Cease and Discontinue Operations – Sale and Transfer of Distribution System
The V N M Rural Electrification Association Limited (the “VNM”), located northeast of Barrhead, Alberta, applied to the AUC pursuant to section 29(1) of the Hydro and Electric Energy Act (“HEEA”) to cease and discontinue operations, as it planned to sell and transfer its assets pursuant to section 32 of the HEEA.
FortisAlberta Inc. (“Fortis”) simultaneously applied to the AUC pursuant to section 32 of the HEEA for approval of the sale, transfer and operation of the VNM assets to Fortis. The AUC considered both applications jointly.
Standing Determination
Several rural electrification associations sought intervener status in the proceeding, citing legal and policy issues that were of a substantial and material interest to them (the “Intervening REAs”).
The AUC denied standing to the Intervening REAs on the basis that Fortis’ application did not have the potential to directly and adversely affect the rights asserted by the Intervening REAs in respect of their own rural electrification associations. The AUC noted that Fortis’ service area would not expand into or overlap with any of the Intervening REAs’ service areas. The AUC also determined that the Intervening REAs had no legal interest in the broader policy considerations relating to the purchase and sale of rural electrification associations to investor-owned utilities.
The AUC further denied standing on policy issues, holding that the legislature retained jurisdiction over the sale of rural electrification associations, as well as under what terms they may be sold.
Sale and Transfer of Assets
VNM submitted that its board of directors requested a formal offer from Fortis to purchase its electric distribution system. After receipt of the formal offer, VNM held a special general meeting on June 2, 2015, pursuant to section 23 of the Rural Utilities Act, to vote on the formal offer by Fortis. In total, 338 of the 626 registered members voted, with 97 percent of the votes cast in favour of the extraordinary resolution to sell and transfer the VNM assets to Fortis.
The resolutions of the VNM, for the sale and transfer of its assets to Fortis, were approved by the VNM board of directors on August 4, 2015.
In assessing whether the transfer was in the public interest, the AUC noted that the VNM assets were all located within Fortis’ service area, and that Fortis represented that it would continue to provide service to the members served by the VNM. The AUC also noted that 97 percent of the voting members of the VNM voted to approve the transfer. In relying on the above submissions, the AUC held that the sale and transfer of the VNM assets to Fortis was in the public interest.
The AUC therefore directed that the VNM operations and related assets be transferred to Fortis.
The Asset Purchase Agreement between VNM and Fortis was based on a replacement cost new less depreciation (“RCN-D”) formula previously approved by the AUC. VNM submitted that the resulting purchase price for the VNM assets was $16,008,000.
Having approved the application for the sale and transfer of the VNM assets, the AUC considered the prudence of the purchase price to be paid by Fortis for the VNM assets. The AUC accepted using the RCN-D formula and determined that the purchase price was prudent and consistent with prior approvals.
With respect to rate impacts, the AUC noted that Fortis was subject to performance-based regulation (“PBR”) for a five year term, and would be capable of applying for adjustments over the term. Fortis did not apply for any adjustments to its rates due to the acquisition of the VNM. Accordingly, Fortis’ rates remain unaffected by this decision.
