Securities Law & Instruments

Headnote

Relief granted from the registration and prospectusrequirements of the Ontario Securities Act to permit the issuanceof options and common shares to senior employees of subsidiariesof issuer that are not affiliated entities in connection withan employee stock option plan.

Statutes Cited

Securities Act, R.S.O. 1990, c. S.5, as am.,s. 25,53, 72(1)(n), and 74(1).

Regulations Cited

Regulation made under the Securities Act, R.R.O.1990, Reg. 1015, as am.

Rules Cited

Rule 45-503 - Trades to Employees, Executivesand Consultants.

IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, C. S.5, AS AMENDED (the "Act")

AND

IN THE MATTER OF
FORTIS INC.

RULING
(Subsection 74(1))

UPON the application of Fortis Inc.("Fortis"), a Newfoundland and Labrador corporation,to the Ontario Securities Commission (the "Commission")for a ruling pursuant to subsection 74(1) of the Act that (i)distributions by Fortis of options to purchase its common shares("Common Shares") pursuant to its 2002 Stock OptionPlan (the "New Plan") to directors, officers and employeesof Canadian Niagara Power Company, Limited ("Canadian NiagaraPower") and its subsidiaries and affiliates in accordancewith the provisions of the New Plan, and (ii) the first tradein Common Shares acquired pursuant to the New Plan by such directors,officers and employees are not subject to Sections 25 and 53of the Act;

AND UPON considering the applicationand the recommendation of the staff of the Commission;

AND UPON Fortis having represented tothe Commission that:

1. Fortis was incorporated as 81800 Canada Limitedunder the Canada Business Corporations Act on June 28, 1977and was continued under the Corporations Act (Newfoundland andLabrador) on August 28, 1987. Its articles were amended on October12, 1987 to change its name to Fortis Inc.

2. The authorized capital of Fortis consistsof an unlimited number of Common Shares without nominal or parvalue, an unlimited number of First Preference Shares withoutnominal or par value, issuable in series, and an unlimited numberof Second Preference Shares without nominal or par value, issuablein series. As at April 30, 2002, 15,088,248 Common Shares, 2,000,0005.95% Fixed Rate Cumulative Redeemable Retractable First PreferenceShares, Series B and no Second Preference Shares were outstanding.The Common Shares and the First Preference Shares, Series Bof Fortis are listed and posted for trading on the Toronto StockExchange (the "TSX").

3. Fortis is a reporting issuer under the Actand is not on the list of defaulting reporting issuers maintainedby the Commission pursuant to subsection 72(9) of the Act.

4. Fortis is a diversified electric utilityholding company whose assets directly and indirectly includefive electric utilities and two hydroelectric generating companies.

5. Fortis holds, directly or indirectly, 100%of the common shares of Newfoundland Power Inc. and MaritimeElectric Company, Limited ("Maritime Electric"), theprincipal distributors of electricity in the provinces of Newfoundlandand Labrador and Prince Edward Island, respectively; and 100%of Central Newfoundland Energy Inc., whose principal activityis its 51% involvement in the Exploits River Hydro PartnershipProject, a partnership with Abitibi-Consolidated Company ofCanada ("Abitibi-Consolidated"), to develop additionalcapacity at two of Abitibi-Consolidated's hydroelectric plantsin the province of Newfoundland and Labrador. Through wholly-ownedsubsidiaries, Fortis also owns 67% of the outstanding sharesof Belize Electricity Limited ("Belize Electricity"),the main distributor of electricity in Belize, Central America,and 22.48% of the common shares of Caribbean Utilities Company,Ltd., the sole provider of electricity in Grand Cayman, CaymanIslands.

6. In May, 2002, Fortis announced that it hadentered into an agreement to purchase Cornwall Street RailwayLight and Power Company Limited ("Cornwall Electric")from Enbridge Consumers Energy Inc. Cornwall Electric is anOntario-based electric transmission and distribution utilitywhich supplies electricity to approximately 22,600 customersin the City of Cornwall, Cornwall Island and some adjacent townshipsin southeastern Ontario. Fortis also holds a 95% interest inBelize Electric Company Limited ("BECOL") which ownsand operates the Mollejon hydroelectric facility, a 25?megawatt("MW") generating plant which sells its entire outputto Belize Electricity. Fortis indirectly holds a 100% interestin FortisUS Energy Corporation ("FortisUS Energy")which operates four hydroelectric generating stations with acombined capacity of 23 MW in upper New York State. Fortis alsoholds a 100% interest in Fortis Properties Corporation, theowner of a diverse portfolio of commercial real estate and hotelsin Atlantic Canada.

7. Fortis holds 50% of the outstanding commonshares in the capital of Canadian Niagara Power Company, Limited("Canadian Niagara Power"), a corporation existingunder the Business Corporations Act (Ontario) and a privatecompany under the Act. Canadian Niagara Power operates a hydroelectricgenerating facility in Niagara Falls, Ontario and, among otherthings, through its wholly-owned subsidiary, Canadian NiagaraPower Inc., distributes electricity in the Town of Fort Erie,Ontario. The remaining common shares of Canadian Niagara Powerare owned by Opinac Energy Corporation ("Opinac Energy").

8. On March 20, 2002, Fortis entered into anagreement to acquire (the "Acquisition") the remaining50% interest in Canadian Niagara Power which it does not alreadyown from Opinac Energy. While the Acquisition is subject toreceipt of regulatory approvals, it is anticipated that suchapprovals will be granted and that the Acquisition will closein the third quarter of 2002. Following the Acquisition, CanadianNiagara Power will be a wholly-owned subsidiary of Fortis andwill therefore be an "affiliate" of Fortis, as suchterm is defined in the Act. Consequently, upon the closing ofthe Acquisition, the exemptions in Section 2.2 and Section 3.1of Rule 45-503 of the Ontario Securities Commission, Tradesto Employees, Executives and Consultants, ("Rule 45-503")will apply to distributions of Options by Fortis under the NewPlan to directors, officers and employees of Canadian NiagaraPower and its affiliates, and to the first trade in any CommonShares so acquired.

9. Pursuant to a unanimous shareholders agreementamong Fortis and Opinac Energy, each of Fortis and Opinac Energyare entitled to an equal number of seats on the board of directorsof Canadian Niagara Power. Fortis is, however, entitled underthat agreement to appoint the President and Chief ExecutiveOfficer of Canadian Niagara Power. As a holder of 50% of theoutstanding common shares of Canadian Niagara Power, Fortisis able to exert significant influence on the management ofthe business and affairs of Canadian Niagara Power and, consequently,its affiliates.

10. Fortis proposes to establish the New Plan,which will replace two of Fortis' existing stock option plans,the Executive Stock Option Plan and the Directors' Stock OptionPlan. Notwithstanding the adoption of the New Plan, Fortis willpreserve each of the Executive Stock Option Plan and the Directors'Stock Option Plan, which will continue to exist and remain inforce as long as any options granted under such plans will beoutstanding or the term of such options will not have expiredor such options will not have been exercised. Fortis will ceaseto grant options under the Executive Stock Option Plan and theDirectors' Stock Option Plan. Pursuant to the New Plan, Fortismay grant to directors, officers and employees of Fortis andits subsidiaries ("Optionees") options to purchaseCommon Shares ("Options") at a specified option price(the "Option Price"). In addition, directors, officersand employees of Canadian Niagara Power and its subsidiarieswould be entitled to participate on the same terms and conditionsthat are applicable to directors, officers and employees ofFortis and its subsidiaries. The shareholders of Fortis approvedthe adoption of the New Plan at the annual shareholder meetingheld on May 15, 2002. Final adoption of the New Plan is subjectto all other necessary regulatory approvals.

11. The proposed New Plan provides that theaggregate number of Common Shares optioned in all Options grantedto any particular Optionee cannot exceed 5% of the total numberof Common Shares issued and outstanding. The aggregate numberof Common Shares optioned in all Options granted to a directorof Fortis, Canadian Niagara Power or their respective subsidiariespursuant to the New Plan in a calendar year cannot exceed 1%of the total number of Common Shares issued and outstandingimmediately prior to the grant of Options to such director.At no time during the currency of the New Plan may the aggregatenumber of Common Shares issued or currently optioned under theNew Plan exceed 980,000, subject to adjustment in certain circumstances.

12. The Option Price is the average of the dailyaverage of the high and low board lot trading prices of theCommon Shares on the TSX on the five days immediately precedingthe date of the grant of the Options. Options expire on thedate determined by a committee of the board of directors ofFortis, except that the Options will expire no later than tenyears from the date they are granted. If an Option is not exercisedbefore its expiry, it will become null and void. Options arenot assignable.

13. Employees and officers of Fortis, CanadianNiagara Power or their respective subsidiaries may be extendedan interest?free loan by Fortis for the purchase of Common Sharesupon the exercise of Options. Fortis may also provide guaranteesin connection with such purchases of Common Shares. Common Sharespurchased in this manner must be pledged as security to Fortisby such employee or officer.

14. Common Shares are issued to Optionees uponthe exercise of Options in reliance upon the exemptions containedin Section 9.1 of Rule 45-503.

15. Until completion of the Acquisition, theregistration and prospectus exemptions in Section 2.2 and Section3.1 of Rule 45-503 would not be applicable to distributionsof Options by Fortis under the New Plan to directors, officersand employees of Canadian Niagara Power and its subsidiariesand affiliates.

16. Participation in the New Plan by directors,officers and employees of Fortis and Canadian Niagara Powerand their respective affiliated entities will be voluntary andwill not be induced by expectation of employment.

17. Pursuant to a ruling previously grantedby the Commission, In the Matter of Fortis Inc. (2000), 23 O.S.C.B.5779, distributions of Options by Fortis under its ExecutiveStock Option Plan to senior employees of Canadian Niagara Powerand of its affiliated entities are exempt from the prospectusand registration requirements of the Act. The requested rulingwould permit the exemption to continue to apply to senior employeesof Canadian Niagara Power and of its affiliated entities andto extend to employees (other than senior employees), officersand directors of Canadian Niagara Power and of its affiliatedentities as well.

AND UPON the Commission being satisfiedthat to do so would not be prejudicial to the public interest;

IT IS RULED, pursuant to subsection74(1) of the Act, that distributions of Options by Fortis underthe New Plan, as amended, to directors, officers and employeesof Canadian Niagara Power and its affiliates shall not be subjectto Sections 25 and 53 of the Act provided that:

(a) at the time of the distribution of Optionsto directors, officers and employees of Canadian Niagara Powerand its subsidiaries and affiliates under the New Plan, Fortisowns, directly or indirectly, at least 50% of the outstandingcommon shares of Canadian Niagara Power;

(b) at the time of the distribution of Optionsto directors, officers and employees of Canadian Niagara Powerand its subsidiaries and affiliates under the New Plan, Fortisis entitled to appoint the President and Chief Executive Officerof Canadian Niagara Power;

(c) the first trade in Common Shares acquiredby directors, officers and employees under the New Plan pursuantto this ruling shall be a distribution unless such trade ismade in accordance with Section 9.1 of Rule 45-503 as if suchCommon Shares were acquired pursuant to the exemption referredto in Section 2.2 of Rule 45-503; and

(d) immediately upon completion of the Acquisition,this ruling will be of no further force and effect.

June 4, 2002.

"Paul M. Moore"      "Robert W. Korthals"