In this decision, the AUC approved Piikani Transmission Holding Limited Partnership (“PTHLP”), 1792191 Alberta Corp., and 1656877 Alberta Ltd.’s application allowing each of them to enter into credit facilities and to mortgage and encumber their respective present and after-acquired property and all other assets pursuant to certain security granted to the Toronto Dominion Bank (“TD Bank”).
The approval of the financing arrangements enabled PTHLP to purchase its partnership units in PiikaniLink, L.P.
The PTHLP requested approval for PTHLP, 1792191 Alberta Corp. and 1656877 Alberta Ltd. to enter into certain credit facilities and to mortgage and encumber property for the purpose of executing the purchase of transmission assets effective December 1, 2018, pursuant to sections 101(2)(d)(i) and 102(1) of the Public Utilities Act.
On March 6, 2017, PTHLP entered into a limited partnership agreement with AltaLink Limited Partnership (“AltaLink, L.P.”) and AltaLink Management to form PiikaniLink Limited Partnership (“PiikaniLink, L.P.”). Under this partnership agreement, PTHLP and AltaLink, L.P. were limited partners, and AltaLink Management was the general partner. PTHLP owned the majority of the limited partnership units of PiikaniLink, L.P. As the general partner, AltaLink Management held legal title to the transmission assets of the PTHLP partnership for the benefit of the partnership. AltaLink Management was also the general partner of AltaLink, L.P.
In Decision 22612-D01-2018, the AUC approved, with conditions, the application of AltaLink Management to transfer certain transmission assets, specifically the 240-kilovolt transmission line between the Goose Lake Substation and the North Lethbridge Substation, and a portion of the Peigan 59S Substation located on Piikani Reserve No. 147 (the “PiikaniLink, L.P. transmission assets”), to PiikaniLink, L.P. and determined that the corporate entities that were the partners of PiikaniLink, L.P. should be designated as an owner of a public utility under the Public Utilities Designation Regulation. Because the formal designation requires an order from the Lieutenant-Governor in Council, each of the corporate owners, 1792191 Alberta Corp. and 1656877 Alberta Ltd., were directed by the AUC to conduct themselves as if they had been designated.
Section 101(2)(d)(i) of the Public Utilities Act requires that an owner of a public utility, as designated under section 101(1), obtain approval of the AUC to “sell, lease, mortgage or otherwise dispose of or encumber its property, franchises, privileges or rights, or any part of them.”
The PTHLP Application
In its application, PTHLP requested approval to:
(a) execute a loan agreement (as amended, supplemented, restated or replaced from time to time (the “loan agreement”)) between PTHLP, as borrower, and TD Bank, as lender, in the amount of $10,700,000, with two additional demand loan options in the amount of $650,000 and $1,000,000; and
(b) enter into an interest rate swap arrangement with TD Bank, pursuant to which PTHLP will manage its interest rate exposure under the loan agreement (as amended, supplemented, restated or replaced from time to time (the “swap agreement”)). The loan agreement and the swap agreement collectively were the “credit documents.”
Each of the loans PTHLP sought was required for different purposes.
The $10.7 million financing loan was for PTHLP to secure the funds required to inject its share of the equity needed to fund 51 percent of the limited partnership units in PiikaniLink, L.P. The $650,000 demand loan option was to fund the PTHLP equity required for the potential purchase of a TransAlta Corporation substation located on the Piikani Nation Reserve. PTHLP indicated that the $650,000 tranche would only be drawn down if PiikaniLink, L.P. successfully purchased and transferred the TransAlta substation. The $1 million demand loan option was to fund PTHLP equity required for future, normal course business capital additions made by PiikaniLink, L.P. PTHLP submitted that the $1 million would only be drawn in increments as and when PTHLP was required to inject equity into PiikaniLink, L.P.
The AUC found that the proposed transaction was outside the ordinary course of PiikaniLink, L.P.’s business and required AUC approval pursuant to section 101(2)(d)(i) of the Public Utilities Act.
In this application, as PiikaniLink, L.P. was a new entity, there was no history of past events of this utility to consider regarding the nature of this transaction. Consequently, the AUC considered the nature of the transaction from the perspective of a generic transmission utility.
The AUC noted that obtaining financing and granting of security to obtain that financing was typically within the ordinary course of business for a transmission utility. However, in this circumstance, the financing requested, and security granted represented just over half of the value of the partnership, and the consequences of default on the financing could result in a request for new ownership of PTHLP’s partnership interest. Moreover, the financing of PTHLP’s equity interest in PiikaniLink, L.P. was not an activity that occurred on a frequent basis.
The AUC also found that the swap agreement did not pose any additional risk of default of the credit documents and could reduce the risk of default by mitigating the interest rate exposure of PTHLP to market volatility. The swap agreement was subject to the condition that no event of default or potential event of default occurred.
In deciding an application for AUC approval of a transaction outside of the ordinary course of business under sections 101 and 102 of the Public Utilities Act, the AUC traditionally applied a no-harm test. The AUC’s predecessor, the Alberta Energy and Utilities Board (the “Board”), articulated that it should weigh the potential positive and negative impacts of the transactions to determine whether the balance favours customers or at least leaves them no worse off. The Board also determined that where harm is identified, some form of mitigation may be necessary in order for the transaction to proceed.
The AUC addressed the following questions:
(a) What impact would the transaction have on PiikaniLink, L.P.’s rates and charges passed on to ratepayers?
(b) What was the likelihood that PTHLP will default on its loan payments to TD Bank?
(c) In the event of default, what would be the effect on PiikaniLink, L.P. and on its ability to continue to provide transmission services?
The AUC found that the applicants satisfied the requirements of the no-harm test.
The AUC found that the customers of PiikaniLink, L.P. would be no worse off after the transaction was completed and therefore not harmed by PTHLP, 1792191 Alberta Corp. and 1656877 Alberta Ltd.’s request to enter into certain credit facilities and to mortgage and encumber property for the purpose of executing the purchase of transmission assets.
The loan agreement between PTHLP and TD Bank provided for one draw of $10.7 million and two additional demand loan options in the amounts of $650,000 and $1 million.
The AUC found that the $10.7 million loan facility was reasonable and consistent with the purpose noted in the loan agreement. The AUC considered the $10.7 million loan to pose the biggest risk of default as it is the most material. PTHLP stated that the $10.7 million would provide the equity needed to fund its portion of the limited partnership units in PiikaniLink, L.P. PTHLP also confirmed that the $10.7 million loan amount in the application was separate and distinct and had a different purpose than the loan approved in Decision 22612-D01-2018.
The AUC found that the purpose of the $650,000 option was reasonable and consistent with what was set out in the loan agreement. In considering the two demand loan options, the AUC noted that the $650,000 tranche was speculative and will only be drawn down if PiikaniLink, L.P. was successful in purchasing the TransAlta substation. PTHLP confirmed that this was the only instance in which the demand loan will be drawn down. Further, the AUC considered that the loan agreement also stipulated that the AUC must have approved the transfer of assets and issued all permits and connection orders before the $650,000 would be disbursed by TD Bank.
The AUC was satisfied that the purpose of the $1 million option was reasonable and consistent with the purpose noted in the loan agreement.
The AUC was satisfied that the loan agreement did not contain any section, term, or condition that could adversely affect the customers of the public utility, PiikaniLink, L.P.
The AUC found that the ratepayers would continue to receive safe and reliable transmission service under the new PiikaniLink, L.P. utility because AltaLink Management, as the general partner, would continue to operate the transmission assets.
Pursuant to sections 101(2)(d)(i) and 102(1) of the Public Utilities Act, the AUC approved PTHLP, 1792191 Alberta Corp. and 1656877 Alberta Ltd. to enter into certain credit facilities and to mortgage and encumber property for the purpose of executing the purchase of transmission assets.