Milton Hydro Distribution Inc.
Manager’s Summary
PILS/Corporate Tax Filing 2006
Milton Hydro Distribution Inc. (“Milton Hydro”) is filing its 2006 rate application using
a historical test year as the basis of its application and accordingly, is using the 2006
OEB Tax Model.
Summary Sheet
As a means of tax deferral and to smooth cash flows, Milton Hydro’s external tax
consultants, KPMG, recommended the deduction/addition of regulatory assets for tax
purposes in each of the last four years. The reduction/addition represents the change in
the regulatory asset account (with the exception of the CDM expenditures deferred in
2004 of $245,944) balance, relating to their under/over recovery.
Regulatory Asset
Deduction/(Addition) per
T2S1
2004
2003
2002
2001
($ 1,023,883)
($ 86,434)
$ 438,765
$ 315,202
2004 Adjusted Taxable Income
The Taxable Income agrees to the 2004 Federal T2 schedule for Milton Hydro.
2004 Schedule 8 and 10 UCC and CEC
This sheet agrees to the 2004 Schedule 8 Federal Tax Returns. There are no nondistribution eliminations or disallowed FMV increments. Accordingly, the UCC Test
Year Opening Balance agrees to the UCC end of Year December 31, 2004 balance.
UCC Additions and CEC Additions
Milton Hydro has included its Tier 1 Adjustments from the EDR 2006 Model. In
addition an adjustment was made to include the 2004 CDM capital additions which were
deferred for accounting purposes but were not taken into account as a capital addition for
tax purposes in 2004. Schedule 1 has been attached to this report outlining the total
UCC Additions included the test year and the breakdown into classes.
The CDM expenditures related to computer software have been classified as CCA Class
12 capital additions. Meters have been classified as CCA Class 8 capital additions, (i) a
tangible capital property that is not included in another class in this Schedule….
Test Year Taxable Income
Test Year Taxable Income is calculated at $1,450,456 compared to 2004 actual Taxable
Income of $3,316,417. The difference between Test Year and 2004 Actual relates
primarily to lower Net Income Before Tax as calculated in the EDR 2006 Model and the
change in the COP/Variance adjustment (regulatory assets).
The COP/Variance Adjustment for the Test Year Taxable Income has been estimated to
be a deduction of $144,056 as compared to an addition in 2004 of $1,023,883. The
amount reflects the change in the regulatory asset account balance that is anticipated as
Milton Hydro’s rates for 2005 reflect a reduction for Regulatory Assets. Schedule 2 has
been attached to this report outlining the calculation of this adjustment for tax purposes.
Ontario Capital Tax, Large Corporation Tax
Milton Hydro has claimed the full exemption for Ontario Capital Tax ($10 million) and
for Large Corporation Tax ($50 million). In the case of Large Corporation Tax, the
exemption exceeds Milton Hydro’s Taxable Capital thus no Part 1.3 tax applies in 2004
actual or Test Year.
PILS Variance
Milton Hydro has calculated its Test Year PILS to be $905,359. The decrease in Test
Year PILs is reflective of lower Net Income Before Tax for the Test Year and the change
in the Regulatory Asset account balance.
2001 FMV Bump
In 2001, an assessment of fair market value was based upon an appraisal prepared by G.
R. Moss Appraisals Inc. The fair market value of capital assets, other than land,
approximated $35.08; however, the total appraisal increment on capital assets was limited
to $8.419 million. The $8.419 million includes an increment of $570,000 relating to
land. The estimate of fair market value was used to establish the opening position of
capital assets for tax purposes that became effective on September 30, 2001 pursuant to
the provisions of Ontario Regulation 162/01 made under the Electricity Act, 1998.
__________________________
D.R. Thorne, P. Eng.
President/CEO
Milton Hydro Distribution Inc.