MERGING FOR THE FUTURE OF OUR COMMUNITY September 17 Ward 2 Public Meeting.

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Presentation transcript:

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 3 rd 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 Customer Service AreaOEB Target Horizon 07 Guelph 07 Low Voltage Connections within 5 days90%100% High Voltage Connections within 10 days90%100% Cable locates within 5 days90%98%100% Telephone responses within 30 seconds65%82%81% Appointments kept on time90%98% Written responses within 10 days80%100% Emergency Responses within 60 min.80%97%86%

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: