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Board of Directors MeetingJanuary, 2002
Andrea Nowack ⦁ Hugh Livengood ⦁ Nada Al-Mousa ⦁ John Dillman ⦁ Katherine Oglietti ⦁ Chris Wienbeck
Why We Are Here Today
Chalillo Dam Decision (taking into consideration different issues)• Build• Alternative Site• Don’t Build
Adapt Fortis’ strategic proposition to deliver the long-term growth and earnings you are looking for
Fortis Inc.
Company’s Goals and Strategy: Today Goal is to deliver earnings to our shareholders
while continuing to provide our customers with quality service at reasonable prices
Strategy of combining profitable growth and disciplined acquisition strategy to produce positive results and to provide our shareholders with a healthy return
Source: Fortis Annual Report 2001
Who We Are
Distribution Real Estate & HotelsGeneration
FortisAlberta
FortisBC
Newfoundland Power
Maritime Electric
FortisOntario
Belize Electricity
Caribbean Utilities
British Columbia
Newfoundland
Ontario
Belize
Upper New York State
Fortis Properties
Diversified international electric utility holding company
The Chalillo Dam in Belize
Issue: Non-Market Forces How are non-market forces affecting:• Our approach to new projects and strategies?• Our ability to deliver long-term growth and earnings?
Fortis
Competitors
Customers
Competitors
Supplier
ENGOs
Government
Media
Community
Environment ?
?
?
?
?
Financial Analysis
Fortis Financial Snapshot1999 2000 2001
Sales Growth 6.87% 14.84% 8.28%ROE 8.55% 9.73% 12.41%
RNOA 2.59% 2.71% 3.42%Leverage 3.31 3.59 3.62
2000 20010%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
14.9%24.3%
85.1%75.7%
Contribution to Earnings
All other holdingsBelize
Chalillo Dam Financial Benefits (50 yr NPV)
Chalillo Earnings Mollejon Capacity Factor
Mollejon Increase in Earnings
Fortis Earnings (BEL)
($10,952,729) Worst – 80% $11,196,761 $163,502
($10,952,729) Likely – 90% $16,795,142 $3,914,142
($10,952,729) Best Case – 99% $21,833,684 $7,290,240
As a stand alone project, Chalillo (7.3 MW) is not profitable
However, Chalillo will make Mollejon (25 MW) more productive, likely generating an additional $4 million for Fortis
Indirect Financial Benefits A strategic move with long-term financial benefits • Cost savings from improved river management • i.e. $4 million in damage after Iris in 2000
• Fast-growing market with substantial scope for growth
20002001
20022003
20042005
20062007
20082009
20102011
20122013
20142015
$0
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
$200 Million Market by 2015
20002001
20022003
20042005
20062007
20082009
20102011
20122013
20142015
020000400006000080000
100000120000140000160000180000
160 Thousand Customers by 2015
Ethical Considerations
Stakeholder Issues
Canada
Fortis
Belize
Belize Stakeholders ConcernCommunity
Access to Electricity
Jobs
Preserving Heritage
Environment
Protection
Impact to Neighboring Ecosystems
Mayan Ruins
Government
Economic Growth
Stability
Strengthen Party Power
Fortis
Future Belize Profit
Current Profit
Community Relations
Canada Stakeholders ConcernCommunity and Customers
Protect the Environment
Corporate Responsibility
Electricity Prices
NGOs
Protect the Environment
Reputation
Represent Belize’s Interests?
Government
Economic Growth
International Relations
Regulations
Fortis
Profit
Reputation
Community Relations
Ethical Frameworks
Universal Rights Social Contract
Consequentialism Personal Ethics
Ethical Frameworks
Universal Rights
Social Contract Consequentialism Personal Ethics
Basic Idea: There are basic rights enjoyed by all people Ethical acts do not violate these rights
Environmental Concern: The environment is not considered to have rights Questionable whether there is a right to enjoy wildlife as found untouched by
human actions There are 30 Universal Human Rights designated by the United Nations –
Example: Right to life, liberty, and security of person
Corporate Policy: Ethical corporate policy requires identifying these rights and ensuring that
business policy does not violate them
Ethical Frameworks
Universal RightsSocial
ContractConsequentialism Personal Ethics
Basic Idea: Communities are held together through observation of basic norms and
values Ethical acts do not violate these norms and values A community upholds various rights as determined to be a common good
Environmental Concern: Protecting the environment is considered good if the norms of the
community support it
Corporate Policy: The ethical corporate action should uphold the values of the community
Ethical Frameworks
Social ContractConsequen
-tialismPersonal Ethics
Basic Idea: One must consider all likely consequences of an action and actions are more
right if they promote more happiness Collective happiness of all concerned is the goal The likely consequences of an action must be considered to ensure the
greatest good
Environmental Concern: The impact to the environment should be considered
Corporate Policy: The ethical corporate action must weigh the likely consequences of an action
and to ensure the greatest good
Universal Rights
Ethical Frameworks
Social Contract ConsequentialismPersonal
EthicsBasic Idea: Individual conscience’s determine the rightness of an action
Environmental Concern: The The environment is only considered if desired by the individual
Corporate Policy: The ethical corporate action is determined through individual preferences
Universal Rights
Ethical Frameworks’ Evaluation Criteria
Shareholder Analysis Is the framework easily communicated to the shareholders? Is the framework compatible with the shareholders other considerations?
Group Application Can the framework be applied by a group?
Stakeholder Analysis Does the framework align with the stakeholders ethical views? Does the framework address the issues most important to the stakeholders? Does the framework allow for drastically different communities of interest?
Ethical Frameworks’ Evaluation Criteria
Ethical Theory Shareholder Analysis
Stakeholder Analysis
Group Application
Total Applicability to Business Issues
Universal Rights 7 7 6 20
Social Contract 4 8 7 19
Consequentialism 8 10 9 27
Personalistic Ethics 1 1 5 7
Alternatives and Impact
Long Term Impact
Economic Social Environmental Legal
Long Term Impact Evaluation
• Score Card– Compare the three alternatives• Grade each alternative according to long-term impact:
economic, social, environmental, and legal
• Score Card Grading
-50 +5Negative Impact No Impact
Positive Impact
Long Term Impact EvaluationStakeholder BUILD DON’T
BUILDALTERNATIVE
SITEEconomic- Financial- Cost, access, reliability- Employment
FortisBelizeBelize
+2+5+2
-2-20
+2+2+2
Social - Steady supply of water- Flood control benefits
BelizeBoth
+4+4
00
+3+2
Environmental- Natural Habitat- Greenhouse Emissions- Air and noise pollutions
BelizeBelizeBelize
-4+2+2
0-3-3
-3+2+2
Legal- Legal actions seeking stoppage or injunctions
Fortis -3 0 -3
TOTAL +14 -10 +9
-5 0 +5Negative Impact No Impact
Positive Impact
Key Take-Aways from Analyses
• Future strategy proposition must take non-market forces into consideration
• Chalillo dam makes financial sense and adds additional benefits to Mollejon dam
• In order to make a humane, ethical decision all likely consequences must be considered
• Several positive long-term impacts related to social, economic and environmental issues
Decision & Implementation Plan
Build the Chalillo Dam!
Identify and Address the Influencers Conduct a full nonmarket stakeholder analysis to
understand our stakeholders and their level of influence
Partner with a third party, such as Tides Canada, to help conduct analysis
Address the influencers
Develop Strategic Partnerships Get other NGOs on our side• Canadian non-
environmental NGOs (ie, Development and Human Rights NGOs)
• Belizean NGOs and ENGOs
Potential Partners:• Centre for Affordable
Water and Sanitation Technology (CAWST)
• IDRC – CRDI • Oxfam Canada
Environment
International
Development
Human Rights
Move Forward With Transparency Conduct a proactive media
campaign to tell our story Issue public-facing
quarterly updates Implement a community
committee Develop a social contract Publically issue a third-
party environmental analysis
Always be transparent, even if the message is negative
Move Forward With Transparency Conduct a proactive media
campaign to tell our story Issue public-facing
quarterly updates Implement a community
committee Develop a social contract Publically issue a third-
party environmental analysis
Always be transparent, even if the message is negative
10% of labor must be from Belize
Move Forward With Transparency Conduct a proactive media
campaign to tell our story Issue public-facing
quarterly updates Implement a community
committee Develop a social contract Publically issue a third-
party environmental analysis
Always be transparent, even if the message is negative
10% of labor must be from Belize
Fund Natural Reserve
Sustainable Long Term Strategies
Developing Fortis’ CSR Strategy
Investment Strategic CSR
Current Situation Pernicious CSR
Shareholders
Society
Harms
Benefits
BenefitsHarms
Strategic CSR: Win-Win Strategy
Investment Strategic CSR
Current Situation Pernicious CSR
Shareholders
Society
Harms
Benefits
BenefitsHarmsWin-Win Strategy
Community- building projects that support company long term objectives Company is seen as a game-changer
Bottom line: Investment improves community and long term shareholder value
Game Changing Opportunities
Source: www.internationalrivers.org
Hydroelectric Power Policy
Kyoto Protocol (2001)
World Commission on
Dams (2000)
World Bank (2002)Hydro-Quebec
Company (2001)
Demonstrate greenhouse gas reduction Trade Carbon credits
Become a forum member and sponsor Lead global policy discussion
Create Public-Private Partnership Benefit from neutral third party advocate
Fortis can:
Environ. Protection Social Acceptability Economic Benefits
Measuring the Win-Win PositionGoal - deliver earnings to our shareholders while continuing to provide our customers with quality service at reasonable price as an environmentally responsible company
Community Win
• Social Return on Investment
Fortis Win
• Shareholder Return on Social Investment
Implementation Timeline
Q1 2003
Start dam construction
Q4 2005
Completion and Lake
filling
Q1 2006
Dam is fully
operational
May 2002
City/Village Council meeting
Oct 2002
Community Board
Member election
Exit Strategy2015
Dec 2002
Community Engagement
Contract
Chalillo dam media
campaign
Become a member of the World
Commission on Dams
Q2 2003
Create strategic
alliance with Hydro
Quebec
Q3 2003
Measure firm’s
greenhouse gases
Q3 2004
Sell carbon credits to
other firms
Q1 2003
Create long-term CSR strategy
Public Private Partnership
with The World Bank
Chalillo Dam ConstructionChalillo Dam CSR ActivitiesFortis Long Term CSR StrategiesQuarterly public project update
Fortis: Delivering Sustainable Hydroelectric Power to the Globe
Thank You!
APPENDIX
AppendixChalillo Dam• Overall Benefits• Challenges
Fortis• Revenues and Earnings• Cash Flows• Project Finance Calculations
Short-Term Strategies• Evaluating ENGO Influence
Long-Term Strategies• Current Situation – CSR• Investment CSR• Pernicious CSR• Hydro-Quebec• When are we in a Win-Win position
Overall BenefitsFortis Government Community
Increase productivity in Mollejon (25MW), maximizing
the hydroelectric power generation of the river
Electrification important concept to improve the
country’s economy
Flooding control on the Macal River with significant
economic, health and safety benefits
Benefits the 50-year energy deal with the Government
5% participation in BELCO also as revenue generator
Steadier water supply for residents, especially during
dry seasonPolitical success leading to
re-electionFlexibility to provide better services to the customers
Create employment with additional economic benefits
Most economical option for generating power in Belize
Reduce reliance on petroleum generation
Enhance reliability, reducing power outages and secure supply of energy
Reduce greenhouse emissions and possibility of oil spills
Increase electrical output and raise energy self-sufficiency
Chalillo dam critical to increase the supply of electricity
ChallengesAdversely impact a biological rich and diverse area
ENGOs campaigns against the project
Fortis’ Revenue and Earnings
Belize growing importance, but Canada is the main focus
2000 2001Revenue
0
100
200
300
400
500
600
700
63.6 88.5
516.6539.8
Belize Fortis (other)
2000 2001Earnings
0
10
20
30
40
50
60
5.513
31.3
40.4
Belize Fortis (other)
Cash Flow Chalillo
Investment 2003 - 2012 2013 - 2022 2023 - 2032 2033 - 2042 2043 - 2052
($40,000,000)
($20,000,000)
$0
$20,000,000
$40,000,000
$60,000,000
$80,000,000
-$27,300,000
$23,506,850
$29,383,563 $29,383,563 $29,383,563 $29,383,563
-$27,300,000
$35,435,700
$44,294,625 $44,294,625 $44,294,625 $44,294,625
-$27,300,000
$47,364,549
$59,205,686 $59,205,686 $59,206,686 $59,205,686
Cash Flows from Chalillo
Worst Likely Best
Our Approach to Evaluating InfluenceCompany Power Legitimacy Urgency Probe International
Natural Resources Defense CouncilSierra Club
The Sierra Club of Canada
Humber Environmental Action GroupHumber Natural History SocietyPetitcodiac Riverkeeper
Action Environment
Defenders of Wildlife
Environment Coalition of Prince Edward IslandFalls Brook Centre
BACONGO
This exercise will allow us to group stakeholders into
categories based on influence
Current Situation
Investment Strategic CSR
Current Situation Pernicious CSR
Shareholders
Society
Harms
Benefits
BenefitsHarms Current Situation
Damage to society Negative publicity to company reputation
Bottom line: Reduce long term shareholder value
Investment
Investment Strategic CSR
Current Situation Pernicious CSR
Shareholders
Society
Harms
Benefits
BenefitsHarms Typical CSR
Non-strategic philanthropy Positive, short term publicity for company
Bottom line: Non-strategic use of shareholder funds
Pernicious CSR
Investment Strategic CSR
Current Situation Pernicious CSR
Shareholders
Society
Harms
Benefits
BenefitsHarms Pernicious CSR
Philanthropy that negatively impacts the community Positive, short term publicity for company
Bottom line: Negative impact on society and long-term shareholder value
Strategic Ally: Hydro Quebec, CanadaHydroelectric Power for Sustainable Development Connects hydroelectricity with Canada’s objectives for reducing greenhouse
gas emissions under the Kyoto Protocol Foundation Hydro-Québec pour l'environnement (2001)
Systematically Monitor:1. Environmental
Protection2. Social Acceptability3. Economic Benefits
When are we in the win-win position?
Community Win - Social Return on Investment
Fortis Win - Shareholder Return on Social Investment
Quantify the positive impact on the environment, society, and the local economy
Strategic Partnerships Established that increase leverage and reduce cost
Create a Sustainability Report Shape global policy and public opinion on hydroelectricity
Stakeholder dialogue and active engagement
Win bids and smoother acquisition process
Project financing support and “smart subsidies” from Multilateral and Bilateral organizations
Reduced expenditures in defensive PR, environmental damage repair, and social concessions
Goal is to deliver earnings to our shareholders while continuing to provide our customers with quality service at reasonable price AND responsibly impacting the environment