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AGENDA - Special Council - 20060214I AuR,oRZA%" SPECIAL COUNCIL BOREALIS HYDRO ELECTRIC NOLDINGS INCm ANNUALS ENOLDER'S MEETING AGENDA NO.06-04 TUESDAY, FEBRUARY lk 2006 7:00 P.M. COUNCIL CHAMBERS AURORA TOWN HALL PUBLIC RELEASE 10/02/06 TOWN OF A URORA SPECIAL COUNCIL BOREALIS ANNUAL SHAREHOLDER'S MEETING AGENDA NO. 06-04 Tuesday, February 14, 2006 7:00 p.m. I DECLARATIONS OF PECUNIARY INTEREST 11 APPROVAL OF AGENDA RECOMMENDED: THAT the content of the Agenda as circulated by the Corporate Services Department be approved as presented. III RECEIPT OF MINUTES Borealis Hydro Electric Holdings Inc., Annual Shareholder's (pg. 1) Meeting — Minutes No. 05-22 held June 22, 2005 RECOMMENDED: THAT the Minutes of Meeting No. 05-22 be received for information. IV CONSIDERATION OF ITEMS REQUIRING SEPARATE DISCUSSION Special Council Meeting No. 06-04 Page 2 of 3 Tuesday, February 14, 2006 V READING OF BY-LAWS RECOMMENDED: THAT the following listed by-law be given 1st, 2nd and 3rd readings, and enacted: 4772.06.0 BEING A BY-LAW to (pg. 21) Confirm Actions by Council Resulting From The Borealis — Annual Shareholder's Meeting 06- 04 on February 14, 2006. V1 ADJOURNMENT Special Council Meeting No. 06-04 Page 3 of 3 Tuesday, February 14, 2006 AGENDA ITEMS 1. Consolidated Financial Statements, October 31, 2005 (pg. 4) Mr. Allister Byrne, FCA, Partner of Grant Thornton LLP, Auditors for the Town of Aurora, will be in attendance. RECOMMENDED: THAT the attached Consolidated Financial Statements, ending October 31, 2005, be accepted and signed by the Shareholder. Aurora Hydro Connections Limited Financial Statements October 31, 2005 — Grant Thornton, Auditors' Report SPECIAL COUNCIL — BOREALIS — FEBRUARY 14, 2006 TOWN OF AURORA SPECIAL COUNCIL BOREALIS HYDRO ELECTRIC HOLDINGS INC. ANNUAL SHAREHOLDER'S MEETING MINUTES NO. 05-22 Tannery Room Aurora Town Hall Wednesday, June 22, 2005 ATTENDANCE COUNCIL MEMBERS Mayor Jones in the Chair; Councillors Buck, Gaertner, Kean, Vrancic, and West. MEMBERS ABSENT Councillor Hogg was absent. Councillor Morris was absent due to illness. Councillor Wallace was absent due to other business. STAFF ATTENDEES Chief Administrative Officer, Interim Manager/Advisor to Finance, and Administrative Co-ordinator/Deputy Clerk OTHER ATTENDEES Aurora Hydro Connections John Sanderson, President and CEO Tom Barrett, CFO of Aurora Hydro Connections Grant Thornton LLP Mr. Allister Byrne, FCA, Partner Michael Bunn, Principal Mayor Jones called the meeting to order at 7:55 p.m. I DECLARATIONS OF PECUNIARY INTEREST There were no declarations of pecuniary interest under the Municipal Conflict of Interest Act. H APPROVAL OFAGENDA Moved by Councillor Kean Seconded by Councillor West THAT the content of the Agenda as circulated by the Corporate Services Department be approved as presented. CARRIED —1— SPECIAL COUNCIL - BOREALIS - FEBRUARY 14, 2006 Council Meeting No. 05.22 Page 2 of 3 Wednesday, June 22, 2005 It/ RECEIPT OF MINUTES Borealis Hydro Electric Holdings Inc., Annual Shareholder's Meeting Minutes No. 04-21 held June 22, 2004 Moved by Councillor Kean Seconded by Councillor West THAT the Minutes of Meeting No. 04-21 held June 22, 2004 be received for information. CARRIED IV DETERMINATION OF ITEMS REQUIRING SEPARATE DISCUSSION Items 4 and 5 were Identified for discussion. V ADOPTION OF ITEMS NOT REQUIRING SEPARATE DISCUSSION 1. Resignations of Mr. George Sleeves and Mr. Jim Carey Moved by Councillor West Seconded by Councillor Buck THAT the resignations of Mr. George Steeves and Mr. Jim Carey be accepted. 2. Consolidated Financial Statements, December 31, 2004 THAT the attached Consolidated Financial Statements, December 31, 2004, be accepted and signed by the Shareholder. a) Borealis Hydro Electric Holdings Inc. Consolidated Financial Statements December 31, 2004 — Grant Thornton, Auditors' Report b) Aurora Hydro Connections Limited Financial Statements December 31, 2004 Grant Thornton, Auditors' Report 3. Appointment of Auditors for Borealis Hydro Electric Holdings Inc. THAT Grant Thornton LLP be re -appointed as the auditors of Borealis Hydro Electric Holdings Inc. CARRIED VI DELEGATIONS None VII CONSIDERATION OF ITEMS REQUIRING SEPARATE DISCUSSION 4. Appointment of Directors for Borealis Hydro Electric Holdings Inc. Moved by Councillor West Seconded by Councillor Vrancic THAT, effective June 22. 2005, the current Board of Directors, in total, be removed with the thanks and appreciation of the Council for all their efforts, energies and results in the stewardship of Borealis Hydro Electric Holdings Inc. over the past years; and -2- SPECIAL COUNCIL - BOREALIS - FEBRUARY 14, 2006 Council Meeting No. 05-22 Page 3 of 3 Wednesday, June 22, 2005 THAT the Board of Directors of Borealis Hydro Electric Holdings Inc. be composed of three persons being a Member of Council, a Senior Staff Member and a Member of Council and/or Senior Staff Member. CARRIED Moved by Councillor Vrancic Seconded by Councillor West THAT, effective June 22, 2005, Mayor Jones, Councillor Kean and Mr. John Rogers, Chief Administrative Officer of The Corporation of the Town of Aurora be appointed as the sole Directors of Borealis Hydro Electric Holdings Inc. CARRIED 5. Borealis Hydro Electric Holdings Inc. Moved by Councillor West Seconded by Councillor Kean THAT no consideration be given at this time to the ultimate retention or disposition of Borealis Hydro Electric Holdings Inc. until after the sale of the shares of Aurora Hydro Connections Limited to PowerStream Inc. has been finalized and concluded. CARRIED Vlll READING OFBY-LAWS Moved by Councillor West Seconded by Councillor Vrancic THAT the following listed by-law be given 1st, 2nd and 3rd readings, and enacted: 4680-05.0 BEING A BY-LAW to Confirm Actions by Council Resulting From The Special Council Meeting - Wednesday, June 22, 2006. CARRIED IX IN -CAMERA None X ADJOURNMENT Moved by Councillor Vrancic THAT the meeting be adjourned at 8:10 p.m. T. JONES, MAYOR CARRIED K. EWART, DEPUTY CLERK -3- SPECIAL COUNCIL - BOREALIS - FEBRUARY 14, 2006 AGENDA STEM Aurora Hydro Connections Limited Financial Statements October 31, 2005 ant Thornton V -4- SPECIAL COUNCIL - BOREALIS - FEBRUARY 14, 2006 Contents Paae 1 2 3 4 i-14 Grant Thornton To -5- SPECIAL COUNCIL - BOREALIS - FEBRUARY 14, 2006 Grant Thornton LLP Chartered Accountants Management Consultants 15 Allstate Parkway Suite 200 Markham, Ontario L3R 5B4 T (416) 366-0100 F (905)475-8906 E Markham@GrantThcmton.ca W www.GrantThorntao.ca Grant Thornton W 2005 and d ending agement. 3. Those ether the est basis, I includes is well as tosition of 9r the ten accepted untants Canadlan Member of Granl Thomlon International -6- SPECIAL COUNCIL - BOREALIS - FEBRUARY 14, 2006 Aurora Hydro Connections Limited Statements of Earnings and Retained Earnings For the Ten Month Period Endinq October 31 2005 Revenue Sale of power Distribution Cost of power Power purchased Gross margin Other revenue Expenses Operations and maintenance Administration Amortization Billing and collecting Management fee Earnings before interest and income Interest on long term Earnings before income taxes � Payment in lieu earnings, $ 29,080,291 746,188 fi;137,774 1,305,721 678,296 702 2,879,760 1,215,000 $ 1,664,760 $ 1,990,957 1,664,760 $ 3,655,717 See accompanying notes to the financial statements. Grant Thornton U 2004 (Note 2) $ 28,483,233 5,900,850 34,384,083 28,483,233 5,900,850 387,973 1;291,208 1,559,725 815,837 78,453 4,499,020 1,789,803 (923,360) 866,443 505,300 $ 361,143 $ 1,629,814 361,143 $ 1,990,957 2 -7- SPECIAL COUNCIL - BOREALIS - FEBRUARY 14, 2006 Aurora Hydro Connections Limited Balance Sheet October 31 2005 2004 (Note 2) Assets Current Cash and cash equivalents $ 5,450,978 - $ 1,961,845 Receivables 4,69,4a058 3,347,759 Unbilled revenue 3,060'9t61 4,199,650 Inventory =_(4¢81644 423,921 Prepaids 215,355 192,880 13,869;996 10,126,055 Capital assets (Note 5) ,, 20,053,118i 20,757,031 Regulatory assets (Note 6) 3,841,954 ; - L 219961629 Investment 8,360 8,760 $ u 33;888,475 t,$7773,497 7� �s Liabilities Current Payables and accruals w ${ li;?�30,494 $ 4,187,565 Customer deposits 8{13,048 965,503 Due to related party (Note 4) - 5,425 Payment In lieu of taxes payabtq 836,880 335,865 Current portion, eid developers (Note 7) :. 81,293 401,224 7,751,715 5,895,582 Long term customer deposits = 494,685 286,476 Unearned capital contributions_= 580,260 415,978 Due to4dVeloo,ers(Nota7)` - 22,829 Accrued employowfuture benefits obligation 169,520 155,053 Lung term debt (Not e:B), 12,736,000 12,736,000 21,732,180 19,511 918 s Equity (Note 9) 12,385,600 12,385,600 lings 3,655,717 1,990 957 t . 16,041,317 14, 376,557 $ 37,773,497 $ 33,888,475 Commitment and contingent liabilities (Notes 15 and 16) On behalf of the Board See accompanying notes to the financial statements. Grant Thornton T 0 -8- SPECIAL COUNCIL — BOREALIS — FEBRUARY 14, 2006 Aurora Hydro Connections Limited Statement of Cash Flows For the Ten Month Period Ending October 31 2005 2004 (Note 2) Cash derived from (applied to) Operating Net earnings Items not affecting cash: Amortization Amortization of investment Net change in non -cash working capital balances (Note 10) Financing (Decrease) increase in unearned capital (Decrease) increase in amount due to de (Decrease) increase in long terrn.custom Increase in accrued employe eFYilf'tb-lbei Investing Net additions in Net decrease:(? Net increase fdecrease) in cash 4hd cash Cash Grant Thornton of year $ 1,664 60 $ 361,143 137 1,614,167 400 480 -2 1,975,790 4,928,553 (342,760) (207,253) 208,209 (595,298) 14,467 27,648 44,198 (1,235,755) (638,293) (943,825) (845,325) 95,831 (1,483,618) (847,994) 3,489,133 (215,674) 1,961,845 2,177,519 $ 5,450,978 $ 1,961,845 See accompanying notes to the financial statements. 17 -9- SPECIAL COUNCIL - BOREALIS - FEBRUARY 14, NM . Aurora Hydro Connections Limited Notes to the Financial Statements October 31, 2005 t. Nature of operations Aurora Hydro Connections Limited (the Corporation) distributes businesses in the Town of Aurora under license issued by the The Corporation is wholly owned through a holding Corporation Electricity Act, 1998 provides for a competitive marketplace in the Energy Board Act, 1998 (Ontario) (OEBA) conferred on thq increased powers and responsibilities to regulate the electrii its responsibilities include the power to approve or fix rates for tfe''t r to the residents and Energy Board (OEB). fbwn of Aurora. The lectricity. The Ontario Energy Board (OEB) These powers and too %and distribution of electricity, the power to provide continued rate proteFtfon for rural ands remote electricity consumers, and the responsibility for ensuring thath�listribution companies fulfir;obligations to connect and service customers. The OEB rr1ay,21so prescribe license requirements and conditions to electricity distributors, which may it lu�le among Dther,things specified`accounting records, regulatory accounting principles sepdMidh;,of accounts for distinct businesses and filing and process requirements for rate setting purposes 2. Sale of the Corporation to "I r Fz :z The shares of the Corporation were sp1dkto Pow'ersfream Inc effective November 1, 2005, consequently the financial statements haue.been prepared io=the daid of acquisition and report revenue and expenseo:for,}he, ten month period er dmg October 3i, 2005. Comparative figures represent the normal. t`,velve months ended December 31, 2004. 3. Summar)' si Cash and cash equi, Cash and cash equivr inventory Inveht4ry....consists of f;u expansien FThe inve and net realizable vale Grant Thornton T cash on hand, bank balances and short term notes. parts, supplies and materials for maintenance and future capital valued at the lower of the weighted average cost of similar items 5 -10- SPECIAL COUNCIL - BOREALIS - FEBRUARY 14, 2006 Aurora Hydro Connections Limited Notes to the Financial Statements October 31, 2005 3. Summary of significant accounting policies (continued) Rate -setting The electricity distribution business is subject to rate regulation by the OE$. The OEB has the general power to include or exclude costs, revenues, losses or gams,1" the rates of a specific period, resulting in a change in the timing of accounting recognition from,`it t which would have applied in an unregulated company. This change in timing gives ns Hto the recognition of regulatory assets. These regulatory assets reflect the fact that reverUe.and expenses are recognized in the financial statements in different penods Sf isistent with their Inclusion in rates, as directed by the regulator, than would be the case :for an enterprise that rs ^unregulated. Specific regulatory assets recognized at October..., are disclosed in Note The recovery of regulatory assets through rates began: 20, 2004, the OEB authorized the second instalmeffil 2005 rate application. In a letter dated July 12, 2005, fl 2 recovery of regulatory assets as pait;of:the 2006 rate The Corporation continually assesses`. e, lift€ and believes that it is probable that its re&Iat rates. If future recovery through rates is nn;loi amount will be written off rn tt e period that the The following regulatory treatme is have r' Canadian GAA,of enterprises cao?tating in a n a letter dated Deodmber of regulatory assets in the :d guidelines for the phase veryiicf,each of its regulatory assets be fact rr into the setting of future dFgrobae;'the appropriate carrying in accounting treatments differing from ulated environment: • Market ratly costa ',have l�gen-df [redr accordance with the criteria set out in the OEB Electridrty'Di' fi bution Rate h book, the Accounting Procedures Handbook rnsubsequehI.OEB guidelines n the absence of such regulation, these costs would have beeh expensed when incurred under Canadian GAAP; • The Corpo4fir6n has 8104#r,red certain retail settlement variance amounts under the provisions of'Aticle 490 i'rf'The OEB Accounting Procedures Handbook; Revenues attributable to' the sale and delivery of electricity are based on OEB approved unbundled rates. ih, `are recognized as power is delivered to customers. The Corporation estimates the monthly revenue for the period based on customer's usage because customer meters are not generally read at the end of each month. Unbilled revenue is recognized for customer usage not billed at October 31, 2005. Grant Thornton y -11- SPECIAL COUNCIL - BOREALIS - FEBRUARY 14, 2006 Aurora Hydro Connections Limited Notes to the Financial Statements October 31, 2005 3. Summary of significant accounting policies (continued) Depreciation Capital assets are depreciated by the straight-line method over pertots approximating their estimated useful lives as follows: Y` Distribution system 15 35 years Other capital assets 5 ;jq-years When capital assets are sold or scrapped, the cost of the asset and the related,,accumulated depreciation is removed from the accounts with tho`resdlting net gain or loss bi;mg„included in operations for the year. Contributions for capital construction Capital contributions are required co tnbutions received from outside sources used to finance additions to capital assets. Earn�r�dntributlons are treated as a "credit contra account" included in the determination of cap I asset The amount`§iisubsequently depreciated by a depreciation charge to accumulated depreation a d;e credit o depreciation expense, at an equivalent rate to that used for the depreciation of the related capitahasset.,, ,P Corporate income and capital taxes Under the Elegtriu Act, 1998 the Corporation is required to make payments in lieu of corporate Inc op 'taxes to the Qntario Ele6t.1'ity Financial Corporation (OEFC). These payments are edglated in accordance with the rules for computing income and taxable capital and other role vanbamounts % ltamed_m the Income -Tax Act (Canada) and the Corporation Tax Act (Ontario) as modiI 1 by tfi'e Elect 11IN7 Act 1998 sand related regulations. The.Corporat.on provides for payments in lieu of corporate income taxes relating to its regulated business using the taxes payable method as directed by the OEB. Under the taxes payable }pethod, no provisions are made for future income taxes as a result of temporary differences ;. between the tax basis`of assets and liabilities and their carrying amounts for accounting purposes. When unrecorded future income taxes become payable, it is expected that they will be ih&ded in the rates approved by the OEB and recovered from the customers of the Corporaiio`h,,at that time ,,This regulation accounting treatment differs from Canadian generally accepted accounting principles for enterprises operating in a non -regulated environment. Pension plan The Corporation provides a pension plan for its employees through the Ontario Municipal Employees Retirement System ("OMERS"). OMERS is a multi -employer pension plan which operates as the Ontario Municipal Employees Retirement Fund (the "Fund") and provides pensions for employees of Ontario municipalities, local boards, public utilities and school boards. The Fund is a contributory defined benefit pension plan financed by equal contributions from participating employers and their employees and by the investment earnings of the Fund (Note 11). Grant Thornton % -12- SPECIAL COUNCIL - BOREALIS - FEBRUARY 14, 2006 Aurora Hydro Connections Limited Notes to the Financial Statements October 31, 2005 3. Summary of significant accounting policies (continued) Accrued employee future benefits obligation Employee future benefits provided by the Corporation include voluntary exit incentive program liability. These plans provide k when they are no longer providing active service. Employe recognized in the period in which the employees render the sgr"'O Employee future benefits are recorded on an accrual current service cost are calculated using the projectq based on assumptions that reflect managements,W period is equal to the actuarial present value qT 1 rendered in the period. Past service costs from plat line basis over the average remaining service pE amendment. Actuarial gains (losses)„ are amortized the average remaining service period-"�f_aptive emplo 'drance benefits and to certain employees a benefit expense is accrued benefitobligations and method pro rates ion service and ;. The current seNicepst for a tnba,!d to employe&s,' ,rvices t 'Ye amortized on d Ofiight- 1byees active at the date of Ise on a straight-line basis over eligibility. Capital assets retirement obligationsZ*, Canadian generally accepted accounting'rinaples,require the Corporation to determine the fair value of the future ependituresrequired to settle; legal obliga`tiUnsrto remove capital assets on retirement. If reaspAWly„estma)��e, a liability is-yecognized egifal to the present value of the estimated future id oval expenditQites. An egwvalent amount is capitalized as an inherent cost of the associatd. capital assets Some of the Corporation s ag`sets AI'4y%; �!e,,assd),Vbtirement obligations. As the Corporation expectsto use the maiont11"y o°Its capital a'st« ¢r an indefinite period, no removal date can be determ'rndH arfd;,conseq_0d6tjy, a reasonable es imate of the fair value of any asset retirement ob'ligaions has ndt been made,at this time. t . timates s . In preparing the Corporatioh's financial statements, management is required to make estimates and assur( ptions that a#&t the reported amounts of assets and liabilities, the disclosure of cogen ;assets and I40les at the date of the financial statements and reported amounts of revenue ancJ ekpenditirgs during the year. Due to the inherent uncertainty in making estimates, actual results couid:differ from these estimates. Grant Thornton % -13- SPECIAL COUNCIL - BOREALIS - FEBRUARY 14, 2006 Aurora Hydro Connections Limited Notes to the Financial Statements October 31, 2005 4. Related party transactions 2005 2004 The Corporation had the following related party transactions: Borealis Hydro Electric Holdings Inc. - parent Corporation Management fee $ 45,987 $ 78,453 Town of Aurora - shareholder of parent Corporation Interest paid ;, r 770;h42 923,360 Rent 'Ea 86 79=a 100,034 Energy sales and services 825,094 } 700,839 Balances outstanding at October 31: Due from the Town of Aurora 116,909 Due to Borealis Hydro Electric Holdings Inc ",' (5,425. , 5. Capital assets 2005 2004 ., Accumulatedzl ::._ Net Net ',°pie reciation ` .Book value Book Value Distribution system $ 40,226 752 $ 20,427,799:�;: 19,798,953 $ 20,492,217 Other capital assets ,:,:: 487 580 233,346`'.= " 254,234 264,814 $ 40,714 332 i$ 20,661,145 $ 20,053,187 $ 20,757,031 6. Regulatory assets 2005 2004 3 the` Corporation has recorded the following regulatory assets: servicesvarianpe_. , $ 3,409,026 $ 2,542,148 t ready costs 432,928 454,481 $ 3,841,954 $ 2,996,629 As recovery through 'Af`es has started, the Corporation has reversed its provision for the Pre - market Opening norgy Variance and carrying costs on Regulatory Assets allowed by the Ontario Energy Board. The Corporation continues to make provision against two variance accounts and related carrying costs for which rate recovery has not yet been provided. Grant Thornton,%. M -14- SPECIAL COUNCIL - BOREALIS - FEBRUARY 14, 2006 Aurora Hydro Connections Limited Notes to the Financial Statements October 31, 2005 7. Due to developers For all agreements entered into on or after November 1, 2000, that require the construction of new facilities to the distribution system or increased capacity, of existing distribution system facilities to connect new customers, the Distribution System Code regatM the Corporation to perform an economic evaluation to determine if the future revenue Will'�ay for the capital cost and on -going maintenance costs of the expansion project If VhoW Is a shortfall between the present value of the projected costs and revenues then a caprtaL_``comr-ibui on maybe requested. The amount shown as 'Due to Developers' represents th'drdifference between the developers' required capital contribution as determined by theN d bromic evaluation acid the cost of distribution assets installed and paid for by the devel�d. 8. Long term debt The unsecured promissory note is payable to the Town of Aurora. The note bears interest at a simple annual rate equal to the rate of. interest that the Corporation is, from time to time, permitted by the OEB to recover mits ra W(currently 7 25% per annum). Interest is due and payable quarterly on the last day of Mardh ZK !-September and December. As part of the sale agreement the promissory note is to be cancelled.,5,. 9. Share capital h, " 2005 2004 Authorized: The Corporation is-authorized,to issuo anyunlimited number of common shares. $ 12,385,600 $ 12,385,600 Supplemental dish, flow infikftnation 2005 Net dhari e In non -cash wo'j Ing capital balances Receivables_,=a $ (1,346,299) Unbilled revenue .: 1,138,689 Inventory (24,723) Prepaids (22,475) Due to related parties (5,425) Payables and accruals 2,042,929 Customers deposits (362,455) Payments in lieu of income taxes payable 501,015 $ 1,921,256 Grant Thornton% 2004 $ (433,866) (1,257,183) 77,309 3,770 5,348 1,030,756 130,286 335,865 $ (107,715) 10 -15- SPECIAL COUNCIL — BOREALIS — FEBRUARY 14, 2006 Aurora Hydro Connections Limited Notes to the Financial Statements October 31, 2005 10. Supplemental cash flow information (continued) 2005 2004 I nterest income $ 43,502 $ 19,101 Interest paid $7Q,942 $ 923,360 Payments in lieu of income tax payable ;, ,.<7j3,985 $ 162,239 11. Pension agreements , The Corporation makes contributions to the Ontario Municipal Employees Re$r2ittent Fund (OMERS), which is a multi -employer plan pefr on alf of members of its staff. _66 &n is a defined benefit plan, which specifies the amount of the retirement Benefit to be receiQ, by the employees based on the length of service and rates.of pay. Effective January 2004, full contribu,)ibn_rates were made at rates ranging from 6% to 8.8% of employee contributory earnings depg6dmgt upon the i4V4of earnings. As a result, the Corporation made contributions in 20g totalling $82 437 for curFefrtservice (2004 - $97,209). 12. Other post -employment benefit plan The Corporation pays certain behests on beh The Corporations defined benefk,plan for the retired employees. ded October 31 is as follows: benefit obligation beginning of year $ 155,053 $ 127,405 0efiefits paid (8,074) (7,687) Expense for the yeaf - ;;, 22,271 35.335 Acctued_benefit obligatop; end of year $ 169,250 $ 155,053 i The significant actuarial assumptions adopted in measuring the accrued benefit obligation are as follows.' Discount rate The accrued benefit obligation for the year ended October 31, 2005 was determined using an annual discount rate of 5.75%. This corresponds to the assumed Consumer Price Index ("CPI") rate plus an assumed real rate of return of 3.55%. Grant Thornton T" 11 —16— SPECIAL COUNCIL - BOREALIS - FEBRUARY 14, 2006 Aurora Hydro Connections Limited Notes to the Financial Statements October 31, 2005 12. Other post -employment benefit plans (continued) Salary and wage levels Future general salary and wage levels were assumed to increase at General inflation rates Future general inflation rates, as measured by changes in,the CPI, were 13. Public liability insurance �Moner� at 2.2%. The Corporation is a member of the Municipal 1,Electric As.666(ifion Reciprocal Irisdrance Exchange (MEARIE), which was created on January jl, 4987,'�O!i6iprocal insurance exchange '.y may be defined as a group of persons formed for fhc ,purpose of exchanging reciprocal contracts of indemnity or inter-msurancet,wtth each other through the same attorney. MEARIE has provided general liability insurancd td=the Corporation of $26000,000 per occurrence. 14. Payment in lieu of income taxes The Corporation isafequired to'compute and rem[H6 the Ontario Electricity Financial Corporation owned by the Provnde of Ontand p?4yments in (lieu of income taxes (PILS). PILS are computed in accordance with rules for co- ting incoA ,capital and other taxes provided for in the Income Tax Act' (Ganada) and ine `Corporation Tax=lct (Ontario) as modified by The Electricity Act, 1998 and related regulations ` before and Ontario statutory income tax rates PILS at statbtdty rate Increase (decrease) resulting from: Temporary differences Depreciation in excess of capital cost allowance Deduction of Ontario capital tax Other Reserves Net temporary differences Grant Thornton' 2005 2004 $ 2,879,760 $ 739,038 36.12% 36.12% $ 1,040,169 $ 266,940 $ 165,644 $ 157,446 (19,534) (24,668) 1,464 (47,149) 72,259 98,961 206,501 12 —17— SPECIAL COUNCIL — BOREALIS — FEBRUARY 14, 2006 Aurora Hydro Connections Limited Notes to the Financial Statements October 31, 2005 14. Payment in lieu of income taxes (continued) Permanent differences: Ontario capital tax Amortization of appraisal increment Adjustment to prior provision Other Net permanent differences Provision for PILS Future income taxes relating to the accounts as they are expected to be rE 15. Commitment Purchasers of electricity in Ontario, th'r formerly Independent Market Operate their default based on their expected guarantees if the Corporation fails to i IESO. The maximum potenfal,paym October 31 2005 ;the 'Corporaf ion, pr $2,591,187 ., 16. Contingent 2005 have not been future 2004 68,293 (66,889) 29,065 1,390 31,859 506,300 yr,`tled in the Independent Electricity System Operator (IESO, g iifed,#o provide security to mitigate the risk of in the' m4rket. Thd&JESO could draw on these )ayrn nt required by default notice issued by the #ace value of the'bank letters of credit. As at PUdential support using bank letters of credit of §46116n,dlaiming $500 million in restitution payments plus interest was served on Toronto Electric Commission on November 18, 1998. The action was initiated against Toronto as the representative of the Defendant Class consisting of all municipal electrical utilities ario that have charged late payment charges on overdue utility bills at any time after April The clam `'is that the late payment penalties resulting in the municipal electrical utilities receiving interest et "effective interest rates in excess of 60% per year, which is illegal under section 347(1)(b) of the:crirninal Code. The Electricity Distributors Association is undertaking the defence of this class action. At this time it is not possible to quantify the effect, if any, on the financial statements of the Corporation, and as such no accrual of any potential liability has been recognized. Grant Thornton y 13 am SPECIAL COUNCIL - BOREALIS - FEBRUARY 14, 2006 Aurora Hydro Connections Limited Notes to the Financial Statements October 31, 2005 17. Subsequentevent The Corporation settled a wrongful dismissal claim. The full amount has been accrued and is included in payables and accruals at October 31, 2005. :,. 18. Comparative figures Certain of the comparative figures have been reclassified to„conform with fF § presentation in the current period. No amount of Regulatory assets have ""-4,classifled as current,assets In these financial statements. Grant Thornton y 14 -19- SPECIAL COUNCIL - BOREALIS - FEBRUARY 14, 2006 .t _ '.;ar li Y'C7 t"t - lb} C# vo AU ORA 1:tYDRO C`d)r`Jr4'i C'TId1:b:5' C,/;'k,717'f?7) Estimated Purchase Price Adjustments Purchase Price before Adjustments Estimated adjustments (see below) working capital adjustment capital asset adjustment Estimated adjusted price Rounded to Nearest$100,000 ADJUSTMENT DETAILS WORKING CAPITAL Dec 31/03 benchmark Projected at closing Adjustment Scenario 1 34,500,000 2,113,714 (1,374,186) 35,239,528 35,200,000 Estimated Price Adjustment Increase (Decrease) Current assets Current liabilities Customer Deposits (not in current liab.) Working capital (*see note 4) 2,113,714 111, Based on Oct 31105 draft audited Financials 3,509,882 a 5,623,596 actuals Dec 31, 2003 Dec 31, 2004 Oct 31, 2005 8,731,759 11,495,055 13,869,996 dj 4,340,103 5,895,582 7,751,715 dj 881,774 286,476 494,685 aj 3,509,882 5,312,997 5,623,596 Increase CAPITAL ASSETS -NBV (Decrease) Dec 31103 benchmark 21,427,373 rp Projected at closing 20,053,187 Adjustment (1,374,186) m, actuals Dec 31, 2003 Dec 31, 2004 Oct 31, 2005 Capital Assets - NBV 21,427,373 20,757,030 20,053,187 lip less "earned capital contributions" 20,053,187 Total Adjustments 739,528 round to nearest $100,000 700,000 Notes &i Working capital is defined in the Share Purchase Agreement (SPA) as current assets less current liabilities less customer deposits Share Purchase Agreement refers to the closing balance sheet being consistent with past practice and in accordance with GAAP. TAB 26-Jan-06 -20- C:\Documents and Settings\karen ewart\Local Settings\Temporary Internet Files\OLK4\Sale Price Adj Est_Jan26-06 SPECIAL COUNCIL - BOREALIS - FEBRUARY 14, 2006 THE CORPORATION OF THE TOWN OF AURORA By-law Number 4772-06.0 BEING A BY-LAW to Confirm Actions by Council Resulting From The Borealis — Annual Shareholder's Meeting 06-04 on February 14, 2006. NOW THEREFORE THE COUNCIL OF THE CORPORATION OF THE TOWN OF AURORA HEREBY ENACTS AS FOLLOWS: THAT the action of the Council at its meeting held on February 14, 2006 in respect to each motion, resolution and other action passed and taken by the Council at the said meeting is, except where prior approval of the Ontario Municipal Board is required, hereby adopted ratified and confirmed. 2. THAT the Mayor and the proper officers of the Town are hereby authorized and directed to do all things necessary to give effect to the said action or to obtain approvals where required and to execute all documents as may be necessary in that behalf and the Clerk is hereby authorized and directed to affixthe corporate seal to all such documents. READ A FIRST AND SECOND TIME THIS 14" DAY OF JANUARY, 2006. READ A THIRD TIME AND FINALLY PASSED THIS 10 DAY OF JANUARY, 2006. T. JONES, MAYOR B. PANIZZA, TOWN CLERK -21- ADDITIONAL ITEMS TABLED FOR SPECIAL COUNCIL BOREALIS SHAREHOLDER'S MEETING Tuesday, February 14, 2006 ➢ Summary of Financial Results for Aurora Hydro Connections Limited ➢ Revised resolution regarding Financial Statements of Aurora Hydro Connections Limited ending October 31, 2005 Report to Council Summary of Financial Results for Aurora Hydro Connections Limited The enclosed financial statements for Aurora Hydro Connections Limited (the "Corporation") are presented for your approval. These financial statements cover the ten month period to October 31, 2005 being the date that the Corporation was sold to Powerstream. These statements have been prepared pursuant to the Agreement of Purchase and Sale. The Corporation reported revenue from the sale of power of $29M for the ten month period which, if annualized, equates to approximately $35M. This increase of revenue of 21% arose primarily from the increase in the price of energy as well as an increase in consumption, both from growth and the unseasonably hot summer and early fall. Distribution revenue rose slightly due primarily to growth and increased consumption. Other revenue increased significantly to $2.1M. The largest single component of this increase was the $1.7M in the recovery of pre -market opening energy variance. Expenses for the period were on budget and comparable on a year over year basis for the most part. The hotter summer weather increased costs for operations and maintenance and the costs for the regulatory approval for rate recovery appear in the administration costs. Interest on long term debt of $770K represents the interest paid on the note from the Town for ten months. Overall the Corporation is reporting net earnings of $1.66M for the ten month period. On the Balance Sheet as at October 31, 2005 the Corporation is showing a significant increase in cash to $5.4M. This is primarily a timing matter as there is also a significant increase in payables of $2M. Receivables increased by $1.3M as compared to December 31 due primarily to the timing of bills for the hot summer months which would have been issued in September and October. By comparison unbilled revenue is down by $1M since most of the summer months' high consumption bills would have been rendered to customers. Regulatory assets show an increase of $750K mostly in the variance account and is expected to be recovered in future years. Payables increased by $2.1M due mostly to the timing of billings fiom Hydro One which were outstanding as at October 31. Customer deposits in total are comparable but the current portion of $603K is down primarily because of the change in regulations where deposits are now returned to customers after one year of having established a good payment history with the Corporation. Amounts due to developers have also decreased as subdivisions come on line and amounts are returned. The Town's equity in the Corporation grew from $14.3M to $16M as a result of the strong ten months of operations. The remainder of the financial statements provide additional support information to the financial statements. JADato\Continuing Files\A\Anron Hydro Connections\Correspondence\Fisca12005\Report to Cotmcil - Summary ofAinancial Results.doc Revised Resolution for Item 1 Special Council — Borealis Shareholder's Meeting February 14, 2006 1. Financial Statements of Aurora Hydro Connections Limited, ending October 31, 2005 THAT the Financial Statements of Aurora Hydro Connections Limited, ending October 31, 2005, be received for information as a closing balance sheet; and THAT the purchase price adjustments be received and utilized by staff to adjust the final purchase price with Powerstream Inc.