Consolidated Financial Statements - Corporation...PricewaterhouseCoopers LLP 245 Ouellette Avenue,...

Financial Statements of

Essex Power Corporation

Consolidated Financial Statements

Year ended December 31, 2015(Expressed in thousands of dollars)

PricewaterhouseCoopers LLP245 Ouellette Avenue, Suite 300, Windsor, Ontario, Canada N9A 7J4T: +1 519 985 8900, F: +1 519 258 5457

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May 31, 2016

Independent Auditor’s Report

To the Shareholders ofEssex Power Corporation

We have audited the accompanying consolidated financial statements of Essex Power Corporation and itssubsidiaries, which comprise the consolidated statement of financial position as at December 31, 2015 andDecember 31, 2014 and January 1, 2014 and the consolidated statements of comprehensive income,changes in equity and cash flows for the years ended December 31, 2015 and December 31, 2014, and therelated notes, which comprise a summary of significant accounting policies and other explanatoryinformation.

Management’s responsibility for the consolidated financial statementsManagement is responsible for the preparation and fair presentation of these consolidated financialstatements in accordance with International Financial Reporting Standards, and for such internal controlas management determines is necessary to enable the preparation of consolidated financial statementsthat are free from material misstatement, whether due to fraud or error.

Auditor’s responsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audits.We conducted our audits in accordance with Canadian generally accepted auditing standards. Thosestandards require that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements are free from materialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe consolidated financial statements. The procedures selected depend on the auditor’s judgment,including the assessment of the risks of material misstatement of the consolidated financial statements,whether due to fraud or error. In making those risk assessments, the auditor considers internal controlrelevant to the entity’s preparation and fair presentation of the consolidated financial statements in orderto design audit procedures that are appropriate in the circumstances, but not for the purpose of expressingan opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of accounting estimates made bymanagement, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide abasis for our audit opinion.

OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financialposition of Essex Power Corporation and its subsidiaries as at December 31, 2015 and December 31, 2014and January 1, 2014 and its consolidated statements of comprehensive income and changes in equity andits cash flows for the years ended December 31, 2015 and December 31, 2014 in accordance withInternational Financial Reporting Standards.

Chartered Professional Accountants, Licensed Public Accountants

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ESSEX POWER CORPORATIONConsolidated Statements of Financial Position(in thousands of dollars)

December 31, December 31, January 1,

Note 2015 2014 2014

Assets

Current assetsCash and cash equivalents 5 $ 5,646 $ 2,568 $ 5,343Accounts receivable 6 8,705 11,125 7,826Unbilled revenue 6,626 5,514 7,212Income taxes receivable 253 373 535Materials and supplies 135 122 138Prepaid expenses 477 528 424

Total current assets 21,842 20,230 21,478

Non-current assetsProperty, plant and equipment 7 55,662 50,253 46,027Intangible assets 8 5,942 6,524 6,522Goodwill 1,623 1,623 1,623Deferred assets 1,041 1,932 1,637Deferred tax assets 9 1,062 91 1,201

Total non-current assets 65,330 60,423 57,010

Total assets 87,172 80,653 78,488

Regulatory balances 10 42,323 39,925 34,156Total assets and regulatory balances $ 129,495 $ 120,578 $ 112,644

See accompanying notes to the financial statements.

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ESSEX POWER CORPORATIONConsolidated Statements of Financial Position(in thousands of dollars)

December 31, December 31, January 1,

Note 2015 2014 2014

Liabilities

Current liabilitiesAccounts payable and accrued

liabilities 11 $ 13,909 $ 11,032 $ 11,981Long-term debt due within one year 12 6,542 4,046 4,354Obligation under finance lease

due within one year 13 129 129 ---Income Taxes Payable 158 --- 62Deferred revenue 2,525 1,543 83Customer deposits 1,444 1,284 1,812Dividend Payable 1,653 1,607 1,559

Total current liabilities 26,360 19,641 19,851

Non-current liabilitiesLong-term debt 12 16,896 18,235 16,085Obligation under finance lease 13 81 210 ---Post-employment benefits 14 3,289 2,887 3,978Non-hedging financial derivatives 316 319 307Deferred tax liabilities 9 2,832 2,485 2,115

Total non-current liabilities 23,414 24,136 22,485

Total liabilities 49,774 43,777 42,336

EquityShare capital 15 19,667 19,667 19,622Retained earnings 13,604 11,886 10,275Accumulated other comprehensive

income (loss) 823 1,050 196Total equity 34,094 32,603 30,093

Total liabilities and equity 83,868 76,380 72,429

Regulatory balances 10 45,627 44,198 40,215Total liabilities, equity and regulatory

balances $ 129,495 $ 120,578 $ 112,644


On behalf of the Board:

Director __________________________ Director

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ESSEX POWER CORPORATIONStatements of Comprehensive IncomeYears ended December 31, 2015 and 2014(in thousands of dollars)

Note 2015 2014

RevenueSale of energy $ 59,140 $ 58,511Distribution revenue 13,763 11,226Utilismart fees 6,045 5,141Other 16 5,203 5,992

84,151 80,870

Operating expensesCost of energy purchased 61,785 59,297Operating expenses 17 14,854 14,226Depreciation and amortization 4,102 3,484

80,741 77,007

Income from operating activities 3,410 3,863

Finance income 18 112 355Finance costs 18 (1,030) (1,232)Income before income taxes 2,492 2,986Income tax expense--current 9 369 480Income tax expense (recovery)--future 9 (279) 1,085Net income for the year 2,402 1,421

Net movement in regulatory balances, net of tax 10 969 1,796Net income for the year and net movement

in regulatory balances 3,371 3,217

Other comprehensive incomeItems that will not be reclassified to profit or loss:

Remeasurements of post-employment benefits 14 (338) 1,250Tax on remeasurements 9 111 (396)

Other comprehensive income for the year (227) 854

Total comprehensive income for the year $ 3,144 $ 4,071


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ESSEX POWER CORPORATIONConsolidated Statements of Changes in EquityYears ended December 31, 2015 and 2014(in thousands of dollars)

Accumulatedother

comprehensiveShare Retained incomecapital earnings (loss) Total

Balance at January 1, 2014 $ 19,622 $ 10,275 $ 196 $ 30,093Net Income and net movement

in regulatory balances --- 3,217 --- 3,217New shares issued 45 --- --- 45Other comprehensive income --- --- 854 854Dividends --- (1,606) --- (1,606)Balance at December 31, 2014 $ 19,667 $ 11,886 $ 1,050 $ 32,603

Balance at January 1, 2015 $ 19,667 $ 11,886 $ 1,050 $ 32,603Net income and net movement

in regulatory balances --- 3,371 --- 3,371Other comprehensive income --- --- (227) (227)Dividends --- (1,653) --- (1,653)

Balance at December 31, 2015 $ 19,667 $ 13,604 $ 823 $ 34,094


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ESSEX POWER CORPORATIONConsolidated Statements of Cash FlowsYear endeds December 31, 2015 and 2014(in thousands of dollars)

2015 2014

Operating activitiesNet Income and net movement in regulatory balances $ 3,371 $ 3,217Adjustments for:

Depreciation and amortization 4,102 3,484Amortization of deferred revenue (19) (247)Post-employment benefits 66 159Losses on disposal of property, plant and equipment 105 (47)Unrealized (gain) loss on non-hedging financial derivatives (3) 12Decrease in deferred charges 891 (295)Net finance costs 918 877Income tax expense 90 1,565

Change in non-cash operating working capital 4,255 (2,685)Net movement in regulatory balances (969) (1,796)Income tax paid (328) (319)Interest paid (1,030) (1,232)Interest received 112 355Net cash from operating activities 11,561 3,048

Investing activitiesPurchase of property, plant and equipment and intangibles (9,034) (8,831)Proceeds on disposal of property, plant and equipment --- 1,557Contributions received from customers 1,001 1,122Net cash used by investing activities (8,033) (6,152)

Financing activitiesDividends paid (1,607) (1,558)Issuance of common shares --- 45Proceeds from long-term debt 3,000 2,000Repayment of long-term debt (1,843) (158)Net cash from financing activities (450) 329

Change in cash and cash equivalents 3,078 (2,775)Cash and cash equivalents, beginning of year 2,568 5,343Cash and cash equivalents, end of year $ 5,646 $ 2,568


ESSEX POWER CORPORATIONNotes to Consolidated Financial StatementsYears ended December 31, 2015 and 2014(in thousands of dollars)

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1. Reporting entity

Essex Power Corporation (the “Corporation”) serves as the holding company for Essex Powerlines

Corporation, Essex Power Services Corporation, Essex Energy Corporation and its subsidiaries,

providing corporate services and direction in the areas of finance, new business development and

marketing, and is incorporated under the laws of Ontario, Canada. The Corporation is located in

Oldcastle, Ontario. The address of the Corporation’s registered office is 2199 Blackacre Drive, Suite

200, Oldcastle, ON N0R 1L0.

Essex Powerlines Corporation (“Powerlines”) delivers electricity and related energy services to over

28,000 residential and commercial customers in Amherstburg, LaSalle, Leamington and Tecumseh.

The shareholders of Essex Power Corporation include the Town of Amherstburg, the Town of

LaSalle, the Municipality of Leamington and the Town of Tecumseh.

Essex Energy Corporation and its subsidiaries, Utilismart Corporation and its subsidiaries, provide

software solutions and data services for Utilities, Municipalities, Industrial, Commercial and

Residential consumers and offering multiple hosted, managed MDM offerings, without the use of any

special hardware or software licenses. In addition, this company provides solar PV systems to a

broad range of customers.

The Ontario government enacted the Energy Competition Act, 1998 to introduce competition to the

Ontario electricity market. Under the terms of the legislation, the Ontario Energy Board (OEB) will

regulate industry participants by issuing licenses for the right to generate, transmit, distribute or retail

electricity. These licenses will require compliance with established market rules and codes. This

legislation applies to Essex Powerlines Corporation only.

The consolidated financial statements are for the Corporation as at and for the year ended December

31, 2015, and represent the Corporation and its subsidiaries as identified in Note 3a below.

2. Basis of presentation

(a) Statement of compliance

The Corporation's financial statements have been prepared in accordance with International

Financial Reporting Standards ("IFRS").

(b) Adoption of IFRS

These are the Corporation’s first financial statements prepared in accordance with IFRS and

IFRS 1 First-time Adoption of International Financial Reporting Standards has been applied. An

explanation of how the transition to IFRS has affected the reported financial position, financial

performance and cash flows of the Corporation is provided in note 23.

The financial statements were approved by the Board of Directors on May 18, 2016.


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(c) Basis of measurement

These financial statements have been prepared on the historical cost basis, unless otherwise

stated.

(d) Functional and presentation currency

These financial statements are presented in Canadian dollars, which is the Corporation's

functional currency. All financial information presented in Canadian dollars has been rounded to

the nearest thousand.

(e) Use of estimates and judgements

(i) Assumptions and estimation uncertainty

The preparation of financial statements in conformity with IFRS requires management to make

judgments, estimates and assumptions that affect the application of accounting policies and

the reported amounts of assets, liabilities, income and expenses and disclosure of contingent

assets and liabilities. Actual results may differ from those estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to

accounting estimates are recognized in the year in which the estimates are revised and in any

future years affected.

Information about assumptions and estimation uncertainties that have a significant risk of

resulting in material adjustment is included in the following notes:

(i) Note 3(c) – measurement of unbilled revenue

(ii) Note 3(e) – estimation of useful lives of its property, plant and equipment and intangible

assets

(iii) Note 3(k) – recognition and measurement of regulatory balances

(iv) Note 14 – measurement of defined benefit obligations: key actuarial assumptions

(ii) Judgements

Information about judgements made in applying accounting policies that have the most

significant effects on the amounts recognized in the financial statements is included in the

following notes:

(i) Note 13 – leases: whether an arrangement contains a lease

(ii) Note 23 – adoption of IFRS: policy choices and exemptions

(f) Rate regulation

Powerlines is regulated by the Ontario Energy Board (“OEB”), under the authority granted by the

Ontario Energy Board Act, 1998. Among other things, the OEB has the power and responsibility

to approve or set rates for the transmission and distribution of electricity, providing continued rate

protection for electricity consumers in Ontario, and ensuring that transmission and distribution

companies fulfill obligations to connect and service customers. The OEB may also prescribe


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license requirements and conditions of service to local distribution companies (“LDCs”), such as

Powerlines, which may include, among other things, record keeping, regulatory

2. Basis of presentation (continued)

accounting principles, separation of accounts for distinct businesses, and filing and process

requirements for rate setting purposes.

Powerlines is required to bill customers for the debt retirement charge set by the province.

Powerlines may file to recover uncollected debt retirement charges from Ontario Electricity

Financial Corporation (“OEFC”) once each year.

(f) Rate regulation (continued)

Rate setting

Distribution revenue

For the distribution revenue included in sale of energy, Powerlines files a “Cost of Service”

(“COS”) rate application with the OEB every five years where rates are determined through a

review of the forecasted annual amount of operating and capital expenditures, debt and

shareholder’s equity required to support Powerlines’ business. Powerlines estimates electricity

usage and the costs to service each customer class to determine the appropriate rates to be

charged to each customer class. The COS application is reviewed by the OEB and interveners

and rates are approved based upon this review, including any revisions resulting from that review.

In the intervening years an Incentive Rate Mechanism application (“IRM”) is filed. An IRM

application results in a formulaic adjustment to distribution rates that were set under the last COS

application. The previous year’s rates are adjusted for the annual change in the Gross Domestic

Product Implicit Price Inflator for Final Domestic Demand (“GDP IPI-FDD”) net of a productivity

factor and a “stretch factor” determined by the relative efficiency of an electricity distributor.

As a licensed distributor, Powerlines is responsible for billing customers for electricity generated

by third parties and the related costs of providing electricity service, such as transmission

services and other services provided by third parties. Powerlines is required, pursuant to

regulation, to remit such amounts to these third parties, irrespective of whether Powerlines

ultimately collects these amounts from customers.

Powerlines last filed a COS application on September 28, 2009 for rates effective May 1, 2010 to

April 30, 2011. The GDP IPI-FDD for 2015 is 2.1%, the Corporation’s productivity factor is 0%

and the stretch factor is 0.15%, resulting in a net adjustment of 1.95% to the previous year’s

rates.

Powerlines has decided to next apply to have rates rebased by April 2017 for rates effective

January 1, 2018. In the interim, Powerlines will continue to file annual IRMs to adjust rates.


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2. Basis of presentation (continued)

Electricity rates

The OEB sets electricity prices for low-volume consumers twice each year based on an estimate

of how much it will cost to supply the province with electricity for the next year. All remaining

consumers pay the market price for electricity. Powerlines is billed for the cost of the electricity

that its customers use and passes this cost on to the customer at cost without a mark-up.

3. Significant accounting policies

The accounting policies set out below have been applied consistently in all years presented in these

financial statements and in preparing the opening IFRS statement of financial position at January 1,

2014 for the purpose of the transition to IFRS.

(a) Basis of consolidation

These consolidated financial statements include the accounts of the following corporations:

(i)Essex Powerlines Corporation

(ii)Essex Energy Corporation

(iii)Essex Power Services Corporation

(iv)Utilismart Corporation

(v)Wattsworth Analysis Inc.

(vi)Enerconnect

(vii)Enermajica

Subsidiaries are entities controlled by the Corporation. The financial statements of the

subsidiaries are included in these consolidated financial statements from the date on which

control commences until the date on which control ceases.

All inter-company accounts and transactions have been eliminated.

(b) Financial instruments

All financial assets are classified as loans and receivables and all financial liabilities are classified

as other liabilities. These financial instruments are recognized initially at fair value plus any

directly attributable transaction costs. Subsequently, they are measured at amortized cost using

the effective interest method less any impairment for the financial assets as described in note

3(g). Cash and cash equivalents are measured at fair value. The Corporation holds interest rate

swaps and measures them at fair value.

Hedge accounting has not been used in the preparation of these financial statements.


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3. Significant accounting policies (continued)

(c) Revenue recognition

Sale and distribution of electricity

Revenue from the sale and distribution of electricity is recognized as the electricity is delivered to

customers on the basis of cyclical meter readings and estimated customer usage since the last

meter reading date to the end of the year. Revenue includes the cost of electricity supplied,

distribution, and any other regulatory charges. The related cost of power is recorded on the basis

of power used.

For customer billings related to electricity generated by third parties and the related costs of

providing electricity service, such as transmission services and other services provided by third

parties, the Corporation has determined that it is acting as a principal for these electricity charges

and, therefore, has presented electricity revenue on a gross basis.

Customer billings for debt retirement charges are recorded on a net basis as the Corporation is

acting as an agent for this billing stream.

Unbilled revenue

Unbilled revenue is recorded based on an estimated amount of electricity delivered and not yet

billed. The estimate is calculated by using the customers’ actual consumption data up to the year

end to arrive at the unbilled revenue accrual.

Other revenue

The Company provides services relating to the construction and maintenance of powerlines and

related electrical distribution structures and equipment. Revenue from these services is generally

recognized upon completion of the work performed. For larger projects, the Company recognizes

revenue on the percentage of completion basis. Amounts received in advance of these

milestones are presented as deferred revenue.

Certain customers and developers are required to contribute towards the capital cost of

construction of distribution assets in order to provide ongoing service. Cash contributions are

recorded as deferred revenue. When an asset other than cash is received as a capital

contribution, the asset is initially recognized at its fair value, with a corresponding amount

recognized as deferred revenue. The deferred revenue, which represents the Corporation's

obligation to continue to provide the customers access to the supply of electricity, is amortized to

income on a straight-line basis over the useful life of the related asset.

Government grants and the related performance incentive payments under CDM programs are

recognized as revenue in the year when there is reasonable assurance that the program

conditions have been satisfied and the payment will be received.


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(d) Materials and supplies

Materials and supplies, the majority of which is consumed by the Corporation in the provision of

its services, is valued at the lower of cost and net realizable value, with cost being determined on

a weighted average cost basis and includes expenditures incurred in acquiring the materials and

supplies and other costs incurred in bringing them to their existing location and condition.

(e) Property, plant and equipment

Items of property, plant and equipment (“PP&E”) used in rate-regulated activities and acquired

prior to January 1, 2014 are measured at deemed cost established on the transition date (see

note 23(a)), less accumulated depreciation. All other items of PP&E are measured at cost, or,

where the item is contributed by customers, its fair value, less accumulated depreciation.

Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost

of self-constructed assets includes contracted services, materials and transportation costs, direct

labour, overhead costs, borrowing costs and any other costs directly attributable to bringing the

asset to a working condition for its intended use.

Borrowing costs on qualifying assets are capitalized as part of the cost of the asset based upon

the weighted average cost of debt incurred on the Corporation’s borrowings. Qualifying assets

are considered to be those that take in excess of 12 months to construct.

When parts of an item of PP&E have different useful lives, they are accounted for as separate

items (major components) of PP&E.

When items of PP&E are retired or otherwise disposed of, a gain or loss on disposal is

determined by comparing the proceeds from disposal, if any, with the carrying amount of the item

and is included in profit or loss.

Major spare parts and standby equipment are recognized as items of PP&E.

The cost of replacing a part of an item of PP&E is recognized in the net book value of the item if it

is probable that the future economic benefits embodied within the part will flow to the Corporation

and its cost can be measured reliably. In this event, the replaced part of PP&E is written off, and

the related gain or loss is included in profit or loss. The costs of the day-to-day servicing of PP&E

are recognized in profit or loss as incurred.

The need to estimate the decommissioning costs at the end of the useful lives of certain assets is

reviewed periodically. The Corporation has concluded it does not have any legal or constructive

obligation to remove PP&E.


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(e) Property, plant and equipment (continued)

Depreciation is calculated to write off the cost of items of PP&E using the straight-line method

over their estimated useful lives, and is generally recognized in profit or loss. Depreciation

methods, useful lives, and residual values are reviewed at each reporting date and adjusted

prospectively if appropriate. Land is not depreciated. Construction-in-progress assets are not

depreciated until the project is complete and the asset is available for use.

The estimated useful lives are as follows:

Years

Buildings and fixtures 50Land IndefiniteComputer hardware, and other equipment 5 - 10Office equipment 5 - 10Utility Equipment and trucks 7 - 10Distribution Equipment 15 - 50Solar Generation 15 - 25

(f) Intangible assets

Intangible assets used in rate-regulated activities and acquired prior to January 1, 2014 are

measured at deemed cost established on the transition date (see note 25(a)), less accumulated

amortization. All other intangible assets are measured at cost.

Computer software that is acquired or developed by the Corporation after January 1, 2014,

including software that is not integral to the functionality of equipment purchased which has finite

useful lives, is measured at cost less accumulated amortization.

Payments to obtain rights to access land ("land rights") are classified as intangible assets.

These include payments made for easements, right of access and right of use over land for

which the Corporation does not hold title. Land rights are measured at cost less accumulated

amortization.

Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives

of intangible assets, from the date that they are available for use. Amortization methods

and useful lives of all intangible assets are reviewed at each reporting date and adjusted

prospectively if appropriate. The estimated useful lives are:


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Years

Computer software 5

Customer relationships 15

Leasehold improvements 15

MSP Development costs 10

Land rights 50


(g) Impairment

(i) Financial assets measured at amortized cost

A financial asset is assessed at each reporting date to determine whether there is any

objective evidence that it is impaired. A financial asset is considered to be impaired if

objective evidence indicates that one or more events have had a negative effect on the

estimated future cash flows of that asset.

An impairment loss is calculated as the difference between an asset’s carrying amount and

the present value of the estimated future cash flows discounted at the original effective

interest rate. Interest on the impaired assets continues to be recognized through the

unwinding of the discount. Losses are recognized in profit or loss. An impairment loss is

reversed through profit or loss if the reversal can be related objectively to an event occurring

after the impairment loss was recognized.

(ii) Non-financial assets

The carrying amounts of the Corporation's non-financial assets, other than materials and

supplies and deferred tax assets, are reviewed at each reporting date to determine whether

there is any indication of impairment. If any such indication exists, then the asset's

recoverable amount is estimated.

For the purpose of impairment testing, assets are grouped together into the smallest group of

assets that generates cash inflows from continuing use that are largely independent of the

cash inflows of other assets or groups of assets (the "cash-generating unit" or “CGU”). The

recoverable amount of an asset or CGU is the greater of its value in use and its fair value

less costs to sell. In assessing value in use, the estimated future cash flows are discounted

to their present value using a pre-tax discount rate that reflects current market assessments

of the time value of money and the risks specific to the asset.

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its

estimated recoverable amount. Impairment losses are recognized in profit or loss.

For other assets, an impairment loss is reversed only to the extent that the asset's carrying

amount does not exceed the carrying amount that would have been determined, net of

depreciation or amortization, if no impairment loss had been recognized.


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(h) Goodwill

Goodwill is the residual amount that results when the purchase price of an acquired business

exceeds the sum of the amounts allocated to the tangible and intangible assets acquired, less

liabilities assumed, based on their fair values. When the Corporation enters into a business

combination, the acquisition method of accounting is used. Goodwill is not amortized but is

instead tested for impairment annually or more frequently, if events or changes in circumstances

indicate that the asset might be impaired.

Impairment

The Corporation tests goodwill for possible impairment on an annual basis as of December 31, of

each year and at any other time if an event occurs or circumstances change that would more

likely than not reduce the fair value of a reporting unit below its carrying amount. No impairment

exists at December 31, 2015.

(i) Customer deposits

Customer deposits represent cash deposits from electricity distribution customers and retailers to

guarantee the payment of energy bills. Interest is paid annually on customer deposits at a rate of

prime business rate less 2%.

Deposits are refundable to customers who demonstrate an acceptable level of credit risk as

determined by the Corporation in accordance with policies set out by the OEB or upon

termination of their electricity distribution service.

(j) Provisions

A provision is recognized if, as a result of a past event, the Corporation has a present legal or

constructive obligation that can be estimated reliably, and it is probable that an outflow of

economic benefits will be required to settle the obligation. Provisions are determined by

discounting the expected future cash flows at a pre-tax rate that reflects current market

assessments of the time value of money and the risks specific to the liability.


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(k) Regulatory balances

Regulatory deferral account debit balances represent costs incurred in excess of amounts billed

to the customer at OEB approved rates. Regulatory deferral account credit balances represent

amounts billed to the customer at OEB approved rates in excess of costs incurred by the

Corporation.

Regulatory deferral account debit balances are recognized if it is probable that future billings in an

amount at least equal to the deferred cost will result from inclusion of that cost in allowable costs

for rate-making purposes. The offsetting amount is recognized in net movement in regulatory

balances in profit or loss or OCI. When the customer is billed at rates approved by the OEB for

the recovery of the deferred costs, the customer billings are recognized in revenue. The

regulatory debit balance is reduced by the amount of these customer billings with the offset to net

movement in regulatory balances in profit or loss or OCI.

The probability of recovery of the regulatory deferral account debit balances is assessed annually

based upon the likelihood that the OEB will approve the change in rates to recover the balance.

The assessment of likelihood of recovery is based upon previous decisions made by the OEB for

similar circumstances, policies or guidelines issued by the OEB, etc. Any resulting impairment

loss is recognized in profit or loss in the year incurred.

When the Corporation is required to refund amounts to ratepayers in the future, the Corporation

recognizes a regulatory deferral account credit balance. The offsetting amount is recognized in

net movement in regulatory balances in profit or loss or OCI. The amounts returned to the

customers are recognized as a reduction of revenue. The credit balance is reduced by the

amount of these customer repayments with the offset to net movement in regulatory balances in

profit or loss or OCI.

(l) Post-employment benefits

(i) Pension plan

The Corporation provides a pension plan for all its full-time employees through 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 and public utilities.

The Fund is a contributory defined benefit pension plan, which is financed by equal

contributions from participating employers and employees, and by the investment earnings of

the Fund. To the extent that the Fund finds itself in an under-funded position, additional

contribution rates may be assessed to participating employers and members.


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(i) Pension plan (continued)

OMERS is a defined benefit plan. However, as OMERS does not segregate its pension asset

and liability information by individual employers, there is insufficient information available to

enable the Corporation to directly account for the plan. Consequently, the plan has been

accounted for as a defined contribution plan. The Corporation is not responsible for any

other contractual obligations other than the contributions. Obligations for contributions to

defined contribution pension plans are recognized as an employee benefit expense in profit

or loss when they are due.

(ii) Post-employment benefits, other than pension

The Corporation provides some of its retired employees with life insurance and medical

benefits beyond those provided by government sponsored plans.

The obligations for these post-employment benefit plans are actuarially determined by

applying the projected unit credit method and reflect management’s best estimate of certain

underlying assumptions. Remeasurements of the net defined benefit obligations, including

actuarial gains and losses and the return on plan assets (excluding interest), are recognized

immediately in other comprehensive income. When the benefits of a plan are improved, the

portion of the increased benefit relating to past service by employees is recognized

immediately in profit or loss. The last actuarial valuation was done as of December 31, 2014.

(m) Leased assets

Leases, where the terms cause the Corporation to assume substantially all the risks and

rewards of ownership, are classified as finance leases. Upon initial recognition, the leased

asset is measured at an amount equal to the lower of its fair value and the present value of

the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in

accordance with the accounting policy applicable to that asset.

All other leases are classified as operating leases and the leased assets are not recognized

on the Corporation’s statement of financial position. Payments made under operating leases

are recognized in profit or loss on a straight-line basis over the term of the lease.

(n) Finance income and finance costs

Finance income is recognized as it accrues in profit or loss, using the effective interest method.

Finance income comprises interest earned on cash and cash equivalents and dividend income.

Finance costs comprise interest expense on borrowings, net interest expense on post-

employment benefits and impairment losses on financial assets.


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(o) Income taxes

The income tax expense comprises current and deferred tax. Income tax expense is recognized

in profit or loss except to the extent that it relates to items recognized directly in equity, in which

case, it is recognized in equity.

Powerlines is currently exempt from taxes under the Income Tax Act (Canada) and the Ontario

Corporations Tax Act (collectively the “Tax Acts”). Under the Electricity Act, 1998, the

Corporation makes payments in lieu of corporate taxes to the Ontario Electricity Financial

Corporation (“OEFC”). These payments are calculated in accordance with the rules for

computing taxable income and taxable capital and other relevant amounts contained in the Tax

Acts as modified by the Electricity Act, 1998, and related regulations. Prior to October 1, 2001,

the Corporation was not subject to income or capital taxes. Payments in lieu of taxes are referred

to as income taxes.

Current tax comprises the expected tax payable or receivable on the taxable income or loss for

the year, using tax rates enacted or substantively enacted at the reporting date, and any

adjustment to tax payable in respect of previous years.

All corporations other than Essex Powerlines Corporation follow the tax allocation basis of

accounting for income taxes whereby income tax expense is recorded in the year the income and

expenses are recognized for accounting purposes regardless of when the related taxes are

actually paid or recovered.

Deferred tax is recognized in respect of temporary differences between the tax basis of assets

and liabilities and their carrying amounts for accounting purposes. Deferred tax assets are

recognized for unused tax losses, unused tax credits and deductible temporary differences to the

extent that it is probable that future taxable profits will be available against which they can be

used. Deferred tax is measured at the tax rates that are expected to be applied to temporary

differences when they reverse, using tax rates enacted or substantively enacted, at the reporting

date.

4. Standards issued but not yet adopted

Future accounting changes

There are new standards, amendments to standards and interpretations which are not yet effective

for the year ended December 31, 2015 and have not been applied in preparing these financial

statements.

The Corporation is still evaluating the adoption of the following new and revised standards along with

any subsequent amendments.


19

4. Standards issued but not yet adopted

Revenue Recognition

In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers (“IFRS 15”), which

replaces existing revenue recognition guidance, including IAS 18 Revenue and IFRIC 18 Transfers of

Assets from Customers (“IFRIC 18”). IFRS 15 replaces IAS 11 Construction Contracts, IAS 18

Revenue and various interpretations and establishes principles regarding the nature, amount, timing

and uncertainty of revenue arising from contracts with customers. The standard requires entities to

recognize revenue for the transfer of goods or services to customers measured at the amounts an

entity expects to be entitled to in exchange for those goods or services. In July 2015, the IASB

announced a one-year deferral of the effective date of IFRS 15 to annual periods beginning on or

after January 1, 2018. The Corporation is assessing the impact of IFRS 15 on its results of

operations, financial position, and disclosures.

Financial Instruments

In July 2014, the IASB issued a new standard, IFRS 9 Financial Instruments, which will replace IAS

39 Financial Instruments: Recognition and Measurement. The replacement of IAS 39 is a multi-phase

project with the objective of improving and simplifying the reporting for financial instruments. The

issuance of IFRS 9 is part of the first phase of this project. IFRS 9 is effective for annual periods

beginning on or after January 1, 2018 and must be applied retrospectively with some exceptions. The

Corporation is assessing the impact of IFRS 9 on its results of operations, financial position, and

disclosures.

Property, Plant, and Equipment and Intangible Assets

In May 2014, the IASB issued amendments to IAS 16, Property, Plant and Equipment and IAS 38

Intangible Assets, which are effective for years beginning on or after January 1, 2016. The

amendments clarify when revenue-based depreciation methods are permitted. The Corporation is

assessing the impact of the amendments on its results of operation, financial positions, and

disclosures.

Leases

In January 2016, IASB issued IFRS 16 to establish principles for the recognition, measurement,

presentation, and disclosure of leases, with the objective of ensuring that lessees and lessors provide

relevant information that faithfully represents those transactions. IFRS 16 replaces IAS 17 and it is

effective for annual periods beginning on or after January 1, 2019 and will be applied retrospectively

with some exceptions. Early adoption is permitted if IFRS 15 has been adopted. The Corporation is

assessing the impact of IFRS 16 on its results of operations, financial positions, and disclosures.

All of the above standards or amendments relate to the measurement and disclosure of financial

assets and liabilities. The extent of the impact on adoption of these standards and amendments has

not yet been determined.


20

5. Cash and cash equivalents

December 31, December 31, January 1,2015 2014 2014

Bank balances $ 5,646 $ 2,568 $ 5,343Cash and cash equivalents in the statements

of cash flows $ 5,646 $ 2,568 $ 5,343

6. Accounts receivable

December 31, December 31, January 1,2015 2014 2014

Trade receivables $ 7,761 $ 10,057 $ 6,967Other trade receivables 851 920 752Billable work 93 148 107

$ 8,705 $ 11,125 $ 7,826


21

7. Property, plant and equipment

Land and Distribution Other fixed Constructionbuildings equipment assets -in-Progress Total

Cost or deemed costBalance at January 1, 2015 $ 2,190 $ 42,525 $ 8,199 $ 382 $ 53,296Additions 49 5,110 2,675 182 8,016Transfers --- --- --- ---Disposals/retirements --- (158) --- --- (158)

Balance at December 31, 2015 $ 2,239 $ 47,477 $ 10,874 $ 564 $ 61,154

Balance at January 1, 2014 $ 2,190 $ 36,599 $ 7,060 $ 1,096 $ 46,945Additions --- 5,212 3,044 --- 8,256Transfers --- 714 --- (714) ---Disposals/retirements --- --- (1,905) --- (1,905)

Balance at December 31, 2014 $ 2,190 $ 42,525 $ 8,199 $ 382 $ 53,296

Accumulated depreciationBalance at January 1, 2015 $ 27 $ 1,653 $ 1,363 $ --- $ 3,043Depreciation 41 1,542 919 --- 2,502Disposals/retirements --- (53) --- --- (53)

Balance at December 31, 2015 $ 68 $ 3,142 $ 2,282 $ --- $ 5,492

Balance at January 1, 2014 $ --- $ --- $ 918 $ --- $ 918Depreciation 27 1,653 798 --- 2,478Disposals/retirements --- --- (353) --- (353)

Balance at December 31, 2014 $ 27 $ 1,653 $ 1,363 $ --- $ 3,043

Carrying amountsAt December 31, 2015 $ 2,171 $ 44,335 $ 8,592 $ 564 $ 55,662At December 31, 2014 2,163 40,872 6,836 382 50,253At January 1, 2014 2,190 36,599 6,142 1,096 46,027

At December 31, 2015 land and buildings with a carrying amount of $2,171 (December 31, 2014 -

$2,163; January 1, 2014 $2,190) are subject to a general security agreement.


22

8. Intangible assets

Computer Customer Leasehold MSP Land Total

Software Relationships Improvements Costs

Cost or deemed costBalance at January 1, 2015 $ 5,366 $ 5,340 $ 131 $ 54 $ 178 $ 11,069Additions 1,007 --- --- --- 15 1,022

Balance at December 31, 2015 $ 6,373 $ 5,340 $ 131 $ 54 $ 193 12,091

Balance at January 1, 2014 $ 4,373 $ 5,340 $ 131 $ 54 $ 163 $ 10,061Additions 993 --- --- --- 15 1,008

Balance at December 31, 2014 $ 5,366 $ 5,340 $ 131 $ 54 $ 178 11,069

Accumulated depreciationBalance at January 1, 2015 $ 2,755 $ 1,663 $ 110 $ 13 $ 4 $ 4,545Depreciation 1,232 346 17 5 4 $ 1,604

Balance at December 31, 2015 $ 3,987 $ 2,009 $ 127 $ 18 $ 8 $ 6,149

Balance at January 1, 2014 $ 2,121 $ 1,317 $ 93 $ 8 $ --- $ 3,539Depreciation 634 346 17 5 4 $ 1,006

Balance at December 31, 2014 $ 2,755 $ 1,663 $ 110 $ 13 $ 4 $ 4,545

Carrying amountsAt December 31, 2015 $ 2,386 $ 3,331 $ 4 $ 36 $ 185 $ 5,942At December 31, 2014 2,611 3,677 21 41 174 6,524At January 1, 2014 2,252 4,023 38 46 163 6,522

9. Income tax expense

Current tax expense

2015 2014

Current tax expense $ 369 $ 480Deferred tax expense (279) 1,085

$ 90 $ 1,565


23

9. Income tax expense (continued)

Reconciliation of effective tax rate

2015 2014

Income before taxes $ 2,492 $ 2,986

Canada and Ontario statutory Income tax rates 26.5% 26.5%

Expected tax provision on income at statutory rates 660 790Increase (decrease) in income taxes resulting from:

Other (570) 775Income tax expense $ 90 $ 1,565

Significant components of the Corporation’s deferred tax balances

January 1,2015 2014 2014

Deferred tax assets (liabilities):Property, plant and equipment $ (2,984) $ (3,487) $ (2,389)Post-employment benefits 1,050 901 1,295Other 164 192 180

$ (1,770) $ (2,394) $ (914)

Net deferred tax asset (liabilities) split as follows:Deferred tax asset $ 1,062 $ 91 $ 1,201Deferred tax liability (2,832) (2,485) (2,115)


24

10. Regulatory balances

Reconciliation of the carrying amount for each class of regulatory balances

Remainingrecovery/

January 1, Recovery/ December 31, reversalRegulatory deferral account debit balances 2015 Additions reversal 2015 years

Group 1 deferred accounts $ 9,980 $ (7,794) $ (644) $ 1,542 ---Storm damage costs 83 --- --- 83 ---Regulatory settlement account 5,254 (1,724) 8,088 11,618 1-3Other regulatory accounts 24,608 (977) 5,449 29,080 ---

$ 39,925 $ (10,495) $ 12,893 $ 42,323

January 1, Recovery/ December 31, RemainingRegulatory deferral account debit balances 2014 Additions reversal 2014 years

Group 1 deferred accounts $ 1,628 $ 8,942 $ (590) $ 9,980 ---Storm damage costs 83 --- --- 83 ---Regulatory settlement account 14,704 (1,360) (8,090) 5,254 1Other regulatory accounts 17,741 1,409 5,458 24,608 ---

$ 34,156 $ 8,991 $ (3,222) $ 39,925 ---

January 1, Recovery/ December 31, RemainingRegulatory deferral account credit balances 2015 Additions reversal 2015 years

Group 1 deferred accounts $ (10,142) $ 5,915 $ (37) $ (4,264) ---Regulatory transition to IFRS (623) --- --- (623) ---Regulatory settlement account (7,166) (5) (2,880) (10,051) 1-3Other regulatory accounts (25,622) 220 (3,782) (29,184) ---Income tax (645) (860) --- (1,505) ---

$ (44,198) $ 5,270 $ (6,699) $ (45,627)

January 1, Recovery/ December 31, RemainingRegulatory deferral account credit balances 2014 Additions reversal 2014 years

Group 1 deferred accounts $ (5,902) $ (9,774) $ 5,534 $ (10,142) ---Regulatory transition to IFRS (466) (157) --- (623) ---Regulatory settlement account (13,477) 1,338 4,973 (7,166) ---Other regulatory accounts (19,002) (911) (5,709) (25,622) ---Income tax (1,368) 723 --- (645) ---

$ (40,215) $ (8,781) $ 4,798 $ (44,198) ---


25

10. Regulatory balances (continued)

The regulatory balances are recovered or settled through rates approved by the OEB which are

determined using estimates of future consumption of electricity by its customers. Future consumption

is impacted by various factors including the economy and weather. Powerlines has received approval

from the OEB to establish its regulatory balances.

Typically, settlement of the Group 1 deferral accounts is done on an annual basis through application

to the OEB. EPL did not apply to recover its Group 1 Deferral and Variance accounts since balances

were below the OEB materiality threshold for eligibility to apply for recovery. The OEB is conducting

an audit of these Group 1 accounts and an application to recover the accounts is pending the

outcome of this audit. Once approval is received, the approved account balance will be moved to the

regulatory settlement account as required by the regulator.

The OEB requires Powerlines to estimate its income taxes when it files a COS application to set its

rates. As a result, Powerlines has recognized a regulatory deferral account for the amount of

deferred taxes that will ultimately be recovered from/paid back to its customers. This balance will

fluctuate as the Corporation’s deferred tax balance fluctuates.

Regulatory balances attract interest at OEB prescribed rates, which are based on Bankers'

Acceptances three-month rate plus a spread of 25 basis points. In 2015 the rate was between 1.10%

and 1.47%

Group 1 deferred accounts are comprised of variances between amounts charged by the

Independent Electricity System Operator for the operation of wholesale electricity market and the cost

of electricity, the amounts from Hydro One for network line and transformation charges and amounts

billed to customers.

Extraordinary event costs represent costs incurred to restore services following storms in 2010.

Regulatory settlement accounts represent amounts collected from customers through rates. These

amounts will be held until approved by the Ontario Energy Board to be refunded to or recovered from

customers.

Other regulatory accounts represent amounts for costs incurred by Powerlines to serve customers

that have been enrolled by a commodity retailer and for miscellaneous other costs that will be

recovered from customers.

Regulatory transition to IFRS represents changes in estimates and other variances arising from the

transition to IFRS which will be held until approved by the Ontario Energy Board to be refunded to or

recovered from customers.

Income tax represents an amount of a future tax liability which will be refunded to customers through

future rates.


26

11. Accounts payable and accrued liabilities

January 1,2015 2014 2014

Accounts payable – energy purchases $ 2,860 $ 1,143 $ 2,358Debt retirement charge payable to OEFC 277 261 306Payroll payable 350 240 285Other 10,422 9,388 9,032

$ 13,909 $ 11,032 $ 11,981

12. Long-term debt

2015 2014January 1,

2014

$ $ $

Related party long-term loan payable is repayable asapproved by the Board of Directors not to exceed 20% ofthe principal lending amount if funds are available asdetermined each March. Interest is payable at a statedinterest rate of 4.0%. The agreement expires December31, 2017. The debt is owing to two of the fourshareholders of the parent company as follows:

Municipality of Leamington 2,150 2,150 2,150

Town of Tecumseh 1,545 1,545 1,545

3,695 3,695 3,695

Banker’s acceptance - TD Canada Trust has a 5 yearterm ending November 4, 2018, and is repayable withinterest only payments at an effective interest rate of5.44%

3,300 3,300 3,300

Fixed rate loan - TD Canada Trust is a 20 year term loanwith a 20 year amortization schedule, repayable inblended monthly payments of $40, bearing an interestrate of 4.99%. Loan matures November 9, 2019.

4,757 4,988 5,203

Fixed rate loan - TD Canada Trust is a 10 year term loanwith a 10 year amortization schedule, repayable inblended monthly payments of $62, bearing an interestrate of 4.48%. Loan matures November 9, 2019.

2,674 3,285 3,869


27

Floating rate loan - TD Canada Trust is a 5 year term loanwith a 5 year amortization schedule, repayable in blendedmonthly payments of $42 bearing an interest rate of primeplus 1%. Loan matures December 2015

- 500 1,000

Fixed rate loan - TD Canada Trust is a 5 year term loanwith a 20 year amortization schedule, repayable inmonthly payments of $10, bearing an interest rate of2.47%. Loan matures October 24, 2020.

1,704 1,800 1,900

Fixed rate loan - TD Canada Trust is a 5 year term loanwith a 20 year amortization schedule, repayable inmonthly payments of $10 bearing an interest rate of2.47%. Loan matures October 19, 2020.

1,902 2,000 -

Floating rate loan - TD Canada Trust, repaid in full during2014

- - 1,472

Floating rate loan - TD Canada Trust, is a 5 year termwith a 10 year amortization schedule, repayable inmonthly principal payments of $12, bearing an interestrate of prime plus 1%. Loan matures in December 2023

1,178 1,325 -

Fixed rate Loan - TD Canada Trust is a 5 year term loanwith a 10 year amortization schedule, repayable inmonthly principal payments of $16 bearing an interestrate of 4.48%. Loan matures on October 26, 2020

2,980 - -

Floating rate loan - TD Canada Trust, is a 5 year termloan with a 10 year amortization schedule repayable inmonthly principal payments of $12, bearing a floatinginterest rate of prime plus 0%. Loan matures inNovember 3, 2024.

1,248 1,388 -

23,438 22,281 20,439

Less: Current portion of long-term debt 6,542 4,046 4,354

16,896 18,235 16,085


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12. Long-term debt (continued)

At December 31, 2015, Essex Energy Corporation, one of the companies forming part of this

consolidated entity, did not meet a covenant related to the floating rate loans noted above. As a

result of this covenant violation, the balance of these floating rate loans has been classified as

current within these financial statements. The Corporation’s bank has granted them a waiver

subsequent to December 31, 2015 with respect to the covenant violation.

As a result of the waiver being obtained, it is not the bank’s intention to exercise the demand feature

and call all outstanding loans within the next 12 months as a result of the covenant violation and

under this assumption approximate long-term principal repayments over the next 5 years are as

follows:

$

2016 4,4032017 2,2352018 1,5492019 5,2512020 5,708Thereafter 4,292

23,438

In addition to the Bankers Acceptances with TD Canada Trust, the Company has entered into an

interest rate swap agreement with TD Securities. This agreement is a “receive variable, pay fixed”

swap agreement, which effectively converts variable interest rates on Bankers Acceptances to the

effective interest rates mentioned above. Refer to note 22 for details on these swap instruments.

13. Obligations under finance lease

The Corporation has a lease commitment for certain computer equipment. The obligations under

finance lease bear interest at a rate of 2.25% per annum and leased computer equipment has been

pledged as security. Future annual minimum lease payments are as follows:

2016 135$

2017 79

214

Less: Amounts representing interest 4

Total obligations 210

Less: Current portion 129

81$


29

14. Post-employment benefits

(a) OMERS pension plan

The Corporation provides a pension plan for its employees through OMERS. The plan is a multi-

employer, contributory defined pension plan with equal contributions by the employer and its

employees. In 2015, the consolidated group made employer contributions of $526 to OMERS

(2014 - $524), of which $150 (2014 - $115) has been capitalized as part of PP&E and the

remaining amount of $376 (2014 - $409) has been recognized in profit or loss. The Corporation

estimates that a contribution of $540 to OMERS will be made during the next fiscal year.

As at December 31, 2015, OMERS had approximately 461,000 members, of whom 62 are current

employees of the Corporation. The most recently available OMERS annual report is for the year

ended December 31, 2015, which reported that the plan was 91.5% funded, with an unfunded

liability of $7,000,000. This unfunded liability is likely to result in future payments by participating

employers and members.

(b) Post-employment benefits other than pension

The Corporation pays certain medical and life insurance benefits on behalf of some of its retired

employees. The Corporation recognizes these post-employment benefits in the year in which

employees’ services were rendered.

Reconciliation of the obligation 2015 2014

Defined benefit obligation, beginning of year $ 2,887 $ 3,978Included in profit or loss

Current service cost 130 108Interest cost 103 181

3,120 4,267

Included in OCIActuarial (gains) losses arising from:

changes in demographic assumptions 326 (1,537)changes in financial assumptions—discount rate 12 287

338 (1,250)Benefits paid (169) (130)Defined benefit obligation, end of year $ 3,289 $ 2,887

Actuarial assumptions 2015 2014

General inflation 2.00% 2.00%Discount (interest) rate 3.75% 4.00%Medical Costs 7.50% 8.00%Dental Costs 4.50% 4.50%


30

(b) Post-employment benefits other than pension (continued)

A 1% increase in the assumed discount rate would result in the defined benefit obligation

decreasing by $281. A 1% decrease in the assumed discount rate would result in the defined

benefits obligation increasing by $329.

A 1% increase in the assumed trend rate would result in the defined benefit obligation increasing

by $287. A 1% decrease in the assumed trend rate would result in the defined benefit obligation

decreasing by $249.

15. Share capital

2015 2014

Authorized:Unlimited number of common shares, Class A, votingUnlimited number of common shares, Class B, non-votingUnlimited number of special shares, Class A, non-voting

Issued:10,712,716 common shares, Class A, voting $ 10,713 $10,7138,073,035 common shares, Class B, non-voting 8,073 8,073881,459 special shares, Class A, non-voting 881 881

$ 19,667 $19,667

Dividends

The holders of the common and special shares are entitled to receive dividends as declared fromtime to time. The Corporation paid aggregate dividends in the year on the shares as follows:common $1,591 (2014 - $1,544), special $62 (2014 - $62) which amount to total dividends paid in theyear of $1,653 (2014 - $1,606).

16. Other revenue

2015 2014

Rental revenue for joint use of poles $ 115 $ 130Billing services to ultimate shareholders 1,014 1,014Streetlight maintenance services to ultimate shareholders 225 257Solar Generation 1,183 1,240Deferred revenue recognized 18 247Gain (loss) from retirement of assets (105) 30Other 2,753 3,074

$ 5,203 $ 5,992


31

17. Operating expenses

2015 2014

Contract/consulting $ 2,541 $ 2,115Materials and supplies 1,675 2,815Salaries, wages and benefits 7,897 7,661Post-employment benefit plans 230 288Vehicles 157 181Other 2,354 1,166

$ 14,854 $ 14,226

18. Finance income and costs

2015 2014

Finance incomeInterest income on bank deposits $ 112 $ 355

Finance costsInterest expense on long-term debt 857 784Interest expense on customer deposits 3 3Other 170 445

1,030 1,232

Net finance costs recognized in profit or loss $ (918) $ (877)

19. Commitments and contingencies

From time to time, the Corporation is involved in various litigation matters arising in the ordinary

course of its business. The Corporation has no reason to believe that the disposition of any such

current matter could reasonably be expected to have a materially adverse impact on the

Corporation’s financial position, results of operations or its ability to carry on any of its business

activities.

General Liability Insurance

The Company subscribes for liability insurance coverage under a self-insurance pool administered by

the Municipal Electric Association Reciprocal Insurance Exchange. Under the terms of this co-

operative venture, the Company as a pool member, in addition to its regular premiums, is contingently

liable for any retroactive reassessment if a deficit originates in a year in which they are a member.

The contingent liability for reassessment in respect of any year in which the Company is a pool

member continues even where the Company subsequently withdraws from the self-insurance pool.

The Company will not, however, be subject to reassessment for claims incurred in years in which they

are not members of this self-insurance pool. As at December 31, 2015 no assessments have been

made.


32

Regulatory Assets/Liabilities

The regulatory assets and liabilities represent certain amounts receivable or refundable to future

customers. These amounts have been deferred for accounting purposes because it is probable that

they will be recovered or refunded in future rates. The Ontario Energy Board (OEB) regulates Essex

Powerlines Corporation and determines the amounts receivable and refundable to customers through

an Incentive Rate Mechanism (IRM) and/or a Cost of Service (COS) rate application rate

proceedings.

In February 2015, Essex Powerlines requested that the OEB issue an order to cease the 2014

Deferral and Variance Account rate riders, in order to mitigate any further impacts of errors, until such

time as the OEB determines an appropriate remedy. On February 27, 2015 the OEB ordered Essex

Powerlines to cease the 2014 Deferral and Variance Account rate riders. This action was intended to

limit the impact of the error which Essex Powerlines estimates to be approximately $3,600. Essex

Powerlines made adjustments in its books and records to correct this error; although more

adjustments may be required as a result of the current OEB audit process. The 2013 related DVA

balances have not yet been disposed on a final basis.

During the IRM rate application proceeding process to determine the 2015 rates for Essex

Powerlines’ customers, a number of errors were discovered that resulted in the OEB’s Decision and

Order (“Decision and Order”) EB-2014-0301 EB-2014-0072 issued by the OEB on June 9, 2015.

The Decision and Order stated that the errors made by Essex Powerlines were not minor and

impacted its customers in a material way. In addition, the OEB raised its concern about Essex

Powerlines’ regulatory accounting controls. As part of the Decision and Order, the OEB ordered an

audit of all Essex Powerlines deferral and variance accounts (except smart meter accounts 1555 and

1556), procedures and controls. The OEB audit commenced on January 15, 2016 and as at the date

of the audited financial statements is still on-going. The conclusion of the OEB audit may lead to

making adjustments by Essex Powerlines to the DVA account balances in the Essex Powerlines’

2016 financial statements.

One of the errors was related to a misallocation between two Group 1 Deferral and Variance

Accounts; Account 1588 – RSVA Power, and Account 1589 – RSVA Global Adjustment, and incorrect

cost allocation in 2011, 2012 and 2013 between all customers (including Regulated Price Plan (RPP)

customers) and non-RPP customers. The 2011 and 2012 DVA balances of approximately $5,200

had previously been approved by the OEB and disposed on a final basis and a new rate rider

commenced in 2014. As a result, August 10, 2015 the OEB self-initiated a Motion to Review, EB-

2015-0240 (“Motion to Review”) regarding the above-noted Decision and Order. At the time of

issuance of these audited financial statements, the outcome of the Motion to Review has not yet been

determined by the OEB.


33

Letter of Credit

A letter of credit in the amount of $2,900 has been issued by TD Canada Trust to the credit of theIndependent Electricity System Operator for the commodity purchases and market services provided.This letter of credit has no term of expiry and is normally renewed annually.

Commitments

A subsidiary Company has a long-term lease for the office premises supplied by Energy Place Inc. for

which it is committed to pay rent until August 2017. Minimum annual commitments for each of the

next two years are approximately as follows:

2016 $ 822017 48

$ 130

The Corporation currently does not have any non-cancellable leases.

Contingencies

A subsidiary Company has been named as a defendant in one lawsuit for wrongful dismissal in

January 2013. As well, this Company has been named in a breach of contract lawsuit filed by a

software consulting firm in March 2013 which the Company has filed a larger counterclaim in

response. In the opinion of management and legal counsel engaged by the Company, no reasonable

estimate can be made as to any settlements that would arise from the disposition of these lawsuits at

year-end.

20. Related party transactions

(a) Parent and jointly controlling shareholders

The sole shareholders of the Corporation are the Towns of Amherstburg, LaSalle and Tecumseh,

and the Municipality of Leamington. The Towns and Municipality produce financial statements

that are available for public use.

(b) Outstanding balances with related parties

January 1,2015 2014 2014

Balances due to:Municipality of Leamington $ 86 $ - $ -Town of Tecumseh 64 - -

$ 150 $ - $ -

Balances due from:Town of Amherstburg 35 34 34Town of LaSalle 36 48 99Town of Tecumseh 32 45 60Municipality of Leamington 31 32 62

$ 134 $ 159 $ 255


34

20. Related party transactions (continued)

All balances due from and due to related parties listed above are included within accounts

receivable and accounts payable respectively. Amounts are non-interest bearing with repayment

terms similar to other trade accounts receivable and accounts payable.

(c) Dividends payable to jointly controlling shareholders

As at December 31, 2015 dividends payable to the jointly controlling shareholders amounted to

$1,653 (2014 - $1,606).

(d) Transactions with jointly controlling shareholders

The Corporation had the following significant transactions with its ultimate parents, governmententities: the Towns of Amherstburg, LaSalle and Tecumseh, and the Municipality of Leamington.

The Corporation delivers electricity to these entities throughout the year for the electricity needsof the Towns and Municipality. Electricity delivery charges are at prices and under terms

approved by the OEB. The Corporation also provides additional services to the Towns andMunicipality, including billing and customer care services. The total revenues related to theseservices for 2015 were $1,014 (2014 - $1,014).

(e) Key management personnel

The key management personnel of the Corporation have been defined as members of its board

of directors and senior management team members. The compensation paid or payable is as

follows:

2015 2014

Directors’ fees $ 89 $ 82Salaries and bonuses 801 746

$ 890 $ 828


35

21. Capital Management

The Corporation’s objectives are to maintain access to capital on a long-term basis at reasonable

rates and to deliver reasonable financial returns to the shareholders. The Corporation’s capitalstructure consists of shareholders’ equity, retained earnings, long-term debt, and cash. The capitalstructure as at December 31, 2015 and 2014 was as follows:

2015 2014

Long-term debt payable in one year 6,542 4,046

Long-term lease obligation due in one year 129 129

Long term debt 16,896 18,235

Long term lease 81 210

Less: Cash (5,646) (2,568)

Net long-term debt 18,002 20,052

Common shares 19,667 19,667

Retained earnings 13,604 11,886

Total equity 33,271 31,553

Total capital 51,273 51,605

Debt to capital ratio 35% 39%

The Corporation is required by TD Canada Trust to maintain a funded debt to capitalization ratio not to

exceed 60%. At December 31, 2015 the Corporation is in compliance with this covenant.

22. Financial instruments and risk management

Fair value disclosure

The carrying values of cash and cash equivalents, accounts receivable, unbilled revenue, due from/to

related parties and accounts payable and accrued liabilities approximate fair value because of the

short maturity of these instruments. The carrying value of the customer deposits approximates fair

value because the amounts are payable on demand.

Financial risks

The Corporation understands the risks inherent in its business and defines them broadly as anything

that could impact its ability to achieve its strategic objectives. The Corporation’s exposure to a variety

of risks such as credit risk, interest rate risk, and liquidity risk, as well as related mitigation strategies

are discussed below.


36

(a) Credit risk

Financial assets carry credit risk that counterparty will fail to discharge an obligation which could

result in a financial loss. Financial assets held by the Corporation, such as accounts receivable,

expose it to credit risk. The Corporation earns its revenue from a broad base of customers in

different classes and as such, the Corporation does not rely on any one single customer for a

significant amount of its revenues. As of December 31, 2015 there were no significant balances

of accounts receivable owing from any single customer.

The carrying amount of accounts receivable is reduced through the use of an allowance for

impairment and the amount of the related impairment loss is recognized in profit or loss.

Subsequent recoveries of receivables previously provisioned are credited to profit or loss. The

balance of the allowance for impairment at December 31, 2015 is $188 (2014 - $137). An

impairment loss of $190 (2014 - $172) was recognized during the year.

The Corporation’s credit risk associated with accounts receivable is primarily related to payments

from distribution customers. At December 31, 2015, approximately $756 (2014 - $668) is

considered 60 or more days past due. The Corporation has over 29,000 customers, the majority

of whom are residential electric customers. Credit risk is managed through collection of security

deposits from customers in accordance with directions provided by the OEB. As at December 31,

2015, the Corporation holds security deposits in the amount of $1,213 (2014 $1,242).

(b) Market risk

Market risks primarily refer to the risk of loss resulting from changes in commodity prices, foreign

exchange rates, and interest rates. The Corporation currently does not have any material

commodity or foreign exchange risk. The Corporation is exposed to fluctuations in interest rates

as the regulated rate of return for the Corporation’s distribution business is derived using a

complex formulaic approach which is in part based on the forecast for long-term Government of

Canada bond yields. This rate of return is approved by the OEB as part of the approval of

distribution rates.

(c) Interest Rate Risk

The Company enters into derivative financial instruments in order to hedge its risk against interest

rate fluctuations. The Company has fixed its variable rate long-term Banker’s acceptance with

the following outstanding interest rate swap agreements:

Notional amount Interest rate Term of Agreement Repricing Period

$3,300 4.19% November 4, 2018 Monthly

As at December 31, 2015, the unrealized loss was $3 (2014 – gain of$12).

A 1% variation the interest rate at December 31, 2015 would increase or decrease this loss by

$33, assuming all other variables remain constant.


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(d) Liquidity risk

The Corporation monitors its liquidity risk to ensure access to sufficient funds to meet operational

and investing requirements. The Corporation’s objective is to ensure that sufficient liquidity is on

hand to meet obligations as they fall due while minimizing interest exposure. The Corporation has

access to $4,500 in credit facilities and monitors cash balances daily to ensure that a sufficient

level of liquidity is on hand to meet financial commitments as they become due. As at December

31, 2015, no amounts had been drawn under the Corporation’s credit facilities.

The Corporation also has a bilateral facility for $2,900 (the “LC” facility) for the purpose of issuing

letters of credit mainly to support the prudential requirements of the IESO, of which none has

been drawn and posted with the IESO during 2015 or 2014.

The majority of accounts payable, as reported on the statement of financial position, are due

within 30 days. Customer deposits are due on demand. Scheduled repayments associated with

long-term debt is described within note 12.

(e) Capital disclosures

The main objectives of the Corporation, when managing capital, are to ensure ongoing access to

funding to maintain and improve the electricity distribution system, compliance with covenants

related to its credit facilities, prudent management of its capital structure with regard for

recoveries of financing charges permitted by the OEB on its regulated electricity distribution

business, and to deliver the appropriate financial returns.

The Corporation’s definition of capital includes shareholder’s equity and long-term debt. As at

December 31, 2015, shareholder’s equity amounts to $34,094 (December 31, 2014 - $32,603;

January 1, 2014 - $30,093) and long-term debt amounts to $23,438 (December 31, 2014 -

$22,281; January 1, 2014 - $20,439).


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23. Explanation of transition to IFRS

As stated in note 2(b), these are the Corporation’s first financial statements prepared in accordance

with IFRS.

The accounting policies set out in note 3 have been applied in preparing the financial statements for

the year ended December 31, 2015, the comparative information presented in these financial

statements for the year ended December 31, 2014, and in the preparation of the opening IFRS

Statement of Financial Position as at January 1, 2014 (the Corporation’s date of transition).

In preparing its opening IFRS Statement of Financial Position, the Corporation has adjusted the

amounts reported previously in the financial statements prepared in accordance with Canadian

general accepted accounting principles (CGAAP). An explanation of how the transition from CGAAP

to IFRS has affected the Corporation’s financial position, financial performance and cash flows is set

out in the following tables and the notes accompanying the tables.

Regulatory accounts

IFRS14: Regulatory Deferral Accounts, permits an entity to continue to account for regulatory deferral

account balances in its financial statements in accordance with its previous GAAP when it adopts

IFRS. An entity is permitted to apply the requirements of this standard in its first IFRS financial

statements if and only if it conducts rate-regulated activities and recognized amounts qualify as

regulatory deferral account balances in its financial statements in accordance with its previous GAAP.

This standard exempts an entity from applying paragraph 11 of IAS8: Accounting policies, changes in

accounting estimates and errors, to its accounting policies for the recognition, measurement,

impairment and derecognition of regulatory deferral account balances.

IFRS 14 is effective from periods beginning on or after January 1, 2016, however, early application is

permitted. The Corporation determined that certain debit and credit balances arising from rate-

regulated activities qualify for the application of regulatory accounting treatment in accordance with

IFRS 14 and have elected to apply this Standard in its first IFRS financial statements.

IFRS 1 First-time adoption of International Financial Reporting Standards sets out the procedures that

the Corporation must follow when it adopts IFRS for the first time as the basis for preparing its

financial statements. The Corporation is required to establish its IFRS accounting policies as at

December 31, 2015 and, in general, apply these retrospectively to determine the IFRS opening

statement of financial position as its date of transition, January 1, 2014. This standard provides a

number of mandatory and optional exemptions to this general principle. These are set out below,

together with a description in each case of the exemption adopted by the Corporation.

IFRS Mandatory exceptions

IFRS 1 states that estimates made in accordance with IFRS at the date of transition should be

consistent with estimates made under previous GAAP. Accordingly, estimates previously made under

CGAAP were not revised at the date of transition except where necessary to reflect changes in

accounting policies.


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IFRS 1 Optional exemptions

(a) Transfer of assets from customers

The corporation has elected to apply the transitional provisions in IFRIC 18 Transfers of Assets

from Customers, which allows a first-time adopter to apply IFRIC 18 prospectively to transfers of

assets from customers received on or after the date of transition. This provision states that the

effective date of this standard should be July 1, 2019 or the date of transition to IFRS whichever

is the later.

(b) Deemed cost

IFRS 1 provides an optional exemption for a first-time adopter with rate-regulated activities to use

the carrying amount of PP&E and intangible assets as deemed cost on transition date when the

carrying amount includes costs that do not quality for capitalization in accordance with IFRS. The

Corporation elected this exemption and used the carrying amount of the PP&E and intangible

assets under CGAAP as deemed cost on transition date. The carrying amount used as deemed

cost is $45,274 for PP&E and $302 for intangible assets.

If an entity applies this exemption, at the date of transition to IFRS, it shall test for impairment

each item for which this exemption is used. The assets were tested for impairment at the date of

transition and it was determined that the assets were not impaired.


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23. Explanation of transition to IFRS (continued)

Reconciliation of statement of financial position and statement of changes in equity

MeasurementPresentation & recognition

January 1, 2014 Note CGAAP differences differences IFRS

Cash and cash equivalents 5,343 - - 5,343Accounts receivable 7,826 - - 7,826Unbilled revenue 7,212 - - 7,212Income taxes receivable 535 - - 535Materials and supplies 138 - - 138Prepaid expenses 424 - - 424

Total current assets 21,478 - - 21,478

Deferred charges 1,637 - - 1,637Property, plant and equipment a, g, i 43,787 2,240 - 46,027Intangible assets a, i 6,197 325 - 6,522Goodwill 1,623 - - 1,623Deferred tax assets e, g, j 1,270 - (69) 1,201

Total assets 75,992 2,565 (69) 78,488

Regulatory balances - 34,156 - 34,156

Total assets and regulatory balances 75,992 36,721 (69) 112,644

Accounts payable and accruedliabilities 11,981 - - 11,981

Dividends Payable 1,559 - - 1,559Long-term debt due within a year 4,354 - - 4,354Customer deposits h 270 1,542 - 1,812Deferred revenue 83 - - 83Regulatory liabilities g 3,458 (3,458) - -Income taxes payable 62 - - 62

Total current liabilities 21,767 (1,916) - 19,851

Non-hedging financial derivatives 307 - - 307Customer deposits h 1,542 (1,542) - -Long-term debt 16,085 - - 16,085Post-employment benefits f 4,298 - (320) 3,978Deferred tax liabilities e 1,355 - 760 2,115

Total liabilities 45,354 (3,458) 440 42,336

Share capital 19,622 - - 19,622Retained earnings f, g 11,016 - (741) 10,275Accumulated OCI f - - 196 196

Total liabilities and equity 75,992 (3,458) (105) 72,429

Regulatory balances g - 40,179 36 40,215

Total liabilities, equity andregulatory balances 75,992 36,721 (69) 112,644


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23. Explanation of transition to IFRS (continued):

Reconciliation of statement of financial position and statement of changes in equity


December 31, 2014 Note CGAAP differences differences IFRS

Cash and cash equivalents 2,568 - - 2,568Accounts receivable 11,125 - - 11,125Unbilled revenue 5,514 - - 5,514Income taxes receivable 373 - - 373Material and supplies 122 - - 122Prepaid expenses 528 - - 528

Total current assets 20,230 - - 20,230

Deferred charges 1,932 - - 1,932Property, plant and equipment a, g, i 47,154 3,099 - 50,253Intangible assets a, i 6,199 325 - 6,524Goodwill 1,623 - - 1,623Deferred tax assets e, g, j 1,232 - (1,141) 91

Total assets 78,370 3,424 (1,141) 80,653

Regulatory balances - 39,925 - 39,925

Total assets and regulatory balances 78,370 43,349 (1,141) 120,578

Accounts payable and accruedliabilities 11,032 - - 11,032

Dividends Payable 1,607 - - 1,607Long-term debt due within one year 4,046 - - 4,046Obligation under finance lease due

within one year 129 - - 129Customer deposits h 270 1,014 - 1,284Deferred revenue c 668 875 - 1,543Regulatory liabilities g 2,365 (2,365) - -

Total current liabilities 20,117 (476) - 19,641

Non-hedging financial derivatives 319 - - 319Customer deposits h 1,014 (1,014) - -Long-term debt 18,235 - - 18,235Obligation under finance lease 210 - - 210Post-employment benefits f 4,402 - (1,515) 2,887Deferred tax liabilities e 2,015 - 470 2,485

Total liabilities 46,312 (1,490) (1,045) 43,777

Share capital 19,667 - - 19,667Retained earnings f, g 12,391 - (505) 11,886Accumulated OCI f - - 1,050 1,050

Total liabilities and equity 78,370 (1,490) (500) 76,380

Regulatory balances g - 44,839 (641) 44,198

Total liabilities, equity andregulatory balances 78,370 43,349 (1,141) 120,578


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Reconciliation of net income for 2014


Note CGAAP differences differences IFRS

RevenueService Revenue g, k 68,594 (10,083) - 58,511Distribution revenue k 135 11,091 - 11,226Utilismart fees 5,141 - - 5,141Solar revenues l 1,240 (1,240) - -Other c, l 4,505 1,487 - 5,992

79,615 1,255 - 80,870

Operating expensesCost of power purchased g 57,503 1,794 - 59,297Operating expenses f 14,088 83 55 14,226Depreciation and amortization c, g 2,942 542 - 3,484

- 74,533 2,419 55 77,007

Income from operating activities 5,082 (1,164) (55) 3,863

Finance income j - 355 - 355Finance costs j - (1,232) - (1,232)

- (877) - (877)

Other revenue (expenses) j (967) 967 - -

Income before income taxes 4,115 (1,074) (55) 2,986

Income tax expense current 480 - - 480Income tax expense future e 652 34 399 1,085

1,132 34 399 1,565

Net income for the year 2,983 (1,108) (454) 1,421

Net movement in regulatory balances,net of tax g - 1,108 688 1,796

Net income and net movementin regulatory balances 2,983 - 234 3,217

Other comprehensive incomeRemeasurement of post-employment benefits f - - 1,250 1,250

Tax on remeasurements f - - (396) (396)

Total comprehensive income

for the year 2,983 - 1,088 4,071


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Notes to the reconciliations

The impact on deferred tax of the adjustments described below is set out in note (e).

a. The Corporation has elected under IFRS 1 to use the carrying value of items of PP&E and

intangible assets as the deemed cost at the date of transition. Therefore, there has been no

change to the net PP&E and intangible assets at January 1, 2014. The effect of this transitional

adjustment is a decrease to the original cost and accumulated depreciation of the affected PP&E

and intangible assets by $22,025 and $1,126 respectively, the CGAAP accumulated depreciation

amount, on January 1, 2014.

b. IFRS requires that borrowing costs related to the construction of the qualifying assets be

capitalized. The Corporation has applied IAS 23 to all qualifying assets that were in progress or

commenced since January 1, 2014. No qualifying assets were identified and therefore no

borrowing costs were capitalized for the year ended December 31, 2014.

c. Under CGAAP, customer contributions were netted against the cost of PP&E and amortized to

profit or loss as an offset to depreciation expense, on the same basis as the related assets.

Under IFRS, customer contributions are recognized as deferred revenue, not netted against

PP&E, and amortized into profit or loss over the life of the related asset. The effect of the above is

to increase deferred revenue by $875 at December 31, 2014; to increase PP&E by $875 at

December 31, 2014 and to increase other revenue and depreciation expense by $247 for the

year ended December 31, 2014.

d. Under CGAAP for rate regulated entities, the Corporation removed assets from the accounts at

the end of their estimated useful lives. IFRS requires assets to be removed from the accounts

when they have been removed from service. There have been no losses incurred as a result of

such removals.

e. In previous years, deferred taxes related to unregulated solar assets were grouped with deferred

taxes for regulated assets. The treatment and presentation has been revised in accordance with

rate regulation recovery practices.


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f. The Corporation adopted the revised Employee Benefits standard effective January 1, 2014.

This revised standard requires recognition of actuarial gains and losses through other

comprehensive income. This decreased post-employment benefits by $285, decreased deferred

tax assets by $95, increased opening accumulated other comprehensive income by $171 and

increased retained earnings by $18 at January 1, 2014. As at December 31, 2014 the impact of

these recognition and measurement differences is a decrease to post-employment benefits of

$1,400, a decrease in deferred tax assets of $469, an increase in opening accumulated other

comprehensive income of $171, an increase to opening retained earnings of $18, an increase to

other comprehensive income of $779 net of tax, an increase to operating expenses of $55.

g. IFRS 14 permits a rate-regulated entity to continue to apply its previous GAAP accounting policies

for the recognition, measurement, impairment and derecognition of regulatory balances. However, all

regulatory balances and related deferred tax amounts are reclassified to a new and separate section

of the consolidated balance sheet. As well, the net income effect of all changes in regulatory

balances must be segregated in a new separate section of the consolidated statement of income.

Amounts that are permitted or required to be recognized under another IFRS are excluded from the

regulatory balances.

For the Corporation, the impact of IFRS 14 at January 1, 2014 was to transfer the smart meter

capital expenditures to PP&E, and to transfer all regulatory debit and credit balances to separate

lines below what was formerly known as “Total assets” and “Total liabilities and equity”, respectively.

The impact of this change as at January 1, 2014 was to reduce current regulatory liabilities by

$3,449, and increase PP&E by $2,565, regulatory debit balances by $34,156 and regulatory credit

balances by $40,170.

As at December 31, 2014, the impact was to reduce current regulatory liabilities by $2,346, and

increase PP&E by $2,351, regulatory debit balances by $39,925 and regulatory credit balances

by $44,820. For the year ended December 31, 2014, the impact was to increase sale of energy

by $1,008, increase cost of power purchased by $1,794, distribution expense by $141, increase

depreciation and amortization expense by $214, increase future income tax expense by $34, and

net movements in regulatory balances, net of tax by $1,108.

h. Customer deposits at January 1, 2014 of $1,348 and at December 31, 2014 of $972 which were

previously classified as long-term liabilities were reclassified as current liabilities since they are due

on demand.

i. Intangible assets at January 1, 2014 of $302 and at December 31, 2014 of $313 which were

previously classified within PP&E were reclassified as intangible assets on the balance sheet.


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j. Finance income of $355 previously included in other income/expense for the year ended December

31, 2014 was reclassified to Finance income within the statement of income and other

comprehensive income. Finance expense of $1,135 previously included in other income/expense for

the year ended December 31, 2014 was reclassified to Finance expense within the statement of

income and other comprehensive income.

k. Distribution revenue of $11,091 previously included in sale of energy for the year ended

December 31, 2014 was reclassified to Distribution revenue within the statement of income and

comprehensive income.

Explanation of material adjustments to the statement of cash flows for 2014:

Reclassification of capital contributions received to finance additions to PP&E from investing

activities to operating activities, and inclusion of amortization of deferred revenue related to

capital contributions in operating activities. Under CGAAP, capital contributions were treated as

a reduction of PP&E and associated cash flows were classified as investing activities. Under

IFRS, the Corporation treats capital contributions as deferred revenue and classifies the

associated cash flows as operating activities;

Presentation of income taxes paid and interest paid within the body of the statements of cash

flows as part of operating and financing activities, respectively, whereas they were previously

disclosed as supplementary information; and

Reclassification of adjustments relating to regulatory balances within operating activities to “Net

movements in regulatory balances” in the application of IFRS 14.

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