OPERATIONAL INVESTMENTS

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1 Page of 8 OPERATIONAL INVESTMENTS AVERAGE COST PER CUSTOMER CONNECTION Customer Costs When THESL receives a request to connect a new customer load or upgrade connection capacity for an existing customer, an Offer to Connect is issued to the customer. The Offer to Connect consists of Basic and Variable Connection Costs, Capital Contribution and Security Deposit. An economic evaluation is carried out to determine if the future revenues from the connected customer(s) will adequately cover the costs pertaining to the new connection or the capacity upgrade. Should the Net Present Value ( NPV ) of the costs and revenues associated with the Expansion be less than zero, a capital contribution in the amount of the shortfall is required. The amount of the capital contribution is set out in THESL s Offer to Connect to the customer The parameters used in the Business Economic Model for the economic evaluation of the expansion project include: New Expansion Costs Basic Connection Costs Operating, maintenance and administration costs ( OM&A Costs ) Estimated Incremental Revenues New Expansion Costs New Expansion Costs are the capital expenditures associated with the installation of new distribution facilities and circuits when these are essential to accommodate new customer loading and which are not used to serve other customers. If within five years from the connection date, non-forecasted customers are connected to this new plant any further capital costs, THESL will rebate the initial customer for that customer s portion of the New Expansion that is shared with non-forecasted customers.

2 Page of Basic Connection Costs The Basic Connection Cost is the cost for connecting the standard 30-metre overhead service including the connection and equipment. The Basic Connection Cost for 0 is $,335. The Basic Connection Cost is recovered through distribution rates. This figure is updated annually Operating, Maintenance and Administration Costs For the purpose of determining OM&A Costs, THESL uses system average operating and maintenance expenditures as a proxy for incremental OM&A expenditures, and apportions them as fixed costs (for residential and general service 0-50kW customers) or as a function of $/kw of demand (for GS kw, GS kw, and GS kw customers). These values are updated annually. 3 4 The average Operating and Maintenance (O&M) costs are summarized in Table. 5 6 Table : Average O&M Costs 009 Actual 00 Bridge 0 Test GS kw $.95 $3.3 $3.4 GS kw $.6 $.3 $.35 Large Use $0.59 $0.59 $ Estimated Incremental Revenues Estimated Incremental Revenues are calculated using the Estimated Incremental Demand, the Fixed Charge and the Variable Charge that have been approved by the OEB for the Rate Class applicable to each individual new meter installed in connection with the expansion project. For existing customers, THESL apportions the Fixed Charge based on the ratio between the incremental load and the combined load.

3 Page 3 of Variable Connection Costs Variable Connection Costs are the firm costs associated with the installation of Connection Assets above and beyond the Basic Connection Cost. The Variable Connection Costs are paid 00 percent by the customer. The Variable Connection Costs are not required for the economic evaluation of the Capital Contribution Table below shows the typical Variable Connection Costs for the different service types in each of the customer classes. 9 0 The actual variable connection costs for the different service types in each customer classes are based on the site-specific requirements.

4 Page 4 of 8 Table : Typical Variable Connection Costs (00) Class Description Type of Service Typical Variable Connection Fee - Residential Single Service Overhead Overhead Service - Residential (A) See Note* below Underground (not requiring facilities on Underground Service - Residential (3A) See Note* below - General Service 0 50kW Overhead - Single Service Overhead Service - Commercial (B) See Note* below Underground - Single Service (not requiring facilities on Underground Service - Commercial (3B) See Note* below 3A - General Service 50kW - 999kW Overhead - Single Service (not requiring facilities on 400A, 0/40V (Requiring new estimate) $00.00

5 Page 5 of 8 Class Description Type of Service Typical Variable Connection Fee 400A, 0/08V, 3P (Requiring new estimate) $, Up to 00A, 347/600V (Requiring new estimate) $ * 00A, 347/600V (Requiring new estimate), applicable $ for upgrades in some area only Underground - Single Service (not 400A, 0/40V $,700 requiring facilities on 400A, 0/08V, 3P $,700 Up to 00A, 347/600V $,900 00A, 347/600V, applicable for upgrades in some area $,900 only 600A, 0/08V, for network system in Toronto $5,300 Downtown area only 800A, 0/08V, for network system in Toronto $7,500 Downtown area only Overhead/Underground Combination (requiring 50 to 000 kva Pad (9A to 9A5 and 9B to 9B3) $46,000 to $68,000 facilities on Modular vault 300 to 000kVA (6) $85,000 to $04,000

6 Page 6 of 8 Typical Variable Class Description Type of Service Connection Fee 3B - General Service 50kW - 999kW 3C - Residential Subdivision 4 - General Service 000kW and Up Underground (Bulk or individual meter) Multi-units or townhouse complex with on private property Underground (Bulk or individual meter) Multi-units or townhouse complex with no on private property Underground Residential 50 to 000 kva Pad (9A to 9A5 and 9B to 9B3) $46,000 to $68,000 Subdivision mini-pad Tx & 4 tap boxes $,600 per lot Subdivision submersible Tx & 4 tap boxes $,600 per lot 400A, 0/40V with tap box $,600 per lot Subdivision mini-pad Tx & 4 tap boxes $,600 per lot Subdivision to individual meter base Subdivision submersible Tx & 4 tap boxes $,600 per lot Overhead/Underground 500kVA Pad (9A6, 9B4) $76,000 to Combination (requiring $78,000

7 Page 7 of 8 Class Description Type of Service facilities on Modular vault 500 to 500kVA (6) Overhead/Underground Customer Owned Substation (7A, 7B, 5) Combination (Customer Owned Substation) 5 - Large Users > 5MW Overhead/Underground Customer Owned Substation (7A, 7B, 5) Combination (Customer Owned Substation) Typical Variable Connection Fee $3,000 to $7,000 $44,000 to $90,000 $44,000 to $90,000 *Note: The Basic Connection Fee of $,335 with is recovered through distribution rates. The typical variable connection fee is zero, however, a fee could be charged based on site specific conditions for connection assets beyond the basic allowance.

8 Page 8 of Average Costs for Customer Connection The average costs for customer connection, including new services and upgrades to existing services, are calculated from the capital expenditures for the different types of services and the number of customer connection of each type per year. These costs are THESL gross capital costs to connect customers to THESL s existing infrastructure (refer to Table 3), before customer capital contributions (refer to,, Schedule 3-) For some large services, the costs to connect the customer may occur over many months, or between fiscal years. The reporting of the physical connection is made when the customer is energized. Therefore, the average cost per customer may be skewed in a given year and is affected by the site specific conditions. 3 4 Table 3 provides historical, bridge and test years Customer Connections and services. 5 6 Table 3: Customer Connections and Costs 008 Historical 009 Historical 00 Bridge 0 Test Customer Connections Total installed cost is expected to rise about 5 percent between the bridge and test years which is attributable to an increase in residential construction activities and the removal of the Enhancement Cost from THESL s economic model. Residential costs are forecast to increase from $9 million to $7 million, and commercial costs are forecast to increase from $3.4 million to $4.8 million in 00 and 0, respectively.