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ENSURING A SUSTAINABLE FUTUREA STRATEGY FOR GROWTH AT SAINT JOHN ENERGY

BACKGROUND

A PATH TO GROWTH

STRATEGIC PARTNERSHIP OPPORTUNITIES

RENEWABLE GENERATION AND STORAGE

SMART ENERGY SERVICES FOR CONSUMERS

A NEW STRUCTURE FOR A NEW ERA

MOVING FORWARD IN AN INDUSTRY IN TRANSFORMATION

APPENDIX A

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TABLE OF CONTENTS

ENSURING A SUSTAINABLE FUTURE | A STRATEGY FOR GROWTH 2019 1

North America’s electricity marketplaces are adapting to new and disruptive technologies, changing regulatory frameworks and shifting consumer expectations. Traditional distribution utilities such as Saint John Energy, providing a limited scope of services at an at-cost basis in their communities, face growing challenges with population decline and energy efficiency initiatives that are pushing down demand.

With technological change and societal expectations upending the long-standing business model for utilities, new executive leadership at Saint John Energy began in 2012 to strategically reposition the company to meet these challenges, while still maintaining the traditional services and benefits provided to our community.

We are responding to this changing landscape through innovation, sustainability in our actions and operations, and an examination of the corporate and regulatory models that will serve us into the future.

This growth strategy document outlines the various initiatives we have undertaken or plan to undertake to ensure Saint John Energy remains a robust utility focused on serving the needs of its customers and contributing to the prosperity of Saint John and New Brunswick.

BACKGROUND

SAINT JOHN ENERGY | SJENERGY.COM2

Saint John Energy believes the path to growth and sustainability relies on our ability to adapt in a rapidly changing industry. We are confident in our ability to adapt, bolstered by a strong leadership team and dedicated workforce committed to the following vision and mission:

A PATH TO GROWTH

“We provide affordable, reliable and innovative solutions to our customers, helping them make informed choices so they can take control of their energy needs.”

Our Mission

“To empower people and communities so they thrive.”

Our Vision


Our commitment to sustainable growth is aided by our record of fiscal discipline — Saint John Energy has a strong balance sheet — and our record of providing value for the customer. Our residential rates are approximately 10 per cent lower and commercial rates are approximately three per cent lower than others in New Brunswick. This model has allowed the City of Saint John to save about $2 million per year, and the public more than $7 million per year.

We pursue our growth strategy with a solid record of service — we are well ahead of the national average in reliable service, minimizing system interruptions as much as possible. Maintaining high reliability averages, and doing so safely, is a priority.

As we undertake this strategy to position ourselves for strength for the future, we

remain committed to the core business we’ve been operating since 1922. We will continue to be a dependable, customer-oriented distributor of electricity to the people and businesses of Saint John.

As we move forward to the future, we are embarking on a multi-faceted approach to innovation, pursuing or implementing initiatives across three broad categories:

• Renewable Energy Generation and Storage

• Smart Energy Services for Consumers

• Strategic Partnership Opportunities

Appendix A maps out the approach and anticipated timelines.


In pursuing initiatives in renewable energy generation and storage, we are creating new jobs, strengthening our city, region and province. We are assisting NB Power by reducing our demands for energy at peak load times, which compounds reductions in greenhouse gas (GHG) emissions brought about by shifting to renewables. We are helping to meet the increasing customer demand for renewable options and contributing towards provincial targets for renewable generation.

RENEWABLE RENEWABLE GENERATION AND GENERATION AND STORAGE STORAGE


Community Solar To broaden access to solar energy in Saint John, we are in the planning stages of a large-scale ground-mounted solar array that would allow our customers to benefit from harnessing the power of the sun.

Customers of Saint John Energy would be able to rent solar panels in the array and have the generation from those panels credited to their power bills.

Spruce Lake Industrial Park, already identified as the location for the planned wind farm and a growing hub for alternative energy projects, would be the most likely site for the solar array.

We are currently conducting a pilot project with careful collection of data from the pilot solar array. The cost of solar continues to improve, so only at such a point that the pilot shows a strong business case will the project proceed.

Utility-Scale StorageWe are examining large-scale energy storage solutions that will allow Saint John Energy to reduce peak energy costs and manage renewable sources more effectively.

We are deploying what will be the largest utility-scale battery in the Atlantic region

Local Embedded Wind Development

In a first for New Brunswick, Saint John Energy is undertaking a project with a private-sector partner to erect a wind farm within the city with an expected operational start in 2022.

Our Burchill Wind Project is in the early stages of development, but plans call for as many as 10 turbines to be built in the city’s Spruce Lake Industrial Park, away from residential areas. When operational, the wind farm will generate 20 to 40 megawatts of energy — roughly eight to 15 per cent of the total energy supply needed to power Saint John.

The wind farm, expected to cost the developer up to $60 million to build, will mark a significant achievement for Saint John Energy — a notable portion of our overall energy requirement will be coming directly from a local, renewable energy source. When the farm comes online, we will be the first municipal utility in New Brunswick to purchase embedded wind energy from a farm it helped create.

Burchill not only will allow us to reduce reliance on generation from outside Saint John and accelerate the shift to green energy but we also expect that it will generate significant savings, projected at $3 million to $8 million annually.


to capture and store electricity when at lower demand times in order to reinject the power when demand increases, curbing the need to purchase power at higher, peak-demand prices. This also benefits the environment, reducing GHG emissions created when generating electricity at peak periods.

The batteries also allow for more renewable energy sources to power the grid. Due to the intermittent and weather-dependent nature of renewable energy sources, the energy generated isn’t always captured in the most efficient way. Utility-scale storage solutions like large battery systems will help to ensure any renewable energy produced is being captured more effectively.

Essential to our renewable energy generation strategy is our Smart Energy Project. With investments of more than

$13 million, we are leveraging artificial intelligence and other technologies to modernize and advance Saint John’s electrical grid by 2022 as well as develop smart products for our customers.

Batteries and other advanced distributed energy technologies such as smart hot water tanks, smart thermostats and smart heat pumps will integrate directly with Saint John Energy’s Integrated System Management (ISM) platform under development as part of our Smart Energy Project. The platform will provide proactive management and real-time two-way monitoring and control of Saint John Energy’s electrical grid. This enables us to make smart decisions about managing peak demand as well as the integration of renewables into our system. It results in cost efficiencies and ensures a more resilient and reliable power system for residents of Saint John.


In order to take full advantage of a smart grid for Saint John and to provide our customers with the most modern and efficient service, we will develop and deliver smart energy products and services. This helps shift electricity demand away from peak, reduces GHG emissions and complements energy efficiency programs. In addition, fostering smart energy products and services propels the advancement of a regional energy sector.

SMART ENERGY SMART ENERGY SERVICES FOR SERVICES FOR CONSUMERS CONSUMERS


Heat Pumps & Hot Water Tanks

In a first in Canada, Saint John Energy began a mini-split ductless heat pump rental program in 2016. It won a Natural Resources Canada award honouring organizations that demonstrate excellence in offering Canadian consumers the most energy-efficient products and technology available on the market — marking the first time an electrical utility captured the award.

Moreover, it met untapped demand among homeowners in Saint John and beyond. In response to consumer demand, we offer the program not only to people within the city but in various areas in New Brunswick as well.

Modelled after hot water tank rental programs, this allows consumers to take advantage of the high energy efficiency offered by heat pumps but at an affordable monthly price.

Into the future, we also intend to offer for rent smart versions of water tanks, heat pumps and other products that will add a greater degree of energy efficiency while giving customers greater control.

Managed Solar

We also intend, in line with our community solar garden concept, to offer our

customers the opportunity to share in the ability to tap into solar energy as a resource to power their homes and businesses. This could include a program that allows our customers to install solar panels that they rent from Saint John Energy, saving them what would be a considerable upfront cost in purchasing the panels.

Managed EV Charging As more customers shift to electric vehicles, we are pursuing options for consumers to meet their needs for charging their vehicles. This could include rental programs for in-home charging stations.

Managed StorageSimilarly, consumers embracing renewable energy generation for their buildings will need storage options for the electricity they generate. Without storage solutions, the abundance of energy generated during sunny or windy days will be lost or exported to the grid. With options like residential-scale battery systems, that energy can be stored for later use. In the future, homeowners may gain the ability to sell that energy back into the grid when it is most needed. With managed solutions, storage options can be rented out at a rate more affordable than buying them outright.


Saint John Energy will pursue strategic partnerships with other companies and organizations to further innovation and growth opportunities. In doing so, we are spawning an entrepreneurial ecosystem around future solutions to energy needs and challenges. We are furthering solutions to reduce and shift demand, which assists NB Power, our wholesale supplier of electricity, avoid the high costs of generating electricity in times of peak demand. Moreover, these are opportunities which, in turn, will help bolster the economy by creating new jobs and prosperity for Saint John and for New Brunswick.

STRATEGIC PARTNERSHIP OPPORTUNITIES


We will work in collaboration with others to advance the necessary research and technology required for our smart grid, including partners such as the University of New Brunswick and its Energia Ventures accelerator and the New Brunswick Community College.

A smart grid will allow us to smooth out expensive peaks in power usage by relying on artificial intelligence, weather forecasts and other data to make adjustments in electrical flows. The project will also lower GHG emissions as it lessens the demand for peak power, often provided by high-emitting generation plants.

Our customers will benefit from the smart grid with a broad array of smart devices and products from hot water heaters and heat pumps to heat pump storage devices, smart thermostats, advanced batteries and home electric vehicle chargers.

We will also pursue opportunities to solve

challenges for ourselves and others by leveraging the large amounts of data available to further understand electricity use and demand, a field that will greatly expand as more smart devices and technologies come online.

A cornerstone of our strategic partnership initiatives will be a Centre for Innovation that will serve to foster the development of pioneering solutions and technology.

In order to accelerate innovation, we will create an ecosystem where individuals and companies can tackle the current and future challenges facing Saint John Energy.

Innovators will have access to our experts and our insights to help devise solutions that will help power the future. The centre will be a living lab for developing technologies, where innovators can trial and refine their discoveries and where they can collaborate with others to propel research and development forward.

In serving as an accelerator for new innovation, we will also propel forward new entrepreneurial ventures and job creation for the Saint John region and beyond. We will be an incubator for startup firms that could not only solve challenges for us but other utilities in New Brunswick, across Canada and around the world.

The centre aligns with another of our priorities: to forge Joint Ventures with other companies, startups and research centres to innovate, to make our business


more efficient and effective, and to ensure that we are on the leading edge of developing products and solutions for our customers.

We will also leverage our expertise and record of innovation to offer expanded Utility Services. Saint John Energy has a

long history of providing reliable service and management of critical assets.

We will explore expanding on that service business as leaders in field operations, engineering, asset management, control room operations and managed utility technology services.


A NEW STRUCTURE FOR A NEW ERA In most Canadian jurisdictions, the structure and business scope of municipal electric distribution sector entities was changed in the 1990s, primarily to address re-regulation of the opening of the electricity market.

Utilities in those jurisdictions now have modern business structures providing them with competitive advantages not available to Saint John Energy and the other municipally owned utilities in New Brunswick. These modernized utilities can respond to the new challenges of the industry by undertaking a variety of new businesses and by financing their existing and new ventures from a variety of sources and mechanisms.

Modernized utilities are authorized by energy regulators and energy policy to provide their municipal owners with a reasonable return on equity. Such profits allow for investments in growth opportunities and a reasonable return to the municipalities.

Equally important, it allows for the utilities to maintain their existing asset base for

strong and continued delivery of their core business.

Saint John Energy is committed to maintaining the lowest electricity rates in the province while sharing new revenue and cost savings in the form of a dividend to the city. With a new structure for Saint John Energy, the return on equity would contribute to additional growth opportunities aligned with government policy and to the municipality’s overall sustainability. Over time, this could help reduce reliance on tax revenue and the provincial unconditional grant by the City of Saint John, our owner.

With such a modernized structure, Saint John Energy would be able to flow dividends to the City forecasted at more than $17 million over the next decade.

A modernized and enhanced structure is central to our mission for growth as well as an initiative we have undertaken with the City of Saint John to refashion the traditional relationship and structure between us.


The goals of the initiative can be summarized as follows:

• Modernization/normalization of business structure of the utility.

• Unlocking the growth potential in the existing utility.

• Providing greater employment opportunities.

• Increasing choice and enhancing services to the public.

• Stabilization of electricity rates during what is expected to be a prolonged period of rate escalation.

• Increased contribution to the tax base through growth.

• Increased transparency.

With a new structure, we would be adopting a structure followed by 93 per cent of municipally owned utilities across Canada. With similar reform, we would be setting the stage for a strong and sustainable future not only for Saint John Energy but for the City of Saint John.

Legislative changes are required to achieve this, and we continue to work with the Government of New Brunswick and

Members of the Legislative Assembly in an effort to have the necessary reforms enacted.

Legislative change is also critical to Saint John Energy as it seeks to move forward with many of the initiatives described in this strategy. Indeed, without amendments to the Electricity Act and the Municipalities Act, our efforts to modernize and strengthen Saint John Energy will not be possible. We need the co-operation of our legislators in order to move forward.

Legislation as it stands today does not allow for the new corporate structure envisioned for Saint John Energy. We would not be permitted to flow dividends to the City for the betterment of our community.

It also leaves Saint John Energy caught in the current legacy structure for its operations.

While we work with government and the legislature on the necessary reforms, we will continue to find innovative ways forward to ensure the future of our utility.


MOVING FORWARD IN AN INDUSTRY IN TRANSFORMATION


Saint John Energy is not alone in responding to the changes and challenges ahead. In its report Electric Utility Innovation: Toward Vision 2050, the Canadian Electrical Association notes that utilities are being asked to provide a broad range of energy services through a data-driven, customer-centric platform capable of managing shifting demands, to provide solutions for electric vehicles, storage devices and distributed generation.

To meet the challenges of the future, we believe that the municipal electric utility of the future must prepare, and provide solutions for, energy efficiency, new technologies, cheaper small-scale renewable generation and other challenges all while coping with decreases in energy demands that the legacy part of our business have traditionally relied on.

We must maintain our legacy business for customers who need it — a service we have provided for nearly a century — but, to ensure we can do so sustainably and with strength, we must also ready ourselves for the future.


APPENDIX A

325 SIMMS STREET | SAINT JOHN, NB | E2M 3L6 | CANADA | 1(506)658-5252 | SJENERGY.COM

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