Burlington Hydro Electric Inc.

2013 Community Report

Shine.

2013 Community Report

energize.

2 Board / Executive

3 Message from the Chair & CEO

4 Operational Excellence

6 Emergency Preparedness

8 GridSmartCity

9 Community Energy Plan

10 Energy Conservation

12 Customer Service / Community

14 Empowering Kids

15 Inspiring a Company

16 Shareholder Report

17 Auditors Report

18 Balance Sheet

19 Statement of Earnings

20 Statement of Cash Flow

21 Path Forward

energizing our community

committedBurlington Hydro Electric’s corporate responsibility philosophy is straightforward – we’re a progressive company committed to continuous improvement and performance excellence in the areas of safety, stewardship, community involvement and technological innovation.To support this, the company maintains a strong asset base through responsible financial management, system renewal and innovation that assures the availability of electricity supply to meet the needs of its customers and a growing community.

responsibleBurlington Hydro takes its responsibility of informing, educating and responding to customer needs as a top priority. We are committed to help make our city a great place to live, work and do business. By enhancing customer engagement and communications, the company is helping customers make better choices and create healthy, sustainable results for the community it serves.

Burlington Hydro Electric Inc. is an energy services company that is wholly owned by the City of Burlington. Burlington Hydro Inc. (BHI) and Burlington Electricity Services Inc. (BESI) are affiliate companies owned by Burlington Hydro Electric Inc. Burlington Hydro serves approximately 66,000 residential and commercial customers in the City of Burlington, delivering electricity into the community through a network of 1,600 kilometres of medium-voltage distribution lines and 32 substations.

Executive TeamBurlington Hydro Electric’s talented executive team is committed to promoting the company’s core business strengths, with a focus on leadership and corporate responsibility.

From Left to Right: Jennifer Smith, VP, Corporate Relations; Michael Kysley, Executive VP & Chief Financial Officer; Dan Lowry, Chief Information Officer;

Dan Guatto, Chief Operations Officer; Gerry Smallegange, President and Chief Executive Officer; Joe Saunders, VP, Regulatory and Asset Management.

2013 Board of DirectorsCommitted to strong corporate governance and accountability, the Board of Directors brings a depth of experience to governing Burlington Hydro Electric Inc. in the best interests of customers and the community.

2

From Left to Right: Archie Bennett, Chair

(December 2013 -); Charles Keizer, Past

Chair (to December 2013); Mayor Rick

Goldring; Jeff Fielding;

From Left to Right: Darla Youldon; Don

Dalicandro; John Maheu; Phil Nanavati.

On behalf of the Board of Directors and the Executive Team, we extend our appreciation to Charles Keizer for his valued contribution as Chair of Burlington Hydro Electric.We also welcome Archie Bennett who re-joined the Board in December 2013 as Chair.

Message from the Chair and CEOAt Burlington Hydro Electric Inc. (BHEI) we are committed to growing and conducting our business in ways that consistently deliver value and provide benefit to our community, customers and shareholder. We demonstrated the strength of this commitment in numerous ways in 2013. Through new partnerships, innovative products, great service and with our preparedness in the wake of emergency events, our employees put their best foot forward and delivered on expectations.

Aligning our business priorities with the City of Burlington’s long-term strategy, as it relates to responsible power management and energy sustainability, remains an important part of our business mandate. We welcomed the opportunity to bring our energy expertise to the table and partner with the City in the development of a Community Energy Plan (CEP). The finalization of the CEP in 2013 was a positive step forward. We now focus our attention on the role we can play in helping to implement this widely-supported initiative.

BHEI has also commenced a process to assess how best to assist the City in achieving its prosperity goals through a single service delivery mechanism for services such as street lighting and tree trimming. This approach is intended to achieve efficiencies through scope, as well as create new revenue opportunities for the City. Similarly, we are continuing to work with our GridSmartCity (GSC) utility partners to realize scale efficiencies with the establishment of the GSC Cooperative that is exploring ways to enhance our collective purchasing power for everything from IT platforms to joint tendering.

On the operational side, we balanced the company’s need for resources – the money needed to pay for assets, technology and the people who know how to make them work together – with the delivery of great services and a well-maintained, safe and reliable distribution system.

Albeit, we must always be prepared to expect the unexpected and Mother Nature delivered on that with a one-two punch in 2013 – first in July with a severe wind storm that cut a swath of destruction through the city, then again over the Christmas holidays with one of the most damaging ice storms to hit our region in memory. The clean-up and rebuild of the power system was extensive, but we’re proud to report that our response was swift and went according to plan, despite some very challenging circumstances.

As these storm events revealed, how we communicate with our customers is just as important as what we are communicating. In addition to traditional communication conduits, we embraced new ways to connect with our customers – through on-line and mobile device options or by using social media platforms such as Twitter to reach out in real time. We aspire to meet customer expectations and that is why we conducted a ‘Customer Satisfaction Survey’ in the Spring to help identify customer preferences and attitudes about Burlington Hydro. We’re using that feedback to ensure our products and services continue to provide exceptional value.

We’d like to thank the BHEI Board of Directors for their ongoing support and guidance in what has been a very eventful year. In particular, we recognize Charles Keizer who so generously provided his expertise and leadership as Chair through much of 2013. Mr. Keizer resigned in December to take the lead on an assignment to find cost-saving opportunities through a potential services model with the City via Burlington Electricity Services. And lastly, we want to thank our talented executive team for the great service and passion they demonstrate day-in and day-out. Their hard work and professionalism has ensured that we continue to rank as one of the most efficiently run electricity utilities in Ontario.

Gerry Smallegange President and Chief Executive Officer

Archie Bennett Board Chair

reliable.

Burlington Hydro is focused on maintaining its high performance levels in all aspects of its operations and planning activities to comply with its regulatory obligations and responsibilities to the Ontario Energy Board (OEB) and the Electrical Safety Authority (ESA). At the core of Burlington Hydro’s mandate is the responsibility to deliver a trusted source of safe, efficient and reliable power to its customers, which supports growth and accommodates economic development in the city. A critical element in this equation is the ongoing maintenance and construction programs that will ensure the long-term integrity and sustainability of the distribution system.

1,899 emergency call-out responses

144 transformers installed

200 utility poles installed

9,595 locates delivered to customers

634 new services installed

4

Prudent Investments

In 2013, Burlington Hydro delivered its operating and capital plans on target and on budget.

Under a 10-year capital investment plan, the company has embarked on a prudent course to maintain the utility’s equipment assets. Not only does the plan consist of capital projects to maintain existing assets, but it includes growth related projects and projects related to capacity planning.

With its corporate emphasis on business performance and accountability, BHI has a process for the development of its capital budget and a system of prioritization. Priorities are drawn from a wide range of corporate strategies and regulatory requirements and include everything from new load growth and development projects, to infrastructure renewal projects.

The construction of a new transformer station in north central Burlington, which came into service in early 2013, has ensured that an adequate supply of electricity will continue to power the city’s growth over the next 25 years. In addition, six new feeders have been fitted with automated switches so that faults can be identified quickly and repairs made in mere seconds. This will allow system operators maximum flexibility in managing energy flows when dealing with the effects of storms, outages and high-load periods in hot summer weather.

An asset management field inventory forms the basis for the utility’s capital and maintenance programs. The Asset Management Plan reflects the latest performance priorities of the distribution system and serves as a placeholder for the longer term projects recommended from the condition (age risk ratings) assessments.

Integrated Enterprise Solution

BHI currently utilizes two major software applications in its day-to-day distribution operations – a Geographic Information System (GIS) and a Supervisory Control and Data Acquisition (SCADA) system. Work to incorporate these and other independent functional systems into a fully integrated enterprise solution began in 2013. This includes the introduction of Field Force Automation (a collection of technologies aimed at capturing service information in real time through the use of mobile or hand held devices), through the delivery of GIS access, instruction order management, timesheet entry, GPS capabilities and asset management processing. The development and integration of an outage management solution was initiated as well and is scheduled to be implemented in 2014.

Suite Metering Conversion

The business of suite metering in Ontario is now open to a competitive market whereby 3rd party suite meter companies can openly compete for business with local distributors in new and existing buildings. In 2013, Burlington Hydro allocated funds to accelerate electronic suite metering conversions on previous bulk metered arrangements (11,000 Burlington residents are not individually metered) and on new projects. The company’s first contract was undertaken in 2013, resulting in 210 new suite metered residential customers. Further projects are slated for 2014 as a more aggressive plan to secure additional suite metering business is put in place.

prepared.

“A lot of times you hear about the bad things that are going on and I know that in our community we were incredibly grateful for just feeling like there was somebody out there keeping us safe and working to restore power.”

Gina Faubert, Kilbride Ice Storm Appreciation Event, March 2014

“I would like to express our gratitude to the staff and management at Burlington Hydro for all of your efforts during the recent ice storm power outage. We are grateful for the sacrifice that your staff made by giving up their Christmas time with their families in order to make Christmas better for other families.”

Burlington Hydro Customer, Ice Storm, December 2013

Ice Storm Hits with Devastating Force

At the height of the December 22nd ice storm, 7,500 customers were without power in Burlington. Although close to 6,000 of those customers would have power restored within 24 hours, weather conditions and accessibility challenges slowed progress in some areas of the city. In particular, communities in North Burlington sustained widespread damage - trees toppled onto roads rendering them impassable over a period of days, while ice encrusted branches fell across power lines and came down under the strain and weight of accumulated ice.

Many customers required intensive and time-consuming property-by-property repairs, with a handful of residents remaining without power for close to a week. Burlington Hydro crews and personnel worked around the clock until power was fully restored. City crews provided bucket trucks and chainsaws to help clear the debris caused by fallen branches and trees. Local power and tree trimming contractors also assisted, while Oakville Hydro, Waterloo North Hydro and Cambridge North Dumfries Hydro sent staff to help.

As with any emergency, lessons learned from the ice storm are helping Burlington Hydro incorporate protocols to enhance its response and communications for future storm events.

In March 2014, the Kilbride community held an ice storm appreciation event. Over one hundred residents packed the Kilbride school gymnasium to voice their thanks, with a musical tribute performed by the school band and the presentation of thank-you cards to hydro, city and fire emergency personnel.

6

Summer Storm Leaves Path of Destruction

On the evening of Friday, July 19 weather reports indicated that a thunderstorm would precede a cold front that was to bring in more comfortable temperatures to the region. At approximately 6:00 pm the storm hit with a ferocity that would cause wide spread property damage and knock out power to over 25%, or approximately 18,500 Burlington Hydro customers. The event triggered BHI’s emergency plan at a Level 1 response.

With a storm of this magnitude, Burlington Hydro prioritized its response, ensuring that emergency services had their power restored first. Secondly, attention was focused on repairing the damage to main feeders and substations – which service large numbers of customers – and to major thoroughfares where poles had fallen across roadways. In parallel, damage was assessed and prioritized case-by-case, ensuring foremost that customers were safe.

Outages were reported across the city, with the most severe damage from a section of Appleby Line just north of the QEW, which then followed a path through the city into Aldershot and up to Cedar Springs and Lowville. Tornado strength winds carved a destructive path though some areas, while leaving other neighbourhoods relatively unscathed. Additional contractors and utility crews came from Oakville Hydro and Halton Hills Hydro to assist with the repairs. By Sunday night power had been restored with only a few exceptions.

Burlington Hydro was praised in local media for its quick actions and communications following the storm. In an open letter to customers, published in the Burlington Post on July 24th, BHI thanked customers for their patience through what had been a very difficult weekend for many.

Over 30 millimetres of ice accumulated in the higher elevations of the city over the span of the storm.

BHI web traffic increased by 40-times over the course of the week, representing 95,000 ice storm page views.

Twitter was an important means of communicating with customers – within 48 hours there were 578 followers tracking and re-tweeting information about the outage.

innovate.

The Partnership

GridSmartCity® (GSC) is a consortium of 32 partner organizations – utilities, smart grid innovators and commercial entities, academia, government and other key electricity industry stakeholders – focused on a culture of cooperation and collaboration intended to enhance the efficiency and sustainability of local distribution networks. As a founding partner in the evolving GSC partnership, Burlington Hydro is engaging and sharing its expertise as it relates to self-healing grids, electric vehicle infrastructure, conservation program implementation, renewable energy initiatives, cooperatives and community energy planning, among others.

Establishing a Utility Cooperative

In July 2013, GridSmartCity’s 10 distribution partners formed the GSC Cooperative, an entity to help achieve scale efficiencies through cooperative initiatives. Its aim is to realize greater purchasing powers in the procurement of standard utility products and services which include: shared health and safety programs, shared critical services, HR and IT platforms and savings realized through bulk purchasing, among others. Its core principles:

• Promote ethical, open, fair and transparent procurement practices and processes

• Maximize savings through increased purchasing volume

• Eliminate and/or reduce duplication of effort

• Standardize to maximize economies of scale

• Share and collaborate to enhance knowledge and expertise

The Cooperative aligns with the provincial government’s desire for Ontario’s Local Distribution Companies (LDCs) to find ways to achieve greater efficiencies of scale and scope in their operations. Ultimately, it is BHI’s customers who will benefit from the savings and value-add that the co-operative approach will offer.

Horizontal & Vertical Integration – 2013 Round Table

Ontario’s electricity distributors face ongoing pressures to be more efficient, while providing greater value to both shareholders and customers. The theme of the 2013 Roundtable – Horizontal and Vertical Integration: Strategic Partnerships – LDCs and the Municipalities they Serve – drew on the notion of scale and scope and was taken from the perspective of horizontal and vertical integration. Over 200 industry delegates attended the annual event in late November at RattleSnake Point Golf and Country Club in Milton. The sessions focused on themes of improving efficiency, providing value and realizing strategic alignment with municipal owners and like-minded industry partners. In addition to a delegate breakout session, featured keynotes included Peter Mansbridge, anchor of CBC News and TD Bank Chief Economist, Craig Alexander.

8

collaborate

Community Energy Plan (CEP)

Burlington’s CEP “seeks to achieve both incremental and transformative changes by taking an ‘integrated energy systems’ approach – addressing potential for innovation in how energy is sourced, generated, consumed, re-captured, conserved, stored and delivered.” (from the Community Energy Plan Executive Summary)

The CEP showcases the City of Burlington as one of only a handful of communities who have successfully undertaken an energy planning process. The City partnered with Burlington Hydro and other key industry stakeholders to develop the plan. After extensive research, stakeholder engagement and deliberation, a draft plan was released for public consultation and feedback in the Summer of 2013, with the final CEP receiving endorsement from City Council in early 2014.

Experts have shown that improving energy efficiency and planning for an integrated community energy system can help to improve the economic competitiveness of local businesses. Burlington Hydro is a vital partner in that process, ensuring stable and safe distribution networks and sustainable energy options to accommodate the city’s planned growth and economic development.

The energy mapping component of the CEP was undertaken by Burlington Electricity Services Inc. and developed by Environics Analytics. The mapping of demographic characteristics and lifestyles, among other considerations, reveals consumption patterns and electricity use by city neighbourhoods. It’s a tool that is helping the project team evaluate the various factors that could impact the likelihood of residents adopting conservation or energy efficiency programs in Burlington.

The CEP sets out a tactical framework and identifies key tools, resources and ‘levers’ for implementation. Moving forward, Burlington Hydro will play an important role in helping to oversee the plan’s implementation.

The City’s efforts have not gone unnoticed. In 2013, Burlington was recognized by the Ontario Power Authority (OPA) and awarded the Community Conservation Award. The award is presented to communities that demonstrate strong achievement in conservation leadership and corporate and community engagement. It’s a fitting complement to the City’s development of a CEP.

Assessing the Potential for Single Service Delivery

Burlington Hydro Electric is also partnering with the City of Burlington to pursue the idea of a single service delivery mechanism/in-sourcing model that could simplify the delivery of municipal services, improve service levels and lower costs to City taxpayers. Initiated in late 2013, the service model concept is being assessed for possible savings and opportunities as it relates to aligning certain services. This could include services such as tree trimming, street lighting and fleet management services, among others.

conserve.

Energy Efficiency Retrofit = Big Savings for the City’s Indoor Ice Rinks

A refrigeration system retrofit is helping to maintain consistent ice conditions more efficiently on the City’s indoor ice rinks thanks to an Ontario Power Authority saveONenergy incentive program delivered through Burlington Hydro. The community ice rink facilities are used for hockey, figure skating and recreational skating activities throughout the city, including; Appleby Ice Centre, Mainway Recreation Centre, Aldershot Arena, Central Recreation Centre and Nelson Arena.

The rinks’ refrigeration systems were originally designed to maintain quality ice conditions as warmer temperatures set in during the Spring, Summer and Fall. Ironically, the end result was a system that operated inefficiently when colder winter temperatures set in. Retrofitting the systems with floating head pressure controls has now alleviated that problem and allowed for greater control and efficiency as outside winter temperatures drop.

Close to 228 Burlington businesses and institutions benefited from a full suite of saveONenergy conservation and demand management programs in 2013. Programs encompassed incentives for lighting upgrades and high efficiency plant equipment retrofits, to incented demand response programs. Over $600,000 in incentives were paid out, with an estimated energy saving of 4.9 million kWh (equivalent to powering approximately 500 homes for a year).

$33,000BHI Incentive Monies Awarded

4½ yearsInvestment Recovery

10

$262,000Capital Cost

426,000 kWh ($51,100/year) Annual Electricity Savings

Burlington Schools Curb their Energy

As part of Earth Week activities in April 2013, elementary schools in Halton launched the Energy Drill Program™ – a demand response program aimed at reducing the amount of electricity being consumed in schools when there is high power demand. Burlington Hydro, along with other Halton Region utilities and in cooperation with the Ontario Power Authority, are supporting the program as part of the Halton District School Board and Halton Catholic District Board’s energy conservation and demand management program. Burlington Hydro provides financial support for curriculum and educator resources and student engagement projects.

The Energy Drill teaches young people about the importance of reducing energy use and the environmental benefits of energy conservation. It’s hoped that the program will lead to the adoption of life-long conservation habits. The program was launched in Burlington at a ceremony at Bruce T. Lindley Public School. Other participating schools in 2013 included Florence Meares and Orchard Park.

Burlington Hydro was one of the first utilities in Ontario to offer the demand management peaksaver PLUS™ program to its residential customers. Participating customers receive free programmable thermostats and energy displays, where eligible. The program allows remote access to cycle down air conditioners when the province’s demand is critically high – normally on hot, humid summer afternoons.

HOME ASSISTANCE Program Reduces Energy Cost Burden

Burlington Hydro has partnered with Halton Hills Hydro and Union Gas in a joint electric/gas conservation program for low income customers. The HOME ASSISTANCE Program (HAP) is a saveONenergy program that offers audit services and equipment retrofits for qualified residential low-income customers. Launched in January 2013, it’s the first such partnership of its kind in Ontario.

Eligible program participants are offered a wide range of free electric and gas energy efficiency measures based on home audits. HAP upgrades could include anything from energy-saving light bulbs and power bars to high efficiency refrigerators. The program is open to qualified low-income customers in single-family homes and multi-family buildings, including those managed by Social and Assisted Housing providers. 414 qualified residential customers participated in the program in 2013.

Residential customers can save up to $125 a year on electricity costs by having inefficient fridge or freezers removed for free by signing up for the FRIDGE AND FREEZER PICK UP. The HEATING AND COOLING INCENTIVE qualifies Burlington Hydro customers to receive up to $650 in incentives on eligible replacement central heating systems and ENERGY STAR® qualified central cooling systems. In 2013, approximately 3,000 residential customers took advantage of these two popular saveONenergy programs.

shine.

It takes hard work, innovative thinking and a long term vision to deliver true value to

customers, year after year, dollar for dollar. At Burlington Hydro that translates to 687

customers served per BHI employee – one of the highest ratios in Ontario – while

consistently exceeding Ontario Energy Board standards for customer service.

59,437calls handled by

customer service

7,910written responses to

customer enquiries

Lending a Hand in Our Community

Burlington Hydro received its 12th United Way Platinum Award for outstanding campaign

participation in 2013. From bake sales to silent auctions and employee barbecues, fundraising

events were held throughout the year to support the annual campaign. In addition, employees gave generously through a payroll deduction program. The company’s matching donation

policy continues to encourage employee giving and re-enforces Burlington Hydro’s

commitment to the charity.

Close to

$28,000

was raised for the United Way Campaign in 2013

12

Celebrating the Season through the Magic of Lights

2013 marks the 18th Annual Lakeside Festival of Lights, a holiday tradition at Spencer Smith Park on Burlington’s waterfront. Tens of thousands of families and tourists take part in the 40-day festival that is coordinated by Burlington Electricity Services, made possible with generous sponsorships from community businesses, organizations and a dedicated team of volunteers. It was an important year as upgrades to approximately 75% of the displays were completed – a conversion that is replacing traditional bulbs with energy-efficient LED lights. The LED light replacement program will continue to be a priority as the festival grows and new holiday displays are added.

Meeting the Expectations of Customers

Results from a ‘Customer Satisfaction Survey’ that was undertaken by Burlington Hydro in the Spring of 2013, show that the company is moving in a positive direction. Survey responses have helped to identify customer attitudes about services, electricity prices and the company’s standing and reputation in the community, among other markers. It’s feedback that will assist in fine tuning programs, services and communications. The ‘Customer Experience Performance Rating’ combined professional customer care and the quality of services as a way to measure overall customer experience – Burlington Hydro received an 87% thumbs up from respondents in the category. Overall customer satisfaction came in at a 95% approval rating. A random sample of 400 residential and business customers formed the basis of the telephone-conducted survey. To ensure that the company stays the path on providing value and meeting customer expectations, a follow-up survey will be conducted in 2014.

Reaching Out in New Ways

The inaugural Burlington Hydro customer e-newsletter was launched in the Spring of 2013. Published bi-annually, ‘stayingcurrent’ offers customers insight into current community projects and services, as well as conservation and safety tips and time-of-use pricing information. Customers can now get the latest information in one place, in an easy-to-read format.

Whether it is current information on major power outages or handy tips on conserving power, Burlington Hydro’s new Twitter account is the company’s first foray into social media. Launched during the December ice storm, @BurlingtonHydro was quickly embraced by close to 800 customers, stakeholders and media outlets as the go-to source for outage and restoration updates.

The Time-of-Use Toolkit is a free web application designed to help Burlington Hydro customers monitor and manage their energy data, gain insight into their individual electricity use and better understand Time-of-Use (TOU) pricing. Secure mobile access to the toolkit was introduced in 2013, connecting customers to their electricity data from the convenience of their handheld device. It’s part and parcel of Burlington Hydro’s philosophy to provide value-added services that respond to customer needs.

inspire.Empowering Kids to Adopt Life-Long Safety Habits

Burlington Hydro understands the power of education and how important it is for young people to adopt life-long habits when it comes to electrical safety and prevention. That’s why in 2013, approximately 3,500 local elementary students, from Junior Kindergarten to Grades 7 and 8, took part in Burlington Hydro’s electrical safety and energy conservation presentations – a program that ensures exposure to a safety presentation at least twice during a student’s elementary years. Although the interactive program includes fun, hands-on experiences for students, the emphasis remains on electrical safety, injury prevention and the dangers surrounding hydro powerlines. The program’s content is age and grade appropriate and includes a module on teaching kids the importance of energy conservation.

14

Nurturing a Rewarding Workplace

Building and enhancing employee potential not only benefits employees, but encourages a culture of customer centric excellence. As such, Burlington Hydro strives to be an employer of choice with a highly engaged workforce where employees are customer focused and proud of the work they do. In 2013, the organization engaged the assistance of a third party consultant to conduct a company-wide employee engagement survey. The survey results are encouraging – a 94% approval rating showing that Burlington Hydro is a great place to work. The project has enabled senior managers to work closely with their teams to share and discuss survey results, develop meaningful action plans and address opportunities for improvement.

A Preventative Approach to Safety

For an industry whose workers are exposed on a daily basis to the inherent hazards associated with power lines and electrical equipment, safety is a paramount priority. Burlington Hydro continues to develop and execute programs that support a preventative approach to safety where employees are empowered, accountabilities are clear and outcomes are tied to measurable performance objectives and goals.

Two new recognized safety tools – TapRooT® and ‘Simply Safety’ software – were adopted in 2013 to help the company achieve Level III of the Infrastructure Health and Safety Association’s (IHSA) ZeroQuest® auditing program (recognizing a healthy and safe work environment using strict criteria and measurement standards). TapRooT is an internationally recognized process that identifies ‘root cause’ safety issues, while ‘Simply Safety’ is software designed to centralize due diligence and regulatory compliance record keeping and reporting. The IHSA awarded the company its Gold Outcomes, Level II, in January 2013.

Inspiring a Company

Burlington Hydro’s Human Resources Succession Plan lays a framework to optimize skills development for all of its employees through the next decade. The company puts significant emphasis on professional development, staff wellness, effective internal communications and a variety of initiatives that foster a rewarding work environment. In 2013, professional development programs continued to receive top priority across all aspects of the operation. These ongoing efforts tie into Burlington Hydro’s broader talent management program aimed at attracting, retaining and engaging employees.

In 2013, co-op placements from Conestoga and Mohawk Colleges (electrical engineering technology, powerline technician and HR disciplines) joined the Burlington Hydro team.

Shareholder Report

2013 BHEI Consolidated Financial Performance at a Glance

BHEI moved forward with its customer focused strategy, creating shareholder value by generating a solid return on equity. We are well positioned to deliver consistent profitability and stable long-term returns to our shareholder with our financial strength remaining a clear competitive advantage in today’s regulatory environment.

Financial HighlightsFor the year ended December 31 (Canadian $ in millions) 2013 2012 Financial Results

Gross Revenue 206.6 192.6

Operating Expenses 18.9 16.7

Net Income 5.4 7.0

Balance Sheet Information

Total Assets 173.7 163.9

Total Shareholder’s Equity 71.4 68.7

Financial Measures

Return on Equity 7.6% 10.2%

Operating Expenses as a % of Gross Revenue 9.2% 8.6%

Interest Coverage 2.4 3.7

Value Measures

Dividend Yield 6.0% 4.4%

16

Stable Earnings (millions)

Delivering Shareholder Returns (millions)

Pro�table Growth

Net Income

2011 2012 2013

$8

$6

$4

$2

$0

Return on Equity

2011 2012 2013

15.0%

10.0%

5.0%

0.0%

Dividends

2011 2012 2013

$5

$3

$0

Net Income $5.4 million

Burlington Hydro continues to deliver strong and sustainable returns by focusing on the fundamentals of cost control and the prudent deployment of capital. Net Income in 2013 was $5.4 million, exceeding budget in a year where electricity consumption was impacted by slow economic growth and conservation initiatives.

Stable Earnings (millions)Stable Earnings (millions)

Delivering Shareholder Returns (millions)

Pro�table Growth

Net Income

2011 2012 2013

$8

$6

$4

$2

$0

Return on Equity

2011 2012 2013

15.0%

10.0%

5.0%

0.0%

Dividends

2011 2012 2013

$5

$3

$0

Return on Equity 7.6%

We view ROE as an important measure of our effective use and deployment of shareholder’s capital. While revenue figures were below expectation in 2013, a close watch over operating expenses ensured that our performance target for return on equity was achieved for 2013.

Profitable Growth

Stable Earnings (millions)

Delivering Shareholder Returns (millions)

Pro�table Growth

Net Income

2011 2012 2013

$8

$6

$4

$2

$0

Return on Equity

2011 2012 2013

15.0%

10.0%

5.0%

0.0%

Dividends

2011 2012 2013

$5

$3

$0

Dividends and Interest $5.6 million

BHEI has made dividend payments to our shareholder, the City of Burlington for 13 consecutive years. Since 2001, total interest and dividends provided to our shareholder have exceeded $84 million. In 2013, the City of Burlington received $2.75 million in dividends from Burlington Hydro Electric Inc. and interest revenue from Burlington Hydro Inc. of $2.8 million for a total return of $5.6 million.

Delivering Shareholder Returns (millions)

Report of the Independent Auditors on the Summary Financial Statements

To the Shareholder:

The accompanying summary consolidated financial statements of Burlington Hydro Electric Inc., which comprise the summary consolidated balance sheet as at December 31, 2013, the summary consolidated statements of earnings and retained earnings and cash flows for the year then ended are derived from the audited consolidated financial statements, prepared in accordance with Canadian generally accepted accounting principles, of Burlington Hydro Electric Inc. as at and for the year ended December 31, 2013.

We expressed an unmodified audit opinion on those consolidated financial statements in our report dated March 27, 2014.

The summary consolidated financial statements do not contain all the disclosures required by Canadian generally accepted accounting principles applied in the preparation of the audited consolidated financial statements of Burlington Hydro Electric Inc. Reading the summary consolidated financial statements, therefore, is not a substitute for reading the audited consolidated financial statements of Burlington Hydro Electric Inc.

Management’s Responsibility for the Summary Consolidated Financial Statements

Management is responsible for the preparation of a summary of the audited consolidated financial statements in accordance with Canadian generally accepted accounting principles.

Auditors’ Responsibility

Our responsibility is to express an opinion on the summary consolidated financial statements based on our procedures, which were conducted in accordance with Canadian Auditing Standards (CAS) 810, “Engagements to Report on Summary Financial Statements.”

Opinion

In our opinion, the summary consolidated financial statements derived from the audited consolidated financial statements of Burlington Hydro Electric Inc. as at and for the year ended December 31, 2013 are a fair summary of those consolidated financial statements, in accordance with Canadian generally accepted accounting principles.

Chartered Professional Accountants, Licensed Public AccountantsMarch 27, 2014Hamilton, Canada

Consolidated Balance Sheet December 31, 2013, with comparative figures for 2012

2013 2012

Assets Current Assets:

Cash and temporary investments $18,038,271 $13,684,422

Securities held as customers’ deposits 3,057,892 2,989,191

Accounts receivable 16,161,585 15,800,226

Unbilled revenue 25,143,933 21,348,702

Payment in lieu of taxes receivable 162,987 248,292

Inventories 2,261,813 2,025,607

Work orders in progress 320,039 405,570

Prepaid expenses 454,036 494,623

65,600,556 56,996,633

Property, plant and equipment 97,228,293 92,986,734

Intangible assets 6,277,372 8,870,566

Future payment in lieu of taxes 4,624,401 5,068,235

$173,730,622 $163,922,168

Liabilities and Shareholder’s Equity Current Liabilities:

Ontario Infrastructure loans $735,753 $6,516,522

Accounts payable and accrued liabilities 21,314,442 14,987,938

Customers’ deposits 3,057,892 2,989,191

Work order deposits 2,179,471 2,551,761

Deferred revenue 1,264,054 1,471,381

Other current liabilities 2,472,476 2,160,824

31,024,088 30,677,617

Other liabilities 4,125,763 4,655,200

Note payable 47,878,608 47,878,608

Ontario Infrastructure loans 15,756,392 8,633,669

Liability for future benefits 3,532,179 3,352,255

Shareholder’s Equity:

Capital stock 45,639,338 45,639,338

Retained earnings 24,898,026 22,209,253

Paid in capital 876,228 876,228

71,413,592 68,724,819

$173,730,622 $163,922,168

18

Consolidated Statement of Earnings and Retained Earnings Year ended December 31, 2013, with comparative figures for 2012

2013 2012

Revenue $206,590,649 $192,628,707

Cost of sales 173,889,461 159,643,386

32,701,188 32,985,321

Other operating revenue 2,394,642 2,148,250

Regulatory adjustment (2,441,557) -

Smart meters disposition - 986,301

32,654,273 36,119,872

Expenses

Operations and maintenance 8,902,473 7,458,580

Billing and collection 2,645,506 2,555,368

General administration 7,376,397 6,636,297

Depreciation and amortization 4,218,867 7,199,316

23,143,243 23,849,561

Earnings before interest expense and 9,511,030 12,270,311 payment in lieu of taxes

Interest expense 3,971,806 3,346,710

Earnings before payment in lieu of taxes 5,539,224 8,923,601

Payment in lieu of taxes:

Current 1,063,537 1,504,087

Future (963,086) 425,931

100,451 1,930,018

Net earnings 5,438,773 6,993,583

Retained earnings, beginning of year 22,209,253 17,215,670

Dividends paid (2,750,000) (2,000,000)

Retained earnings, end of year $24,898,026 $22,209,253

Consolidated Statement of Cash Flows Year ended December 31, 2013, with comparative figures for 2012

2013 2012

Cash provided by (used in):

Operations: $11,092,406 $9,669,109

Financing: Ontario Infrastructure loans issued 8,000,000 6,000,000

Repayment of Ontario Infrastructure loans (6,658,046) (493,786)

Securities held as customers deposits (68,701) 205,072

Customers’ deposits 68,701 (205,072)

Dividends paid (2,750,000) (2,000,000)

Contributions and grants 1,418,498 1,890,942

10,452 5,397,156

Investments: Purchase of intangible assets (3,365,978) (6,273,157)

Purchases of property, plant and equipment (9,592,854) (9,862,333)

Purchase of contributed capital (247,115) (1,290,568)

Refund of contributed capital 5,579,455 -

Proceeds on sale of property, plant and equipment - 8,441

Other assets/liabilities 877,483 428,582

(6,749,009) (16,989,035)

Increase (decrease) in cash and 4,353,849 (1,922,770) temporary investments

Cash and temporary investments, beginning of year 13,684,422 15,607,192

Cash and temporary investments, end of year $18,038,271 $13,684,422

20

A Progressive Path Forward

After many months of preparation, Burlington Hydro filed its 2014 Electricity Rates Application with the Ontario Energy Board (OEB) in October 2013, requesting a distribution rate decrease. The proposed rates will continue to allow the company to recover the ongoing costs incurred in providing distribution services, connecting new customers, renewing assets and modernizing its system, while providing an appropriate net income to ensure financial health and sustainability.

The regulator’s rate approval will represent an important step for Burlington Hydro. As such, it clears the way to pursue a progressive path forward that includes:

• Accommodating new and cutting-edge technologies• Engaging in partnerships (with the City and like-minded industry

partners) in pursuit of furthering efficiencies and economies of scale

• Adopting new ways of communicating and engaging customers• Tackling the demands and challenges of maintaining a satisfied

and skilled workforce• Championing the importance of safe electrical practices• Promoting a culture of conservation and delivering CDM

programs to all customer classes

• Providing leadership and corporate responsibility within our community

• Adapting to an industry and regulatory environment that remains in transition

Generating shareholder value requires a dedicated effort to both operational excellence and risk management. Over the next year, the company will focus its commitment to build value for customers and the shareholder by ensuring that the 2014 capital budget of $7.7 million is deployed in a disciplined manner and that the drive for continuous operational improvements is maintained.

Burlington Hydro Electric recognizes that its achievements are an accumulation of many years of focused strategic planning. The company looks to the future with the intent of carrying that strong and sound tradition forward – providing essential services and local investment to benefit its community of owners.

1340 Brant Street, Burlington, Ontario L7R 3Z7 t: 905·332·1851 f: 905·332·8384 www.burlingtonhydro.com www.gridsmartcity.com

FPO