Newfoundland Power Inc. and Caribbean Utilities Company, Ltd.
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 ONTARIO (THE JURISDICTION) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF NEWFOUNDLAND POWER INC. AND CARIBBEAN UTILITIES COMPANY, LTD. (COLLECTIVELY, THE ONTARIO FILERS)
DECISION
Background
The principal regulator in the Jurisdiction (the Principal Regulator) has received an application (the Application) from the Ontario Filers for a decision under the securities legislation of the Jurisdiction of the Principal Regulator (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 Ontario 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 Alberta Securities Commission, as principal regulator of FortisAlberta Inc., and with the British Columbia Securities Commission, as principal regulator of FortisBC Energy Inc. and FortisBC Inc. The Ontario Filers, together with FortisAlberta Inc., FortisBC Energy Inc. and FortisBC 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). This decision document of the OSC will revoke U.S. GAAP 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 Ontario 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 by them in each of British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Yukon Territory, the Northwest Territories and Nunavut (the Passport Jurisdictions); and
(c) the decision is the decision of the Principal Regulator and automatically results in an equivalent decision in the Passport Jurisdictions.
Interpretation
In this decision:
(d) unless otherwise defined herein, terms defined in National Instrument 14-101 Definitions, MI 11-102 and NI 52-107 have the same meaning; and
(e) rate-regulated activities has the meaning ascribed thereto in the Chartered Professional Accountants of Canada Handbook (Handbook).
Representations
This decision is based on the following facts represented by the Ontario 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 the Jurisdiction and each of the Passport Jurisdictions other than the Yukon Territory, the Northwest Territories and Nunavut 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 United States Securities Exchange Act of 1934, 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.
Newfoundland Power Inc.
5. Newfoundland Power Inc. (NPI) is an integrated electric utility incorporated under the laws of Newfoundland and Labrador. The head office of NPI is located in St. John's, Newfoundland and Labrador.
6. NPI is a reporting issuer or equivalent in the Jurisdiction and each of the Passport Jurisdictions other than the Yukon Territory, the Northwest Territories and Nunavut and is not in default of securities legislation in any jurisdiction in Canada.
Caribbean Utilities Company, Ltd.
7. Caribbean Utilities Company, Ltd. (CUC) is an integrated electric utility incorporated under the laws of the Cayman Islands. The head office of CUC is located in Grand Cayman, Cayman Islands.
8. CUC is a reporting issuer or equivalent in the Jurisdiction and each of the Passport Jurisdictions other than the Yukon Territory, the Northwest Territories and Nunavut and is not in default of securities legislation in any jurisdiction in Canada.
General
9. Each of the 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 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 Filers has rate-regulated activities.
12. None of the Filers is currently an SEC issuer.
13. Were any of the 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.
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 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 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
The Principal Regulator is satisfied that the decision meets the test set out in the Legislation for the Principal Regulator to make the decision.
16. The decision of the Principal Regulator under the Legislation is that:
(a) the U.S. GAAP Relief is revoked;
(b) the Exemption Sought is granted to each Ontario Filer in respect of such Ontario Filer's financial statements required to be filed on or after the date of this order, provided that the Ontario Filer prepares such financial statements in accordance with U.S. GAAP; and
(c) the Exemption Sought will terminate in respect of an Ontario Filer on the earliest of the following:
(i) January 1, 2027;
(ii) if such Ontario Filer ceases to have rate-regulated activities, the first day of the Ontario Filer's financial year that commences after the Ontario Filer ceases to have rate-regulated activities; and
(iii) the first day of such Ontario Filer's financial year that commences on or following the later of:
1. the effective date prescribed by the IASB for a Mandatory Rate-regulated Standard; and
2. two years after the IASB publishes the final version of a Mandatory Rate-regulated Standard.