4. The Proposed Transaction

4.1. Summary of the Proposed Transaction

As described previously, CalPeco is wholly owned by CPUV. The owners of CPUV are Liberty Energy (50.001%) and EUSHI (49.999%). Liberty Energy is an indirect wholly-owned subsidiary of Algonquin. EUSHI is a direct wholly-owned subsidiary of Emera.

In A.11-09-012, the Joint Applicants request authority under Section 854(a) to revise the upstream ownership structure for CalPeco (the "Proposed Transaction"). Under the Proposed Transaction, Liberty Energy will acquire the 49.999% ownership interest in CPUV that is held by EUSHI, giving Liberty Energy 100% ownership of CPUV. This will change the ownership of CalPeco from Algonquin and Emera being essentially equal indirect owners, to Algonquin being the sole indirect owner of CalPeco. At the same time, Emera will increase its investment in Algonquin from 7.15% of the outstanding common shares to 14.05% of the outstanding common shares. The effect of the Proposed Transaction is that Emera will exchange its 49.999% indirect ownership interest in CalPeco for an additional 6.9% direct ownership interest in Algonquin. Corporate organization charts showing the current and post-transaction ownership structures for CalPeco are in Appendix 2 of today's decision.

4.2. Reasons for the Proposed Transaction

The joint acquisition of CalPeco was the first step in a strategic relationship between Algonquin and Emera. Following the closing of the CalPeco acquisition, Algonquin and Emera executed a Strategic Investment Agreement that outlines a joint-investment strategy whereby Algonquin will seek to acquire 100% indirect ownership of small electric and natural gas utilities. Emera may participate in these acquisitions through investment in Algonquin's common shares. This ownership structure for acquired small utilities capitalizes on Algonquin's expertise in operating small utilities and, at the same time, enables Algonquin and Emera to efficiently coordinate their investments.

In A.11-09-012, Algonquin and Emera seek to revise the current ownership structure for CalPeco to conform to the structure they are using in the Strategic Investment Agreement for the acquisition of other small utilities. Thus, consistent with Strategic Investment Agreement and upon the consummation of the Proposed Transaction, Algonquin will indirectly own 100% of CalPeco, and Emera will participate through investment in Algonquin's common shares.

4.3. Effect of the Proposed Transaction on CalPeco

The Joint Applicants aver that the Proposed Transaction will have no adverse effects on CalPeco's operations and customers. In particular, the Proposed Transaction will not affect any rates, terms, or conditions of utility service. CalPeco's customers will continue to receive the same electric service from the same facilities under the same tariffs. Customer service functions will continue unchanged, including billing, new connections, and responding to outages. CalPeco will employ the same personnel, and the roles and responsibilities of employees will not change.

The Joint Applicants state that they will continue to comply with the Regulatory Commitments that were adopted by D.10-10-017. The Regulatory Commitments require, among other things, that CalPeco's upstream owners provide access to sufficient capital for CalPeco's utility operations. In addition, the Joint Applicants will continue to comply with the requirement in Ordering Paragraph (OP) 1(c) of D.10-10-017 to provide their officers and employees to testify in California about matters pertinent to CalPeco, as the Commission may deem necessary, consistent with principles of due process and fairness.

4.4. The Compliance Filings

The Joint Applicants submitted two compliance filings in response to directives from the assigned Commissioner and the assigned Administrative Law Judge (ALJ). In the first Compliance Filing on December 9, 2011, the Joint Applicants submitted a declaration from a senior officer of each Joint Applicant. By these declarations, the Joint Applicants swear under oath that if the Commission approves the proposed change in the upstream ownership for CalPeco, the Joint Applicants will continue to comply with (1) the Regulatory Commitments adopted by D.10-10-017, and (2) the requirement in OP 1(c) of D.10-10-017 to provide their officers and employees to testify in California regarding matters pertinent to CalPeco, as the Commission may determine to be necessary, consistent with established principles of due process and fairness.³

In the second Compliance Filing on December 16, 2011, the Joint Applicants provided the Subscription Agreement between Algonquin and Emera. The Subscription Agreement establishes the contractual terms and conditions by which EUSHI will transfer its 49.999% interest in CPUV to Liberty Energy, and Emera will acquire an additional equity stake in Algonquin.

³ The Joint Applicants provided a draft of the declarations to DRA. DRA's feedback was incorporated into the declarations that were filed on December 9, 2011.