annual report - waterloo north hydro · with neighbouring utilities (energy+, kitchener-wilmot...

2016ANNUAL REPORT

WATERLOO NORTH HYDRO INC.

Focus on Innovation, Operational Excellence, Financial Stability...

Waterloo North Hydro Inc. Annual Report 2016 1

… to Deliver Service to our Customers and the Community

CONTENTSMessage to Shareholders

Corporate Information

We are Waterloo North HydroQuick FactsMission, Vision, and ValuesCorporate StructureShareholdersBoard of DirectorsLeadership Team

Focus on InnovationCustomer Information SoftwareOutage Management Systems – Smart MetersInnovation for the Customer

Focus on Operational ExcellenceSustainable PerformanceSystem ReliabilityFuture Growth

Focus on Financial StabilityValue to Shareholders

Delivery on Customer ServiceCustomer Satisfaction Survey 2016

Occupational Health & SafetyEmployee Health and Well BeingConservation

Contribution to the CommunityCommunity Activities and EventsEducational Programs and ScholarshipsBusiness Community and IndustryInvolvement

GridSmartCity

Financial Highlights

2

3-5

3334455

6-7667

8-9899

1010

11-1411

121314

15-18151616

17

18

Waterloo North Hydro Inc. Annual Report 20162

MESSAGE TO SHAREHOLDERS

A focus on “Competitive” and “Sustainable” distribution rates…

Local electricity Distribution Companies (LDCs) such as Waterloo North Hydro (WNH) submit a cost of service (COS) rate filing to our regulator, the Ontario Energy Board (OEB), every five years. It is our opportunity to update our distribution rates based on investments made in our system. We also inform the OEB of our expected capital investment program and our expected changes to operation, maintenance and administration (OM&A) expenses for the future five years. A formula adjustment based on a factor that is less than Consumer Price Index (CPI) establishes distribution rate increases during the four years in between COS filings.

Rates from our COS filing submitted in 2015 took effect January 1, 2016. Lessons learned from this process drive our strategy for the next few years. OM&A increases must be no greater than an industry inflation factor used by the OEB, which is generally less than CPI. Similarly, we need to manage capital investment to limit the impact on future rate increases to be CPI or less.

Our focus over the next four years must be on rates low enough to be competitive with nearby LDCs, to allow our existing customers to prosper and to attract new customers. We must balance that with rates that are high enough to be sustainable, to allow for reinvestment in our distribution plant, to maintain and improve service levels, and to provide fair returns to our shareholders. We cannot always envision the future for our company, but we can build our company for the future.

Our 2016 focus is on innovation and operational excellence, to improve service to our customers and to reduce expenses. The investments in smart grid assets and an Outage Management System reduces customer outage minutes and the labour involved in system restoration. The ice storm event of Easter weekend in 2016 demonstrated the power of information and the rapid response of our investments in technology.

WNH purchased new Customer Information System (CIS) Software from JOMAR Softcorp of Cambridge. WNH employees worked jointly with JOMAR to develop and pioneer this next generation software. We conducted extensive testing of the CIS and integration with our other software systems during 2016. The software went live in March of 2017. The innovative design gives us the ability to serve our customers more efficiently and more effectively, while reducing our software maintenance costs.

WNH continues its history of financial stability by meeting or exceeding net income targets for the past consecutive 14 years. Our balanced approach to provide value to shareholders and deliver on customer service provided a 9.5% return on equity and a 92% satisfaction rating from customers in 2016.

We want to thank our employees for their commitment to WNH and all their efforts to provide great service to customers in 2016. Our appreciation also goes to our Board of Directors and our Shareholders for their support of the staff at Waterloo North Hydro. We trust you will enjoy our report.

Tim Martin, MBA, CPA, CGA, CFAChair, Waterloo North Hydro Inc.

Rene W. Gatien, P. Eng., MBA, ICD.DPresident & CEO


WE ARE WATERLOONORTH HYDROWaterloo North Hydro Inc. (WNH) is a municipally owned hydro distribution company incorporated under the Business Corporation Act (Ontario) on May 1, 2000.

WNH is a wholly owned subsidiary of Waterloo North Hydro Holding Corporation which is owned by the City of Waterloo, the Township of Wellesley, and the Township of Woolwich.

By the end of December 2016, WNH distributed electricity to 49,767 residential customers and 6,429 commercial and industrial customers. With a workforce of 124 full-time employees, the core business of WNH is electricity distribution.

MISSIONTo create value for our customers and shareholders by providing safe and reliable electrical distribution services at competitive rates.

VISIONWNH will be recognized as a key partner in contributing to community prosperity and success.

VALUES

• Respect• Commitment to Excellence• Teamwork and Collaboration• Safety & Environmental Stewardship• Responsible and Accountable

QUICK FACTS

WNH maintains a fleet of 60 vehicleswhich includes 15 bucket trucks, 2 radial boom derricks, 1 knuckle crane, 10 large

vans and special purpose vehicles plus 19 trailers, tension stringers and pullers.

The Control Room is staffed 24 hours,7 days a week, 365 days a year.

WNH services over 56,000 Residential and Business customers. 763 new customers

were connected in 2016.

WNH services 672 square kilometersof territory which includes the City of Waterloo, Township of Wellesley, and

Township of Woolwich. 10% is considered urban and 90% rural.

WNH service area has 1,069 kilometers of overhead hydro lines, 658 kilometers of underground hydro cables, 21,425 poles,

and 7,638 transformers.


CORPORATE STRUCTURE

The Board of Directors of Waterloo North Hydro Inc. is appointed by the WNH Holding

Corporation and is responsible for the overall direction of the company. Day-to-day leadership

and management of the corporation are delegated to the Chief Executive Officer and the

Leadership Team.


WATERLOO NORTH HYDROBOARD OF DIRECTORS

Tim Martin, Chair | Micheal Kelly, Vice Chair

DirectorsCity of Waterloo Mayor Dave Jaworsky | Township of Woolwich Mayor Sandy Shantz | Township of Wellesley Mayor Joe Nowak | City of Waterloo Councillor Jeff Henry | Carol Leaman| Chuck Martin | Mike Pley

BankCanadian Imperial Bank of Commerce 1 King Street East, Kitchener

AuditorKPMG115 King Street South, Waterloo

CounselDuncan, Linton LLP45 Erb Street East, Waterloo

LEADERSHIP TEAM

Rene W. Gatien, P. Eng., MBA, ICD. D., President & CEO

Marianne Blasman, B. Math, VP Information Technology

Herbert Haller, P. Eng., VP Engineering & Stations

Albert P. Singh, CPA, CGA, MBA, VP Finance & CFO

David R. Wilkinson, P. Eng., MBA, VP Operations


FOCUS ON INNOVATION

WNH partners with local companies and software providers to use innovative tools and ideas to drive change and create value for all our customers. Our focus is to provide reliable delivery and service of electricity at competitive and sustainable distribution rates. Innovation will assist WNH in its continued pursuit towards operational excellence and continued financial stability.

Customer Information Software

WNH collaborated with an Ontario based software company, JOMAR Softcorp International, to pioneer a next generation Customer Information System (CIS) for the Ontario LDC market. The system includes all customer information, meter information, service address, billing, payment and collections, customer deposits and bill presentment to customers.

WNH believes the innovative design using current web-compliant technology sets a new standard for utility CIS software. Using a shared database design reduces frequent data transfers between applications, which will assist in reducing cyber security risks. Extensive user input to the design provides employees with easy intuitive navigation throughout the CIS. Screen presentation is easy to change and is done by utility employees without the need to engage the vendor, increasing flexibility while reducing ongoing operating costs.

In early 2017, the introduction of the new CIS system will give WNH the opportunity to design a new bill and present information more clearly to customers, making the bill easier to understand. It will be a more efficient system for our Customer Service Representatives to assist our customers over the phone.

Outage Management Systems

We continue to improve performance through various systems including a new Outage Management System (OMS) and deployment of Smart Grid switches to supply reliable electricity to customers.

WNH’s Customer Public Outage Map has been integrated with SCADA monitoring devices and Smart Meters which enables WNH to inform customers and the public about where power outages are occurring with details and the estimated time of restoration. The Outage Map is an interactive, real-time interface consisting of a familiar street level base map that provides customers and stakeholders with the opportunity to see outages across WNH’s service territory in a web and mobile friendly interface.

Through upgrades and with collaboration of vendors, WNH is the first LDC in Ontario to make use of “Asset Ping” of Smart meters. This allows System Operators to remotely interrogate a meter to determine instantaneous voltage and current. Crews can then be dispatched more accurately and efficiently, reducing cost and customer outage minutes. On some occasions, crews are on-site effecting repairs before customers contact WNH.

Over the past three years, WNH installed fault indicators and pole-mounted Electronic Vacuum Reclosers (EVR) on distribution feeders. The fault indicators allow the crews to locate the root cause of major system faults more efficiently and allow


From left to right: City of Waterloo Mayor Dave Jaworsky, President & CEO Waterloo North Hydro Inc. Rene W. Gatien, and Ontario Energy Minister Glenn Thibeault announce the Smart

Thermostat Pilot Program launch at Princess Cinemas, Waterloo ON

Innovation for the Customer

WNH worked with ecobee, a Canadian pioneer of programmable thermostats, in collaboration with neighbouring utilities (Energy+, Kitchener-Wilmot Hydro and Union Gas) to launch the Small & Medium Business Energy Management System Innovation Pilot program in the fall of 2016. The goal of the pilot program is to evaluate potential energy savings available from the use of a smart, connected thermostat to manage heating and cooling loads in small business buildings.

The pilot program provides small business customers with up to two free thermostats and access to the ecobee Energy Management System via the web portal and/or mobile application, thereby giving them greater control to manage their heating and cooling systems. Business customers can manage their total energy consumption, decrease peak demand, and reduce their electricity bill. The program will see 1,600 thermostats installed in 1,000 small businesses across the Region of Waterloo and if successful, rolled out on a larger scale in the future.

WNH System Operators to identify the line segment affected by a temporary fault, isolate it remotely using the SCADA devices and then restore power to the unaffected line section(s).

The Smart Grid components and OMS have resulted in more efficient dispatching of resources to the fault location and lower customer outage minutes. In 2016, operational savings in labour and trucks are estimated at $20,000 and

a reduction of customer outage minutes of 1.6 million. Building on this success, WNH continues the expansion of the EVR network to improve system reliability, decrease controllable costs per customer, and prepare the grid for distributed generation.


Total revenues from electricity operations amounted to $223.2 million or $19.5 million greater than 2015 representing an increase of 9.6%. This increase was primarily due to a higher cost of the electricity commodity.

The average price in 2016 including the global adjustment was 11.46 cents per kilowatt-hour (kWh) compared to 10.34 cents per kWh in 2015. Energy consumption increased by 0.67% from 1,489 GWh in 2015 to 1,490 GWh in 2016. Peak demand increased 8.2% from 269.4 MW in 2015 to 291.4 MW in 2016.

FOCUS ON OPERATIONAL EXCELLENCE

WNH works as a key partner in the community in delivering safe and reliable electricity to homes and businesses while keeping the cost to customers at competitive rates. Continually exceeding industry performance metrics clearly demonstrates the organization’s operation excellence. Technology and innovation are key components WNH employs to drive efficiencies into business processes and system operations.

Sustainable Performance

WNH delivered approximately 1,490 million gigawatt-hours (GWh) of energy to 56,196 customers in 2016. WNH’s customer base has a steady growth rate of 6.8% over the last 5 years while electricity consumption has been relatively flat. Customer consumption is slowly decreasing; this can be attributed to many factors including conservation programs and energy efficient technology for the home. Population growth is expected to continue rising at a steady pace allowing for sustainable revenue generation.

Electricity Sales - GWh


System Reliability

WNH believes that a proactive and consistent renewal approach to managing distribution assets is needed to maintain system performance. There is a balancing act between system reliability and service vs. the cost to customers. Capital investments in the past five years of over $116 million in new plant and equipment are part of our long-term commitment to provide customers with reliable power to meet the needs of the community for today and the future.

An ice storm event in March and two lightning storms in the summer of 2016 combined with planned outages for construction resulted in an increase of total average customer outage minutes of 12.99 minutes per month in 2016 compared to 4.86 minutes per month in 2015.

Future Growth

In 2016 WNH invested over $27 million in new and upgraded infrastructure to ensure an adequate and reliable supply of power is available to meet customer needs and enable economic growth in the region. Capital investments are used to replace aging poles, overhead lines and underground distribution systems in residential subdivisions, transformers and substation equipment. A major component of the capital investment included utility design and hydro relocations for the construction and implementation of the LRT Rapid Transit project within the Region of Waterloo.

WNH completed the plant relocation necessary for the LRT work by the Region of Waterloo. The capital expense for the relocations significantly affected the 2015/2016 capital programs. To mitigate the impact of LRT costs on customer rates, we’ve deferred some 2016-2018 planned projects to future years.


FOCUS ON FINANCIAL STABILITY

Value to Shareholders

WNH continues to achieve strong financial performance by balancing system reliability and service while minimizing controllable (operating, maintenance & administration) cost to customers. WNH ranked 17th in the province among 71 LDCs for OM&A costs per customer according to the 2015 OEB Yearbook.

For 14 consecutive years, WNH has met or exceeded its net income target. Net Income from Operations for the year ending December 31, 2016 amounted to $8.35 million for a return on equity of 9.5%.

$-

$2,000

$4,000

$6,000

$8,000

$10,000

2012 2013 2014 2015 2016

$6,628 $7,619

$7,134 $7,030

$8,350

Net Income from Operations

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2012 2013 2014 2015 2016

8.7% 9.5%

8.6% 8.0% 9.5%

Return on Equity

Return on Equity

$-

$2,000

$4,000

$6,000

$8,000

$10,000

2012 2013 2014 2015 2016

$6,628 $7,619

$7,134 $7,030

$8,350


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2012 2013 2014 2015 2016

8.7% 9.5%

8.6% 8.0% 9.5%

Return on Equity

Net Income from Operations($000’s)

The WNH operating, maintenance and administration costs per customer were lower than the provincial average and lower than the five largest municipal LDCs in the province. The results demonstrate success in WNH’s efforts to keep controllable costs down while still providing great service to customers.


DELIVERY ON CUSTOMER SERVICE

WNH continued to deliver outstanding customer service in 2016. The Ontario Energy Board (OEB) performance standards ensure service quality is maintained or enhanced. These standards cover areas such as customer service, emergency response, system reliability, and outages. In 2016, WNH exceeded all the performance indicators and standards as established by the OEB. The results demonstrate employees’ commitment to customer service across the organization.

Customer Satisfaction Survey 2016

WNH participated in the 2016 Electric Utility Customer Satisfaction Survey conducted by UtilityPULSE, a national and independent customer service survey company.

Despite a deteriorating environment for the electricity industry as a whole, i.e., satisfaction levels and concern over costs, survey

respondents gave WNH excellent operational scores placing WNH ahead of both national and Ontario averages for each metric. The survey shows WNH decreasing slightly to a satisfaction rate of 92% when Ontario and the National level dropped 9% and 5% respectively since the last survey was conducted in 2014.

Service Quality Indicators

Customer Satisfaction

OEB Target 2016 Actual


OCCUPATIONAL HEALTH & SAFETY

At WNH, Safety is everyone’s responsibility. The company continually strives to improve its safety record, which is reflected in an impressive 600,000 hours without a lost time injury since December 2013. Contributing to this achievement is a corporate commitment at all levels, an innovative and collaborative safety program, a robust return to work program and a diverse workplace wellness program.

To ensure employees have the necessary skills and knowledge to provide safety for themselves and others, each employee receives training in CPR and First Aid as well as a wide variety of additional safety training.

One cornerstone of WNH’s public safety program is the free electrical school safety program offered to all elementary schools within our service territory. Demand for the program since 2012 expanded at times into neighboring service territories. This program reaches approximately 3,000 children annually and has expanded to presentations outside of the classroom including local community safety events, open houses, day camp programs and has most recently been included as a badge for local boy scouts. The program is on track to reach more than 80% of schools in this school year.

“Lectric Larry” makes electrical safety fun and interesting for students. Young children can learn to have respect for electricity

and spot potential electrical hazards wherever they may be.


EMPLOYEE HEALTH AND WELL-BEING

In 2016, WNH was the proud recipient of the Region of Waterloo’s Platinum Healthy Workplace Award achieving the highest standard of workplace wellness for five consecutive years.

Employees are encouraged to attend on-site yoga sessions and body conditioning classes every week. Employees also receive regular access to a variety of wellness topics including lunch and learn events, wellness fairs, cooking classes, and fitness challenges focusing on wellness promotion.

WNH recognizes that mental health is just as important as physical health; for that reason, WNH continues to support a mental health program for all employees.

WNH was selected as one of Waterloo Area’s Top Employers for 2017. This award speaks to the core values of the organization, including a commitment to excellence, teamwork, collaboration, high safety standards and environmental stewardship. The selection of Waterloo North Hydro reflects a corporate culture that fosters professional growth and development, dedication to the health and well-being of its employees, and its community involvement.

WNH selected as one of Waterloo area’s Top Employers for 2017.


CONSERVATION

WNH’s strategy for our business customers puts focus on improving a customer’s system, their facility, their business processes as well as managing their energy needs and associated costs.

Our goal is to help the customer to better understand where energy is used and the true cost of a process or product. A similar approach is applied to the residential customer programs. With the COUPON program, WNH works with retail customer engagement specialists that consult with customers to determine their lighting needs. The specialists guide customers to the right product ensuring that the product qualifies for the program, provides a discount and more importantly will be a product that meets the customer’s needs. WNH has experienced tremendous success with the COUPON program and is on target to average two coupons per customer in 2016

Heating & Cooling1,573 Incentives Resulting in $496,000 in incentives paid to Homeowners

Coupon ProgramOver 110,000 coupons redeemed within Waterloo, Wellesley and Woolwich

230 Projects 11% over 2015

Cheque presentation to Bob’s Valu-mart in Waterloo for an LED lighting retrofit project

HIGHLIGHTS OF WNH’S 2016 ENERGY EFFICIENCY PROGRAMSTotal 2016 Energy Savings 12.8 GWh

$1.1 million in incentives which resulted in annual energy savings of 10.4 million kWh (enough to power 1,159 homes for one year) and $1.1 million of annual savings for commercial, industrial and institutional customers

WNH achieved 12.8 GWh or 93% of its 2016 Conservation target and has achieved 25.6 GWh or 93% of the 2015- 2016 Conservation First target of 27.46 Gwh.


CONTRIBUTION TO THE COMMUNITY

To be a successful and valued organization WNH believes it must actively support and be a key partner in contributing to the communities it serves as well as the industry it operates within. These efforts include partnerships with non-profit organizations, educational institutions, a variety of committees, associations, and working groups within the community and the electricity industry. WNH collaborates with neighbouring utilities to share its expertise, people and facilities with others.

Community Activities and Events

• Skills Ontario Competition• Doors Open Waterloo Region• City of Waterloo Open House• Mighty Machines Vehicle Exhibition• Showcase Wonders of Winter• Schools – Electrical Safety Educator• REEP Green Solutions• United Way of Kitchener & Waterloo Area

WNH volunteers getting the bucket truck rides ready for the City of Waterloo Public Works open house. WNH received close to 200 visitors during the event


Business Community and Industry Involvement

To support the industry, WNH’s employees give their time to various committees, associations, and working groups. Employees actively support and participate to identify trends, explore new opportunities, discuss current affairs and collaborate on technical challenges. From the front line staff instructing trades training on Lines and Metering, to Senior Executive team members serving as active members of the Board of Directors of the Electricity Distributors Association (EDA), the Utilities Standards Forum (USF), and many other working groups, councils or committees at the EDA, Canadian Electricity Association (CEA), Electric Safety Authority (ESA), Independent Electricity System Operator (IESO) and Ontario Energy Board (OEB).

WNH is a founding member of USF and was one of the LDCs that collaborated to start the current version of the very successful Niagara Grand and Western Districts Metering Workshop. WNH is a member of the Greater Kitchener Waterloo Chamber of Commerce, a founding partner of Sustainable Waterloo Region to advance environmental sustainability, a committee member of Climate Action Waterloo Region and a funding and committee member of Community Energy Investment Strategy.

WNH employees from Operations Department present scholarships to Conestoga College’s Powerline Technician students

Education Programs and Scholarships

WNH is proud to support a number of education programs and initiatives in the community. In 2016 educational programs and scholarships supported by WNH include:

• Annual support and donation to THEMUSEUM for the Kids Inspiring Change

• Energy Awareness Conservation Program (KIC)

• Annual sponsorship of the Midnight Sun Solar Car, University of Waterloo

• Sponsorship of Drive4Data, Waterloo Institute for Sustainable Energy, Electric Vehicle Research

• Annual scholarships for Engineering Program, University of Waterloo

• Annual scholarships for Powerline Technician Program, Conestoga College

• Annual sponsorship of weconnect, Waterloo Engineering Outreach Programs, University of Waterloo

• Annual sponsorship of Engineering Quest Program, University of Waterloo

• Annual sponsorship of the Formula Hybrid Race Car, University of Waterloo

• Ongoing donations of vehicles and equipment to Conestoga College’s Skills Trade Centre to assist in ongoing development of the Powerline Technician Training Program

In addition to supporting education programs, WNH is active in promoting the industry to the next generation and developing the future utility workforce through an active co-op program. WNH offers co-op positions in a number of areas including Operations and Engineering.


WNH is one of the 13 founding LDC members of the GridSmartCity Cooperative. This cooperative approach aligns well with the Province of Ontario’s desire for LDCs to achieve greater efficiencies of scale and scope in their operations providing cost benefits to electricity customers. This collaboration is viewed as a viable and successful alternative to large scale consolidation in the electricity sector.

Our Mandate for the Cooperative is to:

• Increase efficiency andcustomer value withinour LDCs territories,while benefiting theOntario electricity sectoras a whole

• Synergize our operationsthrough the cooperativeapproach to buying andnumerous specialinitiatives

• Leverage our jointpurchasing strength forgoods and services atlower prices based oneconomies of scale

• Provide access toexpertise, resources andscale, to enhance value tocustomers, managedelivery costs effectively,and, as thought leaders,prepare for future modelsand technology changesin the energy sector

The GridSmart Cooperative combined now serve approximately 637,000 customers. With our strength and power in numbers, we are ideally positioned to compete as an innovator in Ontario’s electricity sector by leveraging our collective resources to respond to our customer needs. Our LDC members’ dividends are reinvested back into our communities.

Cost savings during the formative stages of the GridSmartCity Cooperative surpassed $2 million providing immediate proof of concept and laying the groundwork for efficiency goals moving forward.

Community Focus Collaboration Efficiency Innovation


FINANCIAL HIGHLIGHTS – ($000’S)

$-

$25,000

$50,000

$75,000

$100,000

2012 2013 2014 2015 2016

$78,396 $82,107 $83,059 $84,969

$90,512

Shareholder Equity

$-

$25,000

$50,000

$75,000

$100,000

$125,000

2012 2013 2014 2015 2016

$69,293

$80,719

$91,213 $96,326 $100,070

Long Term Debt

$-

$50,000

$100,000

$150,000

$200,000

$250,000

2012 2013 2014 2015 2016

$171,933 $175,748 $186,263

$201,663 $220,094

Capital Assets

$-

$2,000

$4,000

$6,000

$8,000

$10,000

2012 2013 2014 2015 2016

$6,628

$7,619 $7,134 $7,030

$8,350


$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

2012 2013 2014 2015 2016

$30,379 $33,365 $33,762 $33,387

$35,769

Distribution Revenues

$-

$50,000

$100,000

$150,000

$200,000

2012 2013 2014 2015 2016

$133,881 $146,585

$155,509 $170,390

$187,524

Electricity Sales


NOTES

Waterloo North Hydro Inc.526 Country Squire RoadWaterloo, ONN2J 4G8Tel: 519-886-5090www.wnhydro.com

annual report - waterloo north hydro · with neighbouring utilities (energy+, kitchener-wilmot...

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