HomeMy WebLinkAbout November 23, 2020 - Elexicon Delegation Presentation1
Presentation to Council
November 2020
Elexicon Update
Patrick McNeil
Chair, Board of Directors of Elexicon Corporation
Lesley Gallinger
President & CEO of Elexicon Energy
Karen Fisher
Interim President & CEO and Chair, Board of Directors of Elexicon Group
Refer to Item 7.1 of the Council Meeting Agenda
2
Agenda for Today
This presentation aims to provide an update on the first year of Elexicon’s operations after the merger in April 2019.
Elexicon Group update
•Merger objectives
•COVID-19 update
•Organizational Chart
•Post Merger Accomplishments:
₋Customer Focus
₋Accountability
₋Branding
₋Shareholder Activities
₋Culture
•Outlook for 2020 –2021
Elexicon Energy update
•Merger objectives
•COVID-19 Response and Implications
•Executive Leadership Team
•Post Merger accomplishments
₋Brand
₋Customers
₋Sustainability
₋Safety
₋One Culture
₋Community Report
•Outlook for 2020 -2021
Elexicon Corporation
•Background information
3
Elexicon Corporation Background
•Elexicon Corporation was created on April 1, 2019 as a result of the merger of Whitby Hydro Energy
Corporation with Veridian LLC.
•The primary objectives of the merger was to create a new organization that was better positioned to:
₋serve today’s customers more effectively,
₋seize the opportunities rapid technological change is bringing to the energy marketplace, and
₋Continue to provide steady ongoing dividends to its shareholder municipalities.
•Early days yet but much has been accomplished –not withstanding COVID-19 and its economic impacts
on both our customers and our operations –which the whole organization is prudently managing
through.
•Lesley and Karen will both provide you with brief updates on their organization’s achievement shortly.
Lesley Gallinger
President & CEO
Update
5
Merger Objectives
•Sustainable Cash Flows for Municipal owners
•Mitigate future rate increases for customers
•Improve service to customers
•Strengthen partnership with local businesses and community
•Invest in innovation and growth
6
COVID-19 Response and Implications
•Elexicon Energy engaged its Pandemic Response Plan on March 13th
•Supporting our customers and ensuring a safe workplace have been our priorities
•We have been working in a remote fashion since March 23rd
•Elexicon Energy’s offices remain closed
•Electricity disconnections have been suspended
•Non-critical planned work and planned outages have been suspended
•24/7 System Control Centre and crews available to respond to outages
•Extended bill payment options and financial assistance programs are available to customers
•Regular Executive Leadership Team and Pandemic Response Group meetings
•Model and stress testing our ability to operate in this fashion for an extended period of time –
considering what work can be done safely and without disruption to customers after the curve flattens
Response
7
COVID-19 Response and Implications
•Operationally, we have had to make decisions in order to ensure sufficient cash flow in light of the
potential for customers having difficulty paying their bill
•We have increased our line of credit and curtailed capital for the time being. We have also deferred the
payment of Dividends to Elexicon Corporation pending additional experience
•This was to ensure we have sufficient liquidity to continue to operate through the recovery timeframe
•The OEB has undertaken a consultation to consider allowing LDCs to recover some of the costs and lost
revenues resulting from COVID-19
•Elexicon Energy has taken all steps to keep employees safe
Implications
8
Elexicon Energy
Executive Leadership Team
Lesley Gallinger
President & CEO
Lucy Lombardi
CFO & VP
Regulatory
Affairs
Falguni Shah
VP Technology
& Innovation
Rob Scarffe
VP Customer
Experience
Kevin Whitehead
VP Asset
Management
Moranne
McDonnell
VP Distribution
Operations
Stacia Boss
VP HR &
Corporate
Services
Kristine Chandler
General Counsel
& Corporate
Secretary
9
Elexicon Energy Brand
•The Elexicon Brand launched on April 1, 2019 and we used 2019 to advance opportunities to promote
the brand in our communities
o Rebranding of fleet, facilities and equipment
o Customer-focused inserts and newsletters
o Emphasis on community support: $303,332 to not-for-profit and community organizations
o Internal focus on Elexicon Energy’s Mission, Vision and Values
10
Elexicon Energy Customers
•For customers, the transition to the new company was
seamless
•In 2019, Elexicon Energy continued to achieve its high
levels of customer responsiveness and reliability
•Several excellent communication pieces were prepared
for customers introducing the new brand and offering
useful information
11
Financial Sustainability
•Sustainability = relentless focus on the achievements of the business case
•Excellent foundation laid for achieving expected benefits envisioned in the business case
•2019 saw the organization tracking to committed synergies while focusing on bringing the organization
together and moving it forward
•Executive and Board oversight of the critical task list to complete integration while beginning to develop
a view to the forward strategy of the newly merged organization
•Despite some slower materialization of merge assumptions, Elexicon Energy delivered on its Net Income
target and its Cost Per Customer target
•Customer service, reliability, employee and public safety maintained at the highest level
12
Elexicon Energy Safety
•In 2019, Elexicon Energy shifted its safety process to one
focused on Risk
•Using our new eCompliance platform, all Medium and High
risk processes are being evaluated and work processes will be
embedded in this platform
•All safety-related training will also be completed through the
eCompliance platform
•This toolset allowed for seamless transition to electronic work
planning and safety meeting required in the new COVID-19
work environment
•Elexicon Energy is compliant with all safety regulations
One Culture
•Elexicon Energy embarked on One Culture program
in 2019
•Strong working collaboration of diverse team
members developed a model of our One Culture
•A list of tangible projects in support of the culture
were identified
•These are in flight now lead by the culture team and
video vignettes have begun to roll these out to the
entire organization
14
Elexicon Energy Community Report
•The Community report will be distributed quarterly to the
five shareholder mayors to inform Elexicon Energy activities
in their communities. The report will focus on the following
areas:
₋System Reliability –an overview of power outages, comparison
with previous year, and any major events
₋Corporate Social Responsibility –a summary of corporate
giving program sponsorships
₋Field Operations –actual and planned construction and
maintenance activities
₋Communications –recent activities of interest, such as
development of our new website, and cybersecurity alerts
₋Industry News –recent rate changes and information pieces
from industry associations
₋Customer Service –customer-facing information, such as our
bill redesign and the COVID-19 Energy Assistance Program
(CEAP)
15
Outlook 2020 -2021
•Focus on return to “next normal”
o Work place modifications
o Continued support for customers
•Complete all systems integration projects and other milestones in merger plan
•Continued focus on achievement all of the merge benefits
•Focus on moving towards the One Elexicon Culture
•Launch and implementation of new 5-year Strategic Plan and achievement of business case
o Operational Excellence and Customer Centricity near term strategic focus
Recovery and Refocus
Karen Fisher
Board Chair, &
Interim President & CEO
Update
17
Merger Objectives
•Elexicon Group –Start Up and New Brand in the non-regulated space focused on energy
solutions (eg.Circuit Monitoring, CHP/Retrofit Solutions, Energy Analytics, EV Charging, Battery
Storage, Solar, etc.)
•Independent Chair and 4 Independent Directors
•Committee of the Whole operating structure
•Hired President and CEO on April 1, 2019 launch date (subsequent departure August 19, 2020)
•Growth model (outside organic) may include JV’s, partnerships, acquisitions, strategic alliance, etc.
•Income stream to include a portion of recurring revenue
•Tremendous potential with Shareholder and Corporate support and opportunities outside
traditional LDC business lines and territory
18
COVID-19 Update
•Integrated & collaborative response with Energy to support our employees and customers
through participation in enterprise Pandemic Response Group (PRG)
•Group employees were are all able to work remotely and have now returned to the office 2
days per week
•Customers that Elexicon Group serves not as impacted by COVID-19 as other industries, such
as retail and restaurants
•Key suppliers have had ample inventory to meet our needs with some construction delayed to
to Provincial COVID protocols however this has all resumed resulting in minor completion date
delays
•Speak with clients regularly and continue to develop existing and new business initiatives and
for the most part our clients are proceeding with future plans with some impacted by 2020
and 2021 budgets (reduced revenues) –still evolving
•The impact of COVID-19 has the potential to create new opportunities for M&A
19
Elexicon Group
Organizational Chart
DON SEGUIN
Manager Technical Services
CHRIS DIMTSES
Asset Coordinator
ASHTON SPENCER
Analyst
BRIAN VIPOND
Manager Business
Development
KAREN FISHER
Interim
President &CEO
LISA BARKER
Controller
ASHLEY FRIZZELL
Project Coordinator
Maternity Leave
VACANT
Technical Sales
20
Post Merger Accomplishments
•Completed merger of the two unregulated businesses -Whitby Hydro Energy Services & Veridian Energy
•Developed Mission, Vision, Values and Brand story that reflects business goals and objectives
•Developed Strategic Plan to identify opportunities and set direction for Elexicon Group
•Hired Controller to oversee financial systems, processes and ensure rigour around opportunities and
existing businesses
•Conducted a detailed assessment of existing business lines and margins -adjusted where necessary
(business exits/pricing adjustments)
•Launched the CircuitMeter channel partner agreement, with initial sales occurring in Q4 of 2019
•Entered into Service Level Agreements (SLA) to acquire support services from Elexicon Energy Inc.
•Entered into SLA to provide management services to related party assets for combined heat & power (CHP)
and solar assets for EC & EE.
•Hired Asset Coordinator, Project Coordinator, and have a vacancy for a Salesperson (backfilled with 1
external commission sales agent)
•Conducted detailed Asset Transfer reviews on Solar and CHP assets -transfers to be revisited when tax
implications are reduced over time
•Market Research Study underway to overlay with Strategic Plan in growing business lines organically and
identify M&A target areas for accelerated growth opportunities –sales and execution
We had 374% increase in Q1
sales this year compared to
2019 legacy Q1.
21
Elexicon Group Customer Focus
•Building off Whitby Hydro Energy Services and 20-year foundation of customers in the REIT,
Multi-Residential and commercial space across Canada with consulting and CHP services
•Veridian Energy(and Corp) had 3 CHP projects and 3 Solar projects developed that we continue
to support
•Customer focus is to provide additional services to existing clients (stickier/recurring revenue)
and add clients through new offerings, such EV Charging and CircuitMeter
•Focus on adding value to our shareholders as well as other municipalities and customers
through service offerings that improve operations
•Focused on enabling our Mission “Imagine Energy as Opportunity” for clients and employees
•First Customer Satisfaction Survey in October to gauge our progress and ask: “How are we
doing?” –results were very strong satisfaction rate and 71% participation
22
Elexicon Group Accountability
•Strategic Plan will guide how Elexicon Group proceeds and measures success
•Goal is to ensure long term risk adjusted rates of return and revenues for the enterprise
•Pro-Forma business case analysis tool (similar tool being created for M&A) has been operationalized
with checks and balances including ongoing reviews
•Quarterly board meetings have a strategic plan update and focus to ensure we stay on track and
aligned to goals
•Acquisition Strategy (Draft) clearly defines path forward that support our strategic plan and will
overlay with Market Research
•Board is actively engaged in hiring new President and CEO with end of year target
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Accountability and Branding
•Opportunity for Elexicon Group to leverage social platforms and the internet to advance our
Mission: “Imagine Energy as Opportunity” with existing and new clients
•Pro-active social media strategy on LinkedIn (over 850 followers) and Twitter that features
updates, news releases, and industry news (combined with traditional communication
strategies including press releases and print media)
•Website developed and launched in 2019 to showcase Elexicon Group and reflects Mission &
Strategic Plan focus
•Utilize Google analytics platform to monitor and validate marketing efforts across all online
presence
•Focus on expanding brand inside and outside LDC territory and continue developing new
opportunities to increase reach
24
Shareholder Activities
Municipality of Clarington
•2 CircuitMeter proposals, one for Garnet B. Rickard Recreation Complex & for South Courtice Arena
•195kW Microturbine CHP proposal for the Diane Hamre Recreation Complex as an emergency backup at this
site
City of Belleville
•CircuitMeter proposal for Quinte Sports and Wellness Centre
•Working on proposal for a 195kW power only system for south side of Quinte Sports and Wellness Complex
•Construction of a 370kW reciprocating engine Combined Heat & Power project at the waste water treatment
facility
•Commissioning of the 195kW Microturbine CHP project at the Quinte Sports and Wellness Centre -Power
Purchase Agreement
•Working on proposal to convert the existing 195kW CHP system to run as emergency backup power supply
•Working on proposal to install infrastructure for 6 new EV chargers at Quinte Sports and Wellness Centre
•Working on proposal to add another 195kW power only microturbine installation to Quinte Sports and
Wellness facility
25
Shareholder Activities continued
City of Pickering
•3 CircuitMeter -2 for Town Hall 1 for Chestnut Hill Recreation Complex
•CHP feasibility study for Chestnut Hill Recreation Centre (Draft report in with City of Pickering staff for
review). Report studies feasibility of a 600kW CHP project.
Town of Ajax
•CircuitMeter -1 project at McLean Centre Recreation Complex
•EV Charging -quoted on installing chargers at two of their sites
Whitby:
•CircuitMeter -submitted proposal for Iroquois Park and working on the final details for a PO to be issued
•CHP -we have a 130kW project up and running and delivering value as presented
•Consulting -have been working with them since 2002 on electricity only
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Elexicon Group Culture
•Our shift from a local distribution culture (monopoly) to an entrepreneurial one (sales)
•Empower employees to try new things and act on ideas
•Promote a creative culture by engaging in brainstorming sessions and discussing strategic goals
•Communicate through open dialogue
•Strive to become a leader in energy solutions to meet clients needs
•TEAM Culture to achieve collective goals
•EXECUTION
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Outlook 2020 -2021
•At this time we have seen positive momentum in the later
half of the year, as the economy has reopened. CHP
Construction projects are trending under budget and are
expected to be completed by the end of the fiscal year.
•COVID-19 has had an impact on our project pipeline as the
economy continues to adapt to a new normal resulting in
softer revenues in 2020 due to uncertain economic
conditions.
•Despite these challenges, we have navigated the situation
well and predict achieving 72% of our planned normalized net
income for 2020.
•We believe that the economic impact of COVID-19 creates
opportunity for acquisitions, which could be a methodology
for recovery and growth for Elexicon moving forward.
W e are forecasting 2020 sales to be a 244%increase
over 2019 calendar year sales!
We are forecasting 2020 sales to be a 191% increase over
2019 calendar year sales!
THANK YOU
2019 ANNUAL REPORT
Delivering transformation – together.
2019 Annual Report
ELEXICON CORPORATION 4
Message from the Chair of the Board, Elexicon Corporation 4
As one, we are larger, stronger and better positioned 6
Elexicon Corporation Boards of Directors 7
ELEXICON ENERGY 8
Message from the President & CEO, Elexicon Energy Inc. 9
Mission, Vision, Values 10
Executive Leadership Team 10
Our 2019 distribution system facts 11
Delivering operational excellence 12
Committed to our customers 16
Investing in our employees 18
Contributing to the well-being of our communities 20
ELEXICON GROUP 24
Message from the President & CEO, Elexicon Group Inc. 25
Mission, Vision, Values 25
Ideas to make and use energy better while helping protect the planet 26
CORPORATE GOVERNANCE 32
APPENDIX A: MANAGEMENT’S DISCUSSION AND ANALYSIS I
APPENDIX B: CONSOLIDATED FINANCIAL STATEMENTS VI
Welcome to Elexicon Corporation: your energy service provider, partner and ally
As a united front, we’re powering life’s most meaningful moments, as well as creating
harmonious connection between experiences and people and the environments where they
dwell. Through our safe and reliable services, we illuminate, we move, we grow, we comfort,
we nourish and we educate, ultimately shaping stronger communities and a better world.
Elexicon Corporation
is a holding company, 100 per cent owned
by five municipal shareholders: the Town
of Whitby, the City of Pickering, the Town
of Ajax, the Municipality of Clarington and
the City of Belleville. Elexicon Corporation
consists of two wholly owned subsidiary
operating companies: Elexicon Energy Inc.
and Elexicon Group Inc.
Elexicon’s companies are committed to
supporting economic growth and enhancing
the quality of life in communities by
providing essential electricity distribution
and energy-related services – safely,
reliably, cost-effectively and with a
dedication to superior customer service.
Elexicon Energy Inc.
is a regulated electricity distribution company
that delivers electricity to approximately
169,000 homes and businesses located in
ten municipalities in east-central Ontario.
The company is regulated by the Ontario
Energy Board, an independent regulatory
body that makes decisions and provides
advice to the government in order to
contribute to a sustainable, reliable
energy sector, and to help consumers
get value from their natural gas and
electricity services. Elexicon Energy also
operates a non-regulated small business
focused on renewable energy generation.
Elexicon Group Inc.
is a non-regulated energy services
business offering energy management
and procurement consulting services,
combined heat and power solutions,
and specialty metering.
The company is focused on both organic
growth and expanding the business through
merger and acquisition opportunities.
$104 million
IN ECONOMIC
VALUE AND BENEFITS
DELIVERED IN 2019
Value created by Elexicon Corporation
is fundamentally measured in terms of
financial performance and operational excellence.
In addition, the Province of Ontario and
the communities we serve derive other
economic benefits that, in 2019,
amounted to more than $104 million.
Operating Expenses
$35.1 million
Property taxes, water costs,
facility costs, professional fees,
local purchasing, employee
compensation and benefits, etc.
Capital Expenditures
$57.2 million
Investments in electricity
distribution infrastructure
to serve the needs of
our growing communities
Dividends $6.9 million
Dividends paid
or payable to our
shareholders
for re-investment
in communities
Payments to
Capital Providers
and Government $5.1 million
Interest and payments
in lieu of taxes
Corporate Giving $303,332
Employer and employee
contributions to
not-for-profit and
community organizations
COVID-19 response
Although this is a 2019 report, at time
of publication, we are in the midst of a
global pandemic. Our hearts go out to all
of those who have suffered illness, loss
or financial hardship due to COVID-19.
Faced with this unprecedented event,
our employees rapidly and effectively
implemented our Pandemic Emergency
Operations Plan to protect each other
and our customers while continuing
key operations.
We were well prepared to enable
our call centre staff and other employees
to serve our customers and maintain
critical business functions while working
from home; mobilize and equip field
crews to perform essential emergency
restoration services; and set up and staff
three System Control Centres to ensure
uninterrupted grid operation.
We supported our communities in their
fight against COVID-19 with a donation of
$50,000 for hospitals within the Lakeridge
Health network, including Ajax Pickering
Hospital, Bowmanville Hospital, Port Perry
Hospital and Whitby Hospital as well as
South Muskoka Hospital, Orillia Soldiers’
Memorial Hospital and Belleville Hospital.
I am so very proud of our employees’
response to the pandemic and am
impressed with their professionalism and
ability to focus on what is important while
adapting to quickly changing circumstances.
When this is all over, I believe we will be
stronger than ever – together.
MESSAGE FROM THE CHAIR OF THE BOARD, ELEXICON CORPORATION
Delivering transformation – together
On April 1, 2019, Veridian Corporation
and Whitby Hydro Energy Corporation
joined forces to build on each
other’s strengths and form Elexicon
Corporation and its two subsidiary
companies, Elexicon Energy Inc.
and Elexicon Group Inc.
With our first nine months of
operation behind us, I am delighted
to provide our inaugural 2019 Annual
Report to our shareholders: the Town
of Whitby, the City of Pickering,
the Town of Ajax, the Municipality of
Clarington and the City of Belleville.
We are witnessing transformational
change in the energy and utilities
sector, driven by disruptive
technologies impacting how
power is generated, stored,
distributed and managed; changing
consumer expectations; heightened
environmental awareness; and
evolving energy
policy and
regulation.
The goal in amalgamating two
well-respected utility companies was
to generate significant benefits for
our customers and shareholders and
strengthen the company to capitalize
on new opportunities presented
by the changing energy landscape:
delivering transformation – together.
Integration progressing
smoothly
The Board of Directors of Elexicon
Corporation is very pleased with the
company’s progress and performance
in 2019, delivering on its merger
promises and benefiting customers
and communities through the
achievement of its business strategies.
In the nine months since the company’s
inception, the two legacy organizations
have been integrated, employees
have settled into their positions,
best practices are being adopted,
and synergies have already begun
to be realized, all without negatively
impacting customer service.
This report highlights some of
the many accomplishments of our
two subsidiary companies, Elexicon
Energy Inc. and Elexicon Group Inc.
Continued community support
An important aspect of the
amalgamation was the desire for
a continued strong presence
in the communities we serve.
In 2019, Elexicon invested
$303,332 to support local
not-for-profit organizations
and a variety of worthy
causes that contribute
to community well-being.
Financial targets achieved
Financial performance for the period
of April 1 to December 31, 2019
was strong, with net income of
$7.3 million and capital investment
of $57.2 million. Dominion Bond
Rating Service assigned a rating of
“A” with a stable trend to Elexicon.
Municipal shareholders benefit from
distributions of Elexicon’s earnings
through annual dividends. As set out
in the Shareholders’ Agreement,
the Board of Directors of Elexicon
Corporation reaffirmed a dividend
policy for the 2019 calendar year with
base dividends of $11.28 million to be
pro-rated based on number of days
in the fiscal period. For the nine months
ended December 31, 2019, Elexicon
recorded dividends paid or payable
to shareholders of $6.9 million.
With plans and people in place, and
exciting opportunities ahead of us,
I believe Elexicon Corporation is
well positioned to deliver increasing
value to customers, communities
and shareholders.
In closing, I would like to acknowledge
the members of the Elexicon
Corporation, Elexicon Energy and
Elexicon Group Boards of Directors for
their commitment to good governance.
I also offer my sincere thanks to
the employees of Elexicon for their
hard work and commitment to putting
customers first as we work to build a
new company and ignite a better future.
Patrick McNeil
Board Chair, Elexicon Corporation
4 ELEXICON CORPORATION > 2019 ANNUAL REPORT 5
Elexicon Corporation
ELEXICON CORPORATION BOARDS OF DIRECTORS
Independent Board Members
Shareholder Board Members
Elexicon Energy Inc.
Elexicon Group Inc.
Patrick McNeil
ICD.D
Chair,
Independent
Director
Shaun Collier
C.Dir
Mayor,
Town of Ajax
Paul Murphy
P.Eng.
Chair,
Independent
Director
Karen Fisher
C. Dir
Chair,
Independent
Director
Ted Baker
C.Dir
Sr. Conservation
Account Manager,
CLEAResult
Murray Angus
Director of Finance,
Children’s Mental
Health Services
Ron Chatterton
C.Dir
President,
Niche Advantage
Consulting Ltd.
Dave McGregorHRCC
Independent
Director
Darren MacDonald
Director of Energy,
Gerdau Long Steel
North America
Lesley Rose
C.Dir
Director, Financial
Advisory Services,
Commercial
Financial Services,
RBC Financial Group
Nicole McNeillICD.D
President & Chief
Administrative
Officer,
Municipal Property
Assessment
Corporation
Jim Macpherson
President,
Macpherson
& Associates Inc.
Sean O’DwyerICD.D
Independent
Director
Doug Parker
CPA-CMA
Independent
Director
Ron Chatterton
C.Dir
President,
Niche Advantage
Consulting Ltd.
Jim Macpherson
President,
Macpherson
& Associates Inc.
Dave Ryan
Mayor,
City of Pickering
(Until March 12,
2020)
Brian Mountford
Independent
Director
Adrian Foster
Mayor,
Municipality
of Clarington
Ian Cumming
Councillor,
City of Pickering,
(Mayor’s Designate
Since March 12, 2020)
Doug Parker
CPA-CMA
Independent
Director
Don Mitchell
Mayor,
Town of Whitby
Lesley Rose
C.Dir
Director, Financial
Advisory Services,
Commercial
Financial Services,
RBC Financial Group
Mitch Panciuk
Mayor,
City of Belleville
Reduce costs through
greater efficiencies, innovations
and economies of scale
Provide the scale and capacity
to capitalize on new opportunities
presented by a changing
energy landscape
Be a strong voice in Ontario’s
energy sector, to assist in the
development of sound energy policies
and ensure our shareholders’ and
communities’ interests are well
represented at all levels of government
Invest in secure, advanced
communications and
data management systems
Increase dividends for
municipal shareholders, which will
offset tax increases and can be
reinvested in local communities
Offer enhanced customer services
through combined best practices
and capabilities
Invest in infrastructure and innovative
and emerging technologies to ensure
safety, improve reliability and meet
the changing needs of our customers
Attract and retain
top talent
As one, we are larger, stronger and better positioned
The goal in bringing Veridian Corporation and Whitby Hydro Energy Corporation together
was to benefit customers and communities by providing increased capacity to:
6 ELEXICON CORPORATION > 2019 ANNUAL REPORT 7 7
MESSAGE FROM THE PRESIDENT & CEO, ELEXICON ENERGY INC.
Our power is response-ability
I am very pleased to report that, thanks to our employees’ efforts and commitment,
the integration of Veridian Connections and Whitby Hydro Electric Corporation
is progressing smoothly, and we are already delivering on our merger promises.
As a local electricity distribution
company, nothing is more important
than maintaining the public trust
invested in us to deliver a safe,
reliable, cost-effective supply of
electricity to 169,000 homes and
businesses in ten communities.
Operational performance in 2019
was nothing short of excellent, with
safety, service quality and system
reliability metrics all exceeding targets.
Clearly, we are continuing to build
long-term, sustainable value for
customers, our shareholders and
our communities.
Customer benefits
of the merger
In the first nine months of the merger,
Elexicon Energy moved quickly to
consolidate and streamline operations
to improve customer service and
realize efficiencies laid out in the
merger plan. One example, the merging
of our System Control Centres, resulted
in reduced costs, 24/7 system
monitoring and improved power
outage restoration for customers
across our service territory.
We also amalgamated the company’s
telephone system and in-house
call centre and launched a customer
newsletter that provides tips for
managing electricity use and costs,
electrical safety reminders and
other useful information.
Stronger together
The merger has provided us
with the increased capacity and
strength to take on the challenges
of a transforming energy sector.
Our talented employees – working
together with an unwavering
commitment to our customers –
are the driving force behind our
future success. I thank them for
their enthusiasm in rising to the
challenge of building a new utility.
It is an honour to lead such an
incredible team.
Lesley Gallinger
President & CEO,
Elexicon Energy Inc.
Elexicon Energy
“We are very proud of the progress we made in 2019
integrating our two utilities to work seamlessly as one,
while maintaining a high level of operational and
customer service excellence.”
Lesley Gallinger
President & CEO,
Elexicon Energy Inc.
“Operational
performance in 2019
was nothing short of
excellent, with safety,
service quality and
system reliability metrics
all exceeding targets.”
In 2019, we achieved an Average System Availability Index
of 99.98 per cent and expanded our Health and Safety
Department to concentrate additional efforts on
building a positive safety culture.
Elexicon Energy 98 ELEXICON CORPORATION > 2019 ANNUAL REPORT
Ajax
Gravenhurst
Clarington
Brock
Whitby
Newcastle
Beaverton
Port Hope
Belleville
Cannington
Sunderland
Uxbridge
Pickering
Ajax
Port Perry
Orono
Bowmanville
Service District
Legend
ELEXICON ENERGY
SERVICE AREA MAP
Service Area
Mission
To provide our customers with
reliable, affordable energy services
and to continuously improve to
meet their needs, while ensuring
the needs of our shareholders are
met through continuous growth.
Our 2019 distribution system facts
Elexicon Energy distributes power from the provincial electricity grid
across our network to residential and business customers in ten communities.Values
SAFETY
We prioritize the safety
of our team and customers,
knowing this is the foundation
of a healthy home and
engaged workplace.
KINSHIP
We seek every opportunity to
forge personal connections with
our customers and employees,
because we know genuine
relationships are lasting ones.
COMPETENCE
We understand that our
customers’ trust is built upon
our knowledge, solutions and
ability to make – and keep –
our promises.
MINDFULNESS
We are mindful of our impact
on the environment and make
every effort to ensure we
cause no undue harm during
the delivery of our services.
Vision
To empower the communities we serve and help
customers seize opportunities to ignite a better future.
36,535 hydro poles
and pole structures
4,317kilometres
of overhead lines
2,336 kilometres
of underground
cables
22,339 transformers
9 electric vehicle charging stations
693 megawatts
System Peak Demand –
Summer
63 municipal substations
Executive Leadership Team
Lesley Gallinger
President & CEO
Lucy J. Lombardi
Chief Financial Officer,
Vice President,
Regulatory Affairs
Rob Scarffe
Vice President,
Customer Experience
Kevin Whitehead
Vice President,
Asset Management
Stacia Boss
Vice President,
Human Resources and
Corporate Services
Paul Hughes
Interim General Counsel
and Corporate Secretary
Norm Fraser
Interim Vice President,
Distribution Operations
Falguni Shah
Vice President,
Technology and
Innovation
RESPONSIVENESS
We know our customers rely on electricity to successfully navigate
their day. As a result, we go above and beyond to meet their needs
by proactively addressing their questions and concerns,
and continuously improving our services.
Elexicon Energy 1110 ELEXICON CORPORATION > 2019 ANNUAL REPORT
2019 DISTRIBUTION SYSTEM PERFORMANCE
99.98%
Average System
Availability Index
1.335 hours
System Average
Interruption
Duration Index
1.035 interruptions
System Average
Interruption
Frequency Index
3.036 momentary interruptions
Momentary Average
Interruption
Frequency Index
In 2019, our System Control Centres
were consolidated and staff cross-trained
in order to provide 24/7 monitoring
across our entire grid.
Delivering operational excellence
At Elexicon Energy, our success depends on achieving operational excellence
that delivers ever-increasing value to our customers and stakeholders.
MAINTAINING
RELIABILITY
AND SAFETY
With 169,000 homes and businesses
depending on a steady supply of
electricity to power their lives –
reliability and safety are our primary
areas of focus. In 2019, we achieved
an Average System Availability Index
of 99.98 per cent and expanded
our Health and Safety Department
to concentrate additional efforts on
building a positive safety culture.
Operating and investing
in a smarter grid
Elexicon Energy operates a highly
reliable, modern, secure, electricity
distribution network that features
intelligent monitoring systems
and automated controls.
To keep the system running
smoothly, we employ proactive
outage prevention strategies
that include insulator washing,
tree trimming, wildlife mitigation
and thermographic inspection
of distribution system apparatus
to identify hot spots before
they can result in outages.
The operators in our 24/7,
newly centralized System Control
Centre monitor the flow of electricity
across a network of 6,653 kilometres
of overhead lines and underground
cables. In the event that an outage
cannot be restored remotely, a crew
is dispatched from the nearest service
depot to investigate the cause,
make repairs and restore power
to customers as swiftly as possible.
One of the benefits of the merger
is our ability to mobilize crews and
equipment from all parts of our
service territory to assist any of our
communities that suffer widespread
outages due to severe weather events.
“Our goal is to continue to modernize our grid
infrastructure to improve resilience, enhance security,
and support the future needs of our customers.”
Kevin Whitehead
Vice President,
Asset Management
Elexicon Energy’s
customer base grew
by 2,393 customers
in nine months
in 2019.
12 ELEXICON CORPORATION > 2019 ANNUAL REPORT Elexicon Energy 13
EMBRACING
INNOVATION
Elexicon Energy has embarked on
a journey where the importance of
technology as a source of innovation
has been identified as a critical success
factor, not only for technological
improvement, but also to transform
the electricity ecosystem as a whole.
In response to the rapidly evolving
energy and technology landscape,
in 2019, Elexicon Energy took the
bold step of forming a dedicated
Technology and Innovation Department
to drive innovation and capitalize on
new opportunities.
The new department is staffed
with experts in operational and
information technologies, cyber
security and data analytics. Key areas
of focus include advanced grid
automation and the integration of
distributed generation, microgrids,
battery storage and electrified
transportation. Other areas of
interest include cutting-edge
cyber security practices using
artificial intelligence and cloud-based
services, increased information
technology infrastructure resiliency
and integrity, process automation
and digitization, remote workforce
enablement, and detailed
asset modelling.
Community microgrid
demonstration project
New homeowners in the Marshall
Homes Altona Towns 27-unit
townhome project in Pickering
are participants in one of Ontario’s
first community microgrid projects.
In addition to being connected to the
local grid, the community microgrid
uses energy produced by rooftop
solar panels and stored in a lithium-ion
battery controlled and monitored by a
communications system from Elexicon
Energy’s System Control Centre.
Electricity credits earned from the
power fed into the grid will be
distributed by the condominium
corporation to townhouse owners
to help offset their electricity costs.
Real-world data gathered from the
project will be used by Elexicon Energy
and Ontario’s Independent Electricity
System Operator to explore how this
type of community microgrid can help
improve grid reliability and resilience,
reduce consumer energy costs and
cut greenhouse gas emissions.
Solar-powered
electric vehicle carport
The solar-powered electric vehicle
carport (above), located at Elexicon
Energy’s corporate headquarters
in Ajax, was used 2,910 times
in 2019. The 10-kilowatt solar panels
generated 9,986 kilowatt hours of
energy, which offset the cost of
the electricity consumed by $1,185.
Respected as innovators
in the energy industry
Elexicon Energy employees have
demonstrated their leadership
in technological innovation in
the utility sector and have made a
number of presentations at industry
events. Topics included community
microgrids and emerging technologies;
light detection and ranging (LiDAR)
machine learning; augmented reality;
and artificial intelligence.
BUILDING
INFRASTRUCTURE
CAPACITY AND
RESILIENCE
With a service territory that covers
ten municipalities in east-central
Ontario, most of which are expected
to see significant growth over the
next five years, the ability to meet an
increasing demand for electricity forms
a key component of our distribution
system planning and budgeting.
In 2019, we invested more than
$26 million to maintain, upgrade and
expand our network to accommodate
growth and prevent outages.
As part of our integration efforts,
we adopted best practices in
our asset management plan
and design standards. We also
upgraded specifications to harden
our system against severe weather
events caused by climate change.
New life for an old substation
in Beaverton
The William G. Gillespie substation
(above), constructed in Beaverton
in 1961, was one of the oldest
substations in service in Elexicon
Energy’s fleet of more than
60 substations. After almost six
decades of service, it was rebuilt in
2019 using modern, safer, substation
controls and equipment to improve
reliability and expand capacity for
customers in Beaverton.
Ajax’s Dowty Substation
rebuilt from the ground up
Elexicon Energy’s Dowty Substation
was energized in December 2019
following a complete rebuild designed
to enhance reliability and meet the
needs of the growing Ajax community.
Integrating local
sources of energy
With an eye on our customers’
evolving needs, Elexicon Energy
is continuing to invest capital to
accommodate a growing number
of distributed energy resources,
such as solar photovoltaic panels,
battery storage or combined heat
and power systems, connecting
to our network.
In 2019, the 375 distributed energy
resources connected to the system
fed 57.65 megawatts of electricity
into the provincial grid, enough
energy to power approximately
11,500 homes for one year.
Planning for growth
in North Pickering
Anticipating an increased demand for
electricity in the Seaton community in
the City of Pickering, Elexicon Energy
is designing and building a new
230-kilovolt municipal transformer
station that will incorporate the latest
in advanced smart grid technologies.
This new transformer station will be
connected to Hydro One’s high-voltage
grid and provide sufficient capacity to
serve the planned development needs in
North Pickering for many years to come.
Elexicon Energy
operates nine electric
vehicle charging units
located in Ajax,
Clarington and Whitby.
“Building on the strong practices of our predecessor
companies, in 2019, we continued to strengthen
the safe and reliable operation of our power system
for the benefit of our customers.”
Norm Fraser
Interim Vice President,
Distribution Operations
14 ELEXICON CORPORATION > 2019 ANNUAL REPORT Elexicon Energy 15
Committed to our customers
At Elexicon Energy, we are committed to providing a superior customer experience and
innovative solutions to meet evolving energy and information needs. We work hard to earn
our customers’ trust, by being open, honest, fair, respectful and keeping our promises.
INTEGRATING AND
IMPROVING THE
CUSTOMER EXPERIENCE
Both of our predecessor utilities,
Veridian Connections and Whitby
Hydro, had a reputation for exceptional
customer service. In 2019, our goal
was to maintain the same high level
of service while seamlessly integrating
our people, systems and processes.
Working together, our team of
knowledgeable and professional
customer service representatives
solidified our reputation for top-notch
service, fielding 99,034 calls from
April to December 2019, responding
to 73 per cent of the calls within
30 seconds. Meanwhile, our Billing
Department staff achieved 99.9
per cent accuracy in sending out
approximately 1.5 million bills.
Looking forward, we will continue
to streamline business processes
to ensure consistency across our
service territory and to make the
customer experience easier and
more satisfying than ever. As a
first step, in 2020, we will be
integrating our customer information
systems and launching a new,
customer-friendly bill. To ensure
these two initiatives meet the needs
of all stakeholders, in 2019, our project
teams consulted with customers
to obtain their input on the design
of a new bill and Call Centre staff
to engage them in the development
of best practice business processes.
Enhanced customer
communications
Customers were introduced to
the new Elexicon brand through a
multi-channel customer information
campaign that included letters,
bill inserts, social media and
advertising as well as new website
landing pages and co-branded bills.
A new customer newsletter,
the illuminator, was launched to
provide tips and resources to help
customers manage electricity use
and costs, avoid potential safety
hazards and share news about
Elexicon Energy.
“The integration went so smoothly, I suspect
the only difference many of our customers noticed
was our new logo on envelopes and bills.”
Rob Scarffe
Vice President,
Customer Experience
In order to serve 169,000
homes and businesses as
efficiently as possible,
in 2019, we integrated our
telephone systems, provided
cross-training and located
the majority of our Customer
Call Centre staff in the
company’s corporate
headquarters in Ajax.
MAINTAINING
HIGH LEVELS OF
CUSTOMER SERVICE
April – December 2019
99,034
Total Number of Calls Answered
99.9%
Billing Accuracy
96.4%
New Residential / Small Business
Services Connected On Time
ELEXICON CORPORATION > 2019 ANNUAL REPORT Elexicon Energy 17
Investing in our employees
Bringing two organizations together to move forward as one, with energy
and enthusiasm, is no easy task. We are proud of our 258 Elexicon Energy
employees for their commitment to ensuring that the merger was accomplished
with efficiency and a minimum of disruption to our customers.
FIRST ANNUAL
RESCUE DAY
Regular review of safe work
practices and skills training
is critical for staff working
on or near energized electrical
equipment. Elexicon Energy’s
first Annual Rescue Day
brought together all of the
company’s line maintainers,
outside workers and other
key personnel for valuable
refresher training on aerial
rescue techniques, confined
workspace procedures and
fire extinguisher use.
“Our One Culture initiative is a big investment
in our employees. It takes a bottom-up approach
and gives our employees a voice.”
Stacia Boss
Vice President,
Human Resources and Corporate Services
258 employees
160 employees
represented by the
Power Workers Union
STRONGER TOGETHER –
OUR ONE CULTURE JOURNEY
In an effort to develop an inspiring,
values-aligned corporate culture
for our new company, in 2019,
we launched a One Culture initiative.
Using a bottom-up approach, staff
were engaged in facilitated
conversations to define and shape
the “Elexicon Energy way” of doing
things. A team of 14 employees
from across the organization then
outlined a detailed picture of
the culture we want to build in to
the Narrative, a document which
was, subsequently, approved
and embraced by the Executive
Leadership Team. This document
will serve as a foundation for the
planning and implementation of
Elexicon Energy’s One Culture
initiative in 2020.
FOSTERING A
SAFE WORKPLACE
At Elexicon Energy, as it was with our
predecessor utilities, our top priority
is ensuring the safety of our team,
our contractors, our customers
and the public. We know that
building and sustaining a strong
safety culture requires leadership
support, organizational focus and
personal employee responsibility.
To help drive our safety culture
even deeper into our organization and
go beyond our traditional goal of zero
lost-time injuries, in 2019, we upscaled
our Health and Safety Department and
committed additional resources to
develop a comprehensive framework,
research and implement a new health
and safety management system, and
provide safe work practices, proce-
dures and training consistent with
industry best practice.
Responsibility
Values Operating
Principles
Elexicon Energy’s
One Culture Foundational Pillars
18 ELEXICON CORPORATION > 2019 ANNUAL REPORT Elexicon Energy 19
AJAX MAYOR’S
GALA
Elexicon Energy supported the
inaugural Ajax Mayor’s Gala in
June 2019. Together, we promoted
awareness of homelessness in
our community and raised funds
to benefit The Salvation Army,
Joanne’s House, the Homelessness
Task Force and Durham Children’s
Aid Foundation.
BRINGING HOPE
AND JOY TO
NEEDY CHILDREN
Thanks to the generosity of Elexicon
Energy employees, 28 shoeboxes
packed with small toys, hygiene items
and school supplies were assembled
and donated to the Samaritan’s Purse
Operation Christmas Child (above) –
a hands-on project that brings joy
and hope to children suffering as a
result of war, poverty, famine, disease
and disaster around the world.
CREATING A
BRIGHTER HOLIDAY
SEASON FOR THE
LESS FORTUNATE
Elexicon Energy employees
generously donated $2,480 to
provide gifts for families through the
Durham Children’s Aid Foundation’s
Holiday Hope Program.
Contributing to the well-being of our communities
Elexicon goes well beyond distributing electricity. We take an active role
in promoting public safety, supporting local not-for-profit organizations
and community events, and donating to a variety of worthy causes.
“Thanks to Elexicon’s support, last year’s event was a huge success,
with over 800 butterflies released and approximately 300 people in attendance.
The Butterfly Release has become a major fundraiser for Hospice Muskoka
with approximately $35,000 raised in 2019.”
Rosamond Abbott
Hospice Muskoka,
Butterfly Release Event
$75,000 RAISED
TO FIGHT
HUNGER IN OUR
COMMUNITIES
More than 200 golfers attended
Elexicon Energy’s first annual
golf tournament held at
Deer Creek Golf Club in Ajax.
The tournament raised $75,000
for three food banks fighting
hunger in our communities
(below, l-r): Gleaners Food
Bank (Quinte) Inc., Feed
the Need in Durham, and
Gravenhurst Against Poverty.
20 ELEXICON CORPORATION > 2019 ANNUAL REPORT Elexicon Energy 21
ELECTRICAL
SAFETY SHOULDN’T
BE SCARY
Elexicon Energy is a proud advocate
of the Kids’ Safety Village of Durham
Region. More than 12,500 students
visit the site each year to learn about
a variety of safety-related topics
including electrical safety. Company
employees volunteered their time to
hand out treats at the Kids’ Safety
Village’s Halloween Haunt event.
“Grandview Children’s Foundation exists for one important reason – to help
provide life-changing programs and services to kids in Durham Region. Every year,
we help over 10,000 children and youth – another 3,900 more are on a waiting list.
The kids at Grandview are thriving because of the support of our community.
Thank you for your help in 2019 – we’re so much stronger together!”
Brigitte Tschinkel
Executive Director,
Grandview Children’s Foundation
“My family and I are extremely grateful for
receiving this award… Awards such as these
help keep me motivated to strive for success
as an electrical engineering student, and vastly
reduce the financial burden on myself and
family as the cost of post-secondary education
continues to increase.”
Christopher Brown
Scholarship Recipient, Electrical Engineering,
Faculty of Engineering and Applied Science,
Ontario Tech University
ENCOURAGING
ENGINEERING EXCELLENCE
Elexicon Energy annually awards $2,500 scholarships to two full-time
undergraduate Ontario Tech University students enrolled in the
Faculty of Engineering and Applied Sciences, Electrical Engineering
program, with a preference for those studying smart grid technology.
In 2019, the recipients were Christopher Brown and Kandarp Gandhi.
PROMOTING
ELECTRICAL SAFETY
IN COMMUNITIES
At Elexicon Energy, we demonstrate
our commitment to public safety by
sending out storm preparation and
other safety messages using Twitter
and our new customer newsletter,
promoting Dig Safe Month and
conducting an electrical safety
public awareness survey.
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Building a fence?Planting a tree?Putting in a garden?
SUPPORTING
THE EDUCATION
OF YOUNG PEOPLE
In 2019, Elexicon Energy
provided bursaries to students
in the following high schools:
Ajax
Ajax High School
Archbishop Denis O’Connor
Catholic High School
J. Clarke Richardson Collegiate
Notre Dame Catholic Secondary
Belleville
Bayside Secondary School
Centennial Secondary School
Moira Secondary School
Nicholson Catholic College
Quinte Christian High School
St. Theresa Catholic Secondary School
Brock
Brock High School
Clarington
Bowmanville High School
Clarington Central Secondary School
Clarke High School
Courtice Secondary School
Holy Trinity Catholic Secondary School
St. Stephen Secondary School
Gravenhurst
Gravenhurst High School
Pickering
Durham District School – Dunbarton
École Ronald-Marion
Pickering High School
Pine Ridge Secondary School
St. Mary Catholic Secondary School
Port Hope
Port Hope High School
Scugog
Port Perry High School
Uxbridge
Uxbridge Secondary School
22 ELEXICON CORPORATION > 2019 ANNUAL REPORT Elexicon Energy 23
“We imagine energy as opportunity.
No matter the challenge, if our customers use power,
we’re the partners with the imagination and experience
to help them use it better.”
James Darrach
President & CEO,
Elexicon Group Inc.
MESSAGE FROM
THE PRESIDENT & CEO,
ELEXICON GROUP INC.
Imagine energy as opportunity
Following an extensive evaluation
and community engagement process,
Whitby Hydro Energy Services and
Veridian Corporation moved forward
with a proposal to merge in 2018.
Now – under our new name and identity
as Elexicon Group – we’re delivering
a wider range of energy solutions
to a wider range of customers.
A long history and solid reputation
As an entrepreneurial endeavour, Elexicon Group focuses
on providing a wide range of energy solutions to customers,
and brings almost two decades of reputation and results
into this new era.
I want to say how incredibly pleased and humbled
I am with how our team has come together to
overcome the new challenges presented by an
evolving industry. We may be just wrapping up
our first year of operations, but at every turn,
we have risen to the occasion. Our teamwork,
adaptability and determination bode well
for us in the future.
James Darrach
President & CEO,
Elexicon Group Inc.
Mission
Imagine energy as opportunity.
Vision
Be that partner: the one who makes
energy management better for business and
consumers, and saves a bit more of the world.
Values
COMMIT TO EXCELLENCE
Understand customer service excellence
as more than just meeting customer
requirements every time. It’s about providing
the experience that sustains relationships.
VALUE PEOPLE
Attract, develop and retain inspired employees
who come from diverse backgrounds and
levels of experience. This diversity allows us
to break barriers, push boundaries and
do what hasn’t been done before.
MAKE A DIFFERENCE
Imagine the best solutions for our customers
and the community. And then get to it.
LIVE INTEGRITY
Embrace integrity as the foundation
on which customers build relationships.
When we do business, we are honest,
transparent and ethical.
OWN ACCOUNTABILITY
Honour our customers’ trust by honouring
our commitments. When we promise,
we follow through. We believe personal
responsibility is essential to partnerships.
CELEBRATE
CURIOSITY
Be inquisitive. Curiosity is how
ideas come to life. It is the fuel
that energizes the creative
solutions that ultimately
better serve our customers.
Elexicon Group
24 ELEXICON CORPORATION > 2019 ANNUAL REPORT Elexicon Group 25
Water
mA CurrentTransformers
End User reports throughbrowsers on ANY device
Cat5e / 6InternetConnection
OptionalCellularConnection
Voltage
Steam
Gas
EventCounter
BTU WebMeter48E
Cloud
Loads CircuitMonitoring™
JPulse(s)
LIGHTING, MOTORS,EQUIPMENT
ANALYTICS
API
CLOUD
WEBMETER
ELECTRICAL
PANEL / MOTOR
CONTROL CENTRES
Ideas to make and use energy better while helping protect the planet
Elexicon Group works closely with municipal, commercial, industrial, multi-residential and institutional customers, providing
detailed analysis and expert solutions on reducing electricity costs and improving the bottom line – all while improving
sustainability and energy efficiency. We consult on every aspect of energy and utilities including electricity, gas and water.
We understand energy as opportunity. We find the opportunities that reduce costs and improve the bottom line. No matter
the challenge, we’re the partners with the imagination and experience to help customers make and use energy better.
Municipalities
COST SAVINGS AND
REDUCED ENVIRONMENTAL
IMPACTS –
AJAX AND PICKERING
In 2019, Elexicon Group partnered with
the Town of Ajax and the City of Pickering
to design and install circuit level monitoring
systems to identify energy inefficiencies,
reduce operating costs and lower environmental
impacts in municipal buildings. The systems
were commissioned in early 2020.
Circuit Monitoring
Tracking energy use in real time,
all the time.
CHP / Retrofit Solutions
With equipment,
getting older is rarely better.
Retrofit anyone?
Fleet Charging Stations
Take charge of your
electric fleet.
EV Charging / Backup
A new standard for
EV charging: power for
(part of) your facilities.
Energy Analytics
Our energy reporting makes
your energy budget better.
Price Optimization Program
Reduce electricity costs
and find energy opportunities
that improve your bottom line.
Battery Storage
Battery energy storage: storing savings
along with backup power.
Solar Photovoltaic
Does solar work for you?
It depends.
Bus Conversions to EV
Ditch the diesel but keep the bus:
converting to electric.
Electric Buses
Charging Infrastructure
The electric bus is coming.
Time to get on board?
Class A Global Services
Making sense of Class A
and the global adjustment.
Water Metering Solutions
Minute-to-minute monitoring:
just add water.
“With a vision to become a sustainable
community by 2055, the Town of Ajax
is proud to partner with Elexicon Group
to implement real-time energy management
in our municipal buildings. With the
latest tools, we can make data-backed
energy management decisions in real time,
thereby reducing the municipality’s
energy consumption, operating costs
and carbon footprint, and inspiring
Ajax residents to do the same.”
Shaun Collier
Mayor, Town of Ajax
“As a national leader in sustainability,
the City of Pickering is proud to
be the first municipality in Canada
to incorporate a real-time energy
management platform. With this
innovative new platform installed
at City Hall, we can make better
informed decisions to reduce the
City’s energy consumption, costs
and greenhouse gas emissions.”
Dave Ryan
Mayor,
City of Pickering
Management Team
James Darrach
President & CEO Don Séguin
Manager,
Technical Services
Lisa Barker
Controller
Brian Vipond
Manager,
Business Development
Circuit monitoring precisely tracks
electricity usage throughout an entire operation.
26 ELEXICON CORPORATION > 2019 ANNUAL REPORT Elexicon Group 27
Long-term care homes
and retirement communities
REDUCED
OPERATING COSTS
WITH REAL-TIME
ENERGY
MANAGEMENT –
HAMILTON
The Village of Wentworth Heights,
a Schlegel Villages long-term care
and retirement community in Hamilton,
was the first in Canada to install and
implement circuit-level monitoring
technology in their operations.
Using the real-time energy
management system supplied
and installed by Elexicon Group,
Schlegel Villages can now monitor,
measure and better understand the
energy consumption of its buildings,
down to individual pieces of equipment.
The detailed information will be used
to help reduce operating costs.
Looking forward, the system
will enable Schlegel Villages to
develop effective, data-backed
energy management strategies
for peak building performance and
accurately measure the savings
generated by retrofit projects and
other conservation initiatives.
Multi-residential facilities
REDUCED
UTILITY COSTS
WITH COMBINED
HEAT AND POWER
RETROFITS –
TORONTO
Elexicon Group was the engineering,
procurement and construction
contractor on a combined heat
and power (CHP) retrofit project for
CAPREIT, one of Canada’s largest
real estate investment trusts
managing approximately 55,000
residential apartments, townhouses
and manufactured home communities
across Canada.
The turnkey solution included four
modular-designed, 260-kilowatt
CHP micro-turbines installed
in a 520-unit apartment building
in Toronto. The system, operated by
Elexicon Group, supplies electricity
and thermal heat for the building
year-round and provides emergency
backup power in the event of
an outage. By installing the four
microturbines, the building has
reduced electricity costs by
57 per cent and annual electricity
consumption by 58 per cent.
“Energy conservation is important to all of us, so we are constantly seeking and seizing
opportunities for efficiencies within our Villages. We’re confident the return on this
investment will be realized quickly and are delighted that we will be able to reinvest
savings to enhance the quality of life for the residents who make their home here.”
Peter Brouwers
Director of Facility and Environmental Services,
Schlegel Villages
“Elexicon Group helps us to optimize the value of every dollar spent on electricity
costs. Through the Price Optimization Program, we have been able to reduce
our costs with no long-term price commitment and no fixed-term contracts.
We can always rely on the team at Elexicon Group
to provide honest, straightforward
advice and education with electricity.”
Eric Espe
Accounting Manager,
CARPREIT
28 ELEXICON CORPORATION > 2019 ANNUAL REPORT Elexicon Group 29
Community centres
EMERGENCY BACKUP
AND FIVE-YEAR
PAYBACK WITH
COMBINED HEAT AND
POWER SYSTEM –
TILLSONBURG
When a lightning strike and an
associated gas leak forced the
evacuation of approximately
60 Tillsonburg households in
August 2019, the Tillsonburg
Community Centre served as an
emergency shelter. A microturbine
CHP system, installed by the Elexicon
Group as a turnkey project,
kept the facility’s electricity and
hot water functioning despite
the local power outage.
By using energy more efficiently,
the Tillsonburg Community Centre
expects to generate over 1,200,000
kilowatt hours of electricity. Other
benefits include a five-year payback
period, minimized maintenance
downtime, reduced carbon emissions,
and backup heat and power in the
event of an emergency.
Community centres
SUPPORTING
MUNICIPAL
SUSTAINABILITY
OBJECTIVES WITH
HIGHLY EFFICIENT
ENERGY USE –
WHITBY
Elexicon Group maintains and
operates two combined heat and
power microturbines in the Whitby
Civic Recreation Centre. These small
footprint microturbines generate
power that costs less than purchasing
power from the grid. The exhaust heat
from the turbines is recovered and
used to supply hot water, heat the
swimming pool and provide space
heating for the entire complex.
With its demand for energy reduced
by over 60 per cent, the facility
requires only two high-efficiency
boilers to meet the demand previously
supplied by four. This turnkey project
has helped the Town of Whitby lower
operating expenses, use energy
more efficiently and support municipal
sustainability objectives.
‘’We’re taking the waste heat we produce from the microturbines and using
it to warm our indoor pool, heat the building and provide warm water.
Using this highly efficient solution, we are making a long-term investment
for our municipality. Our microturbines are durable assets that will save us
money for up to 20 years.”
J.J. John Romano
Manager of Facilities – Operations,
Town of Whitby
“Our Facility Management team is always looking for more innovative, efficient
and cost-effective ways to service our community. With the flexibility and
reliability offered by microturbines, the Town of Tillsonburg is able to maximize
cost savings while providing facility resiliency.”
Rick Cox
Director of Recreation,
Culture and Parks,
Town of Tillsonburg
30 ELEXICON CORPORATION > 2019 ANNUAL REPORT Elexicon Group 31
Corporate Governance
Elexicon Corporation is governed in accordance with the Business Corporations Act
(Ontario) and a Unanimous Shareholders’ Agreement. Elexicon Corporation recognizes
the role of good governance in a successful business enterprise and provides
voluntary disclosure on its corporate governance practices.
Elexicon Corporation is a holding company,
100 per cent owned by five municipal shareholders.
*The Ontario Energy Board requires that one-third of directors of a regulated local distribution company not be directors of affiliate companies.
32.000 per cent
27.880 per cent
21.828 per cent
9.248 per cent
9.044 per cent
Board of Directors* – 11
Board of Directors – 7 Board of Directors – 5
Mayor or designate Non-shareholder independent Independent
(not Elexicon Corporation Board)
Board Membership:
32 ELEXICON CORPORATION > 2019 ANNUAL REPORT Corporate Governance 33
Director
Elexicon Corporation Board
Audit Finance & Risk Management Committee (Committee of the Whole)
Elexicon Corporation Nominating Committee
Elexicon Corporation Transition and Implementation Committee
Elexicon Energy Inc. Board
Elexicon Energy Inc. Audit Finance & Risk Management Committee
Elexicon Energy Inc. Human Resources, Compensation and Governance Committee
Elexicon Energy In Merger Integration Committee
Elexicon Energy Inc. Nominating Committee Elexicon Group Inc. Board Inc.
Elexicon Group Inc. Nominating Committee
11 11 6 5 7 4 4 3 5
James Macpherson – Pickering Term: April 1, 2019 – April 1, 2021 •••••
Patrick McNeil (Chair) – Whitby Term: April 1, 2019 – April 1, 2021 • Chair •••
Brian Mountford – Clarington Term: April 1, 2019 – April 1, 2021 ••••
Lesley Rose – Whitby Term: April 1, 2019 – April 1, 2022 ••••
Ron Chatterton – Pickering Term: April 1, 2019 – April 1, 2022 •••••• Chair
Doug Parker – Belleville Term: April 1, 2019 – April 1, 2022 ••Chair ••• Chair
Mayor Adrian Foster – Clarington Term: April 1, 2019 – end of term in office ••
Mayor David Ryan – Pickering Term: April 1, 2019 – March 12, 2020 ••
Ian Cumming – Pickering (Mayor’s Designate) Term: March 12, 2020 – end of term in office
Mayor Shaun Collier – Ajax Term: April 1, 2019 – end of term in office ••• Chair
Mayor Mitch Panciuk – Belleville Term: April 1, 2019 – end of term in office •••
Mayor Don Mitchell – Whitby Term: April 1, 2019 – end of term in office ••
Ted Baker – Pickering Term: April 1, 2019 – April 1, 2021 ••
Sean O’Dwyer – Whitby Term: April 1, 2019 – April 1, 2021 ••
Dave McGregor – Ajax Term: April 1, 2019 – April 1, 2022 •• Chair •
Paul Murphy (Chair) – Whitby Term: April 1, 2019 – April 1, 2022 • Chair •••
Nicole McNeill – Whitby Term: Sept 4, 2019 – April 1, 2022 ••
Murray Angus – Belleville Term: April 1, 2019 – April 1, 2021 •
Karen Fisher (Chair) – Clarington Term: April 1, 2019 – April 1, 2022 • Chair
Darren MacDonald – Whitby Term: April 1, 2019 – April 1, 2022 •
BOARD AND COMMITTEE REPRESENTATION
2019 BOARD AND MEETING ATTENDANCE
Member Board Meetings Committee Meetings
Patrick McNeil (Chair) (1,2)9/9 13/13
Jim Macpherson (Vice Chair) (1,2)9/9 12/13
Ron Chatterton (1)9/9 4/4
Don Mitchell (1)9/9 4/4
Adrian Foster (1)8/9 4/4
Dave Ryan (1)8/9 4/4
Shaun Collier (1,2)7/9 12/13
Mitch Panciuk (1,2)8/9 12/13
Lesley Rose (1)8/9 4/4
Doug Parker (1)9/9 4/4
Brian Mountford (1,2)9/9 13/13
Member Board Meetings Committee Meetings
Paul Murphy (Chair) (1,2,3)6/6 15/15
Ron Chatterton (1,3)6/6 10/10
Doug Parker (1)6/6 5/5
Ted Baker (2)6/6 5/5
Dave McGregor (2,3)6/6 10/10
Nicole McNeill (1)3/3 2/2
Sean O'Dwyer (2)6/6 5/5
Member of:
1. Audit, Finance & Risk Management Committee2. Ad-hoc Transition and Implementation Committee
3. Nominating Committee (the Committee did not meet in 2019)
* The Board Chair of Elexicon Energy Inc. and Elexicon Group Inc. attend the Elexicon Corporation Board meetings as a compensated guest. * Meeting attendance from April 1, 2019 to December 31, 2019
Member of:
1. Audit, Finance & Risk Management Committee
2. Human Resources, Compensation & Governance Committee3. Ad-hoc Merger Integration Committee
4. Nominating Committee (the Committee did not meet in 2019)
Elexicon Corporation Elexicon Energy Inc
Member Board Meetings
Karen Fisher (Chair)9/9
Jim Macpherson 7/9
Lesley Rose 9/9
Darren MacDonald 9/9
Murray Angus 9/9
Member of:1. Nominating Committee
(the Committee did not meet in 2019)
Elexicon Group Inc
34 ELEXICON CORPORATION > 2019 ANNUAL REPORT Corporate Governance 35
Orono
Ajax
Gravenhurst
Clarington
Brock
Whitby
Belleville
Newcastle
Beaverton
Port Hope
Cannington
Sunderland
Uxbridge
Pickering
Ajax
Port Perry
Service District
LEGEND
ELEXI C O N ENE R G Y
SERVI C E A R EA M A P
Service Area
Bowmanville
CORPORATE OVERVIEW
On April 1, 2019, the former Veridian Corporation
(“Veridian”) amalgamated with the former Whitby Hydro
Energy Corporation (“Whitby Hydro”) to form Elexicon
Corporation. Under the amalgamation transaction, shares
of the former Veridian and Whitby Hydro were exchanged
for the voting common shares of the Corporation. The
amalgamation transaction has been recognized as a
business combination in accordance with IFRS 3, Business
Combinations using the acquisition method with the former
Veridian deemed as the acquirer based on its relative
size compared to that of the former Whitby Hydro. These
consolidated financial statements include the net fair value
of the assets of former Whitby Hydro as at April 1, 2019;
and the net assets of Veridian at its carrying amounts at
April 1, 2019. The aggregate consideration of $110.8 million
for 32,000 common shares, gave rise to additional goodwill
of $55.6 million. When combined with the opening goodwill
balance of $8.7 million at April 1, 2019, the total goodwill
value at December 31, 2019 was $64.3 million.
In addition to the amalgamation of
the former Corporations, Veridian
Connections Inc. merged with
Whitby Hydro Electric Corporation
to become Elexicon Energy Inc.;
and Veridian Energy Inc. merged
with Whitby Hydro Energy Services
Corporation to become Elexicon
Group Inc. Elexicon Energy Inc. and
Elexicon Group Inc. are wholly owned
subsidiaries of Elexicon Corporation.
This merger is expected to increase efficiency in the
electricity distribution sector through the creation of
economies of scale and/or contiguity. It is expected that
benefits to customers through lower costs and equal or
better service levels and increased shareholder value will
result. Under the current regulatory regime, shareholders
of Elexicon will retain the benefit of operating synergies
following the merger for up to ten years. Thereafter, the cost
savings will result in lower distribution rates as compared
to the status quo. The total forecasted net OM&A savings
from the merger over the ten-year rebasing deferral period
approximates $42.1 million. It is anticipated that OM&A cost
savings will be realized largely from labor cost reductions
through staff attrition, some of which has already occurred.
In the short term, merger transition costs have increased
controllable costs per customer however, the longer-term
expectation is for reduced controllable costs per customer
as economies of scale within the larger, merged entity and
labor and non-labor synergies are realized. We are working
towards achieving that goal and have implemented a
process to track synergy savings.
The core business is distribution of electricity and is provided
through Elexicon Corporation’s wholly owned regulated
subsidiary, Elexicon Energy Inc. (“EE”). Additionally, a
small business focused on renewable energy generation is
operated through EE, separate and apart from the regulated
business. EE holds a distribution licence issued by the
Ontario Energy Board (“OEB” or “the Board”) that provides
the local distribution company (“LDC”) the exclusive right
to distribute electricity to all customers within its prescribed
service territories. EE distributes electricity to residential and
business customers throughout a non-contiguous service
area in southern Ontario.
APPENDIX A
Management’s Discussion and Analysis
CONSOLIDATED FINANCIAL STATEMENTS
The following discussion and analysis should be read
in conjunction with the audited consolidated financial
statements and accompanying notes of Elexicon
Corporation (“Elexicon” or the “Corporation”) for the nine
months ended December 31, 2019. The consolidated
financial statements are prepared in accordance with
International Financial Reporting Standards (“IFRS”)
and in effect at December 31, 2019.
BUSINESS OF ELEXICON
Elexicon Corporation is 100% municipally owned by
five shareholders: the Town of Whitby (32.0%), the City
of Pickering (27.88%), the Town of Ajax (21.828%),
the Municipality of Clarington (9.248%) and the City
of Belleville (9.044%). Elexicon Corporation provides,
through affiliated companies, energy-related services
to approximately 169,000 customers located in ten
municipalities in east-central Ontario. Durham Region
has eight of these municipalities and is one of the fastest
growing regions in Ontario. Its residential customer growth
is expected to grow on average by approximately 3%
annually over the next five years. The City of Belleville
and Town of Gravenhurst are also expected to see
significant growth over the next five years.
Elexicon Corporation is a
holding company, 100 per cent owned
by five municipal shareholders.
32.0 per cent
27.88 per cent
21.828 per cent
9.248 per cent
9.044 per cent
APPENDIX A | Management’s Discussion and Analysis III ELEXICON CORPORATION > 2019 ANNUAL REPORT
Balance Net Income
Other
comp. loss
Share Issuance:
Amalgamation
Dividends
paid/accrued
Balance
31-Dec-19
Share Capital $67,260 $ -$ $ 30,432 $ $97,692
Contributed Capital 25 25
Contributed Surplus 79,301 79,301
Accum. other comprehensive loss (316)(500)(816)
Retained Earnings 68,276 7,309 75,585
Dividends (6,988)(6,988)
Total Equity $135,245 $ 7,309 $(500)$109,733 $(6,988)$244,799
EE’s geographic service area is over 787 square kilometres
with an asset base of $579M. The company delivered
approximately 2,636 gigawatt hours of electricity to
customers for the nine months ended December 31, 2019.
EE earns its revenues through charges to its customers
for delivery of electricity through its electricity distribution
network. EE has two distinct rate zones for the former
Veridian and Whitby Hydro service areas with rate years
effective May 1, and Jan 1 respectively. Distribution charges
have two components; a fixed monthly service charge and
a volumetric charge based on electricity consumption or
demand. EE’s rates are regulated and approved by the OEB.
In 2015, the OEB released a policy requiring a transition to
fully fixed monthly service charges for residential customers.
The policy set out that the transition to a fully fixed rate
would occur over four years beginning in 2016. Accordingly,
EE’s 2019 OEB-approved rates reflect the fourth year of
transition to the fully fixed rate for residential customers.
An energy service business is provided through the
wholly owned non-regulated subsidiary, Elexicon Group Inc.
(“EG”). The EG subsidiary’s three main product segments
are energy management and procurement consulting
services; combined heat power (CHP) solutions and
specialty metering. EG is focused on both organic
growth and expanding the business through merger
and acquisition opportunities.
REGULATORY ENVIRONMENT
ELECTRICITY REGULATION
In Ontario, the OEB has powers and responsibilities for
regulation of the electricity industry, including all electricity
distributors such as EE. These include approving or
fixing distribution rates, setting service standards, ensuring
that distribution companies fulfill obligations to connect
and service customers and prescribing conditions of
license requirements. These conditions can include specific
programs and investments such as conservation and demand
management (CDM) programs, record keeping and filing
requirements; connecting and enabling renewable generation
facilities and specific requirements for rate setting.
RATE SETTING
EE’s distribution rates and other regulated charges are
determined to allow shareholders the opportunity to
earn a regulated Return on Equity on deemed shareholder
equity as determined by regulation. Periodically EE
makes applications to the OEB for rate setting under
various mechanisms.
RATE APPLICATIONS
In March 2019, the OEB approved a Price Cap Incentive
Rate-setting application for the Veridian rate zone for
changes to distribution rates effective May 1, 2019.
On a total bill basis, the distribution rates result in a
0.64% increase for the average residential customer and a
0.31% increase for the average small commercial customer.
In December 2018, the OEB approved an Annual Incentive
Rate-setting Index application for the Whitby rate zone
for changes to distribution rates effective January 1, 2019.
On a total bill basis, the distribution rates result in a 0.55%
increase for the average residential customer and a 0.54%
increase for the average small commercial customer.
CONSERVATION AND DEMAND MANAGEMENT (“CDM”)
On March 21, 2019, the Ontario government issued a
directive to the IESO giving the IESO responsibility for
delivering the CDM programs instead of local distribution
companies. As part of implementing is new mandate,
the IESO terminated the Energy Conservation Agreement
(ECA) effective June 20, 2019. EE was required to cease
marketing and business development for all CDM programs
immediately and wind down the delivery of programs.
CDM participation agreements with customers for many
of the CDM programs in effect before April 1, 2019 remain
in effect and EE will remain responsible for its obligations
under such agreements. Participants have until December
31, 2020 to complete the projects. Amounts received from
the IESO for the funding of projects under
the participant agreements but not yet spent, are presented
on the Consolidated Balance Sheets under current liabilities
as deferred revenue. Settlement with the IESO will continue
until all projects are completed and a compliance audit
will be completed thereafter.
The OEB has established a mechanism to compensate
distributors for revenue losses related to the reduction
of load or energy usage associated with the distributors’
CDM activities. During rate setting a forecasted impact
on revenues due to CDM activities is included within rates
and any variance from that forecast is recorded in a
variance account (LRAMVA) to be settled in the future.
The recovery risk associated with LRAMVA claims is
low and these claims have historically been approved
by the OEB.
FINANCIAL HIGHLIGHTS
REVENUES AND NET INCOME
Distribution revenues for the nine months ended
December 31, 2019 were $58.8 million. Customer growth
of 2,393 customers, or 1.4%, since Elexicon’s inception
on April 1, 2019, and a minor adjustment to distribution
rates contributed to expected distribution revenues.
Elexicon’s net income after net movements in regulatory
balances for the nine months ended December 31, 2019
was $7.3 million.
OM&A COSTS AND COSTS PER CUSTOMER
Within its regulated electricity distribution company, EE, the
standard industry measure of controllable cost per customer
is tracked at least annually. In 2019, the EE controllable cost
per customer, calculated on an annualized basis, was $269.
However, in this current period this cost per customer
also includes merger related costs incurred in 2019 of
$3.0 million. These merger related costs are outside of
the basis for the industry measure reflecting costs incurred
to serve customers and when excluded the adjusted
cost per customer is $246.
CAPITAL EXPENDITURES
Total net capital expenditures for 2019 were $32.88 million.
Capital Expenditures (millions) 2019
Distribution System Assets $26.85
Intangible Assets 2.30
Other Assets 3.73
Total 32.88
Of these investments, 81.6% or $26.8 million were for
distribution system assets. These assets include poles,
wires and cables, transformers, substations and meters.
These reflect investments for expanding, replacing and
refurbishing distribution infrastructure to ensure safe
and reliable distribution of electricity to customers
and ensure compliance with statutes and regulations.
Intangible assets acquired in the reporting period include
computer software and intellectual property. Other asset
investments are in facilities, furniture and office equipment,
computer hardware, fleet vehicles and system control
equipment and tools.
SHAREHOLDERS’ EQUITY
AND RETURNS FOR SHAREHOLDERS
In 2019, the shareholders’ opening equity position
increased from $135.2 million, related to the former
Veridian as the acquirer, to $244.8 million, an increase of
$109.6 million. This increase is primarily due to the issuance
of shares related to the amalgamation for $30.4 million,
and recognition of $79.3 million in contributed surplus.
Net income realized after net movements in regulatory
balances was $7.3 million. This is offset by ($0.5) million
due to the re-estimation of employee future benefits
at year- end and recognized as part of the accumulated
other comprehensive loss.
Municipal shareholders benefit from distributions
of Elexicon’s earnings through annual dividends.
As set out in the Shareholder Agreement, the Board
of Directors of Elexicon Corporation reaffirmed a
dividend policy for calendar 2019 with base dividends
of $11.28 million to be pro-rated based on number
of days in the fiscal period. For the nine months ended
December 31, 2019, Elexicon recorded dividends paid
or payable to shareholders of $6.9 million.
III ELEXICON CORPORATION > 2019 ANNUAL REPORT APPENDIX A | Management’s Discussion and Analysis IV
APPENDIX B | Consolidated Financial Statements VI
APPENDIX B
Consolidated Financial Statements of Elexicon Corporation
AND INDEPENDENT AUDITORS’ REPORT THEREON
Period from April 1, 2019 to December 31, 2019
LIQUIDITY AND FINANCING
Elexicon’s debt to capitalization ratio at December 31, 2019
was 43%. The Corporation’s debt includes $89.1 million
in shareholder promissory note debt, as well as an available
committed reducing term facilities of $130.0 million held
with a Canadian chartered bank. Elexicon also has access
to a revolving demand facility of $40 million available for
short-term working capital requirements. These credit
facilities have customary covenants normally associated
with long-term debt, including debt to capitalization and
debt service coverage ratios. Elexicon is in compliance
with all bank covenants as at December 31, 2019.
On April 1, 2019, the Dominion Bond Rating Service
(“DBRS”) discontinued the Issuer Rating of Veridian
Corporation at “A” with a stable trend. This rating action
follows the merger between Veridian Corporation and
Whitby Hydro Energy Corporation on April 1, 2019,
to form Elexicon Corporation. DBRS concurrently assigned
an Issuer Rating of “A” with a stable trend to Elexicon.
The DBRS report noted the following:
1) Elexicon’s business risk assessment is underpinned
by the reasonable regulatory regime in Ontario.
2) Veridian and Whitby Hydro were both regulated
by the Ontario Energy Board under the same
regulatory framework.
3) Elexicon is also expected to benefit from operating
efficiencies and cost savings, especially given that
Whitby Hydro’s franchise area was contiguous
with Veridian’s.
4) Elexicon’s financial risk assessment is also expected
to be in line with the assigned rating. Veridian’s key
credit metrics had consistently been strong for the
rating category, and Whitby Hydro’s metrics would
have been supportive of the “A” rating category.
5) As no debt will be issued for the merger, Elexicon’s
key credit metrics are expected to be in line with
the “A” rating.
Elexicon’s operating activities and these credit facilities
are the primary sources of funds for liquidity and capital
resource requirements. These resources are required for:
• capital expenditures to maintain, improve and
modernize the electricity distribution system;
• servicing and repayment of debt;
• purchased power expense;
• prudential requirements;
• other investing activities;
• and dividends.
Management will continue to assess Elexicon’s financial
capital requirements and capacity as the capital needs
evolve to meet all stated corporate strategic objectives.
Subsequent to December 31, 2019, the Covid-19 outbreak
was declared a pandemic by the World Health Organization.
The Covid-19 pandemic has caused material disruption to
businesses resulting in an economic slowdown. The current
challenging economic conditions may lead to adverse changes
in cash flows, working capital levels and/or debt balances,
which may also impact Elexicon’s operating results and
financial position in the future. The situation is dynamic
and the ultimate duration and magnitude of the impact
on the economy and the Corporation’s business are not
known at this time.
V ELEXICON CORPORATION > 2019 ANNUAL REPORT
APPENDIX B | Consolidated Financial Statements VIIIVII ELEXICON CORPORATION > 2019 ANNUAL REPORT
KPMG LLP
100 New Park Place Suite 1400
Vaughan ON L4K 0J3
Telephone (905) 265-5900
Fax (416) 777-8818
www.kpmg.ca
Independent auditors’ Report
To the Shareholders of Elexicon Corporation
Opinion
We have audited the consolidated financial statements
of Elexicon Corporation (the Entity), which comprise:
• the consolidated balance sheet as at December 31, 2019
• the consolidated statement of comprehensive income
for the nine months then ended
• the consolidated statement of changes in equity
for the nine months then ended
• the consolidated statement of cash flows
for the nine months then ended
• and notes to the consolidated financial statements,
including a summary of significant accounting policies
(Hereinafter referred to as the “financial statements”).
In our opinion, the accompanying financial statements
present fairly, in all material respects, the consolidated
balance sheet of the Entity as at December 31, 2019, and
its consolidated financial performance and its consolidated
cash flows for the nine months then ended in accordance
with International Financial Reporting Standards (IFRS).
Basis for Opinion
We conducted our audit in accordance with Canadian
generally accepted auditing standards. Our responsibilities
under those standards are further described in the
“Auditors’ Responsibilities for the Audit of the
Financial Statements” section of our auditors’ report.
We are independent of the Entity in accordance with
the ethical requirements that are relevant to our audit
of the financial statements in Canada and we have
fulfilled our other ethical responsibilities in accordance
with these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Other Information
Management is responsible for the other information.
Other information comprises:
• the information, other than the financial statements
and the auditors’ report thereon, included in
Management’s Discussion and Analysis.
Our opinion on the financial statements does not cover
the other information and we do not and will not express
any form of assurance conclusion thereon.
In connection with our audit of the financial statements,
our responsibility is to read the other information identified
above and, in doing so, consider whether the other
information is materially inconsistent with the financial
statements or our knowledge obtained in the audit and
remain alert for indications that the other information
appears to be materially misstated.
We obtained the information, other than the financial
statements and the auditors’ report thereon, included in
Management’s Discussion and Analysis as at the date
of this auditors’ report.
If, based on the work we have performed on this
other information, we conclude that there is a material
misstatement of this other information, we are required
to report that fact in the auditors’ report.
We have nothing to report in this regard.
Responsibilities of Management and Those Charged
with Governance for the Financial Statements
Management is responsible for the preparation and
fair presentation of the financial statements in accordance
with International Financial Reporting Standards (IFRS),
and for such internal control as management determines
is necessary to enable the preparation of financial
statements that are free from material misstatement,
whether due to fraud or error.
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.
In preparing the financial statements, management is
responsible for assessing the Entity’s ability to continue
as a going concern, disclosing as applicable, matters
related to going concern and using the going concern
basis of accounting unless management either intends
to liquidate the Entity or to cease operations, or has
no realistic alternative but to do so.
Those charged with governance are responsible for
overseeing the Entity’s financial reporting process.
Auditors’ Responsibilities for the
Audit of the Financial Statements
Our objectives are to obtain reasonable assurance
about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error,
and to issue an auditors’ report that includes our opinion.
Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance
with Canadian generally accepted auditing standards will
always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate,
they could reasonably be expected to influence the
economic decisions of users taken on the basis of
the financial statements.
As part of an audit in accordance with Canadian
generally accepted auditing standards, we exercise
professional judgment and maintain professional
skepticism throughout the audit.
We also:
• Identify and assess the risks of material misstatement
of the financial statements, whether due to fraud or error,
design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient
and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as
fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant
to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness
of the Entity’s internal control.
• Evaluate the appropriateness of accounting policies
used and the reasonableness of accounting estimates
and related disclosures made by management.
• Conclude on the appropriateness of management’s use
of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions
that may cast significant doubt on the Entity’s ability
to continue as a going concern. If we conclude that
a material uncertainty exists, we are required to
draw attention in our auditors’ report to the related
disclosures in the financial statements or, if such
disclosures are inadequate, to modify our opinion.
Our conclusions are based on the audit evidence
obtained up to the date of our auditors’ report.
However, future events or conditions may cause
the Entity to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content
of the financial statements, including the disclosures,
and whether the financial statements represent the
underlying transactions and events in a manner that
achieves fair presentation.
• Communicate with those charged with governance
regarding, among other matters, the planned scope
and timing of the audit and significant audit findings,
including any significant deficiencies in internal control
that we identify during our audit.
• Obtain sufficient appropriate audit evidence regarding
the financial information of the entities or business
activities within the group Entity to express an opinion
on the financial statements. We are responsible
for the direction, supervision and performance of
the group audit. We remain solely responsible for
our audit opinion.
Chartered Professional Accountants,
Licensed Public Accountants
Vaughan, Canada
March 27, 2020
APPENDIX B | Consolidated Financial Statements XIX ELEXICON CORPORATION > 2019 ANNUAL REPORT
Consolidated Balance Sheet
(In thousands of dollars)
Consolidated Statement of Comprehensive Income
(In thousands of dollars)December 31, 2019 Notes
Assets:
Current assets:
Cash $7,089
Accounts receivable 3 71,672
Materials and supplies 4,419
Income taxes recoverable 303
Prepaid expenses 698
Other assets 752
Total current assets 84,933
Non-current assets:
Property, plant and equipment 4, 23 436,629
Intangible assets 5, 23 5,277
Goodwill 2 ,5 64,348
Deferred tax assets 8 121
Other assets 13(b)135
Total non-current assets 506,510
Total assets 591,443
Regulatory balances 7 15,145
Total assets and regulatory balances $606,588
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities 9, 19(b)$62,155
Short-term debt 10 6,800
Deferred revenue 11 1,724
Deposits and developer obligations 12 15,354
Long-term debt 14 905
Other liabilities 20 475
Total current liabilities 87,413
Non-current liabilities:
Long-term debt 14 180,360
Deferred contributions 15 74,723
Employee future benefits 16 9,798
Unrealized loss on interest rate swaps 24(e)3,144
Deferred tax liabilities 8 2,638
Other liabilities 20 1,105
Total non-current liabilities 271,768
Total liabilities 359,181
Shareholders' equity:
Share capital 17 97,692
Contributed capital 25
Contributed surplus 79,301
Accumulated other comprehensive loss (816)
Retained earnings 68,597
Total shareholders’ equity 244,799
Total liabilities and equity 603,980
Regulatory balances 7 2,608
Contingencies and guarantees 19
Total liabilities, equity and regulatory balances $606,588
Period from April 1, 2019 to December 31, 2019 Notes
Revenue:
Commodity $305,445
Commodity cost (311,627)
(6,182)
Distribution revenue 58,759
Other income 21 1,227
53,804
Expenses:
Operating and maintenance 22 12,185
Administration 22 22,880
Depreciation and amortization 6 14,130
49,195
4,609
Finance income 348
Finance costs 14 (4,736)
Unrealized loss on interest rate swaps (72)
(4,460)
Income before income taxes 149
Income tax expense 8 (2,020)
Loss for the period (1,871)
Net movements in regulatory balances, net of tax:7
Net movements in regulatory balances 7,404
Income tax on net movements in regulatory balances 1,776
9,180
Net income after net movements in regulatory balances 7,309
Other comprehensive loss, net of tax:
Remeasurements of employee future benefits (500)
Total comprehensive income $6,809
See accompanying notes to the consolidated financial statements.
On behalf of the Board:
See accompanying notes to the consolidated financial statements.
Chair, Board of Directors Chair, Audit and Risk Management Committee
APPENDIX B | Consolidated Financial Statements XIIXI ELEXICON CORPORATION > 2019 ANNUAL REPORT
Consolidated Statement of Cash Flows
(In thousands of dollars)
Consolidated Statement of Changes in Equity
(In thousands of dollars)
Period from April 1, 2019 to December 31, 2019 Notes
Cash provided by (used in):
Operating activities:
Net income after net movements in regulatory balances $7,309
Net movements in regulatory balances (9,180)
Adjustments:14,823
Depreciation and amortization 6 (1,044)
Amortization of deferred contributions 1,251
Loss on disposal/retirement of property, plant and equipment 187
Employee future benefits 72
Unrealized loss on interest rate swaps (348)
Finance income 4,736
Finance costs 2,020
Income tax expense 1,297
Other assets/liabilities 26,652
Contributions received 2,050
Deposits and developer obligations (392)
Income taxes paid 1,126
Income taxes received
50,559
Changes in non-cash operating working capital 23 (9,060)
Net cash provided by operating activities 41,499
Financing activities:
Interest received 348
Repayment of long-term debt (2,164)
Proceeds from long-term and short-term debt 26,800
Share redemption (1,025)
Dividends paid 18 (5,591)
Interest paid (4,736)
Net cash provided by financing activities 13,632
Investing activities:
Additions to property, plant and equipment 23 (52,709)
Additions to intangible assets 23 (1,029)
Proceeds from disposal of property, plant and equipment 43
Net cash used in investing activities (53,695)
Increase in cash 1,436
Cash, beginning of period 5,653
Cash, end of period $7,089
Period from April 1, 2019 to December 31, 2019
Balance,
April 1,
2019
Net income
after net
movements
in regulatory
balances
Other
comprehensive
loss
Issuance
of shares
related to
amalgamation
Dividends
paid/accrued
Balance,
December 31,
2019
Share capital $67,620 $–$–$30,432 $–$97,692
Contributed capital 25 ––––25
Contributed surplus –––79,301 –79,301
Accumulated other comprehensive loss (316)–(500)––(816)
Retained earnings 68,276 7,309 –––75,585
Dividends ––––(6,988)(6,988)
Total equity $135,245 $7,309 $(500)$109,733 $(6,988)$244,799
See accompanying notes to the consolidated financial statements.
See accompanying notes to the consolidated financial statements.
APPENDIX B | Consolidated Financial Statements XIVXIII ELEXICON CORPORATION > 2019 ANNUAL REPORT
Elexicon Corporation (the “Corporation”) was incorporated
on April 1, 2019 under the Business Corporations Act
(Ontario) by amalgamation (note 2) of the former entities:
Veridian Corporation (“Veridian”) and Whitby Hydro
Energy Corporation (“Whitby Hydro”). The Corporation
was formed to conduct electricity distribution and
non-regulated utility service ventures through its
subsidiaries. The Corporation’s non-regulated ventures
include: solar electricity generation facilities and systems,
energy management and procurement consulting services,
as well as combined heat and power solutions.
The Corporation’s registered office is located at
55 Taunton Road East, Ajax, Ontario L1T 3V3.
For accounting purposes, Veridian was deemed the acquirer
under the Amalgamation Transaction. Consequently the
opening balances in these consolidated financial statements
are the balances of former Veridian as at March 31, 2019.
1. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of consolidation:
These consolidated financial statements have
been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards
Board (“IASB”) and include the accounts of the
Corporation and its subsidiaries, Elexicon Energy
Inc. (“EEI”) and Elexicon Group Inc. (“EGI”) from
the date that control commences until the date
that control ceases. The Corporation controls
a subsidiary if it is exposed, or has rights, to
variable returns from its investment in the
subsidiary and has the ability to affect those
returns through its power over the subsidiary.
All intercompany accounts and transactions
have been eliminated on consolidation.
These consolidated financial statements
are presented in Canadian dollars, which
is the Corporation’s functional currency.
The consolidated financial statements have
been prepared on the historical cost basis, except
for employee future benefits and certain financial
instruments that are measured at fair value.
(b) Regulated environment:
EEI is an electricity distributor licensed by
the Ontario Energy Board (the “OEB”).
It is regulated by the OEB under authority of
the Ontario Energy Board Act, 1998. The OEB
is charged with the responsibility of approving
or setting rates for the transmission and
distribution of electricity and the responsibility
of ensuring that distribution companies fulfill
obligations to connect and service customers.
The Ontario Energy Board Act, 1998 sets
out guiding objectives for the OEB:
• To protect the interests of consumers with
respect to prices and the adequacy, reliability
and quality of electricity service;
• To promote economic efficiency and cost
effectiveness in the generation, transmission,
distribution, sale and demand management
of electricity and to facilitate the maintenance
of a financially viable electricity industry;
• To promote electricity conservation and
demand management in a manner consistent
with the policies of the Government of Ontario,
including having regard to the consumer’s
economic circumstances;
• To facilitate the implementation of a smart grid
in Ontario; and
• To promote the use and generation of
electricity from renewable energy sources
in a manner consistent with the policies
of the Government of Ontario, including
the timely expansion or reinforcement of
transmission systems and distribution
systems to accommodate the connection
of renewable energy generation facilities.
EEI is responsible for charging its customers
the following revenues:
• Commodity revenue - The commodity revenue
is pass-through revenue for amounts payable
to third parties. This revenue represents the
costs of electricity consumed by the customers
and passed through to the Independent
Electricity System Operator (“IESO”).
It also includes global adjustment revenue
for non-regulated price plan consumers.
• Wholesale market services (“WMS”) revenue -
The WMS revenue represents the recovery of
wholesale market costs for the IESO to operate
the electricity market and maintain the system.
This revenue is passed through to the IESO.
• Retail transmission service rate (“RTSR”)
revenue - The RTSR revenue represents
the recovery of costs incurred for transmission
of electricity to local distribution networks.
This revenue is passed through to operators
of transmission facilities.
• Electricity distribution revenue - The electricity
distribution revenue represents the recovery of
costs incurred by EEI in delivering the electricity
to its customers.
Electricity distribution rates:
Electricity distribution rates include both fixed
monthly rates per customer and variable rates
per kWh usage or kW demand. In 2015, the OEB
released a policy that for residential electricity
customers only, distribution delivery costs will be
recovered through a monthly, fixed service charge.
The policy set out that the transition to a fully
fixed rate would occur over four years beginning
in 2016. The fixed rate will increase gradually and
the variable rate will decline. These distribution
rates are subject to regulation by the OEB.
For the distribution revenue, the Corporation
typically files a Cost of Service (“COS”) rate
application with the OEB approximately every
five years for each of the rate zones. The COS
filing timeline may be extended if the Corporation
is able to maintain good reliability and operations
under the existing approved rate structure, and
has either received approval by the OEB for such
a deferral or has elected to follow the Annual
Incentive Rate Setting Index (“Annual
IR Index”) approach. The COS rates are
determined through a review of the forecasted
annual amount of operating and capital
expenditures, debt and shareholder’s equity
required to support the Corporation’s business.
The Corporation 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; rates are
approved based upon this review, including
any revisions resulting from the review.
In intervening years, the OEB regulates electricity
rates for distributors through three different rate
setting options: Price Cap Incentive Rate-setting,
Custom Incentive Rate-setting, and Annual
Incentive Rate-setting Index.
The Corporation has two distinct rate zones
for Veridian and Whitby with rate years effective
May 1, and Jan 1 respectively. The Corporation’s
Veridian rate zone follows the Price Cap Incentive
Rate-setting method. The Whitby rate zone
shifted to the Annual Incentive Rate- setting
Index in 2018 as required by the OEB when a
distributor requests deferral of a cost of service
rate application for an extended period of time.
Both options set a distributor’s rates through
a formula-based mechanism using a price cap
index, but apply different stretch factors.
Prior to the merger, Veridian rate zone last filed
a COS application in October 2013 for rates
effective May 1, 2014. Whitby rate zone filed
a COS in January 2010 for rates effective
May 1, 2010, and through settlement received
approval for rates effective January 1, 2011.
Pursuant to the completion of amalgamation
on April 1, 2019 after receiving OEB approval,
the Corporation intends to defer a COS rate
application for a period of ten years from
the date of the merger closing.
Notes to the Consolidated Financial Statements
(In thousands of dollars)
Period from April 1, 2019 to December 31, 2019
APPENDIX B | Consolidated Financial Statements XVIXV ELEXICON CORPORATION > 2019 ANNUAL REPORT
(c) Revenue recognition:
(i) Electricity distribution and sale:
Revenue from the sale of electricity is
recognized on an accrual basis driven by
cyclical billings based on electricity usage
billed at OEB-approved distribution rates.
Revenue from the sale of electricity includes
an estimate of unbilled revenue accrued in
respect of electricity delivered but not yet
billed at period end. Unbilled revenue is
calculated based on OEB-approved rates
for electricity consumption and electricity
demand driven by number of days between
a customer’s last meter reading in the period
and December 31. Actual billed revenue could
differ from estimates due to energy demand,
weather, line losses and changes in the
composition of customer classes.
The difference between the amounts
charged to customers, based on regulated
rates, and the corresponding cost of electricity
and non-competitive electricity service costs
billed monthly by the IESO, is recorded as a
settlement variance. In accordance with
IFRS 14, Regulatory Deferral Accounts
(“IFRS 14”), which permits a rate-regulated
entity to continue to recognize and measure
regulatory deferral account balances in
accordance with its previous generally
accepted accounting principles (“GAAP”),
this settlement variance is presented
within regulatory balances on the
consolidated balance sheet and within
net movements in regulatory balances,
net of tax on the consolidated statements
of comprehensive income.
Distribution revenue is recorded based on
OEB-approved distribution rates to recover the
costs incurred by the Corporation in delivering
electricity to customers. Distribution revenue
also includes revenue related to collection of
specific OEB-approved rate riders.
The carrying amount of accounts receivable
is measured at amortized cost and reduced
through an allowance for doubtful accounts
equal to the lifetime expected credit losses
to be recognized at the reporting date.
(ii) Other income:
Other income, which includes revenue from
electricity distribution-related services, is
recognized as services are rendered. Capital
contributions received from electricity
customers to construct or acquire property,
plant and equipment (“PP&E”) for the purpose
of connecting a customer to a network fall
within the scope of IFRS 15, Revenue from
Contracts with Customers. The contributions
are received to obtain a connection to the
distribution system in order to receive ongoing
access to electricity. The Corporation has
concluded that the performance obligation
is the supply of electricity over the life of
the relationship with the customer which is
satisfied over time as the customer receives
and consumes the electricity. Revenue is
recognized on a straight-line basis over the
useful life of the related asset.
Developers are required to contribute towards
the capital cost of construction of distribution
assets in order to provide ongoing service.
The developer is not a customer and therefore
the contributions are scoped out of IFRS 15,
Revenue from Contracts with Customers.
Cash contributions, received from developers
are recorded as deferred contributions.
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
contributions. The deferred contributions,
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
Conservation and Demand Management
(“CDM”) programs are recognized as income
in the period when there is reasonable
assurance that the program conditions
have been satisfied and the payment
will be received.
(iii) Deferred revenue:
Amounts received in advance in relation
to the IESO supported CDM initiatives,
Affordability Fund Trust from the
Government of Ontario and others are
presented as deferred revenue (note 11).
(d) Rate setting:
The electricity distribution rates of the Corporation
are subject to regulation by the OEB and these
rates are based on a revenue requirement that
includes a rate of return of 9.36% for the Veridian
rate zone (effective May 1, 2014), and 9.66% for
the Whitby rate zone (effective January 1, 2011).
The Corporation’s 2019 rates were approved by
the OEB under a Price Cap Incentive Rate- setting
application for Veridian rate zone, and an Annual
Incentive Rate-setting Index for the Whitby
rate zone. The approved OEB rate orders were
transferred to the Corporation upon completion
of the amalgamation transaction effective April 1
(Note 2). During the year, the Veridian rate zone
implemented OEB approved rates effective May 1.
The Whitby rate zone has a January 1 rate year.
On January 30, 2014, the IASB issued an interim
standard, IFRS 14, to enhance the comparability
of financial reporting by entities that are engaged
in rate-regulated activities. IFRS 14 describes
regulatory deferral account balances as amounts
of expense or income that would not be recognized
as assets or liabilities in accordance with other
standards, but that qualify to be deferred in
accordance with this standard because the
amount is included, or is expected to be included,
by the rate regulator in establishing the prices
that an entity can charge to customers for
rate-regulated goods or services.
The scope of this standard is limited to first-time
adopters of IFRS and will remain in force until
either repealed or replaced by permanent guidance
on rate-regulated accounting from the IASB.
The interim standard introduced new presentation
requirements and permitted first-time adopters
to continue to recognize amounts related to
rate regulation in accordance with Chartered
Professional Accountants of Canada Handbook
Part V - Pre-changeover Accounting Standards
(subsequently referred to as “previous Canadian
GAAP”) requirements and was effective from
January 1, 2016, with early application permitted.
The Corporation’s former entities elected to early
adopt IFRS 14 in their 2015 consolidated financial
statements under IFRS, with a transition date of
January 1, 2014 and determined that regulatory
balances arising from rate-regulated activities
qualify for the application of regulatory accounting
treatment in accordance with IFRS 14 and the
accounting principles prescribed by the OEB
in the “Accounting Procedures Handbook for
Electricity Distributors”.
The IASB’s comprehensive project on rate-
regulated activities is addressing whether IFRS
should require entities operating in rate-regulated
environments to recognize assets and liabilities
arising from the effects of rate regulation.
In December 2018, the IASB tentatively decided
on presentation & disclosure requirements under
the new accounting model for ‘defined rate
regulation’ and its interaction with IFRS standards.
The OEB has the general power to include or
exclude costs, revenues, losses or gains in the
rates of a specific period, resulting in a change
in the timing of accounting recognition from that
which would have applied in an unregulated
company. Such change in the timing involves the
application of rate-regulated accounting, giving
rise to the recognition of regulatory balances.
The Corporation’s regulatory debit balances
represent certain amounts receivable from future
customers and costs that have been deferred for
accounting purposes because it is probable that
they will be recovered in future rates. In addition,
the Corporation has recorded regulatory credit
balances, which represent obligations that are
expected to be refunded to customers. The netting
of regulatory debit and credit balances is not
permitted under IFRS 14.
(e) Cash and cash equivalents:
Cash and cash equivalents are defined as cash
and bank term deposits or equivalent financial
instruments with original maturities upon issue
of less than 90 days.
Cash and cash equivalents are measured
at amortized cost.
APPENDIX B | Consolidated Financial Statements XVIIIXVII ELEXICON CORPORATION > 2019 ANNUAL REPORT
(f) Materials and supplies:
Materials and supplies, which consists of parts
and supplies acquired for internal construction
or consumption, are valued at the lower of cost
and net realizable value. Cost is determined on a
weighted moving average basis.
Any write-downs taken on materials and supplies
are reversed if and when net realizable value
subsequently recovers. Major spare parts and
standby equipment are recorded as part of PP&E
and depreciated once they are available for use.
No amounts were written down due to
obsolescence in the period from April 1, 2019
to December 31, 2019.
(g) Property, plant and equipment:
PP&E purchased or constructed by the Corporation
are recorded at cost less accumulated depreciation.
Costs include contracted services, materials,
labour, engineering costs, directly attributable
overheads and capitalized borrowing costs during
construction when applied. Subsequent costs
are capitalized only when it is probable that the
future economic benefits associated with the costs
will flow to the Corporation and the costs can be
measured reliably. Certain assets may be acquired
or constructed with financial assistance in the form
of contributions from developers or customers.
These contributions are used to connect customers
to the Corporation’s network and provide them
with ongoing access to the supply of electricity.
The contributions are recognized as deferred
contributions and amortized into other income
over the life of the related asset.
Upon energization of residential subdivision assets,
a developer liability is accrued (as per the offer
to connect contract) for the amounts payable
to the developer for the Corporation’s investment
in the subdivision.
Depreciation of PP&E is charged to net income on
a straight-line basis over their estimated service
lives at the following annual rates:
Land rights 2.0%
Buildings 2.0% - 6.7%
Distribution station equipment 1.7% - 4.0%
Transmission and distribution system 1.7% - 10.0%
Meters 4.0% - 6.7%
Office equipment 10.0%
Computer hardware 20.0% - 33.3%
Vehicle fleet 6.7% - 16.7%
Renewable power generation 4.0%
The depreciation method, useful lives, and residual
values are reviewed each financial period-end
with the effect of any changes in estimate being
accounted for on a prospective basis. Estimated
useful lives reflect the best estimate and actual lives
of assets may vary from estimated useful lives.
Construction in progress comprises PP&E under
construction, assets not yet placed into service
and pre-construction activities related to specific
projects expected to be constructed.
Construction in progress, land rights, major spare
parts and standby equipment are not subject
to depreciation until these assets are available
for use. Land is not depreciated.
Borrowing costs directly attributable to the
acquisition, construction or development of
qualifying assets that necessarily take a substantial
period of time to prepare for their intended use
are capitalized, until such time as the assets are
substantially ready for their intended use.
The weighted average cost of long-term
borrowings is used as the capitalization rate.
Qualifying assets are considered to be those that
take in excess of six months to construct.
When portions of the Corporation’s distribution
facilities are replaced or relocated, the associated
costs less the salvage value of any material
returned to materials and supplies are capitalized
to the new asset. Depreciation is then recorded
at the same rate used for the original asset.
Some of the Corporation’s distribution assets,
particularly those located on unowned easements
and rights-of-way, may have decommissioning
obligations, constructive or otherwise.
The majority of the Corporation’s easements
and rights-of-way are subject to extension or
renewal and are expected to be available for
a perpetual duration. As the Corporation expects
to use the majority of its installed assets into
perpetuity, no removal date can be determined and
consequently no reasonable estimate of
the fair value of such asset retirement obligations
can be made. If, at some future date, it becomes
possible to estimate the fair value cost of
removing the assets that the Corporation
is legally or constructively required to remove,
a related asset retirement obligation will be
recognized at that time.
Assets are derecognized at their carrying value
upon retirement or when no remaining economic
benefits are expected from its use. The related
gain or loss arising on the disposal or retirement
is determined as the difference between the
proceeds from sale and the carrying value of the
asset and is included in net income for the related
fiscal period. The cost of replacing a part of
an item of PP&E is recognized as an addition to
the carrying amount of the asset and the carrying
amount of the replaced part is derecognized.
The cost of the day-to-day servicing of PP&E
assets is recognized in net income as incurred.
(h) Intangible assets:
Intangible assets acquired, or internally developed,
are recognized initially at cost and comprised
purchased software, labour, consulting costs,
directly attributable overheads and capitalized
borrowing costs, if applicable. Intangible assets
qualifying for capitalized borrowing costs are
considered to be those assets that take in
excess of six months to develop. Following initial
recognition, intangible assets are carried
at cost, net of any accumulated amortization
and accumulated impairment losses.
Amortization of intangible assets is provided
on a straight-line basis over the estimated service
lives at the following annual rates:
Application software and intellectual property 33.3%
Internally generated software 20.0%
Software in development is not subject to
amortization. The above-noted amortization rates
apply to assets held within the application software
and other intangible asset grouping (note 5).
The amortization method, useful lives, and residual
values are reviewed each financial period-end
with the effect of any changes in estimate being
accounted for on a prospective basis. Estimated
useful lives reflect the best estimate and actual
lives of assets may vary from estimated useful lives.
(i) Goodwill:
Goodwill relates to the cost of acquired local
distribution companies in excess of fair value
of the net identifiable assets purchased and is
evaluated for impairment at each reporting date.
Goodwill is measured at cost and is not amortized.
Impairment testing for goodwill is always carried
out in the context of the cash generating unit
(“CGU”) as goodwill does not generate cash flows
independently of other assets. The Corporation
has determined that goodwill is not impaired.
(j) Financial assets measured at amortized cost:
A loss allowance for expected credit losses on
financial assets measured at amortized cost
is recognized at the reporting date. The loss
allowance is measured at an amount equal to
the lifetime expected credit losses for that asset.
(k) Impairment of non-financial assets:
The carrying costs of non-financial assets: PP&E,
intangible assets and goodwill are reviewed for
impairment at each reporting date to determine
whether there is any indication of impairment,
in which case, the asset’s recoverable amount
is estimated.
For the regulated business, the carrying costs of
most of the Corporation’s non-financial assets are
included in rate base (the aggregate of approved
investment in PP&E and intangible assets,
excluding work in progress, less accumulated
depreciation and amortization and unamortized
capital contributions from customers, plus an
allowance for working capital) where they earn
an OEB-approved rate of return. Asset carrying
values and the related return are recovered
through approved rates. As a result, such assets
are only tested for impairment in the event that
the OEB disallows recovery, in whole or in part,
or if such a disallowance is judged to be probable.
APPENDIX B | Consolidated Financial Statements XXXIX ELEXICON CORPORATION > 2019 ANNUAL REPORT
Impairment is tested at the CGU level, which is the
smallest identifiable group of assets that generates
independent cash flows. The Corporation has
only one CGU, the regulated business unit.
An impairment loss is recognized if the carrying
amount of an asset or CGU exceeds its recoverable
amount and is recognized in net income.
(l) Customer deposits and advance payments:
Customers may be required to post security deposits
to obtain electricity or other services. Interest is
paid on customer deposits at rates prescribed by
the OEB: this is currently interest at Canada’s prime
business rate less 2.00%, which was 1.95% per
annum as of December 31, 2019. The Corporation
receives advance payments from customers in
relation to construction projects and recognizes
them as a liability until the projects are completed.
Customer deposits are measured at amortized cost.
(m) Employee benefits:
(i) Short-term employee benefits:
The Corporation provides short-term
employee benefits, such as: salaries,
employment insurance, short-term
compensated absences, health and dental
care. These benefits are recognized as the
related service is rendered and is measured on
an undiscounted basis. Short-term employee
benefits are recognized as an expense unless
they qualify for capitalization as part of the
cost of an item of materials and supplies,
PP&E, intangible assets or recoverable
projects. A liability is recognized in respect
of any unpaid short- term employee benefits
for services rendered in the reporting period.
The Corporation recognizes a current liability
for the expected cost of accumulated non-
vested sick leave benefits at the end of the
reporting period. The assumptions used for
estimating the amount of the liability are
analogous to those used in the valuation of
employee future benefits.
(ii) Defined benefit pension plan:
The Corporation accounts for its
participation in the Ontario Municipal
Employees Retirement System (“OMERS”),
a multi-employer public sector pension fund,
as a defined contribution plan.
OMERS plan is a multi-employer defined
benefit plan providing pension to employees
of municipalities, local boards, public
utilities and school boards. It is funded
by equal contributions from participating
employers and employees, as well as by
investment earnings of the plan. Each year,
an independent actuary determines the plan’s
funded status by comparing the actuarial
value of invested assets to the estimated
present value of all pension benefits that
members have earned to date. OMERS
does not track its investments by employer
and actuarial assumptions are developed
based on the entire plan membership on a
commingled basis and, therefore, information
for individual plans cannot be determined.
As a result, the Corporation accounts for the
OMERS plan as a defined contribution plan
and contributions to the plan are recognized
as an employee benefit expense.
(iii) Employee future benefits:
The Corporation provides all employees with
life insurance benefits, as well as a Health
Care Spending Account (“HCSA”) for those
employees from former Veridian retiring post
April 1, 2011 having completed a minimum
of 20 years of service with the Corporation.
This benefit is available until age sixty-five.
Management employees from former Whitby
who retire with a minimum of 10 years of
service are eligible for post-retirement health
and dental benefits. All union employees from
former Whitby who retire with a minimum
of 10 years of service are eligible for post-
retirement health benefits.
The Corporation actuarially determines the
cost of employee future benefits offered
to employees. These unfunded plans are
accounted for as defined benefit obligations.
The Corporation applies the projected
benefit method, prorated on service and
based on management’s best estimates
and assumptions. Under this method,
the projected employee future benefits is
deemed to be earned on a pro rata basis over
the periods of service in the attribution period
commencing at date of hire, and ending
at the earliest age the employee could retire
and qualify for benefits.
Remeasurements of the net benefit liability
comprise actuarial gains or losses that are
recognized in the consolidated balance
sheet with a credit or charge to other
comprehensive income or loss. Current service
costs are allocated to operating, maintenance
and administration expenses and to capital
recognized in the consolidated balance sheet.
(n) Income taxes:
Under the Electricity Act, 1998, the Corporation
and EEI are required to make payments in lieu of
corporate income taxes (“PILs”) to the Ontario
Electricity Financial Corporation. These payments
are calculated in accordance with the rules for
computing income and other relevant amounts
contained in the Income Tax Act (Canada) and
the Corporations Tax Act (Ontario) as modified by
the Electricity Act, 1998, and related regulations.
References in these consolidated financial
statements to income taxes are with respect
to PILs for the Corporation and EEI.
The Corporation uses the asset and liability
method of accounting for the tax effect of
temporary differences between the carrying
amount and the tax bases of the Corporation’s
assets and liabilities. Temporary differences arise
when the realization of an asset or the settlement
of a liability would give rise to either an increase
or decrease in the Corporation’s income taxes
payable in the period or a later period.
Deferred tax assets and liabilities are measured
using enacted or substantively enacted tax rates,
at the reporting date, expected to apply to taxable
income in the periods in which those temporary
differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the
consolidated statement of comprehensive income
in the period that includes the date of enactment
or substantive enactment.
The carrying amount of deferred tax assets is
reviewed at each balance sheet date and reduced
to the extent that it is no longer probable that the
related tax benefits will be realized. Previously
unrecognized deferred tax assets are reassessed
at each balance sheet date and are recognized
to the extent that it is probable that future
taxable profits will be available against which the
temporary difference can be utilized. A valuation
allowance is recorded against a deferred tax asset
to the extent that the Corporation determines that
it is probable that a deferred income tax asset will
not be realized in the future.
Where the Corporation expects the deferred
taxes to be recovered from or refunded to
customers as part of the rate setting process,
the deferred income tax assets and liabilities
result in regulatory deferral debit balances or
credit balances, respectively. Deferred tax assets
that are not included in the rate-setting process
result in a deferred tax provision that is charged
or credited to the consolidated statements
of comprehensive income.
(o) Provisions and contingencies:
The Corporation recognizes provisions if,
as a result of a past event, there is a present
legal or constructive obligation that can be
measured 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,
where appropriate, the risks specific to the liability.
The evaluation of the likelihood of the contingent
events requires judgment by management as to
the probability of exposure to potential gain or loss.
Actual results could differ from these estimates.
(p) Leases
The Corporation allocates the consideration in the
contract to each lease component on the basis of
their relative stand-alone prices. The Corporation
recognizes a right of use asset and a lease liability
at the lease commencement date. The right of use
asset is initially measured at cost, which comprises
the initial amount of the lease liability adjusted
for any lease pre- payments, plus any initial
direct costs incurred and an estimate of costs
to dismantle and remove the underlying asset or
to restore the underlying asset or the site on which
it is located, less any lease incentives received.
The right of use asset is subsequently measured
at cost less accumulated depreciation and
accumulated impairment losses and adjusted
for certain re-measurements of the lease liability.
The right of use asset is depreciated using the
straight-line method over the shorter of the lease
term and the estimated remaining useful life
of the asset.
APPENDIX B | Consolidated Financial Statements XXIIXXI ELEXICON CORPORATION > 2019 ANNUAL REPORT
The lease liability is initially measured at the
present value of the remaining lease payments,
discounted using the interest rate implicit in the
lease, or if that rate cannot be readily determined,
the Corporation’s incremental borrowing rate.
Generally, the Corporation uses its
incremental borrowing rate as the discount
rate. The Corporation has elected to use
a single discount rate for all lease portfolios
with reasonably similar characteristics.
The lease liability is subsequently measured
at amortized cost using the effective interest
method. It is re-measured when there is a change
in future lease payments, or a lease modification.
A corresponding adjustment is made to the
carrying amount of the right of use asset or is
recorded in profit or loss if the carrying amount
of the right of use asset has been reduced to zero.
The Corporation has elected not to recognize
right of use assets and lease liabilities for short
term and low value leases. The Corporation
recognizes the lease payments associated with
these leases as an expense on a straight line
basis over the lease term.
(q) Use of judgments and estimates:
The preparation of the consolidated financial
statements requires management to make
estimates, judgments and assumptions: within
reasonable limits of materiality and within the
framework of the significant accounting policies,
that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the dates of the consolidated financial
statements and the reported amounts of revenues
and expenses during the periods. Due to inherent
uncertainty involved in making such estimates,
actual results reported in future years could differ
from those estimates recorded in preparing these
consolidated financial statements, including
changes as a result of future decisions made
by the OEB or the Minister of Energy.
Information about assumptions and estimation
uncertainties that have a significant risk of
resulting in a material adjustment is included
in the following financial notes:
(i) Note 1(c)(i) - measurement
of unbilled revenue;
(ii) Note 1(g) - environmental and
decommissioning liabilities;
(iii) Notes 1(g), (h) - estimation of useful
lives of PP&E and intangible assets;
(iv) Note 1(c)(i), 1(d) and note 7 - recognition
and measurement of regulatory balances;
(v) Notes 1(m)(i), (iii) and note 16 -
measurement of employee future benefits:
key actuarial assumptions;
(vi) Note 1(o) - recognition and measurement
of provisions and contingencies;
(vii) Note 1(n) and note 8 - recognition of
deferred tax assets - availability of future
taxable profit against which deductible
temporary differences and tax losses
carried forward can be used;
(viii) Note 1(c)(i) and note 24(c) -
allowance for doubtful accounts; and
(ix) Note 1(i), note 2 and note 5(b) - goodwill
and cash generating units.
Revisions to accounting estimates are recognized
in the period in which the estimates are revised
and in any future periods affected. Estimates and
underlying assumptions are reviewed on an ongoing
basis and are based on historical experience and
other factors that are considered to be relevant.
(r) Non-derivative financial instruments:
All non-derivative financial assets are classified
as loans and receivables and all non- derivative
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 costs using the effective
interest method less any impairment for
the financial assets, as described in note 1(j)
and note 24(c).
(s) Derivative financial instruments:
Derivative financial instruments are measured
at their fair value upon initial recognition and on
each subsequent reporting date.
The Corporation has not elected to apply hedge
accounting for its interest rate swap contracts
and does not enter into derivative agreements for
speculative purposes. Changes in the fair value
of the derivatives are recorded each period in the
consolidated statements of comprehensive income.
(t) Capital disclosures:
The Corporation’s objectives with respect to its
capital structure are to maintain effective access
to capital on a long-term basis, at reasonable rates,
and to deliver the appropriate financial returns.
As at December 31, 2019, the Corporation’s
definition of capital includes shareholders’ equity,
short-term and long-term debt, less cash and
cash equivalents.
During the period, there have been no changes to
how the Corporation assesses its capital structure.
(u) Changes in accounting policies:
IFRS 16, Leases became effective from January 1,
2019 and was early adopted by former Veridian from
January 1, 2018 and by former Whitby Hydro from
January 1, 2019 as per policy described in note 1(p).
The following amended standards and
interpretations (effective from January 1, 2019)
does not have a significant impact on the
Corporation’s consolidated financial statements:
• IFRIC 23, Uncertainty over Income Tax Treatments;
• Prepayment Features with Negative
Compensation (Amendments to IFRS 9);
• Long-term Interests in Associates and
Joint Ventures (Amendments to IAS 28);
• Plan Amendment, Curtailment or
Settlement (Amendments to IAS 19);
• Annual Improvements to IFRS Standards
2015-2017 Cycle - various standards; and
• Amendments to References to Conceptual
Framework in IFRS Standards.
(v) New standards and interpretations
not yet adopted:
The IASB issues new standards, amendments and
interpretations which do not have to be adopted
in the current period. The Corporation continues
to analyze these standards and interpretations,
described below, which the Corporation anticipates
might have an impact on its consolidated financial
statements or note disclosures:
(i) Definition of Material (Amendments to
International Accounting Standard (“IAS”) 1,
Presentation of Financial Statements and
IAS 8, Accounting Policies, Changes in
Accounting Estimates and Errors):
On October 31, 2018, the IASB issued
amendments to its definition of material.
The amendments clarify and align the
definition of ‘material’ and provide guidance
to help improve consistency in the application
of that concept whenever it is used in
IFRS Standards.
The amendments are effective for annual
reporting periods beginning on or after
January 1, 2020. Earlier adoption is permitted.
The management anticipates, that it will not
have a material impact on the Corporation’s
consolidated financial statements, if any.
(ii) Definition of a Business
(Amendments to IFRS 3):
These amendments provide more guidance on
the definition of a business. The amendments
include an election to use a concentration test.
The amendments apply to businesses
acquired in annual reporting periods
beginning on or after January 1, 2020.
Earlier application is permitted.
The Corporation did not early adopt this
amendment, and this did not have a specific
application for these consolidated financial
statements. However, it could apply to
any future business combination or asset
acquisition determinations.
APPENDIX B | Consolidated Financial Statements XXIVXXIII ELEXICON CORPORATION > 2019 ANNUAL REPORT
2. BUSINESS COMBINATION:
On April 1, 2019, Veridian amalgamated
with Whitby Hydro to form the Corporation.
Under the Amalgamation Transaction, shares of the
former Veridian and Whitby Hydro were exchanged
for the voting common shares of the Corporation.
Certain post-closing adjustments provided under the
agreements to the Amalgamation Transaction were
made through a redemption of special shares (Note 17).
The Amalgamation Transaction has been recognized
as a business combination in accordance with IFRS 3,
Business Combinations, using the acquisition method
with the former Veridian deemed as the acquirer
based on its relative size compared to that of the
former Whitby Hydro. These consolidated financial
statements include: the net fair value of the assets of
former Whitby Hydro as at April 1, 2019; and the net
assets of Veridian at its carrying amounts at April 1,
2019. Whitby Hydro contributed revenue including
electricity sales of $79,339 since the amalgamation
date. Acquisition-related costs of $3,042 were incurred
for the period from April 1, 2019 to December 31,
2019 and are included in administration expenses.
The amalgamation is expected to result in more
efficient and enhanced service delivery through
lower operating costs, while providing significant
benefits for communities and shareholders.
The aggregate consideration was $110,758 for 32,000
common shares and a redemption of $1,025 for special
Class B shares, resulting in goodwill of $55,602, which
is not deductible for income tax purposes. As a result
of the amalgamation transaction, the contributed
surplus increased by $79,301.
The following table summarizes the estimated
fair value of assets acquired and liabilities assumed
at the date of amalgamation:
Whitby Hydro
Accounts receivable and unbilled revenue $20,103
Income taxes recoverable 875
Inventories 1,594
Property, plant and equipment 110,394
Intangible assets 331
Deferred tax assets 690
Regulatory assets 1,396
Other assets 447
Bank indebtedness (3,472)
Accounts payable and accrued liabilities (19,555)
Customer deposits (2,196)
Loans and borrowings (28,613)
Deferred contributions (19,853)
Employee future benefits (6,179)
Other liabilities (806)
55,156
Goodwill 55,602
Total consideration $110,758
The valuation technique used for the purchase of Whitby
Hydro was the discounted cash flow (“DCF”) approach.
Under the DCF approach, the expected future cash flows
are discounted to their present value equivalent using
appropriate market-based risk-adjusted rates of return.
3. ACCOUNTS RECEIVABLE:
Energy revenue $28,629
Unbilled revenue 38,259
Project expenditures recoverable 2,608
Pole rentals and other 3,619
73,115
Less: allowance for doubtful accounts 1,443
$71,672
Trade receivables do not contain a significant financing
component, and lifetime expected credit losses (“ECLs”)
are recognized as the maturities are typically 12 months
or less. A provision matrix is used to determine ECLs
on trade receivables. The amount of credit losses
recognised is based on forward looking estimates
that reflect current and forecast credit conditions.
Unbilled revenue represents amounts for which the
Corporation has a contractual right to receive cash
through future billings and are unbilled at the period
end. Unbilled revenue is considered current with
no allowance for doubtful accounts.
Accounts receivables, including unbilled revenue
are measured at amortized cost.
4. PROPERTY, PLANT AND EQUIPMENT:
April 1,
2019
Acquisition
additions
Additions/
depreciation
Disposals/
retirements
December 31,
2019
Cost
Land $1,748 $428 $–$–$2,176
Land rights 447 –5 –452
Buildings (a)18,305 6,055 778 –25,138
Distribution station equipment 32,037 15,014 11,244 (857)57,438
Transmission and distribution system 228,889 97,168 33,938 (784)359,211
Meters 16,746 6,225 845 (13)23,803
Office equipment 1,523 673 205 –2,401
Computer hardware 3,349 618 585 –4,552
Vehicle fleet (b)8,325 1,211 2,156 (701)10,991
Renewable power generation 759 386 ––1,145
Construction in progress 25,534 3,895 7,470 –36,899
$337,662 $131,673 $57,226 $(2,355)$524,206
Accumulated depreciation
Land rights $58 $–$9 $–$67
Buildings (a)6,087 2,110 1,079 –9,276
Distribution station equipment 4,748 1,929 1,362 (179)7,860
Transmission and distribution system 29,019 13,377 8,233 (376)50,253
Meters 6,746 2,862 1,304 (7)10,905
Office equipment 1,091 338 223 –1,652
Computer hardware 2,231 522 434 –3,187
Vehicle fleet (b)3,592 48 939 (498)4,081
Renewable power generation 164 93 39 –296
$53,736 $21,279 $13,622 $(1,060)$87,577
Net book value $283,926 $110,394 $43,604 $(1,295)$436,629
Right of use assets related to leased properties that do not meet the definition of investment property
are presented as PP&E.
(a) Includes $292 office building right of use assets and $134 accumulated amortization.
(b) Includes $1,700 vehicle right of use assets and $286 accumulated amortization.
During the period, borrowing costs of $413 were capitalized to PP&E and credited to finance costs.
Weighted average cost of long-term borrowings in EEI (note 14) is used for capitalizing borrowing costs
as part of PP&E with an average rate of 3.47%.
Additions to construction in progress are net of transfers to other PP&E categories.
APPENDIX B | Consolidated Financial Statements XXVIXXV ELEXICON CORPORATION > 2019 ANNUAL REPORT
5. INTANGIBLE ASSETS AND GOODWILL:
(a) Intangible assets:
April 1,
2019
Acquisition
additions
Additions/
amortization
Disposals/
retirements
December
31, 2019
Cost
Application software and other $11,897 $1,395 $1,488 $–$14,780
Construction in progress related
to application software and other 434 –56 –490
Capital contributions (note 19 (b))1,484 –686 –2,170
$13,815 $1,395 $2,230 $–$17,440
Accumulated amortization
Application software and other $9,922 $1,042 $1,199 $–$12,163
Net book value $3,893 $353 $1,031 $–$5,277
No borrowing costs were capitalized on intangible assets under development in 2019.
Application software and other includes externally acquired, as well as internally generated computer software.
The remaining amortization period is between one to five years.
(b) Goodwill:
April 1,
2019
Acquisition
additions Additions Impairments
December 31,
2019
Goodwill $8,746 $–$55,602 $–$64,348
6. DEPRECIATION AND AMORTIZATION:
Total depreciation and amortization expense $14,823
Allocated to:
Depreciation/amortization of
vehicle fleet included in operating
and maintenance expenses 654
Depreciation/amortization of assets
in non-regulated utility operations
included in other income 39
693
Depreciation and amortization expense $14,130
7. REGULATORY BALANCES:
Regulatory balances can arise out of the
rate-making process. Specifically, the following
regulatory treatments have resulted in accounting
treatments that differ from IFRS for enterprises
operating in a non-regulated environment and
regulated entities that did not adopt IFRS 14:
(a) The Corporation’s Veridian rate zone records
the difference between the borrowing costs
capitalization rate prescribed by the OEB
and the weighted average cost of borrowings
rate used to capitalize PP&E under IFRS.
This amount is recognized as a regulatory debit
or credit balance to be recovered or paid
respectively to the customers through future rates.
The Whitby rate zone is not required to record
this difference based on the settlement agreement
approved in its 2019 rate application;
(b) The Corporation’s Veridian rate zone records
regulatory debit balances arising from
derecognition of assets under IFRS.
These amounts will be sought for disposition
through the next cost of service rebasing
application and recovered from customers
through future rates. The Whitby rate zone
does not record these balances, except when the
calculated value exceeds the approved materiality
threshold in its 2019 OEB rate decision;
(c) The Corporation records deferred tax assets
or liabilities with a corresponding regulatory
tax liability or asset, as the recovery from,
or refund to, customers is expected to be included
in future distribution rates for its regulated
business activities;
(d) The Corporation has deferred certain retail
settlement variances which comprise the variances
between amounts charged by the Corporation to
customers based on regulated rates and wholesale
rates incurred for the cost of electricity service;
(e) The Corporation has deferred costs related to:
IFRS implementation, lost revenue adjustment
mechanism costs, and OEB assessment costs; and
(f) The Corporation has deferred variances related
to pole attachment revenue and lost revenue
associated with the collection of account charge
which are expected to be refunded/ charged to
customers in future rates.
APPENDIX B | Consolidated Financial Statements XXVIIIXXVII ELEXICON CORPORATION > 2019 ANNUAL REPORT
Debit balances comprise of the following:
April 1,
2019
Additions
through
acquisitions
Balances
arising in
the period
Recovery/
reversal
Other
movements
December
31, 2019
Remaining
recovery/reversal
period (years)
Future settlement
variances - RSVA (a)$–$(537)$3,561 $3,414 $(3,146)$3,292 Note 1
Future settlement
variances - RCVA (a)492 111 85 ––688 Note 1
One-time IFRS
conversion (b)496 –6 ––502 Note 1
IFRS transitional
adjustments (d)1,560 –901 ––2,461 Note 1
Other (e)2,449 969 171 (1,245)–2,344 Note 1
Deferred taxes (f)2,815 1,300 1,743 ––5,858 Note 2
$ 7,812 $1,843 $6,467 $2,169 $(3,146)$15,145
Credit balances comprise of the following:
April 1,
2019
Additions
through
acquisitions
Balances
arising in
the period
Recovery/
reversal
Other
movements
December
31, 2019
Remaining
recovery/reversal
period (years)
Approved settlement
variances (a)$1,331 $400 $2,170 $(2,980)$–$921 1 year
Future settlement
variances - RSVA (a)3,146 –––(3,146)–Note 3
Stranded meters (c)20 (297)(2)303 –24 Note 1
Deferred taxes (f)1,352 345 (34)––1,663 Note 2
$5,849 $448 $2,134 $(2,677)$(3,146)$2,608
Note 1 The Company intends to seek recovery or refund in future rate applications to the OEB.
Note 2 The Company will not seek disposition of the balance since it will be reversed through timing differences in the recognition of deferred tax assets or liabilities.
Note 3 These balances have been reclassified from regulatory debit to credit balances or vice versa.
In 2019, the OEB approved:
• Disposition of the Veridian rate zone’s
retail settlement variance accounts as at
December 31, 2017;
• Final disposition for regulatory accounting
change balances as at December 31, 2018
for the Whitby rate zone; and
• Lost revenue recovery for conservation
program impacts for 2016 and 2017 for
Whitby and Veridian rate zones respectively.
(b) One-time IFRS conversion costs:
In accordance with an OEB directive, a deferral
account has been established for the one- time
administrative costs during transition to IFRS
for the Veridian rate zone. These amounts will
be sought for disposition in the Corporation’s first
cost of service rebasing application under IFRS
or in a future stand-alone application.
(c) Stranded meters:
These amounts are related to the provincial
government’s directive for licensed distributors to
install smart meters for specific customer classes
and represent the net book value of stranded
meter assets arising from the Corporation’s smart
metering program.
The OEB approved the Corporation’s request for
recovery of these regulatory balances. For Veridian
rate zone the approval was received in 2014,
through a rate rider with a one-year term which
expired April 30, 2015. The Whitby rate zone
received approval effective January 1, 2018 for
a two-year term expiring on December 31, 2019.
Residual balances will be refunded in a future rate
application to the OEB.
The additions through acquisition, represents April 1,
2019 balances for the Whitby rate zone. The balances
arising in the period column are new additions
(for both debits and credits). The recovery/reversal
column are amounts: collected or refunded through
rate riders, disposition of OEB-approved regulatory
balances, or other transactions which reduces existing
regulatory balances. The other movements column
consists of impairment (if the OEB disallowed certain
amounts), and reclassification between the regulatory
debit and credit balances. There is no impairment
recorded for the period from April 1, 2019 to
December 31, 2019.
Regulatory balances descriptions:
(a) Settlement variances:
The amounts include the variances between the
amount charged by the IESO for the operation of
the markets and grid, as well as various wholesale
market settlement charges and transmission
charges, as compared to the amount billed to
consumers based on the OEB-approved rates.
This amount also includes variances between
the amounts charged by Hydro One Networks Inc.
(“Hydro One”) for low voltage services
and the amount billed to consumers based on
the OEB-approved rates. Also included are retail
cost variances, being the differences between the
revenue charged to retailers and the retail services
costs associated with providing the retail services.
(d) IFRS transitional adjustments:
Commencing in 2014, the Corporation’s Veridian
rate zone has recorded regulatory debit balances
arising from derecognition of assets under IFRS
and capitalized borrowing costs difference between
weighted average long-term borrowing costs under
IFRS and OEB guidelines. These amounts will be
sought for disposition in the Corporation’s first cost
of service rebasing application under IFRS or in a
future stand-alone application.
(e) Other:
These amounts relate to the deferral of costs or
variances associated with lost revenue from the
impact of conservation programs, and regulatory
changes affecting the Collection of Account
charge. The amounts also include, renewable
generation connection funding adder, OEB
assessment costs, pole attachment variances
and other regulatory balances.
(f) Deferred taxes:
The regulatory debit balance is the expected future
electricity distribution rate increase for customers
arising from timing difference in the recognition
of deferred tax assets and the regulatory credit
balance is the deferred tax amount reclassified
under IFRS 14.
The deferred tax amount related to the expected
future electricity distribution rate increase for
customers was $5,858 as at December 31, 2019.
The amounts reclassified under IFRS 14 include
the deferred tax liability related to regulatory
balances of $1,663 as at December 31, 2019.
APPENDIX B | Consolidated Financial Statements XXXXXIX ELEXICON CORPORATION > 2019 ANNUAL REPORT
8. INCOME TAXES:
The provision for income taxes differs from the amount
that would have been recorded using the combined
Canadian federal and Ontario statutory income tax rate.
The reconciliation between the statutory and effective
tax rates is provided as follows:
Income before income taxes $149
Federal and Ontario statutory income tax rate 26.50%
Provision for income taxes at statutory rate $39
Increase (decrease) resulting from:
Temporary differences expected
to be recovered by customers (2,470)
Current period losses for which
no deferred tax asset is recognized 73
Over provided in prior periods (51)
Other miscellaneous 2,653
Income taxes recorded in
regulatory balances movements 1,776
Income tax expense $2,020
Allocated:
Current recovery $(51)
Deferred 295
Income taxes recorded in
regulatory balances movements 1,776
Total income tax expense $2,020
Deferred tax assets and liabilities arise from differences
between the carrying amounts and tax bases of
the Corporation’s assets and liabilities. The tax effects
of these differences are as follows:
Deferred tax assets (liabilities):
Property, plant and equipment
and intangible assets (a)$(8,605)
Employee future benefits 3,504
Sick leave liability 363
Non-capital losses 1,047
Unrealized loss on interest rate swaps 833
Deferred revenue, contingent
liability and others 1,009
(1,849)
Valuation allowance (668)
(2,517)
Deferred tax liabilities:
Regulatory balances 1,663
Moved to regulatory deferral
account credit balances (1,663)
–
Deferred tax liabilities $(2,517)
(a) Taxable temporary difference, book value is more
than tax value.
The Corporation has non-capital losses for income
tax purposes of $2,501 available to reduce future
periods’ income for tax purposes, which will expire
between 2036 and 2039. The potential deferred
tax benefit of these losses has not been recognized
since management has determined that it is
probable that these amounts will not be realized
in the foreseeable future.
9. ACCOUNTS PAYABLE AND
ACCRUED LIABILITIES:
Power bill accrual $28,741
Customer credit balances 8,781
Other accounts payable and accrued liabilities 23,100
Hydro One contractual obligation (note 19(b))1,533
$62,155
Accounts payable are measured at amortized cost.
10. CREDIT FACILITIES AND
SHORT-TERM DEBT:
Credit facilities:
As at December 31, 2019, the Corporation
had the following external credit facilities with
a Canadian chartered bank (the “Bank”):
(a) Uncommitted revolving demand credit facility.
The facility at all times is required to be no
greater than $40,000 with a letter of credit (“L/C”)
carve-out availability;
(b) Committed reducing term facility with a credit
limit of $40,999 and amortization term of 30 years
with an optional exit strategy at 10 years, 15 years,
20 years and 25 years (note 14); and
(c) Committed or demand revolver facility (note 14)
with a combined total no greater than $130,000
at all times.
The financial covenants to the above facilities require
a funded debt to capitalization ratio of no greater than
0.60:1, and to maintain a debt service coverage ratio
of not less than 1.20:1. The Corporation has been in
compliance with all the covenants.
As at December 31, 2019, $6,800 was drawn out of
facility (a); $37,132 was outstanding out of facility (b)
and $55,000 was outstanding out of facility (c) above
(note 14). To cover the risk of fluctuating interest
rates, facility (b) was structured with an interest rate
swap agreement with the Bank, effectively converting
the obligations into a fixed interest rate loan of
approximately 3.715%.
The Corporation utilized (a) for: $807 to issue
an irrevocable L/C in favour of the IESO; and $100
to issue an irrevocable L/C in favour of the Ministry
of Environment.
The IESO requires all purchasers of electricity in Ontario
to provide security to mitigate the risk of their default
based on their expected purchases from the IESO
administered spot market. The IESO could draw on
the L/C if the Corporation defaults on its payment.
The Ministry of Environment requires security to ensure
adequate funds are available, to effect suitable remedial
action, if an event occurs resulting in a health and safety
hazard to any person, or the natural environment.
Credit facilities are measured at amortized cost.
11. DEFERRED REVENUE:
(a) As at December 31, 2019, $1,615 of deferred
revenue represents the balance at period end
of unearned revenue from funding received from
the IESO to deliver CDM programs.
An agreement was entered with the IESO on
December 16, 2014 and on June 8, 2015,
whereby the IESO conditionally approved a
CDM plan that was jointly submitted by the
Corporation (Veridian and Whitby Hydro)
to deliver CDM programs covering the period
from January 1, 2015 to December 31, 2020.
This CDM plan was most recently updated on
April 18, 2017 and conditionally approved by
the IESO on May 12, 2017.
On March 21, 2019 the Government of Ontario
announced the end of the 2015-2020 CDM
Framework for electricity distributors and the
establishment of a scaled down IESO Interim
Framework for the remainder of 2019 and 2020.
Distributors were directed to cease accepting
any new program applications by April 1, 2019
and were directed to wind down the delivery
of their CDM programs in an orderly manner.
All programs under the IESO agreement
and all relevant wind down costs are expected
to be fully funded and paid by the IESO.
The IESO is invoiced monthly for the costs
incurred on various CDM programs and wind
down expenditures. The Corporation received
some initial funding in the form of a pre-payment
from the IESO for the delivery of CDM programs
under the energy conservation agreement.
Amounts received but not yet spent are presented
on the consolidated balance sheet under current
liabilities as deferred revenue.
(b) As at December 31, 2019, $34 of deferred
revenue represents the balance of unearned
revenue related to the 2018 Affordability Fund
Trust (AFT) program money received in advance
from the Government of Ontario to support
program expenses.
(c) As at December 31, 2019, $75 of deferred revenue
represents other unearned revenue jobs.
APPENDIX B | Consolidated Financial Statements XXXIIXXXI ELEXICON CORPORATION > 2019 ANNUAL REPORT
12. DEPOSITS AND DEVELOPER OBLIGATIONS:
Advance payments - construction deposits $1,528
Customer deposits 7,225
Developer obligations 6,601
Deposits and developer obligations $15,354
13. RELATED PARTY TRANSACTIONS:
The Corporation provides electricity and services
to its principal shareholders, the Town of Ajax,
the Municipality of Clarington, the City of Pickering,
the City of Belleville and the Town of Whitby
(collectively, the “shareholders”). Electrical energy
is sold to the shareholders at the same prices and
terms as other electricity customers consuming
equivalent amounts of electricity.
Summary of transactions with the shareholders:
Electricity and services revenue $8,149
Accounts receivable balance 905
Finance costs on the notes payable 2,761
Property taxes paid 541
Dividends declared and paid 5,591
Dividends declared and accrued 1,397
Summary of transactions with EEI and EGI:
Compensation paid to key
management personnel (i)$2,082
(i) Comprising of the senior management
team and members of the Board of Directors.
The compensation includes salaries, performance
pay and taxable benefits. This includes OMERS
contribution of $179.
All intercompany related party transactions
and outstanding balances are eliminated in the
Corporation’s consolidated financial statements.
The Corporation has renewable generation
projects and holds interest in the following entities
and joint operation:
(a) Quinte Solar Generation Inc.:
The Corporation, the Corporation of the City
of Belleville and Solera Sustainable Energies
Company Limited holds 70%%, 15% and
15% equity interest respectively in the above
company, incorporated to own, operate and
maintain projects related to solar electricity
generation facilities and systems at some
specific locations. Recent applications for
project contracts were rejected by the IESO.
This non-regulated venture remains dormant
with no capital injection by the joint parties.
(b) Claremont Community Centre Solar:
EEI, Queen Street Solar Co-Operative Corporation
(“Queen Street Solar”) and Solera Sustainable
Energies Company Limited entered into a joint
operation agreement with an equity interest of
39%, 51% and 10%, respectively, to build, own,
operate and maintain a solar generation project
at Claremont Community Centre owned by the
City of Pickering, located at 4941 Old Brock
Road, Pickering, Ontario L1V 7E2. This project is
approved under the Feed-in Tariff government
program.
In 2016, the Corporation financed the above
project for an amount of $264 for a 15-year term
at an interest rate of 5.00%. An amount of
$135 (net of repayments and intercompany
funding) is included in other assets of
the Corporation as at December 31, 2019.
The funding provided by the Corporation was
in the same proportion as the equity interest:
EEI 39%, Queen Street Solar 51% and Solera
Sustainable Energies Company Limited 10%.
During the year, Queen Street Solar sold its share
of equity interest in the joint venture arrangement
to TREC SolarShare Co-Operative (No. 1) Inc.
Accordingly, joint venture agreements were
amended to incorporate TREC SolarShare
Co-Operative (No. 1) Inc. as the joint venture partner.
14. LONG-TERM DEBT:
Notes payable to the shareholders,
due on demand, at the rate of 4.13% (a)$89,132
Long-term debt from the Bank, maturing
on March 2, 2045 (note 10(b))37,133
Long-term debt from the Bank, maturing
on December 31, 2024 (note 10(c))55,000
181,265
Less: current portion 905
$180,360
(a) The shareholders have waived their right to
demand repayment of any portion of the principal
of the promissory notes payable before the date
of January 1, 2021
Scheduled principal repayments for the next five years
and thereafter as of December 31, 2019:
2020 $905
2021 90,071
2022 974
2023 1,011
2024 56,049
Thereafter 32,255
181,265
Less: current portion 905
$180,360
Scheduled interest payments for the next five years
and thereafter as of December 31, 2019:
2020 $6,530
2021 6,496
2022 2,780
2023 2,743
2024 2,704
Thereafter 13,687
$34,940
Expected weighted average borrowing cost:
2020 3.61%
2021 4.80%
2022 3.10%
2023 3.09%
2024 4.49%
Finance costs related to short-term and long-term
debt comprises:
Interest on:
Notes payable and loans $4,965
Customer deposits and other 184
5,149
Less: capitalized borrowing costs 413
$4,736
15. DEFERRED CONTRIBUTIONS:
Deferred contributions are the capital contributions
received from electricity customers, which have
not yet been recognized into other income.
The continuity of deferred contributions is as follows:
Deferred contributions, beginning of period $49,115
Contributions received 26,652
Contributions amortized as other income (1,044)
Deferred contributions, end of period $74,723
Customer contributions for the acquisition or
construction of PP&E are considered to be deferred
contributions and amortized over the useful lives
of the related assets as other income.
APPENDIX B | Consolidated Financial Statements XXXIVXXXIII ELEXICON CORPORATION > 2019 ANNUAL REPORT
16. EMPLOYEE FUTURE BENEFITS:
(a) Pensions:
During the period from April 1, 2019 to
December 31, 2019, the Corporation made
contributions totalling $2,227 to OMERS.
(b) Post-retirement benefits other than pensions:
The Corporation pays certain benefits on behalf of
its retired employees and recognizes these post-
retirement costs in the period in which
the employees render the services.
Information about the Corporation’s
non-contributory defined benefit plan to fund
life insurance, health and dental care benefits
and a retiree HCSA, is as follows:
Accrued benefit liability recognized,
beginning of period $9,111
Current service costs 215
Interest costs 245
Benefit payments (245)
Remeasurements recognized
in other comprehensive income 472
Accrued benefit liability, end of period $9,798
The amounts presented are based upon an
actuarial valuation performed as at December 31,
2019.
The main actuarial assumptions employed
for the valuations are as follows:
(i) General inflation:
Future general inflation levels, as measured
by changes in the Consumer Price Index,
are assumed at 2.00% for future periods.
(ii) Interest (discount) rate:
Amounts were determined using
an annual discount rate of 3.20%.
(iii) Salary levels:
Future general salary and wage levels were
assumed to increase at 3.20% per annum.
(iv) Health and dental care:
The health and dental care cost increases
are 4.20% and 4.50%, respectively.
(c) Risks associated with the plan:
Significant actuarial assumptions related to
discount rates, future health and dental costs,
mortality rates, retirement age, and utilization
rate of the HCSA etc. may affect the valuation of
expected accrued benefit liability.
17. SHARE CAPITAL:
Number
of shares Amount
Authorized:
Unlimited common shares
Issued 100,000 $97,692
Under the Amalgamation agreements, 68,000 special
Class A shares were issued and redeemed for $1 dollar,
and 32,000 special Class B shares were issued and
redeemed for $1,025.
18. DIVIDENDS:
The Corporation’s current dividend policy states:
(a) an annual dividend to the shareholders of
at least $11,280, 11,310 and $11,390 for the first,
second and third fiscal year, respectively;
(b) the dividend target in respect of the fourth
fiscal year of the Corporation and each year
thereafter will be 52.5% of EEI’s net income
in respect of such year;
(c) the Board will consider the following
factors in assessing the Corporation’s ability
to pay a dividend:
(i) the ability of the Corporation to
meet the solvency requirements of the
Business Corporations Act (Ontario);
(ii) the ability of the Corporation and
EEI to adhere to OEB policies and
administrative decisions;
(iii) the Corporation’s consolidated debt
to total capitalization ratio for the
current and following fiscal year should
be 70% or lower and 60% or lower in the
context of its regulated capital structure;
(iv) the capital expenditure requirements of EEI
in the current and following fiscal year;
(v) the net income positive or negative variance
to the budget of the Corporation in the current
fiscal year;
(vi) the ability of the Corporation and its
subsidiaries to meet covenants required
by their respective lenders in the current
and following fiscal year;
(vii) the ability of the Corporation and its
subsidiaries to meet their respective
obligations and capital re-investment
needs in the coming year; and
(viii) any tax consequences that will adversely
affect the Corporation, EEI, or its affiliates.
During the period, the Board of Directors
of the Corporation:
• declared and paid dividends totalling $5,591; and
• declared and accrued dividends totalling $1,397 to
the shareholders which were paid in January 2020.
19. CONTINGENCIES AND GUARANTEES:
(a) Insurance claims:
The Corporation is a member of the Municipal
Electric Association Reciprocal Insurance Exchange
(“MEARIE”), which was created on January 1,
1987. A reciprocal insurance exchange may be
defined as a group of persons formed for the
purpose of exchanging reciprocal contracts of
indemnity or inter-insurance with each other.
MEARIE provides general liability insurance to
member electric utilities. MEARIE also provides
vehicle and property insurance to the Corporation.
Insurance premiums charged to each member
electric utility consist of a levy per $1 of service
revenue subject to a credit or surcharge based
on each electric utility’s claims experience.
The maximum coverage is $30,000 per
occurrence for liability insurance, $21,000 for
vehicle insurance, and $164,885 for property
insurance; plus $10,000 excess coverage on top
of the regular liability and vehicle coverage.
(b) Contractual obligation -
Hydro One Networks Inc.:
The Corporation’s subsidiary, EEI, is party to a
connection and cost recovery agreement with
Hydro One related to the construction by Hydro
One of a transformer station designated to
meet EEI’s anticipated electricity load growth.
Construction of the project was completed during
2007 and EEI connected to the transformer station
during 2008.
To the extent that the cost of the project is not
recoverable from future transformation connection
revenues, EEI is obligated to pay a capital
contribution equal to the difference between
these revenues and the construction costs
allocated to EEI. The construction costs allocated
to EEI for the project are $19,950.
Hydro One has performed a true-up based on
actual load at the end of the tenth anniversary of
the in-service date and the Corporation has paid
$637 to Hydro One and recognized the same
as an intangible asset. The Corporation has also
recorded a current liability and a corresponding
intangible asset for $1,533 as at December 31,
2019, based on management’s best estimate of
the future transformation connection revenues
shortfall. Hydro One is expected to perform
another true-up based on actual load at the end
of the fifteenth anniversary of the in-service date.
(c) Prudential Support:
Purchasers of electricity in Ontario, through
the IESO, are required to provide security to
mitigate the risk of default based on their expected
activity in the market. The IESO could draw
on this security if the Corporation fails to make
the payment required on a default notice issued
by the IESO. The Corporation has provided a
$64,000 guarantee to the IESO on behalf of EEI.
Additionally, the Corporation has provided a $6,900
letter of credit to the IESO for prudential support.
(d) General claims:
From time to time, the Corporation is involved
in various lawsuits, claims and regulatory
proceedings in the normal course of business.
In the opinion of management, the outcome of
such matters will not have a material adverse
effect on the Corporation’s consolidated financial
position and results of operations or cash flows.
APPENDIX B | Consolidated Financial Statements XXXVIXXXV ELEXICON CORPORATION > 2019 ANNUAL REPORT
20. LEASES:
The Corporation is committed to lease agreements
for various vehicles and an office building.
When measuring the lease liabilities for leases,
the Corporation discounted lease payments using
the implicit rate of each lease agreement with a range
of 4.94% to 7.20% for vehicle leases and 2.00%
for office building lease.
Future minimum non-cancellable lease payment
obligations under finance leases are as follows:
2020 $475
2021 363
2022 229
2023 179
2024 124
Thereafter 210
$1,580
Leases are measured at amortized cost.
As at December 31, 2019, a lease obligation of $475
is recorded as a current liability and $1,105 is recorded
as a non-current liability.
The Corporation has also recognized $59 interest
costs (recognized as finance costs in the consolidated
statement of comprehensive income and
the consolidated statement of cash flows) and
$349 in lease repayments (recognized as changes
in non-cash operating working capital in the
consolidated statement of cash flows).
The Corporation has leases for low-value assets and
recognized $2 in operating and maintenance expenses.
21. OTHER INCOME (LOSS):
Late payment charges $333
Customer charges (a)946
Pole rentals 936
Disposal of PP&E (1,251)
Foreign exchange (7)
Amortization of deferred contributions 1,044
Miscellaneous (774)
$1,227
(a) Includes reconnection/disconnection, collection
and change of occupancy charges from customers.
22. OPERATING, MAINTENANCE
AND ADMINISTRATION EXPENSES:
Operating and
maintenance Administration Total
Salaries
and benefits $7,048 $11,630 $18,678
External
services 3,462 5,186 8,648
Materials
and supplies 244 2 246
Vehicle 650 81 731
Other 781 5,981 6,762
$12,185 $22,880 $35,065
23. CONSOLIDATED STATEMENT
OF CASH FLOWS:
Changes in non-cash operating working capital
provided by (used in) include the following:
Accounts receivable $(1,826)
Materials and supplies 397
Prepaid expenses 1,151
Accounts payable and accrued liabilities (8,367)
Deferred revenue (415)
$(9,060)
Reconciliation between the amount presented on
the consolidated statement of cash flows and total
additions to PP&E and intangible assets:
Purchase of PP&E, cash basis $52,709
Net change in accruals related to PP&E 4,517
Total additions to PP&E $57,226
Purchase of intangible assets,
cash basis $1,029
Net change in accruals related
to intangible assets 1,201
Total additions to intangible assets $2,230
24. FINANCIAL INSTRUMENTS
AND RISK MANAGEMENT:
(a) Market risk:
Market risk refers primarily to risk of loss
that results from changes in commodity prices,
foreign exchange rates and interest rates.
The Corporation does not have commodity risk
due to the flow-through nature of energy
purchases and costs. All variances due to timing
of customer billing or regulated pricing are
recorded in retail settlement variance accounts
and are recovered from or returned to customers
in accordance with regulatory directives.
The foreign exchange risk is considered
not material and is limited to U.S. dollar cash
and cash equivalents holdings of $19 as at
December 31, 2019.
(b) Interest rate risk:
The Corporation enters into fixed interest rate
long-term debt agreements to minimize
cash flow and interest rate fluctuation exposure.
In February 2015, former Veridian arranged
from the Bank a $40,999, 30-year fixed rate
term loan to blend and extend a $30,000 loan
and a $15,000 loan. The Corporation entered
into interest rate swap derivative agreements
with the Bank to exchange interest rate cash flows.
Under these agreements, the Corporation and
the Bank have the periodic exchange of payments
without exchanging the notional principal amount
on which the payments are based. This effectively
provided the Corporation with a fixed rate loan,
which reduces the impact of fluctuating interest
rates on long-term debt. The Corporation does
not enter into any such financial instrument for
speculative purposes.
The Corporation is also 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) Credit risk:
Financial assets create credit risk that a
counterparty will fail to discharge an obligation,
causing a financial loss. The Corporation’s
distribution revenue is earned on a broad base
of customers. As a result, the Corporation did not
earn a significant amount of revenue from any
individual customer. As at December 31, 2019,
there were no significant balances of accounts
receivable due from any single customer.
The Corporation manages counterparty
credit risk through various techniques, including
limiting total exposure levels with individual
counterparties consistent with the Corporation’s
policies and monitoring the financial condition
of counterparties.
APPENDIX B | Consolidated Financial Statements XXXVIIIXXXVII ELEXICON CORPORATION > 2019 ANNUAL REPORT
Management believes that the credit risk
of accounts receivable is limited due to the
following reasons:
(i) There is a broad base of customers with
no one customer that accounts for revenue
or an accounts receivable balance in excess
of 10% of the respective balance.
(ii) The Corporation, as permitted by the
OEB’s Retail Settlement and Distribution
System Code, may obtain a security deposit
or L/C from customers to mitigate risk of
payment default.
(iii) The percentage of accounts receivable
that is outstanding more than 90 days
is approximately 1.47% of the total net
outstanding balance.
(iv) The Corporation includes an amount
of accounts receivable write-offs within
net income for rate-setting purposes.
Pursuant to their respective terms,
accounts receivable are aged as follows
as at December 31, 2019:
Total accounts receivable $73,115
Less allowance for doubtful accounts 1,443
Total accounts receivable, net $71,672
Of which:
Unbilled revenue $38,259
Outstanding 1 day but
not more than 30 days 31,843
Outstanding 31 days but
not more than 60 days 1,252
Outstanding 61 days but
not more than 90 days 709
Outstanding 91 days but
not more than 120 days 720
Outstanding more than 120 days 332
73,115
Less: allowance for doubtful accounts 1,443
$71,672
(d) Liquidity risk:
Liquidity risk is the risk that the Corporation will
not be able to meet its financial obligations as
they become due. Short-term liquidity is provided
through cash and cash equivalents on hand and
funds from operations. Short-term liquidity is
expected to be sufficient to fund normal operating
requirements. The liquidity risks associated with
financial commitments are as follows:
Financial commitments as of December 31, 2019:
Due
within
one year
Due
between
one and
five years
Due past
five years
Financial liabilities:
Accounts
payable and
accrued
liabilities -
undiscounted $62,155 $–$–
Short-term debt
- undiscounted
(note 10)6,800 ––
Long-term debt
- undiscounted 905 148,105 32,255
Leases -
discounted 477 903 260
(e) Fair values:
The Corporation included $3,144 of unrealized
loss in its consolidated financial statements.
This is the fair value of the interest rate swap
derivatives which represents the amount that
the Corporation would have paid to unwind
its position as at December 31, 2019.
This unrealized loss is not expected to affect
cash as the Corporation intends to hold the
financial instruments until their maturity.
Fair value measurements recognized in
the consolidated statement of comprehensive
income are categorized using a fair value hierarchy
that reflects the significance of inputs used in
determining the fair values.
• Level 1 - unadjusted quoted prices in active
markets for identical assets or liabilities;
• Level 2 - inputs other than quoted prices
included in Level 1 that are observable for the
asset or liability, either directly or indirectly; and
• Level 3 - inputs for assets and liabilities
that are not based on observable market data.
The interest rate swap derivatives are all Level 2
as at December 31, 2019.
There were no transfers between levels during
the period.
The carrying amounts of all financial instruments,
except the short-term and long-term debt
approximate fair values due to the immediate or
short-term maturity of these financial instruments.
The estimated fair values of the loans payable,
including related party loans, are as follows:
Fair value $185,892
Carrying value (notes 10 and 14)188,065
(f) Capital management:
The Corporation considers its capital structure
to consist of shareholders’ equity, short-term debt,
long-term debt, less cash and cash equivalents.
The Corporation’s capital structure was as follows:
Cash $(7,089)
Short-term debt 6,800
Long-term debt 181,265
188,065
Share capital 97,692
Retained earnings 68,597
Contributed surplus 79,301
Contributed capital 25
Accumulated other comprehensive loss (816)
244,799
Total capital $425,775
25. SUBSEQUENT EVENT:
Subsequent to December 31, 2019, the COVID-19
outbreak was declared a pandemic by the World Health
Organization. The situation is dynamic and the ultimate
duration and magnitude of the impact on the economy
and the Corporation’s business are not known at
this time. These impacts potentially include an impact
on the Corporation’s ability to access and obtain capital
financing, impairment of investments, reduction
to operational cash flow as a result of the inability
of the Corporation to fully recover on its customer
accounts and potential future decreases in revenue or
the profitability of the Corporation’s ongoing operations.
Websites
elexiconcorp.com
elexiconenergy.com
elexicongroup.com
Telephone
Ajax, Pickering, Whitby:
905-427-9870
All other service areas:
1-888-445-2881
Elexicon Corporation
Head Office
55 Taunton Road East
Ajax, Ontario L1T 3V3