Reasons for Pursuing DG in Ontario

1. Reasons for Pursuing DG in Ontario Presented by: Mark Wolnik Markham Energy Corp -Director March 5, 2003

2. Markham Energy Corp Holding company of: • Markham Hydro Distribution Inc - 68,000 customers ( 60,000 residential) - 7,000 General Service-high proportion of high tech - Peak capacity demand growth - 63 MW in 3 yrs • Markham District Energy Inc. - Town of Markham initiative to secure supply and reliabilty - 3.3 MW plant- heating/cooling for IBM, Motorola,day care - Plans to expand DG in community- Markham Centre/others

3. Benefits of DG to Markham and LDC Markham • Reliability and secure power/energy for business community/public • Reduced exposure to price volatility for DG participants • Energy efficiency supporting environmental objectives LDC • Offsets capacity increase requirements to meet growth • Increases reliability of system • Defers capital costs of feeders /transformers ( $12-15Mil)

4. Benefits of DG to Ontario • Short term - Bridge Ontario’s supply shortfall with efficient DG - Existing DG of 300MW to offset import requirements - Environmental benefits and reduced transmission losses • Long term - Sustainable source of local power to meet demand - Shift to mix of supply sources enhances competition - Additional DGpotential 350MW-500MW by 2010 - Efficient DG supports commitment to Kyoto protocol

5. Challenges Needed to be Addressed (cont’d) • Rethinking of MUSH Sector Price Freeze - Hospitals, university campuses etc- ideal hosts for CHP and DG installations - Price freeze idles much of the 300MW of present DG - Disincentive to develop significant portion of future 350-500MW in this sector - Apply incentives to enable DG in this sector to be part of the solution-present and future - Create incentives for DG in government buildings- help meet environmental and energy goals - Small and medium sized DG can be developed quickly

6. Challenges Needed to be addressed (cont’d) • Net Metering - Finalize rules on net metering - DG power used on site and excess taken by LDC is exempt from upstream charges • Incentives for Development of DG - Bill 210 Tax incentives need to be quantified asap - Tax incentives should apply to DG owners and investors - Accelerated CCA extended to DG infrastructure - Contracts for differences- tied to cost of imported power

7. Challenges Needed to be Addressed (cont’d) • Regulatory Issues -Refocus policies to incent alternative and efficient supply - Facilitate bringing benefits of energy choice to consumers - Streamline approvals process for DG - Elicit gas/electric utility co-operation to identify least cost/max benefit DG sites - Initiate/be supportive of tariffs or incentives to promote DG - Sustain policies/decisions to restore investor confidence

8. Challenges Needed to be Addressed in Context of Bill 210 • Interconnection/Safety Issues - Fast track the development of practical and uniform standards for interconnecting DG to LDC. - Review operating codes for small CHP and DG with safety authorities to modify attendance requirements. - Develop procedures for dispatching DG to support IMO or LDC supply requirements. Standards need to be practical without compromising safety but also affordable as not to compromise feasibility of DG

9. DG - Industry views “Theuncertainty in the industry is telling many parties to take smaller plant size, site it local to load so minimal transmission is needed, and forego economies of scale” American Public Power Report -Dec 2002 “California energy regulators consider adopting policies and rules to encourage the building of small power plants near business and residential customers” -Reuters Feb11/03 “NY Public Service ordered the states natural gas utilities to file special delivery rates for non residential customers who operate gas fired DG units, a move that should result in lower cost to operators and provide incentives for more widespread use” -Energy Central-EE News Feb 20/03