Stakeholder Consultation Distribution Custom IR Rate Application 2015-2019

1. Stakeholder ConsultationDistribution Custom IR Rate Application 2015-2019 Stakeholder Session #1 April 29, 2013

2. Agenda 2

3. Facilitator’s Remarks • Introductions Facilitator, Bob Betts & OPTIMUS | SBR support team • Meeting Facilities • Safety Review • Note taking process • Participant Introductions 3

4. Meeting Process • Mobile phones “Off” or “Silenced” • Avoid side discussions while others speaking • All questions are good ones • All comments are appreciated • All comments are appreciated • Materials and notes will be posted on Hydro One’s Regulatory Website: www.HydroOne.com/RegulatoryAffairs 4

5. Distribution Custom IR Applications2015-2019

6. Overview • Preliminary Timeline for our OEB Distribution and Transmission applications over the 12 months • Overview of Hydro One’s preliminary plans for the 2015-2019 Custom IR (CIR) evidence • Solicit Stakeholder input on our approach and views regarding the Chapter 5 guidelines recently issued by the OEB • Identify items for next Stakeholder session 2

7. Renewed Regulatory Framework Annual IR Index • Existing rates adjusted by the Annual Adjustment Mechanism (AAM) • Suited to LDC’s in a status quo mode 4th Generation IRM • COS for base year followed by 4 years under IRM with rates adjusted by the AAM • ICM available on application Custom IR • COS type of review for 5 test years • Annual reporting requirements • Detailed investment plan support required 3

8. Regulatory Filing Timetable 4

9. CIR Under Chapter 5 • Plan to follow a similar evidence format as in previous COS applications recognizing that significant more detail and 3rd party input required per Chapter 5 • Continue to follow the SDO & Shared Services approach with high level mapping to new OEB investment categories where necessary • Distribution System Plan (DSP) will provide 10 years of spend detail (2010-2013 historical, 2014 bridge and 2015-2019 forecast) including comparisons to OEB approved levels • DSP developed after consultation with regionally interconnected distributors, Hydro One Transmission and the OPA 5

10. CIR Under Chapter 5 (cont) • DSP will show how investments benefit customers and is supportive of their preferences (Customer Engagement Activities) and contribute to reliability and other performance measures • Will identify methods and measures (metrics) which will be used to monitor annual performance • Regional Infrastructure Plans prepared by Hydro One Transmission in support of the DSP will be filed when available, Letter of Support otherwise • Detailed Asset Management Process section will provide support for investments planned & the prioritization of the work in the DSP leveraging our Asset Analytics tool 6

11. CIR Under Chapter 5 (cont) • Support for in-service placement of Smart Meters, Smart Grid and CIS and closing of associated variance accounts • Project by project in-service reporting of approved 2013 Distribution ICM projects • Smart grid and Renewable Energy Generation expenditures treated as a normal expenditures and will be included in the DSP 7

12. Custom IR Studies Required • Studies and analysis to be filed in support of the application will include: • Depreciation • Lead-Lag • Shared OM&A Allocation • Shared Asset Allocation • Overheads Capitalized • Line Loss • Seasonal Rates • Rate Classification 8

13. Areas for Future Stakeholder Session Discussions • Rate smoothing options to manage customer impacts over the 5 year horizon • Annual Adjustments • Performance Metrics and Scorecard elements • Study Updates • Customer Preference Update • Potential Off-ramps 9

14. Custom IR Facilitated Discussion 10

15. Break

16. Customer Research Daffyd Roderick Director, Corporate Communications April 29, 2013

17. Original 1999 Purpose Statement for Customer Satisfaction Research Program The purpose of the research is to provide Hydro One with an on-going data gathering, analysis and reporting process that will significantly improve customer responsiveness and customer focused performance. The overall objective is to obtain a deeper understanding of customer needs to facilitate building and managing strong productive relationships with customers now and in the future. Specific objectives: Desired Outcome: Strong customer relationships based on competitively superior levels of operational excellence. 2

18. Survey Summary 3

19. Residential and Small Business Our bi-annual residential and small business survey asks customers about the following*: • Overall impressions of Hydro One • Call Centre • Billing • Reliability/Outages • Communication • Conservation and Demand Management *phone interviews conducted by a third-party in April/September 4

20. Residential and Small Business • Representative sampling of our rate classes Scope: Impressions of overall service delivery: Overall Impressions, Rates, Bill & eBills, Reliability, Outage handling, Relationship, Access, Communications, Website, CDM * +/- given number of percentage points at the 95% confidence level. 5

21. Key Issues Unsatisfied Customers wantto see Addressed 6

22. Residential and Small Business • Hydro One has put a Customer Satisfaction Leadership Team in place to look at the research findings • This cross-functional team puts actions against some of the areas where Hydro One can improve • Meet 2-3 times per year 7

23. Out of Research… • Customer research has played a major role in informing how we operate • Development of industry leading Estimated Times of Restoration • Improved HydroOne.com • Development of Outage App • Forestry practices • Some things we don’t do 8

24. Next Steps • Renewed Regulatory Framework requires us to seek more information to guide investment • Factors could include Power Quality, Reliability versus Price • Seeking input from Stakeholders on methodology and areas of focus for improving research 9

25. Customer Survey Facilitated Discussion 10

26. Rate Class Review

27. Hydro One Rate Class Review • As part of the settlement in HONI’s 2013 Dx Rates Application, we agreed to make best efforts to review the rate classifications of our customers to ensure they are within the appropriate current rate classifications. • Rate Class review will ensure that: • customers located in communities that have grown are located in the appropriate rate class • Clean-up current customer classifications to align with approved rate class definitions 2

28. Leveraging GIS Tool • The Geographic Information System (GIS) is a tool that provides information about the physical location of our assets and customers. • HONI will undertake an analysis that leverages the power of the GIS tool to identify density zones based on the distribution of customers and km of line. • The GIS tool will help to better understand the distribution of our customer base by allowing the visualization and analysis of the data in ways that have not been available in the past. 3

29. Proposed Rate Class Review Process • Identify customer clusters that meet approved Density Zone definitions: • >3000 customers and >= 60 cust/line km (High density zone) • >100 customers and >= 15 cust/ line km (Medium density zone) • < 15 cust/ line km (Low density zone) • Use GIS layer information to identify Density Zone boundaries that can be clearly communicated and implemented. GIS layers include: • physical boundaries such as roads, railways, rivers, lakes • property fabric (e.g. lot and conc, land parcels) • Confirm the # of customers that shift between rate classes, which will then be used to update our Load Forecast and Cost Allocation Model inputs for the Customer IR pre-filed evidence • Define on-going process to maintain Density Zone boundaries up-to-date 4

30. Rate Class Review Facilitated Discussion 5

31. Consultation on Seasonal Customer Rates

32. Seasonal Rates Pre-Harmonization • Seasonal customer rates have been in place since the 1970s • A Seasonal customer is defined as any residential service not meeting the residential year-round criteria. It includes dwellings such as cottages, chalets and camps. • A Seasonal rate class recognizes that average monthly consumption for Seasonal customers (~500 kWh) is well below that of full-time residential customers (~1000 kWh) • Prior to harmonization of rates as part of HONI’s 2008 Rates Application, HONI had 2 Seasonal rate classes (R3 and R4) 2

33. Rates Harmonization • As part of HONI’s 2008 Rates Application (EB-2007-0681), the number of rate classes administered by HONI were reduced from >300 to 12 • The harmonization process combined the two Seasonal rate classes (R3 and R4) into a single Seasonal class • The harmonization process adopted the lower R3 fixed charge as the “target” for the harmonized class • shifted revenue to be collected from fixed to variable charge • Dx revenue requirement increases between 2008 and 2011 were largely absorbed by higher variable charges • The harmonization process was stakeholdered, approved by the OEB, and implemented over the 2008-2011 period 3

34. Process for Addressing Seasonal Customer Issues Solicit written comments from broad representation of Seasonal stakeholders on their key issues (June) Provide written feedback from HONI on issues and options for addressing issues (July) Hold Seasonal stakeholder session to review options and finalize proposals for addressing issues (early Sept) Incorporate proposed solution into pre-filed evidence for load forecast, cost allocation and rate design 4

35. Seasonal Rates Facilitated Discussion 5

36. Thank you for attending!Check our website for further information:www.HydroOne.com/RegulatoryAffairs