wired for growth - Veridian Corporation

Transcription

wired for growth - Veridian Corporation
wired for growth
veridian 2014 annual report
wired for growtH
Connected
everywhere
Gravenhurst
Veridian is advantageously situated in
a region that stretches west to Toronto,
north to Peterborough and east to Kingston
(three cities listed in the Canadian Creativity
Index). This area is poised to reap substantial
economic and social benefits as it grows
into an innovation hub — part of a larger
big-city region with the GTA at its core.
According to worldrenowned urban theorist
and University of Toronto
professor Richard Florida,
big-city regions bring
together the qualities
of talent, technology
and tolerance to be
the growth engines
of progress. These are
communities where the
new knowledge-based
economies are placing
an ever-increasing
value on people,
ideas and creativity.
Beyond delivering
power as efficiently as
possible and putting
in place infrastructure
in a prudent and
economical manner,
where does a publicly
held utility fit?
Veridian’s answer is:
everywhere!
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2014 At a Glance
VERIDIAN 2014 ANNUAL REPORT
WIRED FOR GROWTH
2014 At A Glance
1
Joint Letter
3
2015-2016 Veridian Joint Boards of Directors
5
Corporate Philosophy
6
Veridian Leadership
7
Progressive communities need a progressive utility
9
PUTTING IN PLACE THE Electrical Backbone
13
Continuously Improving the Customer’s Experience
17
Sowing the Seeds of Innovation
23
Providing a Progressive Workplace
27
Improving Quality of Life in the Communities Veridian Serves
31
Financial Summary
34
2014 Boards of Directors and Meeting Attendance
78
$8.2
milliointenrest
$8.9
miljulstieod n
dividends
ad
e
net incom
&
750,000
hohuourt as
234
$117.7
milolldieros’ eqnuity
$ 315.2
million
total reven
in shareh
ue
118,4rs15
custome
About Veridian
Veridian Connections is the seventh largest,
municipally owned electricity distributor
in Ontario. The company safely and reliably
delivers electricity to more than 118,000
customers in the cities of Belleville and Pickering,
the towns of Ajax, Gravenhurst and Port Hope,
and the communities of Beaverton, Bowmanville,
Cannington, Newcastle, Orono, Port Perry,
Sunderland and Uxbridge.
91%
overall
n
satisfactio
m
o
cust er
score
2,622
h
GaW
nnual
electric de
custom
average
ast
over the p
rs
a
ye
o
tw
wit
jury
lost time in
employees
Veridian Corporation owns and operates Veridian
Connections Inc., a subsidiary company that
distributes electricity, generates power and
provides energy services. Veridian’s 230-plus
employees focus on providing reliable, efficient
and sustainable energy solutions and services,
while maintaining the highest standards in health
and safety within the workplace and in the
communities they serve. Veridian is committed
to providing value and healthy financial returns
to its shareholders – the City of Pickering,
the Town of Ajax, the Municipality of Clarington
and the City of Belleville.
1.0er%
growth
mand
639
sq. km
itory
of service
m
2,5tr3ib9utiok
n lines
of dis
445
ts
megawat
peak dem
and
terr
13.5 MW,
h
93.3 GmW
and and
electricity de ions from
ct
usage redu d demand
n an
conservatio t programs
managemen unverified)
(2011-2014
one of
Canada’st
Greenesrs
Employe4
for 201
recognize
d as a
Smart
Commutcee
Workpla)
(Gold
wired for
growth
VERIDIAN
2014 Annual Report
1
Joint letter from the Chair and President & CEO
2014 finds Veridian and
Ontario’s electricity
distribution sector
at a watershed moment
The Province’s stated desire to support consolidation in
the electricity distribution sector, the pending completion
of the 407 Express Toll Route through Durham Region,
and Veridian’s experience and capacity to expand its services
are all coming together at an opportune time for the company. While we have maintained an annual average ratepayer
base growth of 6 per cent a year since 2006, consistently
provide our shareholders with a significant dividend stream
which totaled $7.7 million in 2014 and continue to grow
shareholder equity so that it has now reached $117.7
million, we are growing the company in a beneficial way.
Growing it in a way that allows for the synergies that
provide rates for our customers that are competitive with
other similar-sized utilities; enhanced network reliability
and safety; a constantly improving customer experience;
increased employee engagement
and satisfaction; along with an
improved quality of life in the
2006
communities we serve.
$223 million
$256 million
2010
A key factor in our success with
fostering the development of
our region has been our ability
2014
to consistently deliver electricity
to homes and businesses
Total Annual Revenue
in our service territories at
competitive rates, even with
the added challenges we face in operating with one of
the most diverse ratepayer bases in Ontario – combining
high- and medium-density urban service territories with
low-density rural territories. In 2014, we harmonized the
rates our Gravenhurst customers pay with the lower rates
our other customers receive. Our streamlining of rates
significantly reduced costs associated with operating under
a two-rate structure. We also downsized our Boards of
Directors by 25 per cent in 2014. Moving forward, this will
save the company $100,000 a year and allow for more
$315 million
Adrian Foster, Chair
Michael Angemeer, President & CEO
nimble governance. In addition, we have found $1.5 million
in savings over the next five years by renegotiating the
financing vehicle we use to fund infrastructure projects.
Veridian makes great efforts to ensure that, in the most
prudent ways possible, we are putting in place the
technological backbone required for growth. In 2014,
we formalized our existing road map for capital projects
and asset management with the creation of our detailed
Distribution System Plan. The plan is underpinned by our
philosophy that, with incremental
increases in investment at the
time of construction, Veridian can
achieve disproportionate gains
in reliability and put in place the
capacity necessary for more
cost-effective future expansion.
As the 407 ETR continued
to expand eastward in 2014,
our crews worked to
accommodate the highway’s
construction while expanding our infrastructure to supply
the substantial residential and commercial development
planned for the area. We are particularly proud of our
involvement with Sustainable Seaton, where we are
looking to partner with developers, the community
and the distributed generation industry to provide
new residents with options for incorporating solar
panels and electric vehicle charging infrastructure
into their homes at the time of construction.
wired for
growth
VERIDIAN
2014 Annual Report
3
Our commitment to providing an enhanced customer
experience was demonstrated in 2014 with the launch of
my.veridian – our web-based customer portal – along with
the introduction of our redesigned website which is now AODA
(Accessibility for Ontarians with Disabilities Act) compliant.
scholarships and bursaries for sustainability-related studies
at post-secondary institutions including Durham College,
Trent University and the Energy Systems and Nuclear
Science Research Centre at UOIT. Through our ongoing
support for the Spark Centre, we are assisting entrepreneurs
and businesses in Durham Region and Northumberland
County in receiving the resources and services essential for
on-the-ground commercialization of products and services.
We’re also helping where we see innovation budding in
our communities. When a group of enthusiastic students
from Pickering High School expressed their desire to build
their own electric vehicle, we stepped up with funding
to assist in making their dream come true.
In 2014, we took action on lessons learned from the
2013 ice storm. Now, often before customers realize that
their lights are out, our system operators can provide them
with real-time information on outage areas and durations
via our customer service representatives, Twitter feed
and Interactive Voice Response telephone system. Perhaps
even more impressive, we’ve taken our desire to improve
the customer experience one
step further with the in-house
More than ever in our
development of an interactive
15-year history, we are
web-based outage map
positioned
to expand on our
available at veridian.on.ca.
2015 – 2016
Veridian Joint Boards
of Directors
“
Providing funds for worthy
community groups across
our service territories is one
of the most-effective ways that
role as an agent of progress
we help improve the quality of
and to extend our service
life in the communities Veridian
Veridian places a strong
territories
—
whether
through
serves. We take special pride
emphasis on partnerships
merging with like-minded
in supporting causes where
with its staff. Through open
communications, extensive
utilities or by acquiring Hydro our employees are able to
grow as ambassadors for
training and development,
One assets within Veridian
the company right in the
and ongoing collaboration,
territories and beyond.
communities where they live.
employees are equipped
When the Town of Gravenhurst
and empowered to help the
decided to rename an arena in honour of Graeme Murray,
company meet its business goals. For Veridian’s unionized
a four-time Paralympian and gold medalist in sledge hockey,
employees, this partnership includes the IBEW, with which
and son of Veridian employee Bernene Jones,
Veridian maintains a mutually respectful and supportive
we enthusiastically contributed $3,000.
relationship. It is a relationship built on a formal Relationship
Charter that is embedded in the collective agreement
More than ever in our 15-year history, we are positioned
between the two parties. The fact that the utility has
to expand on our role as an agent of progress and to extend
not experienced a labour disruption at any point in
our service territories — whether through merging with
its 15-year existence is a testament to the positive
like-minded utilities or by acquiring Hydro One assets within
relationship that the company’s management and
Veridian territories and beyond. Not growth for growth’s
IBEW union leadership have fostered.
sake alone, but growth to benefit all of our stakeholders,
the environment and the Province as a whole, by continuing
Growing the capacity for expansion of the company by
to help make our service territories the best places to
nurturing career growth in our employees is a renewed
live, work and play. We are ready for the future.
area of focus. Input received from our 2013 Employee
We are wired for growth.
Engagement Survey was compiled in 2014 and spurred
us to revamp our Orientation program for new hires,
strengthen our trades and Management Syllabus,
and upgrade our Tuition Subsidy program.
”
We are committed to nurturing the development of our
service territories into a world-class hub of innovation
and entrepreneurship. In 2014, we continued to provide
4
Michael Angemeer, President & CEO Adrian Foster, Chair
Front Row (left to right): Kevin Ashe – Vice Chair, Councillor, City of Pickering; Joanne Dies, Councillor, Town of Ajax; Adrian Foster –
Chair, Mayor, Municipality of Clarington; Taso A. Christopher, Mayor, City of Belleville; Karen Fisher, Consultant, Fishill Holdings Inc.;
Douglas Parker, Retired General Manager & Secretary, Belleville Utilities Commission; Steve deBoer, National Sales Manager,
RACE Mechanical Systems Inc.; and Dave Ryan, Mayor, City of Pickering.
Middle Row (left to right): Shaun Collier, Regional Councillor, Town of Ajax; James Macpherson C.Dir, Licensed Trustee in Bankruptcy;
David McGregor CHRP, HRCCC, Retired VP of Human Resources, Wrigley Canada; David Pickles, Regional Councillor, City of Pickering;
and Ron Chatterton, President, Niche Advantage Consulting Ltd.
Back Row (left to right): Ted Baker, Director, CLEAResult Canada Inc.; and Jack Alexander, Electrical Generation Consultant,
J.W.A. Enterprises Inc.
wired for
growth
VERIDIAN
2014 Annual Report
5
Corporate Philos0phy
VERIDIAN LEADERSHIP
Mission
To provide reliable, efficient and sustainable energy services
to our customers while delivering optimal return on investment
to our shareholders and promoting economic growth
in the communities we serve.
Vision
We will be unsurpassed in providing innovative
energy solutions that are the cornerstone for creating
the sustainable communities of tomorrow.
strong,
George Arm
ent,
Vice Presid
rvices
Se
te
ra
po
or
C
gemeer,
Michael An
CEO
President &
Values
• Integrity in dealing with our customers, employees,
shareholders and business partners
• Health and safety of our employees and members of the public
iw,
• Growth and development of our employees in a challenging,
rewarding and innovative work environment
• Social and environmental responsibility
• Value creation for our customers and shareholders
Peter Petr
ent,
Vice Presid
Engineering
org,
Laurie McL
t,
Vice Presiden
rvices &
Financial Se
ial Officer
Chief Financ
Diana Hills,
Manager,
Public Affairs
• Excellence in all aspects of our business
,
Rob Scarffe
ey,
Mark Turn
ent,
Vice Presid
ns
tio
ra
Ope
6
t,
ce Presiden
Executive Vi
&
es
ic
rv
Customer Se
Technology
Information
wired for
growth
VERIDIAN
2014 Annual Report
7
Progressive communities
need a progressive
utility company
Forward-thinking utilities like Veridian are proactively
finding innovative ways to more economically deliver power
to their customers — wherever they live. These companies
are also promoting partnerships in clean and green
distributed generation in the communities they serve and,
as residential solar generation and storage become
a reality, right in and on their customers’ homes.
Establishing
rate harmony
in Gravenhurst
Veridian is proud of its capacity
to efficiently deliver power to
its lower-density rural territories
with the same quality of services
that its higher-density urban
customers are accustomed to.
In 2014, as part of the utility’s cost of service
rebasing application with the Ontario Energy
Board, Veridian harmonized distribution rates
for all of its service areas. Rate harmonization
allowed for streamlining of business processes
and administrative efficiencies through
migrating to a single billing structure.
The harmonization process also allowed
for an average reduction of 15 per cent
for Gravenhurst customers on
the Veridian portion of their bill.
“
The combination of knowledge and
experience that we have gained in
distributed generation and our trusted
reputation as a local distribution
company has created a core competency
that companies exploring their own
potential for self-generation while
staying connected to the grid
are now drawing on. Also, our
involvement in developing
smart transformer technology is
creating another core competency that
will enhance Veridian’s ability to offer
superior 24/7 control room services
to other utilities in the future.
”
Mark Turney
Vice President, Operations
wired for
growth
VERIDIAN
2014 Annual Report
Sustainable Seaton –
promoting grassroots
“green” technology
During 2014, Veridian played a significant role
in helping make the future Seaton community
in north Pickering as sustainable as possible.
Veridian worked with Solera Sustainable Energies
Company, local government, the Province and
developers on a proposal that would see residential
builders rough in the infrastructure for rooftop
solar generation, electric vehicle charging and
residential battery storage as houses are being
constructed. The company sees this as an important
opportunity to grow the utility’s business while
improving the environment.
Applying lessons
learned to future
renewable generation
projects
By operating a 400-panel solar generation project
on the roof of the company’s corporate headquarters
in Ajax, Veridian has acquired a wealth of business
experience in renewable generation. Not only was the
project installed on time and on budget, results received
in 2014 for the first 18 months of operation show
that the project is annually producing 160,000 kWh
of clean, carbon-free energy – enough electricity
to power 20 homes. At this rate, the project will pay
for itself in eight years.
The lessons learned from Veridian’s own
renewable generation projects paved the way
for the utility to explore distributed generation
partnerships in 2014, including:
• Laying the groundwork for large rooftop solar
generation installations on publicly owned buildings
in Belleville, Clarington and Prince Edward County
under the Province’s Feed-in Tariff (FIT) program.
• Combined heat and power (CHP) ventures where
Veridian would own, operate and maintain natural
gas powered CHP units at the City of Belleville’s
Waste Water Treatment Plant and a Pickering-based
manufacturer. If they proceed, both projects will
produce electricity that will improve the reliability
of their facility and the grid locally, as well as
thermal energy in the form of hot water for use
in each operation’s processes.
• Finalizing a joint venture between the utility,
Queen Street Solar Co-operative and Solera
Sustainable Energies Company for a 100 kW
photo-voltaic generation project on the roof
of the Claremont Community Centre.
wired for
growth
VERIDIAN
2014 Annual Report
Putting in place the
electrical backbone
required for the future
Veridian formalized its first detailed Distribution System Plan
in 2014. To meet the evolving needs of its customers, the
document outlines the utility’s immediate and long-term
strategy for its electrical distribution infrastructure. Key to
the plan is the asset management section that describes
the systematic strategy used to identify, plan, prioritize and
optimize needed investment in distribution infrastructure.
Distribution System Plan
As part of the company’s 2014 rate filing with the Ontario Energy Board, Veridian was required to formally
consolidate the company’s plans for managing its existing infrastructure and investing in network expansion,
into the company’s first ever comprehensive Distribution System Plan. The process produced a detailed
living document that will serve as a road map for the utility’s asset management process and capital
expenditure over the next five years. The plan supports how Veridian has and will continue to manage
its distribution system in an efficient, reliable, safe and sustainable manner that provides value for customers
through cost-effective planning and operation.
Making way for the 407 ETR and
new development in north Pickering
In 2014, Veridian crews continued a program of system renewal throughout its service territories.
This included selectively replacing existing transformers, poles and wires, and poorly performing
underground cable. In addition, crews were kept busy with 22 sub-projects related to the extension
of the 407 Express Toll Road which started from Brock Road in Pickering. The bulk of the work entailed
moving the company’s lines and poles out of the way of oncoming construction and putting in place
permanent infrastructure to supply the power demands of future development near the highway.
Perhaps most visible were the massive steel sectional towers Veridian is using to span
its lines 223 meters across Highway 401, the CN and GO Transit tracks, and the roadways
where the 407 will eventually meet Hwy 401. The 105-foot high poles dwarfed the company’s
2012 record for pole height by 25 feet. Even more remarkable, the total budget for the
monster poles was 80 per cent less than it would have cost to run the same lines underground.
wired for
growth
VERIDIAN
2014 Annual Report
First-of-kind pad-mounted
smart transformers
go into the field
Veridian’s System Control Centre (SCC)
began wirelessly receiving a steady stream
of real-time load and oil temperature data from
three pad-mounted smart transformer prototypes
put into service in Ajax during November 2014.
The transformers were developed through a joint project
between Veridian, Cam Tran Transformers, Intellimeter
and Ruggedcom-Siemens. By communicating with
Veridian’s SCC on a real-time basis, the transformers
are providing Veridian with valuable information
in improving its response to power outages, theft
of power and transformer overloading conditions.
Supplying Seaton
The long-anticipated Seaton community development
gained momentum in 2014. With an average of
approximately 1,500 new connections a year starting
in 2017 and continuing into 2023, estimates have the
community providing Veridian with 25,000 to 30,000
new customers by the time the new neighbourhoods
are completed in 20 years. Veridian is staying
well ahead of development by completing the
construction of a significant portion of 27.6 kV
feeders from the Whitby Transformer Station
to the intersection of Brock and Taunton roads
in December 2014. These feeders are at the
doorstep of Seaton and, once they are extended further,
will supply power for the early development. The new
Seaton transformer station, planned to be in-service
in 2018, will supply power to later Seaton community
developments as well as provide security and strengthen
the utility’s existing distribution system.
Partnering with
the ESA to promote
safe tree planting
and pruning
Overgrown trees can pose a serious safety hazard
for the public. When damaged during storms, they
often bring down powerlines. In the spring of 2014,
Veridian joined forces with Ontario’s Electrical Safety
Authority (ESA) to promote the ESA’s guide, Planting
Under or Around Powerlines & Electrical Equipment.
In addition to recommending that homeowners call
Ontario One Call for a free locate before digging,
the guide encourages planting trees safe distances
from powerlines, provides directions for pruning,
and offers suggestions on tree selection to avoid
future issues with tree growth into and over powerlines.
Making tree trimming
a focus
Lessons learned in the wake of the December 2013
ice storm included the importance of maintaining proper
distances between tree branches and overhead lines.
By far, the bulk of damage to Veridian’s network occurred
where tree limbs made contact with overhead lines
as a result of the 30 mm thick coating of ice bending
limbs by an amount that the company’s normal clearing
activities would not have addressed. Mindful of the
storm and its aftermath, Veridian has began moving
towards an advanced vegetation management
system in 2014. The year’s November tree trimming
campaign focused on areas and feeders in Ajax,
Beaverton, Belleville, Bowmanville, Gravenhurst,
Orono and Pickering.
wired for
growth
VERIDIAN
2014 Annual Report
Continuously improving
the customer’s experience
Veridian employees work hard to continually find new ways
to enhance their customers’ experience when dealing
with the company in person, over the phone or online.
And, it shows. Veridian has consistently scored well above
the Ontario and national benchmarks that have been
established by an independent third party who conducts
the survey.
Online outage map
developed in-house
Following the December 2013 ice storm, a team
of Veridian employees led by Maged Yackoub, Manager
of Operational Information Systems, went into high gear,
designing and developing the company’s mobile- and
tablet-friendly, online outage map. The interactive map
highlights areas of Veridian’s service territories that
are experiencing an outage with circular symbols that
are colour coded to indicate the number of customers
affected. When the user passes their cursor over a
symbol, a pop-up window appears that displays outage
details. Keeping the project in-house not only allowed
for rapid cost-effective deployment, it has made it
easier for the utility to modify the map in the future.
There was much fanfare when the platform
went live in June 2014. The map quickly
became popular with customers seeking outage
information in their respective area. Maged was
invited to outline Veridian’s mapping capabilities
as a guest speaker at the annual DistribuTECH
North America industry conference held in
San Diego, CA in February 2015.
“
Steps were taken
in 2014 to improve outage
communications for both
staff and customers. Systems put
into place allow system operators
and customer care staff to share
up-to-date outage information with
customers. External communication
channels were also rolled-out that
simultaneously provide customers
with outage information via our
Interactive Voice Response
telephone system, Twitter feed
and online outage map.
”
Rob Scarffe,
Executive Vice President,
Customer Services & Information Technology
wired for
growth
VERIDIAN
2014 Annual Report
Real-time outage
information for
customers
An exhaustive review conducted by Veridian
following the December 2013 ice storm revealed
that communication efforts during service interruptions
could be improved. In response, a cross-functional team
took full advantage of existing internal communications
infrastructure to put together a multi-faceted solution
that is allowing timely outage information to flow
between departments and Veridian’s customers.
Now, the instant a system operator is made aware
of a service interruption, systems are in place where
a single entry of outage information is simultaneously
pushed out to Veridian’s customer service representatives,
call-in Integrated Voice Response system, Twitter feed
and interactive online outage map. Outage information
includes: area affected; cause of outage, time and
duration; crew status; and estimated restoration time.
veridian.on.ca
gets a makeover
With more and more being demanded of online business
interactions, Veridian made the redesign of its website
a major focus. In December 2014, veridian.on.ca was
relaunched. Its new features include improved
navigation that makes it simple for users to
quickly and easily find the information they need.
In addition to being AODA (Accessibility for
Ontarians with Disabilities Act) compliant,
the revamped site was made mobile-friendly,
with page elements automatically adjusting
to fit smart phone and tablet screens.
Making my.veridian
even better
Within a year of the 2013 launch of my.veridian,
the company continued to improve its self-serve customer
web portal. An upcoming release will include Green Button
technology and new customer self-serve options.
The Green Button provides customer consumption
information in a consistent data format. This will allow
third parties to develop apps that will help customers
conserve energy and save money by tracking and analyzing
the time-of-use data collected by their smart meters.
Staying tops in
customer service
In 2014, Veridian set out to provide additional
resources for its customer service representatives
(CSRs) by flattening the organizational structure
of its Customer Care department and adding
the position of Quality Assurance Compliance Officer.
The officer looks for areas for improvement,
and conducts reviews where sample calls are
analyzed and evaluated in a side-by-side environment
with the CSRs. The results have been remarkable.
The company is now scoring well above the
Ontario Energy Board benchmark of answering
65 per cent of calls in less than 30 seconds.
Better informing
customers on Veridian’s
outage procedures
In November 2014, every Veridian customer received
the company’s Power Outage Guide, a special edition
of the customer newsletter – the source. In addition
to including a number of simple tips to help customers
better prepare for any future power outages, the
publication describes Veridian’s Power Restoration Plan.
This master document, which was overhauled following
the 2013 ice storm, lays out the steps the company
takes in the event of a service interruption.
wired for
growth
VERIDIAN
2014 Annual Report
Ambassadors get
the conservation
message out
Conservation
Champions recognized
as leaders in business
If you visited a home repair store or attended a
community event at any time between April and
October of 2014, chances are that you ran into one
of Veridian’s Conservation Ambassadors. Over this
time period, the team could be found at 35 events
where they handed out money-saving coupons for
energy-efficient products and provided on-the-spot
advice to customers wanting to invest in energy-efficient
DIY projects, such as replacing existing light bulbs
with LEDs, using power bars with integrated timers or
installing weather stripping around doors and windows.
Veridian’s Conservation Champions Awards pay tribute
to customers who make reducing energy consumption
an integral part of their business. As leading participants
in the utility’s energy efficiency programs in 2014, each of
the following companies exhibited a strong commitment
to energy conservation, reduced operating costs and
benefited from the valuable financial incentives Veridian’s
programs provide:
Helping those
in need with energy
efficient upgrades
• Lear Corporation Canada, Ajax Plant
For Veridian customers that struggle to pay their
electricity bills, energy conservation may not be front
of mind. By liaising with community agencies, the
company has been able to help qualified homeowners
and tenants, as well as social and assisted housing
providers, improve the energy-efficiency of their
homes or buildings through the saveONenergy
HOME ASSISTANCE Program.
• Quinte Health Care, Belleville
• Autosystems, a Division of Magna, Belleville
• Cameco Corporation, Port Hope Conversion Facility
• The Corporation of the City of Belleville
• Loblaw Companies Ltd., Distribution Centre, Ajax
• Loblaws Inc.
• The Municipality of Port Hope
• PSS Investments II Inc., Pickering
OM
• The Regional Municipality of Durham
• The Shandex Group, Pickering
• Standard Auto Wreckers (Port Hope) Inc.
• Travelodge Hotel Belleville – Holloway Lodging
Veridian experts help
businesses embrace
energy conservation
Many Veridian business customers are keen to
implement energy conservation initiatives, but lack the
resources or personnel needed to make conservation a
reality. This is where Veridian’s Energy Manager program
can help. Durham Region’s Energy Manager, Joe Green,
found savings for the Region that totaled $55,000
in 2014. Functioning as an in-house conservation expert,
Joe took complete control of energy use — monitoring
performance, leading awareness programs and
unearthing various opportunities for saving energy.
As an option, interested businesses can share the
services of Veridian’s two Roving Energy Managers,
James Glasspool and Edgar Waniuk. During 2014,
James helped the Town of Ajax save approximately
$20,000 a year on energy costs when it upgraded
the ammonia compressors that served four rinks
at the Ajax Community Centre. Edgar helped the
City of Belleville receive almost $31,000 when they
upgraded their lighting and HVAC at the Quinte
Sports and Wellness Centre, and Transit Garage.
Working with
channel partners to
leverage influence with
business customers
Veridian has built a network of valued channel partners –
electrical contractors and parts distributors who indirectly
promote saveONenergy FOR BUSINESS programs
that offer the company’s business customers valuable
incentives for implementing energy saving measures.
This network has proved to be a highly effective means
of exponentially increasing the reach of the utility’s
conservation and demand management team. As part
of an ongoing training program for channel partner
sales teams, Veridian and several neighbouring utilities
jointly hosted seminars for channel partners during 2014.
Veridian’s Key Account Representative, Melanie
Walls, is pictured above with Greg Lockhart, Lighting
Manager, Sesco | Division of Sonepar Canada Inc.
wired for
growth
VERIDIAN
2014 Annual Report
Sowing the seeds
of innovation within
and beyond Veridian’s
service territories
Veridian is committed to supporting the universities,
colleges and other anchor institutions that are helping
grow the communities east of Toronto along Lake Ontario
into an innovation cluster that will drive a new prosperity
for the entire region.
Support of high school
electric vehicle project
encourages
budding engineers
Veridian continued its proud tradition of providing
a $250 bursary for one graduating science, engineering
or business student from every high school in each of
its service territories. In 2014, the company was also
thrilled to help when a team of Grade 11 students
from Pickering High School, led by Kyle Faller,
President of the school’s Electric Car Club,
approached Veridian for funding to buy parts
to build their own electric vehicle (EV) to compete
in the University of Waterloo’s 2015 Electric Vehicle
Challenge. Their goal was to learn about EV technology,
find solutions for building more efficient EVs, and to
show the community the potential behind EV technology
and the youth that will create the vehicles of the future.
EV technology is near and dear to Veridian’s heart. After all,
the company prominently featured a picture of its Chevy
Volt on the front cover of its 2011 Annual Report. Michael
Angemeer, President and CEO – an engineer by training –
even dropped in on the students. Who knows, one of these
whiz kids may end up joining the Veridian team one day.
“
As a first time competitor
at the University of Waterloo’s
Electric Vehicle Challenge,
everyone – from organizers to
fellow competitors – was hugely
impressed with the car and our
team’s efforts. We walked away
with Rookie Team of the Year
and were given a banner that
will be proudly displayed at
our school. I am very proud of
our accomplishments, which
would not have been possible
without the support of
sponsors like Veridian.
”
Kyle Faller
President,
Pickering High School’s Electric Car Club
(Shown opposite seated in the electric vehicle)
wired for
growth
VERIDIAN
2014 Annual Report
Energizing UOIT’s
Student Success Fund
A $25,000 donation from Veridian in 2014 was used by
the University of Ontario Institute of Technology’s (UOIT)
Student Success Fund to create the Veridian Scholarship
in Electrical Engineering. The scholarship will be awarded
annually to deserving students enrolled in UOIT’s Faculty of
Engineering and Applied Science. This donation reinforces
Veridian’s long-standing role as a strong community partner
for UOIT. Previously, the company had assisted with student
work on hybrid vehicles and invested in the development
of the institution’s Energy Systems and Nuclear Science
Research Centre.
Helping the Spark
Centre fuel innovation
“
Veridian’s commitment
to our students and
confidence in their education
has been steadfast, right
from the very beginning.
These funds put our students
on the road to success,
preparing them today
for the energy-related jobs
of tomorrow and strengthening
our community as a whole.
”
Tim McTiernan, PhD
President, UOIT
In 2014, Veridian continued its support for the
Spark Centre, whose mission is, “To inspire
entrepreneurs to start and grow successful, innovative
companies in Durham Region and Northumberland
County with success measured through sustainable
business, economic growth and local job creation”.
Since opening its doors in 2010, the agency has
successfully provided resources and services for
on-the-ground commercialization for more than
360 innovative and technology-based entrepreneurs
and businesses. As a member of the Ontario Network
of Entrepreneurs, the Spark Centre functions as one
of Ontario’s 18 regional innovation centres that work
closely with organizations, including the Ministry of
Research and Innovation, MaRS, Ontario Centres of
Excellence, Durham College, UOIT and Trent University.
Inspiring love
for science across
Durham Region
In 2014, Veridian entered into its sixth year of
partnering with Scientists in School, a Durham-based
science education charity. Through hands-on,
enquiry-based classroom workshops, Scientists
in School provides students in Kindergarten to
Grade 8 with a positive early exposure to science,
technology, engineering and math, and promotes
science learning and different career options
to more than 40,000 Durham-area students
each year. Veridian is proud to be part of this program,
supporting youth across Durham Region and helping
to inspire the leaders and innovators of tomorrow.
wired for
growth
VERIDIAN
2014 Annual Report
Enhancing the
corporation’s capacity
for expansion by providing
a progressive workplace
Even while Veridian’s business focus is on infrastructure,
to grow successfully, the company must continue to
place a premium on its ability to engage its employees
by providing a safe and progressive workplace
that fosters all aspects of employee development.
Continued strong partnerships with employees
Veridian places a strong emphasis on partnerships with its staff. Through open communications, extensive training
and development, and ongoing collaboration, employees are equipped and empowered to help the company meet
its business goals. For Veridian’s unionized employees, this partnership includes the IBEW, with which Veridian maintains
a mutually respectful and supportive relationship. It is a relationship built on a formal Relationship Charter that is embedded
in the collective agreement between the two parties. The fact that the utility has not experienced a labour disruption
at any point in its 15-year existence is a testament to the positive relationship that the company’s management
and IBEW union leadership have fostered to achieve “win-win” outcomes.
2014 Greenest
Employer Award
was high praise for a
progressive workplace
Open house welcomes
the public to visit
Veridian’s LEED-Silver
certified headquarters
On Earth Day 2014, Veridian was named one of
Canada’s Greenest Employers for a fifth consecutive
year. The award recognized the company as a
workplace that leads the nation in creating a culture
of environmental awareness, develops earth-friendly
initiatives and attracts people to the company because
of its environmental leadership. The selection committee
lauded many of Veridian’s efforts at sustainability.
These include: promotion of alternative modes of
transportation, the number of green vehicles in the
company’s fleet, strong support of education around
energy conversation and the company’s LEED-Silver
certified corporate headquarters in Ajax.
More than 150 people toured Veridian’s corporate
headquarters in Ajax when the company participated
in Doors Open Ajax for the first time in late September.
The facility had recently received the LEED-Silver
designation for its many environmentally sustainable
features. These include office spaces flooded with
natural light, a 400-panel solar array on the roof
of the facility, high-occupancy-vehicle parking spaces,
electric-vehicle charging stations and a wetland feature.
wired for
growth
VERIDIAN
2014 Annual Report
Improving new hire
orientation
The 2013 Employee Engagement Survey revealed
that Veridian needed to do a better job of retaining
new employees, specifically in technical areas.
The company worked with department managers to
put in place procedures for better orientation of new
employees within their work groups and introduced
interim three-month evaluations that are providing
important feedback to managers and new hires
midway through the six-month probation period.
Supporting ongoing
employee development
Department Action
Plans drive employee
engagement
Veridian conducted a detailed employee engagement
survey in late 2013. Results compiled by a consulting
firm in 2014 identified three drivers of engagement
where the company could achieve maximum impact —
staff development, customer focus and company
potential. Based on the results, each manager from
Veridian’s departments was tasked with developing
an Action Plan for their area — a list of three actions that
they could take to reinforce the drivers of engagement
within their department. The Action Plans were formally
adopted and distributed to all employees.
Improving employee engagement also requires
direct employee input. Early in 2014, three groups
of volunteers were formed to represent union,
non-union and management positions respectively.
Professionally facilitated meetings were held with
the groups to explore the three key drivers of
employee engagement and to identify opportunities
for improvement. Each group generated 15 to 20
recommendations, many of which have been
or are being implemented.
For a business to progress, employers must put in
place the processes necessary to encourage employee
efforts to advance within the organization. Veridian has
established comprehensive staff development policies
and programs supporting three levels of study:
1) Basic training required for each employee’s position
2) Departmental training that is agreed upon by
the employee and their manager and that will
benefit the employee within their group
3) Subsidization of tuition costs for employees
who seek to further advance their skills in areas
pertinent to their employment at Veridian
Promoting ‘green’
commuting earns Smart
Commute Gold status
Veridian advanced from Silver to Gold status in 2014,
as part of Smart Commute Durham’s Workplace
Recognition program. The designation recognizes
the company as a workplace that demonstrates
innovation, focuses on measuring its successes and
achieves significant positive outcomes by encouraging
employees to choose alternative ways of commuting
to and from work. Among the company’s smart
commute initiatives are flexible work options such
as telecommuting and compressed work weeks to
reduce the amount of travel required by employees,
a bike sharing program, and high-occupancy
carpool parking spaces at its Ajax office.
Supporting health
and safety as
a core value
Reducing injuries
for employees that sit
for extended periods
Achieving 750,000 hours without a lost-time injury
was certainly cause for additional celebration at
Veridian’s 2014 staff holiday luncheon.
In 2014, the Ergonomics Committee, a group of
Veridian employees specifically trained in control
of musculoskeletal disorders that can lead to injury,
began measuring individuals as they performed
day-to-day tasks. Based on the findings, workstations
were reconfigured to best reduce the chance of injury.
Also, 2014 was the first full year that Veridian had
a seat on the Infrastructure Health and Safety
Association’s (IHSA) Board of Directors. Vice President
of Operations Mark Turney’s continued participation
demonstrates the company’s commitment to
establishing a culture of safety where everyone
shares equally in the job of creating and promoting
a workplace free of injury.
In 2014, Veridian began the groundwork to become an
early adopter of the IHSA’s Certificate of Recognition
(COR™) program. Since 2010, Veridian has self audited
its health and safety policies and programs as part
of the IHSA’s ZeroQuest® program. Under COR,
the company’s safety management system will
undergo rigorous external audits of its inspections,
investigations and procedures.
Space suit?
No. It’s an arc flash suit.
Arc flash is a life-and-death hazard Veridian technicians
contend with when working in close proximity to
high-voltage equipment. In 2014, the company
introduced 40 cal/cm2 arc flash suits for its
substation personnel who work with large breakers.
The suits have a NFPA Standard Class 4 rating,
the highest level of personal protective equipment
available for this kind of work.
wired for
growth
VERIDIAN
2014 Annual Report
Improving quality of life
in the communities
that Veridian serves
Since its inception, Veridian has believed that, in its role
as a publicly held utility, it must be strongly committed to
supporting worthy causes that are making the communities
it serves better places to work, live and play. It also sees
the utility’s corporate social responsibility activities
as an ideal means for providing its employees with
an opportunity to grow personally as ambassadors
for the company.
ALS Ice Bucket
Challenge kicks off
Veridian’s 2014 Charity
Golf Tournament
Veridian’s President and CEO Michael
Angemeer did not retreat from the challenge
levied among many Ontario utility CEOs
during the summer of 2014. His frosty shower
served to raise awareness for ALS research
and also kicked off Veridian’s 15th Annual
Charity Golf Tournament held in August at
Deer Creek Golf & Banquet Facility in Ajax.
More than 250 golfers turned out to play
18 holes and share in dinner festivities.
The event raised more than $40,000,
which was distributed to Special Olympics
Ontario, Big Brothers Big Sisters serving
Ajax-Pickering, Clarington, Hastings &
Prince Edward Counties and Muskoka,
and the United Way Backpack program.
“
Corporate social
responsibility is taken very seriously
at Veridian, with an annual budget for
community building, education and
hospitals approved by our Board of
Directors each year. Since Veridian’s
inception in 1999, the company
and its employees have given
generously and without hesitation
to many worthwhile causes and
community agencies. Veridian is
making a real difference to the lives
of individuals and families who rely
on organizations like the United Way,
Grandview Children’s Foundation
and Big Brothers Big Sisters.
”
Diana Hills
Manager, Public Affairs
wired for
growth
VERIDIAN
2014 Annual Report
Veridian funds help replace engines
on PARA’s search and rescue boat
Employee ambassadors
do the company proud
Tracey Strong’s
Epilepsy Climb
For years, Veridian employee Bernene Jones
supported and encouraged her son, Graeme
Murray, as he represented Canada at international
sledge hockey competitions. The entire Veridian
team was thrilled when he added the bronze medal
he won at the Socchi 2014 Paralympics Game to
the 2006 Paralympics gold medal he won in Turin and
five other world championship and Paralympic medals
on his mantel. In September 2014, Veridian was
honoured to donate $3,000 to the Town of Gravenhurst’s
initiative to make its Centennial Arena more accessible
for sledge hockey teams and to rename the facility
Graeme Murray Arena – a fitting tribute to a local hero.
On June 18, Veridian employees gathered
on the patio of their corporate headquarters
in Ajax for a BBQ to show support and raise
funds to help Manager of Corporate Planning,
Tracey Strong, participate in the Grand Canyon
Epic Climb for Epilepsy and Beyond. With her
colleague’s support, Tracey was able to join
15 Durham Region Epilepsy Ambassadors in a
fundraising rim-to-rim hike through the Grand Canyon.
Tracey completed her 7,000-foot climb in 11.5 hours.
The hike raised $55,000 to support Epilepsy
Durham Region’s Pediatric Management Program.
“
Veridian, through their support of Graeme and his
National Sledge Hockey career, have assisted him in becoming
a world-class athlete. I am grateful that Veridian has recognized
the value of their support, and proud that Graeme will pass this on,
and teach others through his experience and achievements.
”
Bernene Jones
Engineering Associate
In June of 2014, Veridian donated $10,000 to help with the replacement of two, 20-year-old engines
on the Pickering Auxiliary Rescue Association (PARA) search and rescue cutter. Since PARA came
into existence 47 years ago, this 50-member volunteer organization has responded to more than
200 calls where life has been in danger.
Veridian proudly helped support more than
228 worthy community causes in 2014
• Alzheimer Society of Durham
• Beaverton Agricultural Society
• Belleville General Hospital
Foundation
• Big Brothers Big Sisters
of Ajax-Pickering, Clarington
and Muskoka
• Community Care Northumberland
• Community Justice Alternatives
of Durham Region
• Drum Artz Canada
• Durham Caribbean Festival
• Durham Youth Housing
& Support Services
• Epilepsy Durham Region
• Firehouse Youth Centre
• Ganaraska Region
Conservation Authority
• Girls Incorporated® of Durham
• Gravenhurst Winter Carnival
• Heart and Stroke Foundation
of Ontario
• Hearth Place Cancer
Support Centre
• Hospice Muskoka
• Indo-Canadian Cultural
Association of Durham Inc.
• Jennifer Ashleigh Children’s Charity
• Kinark Foundation
• Luke’s Place
• Northumberland United Way
• Pickering Auxiliary
Rescue Association
• Pickering High School
• Quinte Arts Centre
• Quinte Regional Science
and Technology Fair
• Rotary Club of Bowmanville
• Rouge Valley Health System
Foundation
• Run Ajax
• Scientists in School
• South Muskoka
Hospital Foundation
• The Meeting Place – Muskoka
• Uxbridge Lions Club
• Young Singers
wired for
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VERIDIAN
2014 Annual Report
Management’s
Discussion and Analysis
Consolidated Financial Statements
Business of Veridian
The following discussion and analysis should be read in conjunction with the audited consolidated financial statements
and accompanying notes of Veridian Corporation (“Veridian” or the “Corporation”) for the year ended December 31, 2014.
The consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles.
Veridian Corporation is 100% municipally owned by four shareholders: the City of Pickering (41.0%), the Town of Ajax (32.1%),
the Municipality of Clarington (13.6%) and the City of Belleville (13.3%).
Veridian Corporation provides, through affiliated companies, energy-related services to approximately 118,000 customers
located in nine municipalities in east-central Ontario. The core business is distribution of electricity and is provided through
the wholly-owned regulated subsidiary, Veridian Connections Inc (“VCI”). Historically, ancillary businesses were operated
within Veridian Energy Inc. (“VEI”), a wholly-owned unregulated subsidiary.
Veridian Connections Inc.
Service Area
Veridian Corporation enterprise structure
GRAVENHURST
Veridian Corporation’s Shareholders
City of
Pickering
City of
Belleville
41.0%
Lake
Simcoe
13.3%
Town
of Ajax
BEAVERTON
Municipality
of clarington
32.1%
CANNINGTON
13.6%
SUNDERLAND
PORT
PERRY
BELLEVILLE
Rice Lake
Lake Scugog
UXBRIDGE
ORONO
PORT HOPE
NEWCASTLE
PICKERING
34
BOWMANVILLE
CL
A R I N G TO
N
AJAX
Management’s
Discussion and Analysis
Lake Ontario
Veridian Corporation wholly owns
Veridian Connections Inc. and Veridian Energy Inc.
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VERIDIAN
2015 Annual Report
35
VCI is granted a distribution license by the Ontario Energy Board (“OEB” or “the Board”) that entitles the local distribution company
(“LDC”) the exclusive right to distribute electricity to all customers within Veridian’s prescribed service territories. VCI distributes
electricity to residential and business customers throughout a non-contiguous service area in southern Ontario.
Regulatory Environment
VCI earns its revenues through charges to its customers for delivery of electricity through its low-voltage distribution system.
Distribution charges have two components; being a fixed monthly service charge and a volumetric charge based on electricity
consumption or demand. VCI’s rates are regulated and approved by the OEB.
Electricity Regulation
In 2009, the government enacted the Green Energy Act (“GEA”), legislation changing the role of distribution utilities in the areas
of power generation, Conservation and Demand Management (“CDM”) programs and development of smart grid assets.
In Ontario, the OEB has powers and responsibilities for regulation of the electricity industry, including all electricity distributors
such as VCI. 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 the Smart Meter Initiative, CDM; record keeping and filing requirements
and specific requirements for rate setting.
The GEA permits distributors to own and operate a portfolio of renewable power generation, providing regulations to ensure
separate accounting for these generation operations within the distribution utility company.
Under these provisions, VCI has made small scale investments in rooftop solar-photovoltaic generation assets and operations.
VEI in prior years had operated non-regulated businesses such as water heater and equipment rentals as well as other
energy-related services. VEI disposed of its non-regulated water heater and sentinel light operations in 2011 for the purposes
of regulatory compliance and strategic alignment of investments. As a result, VEI became dormant in 2011 and has continued
to remain dormant in 2014.
Rate Setting
VCI’s distribution rates and other regulated charges are determined to allow shareholders the opportunity to earn a regulated
Return on Equity on a deemed shareholder equity as determined by regulation. Periodically VCI makes applications to the OEB
for rate setting under various mechanisms.
Rate Applications
On October 31st, 2013, VCI filed a Cost of Service application for 2014 distribution rates and charges, effective May 1st, 2014.
The OEB issued its Rate Order for VCI’s 2014 rates on May 1st, 2014.
Under the Report of the Board – A Renewed Regulatory Framework for Electricity Distributors: A Performance-Based Approach (“RRFE”),
issued by the OEB on October 18, 2012, distributors file Cost of Service applications once every 5 years and rates are set by Incentive
Rate Mechanism (“IRM”) in the intervening years.
IRM rate setting is largely mechanistic where rates adjustments are based on inflation factors as set by the OEB.
Within VCI’s 2014 rates, the OEB also approved disposition of various regulatory assets and liabilities such as assets for recovery
arising from the Smart Meter initiative and liabilities for refund arising from accounting changes related to VCI’s fixed assets in 2012.
36
Management’s
Discussion and Analysis
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2015 Annual Report
37
Key Performance Drivers
Growth and Operational Efficiency
Growth is an important contributor to Veridian’s success.
Historically, Veridian has been able to achieve administrative
and operational efficiencies derived from both: natural customer
growth, and growth through mergers and acquisitions.
Natural customer growth over the last two years has averaged
1.0%. Management has projected that natural customer growth
during 2015 will hold steady at 1.0%. Veridian has a strategic
objective to grow and improve the electricity distribution business
and actively seeks merger and acquisition opportunities focused
on this core business. Veridian is ideally positioned to participate
in further utility consolidation with other organizations that have a
similar low cost, innovative profile with reasonable customer rates.
Higher levels of customer value and satisfaction and increased
shareholder value will be the result.
Electricity distribution revenues have increased $4.5 million
to $52.0 million from 2010. Distribution revenues increased
$3.0 million, or 6.1%, from 2013, primarily due to OEB-approved
distribution rates in 2014 including higher recoveries for
the Smart Meter initiative ($2.9 million in 2014 compared
to $1.2 million in 2013).
CUSTOMERS (thousands)
117.5 118.5
116.2
113.5 114.7
2010
2011
2012
315.2
286.3 296.0 295.4
47.5
47.9
50.6
49.0
52.0
2010
2011
2012
2013
2014
Distribution Revenue
38
2014
Total Revenue and
Distribution Revenue (millions)
256.2
Management’s
Discussion and Analysis
2013
Total Revenue
Veridian successfully managed costs in 2014. The VCI cost per
customer increase of $2 is primarily attributable to higher planned
maintenance activities, including vegetation management, to maintain
reliability. Veridian made a prospective accounting change in 2012
whereby certain overheads that were capitalized previously are now
charged as a period expense. This accounting change was one of
the primary reasons for the single year cost per customer increase
of $25 to $212. Veridian remains focussed on process improvement
and adoption of new technologies to obtain operational efficiencies
and reduce costs. Long term reductions in operation costs benefit
distribution customers through lower distribution rates in the
regulated cost of service process. Distribution rates are approved
by the OEB to recover operating and capital costs of the LDC.
Veridian’s net earnings can fluctuate significantly due to non-cash
unrealized gains and losses on interest rate swap derivatives.
Veridian holds interest rate swap loans and interest rates on
these derivatives decreased significantly to approximately 3.15%
(2013 – 3.70%). The unrealized losses arise as interest rates
decrease below the established fixed rates of the loans; conversely,
unrealized gains arise as interest rates increase above the
established fixed rates of the loans.
Veridian does not intend to unwind these financial instruments.
As such, unrealized losses or gains are not expected to affect cash,
and unrealized gains or losses will become zero at the maturity date
of these instruments.
In 2014, Veridian recorded a non-cash unrealized loss of $2.8 million
net of future income tax (2013 - $3.2 million unrealized gain) on the
interest rate swap derivatives. This resulted in a year over year change
in net earnings of $6.0 million. Net earnings adjusted for the interest
rate swap derivative would have been $8.9 million (2013 - $8.7 million).
In 2011, net earnings of $11.6 million included $3.9 million in
discontinued operations. Veridian sold its non-regulated water heater
and sentinel light operations in August 2011, for the purposes of
regulatory compliance and strategic alignment of investments.
Cost Per CUSTOMER $
212
189
187
2010
2011
2012
219
221
2013
2014
Adjusted Net Earnings $ (millions)
11.6
10.1
8.5
9.4
10.2
8.5
2010
2.2
(0.1)
2011
2012
8.7
8.9
11.9
6.2
(3.2)
2.8
2013
2014
Net Unrealized loss / (gain)
Net Earnings
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2015 Annual Report
39
Returns for Shareholders
Requirements for Liquidity and Capital Resources
Shareholder’s Equity $ (millions)
Veridian has had a long term trend of strong growth in shareholder’s
equity, while maintaining robust interest and dividend payments.
Shareholder’s equity has increased, $14.2 million, or an average
of 4% annually since 2011. This is a faster growth rate than the
three years prior to 2011 which had an average of 3%. Municipal
shareholders benefit from distributions of Veridian’s earnings.
The Board of Directors of Veridian Corporation approved a dividend
policy for the years 2012 to 2016 with base dividends of $4.7 million
each year subject to certain provisions. Veridian paid a total of
$8.2 million to shareholders in 2014 which included $3.5 million
in interest payments on shareholder promissory notes. For 2015,
strong interest and dividend payments are also forecast.
116.2 117.7
109.1
100.3 103.6
2010
2011
2012
2013
2014
Through its continued investment in the electricity distribution
system, Veridian has continued to grow its regulatory rate base
at annual average of 6.5% since 2006.
Regulatory rate base is the value of the assets on which Veridian
is permitted to earn the OEB approved rate of return. Continued
rate base growth provides for stable, regulated returns on a
growing shareholder investment.
Approved Rate Base ($000’s)
Average Annual Increase
2006
$ 144,160*
2010
$ 186,595
4.9%
2014
$ 238,106
6.9%
* Based on historic test year of 2004
Veridian’s debt to capitalization ratio at December 31, 2014 was 52%. The Corporation debt includes $60.8 million in shareholder
promissory note debt, as well as committed reducing term facilities of $66.4M held with a Canadian chartered bank. Veridian also
has access to a revolving demand facility of $30M 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.
Veridian is in compliance with all bank covenants as at December 31, 2014.
In 2014, the Dominion Bond Rating Service (“DBRS”) confirmed the Issuer Rating of Veridian Corporation at “A” with a stable trend.
The DBRS report noted that the rating continues to reflect Veridian’s low business risk profile associated with the company’s stable,
regulated distribution business, and its reasonable financial profile.
Veridian’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 has
assessed that there is sufficient financial capacity to meet all stated corporate strategic objectives.
Dividends & Interest $ (millions)
2014 Capital Expenditures $ (Millions)
Capital Expenditures:
2.780
Other
Total capital expenditures for 2014 were $19.038 million.
9.3
9.5
8.2
8.2
8.2
7.7
2010 2011 2012 2013 2014 2015
Years 2010 to 2014: Actual dividends & interest
Year 2015: Forecast dividends & Interest
Capital Expenditures
Distribution System Assets
Intangible Assets
Other Assets
Total
$
$
$
$
2014
14,443
1,815
2,780
19,038
$
$
$
$
2013
13,122
1,976
4,898
19,996
1.815
19.038
Intangible
Assets
Total
14.443
Distribution
System
Assets
Of these investments, 76% or $14.44 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 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.
40
Management’s
Discussion and Analysis
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VERIDIAN
2015 Annual Report
41
Reliability and Customer Service Quality
Reliability and customer service quality standards related to Veridian’s electricity distribution system are key performance
measurements, and these metrics remain high on the priority list to ensure Veridian is meeting its customers’ expectations.
Results are reported annually to the OEB and form a basis for corporate performance measurement.
Specific reliability measures are tracked and reported such as SAIDI (System Average Interruption Duration Index) and SAIFI
(System Average Interruption Frequency Index).
Veridian’s distribution system is predominantly overhead and as a result is susceptible to weather and storm events as well as tree and
wildlife contact, affecting SAIDI and SAIFI in a negative manner. Veridian has an aggressive vegetation management program in place;
however complete elimination of tree contact with the distribution system is not possible given community standards and aesthetics
with regards to trimming trees. In addition, Veridian has continued its deployment of devices on the distribution system that will prevent
contact between wildlife and the distribution system, reducing the number of outages for its customers. Investments in technologies
that automate the distribution system are made each year and these new smart grid technologies assist in improving the reliability
and quality of electricity supply for customers. Distribution system automation allows for faster restoration of power to customers
during an outage through automatic device operation and system operator intervention from the control room.
In 2014, Veridian recorded zero lost time injury and achieved over 750,000 hours without a lost time injury. While proud of this
achievement Veridian continues its efforts towards the objective of eliminating all injuries from the workplace. All employees are
encouraged to be part of Veridian’s prevention strategy by being involved in training programs, supporting the Workplace Joint Health
& Safety Committees and reporting near misses and/or workplace hazards. The reporting of hazards and near miss incidents presents
opportunities to conduct investigations to reduce the risk of a more serious incident or critical injury occurring.
The Corporation is committed to continuous improvement of its health and safety management systems. Currently under development
and implementation are preparations for the Certificate of Recognition (COR), a nationally trademarked certification endorsed
by participating members of the Canadian Federation of Construction Safety Associations and delivered in Ontario by the IHSA,
its industry safety association.
Conservation and Demand Management (“CDM”) Targets and Program Delivery
Through provisions of the Province of Ontario’s Green Energy Act, Veridian’s electricity distribution license was amended in December
2010 to include a condition that it meet established CDM targets by December 31st, 2014. The assigned targets consisted of a
2014 net annual peak demand savings target of 29.05 MWs, and a 2011-2014 net cumulative energy reduction of 115.74 GWhs.
Veridian’s reliability indices are competitive when compared with other Ontario utilities and an annual improvement measured against
historical results remains a key business goal. Reliability as a key business goal ensures the appropriate attention is paid with regards
to operations, maintenance and capital spend decisions on the distribution system, allowing distribution system reliability and quality
to continue to meet customer expectations.
In 2011, Veridian contracted with the Ontario Power Authority (“OPA”) to deliver a suite of province-wide CDM programs within its
service area during 2011-2014. Through these OPA funded programs, Veridian achieved unverified savings of 13.1MWs and 89.7 GWhs
by the end of Q3 2014. The results of all 2014 CDM programs will be verified by the OPA in September 2015.
To provide benchmark measures of customer satisfaction, Veridian annually participates in a province wide utility satisfaction survey.
Veridian’s performance on overall customer satisfaction ranking is routinely above the average Ontario electricity consumer customer
satisfaction level. In 2014, Veridian’s performance was 11% above this benchmark
Lost Revenue Adjustment Mechanism (LRAM)
On May 1st, 2014, the OEB approved Veridian’s request for recovery of foregone distribution revenues related to CDM program activities
during the years 2011 and 2012. This amount was included in the LRAM Variance Account and permitted Veridian to recover $292,767
from its customers over a period of 12 months beginning May 1st, 2014.
Safety
Safety is a core value at Veridian. A healthy and safe workplace begins with the identification of workplace hazards and a commitment
to work together to ensure the safety of employees and the public Veridian proudly serves. Every employee and supervisor understands the
value of a healthy and safe workplace, the Occupational Health and Safety Act (“OHSA”) and its relationship to their role.
The development of policies, work procedures, and training within the context of the OHSA reinforces Veridian’s internal
responsibility system, providing the framework for safe work performance.
42
Management’s
Discussion and Analysis
In 2014, Veridian recorded an LRAM deferral account balance of $160,899 related to CDM program activities delivered in 2013 (including
savings persistence through 2014). It is Veridian’s intention to apply to the OEB to recover this amount from customers in the future.
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Capability to Deliver Results
Veridian’s ability to operate efficiently and effectively is, in part, dependent upon complex information technology infrastructure and
systems. Veridian continues to invest in technology platforms such as distribution automation, mobile workforce management, enhanced
customer service interfaces and improved business information systems to better manage its assets and improve customer service.
Resources
With completion of its Smart Meter Initiatives in 2011 and significant upgrades to its billing systems in 2012 and 2013, Veridian continued
with improvements in customer service interfaces with online outage reporting and mobile applications for customers in 2014.
Growth of the core electricity distribution system, together with prudent investment in non-regulated businesses that earn returns for
shareholders, is the strategic direction for Veridian. Human capital and internal process and systems developments are all necessary
resources to support this growth.
Human Capital
Maintaining an engaged and productive workforce remained one of Veridian’s main goals for 2014. Human Resources in conjunction
with the company’s management team and employees implemented workplace activities in response to an Employee Engagement
survey completed late in 2013.
Veridian’s billing platform is very cost effective on a cost per customer basis with a billing accuracy rate of 99.99% in 2014. The system
is well positioned for customer growth through mergers and acquisitions as it is highly expandable and capable of providing service to
more than four times the current customer levels. Veridian continues to invest in new technologies to provide customers opportunities
for energy conservation and increased levels of customer service.
2014 saw the continued deployment of mobile workforce management technologies to streamline processes and improve the overall
productivity of the workforce.
System redundancy and security are key initiatives at Veridian. Veridian recently implemented a high availability site for IT systems
combined with enhancements in back up control centre facilities and will be completing a full disaster recovery site in 2015 to ensure
continued operations in the event of loss of access to its main business facilities and systems.
The purpose of these activities was to foster and promote a work environment that would lead to greater employee engagement
and focused on key areas of employee development, customer focus and company potential.
Activities designed to attract and retain high quality employees pay off at Veridian; as shown in our low turn-over rate of 1.75%
(excluding retirees) in 2014.
Employee training and development also remained a high priority at Veridian during 2014 with the continued development and ongoing
enrollment in its Management Training Syllabus and Skilled Trades Training Program.
Risk
The mandate of the Audit and Risk Management Committee of Veridian’s Board of Directors includes identification of the principal risks
of the company and verification that effective control systems are in place to manage and mitigate these risks.
The Corporation has a workforce labour strategy to ensure that it is mitigating risks associated with an aging workforce. This includes
developing junior trades’ staff via apprenticeship programs. The strategy is reviewed annually to ensure that the Corporation is proactive
and is investing in future resources within skilled trades and technical roles within the organization.
Significant risk factors affecting Veridian include:
Veridian continues to endeavour to provide all of its employees with a creative and engaging work environment and to ensure
that Veridian has the capability, through its workforce, to continue to deliver results.
Regulatory Risk Related to the Electricity Distribution Business within VCI
As an electricity distributor in the Province of Ontario, VCI is licensed and regulated by the OEB which is a quasi-judicial tribunal,
and is responsible for oversight and ensuring that electric monopoly utilities comply with Board decisions and orders.
Internal Processes and Systems
Annually, operating and capital financial plans are developed to support Veridian’s key business objectives. Continual improvements
in internal processes and systems and opportunities for productivity improvements are an integral part of these plans.
44
Management’s
Discussion and Analysis
Regulatory risk is the risk that the regulations as set out by the OEB could change such that the regulatory regime restricts VCI’s
ability to achieve an acceptable rate of return. Regulatory changes regarding recovery of regulatory assets accumulated through
the billing of transmission and commodity services provided by third parties could impact VCI’s operations. All recoveries for
such assets and changes in rates and charges require the approval of the OEB through rates proceedings.
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The interests of external stakeholders are argued before the Board during these proceedings and these interests, if supported,
may have the impact of reducing the returns that VCI earns from distribution rates charged to customers.
Credit Risk
Credit risk is the risk of financial loss stemming from the extension of credit to customers or other parties when those parties
fail to discharge their obligation to pay the debt associated with the extension of that credit.
The Asset Condition Assessment (“ACA”) completed in 2013 continues to be used as an asset management road map. The ACA is an
assessment of the health of Veridian’s current major distribution assets categories and serves as the seed of the Asset Management
Plan (“AMP”). The ACA output results continue to be improved as more asset condition data, derived from age statistics and condition
testing results, is collected each year.
Overall, the AMP introduces a formal documented process, rationale, and decision-making structure on capital investment for
equipment replacement on a proactive basis that balances the capital cost to replace the equipment against managing the risk
of failure of the equipment.
VCI is subject to credit risk with respect to non-payment by customers. This is the company’s principal source of credit risk.
VCI and other Ontario LDC’s are billing agents for a number of different organizations. In addition to billing customers for distribution
of electricity charges, Veridian, by regulation, bills and collects on behalf of others: charges for the electricity commodity
and other charges (Independent Electricity System Operator - IESO); and transmission of electricity (Hydro One and IESO).
VCI bears the entire credit risk for collection of all these charges.
Normal weather conditions involving wind, ice and snow do have some negative impact on system reliability. Inspection and
maintenance programs, and design and construction standards are continually reviewed to mitigate this impact through reasonably
prudent system hardening practices. System hardening has been undertaken as a philosophy involving any type of improvement
integrated into the distribution system design, construction, maintenance, operation or other component that allows an improved
response or resilient behaviour to a planned or unplanned event. The intent is that the system “rides through” any such event
in an easier or better way than if it weren’t hardened or made more robust.
VCI mitigates this risk by employing the maximum credit protection measures in accordance with OEB regulation including;
security deposits, late payment penalties, pre-payment, disconnection and load limiters.
Extreme weather conditions, such as the July 2013 wind storm in Gravenhurst, and the December 2013 Southern Ontario ice storm
were not encountered in 2014.
VCI’s customer base is diversified and at year-end no single customer accounted for more than 1% of accounts receivable. Furthermore,
with this diversification credit losses related to an industry segment downturn are not expected to have a material impact upon earnings.
VCI continues to prudently manage risks by following targeted cyclic programs for vegetation management in the overhead areas,
as well as a full program of equipment testing and inspection activities on all major assets. When combined with condition-based
replacement activities as an integrated activity, these programs improve system performance, minimize premature failures,
and improve resistance to adverse weather.
The credit status of all accounts, with particular emphasis on the largest accounts, is reviewed frequently and management records
credit losses in the period in which, in management’s opinion, the collection of these accounts receivable is doubtful
Distribution Asset Condition
VCI’s electric distribution system consists of substations, overhead lines; including poles, conductors, pole mounted transformers
and switches, and underground lines; including high and low voltage cables, surface or pad mounted transformers and switchgear.
Major risks are those related to asset condition (highly correlated to vintage) and impact of weather events on these assets.
46
Management’s
Discussion and Analysis
Energy Supply Risk
VCI relies upon the provincially administered power grid for the supply of electricity. The Electricity Restructuring Act, 2004 outlines
the mandate of the Ontario Power Authority to ensure an adequate, reliable and secure supply of electricity in Ontario for the medium
and long term. The Independent Electricity System Operator is responsible for the operation and reliability of the power system.
Veridian is also served via combinations of Hydro One-owned transmission and distribution assets. Consequently, there is significant
electricity supply reliance upon these three organizations. To the extent that these three organizations are unable to fulfill their mandate,
VCI would be exposed to the risk associated with an inadequate supply or a decline in reliability.
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Accounting Estimates
Management uses judgement in assessing certain accounting estimates required to determine reported amounts for assets, liabilities,
revenues and costs and related disclosure of contingencies at the date of the financial statements. Management bases its estimates
and judgements on historical experience, current conditions, and various other assumptions believed to be reasonable under the
circumstances. Actual results may differ from these estimates. The following critical accounting estimates were used in the preparation
of Veridian’s financial statements.
Unbilled Revenue
Unbilled revenue balances are based upon estimates of customer electricity consumption to the end of the financial reporting period.
Electricity consumption estimates are required at the end of the financial reporting period when meter readings are unavailable.
These estimates are based on the historical usage of customer electricity consumption. Unbilled revenue totalled $33.4 million
as at December 31, 2014 and consists of commodity and distribution revenue components.
Employee Future Liability
Estimated Service Lives
Veridian has estimated service lives of property, plant, and equipment, as well as, intangible assets as found in the corporation’s
accompanying notes to the consolidated financial statements, Note 1(f) and 1(g) respectively.
Veridian has commitments to pay post-retirement benefits for employees. Actuarial assumptions are employed for the valuation
of this future liability. The assumptions were determined by management recognizing the recommendations of actuaries.
Goodwill
Regulatory Assets and Liabilities
Regulatory assets amount to $6.2 million and relate primarily to: retail settlement variances that have accrued since January 1, 2013,
deferral amounts, and the costs of stranded legacy meters and smart meter receivables that are expected to be recovered from future
rates. Management believes that the costs allocated to these variance and deferral accounts meet the tests of prudence as established
by the OEB through past hearings and that these costs will be fully recoverable.
Regulatory liabilities of $8.9 million include: $5.8 million for future income taxes, $3.0 million due to changes in estimates of useful
lives of capital assets and allocation of indirect costs subject to capitalization, and $0.1 million due to other deferred credits.
These regulatory liabilities are expected to be returned to customers through future rates.
Accounting principles require that goodwill be assessed for impairment. Management has reviewed the goodwill related to acquisitions
and believes that the value ascribed to goodwill is not impaired. Management relies upon discounted cash flow projections and other
fair market value evidence to support this review.
Future Accounting Changes
Transition to International Financial Reporting Standards (“IFRS”)
Allowance for Doubtful Accounts
Accounts receivable and unbilled revenue totalled $58.7 million as at December 31, 2014. Past experience with the collection of
accounts has been used to estimate amounts that may not be collected. An allowance of $1.1 million is estimated as a reasonable
amount of receivables that may not be collected.
48
Management’s
Discussion and Analysis
In February 2008, the Canadian Accounting Standards Board (“AcSB”) announced the adoption of IFRS for publicly accountable
enterprises in Canada for fiscal years beginning on or after January 1, 2011.
On September 10, 2010, the AcSB granted an option to permit rate-regulated entities to defer IFRS implementation to January 1,
2012. The AcSB extended the mandatory changeover date to IFRS three times, by an additional year, with the last extension expiring
December 31, 2014. Accordingly, Veridian will issue its 2015 financial statements prepared in accordance with IFRS with a
transition date of January 1, 2014.
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On January 30, 2014, the IASB issued an interim Standard, IFRS 14 Regulatory Deferral Accounts (“IFRS 14”). The standard is effective
from January 1, 2016, with earlier application permitted. The aim of this interim Standard is to enhance the comparability of financial
reporting by entities that are engaged in rate-regulated activities.
Veridian has examined IFRS 14 with the new presentation and disclosure requirements and will apply the provisions of IFRS 14
in its 2015 financial statements. The Corporation’s IFRS conversion work has been managed in such a way that transition to IFRS
is being smoothly and efficiently completed.
In accordance with Canadian GAAP, Veridian currently follows specific accounting policies unique to rate regulated entities and
recognizes regulatory assets and liabilities in its financial statements. Regulatory assets and liabilities generally represent settlement
variances arising from differences in amounts collected by a rate regulated entity from its customers on behalf of another unrelated
entity and the amounts billed by the unrelated entity to the rate regulated entity.
It is expected that the cumulative effect of financial statement adjustments to be recorded at the date of transition, will not result
in a significant retrospective adjustment to the January 1, 2014 shareholder’s equity balance of $116.2 million.
IFRS 14 introduces limited changes to some previous GAAP accounting practices for regulatory deferral account balances, which are
primarily related to the presentation of these accounts.
This is a short-term interim solution for first time adopters of IFRS that recognize regulatory deferral account balances in accordance
with their previous GAAP. The IASB has a longer-term comprehensive project for all rate regulated entities and published a Discussion
paper (“DP”) on September 17, 2014 with a comment deadline of January 15, 2015, to identify what information about the financial
effects of rate regulation is most relevant to users of financial statements in making investment and lending decisions and to determine
how best to reflect that information in IFRS financial statements.
In response to the DP, the AcSB submitted a comment letter to the IASB on January 15, 2015, strongly supporting the continuation of
the Rate-regulated activities project. The letter discusses the feedback received from Canadian stakeholders on the type of information
users need to understand the financial effects of rate regulation in order to predict future cash flows and supports the development of
specific IFRS requirements to account for those effects, and the IASB’s decision to focus discussions on a generic type of rate regulation.
Outlook
Veridian looks to the future, maintains focus on the present and learns from the past.
Veridian will continue on its mission to provide reliable, efficient, sustainable energy services to its customers while delivering
optimal return on investment to shareholders and promoting economic growth in its service communities.
Veridian remains committed to its strategic objectives of growth and improvement in its core distribution business, financial strength
and solid returns, delivering excellent customer service and reliability and providing an engaging and safe workplace for its employees.
The corporation’s future sees continued natural growth and development opportunities such as in north Pickering (Seaton).
Veridian is fully engaged in opportunities for growth and economies of scale through acquisitions and mergers.
The interim IFRS 14 standard requires:
(a) limited changes to the accounting policies that were applied in accordance with previous GAAP for regulatory deferral account
balances, which are primarily related to the presentation of these accounts; and
(b) disclosures that:
(i) identify and explain the amounts recognized in the entity’s financial statements that arise from rate regulation; and
(ii) help users of the financial statements to understand the amount, timing and uncertainty of future cash flows from any
regulatory deferral account balances that are recognized.
Veridian had planned to adopt IFRS effective January 1, 2012 and as such has substantively completed its IFRS conversion project
which included the phases of: scoping, evaluation and design, as well as implementation and review. Veridian has implemented
significant changes such as changing its depreciation and capitalization policies effective January 1, 2012 to align CGAAP statements
with IFRS.
50
Management’s
Discussion and Analysis
Prudent distribution system renewal capital investments through proactive planned sustainment programs will replace or refurbish
the corporation’s distribution assets in a managed orderly manner in order that they continue to meet all present and future corporate
and customer performance expectations.
Investments in renewable generation and combined heat and power (CHP) continue to be investigated and anticipates further
participation in the Province’s Feed-in tariff (FIT) program as applications are underway for projects to be implemented under
the Province’s upcoming FIT 4 program.
Veridian is able to respond effectively to the changing environment of the industry, regulatory and legislative landscapes, pursuing
the goals and opportunities to create an energy conservation culture in Ontario. Health and safety for our employees and the public
will always be a top priority.
Through the leadership of the Veridian Board, shareholders, and executive management team, Veridian is well positioned to continue
its track record of strong financial performance and operational excellence.
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KPMG LLP
Chartered Accountants
Yonge Corporate Centre
4100 Yonge Street Suite 200
Toronto ON M2P 2H3 Canada
Telephone (416) 228-7000
Fax
(416) 228-7123
Internetwww.kpmg.ca
Consolidated Balance Sheet
(In thousands of dollars) December 31, 2014, with comparative information for 2013
2014
Assets
Current assets:
Independent auditors’ report
To the Shareholders of Veridian Corporation
We have audited the accompanying consolidated financial statements of Veridian Corporation, which comprise the consolidated balance
sheet as at December 31, 2014, the consolidated statements of earnings and retained earnings and cash flows for the year then ended,
and notes, comprising a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable
the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance
with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of
the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
Cash and cash equivalents
Accounts receivable (note 2)
Inventory
Income taxes recoverable
Prepaid expenses
Current portion of regulatory assets (note 6)
Assets of discontinued operations (note 14)
$
20,965
55,960
2,089
1,283
1,252
891
68
82,508
187,085
5,070
8,746
8,166
9,503
1,471
204
220,245
$
312,222
$
302,753
$
44,851
–
3,049
1,129
1,905
1,276
30
20,619
72,859
$
31,248
14,300
–
1,276
1,184
1,695
30
3,356
53,089
Long-term liabilities:
Long-term debt (note 12)
Unrealized loss on interest rate swaps (note 21(e))
Regulatory liabilities (note 6)
Employee future benefits (note 13)
Customer deposits
Future income tax liabilities (note 7)
106,578
2,296
5,814
2,047
4,581
359
121,675
112,197
–
13,816
2,218
4,829
389
133,449
Shareholders’ equity:
Share capital (note 15)
Contributed capital
Retained earnings
67,260
25
50,403
117,688
67,260
25
48,930
116,215
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Veridian
Corporation as at December 31, 2014, and its consolidated results of operations and its consolidated cash flows for the year then ended
in accordance with Canadian generally accepted accounting principles.
$
195,823
4,646
8,746
7,063
4,296
–
298
220,872
Property, plant and equipment (note 3)
Intangible assets (note 4)
Goodwill
Future income tax assets (note 7)
Regulatory assets (note 6)
Unrealized gain on interest rate swaps (note 21(e))
Other non-current assets
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities (note 8)
Short-term loan (note 9)
Current portion of regulatory liabilities (note 6)
Advance payments - construction deposits
Developer obligations
Deferred revenue (note 10)
Future income tax liabilities (note 7)
Current portion of long-term debt (note 12)
27,224
58,691
2,367
134
964
1,970
–
91,350
2013
Contingencies and guarantees (note 17)
Lease commitments (note 18)
$
Chartered Professional Accountants, Licensed Public Accountants
April 2, 2015
Toronto, Canada
52
$
302,753
See accompanying notes to consolidated financial statements.
On behalf of the Board:
Chair, Board of Directors
Consolidated
Financial Statements
312,222
Chair, Audit and Risk Management Committee
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Consolidated Statement
of Earnings and Retained Earnings
Consolidated Statement
of Cash Flows
(In thousands of dollars) December 31, 2014, with comparative information for 2013
(In thousands of dollars) December 31, 2014, with comparative information for 2013
2014
Commodity revenue
Commodity cost
$
263,218
(263,218)
–
2013
$
246,386
(246,386)
–
Distribution revenue
51,987
48,985
Gross margin
51,987
48,985
9,157
17,363
13,248
39,768
8,778
17,253
10,278
36,309
Operating income before the undernoted
12,219
12,676
Other income (note 19)
Finance income
Unrealized gain (loss) on interest rate swaps (note 21(e))
Interest on long-term debt (note 12)
3,331
569
(3,766)
(6,067)
(5,933)
987
732
4,182
(6,286)
(385)
6,286
12,291
253
301
6,033
11,990
140
(131)
6,173
11,859
Retained earnings, beginning of year
48,930
41,771
Dividends paid (note 16)
(4,700)
(4,700)
Expenses:
Operating and maintenance
Administration
Amortization (note 5)
Earnings before income taxes and discontinued operations
Income tax expense (note 7)
Earnings from continuing operations
Earnings (loss) from discontinued operations (note 14)
Net earnings
Retained earnings, end of year
See accompanying notes to consolidated financial statements.
$
50,403
$
48,930
2014
2013
Cash provided by (used in):
Operating activities:
Earnings from continuing operations
Items not affecting cash:
Amortization of property, plant and equipment
Amortization of intangible assets
Increase (decrease) in employee future benefits obligation
Future income taxes
Net change in regulatory assets/liabilities
Unrealized loss (gain) on interest rate swaps
Other non-current assets
$
Change in non-cash operating working capital (note 20)
6,033
$
11,990
8,779
2,229
(171)
(469)
717
3,766
(94)
20,790
12,186
32,976
8,179
2,445
169
104
(1,588)
(4,182)
(62)
17,055
(4,769)
12,286
Financing activities:
Increase (decrease) in long-term debt
Increase (decrease) in short-term loan
Dividends paid (note 16)
Decrease in customer deposits
11,644
(14,300)
(4,700)
(248)
(7,604)
(3,301)
12,700
(4,700)
(200)
4,499
Investing activities:
Additions to property, plant and equipment, net of contributed capital
Additions to intangible asset
(17,517)
(1,805)
(19,322)
(17,850)
(2,147)
(19,997)
6,050
(3,212)
209
60
20,965
24,117
Increase (decrease) in cash and cash equivalents from continuing operations
Increase in cash from discontinued operations (note 14)
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental cash flow information:
Interest received
Interest paid
Income taxes paid (received)
$
27,224
$
20,965
$
326
5,936
(615)
$
365
6,073
290
See accompanying notes to consolidated financial statements.
54
Consolidated
Financial Statements
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Notes to Consolidated Financial Statements
(In thousands of dollars) Year ended December 31, 2014
Veridian Corporation (the "Corporation") was incorporated on July 1, 1999 under the Ontario Business Corporations Act and was formed
to conduct electricity distribution and non-regulated utility service ventures through its subsidiaries.
1.Significant accounting policies:
(c)Rate setting:
VCI 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
for ensuring that distribution companies fulfill obligations to connect and service customers.
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% in effect on May 1, 2014.
On October 31, 2013, the Corporation filed a cost of service application with the OEB for 2014 distribution rates, to be
effective May 1, 2014. On May 1, 2014, the OEB released a decision that resulted in an increase of 2.7% on the average
customer's total bill, for a typical residential customer consuming 800 kWh per month.
(a) Basis of presentation:
These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting
principles ("Canadian GAAP"), including accounting principles prescribed by the Ontario Energy Board ("OEB") in the
handbook, "Accounting Procedures Handbook for Electric Distribution Utilities", and include the accounts of the Corporation
and its wholly owned subsidiaries, Veridian Connections Inc. ("VCI") and Veridian Energy Inc.
In 2008, the Canadian Accounting Standards Board ("AcSB") confirmed that publicly accountable enterprises will be required
to adopt International Financial Reporting Standards ("IFRS") in place of existing Canadian GAAP for interim and annual
reporting periods for fiscal years beginning on or after January 1, 2011. The AcSB subsequently provided an option for rateregulated entities to defer their IFRS implementation date to January 1, 2015. Please refer to (q) future accounting changes.
(b)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 year 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 year and December 31, 2014. Unbilled revenue included within accounts receivable as at
December 31, 2014 amounted to $33,371 (2013 - $30,264). Actual billed revenue could differ from estimates due
to energy demand, weather, line losses and changes in the composition of customer classes.
(ii) Other revenue:
Other revenue, which includes revenue from electricity distribution-related services, is recognized as services
are rendered.
(iii) Deferred revenue:
Amounts received in advance are presented as deferred revenue (note 10).
The OEB has the general power to include or exclude costs, revenue, losses or gains in the rates of a specific period,
resulting in the 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 assets and liabilities. The Corporation's regulatory assets 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 liabilities, which represent obligations that are expected
to be refunded to customers. Specifically, the following regulatory treatments have resulted in accounting treatments
that differ from Canadian GAAP for enterprises operating in a non-regulated environment:
(i) An amount to represent the cost of funds used during construction and development has been applied based on the
value of construction in progress;
(ii) The Corporation records future income tax assets and a corresponding regulatory tax liability, as the recovery from,
or refund to, customers is expected to be included in future distribution rates for its regulated business activities;
(iii) The Corporation has deferred certain post-market opening 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;
(iv) The Corporation has deferred certain variances related to property, plant and equipment transitional amounts for:
(a) decrease in amortization expense resulting from changes in useful lives of assets, and (b) increase in operating
expenses resulting from changes in estimation and allocation of overheads;
(v) The Corporation has deferred stranded meter costs which are recorded in the smart meter variance accounts
as directed by the OEB; and
(vi) The Corporation has deferred costs related to: IFRS implementation, lost revenue adjustment mechanism costs,
and ice storm costs.
(d) 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.
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(e)Inventory:
Inventory, which consists of parts and supplies acquired for internal construction or consumption, is valued at the lower of
cost and net realizable value. Cost is determined on a weighted moving average basis.
Construction in progress comprises property, plant and equipment under construction, assets not yet placed into service
and pre-construction activities related to specific projects expected to be constructed.
Any write-downs taken on inventory are reversed if and when net realizable value subsequently recovers. Major spare parts
and standby equipment are recorded as part of property, plant and equipment and amortized once they are put into use.
Assets under construction, land rights, major spare parts and standby equipment are not subject to amortization until
these assets are put into service. Land is not amortized.
(f) Property, plant and equipment:
Property, plant and equipment purchased or constructed by the Corporation are recorded at cost and include contracted
services, materials, labour, engineering costs, overheads and an allowance for the cost of funds used during construction
when applied. Certain assets may be acquired or constructed with financial assistance in the form of contributions from
developers or customers. The OEB requires that such contributions be offset against the related asset cost.
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.
When identifiable assets, such as buildings, distribution station equipment and office equipment, are retired or otherwise
disposed of, their original cost and accumulated amortization are removed from the accounts and the related gain or loss
is included in the operating results for the related fiscal year. The cost and related accumulated amortization of a pool
of like assets, such as transmission and distribution system, are removed at the end of their estimated service lives.
Repairs and maintenance expenditures are charged to operations.
During 2012, the Corporation changed its estimates of useful lives and componentized certain items of property, plant
and equipment. The changes have been applied prospectively. The change in the basis of amortization has had the effect
of decreasing amortization expense by approximately $4,244 in 2013.
In addition, during 2012, the Corporation changed its estimation and allocation of indirect costs subject to capitalization,
resulting in a change in estimation of costs directly attributable to capital projects. These changes have been applied
prospectively and resulted in an increase in operating expenses by approximately $2,026 in 2013.
In compliance with OEB directions, the changes mentioned above were accounted for through a variance account resulting
in an increase in regulatory liability (note 6 (e) and (f)) and decrease in other income by $2,218 in 2013 (note 19).
Amortization of property, plant and equipment is charged to operations on a straight-line basis over their estimated
service lives at the following annual rates:
Land rights
Buildings
Distribution station equipment
Transmission and distribution system
Meters
Office equipment
Computer hardware
Vehicle fleet
Renewable power generation
58
2.0%
2.0% - 6.7%
1.7% - 4.0%
1.7% - 10.0%
4.0% - 6.7%
10.0%
20.0% - 33.3%
6.7% - 16.7%
4.0%
Consolidated
Financial Statements
An allowance for the cost of funds used during the construction period has been applied. The rate applied is equal to the
rate prescribed in each quarter by the OEB. The average rate for the current fiscal year in respect of long-term borrowings
is 3.30% (2013 - 3.35%).
When portions of the Corporation's distribution facilities are replaced or relocated, the asset is charged with the costs
of construction less the salvage value of any material returned to inventory. Amortization is then provided at the same rate
used for the original asset.
(g) Intangible assets:
Intangible assets separately acquired or internally developed are measured on initial recognition at cost which comprises
purchased software, direct labour, including employee benefits and consulting, engineering, overheads and attributable
capitalized financing charges. 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 miscellaneous intangible plant
Internally generated software
33.3%
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 4).
(h) Impairment of long-lived assets:
Long-lived assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of
the long-lived assets is not recoverable. Any resulting impairment loss is recorded in the year in which the impairment occurs.
In the event that facts and circumstances indicate that property, plant and equipment may be impaired, an evaluation of
recoverability is performed. For purposes of such an evaluation, the estimated future undiscounted cash flows associated
with the asset are compared to the carrying amount of the asset to determine if a write-down is required. The impairment
loss is measured as the amount by which the carrying amount of the asset exceeds its fair value.
Being a regulated business, the carrying costs of most of the Corporation's long-lived assets are included in rate base 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.
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(i)Goodwill:
Goodwill relates to the cost of acquired local distribution companies and non-regulated businesses in excess of fair value of
the net identifiable assets purchased and is evaluated for impairment on an annual basis, or more frequently, if circumstances
require. Goodwill impairment is assessed based on a comparison of the fair value of the assets acquired to the underlying
carrying value of those net assets, including goodwill, with any write-down of the carrying value of goodwill being charged
to operations. The Corporation has determined that goodwill is not impaired.
(j) Customer deposits and advance payments:
Customers may be required to post security to obtain electricity or other services. Interest is paid on customer balances at
rates prescribed by the OEB. The current portion of customer deposits is included in accounts payable and accrued liabilities.
The Corporation receives advance payments from customers and recognizes it as a liability until the construction project
is completed.
(k) Pension and other post-employment benefits:
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.
The Corporation actuarially determines the cost of other employment and post-employment 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
post-retirement benefit is deemed to be earned on a pro rata basis over the years 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.
(l) Income taxes:
Under the Electricity Act, 1998, the Corporation is required to make payments in lieu of corporate income taxes ("PILs") to
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.
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 year or a later period.
Future income tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on future tax assets and liabilities of a change in tax rates is recognized in earnings in the year that includes the date
of enactment or substantive enactment.
60
Consolidated
Financial Statements
The carrying amount of future income tax assets is reviewed at each balance sheet date and reduced to the extent that
all or part of the future income tax assets have not met the "more likely than not" criterion. Previously unrecognized future
income tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become more
likely than not of being recovered from future taxable profits. A valuation allowance is recorded against a future income
tax asset to the extent that the Corporation determines that it is more likely than not that a future income tax asset will
not be realized in the future.
Where the Corporation expects the future income taxes to be recovered from or refunded to customers as part of the rate
setting process, the future income tax assets and liabilities result in regulatory liabilities and assets, respectively; otherwise,
the future income tax assets and liabilities result in a future tax provision that is charged to the consolidated statement of
earnings and retained earnings.
(m)Use of estimates:
The preparation of financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the year. Accounts receivable and regulatory assets are reported
based on amounts expected to be recovered with an appropriate allowance for unrecoverable amounts. Inventory is recorded
net of provisions for obsolescence. Other significant areas requiring the use of management estimates relate to unbilled
revenue, revenue recognition, employee future benefits, developer obligations and future income taxes. Due to inherent
uncertainty involved in making such estimates, actual results reported in future years could differ from those estimates
recorded in preparing these financial statements, including changes as a result of future decisions made by the OEB
or the Minister of Energy.
(n)Financial instruments:
The Corporation categorizes its financial instruments as follows:
Accounts receivable
Due from related parties
Accounts payable and accrued liabilities
Short-term loan
Advance payments - construction deposits
Developer obligations
Long-term debt
Customer deposits
Loans and receivables
Loans and receivables
Other financial liabilities
Other financial liabilities
Other financial liabilities
Other financial liabilities
Other financial liabilities
Other financial liabilities
(o) 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 year
in the consolidated statement of earnings and retained earnings.
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(p) 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, 2014,
the Corporation's definition of capital includes shareholders' equity, long-term debt, including the shareholder's
promissory notes, and a short-term loan facility from a Canadian chartered bank.
During the year, there have been no changes to how the Corporation assesses its capital structure.
(q)Future accounting changes:
2.Accounts receivable:
2014
$
Energy revenue
Unbilled revenue
Project expenditures recoverable
Pole rentals and other
Less allowance for doubtful accounts
$
Transition to International Financial Reporting Standards:
The AcSB adopted a new strategic plan that will have Canadian GAAP converge with IFRS, effective January 1, 2011.
On September 10, 2010, the AcSB granted an option to permit rate-regulated entities to defer IFRS implementation to
January 1, 2012 and then again on March 30, 2012, the AcSB announced its decision to extend, by an additional year,
the mandatory changeover date to IFRS for rate-regulated entities to January 1, 2013. This decision was made in light
of discussions that the International Accounting Standards Board ("IASB") may address rate-regulated activities as part
of its future agenda. In September 2012, the AcSB decided to extend the existing deferral of the mandatory IFRS
changeover date for entities with qualifying rate-regulated activities by an additional year to January 1, 2014. The AcSB
extended the deferral because an interim solution for entities with rate-regulated activities remained a possibility.
On February 13, 2013, the AcSB decided to extend the existing deferral of the mandatory IFRS changeover date for entities
with qualifying rate-regulated activities by an additional year to January 1, 2015. The decision was taken in anticipation
of the IASB issuing an interim IFRS on rate-regulated activities by the end of 2013 and in order to provide first-time adopters
of IFRS adequate time to prepare comparative information based on such a standard.
On January 30, 2014, the IASB issued an interim standard, IFRS 14, Regulatory Deferral Accounts ("IFRS 14"), to enhance
the comparability of financial reporting by entities that are engaged in rate-regulated activities. The interim standard
introduces limited new presentation requirements and permits first-time adopters to continue to recognize amounts related
to rate regulation in accordance with their previous Canadian GAAP requirements and is effective from January 1, 2016,
with early application permitted.
AcSB deferral for IFRS expires at the end of 2014 and, accordingly, the Corporation will elect early adoption of IFRS 14 and:
(i)
Adopt IFRS on January 1, 2015;
$
20,267
30,264
2,103
4,286
59,781
56,920
1,090
960
58,691
$
55,960
3.Property, plant and equipment:
Cost
Land
Land rights
Buildings
Distribution station equipment
Transmission and distribution system
Meters
Office equipment
Computer hardware
Vehicle fleet
Renewable power generation
Construction in progress
Contributions in aid of construction
2014
Net book
value
Accumulated
amortization
2013
Net book
value
$
1,777
781
23,585
41,647
361,979
20,441
4,831
8,183
8,886
671
6,635
(70,091)
$
–
391
8,795
18,967
178,653
8,432
3,815
7,243
5,100
67
–
(17,961)
$
1,777
390
14,790
22,680
183,326
12,009
1,016
940
3,786
604
6,635
(52,130)
$
1,777
391
15,675
20,227
172,912
12,394
1,153
895
3,667
631
7,339
(49,976)
$
409,325
$
213,502
$
195,823
$
187,085
During the year, $137 (2013 - $95), representing an allowance for the cost of funds used during construction, was capitalized.
4.Intangible assets:
(ii) Present comparative information for 2014 under IFRS; and
(iii) Present an opening balance sheet on January 1, 2014 under IFRS.
22,598
33,371
2,231
1,581
2013
Cost
Application software and other
Construction in progress related to application software and other
Capital contributions (notes 8(a) and 17(b))
2014
Net book
value
Accumulated
amortization
2013
Net book
value
$
20,059
8
1,212
$
16,633
–
–
$
3,426
8
1,212
$
3,537
321
1,212
$
21,279
$
16,633
$
4,646
$
5,070
No financing charges were capitalized on intangible assets under development in 2014 or 2013.
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5.Amortization:
2014
Amortization of property, plant and equipment
Amortization of intangible assets
Amortization of regulatory assets
Less:
$
Amortization of vehicle fleet included in operating and maintenance expenses
Amortization of assets in non-regulated utility operations included in other income
$
Amortization expense
8,779
2,229
2,895
2013
$
8,179
2,445
255
13,903
10,879
604
51
551
50
655
601
13,248
$
10,278
6.Regulatory assets and liabilities:
2014
Regulatory assets:
Less:
$
Amounts expected to be settled in the next year
Valuation allowance
Regulatory liabilities:
Less:
Other deferred costs (a)
Smart meter (b)
Retail settlement and low voltage variances (c)
Future income tax assets
Retail cost variances (d)
Other regulatory liabilities (e)
2,584
4,325
3,613
6,266
10,522
1,970
–
891
128
1,970
1,019
4,296
$
9,503
$
5,777
–
3,086
$
7,320
23
6,473
$
64
$
$
Amounts expected to be settled in the next year (f)
Consolidated
Financial Statements
2,259
1,457
2,550
2013
8,863
13,816
3,049
–
5,814
$
13,816
(a) Deferral accounts have been established for the following items: one-time administrative costs during transition to IFRS of
$469, approved recoverable amounts of $819, and lost revenue adjustment mechanism costs of $161, and future recovery
of 2013 ice storm costs of $728. Also included in other deferred costs are the retail cost variances of $82, which are the
differences between the revenue charged to retailers and the retail services costs associated with providing the retail services.
(b) The net book value of stranded meter costs remains in the smart meter variance accounts. The Corporation received
approval for recovery of stranded meter costs of $4,325 in its 2014 cost of service application. The balance recoverable
at year end is $1,457.
(c) In 2014, the OEB approved the disposition of the Corporation's retail settlement variance accounts as at December 31, 2012.
The retail settlement variances for 2014 are variances that have accrued since January 1, 2013. Specifically, these amounts
include variances between the amount charged by the Independent Electricity System Operator ("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.
(d) The retail cost variances are the differences between the revenue charged to retailers and the retail services costs associated
with providing the retail services.
(e) Other regulatory liabilities include $3,049 as a variance for property, plant and equipment transitional amounts for decrease
in amortization expense resulting from changes in useful lives of assets and increase in operating expenses resulting from
changes in estimation and allocation of overheads effective January 1, 2012 due to anticipated changeover to IFRS, and $37
for other deferred variance amounts.
(f) The amounts expected to be settled in the next year are approved dispositions for other regulatory liabilities (note 6(e)).
Management continues to assess the likelihood of recovery of its regulatory assets and believes that it is probable that its
regulatory asset and liability balances will be factored into setting of future rates. In the event that recovery from future rates
is no longer considered probable or portions of amounts deferred are determined not to be recoverable, such amounts will be
expensed in the year this determination is made.
In the absence of rate-regulated accounting, interest expense in 2014 would have been lower by $204 (2013 - $255)
and interest revenue in 2014 would have been lower by $241 (2013 - $359).
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7.Income taxes:
8.Accounts payable and accrued liabilities:
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:
2014
Earnings before income taxes and discontinued operations
$
6,286
2013
$
26.50%
Federal and Ontario statutory income tax rate
2014
12,291
26.50%
Provision for income taxes at statutory rate
Increase (decrease) resulting from: Temporary differences expected to be recovered from customers
Change in valuation allowance
Other miscellaneous
$
1,666
(1,012)
45
(446)
$
3,257
(1,547)
(75)
(1,334)
Income tax expense
$
253
$
301
$
722
(469)
$
201
100
$
253
$
301
Allocated:
Current
Future, operating activities
Total income tax expense
Power bill accrual
Current portion of customer deposits
Customer credit balances
Other accounts payable and accrued liabilities
Hydro One contractual obligation (a)
2013
$
26,621
475
6,612
9,931
1,212
$
14,720
430
6,346
8,540
1,212
$
44,851
$
31,248
(a) The Corporation is party to a connection and cost recovery agreement with Hydro One related to the construction by Hydro One
of a transformer station designed to meet the Corporation's anticipated electricity load growth (notes 4 and 17(b)). Hydro One
is expected to perform a true-up, based on actual load at the end of the tenth and fifteenth anniversaries of the in-service date.
9. Credit facilities and short-term loan:
As at December 31, 2014, the Corporation had the following external credit facilities with a Canadian chartered bank:
Future income 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:
2014
Future income tax assets:
Property, plant and equipment and intangible assets
Employee future benefits
Non-capital losses and other
Unrealized loss on interest rate swaps
Deferred revenue and contingent liability
$
Valuation allowance
Future income tax liabilities:
Regulatory assets and liabilities
Unrealized gain on interest rate swaps
Future income tax assets
$
4,913
738
123
608
775
2013
$
7,410
800
76
–
886
7,157
(230)
9,172
(191)
6,927
8,981
253
–
844
390
253
1,234
6,674
(a)Uncommitted revolving demand credit facility. The facility at all times is required to be no greater than $30,000
with a letter of credit ("L/C") carve-out availability;
$
7,747
The Corporation has losses for income tax purposes of $387 (2013 - $193) available to reduce future years' income for tax
purposes, which will expire between 2031 and 2034. The potential future tax benefit of these losses has not been recognized
since management has determined that it is more likely than not that these amounts will not be realized in the foreseeable future.
(b) Committed reducing term facility with a credit limit of $20,000 and amortization term of 10 years (note 12);
(c) Committed reducing term facility with a credit limit of $30,000 and amortization term of 20 years with an optional
exit strategy at 10 years and 15 years (note 12);
(d) Committed reducing term facility with a credit limit of $15,000 and amortization term of 30 years with an optional
exit strategy at 10 years and 15 years (note 12); and
(e) Committed or demand revolver facility no greater than $70,000 at all times.
The financial covenants for the above facilities requires a funded debt to capitalization ratio of no greater than 0.60:1,
and maintain a debt service coverage ratio of not less than 1.20:1. The Corporation has been in compliance with all
the covenants included in its long-term debt agreements, and the short-term loan.
As at December 31, 2014, nil was drawn out of facility (a); $10,084 was outstanding out of facility (b); $26,859 was outstanding
out of facility (c); $14,460 was outstanding out of facility (d) and $15,000 was outstanding out of the facility (e) above. To cover
the risk of fluctuating interest rates, facilities (b), (c) and (d) were structured with interest rate swap agreements with the bank
effectively converting the obligations into fixed interest rate loans of approximately 4.76%, 4.24% and 3.99%, respectively.
The Corporation utilized (a) $807 to issue an irrevocable L/C in favour of the IESO and (b) $100 to issue an irrevocable L/C
in favour of the Ministry of Environment.
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12.Long-term debt:
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 payments.
2014
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.
2014
Revolving uncommitted demand credit facility with a Canadian chartered bank at prime rate
$
–
Notes payable to shareholders, due on November 1, 2039,
at a rate equal to the OEB-deemed long-term debt rate, less 30 basis points
2013
$
14,300
10.Deferred revenue:
Deferred revenue represents the balance at year end of unearned revenue from funding received from the Ontario Power Authority
("OPA") to deliver OPA Conservation and Demand Management ("CDM") programs. On February 3, 2011, the Corporation
entered into an agreement to deliver these CDM programs. These programs were to cover the period from January 1, 2011
to December 31, 2014. The agreement was amended on November 14, 2014, and was extended until December 31, 2015.
A new agreement was entered with the OPA on December 16, 2014 to deliver CDM programs covering the period from January 1,
2015 to December 31, 2020
All programs to be delivered under the OPA agreement are expected to be fully funded and paid in advance by the OPA.
43,588
$
43,588
Notes payable to shareholders, due on December 31, 2015,
at a rate equal to the greater of 6% or the OEB-deemed long-term debt rate
17,206
17,206
Long-term debt from a Canadian chartered bank, maturing on November 3, 2031 (note 9)
26,859
27,923
Long-term debt from a Canadian chartered bank, maturing on December 23, 2019 (note 9)
10,084
12,101
Long-term debt from a Canadian chartered bank, maturing on December 20, 2032 (note 9)
14,460
14,735
Long-term debt from a Canadian chartered bank, repayable no sooner than December 28, 2019
15,000
–
127,197
115,553
20,619
3,356
Less current portion
$
106,578
$
112,197
The notes payable to the shareholders with the maturity date of November 1, 2039 are repayable prior to the maturity date
based on certain conditions. The noteholders have the right to demand repayment of this note (in whole or in part) at any time
upon six months prior written notice to VCI provided that a duly enacted resolution or bylaw is passed by the noteholders
certifying that the funds are required for certain specified municipal purposes. As at December 31, 2014, the shareholders
have not exercised their right to demand repayment.
The notes payable to the shareholders with the maturity date of December 31, 2015 are convertible on or before the maturity date
at the option of the noteholders on the basis of one common share for each $1,000 of principal amount. Management has deemed
the value of the conversion option (equity component) to nil upon initial recognition of these notes.
11.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 and the City of Belleville (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. A summary of amounts
charged by the Corporation to the shareholders is as follows:
2014
Electrical energy and services
$
2013
$
7,691
2013
$
7,219
Scheduled payments for the next five years and thereafter are as follows:
2015
2016
2017
2018
2019
Thereafter
Less current portion
Interest on long-term debt includes interest of $3,460 (2013 - $3,460) on the notes paid to the shareholders.
$
20,619
3,473
3,535
3,600
3,668
92,302
127,197
20,619
$ 106,578
At December 31, 2014, accounts receivable include $887 (2013 - $782) due from the shareholders.
68
Consolidated
Financial Statements
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growth
VERIDIAN
2015 Annual Report
69
The main actuarial assumptions employed for the valuations are as follows:
Interest on long-term debt comprises:
2014
Interest on:
Notes payable and loans
Regulatory liabilities
Customer deposits and other
$
Less allowance for funds used during construction
Future income tax
assets
$
5,922
204
78
2013
$
5,924
255
202
6,204
6,381
137
95
6,067
$
6,286
(i)General inflation:
Future general inflation levels, as measured by changes in the Consumer Price Index, were assumed at 2.00%
for future years.
(ii) Interest (discount) rate:
Amounts were determined using an annual discount rate of 4.80% (2013 - 4.00%).
(iii) Salary levels:
Future general salary and wage levels were assumed to increase at 3.60% (2013 - 3.60%) per annum.
13.Employee benefits:
(iv) Health and dental care:
(a)Pensions:
The health and dental care cost increases were assumed at 7.00% and 4.60% (2013 - 7.25% and 5.00%), respectively.
During 2014, the Corporation made contributions totalling $2,136 (2013 - $1,959) to OMERS.
(b) Employee future benefits:
14.Discontinued operations:
The Corporation pays certain benefits on behalf of its retired employees. The Corporation recognizes these post-retirement
costs in the period in which the employees render the services.
A retiree health spending account ("HCSA") was implemented in the collective agreement between the Corporation
and the International Brotherhood of Electrical Workers effective April 1, 2011 to March 31, 2015.
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:
2014
Prepaid benefit liability, January 1
Current service costs
Past service cost
Actuarial gain
Interest on benefits
Benefit payments
$
Prepaid benefit liability, December 31
$
2013
2,218
91
38
(354)
108
(54)
$
2,047
$
2,049
93
40
–
97
(61)
2,218
The amounts presented are based upon an actuarial valuation performed as at January 1, 2014. The Corporation measures
its prepaid benefit liability for accounting purposes as at December 31 of each year. The next valuation is expected to be
performed for the year ending December 31, 2017.
70
Consolidated
Financial Statements
On August 15, 2011, the Corporation disposed of certain assets and liabilities previously employed in its water heater
and sentinel lights business as operated by Veridian Energy Inc.
Under the terms of the sale agreement, the Corporation did not transfer the accounts receivable or accounts payable
of the business arising prior to August 15, 2011.
As a result of the sale of the water heater and sentinel lights business, the results of operations for the discontinued operations
have been reported separately in the consolidated statement of earnings and retained earnings.
Summarized financial information for the discontinued operations is as follows:
2014
$
Current assets
Expenses (income):
Statement of cash flows:
Cash provided by discontinued operations:
Operating activities
$
68
(140)
Operating and maintenance
Earnings (loss) from discontinued operations
–
2013
131
$
140
$
(131)
$
209
$
60
wired for
growth
VERIDIAN
2015 Annual Report
71
15.Share capital:
(b) Contractual obligation - Hydro One:
2014
Number of Shares
Authorized:
Unlimited common shares
Issued
10,000
$
Amount
2013
Number of Shares
67,260
10,000
Amount
$
67,260
16.Dividends:
The Corporation's current dividend policy states:
(a) a base annual dividend to the shareholders be set at $4,700 from 2012 to 2016;
(b) the base dividend to the shareholders may be:
(i)
increased due to earnings favourable to the forecast;
(ii) increased if there is any cash surplus available; and
(iii) increased/decreased due to higher/lower dividends from VCI to the Corporation.
During 2014, the Board of Directors of the Corporation declared and paid dividends totaling $4,700 (2013 - $4,700)
to the shareholders.
17. Contingencies and guarantees:
(a) Insurance claims:
The Corporation's subsidiary, VCI, 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 VCI's anticipated electricity load growth.
Construction of the project was completed during 2007 and VCI connected to the transformer station during 2008.
To the extent that the cost of the project is not recoverable from future transformation connection revenues, VCI is obliged
to pay a capital contribution equal to the difference between these revenues and the construction costs allocated to VCI.
The construction costs allocated to VCI for the project are $9,975.
The Corporation has recorded a liability and a corresponding intangible asset for $1,212 as at December 31, 2014 (2013 $1,212), based on management's best estimate of the future transformation connection revenue shortfall. Hydro One is
expected to perform a true-up based on actual load at the end of the tenth and fifteenth anniversaries of the in-service date.
(c)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 financial position, results of operations or cash flows.
18.Lease commitments:
Future minimum lease payment obligations under operating leases are as follows:
2015
2016
2017
2018
2019
Thereafter
$
32
24
2
2
2
64
$ 126
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.
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. Insurance limits of $30,000 per occurrence
are covered by MEARIE.
72
Consolidated
Financial Statements
wired for
growth
VERIDIAN
2015 Annual Report
73
19.Other income (loss):
(b) Interest rate risk:
2014
Recoverable projects and others
Late payment charges
Customer charges
Pole rentals
Gain on disposal of property, plant and equipment
Foreign exchange gain (loss)
Change in estimates and allocation of indirect costs (note 1(f))
2013
$
161
502
2,103
475
18
24
48
$
304
489
1,952
471
2
(13)
(2,218)
$
3,331
$
987
(c) Credit risk:
20. Change in non-cash operating working capital:
2014
Accounts receivable
Income taxes recoverable
Inventory
Prepaid expenses
Accounts payable and accrued liabilities
Advance payments - construction deposits
Deferred revenue
Developer obligations
$
$
The Corporation enters into fixed interest rate long-term debt agreements to minimize cash flow and interest rate fluctuation
exposure. Long-term debt for $20,000 for a 10-year fixed rate term loan was arranged in 2010. Additionally, long-term debt
for $30,000 in 2011 and $15,000 in 2012 for 20-year fixed rate term loans were arranged from a Canadian chartered bank.
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 fixed rate loans,
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.
2013
(2,731)
1,149
(278)
288
13,603
(147)
(419)
721
$
12,186
$
21.Financial instruments:
The carrying amounts of all financial instruments, except long-term debt, approximate fair values due to the immediate
or short-term maturity of these financial instruments. It is not practicable to estimate the fair value of long-term debt
as it is not publicly traded.
1,634
(69)
(385)
(359)
(5,642)
513
(136)
(325)
(4,769)
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, 2014, 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.
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 1.59% (2013 - 2.32%)
of the total net outstanding balance.
(iv) The Corporation includes an amount of accounts receivable write-offs within operating and maintenance expense
for rate-setting purposes.
(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 and its foreign exchange risk is considered not material
and is limited to U.S. dollar cash and cash equivalents holdings of $44 as at December 31, 2014 (2013 - $247).
Distribution rates and charges are currently based on a revenue requirement less other income, which includes
interest income. The difference in the interest revenue reduction and the actual interest income earned by the Corporation
is currently insignificant.
74
Consolidated
Financial Statements
wired for
growth
VERIDIAN
2015 Annual Report
75
Pursuant to their respective terms, accounts receivable are aged as follows as at December 31:
Fair value measurements recognized in the consolidated statement of earnings and retained earnings are categorized
using a fair value hierarchy that reflects the significance of inputs used in determining the fair values.
2014
2013
Total accounts receivable
Less allowance for doubtful accounts
$
59,781
1,090
$
56,920
960
Total accounts receivable, net
$
58,691
$
55,960
Of which:
$
33,371
24,157
941
376
525
411
59,781
$
30,264
24,118
763
477
868
430
56,920
Unbilled revenue
Outstanding 1 day but not more than 30 days
Outstanding 31 days but not more than 60 days
Outstanding 61 days but not more than 90 days
Outstanding 91 days but not more than 120 days
Outstanding more than 120 days
1,090
Less allowance for doubtful accounts
$
58,691
$
55,960
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 liabilities:
Accounts payable and accrued liabilities
Long-term debt
Lease commitments
$ 44,851
20,619
32
Due past
five years
Due between
one and five years
$
–
14,276
30
$
–
92,302
64
(e)Fair values:
The Corporation included $2,296 of unrealized loss (2013 - $1,471 unrealized gain) in its financial statements, which
represents the amount that the Corporation would have paid at December 31, 2014 (received - December 31, 2013) to unwind
its position as at December 31, 2014. This is the fair value of the interest rate swap derivatives as at December 31, 2014
and December 31, 2013, respectively. This unrealized gain or loss is not expected to affect cash as long as the Corporation
intends to hold the financial instruments until its maturity.
76
Consolidated
Financial Statements
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, 2014.
There were no transfers between levels during the year.
960
(d)Liquidity risk:
Due within one year
•
22. Comparative information:
Certain comparative information has been reclassified to conform with the financial statement presentation adopted
in the current year.
23.Subsequent events:
(a) In February 2015, the Corporation consolidated its 3.99% and 4.24% interest rate swap agreements totaling $40,999
into a single interest rate swap agreement. The new interest rate swap blends and extends the pre-existing swaps into
one instrument with a 3.715% interest rate swap agreement and maturity date of March 2, 2045. The interest rate swaps
will be recorded at their mark-to-market fair value at each reporting date. The Corporation does not apply hedge
accounting to interest rate swap contracts.
(b) In February 2015, the OEB issued its Decision and Order approving the Corporation's request for recovery of $728 in
electricity restoration costs related to the December 2013 ice storm. These amounts are recorded as regulatory assets
as at December 31, 2014.
wired for
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VERIDIAN
2015 Annual Report
77
2014 Boards of Directors
and meeting attendance
Thank you to our 2014 Board of Directors for your
unwavering support and invaluable guidance.
During 2014, the Boards of Directors of Veridian Corporation and Veridian Connections Inc. met five times each.
Veridian Corporation
Jack Alexander (2)
Board
Meetings
Committee
Meetings
Veridian Connections Inc.
Board
Meetings
Committee
Meetings
5/5
5/5
Doug Dickerson (Chair) (1,2,3,5)
5/5
18/18
Joanne Dies (2,4)
5/5
7/7
Eldon Dixon (1)
5/5
4/5
Neil Ellis (Vice Chair) (3,4,5)
4/5
10/10
Kevin Ashe (3)
5/5
3/4
Doug Dickerson (Chair) (1,2,3,5)
5/5
18/18
Joanne Dies (2,4)
5/5
7/7
Neil Ellis (Vice Chair) (3,4,5)
5/5
10/10
Adrian Foster (2,4,5)
5/5
9/10
Adrian Foster (2,4,5)
5/5
9/10
Cindy Holland (2)
3/5
4/5
Colleen Jordan (3,5)
5/5
7/8
Colleen Jordan (3,5)
5/5
7/8
James Macpherson (1)
5/5
5/5
James Mason (5)
5/5
3/4
David McGregor (3)
5/5
4/4
Douglas Parker (1)
5/5
4/5
Joe Neal (1)
5/5
4/5
David Pickles (2)
5/5
5/5
David Pickles (2)
5/5
5/5
Frank Stapleton (3)
4/5
3/4
Sylvain Trépanier (1)
3/5
4/5
David Ryan (4,5)
5/5
5/6
Frank Stapleton (3)
4/5
3/4
Ralph Sutton (5)
5/5
4/4
Doug Dickerson
Chair
Neil Ellis
Vice Chair
Councillor and Deputy
Mayor, City of Pickering
Eldon Dixon
FCCA CGA MBA C.Dir.
Director, Financial Shared
Services Parmalat Canada
Jack Alexander
Kevin Ashe
Joanne Dies
Mayor,
City of Belleville
Electrical Generation
Consultant,
J.W.A. Enterprises Inc.
Councillor,
City of Pickering
Councillor,
Town of Ajax
Adrian Foster
Cindy Holland
Colleen Jordan
James Macpherson
Mayor,
Municipality of Clarington
Marketing Manager,
Constellation Brands
Canada
Regional Councillor,
Town of Ajax
C.Dir.
President, Macpherson
& Associates Inc.
David McGregor
Joe Neal
Douglas Parker
Councillor,
Municipality of Clarington
Retired General Manager
& Secretary, Belleville
Utilities Commission
David Pickles
Member of:
1. Audit & Risk Management Committee (Chair – James Macpherson)
2. Governance Committee (Chair – David Pickles)
James Mason
President,
Pefco Ontario
CHRP, HRCCC
Retired VP of
Human Resources,
Wrigley Canada
David Ryan
Frank Stapleton
Ralph Sutton
Sylvain Trépanier
Mayor,
City of Pickering
Owner & Operator,
Stapleton Auctions/Grist
Mill Auction Centre Ltd.
Retired Manager,
Bell Canada
Director,
International Financial Data
Services (IFDS Canada)
3. Human Resources & Compensation Committee (Chair – David McGregor)
Councillor,
City of Pickering
4. Nominating Committee (Chair – David Ryan)
5. Business Development Committee Meeting (Chair – Neil Ellis)
wired for
growth
VERIDIAN
2014 Annual Report
Veridian is proud to be a member of:
OEA LOGOS:
Print Colours (Pantone / CMYK)
saveONenergyOM, FOR BUSINESSOM and HOME ASSISTANCEOM are Official Marks
adopted and used by the Independent Electricity System Operator. Used under licence.
55 Taunton Rd. E., Ajax, Ontario L1T 3V3
www.veridiancorporation.ca
905-427-9870 or 1-888-445-2881

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