Public Utilities Act, Section 101
In this decision, the AUC considered the application of AltaLink Management Ltd. (“AML”) in its capacity as the general partner of AltaLink, L.P., (“ALP”) to cause ALP, to offer, issue and sell medium-term notes or other debt securities in the aggregate principal amount of up to $500 million prior to December 1, 2020. The AUC approved the application.
On March 13, 2020, AML, as the general partner of ALP, filed a debt application with the AUC seeking approval, under Section 101 of the Public Utilities Act, to cause ALP to offer, issue and sell medium-term notes or other debt securities in the aggregate principal amount of up to $500 million prior to December 1, 2020.
In Decision 21555-D01-2016, the AUC approved Rule 031, which provides guidance to the application of a conditional exemption from the requirement to seek advance AUC approval for issuances of equities and long-term debt, and an exemption from certain operational reporting requirements. Section 3 of Rule 031 exempts a number of securities transactions from advance AUC approval. Section 3.4 states that if an issuance does not qualify for exemption under this rule, the designated owner must seek advance AUC approval for the issuance by way of a formal application.
Accordingly, should a debt or equity issuance not qualify for the exemption under Rule 031, the designated utility owner must seek approval of its securities transaction under section 101(2) of the Public Utilities Act.
Details of the Application
The AUC noted that AML plans to cause ALP to offer, issue, and sell debt securities in the aggregate principal amount of up to $500 million prior to December 1, 2020.
The AUC noted that AML and ALP do not qualify for an exemption under section 3.1 of Rule 031. Consequently, AML is required to obtain approval, under section 101(2) of the Public Utilities Act, from the AUC before issuing any bonds or other evidence of indebtedness for terms greater than one year.
Section 101(2)(a)(ii) of the Public Utilities Act requires that the AUC determine (a) whether the proposed issuance is to be made in accordance with law; and (b) whether the AUC is satisfied regarding the purposes of the proposed debt issuance described in the application.
Based on the opinion provided by ALP’s and AML’s legal counsel, Borden Ladner Gervais LLP, dated March 11, 2020, the AUC was satisfied that due diligence is being exercised and steps have been taken to ensure that the issuance will be made in accordance with law.
The AUC reviewed AML’s identified purposes of the issuances and was satisfied that the level of detail provided is consistent with similar applications made by other AUC regulated utilities concerning proposed debt issuances. The AUC noted that AML stated that the final amount issued would be partly determined by matters considered in the DFO Customer Contribution Plan (Proceeding 24932).
Section 101(2)(d) of the Public Utilities Act requires AML to receive approval from the AUC to encumber its property, franchises, privileges or rights, or any part of them. As detailed in its “Preliminary Term Sheet,” assets are pledged as security to AML’s planned debt issuance.
In a letter submitted in Proceeding 21555, AML stated that “AltaLink does not plan to issue unsecured debt or bank credit facilities due to secured debt attracting investors and decreasing the costs of borrowing as compared to unsecured debt. This allows AltaLink to ensure it passes on just and reasonable rates to the ratepayer.”
For this application, the AUC found the rationale to issue secured debt to be reasonable.
In addition, the AUC found that the credit rating related information provided by AML with the application was satisfactory for purposes of the application and provided reasonable assurance that the proposed issuance of Debt Securities should not have a material adverse effect on the cost of other debt recovered through AML’s revenue requirement.
The AUC concurred with AML’s assessment that approval of AML’s debt issuances would not inhibit the AUC from conducting a detailed examination of the prudence of AML’s debt issuances in future general tariff applications or related proceedings. The onus still resides with AML to demonstrate that actual debt issuance was obtained prudently and that the costs, term, and other matters are consistent with the public interest and operation of a public utility.
Concerning the current application, the AUC considered that the proposed debt issue is required for the purposes of financing assets or activities for the operation of the public utility and is, therefore, in the public interest.
Given the above, the AUC found that AML complied with the requirements of section 101(2)(a)(ii) and has suitable justification to pledge assets as security to the planned debt issuance for section 101(2)(d)(i) of the Public Utilities Act and therefore approved AML’s 2020 second debt application as filed.