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Joint Memorandum: Seasonal Exchange Of Electricity Capacity Between Ontario And Québec

Backgrounder

Joint Memorandum: Seasonal Exchange Of Electricity Capacity Between Ontario And Québec

Office of the Premier

The Governments of Ontario and Québec,

RESOLVED TO:

      EXPAND energy collaboration between Ontario and Québec through an exchange of electricity capacity;
      HELP KEEP electricity affordable and reliable in each Province;
      CAPITALIZE on the Provinces' complementary seasonal peaks of electricity supply and demand in order to turn existing challenges into new opportunities;
      UTILIZE the existing interties connecting the Provinces' electricity systems to provide additional electricity capacity to each other when it is most needed;
      PROVIDE economic benefits to the Provinces' electricity customers by avoiding the cost of new generation.

THEREFORE HEREBY DECLARE their mutual intention to:

      ESTABLISH a capacity exchange arrangement that supports the reliability of each other's electricity systems in cost-effective ways by taking advantage of the Provinces' complementary seasonal peaks of electricity resources and needs;  
      ADOPT the principles outlined in the attached Memorandum of Understanding between HQ Energy Marketing Inc. and the Independent Electricity System Operator as the basis for such an arrangement;
      EVIDENCE this arrangement through a formal agreement to be signed by their respective energy agencies.

Addendum: Memorandum of Understanding between HQ Energy Marketing Inc. and the Independent Electricity System Operator

This MEMORANDUM OF UNDERSTANDING (the "Memorandum of Understanding") is entered into on November 21, 2014 between HQ Energy Marketing Inc. ("HQEM") and the Independent Electricity System Operator (the "IESO"), hereinafter individually referred to as the "Party" and collectively referred to as the "Parties".

WHEREAS, from time to time Québec has excess capacity during the summer months and
increased capacity needs in the winter months;

WHEREAS, from time to time Ontario has increased capacity needs during the summer months and excess capacity in the winter months;

WHEREAS, the IESO wishes to help maintain the reliability of the Ontario grid and HQEM wishes to help maintain the reliability of the Québec grid, in accordance with their policies, standards and applicable laws;

WHEREAS, each of the Parties wish to enter into sharing arrangement for such seasonal excess
capacity so as to support reliability in each of their respective grids in the near and intermediate
term;

WHEREAS, each of HQEM and the IESO wish to benefit from the other Party's respective
seasonal capacity surpluses by assuring a MW for MW quantity of capacity will be available with
no financial consideration for the capacity component of the arrangement.

Now therefore, the Parties agree as follows:

The purpose of this Memorandum of Understanding is to summarize the general intent of the
Parties to enter into a sharing agreement and some of the elements which may be included in
the final agreement, including the rights and obligations of the Parties, which will evidence the
arrangement proposed hereunder.

ARTICLE ONE - Definitions

1.1 "Capacity Resources" shall mean (i) in relation to HQEM, capacity in Hydro-Québec's
control area and (ii) in relation to the IESO, capacity in the IESO control area.

1.2 "Capacity" shall mean capacity supplied by a Party's Capacity Resources, provided that
such capacity shall not be included in the calculation of the net projected capacity in the
supplying Party's control area for the relevant seasonal period.

1.3 "IESO Capacity Quantity" shall mean 500 MW of Capacity, as may be reduced in
accordance with Section 3.2.

1.4 "Contract Term" shall have the meaning set forth in Section 2.1 hereof.

1.5 "Contract Year" shall mean the period from December 1 through November 30.

1.6 "Delivery Point" shall have (i) with respect to Capacity and, if required, Firm Energy
provided by IESO, the meaning ascribed to such term in Section 3.4 and (ii) with respect to
Capacity and, if required. Firm Energy provided by HQEM the meaning ascribed to such term in
Section 4.5.

1.7 "Firm Energy" shall mean, consistent with the curtailment provisions to be determined in
the final agreement, non-recallable, firm energy associated with the Capacity.

1.8 "Governmental Authority" means any federal government, provincial government,
administrative, judicial or regulatory person operating under any applicable laws and includes
the Ontario Energy Board, the Regie de I'energie du Québec and, for the avoidance of doubt, the IESO and Hydro-Québec TransÉnergie.

1.9 "HQEM Capacity Quantity" shall mean a quantity of Capacity between 0 MW and 500
MW, subject to Section 4.2.

1.10 "HQEM Delivery Period" shall, with respect to Capacity and associated Firm Energy
provided by HQEM, have the meaning ascribed to such term in Section 4.1.

1.11 "IESO Delivery Period" shall, with respect to Capacity and associated Firm Energy provided
by the IESO, have the meaning ascribed to such term in Section 3.1.

1.12 "Summer Period" shall mean the period from June 1 through September 30.

1.13 "Winter Period" shall mean the period from December 1 through March 31.

ARTICLE TWO - Contract Term

2.1 The final agreement shall be effective on December 1, 2015 and shall terminate no later
than November 30, 2025 (the "Contract Term").

ARTICLE THREE - Assurance by the IESO of Capacity and Firm Energy

3.1 During the Winter Period of each of Contract Years one (1) to four (4) (from Contract Year
starting December 1, 2015 to Contract Year ending November 30, 2019) (the "IESO Delivery
Period
"), the IESO (1) shall assure that the IESO Capacity Quantity shall be available to HQEM to
assist HQEM to meet the applicable reliability requirements related to resource adequacy as
provided by the relevant reliability authorities; and (2) if scheduled pursuant to Section 3.6, shall
provide Firm Energy at the Delivery Point, in accordance with the terms and conditions set forth
in this Article 3.

3.2 The IESO shall have the ability to reduce the IESO Capacity Quantity for Contract Years
three (3) and four (4) either to a lower value or down to zero. The time frame and the specifics
of the notifications that the IESO will send to HQEM with respect to the reduced IESO Capacity
Quantity shall be as agreed in the final agreement.

3.3 Upon written request from HQEM, the IESO shall certify in writing to HQEM that the
Capacity committed by the IESO during the IESO Delivery Period is not committed elsewhere or
used in the province of Ontario to satisfy any capacity requirements.

3.4 The Delivery Point is Outaouais intertie, or any other point on the Ontario-Québec interface, if that other point is selected under a common agreement of the Parties.

3.5 The price for the Capacity committed during the IESO Delivery Period is $0.00/kW-month.

3.6 During the IESO Delivery Period, HQEM may request Firm Energy for each hour up to the
applicable IESO Capacity Quantity and the IESO shall schedule and provide the Firm Energy
when such Firm Energy is needed for reliability purposes. Scheduling procedure will be detailed
in the final agreement.

3.7 The price for the Firm Energy provided during the IESO Delivery Period shall be as agreed
in the final agreement.

ARTICLE FOUR- Assurance by HQEM of Capacity and Firm Energy

4.1 During the Summer Period for each of the ten (10) Contract Years of the Contract Term
(from Contract Year starting December 1, 2015 to Contract Year ending November 30, 2025)
(the "HQEM Delivery Period"), HQEM (1) shall assure that the HQEM Capacity Quantity shall be
available to the IESO to assist the IESO to meet the applicable reliability requirements related to
resource adequacy as provided by the relevant reliability authorities; and (2) if scheduled
pursuant to Section 4.7, shall provide Firm Energy at the Delivery Point, in accordance with the
terms and conditions set forth in this Article 4.

4.2 The IESO shall have the flexibility to adjust the quantity of the HQEM Capacity Quantity
during the HQEM Delivery Period up to 500 MW-month, provided, however, that by the end of
the Contract Term the aggregate quantity of Capacity provided by HQEM to the IESO during the
HQEM Delivery Period shall not exceed the aggregate quantity of Capacity provided by the IESO
to HQEM during the IESO Delivery Period. The specifics terms and conditions with respect to the
HQEM Capacity Quantity shall be as agreed in the final agreement.

4.3 Upon written request from the IESO, HQEM shall certify in writing to the IESO that the
HQEM Capacity Quantity committed by HQEM during the HQEM Delivery Period is not
committed elsewhere or used in the province of Québec to satisfy any capacity requirements.

4.4 Upon written request from the IESO, HQEM shall certify to the IESO that Firm Energy
associated with the HQEM Capacity Quantity provided to the IESO is generated by hydroelectric
Capacity Resources.

4.5 The Delivery Point is Outaouais intertie or any other point on the Ontario-Québec interface, if that other point is selected under a common agreement of the Parties.

4.6 The price for the HQEM Capacity Quantity provided during the HQEM Delivery Period is
$0.00/kW-month.

4.7 During the HQEM Delivery Period, the IESO may request Firm Energy for each hour up to
the applicable HQEM Capacity Quantity and HQEM shall direct Hydro-Québec TransÉnergie to schedule and provide Firm Energy when such Firm Energy is needed for reliability purposes. Scheduling procedure will be detailed in the final agreement.

4.8 The price for the Firm Energy provided during the HQEM Delivery Period shall be as
agreed in the final agreement.

ARTICLE FIVE - REGULATORY EVENT

5.1 As used in this Article 5, the term "Regulatory Event" means a statutory or regulatory
change or issuance of an order by a Governmental Authority, including without limitations
changes relating to an Open Access Transmission Tariff, Market Rules, protocols, manuals, user
guides, operating guides, procedures and standards developed and utilized by Ontario and/or
Québec for the scheduling, settlement and other provisions pertinent to the daily operation of
the markets for the purchase and sale of energy, capacity and other products and that are
administered by Ontario and/or Québec, as amended or modified from time to time, that causes
a material change in (i) the meaning of a term defined herein or incorporated herein by
reference, (ii) the manner in which a Party is required to perform its obligations under the final
agreement or (iii) the balance of the rights, obligations or benefits that the Parties have
negotiated as herein set forth do no longer reflect the intent of the Parties as reflected in the
final agreement.

5.2 Upon the occurrence of a Regulatory Event, the Parties shall endeavor, in good faith and
using commercially reasonable efforts, to agree to make the necessary changes to the final
agreement in order to give effect to the original intention of the Parties as reflected in the final
agreement. It is the intent of the Parties to agree to make such changes to the final agreement if
a Regulatory Event occurs rather than for the Regulatory Event to discharge a Party's duty to
perform its obligations under the final agreement.

ARTICLE SIX- MISCELLANEOUS

6.1 It is the Parties' common understanding that curtailment of Firm Energy by a control area
will be made based on such control area protocols, procedures and guidelines in line with
reliability standards.

6.2 Each Party agrees that it will schedule Firm Energy only for reliability reasons and not for
economic reasons or to take advantage of arbitrage opportunities.

6.3 The Parties acknowledge that when Firm Energy is scheduled to be provided to either
Party, such Firm Energy will only be curtailed for reasons set out under the curtailment
provisions of the final agreement and shall have priority over any other energy only
transactions.

6.4 For clarity, the Parties acknowledge that this Memorandum of Understanding does not
represent or otherwise constitute a binding legal commitment on either Party, except for the
obligations set forth in Sections 6.5, 6.6 and 6.7 which shall be binding upon the Parties.

6.5 The Parties agree to continue negotiations in good faith with a view to preparing and
concluding a definitive final agreement on or before June 1, 2015, which final agreement shall
contain the usual provisions relating to representations, warranties, covenants, force majeure, a
party's failure to perform its obligations and all other conditions and indemnities as each of the
Parties considers necessary or appropriate to an arrangement of this nature and magnitude. If
the Parties are unable to conclude a definitive final agreement on or before June 1, 2015, this
Memorandum of Understanding shall terminate, unless otherwise agreed to by the Parties.

6.6 Except as and to the extent required by law, neither Party shall disclose or use, and both
Parties shall cause its representatives not to disclose or use, any confidential information with
respect to information furnished, or to be furnished, by either Party, or their respective
representatives, to the other Party or its representatives in connection herewith at any time or
in any manner other than in connection with the arrangement contemplated in this
Memorandum of Understanding. Each Party: (i) agrees that they may release this Memorandum
of Understanding to their respective provincial governments and will otherwise only release
information about the terms of this Memorandum of Understanding with the prior consent of
the other Party; (ii) acknowledges that their respective provincial governments may disclose
information about the terms of this Memorandum of Understanding.

6.7 This Memorandum of Understanding shall be construed and enforced in accordance with
the laws in force in the State of New York, without regard to the principle of conflict of law.

6.8 The Parties agree to enter into a Non-Disclosure Agreement which will address the
disclosure of confidential information. The Non-Disclosure Agreement will contain such terms,
conditions and covenants as each of the Parties considers necessary or appropriate to an
arrangement of this nature and magnitude.


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