Miller, Canfield, Paddock and Stone, P.L.C. One Michigan Avenue, Suite 900 Lansing, Michigan TEL (517) FAX (517)

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1 Founded in 1852 by Sidney Davy Miller SHERRI A. WELLMAN TEL (517) FAX (517) Miller, Canfield, Paddock and Stone, P.L.C. One Michigan Avenue, Suite 900 Lansing, Michigan TEL (517) FAX (517) June 3, 2014 MICHIGAN: Ann Arbor Detroit Grand Rapids Kalamazoo Lansing Troy FLORIDA: Tampa ILLINOIS: Chicago NEW YORK: New York OHIO: Cincinnati CANADA: Toronto Windsor CHINA: Shanghai MEXICO: Monterrey POLAND: Gdynia Warsaw Wrocław Ms. Mary Jo Kunkle Executive Secretary Michigan Public Service Commission 4300 W. Saginaw Hwy. P.O. Box Lansing, MI Re: INTEGRYS ENERGY GROUP, INC., BALFOUR BEATTY INFRASTRUCTURE PARTNERS, L.P., AND UPPER PENINSULA POWER HOLDING COMPANY for approval, pursuant to MCL 460.6q, for the transfer of control of UPPER PENINSULA POWER COMPANY, and related approvals. MPSC Case No. U Dear Ms. Kunkle: Enclosed for electronic filing is the Settlement Agreement. Also enclosed is the Proof of Service. Should you have any questions, please advise. Very truly yours, Miller, Canfield, Paddock and Stone, P.L.C. Enclosure(s) cc: ALJ Mark E. Cummins Timothy J. Lundgren Eric J. Schneidewind Spencer A. Sattler Shaun Johnson John R. Liskey Constance De Young Groh David J. Kyto By: Sherri A. Wellman SAW/tmb \

2 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * * In the matter of the joint application of ) INTEGRYS ENERGY GROUP, INC., BALFOUR BEATTY INFRASTRUCTURE PARTNERS, L.P. AND UPPER PENINSULA POWER HOLDING COMPANY for approval, pursuant to MCL 460.6q, of the transfer of control of UPPER PENINSULA POWER COMPANY, and related approvals. ) ) ) ) ) ) Case No. U STATE OF MICHIGAN ) )ss COUNTY OF INGHAM ) PROOF OF SERVICE Theresa M. Briseno, being first duly sworn, deposes and says that on June 3, 2014, she served a copy of the Settlement Agreement on the persons below via electronic mail and U.S. Mail as follows: Mr. Spencer A. Sattler Assistant Attorney General Public Service Division 6520 Mercantile Way, Ste. 1 Lansing MI SattlerS@michigan.gov Mr. Shaun Johnson Dykema Gossett P.L.L.C. Capitol View 201 Townsend Street, Suite 900 Lansing MI sjohnson@dykema.com The Honorable Mark E. Cummins Administrative Law Judge Michigan Public Service Commission 611 West Ottawa Street Ottawa Building 4th Floor Lansing, MI cumminsm1@michigan.gov Subscribed and sworn before me on this 3rd day of June, Mr. John R. Liskey Ms. Constance De Young Groh John R. Liskey Attorney At Law, PLLC 921 N. Washington Ave. Lansing MI john@liskeypllc.com cdgroh@liskeypllc.com Mr. Timothy J. Lundgren Mr. Eric J. Schneidewind Varnum 333 Bridge St. NW P.O. Box 352 Grand Rapids, MI tjlundgren@varnumlaw.com ejschneidewind@varnumlaw.com Theresa M. Briseno Dana R. Lyon, Notary Public State of Michigan, County of Ingham My Commission Expires: January 5, 2019 Acting in Ingham County \

3 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * * In the matter of the joint application of ) INTEGRYS ENERGY GROUP, INC., BALFOUR ) BEATTY INFRASTRUCTURE PARTNERS, L.P. ) AND UPPER PENINSULA POWER HOLDING ) COMPANY for approval, pursuant to MCL 460.6q, of ) the transfer of control of UPPER PENINSULA ) POWER COMPANY, and related approvals. ) Case No. U SETTLEMENT AGREEMENT On March 14, 2014, Integrys Energy Group, Inc. ( Integrys ), Balfour Beatty Infrastructure Partners, L.P. ( BBIP ) and Upper Peninsula Power Holding Company ( UPPHC ) (collectively, Joint Applicants ) filed a joint application with the Michigan Public Service Commission ( MPSC or Commission ) seeking all approvals, consents, etc., in connection with the proposed transfer of ownership and control by Integrys to, and the purchase by, BBIP of 100% of the capital stock of Upper Peninsula Power Company ( UPPCO ) ( Proposed Transaction ). The filing was submitted pursuant to 2008 PA, Section 6q of MCL 460.6q. The joint application included the testimony and exhibits of 8 witnesses. On June 2, 2014, the Joint Applicants supplemented its filing by amending Exhibit A-2 to include, as part of the Proposed Transaction, previously excluded property. The joint application and prefiled testimony stated that BBIP is the proposed purchaser of 100% of the capital stock of UPPCO, pursuant to the Stock Purchase Agreement by and between Balfour Beatty Infrastructure Partners GP Limited, in its capacity as General Partner of Balfour Beatty Infrastructure Partners, L.P., as purchaser, and Integrys Energy Group, Inc., as

4 seller (otherwise referred to as the SPA ). The SPA contemplates, among other things, the creation of Buyer Acquisition Corporation (now known as Upper Peninsula Power Holding Company or "UPPHC") to which, prior to closing, BBIP will assign its rights under the SPA, including the right to receive and hold the capital stock of UPPCO. Additionally, the SPA provides that prior to the closing, UPPCO will transfer all of its holdings in ATC Management, Inc. and WPS Investments, Inc. to Integrys. The SPA sets forth all of the terms and conditions of the Proposed Transaction, and if approved by the Commission, then at closing, on the terms and subject to the conditions set forth in the SPA, Integrys will sell, transfer, and deliver to UPPHC 100% of the capital stock of UPPCO in exchange for US $298,800,000, subject to adjustment as set forth in the SPA. At closing, UPPHC will control UPPCO, and UPPCO will continue to exist as a separate corporate entity, and the assets, liabilities, rights and obligations of UPPCO would not be significantly affected by this change in ownership. The Proposed Transaction as expressed in the SPA will leave undisturbed, as applicable, all currently-effective rates, tariffs, contracts and other business relationships of UPPCO. The joint application further stated that the Proposed Transaction will not adversely affect the continued provision of safe, reliable, and adequate electric utility service by UPPCO, and after closing, electric utility service will continue to be provided to customers by essentially the same personnel doing the same jobs they do now since existing UPPCO employees will be retained and services will be provided by Integrys Business Support, LLC, ( IBS ) and Wisconsin Public Service Corporation ( WPS Corp ) pursuant to Transition Services Agreements (collectively, TSAs ) for a period not to exceed 30 months. Additionally, the Proposed Transaction will have no effect on competition or market power, and the SPA contains commitments by BBIP to maintain continuity in the UPPCO workforce and, thus, help provide for the continued provision of safe, reliable and 2

5 adequate electric utility service to customers. Pursuant to MCL 460.6q(4) and after due notice, interested parties, including the Attorney General and intervenors in UPPCO s most recently filed and completed general rate case proceeding, Case No. U-17274, were provided an opportunity to file, within 60 days from the date the joint application was filed (being May 16, 2014), comments with the Commission on the proposed acquisition and related transaction. Comments were filed on May 8, Pursuant to due notice, a prehearing conference was held at Constitution Hall, 525 West Allegan, Lansing, Michigan on April 9, 2014, with Administrative Law Judge ( ALJ ) Mark E. Cummins presiding. At the prehearing conference, the Joint Applicants presented proofs of service, affidavits of publication evidence service and publication of the Notice of Opportunity to File Comments and Notice of Hearing. The Staff participated in the prehearing conference, and the petitions to intervene of Michigan Technological University and Citizens Against Rate Excess were granted. On April 11, 2014, ALJ Cummins issued a Protective Order. This matter was conducted as a contested case pursuant to Chapter 4 of the Administrative Procedures Act of 1969 PA 306, as amended ( APA ). Subsequent to the prehearing conference, the parties exchanged information and engaged in discussions and extensive discovery concerning the Joint Applicants filing. By this Settlement Agreement, the parties agree and stipulate as follows: 1. The Joint Applicants represented in the joint application, prefiled testimony, and audit/discovery responses that the Proposed Transaction: a) will not have an adverse impact on the rates of UPPCO customers; 3

6 b) will not have an adverse impact on the provision of safe, reliable, and adequate electric utility service in UPPCO s service territory; c) will not result in the subsidization of a non-regulated activity through the rates paid by customers of UPPCO; d) will not significantly impair the ability of UPPCO to raise necessary capital or to maintain a reasonable capital structure; and e) is not otherwise inconsistent with public policy and interest. 2. Based upon Staff s and intervenors due diligence review of the Proposed Transaction, it is recommended that the Commission approve the Proposed Transaction as addressed, and pursuant to the terms and conditions in the SPA, subject to the Joint Applicants commitment to the following conditions: a) BBIP and UPPHC will not seek rate recovery from UPPCO customers of transaction costs, acquisition premiums, goodwill or control premiums or any fees incurred in connection with the Proposed Transaction; b) There are no covenants, agreements or legislative restrictions on BBIP and UPPHC that would reduce or impair UPPCO's access to the capital markets. Further, there are no restrictions in addition to those currently in place for UPPCO that would reduce or impair UPPCO s ability to obtain cost competitive and reliable power supplies; c) BBIP and UPPHC will continue existing charitable contribution practices and community support practices in UPPCO s service territory after completion of the Proposed Transaction; 4

7 d) BBIP and UPPHC will maintain the existing corporate offices in Michigan and other than in UPPCO s normal course of business, have no plans to alter the existing office locations. However, it is understood that UPPCO is not precluded from creating corporate offices in Michigan in addition to those located in Ishpeming, Michigan; e) No labor force reductions or substantive changes to existing benefits are expected as a result of the Proposed Transaction. More specifically, BBIP and UPPHC have committed in the SPA to honor all collective bargaining agreements, and for employees not subject to collective bargaining agreements, to (i) maintain existing compensation and benefits arrangements (or substantially comparable compensation and benefits, in the aggregate, if changes are made) for a period of two years after the closing on transactions contemplated by the SPA, (ii) not terminate the employment of any employees without cause for a period of two years after the closing, and (iii) continue to provide retiree medical and longterm disability coverage and, if substitute benefits are put in place, recognize each employee's prior service and waive pre-existing condition limitations and other benefit plan requirements that might otherwise cause a loss or reduction in employee benefits; f) With respect to affiliate transactions between UPPCO and UPPHC or any subsidiary of UPPHC, UPPHC will make available to the Commission or its Staff, for inspection and examination at such time and place as the Commission or its Staff may designate, the books and records of UPPHC 5

8 and the books and records of any subsidiary in which UPPHC holds a controlling interest, relative to such transaction; g) UPPCO customers will not be financially responsible for any adverse impacts of any push-down accounting adjustments related to recording of changes in fair market values or goodwill from the transactions contemplated by the SPA; h) UPPCO customers will not be responsible for any financing costs associated with the transactions as contemplated by the SPA. This does not apply to new financing or refinancing of existing UPPCO debt by UPPCO; i) UPPCO shall maintain its permanent capital structure (debt and equity) such that the percent of equity shall be no greater than a maximum of 60 percent equity and no less than a minimum of 45 percent equity through December 31, 2015; j) Following a complete transition of accounting activities from IBS and/or WPS Corp as performed under the TSAs to UPPCO under its new ownership, the books and records of UPPCO will be located in Michigan unless the Commission authorizes such books and records to be located elsewhere. Electronic records may be kept via cloud service or elsewhere, as long as they are accessible from offices in Michigan. Prior to complete transition of accounting activities, Commission Staff will have full access to all accounting records pertaining to UPPCO; 6

9 k) Prior to complete transition of accounting activities, overlapping costs for establishing services/functions to create a stand-alone, independent UPPCO, will be recorded and maintained by cost centers and will be further classified by the FERC chart of accounts so as to be easily distinguished in a rate case; l) Prior to and following complete transition of accounting activities, UPPCO will continue to file annual meter testing reports as required by Mich Admin Code, R In addition, UPPCO will continue to file in Case No. U the annual report required in the Service Quality and Reliability Standards for Electric Distribution Systems per Mich Admin Code, R UPPCO will comply with MPSC reliability indices and power quality information reporting requirements, as required by the Commission order in Case No. U-16065, et al; m) Prior to and following complete transition of accounting activities, UPPHC will obtain and retain all books, records, and other documents necessary to comply with Michigan law, the Michigan Administrative Code, and Commission orders that apply to UPPCO; n) UPPCO under its new ownership shall not request an increase in base rates to take effect prior to January 1, 2016; o) Following closing of the Proposed Transaction, UPPCO shall provide a revenue offset of $26 million spread over six consecutive years, to be applied to the distribution portion of each applicable tariff, effective with the date rates go into effect as approved in its next base rate case; 7

10 p) BBIP and UPPHC shall notify the Commission by letter of the closing of the transactions contemplated by the SPA and file a copy of said letter in this docket; q) UPPHC will uphold all commitments in the U settlement including a renewed commitment that UPPCO will achieve certain minimum performance standards regarding line clearance costs and results and spend the amount included in rates, or certain line clearance costs included in rates will be subject to refund, as described in the U settlement agreement; and r) Following approval and closing of the Proposed Transaction, as part of its 2014 PSCR reconciliation case, for the benefit of its PSCR customers, UPPCO will make a one-time credit of $25,000 to its Power Supply Costs, and during that same time period, will make a one-time contribution of $25,000 to the utility consumer representation fund, MCL 460.6m et seq. UPPCO will not seek recovery of the one-time contribution from its customers. 3. As a further condition of the Proposed Transaction, Integrys agrees that, if the transactions contemplated by the SPA are not completed, the customers of UPPCO will not bear any costs associated with the failed transaction process or the failed transactions. 4. It is the opinion of the parties that Commission approval of this Settlement Agreement will promote the public interest, will aid the expeditious conclusion of this case, and will minimize the time and expense which would otherwise have to be devoted to this matter by the Commission and the parties. 8

11 5. This Settlement Agreement is for the purpose of final resolution of this case, and all provisions of the Settlement Agreement are dependent upon all other provisions contained therein. By having reached these understandings, the parties are of the opinion that these constitute all of the approvals, consents, etc., required by law, rule, or order in connection with completing the Proposed Transaction. 6. The parties agree not to appeal, challenge or contest the Commission s order adopting this Settlement Agreement if such order accepts and approves this Settlement Agreement without modification. If the Commission does not accept this Settlement Agreement without modification, this Settlement Agreement shall be withdrawn and shall not constitute any part of the record in this proceeding or be used for any other purpose whatsoever. 7. The parties jointly recommend that the Commission issue its Order Adopting Settlement Agreement and resolve this case with prejudice, granting all required and requested approvals in connection with the Proposed Transaction. 8. This Settlement Agreement has been made for the sole and express purpose of recommending approval of the Proposed Transaction in Case No. U without prejudice to the rights of parties to take new and/or different positions in other proceedings. If the Commission approves this Settlement Agreement without modification, the parties and the Commission shall not make any reference to or use of the Settlement Agreement or the order approving it as a reason, authority, rationale or example for taking any action or position or making any subsequent decision in this case or any other cases or proceedings; provided, however, such reference or use may be made to enforce the Settlement Agreement and order. 9

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