FortisBC Energy Inc. and FortisBC Inc.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- the Filers request relief from the requirements in section 3.2 of National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards that financial statements be prepared in accordance with Canadian GAAP applicable to publicly accountable enterprises in order to permit the Filers to prepare their financial statements in accordance with U.S. GAAP. Relief granted, subject to certain conditions.
Applicable Legislative Provisions
National Instrument 52-107 Acceptable Accounting Principles and Auditing Standard, ss. 3.2 and 5.1.
May 31, 2022
IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF FORTISBC ENERGY INC. AND FORTISBC INC. (collectively, the BC Filers)
DECISION
Background
¶ 1 The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Makers) has received an application (the Application) from the BC Filers for a decision under the securities legislation of the Jurisdictions (the Legislation) for an exemption (the Exemption Sought) from the requirements of section 3.2 of National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards (NI 52-107) that the financial statements of the BC Filers:
(a) be prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP) applicable to publicly accountable enterprises and
(b) disclose an unreserved statement of compliance with IFRS in the case of annual financial statements and an unreserved statement of compliance with IAS 34 in the case of an interim financial report.
The Exemption Sought is filed in connection with other applications for exemptive relief on the same terms filed with the Ontario Securities Commission (the OSC), as the principal regulator of Newfoundland Power Inc. and Caribbean Utilities Company, Ltd., and with the Alberta Securities Commission, as principal regulator of FortisAlberta Inc.
The BC Filers, together with Newfoundland Power Inc., Caribbean Utilities Company, Ltd. and FortisAlberta Inc., are referred to collectively as the Filers.
The Exemption Sought is similar to the exemption granted by the OSC to the Filers on December 15, 2017 in Re. FortisBC Energy Inc., FortisBC Inc., FortisAlberta Inc., Newfoundland Power Inc. and Caribbean Utilities Company, Ltd. (the U.S. GAAP Relief).
The BC Filers have applied to the OSC to revoke the U.S. GAAP Relief.
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the British Columbia Securities Commission is the principal regulator for this application;
(b) the BC Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 -- Passport System (MI 11-102) is intended to be relied upon in each of Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Yukon Territory, the Northwest Territories and Nunavut; and
(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Interpretation
¶ 2 In this decision:
(a) unless otherwise defined herein, terms defined in National Instrument 14-101 Definitions, MI 11-102 and NI 52-107 have the same meaning; and
(b) "rate-regulated activities" has the meaning ascribed thereto in the Chartered Professional Accountants of Canada Handbook (Handbook).
Representations
¶ 3 This decision is based on the following facts represented by the BC Filers:
Fortis
1. Fortis Inc. (Fortis) is a leader in the North American regulated electric and gas utility industry;
2. Fortis is a reporting issuer or equivalent in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador and is not in default of securities legislation in any jurisdiction in Canada;
3. Fortis is a registrant with the Securities and Exchange Commission subject to the 1934 Act, as amended;
4. Fortis is an SEC issuer and relies on section 3.7 of NI 52-107 to file its financial statements prepared in accordance with U.S. GAAP;
FortisBC Energy Inc.
5. FortisBC Energy Inc. (FEI) is a gas distribution company incorporated under the laws of British Columbia; the head office of FEI is located in Vancouver, British Columbia;
6. FEI is a reporting issuer or equivalent in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Yukon Territory, the Northwest Territories and Nunavut and is not in default of securities legislation in any jurisdiction in Canada;
FortisBC Inc.
7. FortisBC Inc. (FBC) is an integrated electric utility company incorporated under the laws of British Columbia; the head office of FBC is located in Kelowna, British Columbia;
8. FBC is a reporting issuer or equivalent in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador and is not in default of securities legislation in any jurisdiction in Canada;
General
9. each of the BC Filers is a subsidiary of Fortis and the financial results of each such subsidiary are reflected in the consolidated financial statements prepared and filed by Fortis;
10. each of the BC Filers currently prepares and files its financial statements for annual and interim periods in accordance with U.S. GAAP, relied on the U.S. GAAP Relief or similar prior exemptive relief, and commenced reporting pursuant to U.S. GAAP on January 1, 2012;
11. each of the BC Filers has rate-regulated activities;
12. none of the BC Filers is currently an SEC issuer;
13. were any of the BC Filers SEC issuers, they would be permitted by section 3.7 of NI 52-107 to file their financial statements prepared in accordance with U.S. GAAP; and
14. the U.S. GAAP Relief provided that it would cease to apply to the Filers on the earliest of:
(a) January 1, 2024;
(b) if such Filer ceased to have activities subject to rate regulation, the first day of such Filer's financial year that commenced after such Filer ceased to have activities subject to rate regulation; and
(c) the effective date prescribed by the International Accounting Standards Board (IASB) for the mandatory application of a standard within IFRS specific to entities with activities subject to rate regulation; accordingly, in the absence of further relief provided by Canadian securities regulators, the Filers would become subject to Canadian GAAP no later than January 1, 2024; Canadian GAAP includes IFRS as incorporated into the Handbook;
15. in January 2021, the IASB published the Exposure Draft -- Regulatory Assets and Regulatory Liabilities, which introduces a proposed standard of accounting for regulatory assets and liabilities applicable to entities with rate-regulated activities; the issuance by the IASB of a standard within IFRS for entities with rate-regulated activities(a Mandatory Rate-regulated Standard) would have resulted in the expiry of the U.S. GAAP Relief, giving rise to the obligation of the BC Filers to commence financial statement preparation and reporting in accordance with IFRS pursuant to NI 52-107; it is not yet known when the IASB will finalize and implement such a standard and the BC Filers will require sufficient time to:
(a) interpret and implement such standard and transition from financial statement preparation and reporting in accordance with U.S. GAAP to IFRS; and
(b) interpret and reconcile the implications on the customer rate setting process resulting from the implementation.
Decision
¶ 4 Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Makers to make the decision.
The decision of the Decision Makers under the Legislation is that:
(a) the Exemption Sought is granted to each BC Filer in respect of such BC Filer's financial statements required to be filed on or after the date of this order, provided that the BC Filer prepares such financial statements in accordance with U.S. GAAP; and
(b) the Exemption Sought will terminate in respect of a BC Filer on the earliest of the following:
(i) January 1, 2027;
(ii) if such BC Filer ceases to have rate-regulated activities, the first day of the BC Filer's financial year that commences after the BC Filer ceases to have rate-regulated activities; and
(iii) the first day of such BC Filer's financial year that commences on or following the later of:
A. the effective date prescribed by the IASB for a Mandatory Rate-regulated Standard; and
B. two years after the IASB publishes the final version of a Mandatory Rate-regulated Standard.