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merging for the future of our community. September 17 Ward 2 Public Meeting. Agenda. Why we need to merge Increased regulatory risk Maintaining control After the merger Now is the time Your questions. Why We Need To Merge. We believe now is the time

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Merging for the future of our community

merging for the future of our community

September 17 Ward 2 Public Meeting


Agenda
Agenda

  • Why we need to merge

  • Increased regulatory risk

  • Maintaining control

  • After the merger

  • Now is the time

  • Your questions


Why we need to merge
Why We Need To Merge

  • We believe now is the time

    • This is a real and unique opportunity

      • Conservation & Demand Management (C&DM) complements the Community Energy Plan (CEP). Team will be located in Guelph.

      • Stronger voice in sector: influence at Ontario Energy Board and Ministry of Energy

        • Queen’s Park seeks input from utilities representing large user bases prior to making regulatory change: we will be one of these utilities


Why we need to merge1
Why We Need To Merge

  • We believe now is the time

    • Financial strength: Horizon has an A-rating (critical for acquiring low-cost capital for infrastructure investment)

      • Only 2 of 80 Local Distribution Companies (LDC’s) have achieved this rating

      • Enables lower cost access to capital to support our operations


Why we need to merge2
Why We Need To Merge

  • Horizon shares our vision for the future

    • Customer Focused

      • Conservation minded

      • Reliable and safe provision of service

      • Rate conscious

    • Shareholder focused

      • Efficient utility with dependable dividends

      • Support of community values

    • Regional distribution utilities


Why we need to merge3
Why We Need To Merge

  • Horizon is the right partner

    • Experience: efficiencies and annual savings of $5.4m by merging with St. Catharines

    • Regulatory leadership: strong team of professional specialists

    • If we don’t merge, GHESI will need to increase staff in this area


Why we need to merge4
Why We Need To Merge

  • The sector is changing

    • We believe we are now in the best position to negotiate with a like minded partner

    • Economics and regulations are forcing consolidation

    • OEB’s 3rd Generation Incentive Rate Mechanism (IRM) requires utilities to justify every expense

      • Efficiencies must be delivered

      • Rate adjustments less than inflation are the norm (as evidenced in our current rate decision)


Why we need to merge5
Why We Need To Merge

  • The sector is changing

    • Energy costs are rising

    • Lower distribution rates to customers cannot happen without the merger

      • To achieve the same rate reductions on our own would require laying-off almost half of current staff


Why we need to merge6
Why We Need To Merge

  • This is good for our current employees and for future recruitment

    • Growth opportunities for staff

    • Merging of complementary staffing strengths

      • GHESI: Geographic Information Systems (mapping) and automation is recognized and sought after by other LDC’s


Why we need to merge7
Why We Need To Merge

  • This is good for our employees

    • Merging of complementary staffing strengths

      • Horizon: regulatory, finance and Conservation & Demand Management (C&DM)

        • Internal depth and expertise in regulatory submissions to Government

        • Expertise in working with financial markets to gain low cost access to capital

        • Recognized by industry and government in leading C&DM programs (Power Wise)


Why we need to merge8
Why We Need To Merge

  • This is good for our community

    • Substantial local presence with growth areas of the business

      • Engineering and Operations

      • Information Technology

      • Geographic Information Systems

      • Purchasing

      • Conservation & Demand Management

    • Emergency Operations Control Group to stay at Southgate


Why we need to merge9
Why We Need To Merge

  • GHESI will have access to comprehensive business management systems that will reduce costs and improve system performance

    • Asset Management program

      • More efficient use of current infrastructure

      • Better planning for future infrastructure

    • Enterprise Resource Planning

      • FUSION system for IT integration


Why we need to merge10
Why We Need To Merge

  • This is good for our shareholder

    • Stabilized and increased dividend stream

    • Significant ownership of the new utility (24.25%)

    • Significant rate reductions for all customers (approx. 20%)

      • Encourages continued economic development

      • Provides competitive advantage for industry

      • Provides lower cost service to the home owner


Increased regulatory risk
Increased Regulatory Risk

  • Old regime: cost-based

    • Starting point for rates based on actual costs

    • Annual adjustments based on actual results

    • High certainty of achieving allowed rate of return

    • Simple process of setting rates – low level of regulatory expertise required


Increased regulatory risk1
Increased Regulatory Risk

  • New regime: incentive based

    • Starting point for rates based on a forecast that must be defended

    • Annual adjustments based on complex formula:

      • (Inflation) less (productivity factor) less (stretch factor)

    • Forecast base and formula introduce uncertainty (risk) of not achieving allowed rate of return

    • Complex process requires specialized in-house and external expertise – increased costs


Maintaining control
Maintaining Control

  • This merger allows us to take control of our own future and determine what is right for us

    • Government has provided tax holiday windows to encourage industry consolidation

    • Our belief is it’s only a matter of time before government directs more consolidation

      • We want to manage our own future rather than have something imposed upon us


Maintaining control1
Maintaining Control

  • The utility sector is highly regulated

    • The Ontario Energy Board sets standards, including service, reliability and response

    • All LDC’s must measure and report these standards quarterly and annually

    • Utilities or their shareholders cannot make changes to the operations of the utility that would adversely affect safe delivery of service


Maintaining control2
Maintaining Control

  • OEB oversight will continue and likely grow

  • A high level of service to our customers


Maintaining control3
Maintaining Control

  • GHESI does not set rates

    • The Ontario Energy Board (OEB) oversees every aspect of our business including:

      • Operations, finance and customer service standards

      • Holding company relationships with the LDC’s

      • Approving all rate applications and rate changes

      • Billing statements including items listed and reported


Maintaining control4
Maintaining Control

  • Proportional representation for Guelph on new board

  • All three city councils will have same oversight

    • Approval for capital significant investment over

    • Approval of future merger and acquisitions and divestitures


After the merger
After The Merger

  • From the outside, very little will change

    • Local call for customer service and local response

    • Support for local suppliers

  • Local presence will be substantial

    • Approx. 90 Guelph based employees

    • Operations, Engineering, Conservation and Demand Management, Geographic Information Systems and Mapping, Information Technology and Procurement


After the merger1
After The Merger

  • Improved service

    • 24/7 control room with experienced operators

    • Extended customer service and inquiry hours

    • Legal agreement secures current customer service levels

    • Strengthened C&DM

    • Continued local emergency response

    • Local technical support for developers


Now is the time
Now Is The Time

  • Cost of meeting regulations is growing

    • We experienced over $350k of additional expense to submit the 2008 rate application

  • Operating margins are being negatively affected

    • We need increased capital to build and maintain plant assets

    • Ontario Energy Board productivity and efficiency factors will force GHESI to cut costs to protect shareholder returns

    • These pressures challenge GHESI’s ability to meet shareholder dividend expectations


Thank you
Thank You

  • We believe in this merger

  • We are in a position to control our future with this merger

  • It will give our community:

    • A significant share of the new corporation

    • Lower distribution rates

    • A continued strong presence in Guelph

      • Art Stokman: 519.837.4715 [email protected]


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