Nova Scotia Company and TE-TAU, Inc.

Transcription

1 Alberta Energy and Utilities Board Decision Nova Scotia Company and TE-TAU, Inc. Request for Relief Under Section 101(2) of the PUB Act March 16, 2004

2 ALBERTA ENERGY AND UTILITIES BOARD Decision : Request for Relief Under Section 101(2) of the PUB Act Application No Published by Alberta Energy and Utilities Board Avenue SW Calgary, Alberta T2P 3G4 Telephone: (403) Fax: (403) Web site:

3 Contents 1 INTRODUCTION BACKGROUND VIEWS OF THE PARTIES VIEWS OF THE BOARD ORDER APPENDIX 1 ALTALINK STRUCTURE FROM DECISION APPENDIX 2 AFFIDAVIT ON RING FENCING MEASURES EUB Decision (March 16, 2004) i

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5 ALBERTA ENERGY AND UTILITIES BOARD Calgary Alberta NOVA SCOTIA COMPANY AND TE-TAU, INC. Decision REQUEST FOR RELIEF UNDER SECTION 101(2) Application No OF THE PUB ACT File No INTRODUCTION By letter dated July 8, 2003, Nova Scotia Company (NSC) and TE-TAU, Inc. (TTI) (together, the Applicants) requested an order from the Board declaring that section 101(2) of the Public Utilities Board Act 1 (PUB Act) does not apply to the Applicants in respect of the classes of transactions described in section 101(2) (the Application). The Application was made pursuant to section 101(4) of the PUB Act seeking exemption from the requirements set out in section 101(2) reproduced below: 101(2) No owner of a public utility designated under subsection (1) shall (a) issue any (i) of its shares or stock, or (ii) bonds or other evidences of indebtedness, payable in more than one year from the date of them, unless it has first satisfied the Board that the proposed issue is to be made in accordance with law and has obtained the approval of the Board for the purposes of the issue and an order of the Board authorizing the issue, (b) capitalize (i) its right to exist as a corporation, (ii) a right, franchise or privilege in excess of the amount actually paid to the Government or a municipality as the consideration for it, exclusive of any tax or annual charge, or (iii) a contract for consolidation, amalgamation or merger, (c) without the approval of the Board, capitalize any lease, or (d) without the approval of the Board, (i) sell, lease, mortgage or otherwise dispose of or encumber its property, franchises, privileges or rights, or any part of them, or 1 R.S.A. 2000, c. P-45 EUB Decision (March 16, 2004) 1

6 (ii) merge or consolidate its property, franchises, privileges or rights, or any part of them, and a sale, lease, mortgage, disposition, encumbrance, merger or consolidation made in contravention of this clause is void, but nothing in this clause shall be construed to prevent in any way the sale, lease, mortgage, disposition, encumbrance, merger or consolidation of any of the property of an owner of a public utility designated under subsection (1) in the ordinary course of the owner s business. 101(4) The Board, on its own initiative or on the application of a person having an interest, may, or on the order of the Lieutenant Governor in Council shall, declare that subsection (2) or any part of it does not apply with respect to any transaction or class of transactions specified in the declaration. Notice of the Application was ed on July 22, 2003, to all parties on the mailing list of the recent AltaLink/TransAlta General Tariff Applications 2. Notice was also published in most daily newspapers in Alberta on July 24 or 27, Interested parties were requested to file objections to the Application by August 8, Through letters dated August 8, 2003 and August 9, 2003 respectively, The City of Calgary (Calgary) and FIRM Customers 3 (FIRM) filed objections to the Application. In a letter dated October 8, 2003, the Board outlined the following process for dealing with the Application. The Board also asked parties to comment on whether the Board should conduct an oral or written hearing to consider the matter. In a letter dated October 15, 2003, Calgary advised that it did not anticipate that an oral proceeding would be necessary to deal with the matter and that a written proceeding should be sufficient. ACTIVITY DUE DATE Information Requests on Application October 22, 2003 Information Responses from Applicants November 5, 2003 Intervener Evidence, if any November 19, 2003 Information Requests on Intervener Evidence December 3, 2003 Information Responses from Interveners December 17, 2003 Rebuttal Evidence from Applicants January 7, 2004 No Intervener Evidence was submitted and the subsequent activities noted above were not completed. On December 19, 2003, the Board provided an update on the status of the Application and indicated that it was the Board's intention to complete its review of the AltaLink Management and General Tariff Applications of AltaLink Management Ltd. in its capacity as General Partner of AltaLink Limited Partnership and TransAlta Utilities Corporation. Alberta Irrigation Projects Association, Alberta Association of Municipal Districts and Counties, Alberta Federation of REA s, Consumers Coalition of Alberta and the Public Institutional Consumers of Alberta. 2 EUB Decision (March 16, 2004)

7 Ltd. s (AML) Refiling Application No before it determined the outcome of the Application. The Board also noted that it would likely conclude its review of the refilings early in In a letter dated January 19, 2004, the Board outlined the following process for Argument and Reply for the Application. ACTIVITY DUE DATE Written Argument (all parties) February 3, 2004 Written Reply (all parties) February 10, 2004 The Industrial Power Consumers Association of Alberta (IPCAA) did not file an objection to the Application but on February 9, 2004, IPCAA filed a letter supporting Calgary on this matter. For the purposes of this Decision, the Board considers that the record closed on February 10, BACKGROUND In Decision , the Board approved the transfer of TransAlta Utilities Corporation transmission assets and business to TransAlta Energy Corporation for the subsequent transfer to AML, in its capacity as general partner of AltaLink, L. P. (ALP). The AltaLink Corporate Structure at the time of Decision is shown in Appendix 1 of this Decision. 4 The corporate structure for the operation and ownership of the transmission facilities was founded on the creation of two limited partnerships. The first limited partnership, ALP, was created and registered in Alberta under the Partnership Act. 5 Pursuant to the AltaLink, L.P. Amended and Restated Limited Partnership Agreement (Partnership Agreement), 6 the business of the partnership consists solely of directly or indirectly participating in the transmission of electricity and the ownership or operation of electrical transmission lines and infrastructure. 7 AML has the full and exclusive right, power and authority to manage, control, administer and operate the business and affairs and to make decisions regarding the undertaking and business of ALP. 8 The sole limited partner of ALP is another Alberta limited partnership: AltaLink Investments L.P. (AILP). As a limited partner, AILP cannot take part in the administration, control, A portion of the structure related to Macquarie Transmission Alberta Ltd. (MTAL) was revised pursuant to Decision In Decision , dated May 13, 2003, authorization was given to MTAL to make or permit to be made on its books a transfer of 100% of its outstanding capital stock from Macquarie North America Ltd. to Macquarie Canadian Infrastructure Management Ltd., in its capacity as general partner of Macquarie Essential Assets Partnership. MTAL advised that the transfer was completed on May 15, RSA 2000, Chapter P-3 Amended and restated as of September 2, Partnership Agreement, Article 2.2. The business of the partnership also includes the use of such infrastructure for telecommunication purposes, engineering services related to the transmission of electricity and related administrative services associated with the aforementioned activities all in respect only, however, of transmission operations, facilities and systems which are subject to regulation by the Board. Partnership Agreement, Article 8.1 (a). Subject to terms of the Partnership Agreement and any limitations set forth in the Partnership Act and applicable similar legislation. EUB Decision (March 16, 2004) 3

8 management or operation of the business of ALP or exercise any power in connection therewith or transact business on behalf of ALP. 9 The composition of AILP consists of AltaLink Investment Management Ltd. (AIML), 10 operating as the general partner, and four limited partners. The limited partners include NSC and three other entities. All four of the limited partners of AILP are wholly-owned subsidiary companies of existing parent corporations or organizations. These limited partners cannot take part in the administration, control, management or operation of the business of AILP or exercise any power in connection therewith or transact business on behalf of AILP. 11 SNC-Lavalin Energy Alberta Ltd. and TTI own AML and AIML equally. TTI also owns 100% of the issued capital stock of NSC. The Applicants are both wholly-owned subsidiaries of TransElect, Inc. AIML has the full and exclusive right, power and authority to manage, control, administer and operate the business and affairs and to make decisions regarding the undertaking and business of AILP. 12 AML, AIML, NSC, TTI and the other two limited partners of AILP are designated as owners of a public utility, pursuant to sections 1 and 2 of the Designation Regulation, Alta. Reg. 131/2000 (Designation Regulation), 13 to which sections 101, 102 and 109 of the PUB Act applies. AML is an electric utility as the term is defined in section 1(1)(o) of the Electric Utilities Act 14 and is also a public utility as defined in section 1(i)(vi) of the PUB Act. 3 VIEWS OF THE PARTIES NSC and TTI The Applicants stated that their currently committed and currently intended activities are limited to those set out in the Application, which are, respectively, TTI s ownership interests in NSC, AIML and AML, and NSC s partnership interest in AILP. The Applicants submitted that one of the primary reasons for the requested relief was to ensure that NSC and TTI were in a position to access capital, in such form and at such time as may be most advantageous given market conditions. The Applicants noted that at such time as NSC s existing investment in units of AILP might be advantageously refinanced by it, or additional financing by NSC may be required to fund further investment in AILP, it would be reasonable for NSC to be in a position by way of Board exemption such that it may quickly, flexibly and without further regulatory costs or enquiry arrange such financing Partnership Agreement, Article 2.8 (a). AIML was incorporated in Alberta and as the general partner of AILP, may hold legal title to the assets that are beneficially owned by AILP and carries on the business of the partnership. AILP Limited Partnership Agreement, dated August 23, 2001, Article 2.8 (a). AILP Limited Partnership Agreement, Article 8.1 (a). Subject to terms of the AILP Limited Partnership Agreement and any limitations set forth in the Partnership Act and applicable similar legislation. Consolidated up to 354/2003 R.S.A. 2003, c. E EUB Decision (March 16, 2004)

9 The Applicants submitted that NSC and TTI would face in every case the costs and delays involved in applications to the Board. The Applicants stated that in some of those cases, inhibitions or prohibitions regarding disclosure of commercially sensitive information, and the delays inherent in an application process, could see opportunities and activities foregone. The Applicants argued that these results in respect of NSC and/or TTI would occur in a context where the applications involved would not add value to the stand-alone, ring-fenced regulation of the electric utility operated by ALP. The Applicants submitted that ALP would determine the activities, financing plan and sources of capital for ALP s businesses, and will make such applications to the Board in that regard as may be required. The Applicants submitted that exemptions were granted to both direct and indirect owners where the granting of such exemptions did not impede the proper stand-alone regulation of the utility undertaking and argued that the same considerations lead to the conclusion that the Applicants request should also be granted. The Applicants submitted that not only could TransAlta Corporation invest in non-regulated activities without Board approval as an indirect owner of a utility regulated by the Board, but so could TransAlta Utilities Corporation as a direct owner of such a utility. The Applicants argued that the essence of the stand-alone perspective was that the non-regulated activities of utility owners (both direct and indirect owners) were not brought to bear on the costs of the regulated undertaking for ratemaking purposes. The Applicants submitted that granting the requested relief would not contradict the stand-alone principle 15 and would be consistent with the Board s practice in respect of similarly situated indirect owners of utilities. The Applicants submitted that application of the stand-alone principle in regulation of the utility reduces the need and value of seeking to regulate in a more active manner entities that are only indirect owners of the regulated utility. The Applicants stated that Section 101(2) of the PUB Act was a historical provision, the utility of which in some ways has been superceded by regulatory practice and developments. The Applicants submitted that the Board s jurisdiction under section 101(2)(a) was oriented to the Board satisfying itself that proposed issues of equity and long-term debt are to be made in accordance with law and that the purpose of the issue has been approved corporately. The Applicants noted that it was their understanding that these statutory provisions predate the existence of active securities regulation in the Province. The Applicants also noted that it was their understanding that these statutory provisions predate the era of active rate regulation by the Board and submitted that prior to such active rate regulation, regulation of the specifics of the issue of debt and equity was a method by which the Board could regulate the affairs of the utility in the public interest, and assure its financial soundness. The Applicants stated that the financial structure of the direct owner of the regulated public utility undertaking was now regularly vetted for rates purposes in tariff proceedings before the Board and argued that the PUB Act approvals of securities issues directly funding rate base has assumed lesser significance, and such owners would often seek and obtain exemptions to some of the provisions of the PUB Act. The Applicants stated that the usefulness of such enquiry of equity and long-term debt in respect of an indirect owner was questionable. 15 The Applicants noted that their understanding of the standalone principle was that the rates of the rateregulated entity were to neither subsidize affiliated non-regulated entities, nor to be subsidized by such entities. EUB Decision (March 16, 2004) 5

10 The Applicants submitted that active tariff regulation of the rate-regulated utility itself has led the Board to grant increasingly broad exemptions to indirect owners who may have been designated. With respect to Calgary s submission that the Applicants failed to provide any evidence that matters have changed to such a degree that the decision reached in Decision should be varied to remove the regulatory safeguard recognized by the Board, the Applicants submitted that Calgary failed to acknowledge the following events that have transpired subsequent to the to the issue of Decision and the Board s comments therein. The Board had an in-depth review of the operations, costs and operating procedures of AML in the proceedings leading to the issue of Decision In Decision , the only information relevant to the Applicants that was requested by the Board was data in respect of the Applicant Nova Scotia Company 17 and control over Nova Scotia Company by means of its designated status under the PUB Act was neither used by the Board in order to obtain the desired information, nor was it necessary to obtain the information sought. In Decision , having considered, inter alia, the information provided concerning Nova Scotia Company, the Board reiterated its stand-alone perspective with respect to regulation of AML. 18 The Applicants submitted that Calgary s perspective in opposing the exemptions sought by the Applicants chose to ignore the Board s perspective of stand-alone regulation of AML, and the Board s recognition of the ring fencing put in place with respect to AML s operations and financings. The Applicants submitted that AML still retains the obligation to seek Board approval for its own financings, which aligns with the stand-alone nature of the Board s regulation of AML, and the ring-fenced nature of AltaLink s structure. Requested Relief Pursuant to section 101(4) of the PUB Act, NSC and TTI requested an order of the Board declaring that section 101(2) of the PUB Act does not apply to NSC or TTI in respect of the classes of transactions described in section 101(2) and for such further and other relief as the Board may deem appropriate in connection with the Application (Requested Relief). The Applicants stated that at the moment they have no specific transactions contemplated that would fall under the purview of section 101(2) and that the Application was being made as a normal course application similar to applications made in the past by other indirect owners of public utilities regulated by the Board Decision dated August 3, 2003 Decision , pp. 84 and 86 Decision , dated January 27, 2004, p EUB Decision (March 16, 2004)

11 The Applicants submitted that declining to grant exemptions to the non-financing aspects of section 101(2) would serve no purpose and would deviate from the pattern of exemptions granted to others such as TransAlta Corporation and Aquila Canada Networks Ltd. The Applicants noted that the Application requested relief in respect of the provisions of section 101(2) of the PUB Act, but not in respect of section 102 of the PUB Act. NSC indicated that it would not object to a condition in the order in this proceeding whereby NSC may not effect, without Board approval, a transaction under the exemption to section 101(2) whereby its partnership interest in AILP was transferred. In addition, TTI indicated that it would not object to a condition in the order in this proceeding whereby TTI may not effect, without Board approval, a transaction under the exemption to section 101(2) whereby its ownership interest in NSC, AIML or AML was transferred. Grounds in Support of the Application The Applicants submitted that it was appropriate for the Board to provide the Requested Relief for the following reasons (collectively referred to as the Grounds for Relief): The Applicants do not directly own or operate electric or other public utility assets in Alberta; Actions taken by the Applicants to finance or otherwise operate their respective undertakings do not bear on the costs, financing or otherwise, incurred by ALP in respect of its electric utility as regulated by the Board; It will streamline the regulatory process in Alberta without affecting public utility service to be provided to the Alberta public. Calgary Calgary submitted that the Applicants were subject to the Board s regulation and, in particular, were subject to the requirements of sections 101, 102 and 109 of the PUB Act. Calgary argued that the requirement of Board approval for certain transactions under these sections could be easily interpreted as mechanisms by which to protect the public interest. Calgary submitted that section 101, among others, allows the Board to obtain information and maintain control of owners of public utilities and argued that this was necessary to set just and reasonable rates while protecting the public interest. Calgary submitted that ability of the Board to look beyond the regulated entity was essential in the event of transactions and influences of affiliated entities including parent entities, where the costs of service could be affected by the actions of and interactions with those entities. Calgary argued that the Board should not grant the Requested Relief since the Applicants have not provided new evidence that could vary the Board s view in Decision , whereby the Board stated that it had the power to review the transactions contemplated by section 101 and 102 of the PUB Act in order to provide a reasonable regulatory safeguard to potential negative impacts on the integrity of the transmission system. EUB Decision (March 16, 2004) 7

12 Calgary submitted that the information arising from section 101 potentially impacts the costs of ALP and argued that only in extraordinary circumstances should the legislated process be avoided through exemption. Calgary submitted that direct ownership or operation of utility assets was not the appropriate test to be applied by the Board for the application of section 101(2). With respect to previous exemption orders cited by the Applicants, U97074 and U , Calgary submitted that were no objections and the Board s approval of the applications was predicated on circumstances unique to each applicant, circumstances which do not exist in the Application. Calgary stated that the Applicants have not provided any evidence that their costs and activities will not affect the costs of AML. Calgary also stated that while there may be no current intention by the Applicants to act on financing, the partnership articles and business interests certainly allow for it to amend its intentions. Calgary submitted that the loss of the opportunity to assess costs of capital, that are affected by the ownership structure, and the actions of the owners, which would result from approval of the Requested Relief, far outweigh the Applicants business interests of costs and perhaps, minimal delay in financing. Calgary submitted that the Application should be denied since the Applicants have failed to prove that the regulatory safeguards provided by section 101(2) were not necessary. FIRM FIRM indicated that it supported and endorsed Calgary s argument. IPCAA IPCAA indicated that it supported the position of Calgary. 4 VIEWS OF THE BOARD In its review of the Application, the Board must first be satisfied that the Requested Relief can be approved pursuant to section 101(4) of the PUB Act. In regard to this test, the Board is satisfied that it has the authority to grant the Requested Relief and notes that it has granted similar relief to other public utilities pursuant to similar provisions in the PUB Act. The Board notes that ALP owns and operates regulated transmission assets and business and is the only entity in the AltaLink structure that has regulated rates established by the Board. The Board also notes that AML is currently the general partner of ALP. 19 U97074 dated June 12, 1997 for TransAlta Utilities Corporation and U dated April 30, 2001 for UtiliCorp Networks Canada Ltd. 8 EUB Decision (March 16, 2004)

13 The Board notes Calgary s submission that section 101, among others, allows the Board to obtain information and maintain control of owners of public utilities in order to set just and reasonable rates. The Board agrees with Calgary that AML is a public utility and that the Applicants are owners as defined by the PUB Act. As noted by Calgary, the Board s understanding of the original intent of the stand-alone principle was to allow the regulator to look beyond the regulated entity to its parents to ensure that the ratepayer was protected from any increase in the cost of capital that might result from non-regulated activities. However, in general, the Board does not consider it practical to monitor all the activities of direct or indirect owners of a rate-regulated utility when such owners conduct non-regulated operations. The Board notes Calgary s submission that the Applicants have not provided any evidence that their costs and activities will not affect the costs of AML. However, in approving the Requested Relief, the Board considers that it must be satisfied that the Requested Relief would not undermine the ability of AML to provide safe and reliable service at just and reasonable rates. Since Decision , the Board has had the opportunity in subsequent AML proceedings to review additional information on the AltaLink related entities and structure and considers that AML and AIML have provided reasonable assurance that the stated ring-fencing measures (outlined in Appendix 2) isolate the financial risks of AILP from those of ALP and that lenders to AILP have no recourse to the business or assets of ALP. As noted in Decision , the Board considers that the rate-regulated assets must be appropriately ring-fenced. 20 Given the ring-fencing measures implemented by the AltaLink related entities, the Board does not agree with Calgary s assertion that the loss of the opportunity to assess costs of capital, which Calgary submits are affected by the ownership structure, and the actions of the owners, which would result from approval of the Requested Relief, far outweigh the Applicants business interests of costs and delay in financing. With respect to Section 101(2)(a), the Board agrees with the Applicants that the financial structure of direct owners of the regulated public utility undertaking is now regularly vetted for rates purposes in tariff proceedings before the Board and that approvals of securities issues directly funding rate base has assumed lesser significance. The Board considers that the appropriate time and forum for the Board to exercise its regulatory oversight and review of the actions taken by a rate-regulated utility in respect of the timing, amount, cost, terms and conditions of financing facilities put in place by a rate-regulated utility is in the course of general rate applications, where the Board can and does deem capital structures and cost rates for capital raised by a rate-regulated utility in financing its regulated business. In the context of this statement, the Board notes that AML, in its capacity as general partner of ALP, is the rateregulated utility. The Board also notes that section 101(2) of the PUB Act also applies to AML. In considering this matter, the Board believes that it has no evidence before it that demonstrates that the Requested Relief would undermine the ability of AML to provide safe and reliable service at just and reasonable rates. In addition, the Board does not consider that it has evidence before it to discount the Applicants Grounds for Relief. Although the Requested Relief appears to pose no public interest issues, the Board considers that a conditional approval is appropriate given the limited regulatory history of the AltaLink related 20 Decision , p. 24 EUB Decision (March 16, 2004) 9

14 entities, that are designated as owners of a public utility, and the somewhat complex nature of the AltaLink Corporate Structure. These circumstances suggest to the Board that it should take a more cautious approach in considering the Application relative to previous exemption applications. Therefore, the Board is prepared to grant the Requested Relief, provided that an officer of NSC and TTI signs the affidavit included in Appendix 2 of this Decision, regarding various statements made by AltaLink related entities. In addition, to ensure that the same level of public utility designation occurs within the AltaLink structure, pursuant to the Designation Regulation, NSC may not effect, without Board approval, a transaction under the exemption to section 101(2) whereby its partnership interest in AILP is transferred and TTI may not effect, without Board approval, a transaction under the exemption to section 101(2) whereby its ownership interest in NSC, AIML or AML is transferred. The Board also directs the Applicants to notify the Board immediately if any of the ring fencing measures or statements outlined in Appendix 2 change or are no longer valid or true. 10 EUB Decision (March 16, 2004)

15 5 ORDER IT IS HEREBY ORDERED THAT, SUBJECT TO THE CONDITIONS CONTAINED HEREIN: (1) Effective as of the date the Board receives the signed affidavit from an officer of Nova Scotia Company, the provisions of section 101(2) of the Public Utilities Board Act will not apply to Nova Scotia Company unless and until this Order is varied or rescinded by the Board. (2) Effective as of the date the Board receives the signed affidavit from an officer of TE- TAU, Inc., the provisions of section 101(2) of the Public Utilities Board Act will not apply to TE-TAU, Inc. unless and until this Order is varied or rescinded by the Board. (3) Nothing in this Order shall bind, affect or prejudice the Board in its consideration of any other matter or question relating to Nova Scotia Company, TE-TAU, Inc., AltaLink Investment Management Ltd. or AltaLink Management Ltd. Dated in Calgary, Alberta on March 16, ALBERTA ENERGY AND UTILITIES BOARD (original signed by) R. G. Lock, P. Eng. Presiding Member (original signed by) T. McGee Member (original signed by) J. G. Gilmour Acting Member EUB Decision (March 16, 2004) 11

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17 APPENDIX 1 ALTALINK STRUCTURE FROM DECISION EUB Decision (March 16, 2004) 13

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19 APPENDIX 2 AFFIDAVIT ON RING FENCING MEASURES IN THE MATTER OF the ring fencing measures outlined by AltaLink Investments, L.P. (AILP) in Attachment 1 of its October 8, 2003 submission with respect to Board Decision IN THE MATTER OF the AltaLink structure which consists of limited partnerships (AltaLink L.P. (ALP) and AILP) and sponsor s investment corporations. IN THE MATTER OF an application by (together, the Applicants) to the Alberta Energy and Utilities Board (the Board) pursuant to section 101(4) of the Public Utilities Board Act, R.S.A. 2000, c. P-45 (PUB Act) for an order of the Board declaring that section 101(2) of the PUB Act does not apply to the Applicants in respect of the classes of transactions described in section 101(2) (the Application). IN THE MATTER OF Decision , issued by the Board on March 16, 2004, which outlined a conditional approval of the Application. AFFIDAVIT in the matter of Decision I,,, of (Name in Full) (Occupation) (Address) of the of in the of, MAKE (City, etc) (Province, etc) OATH (OR SOLEMNLY AFFIRM) AND SAY THAT: 1. I am an officer of. ( Nova Scotia Company or TE-TAU, Inc) 2. The two entities ALP and AILP have been financially, legally and operationally separated from one another, with the risks of ALP being separate and distinct from those of AILP. 3. The following ring fencing measures were adopted by AltaLink related entities in order to solidify the ongoing credit quality of the operating entity (ALP), isolate the financial risks of AILP from those of ALP, preserve independence of ALP in regulation and ensure proper governance: RING FENCING MEASURES Legal: Multiple ownership and shared voting control. No single consortium member has control of any of the entities in the structure. The obligations of ALP are separate and distinct from those of AILP. EUB Decision (March 16, 2004) 15

20 Governance: Independence of directors. There are no common directors on the boards of ALP and AILP. ALP s board consists of eight directors, three of which are outside directors and are independent from all the consortium members companies. No common officers between ALP and AILP. No tiebreaker votes, which means that consensus must be reached on all major issues. Financial: No cross default between ALP debt and AILP debt. This means that any debt raised at AILP is raised at no risk to ALP. An event of default at AILP 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 Board. 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 Board. This single focus isolates the risks of ALP to those associated with regulated transmission assets. 4. As a result of this ring fencing, any debt that is raised in AILP, whether issued by AILP or by a sponsor s investment company, whether to finance capital invested in ALP or to finance AILP s other businesses as they develop, creates no risk and results in no cost to ALP or its ratepayers. Lenders to AILP have no recourse to the business or assets of ALP. 5. I was informed by of and of that: Dominion Bond Rating Service and Standard and Poors (together the Rating Agencies) recognized the noted ring-fencing measures when they assigned ratings to ALP. The ratings assigned by the Rating Agencies were on a stand-alone basis and reflect the stand-alone credit strength of ALP. The obligations of AILP were considered separate and distinct from those of ALP and did not factor into the rating of ALP. SWORN (OR AFFIRMED) BEFORE ME in the of ) (City, etc) ) (Signature of Deponent) ) in the of ) (Province, etc) ) ) on this day of, ) (Month) (Year) ) (Signature of Commissioner of Oaths, Notary Public or other official authorized by law to administer oaths) 16 EUB Decision (March 16, 2004)