Financing in the Canadian Power Sector Michael Badham, Partner September 20, 2004

2 Financing in the Canadian Power Sector© 2004 Deloitte & Touche LLP and affiliated entities. The Canadian Economy Profile Key Economic Indicators / Drivers Real GDP Source: Statistics CanadaSource: Government of Ontario Ontario GDP by Industry, 2003 (in $1997) Source: Government of OntarioSource: Statistics Canada Canadian Inflation 15% 0% 3% 6% 9% 12% TARGET LEVEL Ontario Economy Real growth, % Nominal GDP, 2003 ($ millions)493,416 % of Canada40.6 Personal Income ($ millions)381,005 % of Canada41.1 Personal Income Per Capital ($) Ontario31,133 Canada29,341 CPI Inflation % Unemployment Rate % Ontario Total Trade 2003 ($ millions) Exports308,903 Imports269,745 Trade Balance39,158

3 Financing in the Canadian Power Sector© 2004 Deloitte & Touche LLP and affiliated entities. Opportunity in the Power Supply Market By 2014 demand could reach 32,000 MW. Total capacity connected to the grid is 30,501 MW. Accessible capacity is 27,500 MW. Typical demand is 25,000 MW. Goal: Refurbish, rebuild, or conserve 25,000 MW of generating capacity by Commitment: Eliminate coal generated electivity by Target: By 2010, 10% (+2,000 MW) of power will come from renewable, non-hydro sources. Need: To met demand and replace coal, 11,600 MW in new generation capacity by Source: IMO Ontario Opportunity Through ,000 16,000 24,000 32, (Capacity - MW) NuclearHydroGasNon-Hydro RenewableNew RenewableCoal 11,600 MW 2,000 MW Demand

4 Financing in the Canadian Power Sector© 2004 Deloitte & Touche LLP and affiliated entities. Government Supply Objective:To build non-hydro renewable energy of over 2000 MW by 2010 Capacity:RFI for 2,500 MW recently released Opportunities Bruce Nuclear Plant Objective:Start-up Units A 3&4 Capacity:750 MW X 2 Cost:$1.5 b - $2.0 b Opportunity:Niagara Falls Hydro Plant Objective:Additional Diversion Tunnel Capacity:100 – 200 MW Cost:+$300 mm Government Supply Objective:To provide +300 MW of non- hydro renewable energy Capacity:RFP (Closed August 2004)

5 Financing in the Canadian Power Sector© 2004 Deloitte & Touche LLP and affiliated entities. The Value Environment Project Financing Partner Dundee Advisory Partner Deloitte / FMC Engineering Partner Aecon Public Partner Government of Ontario

6 Financing in the Canadian Power Sector© 2004 Deloitte & Touche LLP and affiliated entities. The Trend Towards Private Public Partnerships Source: The Canadian Council for Public-Private Partnerships Ministry/ Department Crown Corporation Special Operating Agency Privatization Design/Build/ Operate Design/Build/ Finance/Operate Contract Out Design/Build Confederation Bridge NAV Canada Hwy 407 Sea to Sky Hwy GTAA Bruce Power LP Degree of Risk Transfer to Private Sector Private Debt/Equity High Low

7 Financing in the Canadian Power Sector© 2004 Deloitte & Touche LLP and affiliated entities. The Deal Maker – Risk Transfer Form Risk Transfer (Government to Private Sector) High Ministry / Department Crown Corporation Design / Build Contract Out Design/Build/ Operate Design/Build/ Finance/Operate Privatization Incrementally Assumed Risks Policy Risk & Approval Risk Regulatory Risk Revenue Risk Credit Risk General Market & Economic Risk Optimal Structures Total Project Finance Risk Low

8 Financing in the Canadian Power Sector© 2004 Deloitte & Touche LLP and affiliated entities. Determining the Investment Opportunity Risk Transfer User / Service Fees Ancillary Charges Revenue Inflow Operating Costs Capital Costs Financing Costs Taxation Costs Cash Outflows Technical Inputs Construction Development Advisory Engineering Other Debt Service Equity Return IRR Target Financing Government Public Sector Funding Private Sector Funding Bidder ROI

9 Financing in the Canadian Power Sector© 2004 Deloitte & Touche LLP and affiliated entities. Considering Public Sector Value for Money Retained Cost/ Revenues Raw Costs/Revenues Risks and Efficiencies Competitive Neutrality Public Delivery Risks Opportunity Cost Risk Efficiency Risk Credit Rating Risk Quality Risk Rate Setting Higher Financing Costs Rate of Return Cost Costs under private delivery must be less to warrant use of private financing Retained Cost/ Revenues Raw Costs/Revenues Private Delivery

10 Financing in the Canadian Power Sector© 2004 Deloitte & Touche LLP and affiliated entities. Opportunity Assessment Project Planning  Go / No Go Decision  Transaction Process  Contract Execution  Implementation  Bid Assessment  Bid / No Bid Decision  Bid Development  Contract Negotiations  Post Transaction Development  Public Sector ConsiderationsPrivate Sector Considerations Private sector wants opportunities that: Have a clearly articulated need Commitment from public sector to work with private sector and a strong ‘champion’ of the project Credible processes in place Clear performance standards Implementation of any procurement process must consider public sector issues around Transparency and fairness of process Public opinion / mood ‘Bidabilty’ and bid costs Requirements and realities of capital markets Success Factors

11 Financing in the Canadian Power Sector© 2004 Deloitte & Touche LLP and affiliated entities. An Action Plan for Canadian P3 Opportunities  Ontario  BC  Alberta  Quebec Establish Canadian presence to monitor developments in key market places Assess needs in comparison to skill sets and capabilities – i.e. determine partnering needs  Engineering  Finance  Advisory  Supply  Confirms interest  Leads to ‘front-end’ policy development Present opportunities to selected provincial governments in areas of need Be proactive – do not wait for the opportunities to come to you.

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