BEFORE THE ARKANSAS PUBLIC SERVICE COMMISSION

BEFORE THE ARKANSAS PUBLIC SERVICE COMMISSION IN THE MATTER OF THE JOINT ) APPLICATION OF LIBERTY UTILITIES ) (CENTRAL) CO., LIBERTY SUB CORP., ) AND THE EMPIRE DISTRICT ELECTRIC ) COMPANY FOR ALL NECESSARY ) Docket No. 16-013-U AUTHORIZATIONS AND APPROVALS ) FOR LIBERTY SUB CORP. TO MERGE ) WITH AND INTO THE EMPIRE DISTRICT ) ELECTRIC COMPANY ) JOINT MOTION TO APPROVE STIPULATION AND SETTLEMENT AGREEMENT AND REQUEST TO CANCEL HEARING Come now Liberty Sub Corp. (LSC), Liberty Utilities (Central) Co. (LU Central), The Empire District Electric Company (EDE), the Consumer Utilities Rate Advocacy Division of the Attorney General s Office (AG) and the General Staff of the Arkansas Public Service Commission (Staff) (collectively known as the Parties) and for their Joint Motion (Joint Motion) to Approve Stipulation and Settlement Agreement (Agreement) and Request to Cancel Hearing state as follows: 1. The Parties have reached unanimous agreement on all issues in Docket No. 16-013-U. This Agreement is set forth in and attached hereto as Joint Motion Exhibit 1. By this Joint Motion, the Parties are requesting that the Arkansas Public Service Commission (Commission) approve the Agreement. 2. As support for the Agreement and concurrent with the filing of this Joint Motion the following witnesses are sponsoring Settlement Testimonies: Peter Eichler for LU Central and LSC Brad P. Beecher for EDE 1

M. Shawn McMurray for the AG Shannon Todd for Staff 3. As there are no longer any disputed issues, the Parties recommend that the current procedural schedule be suspended and ask that the hearing be cancelled and for the Commission to decide the case on the filed record now before it. Respectfully submitted, GENERAL STAFF OF THE ARKANSAS PUBLIC SERVICE COMMISSION By: /s/ Christina L Baker Christina L. Baker (ABN 2016001) Staff Attorney Dawn Kelliher Guthrie (ABN 90103) Staff General Counsel 1000 Center Street P.O. Box 400 Little Rock, AR 72203-0400 LIBERTY UTILITIES (CENTRAL) CO. LIBERTY SUB CORP. THE EMPIRE DISTRICT ELECTRIC COMPANY By: /s/ Lawrence E. Chisenhall, Jr. Lawrence E. Chisenhall, Jr. (ABN 74023) Barber Law Firm 3400 Simmons Tower 425 West Capital Little Rock, AR 72201 LESLIE RUTLEDGE ATTORNEY GENERAL By: /s/ Kevin Lemley Kevin Lemley (ABN 2005034) Assistant Attorney General 323 Center Street, Suite 200 Little Rock, AR 72201 2

CERTIFICATE OF SERVICE I certify that a copy of the foregoing has been delivered to all Parties of Record by electronic mail via the Electronic Filing System, this 29 th day of June 2016. /s/ Christina L. Baker Christina L. Baker 3

BEFORE THE ARKANSAS PUBLIC SERVICE COMMISSION IN THE MATTER OF THE JOINT ) APPLICATION OF LIBERTY UTILITIES ) (CENTRAL) CO., LIBERTY SUB CORP., ) AND THE EMPIRE DISTRICT ELECTRIC ) COMPANY FOR ALL NECESSARY ) Docket No. 16-013-U AUTHORIZATIONS AND APPROVALS ) FOR LIBERTY SUB CORP. TO MERGE ) WITH AND INTO THE EMPIRE DISTRICT ) ELECTRIC COMPANY ) JOINT STIPULATION AND SETTLEMENT AGREEMENT Come now Liberty Sub Corp. (LSC), Liberty Utilities (Central) Co. (LU Central), The Empire District Electric Company (EDE), the Consumer Utilities Rate Advocacy Division of the Attorney General s Office (AG) and the General Staff of the Arkansas Public Service Commission (Staff) (collectively known as the Parties) who hereby unanimously agree to the following terms in settlement of all the outstanding issues in the above-styled Docket. 1. GENERAL 1.1. On March 16, 2016, LU Central, LSC and EDE (collectively known as the Joint Applicants), submitted a Joint Application to the Arkansas Public Service Commission (Commission) pursuant to Ark. Code Ann. 23-3-101 and/or Ark. Code Ann. 23-3-102, and Rule 10.2 of the Commission's Rules of Practice and Procedure for approval of a merger transaction (the Merger) whereby LSC will merge with and into EDE with EDE being the surviving entity of the Merger. 1.2. EDE is a Kansas corporation qualified to do business in the State of Arkansas. EDE is also qualified to conduct business in the States of Kansas, 4

Missouri and Oklahoma. It is a public utility as defined in Ark. Code Ann. 23-1-101. As a public utility, EDE is subject to the jurisdiction of the Commission as it is engaged in the generation, transmission and distribution of electrical power. EDE serves approximately 170,000 retail customers, of which approximately 4,400 are located in Arkansas. EDE's electricity comes from seven company-owned generating facilities, plus purchased power, and it delivers electric energy across an interconnected transmission and distribution system that spans over 10,000 square miles. EDE s principal office is at 602 S. Joplin Avenue, Joplin, Missouri 64802. 1.3. LU Central is a Delaware corporation and is a wholly-owned subsidiary of Liberty Utilities Co. and is an indirect subsidiary of Algonquin Power & Utilities Corp. (APUC). LU Central is not a "public utility" as defined by Arkansas law and it will not become a public utility if this merger is approved, although certain of its activities and transactions may be subject to the Commission's rules governing affiliate transactions. 1.4. LSC is a Kansas corporation that is a wholly-owned subsidiary of LU Central. It is a special purpose corporation formed for the sole purpose of merging with and into EDE. 1.5. Liberty Utilities Co. (Liberty Utilities), a wholly-owned subsidiary of Liberty Utilities (Canada) Corp., owns all of the regulated utilities operating in the United States. Liberty Utilities is the parent corporation of LU Central. Liberty Utilities has been providing regulated water service in Arkansas through its subsidiary Liberty Utilities (Pine Bluff Water) Inc. 5

1.6. APUC is a publicly-traded corporation registered on the Toronto Stock Exchange and is incorporated under the laws of Canada, with its principal place of business in Oakville, Ontario. APUC has three business units; (i) a power generation unit that includes 35 renewable power generating facilities representing over 1,150 MW of installed generating capacity; (ii) a utility service unit, Liberty Utilities (Canada) Corp. that owns and operates regulated utilities in eleven states that provide retail water, sewer, electric and natural gas utility service to approximately 560,000 customers and (iii) a recently formed transmission group responsible for evaluating and capitalizing upon natural gas pipeline and electric transmission asset opportunities in North America. APUC is not a "public utility" as defined by Arkansas law, and is not an applicant in this case although it is the ultimate parent of EDE. 1.7. On February 9, 2016, the Joint Applicants entered into an Agreement and Plan of Merger (Merger Agreement), whereby LSC will merge with and into EDE, with EDE being the survivor of the Merger. EDE will continue to operate the public utility assets as a jurisdictional public utility in Arkansas, pursuant to EDE s existing Commission approved Certificate of Public Convenience and Necessity and Arkansas law. 1.8. In the Merger Agreement, the board of directors of EDE, subject to stockholder approval, and the boards of directors of LU Central and of LSC agree that LSC shall be merged into EDE, in accordance with the Kansas General Corporation Code and the Agreement, and the separate corporate existence of LSC will cease, with EDE being the surviving corporation. Immediately following, LSC will cease to exist. As a consequence of the merger, LU Central will acquire all of the 6

capital stock of EDE. EDE shareholders are to receive thirty-four dollars ($34.00) per common share in cash. The aggregate purchase price, including existing EDE debt, is approximately $2.4 billion. 2. THE TRANSACTION: 2.1. LU Central and LSC will acquire all of the capital stock of EDE through a merger. At the close of the all-cash transaction, EDE will become a wholly owned subsidiary of LU Central. 2.2. As a subsidiary of LU Central, EDE s utility operations will continue to be regulated by each of the five regulatory commissions that currently regulate EDE, including the Commission. 2.3. Liberty Utilities will establish a Central Region which will be headquartered in Joplin, Missouri. This regional office will provide senior leadership to the current operations of EDE and Liberty Utilities gas operations in Missouri, Illinois, and Iowa, and Liberty Utilities water operations in Missouri, Arkansas, and Texas. 2.4. EDE will continue to operate as a jurisdictional public utility in Arkansas, pursuant to EDE s existing Commission approved Certificate of Public Convenience and Necessity and Arkansas Law. 2.5. EDE will continue to utilize the rates, rules, regulations and other tariff provisions on file with and approved by the Commission, and will continue to provide service to its customers under those rates, rules and regulations, and other tariff provisions until such time as they may be modified by Commission action. 7

2.6. There will be no changes to the EDE service area as a result of the acquisition. 2.7. LU Central shall cause EDE and its subsidiaries to maintain and operate their respective businesses under the Empire District brand for a period of at least five (5) years following the closing of the merger, provided that such use may also include a Liberty Utilities company brand or similar co-branding designation. 2.8. Following the completion of the acquisition of the shares of EDE, all of EDE s assets utilized for the provision of electric, water and natural gas utility operations, as well as its fiber optic line of business will continue to be owned by EDE and these services will continue to be provided by EDE and its existing subsidiary companies: Empire District Industries, Inc. (EDI) and Empire District Gas Company (EDG). 2.9. All the utilities within LU Central will continue to operate in the same fashion as they do today. 2.10. LU Central has committed to retain all of EDE s management team and its workforce following closing of the transaction. No involuntary reductions in EDE s current administrative, professional and field workforce and its existing management team are expected as a result of this transaction. 2.11. LU Central will honor the terms and conditions of EDE s existing severance packages. 2.12. A regional board of directors will be established to provide guidance and counsel on local issues and enhanced customer service. All existing board members of EDE will be offered a position on the board. 8

2.13. EDE and certain of Liberty Utilities existing utilities will be reorganized under LU Central, with Bradley Beecher, the current CEO of EDE assuming the role of the CEO of LU Central. 3. RATEMAKING ASSURANCES Rate Moratorium 3.1. The Parties acknowledge that EDE will not file a notice of intent to file a rate case until twelve months of actual historical information is available following the closing of LU Central s acquisition of EDE. In the event the rider for the recovery of Riverton 12 provided for in Section 3.2 is not approved by the Commission, this Section 3.1 shall have no effect. 3.2. This provision does not preclude EDE from filing an application to request a rider which will allow it to recover its costs associated with converting the Riverton 12 generating facility from a combustion turbine to a combined cycle gas turbine. 3.3. This provision does not preclude EDE from filing an application to request recovery of costs pursuant to Act 310 as modified by Act 1000, except as it relates to recovery of the costs associated with converting the Riverton 12 generating facility from a combustion turbine to a combined cycle gas turbine, as provided in the previous section. Acquisition Premium, Transaction Costs and Transition Costs 3.4. No costs of the proposed transaction will be borne by ratepayers. Such costs include but are not limited to: (1) acquisition premium costs (i.e., amounts recorded in NARUC USOA Account 114 - Utility Plant Acquisition Adjustments or Account 116 - Other Utility Plant Adjustments and defined as the difference between 9

the cost to the accounting utility of utility plant acquired and the original cost of such property, less the amounts credited to accumulated depreciation), including the return on those costs or the amortization thereof, (2) transition costs defined as onetime, temporary costs related to effecting the transaction that do not create a long lived or future benefit to ratepayers, severance costs related to termination of employees as a direct result of this transaction, 1 or termination fees incurred in conjunction with the transaction, or (3) transaction costs, defined as one-time costs required for items such as equity financing and regulatory approvals, including but not limited to LU Central or EDE personnel costs incurred as a result of the transaction. All costs related to the transaction shall be recorded in separate accounts specifically maintained to account for the transaction. The detailed journal entries recorded to reflect the transaction shall be filed with the Commission no later than thirteen months after the date of closing or prior to any rate increase application, whichever comes first. Severance Costs 3.5. LU Central and/or EDE will not seek to recover any severance costs or retention costs incurred as the result of the transaction from ratepayers. To the extent that any severance costs are incurred as a result of the transaction, those severance costs shall not be allocated to EDE or any other affiliate operating under LU Central. Fuel Costs 3.6. EDE fuel costs shall not be adversely impacted as a result of this transaction. 1 LU Central notes that no terminations are expected as a result of this transaction. 10

Affiliate Costs 3.7. At the time of EDE s first rate case filing after the transaction closes, EDE shall provide an analysis demonstrating that Administrative and General costs have not increased solely as a result of the transaction. Cost of Capital 3.8. The cost of capital (COC) as reflected in EDE's rates will not be adversely affected as a result of the transaction. 3.9. LU Central agrees the COC shall be determined in future rate cases, consistent with applicable Law, regulations and practices of the Commission. 3.10. LU Central and EDE will not oppose, in either a regulatory proceeding or by judicial appeal of a Commission decision, the application of the principle that the determination of the cost of capital can be based only on the risks attendant to the regulated operations of EDE. 3.11. LU Central agrees that EDE s equity level will not fall below 40% of its total capitalization as a result of any dividend payments made to LU Central or any of its parent companies. 3.12. LU Central agrees that the appropriate external capital structure shall be determined in a manner consistent with past Commission precedent. Such external capital structure shall include an appropriate level of short-term debt consistent with Commission precedent regarding appropriate benchmarked levels of short-term debt. 3.13. LU Central agrees that the Accumulated Deferred Income Taxes (ADIT) amount, character, and all other terms reflected on the books of EDE immediately 11

prior to the transaction shall be unchanged by the transaction with the exception of adjustments related to the splitting of Pension and Other Post-Employment Benefits (OPEB) accounts and funds and the reduction in plant related to any assets not purchased from EDE. ADIT will continue to be treated as a zero-cost source of capital. Segregation of Assets 3.14. LU Central agrees that EDE will not comingle its assets with the assets of any other person or entity, except as allowed under the Commission s Affiliate Transaction Rules. 3.15. LU Central commits that EDE will conduct business as a separate legal entity and shall hold all of its assets in its own legal entity name. 3.16. LU Central commits that EDE will not grant or permit to exist any lien, encumbrance, claim, security interest, pledge, or other right in favor of any person or entity in its assets, other than liens or encumbrances entered into in the ordinary course of business. 3.17. LU Central and EDE affirm that the present legal entity structure that separates the regulated business operations from those unregulated business operations shall be maintained unless express Commission approval is sought to alter any such structure. LU Central and EDE further agree that proper accounting procedures will be employed to protect against cross-subsidization of non-regulated businesses by EDE customers. 12

Cost Allocations 3.18. Liberty Utilities already has in place a cost allocation manual that sets forth a cost allocation methodology to be used by all regulated utilities entities, including Liberty Utilities current Arkansas operations, based largely on the guidelines established by NARUC. Liberty Utilities will revise or modify its current cost allocation manual, as needed, to reflect the acquisition of EDE within six (6) months following the closing of the transaction, and provide a copy to the Commission. LU Central commits it will file with the Commission an executed copy of the Affiliate Service Agreement within thirty (30) days of closing of the transaction. Accounting Standards 3.19. LU Central shall not permit any subsidiary to make any material change in financial accounting methods, principles or practices, except to the extent as may have been required by a change in applicable Law or Generally Accepted Accounting Principles (GAAP) or by any Governmental Entity (including the Securities Exchange Commission (SEC) or the Public Company Accounting Oversight Board). 3.20. LU Central affirms there will be no change in accounting for Arkansas held assets of LU Central or EDE unless reviewed and approved by the Commission. Books and Records 3.21. LU Central and EDE accounting records will be maintained in accordance with the National Association of Regulatory Utility Commissioners (NARUC) Uniform System of Accounts as adopted by the Commission including the NARUC 13

Regulations to Govern the Preservation of Records of Electric, Gas and Water Utilities. 3.22. EDE commits it will maintain separate books and records, system of accounts, financial statements, and bank accounts. 3.23. LU Central, its affiliates, and EDE (collectively the Entities) agree to produce or deliver any or all accounting records and related documents requested by the Commission. The Entities may, with Commission approval, provide verified copies of original records and documents. The Entities further agree that the preferred method of production or delivery of records is by electronic access or electronic submission. If electronic access or electronic submission is not available or is deemed unsatisfactory by the Commission for its purposes, the Entities agree that the requested records and related documents, or legible verified copies thereof, shall be physically produced and delivered to the Commission in a timely manner. 3.24. LU Central will maintain adequate records to support, demonstrate the reasonableness of, and enable the audit and examination of all centralized corporate costs that are allocated to or directly charged to EDE. 3.25. LU Central shall make commercially reasonable efforts to provide Staff and the AG access to any independent auditor s workpapers and reports of all entities who may allocate, assign, or direct charge costs to EDE. 3.26. LU Central will adopt the individual plant-in-service, depreciation reserve, and contributions-in-aid-of-construction balances on EDE s books on the date of the sale. LU Central agrees to use the depreciation rates approved by the Arkansas 14

Public Service Commission in Docket No. 13-111-U for all utility plant-in-service either on EDE s books or allocated to EDE until the next general rate case. Other 3.27. LU Central commits that in future rate case proceedings, LU Central and EDE will support its assurances provided in this document with appropriate analysis, testimony, and necessary journal entries fully clarifying and explaining how any such determinations were made. 3.28. LU Central and EDE agree to reaffirm and honor any prior commitments made by EDE to the Commission and to comply with any previously issued Commission orders applicable to EDE or its previous owners. 3.29. LU Central and EDE agree to maintain or improve EDE s current quality of service, consistent with the requirements of Commission rules. 3.30. LU Central agrees to provide Staff and the AG with copies of any customer notifications related to this transaction at least 72 hours prior to issuance for input from Staff and the AG regarding content of said notifications. The customer notification materials may include, but are not limited to, a press release upon closing, a letter to the customers welcoming them to Liberty Utilities, and a bill insert in the first bill. 3.31. LU Central affirms it would need to assess the impact of any state or Federal order prior to extending any benefits/conditions to Arkansas ratepayers. LU Central will provide state and Federal regulatory agency orders when they become available. 15

4. FINANCING 4.1. LU Central plans to use a reasonable and prudent investment grade capital structure comprised, initially of 55% equity and 45% total debt. LU Central will be provided with appropriate amounts of debt and equity from Liberty Utilities to maintain such a capital structure. LU Central will, in turn, use the capital provided by Liberty Utilities to contribute the necessary capital to its utility subsidiaries including EDE. LU Central will provide the Commission with details on any debt and equity instruments associated with the acquisition, and provide copies of such instruments within 30 days of closing of the transaction. LU Central agrees that the appropriate capital structure for EDE will be determined in the next general rate case and nothing in this agreement constitutes a pre-condition to be placed on any future ratemaking proceeding. 4.2. The Parties recognize that both the acquisition premium and the debt, equity, and other capital components used to finance the acquisition premium are recorded on the books of LU Central and are not recorded on the books of EDE, and therefore, are not reflected in the rate base or capital structure of EDE. 4.3. If Liberty refinances any or all of EDE s existing debt, for reasons other than to obtain a lower interest rate that provides demonstrated net benefits to EDE s customers over the period until the debt would have otherwise matured, ratepayers should be protected by allowing no remaining unamortized debt issuance costs and no losses on reacquired debt for such refinanced debt. 16

5. RIGHTS OF THE PARTIES 5.1. This Agreement is designed to complete and resolve all the issues in this docket. This Agreement is made upon the explicit understanding that it constitutes a negotiated settlement which is in the public interest. Nothing herein shall constitute an admission of any claim, defense, rule or interpretation of law, allegation of fact, principle, or method of ratemaking or cost-of-service determination or rate design, or terms or conditions of service, or the application of any rule or interpretation of law, that may underlie, or be perceived to underlie, this Agreement 5.2. This Agreement is expressly contingent upon its approval by the Commission without any modification. The various provisions of the Agreement are interdependent and unseverable. The Parties shall cooperate fully in seeking the Commission's approval of the Agreement. The Parties shall not support any alternative proposal or settlement agreement while this Agreement is pending before the Commission or otherwise attempt to continue litigating issues in the case as the intent of this Agreement is to resolve all issues. 5.3. Except as to matters specifically agreed to be done or occur in the future, no Party shall be precluded from taking any position on the merits of any issue in any subsequent proceeding in any forum. This Agreement shall not be used or argued as establishing precedent for any methodology or rate treatment in any future proceeding or represented to be a Party s acquiescence to any opposing position presented in this proceeding. 5.4. In the event the Commission does not accept, adopt, and approve this Agreement in its entirety and without modification, the Parties agree that this 17

Agreement shall be void and of no effect. In that event, however, the Parties agree that (a) no Party shall be bound by any of the provisions or agreements hereby contained herein; b) all Parties shall be deemed to have reserved all their respective rights and remedies in this proceeding; and (c) no Party shall introduce this Agreement or any related writings, discussions, negotiations, or other communications of any type in any proceeding. Respectfully submitted, GENERAL STAFF OF THE ARKANSAS PUBLIC SERVICE COMMISSION By: /s/ Christina L. Baker Christina L. Baker (ABN 2016001) Staff Attorney Dawn Kelliher Guthrie (ABN 90103) Staff General Counsel 1000 Center Street P.O. Box 400 Little Rock, AR 72203-0400 LIBERTY UTILITIES (CENTRAL) CO. LIBERTY SUB CORP. THE EMPIRE DISTRICT ELECTRIC COMPANY By: /s/ Lawrence E. Chisenhall, Jr. Lawrence E. Chisenhall, Jr. (ABN 74023) Barber Law Firm 3400 Simmons Tower 425 West Capital Little Rock, AR 72201 LESLIE RUTLEDGE ATTORNEY GENERAL By: /s/ Kevin Lemley Kevin Lemley (ABN: 2005034) Assistant Attorney General 323 Center Street, Suite 200 Little Rock, AR 72201 18