merging for the future of our community

1. merging for the future of our community September 17 Ward 2 Public Meeting

2. Agenda • Why we need to merge • Increased regulatory risk • Maintaining control • After the merger • Now is the time • Your questions

3. 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

4. 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

5. 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

6. 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

7. 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)

8. 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

9. 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

10. 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)

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. Maintaining Control • OEB oversight will continue and likely grow • A high level of service to our customers

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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 astokman@guelphhydro.com