Electricity Today Magazine Article -- Annual Year in Review H to O

The past year has been one of unprecedented change in Ontario's electricity industry. Despite the complexity of the market, Hydro Ottawa Holding Inc. has navigated the challenges of this environment, fostering productivity and growth in its business while maintaining an unwavering focus on customer excellence and shareholder value. The dedication and strength of our more than 500 employees over the past 12 months has been key to our success.

Hydro Ottawa Holding Inc.'s family of companies include Hydro Ottawa Limited, Ottawa's local electricity distributor; Energy Ottawa Inc., a provider of energy services and green power generation; and Telecom Ottawa Limited, a broadband data utility.

Hydro Ottawa Limited continued to improve service and reliability to its 260,000 customers while maintaining among the lowest rates in the province. As corporate citizens in the restructured market, we adopted a navigator role, helping our customers understand the changes taking place, not only with Hydro Ottawa, but also throughout the provincial electricity market.

The year 2002 saw the official launch of our two subsidiaries: Energy Ottawa Inc. and Telecom Ottawa Limited. Both have had outstanding success and attracted international attention. The completion of renovations to Energy Ottawa's Chaudière generating stations was celebrated at an on-site ceremony attended by Canada's Minister of Natural Resources, the Honourable Herb Dhaliwal, Ottawa Mayor Bob Chiarelli and our Chair, Glen Shortliffe. These century-old power plants have been refurbished and automated, increasing their capacity by 60 per cent to 15 megawatts and displacing the equivalent of 88,000 tonnes of greenhouse gas emissions per year. As a producer of "green" power, Energy Ottawa has been awarded Environment Canada's Eco-Logo certification and was short-listed for the prestigious Global Energy Award.

Telecom Ottawa Limited, our newest subsidiary, has been expanding its reach - providing broadband data connectivity across the City of Ottawa. With over 120 km of fibre optic network connecting Ottawa's major institutions, businesses, government departments and agencies, Telecom Ottawa is poised for expansion. Broadband capacity is a growth market in Ottawa which, compared to other Ontario metropolitan regions, is underserved. Because of its "glass plumbing" - its fibre optics backbone network - Telecom Ottawa offers significantly higher-speed broadband data capacities than other technologies. We like to think of it as a broadband utility - we provide bandwidth the same way other utilities provide water or power - available all the time, as much as needed, reliably, at prices that make sense.

In summary, this has been a year in which we have faced both challenges and opportunities. Under the guidance of our Board of Directors, Advisory Board, management team and staff, we have consolidated our position as an efficient, customer-oriented provider of reliable services. We are in business to build value for our shareholders and the people of Ottawa. If there has been one reason for our advances, it is our dedication to improving both reliability and service to our customers, and providing both at the best possible value. We anticipate that the year ahead will bring new challenges and significant business decisions through which we will continue to focus on customer excellence, productivity and growth.

HYDRO-QUÈBEC

The year 2002 was marked by a resumption of development projects and increased profitability. The third quarter ended with a net income totalling over $1.2 billion and placed the company in a strong position to out-perform its business goals. More than ever, Hydro-Québec fuelled economic development throughout all regions of Québec and reiterated its commitment to acquire the necessary means to provide electricity to its customers at the lowest cost and under the best conditions.

The Québec government approved Hydro-Québec's Strategic Plan 2000-2006, with a few modifications that address the company's participation in the natural gas sector, the development of Québec's wind-power industry and oil and gas exploration.

To continue meeting the growing demand for electricity in Québec, Hydro-Québec Distribution issued an initial call for tenders to purchase 1,200 MW of firm capacity. The call stems from the Electricity Supply Plan, which was filed with the Régie de l'énergie (Québec Energy Board) in 2001 and approved last year. The Régie considered the demand forecast to be reasonable and approved the supply strategy, both for the main power system and for the off-grid systems. After analyzing 19 bids, Hydro-Québec Distribution retained two bidders: Hydro-Québec Production and the Calpine-Axor consortium. Each is to supply 600 MW, and the first deliveries must be made between January 2006 and March 2007.

To ensure growth in electricity sales on wholesale markets, Hydro-Québec Production is continuing to expand its generating fleet. Therefore, under the deal reached between the Québec government and the Grand Council of the Crees, nine parallel agreements were signed between the two parties. These contracts set the stage for a new partnership with the Crees and the construction of two major hydroelectric projects. Once completed, Eastmain-1 and Eastmain-1-A generating stations and the Rupert diversion will add 1,250 MW to Hydro-Québec Production's total generating capacity. It will also add 12 TWh to its annual output capacity.

Hydro-Québec received government approval to proceed with the construction of Mercier hydroelectric generating station on the Gatineau River. In addition, the company began work on a hydropower facility on the Toulnustouc River and on the partial diversion of the Sault aux Cochons and Portneuf rivers in the North Shore region. These projects are designed to optimize the output of the Bersimis generating facilities. Moreover, the Bureau d'audiences publiques sur l'environnement held public hearings on the combined-cycle gas generating station that Hydro-Québec Production plans to build in Melocheville, and its report is expected in early 2003.

Hydro-Québec's investment program for 2002 amounted to $2.7 billion. Close to 65 per cent of the program is allocated to ongoing operations, including $1 billion that ensures the long-term operability of our assets. About $300 million will be used to meet the growing needs of Québec customers, and $150 million will be invested to strengthen and improve the quality of our transmission and distribution systems.

On the international front, the subsidiary TransÈnergie US received authorization from the Federal Energy Regulatory Commission to proceed with a call for proposals to sell transmission capacity in a planned underwater cable system that will run under Lake Erie, between Ontario and the United States. Hydro-Québec also invested in iPower Technologies, a company located in Indiana. This new international partnership will help iPower introduce new distributed-generation units to the market.

Avestor, a joint venture of Hydro-Québec and Kerr-McGee Chemical, officially inaugurated its lithium-metal-polymer battery manufacturing plant near Montréal. Commercial production of the battery, which represents a remarkable technological breakthrough, is an important milestone for the power industry. This is the first time an alternative energy storage solution will be brought to market, initially for the telecommunications sector and, eventually, for the automobile and electricity generation and distribution industries. The technology was developed in Québec and fine-tuned at Hydro-Québec's research institute.

Hydro-Québec's foundation for the environment, set up in 2001, has contributed to a number of projects aimed at improving and protecting the environment on a long-term basis: rebuilding of the salmon trapping system in the Mitis River, protection of the Sutton Mountain Range in Montérégie and restoration and improvement of the peregrine falcon nesting habitat at Mont Saint-Hilaire.

And last but not least, Hydro-Québec received the prestigious Hydro Achievement Award for Recreational Stewardship from the National Hydropower Association, highlighting its outstanding work in reconciling corporate activities - specifically, refurbishing four generating stations and building a new facility - with the interests of people living in the St-Maurice River Valley.

In French/ En Francais

L'année 2002 aura été marquée par la relance des projets de développement et une profitabilité accrue. Le troisième trimestre de 2002 se termine en effet avec un bénéfice net de 1.204 milliard de dollars, ce qui indique que l'entreprise est en très bonne position pour dépasser ses objectifs d'affaires. Plus que jamais, Hydro-Québec s'est positionnée comme un moteur de développement économique dans toutes les régions du Québec, réitérant sa détermination à se doter de tous les moyens pour satisfaire les besoins en électricité, au meilleur coût et dans les meilleures conditions. C'est d'ailleurs en ce sens que le gouvernement du Québec a approuvé, moyennant certaines modifications, le Plan stratégique 2002-2006 de l'entreprise. Ces modifications portent sur la participation au développement du secteur gazier, le développement de l'industrie éolienne au Québec ainsi que l'exploration pétrolière et gazière.

Afin de continuer à répondre à la demande croissante d'électricité au Québec, Hydro-Québec Distribution a lancé un premier appel d'offres concernant l'achat de 1200 MW de puissance garantie. Cet appel d'offres découle du plan d'approvisionnement déposé à la Régie de l'énergie du Québec l'année dernière et approuvé en 2002. Dans sa décision, la Régie reconna"t comme raisonnable la prévision de la demande et approuve la stratégie d'approvisionnement, autant pour le réseau principal que pour les réseaux autonomes. Après analyse des 19 soumissions reçues, Hydro-Québec Distribution a retenu deux soumissionnaires, soit Hydro-Québec Production et le duo formé de Calpine-Axor. Chacun devra livrer 600 MW et les premières livraisons s'effectueront entre janvier 2006 et mars 2007.

En vue d'assurer la croissance des ventes d'électricité sur les marchés de gros, Hydro-Québec Production poursuit le développement de son parc de production. Ainsi dans le cadre de l'entente entre le gouvernement du Québec et le Grand conseil des Cris du Québec, neuf ententes ont été signées en parallèle entre Hydro-Québec et les Cris. Ces ententes ouvrent la voie à un nouveau partenariat avec les Cris et à la réalisation de deux importants projets hydroélectriques. Une fois terminées, les installations Eastmain-1, Eastmain-1-A et dérivation Rupert ajouteront 1250 MW au parc d'équipement d'Hydro-Québec Production et une capacité annuelle de production de l'ordre de 12 TWh. De plus, Hydro-Québec a reçu les autorisations gouvernementales nécessaires à la construction de la centrale hydroélectrique Mercier, sur la rivière Gatineau. De même, l'entreprise a amorcé les travaux de construction d'une centrale sur la rivière Toulnustouc de même que les dérivations partielles des rivières Sault aux Cochons et Portneuf, sur la Côte-Nord. Ces projets visent à optimiser la production des centrales du complexe Bersimis. Par ailleurs, le Bureau d'audiences publiques sur l'environnement (BAPE) a tenu des audiences concernant la centrale au gaz naturel à cycle combiné qu'Hydro-Québec Production projette de construire à Melocheville et devrait publier son rapport au début de 2003.

Au chapitre des investissements, Hydro-Québec prévoit un programme de l'ordre de 2,7 milliard de dollars pour 2002. Près de 65 pour cent du programme est alloué aux activités courantes dont 1 milliard pour assurer la pérennité des actifs et 300 M $ pour répondre à la croissance de la demande québécoise. Un montant de 150 M $ sera également investi pour le renforcement et l'amélioration des réseaux de transport et de distribution.

À l'international, la filiale TransÈnergie US a reçu l'autorisation de la FERC (Federal Energy Regulatory Commission) pour procéder à un appel de propositions afin de vendre la capacité de transport dans le cadre d'un projet de ligne de transport d'électricité sous le lac Èrie, entre l'Ontario et les Ètats-Unis. Hydro-Québec a aussi investi dans iPower Technologies, société située en Indiana. Ce nouveau partenariat international facilitera le lancement par iPower de nouvelles unités de production d'électricité décentralisées.

Avestor, coentreprise d'Hydro-Québec et de Kerr-McGee Chemical, a officiellement inauguré son usine de batteries au lithium-métal-polymère près de Montréal. La production commerciale de la batterie, qui constitue une remarquable percée technologique, marque un important jalon pour l'industrie de l'énergie. Il s'agit de la première commercialisation d'une solution de remplacement pour le stockage d'énergie, d'abord dans le domaine des télécommunications, puis éventuellement dans le secteur de l'automobile et des entreprises de production et de distribution de l'électricité. Cette technologie a été développée au Québec et mise au point à l'Institut de recherche d'Hydro-Québec.

Par ailleurs, la Fondation Hydro-Québec pour l'environnement, mise sur pied en 2001, a contribué à divers projets visant l'amélioration et la protection à long terme de l'environnement. Mentionnons, entre autres, la réfection du système de piégeage du saumon, à la rivière Mitis, la protection du massif des monts Sutton, en Montérégie ainsi que la restauration et l'aménagement de l'habitat de nidification du faucon pèlerin, au mont Saint-Hilaire.

Enfin, Hydro-Québec a reçu le prestigieux Hydro Achievment Award dans la catégorie Recreational Stewardship (gestion des activités récréatives) décerné par la National Hydropower Association pour son approche et le travail réalisé afin de concilier les activités de l'entreprise, soit la réfection de quatre centrales et la construction d'une nouvelle, et les intérêts de la population de la Mauricie.

MANITOBA HYDRO

For many years, we have worked to position Manitoba Hydro on a strong financial footing. In doing so, we've laid the groundwork to allow the Corporation to build upon opportunities that arise in the ever-evolving North American energy industry. One such opportunity was the acquisition of Winnipeg Hydro from the City of Winnipeg earlier this year.

The dedication of Manitoba Hydro's staff and a continued strong market for our electricity in the United States has allowed Manitoba Hydro to make significant progress towards our financial goals while continuing to improve the level and scope of our service to Manitobans.

In 2001 to 2002, Manitoba achieved a net income of $214 million, second only to last year's record of $270 million. A new record of $588 million in revenue from electricity exports was reached, marking the sixth consecutive year of increases in export revenue.

Manitoba Hydro's residential electricity rates have not risen in six years, while large industrial customers have enjoyed the same rates for 11 years. Even with these rate freezes, our retained earnings have grown from $159 million in 1993 to $1.3 billion at March 21, 2002, providing a financial cushion to help ensure continued rate stability into the future.

Looking ahead, Manitoba Hydro's revenues for the current fiscal year are expected to be lower than in recent years because of the negative impact low water flows are having on hydraulic generation. Our current estimates are for a net income between $70 million and $107 million, depending on energy prices in the export electricity market and winter temperatures in the domestic and export markets. We continue to work closely with aboriginal communities on the potential development of new hydroelectric facilities in their respective resource areas. This collaboration has resulted in a new, balanced relationship, that will give the Tataskweyak Cree Nation and the War Lake, Fox Lake and York Factory First Nations the opportunity to partner with us on the proposed Gull Generating Station, and the Nisichawayasihk Cree Nation the opportunity on the proposed Wuskwatim Generating Station.

Manitoba Hydro's improved financial position has also given us the flexibility to continue leading Canadian utilities in the fight against climate change. Earlier this year, we completed the $30 million conversion of the Selkirk Generating Station from coal to natural gas - a project that will cut greenhouse gas emissions at that plant in half.

Manitoba Hydro's Power Smart strategy continues to save Manitobans millions of dollars in energy costs. To date, energy conservation initiatives have achieved estimated demand savings of 185 MW and estimated energy savings of 496 gigawatt-hours per year.

The next year promises many opportunities. In particular, as Canada contemplates how to meet our commitment to reduce greenhouse gas emissions under the Kyoto Accord, we can be certain this province's vast hydroelectric resources will be an important part of the solution.

President and CEO, R.B. Brennan is optimistic that Manitoba Hydro will continue to strengthen its place within the North American energy industry and improve the level and scope of its service to Manitobans.

NEWFOUNDLAND AND LABRADOR HYDRO

Newfoundland and Labrador Hydro is the fourth largest utility in Canada in terms of installed generating capacity. Our vision is to be recognized as an innovative provider of quality energy services. During 2002, we invested a significant amount of time and effort in our General Rate Application, our first since 1991. The hearing, which commenced in September 2001 and concluded in January 2002, is seen as the Public Utilities Board's most challenging, complex and lengthy hearing. The Board's Final Order, approving rates, was issued in August and new rates became effective on September 1, 2002.

Last year we continued our efforts in improving reliability of service to all our customers. As the primary provider of generation and transmission service in our province we made particular gains in system delivery point reliability, in generation equipment availability and forced outage rates. We look forward to even greater reliability with the completion of the upgrade of our major 230kV transmission lines for ice loading and lightning protection. Environmental challenges and considerations included working in protected water supply areas, cabin areas and municipal parks. The total capital cost of the project is $46,000,000. It was designed and managed in-house.

The development of multi-year conservation initiatives aimed at improving customer attitudes towards energy consumption are being introduced. Education programs are being developed to assist our customers to manage their electricity usage in a prudent manner. In addition, Hydro is partnering with the Conservation Corps who provide residential energy audits for any customer who wishes to avail of this service.

Construction on the Granite Canal Hydroelectric Development continued in 2002. The development is situated within the existing Bay d'Espoir Development in southern Newfoundland and scheduled for completion in June 2003. In addition to the usual structures required to develop a hydropower site of this nature, a large fish habitat compensation facility is being constructed for landlocked salmon and trout breeding. The facility is unique for Hydro and the regulatory environment agencies, which are closely monitoring the construction and impact of the facility on fish stocks. This development, together with independent power producer contracts, will meet the growing demand for electricity on the Island portion of the province.

In 2002, Newfoundland and Labrador Hydro were successful in continuing our commitment to develop ISO 14001 consistent environmental management systems throughout the organization. This solidified and improved our environmental protection programs and activities, and reinforced our reputation as an environmental leader in the province. We are pleased that our efforts were recognized by the annual Newfoundland and Labrador Environmental Awards (Business Category). The award recognizes businesses that "establish sound environmental policies and programs, project monitoring and auditing, and internal review to ensure that environmental legislation and policies are adhered to." To ensure our continuing commitment of providing energy at least-cost, we are reviewing all our business processes. This initiative, led by a senior manager and supported by a team of key employees, has identified and implemented a number of improvements to streamline business processes and reduce administrative costs. With more opportunities expected to be realized in the near future, this initiative will ensure Newfoundland and Labrador Hydro is providing least-cost, reliable service to our customers.

NEWFOUNDLAND POWER INC.

Throughout 2002, Newfoundland Power continued to make investments in every aspect of its business while working hard to reduce operating costs. The Company continued to build on an established track record of providing customers with reliable service and the lowest electrical rates in Atlantic Canada.

Over the past five years, the Company has invested in excess of $250 million in capital programs to refurbish its electrical system, including approximately $60 million in capital projects in 2002 to further improve customer service and reliability.

A focus on operating costs combined with investments in capital, customer service and employee development has enabled Newfoundland Power to deliver solid earnings. Earnings in 2002 are forecast to be lower than in 2001, as earnings in 2001 were bolstered by the successful conclusion of a long-standing income tax case.

In 2002, Newfoundland Power delivered more energy to more customers more efficiently than it did in 1992. Over the past ten years, the Company's costs have declined by approximately 22 per cent and its workforce has decreased by approximately 33 per cent. Over the same period of time, both the number of customers served and the amount of energy sold increased by 10 per cent.

Continuous investments and an emphasis on improving service has not only reduced operating costs for Newfoundland Power but has also contributed to strong customer satisfaction results. In the fourth quarter of 2002, the Company achieved its highest customer satisfaction rating ever - 93 per cent. Its annual figure of 91 per cent was also the highest annual average.

Newfoundland Power was honoured for its outstanding commitment to employees in 2002. In May 2002, the Company received the Atlantic Canada Human Resources Awards' first-ever Strategic Partnership Award, and in October 2002, the Gold Star Agency Award from the International Personnel Management Association (Canada). These awards recognized the Company's commitment to human resources and its People Strategy, which focuses on employee strengths and challenges employees to effectively utilize their talents to support personal and Company success.

In 2002, Newfoundland Power strengthened its commitment to the people of Newfoundland and Labrador by joining forces with the key cancer organizations in the province to launch a new cancer education and awareness initiative - The Power of Life Project. The Project is raising funds for cancer treatment, screening and education programs as well as promoting healthy living. Commitments to the four-year project are already valued at $1.2 million.

Looking ahead, Newfoundland Power remains committed to making meaningful investments throughout the Company to provide customers with safe, reliable electrical service while keeping the cost of that service the lowest in Atlantic Canada. Newfoundland Power will continue to invest energy and build on the success of a well-maintained electrical system for its customers, employees and shareholders.

ONTARIO POWER GENERATION

The principal business of Ontario-based Ontario Power Generation is the generation and sale of electricity to customers in Ontario and to interconnected markets. OPG's focus is on the risk-managed production and sale of reliable electricity from our competitive generation assets - while operating in a safe, open and environmentally responsible manner.

During 2002, OPG continued to decontrol parts of its generation portfolio to encourage competition; while steadily improving its generation performance. The company is also involved in major environmental initiatives as part of its commitment to become a sustainable development company. As well, OPG is a participant in several new initiatives to enhance Ontario's electricity supply.

A major decontrol milestone was reached in 2002 with the sale of four hydroelectric stations on the Mississagi River to Brascan Corporation. This transaction, combined with the lease of the former Bruce nuclear facility in 2001, has resulted in the transfer of over 3,600 MW of operating capacity and about 3,000 MW of laid up capacity to competitors.

OPG's flexible generation mix of nuclear, hydroelectric and fossil-fueled plants is a key competitive strength, and upgrades to these assets have significantly improved their efficiency and performance. In the first nine months of 2002, they helped the Darlington and Pickering B nuclear stations achieve a forced outage rate of 2.3 per cent compared to 3.0 per cent for 2001. Over the same period, Darlington achieved a 91.9 per cent capability factor, its highest score ever for the first nine months of any year. Upgrades at hydroelectric stations have added almost 300 MW of new capacity since 1995. These and other enhancements helped OPG generate an additional one billion kilowatt-hours of electricity during the summer of 2002 - one of the hottest summers ever recorded in Ontario. OPG produced this additional power despite having reduced its generation by 500 MW through the sale of the Mississagi plants.

Since its creation in 1999, sustainable development has been a core value at OPG. As a major supporter of biodiversity, OPG completed the planting of one million native trees in southern Ontario in 2002 and is committed to planting an additional million by the end of 2005. Investments continue in the latest clean air equipment at fossil-fueled stations. Strong support for the development of alternative energy technologies makes OPG Ontario's largest producer of certified green power products. OPG was also a key partner in the opening of Huron Wind in November 2002 - Ontario's first commercial wind farm.

OPG is also partnering with ATCO Power to build a new combined cycle natural gas-fired power plant at Brighton Beach, near Windsor Ontario, a facility which will add 580 MW of electricity capacity to Ontario's supply when completed by 2004. Ontario's electricity supply will be further enhanced with the return to service of the Pickering A nuclear unit. Pickering A will contribute 2000 MW of smog-free generation to help meet the province's energy needs.

Finally, OPG contributes significantly to Ontario's communities by supporting many local community projects and initiatives. The company also makes a major contribution to the Ontario economy, annually purchasing about $1 billion in goods and services; paying more than $1 billion in employee salaries; and contributing hundreds of millions of dollars in taxes, dividends and other payments to the province.

Continued with Saint John Energy (S to Y)

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