MERGING FOR THE FUTURE OF OUR COMMUNITYSeptember 17 Ward 2 Public Meeting

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

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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

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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

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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

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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

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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)

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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

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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

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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)

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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

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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

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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

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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

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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

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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

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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

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

Customer Service AreaOEB

TargetHorizon 07

Guelph 07

Low Voltage Connections within 5 days 90% 100% 100%

High Voltage Connections within 10 days 90% 100% 100%

Cable locates within 5 days 90% 98% 100%

Telephone responses within 30 seconds 65% 82% 81%

Appointments kept on time 90% 98% 98%

Written responses within 10 days 80% 100% 100%

Emergency Responses within 60 min. 80% 97% 86%

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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

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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

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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

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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

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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

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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