ONTARIO ENERGY BOARD. IN THE MATTER OF the Ontario Energy Board Act, 1998; S.O. 1998, c.15, Sched B, as amended;

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1 Filed: October 16, 2008 PowerStream Inc. (ED ) and Barrie Hydro Distribution Inc (ED ) Page 1 of ONTARIO ENERGY BOARD IN THE MATTER OF the Ontario Energy Board Act, 1998; S.O. 1998, c.15, Sched B, as amended; AND IN THE MATTER OF an application by PowerStream Inc. and Barrie Hydro Distribution Inc. under section 86 of the Ontario Energy Board Act, 1998 seeking an order for leave to amalgamate; AND IN THE MATTER OF an application by PowerStream Inc. and Barrie Hydro Distribution Inc. under section 74 of the Ontario Energy Board Act, 1998 seeking an order to amend the distribution licence of PowerStream Inc. AND IN THE MATTER OF a request by Barrie Hydro Distribution Inc. under section 77(5) of the Ontario Energy Board Act, 1998 seeking the cancellation of its distribution licence. APPLICATION 1. PowerStream Inc. ( PowerStream ) and Barrie Hydro Distribution Inc. ( Barrie Hydro ) hereby jointly apply to the Ontario Energy Board (the Board or the "OEB"), pursuant to section 86(1)(c) of the Ontario Energy Board Act, 1998, S.O. 1998, c. 15 (Schedule B) (the Act ), seeking leave to amalgamate PowerStream and Barrie Hydro. PowerStream and Barrie Hydro are collectively referred to in this Application as the Applicants and the amalgamated company is referred to as MergeCo. The amalgamation is referred to as the Proposed Transaction. 2. The closing date of the Proposed Transaction is December 31, If the Board grants leave to PowerStream and Barrie Hydro to amalgamate, upon closing of the Proposed Transaction, Barrie Hydro requests, pursuant to section 77(5) of the Act, that its electricity distribution licence be canceled. PowerStream has requested, MAAD Application

2 Filed: October 16, 2008 PowerStream Inc. (ED ) and Barrie Hydro Distribution Inc (ED ) Page 2 of under section 74 of the Act, that its distribution licence be amended to include in its service area the area currently served by Barrie Hydro. 3. PowerStream owns, operates and manages assets associated with the distribution of electricity within the geographic territory and municipal boundaries of the City of Vaughan, and the Towns of Markham, Richmond Hill and Aurora, as described in its electricity distribution licence (ED ). 4. Barrie Hydro owns, operates and manages assets associated with the distribution of electricity within the geographic territory and municipal boundaries of the City of Barrie and the communities of Bradford, West Gwillimbury, Thornton, Alliston, Beeton, Tottenham and Penetanguishene, as described in its electricity distribution licence (ED ). 5. This Application meets the requirements of the Board s Decision regarding three separate Applications (RP /EB /EB /EB ) under section 86 of the Act (the Section 86 Decision ). The Section 86 Decision established the scope of issues that the Board will consider in determining applications under section 86 of the Act. This Application is also based on the Board s Report entitled Rate-making Associated with Distributor Consolidation (EB ) (the LDC Consolidation Report ). This Application is supported by the attached filing entitled Preliminary Filing Requirements for Applications under Section 86 of the Ontario Energy Board Act, Currently, Markham Enterprises Corporation ( MEC ) holds 43% of the shares of PowerStream, and Vaughan Holdings Inc ( VHI ) owns 57% of the shares of PowerStream. MEC and VHI are wholly owned by the City of Vaughan and the Town of Markham respectively. 7. Currently, Barrie Hydro Holdings Inc. ( BHHI ) holds 100% of the shares of Barrie Hydro. BHHI, in turn, is wholly owned by the City of Barrie. 8. PowerStream, Barrie Hydro and their respective shareholders (collectively referred to as the Parties ) are all parties to the Proposed Transaction. There are no other parties to the Proposed Transaction.

3 Filed: October 16, 2008 PowerStream Inc. (ED ) and Barrie Hydro Distribution Inc (ED ) Page 3 of Upon completion of the Proposed Transaction, the City of Barrie through BHHI will hold 20.5% of the shares of MergeCo. The City of Vaughan through VHI will hold 45.3% of the shares of MergeCo and the Town of Markham through MEC will hold 34.2% of the shares of MergeCo. For one year following the closing date of the Proposed Transaction (i.e., until December 31, 2009), MergeCo will co-brand itself PowerStream Inc. Barrie Hydro Distribution with respect to customers in the service territory currently served by Barrie Hydro. 10. The No Harm Test 11. The details of the Proposed Transaction were negotiated over the course of year by the Parties to the Merger Participation Agreement (A copy of the Merger Participation Agreement is provided in Attachment 1.5.2). The Parties had due consideration for the no harm test as defined in the Section 86 Decision to ensure that the Proposed Transaction would not have an adverse effect relative to the status quo of each of the Applicants and their customers in keeping with the Board's statutory objectives. The Parties submit that the Proposed Transaction will not have an adverse effect in terms of the factors identified in the Board s objectives in section 1 of the Act. Accordingly, the Parties submit that the Proposed Transaction passes the no harm test. 12. Protection of the interests of consumers with respect to prices and the adequacy, reliability and quality of electricity service 13. The Proposed Transaction is expected to contribute to reducing the upward pressure on electricity distribution rates in the long term for customers across PowerStream and Barrie Hydro service areas. 14. Service levels will be maintained or improved. Following the Proposed Transaction the Barrie Hydro service territory will be monitored from a 24/7 control centre that PowerStream currently operates. 15. PowerStream has a rigorous capital investment process. This will be incorporated with Barrie Hydro s current practices to ensure that MergeCo develops an asset management plan that improves upon the processes that are currently in place and that best suits a company of its size.

4 Filed: October 16, 2008 PowerStream Inc. (ED ) and Barrie Hydro Distribution Inc (ED ) Page 4 of Promotion of economic efficiency and cost effectiveness in the distribution and demand management of electricity and to facilitate the maintenance of a financially viable electricity industry. 17. The Proposed Transaction will create a partnership of 3 municipalities which will retain public control of this essential service. This is an important factor to customers within both existing service territories. 18. The projected net savings flowing from the Proposed Transaction are in the range of $5 to $5.5 million per year. 19. Merger net transition costs are expected to be equal to approximately 1 year s projected savings. 20. Capital expense savings are expected to average approximately $850,000 each year over 10 years. 21. There will be no direct involuntary employee layoffs of union or management staff. 22. The projected dividend stream to all shareholders will be enhanced. This will help ensure the on-going financial viability of MergeCo and its shareholders. 23. Employee opportunities include: 23.1 Product and service innovation opportunities for employees to develop new skills and to be at the leading edge of technology and service innovation Access to increased training and development opportunities across the organization and the ability to further enhance their skills through corporate-wide training programs MergeCo will have the flexibility and critical mass to be a leader in the Ontario electricity industry. Its employees will have confidence about the future of the company and its growth potential MergeCo will continue to create, implement, and promote a desired corporate culture for its employees. 24. The increased customer base and value of MergeCo will enhance the company s ability to raise lower cost of capital as required going forward.

5 Filed: October 16, 2008 PowerStream Inc. (ED ) and Barrie Hydro Distribution Inc (ED ) Page 5 of PowerStream has been a leader in instituting Conservation and Demand Management (CDM) initiatives, some of which have been adopted by the Ontario Power Authority as province wide CDM programs. For example, the No Catch to Conserve Program was adopted by the OPA as was the Power Savings Blitz Program that is currently being offered province wide. Other CDM initiatives include; the Peaksaver program, the Electricity Retrofit Incentive Program, Community Conservation Workshops, Conservation Education periodicals, a Renewable energy demonstration facility, School Education Programs, and Watt Reader Library Programs. Barrie Hydro has participated in many of the same programs. Cost effective CDM programs provide benefits through reduced electricity consumption. It is expected that MergeCo will continue to be a leader in instituting CDM initiatives. Not having to duplicate programs will allow for the potential to improve CDM initiatives. 26. Implementation of best practice processes and systems used by the Applicants for example in customer management functions of call center and billing will help improve MergeCo s quality of service. 27. Transition Costs 28. The Applicants estimate that they will incur a one-time transition cost of $5M for consulting, tax, legal, IT (including CIS, ERP, GIS and SCADA), regulatory, and voluntary packages. These costs will be offset by the synergies realized by MergeCo. That is, overall costs will be lower as a result of the Proposed Transaction. 29. Timing for Rebasing 30. The LDC Consolidation Report provides that the ability to retain any achieved savings for a sufficient amount of time to provide a reasonable opportunity to at least offset the costs of a transaction will be an important factor in a distributor s consideration of the merits of consolidation (at p. 4). 31. As anticipated by the Board, the ability of MergeCo to retain savings attributable to the consolidation, was an important factor in the Parties consideration of the merits of the Proposed Transaction. The deferral of rebasing MergeCo combined with the

6 Filed: October 16, 2008 PowerStream Inc. (ED ) and Barrie Hydro Distribution Inc (ED ) Page 6 of Board s incentive rate mechanism will give MergeCo time to retain savings to offset costs while protecting the interests of consumers. 32. With respect to the scheduling the deferral of rebasing to reflect costs attributable to the consolidation, the LDC Consolidation Report allows a consolidated entity to defer rebasing any costs attributable to a consolidation for up to 5 years from the closing date of a transaction. It states: Allowing a distributor the option of scheduling the rate rebasing for the consolidated entity at any time up to the five year limit accommodates distributors that may require an increase in operating, maintenance or capital expenditures shortly after closing of the transaction, as well as distributors that wish to have the benefit of a longer period in which to off-set transaction costs with efficiency savings (at p. 5) 33. Consistent with this approach, the Applicants propose to defer the rate rebasing of the consolidated MergeCo up to December 31, 2013, which is within the period of up to 5 years from the closing date of the Proposed Transaction (i.e., December 31, 2008). Barrie Hydro went through a cost rebasing effective May 1, Its rates will be adjusted in accordance with the Board s 3 rd Generation Incentive Regulation ( 3 rd GIRM ) Mechanism effective May 1, PowerStream has been selected by the Board to have a cost rebasing under the Board s 3 rd GIRM policy in support of an Order approving its rates for electricity distribution service effective May 1, This rebasing will ensure that the costs underlying the rates of the predecessor utility are just and reasonable. Consistent with the policy of the LDC Consolidation Report, that rebasing will not address savings attributable to the Proposed Transaction. 35. The benefits of the Proposed Transaction and the negotiated agreement between the Parties to the Proposed Transaction were based on estimated approved rates for PowerStream (i.e. after rebasing) and Barrie Hydro as of May 1, 2009 (i.e. after the 3 rd GIRM rate adjustment).

7 Filed: October 16, 2008 PowerStream Inc. (ED ) and Barrie Hydro Distribution Inc (ED ) Page 7 of The rates of MergeCo will be subject to 3 rd GIRM up to the time of rebasing MergeCo s rates. 37. Rate Harmonization 38. The Applicants propose to harmonize distribution rates within 3 to 5 years from the date of closing the Proposed Transaction; before the time of MergeCo s rate rebasing. The rate harmonization process will be similar to the method adopted by PowerStream and approved by the Board in Application EB to harmonize the rates across the four former rates zones of Richmond Hill, Aurora, Markham and Vaughan. 39. Until that time the Applicants propose to retain the two separate rate zones for customers in each of the service areas that is those currently served by PowerStream and those currently served by Barrie Hydro. 40. Estimated merger savings and rate harmonization changes have been calculated on the basis of the stand alone PowerStream and Barrie Hydro post May 1, 2009 rates. 41. The Proposed Timeline is therefore: 41.1 May 1, 2009 PowerStream rebased rates 41.2 May 1, 2009 Barrie Hydro 3rd GIRM rate adjustment 41.3 May 1, 2010 MergeCo 3rd GIRM rate adjustment 41.4 MergeCo rate harmonization application will be filed within 3 to 5 years from the date of closing of the Proposed Transaction 41.5 Rebasing of MergeCo scheduled within 5 years from the date of closing of the Proposed Transaction

8 Filed: October 16, 2008 PowerStream Inc. (ED ) and Barrie Hydro Distribution Inc (ED ) Page 8 of Net Metering Threshold 43. The current net metering thresholds of PowerStream and Barrie are 14,914 kw and 2,831 kw respectively. The Applicants respectfully submit that the Board add together the kw threshold amounts allocated to the individual utilities and assign the sum to MergeCo (17,745 kw). 44. Net System Load Shape 45. The Applicants confirm that the annual average price of competitive electricity service based on the common net system load shape differs by less than 1 percent from the annual average price that would result from using the net system load shape representing each individual distributor s service area after the change in service area. 46. Relief Sought 47. The Applicants accordingly apply to the Board, for the following Orders: a. an Order granting PowerStream Inc. and Barrie Hydro Distribution Inc. leave to amalgamate pursuant to section 86 of the Act on terms that approve the Applicants proposals for Net Metering Threshold, Rate Harmonization and Timing for Rebasing; b. an Order under section 74 of the Act amending the distribution licence of PowerStream Inc. ED ; c. an Order under section 77(5) of the Act cancelling licence ED for Barrie Hydro Distribution Inc.; and d. an Order deeming the net metering threshold for MergeCo to be 17,745 kw. 48. The Applicants will provide the Board notice of the completion of the Proposed Transaction so that items referred to numbers (b) through (d) can be completed.

9 Filed: October 16, 2008 PowerStream Inc. (ED ) and Barrie Hydro Distribution Inc (ED ) Page 9 of PowerStream requests the Board to give reasons, in writing, for its final decision and order(s) in this proceeding. This request is made pursuant to subsection 17(1) of the Statutory Powers Procedure Act. 50. Contacts 51. The following are the names and addresses of Barrie Hydro and PowerStream's authorized representatives and its counsel for the purpose of serving documents on PowerStream in this proceeding: 230 (a) authorized representatives: Ms. Paula W. Conboy Director of Regulatory and Government Affairs PowerStream Inc Address for personal service and mailing address: 161 Cityview Boulevard Vaughan, ON L4H 0A Telephone: Facsimile: paula.conboy@powerstream.ca Mr. Stephen Perry Manager of Rates and Regulatory Affairs and CDM Barrie Hydro Distribution Inc. Address for personal service and mailing address: 55 Patterson Road PO Box 7000 Barrie, ON L4M 4V8 Telephone: Facsimile: sperry@barriehydro.com

10 Filed: October 16, 2008 PowerStream Inc. (ED ) and Barrie Hydro Distribution Inc (ED ) Page 10 of (b) counsel: Ms. Christine E. Long Borden Ladner Gervais LLP Address for personal service and mailing address: Suite 4100 Scotia Plaza 40 King Street West Toronto, ON M5H 3Y4 Telephone: Facsimile: Mr. George Vegh McCarthy Tétrault LLP Address for personal service and mailing address: Suite 5300 Toronto Dominion Bank Tower Toronto, ON M5K 1E6 Telephone: (416) Facsimile: (416) Dated October 16, 2008 at Toronto, Ontario PowerStream Inc. by its counsel Borden Ladner Gervais LLP ::ODMA\PCDOCS\TOR01\ \9 per: Original Signed by Christine E. Long Christine E. Long

11 Ontario Energy Board Preliminary Filing Requirements For Applications under Section 86 Of the Ontario Energy Board Act, 1998 INSTRUCTIONS: All applicants must complete and file the information requested in Part I. If the transaction would result in a change in control of any of the parties to the proposed transaction, the applicant must also complete and file the information requested in Part II. The Ontario Energy Board (the "Board") has established this form under section 13 of the Ontario Energy Board Act, 1998 (the "Act") and requires that a proceeding under section 86 of the Act be commenced by filing this form. Please note that the Board may require information that is additional or supplementary to the information filed in this form and that the filing of the form does not preclude the applicant from filing additional or supplementary information. For applications involving asset sales between licensed distributors or transmitters as made under section 86(1)(b) of the Act, the Preliminary Filing Requirements for Applications Under Section 86(1)(b) of the Ontario Energy Board Act, 1998 form is required. For all other transactions made under section 86(1)(b), including leasing arrangements, this form should be used. If the transaction involves a leasing arrangement, the applicant must also complete and file the information requested in Part III. For transactions involving a non-licensed entity, please contact Market Operations at market.operations@oeb.gov.on.ca for further guidance. Persons giving a Notice of Proposal under sections 80 or 81 of the Act in addition to filing an application under section 86 of the Act must also complete the Preliminary Filing Requirements for a Notice of Proposal Under Sections 80 and 81 of the Ontario Energy Board Act, 1998 form in addition to this form. Please be advised that depending on the nature of the proposed transaction, the parties to the proposed transaction may be required to apply for the cancellation of an existing licence, an amendment to an existing licence, the issuance of a new licence or any combination thereof. Such applications are to be made under separate cover as those types of applications are subject to a separate process. Parties may apply for the cancellation of an existing licence, an amendment to an existing licence, the issuance of a new licence or any combination thereof at the same time the parties apply for approval of the proposed transaction. The following table provides a list of the additional information and copies of documentation required to accompany the Filing Requirements, which are provide in the second table below. PART I: GENERAL MINIMUM FILING REQUIREMENTS All applicants must complete and file the information requested in this Part. 1.1 Nature of the application Please indicate the nature of the application: Check Box For leave for a transmitter or distributor to sell, lease or otherwise dispose of all or substantially all of its transmission or distribution system (s. 86(1)(a)). For leave for a transmitter or distributor to sell, lease or otherwise dispose of that part of its transmission or distribution system that is necessary in serving the public (s.86(1)(b)). For leave to amalgamate with any other corporation (s. 86(1)(c)). X For leave to acquire voting securities that will exceed 20% of a distributor or transmitter (s. 86(2)(a)).

12 For leave to acquire control of a company that holds more than 20% of the voting securities of a transmitter or distributor (s. 86(2)(b)) In conjunction with this application, will a notice of proposal be given to the Board under Section 80 of the Act, concerning the intention of a transmitter or distributor (or its affiliate) to acquire an interest in or construct a generation facility in Ontario or to purchase shares in a generation facility in Ontario? If so, this application must be filed together with a completed Preliminary Filing Requirements for a Notice of Proposal Under Sections 80 and 81 of the Ontario Energy Board Act, 1998". NO In conjunction with this application, will a notice of proposal be given to the Board under Section 81 of the Act, concerning the intention of a generator (or its affiliate) to acquire an interest in or construct a transmission or distribution facility in Ontario or to purchase shares in a transmission or distribution facility in Ontario? If so, this application must be filed together with a completed Preliminary Filing Requirements for a Notice of Proposal Under Sections 80 and 81 of the Ontario Energy Board Act, 1998". NO 1.2 Identification of the Parties Applicant Name of Applicant PowerStream Inc. ( PowerStream ) 161 Cityview Blvd Vaughan ON L4H 0A9 Name of Individual to Contact: Dennis Nolan EVP Corporate Services and Secretary File No: (Board Use Only) Telephone Number (905) Facsimile Number (905) Address dennis.nolan@powerstream.ca Other Parties to the Transaction If more than one attach list Name of Other Party Barrie Hydro Distribution Inc. ( Barrie Hydro ) Address of Head Office 55 Patterson Road PO Box 7000 Barrie, Ontario L4M 4V8 Name of Individual to Contact: Mark Henderson President and CEO Board Use Only Telephone Number (705) Facsimile Number (705) Address mhenderson@barriehydro.com 2

13 Name of Other Party The Corporation of the Town of Markham ( the Town of Markham ) Address of Head Office 101 Town Centre Boulevard Markham, Ontario L3R 9W3 Name of Individual to Contact: Catherine Conrad Town Solicitor Board Use Only Telephone Number (905) Facsimile Number (905) Address cconrad@markham.ca Name of Other Party Markham Enterprises Corporation ( MEC ) Address of Head Office 101 Town Centre Boulevard Markham, Ontario L3R 9W3 Name of Individual to Contact: John Livey President Board Use Only Telephone Number Facsimile Number Address jlivey@markham.ca Name of Other Party The Corporation of the City of Vaughan ( the City of Vaughan ) Address of Head Office 2141 Major Mackenzie Drive Vaughan, On L6A 1T1 Name of Individual to Contact: Michael Deangelis City Manager Board Use Only Telephone Number , x8290 Facsimile Number (905) Address Michael.deangelis@vaughan.ca 3

14 Name of Other Party Vaughan Holdings Inc. ( VHI ) Address of Head Office 2141 Major Mackenzie Drive Vaughan, On L6A 1T1 Name of Individual to Contact: Clayton Harris President and CEO Board Use Only Telephone Number , x8475 Facsimile Number (905) Address Clayton.harris@vaughan.ca Name of Other Party Barrie Hydro Holdings Inc. ( BHHI ) Address of Head Office 55 Patterson Road PO Box 7000 Barrie, Ontario L4M 4V8 Name of Individual to Contact: Mark Henderson President and CEO Board Use Only Telephone Number (705) Facsimile Number (705) Address mhenderson@barriehydro.com Name of Other Party The Corporation of the City of Barrie ( City of Barrie ) Address of Head Office City of Barrie Clerk s Office 70 Collier Street PO Box 400 Barrie, Ontario L4M 4T5 Name of Individual to Contact: Board Use Only Telephone Number Facsimile Number Address dmcalpine@barrie.ca Dawn McAlpine City Clerk 4

15 1.2.3 Please attach a list of the officers, directors and shareholders of each of the parties to the proposed transaction. PowerStream Officers: 1) President and Chief Executive Officer Brian Bentz 2) Executive Vice President and Chief Operating Officer Milan Bolkovic 3) Executive Vice President and Corporate Services and Secretary Dennis Nolan 4) Executive Vice President and Chief Financial Officer John Glicksman Directors: 1) Peter Meffe (Chair) 2) Frank Scarpitti (Vice Chair) 3) Linda Jackson 4) Dan Horchik 5) David Allison 6) Tony Carella 7) Bernie Di Vona 8) Mario Ferri 9) Joyce Frustaglio 10)Tony Wong Shareholder: 1) Vaughan Holdings Inc. 2) Markham Enterprises Corporation Barrie Hydro Officers: 1) President and Chief Executive Officer Mark Henderson 2) Vice President System Planning and Standards Doug Switzer 3) Vice President Asset Management Shelly Cunningham 4) Vice President Finance, Corporate Services & Treasurer Barb Gray Directors: 1) Ross Archer (Chair) 2) Helen Fisch (Vice Chair) 3) Dave Aspden 4) Ron Stevens 5) Mike Ramsay Shareholder: 1) Barrie Hydro Holdings Inc. 5

16 The officers, directors and shareholders of VHH, MEC and BHHI are listed in Attachment The municipal councillors of Markham, Vaughan and the City of Barrie are listed in Attachment Please attach a corporate chart describing the relationship between each of the parties to the proposed transaction and each of their respective affiliates. The corporate charts describing the relationship between each of the Parties to the Proposed Transaction and each of their respective affiliates are shown in Attachment The Proposed Transaction does not include Barrie Hydro Energy Services Inc. Barrie Hydro Holdings Inc. will continue to own all the shares of Barrie Hydro Energy Services Inc. Barrie Hydro provides some services to Barrie Hydro Energy Services Inc. and a review is being conducted to determine if the merged company can continue to provide these services. At the close of the Proposed Transaction all the current officers of Barrie Hydro Energy Services Inc. will be replaced so that no officer works for both Barrie Hydro Energy Services Inc. and Barrie Hydro. 1.3 Description of the Businesses of the Each of the Parties Please attach a description of the business of each of the parties to the proposed transaction, including each of their affiliates engaged in, or providing goods or services to anyone engaged in, the generation, transmission, distribution or retailing of electricity ( Electricity Sector Affiliates ). VHI is wholly owned by the City of Vaughan and holds 57% of the shares of the subsidiary company, PowerStream, the distribution company. MEC is wholly owned by the Town of Markham and holds 43% of the shares of the subsidiary company, PowerStream, the distribution company. BHHI - The holding company holds 100% of the shares of the two operating subsidiaries - Barrie Hydro Distribution Inc. and Barrie Hydro Energy Services Inc. The sole shareholder of Barrie Hydro Holdings Inc. is the City of Barrie. PowerStream owns, operates and manages the assets associated with the distribution of electrical power within the geographical territory and municipal boundaries as outlined in its Electricity Distribution Licence ED which is provided as Attachment Barrie Hydro owns, operates and manages the assets associated with the distribution of electrical power within the geographical territory and municipal boundaries as outlined in its Electricity Distribution Licence ED which is provided as Attachment Barrie Hydro Energy Services Inc. ( BHESI ) provides energy services and is wholly owned by the City of Barrie. As indicated in Section 1.2.4, BHESI does not form part of the Proposed Transaction. Markham District Energy Inc. ( MDEI ) is an energy company owned by the Town of Markham which provides community based district energy. MDEI does not form part of the Proposed Transaction. 6

17 1.3.2 Please attach a description of the geographic territory served by each of the parties to the proposed transaction, including each of their Electricity Sector Affiliates, if applicable. PowerStream serves the geographic territory of 1) City of Vaughan 2) Town of Markham 3) Town of Richmond Hill 4) Town of Aurora as described in Schedule 1 of Electricity Distribution Licence ED and provided in Attachment The service territory maps are provided in Attachment Barrie Hydro serves the geographic territory of 1) City of Barrie 2) Community of Bradford West Gwillimbury 3) Community of Thornton 4) Community of Alliston 5) Community of Beeton 6) Community of Tottenham 7) Community of Penetanguishene as described in Schedule 1 of Electricity Distribution Licence ED and provided in Attachment The service territory maps are provided in Attachment Please attach a description of the customers, including the number of customers in each class, served by each of the parties to the proposed transaction. As of June 2008 the following are the customer counts for the utilities: PowerStream Residential 210,930 General Service less than 50 kw 22,985 General Service greater than 50 kw 3,794 Large User 1 Un-metered scattered load 2,044 Street Light 14 (connections 60,852) Sentinel Light 141 Time of use (legacy class) 2 Total 239,911 Barrie Hydro Residential 62,015 General Service less than 50 kw 5,561 General Service greater than 50 kw 818 Large User 0 Un-metered scattered load 649 Street Light 7 (connections 14,768) Sentinel Light 0 Total 69,050 7

18 1.3.4 Please provide a description of the proposed geographic service area of each of the parties after completion of the proposed transaction. Upon completion of the Proposed Transaction the newly formed entity will service the geographic territory as set out in Schedule 1 of PowerStream s Electricity Distribution Licence ED and Schedule 1 of Barrie Hydro s Electricity Distribution Licence ED Both licences are provided in Attachment Description of the Proposed Transaction Please attach a detailed description of the proposed transaction. PowerStream and Barrie Hydro propose to amalgamate with each other and continue as a corporation amalgamated under the laws of Ontario with the corporate name PowerStream Inc. In order to avoid confusion between the current stand-alone PowerStream and the newly formed PowerStream, hereafter the newly formed PowerStream will be referred to as MergeCo in this Application. A diagram explaining how the amalgamation will take place is provided in Attachment The establishment of MergeCo will occur after all regulatory and government approvals are obtained Please attach the details of the consideration (e.g. cash, assets, shares) to be given and received by each of the parties to the proposed transaction. As set out in the Shareholders Agreement provided in Attachment MergeCo will issue as fully paid and non-assessable the following number of common shares in exchange for all of the issued and outstanding shares held by VHI in PowerStream, all of the issued and outstanding shares held by MEC in PowerStream and all of the issued and outstanding shares held by BHHI in Barrie Hydro: 1) MEC 34,185 2) VHI 45,315 3) BHHI 20, Please attach the financial statements (including balance sheet, income statement, and sources and uses of funds) of the parties to the proposed transaction for 2 complete years prior to the proposed transaction. The audited financial statements for PowerStream for the years ending 2006 and 2007 are provided in PowerStream 2006 and 2007 Annual Reports provided in Attachment The audited financial statements for Barrie Hydro for the years ending 2006 and 2007 are provided in the Barrie Hydro 2006 and 2007 Annual Reports provided in Attachment

19 1.4.4 Please attach the pro forma financial statements of each of the parties reflecting completion of the proposed transaction for the first full year following the year of the transaction. The pro forma financial statements for MergeCo are based on audited 2007 financial statements and provided in Attachment Other Information Please provide copies of all annual reports, proxy circulars, prospectuses or other information filed with securities commissions or similar authorities or sent to shareholders for each of the parties to the proposed transaction and their affiliates within the past 2 years. Neither party to the Proposed Transaction has publicly-filed annual reports, proxy circulars, prospectuses or other information with security commissions or such similar authorities. PowerStream files an Annual Report with its shareholders each year. Copies of the Annual Reports for the years ending 2006 and 2007 are provided in Attachment Barrie Hydro files an Annual Report with its shareholder each year. Copies of the Annual Reports for the years ending 2006 and 2007 are provided in Attachment Please list all legal documents (including those currently in draft form if not yet executed) to be used to implement the proposed transaction. The Merger Participation Agreement and all associated schedules, documents and ancillary agreements are provided in Attachment The Shareholders Agreement is included as Schedule 1.1 to the Merger Participation Agreement Please list all Board issued licences held by the parties and confirm that the parties will be in compliance with all licence, code and rule requirements both before and after the proposed transaction. If any of the parties will not be in compliance with all applicable licences, codes and rules after completion of the proposed transaction, please explain the reasons for such noncompliance. (Note: any application for an exemption from a provision of a rule or code is subject to a separate application process.) PowerStream operates under Electricity Distribution Licence ED A copy of PowerStream s licence is provided in Attachment Barrie Hydro operates under Electricity Distribution Licence ED A copy of Barrie Hydro s licence is provided in Attachment Each company is currently in compliance with all licence, code and rule requirements with the exceptions noted by PowerStream and Barrie Hydro outlined in Attachment Post transaction, MergeCo will be in compliance with all licence, code and rule requirements after the Proposed Transaction with the exception of provision of street lighting services through an independent third party contractor to the Town of Markham. Many of the exceptions outlined by Barrie Hydro will be moved into compliance through the migration to a single CIS system. 9

20 1.5.4 Please explain whether the proposed transaction will cause a change of control, of any of the transmission or distribution system assets, at any time, during or by the end of the transaction. If yes, please complete Part II. Barrie Hydro is currently 100% owned by BHHI who in turn is 100% owned by the City of Barrie. PowerStream is currently owned by VHI (57%) and MEC (43%) which in turn are 100% owned by the City of Vaughan and the Town of Markham respectively. After the Proposed Transaction, the owner and governance structure will be: City of Vaughan 45.3% ownership through VHI and 6 Directors Town of Markham 34.2% ownership through MEC and 4 Directors City of Barrie 20.5% ownership through BHI and 3 Directors As such, no municipality will own a majority of the shares of MergeCo. PowerStream and Barrie Hydro jointly retained KPMG as independent financial advisor to review the relative range of values of PowerStream and Barrie Hydro for determining the ownership of each party in MergeCo and to determine whether the forecast savings are reasonable and achievable. KPMG s final valuation report confirmed that the relative fair market value of the ownership shares fall in the range of 79% to 82% for PowerStream; and 18% to 21% for Barrie Hydro. PART II: ADDITIONAL FILING REQUIREMENTS FOR CHANGE IN CONTROL If the proposed transaction would result in a change in control of any of the parties to the proposed transaction, this Part must be completed. 2.1 Consumer Protection Please indicate the impact the proposed transaction will have on consumers with respect to prices and the adequacy, reliability and quality of electricity service. 10

21 The Proposed Transaction protects the interests of consumers with respect to prices and the adequacy, reliability and quality of electricity service. PowerStream and Barrie Hydro each conducted due-diligence reviews in the areas of physical asset conditions and operating performance, employee lists, conditions of employment, and employment contracts, required regulatory licences and approvals, environmental matters, all existing contracts, outstanding litigation, financial statements, operation and capital budgets and tax assessments. The focus in conducting the due diligence review was to ensure that full disclosure of all material issues was made to the Parties for the purposes of identifying and evaluating the likely benefits to be gained, as well as the risks to which the Parties may be exposed. The results of the reviews were positive and demonstrated that neither company nor its customers will be negatively impacted in the long term by the Proposed Transaction. There are several guiding principles within the Shareholders Agreement to ensure that the no harm test with respect to consumers is met including the factors set out in Section 1 of the Act. They include but are not limited to: Customers: The customers of MergeCo are the operational priority of MergeCo. MergeCo will provide a reliable, effective and efficient electricity distribution system. MergeCo will harmonize, within OEB guidelines, its distribution rates for customers. (Shareholders Agreement sub section 2.07 (d)) Distribution System Performance, Reliability and Planning, Customer Service and Employee and Community Safety: MergeCo shall implement a comprehensive review of the subject principles and standards and recommend the desired standards and practices to be followed by MergeCo on a unified basis. The review shall give due consideration to service reliability, costs, and risks. The recommended standards shall be presented to the Board for consideration and, if appropriate, approval. (Shareholders Agreement sub section 2.07 (i)) Environmental Stewardship: MergeCo will act as a responsible steward over the resources it manages, exercising a strong commitment to energy conservation and environmental sustainability. MergeCo will employ business and operating practices which seek to minimize its impact on the environment. (Shareholders Agreement sub section 2.07 (j)) 11

22 Prices (rates) The net cost savings would not be possible without the Proposed Transaction. This is particularly important as Ontario electricity distributors face continued cost pressures over the term of 3 rd Generation Incentive Rate Mechanism (3 rd GIRM) due to, among other things, increasing labour costs, materials, regulation and the impacts of government policy. Adequacy, reliability and quality of electricity service MergeCo will maintain or improve service levels of its predecessor utilities (e.g. 24/7 control centre, wider array of conservation programs). This is an improvement for Barrie Hydro as the company does not currently staff its Control Room beyond normal business hours (8 AM to 4:30 PM, Monday Friday). MergeCo intends on harmonizing the engineering standards of its predecessor utilities, which will enable better inventory management and ensure sufficient spare equipment for higher reliability. Customers in all the affected municipalities will benefit from being served by a larger utility that will have increased ability to monitor, report on and improve system reliability and power quality, given its larger resources. The policies and practices for expansion of the distribution system under the Distribution System Code of the 2 predecessor companies will be standardized across the new geographic service territory. This may have the potential to facilitate economic growth in the service territory as developers will receive standard Offers to Connect and will be required to deal with only 1 distributor across these fast growing regions Please describe the steps, including details of any capital expenditure plans that will be taken to ensure that operational safety and system integrity are maintained after completion of the proposed transaction. Other than those expenditures that form part of the predecessor utilities existing capital programs, there are no specific capital expenditure plans that need to be taken to ensure that operational safety and system integrity are maintained after completion of the Proposed Transaction. However in addition to the provisions outlined in response to Question above, section 2.07 of the Shareholders Agreement states that MergeCo will develop with its employees a shared commitment towards high customer service, improved productivity and workplace safety. MergeCo will ensure that all staff understand the corporation s business plan and direction, and that they have the skills required to fulfil their part in achieving those goals. 12

23 2.1.3 Please provide details, including any capital expenditure plans, of how quality and reliability of service will be maintained after completion of the proposed transaction. Indicate where service centres will be located and expected response times. Other than those expenditures that form part of the predecessor utilities existing capital programs, there are no specific capital expenditure plans that need to be taken to ensure that quality and reliability of service are maintained after completion of the Proposed Transaction. However, as outlined in response to Question of this Application, Section 2.07 of the Shareholders Agreement ensures the maintenance or improvement of quality and reliability of service after the completion of the Proposed Transaction. MergeCo will maintain a minimum of two operation/administration centres (or more if required to ensure that the operations of MergeCo are conducted at the current service levels and other standards, which at a minimum are in compliance with the requirements of the OEB). One such operation/administration centre will be located in the City of Barrie. This will also help maintain or improve service response times from their current levels. For example, PowerStream and Barrie Hydro both maintain a 1 hour response time. To service the Barrie-area service territory the current Barrie Hydro facility located at 55 Patterson Road in the City of Barrie will be maintained. Service to the southern York-Region territory (current PowerStream service territory) will be provided from existing service centres at 550 Cochrane Drive in Markham and 2800 Rutherford Road in Vaughan. These two service centres will be consolidated to a new service centre at Woodbine and Hwy 407 in Markham in early Operating from these local service centres will ensure response times are maintained at current levels. Specifically, response times by Barrie Hydro and PowerStream are within one hour 90% of the time. PowerStream operates a 24/7 control centre to dispatch crews to respond to customer trouble calls and outages. The Barrie control centre presently operates during regular business hours. Transfer of call-handling of after hour emergency calls to the PowerStream control centre will further improve afterhour response times to the Barrie area service territory Please indicate whether the parties to the proposed transaction intend to undertake a rate harmonization process after the proposed transaction is completed. If yes, please provide a description of the plan. Timing for Rebasing The Applicants propose to defer the rate rebasing of the consolidated MergeCo for up to 5 years from the date of closing the Proposed Transaction. This was an important factor in the Parties consideration of the merits of the Proposed Transaction. The deferral of rebasing MergeCo combined with the Board s incentive rate mechanism will give MergeCo time to retain savings to offset costs while protecting the interests of consumers across both existing service areas. This is consistent with the Board s policy determined in its Report Rate-making Associated with Distributor Consolidation (EB ). PowerStream has submitted an application pursuant to section 78 of the Act, for an Order approving its rates for electricity distribution service effective May 1, This will ensure that the rates of the predecessor utility are just and reasonable. 13

24 The rates of MergeCo will be subject to 3rd GIRM adjustment up to the time of rebasing MergeCo s rates. The assessment of the rate harmonization impacts were based on estimated approved rates for PowerStream (i.e. after rebasing) and Barrie Hydro as of May 1, 2009 (i.e. after the 3rd GIRM rate adjustment). Rate harmonization The Applicants propose to harmonize distribution rates within 3-5 years from the date of closing the Proposed Transaction; before the time of MergeCo s rate rebasing. The rate harmonization process will be similar to the method adopted by PowerStream and approved by the Board in Application EB to harmonize the rates across the four former rates zones of Richmond Hill, Aurora, Markham and Vaughan. Until that time the Applicants propose to retain the two separate rate zones for customers in each of the service areas that is those currently served by PowerStream and those currently served by Barrie Hydro. Estimated merger savings and rate harmonization changes have been calculated on the basis of the stand alone PowerStream and Barrie Hydro post May 1, 2009 rates. The Proposed Timeline is therefore: 1. May 1, 2009 PowerStream rebased rates 2. May 1, 2009 Barrie Hydro 3rd GIRM rate adjustment 3. May 1, 2010 MergeCo 3rd GIRM rate adjustment 4. MergeCo rate harmonization application will be filed within 3-5 years from the date of closing of the transaction 5. Rebasing MergeCo scheduled within 5 years from the date of closing of the transaction The rate impacts of harmonization are shown in response to Question below Please identify all incremental costs that the parties to the proposed transaction expect to incur. These may include incremental transaction costs, (i.e., legal), incremental merged costs (i.e., employee severances) and incremental ongoing costs (i.e., purchase and maintenance of new IT systems). Please explain how the new utility plans to finance these costs. PowerStream and Barrie Hydro jointly retained KPMG as independent financial advisor to review the relative range of value of PowerStream and Barrie Hydro for determining the ownership of each party in the merged business and to determine whether the forecast savings are reasonable and achievable. The projected net savings are in the range of $5 to $5.5 million each year. Expected merger transition costs and any ongoing incremental costs will be recovered through the projected savings resulting from the proposed transaction. 14

25 The Parties to the Proposed Transaction project the net transition costs to be approximately $5M as follows: Corporate (e.g. consulting, tax, legal etc) $2M HR severances (e.g. voluntary packages) $1.7M IT transition costs (e.g. CIS conversions etc) $0.6M Rate transition costs (e.g. MAAD application, rate harmonization, etc) $0.3M Other Engineering Planning Operations Costs $0.4M These estimates are based on the assumption that there will not be any significant changes in economic, regulatory, political, internal operations and capital markets environment Please describe the changes, if any, in distribution or transmission rate levels (as applicable) and the impact on the total bill that may result from the proposed transaction. The newly formed company intends on harmonizing rates as outlined in response to Question above. Furthermore, MergeCo intends on scheduling rate rebasing for the consolidated entity within 5 years from the close of the Proposed Transaction. For PowerStream customers the projected range of total bill impact of rate harmonization by customer class is reflected below. These reductions represent a range of results developed by comparisons of PowerStream and Barrie Hydro s current 2008 rates and PowerStream and Barrie Hydro s projected 2009 rates. The reductions represent the total bill effect at average customer consumption levels: Residential rates increased between 1.5% and 1.8% General Service (up to 50kW) increased between 0.2% to 0.4% General Service (greater than 50kW) increased between 0.7% and 0.8% 15