Canadian Utilities Limited - AUC · Decision 24629-D01-2019 (July 4, 2019) 1 Alberta Utilities Commission Calgary, Alberta Canadian Utilities Limited Application for ATCO Power (2010)

Decision 24629-D01-2019

Canadian Utilities Limited Application for ATCO Power (2010) Ltd. to Dispose of all of its Shares in ATCO Power Canada Ltd. and to Transfer Ownership of the Oldman River Hydro Project July 4, 2019

Alberta Utilities Commission

Decision 24629-D01-2019

Canadian Utilities Limited

Application for ATCO Power (2010) Ltd. to Dispose of all of its Shares in ATCO Power Canada

Ltd. and to Transfer Ownership of the Oldman River Hydro Project

Proceeding 24629

Applications 24629-A001, 24629-A002 and 24629-A003

July 4, 2019

Published by the:


Eau Claire Tower

1400, 600 Third Avenue S.W.

Calgary, Alberta T2P 0G5

Telephone: 310-4AUC (310-4282 in Alberta)

1-833-511-4AUC (1-833-511-4282 outside Alberta)

Email: [email protected]

Website: www.auc.ab.ca

The Commission may, within 30 days of the date of this decision and without notice, correct

typographical, spelling and calculation errors and other similar types of errors and post the

corrected decision on its website.

Decision 24629-D01-2019 (July 4, 2019) i

Contents

1 Decision summary ................................................................................................................ 1

2 Introduction .......................................................................................................................... 1

3 Process................................................................................................................................... 2

4 Background regarding corporate organization ................................................................ 3

5 Application for ATCO Power (2010) Ltd.’s disposition of all of its shares in ATCO

Power Canada Ltd. to Heartland Generation Ltd............................................................ 4 5.1 Request for exemption or approval under the Public Utilities Act and Gas Utilities Act

....................................................................................................................................... 6

6 Application to transfer the ownership of the Oldman River Hydro Project to ATCO

Power (2010) Ltd. ............................................................................................................... 11

7 Order ................................................................................................................................... 13

Appendix 1 – Proceeding participants ...................................................................................... 14

Appendix 2 – Summary of Commission directions .................................................................. 15

Decision 24629-D01-2019 (July 4, 2019) 1


Calgary, Alberta


Application for ATCO Power (2010) Ltd. to Dispose of Decision 24629-D01-2019

all of its Shares in ATCO Power Canada Ltd. and Applications A001, A002, A003

to Transfer Ownership of the Oldman River Hydro Project Proceeding 24629

1 Decision summary

1. Canadian Utilities Limited is a designated owner of a public utility under sections 101

and 102 of the Public Utilities Act, under Section 1(1) of the Public Utilities Designation

Regulation and a designated owner of a gas utility under sections 26 and 27 of the Gas Utilities

Act, under Section 2 of the Gas Utilities Designation Regulation. Canadian Utilities Limited

(CUL) must obtain approval or an exemption from approval from the Alberta Utilities

Commission if it engages in certain transactions. Failing to do so means that the transaction is

void. In this decision, the Commission grants approval to Canadian Utilities Limited to engage in

the transactions described below, through its subsidiaries. Specifically, the Commission approves

the following transactions for the reasons discussed in the decision.

ATCO Power (2010) Ltd.’s disposition of all of its shares in ATCO Power Canada Ltd.

to Heartland Generation Ltd. and for the transfer of the Cumulative Preferred Shares

Series V in the capital of Alberta Power (2000) Ltd. from Canadian Utilities Limited to

ATCO Power (2010) Ltd. and then from ATCO Power (2010) Ltd. to ATCO Power

Canada Ltd.

ATCO Power Canada Ltd.’s transfer of ownership of the Oldman River Hydro Power

Plant, the Oldman River 806S Substation and associated connection order to ATCO

Power (2010) Ltd.

2 Introduction

2. On June 5, 2019, Canadian Utilities Limited filed the following applications with the

Commission:1

(i) Application requesting a declaration pursuant to Section 101(4) of the Public

Utilities Act and Section 26(4) of the Gas Utilities Act that the disposition by

ATCO Power (2010) Ltd. of all of its shares in ATCO Power Canada Ltd. to

Heartland Generation Ltd., and for the transfer of the Cumulative Preferred

Shares Series V in the capital of Alberta Power (2000) Ltd. from Canadian

Utilities Limited to ATCO Power (2010) Ltd. and then from ATCO Power

(2010) Ltd. to ATCO Power Canada Ltd. are exempt from the application of

sections 101(2)(d)(i) and 102(1) of the Public Utilities Act and sections

26(2)(d)(i) and 27(1) of the Gas Utilities Act. Or in the alternative, an Order

by the Commission approving the transactions under sections 101(2)(d)(i) and

1 Exhibit 24269-X0001.01, CUL application, paragraph 4. Exhibit 24629-X0002, CUL application, PDF page 1.

Application for ATCO Power (2010) Ltd. to Dispose of all of its Shares in ATCO Power Canada Ltd. and to Transfer Ownership of the Oldman River Hydro Project Canadian Utilities Limited

Decision 24629-D01-2019 (July 4, 2019) 2

102(1) of the Public Utilities Act and sections 26(2)(d)(i) and 27(1) of the Gas

Utilities Act.

(ii) Application requesting approval for ATCO Power Canada Ltd. to transfer

ownership of the Oldman River Hydro Power Plant, the Oldman River 806S

Substation and associated connection order (collectively the Oldman River

Hydro Project) to ATCO Power (2010) Ltd.

3. Canadian Utilities Limited is a designated owner of a public utility under sections 101

and 102 of the Public Utilities Act pursuant to section 1(1) of the Public Utilities Designation

Regulation. Canadian Utilities Limited is also a designated owner of a gas utility under

sections 26 and 27 of the Gas Utilities Act, pursuant to section 2 of the Gas Utilities Designation

Regulation.

4. Section 101(2)(d)(i) of the Public Utilities Act and Section 26(2)(d)(i) of the Gas Utilities

Act state that the Commission must approve the sale or disposition of property by the owner of a

designated public utility when made outside the ordinary course of its business. In this

application, Canadian Utilities Limited has property in ATCO Power Canada Ltd. as owner of

ATCO Power (2010) Ltd. which in turn is the owner of ATCO Power Canada Ltd. Canadian

Utilities Limited also has property through the direct ownership of the Cumulative Preferred

Shares Series V in the capital of Alberta Power (2000) Ltd. Accordingly, Section 101(2)(d)(i) of

the Public Utilities Act and Section 26(2)(d)(i) of the Gas Utilities Act apply to Canadian

Utilities Limited.

5. Section 102(1) of the Public Utilities Act and Section 27(1) of the Gas Utilities Act apply

to the owner of a designated public utility selling or transferring shares of its capital stock to

another corporation. Canadian Utilities Limited is a designated owner of a public utility but it is

not selling or transferring any shares of its capital stock in the applications. Sections 102(1) of

the Public Utilities Act and 27(1) of the Gas Utilities Act do not apply to Canadian Utilities

Limited with respect to the applications before the Commission and these provisions will not be

considered in the Commission’s assessment of the applications.

3 Process

6. Canadian Utilities Limited requested an expedited process for the applications.2 In the

notice of application, the Commission noted that granting an expedited process was in the public

interest given that Canadian Utilities Limited had publicly announced its proposed transactions

in the media and it was widely known that applications would be filed with the Commission.

7. Notice of the application and a filing announcement were issued by the Commission on

June 6, 2019. Any parties who wished to register their concerns about the applications, or their

support for the applications, were required to file their written submissions by June 12, 2019.3 No

written submissions were received by the Commission.

2 Exhibit 24629-X0001.01, CUL application, PDF page 1. 3 Exhibit 24629-X0007.


Decision 24629-D01-2019 (July 4, 2019) 3

8. The notice of application indicated that if no written submissions were received, the

Commission may make its decision without further notice or process.

9. On June 13, 2019, the Commission issued a process letter for the proceeding in which it

stated that the Commission had reviewed the applications and had determined that additional

information was required. The Commission issued information requests (IRs) to Canadian

Utilities Limited with its process letter.4 Canadian Utilities Limited responded to the

Commission’s IRs on June 20, 2019.5

10. With its IR responses, Canadian Utilities Limited submitted a confidentiality motion

requesting confidential treatment for the share purchase agreement6 that had been requested in

the Commission’s IRs.7 On June 27, 2019, the Commission issued a ruling approving Canadian

Utilities Limited’s motion for confidentiality.8

11. On June 27, 2019, the Commission issued a letter stating that it had determined that

additional information was required and therefore issued additional IRs to Canadian Utilities

Limited with its letter.9 Canadian Utilities Limited responded to the Commission’s additional IRs

on July 2, 2019.10

12. For the purposes of this decision, the Commission considers the record for this

proceeding to have closed on July 2, 2019.

13. In reaching the determinations in this decision, the Commission has considered all

relevant materials comprising the record of this proceeding. Accordingly, references in this

decision to specific parts of the record are intended to assist the reader in understanding the

Commission’s reasoning relating to a particular matter and should not be taken as an indication

that the Commission did not consider all relevant portions of the records with respect to a

particular matter.

4 Background regarding corporate organization

14. ATCO Ltd. controls Canadian Utilities Limited which in turn controls CU Inc. CU Inc.

owns 100 per cent of ATCO Electric Ltd. and ATCO Gas and Pipelines Ltd. (the ATCO

Utilities). The Commission regulates the ATCO Utilities.

15. ATCO Power (2010) Ltd. is a non-regulated wholly owned subsidiary of Canadian

Utilities Limited. It is a Canadian corporation registered to carry on business in Alberta. ATCO

Power Canada Ltd. is a non-regulated wholly owned subsidiary of ATCO Power (2010) Ltd. and

is a Canadian corporation registered to carry on business in Alberta.11

4 Exhibits 24629-X0008, 24629-X0009 and 24629-X0010. 5 Exhibits 24629-X0011 and 24629-X0012. 6 Agreement executed by ATCO Power Canada Ltd., ATCO Power (2010) Ltd. And Heartland Generation Ltd. 7 Exhibit 24629-X0013. 8 Exhibit 24629-X0015 9 Exhibits 24629-X0016 and 24629-X0017. 10 Exhibit 24629-X0019. 11 Exhibit 24629-X0001.01, CUL application, paragraphs 9-10.


Decision 24629-D01-2019 (July 4, 2019) 4

16. Alberta Power (2000) Ltd. is a non-regulated Canadian company registered to carry on

business in Alberta. ATCO Power Canada Ltd. owns all the capital shares in Alberta

Power (2000) Ltd. with the exception of the Cumulative Preferred Shares Series V, which are

owned by Canadian Utilities Limited.12

17. Energy Capital Partners is a New Jersey-based private equity firm specializing in North

American energy infrastructure. Energy Capital Partners has capital commitments and

investments in power generation assets.13 Heartland Generation Ltd. was incorporated as the

Canadian entity that will acquire the shares of ATCO Power Canada Ltd. and is owned and

controlled by Energy Capital Partners and its related investment funds.14

5 Application for ATCO Power (2010) Ltd.’s disposition of all of its shares in

ATCO Power Canada Ltd. to Heartland Generation Ltd.

18. ATCO Power (2010) Ltd. intends to sell its Canadian fossil fuel-based power generation

business to Heartland Generation Ltd. The transaction will be structured as the sale by ATCO

Power (2010) Ltd. of all its shares in ATCO Power Canada Ltd.15 to Heartland Generation Ltd.

Canadian Utilities Limited, as the parent entity of ATCO Power (2010) Ltd., will provide a

guarantee to Heartland Generation Ltd. of ATCO Power (2010) Ltd.’s obligations, covenants and

agreements with regard to the sale. Collectively, the sale of the shares and the guarantee are

referred to as the Heartland Transaction. The Heartland Transaction will be effective on the

closing date upon receipt of all applicable approvals and satisfaction of other closing

conditions.16

19. Canadian Utilities Limited stated that Heartland Generation Ltd. required the parent

company guarantee from Canadian Utilities Limited to ensure that it had recourse against a credit

quality entity in respect of the obligations of ATCO Power (2010) Ltd. under the share purchase

agreement. Canadian Utilities Limited further submitted that a parent company guarantee is

common in the ordinary course of commercial transactions.17 This guarantee is limited to the

obligations of ATCO Power (2010) Ltd. under the share purchase agreement including claims

with respect to losses from breaches of its fundamental representations, tax liabilities, and

amounts payable by it for any post-closing purchase price adjustments. Canadian Utilities

Limited’s maximum aggregate liability to Heartland Generation Ltd. is limited to the purchase

price set out in the share purchase agreement. The guarantee will terminate after 180 days if the

share purchase agreement is terminated or five years after the closing date of the transaction

(subject to the completion of any commenced proceedings).

20. Prior to the Heartland Transaction, ATCO Power (2010) Ltd. and ATCO Power Canada

Ltd. intend to complete a series of transactions to address assets which are not intended to be a

part of the sale (the pre-closing reorganization). The pre-closing reorganization consists of a

12 Exhibit 24629-X0001.01, CUL application, paragraph 11. 13 Exhibit 24629-X0001.01, CUL application, paragraph 16. 14 Exhibit 24629-X0001.01, CUL application, paragraphs 1 and 17. 15 ATCO Power Canada Ltd. is a wholly owned subsidiary of ATCO Power (2010) Ltd. 16 Exhibit 24629-X0001.01, CUL application, paragraph 2. 17 Exhibits 24629-X0012, CUL-AUCRATES-2019JUN13-002(a) and 24629-X0001.01, CUL application,

paragraph 2.


Decision 24629-D01-2019 (July 4, 2019) 5

pre-closing financial reorganization and a pre-closing asset reorganization.18 The Heartland

Transaction and the pre-closing financial reorganization are collectively referred to as the

Transactions.19 The purpose of the Transactions are for Canadian Utilities Limited to divest of its

ownership in ATCO Power Canada Ltd.20

21. Canadian Utilities Limited currently owns Cumulative Preferred Shares Series V in the

capital of Alberta Power (2000) Ltd. The pre-closing financial reorganization will result in the

transfer of these preferred shares from Canadian Utilities Limited to ATCO Power (2010) Ltd.

and then from ATCO Power (2010) Ltd. to ATCO Power Canada Ltd. Each transfer will occur

on a tax-deferred rollover basis.21

22. Regarding the pre-closing financial reorganization, in IR responses, Canadian Utilities

Limited clarified that for tax purposes it will not have any current realized gain or loss and will

not be subject to any tax in the transactions. ATCO Power (2010) Ltd. will pay the purchase

price for the Cumulative Preferred Shares Series V to Canadian Utilities Limited by issuing

Class A non-voting and Class B common shares in the capital of ATCO Power (2010) Ltd. on a

tax-deferred basis under Section 85 of the Income Tax Act (tax-deferred rollover). Canadian

Utilities Limited’s tax cost in all the shares it owns in ATCO Power (2010) Ltd. will be increased

by its historic tax cost in the Cumulative Preferred Shares Series V and no tax will be payable on

the transaction. Canadian Utilities Limited further submitted that no tax will be payable by it

until a future sale, if ever, by Canadian Utilities Limited of its shares in ATCO Power (2010)

Ltd. Canadian Utilities Limited also indicated that in the sale of the ATCO Power Canada Ltd.

shares by ATCO Power (2010) Ltd. to Heartland Generation Ltd., ATCO Power (2010) Ltd. will

pay any taxes owing.22

23. As a result of the pre-closing asset reorganization, Canadian Utilities Limited will no

longer hold an interest in ATCO Power Canada Ltd. but will indirectly retain certain assets

currently held by ATCO Power Canada Ltd, specifically, ATCO Power Canada Ltd.’s interest in

the Oldman River Hydro Power Plant and related facilities.23 The hydro assets, the Oldman River

Hydro Power plant and related facilities, will be held by ATCO Power (2010) Ltd. The

pre-closing asset reorganization is discussed more fully in Section 6 below.

24. Other aspects of the Transactions were disclosed in a number of responses to the

Commission’s information requests. Heartland Generation Ltd., for example, stated that it

intended to decommission and reclaim the power plants at the end of each power plant’s

operating life by properly reclaiming each asset in accordance with the requirements of the

Environmental Protection and Enhancement Act and the Conservation and Reclamation

Regulation. Heartland Generation Ltd. also stated that it would obtain a reclamation certificate in

18 Exhibit 24629-X0001.01, CUL application, paragraph 20. 19 Exhibit 24629-X0001.01, CUL application, paragraph 3. 20 Exhibit 24629-X0001.01, CUL application, paragraph 26. 21 Exhibit 24629-X0001.01, CUL application, paragraph 21. 22 Exhibit 24629-X0019, CUL-AUCRATES-2019JUN27-002. 23 The assets that Canadian Utilities Limited intends to retain include: the Oldman River Hydro Project, Ashcor

Technologies Ltd., subsidiaries that own water rights, the non-regulated wires relating to the AP Feeder Line

Facilities and Grand Rapids Pipeline Facilities, certain distributed generation inventory, 7pj [petajoules] of gas

stored with ATCO Energy Solutions Ltd., all renewable projects, certain service agreements and real estate that

are unrelated to the fossil fuel generation business.


Decision 24629-D01-2019 (July 4, 2019) 6

accordance with Alberta Environment and Parks standards, as well as any municipal reclamation

requirements and contractual reclamation obligations in surface leases with landowners.24

25. Heartland also committed to setting aside sufficient funds to cover the costs of

decommissioning and reclamation activities at the end of life of each of the assets, and noted that

it expected that such activities would be funded in part by the salvage value of the assets.25

26. Canadian Utilities Limited stated that ATCO Power (2010) Ltd. does not have any

end-of-life obligations under the share purchase agreement, and that the guarantee does not

extend to any other statutory or other end-of-life obligations of the ATCO group of companies.26

5.1 Request for exemption or approval under the Public Utilities Act and Gas

Utilities Act

27. The Transactions involve the disposition by Canadian Utilities Limited of its interest in

ATCO Power Canada Ltd. and its indirect interest in Alberta Power (2000) Ltd. As discussed

above, Canadian Utilities Limited has property in ATCO Power Canada Ltd. as owner of ATCO

Power (2010) Ltd which is the owner of ATCO Power Canada Ltd. Also, Canadian Utilities

Limited has property through the direct ownership of the Cumulative Preferred Shares Series V

in the capital of Alberta Power (2000) Ltd. In the absence of the Commission making a

declaration pursuant to Section 101(4) of the Public Utilities Act and Section 26(4) of the Gas

Utilities Act that the Transactions are exempt from Section 101(2)(d)(i) of the Public Utilities Act

and Section 26(2)(d)(i) of the Gas Utilities Act or the Commission granting an Order approving

the Transactions, the Transactions are void.27

28. Canadian Utilities Limited has asked for relief in the form of an exemption or an

approval. Given the nature of the Transactions, the Commission considers that they may have

impacts on regulated customers. The Commission also considers that an exemption under

Section 101(2)(d)(i) of the Public Utilities Act and Section 26(2)(d)(i) of the Gas Utilities Act

should only be granted in circumstances where the transaction is straight forward, of relatively

small value and upon review raises no issues that might harm customers. Accordingly, the

Commission will consider the applications as one for approval of the Transactions.

29. Canadian Utilities Limited stated that the Transactions relate to non-utility, non-rate

regulated assets and therefore will have no effect on regulated utility service or the rates charged

for those services. Canadian Utilities Limited further stated that the Transactions will not result

in adverse financial or operational impacts to it or the ATCO Utilities, and additionally that the

declarations sought would not affect gas or public utility service provided to the Alberta public,

utility customer rates, nor have any effect on regulatory oversight of Canadian Utilities Limited

or any other designated owner. 28 In short, it argued that it had met the Commission’s no-harm

test for transactions involving designated owners of public utilities.

24 Exhibit 24629-X0011, CUL-AUCFAC-2019JUN13-001. 25 Exhibit 24629-X0011, CUC-AUCFAC-2019JUN13-001. 26 Exhibit 24629-X0012, CUL-AUCRATES-2019JUN13-002(c). 27 Exhibit 24629-X0001.01, CUL application, paragraph 25. 28 Exhibit 24629-X0001.01, CUL application, paragraphs 18-31.


Decision 24629-D01-2019 (July 4, 2019) 7

30. Canadian Utilities Limited explained that costs and fees of the sale will be borne by

ATCO Power (2010) Ltd. and that it was still evaluating the impact of the sale on its overall

corporate structure, costs and effects on its cost allocation methodology.29 It further stated that

the amount of corporate costs recovered from rate payers, if any, would be determined by the

Commission in a future rate case and should have no impact on the approval of the sale.30

31. It did not anticipate any effect to the credit rating of CU Inc. or to the financing costs of

the ATCO Utilities. Canadian Utilities Limited noted that although the Transactions will result in

an asset differential31 to it, on a net basis, there is no effect to either CU Inc. nor the ATCO

Utilities.32

32. In summary, Canadian Utilities Limited submitted that the Transactions would not have

an impact on any member of the public of Alberta who is currently receiving utility service or

who will receive utility service from the regulated ATCO Utilities held by Canadian Utilities

Limited, nor have any impact on regulatory oversight of Canadian Utilities Limited or any other

designated owner.

5.2 Commission findings

33. The Commission approves the Transactions under Section 101(2)(d)(i) of the Public

Utilities Act and Section 26(2)(d)(i) of the Gas Utilities Act because there is no harm visited

upon the regulated customers of ATCO Electric Ltd. and ATCO Gas and Pipelines Ltd. for the

reasons that follow.

34. Section 101(2)(d)(i) of the Public Utilities Act states:

(2) No owner of a public utility designated under subsection (1) shall

(d) without the approval of the Commission,

(i) sell, lease, mortgage or otherwise dispose of or encumber its property,

franchises, privileges or rights, or any part of them, or

(ii) merge or consolidate its property, franchises, privileges or rights, or any

part of them,

and a sale, lease, mortgage, disposition, encumbrance, merger or

consolidation made in contravention of this clause is void, but nothing in this

clause shall be construed to prevent in any way the sale, lease, mortgage,

disposition, encumbrance, merger or consolidation of any of the property of

an owner of a public utility designated under subsection (1) in the ordinary

course of the owner’s business.

35. Section 26(2)(d)(i) of the Gas Utilities Act states:

(2) No owner of a gas utility designated under subsection (1) shall

29 Exhibit 24629-X0012, CUL-AUCRATES-2019JUN13-004. 30 Exhibit 24629-X0012, CUL-AUCRATES-2019JUN13-004(a). 31 An asset differential is an increase or decrease to an asset base. 32 Exhibit 24629-X0012, CUL-AUCRATES-2019JUN13-005.


Decision 24629-D01-2019 (July 4, 2019) 8

(d) without the approval of the Commission,

(i) sell, lease, mortgage or otherwise dispose of or encumber its property,

franchises, privileges or rights, or any part of it or them, or

(ii) merge or consolidate its property, franchises, privileges or rights, or any part

of it or them,

and a sale, lease, mortgage, disposition, encumbrance, merger or consolidation

made in contravention of this clause is void, but nothing in this clause shall be

construed to prevent in any way the sale, lease, mortgage, disposition,

encumbrance, merger or consolidation of any of the property of an owner of a

gas utility designated under subsection (1) in the ordinary course of the owner’s

business.

36. Sections 101(2)(d)(i) of the Public Utilities Act and 26(2)(d)(i) of the Gas Utilities Act

apply to the Transactions because Canadian Utilities Limited owns a property interest in the

shares in ATCO Power Canada Ltd, which are being sold to Heartland Generation Ltd. The

chain of ownership is that Canadian Utilities Limited owns all the shares in ATCO Power (2010)

Ltd., which owns all the shares in ATCO Power Canada Ltd. ATCO Power (2010) Ltd. is selling

all the ATCO Power Canada Ltd. shares to Heartland Generation Ltd. Canadian Utilities Limited

also has property through the direct ownership of the Cumulative Preferred Shares Series V in

the capital of Alberta Power (2000) Ltd. The Cumulative Preferred Shares Series V in the capital

of Alberta Power (2000) Ltd. are being transferred from Canadian Utilities Limited to ATCO

Power (2010) Ltd. and then from ATCO Power (2010) Ltd. to ATCO Power Canada Ltd.

37. The Commission finds that the Transactions are outside the ordinary course of business

for Canadian Utilities Limited as they represent the sale of a significant part of its power plant

fleet for a large amount of money, $835 million,33 and are infrequent dispositions in the course of

Canadian Utilities Limited’s day to day business. Accordingly, the Transactions must be

approved by the Commission.

No-harm test

38. The central question in deciding whether to approve a transaction outside of the ordinary

course of business under Section 101(2)(d)(i) of the Public Utilities Act or Section 26(2)(d)(i) of

the Gas Utilities Act, is whether customers are harmed by the transaction. The customers in this

case are the consumers of electricity and natural gas utilities served by ATCO Electric Ltd. and

ATCO Gas and Pipelines Ltd. The Commission has traditionally applied a no-harm test which

has been articulated as follows:

… that it should weigh the potential positive and negative impacts of the transactions to

determine whether the balance favours customers or at least leaves them no worse off,

having regard to all of the circumstances of the case. If so, then the Board considers that

the transactions should be approved.34

33 Exhibit 24629-X0012, CUL-AUCRATES-2019JUN13-002(b). 34 Decision 2000-41: TransAlta Utilities Corporation, Sale of Distribution Business, Application 2000051,

File 6404-3, July 5, 2000, page 8.


Decision 24629-D01-2019 (July 4, 2019) 9

39. If harm is identified, some form of mitigation may be necessary in order for the

transaction to proceed.

40. The no-harm test and the factors considered by the Commission have evolved over the

years and the test now reflects the following:

Customers are, to the maximum extent possible, to be protected against any

negative ramifications arising from the transactions.

Customers are not entitled to a level of post-transaction regulatory certainty they

would not have realized if the transaction had not been approved.

Customers are at least no worse off after the transaction is completed after

consideration of the potential positive and negative impacts of the proposed share

transactions.35 36 37

41. The Commission finds that each application may have different financial and operational

impacts to the applicable regulated utilities and each aspect must be considered separately. The

Commission finds that not all of the considerations referenced in the cited decisions are

applicable to the Commission’s consideration of this application.

42. The Commission finds that the application does not have potentially harmful operational

effects on regulated customers that may impair the integrity and reliability of the two systems

operated by the ATCO Utilities: ATCO Gas and Pipelines Ltd. and ATCO Electric Ltd. The

ownership and operations of the two utilities will not change because of the sale of the power

plants to Heartland Generation Ltd.

43. The Commission also finds that approval of the applications will not result in any

financial harm to customers. One area of potential harm is the effect of the Transactions on the

credit rating of CU Inc.

44. CU Inc. raises money and provides funding for the ATCO Utilities.38 In a response to an

information request, Canadian Utilities Limited provided two credit rating reports.39 As noted by

DBRS Limited (DBRS), two entities (CU Inc. and ATCO Gas Australia) are expected to

contribute 90 per cent or more of the cash flow to Canadian Utilities Limited over the next

several years, specifically 85 per cent from CU Inc. and five per cent from ATCO Gas Australia.

DBRS found that these two entities provide a solid base for the assessment of the credit quality

35 Decision 2014-326: AltaLink Investment Management Ltd. and SNC Lavalin Transmission Ltd. et al., Proposed

Sale of AltaLink L.P. Transmission Assets and Business to MidAmerican (Alberta) Canada Holdings

Corporation, Proceeding 3250, Applications 1610595-1, 1610596-1 and 1610597-1, November 28, 2014,

paragraph 108. 36 Decision 2011-374 (Errata): AltaLink Investment Management Ltd. et al., Application Related to Change in

Ownership, Proceeding 1197, Applications 1607248-1 and 1607249-1, September 26, 2011, paragraph 49;

Decision 2006-056: AltaLink Investment Management Ltd. and AltaLink Management Ltd., Macquarie

Transmission Alberta Ltd., SNC-Lavalin Transmission Ltd. OTPPB TEP Inc., 3057246 Nova Scotia Company,

SNC-Lavalin Energy Alberta Ltd. and TE-TAU, Inc., Application for a Change in Ownership,

Application 1434687-1, June 13, 2006, page 5. 37 Decision 2011-374 (Errata), paragraph 50; Decision 2006-056, pages 5-6. 38 Proceeding 650, Exhibit 0002.00.AE-650, paragraph 605. 39 Exhibit 24629-X0012, CUL-AUCRATES-2019JUN13-005(a).


Decision 24629-D01-2019 (July 4, 2019) 10

of Canadian Utilities Limited.40 DBRS’s approach to rating Canadian Utilities Limited is to

assess the credit quality of its operating subsidiaries and Canadian Utilities Limited’s debt

leverage. Under this approach, the rating of CU Inc. is the most important factor for the rating of

Canadian Utilities Limited.41 CU Inc. issues its own debt to finance its operations and capital

investments. Both DBRS and S&P Global Ratings (S&P) viewed the potential sale of the

unregulated generation assets as a positive. Although DBRS did not specifically address the sale

of the unregulated assets, it did note that non-regulated operations entail higher risk and that the

business risk profile for power generation is significantly higher than that of the regulated

utilities.42 DBRS has rated CU Inc. as A (high).43 Additionally, S&P reviewed the sale of the

unregulated assets and affirmed its rating on Canadian Utilities Limited and CU Inc., to be A-

long-term issuer credit ratings.44

45. The Commission has reviewed the credit ratings reports provided by Canadian Utilities

Limited and notes that the sale may improve Canadian Utilities Limited’s business assessment

risk by removing some of the riskier unregulated generation businesses. The Commission also

notes that the business risk profile for power generation is significantly higher than that of the

regulated utilities. The Commission finds that the Transactions are not anticipated to affect the

credit rating for CU Inc. and therefore finds that the approval of the Transactions will not have a

direct impact on the rates paid by the customers of the ATCO Utilities.

46. Another financial consideration is the guarantee that Canadian Utilities Limited will give

to Heartland Generation Ltd. and any potential harm that may result to the ATCO Utilities’

customers in the event that Heartland Generation Ltd. calls upon the guarantee. The Commission

accepts Canadian Utilities Limited’s representation that this is a common form of commercial

guarantee made in the normal course of a sale such as this one where it is the parent company i.e.

Canadian Utilities Limited, that is the credit worthy entity. The guarantee is restricted to the

performance of ATCO Power (2010) Ltd.’s obligations under the share purchase agreement,

including claims with respect to losses from breaches of its fundamental representations, tax

liabilities, and amounts payable by ATCO Power (2010) Ltd. for any post-closing purchase price

adjustments. The guarantee does not apply to any end-of-life obligations including any

environmental or decommissioning costs.45

47. The Commission has reviewed the guarantee and finds that although Canadian Utilities

Limited may be exposed through the guarantee to the maximum aggregate liability of the

purchase price under the share purchase agreement, this is unlikely to occur. In the event of a

fundamental breach of the agreement that renders the value of the power plant assets to a fraction

of the agreement’s purchase price, Canadian Utilities Limited may be obligated to make the

purchaser of the assets whole. However, this risk is mitigated by the fact that all parties are

sophisticated business entities with experience conducting business transactions, including

performing their due diligence prior to entering into such transactions. The Commission finds

that the risk of exposure to Canadian Utilities Limited from the guarantee is very low.

Accordingly, the Commission considers that the parent company guarantee is unlikely to have an

40 Exhibit 24629-X0012, CUL-AUCRATES-2019JUN13-005(a), PDF pages 12 and 13. 41 Exhibit 24629-X0012, CUL-AUCRATES-2019JUN13-005(a), PDF page 14. 42 Exhibit 24629-X0012, CUL-AUCRATES-2019JUN13-005(a), PDF pages 13 and 20. 43 Exhibit 24629-X0012, CUL-AUCRATES-2019JUN13-005(a), PDF page 20. 44 Exhibit 24629-X0012, CUL-AUCRATES-2019JUN13-005(a), PDF page 24. 45 Exhibit 24629-X0012, CUL-AUCRATES-2019JUN13-002(b).


Decision 24629-D01-2019 (July 4, 2019) 11

impact on the ratepayers of the ATCO Utilities. In any event, the Commission would be in a

position to deny Canadian Utilities Limited the opportunity to recover any of the impact of a

triggering of the guarantee from the ATCO Utilities’ rate payers.

48. The Commission has reviewed Canadian Utilities Limited’s response to the

Commission’s IR regarding corporate cost allocations. To the extent that the corporate cost

allocations to the ATCO Utilities may change as a result of the Transactions, the Commission

will make a determination at the time of the ATCO Utilities’ next relevant rate application if any

incremental cost allocations are proposed to be recoverable through rates.

49. Based on the information submitted by Canadian Utilities Limited in IR responses, the

Commission notes that ATCO Power (2010) Ltd. will bear all costs and fees associated with the

Transactions and that there will be no tax payable by Canadian Utilities Limited on the

pre-closing financial reorganization until a future sale, if ever, by Canadian Utilities Limited of

its shares in ATCO Power (2010) Ltd.

50. Additionally, the Commission acknowledges that Heartland Generation Ltd. is aware of

the requirements of the Environmental Protection and Enhancement Act and the Conservation

and Reclamation Regulation, and that it will address these responsibilities.46 The Commission

finds that the commitments made by Heartland Generation Ltd. regarding decommissioning and

reclamation of the fossil fuel generation assets are reasonable and in the public interest.

51. In summary, the Transactions relate to non-utility, non-rate regulated assets and will not

have a harmful effect on regulated utility service or the rates charged for those services. Nor will

the Transactions negatively affect regulatory oversight of Canadian Utilities Limited or any other

designated owner. The Commission finds that the no-harm test has been satisfied and approves

the Transactions.

52. Should additional approvals in connection with the Transactions be required from the

Commission, Canadian Utilities Limited is directed to apply for those additional approvals.

6 Application to transfer the ownership of the Oldman River Hydro Project to

ATCO Power (2010) Ltd.

53. Canadian Utilities Limited filed an application under sections 10, 15, 18, 19 and 23 of the

Hydro and Electric Energy Act to transfer ownership of the Oldman River Hydro Project from

ATCO Power Canada Ltd. to ATCO Power (2010) Ltd. The proposed ownership change is

related to facilities previously approved by the Alberta Energy and Utilities Board in

Approval U2001-497,47 Licence U2001-499,48 and Order U2001-498.49

54. ATCO Energen Inc., the predecessor of ATCO Power Canada Ltd., originally applied to

the Alberta Energy and Utilities Board in July, 2000 to construct and operate the Oldman River

46 Exhibit 24629-X0019, CUL-AUCFAC-2019JUN13-001. 47 Power Plant Approval U2001-497, Application 1251665, December 18, 2001. 48 Licence U2001-499, Application 1251665, December 14, 2001. 49 Connection Order U2001-498, Application 1251665, December 18, 2001.


Decision 24629-D01-2019 (July 4, 2019) 12

Hydro Power Plant pursuant to Section 9 of the Hydro and Electric Energy Act, RSA 1980 ch.

H-13. At that time, Section 9 stated as follows:

9(1) No person shall construct or operate a power plant unless the Board, by order, has

approved the construction and operation of the power plant.50

55. The board granted the application and issued Approval U2000-337 which authorized

ATCO Energen Inc.to construct and operate the Oldman River Hydro Power Plant. Pursuant to a

name change application, the board later granted ATCO Power Canada Ltd. approval to operate

the Oldman River Hydro Power Plant,51 again under Section 9 (now Section 11) of the Hydro

and Electric Energy Act.

56. In accordance with the requirements of Section 23 of the Hydro and Electric Energy Act,

ATCO Power (2010) Ltd. is registered under the Business Corporations Act. Based on the

information provided, ATCO Power (2010) Ltd., through Canadian Utilities Limited, has

demonstrated that it is eligible to hold the power plant approval, substation licence and

connection order in its name.

57. In an information response, Canadian Utilities Limited confirmed that ATCO Power

Canada Ltd. is currently bound by a use of works agreement regarding the Oldman River Hydro

Project, including conditions that the removal of the power plant would be at the sole expense of

ATCO Power Canada Ltd., and done in a manner acceptable to the Minister of the Environment.

Canadian Utilities Limited confirmed that ATCO Power (2010) Ltd. would also be bound by the

conditions of this agreement.52

6.1 Commission findings

58. The Commission finds that the information provided by Canadian Utilities Limited

satisfies the requirements of Rule 007: Applications for Power Plants, Substations, Transmission

Lines, Industrial System Designations and Hydro Developments. As well, the Commission finds

that the ATCO Power (2010) Ltd. is eligible to acquire, by transfer, the approvals and licenses

for the Oldman River Hydro Project pursuant to Section 23 of the Hydro and Electric Energy

Act. Finally, the Commission is satisfied that ATCO Power (2010) Ltd. understands its

decommissioning and reclamation obligations with respect to the project.

59. While the applicant requested the Commission to transfer the authorization to operate the

Oldman River Hydro Power Plant pursuant to Section 10 of the Hydro and Electric Energy Act,

the existing authorization to operate that power plant was properly granted pursuant to Section 9

(now 11) of that Act. The Commission is of the view that the new authorization granted to

ATCO Power (2010) Ltd. must likewise be granted under the same section, i.e., Section 11 of the

Hydro and Electric Energy Act.

50 The substantially same provision is found in the current version of the Hydro and Electric Energy Act;

Section 11 of that act states: “[n]o person shall construct or operate a power plant unless the Commission, by

order, has approved the construction and operation of the power plant.” 51 Power Plant Approval U2001-497, Application 1251665, December 18, 2001. 52 Exhibit 24629-X0011, CUL IR Response – AUC Facilities, PDF page 5.


Decision 24629-D01-2019 (July 4, 2019) 13

60. In light of the above, the Commission approves the requested power plant, substation and

connection order ownership changes set out in the application pursuant to sections 11, 15, 18, 19

and 23 of the Hydro and Electric Energy Act.

7 Order

61. It is hereby ordered that:

(1) The Alberta Utilities Commission grants approval under sections 101(2)(d)(i)

Public Utilities Act, and sections 26(2)(d)(i) of the Gas Utilities Act to Canadian

Utilities Limited to dispose of Canadian Utilities Limited’s interest in ATCO

Power Canada Ltd., by way of ATCO Power (2010) Ltd., and to transfer the

Cumulative Preferred Shares Series V in the capital of Alberta Power (2000) Ltd.

from Canadian Utilities Limited to ATCO Power (2010) Ltd. and then from

ATCO Power (2010) Ltd. to ATCO Power Canada Ltd. and in the manner set out

in the application.

(2) Pursuant to sections 11, 15, 18, 19 and 23 of the Hydro and Electric Energy Act,

the Commission approves the applications and grants to ATCO Power (2010) Ltd.

the following approval documents:

Appendix 3 – Power Plant Approval 24629-D02-2019 – July 4, 2019

Appendix 4 – Licence 24629-D03-2019 – July 4, 2019

Appendix 5 – Order 24629-D04-2019 – July 4, 2019

The appendixes will be distributed separately.

Dated on July 4, 2019.


(original signed by)

Mark Kolesar

Chair


Decision 24629-D01-2019 (July 4, 2019) 14

Appendix 1 – Proceeding participants

Name of organization (abbreviation) Company name of counsel or representative


Bennett Jones LLP

ATCO Power Ltd.

ATCO Power (2010) Ltd.

Alberta Utilities Commission Commission panel M. Kolesar, Chair Commission staff

S. Sajnovics (Commission counsel) R. Watson (Commission counsel) S. Karim A. Van Horne A. Anderson D. Mitchell


Decision 24629-D01-2019 (July 4, 2019) 15

Appendix 2 – Summary of Commission directions

This section is provided for the convenience of readers. In the event of any difference between

the directions in this section and those in the main body of the decision, the wording in the main

body of the decision shall prevail.

1. Should additional approvals in connection with the Transactions be required from the

Commission, Canadian Utilities Limited is directed to apply for those additional

approvals. ........................................................................................................ Paragraph 52

Documents

Canadian Utilities Limited - AUC · Decision 24629-D01-2019 (July 4, 2019) 1 Alberta Utilities Commission Calgary, Alberta Canadian Utilities Limited Application for ATCO Power (2010)