OF THE CITY OF SAINT JOHN

SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) B 2016 ANNUAL REPORT POWER COMMISSION OF THE CITY OF SAINT JOHN Statement of Financial Position December 31, 2015 December 31, Restated 2016 (note 3 (l)) (Financial) January 1, 2015 Restated (note 3(l)) Assets Current assets Cash (note 5) Restricted cash (note 5) Accounts receivable (note 6) Unbilled revenue Harmonized sales tax recoverable Prepaid expenses $ 9,604 3,245 1,311 599 11,401 301 8,630 2,805 1,185 652 Total current assets 16,835 24,974 25,125 Non-current assets Loans receivable Property, plant and equipment (note 7) Intangible assets (note 8) Total non-current assets Total assets 226 73,279 1,502 75,007 91,842 205 62,896 1,600 64,701 89,675 121 61,570 1,508 63,199 88,324 $ 2,076 $ $ $ $ 7,188 3,307 9,363 3,595 1,122 550 Liabilities Current liabilities Payable to NB Power Accounts payable and accrued liabilities (note 9) Customer deposits Reduce and shift demand (note 5) Total current liabilities 16,235 9,946 6,382 971 301 17,600 Non-current liabilities Deferred revenue Post-employment benefits (note 10) Total non-current liabilities 1,028 36,740 37,768 759 37,773 38,532 737 40,516 41,253 Total liabilities 54,003 56,132 59,877 Regulatory balances (note 11) 37,839 33,543 28,447 Commitments and contingencies (note 15) Total liabilities and regulatory balances $ 12,052 3,187 996 $ $ 91,842 $ 89,675 $ $ 10,637 3,604 1,076 3,307 18,624 88,324 See accompanying notes to the financial statements. On behalf of the Board: Focused on our Customers. Chairman Preparing for our Future. President & Chief Executive Officer 1

Our commitment to provide our ratepayers with value and satisfaction centres around our Mission and Vision Statements. OUR MISSION We provide innovative customer-centered energy utility solutions OUR VISION To be recognized as an evolving energy and utility leader OUR MOTTO Excellence in Energy Solutions

ANNUAL REPORT (FINANCIAL) of The Power Commission of the City of Saint John for the year 2016

TABLE OF CONTENTS Management Discussion and Analysis...1 Management Report...9 Independent Auditors Report...10...15

SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 1 Management Discussion and Analysis Management s discussion and analysis reviews the financial and operational results for the fiscal year ended December 31, 2016 relative to the previous year. This section should be read in conjunction with the Audited Financial Statements and the accompanying notes. Effective January 1, 2016, the Commission elected to voluntarily change, on a retrospective basis, its accounting policy for the SJE SRP to comply with the requirements for defined benefit plans (DBP) under IFRS IAS 19 Employee Benefits. The Commission had previously accounted for the SJE SRP in accordance with the requirements for defined contribution plans under the same accounting standard. As a result of accounting for the SJE SRP as a DBP, the deficit in the SJE SRP is now recorded in the Statements of Financial Position. Pension related expenses different from actual cash contributions being made to the SJE SRP by the Commission are recorded in the Statements of Comprehensive Income. This change in accounting policy has been applied on a retrospective basis with a transition date of January 1, 2015. Details on the current and prior period adjustments as a result of this change in accounting policy are included in the Audited Financial Statements. Financial Highlights Saint John Energy recorded a net income of $1,339,000 in 2016 as compared to $328,000 in 2015. The following significant factors influenced the 2016 financial results leading to the increase in earnings as compared to 2015: $2,500 $2,000 Annual Net Income $000's Electrical Sales and Purchases - Gross margin (Electrical Operations) increased by $798,000 as a result of the full or partial year-over-year effects of a 1.6% rate increase which went into effect on October 2015 and a 1.66% rate increase that went into effect in July 2016. The effect of these rate increases on Saint John Energy s wholesale power purchases was partially offset by moving to a coincident peak demand billing model with our major supplier, NB Power. Operating Expenses - Operating expenses increased by $329,000 year-over-year due to increased contracted services for distribution maintenance and corporate initiatives, increased salary, wages and benefits costs due to a 2% base compensation increase and increased depreciation and utility tax costs due to higher carrying values of assets. These increases were partially offset by the non-recurring write-off of legacy street lighting assets that were upgraded to LED lighting in 2015. Capital Expenditures - purchases or construction of property, plant and equipment and intangible assets increased as compared to 2015 by $8,360,000 due to purchases of mini split heat pump rental units, the expansion of the Westmorland substation, and an increased investment in underground infrastructure. Cash - Cash decreased by $9,626,000 during the year primarily driven by the increased capital investment in 2016 and a decrease in cash from working capital partially offset by positive net earnings. $1,500 $1,000 $500 $- $(500) $110,000 $100,000 $90,000 $80,000 $70,000 1,000 980 960 940 920 900 2012 2013 2014 2015 2016 Annual Energy Sales & Purchases $ 000's 2012 2013 2014 2015 2016 Sales Purchases Annual GWh Energy Sales and Energy Purchases 2012 2013 2014 2015 2016 Sales Purchases

2 SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) Risk Analysis Saint John Energy is an electric distribution utility in the City of Saint John, New Brunswick, Canada. The utility operates on a cost of service, user pay basis. Saint John Energy s service area is limited to the municipal boundaries of the City of Saint John by legislation. Given these factors, the utility s financial performance could potentially be affected by the following issues: Business Risks Energy Conservation & Technological Advancements - While Saint John Energy is actively seeking new programs and services to encourage its customers to reduce demand and energy consumption, the market, demographics or technology advancements could drive customers to reduce consumption faster than the utility can transition. Alternative Heating Solutions (natural gas and propane) - The Saint John area currently has a significant percentage of electric space and water heating customers. Without offsetting economic or population increases, market share could be affected by the adoption of alternative solutions for these requirements. Electrical Sales/Purchase Volume - Saint John Energy, due to its significant percentage of electric space heating customers and the mix of demand and energy which forms the basis of its wholesale power purchase rates, can be subject to short-term swings in weather especially during seasonal transition periods. This can lead to fluctuations in cost which, given certain circumstances, may not be fully recovered in revenue from its customers. Electrical Purchase Costs By legislation, only NB Power Corporation may sell electricity to a consumer or municipal distribution utility within the Province of New Brunswick except where the electricity supplied was generated within the territorial limits of the municipality and in compliance with the utilities distributed generation or net metering policies. As such, alternative supplies of electricity are limited within the territorial limits of Saint John. The majority of the utilities power purchase costs (its largest expense) are subject to the business decisions of NB Power Corporation and/or other Provincial authorities and policy setters. Adverse Weather - extreme weather conditions such as ice storms and high winds can effect the utility s ability to maintain system reliability, safety and the security of its supply. In addition to customer inconvenience, these unplanned events can significantly add to the operational cost of the utility. Cyber Risks Saint John Energy, as with all modern day organizations, is exposed to risk associated with its online activity, electronic systems, technological networks, as well as the storage of personal data. A recently completed external review of system security and policies has not revealed any immediate concerns; however, in the coming year, an analysis will be conducted in greater detail and any necessary strategies to mitigate risks will be adopted accordingly. Financial Risks Saint John Energy understands the risks inherent in its business and defines them broadly as anything that could impact its ability to achieve its strategic objectives. Our exposure to a variety of financial risks such as credit risk and liquidity risk, as well as related mitigation strategies, are more fully discussed in the enclosed Notes to the Audited Financial Statements (Note 17).

SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 3 Year-over-year Results Revenues The following is a summary of Saint John Energy s revenues for the year with a comparison to the previous year s results: Revenues (in thousands) 2016 2015 Electrical Sales by Type Electrical Sales: Residential $49,135 $50,402 General Service 50,103 51,678 Industrial 3,928 3,992 Lighting and Unmetered 972 1,048 Total Electrical Sales (exclusive of accrued revenues) $104,138 $107,120 Percent Increase (decrease) Year-over-year -2.8% 1.9% GWh 915 968 Percent Increase (decrease) Year-over-year -5.5% 0.5% 48% 4% 1% 47% Accrued Revenues $396 $(790) Total Power Sales (inclusive of accrued revenues) $104,534 $106,330 Percent Increase (decrease) Year-over-year -1.7% 1.9% Other Revenues: Consumer Product Rentals $3,221 $2,736 Lighting Rentals 900 950 Other 1,298 1,152 Total Other Revenues $5,419 $4,838 Residential General Service Industrial Lighting and Unmetered Total Revenues $109,953 $111,168 Major contributors to the year-over-year variance in electrical sales revenues are as follows: Revenues (in thousands) Amount Reason for variance Contributing factors Decreased $(1,796) Significantly milder temperatures in the first quarter of 2016 as compared to the prior year led to reductions in sales volume. This was partially offset by the benefits of rate increases of 1.6% in October 2015 and 1.66% in July 2016.

4 SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) Major contributors to the year-over-year variance in other revenues are as follows: Revenues (in thousands) Amount Reason for variance Contributing factors Increased $581 The introduction of mini-split heat pump rentals, rate increases to water heater and lighting rentals of 1.6% October 2015 and 1.66% in July 2016, and increased billable work performed all contributed to an increase in other revenues as compared to the prior year. Year-over-year Results Expenses The following is a summary of Saint John Energy s expenses for the year with a comparison to the previous year s results: Expenses (in thousands) 2016 2015 Operating Expenses Energy Purchased: NB Power $86,772 $89,348 Embedded Generation 129 147 Total Energy Purchased $86,901 $89,495 Percent Increase (decrease) Year-over-year -2.9% 1.0% GWh 948 992 Percent Increase (decrease) Year-over-year -4.4% 0.4% Operating Expenses: Distribution, Operations, and Maintenance $10,257 $9,414 Administration, Billing and Collection 9,917 9,744 Consumer Product Rentals 1,357 1,261 Lighting Rentals 260 1,043 Total Operating Expenses $21,791 $21,462 Net Financing Costs $(78) $(117) Total Expenses $108,614 $110,840 Total 9% 0% 1% Expenses 10% 0% 0% 0% 80% 0% 0% Energy Purchased Dist., Ops and Maint. Admin, Billing & Collecting Consumer Product Rentals Lighting Rentals

SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 5 Major contributors to the year-over-year variance in energy purchases are as follows: Energy Purchases (in thousands) Amount Reason for variance Contributing factors Decreased $(2,576) As with sales, significantly milder temperatures in the first quarter of 2016 as compared to the prior year led to reductions in purchases volume. Added to this was the effect of a reduction in the purchase price realized by moving to a coincident peak demand billing model from our major supplier, NB Power. These decreases were partially offset by purchase price rate increases of 1.6% in October 2015 and 1.66% in July 2016. Decreased $(18) Embedded Generation - Decrease in supply produced at generators. Operating Expenses by Expense Class: Salaries, Wages and Benefits $11,622 $11,559 Depreciation and Gain/Loss on Disposal 3,058 3,564 Taxes 1,367 1,325 Contractors 2,354 1,745 Equipment and Materials 624 725 Other 2,765 2,543 Total Operating Expenses $21,791 $21,462 Major contributors to the year-over-year variance in operating expenses are as follows: Operating Expenses (in thousands) Amount Reason for variance Contributing factors Increased $843 Distribution, operations and maintenance - Increased spending on contracted labour for substation maintenance/repairs and tree-trimming activities, increased depreciation and utility tax expenses due to a higher carrying value of distribution system assets and increased salary, wages and benefit costs due to a 2% base compensation increase and the reassignment of temporary and full-time staff members whose costs were not represented in this area in 2015.

6 SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) Major contributors to the year-over-year variance in operating expenses continued Operating Expenses (in thousands) Amount Reason for variance Increased $173 Administrative, billing and collecting - Increased professional consulting fees for IT, safety/environment and corporate initiatives as compared to the previous year led to increased costs in this area. These increases were partially offset by lower salaries, wages and benefits due to the transition of supervisory responsibilities within the Customer Service area requiring reduced management, the timing of replacement hires and the reassignment of full-time and temporary positions. Increased $96 Consumer product rentals expense - Increased expense attributable to costs associated with the mini-split heat pump rental program which is new in 2016 partially offset by realized gains from receiving several shipments of zero-cost, warrantyrelated replacement water heater units. Decreased $(783) Lighting rentals expense - Reduced expense is the result of the non-recurring write-off of legacy street lighting assets in 2015 and lower depreciation as compared to the prior year as the new LED street light assets were funded by the RASD program in 2015 and therefore have no book value for accounting purposes. Interest and Taxes (in thousands) 2016 2015 Total Interest and Taxes (in Thousands) Interest Revenue $(117) $(161) Interest Expense 39 44 Property Tax 505 508 Utility Tax 863 817 Total interest and taxes $1,289 $1,208 $ 1,400 $ 1,300 $ 1,200 $ 1,100 $ 1,000 2014 2015 2016

SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 7 Major contributors to the year-over-year variance in interest and taxes are as follows: Expenses (in thousands) Amount Reason for variance Contributing factors Increased $46 Utility Tax - Increases to the assessed value of distribution assets that form the basis for utility tax led to higher tax expense compared to the previous year. Increased $39 Net Interest Expense - Reduced cash balances yearover-year yielded less interest revenues increasing the net interest expense. Year-over-year Results Cash Flows The following is a summary of Saint John Energy s cash flows for the year with a comparison to the previous year s results: Cash Flows (in thousands) 2016 2015 Net Income Adjusted for Non-cash Items $6,512 $5,823 Increase (Decrease) in Working Capital (662) 1,451 Capital Expenditures less Proceeds on Disposal (13,343) (4,983) Cash Restricted (used) for RASD (2,190) (1,117) Other Investing Activities 57 33 Increase (Decrease) in Cash (9,626) 1,207 Increase in Total Debt* $- $- *At the time of this report the Commission had no long-term debt. $5,000 $(5,000) $(10,000) Change in Cash (in Thousands) $- 2014 2015 2016 Major contributors to the year-over-year variance in cash flows are as follows: Cash Flow Items (in thousands) Amount Reason for variance Contributing factors (Decreased) $(8,360) Capital Purchases - Increase in cash capital purchases net of RASD-funded purchases mainly due to heat pump rental unit purchases and the Westmorland Substation Expansion project. (Decreased) $(2,113) Change in Working Capital - Lower temperatures in December in 2016 as compared to the prior year led to a higher amount of power sales and subsequently higher balances of outstanding customer accounts and accrued revenues at yearend.

8 SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) Major contributors to the year-over-year variance in cash flows continued Cash Flow Items (in thousands) Amount Reason for variance (Decreased) $(1,073) Cash Restricted (used) for RASD - Payment was made in 2016 for the bulk of the LED lights purchased as part of the LED Street Light Conversion project from 2015. Offsetting factors Increased $689 Cash Flows from Operations - Increases in both net earnings and non-cash depreciation as compared to the prior year. Capital Asset Expenditures (in thousands) 2016 2015 Land and Administration Building $674 $44 Distribution System 6,071 2,999 Consumer Products 6,104 370 Other Fixed Assets 1,666 589 Construction in Progress (1,048) 757 Intangible Assets 90 270 Total Capital Expenditures $13,557 $5,029 $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $- Total Capital Expenditures (in Thousands) 2014 2015 2016 Major contributors to the year-over-year variance in capital expenditures are as follows: Capital Expenditures (in thousands) Amount Reason for variance Contributing factors Increased $5,734 Consumer Products - Purchases of mini split heat pump rental units. Increased $3,072 Distribution System- Expansion of the Westmorland station and exit feeders and an increase in underground infrastructure upgrades as compared to the prior year.

SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 9 Management Report The financial statements of The Power Commission of the City of Saint John are the responsibility of management and have been approved by the Commission. Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards (IFRS). The financial statements have been prepared within reasonable limits of materiality, incorporating Management s best judgment regarding all necessary estimates and all other data. These principles have been applied on a basis consistent with that of the preceding year. The financial information presented elsewhere in the Annual Report is consistent with that in the financial statements. Management maintains a comprehensive system of internal controls including written policies and procedures and an organizational structure that segregates duties to ensure the integrity and objectivity of the financial data. These measures provide reasonable assurance that transactions are recorded and executed in compliance with legislation and required authority that assets are properly safeguarded and that reliable financial records are maintained. The Board of Commissioners reviews and approves the annual financial statements. The Board of Commissioners meets with Management and the external auditor to discuss the results of the audit, the adequacy of the internal accounting controls and financial reporting processes. The responsibility of the external auditors, KPMG LLP, is to express an independent, professional opinion on whether the financial statements are fairly presented in accordance with IFRS. The Auditors report which follows outlines the scope of their examination and their opinion. On behalf of Management: Raymond Robinson President & Chief Executive Officer Marta Kelly Vice President, Finance & Administration April 20, 2017

10 SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) KPMG LLP Frederick Square 700-77 Westmorland Street Fredericton NB E3B 6Z3 One Factory Lane PO Box 827 Moncton NB E1C 8N6 133 Prince William Street PO Box 2388 Stn Main Saint John NB E2L 3V6 Telephone (506) 452-8000 Telephone (506) 856-4400 Telephone (506) 634-1000 Fax (506) 450-0072 Fax (506) 856-4499 Fax (506) 633-8828 INDEPENDENT AUDITORS' REPORT To the Board of Commissioners We have audited the accompanying financial statements of The Power Commission of the City of Saint John, which comprise the statement of financial position as at December 31, 2016, the statements of comprehensive income and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of The Power Commission of the City of Saint John as at December 31, 2016, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Chartered Professional Accountants April 27, 2017 Saint John, Canada KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. KPMG Canada provides services to KPMG LLP.

SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 11 Statement of Financial Position December 31, January 1, 2015 2015 December 31, Restated Restated 2016 (note 3 (l)) (note 3(l)) Assets Current assets Cash (note 5) $ 2,076 $ 11,401 $ 7,188 Restricted cash (note 5) 301 3,307 Accounts receivable (note 6) 9,604 8,630 9,363 Unbilled revenue 3,245 2,805 3,595 Harmonized sales tax recoverable 1,311 1,185 1,122 Prepaid expenses 599 652 550 Total current assets 16,835 24,974 25,125 Non-current assets Loans receivable 226 205 121 Property, plant and equipment (note 7) 73,279 62,896 61,570 Intangible assets (note 8) 1,502 1,600 1,508 Total non-current assets 75,007 64,701 63,199 Total assets $ 91,842 $ 89,675 $ 88,324 Liabilities Current liabilities Payable to NB Power $ 12,052 $ 9,946 $ 10,637 Accounts payable and accrued liabilities (note 9) 3,187 6,382 3,604 Customer deposits 996 971 1,076 Reduce and shift demand (note 5) 301 3,307 Total current liabilities 16,235 17,600 18,624 Non-current liabilities Deferred revenue 1,028 759 737 Post-employment benefits (note 10) 36,740 37,773 40,516 Total non-current liabilities 37,768 38,532 41,253 Total liabilities 54,003 56,132 59,877 Regulatory balances (note 11) 37,839 33,543 28,447 Commitments and contingencies (note 15) Total liabilities and regulatory balances $ 91,842 $ 89,675 $ 88,324 See accompanying notes to the financial statements. On behalf of the Board: Chairman President & Chief Executive Officer 1

12 SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) Statement of Comprehensive Income, with comparative information for 2015 2015 Restated 2016 (note 3(l)) Electrical operations Revenue $ 104,534 $ 106,330 Energy purchased 86,901 89,495 17,633 16,835 Other income Consumer product rentals 3,221 2,736 Lighting rentals 900 950 Other (note 12) 1,298 1,152 23,052 21,673 Operating expenses Distribution, operations and maintenance 10,257 9,414 Administration, billing and collection 9,917 9,744 Consumer product rentals 1,357 1,261 Lighting rentals 260 1,043 Income from operating activities 1,261 211 Finance income (note 14) 117 161 Finance costs (note 14) (39) (44) Net income 1,339 328 Movement in regulatory balances (note 11) (1,339) (328) Net income after movement in regulatory balances Other comprehensive income (loss) Items that will not be reclassified to profit or loss: Actuarial gain on post-employment benefits (note 10(d)) 2,957 4,768 Movement in regulatory balances (note 11) (2,957) (4,768) Other comprehensive income Total comprehensive income $ $ See accompanying notes to the financial statements. 2

SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 13 Statement of Cash Flows, with comparative information for 2015 2015 Restated 2016 (note 3(l)) Operating activities Net income $ 1,339 $ 328 Adjustments for: Depreciation of property, plant and equipment 2,843 2,566 Amortization of intangible assets 188 178 Amortization of deferred revenue (21) (19) Gain on disposal of property, plant and equipment 27 821 Post-employment benefits 1,924 2,025 Contributions received from customers 290 41 Net finance income (78) (117) 6,512 5,823 Change in non-cash operating working capital: Accounts receivable (974) 733 Unbilled revenue (440) 790 Harmonized sales tax recoverable (126) (63) Prepaid expenses 53 (102) Payable to NB Power 2,106 (691) Accounts payable and accrued liabilities (1,306) 889 Customer deposits 25 (105) (662) 1,451 Net cash from operating activities 5,850 7,274 Investing activities Loans receivable (21) (84) Purchase of property, plant and equipment (13,467) (4,759) Purchase of intangible assets (90) (270) Proceeds on disposal of property, plant and equipment 214 46 Disbursements of reduce and shift demand credits (2,190) (2,050) Credits received for reduce and shift demand 933 Net finance income 78 117 Net cash used by investing activities (15,476) (6,067) Change in cash (9,626) 1,207 Cash, beginning of year (note 5) 11,702 10,495 Cash, end of year (note 5) $ 2,076 $ 11,702 See accompanying notes to the financial statements. 3

14 SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 1. Reporting entity The Power Commission of the City of Saint John (the Commission ) is a rate regulated electricity distribution company governed by By-Laws, the Electricity Act and the Municipalities Act of the Province of New Brunswick. The Commission has no share capital. Appointments to the Board of Commissioners are made by the Mayor and Council of the City of Saint John. The Board of Commissioners acts in the best interests of rate-payers and its voting members are not employees of the Commission. The Commission s head office is located in the City of Saint John, 325 Simms Street, New Brunswick. The Commission is the principal supplier of electrical energy to the residential, general service, small industrial and municipal sectors of the City of Saint John. The majority of the electrical energy is purchased from the New Brunswick Power Corporation ( NB Power ), a Crown Corporation wholly-owned by the Government of New Brunswick. The Commission operates under the name Saint John Energy. The financial statements are for the Commission as at and for the year ended December 31, 2016. 2. Basis of presentation (a) Statement of compliance The Commission's financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ). (b) Basis of measurement These financial statements have been prepared on the historical cost basis, unless otherwise stated. They were approved by the Board of Commissioners on April 27, 2017. (c) Functional and presentation currency These financial statements are presented in Canadian dollars, which is the Commission's functional currency. All financial information presented in Canadian dollars has been rounded to the nearest thousand. (d) Use of judgments and estimates The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses and disclosure of contingent assets and liabilities. Actual results may differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimates are revised and in any future years affected. 4

SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 15 2. Basis of presentation (continued) (d) Use of judgments and estimates (continued) (i) Assumptions about judgements Information about judgements made in applying accounting policies that have the most significant effects on the amounts recognized in the financial statements are included in the following notes: (i) Note 3(h) and 10 classification of defined benefit obligations (ii) Assumptions and estimations uncertainty Information about assumptions and estimation uncertainties that have a risk of resulting in material adjustment is included in the following notes: (i) (ii) Note 6 and 17(a) provision for impairment of accounts and loans receivable Note 3(b) measurement of unbilled revenue (iii) Notes 3(c), 3(d), 7, 8 estimation of useful lives of its property, plant and equipment ( PP&E ) and intangible assets (iv) Note 3(h), 10 measurement of defined benefit obligations: key actuarial assumptions (v) Note 3(g), 15 recognition and measurement of provisions and contingencies (e) Rate regulation and regulatory balances In establishing the rates that it charges its customers, the Commission must follow the economic regulatory framework set out in the Municipalities Act. The Municipalities Act requires the Commission to make such charges to the users of its services as to produce annually or quadrennially balanced budgets. Surpluses or deficits at the end of each budget period are required to be debited or credited to the second next ensuing year or spread over a four year period commencing on the second next ensuing year. The Municipalities Act also permits the Commission to establish, manage and contribute to an operating reserve fund and a capital reserve fund ( regulatory balances ) in accordance with set regulations. Pursuant to these principles, the Board of Commissioners, acting as rate regulator, approves the amount and timing of changes to rates and other charges as well as the annual capital and operating budgets. The Commission plans its operations to essentially result in an annual financial breakeven position after any appropriations to the regulatory balances. In accordance with the regulations, amounts held in the regulatory balances are to be used for no purpose other than the payment of expenses incurred by the Commission in the provision of service. 5

16 SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 2. Basis of presentation (continued) (e) Rate regulation and regulatory balances (continued) Rate regulation affects the accounting for a transaction or event and results in the recognition of regulatory assets and regulatory liabilities. Regulatory assets represent future revenues associated with certain costs, incurred in the current period or in prior periods that are expected to be recovered from customers in future periods through the rate-setting process. Regulatory liabilities represent future reductions or limitations of increases in revenues associated with amounts that are expected to benefit the customers as a result of the rate-setting process. Note 11 of these financial statements details the regulatory balances and the movement in the regulatory balances. When establishing rates to be charged to customers, the rate regulator, which is the Commission s Board of Commissioners, considers the operating and capital budgets for the respective period. Rates are set so as to achieve specific and full recovery of all the Commission s operating costs. For the specific benefit of all rate-payers, the Commission is also entitled by regulatory statutes to collect funds from customers in advance of actual costs being incurred (i.e. the regulatory balances). Regulatory balances are used for no purpose other than for future payment of expenses incurred by the Commission in the provision of service. In the absence of rate regulation, the Commission s regulatory balances would not be recognized. 3. Significant accounting policies The accounting policies set out below have been applied consistently in all years presented in these financial statements. (a) Financial instruments All financial assets are classified as loans and receivables and all financial liabilities are classified as other liabilities. These financial instruments are recognized initially at fair value plus any directly attributable transaction costs. Subsequently, they are measured at amortized cost using the effective interest method less any impairment for the financial assets as described in note 3(e). The Commission does not enter into derivative instruments. Hedge accounting has not been used in the preparation of these financial statements. 6

SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 17 2. Basis of presentation (continued) (e) Rate regulation and regulatory balances (continued) Rate regulation affects the accounting for a transaction or event and results in the recognition of regulatory assets and regulatory liabilities. Regulatory assets represent future revenues associated with certain costs, incurred in the current period or in prior periods that are expected to be recovered from customers in future periods through the rate-setting process. Regulatory liabilities represent future reductions or limitations of increases in revenues associated with amounts that are expected to benefit the customers as a result of the rate-setting process. Note 11 of these financial statements details the regulatory balances and the movement in the regulatory balances. When establishing rates to be charged to customers, the rate regulator, which is the Commission s Board of Commissioners, considers the operating and capital budgets for the respective period. Rates are set so as to achieve specific and full recovery of all the Commission s operating costs. For the specific benefit of all rate-payers, the Commission is also entitled by regulatory statutes to collect funds from customers in advance of actual costs being incurred (i.e. the regulatory balances). Regulatory balances are used for no purpose other than for future payment of expenses incurred by the Commission in the provision of service. In the absence of rate regulation, the Commission s regulatory balances would not be recognized. 3. Significant accounting policies The accounting policies set out below have been applied consistently in all years presented in these financial statements. (a) Financial instruments All financial assets are classified as loans and receivables and all financial liabilities are classified as other liabilities. These financial instruments are recognized initially at fair value plus any directly attributable transaction costs. Subsequently, they are measured at amortized cost using the effective interest method less any impairment for the financial assets as described in note 3(e). The Commission does not enter into derivative instruments. Hedge accounting has not been used in the preparation of these financial statements. 6

18 SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 3. Significant accounting policies (continued) (c) Property, plant and equipment (continued) The cost of replacing a part of an item of PP&E is recognized in the net book value of the item if it is probable that the future economic benefits embodied within the part will flow to the Commission and its cost can be measured reliably. In this event, the replaced part of PP&E is written off, and the related gain or loss is included in profit or loss. The costs of the day-to-day servicing of PP&E are recognized in profit or loss as incurred. The need to estimate the decommissioning costs at the end of the useful lives of certain assets is reviewed periodically. The Commission has concluded it does not have any material legal or constructive obligation to remove PP&E. Depreciation is calculated to write off the cost of items of PP&E using the straight-line method over their estimated useful lives, and is generally recognized in profit or loss. Depreciation methods, useful lives, and residual values are reviewed at each reporting date and adjusted prospectively if appropriate. Land is not depreciated. Construction-inprogress assets are not depreciated until the asset is available for use. The estimated useful lives are as follows: Land and administration building Distribution system Buildings and structures Conduit Load control devices Lighting Metering Poles SCADA system Substation equipment Switches Transformers Voltage regulators Conductors Consumer products Other fixed assets IT equipment Tools and equipment Vehicles 10-50 years 10-70 years 50 years 7 years 15-20 years 25-40 years 10-60 years 7-20 years 10-25 years 30-50 years 30-45 years 45 years 35-60 years 7-20 years 3-8 years 5-10 years 6-15 years 8

SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 19 3. Significant accounting policies (continued) (d) Intangible assets Computer software that is acquired or developed by the Commission after January 1, 2014, including software that is not integral to the functionality of equipment purchased which has finite useful lives, is measured at cost less accumulated amortization. Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. Amortization methods and useful lives of all intangible assets are reviewed at each reporting date and adjusted prospectively if appropriate. The estimated useful lives are: Computer software 3-10 years (e) Impairment (i) Financial assets measured at amortized cost A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss is calculated as the difference between an asset s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Interest on the impaired assets continues to be recognized through the unwinding of the discount. Losses are recognized in profit or loss. An impairment loss is reversed through profit or loss if the reversal can be related objectively to an event occurring after the impairment loss was recognized. 9

20 SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 3. Significant accounting policies (continued) (e) Impairment (continued) (ii) Non-financial assets The carrying amounts of the Commission's non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cashgenerating unit" or CGU ). The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. For other assets, an impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. (f) Customer deposits Customer deposits represent cash deposits from electricity distribution customers to guarantee the payment of energy bills. Interest is accrued on customer deposits. Deposits are refundable to customers who demonstrate an acceptable level of credit risk as determined by the Commission in accordance with policies set out by the Board of Commissioners or upon termination of their electricity distribution service. (g) Provisions A provision is recognized if, as a result of a past event, the Commission has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a rate that reflects current market assessments of the time value of money and the risks specific to the liability. 10

SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 21 3. Significant accounting policies (continued) (h) Post-employment benefits The Commission provides its employees with pension and other post-employment supplemental benefits including health care and life insurance benefits beyond those provided by government sponsored plans. In addition, a one-time payment is made to retiring employees based on years of service and salary levels. Certain executives will receive payments in retirement under the Supplemental Employee Retirement Plan, to ensure pension equity. The Commission has the following accounting policies with respect to these postemployment benefit plans: i) Pension: The Commission administers its pension plan by providing contributions to the Saint John Energy Shared Risk Plan (SJE SRP). The contributions are determined as described in note 10 of these financial statements. The obligations for the SJE SRP are actuarially determined by applying the projected unit credit method and reflect management s best estimate of certain underlying assumptions. Remeasurements of the net defined benefit obligations, including actuarial gains and losses, are recognized immediately in other comprehensive income (loss). The accounting policy for accounting for the SJE SRP was changed on a retrospective basis during the year. See note 3(l) changes in accounting policy for further disclosures. ii) Other supplemental benefits: The benefits offered under these plans are unfunded and administered directly by the Commission. The obligations for these supplemental benefit plans are actuarially determined by applying the projected unit credit method and reflect management s best estimate of certain underlying assumptions. Remeasurements of the net defined benefit obligations, including actuarial gains and losses, are recognized immediately in other comprehensive income (loss). When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognized immediately in profit or loss. (i) Government assistance Government assistance related to current expenses are recognized in profit and loss on a systematic basis in the periods in which the expenses are recognized. Government assistance relating to PP&E is initially recorded as deferred income until the conditions are met and then they are recorded as a reduction of the cost of such assets. 11

22 SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 3. Significant accounting policies (continued) (j) Finance income and finance costs Finance income is recognized as it accrues in profit or loss using the effective interest method. Finance income comprises of interest earned on cash and restricted cash. Finance costs comprises of interest expense on borrowings, customer deposits and bank fees. Finance costs are recognized in profit or loss. (k) Taxes The Commission is exempt from income taxes. The Commission pays property and utility taxes based respectively on the value of the Commission s land and buildings and the net book value of its in service distribution assets, net of customer contributions for same. (l) Change in accounting policy As described in the Commission s December 31, 2015 financial statements, IFRS does not specifically address the accounting for shared risk pension plans. During the fiscal year 2016, other public section entities have changed their accounting policy and commenced accounting for shared risk plans using defined benefit accounting or joint defined benefit accounting. As such, using defined benefit accounting for shared risk plans has become more generally accepted. Therefore, effective January 1, 2016, the Commission elected to voluntarily change, on a retrospective basis, its accounting policy for the SJE SRP to comply with the requirements for defined benefit plans (DBP) under IFRS IAS 19 Employee Benefits. The Commission had previously accounted for the SJE SRP in accordance with the requirements for defined contribution plans under the same accounting standard. As a result of accounting for the SJE SRP as a DBP, the deficit in the SJE SRP is now recorded in the Statements of Financial Position. Pension related expenses different from actual cash contributions being made to the SJE SRP by the Commission are recorded in the Statements of Comprehensive Income. This change in accounting policy has been applied on a retrospective basis with a transition date of January 1, 2015. 12

SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 23 3. Significant accounting policies (continued) (l) Change in accounting policy (continued) The impact of the voluntary change in accounting policy on the statements of financial position as at December 31, 2015 and January 1, 2015 is as follows: Statement of financial Effect of Restated position as change in statement previously accounting of financial January 1, 2015 reported policy position Current assets $ 25,125 $ $ 25,125 Non-current assets 63,199 63,199 Total assets $ 88,324 $ $ 88,324 Current liabilities $ 18,624 $ $ 18,624 Deferred revenue 737 737 Post-employment benefits (note 10(c)) 14,752 25,764 40,516 Regulatory balances (note 11) 54,211 (25,764) 28,447 Total liabilities and regulatory balances $ 88,324 $ $ 88,324 Statement of financial Effect of Restated position as change in statement previously accounting of financial December 31, 2015 reported policy position Current assets $ 24,974 $ $ 24,974 Non-current assets 64,701 64,701 Total assets $ 89,675 $ $ 89,675 Current liabilities $ 17,600 $ $ 17,600 Deferred revenue 759 759 Post-employment benefits (note 10(c)) 13,321 24,452 37,773 Regulatory balances (note 11) 57,995 (24,452) 33,543 Total liabilities and regulatory balances $ 89,675 $ $ 89,675 13

24 SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 3. Significant accounting policies (continued) (l) Change in accounting policy (continued) The impact on the voluntary change in accounting policy on the statement of comprehensive income for to the year ended December 31, 2015 is as follows: Statement of comprehensive Restated income as Effect of change statement of previously in accounting comprehensive reported policy income Income from electrical operations and other income $ 21,673 $ $ 21,673 Operating expenses Distribution, operations, and maintenance 8,832 582 9,414 Administration, billing, and collection 9,165 579 9,744 Consumer product rentals 1,186 75 1,261 Lighting rentals 1,030 13 1,043 1,460 (1,249) 211 Net finance income 117 117 Net income 1,577 (1,249) 328 Movement in regulatory balances (1,577) 1,249 (328) Net income after movement in regulatory balances $ $ $ Other comprehensive income (loss) Items that will not be reclassified to profit or loss: Actuarial gains on post-employment benefits $ 2,207 $ 2,561 $ 4,768 Movement in regulatory balances (2,207) (2,561) (4,768) Other comprehensive income Total comprehensive income $ $ $ The impact on the statement of cash flows for the year ended December 31, 2015 is not significant. Previously reported cash generated from operations, financing and investing were not impacted. The impact of the voluntary change in accounting policy on the capital reserve liability balance as at January 1, 2015 is as follows: Regulatory Effect of Restatement balances as change in of previously accounting Regulatory January 1, 2015 reported policy balances Capital reserves $ 56,436 $ (17,925) $ 38,511 Accumulated actuarial loss on other post-employment benefits (2,225) (2,225) Accumulated actuarial loss on SJE SRP (7,839) (7,839) $ 54,211 $ (25,764) $ 28,447 14

SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 25 4. Standards issued but not yet adopted Future accounting changes There are new standards, amendments to standards and interpretations which have not been applied in preparing these financial statements. The Commission is still evaluating the adoption of the following new and revised standards, described below, which the Commission anticipates might have an impact on its financial statements or note disclosures. (i) Revenues from Contracts with Customers In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers. The new standard is effective for annual periods beginning on or after January 1, 2018. The standard outlines a single comprehensive model for entities to use in accounting for revenues arising from contracts with customers. It supersedes current revenue recognition guidance including IAS 18 Revenues, IAS 11 Construction Contracts and related interpretations. The new revenue model applies to all contracts with customers except those that are within the scope of other IFRSs, such as leases, insurance contracts and financial instruments. IFRS 15 specifies how and when the entity should recognize revenue and additional disclosure requirements. The extent of the impact of adoption of the standard has not yet been determined. (ii) Financial Instruments The IASB published the final version of IFRS 9 Financial Instruments in July 2014. IFRS 9 is effective for annual periods beginning on or after January 1, 2018. The final version of IFRS 9 brings together the classification and measurement, impairment and hedge accounting to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 is built on a logical, single classification and measurement approach for financial assets that reflects the business model in which they are managed and their cash flow characteristics. IFRS 9 has an expected credit loss model for a timely recognition of loan losses and is a single model that is applicable to all financial instruments subject to impairment accounting. It also includes an improved hedge accounting model to better link the economics of risk management with its accounting treatment. The extent of the impact of adoption of the standard has not yet been determined. 15

26 SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 4. Standards issued but not yet adopted (continued) (iii) Leases On January 13, 2016 the IASB issued IFRS 16 Leases. The new standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted for entities that apply IFRS 15 Revenue from Contracts with Customers at or before the date of initial adoption of IFRS 16. IFRS 16 will replace IAS 17 Leases. This standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. This standard substantially carries forward the lessor accounting requirements of IAS 17, while requiring enhanced disclosures to be provided by lessors. Other areas of the lease accounting model have been impacted, including the definition of a lease. Transitional provisions have been provided. The extent of the impact of adoption of the standard has not yet been determined. (iv) Statement of cash flows On January 7, 2016 the IASB issued Disclosure Initiative (Amendments to IAS 7). The amendments apply prospectively for annual periods beginning on or after January 1, 2017. Earlier application is permitted. The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes. One way to meet this new disclosure requirement is to provide a reconciliation between the opening and closing balances for liabilities from financing activities. The Commission does not expect the amendments to have a material impact on the financial statements. 5. Cash and restricted cash 2016 2015 Bank balances used for cash management purposes $ 2,076 $ 11,401 Cash restricted for the reduce shift demand process - 301 Cash and restricted cash in the statements of cash flows $ 2,076 $ 11,702 The restricted cash represents credits received from NB Power as part of a supply agreement and are restricted from day to day use in operations of the Commission. The Commission, as per the supply agreement, is to invest the credits in a manner consistent with NB Power's Reduce and Shift Demand initiatives. The parties agreed that such investments must be cost effective and mutually beneficial to the Commission and NB Power. The credits are initially recognized as deferred income, in the reduce and shift demand liability, presented in the statements of financial position. The credits, once approved and the costs have been incurred, are recognized as a reduction of the cost of the initiative. 16

SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 27 6. Accounts receivable 2016 2015 Customer accounts $ 8,917 $ 7,908 Sundry 772 797 9,689 8,705 Less provision for impairment (85) (75) $ 9,604 $ 8,630 7. Property, plant and equipment Land and administration Distribution Consumer Other fixed Construction building system products assets -in-progress Total Cost or deemed cost Balance at January 1, 2016 $ 12,793 $ 42,581 $ 5,242 $ 4,948 $ 2,331 $ 67,895 Additions 33 (294) 7,403 6,325 13,467 Transfers 674 6,038 6,398 (5,737) (7,373) Disposals/retirements (238) (92) (27) (357) Balance at December 31, 2016 $ 13,467 $ 48,414 $ 11,254 $ 6,587 $ 1,283 $ 81,005 Balance at January 1, 2015 $ 12,749 $ 40,690 $ 4,909 $ 4,366 $ 1,574 $ 64,288 Additions 44 288 589 3,838 4,759 Transfers 2,711 370 (3,081) Disposals/retirements (1,108) (37) (7) (1,152) Balance at December 31, 2015 $ 12,793 $ 42,581 $ 5,242 $ 4,948 $ 2,331 $ 67,895 Accumulated depreciation Balance at January 1, 2016 $ 871 $ 2,483 $ 842 $ 803 $ $ 4,999 Depreciation 452 1,394 606 391 2,843 Disposals/retirements (67) (22) (27) (116) Balance at December 31, 2016 $ 1,323 $ 3,810 $ 1,426 $ 1,167 $ $ 7,726 Balance at January 1, 2015 $ 442 $ 1,414 $ 414 $ 448 $ $ 2,718 Depreciation 429 1,347 435 355 2,566 Disposals/retirements (278) (7) (285) Balance at December 31, 2015 $ 871 $ 2,483 $ 842 $ 803 $ $ 4,999 Carrying amounts At December 31, 2016 $ 12,144 $ 44,604 $ 9,828 $ 5,420 $ 1,283 $ 73,279 At December 31, 2015 11,922 40,098 4,400 4,145 2,331 62,896 PP&E purchase commitments outstanding as at December 31, 2016 were $6 (2015 - $1,436). The Commission has applied $301 (2015 - $3,939) of Reduce and Shift Demand Credits against the purchase of property, plant and equipment. At December 31, 2016, nil (2015 - $1,889) of these purchases were unpaid and recorded in accounts payable. 17

28 SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 7. Property, plant and equipment (continued) The depreciation of PP&E has been allocated to profit or loss as follows: Distribution, Administration, Consumer operations and billings and product and maintenance collection lighting rentals Total December 31, 2016 $ 1,618 $ 562 $ 663 $ 2,843 December 31, 2015 1,457 543 566 2,566 8. Intangible assets Computer software Cost Balance at January 1, 2016 $ 1,778 Additions 90 Balance at December 31, 2016 $ 1,868 Balance at January 1, 2015 $ 1,508 Additions 270 Balance at December 31, 2015 $ 1,778 Accumulated amortization Balance at January 1, 2015 $ 178 Additions (allocated to administration, billings and collection) 188 Balance at December 31, 2016 $ 366 Carrying amounts At December 31, 2016 $ 1,502 At December 31, 2015 1,600 9. Accounts payable and accrued liabilities 2016 2015 Accounts payable $ 2,477 $ 3,502 Payroll 325 263 Other 385 2,617 $ 3,187 $ 6,382 18

SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 29 10. Post-employment benefits (a) Saint John Energy Shared Risk Plan On June 1, 2013, The Power Commission of the City of Saint John Superannuation Fund, a defined benefit pension plan, was converted to the SJ Energy Shared Risk Plan or SJE SRP, a shared risk plan under the Pension Benefits Act of New Brunswick. The primary purpose of the SJE SRP is to provide retirement benefits to eligible employees in the form of periodic payments to pensioners after retirement and until death in respect of their service as employees. A further purpose of the SJE SRP is to provide secure benefits to members without an absolute guarantee but with a risk-focused management approach delivering a high degree of certainty that base benefits will be payable in the vast majority of potential future economic scenarios. As a shared risk plan, all future cost of living adjustments for current and future retirees and other ancillary benefits under the SJE SRP shall be provided only to the extent that funds are available for such benefits as determined by the Board of Trustees of the SJE SRP in accordance with applicable laws and the funding policy. The Commission and the members of the SJE SRP agreed to the following terms to fund the SJE SRP: Employees contribute 9% of pensionable earnings; The Commission contributes 9% of pensionable earnings; The Commission contributes an additional 8.5% of pensionable earnings on a temporary basis until 2028 or earlier if the SJE SRP is able to meet its risk management goals under the Funding Policy; and Annual actuarial reviews are the responsibility of the Board of Trustees of the SJE SRP. Should, for two consecutive years, the SJE SRP accrued benefit obligation, using the funding valuation, exceed the pension assets, the employee and the Commission contribution rates would each increase up to 2%. Alternatively, a 2% decrease in the contribution rates is possible given consecutive surpluses as well as other criteria having been met. A 2% contribution rate change is the maximum allowable cumulative change in the contribution rate for the Commission, with respect to the SJE SRP. No triggering event occurred in 2016. Contributions and benefit payments for the next fiscal year are not expected to be significantly different than the current year. 19

30 SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 10. Post-employment benefits (continued) (a) Saint John Energy Shared Risk Plan (continued) Due to the nature of a shared risk plan, benefits are no longer guaranteed by the Commission. For pensionable service before the conversion date, the base benefits (prior to any adjustments for adverse or better than anticipated investment returns) are equal to the member's years of pensionable service to a maximum of 35 years times 2% of the member's best three year average annual pensionable earnings. Post conversion date pension benefits are equal to 2% of the employee s annual base earnings (career average). (b) Other supplemental benefits Other post-employment benefits include health care and life insurance benefits beyond those provided by government sponsored plans. Also, a one-time payment is made to retiring employees based on years of service and salary levels. Additionally certain executives will receive payments in retirement under the Supplemental Employee Retirement Plan, to ensure pension equity. The Commission recognizes the cost of these other post-employment benefits in the year in which employees services were rendered. 20

SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 31 10. Post-employment benefits (continued) (c) Reconciliation of post-employment benefits December 31, December 31, January 1, 2016 2015 2015 Restated Restated (note 3(l)) (note 3(l)) Opening SJE SRP benefit obligation $ (87,035) $ (86,695) $ (73,648) Current service (1,200) (1,328) (789) Interest cost (3,450) (3,356) (3,457) Actuarial gain (loss) 863 1,931 (11,192) Employee contributions (652) (684) (617) Benefit payments 3,105 3,097 3,008 Closing SJE SRP benefit obligation (88,369) (87,035) (86,695) Opening fair value of plan assets 62,583 60,931 56,357 Employer contributions 1,268 1,241 1,204 Employee contributions 652 684 617 Expected return on plan assets 2,449 2,323 2,621 Actuarial gain 2,871 630 3,353 Benefits paid (3,105) (3,097) (3,008) Administrative expense (212) (129) (213) Closing fair value of plan assets 66,506 62,583 60,931 SJE SRP deficit (note 3(l)) (21,863) (24,452) (25,764) Opening other post-employment benefit obligation (13,321) (14,752) (11,845) Current service (475) (525) (389) Interest cost (574) (611) (592) Actuarial gain (loss) (777) 2,207 (2,225) Benefit payments 270 360 299 Closing other post-employment benefit obligation (14,877) (13,321) (14,752) Total post-employment benefits obligation $ (36,740) $ (37,773) $ (40,516) 21

32 SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 10. Post-employment benefits (continued) (d) Included in other comprehensive income (loss) 2016 2015 Actuarial gain (loss) arising from: Saint John Energy Shared Risk Plan Plan experience $ (405) $ Financial assumptions 1,093 1,544 Cost of living assumptions 175 387 Asset returns in excess of expectations 2,871 630 3,734 2,561 Other post-employment benefits Valuation model change (70) Plan experience 100 1,832 Financial assumptions (877) 445 (777) 2,207 Actuarial gain included in other comprehensive income (loss) $ 2,957 $ 4,768 (e) Included in profit or loss Other post-employment SJE SRP benefit 2016 2015 Current service $ 1,200 $ 475 $ 1,675 $ 1,853 Interest cost 3,450 574 4,024 3,967 Expected return on plan assets (2,449) (2,449) (2,323) Administrative expenses 212 212 129 $ 2,413 $ 1,049 $ 3,462 $ 3,626 (f) Key actuarial assumptions December 31, December 31, January 1, 2016 2015 2015 Discount rate for SJE SRP 3.95% 3.95% 3.85% Discount rate for other post-employment benefits 3.95% 4.20% 4.05% Salary levels 3.50% 3.50% 3.50% Long-term health care cost inflation 5.00% 5.00% 5.00% Inflation 2.15% 2.25% 2.25% Cost of living for SJE SRP 1.62% 1.69% 1.71% The weighted average duration of the post-employment benefit obligation is 14 years (2015-14 years). 22

SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 33 10. Post-employment benefits (continued) (g) Sensitivity analysis Reasonably possible changes at the reporting date of the key actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation as follows: a 0.50% increase in the assumed discount rate would result in the defined benefit obligation decreasing by $8,635; a 0.50% decrease in the assumed discount rate would result in the defined benefits obligation increasing by $9,921; a 1% increase in the assumed health care cost trend would result in the defined benefit obligation increasing by $3,287; a 1% decrease in the assumed health care cost trend would result in the defined benefit obligation decreasing by $2,409; a 0.50% increase in the assumed cost of living adjustments trend would result in the defined benefit obligation increasing by $8,096; and a 0.50% decrease in the assumed cost of living adjustment would result in the defined benefit obligation decreasing by $7,216. (h) SJE SRP assets SJE SRP assets comprise the following: December 31, December 31, January 1, 2016 2015 2015 Equities: Canadian $ 3,308 $ 3,435 $ 5,242 US 562 543 1,491 Foreign 357 76 1,352 4,227 4,054 8,085 Bonds Government of Canada 1,075 1,189 1,275 Provincial 1,013 1,255 2,802 Corporate 1,701 1,687 2,535 US 1,409 1,949 5,198 6,080 6,612 Cash 789 295 32 Short-term investments 1,409 1,573 11,008 Pooled funds 48,804 45,543 35,194 Real estate fund 6,079 5,038 57,081 52,449 46,234 $ 66,506 $ 62,583 $ 60,931 All equity securities have quoted prices in active markets. Bonds, cash, short-term investments, and pooled funds have inputs other than quoted prices included in level 1 that are observable. The Real estate fund s fair value is not based on observable market data. 23

34 SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 10. Post-employment benefits (continued) (h) SJE SRP assets (continued) As required under the Pension Benefit Act of New Brunswick the assets of the SJE SRP are managed by an independent Board of Trustees. The Trustees established a funding policy which establishes an asset mix and engaged professional investment managers to invest the assets to achieve the risk management goals set out in the funding policy. 11. Regulatory balances January 1, 2016 Restated December 31, (note 3(l)) Additions Reversals 2016 Capital reserve regulatory liabilities $ 38,839 $ 1,339 $ 40,178 Accumulated actuarial gain (loss) on post-employment benefits (5,296) 2,957 (2,339) Ending balance $ 33,543 $ 1,339 $ 2,957 $ 37,839 January 1, December 31, 2015 2015 Restated Restated (note 3(l)) Additions Reversals (note 3(l)) Capital reserve regulatory liabilities $ 38,511 $ 328 $ $ 38,839 Accumulated actuarial gain (loss) on post-employment benefits (10,064) 4,768 (5,296) Ending balance $ 28,447 $ 328 $ 4,768 $ 33,543 As per note 2(e), the Commission is mandated by legislation to operate at a financial break even after any appropriations to the regulatory balances. Any comprehensive income or loss incurred is charged to the regulatory balance, with the corresponding debit or credit made to the Statements of Comprehensive Income. The vast majority of this obligation results from the timing differences between when revenue for the provision of services is recognized and the amortization of PP&E and intangible assets and post-employment benefits obligations. 24

SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 35 12. Other income 2016 2015 Rendering of services $ 970 $ 718 Customer delinquency charges 228 261 Sale of miscellaneous goods 71 138 Revenue recognized from customer contributions 23 19 Other 6 16 $ 1,298 $ 1,152 13. Employee salaries and benefits 2015 Restated 2016 (note 3(l)) Salaries, wages and benefits $ 8,806 $ 8,523 CPP and EI remittances 367 354 SJE SRP (note 10 (e)) 2,413 2,490 Other post-employment benefit (note 10 (e)) 1,049 1,136 $ 12,635 $ 12,503 Employee salaries and benefits have been allocated in profit and loss as follows: 2015 Restated 2016 (note 3(l)) Distribution, operations and maintenance $ 5,521 $ 5,302 Administration, billing and collection 5,351 5,468 Consumer product rentals 628 682 Lighting rentals 121 107 Capitalized into PP&E 1,014 944 $ 12,635 $ 12,503 25

36 SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 14. Finance income and costs 2016 2015 Finance income Interest income on bank deposits $ 92 $ 147 Other 25 14 117 161 Finance costs Bank fees 44 45 Other (5) (1) 39 44 Net finance income recognized in profit or loss $ 78 $ 117 15. Commitments and contingencies Contractual obligations The majority of electrical energy sold by the Commission to its customers is purchased from NB Power under a supply agreement. During 2012, the supply agreement was amended to extend the term for a period of ten years to March 31, 2022. Thereafter, the agreement is extended from year to year unless either party provides 12 months written notice to the other party of its intention to terminate. General From time to time, the Commission is involved in various litigation matters arising in the ordinary course of its business. The Commission has no reason to believe that the disposition of any such current matter could reasonably be expected to have a materially adverse impact on the Commission s financial position, results of operations or its ability to carry on any of its business activities. 26

SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 37 16. Related party transactions (a) Controlling party The Commission does not have any share capital. The Board of Commissioners make decisions which are in the best interest of the rate-payers. The Mayor and Council of the City of Saint John (the City ) retain the right to appoint the Commissioners to the Board. The City, uses a modified equity method to account for its interest in the Commission. The financial statements of the City are available for public use. (b) Outstanding accounts receivable balances with related parties 2016 2015 City $ 247 $ 350 Related entities controlled by the City 56 32 $ 303 $ 382 These balances are in the normal course of business and are due within 30 days of receipt of the invoice. No material security or provision has been taken against these balances. (c) Transactions with controlling party and related entities The Commission delivers electricity to the City throughout the year for the electricity needs of the City and its related entities. Electricity delivery charges are at prices and under terms approved by the Board of Commissioners. The Commission also provides the City with streetlight maintenance services. Revenue from the City totaled $3,449 (2015 - $3,511) and revenue from to related entities totaled $828 (2015 - $824). (d) Key management personnel The key management personnel of the Commission have been defined as members of its Board of Commissioners and executive management team members. The compensation paid or payable is as follows: 2015 Restated 2016 (note 3(l)) Commissioners fees $ 38 $ 28 Salaries 441 410 Other benefits 67 67 Post-employment benefits 138 128 $ 684 $ 633 27

38 SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 17. Financial instruments and risk management Fair value disclosure The carrying values of cash, restricted cash, accounts receivable, payable to NB Power and accounts payable and accrued liabilities approximate fair value because of the short maturity of these instruments. The carrying value of the customer deposits approximates fair value because the amounts are payable on demand. The fair value of loans receivable approximates its carrying value. The fair value is calculated based on the present value of future principal and interest cash flows discounted at the current rate of interest at the reporting date. Financial risks The Commission understands the risks inherent in its business and defines them broadly as anything that could impact its ability to achieve its strategic objectives. The Commission s exposure to a variety of risks such as credit risk and liquidity risk, as well as related mitigation strategies, are discussed below. (a) Credit risk Financial assets carry credit risk that a counterparty will fail to discharge an obligation which could result in a financial loss. Financial assets held by the Commission, such as accounts and loans receivable, expose it to credit risk. The Commission earns its revenue from a broad base of customers located in the City of Saint John. No single customer accounts for a balance in excess of 1% of total accounts and loans receivable. The carrying amount of accounts and loans receivable is reduced through the use of an allowance for impairment and the amount of the related impairment loss is recognized in profit or loss. Subsequent recoveries of receivables previously provisioned are credited to profit or loss. The balance of the allowance for impairment at December 31, 2016 is $85 (2015 - $75). An impairment loss of $236 (2015 - $300) was recognized during the year. The Commission s credit risk associated with accounts receivable is primarily related to payments from distribution customers. At December 31, 2016, approximately $294 (2015 - $ 252) is considered 60 days past due. The Commission has over 36 thousand customers, the majority of whom are residential. Credit risk is managed through monitoring collectability which requires ongoing assessment and corrective action and the collection of security deposits from customers. As at December 31, 2016, the Commission holds security deposits in the amount of $996 (2015 - $971). 28

SAINT JOHN ENERGY: 2016 ANNUAL REPORT (FINANCIAL) 39 17. Financial instruments and risk management (continued) (b) Liquidity risk The Commission monitors its liquidity risk to ensure access to sufficient funds to meet operational and investing requirements. The Commission s objective is to ensure that sufficient liquidity is on hand to meet obligations as they fall due while minimizing interest exposure. The Commission monitors cash balances daily to ensure that a sufficient level of liquidity is on hand to meet financial commitments as they become due. The majority of the payable to NB Power and accounts payable, as reported on the statements of financial position, are due within 30 days. (c) Capital disclosures When managing capital, it is the main objectives of the Commission to ensure ongoing access to funding to maintain and improve the electricity distribution system. 29