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Corix Utilities Inc. Approvals Relating to Restructuring Transactions, AUC Decision 27802-D01-2023

Link to Decision Summarized

Water – Law

Application

Corix Utilities (Foothills Water) Inc. (“Corix Foothills”) owns and operates a water utility located at Heritage Pointe, Alberta. Corix Foothills is a wholly owned subsidiary of Corix Utilities Inc. (“CUI”), which is a wholly owned subsidiary of Corix Infrastructure Inc. (“Corix Infrastructure”). Corix Infrastructure is indirectly controlled by the British Columbia Investment Management Corporation.

Corix Infrastructure and Corix Infrastructure (US) Inc. agreed to enter a transaction agreement with IIF Subway Investment LP, SW Merger Acquisition Corp., and SouthWest Water Company. The transaction agreement provides a framework for combining Corix Infrastructure’s water utility and wastewater and related businesses in Canada and the United States (“US”) with the wastewater businesses of SouthWest Water Company. CUI and Corix Foothills will become part of the organizational structure of the combined company, Corix Infrastructure (US) Inc., following the business combination.

To allow a restructuring of the subsidiaries before the completion of the business combination, CUI applied to the AUC for:

(a)     an order under s 101 of the Public Utilities Act (“PUA”) authorizing CUI to issue its shares and/or evidences of indebtedness to Corix Infrastructure and its affiliates that are subsidiaries of Corix Infrastructure as part of pre-closing restructuring transactions of Corix Infrastructure and its subsidiaries; and

(b)     an order under s 102 of the PUA authorizing CUI to record on its books a transfer of all of its shares to a corporation to be formed under the laws of Canadian jurisdiction, which will be owned by Corix Infrastructure at the time of the transfer.

Decision

The AUC approved the application subject to conditions.

Applicable Legislation

Public Utilities Act, RSA 2000, c-P-45 – ss 101, 102, 109.

Public Utilities Designation Regulation, Alta Reg 194/2006.

Pertinent Issues

To determine whether to approve the transactions under ss 101(2)(a) and 102(1) of the PUA, the AUC applies the no-harm test, which determines whether customers are harmed by the transactions.

CUI submitted that the proposed restructuring transaction would not affect the services of Corix Foothills nor the rates charged by Corix Foothills. CUI noted that neither Corix Foothill’s operation of the water utility nor the level of customer service would change.

The AUC’s approval of the restructuring transactions was contingent on CUI’s representation that the restructuring transactions would not affect the water rates charged by Corix Foothills. At the time of the application, Corix Foothills had an active application before the AUC for approval of its 2023-2025 revenue requirement and rates. CUI confirmed that the transaction costs incurred concerning the restructuring transactions will not be recovered from the customers of Corix Foothills.

CUI explained that it would be converted to an unlimited liability company because of the application of certain US tax rules. CUI noted that this conversion would not have any consequences for Corix Foothills or its customers and that Corix Foothills will remain a corporation with limited liability.

The AUC asked CUI whether there are any provisions in place to prevent Corix Foothills’ assets from being pledged as security for any debts of CUI or any of its affiliates. CUI noted that while Corix Infrastructure’s current credit agreement requires material subsidiaries to pledge assets as security, Corix Foothills is not a material subsidiary. Even if it were to become one, material subsidiaries are defined in the credit agreement as ‘exempt regulated material subsidiaries.’ They are prohibited from pledging assets as security without the consent of a government entity, such as the AUC. CUI anticipated that any credit agreement that might be implemented in connection with the proposed restructuring transactions would include a similar exemption.

The AUC concluded that customers would not be harmed by the proposed transactions. The proposed restructuring transactions and the business combination would not affect the AUC’s regulatory oversight of Corix Foothills or CUI.

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