subsidiaries as outlined in Exhibit A, Tab, Schedule. This exhibit also describes the activities performed by HOI, HONI and the amounts allocated to the various subsidiaries. 00 to 00 includes a lower level of executive compensation, consistent with the Agency Review Panel (the Arnett Panel ) report. 0. Finance The following Table provides a summary of Finance costs: Table Finance Function ($ Millions) Description Historic Bridge Test TX Allocation Total Cost Overview 0 The Finance function consists of the Corporate Controllers, Corporate Tax, Treasury, Financial Strategy and Enablement work programs. Finance provides strategic advice and services related to the planning, processing, recording, reporting and monitoring of all financial transactions taking place within the organization. Clients include parties both internal and external to the organization,

6 Filed: September 0, 00 EB-00-0 Exhibit C Tab Page of 0 depending on the service provided. Services are provided through the following specialist functions: 0 0 Corporate Controllers; Corporate Tax; Financial Strategy; Enablement; Treasury. The cost trend was level in 00 to 00 with the cost increase in 00 to 00 being primarily attributed to compliance, the IFRS conversion project and the establishment of the Enablement unit (as described in Section.. below). Finance is responsible for the IFRS conversion project. The 00 and 00 costs include the initial development, review and monitoring required to proceed with the IFRS conversion. The OEB has also begun its own IFRS project to determine the nature of any changes that should be made in regulatory accounting requirements in response to IFRS. Hydro One anticipates the costs to convert to IFRS will continue beyond the test years.... Corporate Controllers Corporate Controllers provide leadership and direction regarding all business planning, financial reporting, accounting and internal control policies; and procedures to ensure statutory and regulatory compliance and consistency with generally accepted accounting principles. The total cost of Corporate Controllers activities in 00 and 00 are $. million and $. million respectively, of which amounts $. million and $. million are allocated to Transmission.

7 Filed: September 0, 00 EB-00-0 Exhibit C Tab Page of The function oversees the development of actual and forecast financial information and manages reporting processes to appropriate audiences or stakeholders. Clients receiving information generated through Corporate Controllers may be internal to the organization, such as the executive team and board of directors, or may be external parties such as auditors, investors, securities commissions, regulatory and government agencies. Some examples of services provided include consolidated financial statements, annual and quarterly financial and regulatory reports of OM&A and capital work program results. Corporate Controllers are responsible for establishing and leading the annual business planning and budgeting processes and presentation of the plan to the Board of Directors and the Provincial Government. This function is also responsible for managing and providing direction to the company with respect to matters of internal control, including Organization Authority Registers, financial policies and procedures and providing leadership regarding compliance with Bill and associated Ontario Securities Commission (OSC) related rules. Corporate Controllers provides overall Inergi contract governance and support. Routine financial services, such as Accounts Payable, Accounts Receivable, Fixed Asset Accounting, General Accounting, Planning Budgeting and Reporting support, Pension support and a number of administrative procedures are outsourced to Inergi. These services are a major portion of the Corporate Controllers costs.

8 Filed: September 0, 00 EB-00-0 Exhibit C Tab Page of Financial Strategy Financial Strategy costs in 00 and 00 are $.0 million and $. million respectively. Of these amounts $.0 million in 00 and $. million in 00 are allocated to Transmission. The function provides Financial Strategy services to the company through decision support as well as business case review and preparation, business valuation, transaction support, and other services as required. They also provide direction and analysis of the financial systems and of Enterprise Systems. The function develops and maintains financial models and provides analytical support for a variety of financial planning and reporting processes. In addition, this function s work includes the directing of the development and maintenance of all financial systems in the company... Enablement Enablement costs in 00 and 00 are $. million and $. million respectively. Of these amounts $. million in 00 and $. million in 00 are allocated to Transmission. The establishment of the Enablement function is one of the main drivers of the Finance functions cost increases in 00 and 00. The Enablement group is the corporate owner for the SAP application accountable for process and data management, performance improvement, and training and business solutions related to the systems and processes implemented by the various phases of the Cornerstone program. The Enablement group supports the organization in the effective and efficient use of the SAP system.

9 Filed: September 0, 00 EB-00-0 Exhibit C Tab Page of The Enablement group will drive productivity through enterprise process improvements and ensure Hydro One leverages SAP and related assets to their full potential. This will include adding new functionality where it delivers increased end user productivity, quality of work, and other measurable business improvements. It will also govern data as an asset and drive better analysis and decision making. The costs include staff and other expenses to provide technical expertise, business analysis, problem solving, governance, and continuous improvement to deliver these accountabilities. The Enablement Group will be instrumental in facilitating and providing the corporate governance to ensure the cost savings identified in the Cornerstone OM&A (Exhibit C, Tab, Schedule 0) and Capital (Exhibit D, Tab, Schedule ) exhibits are obtained... Corporate Tax Corporate Tax manages the tax affairs of Hydro One Inc. and its subsidiaries. The costs associated with Corporate Tax activities in 00 and 00 are $. million and $. million respectively. Of these amounts $0. million is allocated to Transmission in 00 and $0. million is allocated in 00. Corporate Tax costs have remained constant over the period. Corporate Tax manages the tax obligations of each corporation within the Hydro One group including corporate income and capital taxes, the federal goods and services tax, the provincial retail sales tax, debt retirement charge, payroll and non-resident withholding tax and the employer health tax. Corporate Tax ensures that internal and external tax compliance requirements are met. Tax compliance activities involve the preparation of income tax, Goods and Services Tax ( GST ), Retail Sales Tax ( RST ) and Debt Retirement Charge ( DRC ) returns for all corporate entities. Corporate Tax is also responsible for ensuring that the proper amount

10 Filed: September 0, 00 EB-00-0 Exhibit C Tab Page 0 of of tax is withheld from payments made to non-residents, particularly from payments for services performed in Canada by non-residents. The function calculates, manages and remits the corporate income and capital tax installments made by each entity in the group to ensure conservation of cash while eliminating any interest charges that would result from deficient installments. Other activities involve tax accounting and managing federal and provincial government tax audits. Corporate Tax provides tax advice to the Human Resources department concerning employee taxable benefits; to Treasury concerning tax effective financing; to the Pension department concerning various plan issues; and to the operating lines of business to ensure tax effective acquisitions and dispositions. Tax planning strategies include a review of the tax classification of capital expenditures to ensure maximum allowable deductions are taken. Corporate Tax also performs a monthly transactional analysis to ensure that the GST amounts charged to the Hydro One group and claimed as input tax credits are correct and that proper procedures are in place to ensure collection of GST, provincial RST, and DRC amounts... Treasury Treasury total costs are $. million in 00 and $.0 million in 00. Of these amounts, $. million for 00 and $. million for 00 represents costs incurred to:

11 Filed: September 0, 00 EB-00-0 Exhibit C Tab Page of 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. The balance of the treasury costs represent costs incurred in relation to assessment of risk, negotiation and purchase of insurance policies, claims management and settlement. These costs total $. million for 00 and $. million for 00. These costs include the premiums paid for third party liability, fiduciary liability, and, directors and officers insurance. Hydro One also self-insures exposures that are either not covered by insurance policies or fall below the specified deductibles. This includes third party claims against Hydro One. All aspects of claims are managed in consultation with internal and external experts, ensuring fair and cost effective settlement of claims for which the company is legally liable. These costs do not include the premiums paid for insurance such as automobile, property, and other insurance. The premiums for these insurance policies are charged to work programs or included as an Asset Management cost as deemed appropriate. The Hydro One Transmission Business is allocated $.0 million of the $. million budget for 00 and $. million of the $. million budget for 00 of Treasury s costs. Table shows the premium for all of Hydro One Inc. s insurance policies and the cost of self insurance for the 00 to 00 period. Self insurance costs for the 00 to 00 period take into consideration the company s risks exposures, the long-term historical

12 Updated: February, 00 EB-00-0 Exhibit C Tab Page of 0 claims experience, the deductible on the liability policies and the costs of insuring the self insured exposures. Table Hydro One Inc. Insurance Program ($ Millions) Hydro One Inc. Insurance Premiums Self Insurance Cost Total Human Resources 0 The following Table provides a summary of Human Resources costs: Table Human Resources Function ($ Millions) Description Historic Bridge Test TX Allocation Total Cost The Human Resources (HR) function exists to enable the success of Hydro One. In the last decade there has been an increase in awareness that human performance is the critical differentiating factor between success and failure for organizations, and that progressive management supported by effective HR policies and services can significantly enhance employee engagement, which in turn drives and sustains performance gains. One of the greatest challenges facing Hydro One is in an area where HR will be expected to play a significant role the dramatic demographic transition that will be occurring in

13 Updated: February, 00 EB-00-0 Exhibit C Tab Page of the Hydro One workforce over the next few years. Approximately 0 percent of the workforce (about 00 employees) has become or will be eligible to retire by December, 00. Hydro One must not only replace these people, but also find approximately 00 additional people to meet the needs of the planned work programs. HR is also involved in promoting the development of the skill base and expertise required by Hydro One from graduates of high schools, trades schools, colleges and universities. New staff means extra training which will be provided by HR staff dedicated to this function. Hydro One is currently looking at ways by which to mitigate some of the impact of this wave of staffing work; by outsourcing or further automating (IT) some of the more labour intensive components of the hiring processes. As a staff function, HR adds value by providing advice, guidance and services to managers (and on their behalf, to employees) which support and optimize the acquisition and management of the workforce, and the treatment of pensioners. HR provides consulting, staffing & training, compensation and benefits and labour relations' services. The total costs for 00 and 00 are $.0 million and $. million respectively with $. million and $. million allocated to Transmission. The cost increases in 00 are due to general escalation increases and an enhanced management development program, increased employee-related transactions associated with increased staff, and new programs... HR Consulting Hydro One s HR Consultants provide advice and guidance to managers, supervisors, and employees on a myriad of issues related to HR policies and procedures, collective agreement administration, staffing and other large initiatives that impact staff.

14 Filed: September 0, 00 EB-00-0 Exhibit C Tab Page of Alongside the Generalist consulting group, Hydro One HR contains a number of smaller specialist support/service activities. The Pension and Benefits Section administers the Hydro One Pension Plan for approximately 00 pensioners. In addition, this section also administers the benefits programs for all employee groups. In order to address Bill requirements, a HR Control Analyst position was created to implement and monitor proper financial controls within the HR function. The Staffing and Leadership unit has been very active in recruiting and overseeing the New Grad Program, external recruiting and management development training... Staffing and Training This function recommends and administers policy in areas related to hiring and development; in addition it manages all of Hydro One s management/leadership development activities and Hydro One s principal cyclical hiring processes - the New Graduate, the Co-Op Student and the Summer Student Hiring programs, plus miscellaneous specialized one-off hiring initiatives, as required... Compensation & Benefits Payroll operations for a Company the size and complexity of Hydro One are both critical and extensive. The labour intensive transactional elements of payroll administration were largely outsourced to Inergi with contract administration within Hydro One to ensure compliance and cost containment. This same group also manages the Annual Performance Pay process for Society - represented staff and the Short Term Incentive Plan for Management Compensation Plan staff. Trades staff are hired through the Power Workers Union Hiring Hall processes.

15 Filed: September 0, 00 EB-00-0 Exhibit C Tab Page of Compensation & Benefits provides regular strategic reporting of HR and Pay data for Senior Management in such areas as retirement demographics, headcount, overtime reports, data for OEB submissions, etc., as well as participating in industry wide compensation, benefit and pension surveys... Labour Relations Labour Relations exists to provide advice, guidance and training to managers regarding collective agreements and labour legislation. There are collective agreements plus midterm agreements and letters of understanding that bind the company. In addition, the company must comply with legislation such as the Ontario Labour Relations Act, the Employment Standards Act, the Human Rights Code, etc, all of which require interpretation and advice to Managers. Labour Relations negotiates with different bargaining agents to renew collective agreements. Fifteen of the renewal agreements are negotiated in conjunction with the Electrical Power System Contractors Association ("EPSCA"), while the remaining are negotiated directly with the applicable unions. The Labour Relations unit manages the grievance and arbitration processes and in addition, prepares and presents company briefs at grievance and arbitration hearings. It also participates in Ontario Labour Relations Board hearings involving various unions. Most of the Construction unions (BTU's) utilize the Ontario Labour Relations Board ("OLRB") instead of a grievance/arbitration process. Labour Relations prepares and presents company briefs at the OLRB.

16 Updated: February, 00 EB-00-0 Exhibit C Tab Page of 0. Corporate Communications The following Table provides a summary of Corporate Communications costs: 0 Table Corporate Communications Function ($ Millions) Description Historic Bridge Test TX Allocation Total Cost Corporate Communications is responsible for managing all communications initiatives for the corporation. Services are provided in respect of communications strategy; media and public relations; issue management; public affairs, community and government relations; corporate reputation; customer communications; advertising, graphic design; writing; employee communications; stakeholdering; and internet/intranet communications. Increased communication costs from 00 to 00 are associated with increased focus on proactive customer communications and consultation associated with rate increases and billing activity, siting/building new transmission facilities or upgrades to existing facilities as well as communications in support of government directed initiatives around safety and conservation and demand management activities, including smart meters. 0 Customer satisfaction is important to Hydro One. To assist in improving customer satisfaction, the Company has placed increased focus on providing more customer information through an increasing number of communication channels, such as bill inserts, advertising, publicity, direct mail, web enhancements and advertising to its. million customers.

17 Filed: September 0, 00 EB-00-0 Exhibit C Tab Page of Corporate Communications is an integral member of environmental assessment teams working to obtain approvals for siting and building transmission lines and stations. Corporate Communications develops all the communications materials and the web site postings for Environmental Assessment (EA) studies, including liaising with both elected and administrative staff in the affected municipality. This includes coordinating public information centres, developing notification ads for local newspapers and developing panels and brochures in support of the Public Information Centres (PICs). Corporate Communications also ensures that web postings are maintained and up-to-date. Another important role that falls within the Corporate Relations function is First Nation Relations. Hydro One owns assets on reserve lands and within the traditional territories of First Nations & Métis Peoples. Hydro One recognizes that First Nation s peoples and their lands are unique in Canada, with distinct legal, historical and cultural significance. Forging relationships with First Nation communities based upon trust, confidence, and accountability is vital to achieving our corporate objectives. To assist with meeting these goals, a First Nation and Métis Relations directorate was formed and a Director of First Nations & Métis Relations was hired in 00. This group will be adding new staff members over the test years to continue to develop relationships with First Nation communities.. General Counsel and Secretariat The following Table provides a summary of the costs of the General Counsel and Secretary function:

18 Updated: February, 00 EB-00-0 Exhibit C Tab Page of 0 0 Table General Counsel and Secretary Function ($ Millions) Description Historic Bridge Test TX Allocation Total Cost Overview The offices of the General Counsel and Secretary ("GC&S") provide legal advice and direction to Hydro One and its operating subsidiaries, as well as overall guidance in the areas of corporate structure, governance, business ethics and the business code of conduct. The GC&S function consists of two main functions: Law and the Corporate Secretariat. The Corporate Secretariat reports to the General Counsel. The GC&S functions in Hydro One Networks Inc. consist of: 0 Provision of legal services to all business units including the Company s major borrowing and financing initiatives, regulatory activities, transmission and distribution businesses (contracts, other commercial matters), employment, including pension and benefits, health, safety and environment, litigation, all Board of Directors related activities, and arranging for the provision of legal services to the Corporation. The volume of these services is driven by capital and OM&A activities, as well as increasing regulatory and legislative oversight functions. Overseeing the Law and Corporate Secretariat functions. Ensuring compliance with legal and regulatory requirements. Hydro One does most of its legal work in-house, except when the in-house expertise is not available (for example, tax, labour) or when the workload exceeds the capacity of the internal legal group.

19 Filed: September 0, 00 EB-00-0 Exhibit C Tab Page of Overall, GC&S expects its costs to remain relatively steady over the period while continuing to manage increasing work loads. The nature of the Corporation s work programs, focused as they are on the core specialized business, can be more easily managed with internal resources, thereby minimizing the higher costs associated with external legal and other consulting resources... Law Law provides legal advice to all business units of the Corporation, acting as an internal law firm for the corporation. It advises on most aspects of law affecting the corporation, and relies on its experience and knowledge of the Company s business in providing economic and timely advice. The Law function maintains core knowledge of the law and the Company s business. In particular, Law provides legal support to the Corporation s major borrowing and financing initiatives; regulatory activities, including approvals for major transmission projects; approvals for land acquisitions, claims, business contracts and other commercial matters; labour and employment, including pension and benefits; and health, safety and environment; litigation; and corporate law matters. This support generally takes the form of reviewing legislation, giving general legal advice, drafting legal opinions, negotiating and drafting contracts and other legal documents, advising on privacy and freedom of information matters, doing collections work, pursuing claims and defending litigation where claims have been made against the company... Corporate Secretariat The Corporate Secretariat provides support to the Office of the Chair, the Board of Directors and its Committees, including the administrative aspects of the Board and its

20 Updated: February, 00 EB-00-0 Exhibit C Tab Page 0 of 0 meetings. It provides advice and analysis with regard to a variety of board-related matters, including corporate governance best practices and emerging trends and issues. It provides advice and direction with regard to the business Code of Conduct, ensuring appropriate actions to resolve known or suspected violations. This group also has responsibility for Community Citizenship initiatives advising the Corporation on compliance with privacy legislation, and administering requests for information under the Freedom of Information and Protection of Privacy Act. 0 The level of legal or corporate secretariat services required is not entirely dependent on the volume of work programs being undertaken by the Corporation but is also driven by the nature of the work programs and by changes in legislative and regulatory regimes.. Regulatory Affairs 0 Table provides a summary of Regulatory Affairs costs: Table Regulatory Affairs Function ($ Millions) Description Historic Bridge Test TX Allocation Regulatory Affairs OEB Costs Total Cost Overview Regulatory Affairs consists of Regulatory Affairs and the Pricing and Load Forecast Management functions. The costs of this function include Hydro One s share of the OEB costs. OEB costs are approximately $. million of total 00 costs and $. million of

21 Filed: September 0, 00 EB-00-0 Exhibit C Tab Page of total 00 costs. The major driver behind reductions in 00 is lower OEB assessments arising from a change to the OEB methodology for allocating costs... Regulatory Affairs Activities Regulatory Affairs is responsible for managing the Company's relationships with the regulatory bodies with which it interacts, including the Ontario Energy Board, the IESO, the OPA, and the National Energy Board. Through this function, it is responsible for developing strategy and coordinating the Company's submissions to these bodies and participation in regulatory initiatives such as the development of the Transmission System Code ( TSC ). Regulatory Affairs is involved in the coordination, preparation and processing of applications, as well as providing support to witnesses and business support staff. Such proceeding-specific services are provided for a wide range of applications, including distribution and transmission rates, transmission leaves to-construct, merger/ acquisition/ amalgamation/ divestiture applications and area and system supply planning. In addition to proceeding-specific work, Regulatory Affairs is responsible for a variety of ongoing reporting and other activities. The function prepares quarterly and annual reports required under OEB Reporting and Record-keeping Requirements. Work includes meeting, reporting on, and responding to Regulatory Compliance Issues. Pricing and cost allocation analysis and support are also provided within Regulatory Affairs for rate applications. This includes development of rate structures and rates for the regulated transmission and distribution tariffs applicable to the company and provides support in submitting and defending rate proposals. The function also assists with the implementation of approved transmission and distribution rates.

22 Filed: September 0, 00 EB-00-0 Exhibit C Tab Page of Load Forecasting and Load Data Management units are included within the Regulatory Affairs group. Load Forecasts are developed to enable system planning and financial planning which underlie the company's financial forecasts. The Load Forecast function provides load forecast data including the capture of CDM impacts. Load Forecast staff support Hydro One Networks business units and OPA with forecasting analysis and evaluation covering time of use, bypass and embedded generation. Load Data Management provides analytical support for conservation and demand management projects and provides load research analysis. In addition, metering information for revenue reconciliation purposes is also provided. Regulatory costs in 00 through 00 are being driven by an extremely aggressive regulatory program including a major Distribution Rate Application for 00 rates, the development and filing of a major Transmission Rate Application, the large transmission leave to construct application for Bruce to Milton, several smaller leave to construct applications, asset sales and service territory transfers to remove long term load transfers. The Ontario Energy Board has embarked on a busy and challenging program of reviews and initiatives many of which involve Hydro One in consultations and generic proceedings. In 00 the Board has already established four such generic proceedings covering Distribution Service Quality, Transmission Connection Cost responsibility (with the indication that this review will broaden to cover Distribution Connection Cost responsibility), Electricity CDM guidelines and a Commodity and Non-commodity related Deferral account review. As well, the OEB is embarking on a rd Generation Incentive Rate Regulation approach for the electricity distribution sector, which will commence in 00.

23 Updated: February, 00 EB-00-0 Exhibit C Tab Page of Ontario Energy Board Costs Under the Ontario Energy Board Act,, the Ontario Energy Board is required to recover all of its annual operating costs. Almost all of its costs are recovered from gas and electricity distributors and electricity transmitters. A small fraction of OEB costs are recovered from the IESO, the OPA, OPG and from licensing fees and penalties. OEB costs that are subject to recovery include its staff costs, office space costs, administration costs and overheads. These costs are allocated to one of six categories electricity distribution, electricity transmission, gas distribution, IESO, OPA and OPG. Hydro One Networks' allocation arises from electricity distribution related OEB costs and electricity transmission related OEB costs. Due to the introduction of the IESO, the OPA and OPG into the cost recovery process, Hydro One Networks allocation of OEB costs has been reduced by about $ million.. Corporate Security The following Table provides a summary of Corporate Security costs: Table Corporate Security Function ($ Millions) Historic Bridge Test TX Allocation Description Total Cost

24 Filed: September 0, 00 EB-00-0 Exhibit C Tab Page of The Corporate Security Services (CSS) function exists to enable the success of Hydro One primarily in the protection of assets (assets include people, property and information) and assisting in the reliable delivery of electricity. CSS adds value by providing advice, guidance, investigative and intelligence gathering expertise and services to managers (and on their behalf, to employees) which support and optimize the reliable delivery of electricity and the protection of Hydro One assets. Effective asset protection and recovery can be the primary differentiating factor between success and failure for critical infrastructure organizations such as Hydro One. This is achieved by effective corporate security policies, directives, guidelines and services, which can significantly enhance employee and business productivity. The total costs in 00 and 00 are $. million each year of which $. million was allocated to Transmission. In the last decade there has been a dramatic increase in the focus on the protection of critical infrastructure and the industries that comprise these key social, safety and security functions due to the recognition of the criticality for electricity delivery assets and global terrorist activities (/). The 00 cost increases are due to the implementation of several security initiatives that the industry has developed for infrastructure and information protection as well as a new Theft of Electricity Investigation Program and the IT investigative function. The goal of this program is to detect electricity theft through proactive investigation; therefore reducing the overall costs associated with electricity theft. The 00 and 00 cost increases are due to the full-time implementation.. Internal Audit and Risk Management The following Table 0 provides a summary of Internal Audit and Risk Management costs:

25 Updated: February, 00 EB-00-0 Exhibit C Tab Page of 0 Table 0 Internal Audit and Risk Management Function ($ Millions) Description Historic Bridge Test TX Allocation Total Cost Overview 0 Internal Audit reports to the CEO and the Audit and Finance Committee of the Board of Directors. It is an independent, objective, assurance and consulting activity designed to add value to and improve Hydro One's operations. The mandate for Internal Audit is to provide independent assurance to the CEO and Board that internal controls are adequate in areas of high-risk and to follow-up and report on management actions to address findings from past audits. The department helps the Company accomplish its objectives by bringing a systematic and disciplined approach to evaluating and improving the effectiveness of risk management, internal control and governance processes. The total costs for this function in 00 and 00 are $. million and $.0 million, respectively, of which $. million is allocated to Transmission in both years. Costs in the periods include the upgrading of staff skills in the areas of electricity operations and information technology auditing in an escalating period of hiring auditors due to Bill and improved emphasis on governance.

26 Filed: September 0, 00 EB-00-0 Exhibit C Tab Page of 0.. Internal Audit and Risk Management Activities The Corporate Business Risk Management function supports the CEO by: 0 0 developing business risk management policies, frameworks and processes; introducing and promoting new techniques for assisting management to identify and evaluate risks within their operations; preparing corporate risk assessments; and, maintaining a framework of key business risks. The annual internal audit work program is determined based on an assessment of risks and a prioritization process involving input from audit staff, senior management, the CFO, the CEO, the external auditors and the Audit and Finance Committee of the Board of Directors. Internal Audit and Risk Management's contribution to achieving corporate strategic goals includes: providing assurance that management systems and internal controls will continue to operate effectively; identification of and recommendation for areas where controls can break down or require improvement to meet corporate objectives; and, finding opportunities to improve the efficiency and effectiveness of operations. The types of audit conducted vary from year to year but generally consist of internal control reviews of processes such as Information Technology, Finance, Safety & Environment, and Operational audits. Generally, audits focus on assessing the adequacy of the various corporate systems of internal control to ensure: the reliability and integrity of information; compliance with laws, regulations and corporate policies and procedures; safeguarding of assets; economical and efficient use of resources; and, effectiveness of management systems in achieving stated objectives. In addition, audits focus on assessing the adequacy of management systems to ensure efficiency, effectiveness and economy.

27 Updated: February, 00 EB-00-0 Exhibit C Tab Page of Audit recommendations are well received and are often acted upon during the course of the audit. External auditors rely on the work of the internal audit function when conducting their examination of the financial statements..0 OTHER OM&A Other OM&A is comprised of Capitalized Overhead, Environmental Provisions, Indirect Depreciation and Other Costs as listed in Table. Table Total Transmission Other OM&A ($ Millions) Description Historic Bridge Test Capitalized Overhead (.) (.) (0.) (.0) (.) (0.0) Environmental Provision (.) (.0) (.) (.) (.) (.) Indirect Depreciation (.) (.) (.) (.) (.) (.) Other (.) (.). (.)..0 Total (.) (.0) (0.) (0.) (0.) (0.). Capitalized Overhead Credit Table Transmission Corporate Overhead Credit ($ Millions) Description Historic Bridge Test Transmission (.) (.) (0.) (.0) (.) (0.0) Capitalized overheads represent that portion of allocated shared corporate and/or business unit functions and services that are deemed through the capital overhead rate to be

28 Updated: February, 00 EB-00-0 Exhibit C Tab Page of 0 supportive of Capital projects as opposed to OM&A based projects. These costs are included in shared services and in the lines of businesses. The capital overhead rate determines the costs capitalized. OM&A expense is thus reduced by the capitalized amounts. The overhead credit has increased from the 00 level primarily due to the higher level of Capital spending. 0 The capitalized OM&A costs are distributed to Capital projects based on the allocation methodology derived through the accepted R. J. Rudden study. The total amounts allocated to Transmission Capital in 00 and 00 are $. million and $0 million respectively.. Environmental Provision 0 Table Transmission Environmental Provision ($ Millions) Description Historic Bridge Test Transmission (.) (.0) (.) (.) (.) (.) In 00, Networks business recognized a liability on its balance sheet for the present value of future estimated environmental expenditures necessary to deal with legacy contaminated lands and the implementation of remedial measures to treat, removed or otherwise manage the contamination. The change in accounting policy from the previous as-incurred basis was adopted to align with the theoretically stronger U.S. generally accepted accounting principle that was expected to be imminent in Canada. Environmental work is initially recognized in the sustaining work program. The amount is then removed from OM&A and the liability / provision is amortized by the amount of the expenditures incurred. The resultant impact on OM&A expense of this environmental

29 Updated: February, 00 EB-00-0 Exhibit C Tab Page of 0 work is nil, since the amortization expense is grouped with 'Depreciation and Amortization' on the operating statement and the balance is transferred from OM&A to Depreciation expense.. Indirect Depreciation 0 Table Transmission Indirect Depreciation ($ Millions) Description Historic Bridge Test Transmission (.) (.) (.) (.) (.) (.) Transportation and Work Equipment ( TWE ) charges in the OM&A work programs include depreciation expense associated with the asset being used. For accounting classification purposes it is necessary to remove this depreciation amount from OM&A and appropriately charge it to Depreciation Expense. The total amounts of indirect depreciation removed from OM&A and charged to Depreciation Expense in 00 and 00 are $. million and $. million respectively.. Other 0 Table Transmission Other Costs ($ Millions) Description Historic Bridge Test Transmission (.) (.). (.)..0

30 Filed: September 0, 00 EB-00-0 Exhibit C Tab Page 0 of 0 These costs represent material unexpected or non-recurring expenses. For example they include items such as rate hearing preparation costs, insurance rebates, adjustments to provisions, vacation reserves, Gregorian or fiscal adjustments and inventory adjustments.