‘Smart Grids’ and ‘Smart Growth’: Contributing Sustainable ......Slide 2: GEA in a “Hot,...

‘Smart Grids’ and ‘Smart Growth’: Contributing Sustainable Energy Solutions to

Advance Sustainable Communities

The Future of LDCs: From Wires Companies to Local Energy Companies

An address to the: 8th Annual Ontario Power Summit

May 25, 2009

[Check Against Delivery]

By: Max Cananzi

President and CEO Horizon Utilities Corporation

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Slide 1: Title Slide

Thanks very much Anthony [Anthony Haines, President, Toronto Hydro Electric Services] and good morning everyone. This morning’s session is exploring the transformation of local distribution companies into local energy companies, which to a large extent can be summed up into two words: “smart grid.” Indeed, many LDCs – Horizon included – are playing a significant role in the transformation of Ontario’s existing system into a smart grid across the province. My presentation will focus on the role that the future utility needs to play in being a true community partner with an important public policy role: to promote sustainable energy, in an integrated manner, within a broader sustainable community plan. The utility industry has been focused on smart grids. Municipalities have been focused on smart growth. My presentation this morning is about bridging the divide between smart grids and smart growth to create a sustainable energy future for our communities, and our province.


Slide 2: GEA in a “Hot, Flat and Crowded” World As all of you are aware, Ontario has just passed the Green Energy and Economy Act – a substantive piece of legislation that will transform much of Ontario’s energy sector. The Green Energy Act is part of the solution to the hot, flat and crowded world that we live in.

At Horizon, we believe that this new direction in public policy provides an opportunity to unlock the underutilized potential of our sector in fulfilling the aspiration of our communities for sustainable solutions — ones that “meet the needs of the present without compromising the ability of future generations to meet their own needs.” This is very much in keeping with Thomas L. Friedman’s new book “Hot, Flat, and Crowded.” Let me just read one quote that is fitting for Ontario – “… I am convinced that the ability to develop clean power and energy-efficient technologies is going to become the defining measure of a country’s economic standing, environmental health, energy security, and national security over the next fifty years. The ability to design, build, and export green technologies for producing clean electrons, clean water, clean air, and healthy and abundant food is going to be the currency of power in the Energy-Climate Era – not the only one, but right up there with computers, microchips, [and] information technologies ….”


But smart grids are only part of the answer. Slide 3: Smart Grids As innovative as smart grid technology is becoming – and as this diagram demonstrates – smart grid implementation relies more on our ability to conquer the divide between energy policy decisions… and municipal planning and development policy decisions.

The energy sector in many ways is a world on to its own. We have our own regulations, standards, practices, and our very own regulator. But there is another world out there – what many of us call the “real world”. This is the world where people live – our communities, schools, businesses, etc. To a great degree, while these worlds are linked (one feeds the other), policy and planning decisions are very different…and very separate. In too many ways, the energy world and the real world are two solitudes…with two big challenges: … growth in our communities and … grids that meet our energy needs. For some, inserting the word “smart” provides some comfort in addressing our challenges, and concerns. “Everything will be ok - After all, it is smart?” Isn’t it?


Certainly, there are huge technological advances that we are making to convert to a smart grid; and similarly, we’re making great progress on how we plan our built form. But for many, smart grids and smart growth are still just buzz words. What is it that is really “smart” about them? I believe that smart grids and smart growth are only “smart” to the extent that we combine these two solitudes – these two policy-making worlds – into one. That’s what truly makes them smart … and it is central to our building a more sustainable future. The GEA takes great strides to do this, but it means a complete and total rethink on the way in which our energy world integrates with the real world. The OEB – Ontario’s electricity sector regulator – is an economic regulator, but now must expand its horizon to include a much bigger and broader smart grid mandate. As for LDCs, while many are owned by municipalities, there is no deep connection to municipal and provincial planning processes. This needs to change and change quickly as we initiate our investments in rebuilding our grids. Slide 4: EDA’s ‘Visioning’ Exercise


The EDA is heading us in the right direction -- its 2008 Visioning Paper states “LDCs are ready to lead the electricity distribution sector in Ontario to a future that provides flexibility and value to customers, through a modern and efficient grid, and within environmentally sustainable communities.” The EDA leaves no doubt that LDCs will play a key role in the future ‘green’ society of Ontario. LDCs have always played a vital role in community development and general well-being through the safe and reliable distribution of electricity. The Green Energy Act now provides us with more opportunities and ways through which we can contribute to the success of our communities. The EDA has clearly set out the right vision: it’s clear, it’s bold, and it recognizes the important role that LDCs can and should play. But as an LDC community, we are still talking about grids and gadgets…and not enough about the communities we serve … and are growing. The GEA is real and it’s here and it gives us the tools to finish the job…but there is more that we need to do to integrate our energy world into the real one where people live…and where growth is planned. Slide 5: Smart Growth and Provincial Policy Statement


So what is “smart growth”? It’s urban planning and transportation planning that concentrates growth in the centre of a city to avoid urban sprawl. This growth advocates compact, transit-oriented, pedestrian friendly land use. In establishing “smart growth” reports in the early part of this decade, Ontario has taken steps towards creating economically efficient and more livable communities. Following on the heels of this initiative, the government revised its “Provincial Policy Statement”, which is the document that sets the policy framework for municipal planning. All municipal plans must be in conformity with this policy direction. So today, we have an updated approach to planning that provides policy direction to decision makers on matters of provincial interest related to land use planning and development. Slide 6: Ontario’s Greenbelt Plan The policy statement’s direction has actually been assisted by the creation of Ontario’s Green Belt. It has served to force “smart growth” by forcing our growing communities to look inward to redevelop brownfields because greenfields are becoming limited, and many are now off limits.


Slide 7: Ontario’s “places to grow” growth plan All of this has set the stage for “Places to Grow” – the Ontario government's program to manage growth and development in a way that supports economic prosperity, protects the environment and helps communities achieve a high quality of life. Places to Grow puts smart growth principles into action by providing clear instruction for municipalities as they develop their Official Plans.

The purple regions on this map are areas that have been designated for growth; the green regions represent the greenbelt and areas that are protected; the yellow circles are urban growth centres – areas of major provincial interest that serve as hubs for transportation and intensification. All of these plans and planning documents represent Ontario’s efforts to plan for future growth that is stable and sustainable. Ontario’s Smart Growth strategy creates more opportunities for renewal in urban municipalities. Urban redevelopment and intensification is a focus of this strategy, which leads to a whole host of opportunities and responsibilities for LDCs. For us in the LDC sector, this is a big opportunity – but it means that we need to step up to the plate. LDCs that continue to rely heavily on customer base growth driven by ‘sprawl’


development and do not seize the opportunities that are being presented (and mandated) are going to face significant challenges in the future - financial or otherwise. Slide 8: Urban Redevelopment and Intensification So let’s look at some possible examples of urban redevelopment and intensification, including brownfields.

The pictures above and below are demonstrative of what we can do to our urban environment when we seize the opportunities that Ontario’s smart growth policy framework provides us. They’re high-level ideas, but typical of many areas in the communities we serve in the Greater Golden Horseshoe. Under the Growth Plan, most municipalities have been given designated urban growth centres – mostly the downtowns of large and mid-size cities. Growth plans require municipalities to create intensification targets for growth, but a minimum of 200 persons or jobs per hectare in the built boundary. As for greenfields (undeveloped areas within the settlement boundary), development must achieve a strict minimum density of 50 jobs and residents per hectare. It is that specific. The province wants urban growth centres that are vibrant, mixed-use regional centres that can accommodate a significant share of population and employment growth. The province sees


urban redevelopment and intensification being achieved by brownfield redevelopment, infill development, conversion of existing buildings and intensification of uses in existing buildings. As for brownfields specifically, they are the derelict or under-used industrial and commercial lands where expansion or redevelopment is complicated by real or perceived environmental contamination. Their advantage is that they have infrastructure in place and can take the pressure off greenfields. Without integrated energy plans at the local level, we may miss innovative energy solutions. LDCs have been given an opportunity that doesn’t come very often. The need for infrastructure renewal, the emphasis on smart growth, and the Green Energy Act are demanding a response from the LDC community. In my mind this is very clear – a void exists at the community level. LDCs need to transform from simple wires businesses to local energy companies. It also means that we, as LDCs, need to see whether some of the things that we’ve been doing for fifty years or more need to change. Slide 9: Municipal Official Plans


Putting this all together, let’s look at a specific city – Hamilton – and see how this starts to play out. One of Hamilton’s key priorities is to increase employment opportunities within its urban boundary. Hamilton’s Downtown Urban Growth Centre is targeting 250 people and jobs per hectare by 2031, which is 50 above the Grow Plan general requirement. Hamilton, like other municipalities, is required to plan to achieve a minimum of 40 per cent of all residential development within the built-up area of its settlement area by 2015. On the map as you can see, the coloured areas within the dotted line is largely the settlement area, and the areas that are the focus of intensification are noted in red, blue and brown. While we do not need to cover all the plan’s details here, some of the key objectives in this case, and in other municipal plans, are all smart growth inspired. Intensification ensures land, urban services and the transportation network are used more efficiently and sufficient population is maintained to support existing community facilities. So this is where the future of the City of Hamilton is moving, and demonstrates what other municipalities are also doing. But what is the role of the LDC? … and how do we get on the right path to make the communities we serve more livable? Slide 10: Canada’s largest LEED® Platinum building Putting smart grids and smart growth into action is not as simple as one might think – there are lots of issues to consider. This building – a brownfield redevelopment called West Village Suites - is a student residential building serving McMaster University. It is also the largest LEED® Platinum (Leadership in Energy and Environmental Design) building in Canada. This particular building has several remarkable attributes that make it a model for future developments in any community: • Largest deployment of this company's solar system technology in the world for domestic hot

water -- its 60 rooftop panels are visible in the picture. • Electricity saving plan that reimburses tenants who conserve electricity • 64% of construction waste diverted from landfill • 37% of the materials used in the building are from regional sources …. but most significant for our discussion is that it uses 57% less energy than a typical residential building of its size.


I think we are all agreed that our cities and LDCs should be doing everything possible to facilitate innovative developments like this. For Horizon – my utility – there were two issues that confronted us when working to meet this customer’s needs: First, our connection policy, which would be typical of most LDCs, treated the connection as a new connection because the former building had been demolished to build this new one. As a result the building is viewed as an expansion. The developer does not benefit from there having been a previous connection to the site. This is a flaw in meeting the needs of brownfield redevelopments where the capacity has not been used by other customers in the intervening period. Second, because the developer’s objective was to minimize energy consumption, the normal metrics for sizing the electricity capacity for the building in our conditions of service were far in excess of the building’s actual needs, and would have been a significant financial penalty for the developer. Our industry’s policies have required that we treat all customers equally and blindly. Our current policies do not permit us to encourage specific brownfield redevelopments and other green objectives.


In fact, the ability of LDCs to support Economic Development in targeted growth centres is limited. That has to change. Slide 11: District Energy Recognizing that smart growth is focused on urban renewal and intensification, and that energy resources are typically constrained or at premium cost in urbanized high-density environments, it is clear district heating and cooling systems become a “no brainer” under these policy objectives.

District energy is a proven and sensible energy strategy to deliver clean or renewable energy to heat, cool, and power buildings. District energy is completely consistent with the objectives of the GEA and Smart Growth as: • it allows for more compact build; and, • it can be a base to leverage and incorporate technologies that individual building owners

would never be able to afford on their own.


Imagine a combined heat and power plan supplemented with energy storage devices supplemented with large scale solar to create a clean energy source, with diversity, flexibility of supply, and unprecedented reliability within an urban core.

District energy systems require a long-term vision and a stable financial model. Not unlike the electrification policy at the turn of the century to bring electricity to every home and business, what was needed were companies that could be counted on to develop and finance a system based on a 20, 40, 60 year planning horizon. The LDCs’ business model compliments district energy systems very well. LDCs are comfortable with long term planning horizons for assets. They also have the ability to lower the risk of the long term planning horizon through stable rate recovery methods and are resourced to distribute energy to the local community. To unlock the true potential of the GEA and Smart Growth for communities requires the full involvement of LDCs to ensure that we’re at the table, and can enable this growth - from localized generation, to increased demand response, to everything in between. Slide 12: Who’s Your City? Know Your Community


Recently Richard Florida and the Martin Prosperity Institute have been garnering much media attention. I bring up the views of Richard Florida, not because I believe he is correct on every count (especially the demise of the manufacturing economy in Ontario), but because he is directing us to understand how our communities work: what makes them tick, what makes them sick, and what can make them better places to live? One of the key points that the Martin Prosperity Institute makes is that, and I quote: “It is hard to know in advance what the complete infrastructure of the creative age is or could be. This will only evolve over time in response to crises and opportunities. One thing is for certain, however. Rising energy prices are leading to quests for lower costs on a sustainable basis. As we search for alternate forms of energy supply, we may find it advantageous to integrate more tightly our energy systems for transportation, heating, and electricity use; these are now largely independent today.” [Page 28] That’s the key point I am making today. Smart grids may solve much of our energy needs, but the wires and gadgets are just tools to finish the job. Smart growth is an ambitious objective that is mandated in legislation and policy. But if we want to be contributors to the sustainability of our communities, we need to integrate these two worlds into one. Slide 13: Sustainability Annual Report and GRI Filing


Bringing these two worlds into one is something that we have started at Horizon, by getting on the path of sustainable development and by indentifying ways we can contribute to making our communities better places to live, work and invest. In our company, we are committed to building a utility that will contribute to the sustainability of the communities we serve. This is why we have developed a sustainability policy and moved to an annual report that is sustainability based – focusing in the social, environmental and economic dimensions of our business in equal measure. We are also taking a bold step forward by making a sustainability filing with the Global Reporting Initiative. Our aim is to continuously improve our business practices and bring added value to all of Horizon’s stakeholders. This gives us a framework for internalizing core sustainable development value. We believe we may be the first LDC to do so. Ontario’s commitment to “smart growth” combined with the province’s new “smart grid” and “green” energy strategies is creating exciting opportunities for local utilities. Our board and management firmly believe we can create value from the new “green” public policy direction and how sustainability will redefine how we do business. Smart growth and smart grids are both complementary and reinforcing in that they seek to promote greater societal efficiency through renewable energy and distributed (community-based) generation, with residents also playing an active role (conservation, solar roofs, etc.). Sustainability is no longer a buzz word. For us, it’s becoming a central driver for what we do. But we do not have all the answers. The LEED® building example I gave a few minutes ago is a good example of the iterative process that we had to undertake to change some of our own internal thinking, processes and procedures and move towards more sustainable communities. Where do we go from here? At Horizon, we are setting a path to become a sector leader in sustainable development and in the pursuit of the “green” economy. We see exciting opportunities in this shared approach to sustainable community development. Our vision is progressive, financially prudent and contains a balanced mix of social, environmental and economic goals for our businesses.

* * * Let me close with a few final thoughts this morning. LDCs have an important role to play in the future of the communities that we serve. For too many years, we have lived in a separate world, with our own planning regime and ways of doing things. Our province is renewing and rebuilding its energy system, and our communities are growing. In the energy world, smart grids are a way for us to certainly deal with the energy problems that confront us…but smart grid technology is not a magic wand that is going to solve the key challenges we really face… Smart grids are tools – important enabling tools – but they need to be integrated in the smart growth planning of the communities that we are serving.


Similarly, smart growth is only smart to the extent that it takes into account all the things that make a community sustainable. And without energy being a part of that mix, we’re not going to get very far (but we will get a lot of frustration, and delay). By combining smart grid planning with smart growth planning, we as LDCs can play an important role in contributing to the growth and sustainability of our communities. Thank you very much.

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‘Smart Grids’ and ‘Smart Growth’: Contributing Sustainable ......Slide 2: GEA in a “Hot,...

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