CERISE Decision Summary

SYNOPSIS:
On June 20, 2005, the Ontario Energy Board (“OEB” or “the Board”) issued a Decision allowing Veridian Connections Inc. (“VCI”) to acquire all outstanding shares and subsequently amalgamate with Scugog Hydro Energy Corporation (“Scugog Hydro”). The utilities applied to the Board for approval of the share purchase and amalgamation on March 24, 2005. According to the Application, rate harmonization for customers of both Veridian Connections Inc. and Scugog Hydro Energy Corporation will take place in 2007. The Board has approved the application and concludes that the proposed transactions are consistent with the Board's objectives.

SUMMARY:
Background:
VCI is wholly owned by Veridian Corporation which is in turn wholly owned by the City of Pickering, the Municipality of Clarington, the City of Belleville and the Town of Ajax.

Scugog Hydro owns, operates and manages assets associated with the distribution of electricity within the geographic territory of the Village of Port Perry as at November 5, 1979, currently the Town of Port Perry in the Township of Scugog. Scugog Hydro is wholly owned by the Township of Scugog.

Details of Application:
The filed application indicated that, following the acquisition of shares, VCI would hold 100 percent of the outstanding shares in Scugog Hydro, and with the amalgamation, VCI will serve approximately 95,983 customers in its service area covering all or a portion of the Town of Ajax, the City of Belleville, the City of Pickering, and the Town of Port Perry in the Township of Scugog.

The Applicants submitted that a typical Scugog Hydro residential customer is charged $3.33 (3.9%) a month less than a VCI customer. As a result of the amalgamation, the current distribution rate benefit that Scugog Hydro customers enjoy cannot be maintained, and that the distribution rate w ou ld be increased in 2006 to increase Scugog Hydro revenues to an acceptable market based revenue requirement. In this regard, the utilities indicate d that Scugog Hydro has not earned a return on equity to date. Net losses of $23,500 and $46,300 were projected for 2004 and 2005 respectively. The utilities sa id that based on the projected net losses, the share purchase w ould result in some of the lowest delivery rates in the province for their customers. If there were no amalgamation and rate harmonization, the typical Scugog Hydro residential customer that pays $3.33 per month less than a comparable VCI customer in 2005 would pay $2.78 more per month than a comparable VCI customer after the 2006 rate adjustment. The utilities also maintain ed that the amalgamation w ould provide customers with enhanced service for power restoration and reliability and extend Scugog Hydro's capital program to a higher level.

A Notice of Application and Written Hearing was published as directed by the Board. No interventions were filed in response to the Notice.

Board Findings:
The Board accepted the evidence of the utilities and concluded that the proposed transactions would be consistent with the Board's objectives, and therefore ordered that:

• VCI is granted leave to acquire all outstanding shares in, and subsequently to amalgamate with Scugog Hydro.
• Notice of completion of the amalgamation is to be promptly given to the Board
• The Board's leave to amalgamate will expire 18 months from the date of this decision. If the amalgamation has not been completed by that date, a new application for leave will be required in order for the amalgamation to proceed.

PRIMARY ISSUES:

• Acquisition
• Amalgamation

Full Decision