Decision 2002-094

EPCOR Energy Services (Alberta) Inc. Securitization of 2001 Regulated Rate Option Collection Shortfall

November 19, 2002

Alberta Energy and Utilities Board

ALBERTA ENERGY AND UTILITIES BOARD Decision 2002-094: EPCOR Energy Services (Alberta) Inc. Securitization of 2001 Regulated Rate Option Collection Shortfall Application No. 1282587

Published by Alberta Energy and Utilities Board 640 – 5 Avenue SW Calgary, Alberta T2P 3G4 Telephone: (403) 297-8311 Fax: (403) 297-7040 Web site: www.eub.gov.ab.ca

CONTENTS 1

INTRODUCTION ................................................................................................................. 1

2

BACKGROUND.................................................................................................................... 1

3

SECURITIZATION APPLICATION OVERVIEW ......................................................... 2

4

DETAILS OF THE SECURITIZATION APPLICATION .............................................. 3 4.1 The Proposed Securitization Transaction .................................................................... 3 4.1.1 Securitization Agreement ................................................................................ 3 4.1.2 Program Costs and Funding Costs................................................................... 4 4.1.3 Conditions Precedent ....................................................................................... 4 4.2 Approvals, Confirmations and Directions Requested ................................................. 4 4.2.1 Final Approval - 2001 Collection Shortfall Balance at January 1, 2002......... 4 4.2.2 Approval of the Interim Collection Shortfall Charges as Final....................... 6 4.2.3 Approval to Complete Securitization .............................................................. 6 4.2.4 Approval of the Securitized Amount and the Calculation of the Shortfall Account Balance from Time to Time .............................................................. 8 4.2.5 Approval to Collect the Program Costs and Funding Costs through the Collection Shortfall Charges............................................................................ 9 4.2.6 Confirmation that the Shortfall Account is Transferable to the Purchaser.... 10 4.2.7 Confirmation that the Related Rights are Transferable to the Purchaser ...... 10 4.2.8 Confirmation that the Purchaser will be Given Standing .............................. 10 4.2.9 Directions to ANCA re: Collection of the Collection Shortfall Charges ...... 11 4.2.10 Approval of the Carrying Charges Settlement............................................... 11

5

VIEWS OF INTERESTED PARTIES .............................................................................. 12

6

VIEWS OF THE BOARD .................................................................................................. 12 6.1 Is Securitization in the Public Interest? ..................................................................... 12 6.2 2001 Collection Shortfall Carrying Cost Settlement Agreement .............................. 13 6.3 RRO Balances............................................................................................................ 13 6.4 RRO Balances and Related Rights as Transferable Assets ....................................... 15 6.5 Collection Process ..................................................................................................... 16 6.6 True-Up...................................................................................................................... 17

7

SUMMARY OF CONFIRMATIONS AND APPROVALS ............................................ 18

8

SUMMARY OF DIRECTIONS......................................................................................... 19

9

ORDER................................................................................................................................. 20

APPENDIX 1 – 2001 RRO COLLECTION SHORTFALL CARRYING COST SETTLEMENT AGREEMENT................................................................................................ 23

EUB Decision 2002-094 (November 19, 2002) • i

List of Tables Table 1.

EESAI Calculated Savings Under Securitization .................................................... 7

Table 2.

2001 Collection Shortfall Balance at Cut-Off Date per EESAI.............................. 8

Table 3.

Board Approved - 2001 Collection Shortfall Balance at the Cut-Off Date ......... 14

Table 4.

Board Approved Estimated Program Costs ($000) by Customer Class.............. 15

ii • EUB Decision 2002-094 (November 19, 2002)

ALBERTA ENERGY AND UTILITIES BOARD Calgary Alberta EPCOR ENERGY SERVICES (ALBERTA) INC. SECURITIZATION OF 2001 REGULATED RATE OPTION COLLECTION SHORTFALL 1

Decision 2002-094 Application No. 1282587 File No. 1703-3

INTRODUCTION

The Alberta Energy and Utilities Board (Board) received an application from EPCOR Energy Services (Alberta) Inc. (EESAI) dated November 6, 2002 for Securitization of its 2001 Regulated Rate Option (RRO) Collection Shortfall (the Application). EESAI requested an expeditious approval of its Application, as closing of the Securitization Transaction is scheduled for November 20, 2002. In a letter dated November 11, 2002, the Board notified interested parties that it was in agreement with EESAI that it was in the public interest to follow an expedited process, with comments due by November 14, 2002 and reply comments due by November 15, 2002. In the meantime, the Board requested support information from EESAI respecting the Program Costs, which EESAI provided in a letter dated November 15, 2002. The Board received no comments objecting to the Application, but did receive a letter of support on behalf of the Alberta Association of Municipal Districts & Counties (AAMDC) dated November 15, 2002. Accordingly, for purposes of this Decision, the Board considers the record to have closed on November 15, 2002. (Click here to Return to the Table of Contents)

2

BACKGROUND

In Decision 2002-052, the Board dealt with the treatment of the 2001 Collection Shortfall, wherein it approved the 2001 Settlement Agreement (RRO Settlement) between EESAI and the following parties (Consultation Parties): • • • • • •

Alberta Association of Municipal Districts and Counties, Alberta Irrigation Projects Association, Alberta Urban Municipalities Association, Consumers Coalition of Alberta, Ermineskin and Montana Nations, and Public Institutional Consumers of Alberta.

EUB Decision 2002-094 (November 19, 2002) • 1

Securitization of 2001 Shortfall Rate Option Collection Shortfall

EESAI

The framework for securitization of the 2001 Collection Shortfall was established in the RRO Settlement as follows:1 h) The Parties to this Settlement Agreement will work diligently and in good faith to effect a securitization of the total RRO Collection Shortfall wherein one or more financial institutions through a securitization trust would purchase the full amount of the RRO Collection Shortfall from EESAI and collect that amount from eligible customers over the recovery period described in (g) above. Additionally, the RRO Settlement addressed a process for establishing carrying cost charges for EESAI outside the securitization period as follows:2 l) The Total Collection Amount for each RROT site determined in 1(k) above will be amortized over the number of months comprising the Collection Period based on the carrying charge rate determined through the securitization process described in 1(h) above. If securitization does not occur by April 2002, EESAI and the Consultation Parties will work together in good faith to agree on an appropriate carrying cost rate for EESAI over the balance of the Collection period. Decision 2002-052 further established that the 2001 Collection Shortfall would be collected from EESAI’s RRO-eligible customers through UNCA’s [now Aquila Networks Canada (Alberta) (ANCA)] Distribution Tariff over a two-year period commencing January 1, 2002. In Decision 2002-052, the Board determined that the amount of the 2001 Collection Shortfall was approximately $202.8 million based on preliminary load settlement volumes, but was subject to adjustments related to final settlement and carrying costs. The Board indicated it would subsequently approve the final 2001 Collection Shortfall amount upon the compliance filing to be made by EESAI pursuant to the terms of the RRO Settlement.3 (Click here to Return to the Table of Contents)

3

SECURITIZATION APPLICATION OVERVIEW

EESAI proposes to enter into a securitization agreement with CIBC Mellon Trust Company, in its capacity as trustee of Plaza Trust, as Purchaser, substantially in the form of the draft agreement attached as Attachment “A” to its Application. EESAI is also seeking approval of the 2001 RRO Collection Shortfall Carrying Cost Settlement Agreement between EESAI and the Consultation Parties that was included as Attachment “B” to its Application (Carrying Charges Settlement) and included as Appendix 1 in this Decision. EESAI stated that approval of the Carrying Charges Settlement is required at this time since the

1 2 3

Decision 2002-052, Appendix D, 2001 Settlement Agreement - Page 6 Reference Decision 2002-052, Appendix D 2001 Settlement Agreement - Page 8 Reference Decision 2002-052, pages 36 and 37

2 • EUB Decision 2002-094 (November 19, 2002)

Securitization of 2001 Shortfall Rate Option Collection Shortfall

EESAI

carrying charges upon which the parties have agreed are a factor in calculating the balance of the 2001 Collection Shortfall that is to be securitized. EESAI now seeks the necessary Orders to put the agreed upon arrangements in place. As noted in the Introduction, EESAI requested that the Board issue a decision in an expeditious manner in order that the securitization transaction can be closed November 20, 2002. (Click here to Return to the Table of Contents)

4

DETAILS OF THE SECURITIZATION APPLICATION

4.1

The Proposed Securitization Transaction

4.1.1

Securitization Agreement

For the most part, the Securitization Agreement takes the form of the comparable agreements that were entered by ATCO Electric Ltd. (AE) and ANCA as approved by the Board in Decision 2002-057 in relation to the 2000 pool price deferral accounts (PPDAs). Referring to the Securitization Transaction Summary that was attached as Attachment “C” to the Application, EESAI indicated that the proposed securitization transaction (Securitization Transaction) is substantially similar to the securitization of the AE and ANCA 2000 PPDAs, although certain changes have been made to reflect the differences between the 2000 PPDAs and the 2001 Collection Shortfall. Under the terms of the Securitization Agreement, EESAI will sell the 2001 Collection Shortfall to the Purchaser. For purposes of the securitization, the balance of the 2001 Collection Shortfall is to be calculated as at the Cut-Off Date. The balance of the 2001 Collection Shortfall as at the Cut-Off Date will also include, among other sums, Program Costs, i.e. expenses incurred to complete securitization. At the same time, EESAI will also sell to the Purchaser the Related Rights. In return for the assets sold, EESAI will receive cash proceeds equal to the balance of the 2001 Collection Shortfall as at the Cut-Off Date. ANCA will continue to collect the Collection Shortfall Charges4 under its distribution tariff and remit the amounts collected to EESAI, or in certain circumstances, directly to the Purchaser. EESAI will be appointed as Servicer pursuant to the Securitization Agreement and will be required to receive and hold in trust the Rate Rider Collections that it receives from ANCA and remit those amounts to the Purchaser monthly, or more frequently in certain circumstances. Amortization of the 2001 Collection Shortfall, including Program Costs, will be through the application of net monthly collections after deducting the Purchaser’s actual costs of financing the securitization and other related costs and expenses of the Purchaser5 as provided in the Securitization Agreement.

4

5

Unless the context requires otherwise, Collection Shortfall Charges refers collectively to the interim ANCA distribution tariff rider approved in Decision 2001-113 (Interim Collection Shortfall Charges) and the comparable final ANCA distribution tariff rider (Final Collection Shortfall Charges) for which EESAI indicated in the Application that it will shortly seek approval. Collectively, Funding Costs EUB Decision 2002-094 (November 19, 2002) • 3

Securitization of 2001 Shortfall Rate Option Collection Shortfall

4.1.2

EESAI

Program Costs and Funding Costs

As in the case of the AE and ANCA 2000 PPDA securitization and as explained in the Securitization Transaction Summary, the Purchaser will enter a swap transaction and thereby substantially fix the Prescribed Rate. The Prescribed Rate is currently estimated at 3.338%. The swap will not be completed until after the securitization transaction has closed and, therefore, the actual Prescribed Rate cannot be determined at this time. The Final Collection Shortfall Charges will be calculated on the basis of the actual Prescribed Rate, which will include, in addition to the swap rate, 3.75 basis points to cover Balancing Pool letter of credit costs. As mentioned above, the 2001 Collection Shortfall balance as at the Cut-Off Date will include a forecast of the Program Costs incurred to complete the securitization transaction. Such Program Costs will be comprised of: (i) bank fees and expenses; (ii) the costs of financing associated with the accelerated remittance of GST; (iii) carrying charges applicable from the Cut-Off Date until the Closing Date; and, (iv) legal fees. Several of these costs are discussed in greater detail later. The Program Costs are currently estimated to total $1,668,900. EESAI stated it would bear the risk of any variance from this estimate. A significant portion of the Program Costs ($1,207,300) is related to the carrying costs from the Cut-Off Date until the Closing Date. These carrying costs would have been incurred irrespective of securitization. 4.1.3

Conditions Precedent

Completion of the Securitization Transaction is subject to several conditions precedent including: (1) receipt of the approvals, confirmations and directions requested from the Board in the Application; (2) receipt of an indemnity from the Balancing Pool; (3) the securitization plan must be rated by the Dominion Bond Rating Service6 at R-1 (high); and (4) receipt from Canada Customs and Revenue Agency7 of a satisfactory confirmation concerning treatment of the Securitization Transaction for GST purposes. 4.2

Approvals, Confirmations and Directions Requested

4.2.1

Final Approval - 2001 Collection Shortfall Balance at January 1, 2002

EESAI indicated that a determination of the 2001 Collection Shortfall balance as at the Cut-Off Date is essential to completing the Securitization Transaction. The starting point for the relevant calculation is the 2001 Collection Shortfall balance as at January 1, 2002. However, EESAI noted that the Board has yet to approve that amount on a final basis. In that regard, the Board stated in Decision 2002-052: The Board has accepted the agreement of EESAI and the Consultation Parties in the 2001 Shortfall Settlement that the difference between the 2001 Discovered Prices and the Prescribed Charge, as well as the agreed upon return margin, reflect the principles set out in section 9(3)(c) of the New RROR. The final amount of the 2001 Collection Shortfall cannot, however, be presently 6 7

DBRS. CCRA.

4 • EUB Decision 2002-094 (November 19, 2002)

Securitization of 2001 Shortfall Rate Option Collection Shortfall

EESAI

determined because it depends on the final consumption figures from the System Settlement which are not available until later in 2002.8 (Emphasis added) In a letter to the Board dated August 19, 2002 (August 19 Filing), EESAI included an updated estimate of the 2001 Collection Shortfall balance as at January 1, 2002 and noted that a substantial number of EESAI load settlement claims for 2001 remained outstanding.9 ANCA continues in its efforts to address those load settlement claims. However, based on latest estimates, ANCA is not expected to complete that process until sometime early in 2003. EESAI submitted that postponing the Securitization Transaction until all outstanding claims are resolved would significantly erode the benefits to customers of securitization. Therefore, EESAI is proposing to proceed with the proposed securitization on the assumption that the outstanding load settlement claims will be accepted. The amount of energy disputed in the relevant load settlement claims is approximately 5% of the amount included in the ANCA final load settlement results. EESAI believes that that amount of energy was over-allocated to RRO customers in the ANCA final load settlement. The outstanding load settlement claims relate primarily to meter-reading errors that were identified through the EESAI billing process and EESAI therefore expects that, ultimately, they will not be disputed by ANCA. In addition, to the extent that the settlement claims concern identified meterreading errors, the necessary energy adjustment (reduction) has already been made on the 2001 customer bills. To ensure that the 2001 Collection Shortfall is calculated on a basis that is consistent with what has been charged to customers, EESAI has adjusted the final load settlement data provided by ANCA to properly account for the outstanding load settlement claims. Notwithstanding that EESAI is confident in the legitimacy and accuracy of its load settlement claims, it remains possible that some of the claims could be rejected. Further changes to the amount of 2001 RRO energy consumption are, therefore, also possible. In order to ensure that the uncertainty associated with the outstanding load settlement claims will not impact in any way upon the Securitization Transaction or further postpone the determination of the Final Collection Shortfall Charges, EESAI proposes to “fix” the 2001 RRO energy consumption for purposes of both securitization and determining the Final Collection Shortfall Charges. All amounts (e.g. the 2001 Collection Shortfall balance as at the Cut-Off Date, the savings to customers resulting from securitization, etc.) relevant to this Application have been determined on that basis. Any adjustments due to changes in the load settlement claims occurring after the Cut-Off Date, or due to any other reason, will be addressed separately−e.g. through separate riders and/or billing adjustments−and will not affect the balance or any other aspect of the 2001 Collection Shortfall, the Related Rights or the Collection Shortfall Charges. To the extent that there are adjustments to the load settlement claims, any related refunds or collections to individual customers will be made at the full EESAI discovered cost of energy in 2001 rather than at the charge prescribed by the Minister of $110/MWh.10 Without knowing all of the circumstances that could give rise to the need for an adjustment, EESAI cannot yet detail the method and process by which the adjustments would be made. However, EESAI asked the Board to indicate its approval

8 9 10

Decision 2002-052, p. 34 August 19 Filing, pp. 3-4. Prescribed Charge. EUB Decision 2002-094 (November 19, 2002) • 5

Securitization of 2001 Shortfall Rate Option Collection Shortfall

EESAI

in principle of the proposed approach so that the Securitization Transaction may proceed in the meantime. In the August 19 Filing, EESAI advised that it would file the final 2001 Collection Shortfall amount and the Final Collection Shortfall Charges within one week of the securitization terms being finalized.11 However, as explained earlier, the balance of the 2001 Collection Shortfall as at January 1, 2002 must be finalized in the context of this Application for purposes of securitization and, more specifically, so that the 2001 Collection Shortfall balance as at the Cut-Off Date can be determined. The Final Collection Shortfall Charges remain to be filed and EESAI continues to expect that it will be able to make that filing within one week after the Closing Date. EESAI noted for the Board that, since that filing will occur after the Closing Date, and thus after the 2001 Collection Shortfall and the Related Rights have been sold to the Purchaser, EESAI will be making the filing in its capacity as Servicer for and on behalf of the Purchaser. Subject to the foregoing, and for purposes of the securitization, EESAI has determined the balance of the 2001 Collection Shortfall as at January 1, 2002 to be $211.08 million. As contemplated in Decision 2002-052, and as shown in Attachment “D” to the Application, the calculation has been made in accordance with the 2001 RRO Settlement. Therefore, for purposes of the proposed Securitization Transaction and specifically for the purpose of determining the 2001 Collection Shortfall balance as at the Cut-Off Date, EESAI requested that the Board approve the sum of $211.08 million as the 2001 Collection Shortfall balance as at January 1, 2002. EESAI also asked the Board to confirm that, subject to the possibility of a “true up” as discussed in Section III (e) of the Application, the 2001 Collection Shortfall is to be recovered over the period ending December 31, 2003.12 4.2.2

Approval of the Interim Collection Shortfall Charges as Final

In Decision 2001-113, the EUB approved interim implementation of an ANCA DT rider to collect the 2001 Collection Shortfall on the basis that was set out in the 2001 RRO Settlement. EESAI noted that the amount charged to sites under the Interim Collection Shortfall Charges must be considered in the determination of the 2001 Collection Shortfall balance as at the CutOff Date.13 EESAI therefore considered it necessary for the Board to approve the Interim Collection Shortfall Charges on a final basis for that purpose and requested that the Board do so. 4.2.3

Approval to Complete Securitization

EESAI noted that AE and ANCA were obliged, by virtue of paragraph 101(2)(d) of the Public Utilities Board Act,14 to seek approval from the Board to sell their 2000 Pool Price Deferral Accounts. However, paragraph 101(2)(d) of the PUB Act does not apply to EESAI.15 Moreover, 11 12 13

14 15

August 19 Filing, p. 6. Decision 2002-052 expressly contemplated a “true-up”, see p. 51. Note that the amounts that must be taken into account for purposes of calculating the 2001 Collection Shortfall balance as at the Cut-Off Date are those that EESAI had requested that ANCA collect on its behalf prior to the Cut-Off Date rather than the amounts actually collected from customers. R.S.A. 2000, c. P-45 (PUB Act) Paragraph 101(2)(d) of the PUB Act provides that a public utility to which it applies may not sell, lease, mortgage or otherwise dispose of or encumber its property etc. without prior approval from the EUB. EESAI is

6 • EUB Decision 2002-094 (November 19, 2002)

Securitization of 2001 Shortfall Rate Option Collection Shortfall

EESAI

the Board approved the 2001 RRO Settlement in Decision 2002-052 and, as mentioned previously, that Settlement included the agreement of the parties to work diligently and in good faith to effect a securitization of the 2001 Collection Shortfall. EESAI suggested, therefore, that Board approval of the Securitization Transaction might not strictly be necessary in order to complete the proposed securitization. Nevertheless, EESAI indicated that approval is required to satisfy the conditions precedent to the Securitization Transaction. As noted in Decision 2002-052, the Board is the regulatory authority for EESAI in relation to the Regulated Rate Option.16 More particularly, EESAI submitted that sections 9 and 10 of the Regulated Rate Option Regulation17 clearly afford the Board with sufficient jurisdiction to grant the approvals, confirmations and directions requested in this Application, including approval to complete the proposed Securitization Transaction. EESAI further submitted that, for the reasons discussed below, it is in the public interest that the Board do so. First, the fact that the parties to the 2001 RRO Settlement agreed that securitization should be pursued must be taken by the Board as compelling evidence that it would be in the public interest to approve the proposed transaction. Second, the Board concluded in Decision 2002-057 that the securitization transactions proposed by AE and ANCA were in the public interest. Among the reasons cited for that conclusion was the fact that approval of the securitization transactions would result in significant savings to the Board-regulated utilities and their customers alike. EESAI submitted that securitization would similarly result in significant cost savings to customers in this case. Although the actual amounts will not be known until the transaction is completed, the table below illustrates the expected savings in customer costs based on the forecast Prescribed Rate. Table 1. EESAI Calculated Savings Under Securitization Carrying Costs under the Current Carrying Cost Rate Less Carrying Costs under the Prescribed Rate with Securitization Savings under Prescribed Rate Less Program Costs Estimated Net Savings due to Securitization

($000) 5,029 2,634 2,395 462 1,933

Finally, EESAI noted that the Board also stated in Decision 2002-057 that: . . . the Board considers that the Securitization Transaction promotes greater fairness for the utilities (including both EDI and ENMAX, should they participate) by accelerating the recovery of company equity and debt financing. In the Board’s view, this accelerated recovery is a positive outcome for the regulatory environment in the electrical restructuring process.18

EESAI considered this reasoning to be equally applicable here. Just as AE and ANCA were unable to recover the principal balance of their PPDAs in 2001 as a result of the Deferral

16 17 18

not designated under the Designation Regulation (A.R. 131/2000, as amended) as a utility to which paragraph 101(2)(d) of the PUB Act applies. Decision 2002-052, p. 36, footnote 83. A.R. 132/2001 (RRO Regulation) Decision 2002-057, p. 13. EUB Decision 2002-094 (November 19, 2002) • 7

Securitization of 2001 Shortfall Rate Option Collection Shortfall

EESAI

Accounts Deficiency Correction Regulation,19 the Regulated Rate Option Amendment Regulation20 prohibited EESAI from collecting from customers in 2001 any amount in excess of the Prescribed Charge. Securitization will accelerate the recovery by EESAI of its financing of the 2001 Collection Shortfall. In Decision 2002-052, the EUB concluded that EESAI prudently procured a supply of RRO energy for its customers in 2001, that EESAI had made prudent arrangements to manage the financial risk associated with the electric energy supply required to meet the obligations under its RRO Tariff, and that EESAI would be permitted to recover the 2001 Collection Shortfall from customers over the period ending December 31, 2003, subject to a final “true-up”.21 In summary, EESAI submitted that the Securitization Transaction proposed in the Application is clearly in the public interest and so should be approved by the Board. Accordingly, EESAI requested that the Board approve EESAI entering into the Securitization Agreement. 4.2.4

Approval of the Securitized Amount and the Calculation of the Shortfall Account Balance from Time to Time

The following table provides the calculation of the 2001 Collection Shortfall balance as at the Cut-Off Date.22 The calculation has been made in accordance with the 2001 RRO Settlement and reflects the amounts charged under the Interim Collection Shortfall Charges. The calculation also reflects a forecast of Program Costs. Any difference between actual and forecast Program Costs will be borne by EESAI and will not affect the 2001 Collection Shortfall balance as at the CutOff Date or any other date. Table 2. 2001 Collection Shortfall Balance at Cut-Off Date per EESAI Final Collection Shortfall Amount as of Jan 1, 2002 Amount of Interim Charges to Sept 30, 2002 Carrying Costs to Sept 30, 2002 Program Costs Collection Shortfall Balance as at Cut-Off Date

($000) Residential Commercial Farm Irrigation Oil & Gas Lighting Total 90,672 57,717 29,335 8,275 24,740 342 211,083 (36,642)

(23,151) (11,701)

(3,405)

(9,960)

3,695

2,357

1,200

336

1,009

694 58,420

447 37,369

227 19,061

78 5,284

214 16,004

(264) (85,123) 11 8,607 9 1,669 98 136,236

EESAI requested that the Board approve the amount of $136.24 million as the 2001 Collection Shortfall balance as at the Cut-Off Date and the calculation of the Shortfall Account Balance from time to time thereafter in accordance with the terms of the Securitization Agreement. EESAI also requested that the Board confirm the right of EESAI, for and on behalf of the Purchaser (or the Purchaser directly if EESAI is no longer acting as Servicer pursuant to the Securitization Agreement), to collect in full the balance of the 2001 Collection Shortfall as at the 19 20 21 22

A.R. 240/2000. A.R. 250/2000 (RRO Regulation) Decision 2002-052, pp. 29-36 and 51 See also Attachment “D”.

8 • EUB Decision 2002-094 (November 19, 2002)

Securitization of 2001 Shortfall Rate Option Collection Shortfall

EESAI

Cut-Off Date (including Program Costs), and interest at the Prescribed Rate determined in accordance with the Securitization Agreement, through the ANCA DT. 4.2.5

Approval to Collect the Program Costs and Funding Costs through the Collection Shortfall Charges

EESAI and the counterparties to the 2001 RRO Settlement agreed to work diligently and in good faith to effect securitization of the 2001 Collection Shortfall. EESAI noted that it has and will reasonably and prudently incur Program Costs in connection with those efforts. EESAI considered that two components of the Program Costs, bank fees and legal fees, should be self-explanatory. However EESAI considered it worth briefly discussing the elements that will comprise the remainder of the Program Costs. Also included in the Program Costs (and hence in the 2001 Collection Shortfall balance as at the Cut-Off Date) will be carrying charges applicable from the Cut-Off Date until the Securitization Transaction closes. These carrying charges will be calculated based on the rate agreed to in the Carrying Charges Settlement. Similarly, the Program Costs will include the costs to EESAI associated with financing the accelerated GST remittance. EESAI applied to CCRA on October 10, 2002 for a ruling concerning treatment of the Securitization Transaction for GST purposes. Current expectations are that CCRA will issue the requested ruling before the scheduled Closing Date. Although CCRA is expected to confirm that GST is not payable in respect of the Securitization Transaction itself, completion of the Transaction will apparently accelerate the obligation of EESAI to remit to CCRA the GST that will be collected in conjunction with the Collection Shortfall Charges. The actual financing costs associated with the accelerated GST remittance cannot be known either at this time or when the Final Collection Shortfall Charges are determined since the costs will be incurred over the entire collection period. A forecast of the costs has therefore been included in the estimated Program Costs. Section 4 of the Balancing Pool Regulation authorizes the balancing pool administrator to issue an indemnity in favour of the Purchaser in connection with the proposed securitization transaction. As discussed in Attachment “C” to the Application, the indemnity is intended to protect the Purchaser against political risk. As EESAI understands it, the balancing pool administrator has agreed to provide the required indemnity on closing.23 In order to ensure that the securitization plan will receive a R-1 (high) rating from DBRS, the indemnity must, in essence, be supported by a letter of credit. As mentioned previously, a portion of the Prescribed Rate will relate to the costs of establishing and maintaining that letter of credit. The Prescribed Rate will be known when the Final Collection Shortfall Charges are determined and will be included in that calculation. However, as explained in the Securitization Transaction Summary, while the Funding Costs should approximate the Prescribed Rate, variances in the Funding Costs could occur under certain conditions, including, without limitation, under the remote possibility that the Purchaser would be required to fund its ownership in the 2001 Collection Shortfall and the Related Rights through drawings under more expensive liquidity facilities provided by RBC or others. Although material variances in the Funding Costs are 23

That will satisfy the relevant condition precedent. See Section II (c) above. EUB Decision 2002-094 (November 19, 2002) • 9

Securitization of 2001 Shortfall Rate Option Collection Shortfall

EESAI

unlikely, if they were to occur, then it could be necessary to implement a “true-up” mechanism that could include collection of any portion of the Shortfall Account Balance outstanding as at December 31, 2003 during a subsequent period. Therefore, EESAI requested that the Board confirm that an appropriate “true-up” mechanism could be implemented to recover any portion of the Shortfall Account Balance outstanding as at December 31, 2003 due to any variance in the Funding Costs. EESAI submitted that it is just and reasonable that all of the Program Costs and Funding Costs be collected through the Final Collection Shortfall Charges and requested Board approval of collection on that basis. 4.2.6

Confirmation that the Shortfall Account is Transferable to the Purchaser

Decision 2002-057 included a thorough discussion of the transferability of the AE and ANCA 2000 PPDAs.24 EESAI submitted that the relevant aspects of the Board’s analysis in Decision 2002-057 supported the conclusion that the 2001 Collection Shortfall is transferable as contemplated in the Securitization Agreement, which EESAI requested that the Board confirm.25 4.2.7

Confirmation that the Related Rights are Transferable to the Purchaser

The definition of “Related Rights” that is included in the Securitization Agreement expressly acknowledges that the transfer to, acquisition, and exercise of, billing rights by the Purchaser may be restricted under the Electric Utilities Act,26 the regulations made under the EU Act, or relevant Board decisions. In all material respects, EESAI submitted that the remainder of the definition is the same as was considered by the Board in Decision 2002-057 and further submitted that this reasoning was equally applicable in this case. Therefore, EESAI requested that the Board confirm that, subject to any limitations arising under the EU Act, the regulations made under the EU Act, or relevant Board Decisions, the Related Rights are transferable to the Purchaser. 4.2.8

Confirmation that the Purchaser will be Given Standing

In Decision 2002-057, the Board stated that, after securitization of the 2000 PPDAs was completed, it would recognize the Purchaser as the owner of each of the Deferral Accounts and of the Related Rights (as defined in the AE and ANCA securitization agreements).27 EESAI is obliged under the terms of the Securitization Agreement to request that the Board issue similar confirmations in this case. Therefore, EESAI requested that the Board confirm that, upon completion of the Securitization Transaction in accordance with the Securitization Agreement, the Board will recognize the Purchaser as the owner of the 2001 Collection Shortfall and the Related Rights. EESAI also requested confirmation that, upon completion of the Securitization Transaction in accordance with the Securitization Agreement, the Purchaser shall have the same rights and benefits with respect to the 2001 Collection Shortfall and Related Rights as did EESAI prior to that time and that it will be given standing before the Board to request any relief or assert any right that would otherwise have been available to EESAI regarding: 24 25 26 27

Decision 2002-057, pp. 14-18. As noted above, paragraph 101(2)(d) of the PUB Act does not apply to EESAI and therefore EESAI is not required to seek approval under that Act to complete the proposed securitization. R.S.A. 2000, c. E-5 (EU Act). Decision 2002-057, pp. 17-18.

10 • EUB Decision 2002-094 (November 19, 2002)

Securitization of 2001 Shortfall Rate Option Collection Shortfall

EESAI

(1) the amount of the 2001 Collection Shortfall balance; (2) the amount or rate of carrying charges related to the 2001 Collection Shortfall balance; (3) the period and method of collection of the 2001 Collection Shortfall and the carrying costs related thereto; and (4) any other matter related to the 2001 Collection Shortfall and the carrying costs thereof, for which the Purchaser requires Board clarification or assistance. 4.2.9

Directions to ANCA re: Collection of the Collection Shortfall Charges

In accordance with subparagraph 10(3)(b)(iii) of the RRO Regulation, the amount in addition to the Prescribed Charge that EESAI is permitted to collect as approved by the Board in Decision 2002-052, must be collected from eligible customers under the ANCA distribution tariff and then remitted by ANCA to EESAI. Although EESAI expects ANCA to comply with its obligations, EESAI and the Purchaser wish for those obligations to be confirmed by a direction from the Board. Therefore, EESAI requested the Board to direct ANCA and any person claiming by, under or through ANCA, including its successors, assigns, transferees, and any trustee or receiver thereof, as well as any wire services provider that ANCA may appoint, to collect the Collection Shortfall Charges under its distribution tariff and remit all amounts collected to EESAI or as otherwise directed by the Purchaser. In addition, EESAI asked the Board to confirm that, notwithstanding the purchase of the 2001 Collection Shortfall and the Related Rights, and subject to the EU Act and the regulations made under the EU Act, ANCA and any person claiming by, under or through ANCA, including any of its successors, assigns, transferees, and any trustee or receiver thereof, as well as any wire services provider that ANCA may appoint, will remain obligated to bill and collect, for the benefit of the Purchaser, all amounts relating to the 2001 Collection Shortfall and the Related Rights. 4.2.10

Approval of the Carrying Charges Settlement

As contemplated in the 2001 RRO Settlement, EESAI and the Consultation Parties have entered into the Carrying Charges Settlement respecting the carrying charge rates applicable to the 2001 Collection Shortfall from January 1, 2002 until completion of securitization. The approach upon which the parties have agreed builds on the carrying charges for 2001 approved by the Board in Decision 2001-92 in relation to the 2000 PPDAs of ANCA and EPCOR Distribution Inc. EESAI and the Consultation Parties have agreed upon updated carrying charge rates for the second and third quarters of 2002 and for the period from the end of the third quarter until completion of securitization. EESAI submitted that the Carrying Charges Settlement is just and reasonable and in the public interest and should be approved by the Board. More particularly, EESAI submitted that the Carrying Charges Settlement meets the criteria identified in the Board’s Negotiated Settlement Guidelines, EUB Information Letter 98-04: (1) public interest - the Carrying Charges Settlement results from consultation and negotiations between EESAI and the Consultation Parties who represent virtually all of the customers affected by the RRO Tariff; (2) reasonable and fair to all interested parties - the carrying charges contemplated in the Carrying Charges Settlement fairly compensate EESAI and are consistent with carrying costs approved by the Board in similar circumstances; EUB Decision 2002-094 (November 19, 2002) • 11

Securitization of 2001 Shortfall Rate Option Collection Shortfall

EESAI

(3) well-substantiated and rational basis - the basis for the agreement has been wellsubstantiated in the Carrying Charges Settlement; and (4) complete and adequate to support the application - the Carrying Charges Settlement and the discussion of the related matters in the Application provide complete and adequate support for the request that the Carrying Charges Settlement be approved. EESAI noted that the carrying charges established under the Carrying Charges Settlement are required to determine the 2001 Collection Shortfall balance as at the Cut-Off Date. Therefore, EESAI requested that the Board approve the Carrying Charges Settlement on an expedited basis. (Click here to Return to the Table of Contents)

5

VIEWS OF INTERESTED PARTIES

No parties objected to the Application. However, the AAMDC did submit a letter dated November 15, 2002, indicating their support for the Application. In particular, the AAMDC said the following: We would respectfully submit that the above-noted Application meets the requirements of the Settlement Agreement. The proposals for securitization will benefit customers as a result of lower carrying charges. We would request that the Board approve the Application.

6

VIEWS OF THE BOARD

6.1

Is Securitization in the Public Interest?

As noted, the Board received no objections to the Application and one letter of support from the AAMDC indicating that the Application should be approved. Nevertheless, the Board has reviewed the Application to satisfy itself that the securitization rates (or Prescribed Rates as defined in the Securitization Agreement) are just and reasonable, and that the Securitization Transaction is otherwise in the public interest. In the Application, the Board notes that EESAI has forecast a securitization Prescribed Rate of 3.338% for the period ending December 31, 2003. In their Application, EESAI has determined that securitization will result in an expected carrying cost saving to customers of $2.395 million. After deducting EESAI’s estimate of Program Costs of $0.462 million, a net customer saving of $1.933 million is forecast. Additionally, the Board takes considerable comfort from the fact that parties to the 2001 RRO Settlement agreed that securitization should be diligently pursued. The Board takes particular note of the support of the AAMDC, one of the Consultation Parties, and its view that the Application should be approved as being consistent with the 2001 RRO Settlement approved by the Board in Decision 2002-052 and as offering customers significant savings. Finally, the Board notes that securitization will accelerate the recovery by EESAI of its financing of the 2001 Collection Shortfall, thereby promoting greater fairness for the utility.

12 • EUB Decision 2002-094 (November 19, 2002)

Securitization of 2001 Shortfall Rate Option Collection Shortfall

EESAI

For all of these reasons, the Board is satisfied that the rates resulting from the Securitization Agreement are just and reasonable and in the public interest. The Board considers that it has sufficient jurisdiction to grant the approvals, confirmations and directions requested by the Application. Accordingly, the Board approves EESAI entering into the Securitization Agreement and completing the Securitization Transaction. (Click here to return to the Table of Contents)

6.2

2001 Collection Shortfall Carrying Cost Settlement Agreement

The Board concurs with EESAI that the carrying charges established under the Carrying Charges Settlement are required to determine the 2001 Collection Shortfall balance as at the Cut-Off Date and, consequently, expeditious Board approval is critical to a timely implementation of securitization. As contemplated in the 2001 RRO Settlement, EESAI and the Consultation Parties have entered into the Carrying Charges Settlement respecting the carrying charge rates applicable to the 2001 Collection Shortfall from January 1, 2002 until completion of securitization. The Board notes that the approach upon which the parties have agreed builds on the fundamentals for carrying charges approved by the Board in Decision 2001-92 in relation to the 2000 PPDAs. The Board also concurs with EESAI’s submission that the Carrying Charges Settlement is just and reasonable and in the public interest and that it meets the criteria identified in the Board’s Negotiated Settlement Guidelines for the reasons submitted by EESAI. Accordingly, the Board approves the 2001 RRO Collection Shortfall Carrying Cost Settlement Agreement as attached in Appendix 1 of this Decision. (Click here to return to the Summary of Confirmations and Approvals)

6.3

RRO Balances

In Decision 2002-052, the Board concluded that EESAI prudently procured a supply of RRO energy for its customers in 2001, that EESAI had made prudent arrangements to manage the financial risk associated with the electric energy supply required to meet the obligations under its RRO Tariff, and that EESAI would be permitted to recover the 2001 Collection Shortfall from customers over the period ending December 31, 2003, subject to a final “true-up”. The Board agrees with EESAI that determination of the 2001 Collection Shortfall balance as at the Cut-Off Date is essential to completing the Securitization Transaction. The Board further acknowledges that the starting point for the relevant calculation is the 2001 Collection Shortfall balance as at January 1, 2002, which the Board has yet to approve on a final basis. However, as indicated by EESAI, postponing the Securitization Transaction until all outstanding claims are resolved would significantly erode the benefits to customers of securitization. The Board accepts EESAI’s proposal to “fix” the 2001 energy consumption for purposes of both securitization and determining the Final Collection Shortfall Charges. The Board agrees that any adjustments due to changes in the load settlement claims occurring after the Cut-Off Date, or due to any other reason, will need to be addressed separately−e.g. through separate riders and/or

EUB Decision 2002-094 (November 19, 2002) • 13

Securitization of 2001 Shortfall Rate Option Collection Shortfall

EESAI

billing adjustments−and will not affect the balance or any other aspect of the 2001 Collection Shortfall, the Related Rights or the Collection Shortfall Charges. The Board further approves, in principle, EESAI’s proposal to deal with adjustments arising due to load settlement claims or other collection related issues on a separate or individual basis at EESAI’s discovered cost of energy in 2001 as proposed by EESAI to facilitate implementing securitization in the meantime. Accordingly, for purposes of the proposed securitization transaction and specifically for the purpose of determining the 2001 Collection Shortfall balance as at the Cut-Off Date, the Board approves the amount of $211.083 million as the 2001 Collection Shortfall balance as at January 1, 2002. In Decision 2001-113, the Board approved interim implementation of an ANCA DT rider to collect the 2001 Collection Shortfall on the basis that was set out in the 2001 RRO Settlement (Interim Collection Shortfall Charges). The amount charged to sites under the Interim Collection Shortfall Charges must be considered in the determination of the 2001 Collection Shortfall balance as at the Cut-Off Date. The Board agrees with EESAI that it is therefore necessary that the Board approve the Interim Collection Shortfall Charges on a final basis for that purpose. Accordingly, the Board approves the Interim Collection Shortfall Charges on a final basis for this purpose. (Click here to return to the Summary of Confirmations and Approvals)

EESAI provided the following table with a breakdown the outstanding Collection Shortfall as at the proposed Cut-Off Date of October 1, 2002. Table 3. Board Approved - 2001 Collection Shortfall Balance at the Cut-Off Date

Final Collection Shortfall Amount as of Jan 1, 2002 Amount of Interim Charges to Sept 30, 2002 Carrying Costs to Sept 30, 2002 Program Costs Collection Shortfall Balance as at Cut-Off Date

($000) Residential Commercial Farm 90,672 57,717 29,335

Irrigation Oil & Gas 8,275 24,740

Lighting 342

Total 211,083

(36,642)

(23,151)

(11,701 )

(3,405)

(9,960)

(264)

(85,123)

3,695

2,357

1,200

336

1,009

11

8,607

694 58,420

447 37,369

227 19,061

78 5,284

214 16,004

9 98

1,669 136,236

14 • EUB Decision 2002-094 (November 19, 2002)

Securitization of 2001 Shortfall Rate Option Collection Shortfall

EESAI

Additionally, in the Application, EESAI has provided a breakdown of estimated Program Costs as indicated in the following table. Table 4. Board Approved Estimated Program Costs ($000) by Customer Class Legal Fees Carrying Costs from Cutoff date to Closing Date Bank fees and expenses Financing costs of GST acceleration Total

Residential Commercial Farm 87.5 56.3 28.6

Irrigation Oil & Gas 9.8 27.0

Lighting 1.2

Total 210.3

502.0

323.0

163.9

56.4

155.1

6.7

1,207.3

29.1

18.7

9.5

3.3

9.0

0.4

70.0

75.4

48.5

24.6

8.5

23.3

1.0

181.2

694.0

446.6

226.6

78.0

214.4

9.3

1,668.9

The Board agrees with EESAI that the $1.207 million of carrying costs from the Cut-Off Date until the Closing Date would be required in any event and that the costs could be subject to minor variation depending upon the final Closing Date. The Board further notes EESAI’s indication of their preparedness to utilize the estimate for the balance of factors related to legal fees, bank fees/expenses and GST related financing costs (estimated as $0.462 million) as a fixed number and to bear any associated risk that could arise from estimating inaccuracies. The Board is satisfied with EESAI’s backup information supporting the estimation of the Program Costs as set out in EESAI’s letter of November 15, 2002. The Board finds EESAI’s proposed treatment of Program Costs to be reasonable in this circumstance. For purposes of determining the balances for the Securitization Transaction, the Board accepts the calculation of the Shortfall Balances as provided in the previous two tables and the Board approves the collection of all Program Costs and Funding Costs through the Final Collection Shortfall Charges. Accordingly, the Board approves $136.24 million as the 2001 Collection Shortfall balance as at the Cut-Off Date of October 1, 2002. Further, having considered the definition of the Shortfall Account Balance in the Securitization Agreement, the Board approves the calculation of the Shortfall Account Balance for EESAI from time to time in accordance with the terms of the Securitization Agreement. The Board also confirms the right of EESAI, for and on behalf of the Purchaser (or the Purchaser directly if EESAI is no longer acting as Servicer pursuant to the Securitization Agreement), to collect in full the balance of the 2001 Collection Shortfall as at the Cut-Off Date (including Program Costs), and interest at the Prescribed Rate determined in accordance with the Securitization Agreement, through the ANCA DT. (Click here to return to the Summary of Confirmations and Approvals)

6.4

RRO Balances and Related Rights as Transferable Assets

EESAI asked the Board to provide approvals confirming the transferability of the Shortfall Account and Related Rights. The Board agrees with EESAI that, since EESAI is not a designated public utility for purposes of section 101(2)(d) of the PUB Act, that approval of the Securitization Transaction pursuant to that Act is not required.

EUB Decision 2002-094 (November 19, 2002) • 15

Securitization of 2001 Shortfall Rate Option Collection Shortfall

EESAI

However, the Board acknowledges that it approved the 2001 RRO Settlement in Decision 2002052. This Settlement included the agreement of the parties to work diligently and in good faith to effect a securitization of the 2001 Collection Shortfall, which is reflected in the current Application. On that basis, the Board approved EESAI’s entering into of the Securitization Agreement and completing the Securitization Transaction in Section 6.1 of this Decision. Accordingly, consistent with its findings in Decision 2002-057 (to the extent they are material), the Board confirms that, subject to any limitations arising from the EU Act, its regulations or relevant Board Decisions, both the Shortfall Account and the Related Rights are transferable assets and are transferable to the Purchaser. For these reasons, therefore, upon the purchase of the Shortfall Account and the Related Rights (as defined under the Shortfall Account Purchase and Servicing Agreement) pursuant to the terms of the Shortfall Account Purchase and Servicing Agreement, the Board will recognize the Purchaser as the owner of the Shortfall Account and the Related Rights and the Purchaser shall have the same rights and benefits with respect to the Shortfall Account and Related Rights as did EESAI prior to the purchases. The Board also confirms that the Purchaser will be given standing before the Board to request any relief or assert any right that would otherwise have been available to EESAI regarding: (a) the amount of the 2001 Collection Shortfall balance; (b) the amount or rate of carrying charges related to the 2001 Collection Shortfall balance; (c) the period and method of collection of the 2001 Collection Shortfall and the carrying costs related thereto; and (d) any other matter related to the 2001 Collection Shortfall and the carrying costs thereof, for which the Purchaser requires EUB clarification or assistance. (Click here to return to the Summary of Confirmations and Approvals)

6.5

Collection Process

The Board agrees that ANCA will continue to collect the Collection Shortfall Charges under its distribution tariff and remit the amounts collected to EESAI, or in certain circumstances, directly to the Purchaser. Additionally, the Board acknowledges that EESAI will be appointed as Servicer pursuant to the Securitization Agreement and will be required to receive and hold in trust the Rate Rider Collections that it receives from ANCA and remit those amounts to the Purchaser monthly, or more frequently in certain circumstances. Amortization of the 2001 Collection Shortfall, including Program Costs, will be through the application of net monthly collections after deducting the Purchaser’s actual costs of financing the securitization and other related costs and expenses of the Purchaser as provided in the Securitization Agreement. Accordingly, the Board directs ANCA and any person claiming by, under or through ANCA, including its successors, assigns, transferees, and any trustee or receiver thereof, as well as any wire services provider that ANCA may appoint, to collect the Collection Shortfall Charges under its distribution tariff and remit all amounts collected to EESAI or as otherwise directed by the Purchaser. In addition, the Board confirms that, notwithstanding the purchase of the 2001 Collection Shortfall and the Related Rights, and subject to the EU Act and the regulations made under the EU Act, ANCA and any person claiming by, under or through ANCA, including any of 16 • EUB Decision 2002-094 (November 19, 2002)

Securitization of 2001 Shortfall Rate Option Collection Shortfall

EESAI

its successors, assigns, transferees, and any trustee or receiver thereof, as well as any wire services provider that ANCA may appoint, will remain obligated to bill and collect, for the benefit of the Purchaser, all amounts relating to the 2001 Collection Shortfall and the Related Rights. 6.6

True-Up

EESAI requested that the Board confirm that an appropriate true-up mechanism could be implemented to recover any portion of the Shortfall Account Balance outstanding as at December 31, 2003 due to any variance in the Funding Costs. As explained in the Securitization Transaction Summary attached as Appendix C to the Application, while the Funding Costs should approximate the Prescribed Rate, variances in the Funding Costs could occur under certain conditions, including, without limitation, under the remote possibility that the Purchaser would be required to fund its ownership in the 2001 Collection Shortfall and the Related Rights through drawings under more expensive liquidity facilities provided by RBC or others. The Board confirms that an appropriate true-up mechanism could be implemented to recover any portion of the Shortfall Account Balance outstanding as at December 31, 2003 due to any variance in the Funding Costs. The Board also confirms that, subject to the possibility of a “trueup”, the 2001 Collection Shortfall is to be recovered over the period ending December 31, 2003. Additionally, as noted in earlier in this Decision, the Board accepts EESAI’s proposal to “fix” the 2001 RRO energy consumption for purposes of both securitization and determining the Final Collection Shortfall Charges. The Board concurs that any adjustments due to changes in the load settlement claims occurring after the Cut-Off Date or due to any other reason will need to be addressed separately−e.g. through separate riders and/or billing adjustments−and will not affect the balance or any other aspect of the 2001 Collection Shortfall, the Related Rights or the Collection Shortfall Charges. Furthermore, the Board directs EESAI to notify the Board of the Prescribed Rate for their Securitization Agreement forthwith following the closing date of the Securitization Transaction. Additionally, the Board directs EESAI, within 15 days of the closing date of the Securitization Transaction, to file with the Board and interested parties, schedules summarizing the amortization, swap fixed rate and swap floating base rate forecast monthly amounts. (Click here to return to the Summary of Directions)

(Click here to Return to the Table of Contents)

EUB Decision 2002-094 (November 19, 2002) • 17

Securitization of 2001 Shortfall Rate Option Collection Shortfall

7

EESAI

SUMMARY OF CONFIRMATIONS AND APPROVALS

This Summary is provided for the convenience of readers. In the event of any difference between this Summary and the body of the Decision, the wording in the body of the Decision shall prevail. Furthermore, the inclusion or omission of particular findings in this Summary should not be construed as an indication of the Board’s view of the relative significance of any of the findings in this Decision. 1. For all of these reasons, the Board is satisfied that the rates resulting from the Securitization Agreement are just and reasonable and in the public interest. The Board considers that it has sufficient jurisdiction to grant the approvals, confirmations and directions requested by the Application. Accordingly, the Board approves EESAI entering into the Securitization Agreement and completing the Securitization Transaction. ................................................... 13 2. Accordingly, the Board approves the 2001 RRO Collection Shortfall Carrying Cost Settlement Agreement as attached in Appendix 1 of this Decision........................................ 13 3. The Board further approves, in principle, EESAI’s proposal to deal with adjustments arising due to load settlement claims or other collection related issues on a separate or individual basis at EESAI’s discovered cost of energy in 2001 as proposed by EESAI to facilitate implementing securitization in the meantime. ........................................................................ 14 4. Accordingly, for purposes of the proposed securitization transaction and specifically for the purpose of determining the 2001 Collection Shortfall balance as at the Cut-Off Date, the Board approves the amount of $211.083 million as the 2001 Collection Shortfall balance as at January 1, 2002. .................................................................................................................. 14 5. Accordingly, the Board approves the Interim Collection Shortfall Charges on a final basis for this purpose. ............................................................................................................................ 14 6. The Board finds EESAI’s proposed treatment of Program Costs to be reasonable in this circumstance. For purposes of determining the balances for the Securitization Transaction, the Board accepts the calculation of the Shortfall Balances as provided in the previous two tables and the Board approves the collection of all Program Costs and Funding Costs through the Final Collection Shortfall Charges.................................................................................... 15 7. Accordingly, the Board approves $136.24 million as the 2001 Collection Shortfall balance as at the Cut-Off Date of October 1, 2002. Further, having considered the definition of the Shortfall Account Balance in the Securitization Agreement, the Board approves the calculation of the Shortfall Account Balance for EESAI from time to time in accordance with the terms of the Securitization Agreement.............................................................................. 15 8. The Board also confirms the right of EESAI, for and on behalf of the Purchaser (or the Purchaser directly if EESAI is no longer acting as Servicer pursuant to the Securitization Agreement), to collect in full the balance of the 2001 Collection Shortfall as at the Cut-Off Date (including Program Costs), and interest at the Prescribed Rate determined in accordance with the Securitization Agreement, through the ANCA DT................................................... 15 9. Accordingly, consistent with its findings in Decision 2002-057 (to the extent they are material), the Board confirms that, subject to any limitations arising from the EU Act, its regulations or relevant Board Decisions, both the Shortfall Account and the Related Rights are transferable assets and are transferable to the Purchaser. ................................................. 16

18 • EUB Decision 2002-094 (November 19, 2002)

Securitization of 2001 Shortfall Rate Option Collection Shortfall

EESAI

10. For these reasons, therefore, upon the purchase of the Shortfall Account and the Related Rights (as defined under the Shortfall Account Purchase and Servicing Agreement) pursuant to the terms of the Shortfall Account Purchase and Servicing Agreement, the Board will recognize the Purchaser as the owner of the Shortfall Account and the Related Rights and the Purchaser shall have the same rights and benefits with respect to the Shortfall Account and Related Rights as did EESAI prior to the purchases............................................................... 16 11. The Board also confirms that the Purchaser will be given standing before the Board to request any relief or assert any right that would otherwise have been available to EESAI regarding: ................................................................................................................................ 16 (a) the amount of the 2001 Collection Shortfall balance; .......................................... 16 (b) the amount or rate of carrying charges related to the 2001 Collection Shortfall balance; ................................................................................................................. 16 (c) the period and method of collection of the 2001 Collection Shortfall and the carrying costs related thereto; and ........................................................................ 16 (d) any other matter related to the 2001 Collection Shortfall and the carrying costs thereof, for which the Purchaser requires EUB clarification or assistance........... 16 12. The Board confirms that an appropriate true-up mechanism could be implemented to recover any portion of the Shortfall Account Balance outstanding as at December 31, 2003 due to any variance in the Funding Costs. The Board also confirms that, subject to the possibility of a “true-up”, the 2001 Collection Shortfall is to be recovered over the period ending December 31, 2003................................................................................................................................... 17 (Click here to Hyperlink to the Table of Contents to material in this Decision.)

8

SUMMARY OF DIRECTIONS

This section is provided for the convenience of readers. In the event of any difference between the Directions in this section and those in the main body of the report, the wording in the main body of the Decision shall prevail. 1. Accordingly, the Board directs ANCA and any person claiming by, under or through ANCA, including its successors, assigns, transferees, and any trustee or receiver thereof, as well as any wire services provider that ANCA may appoint, to collect the Collection Shortfall Charges under its distribution tariff and remit all amounts collected to EESAI or as otherwise directed by the Purchaser. In addition, the Board confirms that, notwithstanding the purchase of the 2001 Collection Shortfall and the Related Rights, and subject to the EU Act and the regulations made under the EU Act, ANCA and any person claiming by, under or through ANCA, including any of its successors, assigns, transferees, and any trustee or receiver thereof, as well as any wire services provider that ANCA may appoint, will remain obligated to bill and collect, for the benefit of the Purchaser, all amounts relating to the 2001 Collection Shortfall and the Related Rights. ............................................................................................ 16 2. Furthermore, the Board directs EESAI to notify the Board of the Prescribed Rate for their Securitization Agreement forthwith following the closing date of the Securitization Transaction.............................................................................................................................. 17 3. Additionally, the Board directs EESAI, within 15 days of the closing date of the Securitization Transaction, to file with the Board and interested parties, schedules EUB Decision 2002-094 (November 19, 2002) • 19

Securitization of 2001 Shortfall Rate Option Collection Shortfall

EESAI

summarizing the amortization, swap fixed rate and swap floating base rate forecast monthly amounts. .................................................................................................................................. 17 (Click here to Hyperlink to the Table of Contents to material in this Decision.)

9

ORDER

For and subject to the reasons set out in this Decision, and in addition to the confirmations and approvals otherwise set out in this Decision, the Board hereby orders as follows: 1.

EESAI may enter a Shortfall Account Purchase and Servicing Agreement with the Purchaser substantially in the form of the draft Agreement attached to the Application (Securitization Agreement).

2.

As of October 1, 2002, which date shall be the Cut-Off Date (as defined in the Securitization Agreement), the Shortfall Account Balance, for purposes of Securitization, (as defined in the Securitization Agreement) shall be $136.24 million.

3.

ANCA and any person claiming by, under or through ANCA, including its successors, assigns, transferees, and any trustee or receiver thereof, as well as any wire services provider that ANCA may appoint, is to collect the Collection Shortfall Charges under its distribution tariff and immediately remit all amounts collected to EESAI or as otherwise directed by the Purchaser.

4.

The 2001 RRO Collection Shortfall Carrying Cost Settlement attached as Appendix 1 to this Decision is approved.

(Click here to Return to the Table of Contents)

20 • EUB Decision 2002-094 (November 19, 2002)

Securitization of 2001 Shortfall Rate Option Collection Shortfall

EESAI

DATED in Calgary, Alberta on November 19, 2002. ALBERTA ENERGY AND UTILITIES BOARD

A. J. Berg, P. Eng. Presiding Member

J. Ian Douglas, FCA Member

R. G. Lock, P. Eng. Member

EUB Decision 2002-094 (November 19, 2002) • 21

Securitization of 2001 Shortfall Rate Option Collection Shortfall

EESAI

APPENDIX 1 – 2001 RRO COLLECTION SHORTFALL CARRYING COST SETTLEMENT AGREEMENT

2001 RRO Collection Shortfall Carrying Cost Settlement Agreement

(Consists of 4 pages)

(Click here to return to Text in Section 3 where Appendix 1 is referenced) (Click here to Return to the Table of Contents)

EUB Decision 2002-094 (November 19, 2002) • 23

EUB Decision 2002-094 -- Appendix 1

2001 RRO Collection Shortfall Carrying Charge – Settlement Agreement

Page 1

2001 RRO COLLECTION SHORTFALL CARRYING COST SETTLEMENT AGREEMENT BETWEEN: EPCOR Energy Services (Alberta) Inc. (hereinafter referred to as EESAI) - and Alberta Association of Municipal Districts and Counties Alberta Urban Municipalities Association Alberta Irrigation Projects Association, Consumers Coalition of Alberta Ermineskin and Montana Nations and the Public Institutional Consumers of Alberta (hereinafter collectively referred to as the Consultation Parties) WHEREAS: a)

EESAI has, through an arrangement with Aquila Networks Canada Alberta Ltd. (ANC), undertaken responsibility for providing Regulated Rate Option (RRO) service to eligible customers in ANC’s service area.

b)

As part of the 2001 Settlement Agreement dated October 3, 2001 (2001 Settlement Agreement), EESAI and the Consultation Parties reached agreement on certain points respecting the determination of carrying costs associated with the 2001 RRO Collection Shortfall Amount.

c)

The Alberta Energy and Utilities Board (AEUB) approved the 2001 Settlement Agreement in Decision 2002-52.

d)

EESAI and the Consultation Parties have had discussions concerning determination of the carrying charges associated with the 2001 RRO Collection Shortfall Amount as contemplated in the 2001 Settlement Agreement and have reached agreement concerning such matters as more particularly described in this Settlement Agreement.

October 18, 2002

Page 2

2001 RRO Collection Shortfall Carrying Charge – Settlement Agreement

IT IS HEREBY AGREED AS FOLLOWS: 1.

Carrying Charge Rates Prior to the Closing of the Securitization of EESAI’s 2001 RRO Collection Shortfall Amount EESAI and the Consultation Parties agree that the carrying charge rate applicable to the 2001 RRO Collection Shortfall Amount will be as follows:

2.

2001

Q1 2002

Q2 2002

Q3 2002

7.983%

6.517%

6.723%

6.737%

From the end of Q3 2003 Until the closing of the Securitization 6.815%

Carrying Charge Rates in the Event that Swecuritization Does Not Proceed EESAI and the Consultation Parties currently expect that the securitization of the 2001 RRO Collection Shortfall will close sometime between October 31, 2002 and November 15, 2002. If the securitization of the 2001 RRO Collection Shortfall has not closed by November 30, 2002, EESAI shall advise the Consultation Parties whether, in EESAI’s reasonable judgement, securitization is likely to close. If EESAI advises that securitization is no longer likely, then EESAI and the Consultation Parties will commence immediately negotiations to agree on a carrying charge for the balance of 2002 and 2003. If an agreement concerning carrying charges for the balance of 2002 and 2003 is not reached by December 16, 2002, the matter will be referred to the Board for resolution. Until the matter is resolved, a carrying cost rate of 6.815% will be used for the purpose of determining the 2001 RRO Collection Shortfall Charge.

3.

Filing of Settlement Agreement with the AEUB Following execution of this Settlement Agreement by EESAI and all Consultation Parties, EESAI agrees to file it with the AEUB for approval on an expedited basis.

4.

Support of 2003 Settlement Agreement The Consultation Parties agree to support EESAI’s request for approval of this Settlement Agreement.

5.

Conditions Precedent This Settlement Agreement is contingent on the AEUB accepting the provisions of this Settlement Agreement as contemplated in Section 68 of the Electric Utilities Act. Unless otherwise agreed by the Parties, if the AEUB rejects this Settlement Agreement in whole or in part, this Settlement Agreement will be null and void.

October 18, 2002

2001 RRO Collection Shortfall Carrying Charge – Settlement Agreement

6.

Page 3

General Terms and Conditions of Settlement (a)

The division of this Settlement Agreement into headings and paragraphs is for convenience and reference only and should not affect the interpretation or construction of this Settlement Agreement.

(b)

This Settlement Agreement and its Attachments constitute the entire agreement between the Parties and no other agreements, expressed or implied, have been made.

(c)

Any alteration or amendment of this Settlement Agreement must be in writing and signed by the Parties.

(d)

This Settlement Agreement will be binding upon, and enure to the benefit of, the Parties and each of their respectivetrustees, administrators, successors and permitted assigns.

(e)

The terms and conditions of this Settlement Agreement will be interpreted pursuant to the laws of the Province of Alberta. Further, the Courts of the Province of Alberta will have exclusive jurisdiction with respect to any and all legal proceedings which may arise in connection with this Settlement Agreement or any of its terms and conditions.

(f)

If any provision of this Settlement Agreement is found to be invalid by a Court of Law, the Settlement Agreement will be read and interpreted as if the provision were omitted.

(g)

The failure of any Party to exercise any right given to it under this Settlement Agreement or to insist upon the strict compliance with any of the terms or conditions in this Settlement Agreement will not constitute a waiver of any provisions with respect to any other or subsequent breach.

(h)

Time will be of the essence in this Settlement Agreement and every part of this Settlement Agreement and no extension or variance of this Settlement Agreement will operate as a waiver of this provision.

(i)

This Settlement Agreement may be executed in any number of counterparts with the same effect as if the Parties had signed the same copy of this Settlement Agreement. All counterparts will be construed together and constitute one and the same agreement.

October 18, 2002

2001 RRO Collection Shortfall Carrying Charge – Settlement Agreement

Page 4

DATED as of the 18th day of October, 2002 EPCOR Energy Services (Alberta) Inc.

Consumers Coalition of Alberta

Per:_______________________________

Per:_______________________________

Alberta Association of Municipal Districts & Emineskin and Montana Nations Counties Per: _______________________________

Per:_______________________________

Alberta Irrigation Projects Association

Public Institutional Consumers of Alberta

Per:_______________________________

Per:_______________________________

Alberta Urban Municipalities Association Per:_______________________________

October 18, 2002