Horizon Holdings Sustainability Annual Report

2010 Sustainability-Based Annual Report

The Power to Make our Communities Better

2010 Sustainability-Based Annual Report

CEO and Chair Message 3

A Review of 2010 7

Global Reporting Initiative (GRI) 13

Social Performance 15

Environmental Performance 17

Economic Performance 21

Sustainability Policy 27

Corporate Governance 29

The Horizon Family of Companies 31

Acknowledgements 32

Financial Statements (Enclosed)

Visit www.horizonutilities.com for:

• Horizon Holdings Inc. Sustainability-Based Annual Report• Horizon Holdings Inc. Global Reporting Initiative™ (GRI) Filing• Horizon Holdings Inc. Financial Statements• Ernst & Young 2010 GRI Assurance Statement

2010 Sustainability-Based Annual Report 1

Royal Botanical Gardens

Robert Dolan, Chair, and Max Cananzi, President & CEO, at Royal Botanical Gardens.

Horizon Holdings Inc.2

Horizon’s final results for the Global Reporting Initiative (GRI) filing for 2010.

A+


The Power to Make our Communities BetterCEO and Chair MessageHorizon Holdings Inc. (“the Corporation”) had a

number of significant achievements in 2010.

Despite the challenging local economy the

Corporation delivered solid financial results. The

Corporation achieved an “A-stable” rating from

our credit rating agency, Standard & Poor’s. Our

sustainability Global Reporting Initiative (GRI)

filing for 2010 resulted in an “A+” ranking. We

completed our largest capital investment program

to date as we continue to renew our infrastructure.

The Corporation contributed to the community

through its extensive conservation programs

and sustainability initiatives and for the third

consecutive year, achieved exceptional customer

satisfaction ratings relative to our provincial and

national peers.

At Horizon, we have built a company that is committed to the sustainability of the communities we serve. Our business practices are governed by our sustainability policy. In 2008, we made the bold step to move to a sustainability-based Annual Report because we felt strongly about reporting and defining our corporate performance along social, environmental, and economic dimensions.

Horizon has earned the trust of its customers, its communities, and its industry peers by providing consistent leadership on several energy sector fronts and issues. Our employees are facilitating the introduction of renewable energy, participating in modernizing the electricity grid, delivering conservation programs to our

customers, and adopting sustainable development measures – all while maintaining among the lowest electricity rates for customers and stable dividends for shareholders.

The year also marked a milestone for Horizon. We celebrated our fifth anniversary since the amalgamation of the electric utility companies of the cities of St. Catharines and Hamilton that led to the creation of Horizon.

The Spirit of St. Catharines sculpture honours the athletes, coaches and volunteers of St. Catharines.


Five years later, we now serve 237,000 residential and commercial customers and we do so at substantially less cost than if the two companies had not come together. Horizon’s customers have benefitted greatly by the amalgamation, resulting in approximately $5 million in annualized operating cost savings, lower customer rates and increased dividends to shareholders. In five fast-paced, eventful and challenging years, we have made great strides in our organizational goals, performance, and in advancing our corporate strategy.

Hamilton and St. Catharines are undergoing an economic transformation resulting from the impact of the changing industrial manufacturing sector and new business investment growth in the community, establishing centres of excellence in research, innovation, and technology. Horizon will remain a key partner and will continue to contribute to this community transformation – investing in infrastructure, in the people who live, work and play in these communities, and in new technology and growth businesses.

Key Accomplishments In 2010, we launched Horizon Energy Solutions, a commercial business focused on sustainable energy solutions for clients interested in advancing their performance in this area and in reducing their carbon footprint. Our offering includes developing solar electricity generating installations for commercial roofs.

Horizon has set the bar high to be the best performing company in the Ontario energy sector. We worked very hard throughout the year to maintain trust and continue to build strong meaningful relationships with all of our stakeholders – employees, customers, and municipal partners.

At Horizon, we take our lead from our customers. We have established an organizational culture that places the customer at the centre in the development of all aspects of our programs and services – how we conduct our planning and technology implementation; how we provide customers with information and education about energy conservation; and how we ensure 24/7 emergency response-readiness. Our excellent customer satisfaction survey results are among the highest in Ontario and demonstrate that at Horizon we do, in fact, “walk the talk” concerning customer service.

McMaster Innovation Park in Hamilton offers state-of-the-art office and laboratory space.


The old courthouse in St. Catharines is currently home to the Sullivan Mahoney Courthouse Theatre.

Our continued focus on employee engagement and our relationship with our union, the International Brotherhood of Electrical Workers (IBEW), has been a key component of our organizational success. Employees are vital to this organization and to its customers. Horizon is one of the best-performing energy companies thanks to our knowledgeable, well-trained, and empowered employees. Without our entire workforce fully engaged, supportive, and committed, we could not achieve all that we have been able to accomplish. At Horizon, we believe employee and customer satisfaction are directly linked.

Sustainable Community Planning Going forward, Horizon is facing an exciting challenge. We are rebuilding infrastructure to meet the needs of our communities today and into the future. The challenge is particularly acute given that the bulk of our infrastructure was installed several decades ago while the communities were experiencing rapid growth. Today our mature communities need a solution that will balance the need for this substantial and necessary infrastructure investment while keeping an eye on future customer rate impacts. As a result, conservation has become a key cornerstone strategy for the Corporation and has been incorporated into our long-term planning and infrastructure renewal programs.

For cities such as Hamilton and St. Catharines, there is an opportunity to better position our communities for the energy future of the 21st Century through the renewal process of aging infrastructure. As Horizon rebuilds the electricity distribution system, it will continue to leverage technological innovation as part of its long-term strategy. Our network systems will become “smarter” and better able to meet the evolving requirements of the future consumer. It is only recently that these technological solutions have become affordable and widely available

in the power industry. We intend to take every advantage to incorporate these innovations which will modernize the system to the betterment of our communities.

By providing the required infrastructure, cost leadership, conservation and renewable energy programs, and services that customers want and value, our towns and cities will indeed prosper. And, they will succeed as inviting, livable and sustainable communities.

Max Cananzi, President & CEO

Robert Dolan, Chair, Board of Directors

Horizon Utilities is one of the largest local distribution companies in Ontario with:

237,000 customers

400 employees

$473 million in assets



Leadership

Serving the cities of Hamilton and St. Catharines,

Horizon is one of the largest local distribution

companies (LDCs) in Ontario with 237,000

customers, 400 employees and $473 million in

assets. Horizon is committed to helping build

vibrant, sustainable communities. We deliver

strong financial performance, while balancing

social and environmental needs. We deliver

value to all our stakeholders.

The past five years have been a continuous evaluation of and investment in our people, our aging infrastructure, and our technology and systems – investments we believe are crucial to continue providing a high level of service to our customers. In part, due to the 2005 amalgamation, Horizon continues to deliver among the lowest operating costs, and the lowest residential and commercial rates in the province, while simultaneously generating among the strongest returns for shareholders. This has earned Horizon one of the highest credit ratings for an electric utility in Ontario by Standard & Poor’s, an “A-stable” rating.

Empowering EmployeesThe year 2010 was very much focused on meeting the needs of our customers today and into the future. The goal was both to strengthen and prepare for a faster changing and evolving energy sector, rising to meet or exceed increasing customer expectations, and renew our infrastructure while retaining one of the lowest rates of all Ontario LDCs. Consequently, improving the internal operations and business processes has been critical. Cross-functional process improvements and integrated organizational planning are making Horizon a more responsive organization.

A Review of 2010

Our workforce is also aging and requires strategic renewal through short and long-term planning and investment. Many of our employees will be eligible to retire within the next five to 10 years, a problem which will be particularly challenging with our skills trades employees. Our workforce labour strategy provides a window and direction for our recruitment and training efforts now and in the future. Recruitment and in-house development strategies, including working directly with key post-secondary institutions, are assisting us in securing the best in what has become a fiercely competitive market for these highly-skilled professionals.

A Customer FocusAt Horizon, our strategic planning approach includes measures to ensure all of our initiatives are evaluated for their impact on customers.

Horizon emphasizes learning and development for all employees.


Both residential and commercial customers have become much more sophisticated in their information and service requests, questions and expectations. People want to know about and be able to implement energy conservation mechanisms and manage their rising electricity costs. We believe it is our obligation to inform and educate our customers on the value they are receiving, and how they can benefit from smart energy use.

Our desire for our customers to view of us as being “easy to do business with” was reinforced recently by customer satisfaction survey results. While overall satisfaction has been declining on average in Ontario, Horizon maintained its customer satisfaction scores against the general sector-wide decline. Another Ontario-specific customer satisfaction survey also ranked Horizon among the highest performing LDCs.

Toward Sustainable CommunitiesHorizon’s performance in 2010 demonstrates that a LDCs performance can be a significant contributor to the overall sustainability of its community. By having

among the lowest rates of all LDCs in Ontario, Horizon is helping to lower the cost of living and the cost of doing business in the cities of Hamilton and St. Catharines. In 2010, we launched an outreach program through the downtown Business Improvement Associations (BIAs) to get the word out to small businesses about the Ontario Power Authority’s (OPA) Power Savings BlitzOM program, which offers up to $1,000 for energy-efficient retrofits.

Through the OPA, Horizon has also helped large commercial customers – both private and public sector – to reduce their energy costs by participating in the OPA’s conservation programs. The best example is the nearly $640,000 presented to Hamilton Health Sciences (HHS), the largest rebate awarded to date in Ontario. Over the next 10 years, HHS will save $48 million, and significantly reduce its carbon footprint.

Horizon continues to develop strategic alliances and partnerships with community organizations, contractors and engineering firms to help manage what we envision to be profound changes in Ontario’s energy sector and the emerging green energy industry.

The redevelopment of the Juravinski Hospital in Hamilton saw the addition of 425,000 square feet to the facility and renovation of another 35,000 square feet.


Horizon reached out to the developer community and engaged this customer group to review and improve the new development connection process to ensure fairness to all parties, while enabling growth in our communities. Among the enhancements that were introduced as a result of the stakeholder consultation: elimination of the expansion deposit, delay in the payment of service and metering fee from contract execution to energization, reduction in the number of financial transactions and letter of credit adjustments, and providing the option of applying the transfer price against fee for service and metering. These refinements were developed with our customers for the benefit of our customers.

Golden Horseshoe Strategic Energy AllianceWorking with McMaster University, Mohawk College, and our municipal partners’ economic development departments, we jointly initiated the Golden Horseshoe Strategic Energy Alliance. As it develops, its purpose is to present our combined strengths to industry and encourage them to do research and manufacturing in our communities on solar and other clean technology industries.

This strategic powerhouse will combine the capabilities of these research and training institutions and the economic development resources of the cities to help create and attract the energy technologies and businesses of the future. Our alliance can provide the skilled workforce this new sector will need, locally, for the benefit of all residents. As the name implies, we believe there is room in the Golden Horseshoe Strategic Energy Alliance for other communities and their LDCs to participate in the broader education and other initiatives that are possible beyond solar.

A Culture of Conservation Conservation is where the future is at – not merely as a feel good or environmental component of a company’s social responsibility agenda, but rather an essential economic tool and strategic business driver. The reality is Canada, on a per capita basis, is one of the largest users of electricity in the world. And part of that is likely due to the relatively low rates we have historically paid for electricity.

Conservation makes economic sense. It is often cheaper than building new generation capacity. Horizon has developed a four-year plan to deliver conservation programs to all our customers, with particular focus on commercial businesses within our communities.

LDCs are playing a vital role in building a culture of conservation in Ontario, working together to reduce the demand for electricity through comprehensive conservation and demand management (CDM) initiatives. Horizon is passionately committed to helping create and grow this culture of conservation. We began by getting our own house in order – installing energy efficient lighting with timers, monitoring our heating and air conditioning systems, and operating one of the largest fleets of hybrid vehicles of any local electricity distribution company. We have also instituted an anti-idling policy supported by a sophisticated Geographic Positioning System (GPS). Horizon is also continually assessing new vehicle technologies and fuel sources as they become available, as a strategic initiative to reduce emissions in the replacement of its fleet.

Our Customer Services team also worked diligently on the deployment of our smart meters and the implementation of Time-of-Use rates. By end of 2010, 226,040 smart meters had been installed – 97.3 per cent of eligible customers. Of these, 157,143 customers were migrated to Time-of-Use billing (TOU).

Horizon’s energy conservation initiatives have resulted in energy savings of more than 82 million kilowatt hours (as of 2009, the most current available data) – enough energy to power more than 9,600 homes for one year. This has diverted more than 18,000 metric tonnes of CO2 emissions from the air, the equivalent of taking 5,700 cars off the road. While CDM activity is mandated for all LDCs, Horizon has been aggressively embracing this challenge for a number of years and strongly believes in the importance of these initiatives. We simply want our communities to continue to remain economically vibrant and livable – with a reliable supply of electricity and fewer smog days.


Solar Power – Horizon Energy Solutions Renewable energy generation sources, such as solar photovoltaic (PV), are growing in importance in Ontario’s generation supply mix. More and more, demand is increasing for sources of energy that are safe, free of carbon emissions and domestically self-reliant. The cost of solar PV technology is currently more expensive than using fossil fuels, although the environmental cost of carbon is not currently in the price of fossil fuels. Growing demand worldwide for solar panels, however, is increasing the number of market participants and leading to improved manufacturing techniques, making solar energy an attractive investment, and an increasingly environmentally friendly and affordable technology.

Horizon Energy Solutions, one of Ontario’s first commercial solar energy generating enterprises for an LDC-affiliate company, takes advantage of the opportunities to generate a clean and reliable distributed energy supply through Ontario’s Green Energy and Green Economy Act. Our target market is across Southern Ontario. Initially, Horizon Energy Solutions is offering solar power generation for commercial and institutional rooftops. Businesses can convert unused rooftop space into a revenue-generating asset without the need for capital, while at the same time advancing their own green energy and sustainability objectives through the generation of renewable energy.

During its first year of operation, Horizon Energy Solutions was focused on negotiating lease agreements for solar installations on commercial, institutional and industrial sites in our traditional service areas and beyond. Our goal is to deliver financial opportunities to our customers and to help them reduce their carbon footprint. Expanding the company’s offerings with energy management services and evaluating new market opportunities will continue to be priorities in 2011 and beyond.

Sustainability and Energy ConservationDevelopment is sustainable when it is focused on the triple bottom line of social, environmental and economic considerations. In the electricity business, we are witnessing a change in customer attitudes around sustainability and energy conservation. Customers are increasingly making the connection between turning off their lights and improving the environment. There is a growing interest in renewable energy sources. Our customers, both residential and commercial, are increasingly demanding increased self-sufficiency in energy solutions. Today, residential and commercial customers can generate their own power.

Employees from the Underground department working on a switching unit.


Energy MappingHorizon is undertaking leading-edge energy mapping work in Hamilton and St. Catharines. We are fortunate to be working with the Canadian Urban Institute on an OPA pilot project in Hamilton that brings together the property data from the municipal sector, energy consumption data from Horizon and gas consumption data from Union Gas. Horizon is also working on a similar project with Niagara Region and Enbridge for the City of St. Catharines. Currently, maps show all energy intensity (gas and electric) by land area. The data can also be used for detailed mapping on the design and execution of conservation programs and policies for energy efficiency.

Energy mapping also provides an important opportunity to evaluate business decisions for implementing energy efficiency, such as the visualization of market potential of energy strategies. The resulting energy maps and research are currently being used to support the Hamilton Community Energy Collaborative – comprised of city staff, councillors, utilities, local community groups, and others – to develop an energy efficiency action plan for infrastructure development, demand-side management programs, improved electricity reliability, and greenhouse gas reduction.

Smart Grid, Smart Growth, Smart CommunitiesThe creation of Ontario’s Greenbelt and Growth Plan has served to encourage “smart growth” by forcing our growing communities to look inward to infill brownfields redevelopment because greenfields are becoming limited, and many are now off limits. The Green Energy and Economy Act, similarly, has been a catalyst for new ways of thinking and planning between municipalities, energy utilities and developers.

As innovative as the technology is becoming, “smart grid” implementation relies more on our ability to conquer the divide between energy policy decisions and municipal planning and development policy decisions. Smart grids and smart growth are only “smart” to the extent that we combine these two solitudes – these two

policy-making worlds – into one. And that is what truly makes them smart. This is central to the economic future of our communities.

In the coming years, a significant challenge for Horizon and the energy sector will be balancing the demands of an ever-changing regulatory environment while, at the same time, laying the foundation for energy generation and distribution needs for the coming decades. From an economic perspective, it will also be challenging to continue making the needed infrastructure reinvestment while maintaining affordable electricity rates.

Some projections suggest North America may have four million electric cars on the road by 2016. As electric vehicles increasingly become available, LDCs will face even more challenges. Strategies will be needed to support electric vehicles, from their impact on the grid, to the issue of charging depots and billing technologies to track costs back to a person’s utility bill.

A Greener Horizon … Sustainability is no longer a buzzword. For Horizon, it is the central driver for what we do and we are proud to be leading the way on this initiative in Ontario. The visionaries sounded the call for taking a closer look at what makes our communities tick, and what makes them sick. They not only gave us the diagnosis for what ails North American cities and communities, but also the prescription: we need to plan our energy needs and urban growth if we want healthy, livable, sustainable and prosperous communities.

We believe the players who will succeed in the new green economy will be those who have demonstrated solid business success, as Horizon and its predecessor companies have done in over a century of existence in the electricity business. Success in the green economy, however, will also be a result of sound business investments, sustainability policies and practices, continuous customer satisfaction, and support from an empowered and well-informed workforce.


Report Application Level

Report on: 1.12.1- 2.103.1- 3.8, 3.10 - 3.12 4.1- 4.4, 4.14 - 4.15

Report on all criteria listed for Level C plus: 1.2 3.9, 3.134.5 - 4.13, 4.16 - 4.17

Same as requirement for Level B

Not Required

Report on a minimum of 10 Performance Indicators, including at least one from each of: Economic, Social and Environmental.

Report on a minimum of 20 Performance Indicators, at least one from each of: Economic, Environmental, Human Rights, Labor, Society, Product Reponsibility.

Report on each core G3 and Sector Supplement* Indicator with due regard to the Materiality Principle by either: a) reporting on theIndicators or b) explainingthe reason for its omission.

G3 Profile Disclosures

G3 Management Aproach

Disclosures

Management ApproachDisclosures for eachIndicator Category

Management ApproachDisclosures for eachIndicator Category

*Sector supplement in final version

G3 PerformanceIndicators &

Sector Supplement Performance

Indicator

OU

TPU

TO

UTP

UT

OU

TPU

TSTA

NDA

RD D

ISCL

OSU

RES

Repo

rt E

xter

nally

Ass

ured

Repo

rt E

xter

nally

Ass

ured

Repo

rt E

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Ass

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We have self-declared our reporting to be Application Level A+. Ernst & Young has checked our reporting and has confirmed it to be Application Level A+.

Students at Brock University enjoy a break at tranquil Pond Inlet on the St. Catharines campus. Brock is undergoing a burst of physical expansion that is creating a better future for students and the communities served by the university.

Horizon’s final results for the Global Reporting Initiative (GRI) filing.

A+


Sustainability Reporting InitiativeAt Horizon, our focus on aggressive CDM, energy mapping and low electricity rates is all part of our effort to contribute to making our communities better places to live, work and invest. While we have a long history of corporate social responsibility, we knew we wanted to do more. Over the last few years, we have been progressing on the path of sustainable development by identifying ways we can contribute to the sustainability of the communities we serve.

In 2008, Horizon decided it needed to develop a corporate sustainability policy and begin to undertake sustainability reporting. By sustainability reporting we

Global Reporting Initiative (GRI)

GRI’s Sustainability Metrics

GRI Metric GRI Issues to be Addressed

mean the documenting of our social, environmental and economic performance in equal measure. While some utilities have developed their own metrics, Horizon adopted the de facto international standard, the Global Reporting Initiative (GRI) framework, as the best way forward. We chose to go with this framework because of the public disclosure required and its general acceptance. The decision reflected our desire to hold ourselves accountable to the highest standard, to set an example for other utilities and to provide us with an organizational “roadmap” to follow.

Now in its third year of the GRI, Horizon has consistently improved its triple bottom-line ranking from a “B” in 2008, “B+” in 2009, to an “A+” ranking for 2010. Once again, Ernst & Young performed a limited assurance of 10 GRI indicators reported by Horizon in its 2010 GRI filing, and performed a third-party check of Horizon’s self-declaration of an “A+” application level report. Ernst & Young’s independent assurance statement for the 2010 filing can be found at www.horizonutilities.com.

Horizon is the first local distribution company in Canada and the only electric utility company in Ontario to report under the GRI framework and the first to receive an A+ ranking validated by a third party.

By making a GRI filing, our aim at Horizon is to continuously improve our business practices and bring added value to all of our stakeholders. It gives us a structure for internalizing core sustainable development values. As part of the public disclosure requirement for GRI, we have also supplemented our website publications with our sustainability policy and our GRI filing, and published all of our financial statements.

Economic Financial performance, market presence, economic impact

Environment Materials, energy, water, biodiversity, emissions

Labour Employment, labour relations, Practices and occupational health and safety, Decent Work training and education, equal opportunity

Human Investment and procurement Rights practices, non-discrimination,

collective bargaining, forced and child labour, indigenous rights

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

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

This is a sustainability-based annual report – reporting on the three main sustainability emphases – social, environmental and economic performance.


In 2010, Horizon Utilities held more than 60 community events, assisted 21,000 customers with conservation needs, and donated 1,000 Energy Conservation Kits


Horizon and its employees support the United Way through a number of initiatives, including a staff barbecue.

Social PerformanceEducationSince 2007, Horizon has annually sponsored Generation Conservation, an energy conservation curriculum program for Grade 5 students attending 200 schools in Hamilton and St. Catharines. Student teachers attending Brock University are also provided with workshops to prepare them for teaching Generation Conservation.

In 2010, Horizon was honoured with a Hamilton Employer Champion Award, given by the Industry Education Council of Hamilton (IEC). Nominated by Mohawk College, Horizon was cited for its ongoing investment in education, beginning with programs such as: Generation Conservation, Kidz Power, Power for Tomorrow, Reality House and Play it Safe.

In 2010, we held more than 60 community events, assisted 21,000 customers with conservation needs, and also donated 1,000 Energy Conservation Kits to Good Shepherd Centres in Hamilton and to Community Care of St. Catharines and Thorold.

Safety & Reliability At Horizon, we have always been committed to ensuring a safe work environment. Our implementation of an occupational health and safety management system (OHSMS) that supports the CSA Z1000 standard takes our promise one step further. This standard includes a framework for developing and implementing on OHSMS, and encourages a systematic approach to managing occupational health and safety issues. A CSA Z1000 Steering Committee, made up of both worker and management representatives from across the organization, has made significant progress in implementing our new OHSMS.

A fundamental component of CSA Z1000, and where we enjoyed high employee participation and success in

2010, is embedding a mindset throughout the organization that health and safety is everyone’s business. The more intrinsic this thought process becomes, the more successful an organization becomes in creating a health and safety culture in which everyone actively participates, takes responsibility and becomes accountable.

New procedures, forms and training for identifying, assessing and documenting workplace hazards and risks have also been developed and implemented. Several departments have started to place into the Hazard Registry all the identified workplace hazards, including the risk level and the controls implemented to manage those hazards.



Environmental PerformanceThe St. Catharines -Thorold Chamber of Commerce

recognized Horizon with the prestigious

Excellence in Business Award. Horizon was

cited for its commitment to building a sustainable

community, discontinuing the use of plastic

water bottles in all of its facilities, and reducing

its carbon footprint by introducing energy

conservation measures at Horizon facilities that

have reduced CO2 emissions by more than 28

tonnes per year.

In 2010, Horizon added an Environmental Management Specialist to its employee complement. The position is responsible for co-ordinating and supporting all environmental management activities and performance within the organization. The initial focus has been on implementing the Environmental Management System, and positioning Horizon to become ISO 14001-certified by the end of 2011.

We launched a dry cell battery recycling program, which allows our employees to dispose of all batteries. In our first year, almost 400 kilograms of batteries were redirected from landfill sites. We implemented a program to collect all empty aerosol cans so they can be properly disposed.

A vehicle and equipment idling policy was developed and deployed to support the company’s commitment to reduce vehicle emissions. Horizon is also diligent in monitoring and testing emissions from its transformers. The goal of our Transformer Oil Testing Program is to have all active transformers under two parts per million (ppm) PCB levels, essentially enabling Horizon to make the claim that it is “PCB-free”. Currently, 70 per cent of our active transformers’ PCB levels are already under two ppm and none are above 50 ppm, which is the provincial requirement.

The St. Catharines -Thorold Chamber of Commerce recognized Horizon with the prestigious Excellence in Business Award.

The proximity of St. Catharines to Lake Ontario make large ships a common sight.

Hamilton has been called the City of Waterfalls and is home to 125 waterfalls (www.cityofwaterfalls.ca)


Our ongoing efforts to promote conservation and sustainability in 2010 have resulted in 2,254 customers participating in the peaksaver® program, along with the implementation of 97 Electricity Retrofit Incentive Program (ERIP) projects, 1,939 Power Savings BlitzOM retrofit projects, and the collection of 2,972 inefficient refrigerators and appliances through The Great Refrigerator RoundupOM program (14,000 have been rounded up from Horizon customers to date).

Hybrids & Fleet ManagementHorizon continues its commitment to the environment and building a sustainable organization by focusing on vehicle and facilities equipment emission reduction efforts. By the end of 2010, 10 per cent of Horizon’s fleet was comprised of hybrid vehicles -- one of the largest hybrid fleets of any LDC in Ontario. Hybrid electric vehicles combine a conventional internal combustion engine propulsion system with an electric propulsion system to achieve better fuel economy and reduce emissions. Hybrid electric vehicles combine a conventional internal combustion engine propulsion system with an electric propulsion system to achieve better fuel economy and reduce emissions.

OM


One of the 2010 additions was a tandem axle, single bucket hybrid electric plug-in vehicle to support our St. Catharines service centre. This is the first vehicle of its kind in Horizon’s fleet, and one of the first of its kind in Ontario. This bucket truck can operate the bucket boom, emergency warning lights, and cab heating and cooling systems for up to six hours at the job site on battery power alone. This system will eliminate the need for idling, reducing fuel consumption and emissions. In 2010, Horizon also took possession of its second conventional hybrid single bucket truck and procured two more Ford Escape hybrid SUVs to complement its overall fleet.

Throughout 2011, Horizon will be monitoring the performance of its hybrid and electric vehicles and continuing to assess other technologies as they become available to support its commitment in building a more

Our ongoing efforts to promote conservation and sustainability in 2010 have resulted in:

2,254 customer sign-ups through the peaksaver® program 97 Electricity Retrofit Incentive Program (ERIP) projects 1,939 Power Savings BlitzOM retrofit projects 2,972 inefficient refrigerators and appliances collected

through The Great Refrigerator RoundupOM program (14,000 have been rounded up to date).

Horizon continues to introduce new tools to enhance service to our customers, such as new mobile tablet

computers for our Customer Connections staff.


Graham Keene, owner of the Canadian Tire store on Welland Avenue in St. Catharines, has taken advantage of Conservation & Demand Management programs offered through Horizon Utilities, including significantly upgrading the lighting in his store, resulting in an annual energy savings estimated at 400,000 kWh, with a monthly peak demand savings of 92 kW.


Economic PerformanceControllable CostsIn 2005, in the first full year of the amalgamation of Hamilton and St. Catharines utilities, Horizon’s costs per customer was $165 per annum, at a time when the industry average increased to $228 per annum. In 2009 (the most current available data), Horizon’s costs per customer still stood at $165 per annum, compared to the Ontario LDC industry average of $257 per annum. Through the economies of scale in amalgamation, and by maintaining costs and organizational efficiencies, Horizon has kept its operating costs close to 2005 levels – among the lowest in the sector.

Horizon’s Customer Connections department was one of the few meter service providers in Canada to receive registration to the ISO 9001:2008 Standard. The department is also accredited to Measurement Canada’s S-A-01 Standard and certified under the Independent Electricity System Operator (IESO) as a Meter Service Provider.

2007-2009 Controllable Costs Three-Year Comparison between

Horizon Utilities and all LDCs

$0

$50

$100

$150

$200

$250

$166

Horizon Utilities

10 Largest LDCs

Average

Ontario LDC

Average

Golden Horseshoe

LDCs Average

$193 $222 $249

2007-2009 OM&A* / Customer Average

2007-2009 OM&A*/ Customer Average

Horizon Utilities

$100

$0

$200

$300

$400

$500

Source: Ontario Energy Board (OEB) Yearbook of Electricity Distributors 2007, 2008 and 2009 (2010 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. Golden Horseshoe LDCs are 27 utilities around Lake Ontario from Durham to Niagara and north from the lake to Newmarket and Waterloo.

*OM&A means operations, maintenance and administration.

In 2010 we made our largest capital investment to renew our infrastructure –primarily poles and wires.


Residential Customers1,000 kWh/month

Light Manufacturing350 kW, 40,000 kWh/month

Manufacturing3,500 kW, 2,000 kWh/month

Small Business13,000 kWh/month

2010 Low and Balanced Customer Rates

$0

$20

$30

$40

$50

$60

$10

Horizon Utilities

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

Horizon Utilities

$50

$100

$150

$200

$250

$300

$350

$400

$0

Horizon Utilities

$35,000

$30,000

$25,000

$20,000

$15,000

$5,000

$0

$10,000

Horizon Utilities

Horizon Utilities rates compared to all other local distribution companies (LDCs) in the province of Ontario (except Hydro One Networks). 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 rates, including rate riders, for all Ontario distributors in 2010.


Horizon Horizon Ten Largest Ten Largest All 78 All 78 Utilities Utilities LDCs LDCs Avg. LDCs LDCs Avg. (Not Holdings) / Customer Average /Customer Average /Customer

Revenues $88,769,697 $378 $123,578,444 $539 $23,613,105 $505Operating Expenditures $38,778,645 $165 $47,532,895 $207 $10,011,645 $214Capital Expenditures $44,674,968 $190 $60,004,994 $261 $11,054,189 $237Payments in Lieu (PILs) $5,502,940 $23 $7,518,527 $33 $1,505,592 $32

0

2

4

6

8

10

7.81%

Horizon Utilities

10 Largest LDCs

Average

Ontario LDC

Average

Golden Horseshoe

LDCs Average

8.58% 6.85% 5.63%

2007-2009 Return on EquityThree-Year Comparison between

Horizon Utilities and all LDCsOperating Expenditures $46,576,000

Capital Expenditures $39,193,000

Dividends to Shareholders $8,113,000

Payments in Lieu of Taxes (PILs) $5,745,000

Energy Incentives and Rebates (OPA funded) $1,028,104

Charitable Contributions (Employees and Corporate) $57,528

Economic Benefit $100,712,632

2010 Direct Economic Value*Generated by Horizon Holdings

2009 Comparative Direct Economic Value**Generated by Distribution Utilities Only*

* NB: See full GRI filing for additional details. Data for Operating Expenditures and PILs differ in this table from the financial statement because $305,000 of the PILs shown is for capital taxes that are included as Operating Expenditures in the financial statements.

** 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. 2009 data is used because 2010 is not yet published. Averages are simple averages. Hydro One Networks are excluded because its service territory differs so greatly from other LDCs. Charity contributions are not included because they are not published by the OEB.


The new Mohawk Learning Exchange is a LEED gold certified addition to the College’s Fennell Campus in Hamilton. It is part of the largest campus renewal project in the school’s history.

Distribution System $30,041Smart Meters 3,086 Other 6,066

Horizon Utilities 2010 Capital Expenditures

($ in thousands)

ResidentialCommercialLarge UserOther

66.6%

26.8%

3.8% 2.8%

2010 Capital ExpendituresHorizon Utilities Invested $39.2 Million

in Capital Expenditures in 2010

2010 Electricity RevenueFor Horizon Holdings


Five-Year Consolidated Summary(in thousands)

As at December 31, 2010 2010 2009 2008 2007 2006

STATEMENT OF INCOME Electricity distribution service charges $ 91,217 $ 88,583 $ 88,335 $ 84,797 $ 79,610 Other income from operations 10,763 10,369 10,090 9,792 9,837 101,980 98,952 98,425 94,589 89,447

Operating expenses 46,881 44,855 43,997 41,687 38,027 Depreciation and amortization 27,069 25,012 23,481 21,174 19,945 73,950 69,867 67,478 62,861 57,972

Income from operating activities 28,030 29,085 30,947 31,728 31,475 Gain on sale of assets 99 92 45 384 50 Net interest (expense) income (9,639) (9,185) (9,246) (8,942) (8,437) Payments in lieu of taxes (5,782) (6,471) (6,641) (8,425) (8,170) Net income $ 12,708 $ 13,521 $ 15,105 $ 14,745 $ 14,918

BALANCE SHEET Assets Current assets $ 106,710 $ 97,872 $ 100,571 $ 104,061 $ 107,461 Capital assets 367,056 355,521 336,430 314,723 297,185 $ 473,766 $ 453,393 $ 437,001 $ 418,784 $ 404,646

Liabilities and shareholders’ equity Current liabilities $ 90,692 $ 114,015 $ 96,739 $ 95,316 $ 93,433 Long-term debt 155,554 116,000 116,000 116,000 116,000 Other long-term liabilities 45,125 45,578 44,923 38,465 30,504 Shareholders’ equity 182,395 177,800 179,339 169,003 164,709 $ 473,766 $ 453,393 $ 437,001 $ 418,784 $ 404,646

STATEMENT OF CASH FLOWS Cash provided by operating activities $ 43,730 $ 27,715 $ 39,852 $ 41,306 $ 19,848 Cash used in the purchase of capital assets (39,193) (44,775) (42,045) (39,253) (31,425) Cash provided by other investing activities 144 142 45 432 68 Cash provided by long-term borrowings 39,554 – – – – Cash used in financing activities (10,556) (11,404) (7,903) (7,695) (4,504) Net increase (decrease) in cash and cash equivalents $ 33,679 $ (28,322) $ (10,051) $ (5,210) $ (16,013)


St. Catharines, located in the Region of Niagara, is home to beautiful landscape

and family friendly areas such as Port Dalhousie.

We are committed to delivering value to our shareholders by providing our customers with safe,

reliable and efficient electricity and innovative

energy solutions.


Sustainability Policy 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.

SafetyThe 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 ResponsibilityWe 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 EthicallyWe 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 EmployeesOur 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 RiskWe 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 CommunitiesOur 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.



Corporate Governance Horizon Holdings Inc. is incorporated under

the Ontario Business Corporations Act and,

throughout 2010, 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, including those relating to the wholly owned subsidiaries through which it operates, namely Horizon Utilities Corporation and Horizon Energy Solutions Inc.

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 Corporate Governance Guidelines of Horizon Holdings Inc. and its subsidiaries have been established with due regard to the scale, complexity and risk of the operations of each company. Horizon Utilities therefore has an Audit and Risk Management Committee and a Human Resources and Governance Committee, each of which meets in advance of every regular Board meeting. Horizon Utilities also establishes a Nominating Committee to assist in the selection of new Board members and the appointment of Board and Committee Chairs as required. Each Committee operates with a formal mandate. Within Horizon Holdings Inc. and Horizon Energy Solutions Inc. these Committee functions are the responsibility of the respective Board itself.

The Boards have also developed roles and responsibilities for the Chair of the Board and a Chief Executive Officer’s Authority Letter for each corporation.

The CSA also provides guidelines with respect to the composition of the Board of Directors, including that the majority of Directors should be independent (as defined by the CSA). With the exception of the Chair, all members of the Boards of Directors of Horizon Holdings Inc. and Horizon Energy Solutions Inc. and Horizon Utilities satisfy the requirements of independence. A Chair of the board by definition under the CSA Guidelines is not considered independent. Mr. Dolan, who is Chair of Horizon Holdings Inc., Horizon Energy Solutions and Horizon Utilities, is otherwise independent of management of each of those companies. The Boards meet without management in attendance for part of each Board meeting.

A beautiful waterfall in the St. Catharines area.


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 Horizon Utilities’ Directors be independent (as defined in ARC) 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 corporations 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 requests and receives an independence letter from its Auditors. By letters dated February 24, 2011, 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 Committees & Mandate of ManagementThe mandates of the three Committees of the Horizon Utilities Board are:

• Audit and Risk Management Committee: risk management, internal controls, 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.

Consistent with the recommendations of the CSA, the Board approves the mandate of the Chief Executive Officer and annual corporate objectives.

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. In addition, the Board of Directors appoints the executive management and, annually the Board reviews the Chief Executive Officer’s objectives, evaluates the Chief Executive Officer’s performance, and monitors the succession planning process.

Horizon Utilities is responsible for more than 3,400 km of underground and overhead distribution lines.


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 Directors

Robert Dolan, Board ChairPaul BensonRobert CaryEdward MinichMargaret T. Nelligan

Management and Officers

Max Cananzi, President & CEOJohn G. Basilio, Senior Vice President & Chief Financial OfficerNeil Freeman, Vice President Business DevelopmentSarah Hughes, Vice President FinanceMarjorie Richards, Vice President, Corporate Services

Horizon Utilities Corporation is a regulated local electricity distribution company serving 237,000 residential and commercial customers in Hamilton and St. Catharines, Ontario. Horizon’s more than 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 Directors

Robert Dolan, Board ChairKaren BelairePaul BensonJohn BergsmaRobert Cary, Chair, HR/Governance CommitteePatrick CrowleyDouglas J. HarrisonEdward Minich, Chair, Audit and Risk Management CommitteeMargaret T. NelliganJoan Weppler


Max 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

Horizon Energy Solutions Inc. is dedicated to providing commercial customers across Ontario with utility grade renewable energy solutions and energy management services that generate benefits for the customer and the environment.

Board of Directors

Robert Dolan, Board ChairPaul BensonRobert CaryEdward MinichMargaret T. Nelligan


Max Cananzi, President & CEOJohn G. Basilio, Senior Vice President & Chief Financial OfficerSarah Hughes, Vice President, FinanceScott Knapman, Vice PresidentMarjorie Richards, Vice President, Corporate Services

The Horizon Family of Companies


AcknowledgementsDesign of this Sustainability-Based Annual Report was provided by:

Writing was provided by Quorum Communications.

We would like to thank the Royal Botanical Gardens for the use of their Mediterranean Garden to photograph the CEO and Chair.

® 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.

Power Savings BlitzOM is an official mark of the Ontario Power Authority.

The Great Refrigerator RoundupOM is an official mark of the Ontario Power Authority.

peaksaver® is a registered trademark of Toronto Hydro Corporation. Used under license.

The Power to Make our Communities Better

The colourful and playfully distinctive light switches represented on the cover remind us that every one of our customers is a unique individual. We value the contributions that each of them makes to conserve energy and they, in turn, rely on Horizon to deliver a safe and reliable supply of electricity to their homes and businesses. Together we have the power to make our communities better.

Contact Us: Street Address: 55 John Street North, Hamilton, ON L8R 3M8 Mailing Address: PO Box 2249 STN LCD 1, Hamilton, ON L8N 3E4

General Inquiries: Tel: 1-866-458-1236 or 905-522-6611 Fax: 905-522-6228 Email: [email protected] or

[email protected]: www.horizonutilities.com

www.horizonenergysolutionsinc.com

Documents

Horizon Holdings Sustainability Annual Report