APPENDIX 1: SETTLEMENT AGREEMENT

Note: The signatures of the Settling Parties are not included on the signature pages of the Settlement Agreement attached to today's decision. The signatures are included with the Settlement Agreement that was filed at the Commission's Docket Office, copies of which were served on the service list.

Note: The attached Settlement Agreement has non-substantive pagination and formatting changes that are not reflected in the copies of the Settlement Agreement that were filed and served.

Note: The attached Settlement Agreement does not include the Joint Applicants' First and Second Compliance Filings that were filed on December 9 and 16, 2011, respectively. These Compliance Filings are incorporated by reference into the Settlement Agreement as if fully stated therein, and are appended to the Settlement Agreement that was filed and served.

ALL-PARTY SETTLEMENT AGREEMENT

1. Introduction

1.1. In accordance with Rule 12.1, subdivision (a) of the California Public Utilities Commission (Commission) Rules of Practice and Procedure (Rule), the Settling Parties (as defined in section 2 below) enter into this settlement agreement (Settlement) for purposes of resolving this matter without having an evidentiary hearing.

1.2. The attached Motion states the factual and legal bases of the Settlement; advises the Commission of its scope; and presents the grounds on which Commission approval and adoption are urged.

1.3. As the Motion explains, the Settlement complies with Section 854, subdivision (a)¹¹ as well as Commission requirements for approval of settlements under Rule 12.1, subdivision (d), because it is reasonable in light of the whole record, consistent with the law, and in the public interest. Accordingly, the Settling Parties respectfully urge the Commission to adopt and approve this Settlement.

2. Definitions

2.1. The term "Settling Parties" means the "Joint Applicants" and the Division of Ratepayer Advocates (DRA).

2.2. The term "Joint Applicants" means the following:

2.2.1. Algonquin Power & Utilities Corp. (Algonquin), which is incorporated under the Canada Business Corporations Act;

2.2.2. Liberty Energy Utilities Co. (Liberty Energy Utilities), a Delaware corporation, which currently owns 50.001% of California Pacific Utility Ventures, LLC (CPUV) and will own 100% of CPUV if the Commission approves Application (A.) 11-09-012;

2.2.3. CPUV, a California limited liability company which wholly owns California Pacific Electric Company, LLC (CalPeco);

2.2.4. CalPeco, a California limited liability company;

2.2.5. Emera Incorporated (Emera), which is incorporated under the laws of the Province of Nova Scotia, Canada, and wholly owns Emera US Holdings Inc. (EUSHI); and

2.2.6. EUSHI, a Delaware corporation, which currently owns 49.999% of CPUV and will transfer its entire CPUV ownership to Liberty Energy Utilities if the Commission approves A.11-09-012.

2.3. The term "Additional Algonquin Entities" means the following:

2.3.1. Liberties Utilities (Canada) Corp. (LUCC), a wholly-owned subsidiary of Algonquin, which was formed under the Canada Business Corporations Act and wholly owns Liberty Utilities Co. (LUC); and

2.3.2. LUC, a Delaware corporation, which wholly owns Liberty Energy Utilities.¹²

2.4. The term "Upstream Owner" or "Upstream Ownership" means a business entity that has a direct or indirect ownership interest in CalPeco, as per Commission Decision (D.) 10-10-017, at Ordering Paragraph (O.P.) 1, subdivision (b) ("[A]ny change of ownership affecting CalPeco's upstream owners must be sought by application filed pursuant to Public Utilities Code Section 854."¹³).

2.5. The term "Regulatory Commitments" means those provisions that Ordering Paragraph (O.P.) 1 of Commission Decision (D.) 10-10-017 refers to as "the Regulatory Commitments attached to this Order as Appendix 3."¹⁴

3. Terms and Conditions

3.1. DRA was concerned that if approved, A.11-09-012's changes of upstream owners would "vitiate" the force and effect of the Regulatory Commitments that D.10-10-017 adopted for the protection of the ratepayers.¹⁵ This Settlement ensures that those Regulatory Commitments remain binding on the Joint Applicants, even if A.11-09-012 were approved.

3.2. The Joint Applicants acknowledge and reaffirm that their duties and obligations under the Regulatory Commitments shall remain in full force and effect, notwithstanding any changes made in the Upstream Ownership of CalPeco resulting from Commission approval of A. 11-09-012.

3.3 In accordance with D.10-10-017, O.P. 1, subdivision (c), the Joint Applicants agree to provide their officers and employees to testify in California regarding matters pertinent to CalPeco, as the Commission, itself, may determine to be necessary, consistent with established principles of due process and fundamental fairness.

3.4. While the Additional Algonquin Entities are not included as applicants in A.11-09-012, Algonquin agrees for Settlement purposes to provide the officers and employees of the Additional Algonquin Entities to testify in California regarding matters pertinent to CalPeco, as the Commission, itself, may determine to be necessary, consistent with established principles of due process and fundamental fairness.

3.5. Attached to this Settlement are the Joint Applicants' First and Second Compliance Filings, which respectively were made on December 9 and 16, 2011, and consisted of their Declarations and a Subscription Agreement between Algonquin and Emera. Both the Declarations and Subscription Agreement are incorporated by reference as if fully stated herein.

3.6. Based on the Joint Applicants' acceptance of the Terms and Conditions herein, DRA enters into this Settlement to resolve this matter without having an evidentiary hearing, notwithstanding its Protest filed November 22, 2011. DRA joins the Joint Applicants in requesting that the Commission approve and adopt the Settlement, because it is reasonable in light of the whole record, consistent with the law, and in the public interest.

4. Other Terms and Conditions

4.1. Commission's Primary Jurisdiction. The Settling Parties agree that the Commission has primary jurisdiction over any interpretation, enforcement, or remedies regarding this Settlement. None of the Settling Parties may bring an action regarding this Settlement in any court of competent jurisdiction or another administrative agency without having first exhausted its administrative remedies at the Commission.

4.2. Further Actions. The Settling Parties acknowledge that this Settlement is subject to approval by the Commission. As soon as practicable after all the Settling Parties have signed the Settlement, the Settling Parties through their respective attorneys will prepare and file the Settling Parties' Motion for Commission Approval and Adoption of the Settlement Agreement. The Settling Parties will furnish such additional information, documents, or testimonies as the Commission may require for purposes of granting the Motion and approving and adopting the Settlement.

4.3. No Personal Liability. None of the Settling Parties, or their respective employees, attorneys, or any other individual representative or agent, assumes any personal liability as a result of the Joint Parties signing this Settlement.

4.4. Non-Severability. The provisions of this Settlement are non-severable. If any of the Settling Parties fails to perform its respective obligations under this Settlement, the Settlement will be regarded as rescinded. Further, if the Commission or any court of competent jurisdiction overrules or modifies as legally invalid any material provision of this Settlement, this Settlement will be deemed rescinded as of the date when such ruling, decision, or modification becomes final.

4.5. Voluntary and Knowing Acceptance. Each Settling Party hereto acknowledges and stipulates that it is agreeing to this Settlement freely, voluntarily, and without any fraud, duress, or undue influence by any other Settling Party. Each Settling Party has read and fully understands its rights, privileges, and duties under this Settlement, including its right to discuss this Settlement with its legal counsel, which has been exercised to the extent deemed necessary.

4.6. No Modification. This Settlement constitutes the entire Settlement among the Settling Parties regarding the matters set forth herein, which may not be altered, amended, or modified in any respect except in writing and with the express written and signed consent of all the Settling Parties hereto. All prior settlements, agreements, or other understandings, whether oral or in writing, regarding the matters set forth in this Settlement are expressly waived and have no further force or effect.

4.7. No Reliance. None of the Settling Parties has relied or presently relies on any statement, promise, or representation by any other Settling Party, whether oral or written, except as specifically set forth in this Settlement. Each Settling Party expressly assumes the risk of any mistake of law or fact made by such Settling Party or its authorized representative.

4.8. Counterparts. This Settlement may be executed in separate counterparts by the different Settling Parties hereto and all so executed will be binding and have the same effect as if all the Settling Parties had signed one and the same document. All such counterparts will be deemed to be an original and together constitute one and the same Settlement, notwithstanding that the signatures of all the Settling Parties and/or of a Settling Party's attorney or other representative do not appear on the same page of this Settlement or the related Motion.

4.9. Binding upon Full Execution. This Settlement will become effective and binding on each of the Settling Parties as of the date when it is fully executed. It will also be binding upon each of the Settling Parties' respective successors, subsidiaries, affiliates, representatives, agents, officers, directors, employees, and personal representatives, whether past, present, or future.

4.10. Commission Adoption Not Precedential. In accordance with Rule 12.5, the Settling Parties agree and acknowledge that unless the Commission expressly provides otherwise, its adoption of this Settlement does not constitute approval of or precedent regarding any principle or issue of law or fact in this or any other current or future proceeding.

4.11. Enforceability. The Settling Parties agree and acknowledge that after issuance of a Commission Decision approving and adopting this Settlement, the Commission may reassert jurisdiction and reopen this proceeding to enforce the terms and conditions of this Settlement, including the Regulatory Commitments.

4.12. Finality. Once fully executed by the Settling Parties and adopted and approved by a Commission Decision, this Settlement fully and finally settles any and all disputes between the Joint Applicants and DRA in this proceeding, unless otherwise specifically provided in the Settlement.

4.13. No Admission. Nothing in this Settlement or related negotiations may be construed as an admission of any law or fact by any of the Settling Parties, or as precedential or binding on any of the Settling Parties in any other proceeding, whether before the Commission, in any court of competent jurisdiction, or in any other state or federal administrative agency. Further, unless expressly stated herein this Settlement does not constitute an acknowledgement, admission, or acceptance by any of the Settling Parties regarding any issue of law or fact in this matter, or the validity or invalidity of any particular method, theory, or principle of ratemaking or regulation in this or any other proceeding.

4.14. Authority to Sign. Each Settling Party who executes this Settlement represents and warrants to each other Settling Party that the individual signing this Settlement and the related Motion has the legal authority to do so on behalf of the Settling Party.

4.15. Future Admissibility. Each Settling Party signing this Settlement agrees and acknowledges that this Settlement will be admissible in any subsequent Commission proceeding for the sole purpose of enforcing the Terms and Conditions of this Settlement.

4.16. Estoppel or Waiver. Unless expressly stated herein, the Settling Parties' execution of this Settlement is not intended to provide any of the Settling Parties in any manner a basis of estoppel or waiver in this or any other proceeding.

4.17. Rescission. If the Commission rejects or materially alters any provision of the Settlement, it will be deemed rescinded by the Settling Parties and of no legal effect as of the date of issuance of the Commission decision rejecting or materially altering the Settlement. The Settling Parties may negotiate in good faith regarding whether they want to accept the Commission changes and resubmit a revised Settlement.