Joint submission of Northland Power and a number of major LDCs

1. Ontario Energy Board Consultation on Efficiencies in the LDC SectorPresented by Northland Power and Kitchener Wilmot HydroFebruary 18, 2004

2. Background • Joint submission of Northland Power and a number of major LDCs • In response to the OEB Discussion Paper: Review of Further Efficiencies in the Electricity Distribution Sector dated February 10/04 • Discussion Paper invited stakeholders to provide views on additional issues that should be considered when addressing the efficiency of Ontario’s electricity distribution sector.

3. Purpose and Definition • Purpose: Distributed generation represents an opportunity that can improve the operational efficiency of LDCs, reduce operating costs and provide net electricity system supply benefits • Definition: Any generation that is located in relatively close proximity to electrical load (ECSTF Task Force)

4. Introduction to Northland Power • Northland Power is an Ontario Based Independent Power Producer established in 1987 • Operates three power plants in Ontario and one in the Ukraine with a total capacity of 457 MW • Developer of gas fired cogeneration/DG, wind power and biomass projects • Active participant in restructuring of Ontario’s electricity sector • Responsible for many technical and financial innovations in the electric power sector

5. Distributed Generation Initiative • Northland Power working with a number of major LDCs to: • Identify candidate generation sites • Jointly review the feasibility of installing gas fired DG projects (simple cycle and cogeneration)

6. System Benefits of Distributed Generation • Benefits Potentially Realized by LDCs • Avoidance of capital costs for expansion of transmission, transformation and distribution systems: • Growing LDCs require additional municipal transformer stations every 5-10 years • Transmission costs can average about $2 million/km • New transformer capacity for both Hydro One and LDC can average $8-$12 million per 50 MVA of capacity • Injection of new capacity in lieu of transmission and transformer capacity can defer/displace such expansions

7. System Benefits of Distributed Generation • Benefits Potentially Realized by LDCs (Cont’d) • Reduction of transmission and distribution system losses • Line losses amount to 3-4% depending on voltage • Transformer losses are about 1.0% • Improved voltage at point of connection during on-peak periods • DG plants can be located closer to loads, thus improving voltage and reducing losses from transmission, transformation and distribution

8. System Benefits of Distributed Generation • Benefits Potentially Realized by LDCs (Cont’d) • Increased reliability at the LDC level • DG diversifies sources of power and reduces amount of capacity of outage per incident (eg 40 MW vs 800 MW) • Generation supplied locally can improve reliability for LDCs on radial supply

9. System Benefits of Distributed Generation • Benefits Potentially Realized by LDCs (Cont’d) • Other System Benefits • Can be sited to supply locally defined “critical loads” • Additional revenue from land leases and/or other sources • Improves reactive power (power factor)

10. SystemBenefits ofDistributed Generation • Benefits Potentially Realized by the Community • Can supply waste heat to the community (district energy) and industry (cogeneration) • Attracts development to the community • Provides local employment

11. System Benefits of Distributed Generation • Province Wide Benefits of Distributed Generation • Provides environmental benefits over large coal plants • Displaces high priced imported on peak power • Reduces IMO fees, transmission network charges and market uplift charges ($5-$10.00/MWh) • Enhanced market liquidity due to greater number of participants • Improves the load factor of the transmission and transformation system

12. System Benefits of Distributed Generation • System Benefits Compared to Large Central Generating Plants • Shorter development and construction schedules • Faster and easier to permit • More flexible operating characteristics (faster start up time – greater ancillary benefits) • Less financial, development, construction and operating risk for Ontario’s rate payers (smaller increments of investment) • Improved reliability of supply: • Faster return to service after outages • Diversification of supply

13. Conclusions • OEB should adopt a broad scope in reviewing opportunities for LDC efficiency improvements and should include measures that improve the operating efficiency of the LDCs distribution system • DG can increase the operational efficiency of LDCs, reduce operating costs and provide net electricity system supply benefits • LDCs have an important role to play in facilitating DG in Ontario

14. Recommendations • DG is an important component of Ontario’s power supply portfolio and the OEB should revise market rules to recognize DG benefits • The Board should develop appropriate regulatory incentives to facilitate DG • Generation alternatives should be considered by the Board when reviewing transmission and transformation expansion applications • LDC rate payers should benefit from LDC involvement in DG • A portion of the system benefits provided by DG should be allocated to the DG project since LDC rate payers will benefit from LDC involvement in DG