We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Transcription

1 Financial Statements For the years ended 2017 and 2016

2 Deloitte LLP 700, Street SW Calgary, AB T2P 0R8 Canada Tel: Fax: INDEPENDENT AUDITOR S REPORT To the Partners of : We have audited the accompanying financial statements of, which comprise the statements of financial position as at 2017 and 2016, and the statements of comprehensive income, changes in partners equity and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of as at 2017 and 2016, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards. Chartered Professional Accountants February 22, 2018 Calgary, Alberta

3 FINANCIAL STATEMENTS Statement of Financial Position As at Notes ASSETS Current Cash $ 5,929 $ 2,122 Trade and other receivables 6 299, , , ,309 Non-current Goodwill 202, ,066 Intangible assets 7 296, ,906 Property, plant and equipment 8 8,054,025 7,861,158 Third party deposits 9 41,230 46,822 Other non-current assets , ,614 $ 9,530,335 $ 9,109,875 LIABILITIES AND PARTNERS EQUITY Current Trade and other payables 11 $ 189,499 $ 195,561 Commercial paper and bank credit facilities ,797 34,973 Long-term debt maturing in less than one year ,000 Current portion of deferred revenue 13 65,447 79, , ,873 Non-current Long-term debt 12 4,619,842 4,818,995 Deferred revenue , ,968 Third party deposits liability 9 41,230 46,822 Other non-current liabilities 14 23,911 12,095 6,220,051 6,032,753 Commitments and contingencies 22, 23 Partners equity 3,310,284 3,077,122 $ 9,530,335 $ 9,109,875 See accompanying notes to the financial statements. Approved on behalf of the Board of Directors David Tuer Director Patricia Nelson Director

4 FINANCIAL STATEMENTS Statement of Comprehensive Income 2017 Year ended 2016 Notes Revenue Operations 17 $ 973,106 $ 941,249 Other 18 36,196 36,638 1,009, ,887 Expenses Operating 19 (95,728) (115,160) Property taxes, salvage and other 19 (97,754) (100,448) Depreciation and amortization (267,568) (265,691) (461,050) (481,299) 548, ,588 Finance costs 12 (194,949) (177,904) Loss on disposal of assets (16,478) (12,636) Net income 336, ,048 Other comprehensive income Actuarial (loss) gain 15 (163) 1,446 Total comprehensive income $ 336,662 $ 307,494 See accompanying notes to the financial statements.

5 FINANCIAL STATEMENTS Statement of Changes in Partners Equity Allocation Allocation Total Partners to Limited to General Retained Capital Units Partner Partner Earnings [note 20] Total (in thousands) As at January 1, ,904 $ 771,080 $ 112 $ 771,192 $ 1,957,836 $ 2,729,028 Total comprehensive income 307, , ,494 Equity investment received 101, ,100 Distributions paid (60,494) (6) (60,500) (60,500) Balance at ,904 $ 1,018,049 $ 137 $ 1,018,186 $ 2,058,936 $ 3,077,122 Total comprehensive income 336, , ,662 Equity investment received 77,500 77,500 Distributions paid (180,982) (18) (181,000) (181,000) Balance at ,904 $ 1,173,695 $ 153 $ 1,173,848 $ 2,136,436 $ 3,310,284 See accompanying notes to the financial statements.

6 FINANCIAL STATEMENTS Statement of Cash Flows Notes 2017 Year ended 2016 Cash flows from operating activities Net income $ 336,825 $ 306,048 Adjustments for Depreciation and amortization 267, ,691 Third party contributions revenue (21,517) (12,534) Loss on disposal of assets 16,478 12,636 Financial assets related to regulated activities, non-current (27,816) (408,402) Change in other items 21 29,672 18,486 Change in non-cash working capital items 21 (166,471) (23,885) Net cash provided by operating activities 434, ,040 Cash flows from investing activities Capital expenditures (511,343) (621,268) Use of third party contributions 68,092 38,705 Proceeds from disposal of assets Net cash used in investing activities (442,669) (581,640) Cash flows from financing activities Senior debt issued 800,000 Net movement in commercial paper and bank credit facilities 115,824 (414,171) Distributions paid (181,000) (60,500) Equity investment received 77, ,100 Change in other financing activities 21 (587) (4,675) Net cash provided by financing activities 11, ,754 Net change in cash 3,807 (1,846) Cash, beginning of year 2,122 3,968 Cash, end of year $ 5,929 $ 2,122 Supplementary cash flow information Interest paid $ (179,905) $ (178,602) See accompanying notes to the financial statements.

7 1. General information (the Partnership or AltaLink) was formed under the laws of the Province of Alberta in Canada on July 3, 2001, to own and operate regulated transmission assets in Alberta. The Partnership s registered office is located at rd Avenue SE, Calgary, Alberta, T2A 7W7. The Partnership has one limited partner, AltaLink Investments, L.P., and is managed by AltaLink Management Ltd. (the General Partner). Although the General Partner holds legal title to the assets, the Partnership is the beneficial owner and assumes all risks and rewards of the assets. On December 1, 2014, Berkshire Hathaway Energy Canada Holdings Corporation (BHE) became the sole owner of the Partnership by acquiring 100 percent of AltaLink. The Partnership is regulated by the Alberta Utilities Commission (AUC), pursuant to the Electric Utilities Act (Alberta) (EUA), the Public Utilities Act (Alberta), the AUC Act (Alberta), and the Hydro and Electric Energy Act (Alberta). These statutes and their respective regulations cover matters such as tariffs, construction, operations, financing and accounting. The Alberta Electric System Operator (AESO) administers the transmission of all electrical energy through the Alberta Interconnected Electric System in the Province of Alberta. During the years ended 2017 and 2016, the Partnership operated solely in one reportable geographical and business segment. 2. Basis of preparation Statement of compliance These annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The principal accounting policies adopted to prepare these financial statements are set out below. The financial statements reflect the financial position and financial performance of the Partnership and do not include all of the assets, liabilities, revenues and expenses of the partners. These financial statements were approved for issue by the Board of Directors on February 22, Basis of measurement These financial statements have been prepared on a going-concern and historical cost basis except for employee retirement benefits liabilities, which are measured at fair value. Functional and presentation currency These financial statements are presented in Canadian dollars, which is the Partnership s functional currency. Use of estimates and judgement The preparation of the financial statements requires management to make estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Judgements made by management that have significant effects on the financial statements and estimates with a significant risk of material adjustment in the next year are disclosed, where applicable, in the relevant notes to the financial statements. Accounting policies are selected and applied in a manner which ensures the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring the substance of the underlying transactions or other events is reported. Years ended 2017 and 2016 Page 1

8 As a regulated utility, the Partnership records certain amounts at estimated values until these amounts are finalized. The Partnership bases its estimates and judgements on historical experience, including experience with regulatory processes, current conditions and various other reasonable assumptions. These factors form the basis for making judgements about the carrying values of assets and liabilities. They are also the basis for identifying and assessing the Partnership s accounting treatment with respect to commitments and contingencies. Significant estimates and judgements include: Expected regulatory decisions on matters that may impact revenue; The recovery and settlement of financial assets and liabilities related to regulated activities, including the collection of the recovery of future income taxes and prudence reviews by the AUC of direct assigned capital deferral account (DACDA) applications; Key economic assumptions used in cash flow projections, including those used to assess goodwill for impairment; The estimated useful lives of assets; The recoverability of tangible and intangible assets, including estimates of future costs to retire physical assets or the recoverability of costs associated with direct assigned projects that have been delayed in the regulatory process; The recoverability of intangible assets with indefinite lives, such as goodwill; and The accruals for capital projects. The Partnership applies changes in estimates prospectively as they result from new information. To the extent that a change in accounting estimate gives rise to changes in assets or liabilities, or relates to an item of equity, the Partnership adjusts the carrying amount of the related asset or liability in the period of the change. The Partnership discloses the nature and amount of a material change in an accounting estimate that has an effect in the current period. It also discloses the nature and amount of a material change in an accounting estimate that is expected to have an effect in future periods, except when it is impracticable to estimate that effect, in which case the Partnership discloses that fact. 3. Summary of significant accounting policies Regulation of transmission tariff The Partnership operates under cost-of-service regulation in accordance with the EUA. The AUC must provide the Partnership with a reasonable opportunity to recover its prudently incurred and forecasted costs, including operating expenses, depreciation, cost-of-debt, capital and taxes associated with investment, and a fair return on investment. Fair return is determined on the basis of return on rate base and allowance for funds used during construction (AFUDC) for projects included in construction work-inprogress (CWIP). The Partnership applies for a transmission tariff based on forecasted costs-of-service. Once approved, the transmission tariff is not adjusted if actual costs-of-service differ from forecast, except for certain prescribed costs for which deferral and reserve accounts are established within the transmission tariff. The transmission tariff is received from the AESO in equal monthly installments. The Partnership had applied to refund tariff funds collected pursuant to the CWIP-in-rate base mechanism over the years. The general tariff application (GTA) decision 3524-D approved this refund, with the exception of amounts considered finalized through the rate-making process and DACDA applications. Consistent with the GTA decision, the refund of CWIP in 2016 is treated as an investment in the Partnership s rate base and will be collected over the average life of the assets to which the refund relates. The GTA decision 3524-D also contained approval for the Partnership s application to recover deemed income tax expenses using the flow through method starting January 1, This method changes the timing of cash flows but does not change the underlying right for AltaLink to recover an after-tax rate of return including deemed future income tax expenses. All tariff adjustments arising from deferral or reserve accounts relate to services provided to the AESO during the reporting years, and settlement of these accounts with the AESO is not contingent on providing future services. Years ended 2017 and 2016 Page 2

9 If, in management s judgement, a reasonable estimate can be made of the impact future regulatory decisions may have on the current period s financial statements, such an estimate will be recorded in the current period. When the AUC issues a decision affecting the financial statements of a prior period, the final effects of the decision are recorded in the period in which the decision is issued. Revenue recognition Operations revenue from regulated activities represent the inflow of economic benefits earned during the period arising in the ordinary course of the Partnership s operating activities. Operations revenue is based on the cost of transmission services provided and a return on deemed equity, but it is not impacted by the price or volume of electricity transported through AltaLink s transmission system. Such revenues are recognized on the accrual basis in accordance with tariffs approved by the AUC, and estimates of revenues related to services provided but not yet billed to the AESO, including revenues arising from deferral accounts. The Partnership does not recognize revenue for any portion of tariffs received but not earned. Unearned tariffs are classified as financial liabilities related to regulated activities or deferred revenue in the financial statements. Revenue for the recovery of deemed future income taxes is accrued based on the underlying right for AltaLink to earn an after-tax rate of return. Funds provided by the regulator to pay for salvage costs are deferred and released into revenue from operations when the associated costs are incurred. Other revenue represents revenue received from third parties and includes, but is not limited to, cost recoveries for services provided to other utilities. Third party contributions are recorded as deferred revenue when capital funds are expended and recognized into other revenue over the useful lives of the associated asset. Other revenue is recognized on the accrual basis as the costs are incurred. Rental income from third parties is recognized on a straight-line basis over the contract term. Financial assets and liabilities related to regulated activities The regulatory and legal rights and obligations under which the Partnership operates assign the Partnership the right to bill and collect financial assets related to regulated activities from the AESO. The AESO is the Partnership s single counterparty for regulated activities and amounts billed to it by the Partnership are based on specific amounts and timing approved by the AUC. There is no future performance required by the Partnership to recover these amounts. Long-term amounts due from the AESO earn a regulatory return and are discounted at a market rate of interest. The regulatory and legal rights and obligations under which the Partnership operates also require the Partnership to refund to the AESO certain amounts that have been received in AltaLink s tariff that are greater than its actual expenses. Such financial liabilities related to regulated activities due to the AESO within 12 months are not discounted. Property, plant and equipment Property, plant and equipment (PP&E) are carried at cost less accumulated depreciation. The initial cost of an asset consists of its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, and for qualifying assets, borrowing costs that are eligible to be recovered over the estimated useful life of the asset. The Partnership capitalizes major replacements and upgrades if these costs extend the life of the asset and the Partnership expects to use these items during more than one period. Maintenance and repair costs are recognized as expenses in the period in which they are incurred. Depreciation is calculated over the estimated useful lives of assets on a straight-line basis based on depreciation studies prepared by an independent expert. The expected useful lives of the assets are reviewed annually, and if necessary, changes in useful lives are accounted for prospectively. When an asset is retired or disposed of in the normal course of business, the gain or loss is recognized immediately in the Statement of Comprehensive Income. Generally, losses or gains are recoverable from/repayable to the AESO through future transmission tariffs. AltaLink recognizes the related amounts in revenue and records the amount as financial assets or liabilities related to regulated activities. Construction work in progress, capital inventory and land are capitalized but not depreciated. Capital inventory is valued at the lower of cost or net realizable value. Reviews of PP&E to establish whether there has been any impairment are carried out when a change in circumstance is identified that indicates an asset might be impaired. Years ended 2017 and 2016 Page 3

10 Goodwill Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets of operations acquired. The Partnership s goodwill relates to the 2002 acquisition of assets from TransAlta Energy Corporation. Goodwill is carried at initial cost less any write-down for impairment. Goodwill is assessed for impairment annually, and more frequently if there is any indication of impairment. The Partnership s business represents one single cash generating unit. Goodwill and other assets are assessed for impairment. Goodwill is first fully written down for impairment before any other assets are written down. To date, the goodwill balance has not been written down. If goodwill was fully written down, the Partnership would then test other assets for impairment by assessing their value in use in the business as a whole. The estimated future cash flows for the business would be discounted to their present value using a pre-tax discount rate that reflects the risks specific to the business and relevant market assessments of the time value of money. If the carrying amounts of the assets exceeded the recoverable amount of the business, the assets comprising the business as a whole would be considered to be impaired. If impaired, the assets would be written down proportionately to ensure their carrying amounts reflect the recoverable amount and the impairment loss would be recognized immediately in the Statement of Comprehensive Income. An impairment loss recognized for goodwill cannot be reversed in a subsequent period. Management performed an annual goodwill impairment test in November 2017 by examining the business and regulatory environment, current market conditions, the ownership structure, financing activities, credit ratings, and interest rates. It performed a discounted cash flow and net fair value analysis, which compared favourably to the carrying amount of goodwill. Management concluded that there have been no significant changes in circumstances during the year, and that the carrying value of the goodwill has not been impaired. Intangible assets The Partnership s intangible assets are non-monetary assets without physical substance that can be individually identified and consist of the following: Land rights The Partnership pays fees to third parties to access, survey, build and maintain transmission facilities on third party land. Land rights are reported at cost less accumulated amortization and impairments, if any. Land rights are amortized on a straight-line basis at rates based on the estimated useful lives of tangible assets located on these lands. The expected useful lives of the assets are reviewed annually, and if necessary, changes in useful lives are accounted for prospectively. Computer software Computer software includes application software and enterprise resource planning software. Computer software is reported at cost less accumulated amortization. Amortization is calculated on a straight-line basis at rates based on the estimated useful lives of assets. The expected useful lives of the assets are reviewed annually, and if necessary, changes in useful lives are accounted for prospectively. Years ended 2017 and 2016 Page 4

11 Third party deposits Third party deposits are recognized as non-current assets with corresponding non-current liabilities. These deposits have certain restrictions attached and can be used only for their intended purpose, as follows: Provisions Contributions in advance of construction For certain projects, the AESO requires third parties wanting to interconnect to the Partnership s transmission facilities to contribute their share of capital project costs in advance of construction. The Partnership uses these cash contributions to fund capital expenditures as construction progresses. Operating and maintenance charges in advance of construction Certain third parties were required to provide advance funding for future operating and maintenance costs of assets constructed with third party-contributed funds. Provisions are recognized when the Partnership has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of economic benefits will be required to fulfill the obligation and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the Statement of Financial Position date, taking into account the risks and uncertainties surrounding the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost. Employee benefit obligations The General Partner employs staff and provides administrative and operational services to the Partnership on a costreimbursement basis. The Partnership bears all of the related expenses and also bears the risk and reward of staff-related programs which the General Partner establishes. The Partnership has indemnified the General Partner for all costs and liabilities associated with its employment of staff. As such, the employee future benefit plans of the General Partner are reported as if they were provided by the Partnership even though the legal sponsor of the plans and employer of the staff is the General Partner. Current service costs are expensed in the period in which they are incurred. Defined contribution plan AltaLink s defined contribution plan is a post-employment plan under which the Partnership and employees pay fixed contributions into the plan and the Partnership has no legal or constructive obligation to pay further amounts. Obligations for contributions to the plan are recognized as an expense in the Statement of Comprehensive Income in the periods during which services are rendered by employees. Post-employment benefits plan The cost of the Partnership s post-employment benefits plan is actuarially determined, using the projected benefit method pro-rated on service and management s estimate of discount rates and the expected growth rate of health care costs. The liability discount rate is determined based on a portfolio of high-quality corporate bonds with cash flows that match the expected benefit payments under the plan. Actuarial gains and losses in the Partnership s post-employment benefits plan arising from experience adjustments and changes in actuarial assumptions are charged to other comprehensive income in the Statement of Comprehensive Income in the period in which they arise. Past service costs are recognized as an expense immediately in the income statement. Years ended 2017 and 2016 Page 5

12 Long-term employee benefits Long-term employee benefit obligations are measured on a discounted basis and expensed in the Statement of Comprehensive Income as the related service is provided. A liability is recognized for the amount expected to be paid under the long-term incentive plan if the Partnership has a present legal or constructive obligation to pay this amount as a result of past service provided by employees, and the obligation can be estimated reliably. Short-term and long-term debt Short-term and long-term debt are measured initially at fair value and subsequently at amortized cost. Costs incurred to arrange long-term debt financing are offset against the debt amount and amortized using the effective interest rate method. The amortization of these charges is included in finance costs. Income taxes As a limited partnership, AltaLink does not pay income taxes. Instead, the tax consequences of its operations are borne by its partners on a pro rata basis in proportion to their interest in the Partnership. Accordingly, no income tax expense is recognized in the financial statements. Any reference to income tax in these statements relates to the recovery in transmission tariff revenue of tax expense borne by the partners. Foreign currency translation Monetary assets and liabilities denominated in foreign currencies are translated at exchange rates in effect at the Statement of Financial Position date. Non-monetary assets and liabilities are translated at exchange rates prevailing at the transaction date. Revenues and expenses are translated at the exchange rate prevailing on the date of the transaction except for depreciation and amortization, which are translated at the exchange rate prevailing when the related assets were acquired. Gains and losses on translation are reflected in income when incurred. Leases All of the Partnership s leases are classified as operating leases. Payments made under operating leases are recognized in the Statement of Comprehensive Income on a straight-line basis over the term of the lease. Capitalized borrowing costs Borrowing costs are capitalized if they are incurred in connection with the acquisition or production of a qualifying asset for which a considerable period of time is required to prepare the asset for its intended use. The Partnership borrows funds to provide financing for its capital construction program. Borrowing costs eligible for capitalization are included in capital expenditures unless the borrowing costs are eligible to be recovered through transmission tariffs in the year in which the costs are incurred. The capitalization rate is based on actual costs of debt used to finance the acquisition or construction of qualifying assets. Years ended 2017 and 2016 Page 6

13 4. Adoption of new and revised accounting standards Amendments to standards effective on or after January 1, 2017 In January 2016, the International Accounting Standards Board ( IASB ) issued amendments to International Accounting Standard ( IAS ) 7 Statement of cash flows, which became effective on January 1, These amendments did not have any material impact on the Partnership s financial statements or its disclosures. New standards effective after 2017 Revenue from contracts with customers - In 2014, the IASB issued International Financial Reporting Standard ( IFRS ) 15 Revenue from contracts with customers, which is effective for financial periods beginning on or after January 1, In June 2016, the IASB issued a narrow-scope amendment to IFRS 15. The new guidance requires that an entity recognize revenue in accordance with a five-step model. The core principle of the guidance requires that an entity recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the total consideration to which an entity expects to be entitled during the term of the contract in exchange for those goods or services. Additionally, the guidance requires the entity to disclose further quantitative and qualitative information regarding the nature and amount of revenues arising from contracts with customers, as well as other information about the significant judgements and estimates used in recognizing revenues from contracts with customers. AltaLink will adopt the new standard on the effective date of January 1, There are two methods under which the new standard can be adopted: 1) a full retrospective approach with restatement of all prior periods presented, or 2) a modified retrospective approach with a cumulative-effect adjustment as of the date of adoption. AltaLink will apply a modified retrospective approach. AltaLink is completing its evaluation of the impact of adopting this guidance on its financial statements and disclosures. All existing customer contracts that are within the scope of the new guidance have been identified and analyzed by the Partnership to identify any changes in how revenues are recognized as a result of implementing the new standard. AltaLink has found the impact on prior period revenues to be immaterial. The timing and amount of revenue recognized after adoption of the new guidance will not be materially different as revenue from operations has been recognized when the Partnership has the right to the revenue based on the services delivered during the reporting period. AltaLink has not identified any significant system and process changes needed to compile information to meet the recognition and disclosure requirements of the new standard. AltaLink is currently evaluating the impact of the guidance on its disclosures, and developing any additional disclosures required under the new standard. Financial Instruments - In July 2014, the IASB issued IFRS 9 Financial instruments, which is effective for financial periods beginning on or after January 1, AltaLink has evaluated the effect of adopting this guidance on the Partnership s financial statements and disclosures, and found there to be no material impact. Leases In January 2016, the IASB issued IFRS 16 Leases, which is effective on January 1, 2019, with early application permitted. The standard eliminates the classification of leases from a lessee perspective, requiring all leases to be capitalized by recognizing the present value of lease payments, and presenting them as either lease assets or together with property, plant and equipment in the Statement of Financial Position. The Partnership is evaluating the impact of the new leases standard on its financial statements through the identification and analysis of existing lease agreements, and plans on adopting IFRS 16 starting January 1, Years ended 2017 and 2016 Page 7

14 5. Risk management and financial instruments Fair value of financial instruments Cash Financial Instrument Trade and other receivables [note 6] Other non-current assets [note 10] Trade and other payables [note 11] Other non-current liabilities [note 14] Commercial paper and bank credit facilities and Long-term debt [note 12] Third party deposits [note 9] Third party deposits liability [note 9] Designated Category Fair value through profit or loss (Held for trading) Loans and receivables Loans and receivables Other liabilities Other liabilities Other liabilities Fair value through profit or loss (Held for trading) Other liabilities Measurement Basis Fair value Initially at fair value and subsequently at amortized cost Initially at fair value and subsequently at amortized cost Initially at fair value and subsequently at amortized cost Initially at fair value and subsequently at amortized cost Initially at fair value and subsequently at amortized cost Fair value Initially at fair value and subsequently at amortized cost Associated Risks Market Credit Liquidity Credit Liquidity Credit Liquidity Liquidity Liquidity Market Liquidity Market Credit Liquidity Liquidity Fair Value at 2017 Carrying value is fair value due to short-term nature. Carrying value approximates fair value due to shortterm nature. Amortized cost or carrying value approximates fair value due to nature of asset. Carrying value approximates fair value due to shortterm nature. Amortized cost or carrying value approximates fair value due to nature of liability. $5,494.6 million. Due to the short-term nature of commercial paper and bank credit facilities, carrying value approximates fair value. Long term debt fair values are determined using quoted market prices (which are classified as level 1 inputs). Carrying value approximates fair value as cash received is held in short-term investments. Carrying value approximates fair value due to the nature of the liability. The Partnership currently does not use hedges or other derivative financial instruments in its operations. Credit risk Credit risk is the risk that a contracting entity will not complete its obligations under a financial instrument and cause the Partnership to incur a financial loss. There is exposure to credit risk on all financial assets included in the Statement of Financial Position. To help manage this risk: The Partnership has a policy for establishing credit limits; Collateral may be required where appropriate; and Exposure to individual entities is managed through a system of credit limits. The Partnership has a concentration of credit risk as approximately 97% of its trade receivable balance is due from the AESO ( 2016 approximately 54%). The credit risk is mitigated by the fact that the AESO is an AA- rated entity by Standard & Poors, and it has been established under the EUA, while the remaining trade receivables are mostly due from investment grade utilities, comprised mainly of amounts due for construction services and tower and land rents. The Partnership s maximum exposure to credit risk, without taking into account collateral held, equals the current carrying values of cash and cash equivalents, trade and other receivables, other non-current assets due from the AESO and third party deposits as disclosed in these financial statements. Years ended 2017 and 2016 Page 8

15 Market risk Market risk is the risk that the fair value of future cash flows of financial instruments will fluctuate because of changes in market prices. Components of market risk to which the Partnership is exposed are discussed below: Liquidity risk Interest rate risk To manage interest rate risk, the Partnership controls the proportion of floating rate debt relative to fixed rate debt. In addition, the Partnership maintains access to diverse sources of funding under its established capital markets platform. It is the Partnership s practice to finance substantially all of its debt requirements with long-term debt securities for which interest rates are fixed during the entire term of each security, generally ranging from 5 to 50 years from the date of issue. To manage short-term liquidity requirements, the Partnership has established bank credit facilities under which interest rates may vary daily unless the Partnership elects to issue bankers acceptances or commercial paper under which interest rates are fixed during the entire term, typically ranging from 7 to 90 days from the date of issue. It is the Partnership s practice to issue commercial paper for substantially all of its short-term funding requirements. The Partnership is not exposed to interest rate risk on new long-term debt issues. This risk is managed through the longterm debt deferral account, which protects the Partnership against interest rate forecast risk on new issues. Volume risk on new long term debt issues are managed through the direct assign capital deferral account. For short term debt, the Partnership is at risk for increases in interest rates above the rate approved by the regulator and any volume variances not caused by changes in direct assign capital expenditures. Foreign exchange risk The Partnership does not have a significant exposure to foreign exchange risk. Liquidity risk includes the risk that, as a result of the Partnership s operational liquidity requirements: It may not have sufficient funds to settle a transaction on the due date; It may be forced to sell financial assets below their fair market value; and, It may be unable to settle or recover a financial asset. To manage this risk, the Partnership has readily accessible standby credit facilities and other funding arrangements in place; generally uses financial instruments that are tradable in highly liquid markets; and, has a liquidity portfolio structure wherein surplus funds are invested in highly liquid financial instruments. See note 12 Debt, for a maturity analysis. Capital risk management In managing its capital structure, the Partnership includes partners capital, retained earnings and short-term and long-term debt in the definition of capital. The Partnership manages its capital structure in order to reduce the cost of debt capital for customers and to safeguard its ability to continue as a going concern. In order to maintain or adjust the capital structure, the Partnership may adjust the amount of distributions paid to partners, return capital to partners or request additional contributions from partners. The Partnership reduces refinancing risk by diversifying the maturity dates of its debt obligations. Years ended 2017 and 2016 Page 9

16 Summary of capital structure As at (millions) % (millions) % Commercial paper and bank credit facilities $ $ Long-term debt maturing in less than one year Long-term debt (including discounts and premiums) 4, , Partners capital 2, , Retained earnings 1, , $ 8, $ 7, As at 2017, the Partnership was subject to externally imposed capitalization requirements under the Master Trust Indenture and the bank credit facilities. These agreements limit the amount of debt that can be incurred relative to total capitalization. The Partnership was in compliance with these requirements as at 2017 and Trade and other receivables As at Trade receivables $ 162,619 $ 34,168 GST receivable 5,760 Prepaid expenses and deposits 13,022 9,002 Cancelled projects 54,771 4,975 Current financial assets related to regulated activities 68,695 73,282 $ 299,107 $ 127,187 Trade receivables as at 2017 include $156.1 million ( $11.9 million) due from the AESO for the November and December portion of the transmission tariff. At 2016, $6.7 million was due from the AESO for the difference between recognized revenue and approved tariff revenues received. Financial assets related to regulated activities and cancelled projects include the recovery of certain costs incurred by the Partnership relating to its primary activities that are greater than what has been received to date in its tariff. The Partnership has recognized as receivables the costs to be recovered through the regulatory process. At 2017, current financial assets related to regulated activities include amounts related to the deferral accounts reconciliation for 2014 and 2015 direct assigned projects, initially filed with the AUC in April 2017 and amended in December Amounts included in this account at 2016, related to the deferral accounts reconciliation for 2012, 2013, and 2014 direct assigned Heartland project additions, were collected during the first quarter Years ended 2017 and 2016 Page 10

17 7. Intangible assets Land rights Computer software Intangibles in CWIP Total Cost As at January 1, 2016 $ 219,398 $ 97,450 $ 11,426 $ 328,274 Additions to CWIP 36,988 36,988 Transfers 8,563 23,165 (31,728) Retirements (543) (10,146) (10,689) As at , ,469 16, ,573 Additions to CWIP 31,238 31,238 Transfers 15,347 27,039 (42,386) Retirements (583) (16,545) (17,128) As at 2017 $ 242,182 $ 120,963 $ 5,538 $ 368,683 Accumulated amortization As at January 1, 2016 $ (10,339) $ (42,015) $ $ (52,354) Amortization (4,160) (16,842) (21,002) Retirements ,146 10,689 As at 2016 (13,956) (48,711) (62,667) Amortization (5,209) (21,414) (26,623) Retirements ,545 17,128 As at 2017 $ (18,582) $ (53,580) $ $ (72,162) Net book value As at 2016 $ 213,462 $ 61,758 $ 16,686 $ 291,906 As at 2017 $ 223,600 $ 67,383 $ 5,538 $ 296,521 Intangible assets in CWIP are not amortized until they are available for use, when they are reclassified to the related asset class. The Partnership has used the following effective amortization rates during the year: Land rights 2.01% 2.02% Computer software 10.15%-50.40% 10.27%-50.27% Intangibles in CWIP Not subject to amortization Not subject to amortization 8. Property, plant and equipment Lines¹ Substations² Buildings & equipment³ Land & CWIP⁴ Total Cost As at January 1, 2016 $ 4,172,445 $ 3,457,461 $ 192,586 $ 565,887 $ 8,388,379 Additions to CWIP 485, ,937 Transfers 454, ,665 19,679 (673,512) Cancelled project transfers (42,715) (42,715) Retirements (14,135) (8,125) (15,843) (533) (38,636) As at ,612,478 3,649, , ,064 8,792,965 Additions to CWIP 475, ,899 Transfers 316, ,302 16,496 (591,397) Cancelled project transfers [note 10] (25,028) (25,028) Retirements (16,717) (3,138) (10,654) (2,134) (32,643) As at 2017 $ 4,912,360 $ 3,904,165 $ 202,264 $ 192,404 $ 9,211,193 Years ended 2017 and 2016 Page 11

18 Accumulated Depreciation As at January 1, 2016 $ (251,243) $ (393,448) $ (69,411) $ $ (714,102) Depreciation expense (112,293) (114,326) (18,070) (244,689) Retirements 4,663 5,604 16,717 26,984 As at 2016 (358,873) (502,170) (70,764) (931,807) Depreciation expense (99,626) (120,995) (20,324) (240,945) Retirements 2,756 2,277 10,551 15,584 As at 2017 $ (455,743) $ (620,888) $ (80,537) $ $ (1,157,168) Net book value As at 2016 $ 4,253,605 $ 3,146,831 $ 125,658 $ 335,064 $ 7,861,158 As at 2017 $ 4,456,617 $ 3,283,277 $ 121,727 $ 192,404 $ 8,054, Lines transmission lines and related equipment. 2. Substations substation and telecontrol equipment. 3. Buildings & equipment office buildings, vehicles, tools and instruments, office furniture, telephone and related equipment, computer hardware and emergency capital spare parts. 4. Land & CWIP land, capitalized inventory and CWIP. CWIP is reclassified to the appropriate asset classes when the assets are available for use. On August 30, 2017, the AUC issued Decision D approving AltaLink s negotiated settlement agreement with customers for the GTA. The AUC Decision approved lower depreciation rates for certain assets, resulting in a $27.2 million decrease to depreciation expense for the year ended 2017, compared to the prior year. The Partnership has used the following effective depreciation rates during the year: Lines 1.75%-4.49% 1.76%-4.51% Substations 2.42%-6.28% 2.42%-6.31% Buildings & equipment 2.36%-19.99% 2.36%-20.00% Land and construction work in progress Not subject to depreciation Not subject to depreciation 9. Third party deposits Contributions in Advance of Construction Operating and Maintenance Charges in Advance Total As at January 1, 2016 $ 36,677 $ 6,571 $ 43,248 Receipts net of refunds and interest 42, ,412 Transfers to deferred revenue [note 13] (38,705) (133) (38,838) As at ,316 6,506 46,822 Receipts net of refunds and interest 62, ,698 Transfers to deferred revenue [note 13] (68,092) (198) (68,290) As at 2017 $ 34,840 $ 6,390 $ 41,230 Third party deposits are held in short-term investments, which are reinvested as needed. These investments earned an annual effective interest rate of 1.40% as at 2017 ( %). For contributions in advance of construction, all interest is credited to the specific customer. Years ended 2017 and 2016 Page 12

19 10. Other non-current assets As at CWIP-in-rate base and related income tax $ 277,283 $ 270,201 Recovery of deemed future income taxes 168,987 79,080 Cancelled projects 25,028 54,658 Non-current financial assets related to regulated activities 160, ,675 $ 631,457 $ 578,614 Non-current assets include the recovery of certain costs incurred by the Partnership relating to its primary activities that are greater than what has been received to date in tariff revenue. The Partnership has recognized as non-current receivables the expenses to be recovered through the regulatory process beyond 12 months. Non-current financial assets related to regulated activities include amounts that have been added to rate base (DACDA, AFUDC, and losses on disposals of property, plant and equipment) and other regulatory balances. These amounts are expected to be recovered in AltaLink s tariff beyond 12 months, as approved by the AUC. 11. Trade and other payables As at Trade and accrued payables $ 121,630 $ 142,142 Accrued interest on long-term debt 45,785 28,568 Other current liabilities 2,882 2,947 GST payable 424 Current financial liabilities related to regulated activities 18,778 21,904 $ 189,499 $ 195,561 Current financial liabilities related to regulated activities include accruals for the repayment of differences between certain costs that have been incurred by the Partnership relating to its primary activities and what has been received in its tariff. The difference is expected to be refunded to the AESO through the regulatory process within the next 12 months. 12. Debt Commercial paper and bank credit facilities As at 2017 Committed Drawdowns Commercial paper outstanding Letters of credit outstanding Availability Maturity date of facility Revolving credit facility $ 750,000 $ $ 150,797 $ $ 599,203 December 13, 2019 Revolving credit facility 75,000 8,737 66,263 December 13, 2019 Total bank credit facilities $ 825,000 $ $ 150,797 $ 8,737 $ 665,466 Years ended 2017 and 2016 Page 13

20 As at 2016 Committed Drawdowns Commercial paper outstanding Letters of credit outstanding Availability Maturity date of facility Revolving credit facility $ 750,000 $ $ 34,973 $ $ 715,027 December 14, 2018 Revolving credit facility 75,000 10,577 64,423 December 14, 2018 Total bank credit facilities $ 825,000 $ $ 34,973 $ 10,577 $ 779,450 The $750.0 million revolving credit facility provides support for the borrowing under the unsecured commercial paper program and may also be used for operating expenses, capital expenditures, working capital needs, and for general corporate purposes including the payment of distributions. Drawdowns under this facility may be in the form of Canadian prime rate loans or bankers acceptances. At the renewal date, the Partnership has the option to convert the facility to a one-year term facility. The $75.0 million revolving credit facility may be used for operating expenses, capital expenditures, working capital needs, and for general corporate purposes including the payment of distributions. Drawdowns under this facility may be in the form of Canadian prime rate loans or bankers acceptances, U.S. base rate loans, U.S. LIBOR loans or drawn letters of credit. At the renewal date, the Partnership has the option to convert the facility to a one-year term facility. Long-term debt Effective interest rate 2017 As at 2016 Maturing Senior debt obligations (Medium-Term Notes) Series , 5.243% 5.355% 2018 $ 200,000 $ 200,000 Series , 3.621% 3.705% , ,000 Series , 2.978% 3.041% , ,000 Series , 3.668% 3.733% , ,000 Series , 3.399% 3.463% , ,000 Series , 2.747% 2.813% , ,000 Series , 5.249% 5.299% , ,000 Series , 5.381% 5.432% , ,000 Series , 4.872% 4.928% , ,000 Series , 4.462% 4.503% , ,000 Series , 3.990% 4.029% , ,000 Series , 4.922% 4.963% , ,000 Series , 4.054% 4.091% , ,000 Series , 4.090% 4.127% , ,000 Series , 3.717% 3.753% , ,000 Series , 4.446% 4.484% , ,000 Series , 4.274% 4.305% , ,000 4,850,000 4,850,000 Long-term debt maturing in less than one year (200,000) 4,650,000 4,850,000 Debt discounts and premiums (5,411) (5,199) Less: deferred financing fees (24,747) (25,806) Long-term debt $ 4,619,842 $ 4,818,995 The total issuance under the $2,000.0 million Short Form Base Shelf Prospectus as at 2017 was $1,150.0 million ( $1,150.0 million). The Short Form Base Shelf Prospectus expired in July In general, the Partnership uses the proceeds from the issuance of Medium-Term Notes to repay commercial paper and indebtedness outstanding under the Partnership s credit facilities, and to finance the capital construction program. Years ended 2017 and 2016 Page 14