Hydro One Limited
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- the Filer requests 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 Filer to prepare 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
October 13, 2022
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF HYDRO ONE LIMITED (the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) for an exemption 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 Filer:
(a) be prepared in accordance with accounting principles generally accepted in Canada applicable to publicly accountable enterprises (Canadian GAAP), and
(b) disclose an unreserved statement of compliance with International Financial Reporting Standards (IFRS) in the case of annual financial statements and disclose an unreserved statement of compliance with IAS 34 in the case of an interim financial report (the Exemption Sought).
The Exemption Sought is similar to the exemption granted by the principal regulator in the Jurisdiction on March 27, 2018 in Re Hydro One Limited (the Existing Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application;
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 -- Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (the Passport Jurisdictions); and
(c) the decision of the principal regulator automatically results in an equivalent decision in the Passport Jurisdictions.
Interpretation
Terms defined in National Instrument 14-101 -- Definitions, MI 11-102 and NI 52-107 have the same meaning if used in this decision, unless otherwise defined, and "rate-regulated activities" has the meaning ascribed thereto in the Chartered Professional Accountants of Canada Handbook (the Handbook).
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is incorporated under the Business Corporations Act (Ontario). The head office of the Filer is located at 483 Bay Street, South Tower, 8th Floor, Toronto, Ontario M5G 2P5.
2. The Filer is a reporting issuer or equivalent in the Jurisdiction and each Passport Jurisdiction and is not in default of securities legislation in any such jurisdiction.
3. Hydro One Inc. (HOI) is incorporated under the Business Corporations Act (Ontario). The head office of HOI is located at 483 Bay Street, South Tower, 8th Floor, Toronto, Ontario M5G 2P5.
4. HOI is a reporting issuer in each of the provinces of Canada and is not in default of any requirement of securities legislation in any such province.
5. HOI is a wholly-owned subsidiary of the Filer and its financial statements are consolidated into the financial statements of the Filer.
6. HOI is an SEC issuer (as defined in NI 52-107) and thus is permitted pursuant to section 3.7 of NI 52-107 to prepare and report its financial statements in accordance with US GAAP. HOI has prepared and filed its financial statements for annual and interim periods in accordance with US GAAP since 2012. HOI's transition date to US GAAP was January 1, 2011, representing the commencement of the 2011 comparative period to HOI's consolidated financial statements as at and for the year ended December 31, 2012.
7. Hydro One Holdings Limited (HOHL) is incorporated under the Business Corporations Act (Ontario). The head office of HOHL is located at 483 Bay Street, South Tower, 8th Floor, Toronto, Ontario M5G 2P5.
8. HOHL is a reporting issuer in the province of Ontario and is not in default of any requirement of securities legislation in such province.
9. HOHL is a wholly-owned subsidiary of the Filer, its financial statements are consolidated into the financial statements of the Filer and it relies on the continuous disclosure documents filed by the Filer pursuant to section 13.4(2)(d)(ii)(A) of National Instrument 51-102 -- Continuous Disclosure Obligations.
10. On December 17, 2020, HOHL filed with the United States Securities and Exchange Commission (the SEC) under Form F-10/A short form base shelf prospectus (the Shelf Prospectus) to qualify the issuance of up to US$3,000,000,000 amount of debt securities of HOHL. The debt securities qualified under the Shelf Prospectus are fully and unconditionally guaranteed by the Filer. Accordingly, HOHL and the Filer are each currently an SEC issuer (as defined in NI 52-107). The Shelf Prospectus will expire on January 17, 2023.
11. The Filer currently prepares and files its financial statements for annual and interim periods in accordance with US GAAP, in reliance on the Existing Relief. The Filer is also permitted to report its financial statements in accordance with US GAAP for so long as it remains an "SEC issuer" (as defined in NI 52-107). However, there is no assurance that the Filer will remain an SEC issuer. In addition, at this time, there is no certainty that the Shelf Prospectus will be renewed after its expiry in January 2023.
12. The Filer has rate-regulated activities.
13. By a decision dated March 27, 2018, the Filer has been granted the Existing Relief which is substantially similar to the Exemption Sought.
14. The Existing Relief provided that it would cease to apply to the Filer on the earliest of:
(a) January 1, 2024;
(b) if the Filer ceases to have rate-regulated activities, the first day of the Filer's financial year that commences after the Filer ceases to have rate-regulated activities; 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 rate-regulated activities (Mandatory Rate-regulated Standard).
15. In the absence of further relief provided by Canadian securities regulators and if the Filer does not continue to be an "SEC issuer", the Filer would become subject to Canadian GAAP no later than January 1, 2024. Canadian GAAP includes IFRS as incorporated into the Handbook.
16. In January 2021, the IASB published Exposure Draft -- Regulatory Assets and Regulatory Liabilities (the Exposure Draft), which introduces a proposed standard for accounting for regulatory assets and liabilities, applicable to entities with rate-regulated activities. The issuance by the IASB of a Mandatory Rate-regulated Standard would have resulted in the expiry of the Existing Relief, giving rise to the obligation of the Filer to commence financial statement preparation and reporting in accordance with IFRS pursuant to NI 52-107.
17. However, the Exposure Draft is not yet finalized and there continues to be no certainty as to the timing for when the final Exposure Draft will be approved. In particular, the Filer will require sufficient time to:
(a) interpret and implement such standard and transition from financial statement preparation and reporting in accordance with US GAAP to IFRS; and
(b) interpret and reconcile the implications on the customer rate setting process resulting from the implementation.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that:
(a) the Existing Relief is revoked;
(b) the Exemption Sought is granted to the Filer in respect of the Filer's financial statements required to be filed on or after the date of this decision, provided that the Filer prepares those financial statements in accordance with US GAAP;
(c) the Exemption Sought will terminate in respect of the Filer on the earliest of the following:
(d) January 1, 2027;
(e) if the Filer ceases to have rate-regulated activities, the first day of the Filer's financial year that commences after the Filer ceases to have rate-regulated activities; and
(f) the first day of the Filer's financial year that commences on or following the later of:
(g) the effective date prescribed by the IASB for a Mandatory Rate-regulated Standard; and
(h) two years after the IASB publishes the final version of a Mandatory Rate-regulated Standard.