Haldimand County Utilities Inc. - 2013 Annual Report by Kiel Edge

HALDIMAND COUNTY UTILITIES INC. Annual Report 2013

reliability

safety

conservation

CONTENTS

Corporate Introduction

Message from the President & CEO and the Chair

5 Reliability 6

Customer Experience

Ice Storm 2013

System Planning

Introduction Haldimand County Utilities Inc. is dedicated to providing reliable, cost effective and safe electricity to the residents of Haldimand County. Haldimand County Utilities Inc. prides itself on being an excellent community partner while making a positive impact on the development of our jurisdiction’s economy, our employees and the environment.

9 Safety 11

Community Involvement

Capital Expenditures

Green Energy and Renewables

Conservation and Demand Management

Finance and Regulatory

Executive Team

Board of Directors

Haldimand County Utilities Inc. serves more than 21,200 customers stretching across an area of 1,252 square kilometres with approximately 1,647 circuit kilometres of overhead and 93 kilometres of underground distribution lines. Haldimand County Utilities Inc. continues to see significant customer interest and participation in renewable energy and generation projects throughout its service territory and has delivered a number of saveONenergy® Conservation and Demand programs to its business and residential customers.

HALDIMAND COUNTY UTILITIES INC. Holding Company

HALDIMAND COUNTY ENERGY INC. Services Company

HALDIMAND COUNTY GENERATION INC. Generation Company

HALDIMAND COUNTY HYDRO INC. Distribution Company

In 2006, Haldimand County Utilities Inc. established its Mission Statement:

To provide efficient, reliable and safe electricity distribution and other related services to customers while contributing to the development of our jurisdiction’s economy, our employees and the protection of the environment while enhancing the value of Haldimand County Utilities Inc.

PAGE 1

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

Haldimand County Utilities Inc. is the Holding Company for the Distribution, Services and Generation Companies. The Corporation was formed in October 2000 following provincial government legislation, by amalgamating the former Hydro Electric Commissions of Dunnville, Haldimand and the east portion of Nanticoke.

Haldimand County holds 100 per cent of the shares of the Holding Company, which in turns holds 100 per cent of the shares of each of the Distribution, Services and Generation companies.

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

PAGE 2

Message from the President & CEO and the Chair Haldimand County Utilities Inc.’s vision is to be recognized as a leading participant in the electricity distribution and related businesses sector in Ontario known particularly for high quality of service, resilience and adaptability and continuous improvement and efficiency. The company operates on the pillars of reliability, cost effectiveness, safety and conservation while positioning itself as a vibrant part of the community it serves. Our ongoing commitment to reliability and efficiency was reflected in the productivity and benchmarking report released by the Ontario Energy Board (“OEB”) on November 21, 2013, ranking Haldimand County Hydro as the seventh most efficient local distribution company in the province. We are particularly pleased with our ranking given our service territory of 1,252 square kilometers, representing the fourth largest service territory in the province. This ranking provides important direction for future rate setting processes and provides insight into the exceptional work performed by Haldimand County Hydro staff.

R. Jane Albert President & CEO

Albert Marshall Chair

PAGE 3

Two major storm events in 2013 impacted the majority of our customers and put our reliability and service to the test. First in July, severe weather, including high winds and lightning, caused an outage impacting 10,000 customers lasting more than 48 hours in some cases. Secondly, we won’t forget anytime soon, the Ice Storm of 2013 which impacted 15,000 of our customers as well as a significant number of customers across Central Ontario during the Christmas season. Our staff worked tirelessly to restore power to our customers and once completed, we continued our long standing tradition of lending a hand and provided assistance over the Christmas holidays to Milton Hydro and Hydro One. These two major events provided first-hand knowledge of the value of real-time communications with our customers and community stakeholders during restoration efforts. Our customers are changing how they communicate with us, and we responded in 2013, using traditional and social media to communicate up-to-date information. Outside of the challenges created by inclement weather, the size of our territory plays a significant role on how we manage our resources as we drive further distances to service our customer and we have significantly more distribution assets than customers. Despite what may appear as hurdles, in 2013 we have delivered our operating budget on target and have invested $4.3 million in distribution assets increasing our overall shareholder equity from $19 million in 2000 to $36.9 million in 2013. Our net income for 2013 is $3,259,505 versus $850,036 in 2012 which resulted in a dividend of $814,879 and marks the highest dividend since incorporation in 2000.

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

On March 31, 2010 the Minister of Energy and Infrastructure of Ontario directed the OEB to establish Conservation and Demand Management targets to be met by electrical distributors. Accordingly, on November 12, 2010 the OEB amended Haldimand County Hydro’s distribution license to achieve 13.3 GWh in energy savings and 2.85 MW of summer peak demand over a period beginning January 1, 2011 through to December 31, 2014. In 2013, we have achieved 84 per cent of our energy target and 24 per cent of our net peak demand savings target. Through this program, we have provided a total of $706,714 directly to our customers through incentives. As we enter the final year of the initial program, conservation remains an integral component of all our communication materials and education efforts as we work diligently to inform customers of the value created in conserving electricity. On March 31, 2014, the Minister of Energy, under the Electricity Act, 1998, issued five key directives to articulate government policy and deliverables detailed in the Ministers Long-term Energy Plan. One of five, Conservation First Framework for 20152020, maintains an important commitment to place Local Electricity Distribution Companies in the driver’s seat to ensure a healthy culture of conservation is upheld in the communities they serve. While we provide exceptional service to area residents, Haldimand County Hydro also makes its presence known in the communities it serves. We support multiple community programs with our sponsorship of the annual Mayor’s Gala and assist a number of local families over the holidays each year by supplying them with energy efficiency kits to help with conservation efforts. Our staff take pride in giving back and help others in the community through their efforts to send deserving area children to summer camp through our Annual Safety Day auction and providing yearly donations to the local food bank. 2013 saw a continued focus on reaching our customers and working with area students. We continued our work with local schools educating students about electrical safety. In the 13 years of the program, we’ve reached 23,000 students. Our efforts with local students don’t stop there as 2013 marked the 10th consecutive year we have provided first-hand experience to local students through the Take Our Kids To Work Day Program. We are proud to work with tomorrow’s workforce and instill the importance of their role in a safe work day.

Everything we do at Haldimand County Hydro is done with safety front-and-center. Our safety-first mentality is reflected through the company-wide adoption of our “Seriously Fun Safety” culture. Our commitment to safety starts with every employee right from day one with a comprehensive safety orientation and continues throughout the year with regular safety training and information sessions attended by all employees in all departments. Our safety efforts were recognized with a perfect result on our 2013 Electrical Safety Authority Audit. The audit reviews our organization’s safety practices as outlined in Ontario government regulation 22/04 for electricity distribution and how we communicate internally and with the public. The 2013 Annual Report is intended to provide readers with a snapshot of our activities and successes over the past year. Moving into 2014, our priorities will include continued system upgrades to maintain reliability, regional planning, stakeholder engagement efforts and a strong, strategic operational and capital program. In early 2014, the OEB released “a report of the board on performance measurement for electricity distributors: A score approach” which reflects electricity distributors’ past efforts and current results in all facets of the organization, including customer satisfaction, public policy responsiveness, financial performance and operational effectiveness. It is anticipated our first submission will take place in 2015. Haldimand County Hydro could not have completed a successful 2013 without the efforts of its staff. On behalf of the Board and the executive team, we’d like to congratulate each employee for their commitment and dedication throughout the year and thank them for serving the community and our customers with pride. We would also like to thank the Board of Directors for their continued guidance and providing the leadership and support necessary to help move us forward.

R. Jane Albert President & CEO

Albert Marshall Chair

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

PAGE 4

Reliability Haldimand County Hydro services an area of 1,252 square kilometres with approximately 1,647 overhead circuit kilometres and 93 underground circuit kilometres of line. This is the fourth-largest service territory in Ontario. Haldimand County Hydro remains focused on providing exceptional reliability while understanding the challenges presented by a largely rural service area with low customer density.

New connections

To ensure the system is functioning at its full capacity, Haldimand County Hydro inspects its lines in rural areas every six years. Urban areas are inspected every three years. These inspections help assist with informing future capital planning. An infrared scan summary is completed on approximately one-third of the system each year. In 2013, a scan was completed on all distribution lines and feeders out of Caledonia Transformer Station. An extensive, 5-year cyclical tree trimming program is also used to manage trees and foliage that impacts service reliability. In 2013, tree trimming cleared lines in the former townships of Dunn, Canborough, Moulton and Sherbrooke. Unplanned outages cannot be completely prevented, but staff and crews work tirelessly throughout the year to ensure the lights are kept on for all customers.

End-of-life pole replacements

167

60000 40000

Installed Pole-top transformers

20000

611

Streetlight repairs

Customer Experience Creating a positive customer experience is at the heart of everything Haldimand County Hydro does. Staff are dedicated to creating positive relationships with all customers across the service territory and being a vibrant part of the local community. In 2013, Haldimand County Hydro re-introduced eCare, its online customer portal. The revamped portal gives customers a better method for tracking their consumption, receive Time-Of-Use information, view their bills and keep up-to-date on the latest news in the electricity sector. By the end of 2013, almost 1,000 customers had registered for the easily accessible portal. With the launch of eCare came a concerted effort to promote e-Billing to customers. e-Billing gives users added convenience and is a green alternative to paper bills. The number of customers registered for e-Billing increased throughout 2013 and continues to grow.

media played an increasingly prominent role during major outages, as customers can receive real-time outage updates and provided additional feedback on restoration efforts. Haldimand County Hydro prides itself in its ability to deliver exceptional customer service, the organization’s service levels fully exceed the standards set by the Ontario Energy Board. Continuous improvements to our website and mobile applications will continue to allow customers to connect with us from anywhere.

2013 also marked the beginning of Haldimand County Hydro’s partnership with Ontario One Call (“ON1Call”), providing a single-call method for customers to safely and efficiently request locates prior to digging. The efficiency of the implementation and the responsiveness of the locate staff allowed for 3,739 requests to be completed; an increase of more than 1,000 locates over 2012.

Customers have registered for the online portal

du l

n Ou ta Lo ge ss of Su pp Tr ly ee Co nt ac ts De Lig fe ht ct ni ive ng Eq ui pm Ad ve en r t s Ad eW ve e rs at e he En r vi ro nm Hu en m t an Fo E re le m ig n en In t te rfe re nc e

r/U

Emergency call-out responses

(Last one removed in January 2014)

80000

PCB transformer removals

100000

161

Number of Customer Interruptions

Average Number of Customer Interruptions (2008–2012)

Number of Customer Hours of Interruptions

Average Number of Customer Hours of Interruptions (2008–2012)

PAGE 5

The adjacent chart represents Haldimand County Hydro’s reliability statistics (SAIDI (System Average Interruption Duration Index - the average forced sustained interruption duration per customer served per year (measured in hours)). and SAIFI (System Average Interruption Frequency Index -average number of forced sustained interruptions experienced per customer served per year (measured in outages)) in 2013 compared to the same stats over a five year average (2008-2012). The statistic measurements represent the total number of outages. The statistics in 2013 were above our normal average due to higher than normal instances of adverse weather and lightning.

As part of its continuing commitment to customers, Haldimand County Hydro increased its social media presence in 2013, giving customers another way to stay connected. Regular updates on conservation, safety, industry news and outage information was provided through the corporate Twitter account throughout the year. By the end of 2013, the corporate Twitter account (@hchydro) had 280 followers. Social

961

32,000

Customer phone calls

2,339

Written customer inquiries

280

Twitter followers

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

PAGE 6

Ice Storm 2013 Haldimand County Hydro customers and staff were put to the test with an ice storm that wrapped up 2013 in a particularly slippery state.

Customers impacted

At 2:30am on Sunday, December 22, 2013, thick layers of ice and howling winds resulted in significant power outages that impacted approximately 15,000 of its customers. By the end of the first day, power had been restored to all but 200 customers.

All power restored within

Once power had been fully restored in the service territory, a Haldimand County Hydro crew provided additional assistance to Milton Hydro Distribution Inc and Hydro One Networks Inc. in the Dundas, ON area.

Staff spoke directly with nearly

Lending a helping hand Major storm events across Ontario provide an opportunity for Haldimand County Hydro crews to assist fellow utilities with restoration efforts. Haldimand County Hydro provided staff, trucks and material to Hydro One Networks Inc. in April 2013 to assist with restoration following an ice storm. Following a long-standing tradition, Haldimand County Hydro continues to assist other utilities with restoration efforts once work is complete within its own service territory.

“

15,000

Very good job to everyone there, thanks again, couldn’t ask for better service! I hope you all have a Merry Christmas and a happy new year. – Email from customer

”

36 hours

1,200 customers More than

3,400 views on corporate website

System Planning The past year was an important year for Haldimand County Hydro. Haldimand County Hydro submitted a Cost of Service Electricity Distribution Rate Application to the Ontario Energy Board. A major component of the electricity distribution rate application is the consolidated Distribution System Plan (“DS Plan”). The plan is a supporting document to the rate application setting process that drives the details of providing service by Haldimand County Hydro over the next five years. Components of the DSP include a Distribution Asset Management Plan, a Capital Expenditure Plan and a Renewable Energy Generation Plan (“REG”) These components include renewable energy generation expenditures, overview of assets, asset condition assessment and asset management details, customer engagement activities, regional planning activities, performance measurements and assessment of the ability to connect loads and generators.

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The DS Plan helps shape the next five years of Haldimand County Hydro direction. The plan outlines key future investments and projects. These include Lake Erie

shoreline improvements, underground Primary XLPE Cable replacements, the conversion of the 4.8/8.32 kV distribution system and municipal project partnerships based on municipal capital investment plans. The REG is a vital piece of the overall DS Plan. The REG Plan identifies the increasing prominence of renewable energy in Haldimand County Hydro’s service territory and outlines how Haldimand County Hydro will facilitate a growing number of renewable generation connections to its distribution system between 2014 and 2018.

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

PAGE 8

Safety Safety is a core principle at Haldimand County Hydro and part of every job. Seriously Fun Safety and safety education are foremost in Haldimand County Hydro’s work within the community and a passion throughout the organization. Education is at the heart of safety and loss prevention. In 2013, Haldimand County Hydro continued its annual tradition of providing electrical safety education programs to students in local schools. Safety programs are provided to students in two age groups – JK to grade three and grades four to eight. The highly interactive sessions educate children on the dangers of electricity. More than 2,200 students received handson safety education during the sessions and more than 23,000 students have taken part in the program over the last 13 years.

Staff take pride in working with tomorrow’s leaders and promoting electrical safety to a new generation. Haldimand County Hydro has participated in the Take Our Kids to Work Day program for 10 years and hosts a number of college and university-aged summer students each year. In 2013 a specialized handbook was designed to train new employees. The new handbook was added to the long-standing orientation process undergone by all employees, which includes detailed review of key safety practices.

Haldimand County Hydro’s commitment to safety is evident in the results of an audit performed by the Electrical Safety Authority (“ESA”). The audit, which took place in May 2013, assessed the organization’s processes and safety practices to ensure compliance with those laid out in provincial regulations. Haldimand County Hydro received a perfect score following a thorough review of design standards, approvals, construction verification and equipment approval processes. All employees are kept up-to-date on safety practices and information through regular training days and the Joint Health and Safety Committee performs regular inspections of the workplace and ensures safety is always top-of-mind for staff and customers. Haldimand County Hydro also uses its website and corporate social media accounts to provide safety information and educational materials to our growing number of followers.

100%

ESA Audit Compliance

2,200

Students attended safety programs

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PAGE 10

Community Involvement $1,800

Raised by staff to send four local children to summer camp

550

Hampers donated to local food banks

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HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

Most Haldimand County Hydro employees live and work in the communities they serve. Haldimand County Hydro is not just providing a service to local residents, but is a part of the local community. The commitment to improving Haldimand County begins with operational excellence, but extends to assisting those in the community. At Haldimand County Hydro’s Joint Health and Safety Committee’s 2013 Annual Safety Day staff raised money for deserving local children to attend summer camp. This was the second year for this successful event. Employees also help brighten the holidays for area families with annual donations to area food banks, a program that has continued for the past seven years. Haldimand County Hydro is visible in the communities it serves, participating in Santa Claus Parades and assisting local downtown area by installing Christmas lights in a number of communities. Employees also attend annual Home and Garden Shows across Haldimand County, where they can meet face-to-face with customers and educate residents on any number of its programs or services.

Haldimand County Hydro has an important role to play in educating the public. The annual Large Customer Luncheon brings the County’s largest businesses together for a learning session promoting conservation and providing insight into industry changes. Haldimand County Hydro’s education objectives extend to tomorrow’s leaders as university/college students can gain a summer of practical experience through the ongoing Summer Student Employment Program, and Electrical Engineering and Powerline Technician Co-op programs. Haldimand County Hydro is continuing to be present in all parts of its service territory as it seeks to be a community leader and part of the fabric of Haldimand County.

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

PAGE 12

Capital Expenditures Haldimand County Hydro’s capital expenditure strategy is based on providing safe, reliable and efficient distribution service to all its customers. In this respect, investments in infrastructure improvements were a key component of its 2013 capital expenditure plan.

Conversion HWY 54 to 27.6 kV

2013 was a busy year for capital work, and three projects in particular stand out as milestone events completed in 2013. The Conversion of Kohler Road to 27.6 kV improved the line from Rainham Road to Lakeshore Road and replaced the former 4.8 kV line that was built in the 1960s. The project is a component of an ongoing effort to upgrade distribution lines along Lakeshore Road. The Lakeshore Road – Bookers Road to Haldimand Road 50 Conversion, Phase 2 was also completed in 2013. Converting the area from 8 kV to 27.6 kV improved reliability and efficiency by moving to an underground distribution system. The Conversion of Highway 54 to 27.6 kV plans for the future interconnection of feeders for reliability and load growth between Canfield, Cayuga, Caledonia and the eastern portion of Oneida. New lines were constructed at the road allowance and replaced aging, difficult to access lines installed in 1962. A number of other important projects were also underway in 2013, including the conversion of an overloaded step-down transformer system to 27.6 kV in Stromness, completion of an Ontario Ministry of Transportation move order to relocate poles in Canfield, the rebuilding of portions of Orkney St., Inverness St. and Sutherland St. in Caledonia, and two significant distribution expansions on Concession 5 - Walpole.

$4.3 Million

Invested in capital expenditures

1,647 km

Conversion of Kohler Rd. to 27.6 kV

Conversion of Lakeshore Rd. – Bookers Rd. to Haldimand Rd. 50 to 27.6 kV

of overhead circuit distribution lines

26,000 Wooden poles

6,052

Pole-top transformers

PAGE 13

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

PAGE 14

225

microFIT projects connected since 2009

40,351 kW

Green Energy and Renewables

of installed embedded generation capacity

Bill 150, the Green Energy and Green Economy Act, 2009, was enacted on May 14, 2009. The Green Energy Act, among other things, permits electricity distribution companies to own renewable generation facilities, obligates electricity distribution companies to provide priority connection access for renewable generation facilities and to prepare plans that identify expansion or reinforcement of the distribution system required to accommodate these connections. It also empowers the Ontario Energy Board to set conservation and demand management targets for electricity distribution companies as a condition of licence. Haldimand County Hydro continues to focus on the Green Energy Act in guiding its system planning and capital investments. Haldimand County Hydro completed its smart meter implementation and all required related technologies in 2012. The completion of the smart meter initiative has provided Haldimand County Hydro with useful hourly data that has improved the capabilities of its Geographic Information System (“GIS”) and asset database, allowing for better-calculated load studies, and phase and circuit loading for maintenance and planning purposes. GIS maps also provide useful visuals for both power restoration efforts in the Operations Department and for providing notifications and updating customers through web tools and the mobile application updates during extreme weather events.

The number of distribution-connected generators in Haldimand County has steadily increased since the introduction of the Ontario Power Authority’s Feed-in-Tariff (“FIT”) program in 2009. In 2013, 35 MicroFIT (less than or equal to 10 kW) were connected, 6 Small FIT (less than 500 kW) and 2 Large FIT (greater than 500 kW) were connected. Haldimand County Hydro also completed a Renewable Energy Generation Plan in 2013, which contained Haldimand County Hydro’s intentions regarding connecting renewable generation to its distribution system over the next five years. Accommodating this renewable generation will require upgrades and/or expansion to the distribution system which directly benefits customers by improving system reliability and extending the service life of the distribution system.

Conservation and Demand Management Haldimand County Hydro, working in conjunction with the Ontario Power Authority (“OPA”) provided a number of Conservation and Demand Management programs to residential customers in 2013. These residential programs, including saveONenergy® for the home, Fridge and Freezer Pickup, Coupon events and the home assistance program are designed to assist customers in managing their electricity consumption. In 2013, Haldimand County Hydro offered the peaksaver program to its customers, installing programmable thermostats and free home energy displays where appropriate. In total, 239 customers were enrolled in peaksaver PLUS in 2013, helping reduce demand through automatic regulation of high energy consuming products during times of peak demand. The program saw an increase of more than 200 customers between 2011 and 2013.

Conservation and Demand Management Programs are also offered to all business customers. In 2013, local businesses received assistance through Retrofit incentives, direct lighting installations, and other incentives through the saveONenergy® for Business program. One local business was also compensated through the small commercial demand response program. Haldimand County Hydro is working efficiently to reach the targets outlined by the Ontario Energy Board. These targets must be met by December 31, 2014. Haldimand County Hydro is 84 per cent complete towards its target of 13.3 GWh Net Energy Savings, well above the provincial average of 75 per cent. The utility is at 24 per cent of its target for Peak Demand Savings, which the Ontario Energy Board set at 2.85 MW.

PAGE 15

$46,551

of value provided to customers through the high performance new construction program

$171,949

Paid through the retrofit program since 2011

268

Low income customers assisted in 2013

353

Recipients of heating and cooling incentives in 2013

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

PAGE 16

Finance and Regulatory

Breakdown of Electricity Bill Charges

Electricity Consumption (usage). The distribution rate charged is designed to recover the costs incurred by Haldimand County Hydro in delivering electricity to customers and a rate of return on deemed common equity, which is subject to the approval of the Ontario Energy Board.

Haldimand County Hydro earns revenue by charging its customers for the use of the distribution system. Such electricity distribution charges are comprised of a fixed monthly service charge combined with a variable (volumetric) charge based on electricity consumption

The adjacent chart shows the percentage breakdown of the related electricity charges for a residential customer using 800 kWh a month and billed on Time-of-Use rates.

2013 Customers, Consumption and Distribution Revenue by Rate Class RATE CLASS

NO. OF CUSTOMERS

CONSUMPTION (kWh)

DISTRIBUTION REVENUE ($)

Residential

18,717

169,969,351

40.6

9,975,499

68.4

General Service < 50 kW

2,342

54,795,842

13.1

2,240,490

15.4

158

120,153,846

28.7

1,767,171

12.1

70,908,989

16.9

153,086

1.0

343,914

0.1

113,092

0.8

2,355,438

0.6

316,974

2.2

364,468

0.1

16,738

0.1

418,891,848 100.0

General Service 50 kW to 4999 kW Embedded Distributor Sentinel Lighting * Street Lighting * Unmetered Scattered Load * TOTAL

21,296

14,583,050 100.0

* Sentinel Lights, Street Lights and Unmetered Scattered Loads are billed based on number of “connections” at 521, 2,977 and 69 respectively.

2013 Average Electricity Consumption per Customer by Rate Class

Residential General Service < 50 kW General Service 50 kW to 4,999 kW

2013 Purchased Consumption

kWh PER MONTH

kWh PER YEAR

757

9,081

1,950

23,397

63,372

760,467

85.6%

378,368,965 kWh Provincial Grid (IESO)

TOTAL 100% 14.4%

441,935,099 kWh

63,566,134 kWh Distribution-connected Generators

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HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

Haldimand County Hydro’s distribution rates, the portion of the electricity bill that is related to Haldimand County Hydro’s operations, represents only 27.3% of the total electricity charges found on the bill, and includes a $0.79 monthly pass through charge paid directly to the IESO for costs associated with managing and maintaining the Smart Meter infrastructure.

3.6% 3.3% Regulatory charges (eg. OEB, IESO)

Debt retirement charges, related to the former Ontario Hydro

11.5% Taxes HST (portion of total bill)

27.3% Distribution charges paid to and portion of the bill controlled by Haldimand County Hydro

47.7% Electricity Charges paid to generation companies (eg. OPG)

6.6% Transmission charges paid to Hydro One

Electricity Distribution Rates Electricity distribution rates charged by a local distribution company (“LDC”) are regulated by the Ontario Energy Board (“OEB”), using a combination of annual incentive rate mechanism (“IRM”) adjustments and periodic cost of service reviews, based upon applications made by the LDC to the OEB. Currently, the ratemaking policy of the OEB requires a cost of service review every five years, which is followed by four successive years of IRM adjustments. The cost of service framework sets electricity distribution rates using a detailed examination of evidence and an assessment of costs, based on forecast test year data, including the amount of operating and capital expenses, debt and shareholder’s equity required to support an LDC’s business. The electricity distribution rates are based on a revenue requirement that provides a regulated Maximum Allowable Return on Equity (“MARE”) on the amount of the deemed equity supporting the rate base. The IRM process provides for a mechanistic and formulaic adjustment to distribution rates and charges between cost of service applications. IRM adjustments are based on the annual change in the Gross Domestic Product Inflationary Price Index for Final Domestic Demand (“GDP-IPI”) net of a productivity factor and a “stretch factor” determined by the relative efficiency of an electricity distributor. Based on 2012 annual results and benchmarking analysis, the OEB ranked Haldimand County Hydro as the seventh most efficient LDC out of 73 LDCs in the province.

Haldimand County Hydro files a rate application with the OEB annually. Electricity distribution rates are typically effective from May 1 to April 30 of the following year. Accordingly, for the first four months of 2013, distribution revenue was based on rates approved for the May 1, 2012 to April 30, 2013 rate year ( i.e. the “2012 rate year”), which included a price cap index adjustment of 0.88% uniformly across all customer classes, and the distribution revenue for the remaining eight months of 2013 was based on rates approved for the May 1, 2013 to April 30, 2014 rate year ( i.e. the “2013 rate year”), which included a price cap index adjustment of 0.48% uniformly across all rate classes. Haldimand County Hydro’s previous cost of service rate application was filed August 28, 2009 and approved by the OEB on March 31, 2010, with rates effective May 1, 2010. This approval provided for a distribution revenue requirement of $12,646,747 and rate base of $40,215,214. For 2011, 2012 and 2013, Haldimand County Hydro filed annual IRM applications adjusting rates for inflation and productivity and stretch factors as described above. Haldimand County Hydro filed its most recent cost of service rate application on November 15, 2013 for rates effective May 1, 2014. On April 16, 2014, the OEB approved that application which provides for a distribution revenue requirement of $12,020,546 and rate base of $52,337,079. This will result in an 8.7% decrease in the monthly delivery charge component of a typical Residential customer bill and a 7.0% decrease in that of a typical General Service Less Than 50 kW customer bill.

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

PAGE 18

Results of Operations

Capital Expenditures

RESULTS OF OPERATIONS For the year ended

2013

2012

CAPITAL EXPENDITURES NET OF CAPITAL CONTRIBUTIONS For the year ended

2013

2012

Revenues

14,475,944

15,707,206

Distribution Plant Assets

3,875,664

8,504,301

Expenses

10,294,850

12,945,560

Tools, Shop and Transportation Equipment

298,649

273,983

Income before Income Taxes and Regulatory Adjustment

4,181,094

2,761,646

General Administration Assets

159,337

377,290

Sentinel Light Rental Units

2,491

2,259

Income Taxes

921,589

811,274

4,336,141

9,157,833

Income before Regulatory Adjustment

3,259,505

1,950,372

Regulatory adjustment - PILs, net of tax

1,200,160

750,212

Net Income

REVENUES For the year ended

3,259,505

2013

Total

Human Resources NUMBER OF EMPLOYEES For the year ended

2012

Distribution Services

14,583,050

14,343,228

Other Operating Revenue

1,352,078

1,363,978

Regulatory Adjustment - change in accounting policy

(1,459,184)

14,475,944

15,707,206

2013

Non-Union

Union

PAYROLL COSTS For the year ended EXPENSES For the year ended

2013

2012

2013

Salaries and wages

Company portion of source deductions

Operations, Maintenance and Administrative

7,539,997

8,470,292

Employee health benefits

Amortization

2,128,720

3,939,675

Company portion of OMERS pension

Interest

626,133

535,593

10,294,850

12,945,560

2012

3,857,319

3,644,279

183,619

171,068

351,244

337,708

336,246

278,785

4,728,428

4,431,839

Dividends REVENUE AND CONTROLLABLE COSTS PER CUSTOMER

Revenue per customer

$680

2013

PAGE 19

$740

2012

Controllable costs per customer

$676

2011

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

$354 $399 $350

2013

2012

2011

Dividends on common shares are declared at the discretion of the Board of Directors – subject to applicable law and based on direction from the Shareholder, the Board’s proposed dividend policy, and recommendations of Management - with consideration for results of operations, financial condition and future outlook, cash requirements and industry practice.

Consistent with the Board’s proposed dividend policy of paying dividends based on 25% of the previous year’s net income on April 23, 2014 the Board of Directors of the Corporation declared dividends in the amount of $814,876 to be paid in 2014.

During 2013 the Corporation declared and paid dividends in the amount of $512,549 (2012 - $611,329) for total dividends in the amount of $4,898,210 paid to date since 2003 to its sole Shareholder, the Municipality of Haldimand County.

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

PAGE 20

Independent Auditors’ Report To the Shareholders of Haldimand County Utilities Inc. We have audited the accompanying consolidated financial statements of Haldimand County Utilities Inc., which comprise the consolidated statement of financial position as at December 31, 2013, the consolidated statements of income, retained earnings, 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 Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of consolidated 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 consolidated 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 consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated 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 consolidated financial statements present fairly, in all material respects, the consolidated financial position of Haldimand County Utilities as at December 31, 2013, and its consolidated results of operations and its consolidated cash flows for the year then ended in accordance with Canadian generally accepted accounting principles.

Chartered Professional Accountants, Licensed Public Accountants Hamilton, Canada March 26, 2014

Consolidated Statement of Financial Position December 31, 2013, with comparative figures for 2012

2013 2012

Assets Current assets Cash and bank $ 4,953,977 $ 5,733,889 Unbilled revenue 6,671,961 5,589,542 Accounts receivable 5,812,706 4,546,490 Inventory (note 4) 1,359,899 1,334,139 Income taxes recoverable - 589,771 Prepaid expenses 427,866 276,994 19,226,409 18,070,825 Property, plant and equipment (note 6) 51,511,920 45,046,411 Future income taxes 1,567,468 2,021,043 53,079,388 47,067,454 $ 72,305,797 $ 65,138,279

Liabilities Current liabilities Accounts payable and accrued expenses $ Income taxes payable Current portion of long term liabilities Current portion of customer deposits

10,168,857 $ 9,212,675 351,925 1,299,601 1,299,602 90,815 55,346 11,911,198 10,567,623

Regulatory liabilities (note 7) Long term liabilities (note 8) Total liabilities

3,156,315 12,397,936 27,465,449

3,524,465 13,698,310 27,790,398

Deferred credits Contributions in aid of construction Less: amortization to date

9,012,184 1,130,445 7,881,739

4,143,672 1,007,444 3,136,228

Shareholder’s equity Capital (note 9) 20,289,812 Retained earnings 16,668,797 36,958,609 $ 72,305,797 $

20,289,812 13,921,841 34,211,653 65,138,279

The accompanying notes are an integral part of these consolidated financial statements.

PAGE 21

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

PAGE 22

Consolidated Statement of Income

Consolidated Statement of Retained Earnings

Year ended December 31, 2013, with comparative figures for 2012

2013

2012

Service revenue (note 10) $ Cost of power Gross margin on service revenue Other operating revenue (note 11) Regulatory adjustment (note 7) Expenses Distribution, operation and maintenance (note 12) Community relations Billing and collecting General administration Directors

59,299,394 $ 55,529,808 44,716,344 41,186,580 14,583,050 14,343,228 1,352,078 1,363,978 (1,459,184) 14,475,944 15,707,206

Amortization Less: amortization of contributions in aid of construction Income before undernoted items Interest expense Income before income taxes and regulatory adjustment Income taxes - current (note 13) - future Income before regulatory adjustment Regulatory adjustment - payment in lieu of taxes - future Net regulatory adjustment Net income $

2,251,721 4,100,939 123,001 161,264 2,128,720 3,939,675 9,668,717 12,409,967 4,807,227 3,297,239 626,133 535,593 4,181,094 2,761,646 890,259 532,237 31,330 279,037 921,589 811,274 3,259,505 1,950,372 - 1,724,427 - (524,267) - 1,200,160 3,259,505 $ 750,212

3,842,685 69,412 1,405,880 2,059,288 162,732 7,539,997

4,390,090 143,208 1,870,179 1,946,605 120,210 8,470,292

2013

2012

Retained earnings â&#x20AC;&#x201C; beginning of year: As previously stated $ Adjustment (note 3)

13,921,841 - 13,921,841

14,694,980 (912,022) 13,782,958

Net income

3,259,505

750,212

Dividends

(512,549)

(611,329)

Retained earnings â&#x20AC;&#x201C; end of year

16,668,797

$ 13,921,841

The accompanying notes are an integral part of these consolidated financial statements.

PAGE 23

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

PAGE 24

Consolidated Statement of Cash Flows

Notes to Consolidated Financial Statements

December 31, 2013 with comparative figures for 2012

Year ended December 31, 2013

2013

Cash flows from operating activities: Net income $ Charges (credits) to income not involving cash Amortization Amortization of contributions in aid of capital (Gain) loss on disposal of property, plant and equipment Future income taxes

3,259,505

2012

850,036

2,251,721 (123,001) (13,492) 31,327 5,406,060

4,103,011 (161,264) (112,536) (345,054) 4,334,193

Net change in non-cash working capital balances related to operations (627,389) 4,778,671 Cash flows from financing activities: Dividends (512,549) Deposits from customers, retailers and contractors (net) 34,696 Contributions in aid of construction 4,868,512 Long term debt (1,299,602) Regulatory liabilities - 3,091,057

20,665 4,354,858 (611,329) 71,031 190,388 2,572,407 2,106,320 4,328,817

Cash flows from investing activities: Purchase of property, plant and equipment Proceeds on disposal of property, plant and equipment Regulatory assets

(9,204,653) 500,915 54,098 (8,649,640)

(9,345,962) 119,585 2,284,829 (6,941,548)

Net increase (decrease) in cash and bank

(779,912)

1,742,127

Cash and bank, beginning of year

5,733,889

3,991,762

Cash and bank, end of year

4,953,977

5,733,889

(588,086) $ 517,901

1,081,552

Supplemental cash flow information:

Income taxes recovered $ Income taxes paid Decrease in future taxes resulting from decrease in regulatory liabilities Interest paid

422,248 579,468

The accompanying notes are an integral part of these consolidated financial statements.

PAGE 25

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

485,725

1. Nature of activities: Haldimand County Utilities Inc. (“the Company”) was incorporated under the Ontario Business Corporations Act on October 13, 2000. The Company acts as the holding company for the shares of Haldimand County Hydro Inc., Haldimand County Energy Inc., and Haldimand County Generation Inc. 2. Significant accounting policies: The Company has adopted accounting policies prescribed by the Chartered Professional Accountants of Canada (“CPA”) and therefore the financial statements are prepared in accordance with Part V of the CPA Canada Handbook and the policies set forth in the Accounting Procedures Handbook issued by the Ontario Energy Board (“OEB”). The Company has elected to defer its implementation of International Financial Reporting Standards to 2015. Significant accounting policies are as follows: (a) Basis of consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: Haldimand County Hydro Inc., Haldimand County Energy Inc., and Haldimand County Generation Inc. (b) Measurement uncertainty: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and note disclosures thereto. Due to inherent uncertainty in making estimates, actual results could differ from estimates recorded in preparing these financial statements, including changes as a result of future regulatory decisions. Accounts receivable, regulatory assets and liabilities are stated after evaluation of amounts expected to be collected and an appropriate allowance for recoverability. Inventory is recorded net of provisions for obsolescence. Amounts recorded for amortization of capital assets are based on estimates of useful service life.

Inventory is stated at the lower cost or net realizable value and consists of maintenance materials and supplies. Cost is determined on a weighted average basis. (d) Property, plant and equipment and amortization: Property, plant and equipment are recorded at their historical cost. Amortization is calculated on a straight-line basis over the estimated useful service life as follows: Buildings Distribution stations Distribution lines– overhead Distribution lines– underground Distribution transformers Distribution meters Sentinel lights Rolling stock Other capital assets

50 years 45 years 45-60 years 30-50 years 35-60 years 15-25 years 10 years 8-20 years 5 – 50 years

Construction in progress assets are not amortized until the projects are complete and in service. Effective January 1, 2013, as required by the OEB, the Company revised the estimated useful lives of certain distribution assets to reflect the useful lives of the assets in service. The impact of this change is a reduction of the amortization expense by $1,459,184 for the year ended December 31, 2013. This change was adopted prospectively in 2013 as prescribed by the OEB. (e) Contributions in aid of construction: Contributions in aid of construction are reported as deferred credits and amortized over the useful life of the related property, plant and equipment. Contributions prior to 2000 are included in equity as miscellaneous paid-in capital. (f) Paid in capital: Paid in capital arises from development charges received prior to January 1, 2000 which were provided or paid for by developers, and are recorded as a permanent component of shareholder’s equity.

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

PAGE 26

Notes to Consolidated Financial Statements

Year ended December 31, 2013

2. Significant accounting policies (continued): (g) Revenue recognition: Distribution revenues are based on OEB approved distribution rates and are recognized as electricity is delivered to customers and collection is reasonably assured. Distribution revenue includes an estimate of revenue based on electricity delivered but not yet invoiced to customers from the last meter reading date to the end of the year. Incentive payments to which the Company is entitled from the OPA are recognized in revenue in the period when they are determined by the OPA and the amount is communicated to the Company. Other revenue is recognized when earned. (h) Impairment of long-lived assets: Generally accepted accounting principles require that an impairment loss be recognized when events or circumstances indicate that the carrying amount of the long-lived asset is not recoverable and exceeds its fair value. Any resulting impairment loss is recorded in the period in which the impairment occurs. The Company has determined that there was no impairment of long-lived assets as at December 31, 2013. (i) Payments in lieu of income taxes (PILs): The Company is currently exempt from taxes under the Income Tax Act (Canada) (“ITA”) and the Ontario Corporations Tax Act (“OCTA”).

The Company accounts for payments in lieu of corporate taxes using the liability method. Under the liability method, future income taxes reflect the net tax effects of temporary differences between the tax basis of assets and liabilities and their carrying amounts for accounting purposes, as well as for tax losses available to be carried forward to future years that are likely to be realized. PILs are henceforth referred to as income taxes. (j) Financial instruments: Financial instruments are initially recognized at fair value. Subsequent measurement is based on the classification of the financial instrument. The Company has adopted a policy to classify all financial instruments as follows; 1) Cash and bank are classified as Held for Trading and measured at fair value. 2) Accounts receivable and unbilled revenue are classified as Loans and Receivables and measured at amortized cost using the effective interest rate method. 3) Accounts Payable, amounts due to affiliates and long term liabilities are classified as Other Liabilities and measured at amortized cost. The Company has adopted the disclosure and presentation requirements of CPA Canada Handbook Section 3861 rather than Handbook Sections 3862 and 3863.

Under the Electricity Act, 1998, the Company makes payments in lieu of corporate taxes to Ontario Electricity Financial Corporation (“OEFC”). These payments are calculated in accordance with the rules for computing taxable income and taxable capital and other relevant amounts contained in the Income Tax Act (Canada) and the corporations Tax Act (Ontario) as modified by the Electricity Act, 1998, and related regulations. Prior to October 1, 2001, the Company was not subject to income or capital taxes.

PAGE 27

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

Regulatory Accounting

3. Prior period adjustment: Effective January 1, 2009, Handbook section 3465 Income taxes was amended. The Company did not implement this amendment. The amendment to Handbook Section 3465 states that where future income taxes may be expected to be included in approved rates charged to customers in the future and to be recovered or returned to future customers, the recognition of a regulatory asset or regulatory liability for the increase or reduction in future revenue is required. Furthermore, the regulatory asset or regulatory liability established by this requirement is a temporary difference for which an additional future income tax asset or liability is recognized. This change has been made on a retroactive basis with a restatement of prior periods presented. As a result of this change, retained earnings as at January 1, 2012 decreased by $912,022, regulatory liabilities increased by $995,898 and future income tax assets increased by $406,299 at December 31, 2012. The impact on the Company’s results from operations for the year ended December 31, 2013 was a reduction of future income taxes of $279,862 (2012 - $99,825). 4. Inventory: The amount of inventories expensed during 2013 were $485,081 (2012 - $626,986). 5. Regulatory environment: Rate Regulation The Company is regulated by the OEB, under the authority granted by the Ontario Energy Board Act (1998). The OEB has the power and responsibility to approve or fix rates for the transmission and distribution of electricity, to provide continued rate protection for rural and remote electricity consumers, and to ensure that distribution companies fulfill obligations to connect and service customers. The OEB may also prescribe license requirements and conditions of service to electricity distributors, which may include, among other things, record keeping, regulatory accounting principles, separation of accounts for distinct businesses, and filing and process requirements for rate setting purposes.

In its capacity to approve or set rates, the OEB has the authority to specify regulatory accounting treatments that may differ from Canadian generally accepted accounting principles for enterprises operating in a non rate-regulated environment. The OEB has the general power to include or exclude costs, revenues, losses or gains in the rates of a specific period, resulting in a change in the timing of accounting recognition from that which would have applied in an unregulated company. Such change in timing involves the application of rate-regulated accounting, giving rise to the recognition of regulatory assets and liabilities. The Company’s regulatory assets represent certain amounts recoverable from customers in the future and costs that have been deferred for accounting purposes because it is probable that they will be recovered in future rates. It also includes regulatory liabilities which represent costs with respect to non-distribution market related charges and variances in recoveries that are expected to be settled in future periods. Rate Setting: The distribution rates of the Company are based on a revenue requirement that provides a regulated Maximum Allowable Return on Equity (“MARE”) on the amount of the deemed equity component supporting the rate base. The Company files a rate application with the OEB annually. Rates are typically effective May 1 to April 30 of the following year. Accordingly, for the first four months of 2013, distribution revenue is based on the rates approved for 2012. Once every five years, the Company files a Cost of Service application where rates are rebased through a cost-of-service review. In the intervening years an Incentive Rate Mechanism application (“IRM”) is filed. A Cost of Service application is based upon a forecast of the annual amount of operating and capital expenses, debt and shareholder’s equity required to support the Company’s business. An IRM application results in a formulaic adjustment to distribution rates for the annual change in the Gross Domestic Product Implicit price Inflator for Final Domestic Demand (“GDP IPI-FDD”) net of a productivity factor and a “Stretch Factor” determined by the relative efficiency of an electricity distributor.

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

PAGE 28

Notes to Consolidated Financial Statements

Year ended December 31, 2013

5. Regulatory environment (continued):

7. Regulatory assets (liabilities) (continued): The Company continually assesses the likelihood of recovery of each of its regulatory assets and continues to believe that it is probable that the OEB will factor its regulatory assets and liabilities into the setting of future rates. If, at some future date, the Company judges that it is no longer probable that the OEB will include a regulatory asset or liability in future rates, the appropriate carrying amount will be reflected in results of operations in the period that the assessment is made.

The Company’s last Cost of Service rate application was filed August 28, 2009 and approved April 26, 2010 for rates effective May 1, 2010. Since that time, the Company has filed annual IRM applications adjusting rates for inflation and productivity and stretch factors as described above. The Company filed a Cost of Service rate application on November 15, 2013 for rates effective May 1, 2014. This application requested a 2% increase in revenue requirement compared to the 2010 application referred to above. The OEB’s approval of this application is pending.

8. Long-term liabilities:

The Company also files rate applications periodically to recover or settle its regulatory assets and liabilities.

Ontario Infrastructure and Lands Corporation (OILC)

6. Property, plant and equipment:

Accumulated Cost Amortization Land $ 127,140 $ - $ Buildings 2,191,968 519,314 Distribution stations 466,496 193,380 Distribution lines–overhead 39,445,593 13,973,468 Distribution lines-underground 10,937,246 4,047,234 Distribution transformers 16,256,394 5,871,375 Distribution meters 5,460,825 1,400,714 Sentinel lights 189,940 169,865 Rolling stock 2,417,875 1,272,936 Other capital assets 5,499,146 4,027,417 Total $ 82,992,623 $ 31,475,703 $

2013

2012

127,140 $ 127,140 1,672,654 1,722,750 273,116 281,146 25,472,125 20,684,410 6,890,012 5,254,607 10,385,019 9,502,284 4,060,111 4,688,092 15,075 15,688 1,144,939 1,024,344 1,471,729 1,745,950 51,511,920 $ 45,046,411

2013

2012

Interest bearing debentures with semi-annual payments of principal and interest: (a) Interest at 2.92%, semi-annual payments of $96,499 plus interest, due April 2015

289,498

482,496

(b) Interest at 3.90%, semi-annual payments of $264,418 plus interest, due April 2020

3,437,437

3,966,273

3,066,667

3,333,333

(d) Interest at 3.77%, semi-annual payments of $120,521 plus interest, due September 2037

5,785,022

6,026,065

(e) Interest at 2.91%, semi-annual payments of $35,029 plus interest, due September 2022

630,521

700,579

Customer, retailer and contractor deposits Current portion

579,207 544,512 13,788,352 15,053,258 1,390,416 1,354,948

7. Regulatory assets (liabilities):

2013

2012

Deferred payments in lieu of taxes $ 148,070 $ Retail settlement variance accounts (804,111) (858,095) Recovery of regulatory asset balances (517,251) (1,197,158) Smart meters 492,146 (4,491) Low voltage services (26,343) (52,744) Hydro One Networks Inc. 6,256 6,168 Adjustment for change in accounting policy (1,459,184) Regulatory liability for future taxes (995,898) (1,418,145) $ (3,156,315) $ ( 3,524,465)

Long-term liabilities, end of year

$ 12,397,936

$ 13,698,310

Based upon current repayment terms, the estimated annual principal repayments and return of customer deposits are as follows:

2014 $ 2015 2016 2017 2018 Thereafter

1,390,416 1,281,887 1,161,134 1,165,536 1,209,232 6,189,731

The OILC debentures are secured by a general security agreement on all property owned by the Company.

PAGE 29

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

PAGE 30

Notes to Consolidated Financial Statements

Year ended December 31, 2013

9. Capital:

12. Distribution, operation and maintenance:

2013

2012

Capital stock Authorized – an unlimited number of common shares Issued – 3,001 common shares $ 19,149,049 $ 19,149,049 Miscellaneous paid-in capital 1,140,763 1,140,763

$ 20,289,812

Residential $ General Sentinel and street lighting Embedded distributor Retailer Retail transmission and low voltage Regulatory Distribution services

2013

$ 55,529,808

11. Other operating revenue:

Late payment charges $ Retail service charges Sentinel light rental Interest earned Pole rentals Change of occupancy charges Collection charges Reconnection charges Profit on sale of material services Water and wastewater billings Gain (loss) on disposal of property, plant and equipment Ontario Power Authority CDM fees Miscellaneous MicroFIT monthly service charge

PAGE 31

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

2013 71,439 $ 24,318 77,173 94,389 83,239 75,180 287,220 25,530 26,248 441,606 13,492 - 118,846 13,397 1,352,077

2013

2012

60,580 $ 67,623 2,173,423 2,120,168 247,043 342,191 319,468 576,537 325,383 509,933 702,401 756,646 14,387 16,992

$ 3,842,685

$ 4,390,090

2012

13,453,113 $ 12,443,691 10,248,407 9,150,349 22,990 43,585 6,338,496 5,443,701 7,161,094 6,622,082 5,499,403 5,409,240 1,992,840 2,073,930 14,583,051 14,343,230

$ 59,299,394

Distribution station equipment $ Overhead distribution lines Underground distribution lines Distribution transformers Distribution meters Distribution supervision and engineering Sentinel light maintenance

10. Service revenue:

2012 66,213 27,137 78,969 (13,042) 76,396 81,660 253,170 30,240 19,646 441,008 112,536 25,101 154,277 10,665

13. Income taxes - current:

2013

2012

The income tax provision was calculated based on taxable income. Taxable income is calculated as follows: Income before income taxes $ 4,181,094 $ 2,761,646 Less regulatory adjustment - (1,724,427) Amortization in excess of capital cost allowance (1,217,471) 704,088 Net change in regulatory assets 533,538 4,391,149 Regulatory assets capitalized for tax purposes - (3,669,190) (Gain) loss on disposal of assets (13,492) (112,536) Other additions and deductions 4,238 (207,850) Taxable income

3,487,907

Tax at 25.52% (2012 – 24.84%)

890,259

$ 2,142,880 $

532,237

$ 1,363,976

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

PAGE 32

Notes to Consolidated Financial Statements

Year ended December 31, 2013

14. Related party transactions:

16. Capital management: The Company’s objectives when managing capital are to maintain financial stability such that it can continue to provide returns for the shareholder and benefits for other stakeholders. The Company meets its objective for managing capital by management oversight and Board monitoring of total capital.

The related party of the Company is its parent Haldimand County (the “County”). Amounts payable to and receivable from related parties are non-interest bearing with no fixed terms of repayment.

2013

2012

Charges received from the County: Haldimand County Hydro Inc.: Street lights $ Other Haldimand County Energy Inc.: Water and wastewater billing and collecting fees

441,607

441,008

Total charges received from the County

594,104

543,628

127,310 $ 25,187

82,520 20,100

45,122 $ 844

45,183 1,041

Total charges paid to the County

45,966

46,224

15. Prudential support: Haldimand County Hydro Inc. is required by the IESO, to provide security to mitigate the Company’s risk of default based on its expected activity in the electricity market. The IESO could draw on this guarantee if Haldimand County Hydro Inc. fails to make a payment required by a default notice issued by the IESO. The maximum potential payment is the face value of the bank letters of credit. As at December 31, 2013, the Company provided prudential support in the form of bank letters of credit of $1,796,505. The letters of credit are secured by a general security agreement on all property owned by the Company.

2013

2012

Total long-term liabilities $ 13,788,352 $ 15,053,258 Less: cash and bank 4,953,977 5,733,889

Net long-term liabilities Total shareholder’s equity Total capital

Charges paid to the County: Haldimand County Hydro Inc.: Property taxes $ Other $

The Company’s total capital as at December 31, consists of:

8,834,375 9,319,369 36,958,607 34,211,653

$ 45,792,982

$ 43,531,022

17. Financial instruments: Management and the Board monitor and respond as necessary to any risks arising from financial instruments. Fair value The carrying values of financial instruments such as cash and bank, accounts receivable, unbilled revenue and accounts payable and accrued liabilities approximate their fair values because of the short term maturity of these instruments. The fair value of long-term debt with Ontario Infrastructure and Lands Corporation as at December 31, 2013 is $10,015,717. Interest rate risk The Company’s exposure to interest rate risk relates to its outstanding debentures (see Note 8). Credit risk The Company’s exposure to credit risk relates to its accounts receivable and unbilled revenue. The Company collects security deposits from customers and retailers in accordance with direction provided by the OEB. The Company held deposits of $561,708 (2012 - $504,221) at year end in order to mitigate credit risk.

PAGE 33

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

PAGE 34

Notes to Consolidated Financial Statements Year ended December 31, 2013

18. Contingencies: A claim has been filed against the Company related to stray voltage. At this time, it is not possible to quantify the effect, if any, of this claim on the financial statements of the Company, consequently no provision for a loss, if any, has been recorded in these financial statements. 19. Emerging accounting changes: (a) Transition to International Financial Reporting Standards (“IFRS”): The Canadian Accounting Standards Board (“AcSB”) adopted a strategic plan that would have Canadian GAAP converge with IFRS, effective January 1, 2011 which would have required entities to restate, for comparative purposes, their interim and annual financial statements and their opening financial position. In October 2010, the AcSB approved a deferral of adoption of IFRS for qualifying entities with activities subject to rate regulation. Part 1 of the CPA Canada Handbook specifies that first-time adoption is mandatory for interim and annual financial statements relating to annual periods beginning on or after January 1, 2015. The amendment also requires entities that do not prepare its interim and annual financial statements in accordance with Part 1 of the CPA Canada Handbook during the annual period beginning on or after January 1, 2011 to disclose that fact.

for regulatory deferral account balances while the IASB completes its comprehensive project in this area. Adoption of this standard is optional for entities eligible to use it. Deferral account balances and movements in the balances will be required to be presented as separate line items on the face of the financial statements distinguished from assets, liabilities, income and expenses that are recognized in accordance with other IFRS. Extensive disclosures will be required to enable users of the financial statements to understand the features and nature of and risks associated with rate regulation and the effect of rate regulation on the entity’s financial position, performance and cash flows. 20. Public liability insurance: The Company is a named insured of the Municipal Electric Association Reciprocal Insurance Exchange (“MEARIE”), which was created on January 1, 1987. A reciprocal insurance exchange may be defined as a group of persons formed for the purpose of exchanging reciprocal contracts of indemnity or inter-insurance with each other through the same attorney. MEARIE provides general liability insurance to member electric utilities in accordance with the Power Corporation Act of Ontario; subsection 116(2), to a maximum of $24,000,000 per occurrence. Insurance premiums charged to each municipal electric utility consists of a levy per thousand dollars of service revenue subject to a credit/surcharge based on each electric utility’s claims experience. 21. Comparative figures:

The Corporation has decided to implement IFRS commencing on January 1, 2015. (b) Accounting for rate regulated activities under IFRS:

Certain of the prior year’s figures, provided for purposes of comparison, have been reclassified to conform with the current year’s presentation.

BACK ROW (Left to Right) Nicole Mitchell – Executive Assistant, David Williams – Consumer Services Manager, Paul Heeg – Engineering Manager, Dan Leake P.Eng. – Operations Manager FRONT ROW (Left to Right) Jacqueline Scott – Finance Manager, R. Jane Albert – President & CEO

Executive Team Haldimand County Hydro’s dedicated executive team is committed to promoting the company’s core business strengths, with a focus on corporate responsibility and sustainability.

The International Accounting Standards Board (“IASB”) has issued IFRS 14 Regulatory Deferral Accounts in January 2014. This standard provides specific guidance on accounting for the effects of rate regulation and permits first-time adopters of IFRS to continue using previous GAAP to account

PAGE 35

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

PAGE 36

Board of Directors The Board of Directors strives to ensure the reliable, safe and cost effective delivery of electrical power to the residents and businesses of Haldimand County for today and tomorrow.

BACK ROW (Left to Right) Mayor Ken Hewitt, Peter Smuk, Fred Moodie, Doug Miller, Brian Snyder FRONT ROW (Left to Right) Councillor Tony Dalimonte – Vice Chair, Albert Marshall – Chair, Lorraine Bergstrand

PAGE 37

HALDIMAND COUNTY UTILITIES INC. ANNUAL REPORT 2013

Haldimand County Utilities Inc. 1 Greendale Drive Caledonia, ON, N3W 2J3 Phone: (905) 765-5211 Toll Free: (1-877) 872-2570 Fax: (905) 765-8211 info@hchydro.ca haldimandcountyhydro.ca