IMO 2004-2006 IMO 2004-2006 BUSINESS PLANBUSINESS PLAN

Financial Overview

September 30, 2003

Regulatory Affairs Standing Committee

Agenda

• Assumptions utilized in business plan

• Changes impacting the IMO over the planning period

• Resource estimates 2003-2006

• Questions

Planning Assumptions• Load forecasts consistent with most recent IMO 18-month and 10-year forecasts.• Cumulative surplus at the end of 2003 is carried forward to apply to usage fee in

2004, 2005 and 2006.• Long-term debt with Province of Ontario is refinanced in 2005 at a floating rate

with the ability for repayments at least twice annually.• Floating interest rate on long-term debt assumed to be in the range of 3.25% to

4.5% over the planning period.• Repayment of debt over the planning period - $100M in 2003, $50M in 2005 and

$30M in 2006• Capital spending of $20M per year, in addition to $35M for Day Ahead Market.• Shortened IT hardware service life changes reflected.• Pension expense for 2004 based on actual returns to the end of August 2003 and

2005/2006 expense based on plan return of 7.25% annually, consistent with the assumed pension plan long-term rate of return.

Changes from Last Year’s Plan

• Introduction of Bill 210– Increased complexity for settlements processes

– Confirmation of need for Market Evolution Program

– Recognition of an increased need for stakeholder and consumer understanding and

– More comprehensive market consultation, internal and external to the wholesale market.

• North American blackout on August 14, 2003– Represented an ‘eye-opener’ for the industry.

– Affirmation of criticality of reliability standards, planning and industry coordination.

Resource Levels: 2003-2006

• A net surplus of $0.8M is projected for 2003.

• Revenue requirements over the planning period are largely consistent with 2003 and lower than last year’s plan.

• Over the planning period, Day Ahead Market (“DAM”) can now be accommodated within the current fee.

• Budgeted staff levels are increasing modestly from current staff levels and the levels included in last year’s plan.

• Capital spending levels budgeted at levels consistent with 2003 estimated spending, except for DAM.

• The usage fee proposed over the planning period is consistent with the current level of $0.959/MWh, reflecting a fee level that has been in place since 2002.

Resource Estimates

2003 Budget

2003 Projected 2004 2005 2006

OM&A - Program Costs 86.9$ 78.6$ 83.1$ 85.1$ 87.9$

OM&A - Pension Expense 4.3 4.2 7.5 9.9 12.0

OM&A Sub-total 91.2$ 82.8$ 90.6$ 95.0$ 99.9$

Market Evolution Program 7.3 3.8 1.7 - -

Amortization 46.0 49.8 52.5 52.1 54.9

Interest 20.3 18.2 11.3 10.8 10.2

Revenue Requirements 164.8$ 154.6$ 156.1$ 157.9$ 165.0$

Capital Expenditures 35.9$ 22.1$ 55.0$ 30.0$ 20.0$

Staff Levels 412 407 424 428 428

IMO Usage Fee ($/MWh) 0.959$ N/A 0.959$ 0.959$ 0.959$

Projected 2003 Results

• Projected operating surplus of $0.8M.

• Higher than planned revenues due to market activity and settlement clearing account.

• OM&A below budget due to:

– lower than planned staff costs, resulting from: staff levels that were below budget; reduced overtime from 2002; and focused management of travel and training costs.

– successful reduction of computer support, maintenance and equipment costs, resulting from contract renegotiations and consolidations, plus equipment and software rationalization.

– Reduced telecommunication costs, a result of early completion of the Data Acquisitions and Computer Systems project and elimination of other telecommunication services.

– Consultant and contract services costs below budget due to the deferral of some audit work and a credit rating, and the cancellation of other planned services.

• Market evolution program operating costs lower than planned, with some costs delayed to 2004.

• Amortization above budget due to the necessary shortening of service lives, primarily related to IT hardware.

• Interest below budget due to higher cash balances, higher interest rates on investments, and a reduction in the interest rate on the debt refinanced in November 2003.

Budgeted 2004 Requirement• Total revenue requirements increasing by $1.5M, or less than 1%.

• OM&A is increasing by $7.8M in 2004 from 2003 projection.

– Pension expense represents 43% of the increase.

– Staff levels increasing in response to increased operating needs.

– Consultant and contract services necessary to meet obligations and increasing demands.

– Continued support of substantial infrastructure and applications.

• Market Evolution Program continuing in 2004, with operating costs within the level identified in last year’s plan.

• Amortization increasing due to continued capital spending and shortened service lives.

• Interest reducing due to lower debt levels and interest rates.

• Capital spending at $20M for ongoing capital, consistent with 2003.

• Capital of $35M planned for DAM - $25M in 2004, $10M in 2005.

OM&A - Program Costs

2003 Budget

2003 Projection 2004 2005 2006

Staff Costs 54.2 51.4 55.4 57.7 60.1

Computer Services, Maintenance & Equipment 15.3 12.0 11.8 11.9 12.0

Consultants & Contract Services 6.3 5.3 6.7 6.3 6.6

Telecommunications Costs 5.1 3.9 3.1 3.1 3.0

Administration 6.0 6.0 6.1 6.1 6.2

Total OM&A Program Costs 86.9 78.6 83.1 85.1 87.9

Budgeted 2005/2006 Requirements

• Staff levels and ongoing capital spending remain consistent with 2004.

• In 2005, revenue requirements increase by $1.8M (1%) due to pension expense.

• In 2006, revenue requirements increase by $7.1M (4%) due to pension expense and DAM related amortization.

Income Statements

2003 Projected 2004 2005 2006

IMO Usage Fees 149,227 148,645 149,700 151,043 Settlement Clearing Account 5,026 5,060 5,060 5,060 Cost Recovery 1,153 965 980 998

155,406 154,670 155,740 157,101 OM&A Program Costs 78,584 83,069 85,095 87,920 OM&A Pension Expense 4,200 7,500 9,900 12,000 MEP 3,837 1,731 - - Amortization 49,826 52,525 52,094 54,904 Interest 18,200 11,324 10,783 10,151

154,647 156,148 157,872 164,975

Operating Surplus/(Deficit) 759 (1,478) (2,132) (7,874)

Balance Sheets2003

Projected 2004 2005 2006AssetsCurrent AssetsCash & cash equivalents 33,715 43,452 17,194 20,224 Temporary investments 6,300 7,600 9,000 10,500 Accounts receivable 15,047 15,047 15,047 15,047 Short term prepaid expenses 1,500 1,500 1,500 1,500 Total Current Assets 56,562 67,599 42,741 47,271

Property & EquipmentProperty & equipment in service 329,296 380,453 410,453 430,453 Less: accumulated amortization (111,894) (164,419) (216,513) (271,416)

217,402 216,034 193,940 159,037 CIP-IMP/MEP 5,810 CIP-Other capital projects 347 - - - Total Property & Equipment 223,559 216,034 193,940 159,037 Prepaid pension expense 24,647 22,547 19,047 14,247

Total Assets 304,768 306,180 255,729 220,555

LIABILITIESCurrent LiabilitiesAccounts payable & accrued liabilities 12,490 12,490 12,490 12,490 Accrued interest 1,726 1,916 897 897 Total Current Liabilities 14,216 14,406 13,387 13,387

Long-term debt 253,200 253,200 203,200 173,200 OPEB 25,878 28,578 31,278 33,978

TOTAL LIABILITIES 293,294 296,184 247,865 220,565

SURPLUS/(DEFICIT) 11,474 9,996 7,864 (10)

TOTAL LIABILITIES & SURPLUS/(DEFICIT) 304,768 306,180 255,729 220,555

Statements of Cash Flow($ Thosands)

2003 Projected 2004 2005 2006

OPERATING ACTIVITIESOperating surplus/(deficit) for the period 759 (1,478) (2,132) (7,874) Amortization 49,826 52,525 52,094 54,904

Changes in prepaid pension expense (200) 2,100 3,500 4,800 Changes in OPEB 2,476 2,700 2,700 2,700 Change in non-cash items related to operations (3,681) 190 (1,019) - Cash provided from operations 49,180 56,037 55,142 54,529

INVESTING ACTIVITIESNet (purchase)/sale of temporary investments 58,858 (1,300) (1,400) (1,500) Investment in property & equipment (22,141) (45,000) (30,000) (20,000) Cash used in investing activities 36,717 (46,300) (31,400) (21,500)

FINANCING ACTIVITIESRetirement of long term debt (100,000) - (50,000) (30,000) Cash used in financing activities (100,000) - (50,000) (30,000)

NET CHANGE IN CASH FLOW (14,103) 9,737 (26,258) 3,029

Reconiclation of cash and cash equivalentsOpening cash and cash equivalents balance 47,818 33,715 43,452 17,194 Net change in cash flow (14,103) 9,737 (26,258) 3,029 Ending cash and cash equivalents balance 33,715 43,452 17,194 20,224

IMO Usage Fee

2004 2005 2006

Resource requirements 156,148 157,872 164,975 Non-usage fee revenues 6,025 6,040 6,058 Prior period surplus 1,478 2,132 7,864 Revenue requirements 148,645 149,700 151,053

Forecasted Energy Levels (TWh) 155.0 156.1 157.5

Usage Fee 0.959 0.959 0.959