AltaLink Investment Management Ltd. and SNC Lavalin Transmission Ltd. et al.

Transcription

1 Decision 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 November 28, 2014

2 The Alberta Utilities Commission Decision : AltaLink Investment Management Ltd. and SNC Lavalin Transmission Ltd. et al. Proposed Sale of AltaLink, L.P. Transmission Assets and Business to Application nos , and Proceeding No November 28, 2014 Published by The Alberta Utilities Commission Fifth Avenue Place, Fourth Floor, 425 First Street S.W. Calgary, Alberta T2P 3L8 Telephone: Fax: Website:

3 Contents 1 Decision summary Introduction Background Particulars of the applications Relief requested Jurisdiction matters Scope of the Commission s public interest mandate Attachment of conditions to application approvals Impact of ongoing Commission oversight Disposition of sale proceeds No harm test assessment No harm test assessment Capability of acquiring entity Desire to provide regulated utility service Safety and reliability of service Continuity of management and operational expertise Sharing of BHE best practices and expertise Impact on financing costs Control and governance matters Ring-fencing measures Independence of AML and ALP Inter-Affiliate Code of Conduct Services provided by SNC affiliates Impact of sale on AltaLink revenue requirement and rate base Premium on purchase price Income taxes Pension costs Treatment of acquisition transaction costs Industry Canada approval conditions Effect of commitments to Industry Canada Funding of Industry Canada commitments Employment level commitments Contributions for academic, cultural, and community purposes Joint development opportunities Other matters Proactive support for SNC Retention of records Retention of key employees Fort McMurray project costs Designation and implementation matters Designation as owner of utility pursuant to Section 101 of the Public Utilities Act NewCo T1, T2, and T AUC Decision (November 28, 2014) i

4 6.1.3 Commission findings Legislative procedures Order Appendix 1 Proceeding participants Appendix 2 Oral hearing registered appearances Appendix 3 Summary of Commission directions Appendix 4 Abbreviations ii AUC Decision (November 28, 2014)

5 The Alberta Utilities Commission Calgary, Alberta AltaLink Investment Management Ltd. and SNC Lavalin Transmission Ltd. et al. Decision Proposed Sale of AltaLink, L.P. Transmission Assets and Application nos , Business to MidAmerican (Alberta) Canada and Holdings Corporation Proceeding No Decision summary 1. The following summary is provided for the convenience of the reader and is not intended to be comprehensive, nor does it interpret, supplement or substitute for the detailed information or findings in this decision. 2. On May 23, 2014, three applications were filed with the Alberta Utilities Commission (Commission): Application No , filed on behalf of MidAmerican (Alberta) Canada Holdings Corporation (MC Alberta or MAAC). Application No , filed on behalf of AltaLink Investment Management Ltd. (AIML). Application No , filed on behalf of SNC-Lavalin Transmission Ltd. (T1), SNC-Lavalin Transmission II Ltd. (T2), SNC-Lavalin Transmission III Ltd. (T3), and SNC-Lavalin Energy Alberta Ltd. (SNCEAL), (the applications). For ease of reference in this decision, the entities named above associated with Application No are generally referenced collectively as SNC. 3. The applicants applied pursuant to sections 101 and 102 of the Public Utilities Act, RSA 2000, c. P-45, and Section 1(1) of the Public Utilities Designation Regulation, AR 194/2006, for approval of a multi-step transaction which would result in MC Alberta replacing SNC as the current owner of the entities that own and operate AltaLink, L.P. s (ALP) transmission assets and business. For reference purposes in this decision, the Commission has used the name, AltaLink when referring to the regulated transmission utility. 4. Approval of the proposed sale of AltaLink to MC Alberta, a unit of Berkshire Hathaway, is a dual responsibility of both the federal parliament and the Alberta legislature, under separate mandates, federally though the Competition Bureau of Canada and Industry Canada and provincially through the Commission. The sale had been found acceptable by the Competition Bureau of Canada and Industry Canada prior to the release of this decision. 5. The Commission, having considered the scope of its mandate, the application of the no harm test as it relates to this mandate, the evidence on the record of this proceeding, and the submissions and arguments of the parties, has approved the sale. The Commission finds that AUC Decision (November 28, 2014) 1

6 customers will be at least no worse off after the transaction is completed and that the no harm test has been satisfied. 6. Factors considered and decided by the Commission include the following: The scope of the Commission s public interest mandate when considering applications pursuant to sections 101 and 102 of the Public Utilities Act is defined by the accepted and established no harm test as to whether the transactions are likely to result in any harm to customers in terms of rates paid for service or the reliability of that service. Concerns expressed by the public in submissions generally covered three themes: (1) concerns over the sale to a foreign investor and the loss of control over Alberta transmission infrastructure; (2) concerns about power being exported to the United States; and (3) concerns that power prices will rise and quality of service will deteriorate as a result of a sale to a foreign entity. Issues respecting foreign investment are outside the scope of the Commission s mandate to consider and are issues addressed by the federal government. Exports of electricity are unaffected by the sale of AltaLink. AltaLink does not buy and sell the electricity that is moved over its infrastructure. Additionally, the regulation of the export of electricity from Canada is overseen by the National Energy Board. Power prices in Alberta are generally determined through a competitive market. The Commission regulates the pricing of transmission services and the manner in which those services are provided and will continue to have this regulatory oversight over AltaLink, regardless of who the owner of the entities that own and operate AltaLink will be. Regarding the application of the no harm test, the Commission determined that the no harm test had been satisfied because: o Its regulatory oversight of AltaLink will remain the same and, as part of its regulatory oversight, no additional costs will be imposed on ratepayers as a result of the transaction or as a consequence of commitments made by Berkshire Hathaway or the applicants to obtain federal approval. o The change in ownership will not adversely affect the operation or financing of AltaLink. Both Standard and Poor s (S&P) and Dominion Bond Rating Services (DBRS) credit rating analyses consider the transaction to be neutral or beneficial to the cost of debt required to finance AltaLink transmission assets. o The existing management expertise and capability will not be changed and may benefit from the sharing of best practices among the new owners and AltaLink. o The change in ownership will not affect the financial isolation of AltaLink due to the ring-fencing measures, as amended to reflect the change in ownership, will continue in place ensuring the financial, legal and operational separation of AltaLink. o The operational independence of AltaLink will remain unchanged. 2 AUC Decision (November 28, 2014)

7 7. The Commission approved the designations requested in the application and further directed that MC Alberta, as the applicant in the proceeding who has made representations on behalf of the new owners, should also act as if it is a designated owner of a public utility pursuant to the Public Utilities Designation Regulation. 2 Introduction 8. On May 23, 2014, the following applications were filed with the Commission: Application No , filed on behalf of MidAmerican (Alberta) Canada Holdings Corporation (MC Alberta or MAAC). Application No , filed on behalf of AltaLink Investment Management Ltd. (AIML). Application No , filed on behalf of SNC-Lavalin Transmission Ltd. (T1), SNC-Lavalin Transmission II Ltd. (T2), SNC-Lavalin Transmission III Ltd. (T3), and SNC-Lavalin Energy Alberta Ltd. (SNCEAL), (the applications). For ease of reference in this decision, the entities named above associated with Application No are generally referenced collectively as SNC. 9. The applicants applied pursuant to sections 101 and 102 of the Public Utilities Act and Section 1(1) of the Public Utilities Designation Regulation for approval of a multi-step transaction which would result in MC Alberta replacing SNC as the current owner of the entities that own and operate ALP s transmission assets and business. For reference purposes in this decision, the Commission has used the name, AltaLink when referring to the regulated transmission utility. 10. SNC is currently the sole investor in ALP and wishes to divest itself of 100 per cent of its indirect investment in ALP. MC Alberta, an Alberta corporation and an indirect wholly-owned subsidiary of Berkshire Hathaway Energy Company (BHE), wishes to acquire 100 per cent of SNC s indirect investment in ALP for an estimated cash purchase price of $3.2 billion. 11. Additionally, the applicants have requested that following approval and the closing of the transactions, the Commission will request that the lieutenant-governor in council add NewCo 1 as a designated owner of a public utility and remove T1 and T2 as designated owners of a public utility under the Public Utilities Act and Public Utilities Designation Regulation. The applicants have also requested that the Commission issue a declaration or order that T3 no longer be required to conduct itself as an owner of a public utility. 12. The Commission issued notice of the applications (notice) on May 28, In the notice, the Commission indicated that, due to their inter-relationship, the applications would be considered under a single proceeding. 13. Statements of intent to participate (SIPs) were received by the June 20, 2014 deadline specified in the notice from the following: 1 NewCo will be incorporated under the Business Corporations Act (Alberta) and will be created for the purpose of the acquisition of the shares of the SNC-Lavalin entities who are currently the designated owners of AltaLink. AUC Decision (November 28, 2014) 3

8 AltaLink Management Ltd. (AML) Mr. Joseph Anglin ATCO Electric Ltd. (ATCO) Benign Energy Canada II Inc. (BECI) the Consumers Coalition of Alberta (CCA) EPCOR Distribution & Transmission Inc. (EDTI) Mr. Jim Flatman the Office of the Utilities Consumer Advocate (UCA) Mr. Alexander Romanchuk Mr. Alphons Sadée 14. On July 3 and 4, 2014, newspaper advertisements were placed in various publications which encouraged Albertans to contact the Commission by if Albertans had concerns respecting Proceeding No By July 7, 2014, the Commission had received 293 submissions On July 9, 2014, the Commission sent a letter by to each of the individuals who had provided views in respect of the proposed sale of ALP to MC Alberta. 3 In its letter, the Commission advised each of the parties submitting s that their correspondence to the Commission would be placed on the public record for Proceeding No. 3250, for consideration by the Commission panel. In addition, parties submitting s were advised that if they wished to have a more formal, continuing involvement in Proceeding No. 3250, a SIP should be filed with the Commission. A deadline of July 23, 2014 was set for the receipt of SIPs arising from the Commission s July 9, 2014 letter. 16. Also on July 9, 2014, the Commission set an initial process schedule for Proceeding No which provided for information requests to the applicants to be filed on or before July 29, 2014, applicant responses to information requests on August 12, 2014, and submissions on the need for intervener evidence to be filed on August 15, On July 22, 2014, the Commission received a SIP from Mr. Brian Overly. 5 No other SIPs were filed by the July 23, 2014 deadline set out in the Commission s July 9, 2014 letter In accordance with the Commission s July 9, 2014 initial process schedule, responses to information requests were filed by each of the applicants on August 12, On August 13, 2014, 7 the Commission granted the request of the CCA 8 to extend the deadline for submissions on the need for intervener evidence to August 18, Exhibit No , paragraph 7. Exhibit No Exhibit No Exhibit No. 62. The Commission received an additional submission on July 22, 2014 from BECI (Exhibit No ) which appeared to have been filed in response to the Commission s July 9, 2014 letter. However, the initial SIP filed by BECI on June 20, 2014 had already been accepted by that date. Exhibit No Exhibit No AUC Decision (November 28, 2014)

9 20. On August 18, 2014, the CCA filed a letter 9 advising that it did not intend to file intervener evidence. In the same letter, the CCA requested that the Commission authorize a second round of information requests to the applicants. In response to this request, the Commission issued a letter requiring the CCA to provide additional explanation as to why it considered a second round of information requests to be necessary or warranted. The CCA was directed to respond on or before August 22, The CCA responded to the Commission s request for additional explanation as to the need for additional IRs to the applicants on August 22, 2014 and, within the same correspondence, the CCA provided a set of additional IRs to the applicants The Commission granted the CCA s request for an additional round of IRs to the applicants in a letter dated August 28, The applicants provided responses to the additional IRs on September 2, 2014 from the CCA and from Mr. Overly, the only interveners to avail themselves of the opportunity for additional questions On September 5, 2014, ATCO filed a letter 14 requesting that the Commission schedule the balance of the proceeding and that it include an oral hearing as part of the remaining process. 24. On September 8, 2014, the Commission received submissions in response to ATCO s September 5, 2014 letter from MC Alberta, 15 SNC, 16 and AIML 17 opposing ATCO s request for an oral hearing. On the same day, the Commission issued a notice of hearing of a procedural motion to consider ATCO s request for an oral hearing. 25. The oral hearing pursuant to the Commission s September 8, 2014 notice was held in the Commission s hearing room in Calgary on September 19, On that day, the Commission heard submissions from ATCO, Mr. Anglin, AIML, SNC, MC Alberta, AML, and BECI On September 22, 2014, the Commission issued its ruling dismissing ATCO s request for an oral hearing and set out a schedule for argument, reply, and rebuttal submissions. 27. On September 25, 2014, written argument submissions were filed by each of the applicants (AIML, SNC, and MC Alberta) and by AML. In accordance with the process set out in the Commission s September 22, 2014 ruling, the Commission issued correspondence 19 which Exhibit No Exhibit No Exhibit No Exhibit No Exhibit nos. 108, 109 and 110. Exhibit No Exhibit No Exhibit No Exhibit No In its September 8, 2014 letter, the Commission requested that parties intending participate in the oral hearing to consider ATCO s procedural motion advise the Commission of their intention to participate in writing by September 12, In addition to the identified participants, the Commission received submissions from IPCAA (Exhibit No ) and from the CCA (Exhibit No ). IPCAA indicated that it did not expect to participate, but would monitor the proceeding. The CCA similarly indicated that it did not expect to participate, but provided written responses to questions posed by the Commission in its September 8, 2014 notice of hearing in respect to the ATCO procedural motion. Exhibit No AUC Decision (November 28, 2014) 5

10 confirmed that the deadline for reply argument submissions would be on October 16, 2014, and that the deadline for rebuttal argument submissions would be one week after that. 28. The Commission received reply argument submissions from Mr. Overly, ATCO, the CAA, and the UCA on or before October 16, The Commission received rebuttal argument submissions from AIML, SNC, and MC Alberta on October 20, The Commission considers the record for Proceeding No to have closed on October 20, In reaching the determinations set out within this decision, the Commission has considered all relevant materials comprising the record of this proceeding, including the evidence and argument provided by each party. 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 record with respect to that matter. 3 Background 3.1 Particulars of the applications 32. As stated above, AltaLink, L.P. owns and operates certain electric transmission assets and business in Alberta. SNC-Lavalin Group Inc. is currently the sole investor in AltaLink, L.P. and wishes to divest itself of 100 per cent of its indirect investment in ALP. 33. The applicants applied pursuant to Section 101 and 102 of the Public Utilities Act and Section 1(1) of the Public Utilities Designation Regulation, for approval of a multi-step transaction (transaction) whereby: (1) T1, T2 and T3 will each transfer the limited partnership units they hold in AltaLink Holdings, L.P. (AHLP) to a newly incorporated Alberta corporation (NewCo) in consideration for NewCo issuing common shares of the capital of NewCo to each of T1, T2 and T3. (2) Alberta Ltd. (942064) will transfer all of the shares in the capital of SNCEAL to NewCo in consideration for NewCo issuing to common shares of the capital of NewCo. (3) will transfer all of the common shares in NewCo s capital to T1 in consideration for T1 issuing shares of its capital to (4) T1, T2 and T3 will each transfer all of the shares they respectively hold in the capital of NewCo to MC Alberta. 6 AUC Decision (November 28, 2014)

11 Steps (1) to (3) are the pre-closing reorganization, and step (4) is the acquisition The current, pre-closing reorganization and post-acquisition ownership structures are illustrated in appendices 3, 4 and 5 to the MC Alberta application and are reproduced below: Exhibit No. 3, SNC application, PDF page 1. Exhibit nos. 13, 14, 15, MC Alberta application, appendices 3, 4 and 5. AUC Decision (November 28, 2014) 7

12 8 AUC Decision (November 28, 2014)

13 AUC Decision (November 28, 2014) 9

14 35. The transaction would result in MC Alberta replacing SNC as the current owner of the entities that own and operate ALP s transmission assets and business. 10 AUC Decision (November 28, 2014)

15 36. Each of the applications included sections that outlined the basis for the relief sought by the applicants, and the grounds provided in support of the applications. 22 The applicants included the following in the applications: Attachment A a list of acronyms used in the applications. For ease of reference, the following list of abbreviations of entities referenced in the applications is reproduced: Acronym Description Alberta Ltd. AHLP AltaLink Holdings, L.P. AILP AILP AltaLink Investments, L.P. AIML AltaLink Investment Management Ltd. ALP AltaLink, L.P. AML AltaLink Management Ltd. BHE Berhkshire Hathway Energy Company MC Alberta SNCEAL SNC-Lavalin Energy Alberta Ltd. SNCGPHL SNC-Lavalin G.P. Holdings Ltd. SNC-Lavalin SNC-Lavalin Group Inc. T1 SNC-Lavalin Transmission Ltd. T2 SNC-Lavalin Transmission II Ltd. T3 SNC-Lavalin Transmission III Ltd. Attachment B - evidence in support of the applications organized under the following main topics: o BHE company background o overview of the pre-closing reorganization o description of the acquisition o demonstration of no harm to customers Appendix 3 diagram illustrating current ownership structure 23 Appendix 4 diagram illustrating pre-closing reorganization creation of NewCo 24 Appendix 5 diagram illustrating post-acquisition ownership structure 25 Appendix 1 United States Securities and Exchange Commission Form 10-K 26 Appendix 2 share purchase agreement (SPA) dated May 1, 2014 between MC Alberta (purchaser) and T1, T2, and T3 (collectively, sellers), among others AIML, Exhibit No. 1, PDF pages 5-8. Exhibit No. 13, MC Alberta application, Appendix 3. Exhibit No. 14, MC Alberta application, Appendix 4. Exhibit No. 15, MC Alberta application, Appendix 15. Exhibit No. 11, MC Alberta application, Appendix 1. Exhibit No. 12, MC Alberta application, Appendix 2. AUC Decision (November 28, 2014) 11

16 Appendix 6 a credit rating report by Standard & Poor s (S&P) titled Research Update: AltaLink Investments L.P. Outlook Revised To Positive On Announced Sale To Berkshire Hathaway Energy Co Relief requested 37. The applicants requested the following relief: (a) T1, T2, and T3 each applied to the Commission for an order or orders pursuant to Section 101(2)(d) of the Public Utilities Act authorizing the sale and transfer of all of the LP Units in AHLP to NewCo in consideration for NewCo issuing to each of T1, T2 and T3 common shares in the capital of NewCo. (b) SNCEAL applied to the Commission for an order or orders pursuant to Section 102(1) of the Public Utilities Act authorizing it to make on its books a transfer of all of the shares in its capital to NewCo in consideration of NewCo issuing common shares in its capital to (c) (d) (e) (f) (g) T1 applied to the Commission for an order or orders pursuant to Section 101(2)(a) of the Public Utilities Act authorizing it to issue shares in its capital to In order to provide regulatory certainty, T1, T2, T3 and SNCEAL requested that, as part of the order or orders requested above, the Commission confirm that it will, following the completion of the pre-closing reorganization, request the lieutenant governor in council to add NewCo to the Public Utilities Designation Regulation as an owner of a public utility to which sections 101, 102 and 109 of the Public Utilities Act apply and effective from the time of completion of the pre-closing reorganization until the time of designation, as a condition of granting the Applications, the Commission will require NewCo to conduct itself as if it has been so designated. T1, T2, T3 and SNCEAL requested that, as part of the order or orders requested above, the Commission will, following the completion of the acquisition, request the lieutenant governor in council to remove T1 and T2 from the Public Utilities Designation Regulation as owners of a public utility to which sections 101, 102 and 109 of the Public Utilities Act apply. T1, T2, T3 and SNCEAL requested that, as part of the order or orders requested above, that the Commission issue a declaration or order that, following the completion of the acquisition, T3 no longer be required to conduct itself as an owner of a public utility to which sections 101, 102 and 109 of the Public Utilities Act T1, T2, T3 and SNCEAL applied to the Commission for a declaration that an order is not required pursuant to Section 101(2)(a)(i) of the Public Utilities Act authorizing NewCo to issue common shares of its capital to each of T1, T2, T3 and , or in the alternative and to the extent required, an order or orders pursuant to Section 101(2)(a)(i) of the Public Utilities Act authorizing NewCo to issue common shares in its capital to each of T1, T2, T3 and Exhibit No. 16, MC Alberta application, Appendix AUC Decision (November 28, 2014)

17 (h) (i) (j) (k) (l) T1, T2, T3 and SNCEAL applied to the Commission for a declaration that an order is not required pursuant to Section 102(1) of the Public Utilities Act authorizing NewCo to make on its books a transfer of all of the shares in its capital to T1 in consideration of T1 issuing shares in T1 s capital to , or in the alternative and to the extent required, an order or orders pursuant to Section 102(1) of the Public Utilities Act authorizing NewCo to make on its books a transfer of all of the shares in its capital to T1 in consideration of T1 issuing shares in T1's capital to T1, T2, T3 and SNCEAL applied to the Commission for an order pursuant to Section 102(1) of the Public Utilities Act authorizing T1, T2 and T3 to sell and transfer all issued and outstanding shares in the share capital of NewCo to MC Alberta. T1, T2, T3 and SNCEAL applied to the Commission for a declaration that an order is not required pursuant to sections 101(2)(d) and 102(1) of the Public Utilities Act authorizing NewCo to sell and to make on its books a transfer of all of the shares in its capital from T1, T2 and T3 to MC Alberta, or in the alternative and to the extent required, an order or orders pursuant to sections 101(2)(d) and 102(1) of the Public Utilities Act authorizing NewCo to sell and make on its books a transfer of all of the shares in its capital from T1, T2 and T3 to MC Alberta. AIML applied to the Commission for an order pursuant to Section 102(1) of the Public Utilities Act, authorizing the transfer on AHLP s books of per cent of the outstanding LP Units of AHLP from T1, T2 and T3 to NewCo, resulting in the vesting in NewCo of more than 50 per cent of the outstanding LP Units of AHLP. MC Alberta requested that as part of the order or orders that the Commission issues in respect of the applications, the Commission: (i) (ii) Confirm that it will, following the closing of the acquisition, request the lieutenant governor in council to add NewCo to the Public Utilities Designation Regulation as a designated owner of a public utility to which sections 101, 102 and 109 of the Public Utilities Act apply. Effective from the time of completion of the acquisition until the time of designation, as a condition of granting the applications, require NewCo to conduct itself as if it had been so designated. (m) The applicants applied to the Commission for such further and other orders, exemptions or declarations of the Commission that are within its jurisdiction and necessary to permit and facilitate the pre-closing reorganization and acquisition, as more particularly described in the applications and in Attachment B. 38. AIML requested that the applications be considered by the Commission together and in toto. Furthermore, AIML submitted that prompt consideration of the applications would be in the public interest to permit the proposed transaction to proceed on a timely basis and requested AUC Decision (November 28, 2014) 13

18 that the Commission approve the applications as expeditiously as possible with a view to releasing a decision no later than December 1, The Commission has considered the applications in toto, and for the purposes of this decision, the Commission will periodically refer to the series of applications and transactions as the application and the transaction or the proposed transaction. 4 Jurisdiction matters 4.1 Scope of the Commission s public interest mandate 40. In argument, AIML submitted that the proposed transaction for which approvals were sought was not a sale of utility assets but rather was an upstream change of share ownership at the holding company level in the AltaLink ownership structure. As such, AIML submitted that the proposed transaction would not affect the management or day-to-day operations of AltaLink. In addition, post-transaction, AltaLink would remain subject to the Commission's ongoing regulatory oversight, ring-fencing provisions and the Inter-Affiliate Code of Conduct for AltaLink. 30 Ring-fencing measures are put in place to solidify the credit quality of the regulated utility by isolating the financial risks of the owners of the utility from the utility itself. Interaffiliate codes of conduct are adopted to ensure that the cost of services provided to a regulated utility by the owner entity or an affiliate entity are provided at no more than the fair market value for providing those services. In its argument, MC Alberta also stated that the proposed transaction was a share transfer transaction at the holding company level. As such, no new utility operator was being introduced to Alberta, no assets were proposed to be transferred, and no approvals were necessary pursuant to the Hydro and Electric Energy Act for the transfer of permits and licences. If approved, SNC would be replaced by MC Alberta as the owner of the entities that in turn own and operate AltaLink Concurrent with its requests for approvals from the Commission, MC Alberta had also sought independent approvals under the Competition Act, RSC 1985, c. C-34 and Investment Canada Act, RSC 1985, c.28 (1st Supp). The Competition Act requires a review of the competitive impacts of an acquisition and the Investment Canada Act requires a review by the Minister of Industry. The Minister of Industry granted approval for the acquisition on July 25, 2014, and concluded that the acquisition was likely to be a net benefit to Canada. 32 In addition, the Commissioner of Competition provided clearance for the proposed transaction through the issuance of an Advance Ruling Certificate (ARC) in which the Commissioner of Competition stated that he is satisfied, on the basis of that information, that he does not have sufficient grounds on which to apply to the Competition Tribunal [a]accordingly the enclosed ARC has been issued. 33 The ARC was received by MC Alberta on June 4, MC Alberta further explained that as part of the process to receive Investment Canada Act approval, MC Alberta s owner, BHE, made commitments related to both the future operation AIML argument, paragraphs 5 and 6. AIML argument, paragraph 4. MC Alberta argument, paragraphs 2 and 3. Exhibit No , UCA-MAAC-6(a) attachment. Exhibit No , UCA-MAAC-6(d) attachment. Exhibit No , UCA-MAAC-6(d) attachment. 14 AUC Decision (November 28, 2014)

19 of AltaLink and BHE s activities in Alberta and Canada generally. 35 It submitted that many of these commitments will benefit customers and confirmed that no additional costs will be paid by utility customers in Alberta as a result of these commitments In its reply argument, ATCO submitted that as the proposed transaction involves the disposition of key transmission infrastructure that is relied upon by Alberta residents and business, and, in particular, the critical oil and gas sector, the applications raise numerous public interest issues. Additionally, ATCO noted that the treatment of the applications will create a strong precedent for the manner in which the Commission interprets and applies its public interest mandate in the context of sections 101 and 102 of the Public Utilities Act. 44. In his reply argument, Mr. Overly submitted that it was unclear who would make decisions in the event that local management of AltaLink disagreed with resulting, posttransaction U.S.-based directors. In particular, Mr. Overly expressed concern that, in the event of disagreements, the interests of U.S.-based shareholders may prevail over interests identified by local management. Mr. Overly also expressed concern that U.S. laws or requirements may be in conflict with Alberta and Canadian laws. 45. In rebuttal argument, AIML restated that the evidence was clear that the application before the Commission pertained to the sale of shares by the ultimate owner of AltaLink and does not touch the regulated entity or involve the sale of utility assets or a merger of utility businesses. 46. AIML argued that AltaLink has a history of providing safe and reliable service to Albertans, which will continue. Further, AltaLink will remain subject to the same regulatory oversight of the Commission and under the management of the same core management team. As well, it will continue to be subject to a board comprised of a majority of independent directors; and existing measures to ring-fence AltaLink from its upstream owners will be unaltered. Consequently, AltaLink will remain a separate legal entity regardless of whether the ultimate owner of AltaLink was foreign-based In its rebuttal, MC Alberta also submitted that the concerns raised by Mr. Overly have either been fully addressed within the filed evidence or go beyond the scope of the Commission s public interest mandate for the current proceeding. MC Alberta submitted that the Commission addressed foreign ownership generally in its September 22, 2014 ruling 38 and concluded that the issue of foreign ownership was outside its jurisdiction in the context of this proceeding. MC Alberta submitted that any suggestion by Mr. Overly that customers may be harmed by the acquisition of AltaLink should be discounted given the clear and uncontroverted evidence in this proceeding that mechanisms such as ring-fencing measures and AltaLink s Inter- Affiliate Code of the Conduct will remain and continue to function effectively after the acquisition. 48. In respect of Mr. Overly s concerns regarding potential conflicts between Alberta and Canadian laws and U.S. laws and regulatory requirements, MC Alberta submitted that the acquisition will not have any effect on AltaLink s obligations to comply with Canadian and MC Alberta argument, paragraph 11. Exhibit No , UCA-MAAC-6(b). AIML rebuttal, paragraph 11. Exhibit No , paragraph 57. AUC Decision (November 28, 2014) 15

20 Alberta laws, or on any decisions, directions, or orders of the Commission and any other Canadian regulator with jurisdiction over AltaLink and its utility operations. In particular, as indicated in an AIML response to an information request from Mr. Overly, it is clear that following the close of the proposed share purchase transaction, AltaLink will remain an Alberta corporation, fully subject to all applicable Canadian and Alberta laws, and subject to the Commission s regulatory powers and oversight. Conversely, U.S. government laws and requirements are not applicable to AltaLink s regulated transmission business In response to ATCO, MC Alberta submitted that ATCO had failed to support its suggestion that that there was an insufficient evidentiary basis on which the Commission could render a reasoned decision and that ATCO had failed to provide any reasonable basis for asserting that the applications should not be approved. Commission findings 50. The jurisdiction of the Commission to authorize share transactions is set out in Section 102(1) of the Public Utilities Act, which states: (1) Unless authorized to do so by an order of the Commission, the owner of a public utility designated under section 101(1) shall not sell or make or permit to be made on its books a transfer of any share of its capital stock to a corporation, however incorporated, if the sale or transfer, in itself or in connection with previous sales or transfers, would result in the vesting in that corporation of more than 50% of the outstanding capital stock of the owner of the public utility. 51. Furthermore, Section 101(2)(a)(ii) of the Public Utilities Act provides: (2) No owner of a public utility designated under subsection (1) shall (a) issue any (i) (ii) of its shares or stock, or bonds or other evidences of indebtedness, payable in more than one year from the date of them, unless it has first satisfied the Commission that the proposed issue is to be made in accordance with law and has obtained the approval of the Commission for the purposes of the issue and an order of the Commission. 52. A clear understanding of the Commission s public interest mandate when considering an application for approval of the purchase and sale of a designated public utility under sections 101 and 102 of the Public Utilities Act is necessary. The scope of the Commission s public interest mandate was discussed by the Commission in its ruling on the need for an oral hearing in this proceeding dated September 22, 2014 when it stated: 28. the scope of the AUC s public interest mandate when considering applications pursuant to sections 101 and 102 of the Public Utilities Act is defined by the accepted and established no harm test as to whether transactions for which approval is sought are likely 39 Exhibit No , Overly-AIML-02 and Overly-AIML AUC Decision (November 28, 2014)

21 to result in any harm to customers in terms of the rates paid for service or the reliability of that service As a statute-created, independent, quasi-judicial tribunal of the province of Alberta, the Commission must ground its jurisdiction and define the scope of its mandate with reference to its enabling legislation. The Supreme Court of Canada in ATCO Gas and Pipelines Ltd. v. Alberta (Energy and Utilities Board) 41 (Stores Block) succinctly confirmed this point when it stated: Administrative tribunals or agencies are statutory creations: they cannot exceed the powers that were granted to them by their enabling statute; they [page164] must adhere to the confines of their statutory authority or 'jurisdiction'[; and t]hey cannot trespass in areas where the legislature has not assigned them authority : Mullan, at pp (see also S. Blake, Administrative Law in Canada (3rd ed. 2001), at pp ) The court also recognized the role of the Commission as an expert 43 tribunal established by statute to represent the public interest in the regulation of public utilities in the context of an asset disposition by a utility. The court provided the following guidance on the scope of the Commission s specific public interest mandate: The Board s seemingly broad powers to make any order and to impose any additional conditions that are necessary in the public interest has to be interpreted within the entire context of the statutes which are meant to balance the need to protect consumers as well as the property rights retained by owners, as recognized in a free market economy. The limits of the powers of the Board are grounded in its main function of fixing just and reasonable rates ( rate setting ) and in protecting the integrity and dependability of the supply system The Supreme Court of Canada in Bell Canada v. Canada (Canadian Radio-Television and Telecommunications Commission), 45 highlighted that defining the extent of an administrative tribunal s powers requires a balance between ensuring that the tribunal is able to carry out its legislative mandate while restricting those powers within the confines of that mandate. The court stated: The powers of any administrative tribunal must of course be stated in its enabling statute but they may also exist by necessary implication from the wording of the act, its structure and its purpose. Although courts must refrain from unduly broadening the powers of such regulatory authorities through judicial law-making, they must also avoid sterilizing these powers through overly technical interpretations of enabling statutes The Public Utilities Act does not specify the factors that the Commission is to consider when deciding applications under sections 101 and 102. General guidance, however, on how Exhibit No , paragraph 28. ATCO Gas and Pipelines Ltd. V. Alberta (Energy and Utilities Board) [2006] 1 S.C.R. 140, [2006] S.C.J. No.4, 2006 SCC 4. Stores Block, paragraph 35. Stores Block, paragraph 26. Stores Block, paragraph 7. Bell Canada v. Canada (Canadian Radio-Television and Telecommunications Commission), [1989] 1 S.C.R Bell Canada v. Canada (Canadian Radio-Television and Telecommunications Commission), [1989] 1 S.C.R. 1722, at page AUC Decision (November 28, 2014) 17

22 Commission members are to exercise the Commission s statutory mandate is provided in Section 6(1) of the Alberta Utilities Act, SA 2007, C. A-37.2, which states: 6(1) Every member, in exercising powers and in discharging functions and duties, (a) shall act honestly, in good faith and in the public interest, 57. This is in contrast to the duties of directors of a company incorporated under the Business Corporations Act. In that act, directors must act honestly, in good faith and in the best interests of the company Public interest is a multi-faceted concept that will necessarily mean different things in different contexts. Responsibility for determining the overall public interest of Canadians is divided between the Parliament of Canada and the provincial legislatures. The provincial legislatures or Parliament may then delegate responsibility for certain public interest determinations to the lieutenant-governor in council, ministers or various agencies of the province. For example, the public interest mandate of an administrative body charged by statute with overseeing public education in Alberta would be different from one charged with overseeing the delivery of public health care in Alberta and different again from an administrative or quasi-judicial tribunal like the Commission, which is charged with regulating certain public utility matters in Alberta The Supreme Court of Canada has indicated that the scope of an administrative tribunal s public interest mandate must be derived from a review of the context of its enabling legislation. In Memorial Gardens Association (Canada) Limited v. Colwood Cemetery Company 49 the court stated [t]he meaning in a given case must be ascertained by the reference to the context and to the object and purposes of the statute in which it is found. 60. It is clear from the above that the Commission does not have authority over all matters related to regulated utilities in Alberta. For example, in this case the applicants also sought approvals from Industry Canada and the Competition Tribunal. 50 The responsibilities of the Commission are limited to its central rate-setting and utility system integrity functions set out in its enabling legislation. 61. It is also clear that the role of the Commission in carrying out its public interest mandate is different from that of a court. Unlike a court, proceedings before the Commission are not held to resolve private disputes. The Commission has the responsibility to arrive at an outcome in the public interest in a particular proceeding, not to make a determination in favour of one or another of the private interests of the parties participating in the proceeding. As the Commission stated in Decision : Business Corporations Act (Alberta), Section 122. This theme was reflected in an exchange which occurred at the oral argument on the procedural motion to hold an oral hearing on September 19, 2014 between the Commission Chair and Mr. Anglin in discussing the federal jurisdictional and provincial jurisdictional boundaries at Transcript, pages 37-38, beginning at line 17. Memorial Gardens Association (Canada) Limited v. Colwood Cemetery Company [1958] SCR 353. Exhibit No. 10, page 2. Decision : AltaLink Management Ltd. and EPCOR Distribution & Transmission Inc., Heartland Transmission Project, Application No , Proceeding ID No. 457, November 1, AUC Decision (November 28, 2014)

23 73. However, the Commission is not a court. It has no inherent powers. Its powers are set out in legislation. It is sometimes referred to as an expert tribunal because it deals frequently with specialized subject matter required to balance the public interest considerations it must address. Unlike a court proceeding, the Commission s proceedings are not matters between two or more competing parties to determine who wins and loses. In other words, the Commission s proceedings are not in the nature of a lis inter partes (a dispute between parties). 74. The Commission s proceedings are conducted to determine an outcome that meets the public interest mandate set out in the legislation. 77. Just as the Commission is not a court, it is not a political body and does not make its decisions based upon the views or opinions of the majority of participants. 95. In summary, it is the Commission s duty to use its expertise to test the application placed before it to ensure that it has the information necessary to make a public interest determination and that all parties to the proceeding have the same information as the Commission before them so that they can explain how their private interests can best be balanced in the public interest determination As noted in the Commission s ruling of September 22, 2014, advertisements were placed in respect of this proceeding in various publications on July 3 and 4, The advertisements encouraged Albertans to contact the Commission by if Albertans had concerns about the proposed sale and purchase of ALP. s both in support of the proposed transaction and opposing it were received. 63. With respect to the s opposing the transaction, as can be seen from the following extracts, several public interest themes emerged relating to concerns over foreign ownership and the loss of control over Alberta transmission infrastructure, potential exports of electricity to the United States and the potential for higher power prices or deteriorating service as a result of the sale. Examples of received in respect of each of these themes are provided below. Concerns over sale to a foreign investor and the loss of control over Alberta transmission infrastructure it is my personal belief though that our critical infrastructure; from the St. Lawrence Seaway, to our electricity grid, should be owned and controlled by Canadians. Will foreign interests always be aligned with the interests of Canada in delivering electricity to our industries, our hospitals, schools, military and our homes? I stand strongly opposed to the sale of AltaLink to foreign interests. Jacqueline L. Wyness (July 28, 2014) I believe that it is contrary to Alberta s basic economic interests to sell critical, public infrastructure to private interests abroad whose main goals are the maximization of profit, and not the provision of secure electricity supplies to Alberta businesses like mine, that form part of the economic engine of this province. I also believe that there are real issues and concerns around governance and regulation of this critical infrastructure, and that by selling it we lose a key tool in our collective arsenal for protecting, maintaining, and 52 Decision , paragraphs 73, 74, 77 and 95. AUC Decision (November 28, 2014) 19

24 enhancing this critical infrastructure, and thus Alberta s economic performance and security. I respectfully suggest that this planned sale should, at minimum, be reconsidered while a full, public airing and review of this policy is conducted. Regards, Norman Hanson, P.Eng. (July 2, 2014) This is to express my very serious concern on this pending sale. There is something fundamentally wrong with this sale that needs to be addressed by the Provincial and Federal governments. By example the sale of the Potash resources in Saskatchewan were stopped as it was deemed to not be in our long term interest to lose this resource. I submit that there is a similar concern in selling this critical resource to a non-canadian ownership. We will lose control of all the elements of this resource, from availability to pricing. I see no benefit in this sale. If there is, then this needs to be communicated - which it has not. Yours truly, Jim Luelo (July 2, 2014) I am writing to voice my concern over the pending sale of Altatlink to Berkshire Hathaway. After the last election one of the items that was considered was whether or not to go ahead with the three massive transmission lines. The residents of Alberta were against building them. There was an investigation and the results were somewhat inconclusive, two we could manage without, one was vital. The decision was made to go ahead in the face of great opposition. You built them, we paid for them. Now you are considering selling what is partly owned by Albertans. Regards, Ruth Kereliuk (July 4, 2014) Concerns about power being exported to the United States Dear Sir or Madam, I feel if the grid is owned by a company outside our own province or country we will see prices even higher and possible power interruptions if this company favours selling our power outside of Alberta. Patrick Artibise (July 3, 2014) Please ensure that the Province of Alberta and the Federal Government conduct a policy review to determine who should own the infrastructure at the heart of Alberta s prosperity. It has come to my attention that an American company (Berkshire Hathaway) has made a bid to purchase AltaLink. If successful, we lose control of critical infrastructure, regulation oversight stops at the border and potential for more power exports increases. Priscilla Spratt Carvel, Alberta 20 AUC Decision (November 28, 2014)

25 Concerns that power prices will rise and quality of service will deteriorate as a result of the sale to a foreign entity Minister and Commission: I am opposed to the sale. This sale will undoubtedly mean higher electricity transmission costs to us the Alberta consumer. We will pay to subsidize lines into the U.S. Our electrical line priorities will not be Berkshire Hathaway s priorities. It is not in our interest to relinquish 100% control to a U.S. corporation. Charles Ray (July 3, 2014) It is not that I feel we cannot share electricity with USA but when an out of country company owns it, what regulations for price control, distribution, and quantity of use will be in place to protect the interest of Albertans where this energy is generated, etc.? And once it is out of Alberta's jurisdiction, I fear for what could happen. Please use extreme caution when making this decision. Yours sincerely, Wilma Busaan (July 12, 2014) I am totally opposed to the sale of AltaLink to Berkshire Hathaway. There is NO benefit in this takeover to the people of Alberta and every likely there will be problems from it to Albertans in the form of higher electricity cost which are already going out of control. Derek Hoyle (July 3, 2014) 64. The Commission is understanding of the need of Albertans to have their concerns addressed. However, most of the matters raised are outside the portion of the public interest mandate entrusted to the Commission and fall to other bodies charged with safeguarding other aspects of the overall public interest. The Commission has addressed each of the themes in turn. Concerns over sale to a foreign investor and the loss of control over Alberta transmission infrastructure 65. As described above, the public interest mandate of the Commission is grounded in its central rate-setting and protecting utility system integrity functions. The approval of certain types of investment in a Canadian enterprise by a foreign entity lies within the purview of the federal government and is governed by the provisions of the Investment Canada Act. In exercising his responsibilities over this element of the public interest, the federal industry minister approved the application of BHE to acquire control of AltaLink subject to certain commitments. In a letter dated July 25, 2014 approving the investment, the industry minister stated: I am satisfied that your investment is likely to be of net benefit to Canada Public interest issues related to the impact on competition in Canada as the result of an acquisition or merger have been assigned to the federal Competition Bureau. On June 4, 2014, the Associate Deputy Commissioner of Competition, Mergers Branch issued an Advanced Ruling Certificate certifying that there were not sufficient grounds to apply to the Competition Tribunal to oppose the transaction Exhibit No , UCA-MAAC-6(a) attachment. Exhibit No , UCA-MAAC-6(d) attachment. AUC Decision (November 28, 2014) 21

26 67. The Commission does have the authority to approve or deny the AltaLink sale transaction but must do so in the context of its rate-setting and protection of utility system integrity functions. These functions have historically been exercised through the application of the no harm test which considers the impact to customers of the transaction with respect to the rates they pay and the services they receive. These impacts fall within the public interest mandate of the Commission and are the focus of the present proceeding. The no harm test, its constituent elements and historical development is discussed in Section 5 below. 68. It is clear that in applying the no harm test, it is not open to the Commission to deny the transaction simply because the purchaser is controlled by a foreign entity. Denying the transaction is warranted when the transaction does not satisfy the requirements of the no harm test and cannot be satisfied by the attachment of conditions to an approval. Concerns about power being exported to the United States 69. The export of electricity from Alberta to the United States is unaffected by the sale of transmission infrastructure. AltaLink does not buy and sell the electricity that is moved through its transmission system. It is merely a conduit through which market participants purchase and sell electric energy. The planning and development of new transmission infrastructure, whether intended to serve interprovincial, intraprovincial or export markets, is not within the control of the electric transmission utilities in Alberta. The statutory responsibility for the planning, expansion and enhancement of the electric transmission system in Alberta falls to the Independent System Operator (ISO) pursuant to the Electric Utilities Act. 55 The ISO must forecast the needs of Alberta and develop plans for the transmission system. 56 In carrying out its powers and responsibilities the ISO must provide for the safe, reliable and economic operation of the interconnected electric system and to promote a fair, efficient and openly competitive market for electricity. 57 Nowhere in the operational process of a transmission utility receiving energy for transport and delivering it to its destination, is there an opportunity for a transmission utility to divert energy for export or hinder its delivery. 70. Regulation of the export of electricity from Canada is outside of the jurisdiction of the Commission. Electricity exports are regulated by the National Energy Board (a federal regulatory agency) and require a permit or a licence under Sections to of the National Energy Board Act, RSC 1985, c N-7. In the case of an export license, the National Energy Board under Section (2)(b) must have regard to whether an applicant has: (i) informed those who have declared an interest in buying electricity for consumption in Canada of the quantities and classes of service available for sale, and (ii) given an opportunity to purchase electricity on terms and conditions as favourable as the terms and conditions specified in the application to those who, within a reasonable time after being so informed, demonstrate an intention to buy electricity for consumption in Canada Electric Utilities Act, sections 17, 20 and 33. Electric Utilities Act, Section 33(1). Electric Utilities Act, Section AUC Decision (November 28, 2014)

27 Concerns that power prices will rise and quality of service will deteriorate as a result of the sale to a foreign entity 71. Power prices are not determined by a regulatory authority in Alberta and are accordingly outside of the public interest mandate of the Commission. Electric energy commodity prices are determined pursuant to approved power purchase arrangements, by private contract subject to the provisions of the Electric Utilities Act and the rules established by the ISO. Accordingly, they are determined in the competitive marketplace driven by economic principles of supply and demand, subject to the rules established by the ISO governing the operation of the Alberta power pool through which the exchange of electric energy and financial settlement occurs Although the Commission does not have jurisdiction over electric energy commodity pricing, it does have jurisdiction over pricing of transmission services and the manner in which those services are provided pursuant to its core statutory functions of rate setting and the protection of the integrity and dependability of utility infrastructure. The Commission must approve the costs passed on to ratepayers by AltaLink through the rates charged under its regulated tariff. This tariff represents the approved costs incurred by AltaLink in constructing and operating its transmission system, including a return on investment. The Commission also has jurisdiction to approve or deny construction of new AltaLink facilities so as to maintain service quality and the integrity of the AltaLink transmission system. The Commission carries out these public interest responsibilities through its processes to consider facility and tariff applications, and through establishing rules on service quality and by monitoring service quality results. Additionally, as discussed above, the Commission applies the no harm test to a proposed acquisition of a utility to assess the rate and service quality impacts of the proposed transaction. 73. The above review has highlighted the importance of understanding that the public interest is a broad societal concept and that different public authorities may have allocated to them the responsibility to consider a specific segment of the broader public interest relevant to a consideration of a particular issue or transaction. In the present proceeding, the portion of the public interest delegated to the Commission (its public interest mandate), is limited to a consideration of the rate and service impacts of the proposed sale. The Commission will assess these elements of the transaction through the application of its no harm test within the remaining sections of this decision. 4.2 Attachment of conditions to application approvals 74. In its argument, AIML requested that the Commission approve the applications and provide the additional authorizations required for the consummation of the proposed transaction, without applying conditions beyond those directed by the Commission in Decision In reply argument, the UCA submitted that, based on the evidence on the record of the current proceeding, it did not appear that the proposed sale would have any material, adverse Electric Utilities Act, Section 18. Decision (Errata): AltaLink Investment Management Ltd. et al., Application Related to Change in Ownership, Application No and , Proceeding ID No. 1197, September 26, At paragraph 28 of its argument, AIML noted that in Decision , the conditions established were to prepare an updated affidavit on the revised ring-fencing measures, and to provide, if necessary, any changes to its Inter-Affiliate Code of Conduct to reflect the new ownership structure. See Decision , paragraph 59. AUC Decision (November 28, 2014) 23

28 impact on the cost of service to customers or on the utility s ability to deliver safe and reliable transmission services. However, in order to ensure that the proposed sale did not, in fact, result in any harm to customers, several conditions should be imposed by the Commission in the event the Commission determined that approving the sale was in the public interest. In accordance with previous decisions of the Commission and its predecessor, the UCA restricted the conditions it recommended to reflect the principle that customers should not gain a greater level of regulatory certainty than would otherwise be obtained in the absence of a sale In its reply, the CCA similarly submitted that while it did not oppose change in the designated owners of AltaLink, it remained concerned that there could be potential for customers to be harmed. Accordingly, the CCA submitted that certain conditions should be included with the Commission s approval of the applications The CCA submitted that the primary issue is whether commitments made by the applicants need to be clearly identified and specifically included as conditions on approval of the application. Additionally, the CCA noted that if the proposed transaction proceeds, a further complication arises from the fact that SNC entities will no longer be linked by ownership to those present in proceedings before the Commission to address any shortcomings in their representations within the current proceeding The CCA submitted that cataloguing the commitments of immediate concern and including them as approval conditions would provide a useful checklist in future GTA and deferral account applications, and would provide the weight of a Commission decision in support of their future execution. Further, since the applicants have already made these commitments in writing, they should not have any material objections to the inclusion of conditions as a condition of the sale. 64 In the CCA s view, the Commission can protect customers by making it a condition or confirmation in its decision that, if required, AltaLink or the purchasers can be required to explain the failure or breach of any of the representations given by any applicant in this proceeding that these proposed transactions will not harm customers. Further, if the Commission determines it appropriate, AltaLink could be held responsible by the Commission to rectify such harm at its own expense, thus ensuring that customers will not sustain harm. Further, the CCA submitted that it is appropriate that the purchasers stand behind the representations of the SNC entities as they take over from them. 79. In rebuttal argument, AIML submitted that apart from requirements consistent with prior decisions to file an updated ownership structure flowchart, an updated affidavit on the revised ring-fencing measures, and any changes to AltaLink s Inter-Affiliate Code of Conduct to reflect the new ownership structure, the Commission should reject all the conditions sought by the UCA and CCA because: they are not necessary, appropriate, warranted or supported by the evidence they would constitute an improper and unnecessary intrusion into management s responsibility to manage the business and affairs of AltaLink they are inconsistent with prior decisions of the Commission s predecessor, and UCA reply argument, paragraph 16. CCA reply argument, paragraph 5. CCA argument, paragraph 6. CCA argument, paragraph AUC Decision (November 28, 2014)

29 they are beyond the scope of the Commission s public interest mandate and jurisdiction on these Applications, as determined by the Commission in its September 22, 2014 ruling AIML also opposed the establishment of conditions beyond those stipulated in similar prior decisions because it was concerned that AltaLink will be required to deal with claims and misinterpretations arising from conditions in future proceedings AIML submitted that the commitments made by the applicants are public and well known to the Commission. Further, as demonstrated during the oral proceeding held on September 19, 2014, the institutional memory of the Commission is strong, and, as such, inconsistent positions are readily exposed. AIML submitted that the applicants in the current proceeding fully appreciate the right of the public and the Commission to expect that commitments will be adhered to. Accordingly, AIML submitted that the Commission s current practice of expecting full compliance with commitments is sound. Conversely the establishment of conditions to protect the public interest would be wholly unnecessary. 82. In its rebuttal argument, MC Alberta responded to the requests of the CCA and the UCA that the Commission attach conditions to its approval of the proposed transaction. 83. With respect to the UCA, MC Alberta submitted that while it did not oppose certain standard conditions recommended by the UCA, some conditions recommended by interveners were either beyond the scope of the Commission s jurisdiction, or unnecessary. 84. MC Alberta recognized that the Commission s mandate in the current proceeding is fulfilled through the application of the no harm test, and if the Commission determined that customers would be harmed by a transaction, the Commission would consider whether the identified harm could be mitigated by attaching conditions to its approval In the Commission s two most recent decisions involving reorganizations of the ownership structure of AltaLink, the Commission limited its approval of conditions to: filing updated ownership structure flowcharts filing an updated affidavit regarding the commitment of Commission-approved ringfencing measures providing updates to the AltaLink Inter-Affiliate Code of Conduct 86. Having regard to the above, MC Alberta submitted that it supported the UCA s request that it file an updated ownership structure flowchart identifying the new legal names of entities following the closing of the application. However, MC Alberta agreed with the submissions of AIML and SNC, which rejected the UCA s proposed conditions in respect of Investment Canada Act commitments and with respect to the retention of records AIML rebuttal argument, paragraph 17. AIML rebuttal argument, paragraph 16. Decision , page 6 and Decision , page 8, referenced at paragraph 8 of MC Alberta rebuttal argument. AUC Decision (November 28, 2014) 25

30 87. In response to the CCA-recommended conditions, MC Alberta submitted that the majority of these conditions simply mirrored commitments made by MC Alberta on the record of the current proceeding or commitments made by BHE to Industry Canada under the Investment Canada Act. MC Alberta submitted that the CCA conditions should be denied as each CCA justification for the imposition of a specific condition fell into one of following three categories: conditions that are beyond the scope of the Commission s jurisdiction conditions that are unnecessary and inappropriate given the Commission s ongoing regulatory authority and oversight of AltaLink conditions that are unnecessary given the clear and unequivocal commitments and related evidence in this proceeding 88. In its rebuttal argument, SNC submitted that as the proceeding record clearly established that the pre-closing reorganization and acquisition would not result in harm to customers, only conditions similar to those found in Decision and were required in the circumstances of the proposed share sale transaction. Commission findings 89. The CCA and the UCA have both made submissions to the effect that they do not consider the proposed sale of the AltaLink transmission business and assets will cause material, adverse impact on the cost of service to customers, or on the utility s ability to deliver safe and reliable transmission services, so long as the Commission attaches certain specified conditions to its approval of the applications. 90. The Commission notes that, for both the CCA and the UCA, the requests for conditions to the Commission s approval focus on obtaining assurance in the future, that certain undertakings given by one or more of the applicants in the current proceeding in evidence, argument, or both will be honoured. 91. Just as the scope of the Commission s jurisdiction to consider the sale transaction must be related to matters concerned with its core rate-setting function and dependability of the infrastructure or assets necessary to deliver the regulated service, the scope of the Commission s jurisdiction to impose conditions on the sale transactions is similarly circumscribed. The Commission is not charged with the responsibility of enforcing or policing the commitments made by the applicants to other government entities and will not do so under the auspices of its no harm test. 92. The Commission recognizes that attaching conditions to the approval of an application restricts the flexibility of an applicant to respond quickly to changing circumstances. In some circumstances the restriction of the company s flexibility is warranted by the harm that could be incurred absent the conditions. Examples of conditions that have been considered necessary include the ring- fencing measures and the inter-affiliate codes of conduct that the Commission has required be implemented as part of a sale transaction. Accordingly, while the Commission expects that the applicants will honour their commitments to other government agencies, expectations of fulfillment of these undertakings are not to be taken as conditions of the Commission s approval. To the extent the Commission finds it necessary to direct an applicant to 68 Exhibit No , SNC reply argument citing Decision and Decision AUC Decision (November 28, 2014)

31 take a specific action in its findings, the Commission has clearly indicated whether such direction is a condition of those findings. 4.3 Impact of ongoing Commission oversight 93. In argument, AIML noted that the Commission s September 22, 2014 ruling observed that the Commission and its predecessor have taken into account whether the Commission will maintain sufficient regulatory oversight of the utility 69 in their application of the no harm test. 70 In this regard, AIML submitted that the evidence in the current proceeding is that the pre-closing reorganization and acquisition will not substantively change the Commission's regulatory authority over the AltaLink transmission business and over the entities involved in carrying out the business. SNC made a similar statement in its argument In its argument, MC Alberta noted that the Commission s predecessor addressed the scope of its inquiry in relation to a similar share transfer transaction in Decision in respect of FortisAlberta Inc. s (FortisAlberta) acquisition of Aquila s distribution business. Specifically, in that decision, the Commission s predecessor only addressed those issues that bear directly on the disposition of the Applications, and deferred those issues that could be dealt with in future tariff proceedings: The Board recognizes that all of the issues raised by the interveners are important to them. However, the Board considers that the detailed resolution of the majority of the issues can most appropriately be handled in future proceedings with the assistance of more timely and specific evidence. As the Board has previously held, in asset or share disposition applications, customers are not entitled to a level of post-transaction regulatory certainty they would not have realized if the transaction had not been approved. Therefore, the Board does not consider it appropriate or in the public interest to endeavor at this stage to address matters of ongoing tariff regulation. In keeping with its past practices and to promote regulatory consistency, the Board will only deal with the issues raised by the interveners that bear directly on the disposition of the Applications before the Board in this proceeding MC Alberta proposed that the same level of ownership be designated pursuant to the Public Utilities Designation Regulation and accordingly, customers would not be harmed by the transaction because all of the pre-closing regulatory protections and Commission requirements will continue post-closing In reply argument, ATCO posited that although the applicants wanted to convey the impression that they were willing to subject the applications to the Commission's previously established no harm test, they appear to want to avoid anything beyond a superficial consideration of both the potential positive and negative impacts of the transaction. 74 ATCO further submitted that the submissions of the applicants demonstrate that they do not want to have potential impacts tested at all in the context of the current proceeding. In this regard, ATCO noted that the applicants hastily dismissed ATCO inquiries as either being speculative or capable Decisions , pages and , paragraph 51. AIML argument, paragraph 21, part (e). SNC argument, paragraph 10, part (i). Decision , page 12. Exhibit No , AUC-MAAC-2(b), cited at paragraph 39 of MC Alberta argument. ATCO argument, paragraph 4. AUC Decision (November 28, 2014) 27

32 of being addressed in some future proceeding. However, consideration of potential impacts, both positive or negative, is a key part of the no harm test and these issues should not be avoided by simply referencing Commission statements made in other proceedings as a basis to by-pass a consideration of these matters in the current proceeding. Commission findings 97. While ATCO has pointed to the potential for AltaLink ratepayers to be harmed in the future if the applicants fail to take certain steps identified as being required to mitigate such harm, these concerns are generally speculative and premised on the applicants not meeting their commitments. 98. The Commission will continue to assess the reasonableness and prudence of AltaLink s actions as part of its ongoing regulatory oversight of this utility. Further, the Commission agrees with the findings of its predecessor in Decision that it is premature to try to address in this proceeding, matters that, if they arise, can be addressed in future regulatory proceedings before the Commission. 4.4 Disposition of sale proceeds 99. In his reply argument, Mr. Overly submitted that in a transfer of ownership case, the proposed transfer could be subject either to a no harm test or a more stringent test that balances the positive and negative impacts. Referencing Decision , 75 and the fact that the proceeding is dealing with the potential sale of critical Alberta infrastructure to a foreign company, Mr. Overly submitted the Commission should apply a stringent test in its assessment of positive and negative impacts from the sale. Further, in consideration of this test, Mr. Overly submitted that the Commission could attempt to mitigate the potential risks by apportioning a percentage of the gain that will be made on the sale In rebuttal, MC Alberta submitted that Mr. Overly did not identify which potential risks he was referring to in support of his suggestion that AltaLink and BHE should rebate a portion of what he describes as the gain of the sale to the Alberta customer as a means of mitigating or offsetting potential risks MC Alberta submitted that as the acquisition satisfies the well-established no harm test, even if AltaLink or BHE realizes some gain from the sale, which it stated it had not, and even if the Commission had the authority to allocate some portion of a gain on sale in these circumstances to utility customers, which it stated that the Commission did not have, there was no evidence of any potential harm that would require any compensation MC Alberta noted that the Commission s predecessor made the following finding in Decision in the face of similar arguments: the Board considers that, as long as customers are, on balance, no worse off and the assets involved are remaining in regulated service, then the sale of a utility can be treated (as suggested by TransAlta) as a transaction by shareholders that does not affect customers. The Board considers that in this instance, the Board has ensured that customers will be protected so that customers experience no disadvantage as a result of 75 Decision : TransAlta Utilities Corporation, Sale of Distribution Business, Application No , File No , July 5, AUC Decision (November 28, 2014)

33 the sale. As well, customers have the potential to benefit from the introduction of Utilicorp to the market. Therefore, the Board finds that the gain or premium on the sale should be allocated to shareholders In its argument, SNC also referenced the same passage from Decision and SNC submitted that the allocation of sale proceeds only becomes relevant in the event that the Commission determines that the proposed acquisition would result in harm to customers. However, SNC submitted that the no harm test has been met and that there is therefore no need for the Commission to consider the allocation of sale proceeds. Commission findings 104. Decision was issued prior to the release of the Supreme Court of Canada s Stores Block decision. Pursuant to the Stores Block decision, although customers have paid for electric transmission services, that does not mean that they have acquired a property interest in the AltaLink assets, and, accordingly, the Commission has no authority to apportion a percentage of the gain that will be made on the sale for the purposes of mitigating risk, as proposed by Mr. Overly. The Supreme Court of Canada in Stores Block clearly settled the law on this issue. The Supreme Court stated: Thus can it be said, as alleged by the City, that the customers have a property interest in the utility? Absolutely not: that cannot be so, as it would mean that fundamental principles of corporate laws would be distorted. Through the rates, the customers pay an amount for the regulated service that equals the costs of the service and the necessary resources. They do not by their payment implicitly purchase the asset from the utility s investors. The payment does not incorporate acquiring ownership or control of the utility s assets In Stores Block, the court determined that the Commission s predecessor did not have the jurisdiction to allocate to ratepayers any portion of the sale proceeds arising from the sale of an asset outside the ordinary course of business of a designated gas utility. 78 The court also found that the ability to allocate sale proceeds could not be implied from the statutory regime as necessarily incidental to the explicit powers granted the board The court went on to acknowledge the no harm test employed by the board when considering applications under Section 26(2) of the Gas Utilities Act, a provision similar to sections 101 and 102 of the Public Utilities Act, and commented that the board was able to carry out its statutory responsibilities without allocating the proceeds of disposition to customers. The court stated: In fact, it is not necessary for the Board in carrying out its mandate to order the utility to surrender the bulk of the proceeds from a sale of its property in order for that utility to obtain approval for a sale. The Board has other options within its jurisdiction which do not involve the appropriation of the sale proceeds, the most obvious one being to refuse Decision at page 30. Stores Block, paragraph 68. Stores Block, paragraph 7. Stores Block, paragraphs 39, 52, 75 and 77. AUC Decision (November 28, 2014) 29

34 to approve a sale that will, in the Board's view, affect the quality and/or quantity of the service offered by the utility or create additional operating costs for the future No harm test assessment 107. In fulfilling its public interest mandate when considering applications pursuant to sections 101 and 102 of the Public Utilities Act, the Commission has traditionally applied a no harm test, a test which parties have identified in their submissions in this proceedings The no harm test and the factors considered by the Commission has evolved from past decisions of the Commission and its predecessors. In its September 22, 2014 ruling, the Commission referenced the overview presented by the submissions of MC Alberta. These factors have been reproduced as follows: The first is whether there will be any impact to the rates and charges passed on to customers, and that you'll find in Decision ,[ 81 ] Decision [ 82 ] and Decision second, whether any operational benefit or risk arises related to the acquiring party's utility experience. That's in Decision , , Decision Third, whether the financial profile of the utility will be impacted for the purposes of attracting capital. That's in Decision , Decision and Decision Fourth, in the case of AltaLink, whether the utility will remain sufficiently legally, financially and operationally separate from the acquiring party, which is, of course, the ring-fencing provisions, code of conduct, et cetera, and that's in Decision and Fifth, whether the Commission will maintain sufficient regulatory oversight of the utility; Decision , Decision Sixth, whether the management and operational expertise will remain in place post transaction; Decision , Decision Seventh, whether the transmission [sic] [transaction] will result in any cost impacts for customers relating to such things as tax and pension funds. And that's Decision And eight, that the acquiring party wishes to be in the utility business in Alberta whereas the divesting party does not. That's in Decision , Decision and Decision Stores Block, paragraph 77. Decision : Upper Lakes Group Inc., Sale of Shares in Thornmark Utilities Corporation and Thornmark Waste Management Corporation, Application No , November 2, Decision : ANCL/ANCA and Fortis Alberta Share Transfer and Financing Applications, Application Nos and , April 29, Transcript, pages 81-82, beginning at line AUC Decision (November 28, 2014)

35 109. In addition to the factors summarized by MC Alberta from past Commission and Board decisions, the no harm test must also reflects that: customers are, to the maximum extent possible, to be protected against any negative ramifications arising from the transactions (Decision ) 84 customers are not entitled to a level of post-transaction regulatory certainty they would not have realized if the transaction had not been approved. (Decision ) 85 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 (Decision ) The application of the no harm test is conducted in two stages. First, the Commission must assess whether the transaction results in harm to customers. If the Commission concludes that customers may be harmed, the Commission proceeds to the second stage of its determination and considers whether any identified harms can be mitigated through approval conditions No harm test assessment 111. The Commission finds that customers will be at least no worse off after the transaction is completed, and that the proposed transaction satisfies the no harm test without the need to impose any additional specific conditions on the sale, apart from changes to the ring-fencing measures and Inter-Affiliate Code of Conduct to reflect the new ownership structure. Accordingly, as noted in the sections that follow, the Commission has directed AIML/AML to file an updated affidavit on the revised ring-fencing measures, and to provide, if necessary, any changes to its Inter-Affiliate Code of Conduct to reflect the new ownership structure In the following sections, the Commission has provided its findings regarding the various factors of the no harm test as applied to the evidence on the record of this proceeding. 5.2 Capability of acquiring entity Desire to provide regulated utility service 113. In argument, SNC submitted that the fact is clear from the application that the SNC- Lavalin Group Inc. wishes to divest itself of its indirect investment in ALP In its argument, AIML noted that in its September 22, 2014 ruling, as part of its discussion of factors the Commission and its predecessors have considered in the application of the no harm test, the Commission discussed the relevance of the fact that the acquiring party wishes to be in the utility business in Alberta whereas the divesting party does not MC Alberta similarly noted that the Commission s predecessor has ascribed benefit to share transfer transactions on the basis that an owner who wishes to participate in the utility business is able to do so, as indicated in the passage reproduced below: Decision , paragraph 49; Decision , Application for a change in ownership, page 5. Decision , Application for a change in ownership, pages 5-6. Decision , paragraph 50; Decision , Application for a change in ownership, pages 5-6. Decision , Application for a change in ownership, pages 5-6. SNC argument, paragraph 3. Decision , page 15; Decision , page 21 and Decision , page 14. AUC Decision (November 28, 2014) 31

36 The Board notes that, with respect to these types of applications, any potential benefits are generally intangible and harder to quantify. The Board notes that one persuasive factor in any sale is that a company that wants to be in the business is replacing one that wishes to exit the business In addition, MC Alberta noted that in its credit rating analysis, S&P took specific note of the fact that utility ownership is a core business of BHE, and also suggested that the fact that AILP would be of more strategic importance to BHE, as compared to the nonstrategic status of ALP to SNC-Lavalin could affect credit ratings after the close of the proposed transaction MC Alberta further noted that the Commission s predecessor had ascribed a benefit to customers from the acquisition of a utility by an owner with access to extensive experience through its affiliated companies 92 and argued that the fact that BHE affiliated companies have extensive experience in the electric utility industry is a relevant consideration for the Commission. Commission findings 118. The record is clear that SNC wishes to divest itself of its indirect investment in ALP, 93 and that MC Alberta and its parent corporation, BHE, wants to become the owner of ALP It is difficult to quantify the potential positive and negative benefits attributable to an owner who wishes to participate in the utility business, as opposed to one who does not, as they tend to be intangible in nature. The supportiveness of an owner is a positive attribute however, a financially constrained owner, no matter how well-intentioned, would not be of benefit to the utility The Commission, in assessing this factor has considered the financial strength of the entity seeking to replace the current owner and that entity s willingness to participate in the utility business. The Commission has weighed these factors against the status quo, which would leave AltaLink in control of an entity that does not want to be in the business and has recently been the subject of some controversy As set out in the evidence on the record of the proceeding, BHE has extensive experience in the utility industry outside Canada. As described in Attachment B: As of December 31, 2013, BHE's energy utility subsidiaries served approximately 8.4 million electric and natural gas customers and end-users in 11 states in the United States and England. As of that date, BHE subsidiaries owned approximately 38,900 kilometers of electric transmission line and 28,500 megawatts of generation in operation or under construction. Also as of that date, BHE subsidiaries owned approximately 26,400 kilometers of interstate natural gas pipeline, with a design capacity of approximately 7.7 billion cubic feet of natural gas per day, and transported approximately 8 percent of the total natural gas consumed in the United States during BHE s United States electric power generating, transmission and distribution, and natural gas transmission assets are owned directly or indirectly by the following entities: PacifiCorp, MidAmerican Energy Decision , page 42; Decision , page 15 and Decision , page 22. Exhibit No. 10, MC Alberta application, Appendix 6, page 2, cited at paragraph 36 of MC Alberta argument. Decision , page 9. Exhibit No. 3, SNC application, paragraph AUC Decision (November 28, 2014)

37 Company, NV Energy, Inc., Northern Natural Gas Company, Kern River Gas Transmission Company, MidAmerican Transmission, LLC, and MidAmerican Renewables, LLC. BHE s assets in England are owned directly or indirectly by Northern Powergrid Holdings Company, which indirectly serves approximately 3.9 million end-users in northern England. BHE also has interests in the Philippines, where its activities are focused on the Casecnan hydroelectric project owned and operated by a BHE subsidiary In addition, the S&P credit rating analysis suggests that AILP would be of more strategic importance to BHE, as compared to the nonstrategic status of ALP to SNC-Lavalin, which could affect ALP s credit rating post-acquisition AltaLink is currently engaged in the large transmission build that is ongoing in the province. As it raises funds in the financial markets on its own behalf, impacts to its credit rating may have a corresponding impact on rates The Commission finds that the willingness, experience and financial strength of the proposed owner of AltaLink to be a positive factor and the proposed sale transaction does not fail the no harm test on this basis Safety and reliability of service 125. AIML noted in argument that the Commission s September 22, 2014 ruling included consideration of whether any operational benefit or risk arises related to the acquiring party's utility experience 96 in its list of no harm test considerations applied by the Commission or its predecessor AIML submitted that the evidence in the current proceeding is that the continuity of safe and reliable service to customers will not be impacted by the proposed transaction. AIML noted that the proposed sale will not result in the introduction of a new operator of the transmission business, and that no change in the management and operation of AltaLink has been proposed. Also, because there will be no change in its day-to-day control 98 following the proposed sale, AltaLink will continue to provide safe and reliable service to Albertans MC Alberta also submitted that as the acquisition is a share transfer transaction, there will be no change to the operation of the utility, and no change in the safety and reliability of the service of the AltaLink transmission system. MC Alberta noted that AltaLink will remain locally operated and managed indefinitely and has confirmed that operational continuity will persist. 99 Also, MC Alberta explained in an information request that staffing and management decisions will remain with AltaLink Exhibit No. 10, MC Alberta application, Attachment B, page 1-2, paragraphs 3-4, PDF pages Exhibit No. 16, PDF page 3 and PDF page 4. Decision , page 9; Decision , page 17 and Decision , page 11. AIML argument, paragraph 21, part (b). Exhibit No , response to AE.AIML-003. Exhibit No. 10, paragraph 10, cited at paragraph 27 of MC Alberta argument. Exhibit No , AE-MC-5(a), cited at paragraph 28 of MC Alberta argument. AUC Decision (November 28, 2014) 33

38 128. In reply, ATCO submitted that it is unclear whether the new owner would seek to reduce the quality of service provided to Alberta customers in an effort to recoup the substantial losses that would otherwise be experienced in light of the purchase price for AltaLink s transmission business. ATCO submitted that it is difficult to believe that sophisticated business people would simply agree to absorb such a material loss. As such ATCO submitted that the potential impacts of the proposed transaction on the future performance of AltaLink cannot be fully understood or assessed based on the current record to this proceeding. Accordingly, ATCO submitted such matters should properly be considered in the current proceeding rather than being deferred until some unknown time In rebuttal, MC Alberta submitted that ATCO s suggestion that the new owner would seek to reduce the quality of service in an effort to recoup the purchase premium is unsubstantiated and is based solely on the supposition that it is difficult to believe that sophisticated business people would simply agree to absorb such a material loss MC Alberta further submitted that ATCO s suggestion that the record is not sufficiently complete to understand the impact of the proposed transaction on the future performance of AltaLink is entirely refuted by the record. In particular, MC Alberta noted that it confirmed in its response to CCA-MC Alberta-12 that it does not expect any decline in safety or reliability and that benchmarking, performance and reliability measures will continue to be established independently by AltaLink, subject to oversight by the Commission and the AESO. 102 Commission findings 131. The price paid for the AltaLink transmission assets and business represents the market price negotiated among the parties for this enterprise. As such, the Commission does not accept the premise advanced by ATCO that any premium paid over net book value for AltaLink assets would, of necessity, require the purchaser of these assets to recover any such premium through attempts to include imprudent costs in AltaLink s regulated revenue requirement, reductions in service quality, or both Regardless, the safety and reliability of AltaLink s transmission service will continue to be subject to the AESO s direction and oversight through ISO reliability standards, operating policies and other ISO rules and the ability to recover imprudent costs would be mitigated through the AESO s exclusive jurisdiction to determine the need for new facilities that provide additional capacity to AltaLink s transmission system and the Commission s regulatory oversight of the AESO s applications for approval of the need for new facilities Additionally, AltaLink remains subject to Commission oversight with respect to reliability and service quality matters through its duty to adhere to the terms and conditions of service attached to its tariff, and through the Commission s ongoing regulatory oversight of the prudency of AltaLink s costs and the justness and reasonableness of the rates approved in AltaLink s tariff Given the foregoing, the Commission considers that the proposed transaction does not fail the no harm test on the basis of concerns about the safety, reliability and quality of AltaLink s transmission service Quoted from ATCO reply argument, paragraph 10, cited at paragraph 82 of MC Alberta rebuttal. Exhibit No , CCA-MC Alberta-12(b), cited at MC Alberta rebuttal argument, paragraph AUC Decision (November 28, 2014)

39 5.2.3 Continuity of management and operational expertise 135. AIML noted that the September 22, 2014 ruling considered whether management and operational expertise will remain in place post-transaction in the Commission s application of the no harm test In this regard, AIML submitted that the evidence reveals that, once consummated, the pre-closing reorganization and acquisition that gave rise to the applications will not result in the introduction of a new operator of the transmission business or of the assets that comprise that business, and that since there is no change in the day-to-day control of AltaLink, no change in the management and operation of AltaLink has been proposed Additionally, AIML submitted that MC Alberta has no plan to merge either AML or ALP into, or otherwise make any of those entities part of another BHE operating company. 104 Commission findings 138. The Commission accepts the evidence of the applicants that the proposed transaction does not result in the introduction of a new operator of the transmission business The Commission regulates the quality and cost of the utility service provided by AltaLink but it does not exercise jurisdiction over the operational management decisions of the utility, except to the extent it must consider whether those decisions have resulted in prudently incurred costs. If the continuity of management and operational expertise of AltaLink is not maintained, the Commission will examine whether there is a cost to rate-payers that has resulted from this failure and whether this cost should be borne by the owners of AltaLink. Changes in the internal operation and management of AltaLink could be of benefit to customers if the changes result in increased efficiency of its operations Accordingly, the Commission considers that the proposed sale transaction does not fail the no harm test on the basis of continuity of management and operational expertise Sharing of BHE best practices and expertise 141. In its application, MC Alberta noted that BHE and its subsidiaries share, at no cost, best practices and expertise to improve safety, service reliability and efficiency. In addition, following the acquisition, AltaLink and BHE s other transmission owning companies will have the opportunity to learn from one another and improve their respective businesses to the benefit of customers In argument, AIML submitted that the evidence on the record is that a number of benefits would result from the indirect acquisition of AltaLink by BHE. These include the fact that BHE, the proposed ultimate owner of ALP, has subsidiaries possessing significant experience in the energy utility sector, 106 that are willing to share best practices at no cost to AltaLink Decision , page 11 and Decision , paragraph 51, cited at paragraph 21, part (f) of AIML argument. Exhibit No. 1, AIML application, Attachment B, paragraph 22, cited at paragraph 23 of AMIL argument. Exhibit No. 10, Attachment B, paragraph 25. Exhibit No. 10, Attachment B, paragraphs 3 and 4; Exhibit No , response to CCA-MC Alberta 17(a). AUC Decision (November 28, 2014) 35

40 143. In its argument, MC Alberta confirmed that the best practices of BHE and its subsidiaries in improving safety, service reliability and efficiency will be shared with AltaLink at no cost. 108 However, while this experience and these best practices will be made available to AltaLink, it will be at AltaLink s sole discretion to determine whether it adopts any or all of these practices MC Alberta indicated it expected the sharing of best practices would be of value to Alberta customers. 110 However, while there are likely to be operational benefits related to the sharing of best practices amongst BHE subsidiaries, MC Alberta noted that these benefits are not quantifiable at this time In reply argument, the CCA submitted that as virtually all utility activity incurs costs, MC Alberta s position that best practices can be shared at no cost is surprising. The CCA noted that in information requests responses, MC Alberta explained that financial resources for sharing best practices across BHE operating companies are expected to be limited to employee expenses related to travel. 112 However, to the extent that MC Alberta is asserting that the sharing of best practices is provided at no cost across each of the BHE operating companies, 113 the CCA suggested that MC Alberta s position was that the costs of employee expenses related to travel to share these best practices would be borne by AltaLink, but other BHE operating companies will not charge AltaLink for this knowledge of best practices The CCA further noted that in another information request response, MC Alberta indicated that it believes there will be benefits to AltaLink and its customers from the sharing of best practices and that AltaLink employee time spent discussing best practices with other BHE affiliates does not constitute an incremental cost. 114 The CCA submitted that MC Alberta s statements suggest that either (1) employee costs can be considered fixed and time devoted to sharing best practices is therefore not an incremental cost or (2) the benefits from sharing best practices more than offsets the costs. However, the CCA submitted that if employee costs are fixed, the incremental cost of sharing best practices also includes an opportunity cost for the employee time involved, which could be larger than the incremental cost. If MC Alberta is suggesting the benefits exceed the costs, such a statement is inconsistent with MC Alberta s claim noted above that the benefits of best practice sharing are not quantifiable at this time The CCA also submitted that responses to further questions on this matter in the second round of information requests suggested that BHE operating companies are effectively crosssubsidizing one or more other BHE operating companies. So, AltaLink could be on both the receiving and providing end of a process of sharing best practices along with the consequent costs and benefits. MC Alberta acknowledged in a response to a second round information request response that AltaLink will not be charged for access to the best practices of any affiliates, AltaLink may incur limited costs associated with participation in activities to facilitate Exhibit No , responses to UCA-MAAC-7(a) and (b); Exhibit No , responses to CCA-MC Alberta- 11(a) to (d). Exhibit No , UCA-MAAC-7(a), cited at MC Alberta argument, paragraph 26. Exhibit No , UCA-MAAC-7(b), cited at MC Alberta argument, paragraph 26. Exhibit No , CCA-MC Alberta-11(c), cited at MC Alberta argument, paragraph 26. Exhibit No , CCA-MC Alberta-11(c), cited at MC Alberta argument, paragraph 30. Exhibit No , CCA-MC Alberta-11(a) v. Exhibit No , CCA-MC Alberta-11(a) vi). Exhibit No , CCA-MC Alberta-20 c). 36 AUC Decision (November 28, 2014)

41 the sharing of best practices. 115 [underling added by the CCA] As well, MC Alberta was asked for an annual estimate of the costs involved in this practice but did not provide an estimate and indicated it would depend on whether travel was involved and if so, to what locations The CCA did not object to the sharing of best practices in principle. However, an ongoing understanding of the extent of this proposed arrangement in terms of employees time and costs and further clarity on who pays for these costs in cases where the benefits do not exceed the costs is necessary. Given its concerns, the CCA submitted that the Commission s approval of the application should include the following conditions: the sharing of best practices will not involve the transfer of staff between affiliates. that AML should be required to track the costs and benefits of the sharing of best practices for revenue requirement purposes In rebuttal argument, MC Alberta responded that its evidence was clear that the sharing of best practices will not involve any employee transfers and will not involve any significant cost to AltaLink, as set out in its response to CCA-MC Alberta-20, parts (a) and (b). 118 Further, even if employee transfers were to occur, any associated cost impacts would be subject to review and approval by the Commission in future tariff proceedings. In such event, the Commission can determine in the context of such future proceedings what the specific evidentiary requirements will be. 119 Given this, MC Alberta submitted that the CCA s proposed condition in respect of best practices sharing was unnecessary. Commission findings 150. The evidence suggests that corporate entities may have experience in utility operations that may be of benefit to AltaLink customers and ratepayers if shared following the consummation of the proposed transaction described in the applications. The Commission considers the value of the sharing of such experience to be positive, but unquantifiable at this time The Commission considers that it is unnecessary to direct the tracking of staff transfers related to the sharing of experience and best practices, or related to any other matter, because AltaLink is bound by its Inter-Affiliate Code of Conduct, which is intended to monitor and regulate such transactions. In any event, the Commission considers that any cost to AltaLink arising from any such transactions can be assessed in a GTA, and if necessary, those costs can be disallowed in setting the company s revenue requirement Given the above, for the purposes of this proceeding, the Commission finds that the proposed transaction does not fail the no harm test on the basis of the sharing of best practices between AltaLink and other BHE entities Exhibit No , CCA-MC Alberta-20(d)(i), cited at CCA reply argument, paragraph 48. Exhibit No , CCA-MC Alberta-20(e), cited at CCA reply argument, paragraph 48. CCA argument, paragraph 50. Exhibit No Exhibit No , paragraph 43, cited at paragraph 54 of MC Alberta rebuttal argument. AUC Decision (November 28, 2014) 37

42 5.3 Impact on financing costs 153. In argument, AML noted that the May 5, 2014 S&P credit rating report included with the applications affirmed a corporate credit rating of A-/Stable/-- for AltaLink as a result of the pre-closing reorganization and acquisition proposed in the applications. As such, AML indicated that it does not expect there would be any impact on AltaLink s credit standing if the applications are approved as filed, since AltaLink s credit rating will remain the same. 120 In its argument, AIML echoed AltaLink s position AIML noted that the evidence on the record demonstrates that a number of benefits would result from the indirect acquisition of AltaLink by BHE, including the following: the DBRS Press Release dated May 2, 2014, which states DBRS acknowledges that AltaLink will benefit from being part of the BHE family, which has strong financial flexibility to contribute necessary equity injections in a timely manner during this period of heavy capital requirements 122 the S&P Rating Report dated May 5, 2014, which states We believe that AILP will be of more strategic importance to BHE than its non-strategic status to SNC-Lavalin and that this could affect the ratings after the close 123 certain investment related conditions included in the statement of the federal industry minister, dated July 25, the fact that BHE has a buy-and-hold investment philosophy, does not pay dividends, and has a history of reinvesting its earnings back into its businesses MC Alberta submitted that evidence in the current proceeding confirmed the potential for benefits to customers to occur as a result of the acquisition related to BHE s expertise, stability, financial strength and its commitment to long-term ownership. In this regard, MC Alberta submitted that BHE s investment philosophy will benefit AltaLink insofar as it will not be required to pay dividends to its shareholders, as further explained in MC Alberta s response to UCA-MAAC-2(a): BHE has a buy-and-hold investment philosophy. It invests for the long-term in quality infrastructure assets. Unlike many other energy companies, BHE does not pay a dividend to its shareholders, and, therefore, its subsidiaries are not under financial pressure to pay dividends. In fact, BHE has a history of reinvesting its earnings back into its businesses (see UCA-MAAC-6 Attachment 1). This financial flexibility will allow AltaLink to retain its capital and strengthen its balance sheet when it is investing in Alberta as deemed necessary by the Alberta Electric System Operator (AESO) and the Commission. BHE recognizes that most of its regulated businesses go through normal cycles of capital need, and BHE s approach is beneficial to its regulated subsidiaries, in that it facilitates more stable and predictable access to capital consistent with regulatory requirements and financial prudence AML argument, paragraph 8. AIML argument, paragraph 22, part (c). Exhibit No , responses to UCA.AIML-004(a) and (b). Exhibit No , response to CCA-MC Alberta-17. Exhibit No , response to CCA-MC Alberta-05(a). Exhibit No MAC-3250, response to UCA-MAAC-2(a). See also Exhibit No MAAC-3250, response to UCA-MAAC-6(c). Exhibit No , UCA-MAAC-2(a). 38 AUC Decision (November 28, 2014)

43 156. SNC submitted that evidence on the record of the current proceeding shows that: the pre-closing reorganization and acquisition will not jeopardize the financial integrity of ALP 127 the change in ownership which would result from the Commission's granting of these Applications will not affect ALP s credit rating 128 the subsequent closing of the pre-closing reorganization and acquisition will not adversely affect the operations or financing capacity of the regulated utility 129 the financing of regulated utility operations at the ALP level will be unaffected by the pre-closing reorganization and acquisition SNC further submitted that the ability to purchase and sell interests in regulated utility assets, subject to the reasonable regulatory oversight by the Commission in accordance with the Public Utilities Act, is necessary to ensure continued investment in energy transmission, to enable the timely upgrade and enhancement of expansion facilities in Alberta and to foster a stable investment climate and continued stream of capital investment for Alberta's transmission system In reply argument, the CCA noted the commitment made by BHE to Industry Canada that 100 per cent of AltaLink s earnings will be reinvested in AltaLink, elsewhere in Alberta or in other regions of Canada for at least five years, and identified this as one of the representations made by the applicants to support the contention of no harm to rate payers if the acquisition is approved The CCA referenced MC Alberta s claim that AltaLink will benefit from the fact that it will not be required to pay dividends to its shareholders under BHE s investment philosophy 133 and MC Alberta s claim that a determination of no harm is supported by the fact that the acquisition will not result in any adverse effects on the financing capability of ALP and ALP s credit ratings are not expected to change as a result of the acquisition. 134 The CCA also submitted that the S&P rating report is key to the applicants assurances that no harm will arise from the approval of the proposed transaction. In particular, the CCA took note that: the S&P rating report reflects in part S&P s assessment that AILP will be of more strategic importance to BHE than its nonstrategic status to SNC-Lavalin 135 MC Alberta claims MC Alberta and its parent corporation, BHE, are financially capable entities, and will provide ALP long-term financial stability Exhibit No. 3, Attachment B, paragraphs 22 to 24. Exhibit No. 3, Attachment B at paragraph 23. Exhibit No. 3, Attachment B at paragraph 23. Exhibit No , response to UCA-MAAC-1(b) and (c). SNC argument, paragraph 14. Exhibit No , CCA-MC Alberta-05(a), (b) and Exhibit No , paragraph 11 (third bullet), cited at paragraph 29 of CCA reply argument. Exhibit No , CCA-MC Alberta-05(a), (b) and Exhibit No , paragraph 11 (third bullet), cited at paragraph 30 of CCA reply argument. Exhibit No. 10, PDF page 15, cited at paragraph 31 of CCA reply argument. Exhibit No. 16, MC Alberta application, Appendix 6, page 2. AUC Decision (November 28, 2014) 39

44 MC Alberta s claims regarding the capability and financial stability of itself and its parent BHE is, in turn, supported by a press release from the Dominion Bond Rating Service (DBRS), which states that: DBRS acknowledges that AltaLink will benefit from being a part of the BHE family, which has a strong financial flexibility to contribute necessary equity injections in a timely manner during this period of heavy capital requirements The CCA submitted that while the Commission and interveners can take some comfort from the above noted claims and the role BHE can potentially play in support of the financing requirements of AltaLink, such claims could be altered in the event that BHE faces some other pressing financial priority in its diverse operations in other countries. The CCA submitted that a guarantee that AltaLink earnings will be reinvested in Canada would provide some assurances that reinvestment of AltaLink earnings as required to support the substantial capital expenditures demands expected of AML in the next five years Based on its concerns, the CCA recommended that the Commission s approval of the applications include a condition that 100 per cent of AltaLink's earnings will be reinvested in AltaLink, elsewhere in Alberta or in other regions of Canada for at least five years In his reply argument, Mr. Overly submitted that it is unclear why a five-year limitation has been placed on the duty of the prospective new owner to reinvest profits in Alberta and Canada. To the extent that the applicants have suggested in argument that investments in Alberta and Canada will continue beyond a five-year limit, this commitment should be increased to 30 years, and should be set out in the sale contract In its rebuttal, MC Alberta submitted that the evidence on the record of the current proceeding is that BHE s commitment to reinvest 100 per cent of AltaLink s earnings into AltaLink, elsewhere in Alberta, or other regions of Canada, will be met. Further, the record shows that BHE s commitment will extend into the foreseeable future In addition, MC Alberta noted that the applicants evidence: confirmed that reinvesting in its acquired businesses is consistent with BHE s buy-andhold investment philosophy, 138 and indicated that BHE and MC Alberta intend to reinvest AltaLink s earnings into AltaLink to fund capital plans consistent with directives from the AESO and to maintain the capital structure consistent with relevant tariff approvals 139 showed that BHE and MC Alberta do not currently have any additional specific plans in terms of reinvestment of AltaLink s earnings to the extent AltaLink generates earnings in excess of its needs other than to pay interest and principal of AILP and AHLP debt Given the above, MC Alberta submitted that imposing a condition as suggested by the CCA is unnecessary. More fundamentally, however, MC Alberta noted that the commitment to Exhibit No. 10, page 1, paragraph 3 and footnote 3. MC Alberta rebuttal argument, paragraph 41. Exhibit No , UCA-MAAC-02(a), cited at MC Alberta rebuttal argument paragraph 42. Exhibit No , UCA-MAAC-06(c). Exhibit No , UCA-MAAC-06(c). 40 AUC Decision (November 28, 2014)

45 reinvest was made to Industry Canada under its legislated mandate and approval process, and BHE s compliance with that commitment falls within the scope of Industry Canada s jurisdiction. Accordingly, MC Alberta submitted that imposing the condition sought by the CCA would be outside of the scope of the Commission s jurisdiction and public interest mandate in this proceeding MC Alberta further submitted that Mr. Overly s suggestions with respect to the reinvestment of earnings from the ongoing operation of AltaLink is also beyond the scope of the Commission s public interest mandate in this proceeding. Commission findings 167. The Commission agrees with the submission of SNC that the ability to purchase and sell interests in regulated utility assets, subject to reasonable regulatory oversight, is necessary to ensure continued investment in energy transmission, to enable the timely upgrade and enhancement of expansion facilities in Alberta and to foster a stable investment climate and continued stream of capital investment for Alberta s transmission system. As well, Alberta ratepayers may achieve tangible benefits in the form of a reduced cost of capital from the maintenance of an environment where sales of regulated utilities that do not give rise to harm can take place In the current proceeding, the evidence on record reveals that rating agencies believe that the consummation of the proposed transaction would be neutral or beneficial to the cost of debt required to finance required AltaLink investments The indicative rating in consideration of the proposed transaction prepared by S&P places significant emphasis on an assumption that the AltaLink transmission assets and business would be of greater strategic value to MC Alberta in the context of its corporate ownership structure than AltaLink is to SNC. However, the Commission is not persuaded that this perception of a greater strategic value means that rate payers could not be impacted by potential adverse financing implications that could arise after the completion of the proposed transaction MC Alberta s reference to the reputation of its parent for not requiring dividends and for reinvesting in its subsidiaries, does not equate to a stated commitment that it would not require a dividend from AltaLink or that it would reinvest in AltaLink. Recognizing AltaLink s large capital build requirements, which are ongoing, the Commission is concerned that the nature of the commitment stated by MC Alberta is less direct than the clear commitments that representatives of AltaLink had recently made to the Commission that SNC entities have undertaken to provide during the current intensive capital build period It is the Commission s understanding that it was SNC s intention to actively support AltaLink with equity injections as necessary during the large capital build period. This is reflected in the testimony provided by AltaLink s chief financial officer in AltaLink s last GTA proceeding, which is reproduced below from Decision : MC Alberta rebuttal, paragraph 45. See Decision : AltaLink Management Ltd., General Tariff Application, Application No , Proceeding ID No. 2044, November 12, 2013, paragraphs 1029 and AUC Decision (November 28, 2014) 41

46 1036. Q. So you certainly had no sense from SNC itself that there was any risk of, you know, guys, we may not be able to fulfil our equity commitment? A. MR. BRONNEBERG: No. Absolutely not. No. And certainly I've never had anybody at SNC signal to me that they would have problems making those obligations. mean, this is one of their most critical or most strategic investments. They've said that in their shareholder address at the annual general meeting, and this and Highway 407. And if they have -- you know, if there's one investment that would be in the best interest to finance, my belief, this is what I tell investors, AltaLink would be the one The Commission recognizes that it does not have the authority to compel the designated parents of AltaLink to provide equity injections as needed to maintain a deemed capital structure to support the company s credit rating, and, therefore, could not compel MC Alberta to make such injections if the proposed transaction is completed. However, the Commission has made it clear in prior AltaLink GTA decisions that AltaLink s ability to maintain its credit rating must be independent of the credit rating of its owners. 144 Accordingly, in the event that the parent did not provide equity injections at the levels represented to the Commission by AltaLink management and if, as a result, increases in the cost of debt occurred, any such increase in the cost of debt would be borne by AltaLink s shareholder because the Commission would only approve a revenue requirement based on a deemed capital structure and deemed cost of debt assuming the equity injection had been made. This expectation would also apply to MC Alberta in the event that the proposed transaction is completed With the above noted clarification, the Commission finds that the purchase of the AltaLink transmission assets and business from SNC should be a net benefit to ratepayers from a financing perspective because of the financing capacity of the new proposed owner of AltaLink. Accordingly, the Commission considers that the proposed transaction does not fail the no harm test on this basis. 5.4 Control and governance matters Ring-fencing measures 174. The applicants submitted that the ring-fencing measures currently in place for the AltaLink entities were adopted to: (i) solidify the ongoing credit quality of the operating entity, ALP; (ii) isolate the financial risks of AHLP and AILP from those of ALP; (iii) preserve the independence of ALP in regulation; and (iv) ensure proper governance. 145 The applicants summarized the current ring-fencing measures as follows: 146 Legal Shared voting control for certain material actions: AML s board will continue with the independent director requirements in place and the unanimous consent of all directors, including the consent of the independent directors, will be required for ALP to: Decision , paragraph Decision , paragraph 794, and Decision , paragraph Exhibit No. 3, SNC application, Attachment B, paragraph 27. Exhibit No. 3, SNC application, Attachment B, paragraph AUC Decision (November 28, 2014)

47 (i) commence proceedings for its protection under the Companies Creditors Arrangement Act or similar legislation or make any proposal or commence proceedings with respect to a proposal under the Bankruptcy and Insolvency Act or seek or take any proceeding or be the subject of any proceeding relating to a compromise or arrangement with creditors or claimants generally; (ii) consent to the appointment of a receiver, receiver-manager or similar officer of ALP, its business or its property (whether pursuant to an instrument appointment with or without court confirmation or an order of the court, or any other process); or (iii) institute proceedings to be adjudicated bankrupt or insolvent or to be wound-up, or consent to the institution of bankruptcy, insolvency or winding-up proceedings against it, or file a petition, answer or consent seeking a dissolution or winding-up under any bankruptcy, insolvency or analogous laws. The obligations of ALP are separate and distinct from those of AILP and AHLP. Governance There are no common directors on the boards of AML and AIML. AML s board currently consists of a majority of outside directors that are determined to be independent from AML and any of its affiliates. There are no common officers between AML and AIML. Financial No cross default between ALP debt and AILP debt, and a default on AHLP debt will not create a default on the respective debt of AILP or ALP. This means that any debt raised at AILP or AHLP is raised at no risk to ALP. An event of default at AILP or AHLP will not trigger ALP default. Subordinated debt from AILP to ALP is deeply subordinated and bears equity risk. Restrictions on distributions to equity: These distributions are limited by ALP s Master Trust Indenture. No distribution can be paid out unless all operating and debt service requirements have been satisfied. Furthermore, ALP needs to maintain the regulated capital structure. Regulatory Issuance of all debt by ALP with a term greater than one year must be approved by the Commission. ALP is restricted to a single line of business: to own and operate regulated transmission assets in the province of Alberta that are regulated by the Commission. This single focus isolates the risks of ALP to those associated with regulated transmission assets. AUC Decision (November 28, 2014) 43

48 175. The applicants submitted that except for some housekeeping measures to update the Inter-Affiliate Code of Conduct for AltaLink and a compliance plan to reflect the postacquisition affiliates, the ring-fencing measures and AltaLink Code of Conduct will remain unchanged following the acquisition. AML argued that the ring fencing measures result in ALP being financially, legally and operationally separated from AILP and AHLP, with the risks of ALP being separate and distinct from those of AILP and AHLP MC Alberta added that the current ring-fencing measures isolate the creditworthiness of the operating subsidiary from that of its parent entity and result in ALP, AILP and AHLP being financially, legally and operationally separated from each other. 147 Commission findings 177. Ring-fencing measures are concerned with isolating the creditworthiness of the operating subsidiary, AltaLink, from that of its parent entity. 148 The underlying purpose of the ring-fencing measures is to shelter the utility and its customers from any negative ramifications arising from the activities of affiliated entities within the AltaLink ownership structure The proposed change in ownership does not impact the purpose or effectiveness of the ring-fencing measures, as modified by these applications, thus preserving the financial isolation of ALP from the other entities in the ownership structure. The Commission also notes that S&P viewed the ring-fencing measures as sufficient in its credit rating report The ring-fencing measures that are in place, subject to the proposed changes in the applications, will continue, which results in ALP, AILP and AHLP being financially, legally and operationally separated from each other, with the risks of the regulated entity, ALP, being separate and distinct from those of AILP and AHLP Accordingly, the Commission considers that the proposed transactions do not fail the no harm test on the basis that the transactions may adversely affect the credit worthiness of AltaLink. Nonetheless, to ensure that the ring-fencing measures remain in place and are adequate, following consummation of the transaction, the Commission directs AIML/AML to file an updated affidavit on the revised ring-fencing measures upon closing of the transactions proposed in the applications Independence of AML and ALP 181. AIML argued that the pre-closing reorganization and acquisition that gives rise to these applications, when consummated, will not result in the introduction of a new operator of the transmission business or of the assets that comprise that business, and do not propose a change in the management and operation of ALP. 151 AIML submitted that the only change that will occur is that the three SNC corporations that currently hold an interest in ALP will be replaced by one entity, NewCo, a taxable Canadian corporation Exhibit No , MC Alberta argument, paragraph 33 citing Decision , paragraph 55. Decision at page 12. Decision , paragraph 55. Exhibit No. 16, page 5, PDF page 6. Exhibit No. 131, AIML argument, paragraphs 4 and 22(a). Exhibit No. 131, AIML argument, paragraph AUC Decision (November 28, 2014)

49 182. Specifically, AIML submitted: Any management decisions for AML will be made by either the management or board of directors of AML (the independence of the latter being ensured under the AltaLink ringfencing measures approved by the Commission), each of whom have a duty to act in the best interest of AML. 153 Any management decisions for AIML will be made by the board of directors or management of AIML, each of whom have a duty to act in the best interest of AIML. 154 Day-to-day operation of the utility business will continue to be managed on a stand-alone basis, with AML management making all day-to-day decisions. 155 Any interactions between MAAC and the utility will be subject to AltaLink s Inter- Affiliate Code of Conduct and the ring-fencing provisions will continue to apply. 156 The business and affairs of AltaLink and AIML will continue to be controlled and directed by the officers and directors of each. 157 AltaLink will continue to be managed on a stand-alone basis in the best interests of its stakeholders collectively The applicants further submitted that: AML and ALP will continue to maintain their own books and records. 159 The headquarters of the AltaLink transmission business will remain in Calgary, Alberta, and management and operating activities will be maintained locally. 160 AML will continue to develop its own business plans and budgets, and operate within them In addition, MC Alberta submitted that: It will not be able to influence, directly or indirectly the actions or managerial, financial and operational decisions made by the general partners, AML and AIML. 162 It will not interfere with AML s independent determinations regarding the staff and management required to manage and operate the transmission assets and business of ALP. 163 AltaLink will remain locally operated and managed indefinitely and that operational continuity will persist In its reply argument, ATCO submitted that both the board of directors and management of AltaLink must answer to a new parent that owns 100 per cent of the subject entity. 165 ATCO Exhibit No. 131, AIML argument, paragraph 24. Exhibit No. 131, AIML argument, paragraph 24. Exhibit No. 131, AIML argument, paragraph 24. Exhibit No. 131, AIML argument, paragraph 24. Exhibit No. 140, AIML reply, paragraph 42. Exhibit No. 140, AIML reply, paragraph 42. Exhibit No. 3, MC application, Attachment B, paragraph 22. Exhibit No. 3, MC application, Attachment B, paragraph 22. Exhibit No. 3, MC application, Attachment B, paragraph 22. Exhibit No , AE-MC-2(c). Exhibit No , MC Alberta argument, paragraph 28. Exhibit No , MC Alberta argument, paragraph 27. AUC Decision (November 28, 2014) 45

50 submitted that this new parent company will have ultimate authority regarding the appointment of board of directors and management and, de facto, will exercise total control over AltaLink's transmission business. 166 ATCO noted that statutes, such as the Alberta Business Corporations Act, Section 2(2), clearly define control in terms of the ownership interest in a company and the votes attached to securities of the entity and not just the board of directors itself The CCA submitted that the applicants representations on this matter reduced the likelihood of harm to taxpayers; however, the CCA considered these representations meaningless unless supported by the following condition: MC Alberta will abide by the following commitments for a minimum of five years, unless granted relief by approval of an Application to the Commission: a. The Acquisition does not provide for and MC Alberta has no plan to merge either AML or ALP into, or otherwise make any of those entities part of, another BHE operating company. b. AML and ALP will continue to maintain their own books and records. c. The headquarters of the AltaLink transmission business will remain in Calgary, Alberta, and management and operating activities will be maintained locally. d. AML will continue to develop its own business plans and budgets, and operate within them MC Alberta opposed the CCA s conditions. It submitted that the requirement to maintain separate books and records is embedded in Section of the AltaLink Inter-Affiliate Code of Conduct. 169 Therefore, there is no justification for conditioning the Commission s approval to incorporate the CCA s recommended conditions In reply argument, AIML also argued that the request for conditions on books and records was unwarranted stating that: AltaLink is the regulated utility. It is untouched and remains subject to the ongoing regulatory oversight of this Commission. The officers and directors of AltaLink have and continue to have the obligation to manage the business and affairs of AltaLink. Maintaining books and records relating to the business is only one of the many obligations that management of any enterprise must undertake. This obligation exists regardless of the sale by an upstream owner and is unaffected by a sale. 171 Commission findings 189. The measures proposed to be put in place to ensure the independence of AML and ALP, as set out in the applications, satisfy the no harm test Exhibit No , ATCO reply, paragraph 15. Exhibit No , ATCO reply, paragraph 15. Exhibit No , ATCO reply, paragraph 16. Exhibit No. 127, CCA reply, paragraph 19. Exhibit No , MC Alberta rebuttal, paragraph 29. Exhibit No , MC Alberta rebuttal, paragraph 30. Exhibit No , AIML rebuttal, paragraph AUC Decision (November 28, 2014)

51 190. Although BHE will be the 100 per cent shareholder in NewCo, the Commission accepts the evidence of the applicants that: Management decisions for AML and for AIML will be made by either management or board of directors of the respective entities, each of whom has a duty to act in the best interest of the utility. Day-to-day operation of the utility business will continue to be managed on a stand-alone basis, with AML management making all day-to-day decisions With respect to the conditions proposed by the CCA, the Commission does not consider it necessary to impose such conditions as part of this transaction. While operating and maintenance expenses are examined by the Commission in the general tariff applications of AltaLink, it is the utility that is responsible for managing its day to day business. Although the entities at this time have made commitments regarding their operational and organizational intentions, circumstances can change such that it may be beneficial to rate-payers for the organizational structure to further change. If and when such an event occurs, the Commission will examine this matter at that time Inter-Affiliate Code of Conduct 192. SNC submitted that the Inter-Affiliate Code of Conduct, approved by the Commission's predecessor and currently in effect, will remain in effect following the proposed pre-closing reorganization and acquisition. 172 MC Alberta confirmed this view A black line version of the Inter-Affiliate Code of Conduct and the AIML Compliance Plan indicating the housekeeping revisions that are planned to be made to each was provided by AIML. 174 Commission findings 194. The Commission acknowledges the applicants submission that the Inter-Affiliate Code of Conduct will continue to apply and remain unchanged except for necessary changes to reflect the new ownership structure The Commission directs AIML/AML to provide any changes to its Inter-Affiliate Code of Conduct to reflect the new ownership structure upon closing of the transactions Services provided by SNC affiliates 196. In its reply argument, ATCO submitted that affiliate relationships between AltaLink and SNC-Lavalin have been the source of ongoing concern for the Commission and ratepayers. It added that such concern has continued up to and including Decision dated September 8, 2014 in respect of AML s general tariff application (GTA) refiling, in which the Commission made the following comments in respect of payments made by AML under engineering procurement and construction management (EPCM) agreements with SNC-Lavalin: Exhibit No , SNC argument, paragraph 10(h). Exhibit No , MC Alberta argument, paragraph 34. Exhibit No , AIML information request responses to UCA, UCA-AIML-005(a). Decision : AltaLink Management Ltd., Refiling Pursuant to Decision and Decision , Application No , Proceeding No. 3024, September 8, AUC Decision (November 28, 2014) 47

52 Although the Commission will not direct AltaLink to make a second refilling to comply with the Commission's Direction and thereby account for the excess EPCM payments in question, the Commission wishes to make it clear that its Decision not to order a second refilling should not be taken as approval of these payments nor as a finding that AltaLink has complied with Direction 27. The Commission will address AltaLink's noncompliance as part of its review of Capital Project costs in future DACDA proceedings. In anticipation of this review, the Commission further directs AltaLink to keep, as a separate reconciliation, a record for each Capital Project in which EPCM costs are governed by the Relationship Agreements, the amount of EPCM costs that are paid and the amount that would have been paid under the old Master Service Agreements pricing for the same EPCM services. This information must be provided as part of the filing for any Capital Project for which an Application has been made for final approval of that Project s costs (emphasis added by ATCO) ATCO submitted that if the proposed transaction is approved, the affiliate relationship between AltaLink and SNC-Lavalin, including specifically the EPCM agreements existing thereunder, will be handled in a scenario where the proposed purchaser of the AltaLink transmission controlling the counterparty to the existing arrangements with SNC-Lavalin is not known ATCO submitted that while the applicants have suggested that the Commission can take comfort in respect of affiliate agreements on the basis of AltaLink s Inter-Affiliate Code of Conduct, the applicants have not addressed how specific EPCM Agreements will be handled in the future, particularly in light of ongoing controversy and continuous disallowances that have been applied since their inception. ATCO noted in particular that in its response to AE-MC- 14(b), MC Alberta indicated that following the proposed acquisition, SNC-Lavalin will no longer be an affiliate of AltaLink. As such, existing commercial arrangements between SNC-Lavalin and AML will not be subject to the Inter-Affiliate Code of Conduct ATCO noted that the effect that the new relationship between the new owner of AltaLink and SNC will have on Alberta customers is unknown, and submitted that the manner in which these SNC/AltaLink agreements are handled on a go-forward basis can and will have direct impacts on customer rates and service. As such, ATCO submitted that these agreements should not be excluded from consideration under the no harm test as applied in the current proceeding ATCO submitted that while suggestions by the applicants that the Commission retains jurisdiction to consider cost recovery issues in future AltaLink GTA, this does not relieve the Commission from its public interest duty to consider whether there are rate and service implications arising from the proposed sale transaction in the context of the current proceeding. However, ATCO submitted that while it attempted to get direct answers to questions through the information request process, the applicants did not provide forthcoming responses to ATCO s questions In rebuttal argument, AIML submitted that ATCO s statement that [w]e simply do not know how the relationship between the new owner of AltaLink and SNC will impact Alberta customers is not a reasoned argument from an established evidentiary record. In this regard, AIML noted that the Commission s predecessor has previously held that in determining whether the no harm test is met, it is not prepared to consider speculative issues related to potential future 176 Decision , paragraph 76, cited at paragraph 11 of ATCO reply argument. 48 AUC Decision (November 28, 2014)

53 impacts where the existing regulatory framework will provide recourse if and when those potential impacts materialize AIML submitted that there is no credible basis to speculate that, in the event the requested approvals are granted and the proposed transaction closes, customers will be harmed as a result of the existence of past affiliate agreements. AIML noted that AltaLink management will continue to prudently manage regulated utility business and AltaLink will remain subject to Commission oversight. As such, speculation that customers will be harmed by future affiliate transactions is offensive to AltaLink and AIML and trivializes the Commission s ongoing regulatory oversight, including oversight within future AltaLink GTAs Contrary to ATCO s suggestion that it is not known how the relationship between AltaLink and SNC-Lavalin will be handled in the future, MC Alberta submitted that the record is clear that the acquisition will not affect the EPCM relationship in a way that harms customers or which derogates from the Commission s authority to approve AltaLink costs arising from the relationship. In addition, as discussed in its response to AE-MC-14, the record also demonstrates that MC Alberta and its affiliates will not be in a position to exercise influence over AltaLink/SNC-Lavalin relationships MC Alberta noted in particular the following response to ATCO in AE-MC-02(c): (MAAC) will not be able to influence, directly or indirectly the actions or managerial, financial and operational decisions made by the general partners, AML and AIML. Any management decisions for AML will be made by either the management or board of directors of AML (the independence of the latter being ensured under the AltaLink ring-fencing measures approved by the Alberta Utilities Commission(Commission)) each of whom have a duty to act in the best interest of AML, the utility. Any management decisions for AIML will be made by the board of directors or management of AIML, each of whom have a duty to act in the best interest of AIML. Day-to-day operation of the utility business will continue to be managed on a stand-alone basis, with AML management making all dayto-day decisions. Further, any interactions between MAAC and the utility will be subject to the Inter-Affiliate Code of Conduct MC Alberta submitted that the evidence is clear and unequivocal that: SNC will cease to have any ownership interest in AltaLink. AltaLink will continue to manage any ongoing commercial relationships with SNC, under the ongoing regulatory authority and oversight of the Commission. Neither MC Alberta nor any of its parent corporations or other affiliates will exercise any influence over these relationships SNC stated that the relationship agreement between SNC-ATP and AltaLink will continue beyond the closing of the acquisition, and the AUC will retain the jurisdiction and Decision , Appendix 1, page 2, paragraph 1. AIML rebuttal argument, paragraph 39. Exhibit No , AE-MC-14(b)(d)(i). Exhibit No , AE-MC-2(c). MC Alberta rebuttal argument, paragraph 91. AUC Decision (November 28, 2014) 49

54 authority to review SNC-ATP contracts in the context of future regulatory proceedings. 182 Accordingly, SNC submitted that any issues relating to SNC-ATP do not need to be examined in the current proceeding and should be left for other regulatory proceedings where all relevant facts are available to the Commission rather than having to rely upon mere speculation. SNC added that this same approach was followed in Decision Commission findings 207. The existing long-term EPCM agreements between AltaLink entities and SNC-ATP have a significant impact on the costs of direct assign and other capital projects expected to be added to AltaLink s rate base after the proposed transaction is closed Concerns related to AltaLink s ongoing EPCM arrangements with SNC-ATP have been raised in multiple AltaLink GTAs including the Commission s finding in Decision that AltaLink must maintain a reconciliation between the pricing of EPCM services paid under new and old EPCM service agreements entered into with SNC-ATP, and provide these reconciliations within future proceedings The Commission also takes note of the following provisions found in Article 9.3 of the share purchase agreement (SPA) filed on the record of this proceeding: 9.3 Allocation of Responsibility Resulting From AUC Disallowances (a) The Parties agree as follows with respect to AUC Disallowances: (i) the Sellers and Alberta Ltd. shall pay to the Purchaser, on a dollar for dollar basis, the first AUC Disallowances to occur up to an amount of twenty five million dollars ($25,000,000); (ii) if the AUC Disallowances exceed twenty-five million dollars ($25,000,000), but are less than or equal to fifty million dollars ($50,000,000), none of the Sellers or Alberta Ltd. shall have any liability with respect to any such portion of AUC Disallowances which exceed twenty-five million dollars ($25,000,000) but are less than or equal to fifty million dollars ($50,000,000); and (iii) if the AUC Disallowances exceed fifty million dollars ($50,000,000), the Sellers shall pay to the Purchaser, on a dollar for dollar basis, an amount equal to fifty percent (50%) of any such AUC Disallowances in excess of fifty million dollars ($50,000,000); provided that the maximum amount the Sellers and Alberta Ltd. shall be required to pay to the Purchaser in respect of AUC Disallowances shall not exceed fifty million dollars ($50,000,000) in the aggregate. (b) All amounts that the Sellers and Alberta Ltd. become liable to pay to the Purchaser pursuant to Section 9.3(a) shall be paid by wire transfer or other immediately available funds within ten (10) Business Days of the applicable AUC Disallowance becoming final without an appeal being made thereon by the applicable Operating Entities, taking into consideration the rights and obligations under Section 9.3(c)(iv). The Exhibit No , response to CCA-SNCEAL-03; Exhibit No , response to AE-SNC-1(a) to (g). Decision , Appendix 1, page 2 of AUC Decision (November 28, 2014)

55 Sellers and Alberta Ltd. shall have no liability under this Section 9.3 for any AUC Disallowance which is solely the result of the imprudent conduct of the Purchaser or of any of the Operating Entities following the Closing Date Under the current SNC-ownership of AltaLink s regulated transmission business and assets, SNC shareholders bear 100 per cent of the cost of any disallowance that may be applied in respect of costs arising from EPCM services provided for AltaLink projects to be added to AltaLink s regulated rate base. If the sale transaction proceeds, the operation of Article 9.3 of the SPA eliminates or limits financial risk that SNC shareholders would otherwise bear under the continuation of SNC ownership of the regulated AltaLink transmission assets and business Given this arrangement, the Commission will exercise a more particular kind of oversight in future AltaLink tariff and deferral account proceedings when it tests and examines the services provided by SNC entities to AltaLink With regard to the concern expressed by ATCO that, as stated by MC Alberta in AE-MC- 14(b), the AltaLink Inter-Affiliate Code of Conduct would not apply to services provided by SNC affiliates including SNC-ATP, the Commission does not consider this change in circumstance to be a significant consideration for the purposes of the Commission s assessment of the no harm test The inter-affiliate codes of conduct were established to ensure that rate-payers were not subsidizing, through the rates paid to regulated entities, the operational costs of non-regulated affiliates. Therefore, the code requires that services provided by an affiliate to a utility be provided at no more than fair market value In the absence of an affiliate transaction, the Commission would still review the reasonableness of the costs paid to a third party supplier. In the case of AltaLink, EPCM services are also provided by Burns MacDonald, which is not an affiliate of AltaLink. The Commission examines those costs in both tariff and deferral account applications. Subject to the additional scrutiny that the Commission will be applying to the SNC-ATP transactions as explained in the preceding paragraph, the Commission considers that the applications should not fail the no harm test solely on the basis of issues related to services provided by SNC or its affiliates. 5.5 Impact of sale on AltaLink revenue requirement and rate base Premium on purchase price 215. A number of parties provided submissions in consideration of the purchase price to be paid for the transmission assets and business of AltaLink and the relationship of this price to the regulated net book value of AltaLink s assets In argument, AIML noted that the Commission s September 22, 2014 ruling took note of the fact that the Commission or its predecessor have considered whether there will be any impact to the rates and charges passed on to customers. 184 In this regard, AIML submitted that the evidence in the current proceeding is that ratepayers will be no worse off after the proposed pre- 184 Decision , page 12; Decision , page 16; Decision , paragraph 51, cited at part (a) of paragraph 21 of AIML argument. AUC Decision (November 28, 2014) 51

56 closing reorganization and acquisition, 185 and that there will be no impact on the rates and charges passed on to customers as a result of the proposed transaction MC Alberta also submitted that, as a share transfer transaction, the acquisition will have no impact on ALP s rate base or operating costs. 187 Further, MC Alberta noted that it confirmed that none of the costs related to the acquisition will be directly or indirectly borne by customers, 188 and will not result in any cost impacts on customer rates relating to such things as tax and pension funds. In any event, MC Alberta submitted that these matters pertain to ongoing tariff regulation and, as such, are irrelevant to the current proceeding SNC submitted that the evidence in this proceeding established that the proposed preclosing reorganization and acquisition will meet the no harm test, insofar as it would not impose additional costs on ratepayers or increase the regulated rate base In reply argument, ATCO submitted that the Commission should be aware that the proposed purchaser has paid a significant premium over net book value in order to acquire the subject transmission business from AltaLink. ATCO submitted that while the applicants have made unsupported statements that ratepayers will not be harmed as a result of the proposed transaction, the fact that a significant premium over net book value is to be paid, combined with the inability to directly include the premium in rate base leaves open the serious question of how the purchaser will seek to recoup the substantial monies that it has expended. In this regard, ATCO submitted that it is totally unclear at the present time whether the purchaser will seek to recoup this substantial investment in an indirect manner, that would have a direct impact on the future costs included in utility revenue requirement and hence the rates charged to customers. ATCO submitted that the issue of the premium over book value clearly raises a potential negative impact on customer rates or service that remains unanswered In its argument, the UCA submitted that despite the assertion of MC Alberta that the acquisition will have no impact on ALP s rate base or operating costs and that the purchase will not result, directly or indirectly, in any cost increases to customers, 191 it remained concerned that the estimated purchase price, which is significantly greater than book value, 192 may result in increased costs to customers The UCA noted that the Commission s predecessor dealt with a similar issue in Decision , in respect of an associated share transfer and financing application related to the sale of the Aquila Networks Canada Ltd. distribution utility to FortisAlberta as set out below: One of the potential negative impacts for customers arises from the possibility that the purchaser may seek to recover any premium paid for the business over its book value. Customers are harmed in the relevant sense by recovery of the premium since they would not have faced this potentially significant impact in the absence of the sale. In Exhibit No. 1, AIML application, paragraph 20(e). Exhibit No , UCA-MAAC-7(a); Exhibit No , AUC-SNC-3; Exhibit No , CCA-MC Alberta- 07; Exhibit No , CCA-MC Alberta-11(a)(vi); Exhibit No , UCA.AIML-003(a). Exhibit No. 10, Attachment B, paragraph 21, cited at MC Alberta argument, paragraph 23. Exhibit No , CCA-MC Alberta-7(a), cited at MC Alberta argument, paragraph 23. Decision , page.12, cited at MC Alberta argument, paragraph 23. Exhibit No , UCA-MAAC-1(b) and (c), cited at paragraph 10, part (f) of SNC s argument. Exhibit No , MC Alberta argument at paragraph 23; Exhibit 86.02, responses to UCA-MAAC-1(a)-(c). Exhibit No , UCA-MAAC AUC Decision (November 28, 2014)

57 previous Decisions, the Board has held that recovery of any of the premium associated with sale of assets and sale of shares transactions through customer rates would not be appropriate... Nevertheless, the Board considers it in the public interest, as it has found in previous Decisions, to formalize Fortis Alberta s commitment not to seek recovery of the premium from customers. Therefore, the Board will condition any approval of the Share Transfer Application so that the premium cannot be recovered from customers Given the above, the UCA submitted that the Commission should impose a similar condition on any approval in the present case. Specifically, the UCA proposed that the wording of the condition the Commission should apply should be as follows: None of the Applicants, nor any related entity nor successor of them, shall seek to recover from customers the premium over net book value paid for the shares of NewCo pursuant to the Share Purchase Agreement In rebuttal argument, MC Alberta noted that in response to several questions related to the purchase premium to be paid in accordance with the SPA posed in UCA-MAAC-01, it confirmed that the rate base of the entities acquired will not change as a result of the acquisition, and that the acquisition will not result, directly or indirectly, in any increase to the costs paid by customers for utility service. 194 MC Alberta s evidence is both unequivocal and uncontroverted that the purchase premium at the holding company level will have absolutely no effect on AltaLink s rate base or rates Responding to the UCA s proposed condition in respect of the recovery of the purchase premium, MC Alberta noted that, as the UCA has acknowledged, it has made a clear an unequivocal commitment on the record of the current proceeding that the purchase premium will not be recovered from customers. Furthermore, while MC Alberta acknowledged that there is limited precedent 195 for a condition similar to that proposed by the UCA, the Commission s predecessor explicitly determined that such a condition was not necessary when it considered the initial sale of the TransAlta transmission assets and business to AltaLink in Decision In addition, MC Alberta noted that a condition of this sort has not been imposed in recent decisions MC Alberta submitted that ATCO s claims that the applicants have failed to provide sufficient evidence to address service reliability issues and potential impacts on customer rates represent nothing more than unsubstantiated innuendo, which ATCO does not support with evidence MC Alberta submitted that these allegations have been completely refuted by MC Alberta s evidence that, under the SPA, the purchase price will have no direct or indirect impact on AltaLink s rates or reliability of service. 197 In particular, MC Alberta submitted that its Decision , page 18. Exhibit No , UCA-MAAC-1(b-e). Decision : TransAlta Utilities Corporation, TransAlta Energy Corporation, and AltaLink Management Ltd., Sale of TransAlta Transmission Assets and Business to AltaLink, Application No , , File No , , March 28, 2002, page 31. Decision , page 31. Exhibit No , UCA-MAAC-1(b). AUC Decision (November 28, 2014) 53

58 evidence is clear and unequivocal that the purchaser will not seek to recover the purchase premium in any manner that would have a direct impact on the future costs included in utility revenue requirement and hence the rates charged to customers. 198 As such, the purchase premium at the holding company level will have absolutely no effect on AltaLink s rate base or rates. Commission findings 227. The request for the imposition of a condition is premised on an assumption that that the difference between the reported purchase price of $3.2 billion and an approximate net book value of about $800 million reflects a significant premium The Commission considers MC Alberta and its corporate parents to be sophisticated business owners and the reported purchase price to be a reflection of the market price for the AltaLink transmission business and assets at the time of the conclusion of the purchase price negotiations The Commission considers the suggestions of certain parties that MC Alberta or its owners will seek to recoup the purported significant premium over net book value through requests for higher than necessary capital additions to AltaLink s rate base, attempts to increase AltaLink s regulated revenue requirement, or by reducing the quality of service to be provided, to be speculative and unsupported by any evidence in the current proceeding The need for all transmission capital additions proposed for the purposes of adding capacity to AltaLink s transmission system is subject to the control and direction of the ISO. Additionally, AltaLink s rate base and revenue requirement remain subject to Commission oversight and regulation In consideration of the above, the Commission does not consider it to be necessary to impose the condition recommended by the UCA that none of the applicants should seek to recover the premium over book value paid. Further, the Commission finds that the proposed transaction does not fail the no harm test because a premium over book value has been offered for the transmission assets and business of AltaLink Income taxes 232. In argument, AIML noted that for its September 22, 2014 ruling, the Commission addressed whether the proposed transaction will result in any cost impacts for customers arising from matters such as taxes and pension funds within its assessment of factors to be considered in the no harm test AIML submitted that the proposed transaction will not result in any tax related cost impacts on customers because: there will be no changes in ALP s status for income tax purposes following the proposed acquisition, and there will be no difference between the tax treatment of ALP, AILP and ATCO reply, paragraph 9. AIML argument, paragraph 21, part (g). 54 AUC Decision (November 28, 2014)

59 AHLP pursuant to the current ownership structure as compared to the treatment they will receive following the proposed transaction 200 there will be no impact on the methodology by which income tax expense will be calculated by ALP as a result of the proposed transaction 201 the proposed acquisition will not result, directly or indirectly, in any change to the tax rate or increase to the costs paid by customers for utility service 202 the proposed transaction and/or financing structure does not give rise to double dip taxation benefits or any other particular tax advantage or tax savings In reply, ATCO submitted that the applicants take the view that the proposed transaction and associated financing structure does not give rise to double dip taxation benefits or any other particular tax advantage or saving. ATCO suggested that this interpretation is in evidence in MC Alberta s response to AE-MC-7(b). 204 However, ATCO submitted that these assertions have not been tested to gain a comprehensive understanding of why such benefits will not be achieved under foreign ownership and control In this regard, ATCO submitted that the Commission has previously examined whether an owner of AltaLink was actually liable to pay monies that would otherwise be collected in the utility revenue requirement for tax purposes, and that this investigation led to a disallowance of costs that were requested for inclusion in revenue requirement. However, ATCO submitted in this proceeding, the potential tax implications of the proposed transaction, and how such implications may or may not impact customer rates, is not completely understood In his reply argument submission, Mr. Overly submitted that tax revenues paid to the Government of Alberta and Canada should increase to reflect the implied increase in the value of the AltaLink transmission assets and business. Further, Mr. Overly submitted that any suggestion that the increase in the capital cost of AltaLink from $800 million to $3.2 billion will not, directly or indirectly, result in changes to tax rates or increases to costs paid by customers should be viewed with suspicion In its rebuttal argument, AIML submitted that there are no potential income tax issues that are relevant to the Commission s determination of the no harm test in this proceeding, 205 and submitted that allegations made by ATCO in respect of the tax related implications of the proposed transaction in its reply argument are wrong and appeared to have been provided for no other purpose than mischief AIML submitted that information request responses 207 show that ATCO s suggestions regarding double dip taxation benefits or any other tax advantage or saving in its reply argument are patently incorrect. AIML further submitted that ATCO misstates the current Exhibit No , responses to UCA.AIML-006(a) and (b); Exhibit No , responses to UCA.MAAC-5(a) and (b); Exhibit No , responses to CCA.AML-01(a), (b) and (d). Exhibit No , response to AE-MC-7(a); Exhibit No , responses to CCA.AML-01(a), (b) and (d). Exhibit No , response to OVERLY.AIML-005. Exhibit No , response to AE-MC-7(b). Exhibit No Exhibit No , AIML rebuttal argument, paragraph 49. Exhibit No , AIML rebuttal argument, paragraph 49. Exhibit No , response to CCA-SNCEAL-01; Exhibit No , response to CCA-MC Alberta-19; Exhibit No , response to AE-MC-7; Exhibit No , response to UCA-AIML-6. AUC Decision (November 28, 2014) 55

60 situation with respect to tax issues by reaching back to a historical decision made at a time when the Ontario Teachers Pension Plan was an owner of AltaLink. The Commission s predecessor disallowed a portion of the deemed taxes claimed by AltaLink in its revenue requirement that related to the Ontario Teachers Pension Plan (Teachers) investment in AltaLink on the basis that, as a pension plan, Teachers, the ultimate parent, did not pay taxes. However, AIML submitted that AltaLink s current shareholders are taxable corporations and, if the applications are approved, its new ultimate shareholders will be taxable corporations. Consequently, the circumstances that arose in the Ontario Teachers Pension Plan situation are completely irrelevant to the issues before the Commission in the present proceeding In its rebuttal argument, MC Alberta submitted that ATCO s assertion that there has been no testing of potential tax benefits related to foreign ownership and control of AltaLink is without substance. MC Alberta fully responded to information requests posed in relation to tax, and its responses refuted any assertion that there will be any tax consequences at the utility level In this regard, MC Alberta stated in AE-MC-7(a): as a result of the proposed transaction, there will be no impact on the methodology by which income tax expense will be calculated by ALP. AML has further advised that it is not aware of any impact on the amount of the annual income tax expense that will be requested within future AltaLink general tariff applications to the AUC In addition, although MC Alberta also stated unequivocally that the acquisition does not give rise to double-dip taxation benefits or any other particular tax advantage or tax savings, 209 ATCO failed to provide evidence to indicate what the tax benefits might be, how they might be applied, or how they might affect customers. Accordingly, there was no evidence contrary to that provided by MC Alberta to suggest that there are, or even might be, the kind of tax-related benefits or savings suggested by ATCO MC Alberta asserted that while ATCO may not like the tax-related evidence on the record, it cannot argue that the available evidence is unclear or that the issue has not been tested. This is particularly true given ATCO s unwillingness to file its own evidence, or to follow up on the responses cited above with a second round of information requests when given the opportunity MC Alberta submitted that there is no basis in the current proceeding evidence or at law for the suspicion expressed in Mr. Overly s reply argument that that acquisition will (directly or indirectly) result in a change to the tax rate or cost paid by customers or his request that a guarantee with respect to tax related effects should be included in the share purchase agreement for the proposed transaction In particular, MC Alberta noted in its response to CCA-MC-19(b): 210 The assumption of tax integration in Canada is still valid. Under Canadian tax law, a corporation directly owning an interest in a limited partnership is fully responsible for payment of its share of income tax liabilities arising from the partnership operations. The Exhibit No Exhibit No , AE-MC-7(b). Exhibit No AUC Decision (November 28, 2014)

61 corporate taxpayer responsible for income taxes arising from AltaLink will be NewCo. All Canadian income taxes due from AltaLink operations will be paid by NewCo, the direct corporate parent of the entities comprising AltaLink. Ultimate ownership by a non- Canadian entity will not impact that tax liability Further, MC Alberta referenced that in its response to CCA-MC-19(f), it stated: there will be no change to the anticipated method of calculating and accounting for deemed taxes for regulatory purposes NewCo will file a Canadian income tax return all Canadian income taxes due from AltaLink operations will be paid by NewCo, and ultimate ownership by a non-canadian entity does not impact that tax liability MEHC Canada, LLC and BHE will continue to be included in the consolidated United States federal income tax return filed by BHE and subsidiaries regulated income tax expense calculated for AltaLink operations will not be impacted by this consolidated filing in the United States, and the need to produce income tax returns will be determined in future regulatory proceedings MC Alberta further explained that any modifications to AltaLink s rates or reliability of service resulting from any change in tax requirements would be subject to the broad regulatory authority of the Commission, and as such could be adequately addressed by the Commission in future regulatory proceedings. Commission findings 247. The Commission s primary role in respect of income tax matters in the context of the regulation of AltaLink s tariff is to determine the allowance that should be made for income tax expense necessary to provide a reasonable after tax return to AltaLink s owners. These matters are evaluated in the context of AltaLink GTA proceedings or in conjunction with the assessment of fair return that presently occurs in the context of generic cost of capital proceedings Mr. Overly s submission that tax revenues paid to the governments of Alberta and Canada should increase to reflect the implied increase in the value of the AltaLink transmission assets and business is unfounded. The Commission agrees with the submissions of MC Alberta and AIML that the transaction will not result in any tax related cost impacts on customers. The total amount of deemed taxes may vary in proportion to the scale of AltaLink s revenue requirement, but there will be no change to the anticipated method of calculating and accounting for deemed taxes for regulatory purposes, as a result of the transaction Although ATCO expresses concerns that the proposed transaction may give rise to double dip taxation benefits or may provide other tax advantages or savings, the Commission agrees with the submissions of MC Alberta that ATCO failed to provide evidence to describe what kind of tax-related benefits might arise from the approval and consummation of the proposed transaction, or how such benefits would be likely to affect customers In accordance with the above, the Commission finds that income tax considerations do not cause the proposed transaction to fail the no harm test. 211 Exhibit No , CCA-MC Alberta-19(e). AUC Decision (November 28, 2014) 57

62 5.5.3 Pension costs 251. In argument, AIML noted that while the Commission s September 22, 2014 ruling referenced pension funds within its list of factors that the Commission or its predecessor has considered in relation to the no harm test, 212 the evidence is clear that the proposed transaction will not result in cost impacts for customers in relation to pension fund matters. In this regard, AIML noted that neither AML nor MC Alberta are aware of any changes contemplated with respect to ALP s pension plan following the proposed acquisition In his reply argument, Mr. Overly submitted that as it is unclear that existing employee pensions will not be altered, or that all pension money will stay in Canada, the sale contract should include a paragraph stating that pension funding and reserves will not be degraded or moved to fund other operations In reply, MC Alberta responded to Mr. Overly s submissions by referring to AIML s response to CCA-AIML-01(f): AML has advised that it is not aware of any changes contemplated with respect to ALP's pension plan following the proposed acquisition. Under the current ring-fencing measures, such decisions are within the mandate of AML's Board, and not BHE. 214 and to its own response to CCA-MC Alberta-19(f): The proposed acquisition is a share purchase transaction. After the closing of the proposed acquisition, ALP will continue to operate on an independent, stand-alone basis. As such, MAAC has not contemplated any changes to the AltaLink pension plan MC Alberta further submitted that any modifications to AltaLink s rates or reliability of service resulting from any change to the AltaLink pension plan would be subject to the broad regulatory authority of the Commission and can be adequately addressed by the Commission in future regulatory proceedings relating to AltaLink. Commission findings 255. The pension obligations of AltaLink to its employees are subject to legislative protections and the cost of funding pension obligations is subject to Commission scrutiny within the context of GTA proceedings. As well, no evidence has been presented in the current proceeding to suggest that either the pension benefits available to AltaLink employees or the funding of such benefits is subject to change as a consequence of the completion of the proposed transaction Given the foregoing, the Commission finds that the proposed sale transaction does not fail the no harm test on the basis of pension-related concerns Decision , pages 19-20, cited in part (g) of paragraph 21 of AIML argument. Exhibit No , responses to CCA.AML-01(f); Exhibit No , response to OVERLY.AIML-004; Exhibit No , response to CCA-MC Alberta-19(f), cited in part (e) of paragraph 26 of AIML argument. Exhibit No Exhibit No AUC Decision (November 28, 2014)

63 5.5.4 Treatment of acquisition transaction costs 257. In argument, MC Alberta noted that it has confirmed that none of the costs related to the acquisition will be directly or indirectly borne by customers In reply argument, the CCA submitted that as the applicants have provided various assurances that the costs of the acquisition transaction will not be passed on to customers, these transaction costs should be addressed in the current proceeding by applying two primary conditions First, the CCA sought a condition requiring that transaction costs not be passed on to customers. Second, the CCA sought a condition setting out the evidence AML will be required to provide in order to substantiate full compliance with the requirement not to pass along acquisition transaction costs to customers. The CCA submitted that it is preferable to set out these requirements now, thereby making expectations clear at the outset so that necessary evidence can be effectively captured and preserved The CCA submitted that AltaLink should be required to identify the nature and extent of the legal, regulatory, engineering, financial, accounting, administrative and other costs relating to the acquisition transactions. In addition, the CCA submitted that it will require careful documentation, explanation and verification of these costs to ensure that they are differentiated from costs that could legitimately be included in a GTA The CCA submitted that it is not sufficient for AltaLink to affirm in future GTAs or deferral account applications that costs related to the acquisition transaction have not been passed on. Instead, the CCA submitted that acquisition transaction costs must be fully documented so that the Commission and interveners will be able to reconcile these costs with costs claimed in future applications for the purposes of ensuring no acquisition costs have been inadvertently been included. The CCA submitted that information related to externally billed acquisition related costs should already be readily available As well, the CCA expressed concern that a transaction of the magnitude of the AltaLink purchases would likely involve considerable internal resources with SNC Lavalin, AML, MC Alberta, and their respective affiliates. The CCA suggested that staff time and other potential internal resources in the areas of legal, regulatory, engineering, financial, account, and administrative time should be recorded to an identifiable account that can be examined in future applications. Further, costs of this nature should be removed from any direct costs or allocations of indirect costs, including any costs arising from allocations of indirect costs from parent corporations or subsidiaries The CCA submitted executive bonuses should be included as part of the examination of costs related to the transaction considered in the current proceeding. In this regard, the CCA noted that MC Alberta did not respond to a CCA request to identify the entity responsible to pay bonus plan amounts for the key executives of the operating entities in relation to the closing of the proposed transaction, but did state an intention that none of the bonus plan amounts would be 216 Exhibit No , CCA-MC Alberta-07(c). AUC Decision (November 28, 2014) 59

64 charged to customers. 217 The CCA submitted that its concern on behalf of ratepayers is to obtain independent verification of this claim Given its above described concerns, the CCA made two recommendations. First, the CCA recommended that the Commission set out the mechanisms, including potentially the creation and retention of records, as necessary to demonstrate that no costs related to the proposed transaction incurred either external to or internal to the applicants are included in future GTA or deferral account applications Second, the CCA recommended that the Commission condition its approval on a requirement to disclose both the entity paying bonuses to AltaLink operating entity key executives and the amount of such bonuses Finally, the CCA asserted that both the costs associated with this proceeding and Proceeding No should not be passed on to rate-payers In rebuttal argument, MC Alberta submitted that the CCA s request that the Commission attach conditions regarding the costs associated with the current proceeding, as well as Proceeding No. 2983, are unnecessary and unwarranted MC Alberta noted that it has confirmed on the record that no costs of the transaction will be passed on to customers, as set out below: No additional costs will be imposed upon ALP, AML or customers as a result of the creation of NewCo In addition, MC Alberta also noted the following confirmation: no costs, including but not limited to legal costs, costs for retaining S&P and other expenses incurred in relation to the present proceeding and the execution of the transactions contemplated therein or as amended in the course of the proceedings will be passed on to customers directly or indirectly by any Operating Entity, at any time MC Alberta submitted that in response to similar comments respecting similar costs in the proceeding leading to Decision , the Commission did not impose a condition. 221 In particular, MC Alberta noted that the Commission took account in Decision that future tariff proceedings would provide the opportunity to review costs and confirm costs reflecting commitments. MC Alberta submitted that there is no basis for deviating from this precedent in the current proceeding MC Alberta submitted that the CCA s request for the disclosure of the entity paying bonuses to key executives, and the amount and method of payment of such bonuses is also unnecessary, since MC Alberta has expressly confirmed that these costs will not be charged to Exhibit No , CCA-MC Alberta-07(d). Proceeding No is the prior application seeking to issue an initial public offering for the sale of a portion of its ownership interest in AltaLink. This proceeding is currently suspended. Exhibit No , AE-MC-6(e). Exhibit No , CCA-MC Alberta-07(c). Decision , paragraph 15 and Order. 60 AUC Decision (November 28, 2014)

65 customers. 222 As there is no evidence that MC Alberta has any intention to disregard commitments made in the current proceeding MC Alberta submitted that the crystalizing commitments in the form of a condition for the Commission s approval is unnecessary and inconsistent with prior decisions. Commission findings 272. MC Alberta has resisted the imposition of any condition as requested by the CCA and has relied on Commission Decision , which also considered a change to the AltaLink ownership structure. In that decision, the Commission chose to not impose a condition that costs related to the transaction under consideration would not be passed on to customers The Commission does not find the scope of the transaction considered in Decision to be analogous to the current transaction. Unlike the transaction in Decision , which involved the acquisition by SNC of the remaining ownership interest in AltaLink held by MacQuarie GP Holdings Ltd., which represented a 23 per cent ownership interest, this transaction, which contemplates a 100 per cent divestiture of SNC s ownership in AltaLink, is more complex and extensive, and as such, the transaction-related costs involved would not be inconsequential. AltaLink customers could be harmed if any portion of these costs were to be recovered through end-use customer rates Additionally, any costs that may have been incurred by registered interveners to assess the potential impact of the applications and to participate in the current proceeding should also be considered part of the transactional costs and, therefore, the responsibility of AltaLink shareholders and not recovered through AltaLink s hearing cost reserve or any other similar tariff recovery mechanism The Commission also accepts the submission of the CCA that the preparation and advancement of the applications has likely involved significant time and resources of AltaLink senior executives, and the time and associated resources of other AltaLink staff. The Commission finds that any costs not related to the operation of the regulated business should be included as part of the transaction costs and not recovered from ratepayers As AltaLink s revenue requirement forecasts are assessed for reasonableness against actual expenditures in prior years, it is important that any AltaLink staff time or other resources that may be included in AltaLink reports of actual expenditures provided as part of AltaLink tariff applications clearly indicate any AltaLink resources used in relation to the transaction and used to prepare and support the applications in this proceeding and the applications in Proceeding No. 2983, which was the prior application filed by the SNC group to divest a certain percentage of its ownership interest in AltaLink. Proceeding No is currently suspended. Accordingly, the Commission directs AIML to prepare a full accounting of all AIML activities and resources and the costs related thereto, associated with the acquisition and any costs to prepare and support the applications in this proceeding and the application in Proceeding No and to file that accounting on the record of Proceeding No. 3524, which is AltaLink s tariff application for the test years of In addition, the Commission further directs AIML to file correspondence on the record of Proceeding No which fully describes the amendments that AltaLink expects to make to its 222 Exhibit No , CCA-MC Alberta-07(d). AUC Decision (November 28, 2014) 61

66 GTA in order to comply with this direction and the timing by which such amendments will be filed. 5.6 Industry Canada approval conditions Effect of commitments to Industry Canada 278. In Section 4.2 of the MC Alberta application, 223 MC Alberta indicated that the Investment Canada Act requires a review of the transactions described in the applications by the industry minister of Canada which MC Alberta expected to receive prior to December 1, In information request CCA-MC Alberta-05, the CCA referenced a statement dated July 25, 2014 made by government of Canada Industry Minister James Moore regarding the acquisition of AltaLink by Berkshire Hathaway Energy, which included the following statement: As a result of this review, Berkshire Hathaway Energy has agreed to the following commitments: There will be no reductions in the level of employment at AltaLink as a result of the transaction. AltaLink will remain locally managed and incorporated under the laws of Canada, with its headquarters, senior management team and operations located in Alberta. AltaLink's independent board of directors will also continue to be composed of a majority of Canadians. One hundred percent of AltaLink's earnings will be reinvested in AltaLink, elsewhere in Alberta or in other regions of Canada for at least five years. This commitment will support AltaLink's three-year C$2.7-billion investment in Alberta's energy infrastructure, subject to continued oversight by the Alberta Utilities Commission and the Alberta Electric System Operator. At least C$27 million will be invested in joint development opportunities in Canada and the United States, with Canadian partners, over the next five years. Berkshire Hathaway Energy will invest at least C$3 million of new funds over three years to support academic programs focused on energy-related topics, cultural organizations and community-based programs across Alberta. AltaLink's commitment to provide C$3 million over three years in community and charitable contributions across Alberta will be maintained. Berkshire Hathaway Energy will share best practices, at no cost, with AltaLink on safety, customer satisfaction, cybersecurity and supplier diversity. Berkshire Hathaway Energy will provide opportunities for Albertan and other Canadian companies to supply products and services to its other businesses In reply argument, ATCO noted that MC Alberta will have ultimate authority over the appointment of the board of directors and management that will exercise total control over the AltaLink transmission business. Given this, ATCO submitted that while the applicants point to approvals under the Investment Canada Act as an indicator of the acceptability of the proposed transaction by another regulator, 225 the applicants ignore the fact that significant material conditions have been imposed on the approval by the federal government minister Exhibit No. 10, paragraph 16. Exhibit No ATCO reply argument, paragraph AUC Decision (November 28, 2014)

67 281. ATCO indicated that it does not hold the view that it is within the mandate of the Commission to impose the same or similar conditions to those imposed by the federal minister of industry. Instead, ATCO submitted that the Commission s public interest mandate, which ATCO considered to be far broader than the Investment Canada Act net benefits to Canada test, requires the Commission to balance all of the potential positive and negative impacts and implications of the proposed sale and reach a conclusion that its mandate has been satisfied In its reply argument, the CCA submitted that commitments made to Industry Canada and reiterated in argument that protect ratepayers from harm should be conditions of the sale to MC Alberta, a 100 per cent owned subsidiary of BHE The CCA submitted that if BHE is prepared to make these commitments as a condition of the sale to Industry Canada and are acting in good faith, then BHE, via its 100 per cent owned subsidiary, MC Alberta, should make certain of these commitments to the Commission and interveners if they are relevant to protecting ratepayers from harm The CCA submitted that the Commission and interveners have a substantial disclosure process in AltaLink GTAs and deferral account applications that can be used to ensure these commitments are honored. However, the CCA contrasted MC Alberta s description of the monitoring process set out by Industry Canada, 226 and highlighted in particular statements to the effect that: Industry Canada s assessment of investment performance will be judged in the context of overall results. Industry Canada s assessment will be determined on the basis of being substantially consistent, not fully consistent with its expectations. If Industry Canada finds performance to be substantially consistent with original expectations, it does not expect to undertake additional monitoring so long as no major commitments have been left unfulfilled. Where the inability to fulfill a commitment deemed to be beyond the control of the investor, the investor will not be held accountable for plans and undertakings In consideration of the relatively soft enforcement provisions set out by Industry Canada, the CCA submitted that establishing a Commission-monitored process would offer greater assurance that ratepayer interests will be protected in relation to commitments made by BHE to Industry Canada. At the same time, the CCA submitted that a Commission-monitored process with respect to the BHE undertakings to Industry Canada would be beneficial because the Commission could take into account in GTA or deferral account application proceedings whether unforeseeable challenges would prevent full compliance with Industry Canada commitments at a just and reasonable cost The CCA submitted that while the applicants may object to being accountable to two government agencies, such additional responsibility is warranted when jurisdictions overlap. The CCA submitted that such overlaps are common in practice for transmission facility owners Exhibit No , CCA-MC Alberta-05 (d) which references the Administrative Procedures section of guidelines located at CCA reply argument, paragraphs 23 and 24. Electric Utilities Act, Section 121(2). AUC Decision (November 28, 2014) 63

68 (TFOs), since there are many instances where a TFO may be held accountable to comply with Federal or Provincial environmental regulations while at the same time accountable to the Commission to ensure that the TFO s compliance with environmental regulation is done at a reasonable cost In rebuttal argument, MC Alberta noted that the CCA has acknowledged that the referenced commitments to Industry Canada under the Investment Canada Act are commitments of BHE, not MC Alberta or AltaLink. Notwithstanding, MC Alberta submitted that conditions proposed by the CCA would essentially place the Commission in the role of policing BHE s compliance with commitments made to a federal agency, pursuant to a federal statute, and subject to a different legal standard of review MC Alberta submitted that the policing role that the CCA wishes the Commission to assume would not only be unprecedented, but well outside of the Commission s jurisdiction. Furthermore, the CCA s request also raises the spectre of inconsistent interpretations of conditions by two different regulators under two different legal standards of review, and the potential impossibility of an entity being able to comply with inconsistent legal obligations MC Alberta noted that the Commission s ruling in respect of ATCO s procedural motion confirmed the Commission s understanding that it operates under a mandate separate from federal agencies and applies different considerations in its review of the proposed transaction. 229 In this regard, MC Alberta submitted that while the Investment Canada Act defines the legal standard requires a demonstration of net benefit to Canada, the Commission operates under the well-established no harm test. As such, contrary to the view of the CCA, there is no overlap between the authority of the Commission and Industry Canada MC Alberta noted that it has provided unequivocal confirmation that no costs associated with the transaction or any costs associated with its commitments to Industry Canada under the Investment Canada Act will be reflected in AltaLink s rates. 230 As such, MC Alberta submitted there is no need, or basis in law or regulatory principle, for the CCA s recommended conditions. Commission findings 291. Further to the findings in Section below, the minister of Industry Canada, not the Commission, is responsible to ensure that any expectations or conditions it has established for BHE as a pre-condition to its approval of the transactions it assessed pursuant to the Investment Canada Act are met. In any event, the Commission has no jurisdiction to compel BHE to comply with Industry Canada s commitments Accordingly, the Commission denies the CCA s request for the establishment of a Commission-monitored process of BHE s compliance with Industry Canada commitments Funding of Industry Canada commitments 293. In its reply argument, the CCA submitted that commitments that BHE has made as a condition of sale to Industry Canada should not be a financial burden to ratepayers. Accordingly, to the extent that specific Industry Canada commitments could create a financial burden to Exhibit No , page 1. Exhibit No , CCA-MC Alberta AUC Decision (November 28, 2014)

69 ratepayers, they should be identified and, if necessary, conditions should be applied to prevent harm to ratepayers The UCA submitted that while MC Alberta has confirmed that there will be no additional costs paid by utility customers in Alberta as a result of BHE commitments to Industry Canada, 231 it would be in the public interest to formalize this commitment by way of a further condition to any approval issued by the Commission. In light of this concern, the UCA submitted that the Commission should impose the following condition on any approval issued in respect of the applications: None of the Applicants, nor any related entity nor successor of them, shall seek to recover from customers any costs associated with BHE s commitments made in association with the Investment Canada Act approval In rebuttal argument, MC Alberta submitted that the UCA s suggested condition in respect of commitments made by BHE in respect of the Investment Canada Act approval is problematic and should not be adopted In particular, MC Alberta submitted the condition suggested by the UCA is overly broad, insofar as it could be construed as precluding AltaLink from seeking to recover any costs associated with fulfillment of BHE s commitments to Industry Canada under the Investment Canada Act made within the context of Industry Canada s jurisdiction MC Alberta noted that it provided a clear and unequivocal commitment in its response to UCA-MAAC-6(b) that BHE s commitments in relation to the Minister of Industry s approval will not result in any additional costs paid by utility customers in Alberta. In addition, MC Alberta submitted that BHE s commitments to Industry Canada cannot limit the jurisdiction of the Commission with respect to its ongoing regulatory authority to approve just and reasonable rates for AltaLink MC Alberta expressed particular concern that the adoption of the UCA s proposed condition could result in legitimate utility expenses that are solely within the jurisdiction of the Commission being characterized as inappropriate based on the argument that they are costs associated with BHE s commitments to Industry Canada. Commission findings 299. The Commission agrees that BHE shareholders, and not ratepayers, should be required to pay any costs that may have to be incurred solely to comply with undertakings made to Industry Canada in the pursuit of BHE s approval under the Investment Canada Act However, the Commission acknowledges the concern expressed by MC Alberta that if the Commission were to adopt the UCA s request for a condition prohibiting MC Alberta (or affiliates and successors thereof) from seeking inclusion within revenue requirement for any costs associated with fulfillment of BHE s commitments to Industry Canada under the Investment Canada Act, legitimate utility expenses within the Commission s jurisdiction could be characterized as ineligible for inclusion within AltaLink s revenue requirement. To address this concern, the Commission will not formally impose a sale condition to this effect. 231 Exhibit No , UCA-MAAC-6(b). AUC Decision (November 28, 2014) 65

70 301. However, the Commission expects that MC Alberta will not seek to recover costs arising from BHE s compliance with Industry Canada conditions through the rates of AltaLink as part of the just and reasonable cost of AltaLink s provision of transmission service (beyond those costs that would be prudently incurred to provide service in the absence of Industry Canada conditions) and the Commission will not approve such costs should they be submitted Employment level commitments 302. In reply argument, the CCA expressed concern that the BHE commitment to Industry Canada that there will be no reductions in the level of employment at AltaLink as a result of the transaction could negatively impact ratepayers by limiting AML s ability to reduce staff levels, particularly when the current high levels of new construction declines Considering this concern, the CCA noted that in an information request response, 232 MC Alberta confirmed that there will be no reductions in the level of employment at AltaLink as a result of the transaction for 2015 to and provided clarifications that: The reference to no reduction in level of employment refers specifically to the immediate post acquisition period and does not place any other constraints on the company with regard to efficient management of employee numbers, particularly following completion of the significant capital build that is currently underway. 234 Staff levels can be reduced under appropriate circumstances unrelated to the transaction Given the above, the CCA submitted that the Commission s approval of the applications should include a condition that specifies that the commitment to no reduction in employment levels applies only to the immediate 2015 to 2017 period, and places no constraints with respect to the efficient management of employees after that period, when AltaLink s significant current capital build is expected to be substantially complete In rebuttal argument, MC Alberta submitted that the CCA s requested condition in respect of employment level reductions effectively amounts to a request for the Commission to vary BHE s commitment to Industry Canada under the Investment Canada Act MC Alberta noted that while BHE committed to Industry Canada there will be no reductions in the level of employment at AltaLink as a result of the transaction, 236 BHE s commitment does not impose a constraint on AltaLink to efficiently manage staffing levels, and AltaLink is in no way precluded from managing staffing levels under appropriate circumstances after the acquisition MC Alberta also noted that it has confirmed on the record that: AltaLink will continue to maintain its own employment practices and policies Exhibit No , CCA-MC Alberta-05(e). Exhibit No , CCA-MC Alberta-05(e)(i). Exhibit No , CCA-MC Alberta-05(e)(ii). Exhibit No , CCA-MC Alberta-05(e)(iv). Exhibit No , UCA-MAAC-06, Attachment 1, page 1. Exhibit No , CCA-MC Alberta-05(e)(ii). Exhibit No , CCA-MC Alberta-20(b). 66 AUC Decision (November 28, 2014)

71 It will not interfere with AML s independent determinations regarding the staff and management required to manage and operate the transmission assets and business of ALP MC Alberta submitted that both the plain language of BHE s Industry Canada commitment and the record of the current proceeding are clear that AltaLink will not be restricted by BHE s commitment to Industry Canada in managing its staffing levels as needed to meet its workloads. Given this, and the Commission s ongoing jurisdiction to ensure that forecast costs are just and reasonable for the service provided, MC Alberta submitted that the CCA s recommended condition is unnecessary and should be denied. Commission findings 309. The Commission is not prepared to specify, as requested by the CCA, that the BHE commitment to Industry Canada not to reduce the level of employment at AltaLink as a result of the proposed transaction is only in respect of the period from 2015 to The Commission cannot comment on whether this period was understood to be implied by the commitment and the language is not clear. Regardless, it is up to Industry Canada to ensure compliance with its conditions Notwithstanding, the Commission does have clear jurisdictional authority to approve the reasonable costs necessary for AltaLink to deliver safe, efficient and reliable transmission service in Alberta. In this regard, the Commission has identified a growing concern with the rate of growth in AltaLink FTE levels in relation to the rate at which AltaLink s transmission system and associated activity levels have been growing, in its findings in decisions issued in respect of AltaLink s last two GTAs The Commission will continue to exercise its mandate to approve AltaLink s regulated service revenue requirement in future GTAs. Accordingly, while AltaLink is responsible for managing its resources, including staffing levels, as necessary to fulfill its statutory mandate to provide service, the Commission will not allow any costs for staffing or other resources that the Commission does not consider to be necessary to fulfill this mandate when it makes its decision in respect of future GTAs, regardless of any commitment that BHE has made to Industry Canada to maintain staffing levels at AltaLink. In such an event, the costs for staffing levels that AltaLink may have to incur to fulfill its commitment to Industry Canada beyond what the Commission has allowed will not be borne by ratepayers The CCA s request to establish a condition clarifying the nature of BHE s commitment to Industry Canada as it pertains to AltaLink staffing levels is denied Contributions for academic, cultural, and community purposes 313. In Section 2.7 of its reply argument, the CCA made specific comments in respect of the following BHE commitment to Industry Canada: Exhibit No , AE-MC-5(a). See Decision , paragraph 206, and Decision , paragraph 64. AUC Decision (November 28, 2014) 67

72 Berkshire Hathaway Energy will invest at least C$3 million of new funds over three years to support academic programs focused on energy-related topics, cultural organizations and community-based programs across Alberta The CCA expressed concern that the costs of the new funds alluded to in the BHE commitment to Industry Canada, which appear to be charitable donations or investments that may not benefit AML, could become a direct or indirect cost charged to ratepayers. However, the CCA noted that this issue was addressed in an information request response in which MC Alberta indicated the shareholders of MC Alberta will fund the additional C$3 million of contributions to support academic programs, cultural organizations and community-based programs across Alberta In light of its concerns, the CCA recommended that the Commission s approval of the application contain the condition that any new funds invested over three years to support academic programs will be funded by shareholders of MC Alberta In rebuttal argument, MC Alberta submitted that its evidence respecting this BHE commitment as set out in its response to CCA-MC Alberta-05(h) 243 is clear and included an unambiguous commitment that MC Alberta, not customers, will fund these contributions. As such, MC Alberta submitted that the condition requested by the CCA is not necessary. Commission findings 317. Utility requests for rate payer funding of charitable donations, including funding to cultural organizations and community based programs have been consistently disallowed by the Commission. In Decision , 244 in respect of AltaLink s GTA, the Commission made the following finding: 224. The Commission recognizes that, in a competitive market, companies make decisions about charitable giving through sponsorships on behalf of their shareholders, often recognizing that these contributions will assist the company in achieving certain business objectives. In this regard, shareholders have an opportunity, whether directly or indirectly, to allocate where these sponsorship dollars will be employed. However, when a company is a regulated monopoly, including community sponsorships in revenue requirement would have the effect of mandating that ratepayers make charitable contributions without being able to direct where these sponsorship dollars will be employed. The Commission does not consider that ratepayers should be expected to provide sponsorship or other charitable funding to a utility and, in turn, have the utility decide how or where to distribute the funds on their behalf. Nor should the Commission be expected to choose where to distribute these funds on behalf of ratepayers. The Commission considers that it should not usurp, through the regulatory process, ratepayers entitlement to support only the charitable organizations they individually choose Exhibit No , CCA-MC Alberta-05(h). Exhibit No , MC-Alberta-05(h). Exhibit No Decision : AltaLink Management Ltd. and TransAlta Corporation, 2009 and 2010 Transmission Facility Owner Tariffs, Application No , Application No , Proceeding ID. 102, October 2, Decision , paragraph AUC Decision (November 28, 2014)

73 318. MC Alberta s response to CCA-MC Alberta-05(h) represents a clear commitment on MC Alberta s part that BHE shareholders, and not ratepayers, will fund any commitments to academic programs, cultural organizations and community-based programs within Alberta that BHE has made as part of its commitments to Industry Canada in pursuit of its Investment Canada Act approval Any costs for proposed expenditures that might be considered charitable donations or community sponsorships that are brought forward by AltaLink in future GTAs will be subject to Commission oversight. Accordingly, the Commission does not find it necessary to impose a condition that any new funds invested over three years to support academic programs will be funded by shareholders of MC Alberta 320. In consideration of the above, the Commission finds that the proposed sale transaction does not fail the no harm test on the basis of BHE undertakings to Industry Canada in respect of the funding of academic programs, cultural organizations, and community-based programs Joint development opportunities 321. In response to UCA-MAAC-4(a), MC Alberta provided a copy of the Joint Transmission Development Agreement Term Sheet (term sheet) which was entered into by SNC-Lavalin Group Inc. and MidAmerican Transmission, LLC on May 1, Along with other undertakings set out therein, the term sheet provides for the following: Regularly scheduled senior executive level meetings between representatives of SNC and MidAmerican Transmission LLC (MA) and subsidiaries including at least one annual meeting at the CEO, President or COO/EVP level; Sharing of advance information about plans, strategies and other information to facilitate long lead preparation for upcoming opportunities to recognize that SNC will need time to mobilize for new geographic areas of entry; Proactively supporting SNC's continued relationship status with AltaLink LP within the regulatory, legal and contractual framework existing from time to time; Where possible, for joint development projects, within regulatory frameworks and applicable laws, the formation of exclusive or sole source agreements with market testing or cost surety achieved through mechanisms other than competitive bidding. This recognizes that SNC also commits to consider joint equity arrangements, as a minority partner, with MA, and SNC commits to deploying industry competitive resources to project opportunities; Where practicable, for projects where SNC is a short-listed bidder, within competitive or regulatory frameworks and applicable laws, the formation of agreements with market testing or cost surety achieved through competitive bidding including the pre-qualification of SNC to work with all MA companies and supporting prequalification of SNC with MA affiliates; A partnership duration of approximately 5 years over which period MA commits to expend US$25 million for SNC support, fully dedicated resources and third party costs for development and services to MA-Subs; MA shall work with SNC to introduce SNC to representatives of MA affiliates, including senior procurement officers, to allow SNC to prequalify for bidding opportunities. MA affiliates include businesses that own and operate natural gas pipelines in the U.S. and electric generation, transmission and distribution assets in the U.S., U.K. and the Philippines. AUC Decision (November 28, 2014) 69

74 The intent of this TS will be included as part of the Tower sale announcement. It is intended that SNC and MA will cooperate and allocate expenses in preparing and submitting transmission development proposals to the RTOs in North America as mutually agreeable opportunities arise. Prior to any Party independently pursuing any opportunities with third parties, the Parties shall discuss whether such opportunities may be pursued jointly first. In the event that prior relationships exist, such opportunities shall still be discussed between the Parties to determine if there is any opportunity for the other Party to participate, subject to the applicable contractual, regulatory or legal frameworks In reply argument, the CCA stated that the BHE commitment to Industry Canada included an undertaking to invest at least $27 million in joint development opportunities in Canada and the United States, with Canadian partners, over the next five years. The CCA was concerned that the costs of pursuing these joint development opportunities could become direct or indirect costs charged to ratepayers, notwithstanding MC Alberta s response to CCA-MC Alberta-05(g), 247 which stated that AltaLink will have no obligation to fund any of the joint development opportunities and that funding of opportunities under the joint transmission development term sheet will be sourced from MidAmerican Transmission and BHE Consequently, the CCA recommended that approval of the applications include the condition that the cost of joint development opportunities in Canada and the United States, with Canadian partners, over the next five years, will be sourced from MidAmerican Transmission and BHE and will not be included in any direct or indirect charges from AML to ratepayers In rebuttal argument, MC Alberta submitted that it had clearly and consistently confirmed on the record of the current proceeding that no costs associated with the joint development opportunities reflected in BHE s commitments to Industry Canada, which related to the joint transmission development term sheet, would be passed on to AltaLink s customers, as particularly set out in its response to CCA-MC Alberta-5(g) MC Alberta further argued that in its response to AE-MC-2(e) and (f), reproduced below, it stated that as neither MC Alberta nor AltaLink is a party to the term sheet, it represents no potential for harm to Alberta customers: (e) There are no plans to make MAAC or any of the acquired entities, including ALP, parties to the joint transmission development term sheet or any of the agreements arising from the joint transmission development term sheet. (f) There are no potential impacts, positive or negative, to Alberta customers from the joint transmission development term sheet Further, MC Alberta asserted that, consistent with its response to CCA-MC Alberta- 10(c), 250 there are no costs that need to be identified for purposes of the Inter-Affiliate Code of Conduct, since neither MC Alberta, ALP, or an ALP affiliate is involved in the term sheet Exhibit No Exhibit No CCA reply argument, paragraph 37. Exhibit No , AE-MC-2(e) and (f). 70 AUC Decision (November 28, 2014)

75 327. Given the foregoing, and given that the Commission will continue to exercise jurisdiction over AltaLink rates in future proceedings, MC Alberta submitted that there is no basis for the CCA s recommended condition. 251 Commission findings 328. MC Alberta stated in its response to CCA-MC Alberta-5(g) that the reference to joint development opportunities in the BHE undertaking to Industry Canada generally related to commitments made in the May 1, 2014 term sheet entered into by SNC-Lavalin Group Inc. and MidAmerican Transmission, LLC, which was provided on the record of the current proceeding in MC Alberta s response to UCA-MAAC-4(a) As stated previously in this decision, it is not within the jurisdiction of the Commission to monitor BHE s commitments to Industry Canada, including those related to the commitments entered into by SNC-Lavalin Group Inc. and MidAmerican Transmission, LLC in their May 1, 2014 term sheet The Commission approves the tariff of AltaLink. As such, the Commission will only approve those costs that are reasonably incurred by AltaLink to provide safe, efficient and reliable transmission service. Any requests from AltaLink to recover costs associated with BHE s compliance with Industry Canada commitments referencing the term sheet must be shown to be reasonably included as part of AltaLink s regulated costs and, as such, will be examined by the Commission in future tariff and deferral account proceedings The Commission does not find it necessary to impose a condition on the sale transaction that the cost of joint development opportunities will not be included in any direct or indirect charges from AML to ratepayers In consideration of the above, the Commission finds that the proposed sale transaction does not fail the no harm test on the basis of joint development opportunities in the BHE undertaking to Industry Canada. 5.7 Other matters Proactive support for SNC 333. The third bullet on page one of the term sheet states: Proactively supporting SNC's continued relationship status with AltaLink LP within the regulatory, legal and contractual framework existing from time to time; MC Alberta s response to UCA-MAAC-4 (a) provided the following explanation regarding this commitment: The Term sheet does not (and cannot) impose any obligation on MAAC or AltaLink, including AltaLink s selection or use of any particular service provider. The management of vendor contracts will remain with AML s independent management Exhibit No MC Alberta rebuttal, paragraph 49. Exhibit No , UCA-MAAC-4(a). AUC Decision (November 28, 2014) 71

76 335. In its argument submission, the CCA indicated that while it took some comfort from MC Alberta s response to UCA-MAAC-4 (a), the undertaking in the term sheet could potentially be interpreted to mean that SNC could benefit from preferential access to future vendor contract awards from AML. Consequently, the CCA recommended that the Commission impose a condition on the sale that would prohibit any preferential treatment of SNC in relation to any future vendor contracting activities undertaken by AML In rebuttal argument, MC Alberta submitted that the Commission should deny the CCA s request for a condition and stated that the record of the current proceeding, as evidenced by its response to UCA-MAAC-4(a) was clear that SNC-Lavalin will not be given any such preferential status or consideration Further, MC Alberta referred to its response to AE-MC-14(b) and (d), 256 and argued that the Commission retains its ongoing broad regulatory authority over AltaLink, and thus has the ability to address matters arising under the current or any future commercial arrangements between AltaLink and SNC-Lavalin that could impact the cost or reliability of the utility service provided by AltaLink. Additionally, MC Alberta asserted that the condition sought by the CCA that has been consistently rejected in precedents established by the Commission and its predecessor In its rebuttal argument, SNC submitted that the CCA has ignored the additional evidence set out in UCA-MAAC-4 regarding what constitutes proactive support for SNC. It also explained that: the term sheet does not (and cannot) impose any obligation on MC Alberta or AltaLink, including AltaLink's selection or use of any particular service provider the management of vendor contracts will remain with AML s independent management team 258 the term sheet expressly provides that action which may be taken by parties must be consistent with competitive and regulatory frameworks, and is subject to all applicable laws Given the above, SNC submitted that the CCA s requested condition is unnecessary and also submitted that the Commission need not address any issues arising from the term sheet in the context of the current proceeding. Commission findings 340. As noted in the Commission s findings in Section above, with a change in ownership, the services provided to AltaLink by SNC affiliates would no longer be subject to the Exhibit No , UCA-MAAC-4(a). CCA reply argument, paragraphs 67 and 68. Exhibit No Exhibit No Decision , paragraph 48. Exhibit No , response to UCA-MAAC-4. Exhibit No , SNC rebuttal argument at paragraph 24, citing Exhibit , responses to CCA- SNCEAL-04(a) to (c). 72 AUC Decision (November 28, 2014)

77 AltaLink Inter-Affiliate Code of Conduct. However, the Commission would continue to exercise regulatory oversight of the costs for any services provided to AltaLink, whether from an affiliate or from an arms-length entity Notwithstanding, the clause within the term sheet which commits the parties to proactively support SNC s continued relationship status with AltaLink LP within the regulatory, legal and contractual framework existing from time to time represents a potential source of harm to ratepayers that would not exist if not for the existence of the term sheet. Given this commitment, the Commission will exercise a more particular scrutiny of costs arising from the provision of goods or services to AltaLink that are provided by any SNC entity, including, if necessary, all of the processes and tools that the Commission could apply if SNC were an affiliate. Consequently, the Commission finds that the proposed sale transaction does not fail the no harm test on the basis of commitments made by MidAmerican Transmission to support SNC's continued relationship status with AltaLink within the regulatory, legal and contractual framework existing from time to time Retention of records 342. In reply argument, the CCA submitted that the current proceeding is the optimal time to consider how to handle the impact of the severance of the existing relationship between AML and the SNC group of companies in the context of future AltaLink GTA and deferral account application proceedings The CCA submitted that it is the responsibility of AML to ensure that they have in their possession, or at least have secured access to, all information necessary to ensure that they can document the reasonableness and prudence of their decisions, regardless of the identify of their ultimate owner at the time decisions are made. The CCA further submitted that, to the extent that it has not already secured any information necessary for this purpose, AML needs to ensure that, if the sale proceeds, the transaction contains any terms necessary for it to secure information that might be needed in the future. In light of this concern, the CCA recommended that the Commission s approval of the application contain the following conditions: a. AML is responsible to ensure that they have in their possession or have secured access to all of the necessary information from SNC Entities to ensure that AML can document the reasonableness and ultimately the prudence of their decisions for future GTAs and Deferral Account applications. b. In future hearings, AML will not be excused from the need to produce supporting evidence by pleading that they no longer have access to it by reason of the severing of relationships caused by this transaction The UCA noted that the applicants have represented that the proposed transaction will not introduce a new operator of the transmission business or assets comprising that business, and also noted that no change in the management and operation of AltaLink has been proposed The UCA expected that all records necessary for the preparation of subsequent tariff applications and financial reporting, including historical records and the data necessary for the preparation of forecasts, will be retained by AltaLink and related entities to be owned by MC 260 CCA reply argument, paragraph 65. AUC Decision (November 28, 2014) 73

78 Alberta if the applications are approved. However, to ensure no harm to customers in light of these facts, the UCA also submitted that the Commission should include the following condition: The Applicants shall ensure that all historical records relating to the ownership and operation of the electricity transmission business shall be retained by AltaLink and the related entities which will ultimately be owned by MC Alberta. Additionally, to the extent that any such historical records are in the possession of any of the entities divesting themselves of their legal or beneficial interest in the transmission business and assets, such records shall be transferred to AltaLink, or its related entities, to ensure continuity of record keeping and data retention Responding to the CCA and the UCA requests regarding record retention in its rebuttal argument, AIML submitted that the imposition of any conditions on any party to the applications, or on persons who are not even a party to these applications, is unwarranted and unnecessary AIML submitted that while the CCA s requested condition with respect to record retention appears to relate to information in the possession of SNC-Lavalin ATP Inc. (SNC- ATP), the Commission should be aware that SNC-ATP was, and remains, a third party provider of engineering services to AltaLink. However, if the proposed transaction is approved by this Commission, SNC-ATP will no longer be an affiliate of AltaLink Moreover, AIML submitted that both prior to and after the closing of the proposed transaction, AltaLink will be required to prudently incur the cost of engineering services, as it is with all other costs. Given this, AIML submitted there is nothing in the proposed transaction that impacts AltaLink s obligation in the slightest, and thus no condition is remotely required or necessary AIML noted that regardless of the sale by an upstream owner, AltaLink is untouched by the proposed transaction and remains subject to ongoing Commission oversight. Furthermore, as the officers and directors of AltaLink have the obligation to manage the business and affairs of AltaLink both prior to and after the sale, and as maintaining business books and records is one of the many obligations that management of any enterprise must undertake, AIML submitted that the UCA s request for conditions on books and records is unwarranted, and amounts to a request for the Commission to become involved in the business and affairs of the utility In its rebuttal argument, MC Alberta submitted that it had reviewed and adopted the position of AIML with respect to record retention related conditions suggested by the CCA. As such, MC Alberta submitted that the conditions requested by the CCA are unnecessary and inappropriate, and should be denied SNC submitted that the conditions in respect of the retention of records requested by both the CCA and the UCA is without precedent in the context of a share transaction, and wholly unnecessary. SNC submitted that while a condition of this sort might be required in the context of a transaction where only specific assets are being transferred from one entity to another, 262 by its nature, a share sale is fundamentally different in that the entirety of the legal entity, together UCA reply argument, paragraph 23. Decision AUC Decision (November 28, 2014)

79 with all assets including business records, are transferred to the new owner. In addition, SNC supported the submissions of AIML with respect to the record retention issue. Commission findings 352. The utility, AltaLink, has the statutory onus to demonstrate that its tariff is just and reasonable. If it does not provide sufficient evidence to demonstrate this, the costs it seeks to recover are at risk of being disallowed. The Commission finds that AltaLink will be motivated to ensure that it maintains sufficient records or access to records for this purpose Regardless, the Commission has the statutory authority to direct the owners of an electric utility to provide records and documents as necessary to discharge its mandate. In this regard, the duty of the owner of an electric utility to maintain required records and accounts and to comply with Commission direction to provide accounts and records is set out in Section 118 of the Electric Utilities Act: Duty to keep accounts and records 118(1) An owner of an electric utility must, with respect to the electric utility, (a) maintain records and accounts in a manner that provides a reasonable understanding of the operation of the electric utility, including keeping track separately of the costs and expenses of (i) transmission facilities, and (ii) electric distribution systems, (b) provide, when requested by the Commission, a detailed report of finances and operations relating to the electric utility in the form, containing the information and verified in the manner the Commission requires, and (c) subject to any order of the Commission, maintain proper and adequate depreciation, amortization or depletion accounts using any basis or method the Commission directs. (2) The Commission may make rules respecting the information required to be filed with the Commission and the person required to file it, including (a) forecasts, and (b) separate information in relation to transmission, distribution, exchange, purchase or sale of electric energy when one or more of those functions is undertaken by the same person The Commission may also investigate any matter concerning a public utility, as set out in Section 87 of the Public Utilities Act: Investigation of public utility 87(1) The Commission may, on its own initiative, or on the application of a person having an interest, investigate any matter concerning a public utility. AUC Decision (November 28, 2014) 75

80 (2) When in the opinion of the Commission it is necessary to investigate a public utility or the affairs of its owner, the Commission shall be given access to and may use any books, documents or records with respect to the public utility and in the possession of any owner of the public utility or municipality or under the control of the Alberta Energy Regulator or a board, commission or department of the Government. (3) A person who directly or indirectly controls the business of an owner of a public utility within Alberta and any company controlled by that person shall give the Commission or its agent access to any of the books, documents and records that relate to the business of the owner or shall furnish any information in respect of it required by the Commission. RSA 2000 cp-45 s87;2007 ca-37.2 s82(25); s In addition, under the Alberta Utilities Commission Act, the Commission has the powers ascribed to a judge of the Court of Queen s bench, as set out below: Commission has powers of Queen s Bench judge 11 In addition to any other powers conferred or imposed by this Act or any other enactment, the Commission has, in regard to the attendance and examination of witnesses, the production and inspection of records or other documents, the enforcement of its orders, the payment of costs and all other matters necessary or proper for the due exercise of its jurisdiction or otherwise for carrying any of its powers into effect, all the powers, rights, privileges and immunities that are vested in a judge of the Court of Queen s Bench In light of the legislative provisions outlined above, the Commission considers that the attachment of conditions requested by the CCA and the UCA regarding the preservation of certain types of records is not required as a condition of the Commission s approval of the applications Consequently, the Commission finds that the proposed sale transaction does not fail the no harm test on the basis that sufficient documentation will not be available to test AltaLink GTAs because SNC-ATP will no longer be an affiliate of AltaLink Retention of key employees 358. In reply argument, the CCA referred to its preamble to CCA-MC Alberta-20, 263 in which it identified a concern with respect to material transfers of staff from AltaLink to SNC-Lavalin. This preamble is reproduced below: In the Statement from the Industry Minister, Berkshire Hathaway Energy claims it will share best practices, at no cost, with AltaLink on safety, customer satisfaction, cybersecurity and supplier diversity. MC Alberta confirmed that this statement accurately reflects the commitments of Berkshire Hathaway Energy to the Government of Canada in CCA-MC Alberta-05(b). However, MC Alberta would not confirm that Berkshire Hathaway Energy (BHE) is prepared to make this commitment to the Alberta Utilities Commission and noted that BHE is not an applicant in this proceeding in CCA- MC Alberta-05(c). 263 Exhibit No AUC Decision (November 28, 2014)

81 In Exhibit 10, when demonstrating no-harm to customers, MC Alberta makes a similar, but not identical, claim. In CCA-MC Alberta-05 (i) and CCA-MC Alberta-11(a)(v) and (vi), CCA endeavoured to obtain information, among other matters, on the financial resources required to share these best practices and to determine who will pay for the cost to share these best practices. For clarity, CCA does not, in principle, object to the sharing of best practices. Such exchanges of information have the potential to benefit customers as well as MC Alberta (as a company), MC Alberta shareholders and MC Alberta affiliates. However, based on the responses to these information requests, CCA remains unclear as to the extent of this proposed arrangement in terms of employees time and costs and, should the cost of these exchanges become material, it is unclear who will pay for them. Furthermore, CCA assumes that this best practices information could flow from AltaLink to the MC Alberta affiliates as well as from MC Alberta affiliates to AltaLink. It is unclear if such an exchange could involve the secondment or temporary transfer of key AltaLink employees to an affiliate of MC Alberta. Experienced AltaLink employees could find a short-term or long-term transfer to a more conducive climate in Nevada or the PacifiCorp service territory to be particularly appealing. CCA is acutely aware of the shortage of experienced engineering, procurement and construction resources in Alberta that have been and will be required to address the large capital construction build underway. CCA is concerned about the potential for transfers of key experienced AltaLink staff to MC Alberta affiliates, without proper compensation to AltaLink and that there are assurances that such transfers will not cause harm to AltaLink customers. In the original transfer of employees from TransAlta to AltaLink and then to SNC Lavalin in the 2002 timeframe, there were concerns that such transfers resulted in harm to customers. For example, in Decision [ 264 ] (page 47), FIRM (an intervener) pointed out that some of these skills had left AltaLink with the transfer of the employees to SNC-ATP, and now AltaLink was expressing concern for the lack of in-house expertise. In a subsequent proceeding, the importance of using employees to provide base-load EPCM requirements was noted. In Decision [ 265 ] (page 75), it was stated: In light of these factors, the Board finds that AltaLink s outsourcing arrangements with SNCATP provides no substantive benefit relative to the management of workload variability arising from direct assign project work anticipated at the present time. Rather, the Board is persuaded by the arguments of IPCAA that AltaLink would have had the ability to manage such risks by maintaining a baseload component of in-sourced full time EPCM employees to handle the minimum amount of direct assign projects [and] by directly Decision : AltaLink Management Ltd. and TransAlta Utilities Corporation, Transmission Tariff for May 1, 2002 April 30, 2004, TransAlta Utilities Corporation, Transmission Tariff for January 1, 2002 April 30, 2002, Application Nos , , and , August 3, Decision : AltaLink Management Ltd. and TransAlta Utilities Corporation, General Tariff Application, Application No , March 12, AUC Decision (November 28, 2014) 77

82 contracting with EPCM contract employees and/or consultants to handle peak periods, just as has been done by SNC-ATP. While it is noted that the circumstances leading to Decision are somewhat different than the current circumstances, CCA seeks assurances that after the sale, key experienced AltaLink employees will remain in AltaLink to address the forecast substantial baseload work requirements of AltaLink. CCA anticipates potential for harm to customers if employee transfers out of AltaLink to MC Alberta affiliates for various reasons, including sharing of best practices and pursuit of preferred employment opportunities are unrestrained and even encouraged The CCA submitted that, when questioned about this concern, MC Alberta stated it: is not aware of the circumstances associated with specific employees before and after the acquisition of AltaLink by SNC-Lavalin. 266 The CCA noted that in CCA-MC Alberta-20 g), it questioned MC Alberta as to whether it could provide assurance that there will not be a material transfer of key, experienced employees subsequent to the acquisition of AltaLink that could harm AltaLink customers, and MC Alberta responded as follows: AltaLink will continue to operate as an independent, stand-alone entity. MAAC does not foresee any potential for a material transfer of key, experienced employees occurring subsequent to the proposed acquisition that could cause harm to AltaLink customers In light of the foregoing, the CCA recommended that the Commission s approval of the applications contain the condition that MC Alberta and AML will not permit a material transfer of key, experienced employees to other BHE affiliates subsequent to the proposed acquisition that could cause harm to AltaLink customers In rebuttal argument, MC Alberta took note of its response to CCA-MC Alberta-20 g) 268 in which it noted that AltaLink will continue to operate on an independent, stand-alone basis and that it does not foresee a potential for a material transfer of experienced employees to occur. Given this, MC Alberta submitted that it is unnecessary and inappropriate to condition the approval of the applications, as the CCA recommends. Commission findings 362. Generally, individuals can elect to terminate their relationship with their current employer in order to work for a different employer of their choosing In the event that a material transfer of experienced employees occurs, and this transfer is found to be at the direction of the owners of AltaLink, the Commission would consider any financial and service quality impacts of this transfer in the context of its review of an AltaLink tariff application. However, it is the evidence in this proceeding that such a transfer is not contemplated. Accordingly, the Commission will not impose the condition requested by the CCA Exhibit No , CCA-MC Alberta-20(f). Exhibit No , CCA-MC Alberta-20(g). Exhibit No AUC Decision (November 28, 2014)

83 5.7.4 Fort McMurray project costs 364. Section 5.6 of the SPA entitled Fort McMurray Project addresses issues related to a Request for Proposals (RFP) process initiated by the AESO allowing proponents to compete for the opportunity to build, finance, own and operate the Fort McMurray West 500-kilovolt (kv) transmission project (Fort McMurray Project), consisting of approximately 500 kilometres of transmission infrastructure from the Wabamun area of Alberta to the Fort McMurray area of Alberta. Section 5.6 of the SPA states that the AESO is expected to announce the preferred proponent for the RFP process in December In an attachment to the response to AUC-MAAC-5(a), 269 MC Alberta provided a copy of a joint press release dated January 17, 2014 which announced that TransAlta Corporation and MidAmerican Transmission had, through a consortium named TAMA Transmission, successfully qualified to participate as a proponent within the AESO s Fort McMurray West 500-kV transmission project competitive process. In parts (b) and (c) of its response to AUC- MAAC-5, MC Alberta confirmed that, at the time of its response, MidAmerican Transmission continued to be involved in the AESO s Fort McMurray West 500-kV transmission project RFP process, and that no changes had been made to the structure or membership of TAMA transmission since the issuance of the joint press release In its reply argument, the CCA referred to subsection (e) of Section 5.6 of the SPA, which has been reproduced below: The Parties acknowledge that American Electric Power Company, Inc. (directly or indirectly through its Affiliates) (in this Section 5.6(e), AEP) are involved in the Fort McMurray Project as part of the Athabasca consortium and, consequently, that the Parties shall cooperate with AEP to the extent necessary for the fulfillment of their respective obligations and responsibilities set forth above in Sections 5.6(b) and (c) The CCA submitted that as MC Alberta has confirmed that paragraph 11.7 of the SPA prevents any person other than the parties to the SPA from being able to rely upon or enforce the agreements, 270 neither the Commission nor interveners can rely upon any provision of the SPA to ensure no harm to ratepayers. Given this, the CCA submitted that the Commission s approval of the applications should include the condition that none of the costs incurred under Section 5.6 of the SPA will be passed on to ratepayers In rebuttal argument, MC Alberta noted that it confirmed in its response to CCA-MC Alberta-02(e) 271 that any costs incurred pursuant to Section 5.6 of the SPA payable to the Sellers as designated in the SPA will not be passed on to customers. In any event, however, MC Alberta noted that Commission review and approval within in a future tariff proceeding would be necessary for any costs of this nature to be passed on. Therefore, as this commitment is clear and unequivocal, and as the matter would be addressed, if at all, in a future tariff proceeding, MC Alberta submitted that it is unnecessary for the Commission to take the unprecedented step of conditioning its approval to reflect this commitment Exhibit No Exhibit No , CCA-MC Alberta-02(a). Exhibit No AUC Decision (November 28, 2014) 79

84 Commission findings 369. The Commission accepts the undertaking of MC Alberta set out in CCA-MC Alberta 02(e) that any costs incurred pursuant to Section 5.6 of the SPA that would be payable to Sellers as designated in the SPA will not be passed on to ratepayers In the event that any deliberate or inadvertent violation of this commitment to ensure that costs related to Article 5.6 of the SPA are not passed on to customers occurs, the Commission can address the matter in the context of future AltaLink tariff applications Given the foregoing, the Commission finds that the proposed sale transaction does not fail the no harm test on the basis of the effect of Article 5.6 of the SPA. 6 Designation and implementation matters 6.1 Designation as owner of utility pursuant to Section 101 of the Public Utilities Act 372. In conjunction with the approval of the transaction, the applicants requested that the Commission: Following the closing of the acquisition 272 or the pre-closing reorganization, 273 add NewCo to the Public Utilities Designation Regulation as a designated owner of a public utility to which sections 101, 102 and 109 of the Public Utilities Act apply, and that effective from that time to the time of actual designation, as a condition of the granting of the applications, the Commission require NewCo to conduct itself as if it had been designated. Following the completion of the acquisition, remove T1 and T2 from the Public Utilities Designation Regulation as owners of a public utility to which sections 101, 102 and 109 of the Public Utilities Act apply, and issue a declaration or order that T3 no longer be required to conduct itself as an owner of a public utility to which sections 101, 102 and 109 of the Public Utilities Act apply Currently, AIML, AML, SNCEAL, T1, and T2 are designated in the Public Utilities Designation Regulation Section 1(1) as an owner of a public utility to which sections 101, 102 and 109 of the Public Utilities Act apply. 274 T3 is required to conduct itself as if it has been designated as an owner of a public utility to which sections 101, 102 and 109 of the Public Utilities Act apply. 275 NewCo is not designated as a public utility owner under Section 101(1) of the Public Utilities Act and therefore sections 101, 102 and 109 of the Public Utilities Act do not apply to NewCo The transfer of ownership, as described in the MC Alberta application, is a two-step process. First, the current ownership structure of AltaLink will be reorganized such that it will be Exhibit No. 129, MC Alberta, reply argument, paragraph 41. Exhibit No , SNC reply argument, paragraph 16. Exhibit No. 3, SNC application, PDF page 2; Public Utilities Designation Regulation, AR 194/2006, Section 1(1). Exhibit No. 3, SNC application, PDF page 6 citing Decision , paragraph 61. Exhibit No. 3, SNC application, PDF page 12, paragraph AUC Decision (November 28, 2014)

85 100 per cent owned by the new corporation NewCo (pre-closing reorganization). Second, all issued and outstanding shares in NewCo will be transferred to MC Alberta from SNC (acquisition) The applicants submit that acquisition will not substantively change the Commission s regulatory authority over designated owners of public utilities in relation to the AltaLink transmission business: 278 SNCEAL, T1, T2 and T3 will continue to be designated until the Acquisition has closed. Following the Acquisition, AIML and AML will continue to be designated. NewCo will replace the SNC-Lavalin entities that are currently designated under the Public Utilities Designation Regulation or deemed to be designated by the Commission (i.e., T1, T2 and T3) and, as such, it is appropriate that NewCo be designated following the Acquisition and govern itself as such until it may be designated under the Public Utilities Designation Regulation. MC Alberta, through its purchase of the shares of NewCo, will replace the SNC-Lavalin entities in the current AltaLink entities ownership structure that are not designated under the Public Utilities Designation Regulation (i.e., SNC-Lavalin Investment Alberta Ltd. and ), and it is appropriate that MC Alberta similarly not be designated. The following Pre- and Post-Closing organizational charts illustrate the designations In Decision , authorizing the reorganization of the ownership structure of AHLP, the Commission made the following findings: Exhibit No. 129, MC Alberta argument, paragraph 7. Exhibit No. 10, MC Alberta application, Attachment B, paragraphs 31-33; Exhibit No. 3, SNC application, Attachment B, paragraphs 31-33; Exhibit No. 1, AIML application, Attachment B, paragraphs AUC Decision (November 28, 2014) 81