Ontario Hydro. September 28, 1995

Ontario Hydro Ontario Hydro 700 University Avenue Toronto, Ontario M5G 1X6 O. Allan Kupcis, President & CEO September 28, 1995 Honourable Anne McLellan Minister of Natural Resources Canada Sir William Logan Building 21st Floor, 580 Booth Street Ottawa, Ontario K1A 0E4 Dear Minister: Ontario Hydro's Action Plan to Manage Greenhouse Gas Emissions Ontario Hydro is pleased to submit its Action Plan to Manage Greenhouse Gas Emissions to the Climate Change Voluntary Challenge and Registry (VCR). This Plan, which will be updated annually, is based on Ontario Hydro's Greenhouse Gas Management Strategy which was approved by our Board of Directors in January 1995. As you know, Ontario Hydro strongly supports the voluntary approach to the management of greenhouse gas emissions and has actively worked to develop and promote the VCR. Ontario Hydro will continue to endorse the Federal government's development of costeffective policies and programs to achieve greenhouse gas emission reductions. Sincerely, We wish you every success in carrying out this important initiative. O.A. Kupcis Attach. c: Hon. S. Copps Mr. M.F. Strong Ms. S. Kirby Mr. L. Lechner Mr. H.A. Clark Mr. D. McFadyen

ONTARIO HYDRO HIGHLIGHTS OF A STRATEGY TO MANAGE GREENHOUSE GAS EMISSIONS Ontario Hydro Fully supports government efforts, at national and international levels, to manage and reduce greenhouse gas emissions. The Corporation also supports a voluntary action program that is flexible and cost effective. To this end, it has committed its expertise and resources to finding solutions and taking action to reduce greenhouse gas emissions. Open dialogue and a spirit of cooperation often make the difference between success and failure. During Ontario Hydro s efforts to develop a greenhouse gas emission management strategy, the involvement of external stakeholders has been invaluable in exploring a wide variety of issues and concerns. These insights have helped direct Ontario Hydro s development of a strategic action plan that will reduce emissions to the 1990 level by the year 2000 and by a further 10% by the year 2005. Ontario Hydro s initial plans for achieving the targets set out in its long-term strategy have been developed and submitted to the Canadian Climate Change Voluntary Challenge and Registry. The objectives of the strategy are: 1) to reduce the carbon intensity (amount of greenhouse gases emitted per unit of energy) of the energy Ontario Hydro supplies to its customers; and 2) to contribute to global emission reduction. To reduce carbon intensity, Ontario Hydro will reduce the rate of emission of greenhouse gases per terawatt hour equivalent of useful energy supplied. This carbon intensity target recognizes that the utility has different demand management and electricity supply options available to meet consumer requirements. In future, customer demands will be met through options that reduce carbon intensity. The second objective, stabilization of greenhouse gases to the 1990 level by the year 2000 and a 10% reduction by the target year 2005, applies to all greenhouse gas emissions from Ontario Hydro facilities in Ontario. This target focuses on electricity supply and recognizes Hydro s accountability for its own emissions. As well, it recognizes the need to support policies that will encourage other players in the electricity sector to manage their emissions. To meet its greenhouse gas objectives, Ontario Hydro will concentrate on five areas: Supply-side energy efficiency will be pursued to achieve improvements in fossil, nuclear and hydroelectric generation efficiency and in transmission efficiency This will reduce the total amount of electricity generation required and the rate of emission From fossil generation. In-house energy efficiency, new opportunities for using waste heat, and

use of more efficient generation technologies will achieve substantial energy savings and emission reductions by the year 2000. End-use energy efficiency programs will identify and promote cost-effective energy efficiency initiatives to assist customers in reducing their use of energy Ontario Hydro s energy efficiency program For customers is forecast to achieve 4.9 TWh of energy savings by the year 2000. Renewable energy technologies (RETS) initiatives will result in reduced demand for fossil-fuelled electricity generation, thereby reducing greenhouse gas emissions. Ontario Hydro s RETs Program is designed to gain utility operating experience with a variety of advance RETs and to reduce barriers to market acceptance and customer use of these technologies. Greenhouse gas offsets will enable Ontario Hydro to reduce, avoid or sequester emissions of greenhouse gases independent of Ontario Hydro sources. Target areas for offset activities include electrotechnologies (including electric vehicles), district energy projects, supply-side and demand-side efficiencies, renewable energy supplies and the use of coal combustion byproducts in manufacturing processes. Development of market approaches will allow the marketplace to determine costeffective solutions to reducing greenhouse gas emissions, such as emissions reduction trading. This strategy element recognizes the importance of working cooperatively at home and abroad to support cost-effective approaches to the global greenhouse gas emissions problem. Supporting market approaches and voluntary initiatives like the Canadian Voluntary Challenge and Registry will enable Ontario Hydro to maintain a competitive position as the Corporation works to achieve its greenhouse gas emission reduction objectives. Ontario Hydro uses its hydroelectric and nuclear generation for base load capacity and its fossil capacity as necessary as a "swing" resource to meet remaining energy needs. Thus, the uncertainty in the forecast for Ontario Hydro s use of fossil generation, and in the resulting level of emissions, is extremely high. In addition to Fluctuations in the electricity needs of customers, changes in nuclear and hydroelectric operating conditions and performance, and the costs of reducing greenhouse gas emissions are important considerations in Ontario Hydro s efforts to manage these emissions. Although forecast greenhouse emissions are not expected to exceed 1990 levels until the year 2001, Ontario Hydro believes it is essential to have a flexible greenhouse gas strategy in place to manage these uncertainties. The strategy will enable the fossil-fuelled system to increase its output if required, rather than relying on alternatives such as electricity purchases, which may carry with them high costs and greenhouse gas emissions. The flexibility provided by the strategy also positions Ontario Hydro to use its fossil generation to take advantage of export sales opportunities and the important revenue they earn. The strategy also recognizes that the electricity sector is undergoing a period of unprecedented change. Pressures for more open competition require that Ontario Hydro provide a reliable product while continuing to reduce costs and keep electricity prices stable. In its response to the

climate change issue, the Corporation cannot ignore these changes in the marketplace without risking its competitive position. Despite the uncertainties associated with managing greenhouse gas emissions in the long-term, Ontario Hydro is more aware than ever of its social responsibilities and is committed to the responsible management of its operations and their impacts. Ontario Hydro is encouraged by the opportunity to reduce its greenhouse gas emissions voluntarily and has already made significant progress in-controlling them. It will continue to reduce greenhouse gas emissions through the implementation of new technologies, improved efficiency and innovative ideas. Ontario Hydro is confident that the voluntary approach to managing greenhouse gas emissions will be effective and is committed to do its part in helping Canada meet its international commitments. FOR FURTHER INFORMATION, PLEASE CONTACT: FOSSIL BUSINESS UNIT TELEPHONE: (416) 592-3193 OR ENVIRONMENT AND SUSTAINABLE DEVELOPMENT DIVISION TELEPHONE: (416) 592-8487 A STRATEGY TO MANAGE GREENHOUSE GAS EMISSIONS TACKLING A GLOBAL ISSUE Today we know that emissions generated by human activity are rapidly increasing the concentration of greenhouse gases in our atmosphere. Greenhouse gases include carbon dioxide (CO 2 ), methane (CH 4 ), nitrous oxide (N 2 O) and chlorofluorocarbons (CFCs). There is general scientific consensus that rising concentrations of greenhouse gases will increase the average temperature of the Earth. The result may be a rise in sea levels, shifts in climatic zones and increased frequency and severity of weather extremes. This threat to the global environment is an international issue requiring cooperation and commitment to change from all nations. In 1992, Canada joined more than 150 other countries in signing an agreement that established the United Nations Framework Convention on Climate Change. The ultimate objective of the Convention is to stabilize the concentration of greenhouse gases in the atmosphere at a level that prevents dangerous interference with the climate system. Globally, human activity requires significant electricity production, which in turn contributes about 11% of man-made atmospheric greenhouse gases. Ontario Hydro is a significant contributor to Canada s total man-made emissions of greenhouse gases, primarily in the form of CO 2 from the combustion of fossil fuels to generate electricity. Although the demand for

electricity will continue to result in some greenhouse gas emissions, Ontario Hydro will make a significant effort to manage these emissions in a responsible manner. In January of 1995, Ontario Hydro s Board of Directors approved a long-term strategic plan to reduce its greenhouse gas emissions. The strategy was developed in response to Hydro s commitment to manage the environmental impacts of its operations based on sustainable energy development principles. Even before Ontario Hydro had formalized its greenhouse gas management strategy, low load requirements and less use of fossil generation had helped to lower emissions. For instance, in 1990 Ontario Hydro emissions represented approximately 17% and 6%, respectively of Ontario s and Canada s man-made emissions of CO 2. By 1993 the figures had dropped to approximately 13% and 4%. WORKING TOWARD CHANGE Ontario Hydro has two strategic objectives in managing greenhouse gas emissions: to reduce the amount of greenhouse gases emitted per unit of energy Ontario Hydro supplies to its customers; to contribute to global greenhouse gas emissions reduction. To achieve the first objective, Hydro will reduce the rate of emission of greenhouse gases per terawatt-hour equivalent of useful energy supplied (Tg CO 2 /TWh) by 5% by the year 2000 compared to the 1990 rate (Exhibit 1). Emissions considered in this target include those from all sources that provide electricity for Ontario Hydro sale to its customers. The target focuses on emissions from generation produced by Ontario Hydro s own fossil, nuclear and hydroelectric Facilities and purchases from other sources. Emissions from facilities owned and operated by Ontario Hydro International Incorporated are not included. "Useful energy supplied" to customers includes energy supplied in the form of electricity as well as any heating and cooling energy Exhibit 2 illustrates the elements that contribute to this carbon intensity target.

EXHIBIT 1 1990 Greenhouse Gas Emissions for Carbon Intensity Target Energy Greenhouse Gas Generated Emissions (TWh) (TgCO 2 ) OH Generation 123.6 26.0 NUGs 0.4 0.2 Imports 13.3 9.8 Total 137.3 36.0 Energy Sold by Ontario Hydro: 126.7 TWh Carbon Intensity = (26.0 + 0.2 + 9.8) Tg = 0.28 Tg/TWh 129.7 TWh NUG = Non-Utility Generation The carbon intensity target recognizes that Hydro can reduce emissions by using different electricity supply and demand management options to meet customers needs. It also recognizes that there are opportunities for cogeneration of electricity and heating/cooling energy Cogeneration provides energy much more efficiently and at lower cost than providing separate energy systems. To achieve its second objective, Hydro will stabilize its total greenhouse gas emissions to the 1990 base level by the year 2000. By the year 2005, emissions will be reduced by another 10% 1. Target emissions will include all greenhouse gas emissions from Ontario Hydro owned and operated facilities in Ontario. The target will not include emissions associated with electricity purchased from other utility or non-utility generators, or emissions from facilities owned and operated by Ontario Hydro International Incorporated. Emissions of greenhouse gases from Ontario Hydro Facilities in Ontario in 1990 were approximately 26.0 Tg CO 2 equivalent. Once federal and international agreement on credits and offsets is achieved, actions taken to reduce, avoid or sequester greenhouse gas emissions, independent of their source, will be credited in the calculation of net emissions. In addition, Hydro will actively promote policies in Ontario, Canada and internationally to help stabilize and reduce emissions from sources not owned by Ontario Hydro but which help supply the electricity demands of its customers. The net emissions target focuses on electricity supply It recognizes Hydro s accountability for managing its own emissions. Exclusion of emissions associated with utility and non-utility electricity purchases from the net emissions target recognizes the evolution of the electric

industry toward deregulation and the development of competitive markets. Today, the electric industry is moving toward more open access to transmission systems and marketing beyond historical service areas. In light of this market change, Hydro will encourage governments to recognize other players in the electricity sector and the need for policy changes, such as emissions reduction trading. EXHIBIT 2 Elements Contributing to Carbon Intensity Target Carbon Intensity = GHG Emissions GHG Emissions GHG Emissions from + from NUG + from OH Supply Purchases Imports GHG = greenhouse gas Energy Sold to Energy Sold Heating & meet Ontario + for Export + Cooling Electricity Energy Sold Demand COOPERATION AND CONSENSUS Ontario Hydro recognized that in order to develop and implement a feasible long-range strategy to reduce greenhouse gas emissions, dialogue and cooperation with external stakeholders was essential. Although Hydro s external stakeholders have divergent views on how to reach emission reduction targets, there has been consensus on the need for a corporate strategy to deal effectively with the situation. The message was clear: act now to reduce greenhouse gas emissions. In December of 1993, a workshop was held with external stakeholders to explore options and opportunities available to Ontario Hydro in managing its greenhouse gas emissions. Participants in the workshop included governments, environmental non-government organizations, and industry Four themes emerged: the need for financial innovation to provide incentives for investments in efficiency; the need for provision of market mechanisms using full-cost accounting and establishment of a global market for managing greenhouse gas emissions, the need for partnerships to be developed with utilities, governments and the private sector;

the need to identify and develop new products and services, including district heating and cooling, marketing of solar water heaters, wheeling of electricity from renewable generation sources and selling expertise and databases. By November of 1994, external stakeholders had participated in review of a draft of Ontario Hydro s Strategy to Manage Greenhouse Gas Emissions. Overall, stakeholders were supportive of the draft strategy. However, there was concern among some stakeholders that Hydro would lose its competitive position by voluntarily adopting emission reduction targets in advance of competitors. Participants also suggested that further consultation is needed during the implementation of Ontario Hydro s strategy RECOGNIZING CURRENT REALITIES Ontario Hydro uses its hydroelectric and nuclear capacity for base load capacity and its fossil capacity as necessary as a "swing" resource to meet remaining energy needs. Thus, the uncertainty in the forecast of Ontario Hydro s use of fossil generation, and in the resulting level of emissions, is extremely high. In addition to fluctuations in the electricity needs of customers, changes in nuclear and hydroelectric operating conditions and performance, and the costs of reducing greenhouse gas emissions are important considerations in Ontario Hydro s efforts to manage these emissions. Although forecast greenhouse gas emissions are not expected to exceed 1990 levels until the year 2001, Ontario Hydro needs a flexible greenhouse gas strategy in place to manage these uncertainties. It requires a strategy that will enable the fossil system to increase its output if necessary rather than relying on alternatives such as electricity purchases, since such purchases may carry with them high costs and emissions of their own. Ontario Hydro also believes it is essential to have the flexibility to use its fossil generation to take advantage of export sales opportunities and the important revenue they earn.

COOPERATIVE SOLUTIONS FOR THE 21ST CENTURY Canada is one of over 150 signatories to the United Nations Framework Convention on Climate Change. The prime objective of the Convention is to stabilize the concentration of greenhouse gases in the atmosphere at a level that prevents dangerous interference with the climate system. Under the agreement, Canada and other developed countries are required to adopt national policies and take action to stabilize greenhouse gas emissions, excluding CFC emissions, 1 at their 1990 levels by the year 2000. The UN Convention also provides for joint implementation (JI). To achieve its objectives, parties to the Convention may implement policies and measures jointly to limit man-made emissions of greenhouse gases. International and Canadian pilot phases for JI are being defined. Canada presented its National Action Program on Climate Change at the first Conference of the Parties to the United Nations Framework Convention on Climate Change in April 1995 in Berlin. The program outlines the strategies that Canada will follow to: address the projected 13% gap between forecast emissions and the target of stabilizing emissions at 1990 levels by the year 2000; achieve further reductions beyond the year 2000. The Voluntary Challenge and Registry is a key element of Canada s National Action Program on Climate Change. Ontario Hydro has actively supported the development of the Voluntary Challenge and Registry and is working to make the initiative a success. 1 Chlorofluorocarbon (CFC) emissions are regulated internationally by the Montreal Protocol and its amendments. Greenhouse gas emission considerations will influence these operating decisions, as well as business decisions such as reinvestment for increased reliability of nuclear supply or increased efficiency in hydroelectric supply. In the future, full cost accounting will become an integral component of Ontario Hydro s business case analysis, on which such decisions are based. However, full cost accounting is not yet fully developed or implemented at Ontario Hydro. In the interim, consideration of greenhouse gas emissions as a factor in business decisions will be accomplished through a set of decision criteria for evaluation of the sustainable energy development implications of capital investment proposals and resource planning. The estimated investment required to meet proposed greenhouse gas emission targets at high forecast levels of demand is significant. In order to manage this risk, options for program responses under the management strategy have been designed to be flexible. Ontario Hydro is seeking additional flexibility through its support for the development of a greenhouse gas emissions reduction trading system to provide a more level playing field across the energy sector.

Ontario Hydro is integrating its strategy for management of greenhouse gas emissions with strategies for other environmental emissions, particularly other atmospheric emissions from the fossil system, The utility has developed a set of integrated air management models to assist in assessing the implications of its decisions on the environmental impacts of its operations, including greenhouse gas emissions. Human factors which produce adverse climate change are global issues, and Ontario Hydro is cognizant of the need to apply demanding environmental standards to its international activities and to account for greenhouse gas emissions associated with these activities. In development of its strategy, Ontario Hydro also recognized that the electricity sector is undergoing a period of unprecedented change. Pressures for more open competition require that Ontario Hydro provide a reliable product, while continuing to reduce costs and keep electricity prices stable. In its response to the climate change issue, the Corporation had to consider risks to its competitive market position. GUIDING PRINCIPLES FOR CHANGE Consideration of many points of view led to the development of the principles upon which Ontario Hydro s strategy is based. The principles were developed after consultations with representatives of provincial and federal governments, environmental and energy interests, customers and consumers, business and industry and Ontario Hydro employees. Ontario Hydro s activities to manage greenhouse gases will be governed by five principles: (1) Ontario Hydro will integrate activities to manage greenhouse gas emissions with other strategies including those for energy services, non-utility generation, renewable energy technologies and other environmental issues, particularly other atmospheric emissions from the fossil system. All strategies will be consistent with the principles of sustainable energy development and the reliable and safe supply of electricity. (2) Ontario Hydro will make energy sector initiatives the primary focus of its greenhouse gas emissions reduction efforts. A lower priority will be placed on activities in other sectors such as forestry and agriculture. (3) Ontario Hydro will pursue activities (to reduce greenhouse gas emissions) that make good business sense in their own right as demonstrated by a business case analysis. (4) Canadian activities will be the primary focus of Ontario Hydro s programs to manage its domestic greenhouse gas emissions. Ontario Hydro will meet its stabilization target without international joint implementation projects. However, in the longer term and to go beyond stabilization, international programs will be considered to complement activities undertaken within Canada.

(5) Ontario Hydro will recognize the international dimension of the climate change issue and consider greenhouse gas emissions in its international activities. TURNING STRATEGY INTO ACTION Ontario Hydro s strategy to manage greenhouse gas emissions is based on Five elements: Supply-Side Energy Efficiency End-Use Energy Efficiency Renewable Energy Supply Greenhouse Gas Offsets Development of Market Approaches The strategic principles outlined above will guide the implementation of programs within these five elements. Research and development has not been included as a separate element of the strategy. Research programs will be implemented within the five strategic areas as required to achieve the objectives of individual elements. In light of the many planning uncertainties and market realities that had to be considered in developing the strategy, the following assumptions were also defined to help provide direction: The fossil-fuelled generating system will continue to be the "swing" resource for Ontario Hydro during the period 1995-2004. Ontario Hydro will move toward a more commercial orientation during the period 1995-2000 as it faces increasing competition. Investment decisions will be made on the basis of a business case. Greenhouse gas emissions will be a factor in the integrated resource planning that Ontario Hydro undertakes. SUPPLY-SIDE ENERGY EFFICIENCY Improvements in generation (fossil, nuclear and hydroelectric) and transmission efficiency will reduce the amount of electricity generation required and the rate of CO 2 emission from fossil generation on an energy input basis. Ontario Hydro has developed or is developing programs to improve internal energy efficiency, including: establishing a price for electricity and energy used internally; setting efficiency targets for business units that will drive improvements in internal efficiency; developing an in-house energy efficiency program within the Customer Services Group; identifying and developing new opportunities for utilization of waste heat through energy efficient district heating and cooling opportunities; and adopting new, more efficient generation technologies when a business case can be made.

Ontario Hydro s in-house efficiency program is forecast to achieve 1 TWh of energy savings by the year 2000, equivalent to approximately 0.8 Tg CO 2. END-USE ENERGY EFFICIENCY Improvements in efficiency of electricity consumption will result in reduced demand for electricity generation. Other efficiency initiatives, such as the promotion of electrotechnologies, will improve overall energy efficiency and reduce global greenhouse gas emissions. Such initiatives may increase electricity consumption but will result in a net reduction in greenhouse gas emissions. Energy efficiency is one of four strategic objectives established by Ontario Hydro s Customer Services Group. In pursuing this objective, Ontario Hydro will: provide customer-driven, cost-effective energy efficiency initiatives; pursue low-cost and non-cash initiatives; leverage its expertise and resources by supporting, educating and involving allies and customers; encourage third-party financing; help develop electrotechnologies; recognize the role of electricity in reducing environmental impacts; and promote and initiate the adoption of energy planning processes that include external costs. EXHIBIT 3 Ontario Hydro Greenhouse Gas Emissions - Historical and Forecast 1 1 The emission forecast is based on the 1994 median load forecast and includes emission reductions from planned end-use energy efficiency initiatives (4.1 Tg CO 2 in 2000). It does not include emission reductions from supply-side energy efficiency programs, new renewable energy supply or greenhouse gas offsets. Ontario Hydro s energy efficiency program for customers is forecast to achieve 4.9 TWh of energy savings by the year 2000. These savings are equivalent to approximately 4.1 Tg CO 2. Forecast end-use energy efficiency savings and associated emissions reductions are included in the emissions estimates based on the primary energy forecast provided in Exhibit 3. RENEWABLE ENERGY SUPPLY Development of renewable energy supply will result in reduced demand for fossil-fuelled electricity generation. Ontario Hydro has approved a strategy and program to promote renewable energy technologies (RETS) that includes the following near-term objectives: to increase Ontario Hydro s experience with a variety of advanced RETS; to reduce barriers to market acceptance and customer use of RETs in Ontario; and

to assist RET suppliers in Ontario to establish new domestic and export markets for their services. In addition, the RET strategy provides a long-term vision that by the year 2020, at least 20 TWh per year of Ontario s electrical energy will be supplied by the use of advanced renewable energy technologies. The strategy does not include utility-owned hydroelectric generation. Ontario Hydro plans to facilitate the development of between 100 and 125 MW of RETs of various types by the year 2000. Development of this amount of new supply from renewable energy technologies will reduce Ontario Hydro s annual greenhouse gas emissions by approximately 0.18 Tg CO 2 by the year 2000. Increased customer use of RETs could contribute to further emissions reductions. As part of the RETs Program, a variety of financing/marketing approaches are being investigated to test and encourage customer uptake of the technologies. GREENHOUSE GAS OFFSETS Greenhouse gas offsets are activities that reduce, avoid or sequester emissions of greenhouse gases and are carried out independent of the source of emissions that are being offset. Pursuit of greenhouse gas offsets will provide opportunities for Ontario Hydro to meet its objectives if demand for the existing fossil system results in emissions greater than the targets. Ontario Hydro will pursue domestic and international offset projects consistent with its guiding principles for undertaking initiatives for greenhouse gas emissions reduction. Criteria currently under development for international and Canadian pilot phases for joint implementation will also guide selection of offset projects. Target areas for Ontario Hydro offset activities that meet stated principles include: electrotechnologies, including electric vehicles; district energy projects; supply-side and demand-side efficient activities, renewable energy supply, and utilization of coal combustion by-products in manufacturing processes. In order to demonstrate the potential for cost-effective greenhouse gas emissions reductions and to gain experience with offset projects, Ontario Hydro will: develop demonstration offset projects both domestically and internationally to offset up to 1 Tg CO 2 by the year 2000; develop an accounting method for greenhouse gas emissions associated with Ontario Hydro International Inc. activities; and

work to advance institutional arrangements for offset projects through organizations such as the Canadian Electrical Association, E7, and the World Business Council for Sustainable Development. One teragram of offsets combined with improvements in supply-side efficiency would allow the existing fossil system to generate up to 29 TWh to the year 2004 while meeting Ontario Hydro s greenhouse gas emission reduction target. DEVELOPING MARKET APPROACHES As Ontario Hydro moves into a competitive market, it will come under increasing pressure to enhance its competitive position by reducing costs. As part of its strategy to manage greenhouse gas emissions, Hydro will work in the following areas to develop the most cost-effective response to the climate change issue: Canadian Voluntary Challenge and Registry - The Registry provides a flexible and cost-effective approach when compared to prescriptive regulatory programs. Ontario Hydro will continue to work to demonstrate that meaningful reductions in greenhouse gas emissions can be achieved voluntarily through its own response to the Challenge and by working through the Canadian Electrical Association and other mechanisms to promote the participation of others. Pilot Joint Implementation Initiatives - Ontario Hydro will work in Canada and internationally to support pilot joint implementation initiatives. It will promote the potential for joint implementation to enable countries to work together toward addressing climate change in a coordinated and cost-effective manner. Emissions Reduction Trading - Ontario Hydro will support the development of a North American and global CO 2 emissions reduction trading system. Emissions reduction trading allows the market to determine cost-effective solutions to reducing greenhouse gas emissions. A North.American emissions reduction trading system would also provide a market mechanism to address emissions from non-utility generation and electricity imports and exports. ONTARIO HYDRO EMISSIONS Ontario Hydro s greenhouse gas emissions in 1990, the baseline year for stabilization, were estimated to be equivalent to 26.0 Tg CO 2. Emissions from fossil-fuelled generation contribute about 97% of Ontario Hydro s total greenhouse gas emissions. The remainder is CO 2 and CH 4 from hydroelectric reservoirs, CO 2 emissions from Ontario Hydro s vehicle fleet, N 2 O emissions from fossil generation and CFCs 1. Exhibit 4 provides additional details on Ontario Hydro s greenhouse gas emissions. The Canadian Electrical Association has proposed normalization of baseline emissions to reflect factors that affected actual 1990 emissions and that represent deviations from normal conditions. For Ontario Hydro, normalized emissions for 1990 are approximately 29.9 Tg CO 2. Factors included in normalization are:

an additional 1.4 Tg CO 2 associated with weather conditions; an additional 1.1 Tg CO 2 associated with excess hydroelectric generation in 1990; an additional 1.4 Tg CO 2 associated with electricity imports that were required to meet acid gas limits as a result of a delay in placing flue gas conditioning equipment in service. GRAPHIC Ontario Hydro plans to use actual 1990 emission levels as the basis for its targets for greenhouse gas management. Exhibit 3 (page 7) provides Ontario Hydro s historical and forecast greenhouse gas emissions under its 1994 primary energy forecast. Hydro s, 1990 emissions correspond to approximately 28 TWh of fossil-fuelled generation. Under current production forecasts, Ontario Hydro greenhouse gas emissions will exceed 1990 levels beginning in the year 2001. Emissions exceeded 1990 levels throughout most of the 1980s. Peak emissions in the previous decade were approximately 36 Tg CO 2 in 1984, 133% of 1990 emissions. A number of factors have already helped to reduce greenhouse gas emissions, including the completion of Darlington Nuclear Generating Station, upgrades to hydroelectric facilities, and the increased supply of energy from cleaner technologies (primarily from gas-fired non-utility generation). These factors, combined with demand management programs and the economic recession have significantly reduced Ontario Hydro s greenhouse gas emissions from levels in the 1980s. IMPLEMENTATION, UNCERTAINTIES AND COSTS The first step in implementing Ontario Hydro s Strategy to Manage Greenhouse Gas Emissions was the development of an Action Plan. Strategies have been approved for end-use efficiency improvements, supply-side efficiency improvements and additional renewable energy supply. Programs in these areas are defined through the annual Corporate business planning process, and under current forecasts, incremental funding is not required in these areas as a result of the greenhouse gas management strategy. However, the demonstration greenhouse gas offsets of up to 1 Tg CO 2 set out in the strategy will require an incremental investment of $5M-$20M over the period 1996-2000. Exhibit 5 illustrates program responses and costs associated with the greenhouse gas strategy under Ontario Hydro s current primary energy forecast. Under a higher energy forecast, increased demand would be placed on the fossil system and additional programs would be required to meet the targets of the greenhouse gas management strategy Under the higher primary energy forecast, greenhouse gas emissions are estimated to be 33.4 Tg CO 2 in the year 2000, 74 Tg CO 2 over the stabilization target. Additional investment would therefore be necessary to meet the stabilization target. Exhibit 5 also provides an illustrative program response For the higher primary energy forecast. An investment of up to $200M would be required over existing programs to meet the illustrative program response. Investment costs do not include any revenues associated with such programs. Although investment would be required, business case analyses would ensure an adequate rate of return on

these investments. For example, greenhouse gas offsets could include district energy projects which provide revenue associated with the sale of heating/cooling energy. Investment rates for CO 2 reductions under different programming options are estimated to be: supply-side energy efficiency: $22/tonne CO 2 end-use energy efficiency: $49/tonne CO 2 greenhouse gas offsets: $15/tonne CO 2 EXHIBIT 5 Illustrative Programs and Associated Costs for the Year 2000 Current Forecast High Forecast Primary Energy (TWh) 154.0 163.6 GHG Emissions 1 (Tg CO 2 ) 25.4 33.4 Programs Emissions Reduction (Tg CO 2 ) Incremental Cost ($M) Emissions Reduction (Tg CO 2 ) Incremental Cost ($M) Supply-side energy efficiency 0.8 0 0.8 0 End-use energy efficiency 1 0 0 3.0 147 Renewable energy supply 0.2 0 0.2 0 Greenhouse gas offsets 1.0 15 3.4 51 Total 2.0 15 7.4 198 Net GHG Emissions 23.4 26.0 1 The primary energy forecasts and associated greenhouse gas emission estimates include end-use energy efficiency initiatives that will result in a 4.1 TG CO 2 reduction of greenhouse gas emissions. The emission reductions associated with end-use energy efficiency initiatives included in the primary forecast are therefore not shown in the table and are not included in the calculation of net emissions. LOOKING TO THE FUTURE Ontario Hydro is fully committed to develop and implement programs that will help reduce greenhouse gas emissions now and in the future. The Corporation will publicly report on its success in meeting its targets for reduction in both carbon intensity and net emissions, in its annual Sustainable Energy Development Performance Report and to the Canadian Voluntary Challenge and Registry Estimated emissions associated with purchases from non-utility generators, electricity imports and Ontario Hydro International Incorporated investments will also be reported.

Ontario Hydro has already embarked upon its long-term strategy to reduce its contribution to global greenhouse gas emissions. The Ontario Hydro Strategy to Manage Greenhouse Gas Emissions is a commitment to manage the environmental impacts of Hydro operations based on sustainable energy development principles. Many variables will impact on the cost of implementing the strategy, including the rate of growth in electricity demand and the extent of reliance on fossil-fuelled generation. In turn, these will impact on the timing and extent of measures required to meet the commitments made in the strategy. These challenges will be met as Ontario Hydro works towards meeting its strategic goals. FOOTNOTES A STRATEGY TO MANAGE GREENHOUSE GAS EMISSIONS 1 The Toronto Conference on the Changing Atmosphere established a target of 20% reduction in carbon dioxide emissions from 1988 levels by the year 2005. The Ontario Hydro target corresponds to a 17% reduction by the year 2000 and a 26% reduction by 2005 based on 1988 levels. A 1990 baseline is used throughout the strategy. ONTARIO HYDRO EMISSIONS 1 Ontario Hydro has approved a Management Strategy for Ozone-depleting Substances that will enable Ontario Hydro to move beyond compliance and achieve near-zero emissions by December 31, 1995.