Exemption – Public Utilities Act – Long-Term Debt Application
AltaLink Management Ltd. (“AltaLink”) applied for an exemption order for long-term debt applications pursuant to Section 101 of the Public Utilities Act (“PUA”) declaring that:
(a) Section 101(2)(a)(ii) of the PUA does not apply to AltaLink and AltaLink in its capacity as general partner of AltaLink L.P.(“ALP”) in respect of the issuance of medium term notes having maturities of not less than one year from the date of issue (the “Notes”) in an aggregate principal amount of up to $2 billion; and
(b) Section 101(2)(d)(i) of the PUA does not apply to AltaLink in respect of AltaLink as legal owner, to cause ALP, as beneficial owner, to grant security to its lenders for the notes in the form of a first floating charge over the present and future property, assets and undertaking of AltaLink.
AltaLink submitted that the order as requested would not pose a risk to rate payers and would provide AltaLink with the necessary flexibility to manage its capital requirements in a timely and efficient manner, and would ensure lower costs to raise debt. AltaLink requested that the order apply for an exempt financing period matching its 2015-2016 general tariff application.
The Office of the Utilities Consumer Advocate (“UCA”) raised two general concerns:
(a) Whether it was necessary for AltaLink to issue the Notes in currencies other than Canadian dollars; and
(b) Whether it was necessary for AltaLink to have the ability to use the net proceeds for purposes other than those enumerated in the exemption request.
The UCA submitted that AltaLink had not demonstrated that the issuance of the Notes in currency other than Canadian dollars was in the public interest.
AltaLink did acknowledge that a higher risk to ratepayers may result in issuing Notes in a currency other than Canadian dollars, however, AltaLink also noted that the AUC previously approved a similarly worded exemption request in Decision 2013-407. AltaLink also submitted that it did not have plans to issue notes in currencies other than Canadian dollars, but was only included in the case that Canadian debt markets were unaccommodating to AltaLink’s issuance of Notes for reasons beyond its control. AltaLink submitted that without such flexibility, the AUC would be imposing a risk that AltaLink may have to raise capital on unfavourable terms.
AltaLink submitted that the exemption is necessary, due to the following anticipated circumstances during the exempt financing period:
(a) Substantial and unprecedented capital expenditures;
(b) Capital expenditures and financing requirements to remain at elevated levels;
(c) Potential volatility of capital market conditions;
(d) Existence of favourable market conditions for periods shorter in duration than what is required to obtain prior regulatory approval; and
(e) Access to capital markets affected by competing offerings of secured debt securities, which do not have the same degree of regulatory requirements.
The AUC held that the ability to issue debt in foreign currencies can provide AltaLink with flexibility to manage its capital requirement in a timely and efficient manner in the event that problematic capital market conditions develop. The AUC determined that such flexibility would facilitate AltaLink’s ability to obtain the lowest cost blend of borrowing terms to meet its capital and refinancing requirements. Accordingly, the AUC found that AltaLink’s request for an exemption extending to issuances of debt in foreign currency was in the public interest.
However, the AUC cautioned that this exemption did not constitute an advance assessment respecting the prudency of any such foreign currency transactions, which would be subject to later review by the AUC at AltaLink’s next general tariff application.
The AUC also determined that the UCA’s concerns with respect to the potential uses to which AltaLink could put its debt issuances was not necessarily a cause for concern, as it held the possibility of such other uses to be remote.
Accordingly, the AUC ordered that, pursuant to Section 101(4) of the PUA:
(a) Section 101(2)(a)(ii) and Section 101(2)(d)(i) of the PUA do not apply to AltaLink for the purposes as requested by AltaLink; and
(b) Nothing in the order shall bind, affect or prejudice the AUC in any way in its consideration of any other matter or question relating to AltaLink.
