table of contents - horizon utilities corporation · enhancing our workplace experience and health...

3

2 0 1 1 S U S T A I N A B I L I T Y - B A S E D A N N U A L R E P O R T

Table of Contents

4 | Board Chair and CEO Message

6 | Our Vision

9 Social Performance

17 Environmental Performance

25 Economic Performance

32 | Sustainability Policy

33 | Corporate Governance

34 | The Horizon Family of Companies

Visit horizonutilities.com to view:

Horizon Holdings Inc. Sustainability-Based Annual Report

Horizon Holdings Inc. Global Reporting Initiative™ (GRI) Filing

Horizon Holdings Inc. Financial Statements

Ernst & Young 2011 GRI Assurance Statement

4B O A R D C H A I R & C E O M E S S A G E

Horizon Holdings Inc. enjoyed an outstanding year on all fronts in 2011. This year’s annual report highlights and exemplifies how our organization is putting our commitment to sustainable development — for our business and for our communities — into action.

Against a backdrop of slower growth and economic change in 2011, the Horizon family of companies remained a leading performer in Ontario’s energy sector. We did so while our principal subsidiary, Horizon Utilities Corporation, continued to provide all classes of customers — residential, commercial and industrial — with among the lowest electricity distribution rates in Ontario. At the same time, we delivered a consistently high rate of return for our shareholders.

Horizon Holdings realized a net income of $17.8 million, a 40 per cent increase over 2010 and its strongest result ever.

We invested $48.2 million in operations and another $40.2 million in capital improvements, both part of our long-term asset renewal and financial plans. We also provided $4.3 million in conservation incentives and rebates to our customers, and returned $10.7 million in dividends to our shareholders.

Overall, Horizon generated $107.5 million in “direct economic value” to Hamilton and St. Catharines — a key Global Reporting Initiative™ (GRI) metric in sustainable development performance. We achieved these results while still maintaining among the most competitive operating costs per customer in the province.

Our triple bottom-line industry leadership — environmental, social and economic — received an important industry acknowledgement, with the Canadian Electricity Association awarding us Sustainability Company of the Year.

MAx CAnAnzI, President & CEO RObERT DOlAn, Chair, Board of Directors

Board Chair and CEO Message

5B O A R D C H A I R & C E O M E S S A G E

In both 2010 and 2011, we acheived a GRI “A+”, with the “+” recognition for the external assurance provided by Ernst & Young.

building on this sustainability leadership, Horizon is now the first Canadian local distribution company (lDC) to adopt ISO 26000, the International Organization for Standardization’s guideline on social responsibility. We also received formal ISO 14001:2004 accreditation for having introduced a comprehensive, corporate-wide Environmental Management System, making us one of a very few lDCs to have met this challenge.

While Horizon has been enthusiastically embracing conservation and demand management (CDM) for several years, 2011 was the first year all lDCs were given mandated targets by the Ontario Energy board (OEb). In contribution to our targets, we arranged the two largest incentive cheques ever granted in Ontario — $2.3 million to the City of Hamilton and $1.4 million to General Motors in St. Catharines.

Horizon Utilities is also a leader in innovation. We received a $500,000 grant from the Ontario Power Authority’s Conservation Fund to pilot energy mapping for all lDCs, which will increase the effectiveness of delivering CDM programs. Horizon Energy Solutions Inc. (HESI), our unregulated affiliate company active in the solar business, is now also providing “white labelled” CDM services to lDCs, and was selected to provide a comprehensive CDM solution to Oakville Hydro.

Enhancing our workplace experience and health and safety culture remained a top priority in 2011. We accomplished a significant milestone in workplace safety by working 1,000,000 hours without a lost-time injury. This is the second time that Horizon has achieved this important milestone in its corporate history, and is a reflection of our strong emphasis on safety and employee health.

We continually strive to be a great place to work, and we were pleased when our work in this area was recognized and we were named a “Top 10 Employer” in the Hamilton-niagara region.

Another priority for Horizon in 2011, one that had a direct impact on our infrastructure renewal plan, was our cost of service rate application. Advancing our place in the application cycle by one year, we are, to date, the only electricity lDC in Ontario to have successfully made the case to do so. We presented a balanced request, addressed stakeholder interventions, and were appreciative of the OEb’s approval.

Our continued interest in amalgamation, like the bringing together of St. Catharines and Hamilton’s lDCs to create

Horizon Utilities in 2005, remains an important strategic focus. Given the regulatory requirement for annual productivity improvements, this is the best way for lDCs to lower costs, enhance customer services, and maintain strong shareholder returns. At Horizon, we are also open to working in partnership with other lDCs. We share key account energy representatives with eight other lDCs in Ontario. Together, they are assisting 30 of the province’s largest industrial electricity customers to use our product more wisely and lower their costs.

In addition to the many operational changes we have undergone internally, there is also change occurring at the corporate governance level. We are pleased to announce that Robert Cary, a member of our boards of Directors since the creation of Horizon in 2005, became the Chair of all our boards in early 2012.

beginning in 2008, Horizon made an aspirational commitment to sustainable development. We know that corporate social responsibility alone, while admirable, is not enough to necessitate changes in our business practices or culture — the things we do for our customers and our communities. In short, to Horizon, that means improving our customer experience and the livability of our communities.

We started with a foundational commitment to report all our data — social, environmental and economic — under GRI. We have since been tackling sustainability as a business practice, increasingly becoming more efficient and effective in our operations. The result is that sustainability is proving to be very good for Horizon’s bottom line. We encourage you to read on and learn how the Horizon family of companies is working to put sustainability into action.

S U S T A I n A b I l I T Y I n A C T I O n

MAx CAnAnzI President and CEO

RObERT DOlAnChair, Board of Directors

6O u R V I S I O n

At Horizon, our commitment to sustainability has evolved from a concept, through a reporting framework, to an organization-wide effort to put sustainability into action. We are making sustainable development a core strength.

Our goal is to see sustainability directly touch and affect every function and corporate objective. Our commitment and leadership were recognized in 2011 by the Canadian Electricity Association, which presented Horizon with the Sustainability Company of the Year Award.

Sustainable development is more than just doing good deeds. It is about making improvements, conserving energy and resources, enhancing productivity and profitability, providing value to our customers, and partnering with our communities and our industry peers. It is about educating and changing people’s behaviour. but most of all, sustainability is about thinking differently about how we operate our business and changing the status quo for future generations.

like other institutions that have embraced sustainable development, Horizon is demonstrating that it is both practical and profitable. Sustainable development brings prosperity by

helping to retain existing business and industry, while attracting new economic development. It also helps us develop the type of communities and neighbourhoods in which we all want to live, work and play.

Our path to building a sustainability-based business operation and employee culture is being accomplished through a thoughtful, planned and strategic process. The intended benefits are profound and long-lasting socially, environmentally and economically.

In 2011, we created an executive-level committee to oversee the management and execution of sustainability within Horizon. We continued to review our processes, procedures and policies. Responsibility and accountability for sustainability goals are now shared across the organization — at all levels. Going forward, we will continue to make the changes necessary to maintain our leadership role, not only as an energy services provider, but also as an ambassador for making sustainable development a community-wide, societal goal.

Our Vision

“Our review of Horizon’s Corporate Social Responsibility program found that the company has policies, practices and initiatives in all the social responsibility categories defined by ISO 26000 and is well positioned to continue to be a leader in sustainable development and corporate social responsibility in the electricity sector.”

Colin Isaacs, President CIAL Group

O u R V I S I O n

l O O k I n G b E Y O n D . . .

Horizon’s final results for the Global Reporting Initiative (GRI) filingA+

We have self-declared our reporting to be application level A.

Ernst & Young has checked our reporting and has con�rmed it to be application level A+.

SelfDeclared

ThirdParty

Checked

GRIChecked

O

ptio

nal

Man

dato

ry

C C+ B B+ A A+

Repo

rt Ex

tern

ally

Ass

ured

Repo

rt Ex

tern

ally

Ass

ured

Repo

rt E

xter

nal

ly A

ssure

d

7O u R V I S I O n


G R I ’ S S u S T A I n A B I l I T Y M E T R I C S

GRI Metric GRI Issues to be Addressed

Economic Financial performance, market presence, economic impact

Environment Materials, energy, water, biodiversity, emissions

labour Practices and Decent Work

Employment, labour relations, occupational health and safety, training and education, equal opportunity

Human Rights Investment and procurement practices, non-discrimination, collective bargaining, forced and child labour, indigenous rights

Society Community, corruption, public policy, anti-competitive behaviours

Product Responsibility Customer health and safety, labelling, communications, privacy

Global Reporting Initiative

Horizon’s business practices are governed by its Sustainability Policy. In 2008, we chose to evaluate ourselves against the Global Reporting Initiative™ (GRI) framework, the most widely used sustainability reporting framework in the world. We also moved to publish our annual report as a “Sustainability-based Annual Report”, reporting on the social, environmental and economic dimensions and performance of our business in equal measures.

The cornerstone of the GRI framework is its Sustainability Reporting Guidelines, which measures Horizon’s triple bottom-line approach to performance reporting. Moreover, the strength of this framework is its promotion of year-to-year and company-to-company comparability, as well as its openness and transparency.

GRI PerformanceHorizon has consistently progressed in the scope of disclosures made in its GRI report — from a “b” in 2008 to a self-declared filing of “b+” in 2009 and “A+” in both 2010 and 2011. The “+” under GRI is the indication that we received a third-party check of our self-declared application levels and limited assurance over select Performance Indicators. In each of

these three years, Ernst & Young provided our third-party review.

The progression of results reflects the extent to which sustainability has become ingrained across the organization, and demonstrates that Horizon, through its words and actions, continues to raise the performance bar for the benefit of our customers and communities.

Improving our GRI reporting, development and submission process was a focus for Horizon in 2011. Supervisors, managers and directors in all our business units provided data and information to support the GRI reporting process. To streamline data and information collection, we implemented processes and tools to obtain this data on a regular reporting basis.

Horizon’s GRI Application levels demonstrate our ability and willingness to communicate to stakeholders the continued improvements and changes we have made during the past four years. This achievement reflects positively on our organization’s diligent effort to broaden how we measure our performance, as well as how we are evaluated for our efforts.

8

Horizon crews responded quickly and worked around the clock to repair the damage to its power lines caused by a devastating windstorm. See page 15 for more details.

9S O C I A l P E R F O R M A n C E


Horizon is a strong and important anchor in the lives of our customers, employees and community partners in the public, private and charitable sectors.

Whether it is a customer who needs our assistance with their energy bill or a major industry looking to ensure the long-term viability of a business, Horizon is there for them. Our public sector partners engage us in planning for the future. And, our social agencies know they can turn to us to help them assist those most in need.

Our employees know that their health and safety is of the utmost importance to Horizon.

Employees also know that we will provide them with the best training and support possible. Electricity distribution comes with serious health and safety issues. Our training and evaluation programs have earned us a solid safety record, validated by third parties.

Horizon is also preparing for the future, as an increasing number of skilled trades employees in the utility sector approach retirement. We have a timely and proactive recruitment program to ensure the sustainability of service excellence to our communities.

We have willingly and successfully adopted international guidelines for social responsibility for sustainable development. We will continue to meet and exceed the expectations of the international community, and most importantly, our home communities.

Customers

In third-party survey research, Horizon maintained an impressive 90 per cent customer satisfaction rating, even amid broadly declining customer satisfaction, not only in the electricity industry, but across many service sectors. Horizon has achieved higher customer satisfaction ratings than the provincial lDC average for the past three years. We received an overall “A” rating on our customer care, company image and management operations compared to the Ontario lDC average “b+” rating.

Our customers tell us that Horizon is a respected company in the community, deals professionally with their problems, and delivers on its commitments.

building on the strength of our customer satisfaction survey, in 2011 we focused on our relationship with contractors and developers. Our survey results showed an 89 per cent satisfaction rate among respondents. Specifically, 97 per cent were satisfied with the courtesy of Horizon staff and 90 per cent rated us as a trusted company. We also held information sessions for all Horizon employees and approved construction and maintenance contractors to explain our new Environmental Responsibilities and Accountabilities policy. The meetings provided information on environmental regulation compliance as it relates to our sector and the ISO:14001:2004 standard. The sessions helped contractors understand the need to communicate our policy to their employees and subcontractors.

Social Performance“We are truly grateful to Horizon Utilities for helping United Way of burlington & Greater Hamilton to ensure that year-round emergency financial assistance is not an option, but a reality for everyone. Change starts here, change starts with Horizon Utilities.”

Len Lifchus, CEOUnited Way of Burlington & Greater Hamilton

10S O C I A l P E R F O R M A n C ES O C I A l P E R F O R M A n C E

Under the Ontario Energy board’s new low-income Energy Assistance Program (lEAP), Horizon contributed close to $123,000 to local agencies.

These funds provide much-needed relief to qualified customers. Eligible grant recipients include low-income households — individuals and families — who are either in arrears or at risk of going into arrears on their energy bills. Potential recipients have also exhausted all other sources of financial support. The Horizon-funded program is administered in Hamilton by the United Way of burlington and Greater Hamilton, and in St. Catharines by the United Way of St. Catharines and District.

ISO 26000

Horizon became the first lDC in Ontario to adopt ISO 26000, the International Organization for Standardization’s guidelines for Social Responsibility. ISO 26000 offers an overview on socially responsible corporate behaviour and possible actions. Unlike other ISO standards that are certifiable, ISO 26000 provides guidelines only. Horizon has voluntarily adopted that direction, further demonstrating its commitment to sustainable development. In 2011, we engaged a third party — the CIAl Group — to review our practices and processes to ensure we are following the roadmap outlined through this international standard.

Employees

Significant employee accomplishments were also achieved in 2011. In the Horizon family of companies, the employees are principally centred in Horizon Utilities. Horizon’s overall commitment to its employees and their well-being was recognized as we were named one of the Top 10 Employers in the Hamilton-niagara area. This designation, organized by the authors of Canada’s Top 100 Employers list, recognizes employers in the Hamilton-niagara area that provide exceptional places to work, through progressive and forward-thinking programs. The november 23, 2011, announcement for Horizon came in a special feature in The Hamilton Spectator. The award validates that we compare favourably to other employers. Horizon is proud of the designation as it recognizes our ongoing efforts to create an even better place to work.

Reflecting the Canadian workforce trend at large, and the utility sector in particular, a portion of Horizon’s workforce is nearing eligible retirement. As a result, we have a comprehensive workforce renewal plan and have embarked on a concerted recruitment of trades people to address anticipated retirements. This is extremely important as trades apprentices take up to five years to become fully trained. We are also focused on new technologies, skill sets and procedures that require employee education and training. Through our Engineer Intern Program, we also hire graduates from engineering programs directly out of university. The program focuses on developing highly trained, self-motivated individuals for future Horizon engineering and management positions.

Enhancing the culture of workplace health and safety is a major ongoing commitment at Horizon.

We supported our efforts through education and training, reporting and risk assessments — the latter by focusing on prevention.

In 2011, Horizon achieved a significant safety milestone for the second time — 1,000,000 hours worked without a lost-time injury. Our record has benefited greatly from the strong support of the International brotherhood of Electrical Workers and the company’s Joint Health and Safety Committees, which


Horizon Utilities— a strongSt. Catharinesemployer andeconomiccontributor Horizon is a longstanding and significant contributor to the St. Catharines economy.A Municipal World magazinearticle reported that since the 2005 merger between St. Catharines Hydro Utility Services and Hamilton Hydro, revenues to the City from St. Catharines Hydro have grown from a pre-amalgamation average of $1.7 million / year to $3.5 million / year since joining Horizon.

but success is not only measuredby dollars. Our 63,000 sq. ftoperating centre on Vansickle Road in St. Catharines is home to more than 75 Horizon employees. This includes the staff of our main Customer Call Centre. Our Customer Services Representatives provided assistance to 307,000 callers in 2011. Our Construction and Maintenance Services and Customer Connectionsdepartments for St. Catharinesoperate out of this facility, asdo our Fleet and Stores groups,making it a central hub for ouroperations. The operating centrehouses 36 company vehicles,and its large yard is used for easyaccess to the necessary stock ofpoles and transformers.

11

includes management and union representatives. This milestone served as a clear indication to management that our employees have made a personal commitment to working safely.

We are one of very few utilities to initiate the implementation of the Canadian Standards Association’s CSA z1000 framework into our health and safety policies, procedures and practices. This national standard provides a model for developing and implementing an occupational health and safety management system. It encourages a more systematic approach to meeting defined occupational health and safety targets, and helps increase awareness of health and safety in the workplace.

Horizon also extends its commitment to safety beyond the work environment. In 2011, we provided electrical safety education for 11,500 elementary school students attending 52 schools in Hamilton and St. Catharines. During these sessions, children from kindergarten to Grade 7 learn about the hazards posed by electrical outlets, appliances, substations, transformers, utility poles and overhead electrical wires.

Community Supporter

Horizon is a corporate sponsor of, and a participant in, both the niagara Sustainability Initiative and Sustainable Hamilton. We help educate small businesses, and share best practices, successes and knowledge on sustainable development. We encourage other companies to engage in community-wide sustainability reporting efforts. While natural market forces are affecting the old economies of these cities, our goal is to help develop the new economy, as we believe sustainable cities are attractive to people and business. Our collective efforts demonstrate how former industrial cities can evolve and become highly sustainable and models for others.

Working with McMaster University, Mohawk College, our municipal partners’ economic development departments and other community stakeholders, we continued to advance the work of the Golden Horseshoe Strategic Energy Alliance.

Events included an electric vehicle workshop at McMaster University Student Centre in which representatives from several municipalities attended, including Hamilton, and a year-end clean technology event that included a presentation from Horizon Utilities focused on energy mapping.

This strategic alliance combines the capabilities of these research and training institutions and the economic development resources of the cities to enhance the capabilities of existing companies, and attract the energy technologies and businesses of the future. As the alliance develops, its purpose is to present our combined strengths to industry, and encourage research and manufacturing in solar and other clean technology sectors.

S O C I A l P E R F O R M A n C E


“Sleeping in a warm bed each and every night is something that we as Canadians value. lEAP affords everyone that right which so many people take for granted.”

Betty-Lou Souter, CEO Community CareSt. Catharines and Thorold


As the name implies, the Golden Horseshoe Strategic Energy Alliance has room for other communities and their lDCs to participate in broader education and initiatives beyond solar, and an increasing number are doing so.

Partnering with Community Economic Development and Chambers

Horizon works on a number of fronts to make positive contributions to the financial and economic vitality of St. Catharines and Hamilton. We proactively volunteer our assistance to their economic development departments, knowing this is one important way of putting sustainability into action for them, and for us — new business means new jobs and new customers.

One important way we help is by providing detailed rate comparisons when the communities are in competition with other cities and towns for the location of businesses.

The reliable distribution of electricity at a reasonable cost is an important factor in a business location decision. A stable supply of power helps reduce business interruption and, especially in a tough economy, every dollar can help the bottom line for a business’ ongoing profitability.

Another way we help is by providing our expertise on infrastructure capacity — enabling customers to find locations that minimize their costs for connecting to the power grid. This can be a major start-up cost. by offering this input, we also are in a position to maximize the efficiency of our own assets, deriving more revenue from existing investments.

We work closely with our two chambers of commerce. For a number of years, we have made it a regular practice to sponsor events that draw attention to the attractiveness of our communities for investment. In 2011, Horizon arranged for Tom Rand to speak to the St. Catharines-Thorold Chamber of Commerce. Tom Rand is one of Canada’s top clean technology entrepreneurs.


Horizon employees support community fundraisersHorizon’s employees have a history of supporting causes that enrich our communities, beginning new activities and continuing some long traditions.

In 2011, Horizon employees took to the water for the third year in a row to raise funds for the Heart and Stroke Foundation.

A 10-member crew trained hard to compete in Row for Heart, a program shared by The Heart and Stroke Foundation and leander boat Club in Hamilton. This community-based event offers people access to the waterfront who might not otherwise choose to enjoy the harbour, all while raising funds to fight Canada’s number one killer.

And for the sixth year in a row, employees climbed aboard the big bike to raise funds for the Heart and Stroke Foundation as well. Our participation in this trademark event has earned us Hall of Fame Fundraising status, raising more than $29,000 as of 2011. We have received multiple Team Spirit Awards for the outstanding enthusiasm our employees demonstrated as they rode through the streets of Hamilton and St. Catharines on a 29-seat bicycle.

Our staff in both St. Catharines and Hamilton support many endevaours through the Horizon Employees’ Charity Fund. In 2011, employees teamed up with the company to raise and donate $70,000 to 61 charities in our home communities.



“Horizon Utilities’ ISO 14001 registration for its environmental management system (EMS) is a significant achievement that places it among an elite group of companies, not only in Canada, but worldwide. It takes a tremendous amount of effort to achieve this milestone and is the result of executing a detailed plan involving employees from across the organization. We were proud to be a part of this process.”

Tony Tarsitano, M.Eng., P.Eng.Integrated Management Solutions Ltd.

Energy Minister brad Duguid announced a round of OPA solar project contract approvals at Republic Canadian Drawn Steel in Hamilton, a HESI solar customer.

Horizon Energy Solutions

As part of the Horizon family of companies, Horizon Energy Solutions Inc. (HESI) had a successful year in 2011. We continued to pursue our strategy of solar energy generation, metering and conservation and demand management services for the utility and commercial/industrial markets.

As an affiliate of Horizon Utilities, HESI shares an impressive track record of delivering cost-effective and innovative energy services that help local distribution companies and end-user customers improve their energy sustainability. being an energy company with more than a century-long track record of leadership, Horizon has a brand that conveys reliability and trustworthiness across Ontario.

HESI is backed by the financial strength and stability of the Horizon group and a strong commitment to the highest safety standards.

CDM Services for Local Distribution Companies (LDCs)

In response to the Ontario Energy board (OEb) mandating conservation and demand management (CDM) targets for all lDCs as a condition of license, HESI has developed comprehensive, white-labelled turnkey CDM programs.

These programs can be customized to address the lDCs specific market needs and requirements and are delivered under their own brand. These CDM programs leverage HESI’s years of commercial, industrial and residential experience to help the lDCs achieve its mandated CDM goals. HESI’s programs are customized to each utility, either to complement current activities, or deliver the lDCs entire CDM program.

HESI was selected to provide a total integrated solution to Oakville Hydro for its CDM portfolio. HESI provides customer recruitment, program management and administration, marketing and application processing services. Rob lister, President and CEO of Oakville Hydro said, “Our reduction targets are very aggressive, but we believe that through Horizon Energy Solutions’ successful track record and resources we will achieve our goals while delivering great value and conservation opportunities to our customers.”

14



Metering Services

HESI has been seeking new markets for its utility grade metering business, which is one of the few that is registered with the Independent Electricity System Operator (IESO) for meters of wholesale market participants.

Expanding the wholesale metering service remains a priority for HESI and we continue to invest in training and technology. HESI provides extensive metering services and solutions to a wide range of lDC and industrial customers throughout Ontario. Accurate metering data allows our customers to better understand their energy consumption patterns. Our energy consultants can work with customers to identify energy reduction and savings opportunities.

Through our Measurement Canada accredited meter shop, we offer an extensive range of services, including meter repair, calibration, programming, reprogramming and sealing.

As a premier meter service provider, we install and maintain the meters in the field and provide secure transmission of meter data to the IESO. Our market leading wireless connectivity solution reduces operational and maintenance costs, while our virtual private network securely transfers the data.

In accordance with our ISO 9001 Registered Quality Management System, we ensure the highest degree of quality and customer satisfaction in all work performed.

Solar PV

Providing solar photovoltaic (PV) energy solutions continued to be a key activity for Horizon Energy Solutions in 2011 on behalf of Horizon Utilities. HESI identifies market opportunities, negotiates rooftop leases, provides administration services and manages construction of solar systems.

Despite the challenges with Ontario’s Feed-in-Tariff (FIT) program, HESI was successful in leasing many rooftop projects across Ontario.

Minister of Energy brad Duguid chose a HESI solar PV host landlord to announce the awarding of OPA FIT contracts to the industry. This announcement included HESI being awarded 11 FIT contracts for rooftop solar PV generation totalling 2.3 MW.

In fact, HESI has been awarded more OPA FIT rooftop solar PV contracts, measured in megawatts (MW), than any local distribution company.

We are building a successful track record in energy generation, conservation and demand management. by leasing industrial, commercial and institutional rooftop space to host solar PV systems, HESI helps building owners across Ontario earn long-term rental income from an otherwise underutilized asset. This also indirectly encourages local job growth. We strive to keep abreast of rapidly evolving renewable energy technologies to maintain a leadership position in this new and growing market.

Water Heaters

HESI also made a significant divestment in 2011. It owned a rental water heater portfolio in St. Catharines, as did Hamilton Hydro Services, an affiliate of Hamilton Utilities Corporation. Given changes in the market and the lack of a CDM offering for water heaters, neither organization considered it a core business function. The combined portfolio of almost 10,000 water heaters was divested jointly to Sandpiper Energy Solutions in the fall of 2011 through a competitive process. Through this transition, Horizon Utilities ensured that customers would receive the best value in water heater rental services.

15



Horizon rises to the devastating windstorm challenge In the early spring of 2011, a massive windstorm struck our communities. Winds peaked at more than 100 km/h, toppling many trees — some very large and old landmarks. The devastating winds were compounded by heavy rains, and Horizon’s operations were put to the test. At its height, the storm knocked out power to 42,000 Horizon customers in St. Catharines and Hamilton — 18 per cent of our customer base — for an extended time period. That total included 33,000 or 60 per cent of customers in St. Catharines.

We executed the largest power restoration and cleanup effort in the company’s history. Our response was swift and co-ordinated with more than 200 workers dispatched. We called in assistance from neighbouring utilities through the great mutual assistance agreements we have in our sector. We also hired additional contract crews and our Customer Call Centre extended its hours.

Smart meters helped during the restoration effort. Prior to smart meters, utility workers only knew where the power was out by patrolling lines or receiving calls from customers. With electronic smart meters having replaced electro-mechanical meters, our system managers could now use the electronic signal to figure out who was without power. The data has become a new tool during restoration efforts.

Within 24 hours, the Horizon team had the lights back on for the majority of homes and businesses. While the extent of the damage was unprecedented, Horizon employees rallied to the challenge and worked tirelessly until every customer was back in service.

Every year Horizon Utilities hosts a group of Grade 9 students for Take Your kids to Work Day.

16E n V I R O n M E n T A l P E R F O R M A n C E

Horizon Utilities employees plant trees in support of the bruce Trail Conservancy.



Horizon Utilities knows that environmental responsibility is not just holding events. It is a way of thinking, planning and implementing that engages everyone in the company.

A formal Environmental Management System (EMS) was introduced in 2011 based on ISO14001:2004 standards. The EMS has deepened our employees’ and construction contractors’ understanding and commitment to environmental sustainability, ensuring lasting contributions to the environmental well-being of our communities.

Our employees are becoming leaders in the adoption and implementation of innovative technologies and techniques, lowering our carbon footprint and improving our efficiency and service to our customers.

Our conservation programs are helping our residential and business customers become more environmentally and economically sustainable. We are leveraging our excellent relationships in the community to spread the word about sustainability.

In 2011, Horizon took the lead in initiating a provincially-sponsored energy mapping pilot project. It is a powerful tool that will help us target the best opportunities for our community to experience optimal conservation and sustainable growth.

From the simpler and more traditional ways of demonstrating environmental awareness, like recycling and paperless billing, we have grown our stewardship into a way of working and living, day in and day out, for tangible sustainability progress.

Operations

Our EMS helps co-ordinate all environmental activities into one integrated framework to improve the overall effectiveness of Horizon’s environmental programs, activities, and processes. The quality and depth of the new EMS was key to our receiving International Organization for Standardization (ISO) 14001:2004 certification.

Twenty-nine new environmental work procedures, 17 new forms and two new policies were implemented in 2011 to support ISO 14001:2004. We also delivered extensive training across the organization — seeking to take our employees’ understanding of environmental and regulatory issues to a higher level.

Our EMS implementation and its adherence to ISO 14001:2004 standards demonstrate the commitment we have made to the environment in our day-to-day operations. Unlike programs that have a limited or finite beginning and end, adherence to these international standards provides long-term and lasting contributions to the environment and to our communities.

Environmental Performance“Our ISO 14001 audit process revealed that Horizon Utilities has shown its concerns for the environment for a long time and has demonstrated its commitment to the prevention of pollution. Without compromising our neutrality as system auditors, we can state that part of Horizon’s Environmental Management System can be considered a model for others to follow.”

Intertek ISO 14001 consultants

18E n V I R O n M E n T A l P E R F O R M A n C EE n V I R O n M E n T A l P E R F O R M A n C E


We have made great strides in our continuing effort to encourage customers to switch to paperless billing. In 2011, we have achieved a 30 per cent increase in paperless billing transactions over 2010. In addition to the environmental benefits, paperless billing provides customers with online access to their current and past bills. In 2011, 79,045 customers viewed their account information online each month — for a total of 948,535 customer log-ins. In addition, approximately 9,500 customers receive a paperless statement — more than 56,000 fewer paper-based bills and envelopes are mailed in a year.

Horizon is utilizing wireless technology through our e-mobile

business solution. The utilization of industrial-grade tablet computers allowed our service technicians to move to paperless work orders. Meter management service orders, which were once handled through paper and data re-entry, are now streamlined to ensure information is recorded accurately and efficiently. We will expand paperless work order functionality to include collections activities in 2012.

Upgrading our Global Positioning System (GPS) for all our fleet vehicles in 2010 allowed Horizon to enhance our work scheduling in 2011. This now enables us, in some circumstances, to assign work to the nearest vehicle. In 2011, GPS access to real-time vehicle activity data was extended to selected supervisors, managers and clerks in Construction & Maintenance Services, Facilities, network Operating, Stores and Engineering divisions. Providing access to GPS data has many diverse benefits. It significantly improves communication among drivers, system operators and management, with the result that it enhances response times, shortens the length of power outages and reduces employee safety risks. And by reducing drive times, it also lowers fuel consumption and emissions.

Horizon is committed to achieving waste reduction in its operations by collecting used batteries and aerosol cans. Horizon’s battery recycling program is one small example of how the company is committed to ongoing behavioural change in moving to a cleaner environment. More than 728 kilograms of lead acid batteries were collected for recycling, and another 222 kilograms of dry-cell batteries were redirected from landfill sites. We also collected 300 kilograms of aerosol cans from our drop-off bins for proper disposal, and collected and recycled 149 fluorescent lights, totalling 30 kilograms.

City of Hamilton retrofit built in 1951, the Woodward High lift Pumping Station is the City of Hamilton’s largest water pumping station. It pumps more than 340 million litres of lake Ontario water through its system to over 500,000 people on a daily basis. Incentives provided through the Ontario Power Authority’s Electricity Retrofit Incentive Program and facilitated by Horizon, made it possible to replace the station’s old motors and equipment with state-of-the-art technologies that optimized energy efficiency. When fully operational, the new system will result in a 2,600 kW demand reduction and produce a 20 per cent in annual electricity savings. This represents $400,000 of the station’s current $2 million annual electricity costs. The Woodward project was Pumps and Systems Magazine’s winning 2011 success story.


Conservation and Demand Management

Conservation and Demand Management (CDM) is a primary example of how Horizon has effectively operationalized sustainability. A new regulatory framework for the delivery of CDM began in 2011. Following a directive from the Minister of Energy, the Ontario Energy board (OEb) established mandatory CDM targets for all lDCs. These new targets are to be achieved by 2014 and are a condition of a lDC’s distribution licence. To meet these aggressive targets, lDCs, in partnership with the Ontario Power Authority (OPA), are delivering CDM programs to residential, commercial, institutional and industrial customers.

A key driver of our conservation program delivery is to make us easy to do business with. With 170 commercial, institutional and industrial retrofit project applications approved in 2011, Horizon is a provincial leader in helping customers take advantage of the OPA’s retrofit programs. Having worked through the difficulties of assisting customers and channel partners in the transition to an online application process, we documented a best practice that the OPA shared with other lDCs.

While small business customers can be challenging to reach, Horizon’s campaign offering lighting upgrades to small business customers in Hamilton and St. Catharines has been a great success. Our community-focused approach, which began in 2008, leveraged partnerships with our local business Improvement Associations (bIAs). The continued support from our local chambers of commerce and municipal economic development partners assisted Horizon to improve the energy efficiency of our small business customers in 2011. Using their established communication channels, our community partners become ambassadors to enhance Horizon’s CDM programs to put sustainability into action in our communities.


Horizon Utilities acknowledged the support of Hamilton bIAs in sharing CDM program information to local businesses.

20E n V I R O n M E n T A l P E R F O R M A n C E E n V I R O n M E n T A l P E R F O R M A n C E


Horizon’s continuous efforts to promote conservation to residential consumers resulted in 1,850 customers joining the peaksaver® program, and the collection of 2,918 inefficient refrigerators and freezers through the saveOnenergy FRIDGE AnD FREEzER PICkUP OM program. This represents five per cent of the provincial total, which is our target.

Horizon’s industrial CDM program strategy leverages LDC partnerships

In 2011, Horizon and eight other local distribution companies (lDCs) jointly developed an innovative CDM partnership designed to meet a common business challenge.

by working in concert with the other lDCs, we are now collectively able to maximize our effectiveness in serving the needs of 30 of Ontario’s largest industrial customers. On its own, Horizon has 12 “greater than 5 MW” customers. The OPA framework provides funding for one key account manager for every 10 customers.

In the shared arrangements, Horizon is now hosting three key account managers on behalf of the partnership — bluewater Power, brantford Power, Canadian niagara Power Inc., Entegrus Powerlines, Erie Thames Powerlines, Essex Powerlines, niagara Peninsula Energy and Welland Hydro. The key account managers are able to turn opportunities into energy efficiency business cases for the industrial customer sectors that are similar to Horizon’s industrial customers. This common resource strategy shares key learnings and develops best practices.

The partnership’s three account managers introduced the business cases for the Industrial Program initiative funding opportunities. These include capability resources, energy efficient retrofits, studies, monitoring and targeting systems, and process and system upgrades for these 30 customers.

Community Partners

Finding the customers who can benefit most from CDM programs can be challenging. Horizon has found a powerful tool to take the guesswork out of targeting customers for CDM. In 2011, Horizon received the go-ahead to launch a leading-edge energy density mapping pilot study for our entire service territory — St. Catharines and Hamilton. Horizon was awarded more than $500,000 from the OPA’s Conservation Fund, with the purpose of developing a best practices report for all Ontario lDCs.

“With the help of Horizon Utilities, General Motors was able to enhance its energy efficiency and demonstrate its environmentally-responsible approach to operations. I applaud both companies for making the commitment to support green initiatives.”

Brian McMullanMayor of St. Catharines

21E n V I R O n M E n T A l P E R F O R M A n C E E n V I R O n M E n T A l P E R F O R M A n C E


Horizon embraces clean vehiclesHorizon was an early adopter of hybrid vehicles. Our first hybrid Escape was placed in service in 2005 and another seven followed in 2006. And while hybrid vehicles are considered superior in their fuel efficiency and lower carbon emissions, Horizon monitors and tests this performance. A fuel consumption comparison of non-hybrid SUVs against the eight hybrid vehicles employed by Horizon found that the hybrid Escapes have used considerably less fuel (38,000 litres) and emitted less CO2 gas (86 metric tonnes) since 2006. In addition, Horizon has three hybrid bucket trucks in its fleet, including a hybrid/electric bucket truck that was introduced into the fleet in 2011. These three vehicles use approximately eight litres per 100 kilometres less fuel than other comparable bucket trucks. This translates to a reduction of approximately 3,900 litres of fuel and 10 metric tonnes of CO2 per year.


The objective is to develop new tools to improve the targeting effectiveness and deployment of CDM programs so that lDC resources can be directed to the customers in greatest need of assistance.

Energy mapping brings a level of sophistication that is not currently available. The Horizon pilot, when completed, will correlate the electricity consumption data for all its customers with geo-reference data for all buildings in Hamilton and St. Catharines. This data will be assembled in a geographic information system (GIS), thereby making it possible to visually map the results.

We believe having the profile of individual customer energy intensity will have very strong applicability for both smart grid and CDM.

Energy mapping will not only revolutionize energy conservation, but it will benefit our customers, while also strengthening the tenets of sustainability.

This project has a number of partners that have collectively contributed over $300,000 of financial and “in-kind” support. They include: the Municipal Property Assessment Corporation (MPAC), Teranet, nRCan, StatCan, Environics, the Cities of Hamilton and St. Catharines, the Regional Municipality of niagara, and the Canadian Urban Institute. The project, which runs to the end of the OEb-mandated CDM reduction target period of 2014, will greatly assist Horizon in meeting its objectives.

In 2011, Horizon also initiated planning to supplement what the leadership of the cities of Hamilton and St. Catharines are doing in brownfield redevelopment with a complementary brownfield program for utility infrastructure. Our goal is to attract industry to previously developed areas and make use of the existing electrical infrastructure as cities do with land, roads and transportation systems, and water and waste water services. Getting businesses to use our existing assets and to conserve energy, rather than having to build assets in new industrial parks, reduces upward pressure on electricity rates and property taxes.

Horizon’s CDM team — a provincial leader

One of the ways Horizon is helping its commercial customers manage operating costs and increase competitiveness is through the saveOnenergy RETROFIT OM programs. Jointly with the OPA, Horizon energy experts partner with businesses to explore more energy-efficient solutions through equipment upgrades. not only do these projects impact the business’ operations, they also have a positive impact on their environmental footprint.


The figure, which shows electricity consumption density (kWh/m2) of commercial buildings, illustrates the power of Horizon Utilities’ energy mapping pilot for assisting in energy conservation. The project received the largest Conservation Fund grant to date from the Ontario Power Authority.



Since the inception of the OPA retrofit programs in 2008, each year one of Horizon’s eligible customers has received the largest retrofit incentive in the province.

• 2011: Public Works, City of Hamilton — $2.3 million and General Motors, St. Catharines — $1.4 million

• 2010: Hamilton Health Sciences — $640,000

• 2009: St. Joseph’s Healthcare — $172,000

• 2008: Air liquide — $120,000

The annual energy cost savings funded from the retrofit projects amount to hundreds of thousands of dollars for these institutions and companies, improving their ongoing operational efficiency and sustainability.

by relentlessly pursuing face-to-face contact with its customers, Horizon’s team of CDM professionals has been critical in helping customers identify savings opportunities tailored to their specific needs. CDM programs implemented through lDCs, like Horizon, promote economic development by retaining or attracting businesses to our communities through the incentives offered.

Horizon facilitated a CDM payment of $1.4 million to General Motors in St. Catharines.

General Motors receives CDM incentive As part of its ongoing efforts to improve and reduce energy use, General Motors (GM) of Canada’s St. Catharines engine plant, adjacent to the Welland Canal, has made significant retrofits to its production cooling system. GM’s major energy savings initiative included a new, more efficient manufacturing chiller system, along with other investments designed to reduce energy consumption in both summer and winter. The system consists of two new chillers which are cooled by gravity-fed canal water, greatly increasing the efficiency of the system and eliminating the need for a cooling tower and condenser side pumps. These investments will reduce the plant’s average peak demand for electricity by 1,400 kW in the cooling season and an additional 300 kW in the heating season.

24E C O n O M I C P E R F O R M A n C E

Horizon assisted in the transportation of six beer vats from the port of Hamilton to their destinations near Toronto’s Pearson airport. Transporting them required brief disruption in traffic and utility services to ensure safe passage of the equipment as well as the safety of the transportation team and the public.


Contributing to the Sustainability of Our Communities

Horizon Holdings Inc.’s principal affiliate, Horizon Utilities Corporation, continues to be a leader among Ontario electricity distribution utilities in terms of economic performance, customer service, reliability, reasonable rates, and supporting conservation and demand management. All of this contributes to a healthy and sustainable economic climate in the communities we serve.

Horizon Energy Solutions Inc. (HESI) continues to grow in the emerging renewable energy sector and conservation and demand management business. It is building a track record and reputation as a leader, delivering reliable excellence in customer service. HESI has a clear stake in the future. Our services are all about sustainability.

We power our communities with the best possible recipe for economic sustainability.

Reasonably low operating costs contribute to our financial performance, and in turn, we deliver economic value to our customers, employees and shareholders. by seeking to be as efficient as possible in our operations, we are able to deliver reasonable rates to our customers while earning a fair return for our shareholders. The end result is sound employment for staff and the enhanced economic health of our communities. For us, this is putting sustainability into action.

Horizon Holdings’ net income was $17.8 million compared to $12.7 million in 2010 resulting in a 40 per cent increase. The increase in net income was largely

Economic Performance


COnTROllABlE COSTS AnD REVEnuE PER CuSTOMER COMPARISOn

0%

2%

4%

6%

8%

10%

7.24%

8.55%

6.84%5.83%

Return on Equity ComparisonHorizon Utilities and all LDCs - Averages of 2008-2010

Horizon Utilities

10 LargestLDCs Avg.

Golden Horshoe

LDCs Avg.

OntarioLDCs Avg.

RETuRn On EquITY COMPARISOn

$0

$100

$200

$300

$400

$500

$168

$383

$195

$497

$227

$498

$253

$473

Operations, Maintenance & Administration/CustomerDistribution Revenue/Customer

Controllable Costs & Revenue per Customer ComparisonHorizon Utilities and all LDCs - Averages of 2008-2010

Horizon Utilities

10 LargestLDCs Avg.

Golden Horshoe

LDCs Avg.

OntarioLDCs Avg.

HORIzOn uTIlITIES AnD All lDCs AVERAGES OF 2008-2010

26E C O n O M I C P E R F O R M A n C EE C O n O M I C P E R F O R M A n C E


attributable to non-recurring events such as recoveries of past regulated costs and the disposition of the HESI water heater business. Additionally, Horizon Utilities rates increased to address requirements to renew its aging electricity distribution infrastructure and wage and price inflation. The credit rating of Horizon Holdings was confirmed by Standard & Poor’s at “A stable”.

Low Costs and Revenue with High Shareholder Return — Horizon Utilities

Horizon Performs Well Horizon Utilities significantly outperformed the utility industry in Ontario in many important economic measures. Horizon Utilities proves that you can benefit customers and shareholders simultaneously.

We have among the lowest controllable costs and revenue requirement per customer across the sector. Moreover, we do so while also earning a strong net income per customer and realizing one of the highest average returns on equity in the sector.

This demonstration of our sustainability in action is illustrated in the table on page 25, showing both controllable costs and revenue per customer. The data is based on the Ontario Energy board’s (OEb) Yearbook of Distributors — examined across an average of three years to ensure exceptions to performance (good or bad) are out.

ComparisonsHorizon’s average controllable cost (operations, maintenance and administration expenses) of $168 per customer per year across 2008 to 2010 (see graph below) is one of the lowest in Ontario, and fully 34 per cent less than the Ontario average of $253. It is also better than the $195 per customer for the 10 largest utilities, which have an average size of 226,000 customers. In addition, it compares favourably to the $227 per customer of the 26 distributors in the Golden Horseshoe, which have an average size of 83,000 customers. The average size of all 78 distributors is 46,500 customers and median size is 15,000 customers.

$0

$100

$200

$300

$400

$500

$600

$700

$800

Horizon Utilities All LDCs

Controllable Costs per Customer Comparison

Horizon Utilities and all LDCs - Averages of 2008-2010

$0

$50

$100

$150

$200

$250

$300

$168$195

$227$253



Horizon Utilities

10 LargestLDCs Avg.

Golden Horshoe

LDCs Avg.

OntarioLDCs Avg.

COnTROllABlE COSTS PER CuSTOMER COMPARISOn HORIzOn uTIlITIES AnD All lDCs AVERAGES 2008-2010

Source Data pp. 25-26: Ontario Energy Board (OEB) Yearbook of Electricity Distributors 2008, 2009 and 2010 (2011 not yet published). nB: Data for Horizon utilities, rather than Horizon Holdings, is used here because only lDCs are in the OEB Yearbook. Averages are simple averages. Data excludes Hydro One networks because of the character of its service territory compared to other distributors. OM&A means operations, maintenance and administration.

$0

$100

$200

$300

$400

$500

$600

$700

$800




“Horizon Holdings Inc. delivered strong financial results in 2011. We continued with important investments in the communities we serve in support of sustainable and reliable electricity distribution service delivery. The well-being and sustainability of our communities are paramount to us. We are committed to balancing costs in support of service delivery with reasonable customer rates, because we know this contributes directly to the sustainability of our communities through the cost of living and the cost of doing business.”

John G. Basilio Senior Vice President and CFO Horizon Holdings Inc.


This superior cost control has an important benefit for our customers when it comes to our need for revenue from customers. Horizon operates with an average of $383 of revenue per customer, a key comparative indicator of rates charged by each utility. When viewed against the same three comparators groups, Horizon is actually 23 per cent lower than the revenue per customer average of $497 for the 10 largest utilities and the $498 of the Golden Horseshoe average, and 19 per cent below the $473 of revenue per customer in the Ontario average.

Our shareholder return for 2011 was respectable against the three comparator groups over the 2008-2010 period (the 2011 OEb Yearbook will appear in the third quarter of 2012). Horizon’s three-year return on equity average of 7.24 per cent compares favourably with the industry average of 5.83 per cent and the Golden Horseshoe average of 6.84 per cent, although below the 8.55 per cent of the 10 largest lDCs (see graph page 25).

Our financial performance management systems, coupled with our economies of scale, provide us with the necessary tools to achieve fair and competitive shareholder return on equity for Horizon. We do so while charging less than most other lDCs and maintaining investment levels that ensure a safe, reliable electrical system.

Successful Cost of Service Regulatory Application — Horizon Utilities

The setting of rates in the energy sector provides stakeholders with an opportunity to influence the direction of local distribution companies.

Horizon’s costs, revenue and profits are regulated by the OEb. This quasi-judicial provincial government agency regulates and licenses the entire electricity industry in Ontario, including approving specific customer class rates and rates of return for all distributors. In 2011, Horizon was one of the first lDCs to complete its second cost of service application under the OEb’s third-generation Incentive Rate Making (IRM) process.


2011 Electricity Revenue FOR HORIzOn HOlDInGS

61.9%

29.5%

5.9%2.7%

2011 Capital Expenditures HORIzOn HOlDInGS (in millions)

$5.7

$0.8

$33.7 Distribution System Other Smart Meters

Residential Commercial large User Other



This rate application and approval process is an extremely rigorous and resource consuming exercise for electricity distributors such as Horizon. We provided close to 2,000 pages of written evidence and underwent 32 hours of oral examination before a panel of OEb commissioners. In this process, we responded, orally and in writing, to in-depth review and cross-examination by the OEb’s staff and various customer stakeholder representatives.

Stakeholders are a key part of this process. Our 2011 cost of service application was scrutinized by the Association of Major Power Consumers in Ontario, Consumers Council of Canada, Energy Probe, School Energy Coalition and the Vulnerable Energy Consumers Coalition. In response to the whole process, we adjusted aspects of our financial plans and rate application.

At the end of this lengthy process, we were able to continue to maintain reasonable rates for our customers while receiving sufficient revenues to provide for the maintenance and renewal of our infrastructure and investments in skilled labour and customer-focused technology.

Horizon an early IFRS adopter

The Horizon family of companies has successfully transitioned to new International Financial Reporting Standards (IFRS) in 2011 — a full year before the changes become mandatory for rate regulated entities in Ontario.

The Canadian Accounting Standards board (AcSb) directed publicly accountable companies, such as Horizon, to adopt IFRS in place of Canadian Generally Accepted Accounting Principles (GAAP), for interim and annual financial reporting. The first-time adoption of IFRS initially had a mandatory implementation date of January 1, 2011.

The AcSb, however, revised the requirement in 2010 to provide for an optional one-year deferral of the implementation date to January 1, 2012. Horizon implemented IFRS effective January 1, 2012, and is providing comparative financial statements under IFRS for 2011.

2 0 1 1 l O w A n D B A l A n C E D C u S T O M E R R A T E S

$0

$10

$20

$30

$40

$50


Residential Customers

1,000 kWh/MONTHResidential Customers

1,000 kwh/MOnTH

$0

$10

$20

$30

$40

$50



1,000 kWh/MONTH

$0

$50

$100

$150

$200

$250

$300

$350


Small Business13,000 kWh/MONTH

Small Business 13,000 kwh/MOnTH

$0

$10

$20

$30

$40

$50



1,000 kWh/MONTH

nB: These four graphs represent typical customers — one residential and three commercial — of varying size and the rates displayed here are the OEB’s approved distribution only rates for all Ontario distributors in 2011.

“We consider Horizon Utilities a vital partner in the delivery of our five-year strategic plan and our annual work plans. Its contributions to our business Attraction and Expansion initiatives, the Golden Horseshoe Strategic Energy Alliance, and increasing the sustainability of local industry through its low rates are major factors in Hamilton’s economic resurgence.”

Neil Everson, DirectorEconomic Development City of Hamilton



With all this behind us, we continue to evaluate the impacts of IFRS requirements on all of our business activities.

Low and Balanced Customer Rates — Horizon Utilities

Horizon is proud to be a sector leader on customer rates. When setting out to establish rates for our customers, we strive both to maintain low rates and to ensure that our rates among different classes of customers reflect the specific costs for serving each class of customers. (See graphs on pages 28 and 29).

While Ontarians may know that electricity rates are set by the Ontario Energy board, most would be surprised to learn that rates vary widely from one local distribution company to another.

For a typical residential customer using 1,000 kilowatt-hours of consumption per month, the distribution charge varies widely by utility. In 2011, most were in the $25-$35 range, with a few exceptions. Horizon is near the middle of the pack at $31. The relatively wide range is due both to cost management and, within the constraints of rate regulation, some flexibility in the manner in which distributors allocate their costs to different rate classes.

On the latter point, the phenomenon is seen more clearly for the case of a typical small commercial customer, such as a large corner store consuming 13,000 kilowatt-hours per month. The majority of utilities across Ontario charged between $150 and $250 for distribution in 2011. At Horizon, the customer paid $152, among the lowest in Ontario.

For a light manufacturing-sized commercial customer, such as a warehouse, small manufacturer or even a municipal arena, where a typical customer might use 350 kilowatts of demand, the majority of local distribution companies charge between $1,000 and $1,700 (with some outliers at both ends). At Horizon, the same customer paid closer to the lower end at $1,013.

Similarly, a typical large commercial customer, such as an industrial user requiring 3,500 kilowatts of capacity, would see rates varying from $5,000 to $15,000 per month for the distribution charge, but just $7,467 for Horizon customers.

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000


Light Manufacturing350 KW, 40,000 kWh/MONTH

light Manufacturing 350 kw

$0

$10

$20

$30

$40

$50



1,000 kWh/MONTH

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000


Manufacturing

3,500 KW, 2,000 kWh/MONTH

Manufacturing 3,500 kw

$0

$10

$20

$30

$40

$50



1,000 kWh/MONTH

“Horizon Utilities has been an integral partner in St. Catharines’ economic development initiatives, integrated business retention and investment attraction support. As the cost of energy continues to be a major factor in business location decisions, it is essential to have a strong relationship with the innovative Horizon team. Any inquiry we have is always dealt with in a timely and professional manner.”

David Oakes, Director Economic Development & Tourism Services, City of St. Catharines

30


E C O n O M I C P E R F O R M A n C E

Cost management practices explain only part of the differences in rates. As regulation evolves in this area to address the relation of the rates for customer classes to costs for serving the classes, the upper range of commercial rates could be expected to decrease for lDCs. Residential customers of lDCs who had their rates kept low through higher commercial rates could be expected to pay more in many utilities.

Horizon Utilities delivers strong direct economic value to our communities

In order to measure our general financial impact on our communities, Horizon uses the key Global Reporting Initiative™ (GRI) metric of “direct economic value”. This GRI metric calculates the value generated and distributed by Horizon, including: revenues, operating costs, employee compensation, donations, other community investments, retained earnings and payments to capital providers and government. In 2011, Horizon generated a combined $107.5 million to the economies of Hamilton and St. Catharines, and the province generally.

Horizon performs very well in Ontario’s utility sector in terms of comparative direct economic value. Horizon effectively manages the business, and operates with lower costs and revenues on a per customer basis when compared to the average of the province’s 78 lDCs, including its 10 largest.

Horizon spent $48.2 million on operations, maintenance and administration, largely made up of wages and maintenance projects. These funds flowed straight back into our communities. We also invested another $40.2 million in new capital projects, of which $8.2 million was used to procure materials and services in our region.

The conservation and demand management incentives we paid to our customers totalled more than $4.3 million in 2011. As a tax-paying corporation, we made $6.9 million in payments in lieu of taxes (PIls) in 2011.

We contributed a combined $123,000 to the community United Way agencies in St. Catharines and Hamilton to support the OPA’s low-income Energy Assistance Program. In addition, the Horizon Employees’ Charity Fund and the corporation contributed $91,000 to local charities in Hamilton and St. Catharines.

Our economic performance is determined by how well we manage our regulated operations for Horizon Utilities and our ability to compete in unregulated business opportunities through HESI. While Horizon Utilities presently contributes substantially, all of the profits and cash flows of Horizon Holdings, our efforts in 2011 have set the stage for growing the contribution of Horizon Energy Solutions in the coming years.

2011 Direct Economic ValueGEnERATED BY HORIzOn HOlDInGS

Operating Expenditures $48,213,000

Capital Expenditures $40,184,000

Dividends to Shareholders $7,625,000

Payments in lieu of Taxes (PIls) $6,956,000

Energy Incentives and Rebates (OPA funded) $4,338,000

Charitable Contributions (Employees and Corporate)

$214,000

Economic benefit $107,530,000

Source: Horizon Holdings’ Global Reporting Initiative™ 2011 Filing. nB: The dividend payments shown here differs from that in the Board Chair and CEO Message on page 4. The figure of $7.6 million represents the actual dividend payments distributed on an accounting basis in 2011 and $10.7 million reflects the dividend payments distributed based on financial performance for 2011, part of which was paid in 2012.

The figure of $214,000 for Charitable Contributions represents the total combined employee and corporate contributions. They consist of $123,000 for lEAP, $70,000 corporate and Employee Charity Fund, and an additional $21,000 corporate.

2010 Comparative Direct Economic Value

Horizon Utilities (Not Holdings)

Horizon Utilities /Customer

Ten Largest LDCs

Ten Largest LDCs Avg. / Customer

All 78 LDCs Average

All 78 LDCs Avg./ Customer

Revenues $89,674,713 $382 $130,819,485 $564 $25,148,407 $540

Operating Expenditures $38,742,399 $165 $51,155,501 $221 $10,572,934 $227

Capital Expenditures $38,802,211 $165 $82,212,340 $354 $14,451,867 $310

Payments in lieu (PIls) $5,717,506 $24 $6,540,979 $28 $1,293,156 $28

nB: Data generated by Distribution utilities only. See full GRI filing for additional details. Source: Ontario Energy Board (OEB). lDC — An lDC is a local distribution company. lDCs are compared here because only their data is published by the OEB. 2010 data is used because 2011 is not yet published. Averages are simple averages. Hydro One networks is excluded because its service territory differs so greatly from other lDCs. Charity contributions are not included because they are not published by the OEB.

31


E C O n O M I C P E R F O R M A n C EE C O n O M I C P E R F O R M A n C E

F I V E - Y E A R C O n S O l I D A T E D S u M M A R Y ( in thousands)

As at December 31, 2011 2011 2010 2009 2008 2007

STATEMENT OF INCOME

Electricity distribution service charges $ 99,749 $ 91,217 $ 88,583 $ 88,335 $ 84,797

Other income from operations 11,490 10,517 10,369 10,090 9,792

111,239 101,734 98,952 98,425 94,589

Operating expenses 48,357 46,762 44,855 43,997 41,687

Depreciation and amortization 28,374 26,978 25,012 23,481 21,174

76,731 73,740 69,867 67,478 62,861

Income from operating activities

34,508 27,994 29,085 30,947 31,728

loss (gain) on sale of assets (82) 99 92 45 384

net interest (expense) income (10,932) (9,639) (9,185) (9,246) (8,942)

Payments in lieu of income taxes (6,777) (5,771) (6,471) (6,641) (8,425)

Income from discontinued operations 1,088 25 - - -

Net income $ 17,805 $ 12,708 $ 13,521 $ 15,105 $ 14,745

BALANCE SHEET

Assets

Current assets 110,630 $ 106,710 $ 97,872 $ 100,571 $ 104,061

Capital assets 378,263 367,056 355,521 336,430 314,723

$ 488,893 $ 473,766 $ 453,393 $ 437,001 $ 418,784

Liabilities and shareholders’ equity

Current liabilities $ 213,142 $ 90,708 $ 114,015 $ 96,739 $ 95,316

long-term debt 39,592 155,554 116,000 116,000 116,000

Other long-term liabilities 43,697 45,109 45,578 44,923 38,465

Shareholders’ equity 192,462 182,395 177,800 179,339 169,003

$ 488,893 $ 473,766 $ 453,393 $ 437,001 $ 418,784

STATEMENT OF CASH FLOWS

Cash provided by operating activities $ 41,603 $ 43,730 $ 27,715 $ 39,852 $ 41,306

Cash used in the purchase of capital assets (40,184) (39,193) (44,775) (42,045) (39,253)

Cash provided by other investing activities 1,806 144 142 45 432

Cash provided by long-term borrowings - 39,554 - - -

Cash used in financing activities (3,477) (10,556) (11,404) (7,903) (7,695)

net (decrease) increase in cash and cash equivalents $ (252) $ 33,679 $ (28,322) $ (10,051) $ (5,210)

32

Doing business sustainably is essential to Horizon’s success as a provider of electricity and innovative energy solutions to the communities we serve. We are committed to delivering value to our shareholders by providing our customers with safe, reliable and efficient electricity and innovative energy solutions. This policy sets forth Horizon’s commitment to protecting the health, safety, environment and well-being of our employees and contractors, the customers of our products and services, and the communities in which we operate.

Safety

The safety of our employees, contractors, customers and the public is paramount. We will continually strive to meet and exceed all legal safety requirements. We will not undertake any activity without proper safety procedures and equipment being in place.

Environmental Responsibility

We will work to minimize our impact on the environment and seek to continually improve our environmental performance. We will work to reduce waste, emissions of greenhouse gases and other air pollutants, and undertake to manage hazardous materials in a manner that meets or exceeds all government requirements. We will work with stakeholders to resolve land use conflicts in ways that protect the environment.

Economic PerformanceOur success depends on the success of our customers and communities. We will return dividends to our shareholders that are consistent with ensuring sufficient investment for the provision of ongoing innovative and cost-effective energy products and services at competitive rates to our customers in the communities we serve.

Doing Business Ethically

We will meet or exceed all applicable laws and regulations relevant to our areas of business activity in the jurisdictions in which we operate. We will continue to implement and maintain ethical business practices and sound systems of corporate governance. We will not tolerate harassment or discrimination in any of our relationships, whether with employees, contractors, customers or other stakeholders.

Our Employees

Our employees are Horizon’s ambassadors to our customers and the communities we serve. We will provide employees with development opportunities in a safe, healthy and satisfying working environment. We will encourage the participation of employees in the continual improvement of our health, safety, environmental and social performance, and in the development of new and innovative energy products and services to our customers.

Managing Risk

We will meet or exceed all health, safety, and environmental regulatory requirements. We will evaluate the economic, social and environmental risks of our business and take precautionary actions to address them. We will incorporate health, safety, environmental and social considerations into our business decisions.

Our Communities

Our activities reach far and wide into the communities that we serve. The supply of energy products and services represents a major contribution to the health and well-being of our customers and their communities. We will actively participate in the social, economic and institutional development of the communities in which we operate. We will engage our stakeholders through open and transparent consultation and verifiable public reporting of our sustainability performance.

Sustainability Policy

S u S T A I n A B I l I T Y P O l I C Y


33

Horizon Holdings Inc. is incorporated under the Ontario business Corporations Act and, throughout 2011, was subject to a Shareholder Agreement with Hamilton Utilities Corporation and St. Catharines Hydro Inc., its two shareholders.

The Shareholder Agreement requires that the board of Directors observe the standards of corporate governance which apply to publicly traded corporations to the extent this is practical. Although it is not a public corporation, Horizon Holdings Inc. recognizes the role of good governance in a successful business enterprise and provides voluntary disclosure on its corporate governance practices.

Horizon Holdings Inc. owns all the shares in each of the two subsidiaries through which it operates, namely Horizon Utilities Corporation and Horizon Energy Solutions Inc.

At present, accountability and responsibility for Committee oversight in Horizon Holdings Inc. and Horizon Energy Solutions Inc. are the responsibility of the full board of Directors of the respective companies. Horizon Utilities, for its part, has three board Committees in addition to its board of Directors.

Responsibilities of the Board of DirectorsThe Canadian Securities Administrators (CSA) has published comprehensive guidelines for effective corporate governance. The guidelines cover a broad spectrum of good governance practices and elaborate specifically on a number of major areas where boards should explicitly assume stewardship:

• Development of corporate governance principles and guidelines

• The integrity of senior management and staff throughout the organization

• Strategic planning process and approval of a strategic plan

• Risk assessment

• Integrity of internal controls and management information systems

• Succession planning and management performance

• Employee and public safety

• Communications policy

The boards of Directors of Horizon Holdings Inc. and of Horizon Energy Solutions Inc. have assumed stewardship with respect to the areas identified by the CSA and fulfill such

stewardship responsibilities directly. These two boards have established written mandates for themselves and each has adopted a comprehensive statement of Governance Guidelines. The boards have also developed roles and responsibilities for the Chair of the board and the Chief Executive Officer of each corporation.

The board of Directors of Horizon Utilities Corporation has also assumed stewardship with respect to the areas identified by the CSA and fulfills such stewardship responsibilities directly and with supporting oversight by its Committees. In addition to having established written mandates for itself and each of its Committees, the board has adopted a comprehensive statement of Governance Guidelines. The board has also developed roles and responsibilities for the Chair, and for each Committee Chair and the Chief Executive Officer.

The CSA also provides guidelines with respect to the composition of the board of Directors, including that the majority of Directors should be independent. The boards of Directors of Horizon Holdings Inc. and Horizon Energy Solutions each consist of five directors, all of whom are presently independent as defined by the CSA. The board of Directors of Horizon Utilities Corporation consists of 10 directors, all of whom are also presently independent. The Chair of the board is an independent Director, as are the Chairs of all Horizon Utilities’ board Committees. The independent members of each board meet without management in attendance for part of each board meeting.

board composition also meets the requirements of the Ontario Energy board’s Affiliate Relationships Code (ARC). This code regulates the contractual arrangements between related parties and requires that at least one-third of a regulated distribution company’s Directors are independent from its non-regulated affiliates.

All new Directors of Horizon Holdings Inc. and its two subsidiaries receive a comprehensive orientation with respect to the role of the board, the business of the Corporation, and the legislative and regulatory environment affecting the electricity sector. All three boards have adopted a Code of business Conduct, including a Conflict of Interest Policy. The boards undertake an annual assessment of the board and, in the case of Horizon Utilities Corporation, each Committee.

Annually, each of the companies’ boards request and receive an independence letter from its Auditors. by letters dated February 23, 2012, kPMG llP has confirmed that they are objective with respect to each of the Corporations within the meaning of the Rules of Professional Conduct of the Institute of Chartered Accountants of Ontario.

The Strategic and Financial Plans for the Corporations are approved and monitored directly by their respective board of Directors.

Horizon Utilities Corporation Board CommitteesThere are three Committees of the board with respective oversight mandates as follows:

• Audit and Risk Management Committee: risk management, internal control, financial information and annual audit, as well as the information systems activities of Horizon Utilities Corporation.

• Human Resources and Corporate Governance Committee: succession planning, management objective setting and performance, compensation, communications and safety activities of the Corporation. This Committee also covers all governance issues.

• nominating Committee: constituted as required for the evaluation of board composition and nomination to Shareholders of prospective Directors of the board, as may be required.

Mandate of ManagementThe board approves the mandate of the Chief Executive Officer and annual corporate objectives consistent with the recommendations of the CSA.

The permitted business activities of the Corporation are outlined in its Shareholder Agreement. The mandate of the Chief Executive Officer and annual corporate objectives are consistent with the Shareholder Agreement. The authority limits of the Chief Executive Officer, as delegated by the board, have been formally documented and executed by the board.

In addition, the board of Directors annually reviews the Chief Executive Officer’s objectives, evaluates the Chief Executive Officer’s performance, makes recommendations on the appointment of executive management and monitors the succession planning process.

Corporate Governance

C O R P O R A T E G O V E R n A n C E


34

Horizon Holdings Inc.

Horizon Holdings Inc. is an investment holding company owned 78.9 per cent by Hamilton Utilities Corporation and 21.1 per cent by St. Catharines Hydro Inc. Horizon Holdings Inc. owns 100 per cent of the common equity of Horizon Utilities Corporation and Horizon Energy Solutions Inc.

Board of DirectorsRobert Dolan, board ChairPaul bensonRobert CaryEdward MinichMargaret T. nelligan

Management and OfficersMax Cananzi, President & CEOJohn G. basilio, Senior Vice President & Chief Financial Officerneil Freeman, Vice President, business Development & Corporate RelationsSarah Hughes, Vice President, FinanceMarjorie Richards, Vice President, Corporate Services*

Horizon Utilities Corporation

Horizon Utilities Corporation is a regulated local electricity distribution company serving more than 237,000 residential and business customers in Hamilton and St. Catharines, Ontario. Horizon’s 400 employees are committed to delivering a safe and reliable supply of electricity, providing unparalleled customer value, and helping create a culture of energy conservation in Ontario.

Board of DirectorsRobert Dolan, board ChairAlexander AdamPaul bensonJohn bergsmaRobert Cary, Chair, HR/Governance CommitteePatrick CrowleyDouglas J. HarrisonEdward Minich, Chair, Audit and Risk Management CommitteeMargaret T. nelliganJoan Weppler

Management and OfficersMax Cananzi, President & CEOJohn G. basilio, Senior Vice President & Chief Financial OfficerIndy butany-DeSouza, Vice President, Regulatory and Government AffairsEileen Campbell, Vice President, Customer ServicesSarah Hughes, Vice President, Financekathy lerette, Vice President, Utility OperationsMarjorie Richards, Vice President, Corporate Services*brenda Schacht, Vice President, Human Resources**

Horizon Energy Solutions Inc.

Horizon Energy Solutions Inc. is a local energy company dedicated to providing commercial and residential customers with easy, turnkey green energy solutions that generate benefits for the customer and the environment.

Board of DirectorsRobert Dolan, board ChairPaul bensonRobert CaryEdward MinichMargaret T. nelligan

Management and OfficersMax Cananzi, President & CEOJohn G. basilio, Senior Vice President & Chief Financial OfficerSarah Hughes, Vice President, FinanceScott knapman, Vice PresidentMarjorie Richards, Vice President, Corporate Services*

® The registered trademarks Horizon Utilities Corporation, Horizon Energy Solutions Inc. and Horizon Holdings Inc. are owned by Horizon Holdings Inc.Global Reporting Initiative™ and all related Global Reporting Initiative materials are trademarks of the Global Reporting Initiative.peaksaver® is a registered trademark of Toronto Hydro Corporation. Used under license.saveOnenergyOM, FRIDGE AnD FREEzER PICkUPOM AnD RETROFITOM are official marks of the Ontario Power Authority and are used under license.*until October 10, 2011 **as of november 10, 2011

The Horizon Family of Companies


T H E H O R I z O n F A M I l Y O F C O M P A n I E S

table of contents - horizon utilities corporation · enhancing our workplace experience and health...

Documents