MISSION STATEMENT - Corporation · John (Jack) Paling B.Sc., M.B.A. is retired from General...

2 2011 Annual Report

MISSION STATEMENTEssex Power Corporation is a dynamic energy company that provides safe,reliable and economical energy supply and services to our customers.Our commitment to innovation, performance management and leadingby example has built the foundation for Essex Power and our affiliates toestablish a diverse set of energy products and services that are valued byour customers. At Essex Power, “Your Power Is Our Priority.”

2011 Annual Report 3

04 Corporate Ownership Structure

05 Board of Directors 2011

06 Message from the Chair

08 Message from the President & CEO

10 Spotlight on Excellence

16 Contribution to Community

17 Management Team

Financial Statements Consolidated

18 Audit Report

19 Balance Sheet

20 Statement of Income and Expenses

22 Statement of Retained Earnings

23 Statement of Cash Flows

24 Notes to Financial Statements

| TABLE OF CONTENTS



| CORPORATE OWNERSHIP STRUCTURE



| BOARD OF DIRECTORS

ESSEX POWER CORPORATION

ESSEX POWERLINES CORPORATION(INDEPENDENT BOARD REPRESENTATIVE)

Wayne HurstMayor of the Town of Amherstburg

John (Jack) PalingB.Sc., M.B.A. is retired from General Chemical Canada Ltd.

Mark CarrickDeputy Mayor of the Town of LaSalle.

Joe GrazianoB. Comm., MBA, CMA, is a Professor of Accounting and Finance at St. Clair College

Tom Burtonis a retired member of Chrysler Canada after 38 years of service. He had served on Tecumseh Town Council for 17 years, including the position of Deputy Mayor.

Frank C. RicciL.L.B., is a partner of Reid, Reynolds, Collins, Ricci and Enns L.L.P., a law firm in Leamington, Ontario.

Gary A. McNamarais Chairman of the Board, Mayor of the Town of Tecumseh, and is retired from Hiram Walker & Sons Ltd.

Robert B. PulaB.A.Sc., P.Eng., Partner/Senior Electrical Engineer, retired from Dillon Consulting

John PatersonMayor of Municipality of Leamington, and has been in the Finance Industry for 23 years


| MESSAGE FROM THE CHAIR

Essex Power’s focus on “performance excellence” has allowed all business units to achieve its highest level of overall corporate results thus far in its eleven year history.

We have seen measurable improvements in all areas of the corporations which include Operational, Health and Safety, Sustainability, Financial and Non-regulated business growth.

Essex Power’s commitment to provide “continuous improve-ment” and to be leaders within our industry has established a culture that strives for performance excellence.

Our promise to improve services to our customers, create more sustainable green communities and develop new technologies has allowed Essex Power to raise the bar on corporate results.

Essex Power, with the continued support of its shareholders, launched its second consecutive “Green Share” project which was built on the new Vollmer Culture & Recreation Complex,

located in the Town of LaSalle. The project entailed 1204 solar panels and will produce 280 MWh of green sustainable power annually. It represented another 1.7 million of additional investment towards “green energy” solutions locally, creating both local jobs and reducing our local carbon footprint. This solar system alone will prevent 99 Tonnes of Carbon Dioxide per year which is equivalent to 233 acres of forest absorbing C02.

Gary McNamaraChairman of the BoardEssex Power Corporation



Essex Power’s continued expansion in the unregulated energy and technology sector continues to provide extreme value to our regulated business and many others in Ontario and across North America.

This growth has helped offset the impacts of the slow economy on our regulated business as new customer growth became non-existent through the economy slow down.

By creating a diversified portfolio of businesses with differ-ent market drivers, Essex Power can provide a strong guar-antee of solid financial performance. As a result, Sharehold-ers returns are driven by the success of both unregulated and regulated business opportunities are providing a higher rate of return.

In 2011, our gross consolidated income reached $6,503,187, which is our highest level of annual revenue to date. Re-markably, it occurred when our economy was experiencing a significant down turn and our regulated entity was experi-encing zero to negative load growth.

Essex Power’s commitment to reinvesting back into the Local Distribution Company (“LDC”) assets remains a top prior-ity to the communities we serve. Essex Powerlines capital program continues to increase each year and with the intro-duction of smart meters, we have now laid the foundation towards smart grid technologies. The focus of these tech-nologies will be to allow “improved decision making”, which leads to improved performance and ensures Shareholder assets are being replaced and maintained at the optimum levels.

The pinnacle of 2011 came when Essex Powerlines, our regulated LDC, was acknowledged as “LDC of the Year” by our peers within the industry. At the Annual Gen-eral EDA meeting for our industry, Essex Powerlines was given the

highest acknowledgement that an organization can receive for performance excellence. This type of acknowl-edgement is a true symbol of the quality of the organiza-tion’s staff and leadership by the Board of Directors.

In summary, we are extremely pleased with the performance of the entire organization in 2011. We realize that serving the communities of Amherstburg, LaSalle, Leamington and Tecumseh is a privilege and we remain committed to supe-rior service delivery and customer care. Our outlook into the future looks extremely exciting and we look forward to the opportunities ahead.

Sincerely,Gary McNamara


| MESSAGE FROM THE PRESIDENT AND CEO

We are extremely pleased to report our year-end results in this year’s 2011 Annual Report. Essex Power and its group of companies have delivered on its business plans in which the corporate results show. We exceeded our net income targets and “raised the bar” on overall corporate performance.

Shareholder’s returns on investment remain very strong and an increased dividend from budgeted was approved by the Board. We issued $1.4 million in cash dividends which repre-sents an overall return on Shareholder equity of 7.45%.

The strong return was supported by Essex Power’s largest gross earnings to date which came as a result of our contin-ued growth in our unregulated business activities compli-mented by the consistent and superior performance in our regulated LDC, Essex Powerlines Corporation.

Local Essex Powerlines customers experienced minimal distribution rate changes with residential customers experiencing a .06% decrease to the overall bill.

The pie chart below provides a clear illustration on what percentage of the overall electricity bill is actually related to local distribution service expense provided by Essex Powerlines versus other elements of the bill.

Essex Powerlines commitment to “aged or end of life” asset replacement has seen our annual capital expenditures con-tinue to increase each year.

Raymond Tracey,B.A. Sc., P. EngC.E.O. & PresidentEssex Power Corporation



The corporations strong provincial returns allow it to con-tinue to re-invest and ensure the distribution infrastructure will support growth in our communities and provide services required by our customers. Making our local communities more sustainable through aggressive Conservation and Demand Management programs to help customers use less power and operate more efficiently remains a top priority.

Essex Power remains committed to our communities through local sponsorship of events and activities such as The LaSalle Strawberry festival, The Leamington Tomato Fes-tival, The Tecumseh Corn Festival and the Shores of Erie Wine Festival. We also sponsor important local and regional Health care facilities including Hotel Dieu, Beyond Medicine Campaign (Angioplasty Centre) and London St. Joseph’s Breast Care Centre.

As Essex Power continues the commitment to meeting and exceeding both Shareholder and customer expectations, we realize the tremendous challenges, yet opportunities, we face in doing so. Our focus on innovation through the development of the new “Smart Electricity Grid” will benefit us as it will prepare our corporation for tomorrow’s electric-ity challenges. As customer’s focus on “value for price”, we must find ways to ensure that our customers’ expectations are being continuously met. Reliability, predictability and accessibility are important core elements that consumers expect from our service and we must deliver on.

Essex Power’s dedication to innovation and continuous improvements was the basis for receiving our industry acknowledgment as “LDC of the Year” and we remain com-mitted to that focus in 2012 and beyond.

Essex Power’s commitment to growth in the non-regulated sector continues to open new doors of opportunity. We are expanding our service offerings which now include green energy development, conservation and demand manage-ment, community energy plans, metering and settlement services in electricity, gas and water plus new smart grid technologies.

As the electricity sector in Ontario continues to evolve, Essex Power is well positioned to lead the sector

through innovation, “best in class” process improvements and sound asset management practices. We leverage the ever increasing access to more granular system data provided through our smart meter system to improve day to day operations as well as improve the long term asset replacement strategies. Being a “Smarter” energy company through innovation and technology will allow us to raise our service standards for the utility customer of the 21st century.

Sincerely,Raymond Tracey


| SPOTLIGHT ON EXCELLENCEESSEX POWERLINES

Essex Powerlines Corporation (EPL) commitment to the Health and Safety of its employees and the public remains a top priority. Not only do we continue to design and build a distribution system that can be operated and maintained safely, we continue to invest in technologies, training and tool sets that ensure we meet our commitment.

In 2011 Essex Powerlines was instrumental in conceptualiz-ing and designing a field marking system which allows staff to quickly identify back-feed hazards from customer genera-tors, providing a safe work environment for our staff. Other technologies that were introduced that allow for safe work conditions include the successful launch of our Automated Vehicle Locating (AVL) system in our fleet of vehicles. AVL facilitates real time knowledge of where our vehicles are at any point in time. The closest service vehicle can be deter-mined to respond to emergency requests from police, public or staff. Should communication with the vehicle operator become disrupted, the location of the vehicle is known al-lowing either staff or emergency services to “check status” as determined necessary.

In 2011, Essex Powerlines purchased and installed eight Defibrillator Units within our facilities along with our rolling fleet. All EPL employees have had the opportunity to be trained on this life saving technology. Not only are we well prepared to help our own; our staff would be able to help the public should the unfortunate need ever occur. Our commit-ment to Health and Safety extends to our employees families as well, in 2011 families of staff were invited to attend a company sponsored First Aid / CPR training session. The re-sponse to this initiative was very well received and is being offered again in 2012.

In early spring last year the Area One Safety Group, which Essex Powerlines is an active member and participant of, organized the presentation “The Day the Lights Went Out,” where the firsthand account of an on the job accident and its lasting effects was poignantly communicated to the audience. Our operations departments attended this well received seminar and it served as an important reminder why safety is a number one priority. We were very pleased that in 2011, we had no incidents that resulted in Loss Time Events and we are dedicated to stay on this right path through our continued commitment

Occupational Health & Safety

Essex Powerlines Corporation is the recipient of the 2011 EDA LDC Performance Excellence Award sponsored by Ontario Power Generation



and involvement with Health and Safety initiatives. We are active members in Health and Safety groups and gladly par-ticipate in sharing of experiences, knowledge and informa-tion, not only to help our own, but to help our counterparts across our industry.

In the past six years, Essex Powerlines has continually improved Operational Performance with benefits provided to Customers, Employees and Shareholders. The level of service has increased, the ability for employees to perform value added work has improved and returns to shareholders have grown. This has been accomplished through a clear vision to:

a. Eliminate waste and focus on maximizing value added activities for the customer andb. Maximize asset performance and utilization of existing assets

Lean Strategies

Essex Powerlines Corporation has adopted Lean Strategies to continue to provide value to customers. Beginning in 2006 and continuing on today, Essex Powerlines has embed-ded a continuous improvement culture within the utility by focusing on eliminating activities that the rate payer “does

not wish to pay for.” In other words, EPL has worked to elimi-nate all non-value added activities within the organization.

In many cases, EPL has leveraged technology to automate manual processes and provide information to users in an actionable manner. An optimal example of leveraging technology has been the ability to utilize Smart Meter data for operational purposes, through our software Health Map. EPL is able to receive real time notification for all outages and any voltage issues. This information is emailed to the operations staff immediately and is also displayed to customer service staff in addition to key Stakeholders in the community (Mayor, Administrative Emergency Services). Operations staff can begin troubleshooting prior to custom-ers calling in to report an outage.

By pin pointing outages, crews are able to better respond and restore power to customers in the shortest amount of time. This eliminates the inefficiency in identifying an outage caused by crews driving around to find a fault. This also allows communication to customers prior to a customer calling to report an outage. This is done through a text mes-sage but will be expanded to email and smart phone apps which opens a line of communication between EPL and our customers. These apps will also be used for communicating usage during peak Time of Use periods, bill payment dates and other information including conservation tips.

Asset Investment Planning

EPL is in its eighth year of formalized Asset Management Planning (or Asset Investment Plan (AIP)). Asset Manage-ment is required to ensure that aging infrastructure is replaced in a systematic basis; rate & ratemaking trends can fund the plan required and the ability to translate CAPEX & OPEX decisions into operational consequences. EPL has developed the skill to take risks and make risk decisions

Operational Excellence


that require the discipline to identify the risk appropriately, communicate the risk exposure properly and understand the risk mitigating opportunities available.

Quantification of the operational risk exposure mitigated by a project or program in the AIP is very important. Without this capability, management cannot make risk informed financial decisions, associated with a given resource allocation plan. This process ensures risk mitigation efforts are within the risk tolerance of the business.

EPL has developed a standard framework that is utilized in our asset management tool.

The integration of this consistent framework ensures that the right things are getting done and provides cost savings through improved asset utilization and performance. It removes the emotional considerations associated with planning as well as ensures that the plan is consistent.

Partnering to Create Scale

Essex Powerlines has worked with several South Western Ontario LDC’s in order to

create a Purchasing Group that works cooperatively. This group cumulatively works together to tender out common components that vendors provide bids for. This has provided significant reductions in component costs, which translates to savings to the customer. With this scale, vendors are more apt to carry inventory items that are common to many LDC’s, therefore reducing the need for EPL to carry extra cost and also eliminate the need in waiting for longer lead items that would have otherwise been special order.

Essex Powerlines Corporation has exhibited performance excel-lence in financial operations with a forecasted year end Net Income before tax of $2.5 million which exceeds the target by 18%. This is a return on equity of 16% or 2.4% higher than target. Essex Powerlines held the line on expenses and is forecasted to be 6.4% below target. This performance exceeds 2010, when Essex Powerlines had a Net Income of $2.0 million which exceeded the 2010 target by 20%.

Using the Ontario Energy’s Board’s 2010 annual yearbook statistics posted in 2011, regionally Essex Powerlines has demonstrated quantitatively overall above average perfor-

mance in a number of key areas which include OM&A, New Capital Spent, Net Income as a percentage of Rev-enue. Essex Pow-erlines achieved this with having the lowest Revenue per customer in the region.

Financial Operations



Our goal of proper financial stewardship is anchored on providing fair and reasonable returns to our shareholders and strong capital reinvestment programs to prepare our network for the needs of the 21st century. Using Smart Meter invest-ment as our building blocks, Essex Powelines is now launching our next stage of Smart Grid monitoring and grid management tools. Integrating the data from Smart meters and other op-erational network devices provides our Engineers and Planners a better vision of how our network is performing and improves our grid enhancement investments.

Maximizing our CapEx and OpEx expenditures through a com-mon Asset Investment evaluation model ensures that every dollar spent maximizes value to the customers we serve and ensures Shareholders proper returns of our ongoing invest-ments.

Essex Powerlines Corporation has remained committed to the cause and has invested even more into sustainability. Since commissioning the 500 kW AC rated rooftop solar PV project at the Tecumseh Arena, Essex Powerlines has also connected a 250 kW AC rated solar PV rooftop project at the Vollmer Centre

in LaSalle, Ontario. With its newly awarded contract at the new Town of Amherstburg United Communities Recreation Complex in the year, Essex Powerlines has committed to more than 1.25MW of solar PV projects that they will own and oper-ate for the next twenty years representing roughly $7 million dollars of local investment. These systems will combine to produce close to 30 GWh over their contract life and off over 1,200 tonnes of CO2; the equivalent of removing 271 cars from the road or offsetting 1,136 acres of deforestation.

Essex Powerlines has also remained focused and driven to offer the best and most refined CDM program offerings in On-tario. Since OEB implementation of 3rd Tranche, Essex Pow-erlines took on the call to help move Ontario into the forefront of energy efficiency across Canada and North America. As a result, Ontario has made great strides to date. Essex Power-lines prides itself in consistently outperforming the average performing LDC year over year. As show in the following chart, Essex Powerlines has reduced lifecycle kWh by an average of 337.42% since delivering CDM solutions. This has resulted in anticipated savings per customer of $128.69 per year or $1,262.67 per customer in lifecycle savings! In addition, EPL has issued CDM incentives in 2011 to participated customers in our serviced territory. The Small Business Retrofit Program total payout was $37,163.75.

Retail Strategies for Conservation & Demand Management


For the Retrofit Program, $154,026.10 was issued to EPL customers that participated. Included was Heinz Canada that received an incentive of $81,532.00 for their 2011 retrofit in the Leamington Facility.

Total savings to date include reducing peak demand by over 16MW (or approximately

15% of total load) and 25.7 GWh. These results already eclipse the newly mandated 2011-2014 targets for energy conservation! The net combined environmental impacts of CDM and renewable involvement alone resulted in net CO2 avoidance of 22,780 tonnes of CO2. This is the equivalent of removing 5,084 cars from the road or offsetting 21,314 acres of deforestation.

In 2011 Essex Power supported our communities through various charitable donations and employee involvement. We were proud to be able to make and initial donation of $5,000

of a total pledge of $10,000 to the Beyond Medicine Campaign which is to be used to help establish an An-gioplasty Centre at Hotel-Dieu Grace Hospital, another $5,000 to be do-nated in 2012. We once again were

able to count on our employees to “staff” one of The Salva-tion Army Christmas Kettles in one of our communities. In one day, the kettle raised just over $1,000, and Essex Power

Contribution to Community



matched it. We also wanted to support those programs in our communities that serve as food banks, Amherstburg Food & Fellowship Mission, LaSalle St Andrew’s Anglican Church Food Bank, Leamington & District Ministerial Food Bank and the Tecumseh Goodfellows each received a $1,000 donation. We are proud of our employees, they organized an internal toy drive for Sparky’s Toy Drive, specifically collecting gifts for the slightly under donated 11-14 year old age group. Essex Power continued to support the annual community festivals in our municipalities through sponsorships and we con-tinue to provide $5,000 in in- kind services to each of our Shareholders. We also supported our communi-ties through sponsorships of Santa Parades, Free Family Skate days, Under 17 Hockey Tournament, as well as other activities/events. We participated in the Co Operative Education programs with Universities

and Colleges and offered a bursary to one of our local high schools. Essex Power is proud to be a good corporate neigh-bour to our communities and look forward to supporting many worthy causes in 2012.

In 2011, Essex Powerlines Corporation became the owner of their second large scale Solar PV Rooftop System. This 250kW Solar PV System is located in LaSalle, Ontario and carries many benefits to the community.

We are proud to be a nationwide renewable energy leader and continuing on with our third large scale Solar PV Project in 2012, which will be located in Amherstburg, Ontario.


| CONTRIBUTION TO COMMUNITY

Essex Power Corporation has always been dedicated in finding ways to participate in the communities that we service. In 2011, we were involved in the following:

We provided $5,000.00 in in-kind services per community to Amherstburg, LaSalle, Leamington and Tecumseh.

An additional $1,000.00 for each community festival. The LaSalle Strawberry Festival, The Leamington Tomato Festival, The Tecumseh Corn Festival, and The Shores of Erie Wine Festival.

Sponsored several local Golf Tournaments by provid-ing gifts for the awards tables.

Active member of the Chambers of Commerce or Business Improvement Associates of our four municipal owners.

Sponsored the MS Super Cities Walk in Leamington by funding radio ads for the walk.

Annually donate our used computers and related materials to Computers for Kids.

Participated in the University of Windsor student co-op program.

Offered a $200.00 bursary for a student graduating from the electrical field at General Amherst High School.

Employee’s volunteered their time to the local Salvation Army Kettle Campaign.

Donated $1,000.00 to local organizations during the holidays, Amherstburg Food & Fellowship Mission, The Salvation Army, Tecumseh Goodfellows, St Andrews LaSalle

Food Bank, Leamington & District Food Bank

International Dragon Boats for the Cure – donation

Beyond Medicine Campaign (Angioplasty Program Fund)- $5000 (of total $10000)

Sparkys Toy Drive – Employee driven

St Clair College – Advisory Board – Powerline Maintainer Program, donated tools and equipment

Summer Jobs Service Program

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| SENIOR MANAGEMENT STAFF

Raymond TraceyPresident & C.E.O.;Essex Power Corporation

Richard DimmelVice President Finance;Essex Power Corporation

Janis McVittieExecutive Assistant;Essex Power Corporation

Dave DunnManager, Operations;Essex Powerlines Corporation

John AvdoulosEngineering & BusinessDevelopment Manager;Essex Power Corporation

Joe BarileH.R., Legal, Regulatory Advisor.

Mark AlznerEngineering & Asset Manager;Essex Powerlines Corporation

Alan ParnellManager, Customer Service;Essex Powerlines Corporation

Stephen RayBusiness Development Manager;Essex Energy Corporation


| AUDIT REPORT

To the Shareholders of Essex Power CorporationWe have audited the accompanying consolidated financial statements of Essex Power Corporation, which comprise the balance sheet as at December 31, 2011, and the statements of income and expenses, retained earnings and cash flows for the year then ended.

Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian generally accepted principles, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amount and disclosures in the financial statements. The proce-dures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not 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 presenta-tion of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, these financial statements present fairly, in all material respects, the consolidated financial position of Essex Power Corpora-tion as at December 31, 2011, and the results of its statements of income and expenses, retained earnings and cash flows for the year then ended in accordance with Canadian generally accepted accounting principles

Restated Comparative InformationWithout modifying our opinion, we draw attention to note 17 to the consolidated financial statements, which explains that certain comparative information for the year ended December 31, 2010 has been restated. The consolidated financial statements of Essex Power Corporation for the year ended December 31, 2010 were reported on by another auditor who expressed an unmodified opinion on those consolidated financial statements on March 31, 2011.

As part of our audit of the consolidated financial statements of Essex Power Corporation for the year ended December 31, 2011, we also audited the adjustments described in note 17 that were applied to restate the financial statements for the year ended December 31, 2010. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review or apply any procedures to the consolidated financial statements of Essex Power Corporation for the year ended December 31, 2010 other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the consolidated financial statements for the year ended December 31, 2011 taken as a whole.

Chartered Accountants, Licensed Public Accountants PricewaterhouseCoopers LLP, Chartered Accountants



Assets 2011 (Restated note 17) 2010

Current assetsCash $7,753,459 $11,279,883

Accounts receivable 8,121,442 8,731,609

Income taxes recoverable 566,016 10,933

Prepaid expenses 409,535 190,072

Unbilled revenue 6,732,977 6,173,633

Inventory 336,525 871,781

23,919,954 27,257,911

Property, Plant and Equipment (note 3) 38,586,656 35,393,951

Future income taxes (note 16 and 17) 2,428,662 3,573,055

Deferred charges (note 5) 2,846,098 3,671,942

Investments (note 6) - 163,000

Goodwill (note 6) 5,418,888 -

73,200,258 70,059,859

See Accompanying Notes

Approved by the Board of Directors:

Director Director

CONSOLIDATED STATEMENT OF EARNINGSFOR THE ENDED DECEMBER 31, 2011


CONSOLIDATED BALANCE SHEET AS AT DECEMBER 31, 2011

Liabilities 2011 (Restated note 17) 2010

Current liabilitiesAccounts payable and accrued liabilities $10,411,107 $11,854,946

Dividends payable 1,426,176 900,000

Deferred revenue 254,336 109,083

Regulatory liabilities (note 4 and 17) 4,093,762 4,107,326

Current portion of customer and contractor deposits (note 7) 588,846 932,416

Current portion of long term debt (note 9) 5,235,240 4,224,978

22,009,467 22,128,749

Future income taxes 35,662 -

Accrued loss on interest rate swap (note 9 and 17) 711,860 521,045

Customer deposits (note 7) 732,195 607,327

Employee future benefits (note 11) 4,400,282 4,648,336

Long term debt (note 9) 18,159,031 20,202,843

46,048,497 48,108,300

Shareholders’ Equity

Capital stock (note 10) 19,159,694 19,159,694Retained earnings 7,992,067 2,791,865

27,151,761 21,951,559

$73,200,258 $70,059,859

Contingenicies (note 8)




CONSOLIDATED STATEMENT OF EARNINGSFOR THE ENDED DECEMBER 31, 2011

2011 (Restated note 17) 2010

Energy sales $62,303,894 $59,856,257

Cost of power purchased 51,143,998 49,232,444

Gross margin on service revenue 11,159,896 10,623,813

Other revenue from operations Service fees (Utilismart) 5,189,351 - Construction, service fees, consulting and miscelaneous 6,955,945 8,097,661

Solar generation 398,812 -

Total other revenue 12,544,108 8,097,661

Expenses Billing and collecting 2,028,100 2,065,432Administration and general 5,717,613 2,230,263Operations, maintenance, construction and consulting 6,789,729 7,987,942Amortization 2,821,409 2,310,938Bank charges and interest 1,255,311 1,271,853

Total expenses 18,612,162 15,866,428

Income from operations 5,091,842 2,855,046

Other revenue (expenses)Gain (loss) on disposal of capital and intangible assets 120,531 (95,405)Interest income 165,879 107,411Dividend income - 145,509Unrealized losson interest rate swap (note 9 and 17) (190,815) (58,152)Gain on remeasurement of Utilismart investment (note 6) 2,337,000 -Other 9,807 -

2,442,402 99,363

Income before income taxes 7,534,244 2,954,409

Provision for income taxesCurrent (note 16) 1,083,002 664,113Future (note 16) (51,945) 6,167

Net income for the year 6,503,187 2,284,129




Retained Earnings at Beginning of Year $2,791,865 $1,407,736

Net Income for the year 6,503,187 2,284,129

Dividends (1,426,612) (900,000)

Other 123,627 -

Retained Earnings at End of Year $7,992,067 $2,791,865


CONSOLIDATED STATEMENT OF RETAINED EARNINGS FOR THE ENDED DECEMBER 31, 2011



CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE ENDED DECEMBER 31, 2011

Cash provided by (used in): 2011 (Restated note 17) 2010

Operating ActivitiesNet income for the year $6,503,187 $2,284,129Add items not involving cash: Amortization of property, plant and equipment 2,752,047 2,203,839 Amortization of deferred charges 813,897 (1,029,084) Post employment retirement benefits (248,054) (177,390) Gain on disposal of property, plant and equipment (120,531) - Unrealized loss on interest rate swap 190,815 58,152 Gain on remeasurement of Utilismart investment (note 6) (2,337,000) -Change in regulatory liabilities (13,564) 1,941,445Change in future income tax 1,180,055 (1,493,145)Net change in non-cash working capital (note 13) (1,179,578) (334,298)Other 11,947 -

7,553,221 3,453,648

Financing ActivitiesSpecial shares issued - 373,943 Contributions in aid of construction 1,939,672 1,667,247 Change in long term debt (1,033,551) 1,766,223Dividends (1,426,612) (900,000)

(520,491) 2,907,413

Investing ActivitiesDisposal of intangible assets - 104,357 Purchase of property, plant and equipment (8,070,424) (8,447,784)Proceeds on disposal of property, plant and equipment 306,531 -Acquisition of Utilismart (note 6) (5,000,000) - Remeasurement of Utilismart investment on acquisition of control 2,081,112 - Other 123,627 -

(10,559,154) (8,343,427)

Increase (decrease) in cash during the year (10,559,154) (1,982,366)Cash, Beginning of year 11,279,883 13,262,249

Cash, End of year $7,753,459 $11,279,883

Supplementary cash flow informationInterest paid $1,239,001 $776,284Payments in lieu of corporate income taxes 983,560 932,542



NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE ENDED DECEMBER 31, 2011

Business OperationsEssex Power Corporation (the “Company”) serves as the holding company for the other three affiliates and provides corporate services and direction in the areas of finance, new business development and marketing.

Basis of PresentationThe financial statements have been prepared by management in accordance with accounting principles generally acceptedin Canada for electric utilities, being Part V of the Canadian Institute of Chartered Accountants (“CICA”) Handbook.

ConsolidationThe following corporations are directly controlled and have been consolidated with these financial statements:(i) Essex Powerlines Corporation (Incorporated April 18, 2000)(ii) Essex Energy Corporation (Incorporated April 18, 2000)(iii) Essex Power Services Corporation (Incorporated April 18, 2000)(iv) Utilismart Corporation

GeneralThe Ontario Government enacted the Energy Competition Act, 1998 to introduce competition to the Ontario electricitymarket. Under the terms of the legislation, the Ontario Energy Board (“OEB”) will regulate industry participants by issuinglicenses for the right to generate, transmit, distribute or retail electricity. These licenses will require compliance withestablished market rules and codes. This legislation applies to Essex Powerlines Corporation only.

The distribution revenues include a distribution tariff, which is based on OEB approved rates. The distribution tariff ratesare set based on an approved revenue requirement that provides cost recovery and includes a return on deemed commonequity. In addition, the OEB approves rate riders to allow for the recovery or disposition of specific regulatory assets andliabilities over a specified time frame.

InventoryInventories consist principally of construction and maintenance materials and are stated at the lower of cost and netrealizable value, with cost determined on an average cost basis. The company includes certain major standby equipmentas in-service property, plant and equipment and depreciates these assets over their useful lives.

GoodwillGoodwill is not subject to amortization, but is subject to an annual assessment for impairment unless there is no indication of impairment as per the criteria in CICA Handbook Part V Section 3064.84. An assessment for impairment invloves the comparison of the estimated undiscount-ed cash flows from the underlying assets of the reporting unti to the carrying value of the reporting value. Any impairment is charged to income at that time. No impairment exist at December 31,2001

Nature of Business

Summary of Significant Accounting Policies

01

02



Property, Plant and EquipmentProperty, plant and equipment are stated at cost less applicable rebates, accumulated amortization and contributions in aid of construction. Cost is comprised of materials, labour, engineering costs and overheads. Amortization is determined on a straight-line basis over the estimated useful lives of the assets.

Land rights 50 years

Buildings and fixtures 25 years

Transmission and distribution equipment 25 years

Computer hardware and software 5 years

Office equipment 10 years

Utility equipment and trucks 5-8 years

Solar generation 20 years

In the year of addition a half year of amortization is claimed. When specifically identifiable items are retired or otherwise disposed of, their original cost and accumulated amortization are removed from the accounts and the related gain or loss is included in income in the year of disposal.

Contributions in Aid of ConstructionContributions in aid of construction are non-refundable contributions of property, plant and equipment made by developers or subdividers which become part of the distribution system. They are recorded as a reduction of the related asset values. These amounts will be amortized on the same basis as the related property, plant and equipment.

Revenue RecognitionThe company provides services relating to the construction and maintenance of powerlines and related electrical distribution structures and equipment. Revenue from these services are generally recognized upon completion of the work performed. For larger projects, the Company recognizes revenue on the percentage of completion basis.

In accordance with OEB regulations, the Company recognizes as revenue the regulated distribution tariffs associated with energy distributed. Variances between energy purchase costs and energy bills are recorded as regulatory assets or liabilities for future distribution rate application consideration.

The company follows the practice of cycle billing of customers’ accounts and revenue is recognized in the period billed.An accrual is made in the accounts at December 31 for power supplied but not billed to customers between the date themeters were last read and the end of the year.



Accounting for Rate Regulated OperationsThe Accounting Standards Board (AcSB) accounting guideline 19, “Disclosures by Entities Subject to Rate Regulation”, is applicable to Essex Powerlines. The guideline requires disclosure of the effect of removing regulatory assets and liabilities and what the effect would be on the financial statements in the absence of rate regulation. The effects will be disclosed in any applicable notes to the financial statements.

Income Taxes - Payments in LieuThe income taxes are to be calculated in accordance with the rules for computing income, capital and other taxes provided for in the Income Tax Act (Canada) and the Corporations Tax Act (Ontario) as modified by the Energy Act and related regulations. After October 1, 2001 the Company is required, to compute and remit to the Ontario Electricity Financing Corporation (OEFC) payments in lieu of corporate taxes.

All corporations other than Essex Powerlines Corporation follow the tax allocation basis of accounting for income taxes whereby income tax expense is recorded in the year the income and expenses are recognized for accounting purposes regardless of when the related taxes are actually paid or recovered.

Effective January 1, 2009, the Company adopted amendments to the Canadian Institute of Chartered Accountants (CICA) Handbook Section 3465 - Income Taxes and CICA Handbook Section 1100 - Generally Accepted Accounting Principles. These amended sections establish stan-dards for the recognition, measurement, presentation and disclosure of future income tax assets and liabilities of rate regulated enterprises.

For transactions and events that cause temporary differences between the tax basis of assets and liabilities and their carrying amounts for accounting purposes, the Company recognized future income tax assets and liabilities, and corresponding regulatory liabilities and assets, as a result of adopting these amended standards on January 1, 2009.

Current Income TaxesThe provision for current taxes and the assets and liabilities recognized for the current and prior periods are measured at the amounts receivable from or payable to the OEFC.

Future Income TaxesFuture income taxes are provided for using the liability method and are recognized on temporary differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit.

Future income tax liabilities are generally recognized on all taxable temporary differences and future tax assets are recognized to the extent that it is more likely than not that they be realized from taxable profits available against which deductible temporary differences can be utilized.

Future income taxes are calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized, based on the tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date.

The Company has recognized regulatory assets and liabilities which correspond to future income taxes that flow through the rate-making process.

Post Employment BenefitsThe Company pays certain post retirement benefits on behalf of its retired employees. The Company recognizes post retirement costs in the period in which the employees rendered the services. The net periodic benefit cost for the year ended December 31, 2011 was determined by actuarial valuation using a discount rate of 4.75%. The actuarial valuation is required to be completed once every 3 years.



Measurement UncertaintyThe preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities at the date of financial statements. Certain estimates, also required as regulations which will ultimately determine the actual results, have yet to be finalized and are dependent on the completion of regulatory proceedings or decisions. Due to these uncertainties, actual results might differ from those estimates and the impact will be recorded in the current period when the actual results are known.

Regulatory AccountingThe Company’s regulatory assets represent certain amounts receivable from future customers and costs that have been deferred for accounting purposes because it is probable that they will be recovered in future rates. In addition, the Company has recorded regulatory liabilities which represent amounts for expenses incurred in different periods than would be the case had the Company been unregulated. The Company 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.

Property, Plant and Equipment03

Cost Accumulated Amortization 2011 Net

Land and land rights $347,008 $7,066 $339,942Transmission and distribution equipment 45,267,148 16,735,302 28,531,846Computer hardware, software and other equipment 3,596,945 2,039,354 1,557,591Buildings 1,949,606 341,543 1,608,063Office equipment 238,987 135,179 103,808Utility equipment and trucks 1,740,023 499,985 1,240,038Construction in progress 1,718,184 - 1,718,184Solar generation 3,606,843 119,659 3,487,184 58,464,744 19,878,088 38,586,656


Cost Accumulated Amortization 2010 Net

Land and land rights $335,598 $5,000 $330,598Rental units 10,142 8,535 1,607Transmission and distribution equipment 42,943,537 15,006,722 27,936,815Computer hardware, software and other equipment 1,528,521 684,494 844,027Buildings 1,607,140 235,080 1,372,060Office equipment 215,397 114,822 100,575Utility equipment and trucks 1,479,071 416,590 1,062,481Construction in progress 1,197,156 - 1,197,156Solar generation 2,548,632 - 2,548,632

51,865,194 16,471,243 35,393,951


Regulatory assets and liabilities are a result of differences between costs charged to Essex Powerlines Corporation and allowed rates charged to customers which are classified as “retail settlement variances”. Also included are deferred tax payments in lieu of corporate income taxes and extraordinary event losses. These are referred to as “non-retain settlement variances”.

a) Retail settlement variances represent amount accumulated since the opening of the electricity market and are for the operation of the whole-sale electricity market and the cost of electricity, amounts from Hydro One for network and line and transformation charges and amounts billed to customers. In the absence of rate regulation income before tax would be higher by $419,193.

b) Extraordinary event costs represent costs incurred to restore services following storms in 2005 and 2010. In the absence of rate regulation income before taxes would not have changed.

Regulatory (assets ) liabilities04


a) Retail settlement variances $2,151,908 $1,732,715

b) Extraordinary event costs - ice storm (91,943) (91,943)

c) Retain cost and other variances (98,993) (250,395)

d) Regulatory assets recovered 1,266,429 1,587,284

e) Smart meter variance (1,629,639) (2,449,335)

f) Future income taxes 2,496,000 3,579,000

4,093,762 4,107,326



c) Retail cost and other variances represent amounts for costs incurred by the Company to serve customers that have been enrolled by a commodity retailer, and for miscellaneous other costs that will be recovered from customers. In the absence of rate regulation income before taxes would be higher by $151,402.

d) Regulatory assets recovered represent amounts collected from customers through rates until April 30, 2013. These amounts will be held until approved by the Ontario Energy Board to be refunded to or recovered from customers. In the absence of rate regulation income before taxes would be lower by $320,844.

e) The smart meter variance represents costs to install smart meters and interim smart meter recovery amounts paid by customers. These amounts will continue to be recovered from customers until the end of April 2012 when an adjustment will be made to include this cost in regular rates. In the absence of rate regulation, net assets would be higher by $3,262,031 and net income would be higher by $819,696.

f) The future income taxes liability is the result of the application of CICA Handbook Section 3465, Income Taxes, that was amended to require the recognition of future income tax liabilities and assets for regulated enterprises that were previously not subject to these provisions. The future income taxes liability is the amount that will be refunded to customers through future rates. In the absence of rate regulation, net assets would be higher by $2,496,000.

Deferred charges include the unamortized portion of certain post-employment benefits granted to employees in previous periods. In accor-dance with the accounting transitional rules at the time of adoption of the new accounting standards, the transitional asset is amortized on a straight-line basis over the average remaining service life of the employees. These charges also include development of new business oppor-tunities such as distributed generation, solar generation and start up costs for a joint asset management company. These costs are amortized against revenue as it is earned. The deferred charges also include the Springboard Health & Safety management system development and implementation and miscellaneous deferred debits.

Deferred charges05

2011 2010

Deferred charges $4,237,800 $4,408,998

Less: Accumulated amortization 1,391,702 737,056

2,846,098 3,671,942


Business Combination06

UtilismartDuring the year, Essex Energy Corporation completed the acquisition of Utilismart Corporation. Prior to the purchase, Essex Energy Corpora-tion owned 33 1/3% of Utilismart Corporation which was accounted for using the cost method. The remaining 66 2/3% of the shares were purchased for consideration of $5,000,000. As a result of the acquisition, a gain of $2,337,000 was recognized on the remeasurement of Essex Energy Corporation’s previously held interest in Utilismart Corporation at its acquisition-date fair value. The acquisition of Utilismart Corporation has expanded Essex Energy Corporation’s ability to market new software products to the Electrical Distribution industry in Canada and elsewhere. The goodwill recognized on this acquisition is attributable to the synergies expected to be achieved from integrating Utilismart Corporation’s products with Essex Energy Corporation’s other software products.

The net assets acquired were recorded at the acquisition date as follows:

The purchase accounting for this transaction remains provisional as at December 31, 2011 and will be finalized in 2012.

Cash $1,716,859

Accounts receivable 727,015

Prepaid expenses 107,444

Equipment 768,172

Intangible assets 69,361

Trade payables and accrued liabilities (438,890)

Long-term debt (495,694)

Deferred revenue (8,041)

Dividends payable (243,114)

Future income taxes (122,000)

Net assets acquired 2,081,112

Goodwill 5,418,888

Net investment in Utilismart 7,500,000




Customer Deposits

Contingencies

07

08

Customer deposits are amounts received and held as security for energy consumption. A customer deposit is refunded after a specific period of good payment history. Interest is to be paid annually at the average yearly savings interest rate.

The Company subscribes for liability insurance coverage under a self-insurance pool administered by the Municipal Electric Association Reciprocal Insurance Exchange. Under the terms of this co-operative venture the Company as a pool member, in addition to its regular policy premiums, is contingently liable for any retroactive reassessment if a deficit originates in a year in which they are a member. The contingent liability for reassessment in respect of any year in which the Company is a pool member continues even where the Company subsequently withdraws from the self-insurance pool. The Company will not, however, be subject to reassessment for claims incurred in years in which they are not members of this self-insurance pool.

A letter of credit in the amount of $2,725,000 has been issued by TD Canada Trust to the credit of the Independent Electricity System Operator (“IESO”) for the commodity purchases and market services provided. This letter of credit expires April 15, 2012 and is normally renewed annually.



Long Term Debt09

2011 2010

Related party long-term loan payable is repayable as approved by the Board of Directors not to exceed 20% of the principal lending amount if funds are available as determined each July. Interest is payable at a state interest rate of 6%. The debt is owing to two of the four shareholders of the parent company, The Town of Tecumseh and The Municipality of Leamington. The agreement expires effective December 31, 2012.

Mortgage payable - Woodslee Credit Union is repayable in blended monthly payments of $8,793 bearing an interest rate of 5.9% and is secured by land and buildings at 2730 Highway #3, RR# 1, Tecumseh. Mortgage matures September 19, 2013.

Banker’s acceptance - TD Canada Trust. It is the intention of the Board of Directors that this remains a long-term debt.

Banker’s acceptance - TD Canada Trust. It is the intention of the Board of Directors that this remains a long-term debt.

Fixed rate loan - TD Canada Trust is a 10 year term loan with a 20 year amortization schedule, repayable in blended monthly payments of $39,562, bearing an interest rate of 4.99%. Loan matures November 9, 2019.

Fixed rate loan - TD Canada Trust is a 10 year term loan with a 10 year amortization schedule, repayable in blended monthly payments of $62,122, bearing an interest rate of 4.48%. Loan matures November 9, 2019.

Floating rate loan - TD Canada Trust is a 5 year term loan with a 5 year amortization schedule, repayable in blended monthly payments of $41,667 bearing an interest rate of prime plus 1%. Loan matures December 2015.

Fixed rate loan - TD Canada Trust is repayable in monthly instalments of $22,581, bearing interest at a rate of prime plus 0.50%. Loan matures November 21, 2012 and is secured by a general security agreement relating to the assets of Utilismart Corporation.

Less: Current portion of long-term debt

$3,694,704 $3,694,704

587,647 656,713

3,000,000 3,000,000 3,300,000 3,300,000

5,615,471 5,804,858

4,960,783 5,471,546

2,000,000 2,500,000

235,666 -

23,394,271 24,427,821 5,235,240 4,224,978 18,159,031 20,202,843



Approximate long-term principal repayments over five years are as follows:

In addition to the Bankers Acceptances with TD Canada Trust, the Company has entered into two interest rate swap agreements with TD Securities. The swap agreements are both 10 year agreements, with the agreement for the notional amount of $3,000,000 maturing on June 3, 2013 and the agreement for the notional amount of $3,300,000 maturing on November 4, 2018. Both of these agreements are “receive variable, pay fixed” swap agreements, which effectively convert variable interest rates on Bankers Acceptances to an effective interest rate of 5.80% and 4.69%, respectively.

The swap agreements entered into with TD Securities do not meet the standards to apply hedge accounting. Accordingly, the interest rate swap contracts are marked to market at year end with the unrealized gain or loss recorded in the statement of earnings. The unrealized loss recorded in 2011 was $190,815 (2010 - $58,152).

$

2012 5,235,240

2013 1,325,439

2014 1,267,919

2015 1,341,855

2016 880,587

Capital Stock10

An unlimited number of common shares, Class A, shares voting.An unlimited number of common shares, Class B, non- voting.An unlimited number of special shares, Class A, non-voting.

2011 2010

10,712,716 common shares, Class A voting $10,712,716 $10,712,716

8,073,035 common shares, Class B non-voting 8,073,035 8,073,035

373,943 special shares, Class A non-voting 373,943 373,943

19,159,694 19,159,694


Employee Future Benefits11

Pension PlanThe Company provides a pension plan for its full time employees through Ontario Municipal Employees Retirement System (“OMERS”). OMERS is a multi-employer, contributory, defined benefit pension plan established in 1962 by the Province for employees of municipalities, local boards and school boards in Ontario. Both participating employers and employees are required to make plan contributions based on participating employees’ contributory earnings. The Company recognized the expense related to this plan as contributions are made. For the year ended December 31, 2011, the Company’s OMERS current service pension costs were $331,081 (2010 - $322,718).

Employee future benefits other than pensionThe Company pays certain benefits on behalf of its retired employees. Information about the Company’s defined benefit plans is as follows:

General inflationFuture general inflation levels, as measured by changes in the Consumer Price Index (“CPI”), were assumed at 2% in 2011 and thereafter.

Interest (discount) rateThe obligation as at December 31, 2011 of the present value of future liabilities and the expense for the year ended December 31, 2011 were determined using a discount rate of 4.75%.

Salary levelsFuture general salary and wage levels were assumed to increase at 2.0% per annum.

Medical costsMedical costs were assumed to increase at the CPI rate plus a further increase of 6.0% in 2012.

Dental costsDental costs were assumed to increase at the CPI rate plus a further increase of 2.5% in 2012.

2011 2010

Opening balance at beginning of year $4,648,336 $4,825,726

Current service and interest expense net of amortization of plan losses (gains) (118,662) (61,151)

Contributions made in the period (129,392) (116,239)

4,400,282 4,648,336




Financial Instruments12

The Company classifies its cash as held for trading and accounts receivable and other receivables are classified as loans and receivables, with each carried at fair value. Investments are classified as available for sale and carried at cost. Accounts payable, accrued liabilities, dividends payable, customer deposits, and long-term debt are classified as other liabilities and carried at amortized cost. Exposure to market risk, credit risk and liquidity risk arises in the normal course of the Company’s business.

Market riskMarket risk refers primarily to the risk of loss that results from fluctuations in commodity prices, foreign exchange rates and interest rates. The Company does not have significant commodity risk or foreign exchange risk. The Company is also exposed to fluctuations in interest rates from the market compared to interest rates that are allowed by the regulator in customer rates. As further defined in note 9 to these financial state-ments, the Company uses derivative financial instruments, primarily interest rate swaps, to manage its interest rate exposure.The Company has adopted CICA Handbook Sections 3855 and 3861, Financial Instruments for disclosure purposes.

Credit riskThe Company is exposed to credit risk with its customers and their ability to pay. The Company’s revenue is earned from a broad base of cus-tomers in different classes and as such, the Company does not rely on any one single customer for a significant amount of its revenues. As of December 31, 2011, there were no significant balances of accounts receivable owing from any single customer.

Liquidity riskLiquidity risk refers to the Company’s ability to meet its financial obligations as they come due. Short-term liquidity is provided through cash, cash equivalents and funds from operations. As of December 31, 2011, accounts payable of $10,411,107, current portion of customer and contractor deposits of $588,846 and current portion of long-term debt of $5,235,240 is expected to be paid at their carrying values within the next year. Interest payments owing on long-term debt is also expected to be paid within the next year.


Net Change In Non-Cash Working Capital

Capital Management

13

14

The net change in non-cash working capital balances related to operations consists of the following:

2011 2010

Decrease (increase) in current assets Accounts receivable $610,167 $(3,231,570)Prepaid expenses (219,463) 27,029Unbilled revenue (559,344) 147,512Inventory 535,256 (773,439)

Income taxes recoverable (555,083) 9,095

(188,467) (3,821,373)

Increase (decrease) in current liabilities Accounts payable and accrued liabilities (1,443,839) 2,605,186Deferred revenue 145,253 109,083Dividends payable 526,176 100,000Customer deposits (218,701) 672,806

(991,111) 3,487,075

(1,179,578) (334,298)

The Company’s objectives are to maintain access to capital on a long-term basis at reasonable rates and to deliver reasonable financial returns to the shareholders. The Company’s capital structure consists of shareholder’s equity, retained earnings, long-term debt, and cash. The capital structure as at December 31, 2011 was as follows:


Long-term debt payable within one year $5,235,240 $4,224,978

Less: Cash (7,753,459) (11,279,883)

Long-term debt 18,159,031 20,202,843

Net long-term debt 15,640,812 13,147,938

Common shares 19,159,694 19,159,694

Retained earnings 7,992,067 2,791,865

Total equity 27,151,761 21,951,559

Total capital 42,792,573 35,099,497

Debt to capital ratio 37% 37%




Emerging Accounting Changes

Provision for corporate income taxes and payments in lieu of corporate income taxes

15

16

The Company is required by TD Canada Trust to maintain a funded debt to capitalization ratio not to exceed 60%. At December 31, 2011, the Company is in compliance with these covenants and limitations.

International Financial Reporting Standards (IFRS)On February 13, 2008, the Canadian Accounting Standards Board confirmed the publicly accountable enterprises will be required to adopt IFRS in place of Canadian generally accepted accounting principles for interim and annual reporting purposes for fiscal years beginning on or after January 1, 2012. On September 10, 2010, the AcSB decided to permit rate-regulated entities to defer their IFRS implementation date to January 1, 2012. As such, the Company will apply IFRS to its financial statements ending December 31, 2012 with restatement of the amounts recorded on the opening IFRS balance sheet as at January 1, 2011, for comparative reasons.

The provision for corporate income taxes and payments in lieu of corporate income taxes (PILs) differs from the amount that would have been recorded using the combined Canadian Federal and Ontario statutory income tax rate. The reconciliation between the statutory and effective tax rates is provided as follows:

2011

Income before provision for income tax $7,538,946

Federal and Ontario statutory income tax rate 29%

Provision for income tax at statutory rate 2,186,294 Increase (decrease) resulting from: Gain on remeasurement of Utilismart investment (677,730)Amortization of deferred charge 47,984Non-taxable dividends (410,035)Other* (115,456)

Total income tax provision for income tax 1,031,057 Effective income tax rate 13.74% Components of provision for income tax Current tax provision 1,083,002Future income tax provision (51,945)

Provision for income tax 1,031,057


Restated Comparative Information17

Certain comparative information for the year ended December 31, 2010 has been restated to correct an error relating to derivative interest rate swap contracts that were not designated as hedges in accordance with the relevant accounting standards. CICA Handbook, Part V, Section 3855: Financial Instruments - Recognition and Measurement requires derivative interest rate swap contracts that were not formally designated as hedges to be recognized in the balance sheet at fair value with changes in fair value between periods recorded through net income.

The comparative information for the year ended December 31, 2010 has also been restated to correct an error relating to future income taxes. Future income tax assets recorded in the comparative financial statements have been increased by $2,703,107 to recognize the future tax effect of the temporary difference relating to employee future benefits, accrued loss on interest rate swap and other temporary differences. A cor-responding adjustment has been recorded to restate regulatory liabilities accordingly.

The correction of these errors has been applied retrospectively for comparative purposes. The adjustments that have been applied to retained earnings as at December 31, 2009 and to net income, accrued loss on interest rate swap, future income taxes and regulatory liabilities for the year ended December 31, 2010 are as follows:

2011

Retained earnings as at December 31, 2009, as previously reported $1,870,629Recognition of unrealized loss on interest rate swap (462,893)

Restated retained earnings as at December 31, 2009 1,407,736

Net income for the year ended December 31, 2010, as previously reported 2,342,281Recognition of unrealized loss on interest rate swap (58,152)

Restated net income for the year ended December 31, 2010 2,284,129

Accrued loss on interest rate swap as at December 31, 2010, as previously reported -Recognition of accrued loss on interest rate swap 521,045

Restated accrued loss on interest rate swap as at December 31, 2010 521,045

Future income taxes as at December 31, 2010, as previously reported 869,948

Recognition of future tax effect relating to employee future benefits 2,703,107

Restated future income taxes as at December 31, 2010 3,573,055

Regulatory liabilities as at December 31, 2010, as previously reported 1,404,219

Recognition of regulatory liability relating to additional FIT asset 2,703,107

Restated regulatory liabilities as at December 31, 2010 4,107,326




CORPORATE VISIONEssex Power Corporation’s vision is to be an Energy Provider that utilizes“best in class” people, processes and technology to lead the market placein sustainable energy solutions. Our customers will receive the greatestvalue by integrating an economic and environmental balance to theproducts and services we will deliver to them. As an Energy Provider wewill be a community leader in ensuring that environmental stewardship isa vital component of our services to increase customer awareness of properenergy utilization and management.

Essex Power Corporation 2199 Blackacre Drive | Suite 2 | Oldcastle, Ontario N0R 1L0Phone 519.946.2002 Fax 1.866.291.5317 Email [email protected] www.essexpower.ca

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