Cease and Discontinue Operation – Sale, Transfer and Operation of Assets
The Kingman Rural Electrification Association Ltd. (“Kingman”) applied to the AUC for approval to cease and discontinue the operation of its electric distribution system under section 29 of the Hydro and Electric Energy Act (“HEEA”). Kingman proposed to sell its assets under section 32 of the HEEA.
FortisAlberta Inc. (“Fortis”) simultaneously applied to the AUC for approval of the sale, transfer and operation of the Kingman assets under section 32 of the HEEA. The AUC considered both applications jointly in this decision.
Four rural electrification associations (the “REAs”) intervened in the proceedings on the basis that there were legal and policy oriented issues of interest to them concerning the sale and transfer applications under section 32 of the HEEA. The AUC denied the REAs standing on the basis that the applications did not have the potential to directly and adversely affect the REAs.
The AUC held that Kingman had complied with the requirements of the Rural Utilities Act for the authorization of a sale of facilities, and that the sale was supported by a majority of members eligible to vote.
In determining the public interest, the AUC relied on Fortis’ submission that it would continue to operate and provide service to the members of the services area comprised of the members of Kingman. The AUC also relied upon the evidence demonstrating that the director of rural electrification associations approved the resolutions authorizing the sale and transfer. Accordingly, the AUC determined that the sale of Kingman’s assets to Fortis was in the public interest.
The AUC therefore granted Kingman’s application to cease to operate under section 29 of the HEEA, provided that the facilities are transferred to Fortis. Accordingly, the AUC ordered the transfer of the Kingman service area to Fortis pursuant to section 32 of the HEEA, and further directed Kingman to sell (and Fortis to purchase and operate) Kingman’s assets in accordance with the asset purchase agreement.
Having approved the application for the sale and transfer of the Kingman assets, the AUC considered the prudence of purchase price to be paid by Fortis for Kingman’s assets. Fortis submitted that the purchase price of $5,120,000 was determined on the basis of the replacement costs new less depreciation (RCN-D) formula, which was approved by the AUC in Decision 2013-296. The AUC accepted Fortis’ submissions, and therefore 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, as part of this application, for any adjustments to its rates as a result of the acquisition of Kingman. Therefore, Fortis’ rates were unaffected by this decision.
