The Consumers’ Waterheater Income Fund Announces Planned Conversion to a Corporation and Intention to Change its Name to EnerCare Inc.

Level of Distribution to be Maintained

Net Tax Benefit for Eligible Investors

TORONTO, ONTARIO–(Marketwire – Oct. 13, 2010) – The Consumers' Waterheater Income Fund ("Fund") (TSX:CWI.UN) and The Consumers' Waterheater Operating Trust ("Trust") today announced that the board of trustees (the "Board of Trustees") of the Fund has approved the planned conversion of the Fund from an income trust to a dividend-paying corporation (the "Conversion") on a tax free "roll-over" basis for Canadian federal income tax purposes, effective January 1, 2011. The Conversion is being contemplated as a result of legislative changes to the tax treatment of income trusts. The Conversion must be approved by not less than 66â…”% of the votes cast by unitholders at a special meeting to be held on November 25, 2010 in Toronto. In conjunction with the Conversion, the Fund will change its business name and branding. The name of the successor corporation to the Fund will be EnerCare Inc. ("EnerCare") and the name of the successor corporation to the Trust will be EnerCare Solutions Inc. ("EnerCare Solutions"). The Fund's recently acquired Enbridge Electric Connections Inc. has changed its name to EnerCare Connections Inc.

If the Conversion is approved, it is expected that EnerCare will maintain the Fund's current distribution level of $0.648 per share annually as monthly dividends of $0.054 per share, with the first dividend payable to shareholders of record on January 31, 2011. The dividend level is intended to allow for internally generated cash flow to support organic growth, maintain a strong balance sheet and provide sustainable monthly dividends to shareholders. However, the amount of any dividends payable by EnerCare will be at the discretion of its board of directors and will be evaluated periodically and may be revised depending on, among other factors, EnerCare's earnings, the financial requirements of EnerCare's operations, the satisfaction of solvency tests imposed by corporate law for the declaration and payment of dividends and other conditions that may exist from time to time.

"We are pleased to be able to maintain our current level of distributions even though the Fund will become taxable in 2011. Taxable Canadian investors who are individuals will also realize an increase in their returns through the application of dividend tax credits," said John Macdonald, President and Chief financial Officer of the Fund. "In addition, our new name reflects our growing lines of business and direct interaction with customers."

The distribution level of $0.648 per share annually represents $0.47 of after-tax in come per share for taxable retail investors (assuming the current marginal tax rate in Ontario), versus the $0.36 after-tax equivalent income under the income trust structure, an approximate 30% increase in the after-tax income per share for such investors.

The Fund estimates that EnerCare will pay approximately 6 to 8.5 million in cash taxes for the fiscal year ended December 31, 2011. This estimate is based on taxable income comparable to current levels, shielded by unrestricted tax losses in the rental and sub-metering businesses and a corporate tax rate of 28.25%. Taxable income is principally impacted by changes in revenue, operating expenses, appropriate tax planning and capital expenditures through the capital cost allowance deduction. No assurance can be given, however, that this estimate will reflect actual cash taxes payable by EnerCare in 2011.

The Conversion, which will be undertaken pursuant to a statutory plan of arrangement under the Canada Business Corporations Act, is subject to customary conditions, including approval of unitholders of record on October 12, 2010, the Toronto Stock Exchange and the Ontario Superior Court of Justice. The Fund will hold a special meeting of unitholders on Thursday, November 25, 2010 at Ivey – ING Leadership Centre, the Exchange Tower, 130 King Street West, Toronto, Ontario at 9:00 a.m. (ET).

If approved, the Conversion will result in, among other things, the following occurring on the effective date of the Conversion, which is expected to be January 1, 2011:

  • Each unit of the Fund will be exchanged for one common share of EnerCare (an "EnerCare Share").

  • EnerCare will assume the Fund's convertible debentures, which will become convertible into EnerCare Shares (the "EnerCare Convertible Debentures") on the same terms as they are currently convertibl e into units (being a current conversion price of $6.48 per EnerCare Share).

  • The Trust will be dissolved and EnerCare Solutions will assume the publicly-held senior indebtedness of the Trust.

  • The Fund will be dissolved.

  • The EnerCare Shares and the EnerCare Convertible Debentures will, subject to customary listing conditions, be listed on the Toronto Stock Exchange in substitution for the Fund's units and convertible debentures.

EnerCare will continue the business of the Fund and EnerCare Solutions will continue the business of the Trust following completion of the Conversion. Following the completion of the Conversion, the board of directors and senior management of EnerCare and EnerCare Solutions will generally be comprised of the current members of the Board of Trustees and senior management of the Fund.

It is anticipated that a management information circular will be mailed to unitholders on or about November 2, 2010 in connection with the Conversion and other matters to be considered at the special meeting, including the approval of an option plan and shareholder rights plan.

Background to and Reasons for the Conversion

Following the October 31, 2006 announcement by the Minister of Finance (Canada) regarding the federal government's plan to change the tax treatment of income trusts (the "SIFT Proposal"), senior management has regularly updated the Board of Trustees with respect to the potential impact and significance of the SIFT Proposal to the Fund and its unitholders.

In July 2009, the Board of Trustees established a special committee (the "Special Committee") to consider the Conversion. In its first quarter 2010 report to unitholders, the Fund announced its intention to convert to a corporation in the fourth quarter of 2010.

In reaching its conclusions and formulating its recommendation relating to the Conversion, the Special Committee initially, and the Board of Trustees subsequently, considered, among other things that the Conversion should:

  • allow EnerCare to access larger pools of capital;

  • attract new investors, including non-resident investors;

  • provide, in the aggregate, a more active and attractive market for EnerCare Shares than currently exists for the Fund's units; and

  • eliminate many of the risks and uncertainties facing the Fund as a result of it no longer being subject to the SIFT Proposal.

In addition, based on discussions with the Fund and Trust's credit rating agencies, management of the Fund and Trust believe that the Conversion will have no impact on the Fund and Trust's current credit ratings.

Fairness Opinion

The Special Committee retained Scotia Capital Inc. ("Scotia Capital") as its financial advisor with respect to the Conversion. In connection with this mandate, Scotia Capital has provided the Special Committee and the Board of Trustees with an opinion that, as of the date thereof, and subject to the particular assumptions, qualifications and limitations summarized therein, the consideration to be received by unitholders pursuant to the Conversion is fair, from a financial point of view, to unitholders. The full text of the Scotia Capital fairness opinion will be appended to the management information circular to be provided to unitholders in connection with the Conversion.

Special Committee and Board Recommendation

Based on various factors, including the advice of Scotia Capital, the Special Committee unanimously concluded that the Conversion is fair to unitholders and in the best interests of the Fund and unitholders and has unanimously recommended that the Board of Trustees approve the Conversion and recommend that unitholders vote in favour of the Conversion.

The Board of Trustees has reviewed the terms of the Conversion and the Scotia Capital fairness opinion and has unanimously determined that the Conversion is in the best interests of the Fund and unitholders and is fair to unitholders and has authorized the submission of the Conversion to unitholders for approval. Accordingly, the Board of Trustees unanimously recommends unitholders vote in favour of the Conversion.

Conference Call and Webcast

Management will host a conference call and live audio webcast on Wednesday, October 13, 2010 at 11:00 a.m. (ET) to discuss the Conversion and rebranding. Messrs. John Macdonald, President and CEO and Chris Cawston, CFO, will be on the call.

The call can be accessed as follows: 

Toll Free:1.877.974.0448

A taped rebroadcast will be available until midnight on October 22, 2010. To access the rebroadcast, please dial 416.640.1917 or 1.877.289.8525 and enter the pass code 4375225#.

About The Consumers' Waterheater Income Fund

The Fund and Trust own a por tfolio of approximately 1.3 million installed water heaters and other assets, rented primarily to residential customers in Ontario. The Fund also owns Stratacon Inc. and EnerCare Connections Inc., leading "smart" sub-metering companies, with metering contracts for condominium and apartment suites in Ontario, Alberta and elsewhere in Canada.

Additional information regarding the Fund and Trust, including their respective current Annual Information Forms, is available on SEDAR at

Forward-looking Information

Certain statements in this news release are forward-looking statements, which reflect management's expectation regarding the Fund's, the Trust's, EnerCare's and EnerCare Solutions' growth, results of operations, performance, business prospects and opportunities. Such forward-looking information reflects management's current beliefs and is based on information available to them and/or assumptions management believes are reasonable. Many factors could cause results to differ materially from the results discussed in the forward-looking information. These factors include risks associated with the inability to obtain required consents or approvals, including approval of unitholders and the Ontario Superior Court of Justice, and failure to realize the anticipated benefits of the Conversion. Although the forward-looking information is based on what management believes to be reasonable assumptions, the Fund and Trust cannot assure investors that actual results will be consistent with this forward-looking information. Except as required by applicable securities laws, none of the Fund, EnerCare, the Trust nor EnerCare Solutions intend and do not assume any obligation to update or revise the forward-looking information, whether as a result of new information, future events or otherwise.

For further information: The Consumers’ Waterheater Income Fund

The Consumers’ Waterheater Operating Trust

Chris Cawston, CFO

1.905.695.7793 or 1.800.781.2943

[email protected]