YUKON ENERGY 2005 Business Plan November 2004

Table of Content.

Overview ........................................................................................................... 3-5

................................................................................................................. Mandate 6

Vision. Mission & Values Statement ............................................................... 6-7

Economic Outlook ................................................................................................ 8

.................................... ......................................... Planning Assumptions .... 9-10

................................................................................... Goals and Objectives 1 1- 14 ........................................................................... Staff and Employee Relations 11

Financial and Corporate ................................................................................. 12 Reliability. System Planning and Asset Management .................................. 13-14

......................................................................................... Revenue Summary 15- 16

................................................... Description of Significant Accounts 17

............................................................... Major Capital Projects 18-22

................................................................. Financial Statements -23-27 ................................... Expenditures on Property. Plant and Equipment 23

.......................................................................... Balance Sheet -24 ...................................................... Statement of Retained Earnings 25

.................................................................. Statement of Earnings 26 ............................... Summary of Customers. Energy Sales & Revenues 27

*Cover photos by Derek Crowe (#1 and #3) and Cathie Archbould (#2) .

OVERVIEW

This business plan outlines the goals, strategies and performance measures for Yukon Energy for 2005 and spells out the Corporation's budgeting to achieve those goals. It reflects the fact that in December 2004, Yukon Energy plans to make an application to the Yukon Utilities Board for a general review of our 2005 revenue requirements and related matters. While we do not plan to request a general rate increase, we believe it's important to have a review of all of YEC's costs, since the last time Yukon Energy appeared before the Utilities Board for a general review was in 1995196.

Readers will notice two over-arching themes in this document: Yukon Energy's plan to clear up some unresolved issues from the past and our desire to take a longer-term view of the corporation's future activities and operations.

In terms of outstanding past issues, resources will be allocated in 2005 to make significant progress on resolving outstanding issues with the federal government with respect to costs incurred to renew the Aishihik water license and the Canada Flex Term Note and on finalizing the claims and counterclaims with Chant Construction regarding the Mayo-Dawson Transmission Line Project.

Because the Mayo-Dawson project is significantly over its original budget estimate of $27.2 million (the current thinking is that the final cost will be $36.2 million plus the cost of resolving claims), the Auditor General was asked to conduct a Special Examination Audit. The audit results are expected to be tabled in the Yukon Legislature early in 2005.

One aspect of the Mayo-Dawson project that was finalized late in 2004 and will be reflected in budgets from 2005 onward is an apprenticeship agreement between Yukon Energy, the First Nation of Nacho Nyak Dun and the Tr'ondek Hwech'in First Nation. Yukon Energy will give each First Nation $15,000 annually to be used for training and apprenticeship. The agreement is for 20 years with an option for renewal by mutual agreement.

Looking to the future, the realities of Canadian demographics have caught up with Yukon Energy. Demographic trends point towards an ageing population, a shrinking pool of qualified engineering and technical workers, and increasing competition for their services. At Yukon Energy, the average age of the company's workforce is 45 years. A large percentage of our employees will be eligible for retirement within the next 10 to 15 years, and when they leave so will their accumulated knowledge and skills. Yukon Energy has a succession planning initiative underway to mitigate the impact of retirements and, at the same time, reinvigorate the workforce.

Yukon Energy continuously invests in employee training and development. Training investment is an important indicator of our commitment to learning. During the training planning process, supervisors work closely with their direct reports and our Human Resources department to conduct needs analysis and identify learning needs. Learning needs are considered as part of the overall business investment and benefit objectives. Filling skill gaps in technical and leadership areas is vital to the strategic succession plan of Yukon Energy.

While our workforce is ageing, so is some of our equipment. In 2003 and 2004, Yukon Energy completed evaluations of our generation and transmission assets, and our substations. The review looked at what could be done to ensure our assets reached their expected lives, or to extend their lives. In 2005 to 2008 there will be upgrading work done to address various issues identified in the assessments. Money earmarked for 2005 will be used to extend the lives of three of our newer Whitehorse diesel generators and bring them up to current standards. Other 2005 projects include refurbishing one of our Whitehorse hydro units, replacing the switchgear at our Mayo plant, and upgrading parts of our Mayo and Drury Creek substations and our Whitehorse- Aishihik-Faro transmission lines.

Yukon Energy's three oldest diesel generators in Whitehorse are reaching the end of their useful lives and it may no longer make financial sense to put money into maintaining them. While at the present time these units are only used as emergency back-up, it is imperative that the corporation have plans in place for their pending retirement. In 2005 Yukon Energy will conduct a review to determine if indeed there is a requirement to replace them, and if there is, what type of replacements are most suitable.

The retirement planning for the diesel generators is part of an overall 20-year infrastructure strategy being developed as a follow-up to the asset evaluation. The infrastructure strategy will give Yukon Energy essential information about customer sales and demand forecasts and a prioritized list of best options for meeting existing and future customer requirements. It will also include long term maintenance and capital plans with their associated price tags. In addition to taking stock of our infrastructure, Yukon Energy will develop policies regarding appropriate levels of equipment inventory.

One of the biggest tasks for Yukon Energy is to address our continued financial health. Without going to the Yukon Utilities Board for a review, our return on equity would be near seven per cent, which is less than the allowed return of 9.1 per cent. This represents a shortfall in earnings of about $1.1 million. As was mentioned earlier, Yukon Energy plans to file an application to the Yukon Utilities Board for a general review of Yukon Energy's revenue requirements and related matters. We will submit a number of proposals to the Utilities Board about ways of maintaining current power rates. For instance, under a current YUB directive, the money we receive from the Faro mine for providing electricity to pump water from the pits is deferred; in other words, it is not considered a part of our general revenues and is being held in a separate account. We will ask the Utility Board to allow us to move that money into our general revenue base, thereby eliminating our revenue shortfall. If our proposal is approved by the YUB there will be no need for an increase in general rates through 2006 and possibly 2007.

Yukon Energy is obligated to carry out certain activities each year to fulfill our water licenses. In 2005 we will spend more than $900,000 on various projects required by our Aishihik license, including making improvements to the Aishihik Power Canal and building a boat launch at the north end of Aishihik Lake.

Yukon Energy recognizes the vital importance of not only balancing fiscal prudence with service delivery and system reliability, but also with staff and public safety. With this in mind, we will conduct safety reviews of all our dams in 2005. We will also install a fire sprinkler system in our

Corporate Headquarters building in Whitehorse, and fire alarm systems in our substations, smaller office buildings and file storage facilities.

2005 will be challenging for Yukon Energy, as we address not only our on-going operations but a Yukon Utilities Board general review. With a strong management team and a group of talented and motivated employees, we believe we are well positioned to fulfill our goals and objectives in the months ahead.

MANDATE

Established in 1987, Yukon Energy is a publicly-owned electrical utility that operates as a business, at arms length from the Yukon government. We are the main generator and transmitter of electrical energy in the Yukon and we work with our parent company Yukon Development Corporation to provide Yukoners with a sufficient supply of safe, reliable electricity and related energy services.

There are almost 15,000 electricity consumers in the territory. Yukon Energy directly serves about 1,700 of these customers, most of whom live in and around Dawson City, Mayo and Faro. Indirectly, we provide power to many other Yukon communities (including Whitehorse, Carcross, Carmacks, Haines Junction, Ross River and Teslin) through the Yukon Electrical Company Limited. Yukon Electric buys wholesale power from Yukon Energy and sells it to retail customers in the territory.

Yukon Energy has the capacity to generate 116 megawatts of power. Seventy five megawatts of that are provided by our hydro facilities in Whitehorse, Mayo and Aishihik Lake (40 megawatts at Whitehorse, 30 megawatts at Aishihik and five megawatts at Mayo), 39 megawatts by diesel generators (which we currently only use as back-up) and 0.8 megawatts by two wind turbines located on Haeckel Hill near Whitehorse.

Yukon Energy is regulated by the Business Corporations Act, the Public Utilities Act and the Yukon Water Act.

Our headquarters are located near the Whitehorse Rapids hydro plant in Whitehorse, with community offices in Mayo, Faro and Dawson City.

V I S I O N Yukon Energy provides reliable and cost-effective energy services for customers throughout the Yukon.

M I S S I O N Provide a sufficient supply of safe, reliable electricity and related energy services to customers throughout the Yukon, while following sound business practices and demonstrating leadership in protecting the environment.

We undertake to:

be responsive to our customers and their changing needs and expectations;

commit to the safety and development of our employees;

be cost-effective in the utilization and investment of resources, always remembering that we are spending the customer's money and making long-term decisions;

place priority on the fundamentals; that is, safe and reliable electrical services;

demonstrate the value of Yukon-based public ownership and management;

act ethically and honestly treating employees, cuaomtxs and athers with fairness, dignity and respect; and

build enduring relations with Yukon First Nations.

V A L U E S Our actions and activities are guided by our core values:

Commitment Integrity Effective Service Safety Learning, Growth and Development Respect Teamwork Accountability

ECONOMIC OUTLOOK

The economic outlook for 2005 reflects continuation of trends experienced since late 2003. The Canadian inflation rate is forecast to remain within the Bank of Canada target range of one to three per cent. Long-term interest rates are expected to remain near their current range, with long Canada bond rates near the five per cent level.

Oil prices remain strong. The forecast is for light sweet crude oil (historically the best correlation to changes in diesel prices experienced in Yukon) in the $42 per barrel range in 2005. This is somewhat below today's peaking futures markets, but consistent with forecasts issued in August prior to the latest run-up in oil prices.

The Yukon's economy is expected to continue the general trend of slow growth. Overall population levels are expected to remain fairly stable. However this reflects some growth in the Whitehorse and surrounding areas offset by reductions in smaller communities. In terms of electrical loads, the in-migration to Whitehorse (in part indicated by strong housing starts) combined with new developments such as the Argus properties contributed to strong load growth in 2003 and 2004, is expected to level off somewhat in 2005.

No major industrial developments are forecast in the planning horizon, although with strong metal prices, the chances are high for some mining activity in the longer term. There is also a possibility that the Keno mine will progress through to a new owner. However, no credible probability can yet be assigned to this mine site returning as an industrial customer of Yukon Energy in 2005.

Load forecasts for 2005 reflect generally stable slow growth as experienced in 2003 and year-to- date 2004 levels. The only major exception is the North Klondike Highway area (a small service area opened up by the construction of the Mayo-Dawsan line), where growth is being driven by the decisions potential customers make with respect to choosing to be serviced by Yukon Energy or remain off-grid.

PLANNING ASSUMPTIONS

The 2005 business plan has been prepared to reflect that Yukon Energy will be applying to the Yukon Utilities Board (YUB) for a general review of our revenue requirements and related matters.

The business plan reflects key assumptions with respect to Yukon Energy's revenues, operating, maintenance and administration costs for labour and non-labour components, capital spending, depreciation and amortization, and costs of interest on long-term debt.

Revenues: The business plan reflects revenues consistent with current loads and including a small increment (generally in the order of one per cent) for annual growth. A key assumption is that Yukon Energy's future revenues from service to the Faro mine site will no longer be deferred (as directed by the Yukon Utilities Board in Board Order 1998-5) and the Faro mine will now be treated as a general service government customer. This combination would increase Yukon Energy's annual revenues by approximately $400,000. These assumptions are dependent on a Utilities Board decision.

Labour: The labour costs are budgeted based on the current organizational structure and employee complement. Starting in 2005, the labour figures reflect anticipated wage increases as a result of contract negotiations.

Non-Labour: Costs for non-labour components have been developed based on historical data. As well, managers have determined non-labour numbers based on projects planned to meet desired goals and objectives.

Capital Spending: The capital plan focuses on required spending to maintain the system. No major system expansions or replacements are forecast. No decisions have yet been made with respect to possible replacement of the Whitehorse diesel units slated for retirement in the next few years - this would likely comprise a major capital project if replacement was found to be necessary.

Depreciation and Amortization: Depreciation and amortization costs reflect the plants in service in each year and include updated depreciation rates consistent with the 2004 depreciation study conducted by an outside expert. These rates reflect a significant savings compared to existing rates. However the new rates can only be adopted if approved by the Yukon Utilities Board (assumed as part of the 2005 general review).

Capitalization and Interest Costs: The business plan indicates that dividends are to be paid to Yukon Development Corporation and at least a portion of the dividends is to be re-loaned to Yukon Energy in each year. The approach is consistent with the goals of the Yukon Energy dividend policy applied over the past decade.

Outstanding Matters: No amounts have been included to reflect potential resolution of Mayo-Dawson claims (Chant claims against Yukon Energy or counter claims against Chant) as the amounts cannot be determined at this time. Similarly no amounts have been included

in respect of Canada's claim for payments related to secondary sales under the Canada Flexible Term Note. Yukon Energy disagrees that it owes Canada any amounts related to this claim.

Atlin grid connection: In 2004 BC Hydro completed a community energy plan for the town of Atlin, British Columbia. The plan identified a connection to the Yukon's electrical grid at Jake's Corner as a potential option to displace local diesel power generation. BC Hydro stated that they intend to issue a call for Expressions of Interest to supply green electrical supply options for Atlin in the first quarter of 2005.

Secondary Sales: These sales are expected to level off in 2005 at approximately 20 GWh per year of energy sales as the majority of general service customers that were able to benefit from the program have done so over the past three years. As of October 2004 there were 19 secondary sales customers on the Whitehorse/Aishihik/Faro grid and one customer on the Mayo-Dawson grid. There is still some sales growth potential in the Mayo-Dawson area. There are a number of issues that need to be addressed to ensure the longer term viability of secondary sales. The potential clawback of 1.9 cents per kwh related to the Canada Flexible Term note would have a considerable effect on the financial benefit of secondary sales in reducing the revenue requirements of Yukon Energy's other (i.e. primary sales) customers. With the present increase in home heating fuel and propane cost, the secondary sales rate is lagging behind the market. It should be increased to keep pace with the cost of the alternative heating sources. There is also a need to confm an allowable utility investment in secondary sales service connections.

The forecast for secondary sales customers uses a retail rate of 5.5 cents per kwh, of which 4.4 cents is the wholesale rate.

GOALS AND OBJECTIVES

The following 12 goals and objectives represent the major areas of focus for Yukon Energy in 2005. Strategies and performance measures have been developed for each goal and objective, and the necessary capital or operating and maintenance funds have been identified.

The goals fall into three general categories:

Staff and Employee Relations

Yukon Energy Corporation takes health and safety seriously and is committed to providing our employees with a safe and healthy workplace. The Corporation believes that the responsibility for health and safety is shared among the management team, the supervisorsAeadhands and the employees.

In 2005, Yukon Energy will develop and sustain a skilled and informed workforce by retaining and developing the skills and knowledge of employees, providing them with a safe, healthful, and respectful workplace, and by effectively communicating with both staff and the general public.

STRATEGIES Create strategic skill plans to ensure that employees attain the appropriate skills (technical, safety, supervisory, leadership, etc); Create employment opportunities for students (co-op program, summer students); Administer performance management program; and Sustain effective internal and external communication strategies.

,@%$ , Perfomnanse Measures All Injury Frequency

[# Lost Time Iniuries + # Medical Aid Iniuries) x 200,000 Exposure Hours (Hours Worked)

Note: 2003 YE = 5.66 & CEA average = 4.52 Vehicle Incidents

I# Recordable Incidents x 1,000,000 Kilometres Driven

Note: 2003 YE = 5.22 & CEA average = 7.02 Performance Reviews Completed on Time (Due date + 1 month) Training & Development Plans Completed for 2005 Student Employment Opportunities Employee communication (newsletters, cornrnuniqub, etc)

2Q85 &

4.24

3.48

80%

75% 1-2 positions 6 Minimum d

Financial and Corporate

Yukon Energy is required to operate in a commercial fashion. This includes maintaining good financial health, and earning a fair return on the invested capital.

In 2005, Yukon Energy will manage the operations so as to earn a fair return on equity and to move towards resolution of outstanding disputes related to INAC and the Mayo-Dawson project.

Continue to develop the functionality of an interdepartmental Project Review Committee to plan and monitor capital & maintenance projects; Apply to Yukon Utilities Board for a review of Yukon Energy's operations Maintain negotiations with INAC; Pursue disputes with Mayo-Dawson general contractor; Address any changes arising as a result of new governance structures, as required; and

ing appropriate levels of inventories, including

Achieve on-budget expenditures for Operating and Maintenance, Administration and Capital Expenditures; File application with Yukon Utilities Board for review and receive final YUB decision;

Reliability, System Planning and Asset Management

With the large variations in customer demand and aging electrical infrastructure it is imperative for Yukon Energy to have long- term capital and operating plans in place that ensures adequate, reliable and cost-effective supply of power to existing and new customers. There are significant assets approaching the end of their useful life that have to be replaced or life-extended. New supply options will also have to be developed for new customers that will require three to five years lead time.

In 2005, Yukon Energy will work to develop long-term strategies and plans to ensure that appropriate assets are in place to meet on-going customer requirements as well as review service delivery and reliability standards to assess ways to improve reliability. In addition, Yukon Energy will address key more immediate concerns related to voice and data communications, customer billing systems, pending retirement of Whitehorse diesel generation and developing a comprehensive land management system.

STRATEGIES Long-term planning

Implement recommendations from the Infrastructure planning process into business plans; Implement Asset Management business practices.

Examine service delivery and reliability standards Examine the level of staffing and standby coverage and impacts to outage recovery timelcorporate presence; Coordinate and minimize outageslequipment downtime for planned maintenance/capital projects; Examine location, capacity and availability of primary and backup Yukon EnergyNukon Electrical generation; and Examine Yukon Energy's systems for risks to energy supply and recommend solutions.

Communications Identify Yukon Energy's long term voice and data communications requirements and assess the remaining life and capabilities of the existing communications infrastructure; and Assess the feasibility of using various technologies and or partnerships for lower cost and improved communications to remote facilities and vehicles, including voice communications.

Billing System Review expected remaining term of current billing system, and other options available.

Whitehorse Diesel Generation Assess the requirement for local capacity in the Whitehorse area.

Comprehensive Land Management System Implement business processes and procedures that ensure land management data base is in- service and kept up-to-date.

Implementation of Computerized Mrinkenance t System (CMMS) on Transmission and Distribution; corporate strategic plan for computer systems* wke and digital cmunications; Benchmark assessment of reliability s- q~dnst similar utilities; Review of options and costs for alternate b ' i g sysbm; Study of capacity requirements on tb WAP grid; Retirement schedule for WAF diesels; Replacement schedule and budget for WAF &txs1s, if rqW9 Data base inventory of all property and land-bawd assets (including mapping and field-

REVENUE SUMMARY

Yukon Energy's revenues are forecasted to be $26,757,000 in 2005. This is comprised of revenues at current rates, new revenues and a shortfall.

Revenues at current rates (in $000~)

Wholesale revenues to Yukon Electric $1 6,043 Wholesale revenue forecasts are provided by Yukon Electrical Company ~imited (YECL). Over the last few years, the actual sales have differed from the forecasts by up to four per cent and Yukon Energy has expressed concern with the quality of the load forecasts. YECL acknowledges that the forecasts provided to Yukon Energy in the past have not been of a quality that could be defended in front of the Yukon Utilities Board. As a result, Yukon Energy undertook a detailed assessment of the wholesale forecast to the extent possible in 2005.

For 2005, YECL provided a forecast based on known customer base and estimated growth for the year. This forecast was analyzed to the extent possible by Yukon Energy including adjusting for weather and the amount of power that YECL forecasts to generate from its own facilities at Fish Lake as well as comparing to the 2004 forecasted sales. Based on the analysis, it was determined that it is not necessary to adjust the forecast provided by Yukon Electric.

Rider J $5,163 Rider J is an additional 14.93 per cent adjustment included on all customers' bills. Most of the funds are collected by Yukon Electric (since most customers in the Yukon are billed by YECL) and then remitted to Yukon Energy. Forecasting this amount accurately has been historically difficult since it depends on getting information from Yukon Electric on their customers (including customers such as those in Watson Lake where the power is generated and distributed by YECL).

Yukon Energy staff spent additional time with Yukon Electric to validate the 2005 forecast and feel that it has a greater accuracy than in the past.

Retail Sales $3,187 This forecast assumes a slight growth from 2004. The most significant increase is due to United Keno Hill Mine being included as a General Service Government Customer effective March 2004 (rather than a Site Maintenance Energy rate).

Secondary Sales $462 This forecast is based on the current retail rate of 3.3 cents/kWh. On the WAF grid Yukon Energy sells secondary power at a wholesale rate of 2.2 cents/kWh).

Other revenues $95 Consists of street lighting, joint use pole rentals, staff housing rentals and other miscellaneous revenues

Revenues at current rates

Yukon Energy has applied to the Utilities Board to make the following changes which are forecast to increase revenues by:

Secondary sales $454 Based on the increase in fossil fuel heating costs, Yukon Energy has applied to increase the retail rate to 70 per cent of the avoided cost of heating with oil (starting January 1,2005 at 5.5 centsfkwh resulting in a wholesale rate of 4.4 centskWh to Yukon Energy).

Anvil Range Mine $403 As noted in the Planning Assumptions, Yukon Energy is applying to the YUB to change the sales to the Faro rninesite, which are now being deferred, to be included as revenues at the general service government rate.

Adjusted revenue for 2005

In addition to the above, Yukon Energy is applying to the Yukon Utilities Board to establish a new Income Stabilization Trust which would provide a forecast transfer to Yukon Energy's operations of $950 in 2005.

DESCRIPTION OF SIGNIFICANT ACCOUNTS

Depreciation

2005 forecast depreciation expense (in $000~)

This forecast is based the results of a routine review of Yukon Energy's depreciation rates by an external expert. The depreciation study recommended that depreciation rates be revised downwards to reflect that the Corporation's assets have longer service lives than previously estimated.

As well, the method of depreciation was changed to a technique which lowers depreciation in the early years of an asset. This change is technical in nature and involves choosing between two methods; both of which have been accepted by regulatory boards in Canada.

Reserve for Uninsured Losses

When Yukon Energy suffers an unexpected loss which is not covered by insurance (for example, there is a deductible of $250,000 on property losses), the costs are included in a Reserve for Uninsured Losses. The last decision from the Yukon Utilities Board allowed for a $50,000 a year appropriation to this reserve.

Over the last number of years, the company has suffered losses far in excess of $50,000 a year. For example, in 2003, losses of $383,000 were incurred (mostly due to the cracking of a blade on one of the hydro turbines in Whitehorse). In 2004, we estimate that losses will be $174,000 (mostly due to the failure of one of the wind turbines).

At December 3 1,2004 management estimates that the cumulative amounts in the Reserve for Injuries and Damages will stand at $805,000.

Available to offset the bulk of this balance is $744,000 of insurance proceeds held on behalf of ratepayers upon order of the Yukon Utilities Board. These proceeds arose from the insurance settlement from the 1997 fire.

The 2005 Business Plan reflects both of the following:

Yukon Energy has applied to the Yukon Utilities Board to offset the two balances (the $805,000 "owed by" ratepayers and $744,000 "owed to" ratepayers).

As well, the Utilities Board has been asked to increase the annual provision for losses from $50,000 to $150,000. This better reflects the historical realities of Yukon Energy operations.

MAJOR CAPITAL PROJECTS - 2005

The issue of the appropriate level of capital spending for an electrical utility has been discussed for many years at Yukon Energy. In preparing the 2005 budget, we used a basic benchmark of ensuring a level of capital expenditures which is equal to the level of depreciation expense in any given year. This is known as 'rate base neutral'. While the capital budget for normal capital works or fixed assets (property and equipment) is within the rate base neutral level (excluding $675,000 of required spending for the Mayo-Dawson transmission line), spending on amortizations (studies, re-licencing, dam safety, downsizing costs and regulatory hearings) is above rate base neutral by about $500,000. This is largely due to Aishihik re-licencing requirements that must be fulfilled.

In determining which capital projects should proceed in 2005, Yukon Energy management used prioritization categories to assist in their decisions.

Essential projects or acquisitions are those required to meet government regulations, environmental minimum safety standards or which are essential to maintain operations. Necessary projects or acquisitions are those required to maintain facilities and operations in adequate working order to meet anticipated activity levels. Justifiable projects or acquisitions are those that improve productivity with a new facility or the upgrade of an existing facility. These expenditures are justified using either a cost benefit analysis and/or a detailed qualitative analysis of customer value.

Based on these criteria, the following capital projects are slated for 2005:

2005 CAPITAL WORKS PROJECTS

The 2005 capital works spending on property, plant and equipment is forecast at $6.43 million; forecast customer contributions related to these capital works is $0.6 million. The following capital works projects are budgeted for 2005 in excess of $100,000 (including all costs that are associated with capital projects, such as engineering services and general overheads, internal project and planning costs, consultants and contractors, and materials, but excluding interest during construction).

TRANSMISSION PROJECTS

Transmission project expenditures include routine spending on small projects under $100,000 each (total of $135,000 in 2005) plus the following projects over $100,000.

PT Sub Capacity Upgrades (Transmission) - $395.000

Three potential transformer (PT) sub capacity transmission upgrades are planned: Drury Creek ($195,000), Takhini ($100,000) and Deep Creek ($100,000). The load on the Drury Creek substation is nearing capacity and with a new subdivision in the area, there'll be more demand for electricity. As well, the deck for the transformers and timbering is sagging and splitting and therefore the Drury Creek substation needs to be re-built.

With the building of new subdivisions, there is an increased demand in the Takhini and Deep Creek areas, which means the existing transformers must be replaced with higher capacity units.

WAF Transmission Upgrades - $150,000

The two WAF transmission lines are getting older and now need upgrades to maintain reliability. One of the lines, L-171, supplies Yukon Energy's winter generation from the Aishihik plant to Whitehorse and has had very little capital work done in the past. The other line (L-170) connects Whitehorse to Faro, and while it does not carry the same load as L-171 it has more structures. Work on this project is expected to continue through 2008 and total approximately $500,000.

Infrastructure Plan Substation Work - $150,000

In 2004, Yukon Energy completed a condition assessment study of its 138 kV substations resulting with a multi-year plan to upgrade and extend the life of the major component equipment in these facilities. The work is expected to be completed in a prioritized manner over a three year period starting in 2005. This work is necessary to maintain the reliability of the 138 kV WAF electrical transmission system. The planned work in 2005 will be to complete a surge arrester protection study, purchase of a circuit breaker tester and the purchase of critical 138 kV substation equipment spares. Work on this project is expected to continue through 2007 and total approximately $450,000.

Mayo-Dawson Line Vibration Dampeners and Deficiencv Corrections - $675,000

The Mayo-Dawson line has now been standing for over two years. To account for any shrinkage in the wood members since erection, hardware tightening is required. The high design tensions and the fact that the designed tensions were often exceeded by the contractor stringing the line means that an unusually high number of vibration dampers need to be installed to prevent conductor damage from Aeolian vibration. The costs include drawing upgrade and legal survey work.

DISTRIBUTION PROJECTS

Distribution project expenditures in 2005 include routine spending on system improvements ($100,000) customer extensions and potential transformers ($625,000), small projects under $100,000 (total of $127,000) as well as the following projects over $100,000.

Mavo Voltage Regulator Replacement - $100,000

The existing voltage regulators in Yukon Energy's Mayo substation are beyond the acceptable limits for PCB contamination. To be compliant with federal regulations, oil changes would be required, but since the units are over 30 years old and approaching the end of their useful life, it makes sense at this time to replace them.

Land Management and Easement Review - $100,000

In 2005 Yukon Energy will compile a data base inventory of all property and land-based assets used for distribution, transmission, substation and generation and will identify any land tenure deficiencies.

GENERATION PROJECTS

Generation project expenditures in 2005 include small projects under $100,000 (total of $358,000) as well as the following projects over $100,000.

WH1 Trunion Bushings - $400,000

Yukon Energy has two hydro units that have controllable pitch blades. Over time, the bushings on the trunion shafts that controls the movement of the blades wear down to the point where the blades stick and cause increased vibration and a loss of power. At this point, the bushings need to be replaced. If the bushings are left too long the blades will seize and the pitch mechanism will no longer work. In 2004, one of the units had its bushings replaced, and in 2005 the second unit will be done. The unit will have to be disassembled in order to access and replace the bushings.

Mavo Hvdro Plant New Switchgear - $150,000 in 2005 (plus $450,000 in 2006)

The switchgear at Yukon Energy's Mayo plant has been in operation since 1957 - much longer than the normal life of this kind of equipment. Some of the transformers are showing cracks on their insulation due to aging, and the generator protection relays are due for replacement. Yukon Energy will do the planning and design work for the new switchgear in 2005, and construction of the new equipment is scheduled for 2006. This project was to have been done in the late 1990s, but the switchgear purchased for the Mayo Plant was diverted to Whitehorse following a major fire at the Whitehorse facility.

Infrastructure Plan Generation Work - $150,000

In 2003-04, Yukon Energy had an assessment done of its core assets, including generators, transmission lines, and transmission substations. The assessment looked at what could be done to ensure these assets reached their expected lives, or to extend their lives. In 2005 to 2008 there will be upgrading work done to address various issues identified during the assessment. Most of the costs identified for 2005 will be used to extend the lives of three of Yukon Energy's newer diesel generators in Whitehorse and bring them up to current standards. Further spending in 2006 to 2008 has not been finalized, but is currently forecast at an additional $1.9 million.

GENERAL PLANT AND EQUIPMENT

General plant and equipment project expenditures in 2005 include small projects under $100,000 (total of $1,211,000) as well as the following projects over $100,000.

Houses - $325,000

Yukon Energy staff in Mayo (Power Line Technician and Plant Operator) currently reside in rental housing units supplied by Yukon Housing. This housing is in an area that is not desirable, and the existing situation creates a difficult home environment for employees and their families. Having employees live in these conditions hinders Yukon Energy's ability to attract and retain highly qualified employees for Mayo. Historically, Yukon Energy has experienced a high turnover of Power Line Technicians in Mayo, recruiting three Power Line Technicians in five years. In addition, there is a current shortage of certified Power Line Technicians in Canada. Construction of two houses on new lots will enhance Yukon Energy's ability to attract and maintain suitable staff in Mayo.

Small Building Fire Alarm System - $100.000

Recent risk management audits have identified Yukon Energy's lack of fire alarm systems in eleven of its small buildings as an area of vulnerability. The buildings include substations, smaller office buildings and file storage facilities. Recognizing that a fire could result in a major power outage to its customers, plus could mean the loss of critical files and/or offices, Yukon Energy has decided to install fire alarm equipment in all eleven buildings. All components of the fire alarm systems will be standardized to minimize complexity and reduce the number of spares in inventory, and all systems will report to Yukon Energy's Systems Control Centre.

Main Office Sprinkler System - $175,000

When Yukon Energy's corporate office building was constructed, it did not require a sprinkler system to meet code, and it still doesn't. However, the present fire monitoring system is designed for personnel safety only, to allow staff to exit the building safely. There is no suppression system to stop a fire from destroying the building and its contents. To complete this project, the attic space will be filled with blow-in insulation and a full 'wet' sprinkler system will be installed throughout the office building. A fire pump (diesel or electric) will be installed and an underground connection will be installed to the LP hydrant system to provide water supply.

Financial Systems Software Upgrade - $100,000

Yukon Energy currently uses the J.D. Edwards financial software package. However, the version used is becoming outdated. Without an update to a current version, Yukon Energy will be unable to receive software support. The process of upgrading software is standard for all software products.

Security Risk Management - $100,000

In 2003 a security audit was undertaken for Yukon Energy for most of its installations. The audit made a number of recommendations, which Yukon Energy along with the Director of Health, Safety and Environment, have prioritized and cost-estimated. Priority One items have been completed, and in 2005 the Priority Two items will be carried out. Priority Three items are to be

completed in 2006 and 2007. The additional 2006 and 2007 spending is expected to total $175,000.

Vehicle Purchases - $355,000

To qualify for replacement, Yukon Energy vehicles must meet two of three requirements: the vehicle must be at least seven years old, it must have at least 160,000 kilometres on the odometer, or its repair and maintenance costs must be at least 15 per cent of its replacement value. In 2005, Yukon Energy forecasts seven vehicles will need to be replaced.

2005 SPENDING ON AMORTIZED COSTS

The 2005 spending on deferred cost items approximates $1.35 million as set out in detail in Table 5.3, of which $0.93 million is for Aishihik relicensing. Spending on deferred cost items over $100,000 account for $1.035 million, and are as follows:

Aishihik Boat Launch - $450,000

This project involves the construction and commissioning of a boat launch at the north end of Aishihik Lake, which when completed will give people access to the water at all lake levels. Yukon Energy is required to provide such a launch under the provisions of the 2002 Aishihik water license. This initiative has involved significant consultation with the Champagne and Aishihik First Nations and is one of the last major mitigating measures flowing out of the 17 year water license.

Aishihik Power Canal Stability Improvements - $265,000

This is a requirement under the new Aishihik water license. Dam experts have determined that small sections of the 11-kilometres long canal do not meet current dam safety requirements and must be fortified, which will require additional rock material to be added at the base of certain sections of the canal.

Dam Safety Review - $120,000

As per the Canadian Dam Association Guidelines, high hazard dams must have an external review ever five years. Yukon Energy's Whitehorse, Marsh Lake, and Aishihik facilities are due for inspection in 2005. While the Mayo dam is not scheduled for inspection until 2007, Yukon Energy has decided to have all its dams inspected at once to reduce costs of flying inspectors to the territory from southern Canada.

Reauired Revenue and Related Matters Review - $200,000

Preparation, filing and review of Yukon Energy's Required Revenues and Related Matters Application for 2005. The 2005 amounts are in addition to forecast spending of $300,000 prior to January 1,2005.

YUKON ENERGY CORPORATION Expndltums on Proparty, Plant and Equipment

( S o w

Tmnrmlulon PT Sub Capaclty Upgrades Elsa Llne Upgrade WAF Transmissbn Upgrades Infrastructure Plan Substation Folbwup Work Mayo-Dawson Transmlsskn Line Transmlaabn Projects Under $50,000

Total Tmnrmlulon

DirMbutlon Dbttibutbn Improvemenis Customer Extensbns Mayo Voltage Regulator Replacement Land Management & Easement Study Devebpment Marsh Lake Transformer Replacement Battery system replacement Mclnlyre Sub Dbtrlbution Projects Under $50,000

Total DlrMbutlon

Genemtlon Wind Turblne SCADA WH1 Trunbn Bushin~s Mayo Hydro Plant new switchgear Phase I & II WH4 Intake Seismlc Assessment Infrastructure Plan Generation Folbw-up Work Unit 4 Intake Remediation Generation Projects Under $50,000

Total Generation

Geneml Plant & Equipment Mayo Housing Small Bullding Flre Alarm Systems Main Office Sprinkler System Financial Systems Sofhvare Upgrade (JDE) Printers, Scanners and Coplera PCLaptop Replacement Phase I & II Environmental Slte Assessment Security Risk Management 2005 Fish Hatchery Upgrades PI26 Electric Boller Replacement Abhlhik House Renovations Mayo Hydro Plant Securlty Fenclng Vehiole Purchases Purchase of Aehl Bucket Truck General Plant and Equlpment Projects under $50,000

Total Genemi Plant & Equlpment

SUMMARY

Total Tmnrmlarlon Total Dlatributlon Total Genmtlon Total General Plant & Equipment

Total Expendltuma

Yukon Energy Corporation Balance Sheet

($000~)

2004 Forecast from YUB 2005 Business

2003 Actuals Application Plan

Current assets Cash (and equivalents) Accounts receivable Fuel, materials and supplies Prepaid expenses Total

Long Term Receivables Funds Held In Trust

Fixed assets Properly, plant and equipment, cost Accumulated depreciation Contributions for extensions, net Total

Deferred charges

Total assets

Current liabllltles Interim Capital Financing Accounts payable and accrued Current portion of long-term debt Total

Mlecellaneous liabilities Trust liability Deferred revenue Regulatory Liabilities

Long-term debt Advance from parent Long-term debt other YDC MaydDawson loan

Total

Total llabilltles

Shareholder's Equity Common shares Retained earnings Total

Total IlebiliUes and shareholder's equity

Balance Sheet,3/24/2005

Yukon Energy Corporation Statement of Retained Earnings

(S000s)

2004 Forecast from YUB 2005 Buslness

2003 Actuals Application Plan

Balance at beginning of year Prior Period Adjustment (note 1) Revised Opening Balance

Add: Net earnings

Less: Common dividends

Balance at end of year

note 1: The Prior Period Adjustment is a forecast adjustment expected to occur in the year-end 2004 financials. This adjustment has yet to be finalized in the normal year-end audit process. The adjustment relates to the 2000- 2003 amortization of the Fire Insurance Deferred Revenues per Board Order 2000-3. Yukon Energy had previously miscalculated the amortization rate for this deferral. The tables in this business plan only adjust for 2004, they do not re-state 2003.

Retained Earnings,3/24/2005

Yukon Energy Corporation Statement of Earnings

(MOOS)

2004 Forecast from YUB 2005 Business

2003 Actuais Application Plan

Revenues 24,310 24,701 25,807

Operating expenses Operating and maintenance Taxes other than income Amortize deferred costs Resenre for Injuries and Damages Depreciation Amortization of contributions Income Stabilization Trust transfer Total

Operating Income

Other Income Allowed for Funds Used Miscellaneous Total

Other expenses Interest expense Total

Net earnings

Note: 2004 values reflect the forecasts contained In the filings currently contained in the application before the YUB. In a normal (non-YUB application) year, complete forecasts for current year operations are developed solely as part of the annual business planning process and not updated in the manner shown above.

Yukon Energy Corporation Summary of Customers, Energy Sales and Revenues

( S o o w 2004 Forecast

from YUB 2005 Business 2003 Actuals Application Plan

Residential Customers Sales in MWh MW h sales per customer Revenue ($000~) Cents per KW h

General Service Customers Sales in MWh MW h sales per customw Revenue ($000~) Cents per KW h

Industrial Sales in MWh Revenue ($000~) Cents per K w h

Street lights Sales in MWh Revenue ($0009) Cents per KW h

Space llghts Sales in MWh Revenue ($000~) Cents per KW h

Total Company - Firm Retail Customers Sales in MWh Revenue ($000~) Cents per K w h

Wholesale sales Sales in MWh Revenue ($0008) Cents per K w h

Total Company - Finn Sales in MWh Revenue ($000~) Cents per Kwh

Secondary Sales in MWh Revenue ($000~) Cents per KW h

Total Company Sales in MWh Revenue ($000~) Cents per KW h

Rider J Total Sales of Power

Other Revenues

Total Revenues

Sales and Revenues,3/24/2005