ATCO LTD. | 2016 | ANNUAL REPORT
1
3
4
5
9
One ATCO: Integrated Solutions
Financial Highlights
Five-Year Total Return on $100 Investment
Message to Share Owners
Corporate Governance
10
Directors
12
Leadership Team
13
Message from the Chief Strategy Officer
15
Celebrating ATCO’s 70th Anniversary
17
Strategic Priorities
19
Growth
23
Financial Strength
25
Innovation
29
Operational Excellence
31
ATCO Responds: Fort McMurray Wildfire
35
Community & Indigenous Partnerships
39
Our Approach to Sustainability
42
Management’s Discussion and Analysis
112
Financial Statements
177
Consolidated Annual Results
178
Consolidated Operating Summary
179
General Information
OUR VISION
Our core vision is to improve the lives of our
Our strong financial and operating performance
customers by providing sustainable, innovative
reflects our approach to sales and our
and comprehensive solutions globally.
customers, the strength and determination
We believe in well-managed risk and a
of our people, a deeply embedded focus on
disciplined approach to growth. We fuel the
operational excellence with its inherent cost
imagination of our people to drive growth over
controls, and careful consideration of the
the long-term, ultimately delivering value to our
environmental and social impact of our actions
customers and our share owners.
― now and for the future.
Crews hoist a segment of new 30” high-pressure pipeline
during pullback in East Calgary in January 2016. At 1.73 km, the
installation, part of the Urban Pipeline Replacement Program, was
the longest horizontal directional drilling project in ATCO’s history.
ONE ATCO:
INTEGRATED
SOLUTIONS
ATCO is a diversified, global
corporation delivering service
excellence and innovative
solutions in Structures &
Logistics, Electricity, Pipelines
& Liquids, and Retail Energy.
Together, our Global Business
Units provide integrated
products and services that
make life easier for our
customers and solve their
problems – big and small.
STRUCTURES
& LOGISTICS
• Relocatable Structures
• Permanent Structures
• Site Services
ELECTRICITY
• Electricity Generation
• Electricity Transmission
• Electricity Distribution
PIPELINES & LIQUIDS
• Natural Gas Distribution
• Natural Gas Transmission
• Energy Storage
• Industrial Water
RETAIL ENERGY
• Retail Electricity and Natural
Gas (Home & Business)
1 2016 ATCO ANNUAL REPORT
$20
BILLION IN ASSETS
2M+
GLOBAL CUSTOMERS
CURRENT OPERATIONS
200,000M3
HYDROCARBON STORAGE CAPACITY
18
POWER PLANTS WITH A
COMBINED GENERATING
CAPACITY SHARE OF 2,473 MW*
88,000 KMS
ELECTRIC POWER LINES
*megawatts **cubic metres per day ***petajoules
APPROXIMATELY
7,000
EMPLOYEES
100+
COUNTRIES IN OUR
70-YEAR HISTORY
7
MODULAR BUILDING
MANUFACTURING FACILITIES
(2 CANADA, 2 U.S., 2 AUSTRALIA, 1 CHILE)
85,200M3/D
WATER INFRASTRUCTURE
CAPACITY**
52PJ
NATURAL GAS
STORAGE CAPACITY***
65,000KMS
NATURAL GAS PIPELINES
ONE ATCO: INTEGRATED SOLUTIONS 2
ATCO LTD.
FINANCIAL
HIGHLIGHTS
This data (other than
funds generated
by operations) has
been extracted from
financial statements
which have been
prepared in accordance
with International
Financial Reporting
Standards (IFRS) and
the reporting currency
is the Canadian dollar.
For further information,
please see the ATCO Ltd.
Consolidated Financial
Statements and
Management’s Discussion
and Analysis.
3 2016 ATCO ANNUAL REPORT
Consolidated Annual Results
YEAR ENDED DECEMBER 31
(Millions of Canadian dollars except per share data)
FINANCIAL
Revenues
Earnings attributable to
Class I & Class II shares
Adjusted earnings
2016
2015
4,045
4,131
340
360
154
293
Total assets
19,724
19,055
Class I & Class II
share owners’ equity
Funds generated by
operations
3,546
3,356
1,912
1,589
Capital expenditures
1,451
1,868
CLASS I NON-VOTING &
CLASS II VOTING SHARE DATA
Earnings per share
2.97
1.34
Diluted earnings
per share
Dividends paid
per share
Shares outstanding
(thousands)
Weighted average
shares outstanding
(thousands)
2.96
1.33
1.14
0.99
114,653 115,024
114,411 114,832
FORWARD-LOOKING INFORMATION:
Certain statements contained in this Annual Report constitute forward-looking
information. Forward-looking information is often, but not always, identified
by the use of words such as “anticipate”, “plan”, “estimate”, “expect”, “may”,
“will”, “intend”, “should”, and similar expressions. Forward-looking information
involves known and unknown risks, uncertainties and other factors that may
cause actual results or events to differ materially from those anticipated in
such forward-looking information. The Company believes that the expectations
reflected in the forward-looking information are reasonable, but no assurance
can be given that these expectations will prove to be correct and such forward-
looking information should not be unduly relied upon.
FIVE-YEAR TOTAL RETURN
ON $100 INVESTMENT
$200
$150
$100
$50
$0
$164
$167
$149
2011
2012
2013
2014
2015
2016
Compound Cumulative
Growth Rate Return
Class I Non-Voting (ACO.X)
10.4% $164
Class II Voting (ACO.Y)
10.8% $167
This graph compares the cumulative share
owner return over the last five years of the
Class I Non-Voting and Class II Voting shares
of the Company (assuming reinvestment of
dividends) with the cumulative total return
S&P/TSX Composite
8.2% $149
of the S&P/TSX composite index.
ATCO SHARE
OWNERSHIP
FOR PRESENT &
PROSPECTIVE
OWNERS
It is important for prospective owners of ATCO shares to
understand that ATCO is a diversified group of companies
principally controlled by Sentgraf, a Southern family holding
company. It is also important for present and prospective
share owners to understand that the ATCO share registry
has both non-voting and voting common shares.
RETURN ON INVESTMENT 4
Message to
SHARE OWNERS
Dear Share Owners,
2016 has been a transformative year
for your Company and for the global
economic and political landscape in
which we operate.
Anemic economic growth globally,
driven by stubbornly low commodity
prices, softening trade and
geopolitical upheaval, continued
to give pause to investors and
consumers alike. Meanwhile, a
changing of the political guard
in many jurisdictions captured
headlines around the world, from
a polarizing U.S. election, to the
fracturing of the European Union and
new governments provincially and
federally here in Canada. To further
compound those already tumultuous
circumstances, in our home province
of Alberta we endured a natural
disaster of such enormity that it is
without parallel in Canadian history.
Nancy Southern greets ATCO employees
during the Fort McMurray wildfire.
Yet, the people of ATCO, drawing
upon decades of unrivaled
expertise and an all-encompassing
commitment to our customers,
have performed exactly as you
would expect ― with incredible
determination, dedication, courage
and imagination.
STRATEGIC FOCUS
To succeed over the long term as a
global enterprise, we know that we
must achieve operational excellence,
ensure sustainable growth and turn
new ideas into profitable realities
― these principles have long been
central to our method of operating.
and existing customers, expanding
our footprint into new geographies
and lines of business and re-igniting
our imagination to drive innovation.
In October, we celebrated the
completion of BC Hydro’s Site C
workforce housing facility along
the Peace River in northeastern
British Columbia. The lodge, which
was completed on-time, on-budget
and with a world-class safety
performance, is a terrific example
of the formidable expertise of
our people in delivering superior
infrastructure solutions.
Our vision and determination is
to be our customer’s choice for all
their infrastructure needs around
the world ― One ATCO ― delivering
premier products and services to new
Earlier in the year, we took the first
step in bringing that same level of
operational excellence to customers
in South America, with the acquisition
of 50 per cent of Sabinco Soluciones
Modulares S.A., a modular structures
5 2016 ATCO ANNUAL REPORT
Indeed, Siegfried played a central
role in reaching an agreement with
the Government of Alberta that will
eliminate coal-fired greenhouse gas
emissions and facilitate
measures to transition
Alberta’s electricity grid
in the coming years. In
the meantime, our focus
remains on ensuring
these measures support
affordable, reliable and
sustainable energy for all
Albertans.
Chile
TRANSFORMATION
Throughout 2016, we
continued to advance the
sweeping, company-wide
transformation we began
in 2015. The success of
this transformation has
required the precise
execution of a simple
plan ― restructuring
to bring together
complementary products
and services; focusing
provider in Chile. This acquisition
provides a valuable foothold into the
South American market, expanding
our global reach and providing a
springboard from
which our other
lines of business
can grow.
“To succeed over
the long term as a
global enterprise, we
know that we must
achieve operational
excellence, ensure
sustainable growth
and turn new ideas
into profitable realities
― these principles
have long been central
We continue to
explore a range
of sustainable
and progressive
technologies
throughout
our operations,
actively growing
our expertise and
positioning ATCO to
thrive in a cleaner
energy future. For
example, in the
fall we energized
Western Canada’s
largest off-grid solar
project, gaining
valuable insight
into the application
of solar solutions in even the most
remote locations. This transferrable
and scalable expertise enables us
to develop similar solutions for our
customers in other industries.
to our method of
operating.”
In October, I appointed Siegfried
Kiefer to the role of Chief Strategy
Officer, ATCO & Canadian Utilities,
in addition to his role as President,
Canadian Utilities. Siegfried,
drawing upon more than 34 years of
unparalleled operational experience
and leadership with ATCO, will play
a critical role as the technological,
political and economic landscape
around us continues to present
complex challenges while growing our
enterprise.
our Global Business Units (GBUs) on
operational improvements, growth
and innovation; and elevating and
centralizing our administrative
functions to provide a competitive
advantage for the organization.
The benefits of this transformation
are already being felt broadly
throughout our Company. Increased
collaboration within and amongst our
Structures & Logistics, Electricity and
Pipelines & Liquids GBUs has further
enabled a “One ATCO” approach. As a
unified enterprise with a diverse yet
complementary suite of products and
services, we are uniquely positioned
to solve the infrastructure challenges
of our residential, commercial and
industrial customers. This is a
In April 2016, we announced our
return to the South American
market with the acquisition of
50 per cent ownership of Sabinco
Soluciones Modulares S.A.
MESSAGE TO SHARE OWNERS 6
evacuate the area. The Beast, as the
sprawling and unrelenting wildfire
was known amongst first responders,
burned nearly 6,000 km2 and
destroyed thousands of homes and
buildings.
to support the response and recovery
effort was an extremely humbling
moment for me. Never have I been
more proud of the ATCO family, nor
has the ATCO Heart & Mind ever been
on such vivid display.
We have a significant presence in
world-class advantage that is already
paving roads into new markets and
new opportunities for your Company.
Your Company’s extraordinary
capacity for change and adaptation
to a new global standard has in
fact delivered near record earnings
for you, our Share
Owners. Our finest
example of the “One
ATCO” capability was
demonstrated during
Canada’s largest
natural disaster in our
nation’s history.
“Never have I
been more proud
of the ATCO family,
nor has the ATCO
Heart & Mind ever
been on such vivid
A REMARKABLE
RESPONSE
In early May, the
Regional Municipality
of Wood Buffalo in
northern Alberta,
home to tens of thousands of ATCO
customers and more than 100 of our
employees, experienced a wildfire of
such boundless ferocity that nearly
90,000 residents were forced to
display.”
the region, operating
the municipality’s
electrical transmission
and distribution and
natural gas distribution
systems, maintaining
power generation facilities
at nearby oil sands
facilities, and operating
two workforce housing
lodges. Accordingly, the
response of our people was
immediate, dynamic, and
enacted with the utmost
care for our customers,
colleagues and community partners.
Watching as more than 650 of our
employees packed their bags and
marched into the heart of the crisis
Our teams acted with military
precision and demonstrated
incredible situational leadership,
which paved the way for the return
of evacuees. Their herculean efforts
on the ground were made possible
through the incredible support of
thousands of ATCO employees who
stayed behind, taking on extra work,
willingly stepping in to handle the
day-to-day work of their colleagues. In
every corner of our business, people
went far beyond the call of duty.
A LOOK TO THE FUTURE
The perseverance demonstrated by
the people of ATCO in our response
to the wildfire, the implementation
of our corporate transformation, the
execution of our strategy and the
delivery of first-class earnings were
7 2016 ATCO ANNUAL REPORT
truly remarkable. The efforts on all of
these fronts reflects the unbendable
commitment of the people of ATCO to
our customers and the communities
we serve. This commitment is at the
core of ATCO’s success.
As we turn the page on 2016 and
look to the future, I would like to
recognize the wisdom and direction
provided by our Board of Directors.
Their guidance and tremendous
advice will continue to be invaluable
as we forge new opportunities for
growth in 2017. In addition, I want
to express my appreciation to Linda
Southern-Heathcott for accepting
the appointment to Vice Chair of the
Board of Directors. I have the utmost
confidence that her counsel and
steady leadership will be invaluable.
On behalf of our leadership team, I
would like to thank our Share Owners
for their continued support and trust.
Sincerely,
[Original signed by N.C. Southern]
Nancy Southern
Chair, President & Chief Executive Officer
10-Year Total Return On $100 Investment
$250
$200
$150
$100
$50
$0
Class I shares
Class II shares
S&P/TSX
Composite
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
More than 650 ATCO employees from
across the organization supported the
emergency response in Fort McMurray.
MESSAGE TO SHARE OWNERS 8
CORPORATE GOVERNANCE
Ensuring that our business operates
in a transparent, ethical and
accountable manner is critical in
creating strong and sustainable
value for our share owners and in
promoting the company’s well-being
over the long-term.
OUR BOARD OF DIRECTORS
The role of our Board of Directors
has evolved alongside our business,
providing oversight to an organization
with a growing global footprint and
a diverse, yet complementary suite
of premier products and services.
The Board strives to ensure that
its corporate governance practices
provide for the effective stewardship
of the company, and it regularly
We don’t believe in a one-size-fits-
all approach to governance. Our
Board of Directors has designed
and implemented a
unique and effective
system of checks
and balances that
recognize the need
to provide autonomy
to our various
business units, while
accommodating the
requirements of our
regulated and non-
regulated businesses.
“Much like our
business operations,
the strength of our
Board of Directors is
due in no small part
to its diversity.”
evaluates those practices
to ensure they are
keeping with the highest
standards.
Key elements of our
corporate governance
system include the
oversight and diligence
provided by the Board,
the Lead Director,
the Audit & Risk
Committee and our
This fit-for-purpose approach to
governance has worked exceedingly
well over the years, providing our
Board of Directors and senior
management team the foundation to
drive consistently top-quartile results
for our share owners.
Following are some of the highlights
of our model for corporate
governance. For a more complete
picture, please see the Corporate
Governance section of the
Management Proxy Circular.
Corporate Governance – Nomination,
Compensation and Succession
Committee (GOCOM). Although not
required by securities laws, some of
our governance tools, such as the use
of Designated Audit Directors, also
reinforce the effectiveness and rigour
of our governance model.
Much like our business operations,
the strength of our Board of Directors
is due in no small part to its diversity.
We are proud that our Board has
historically had a higher proportion of
women than many of our Canadian
peers. In 2016, ATCO had three
women on the Board, representing
approximately 30 per cent of our
directors, including our Chair,
President & Chief Executive Officer,
Nancy Southern.
9 2016 ATCO ANNUAL REPORT
OUR LEAD DIRECTOR
In 1995, ATCO was among the first
public companies in Canada to
introduce the concept of a Lead
Director. Mr. Charles W. Wilson
is the current Lead Director for
ATCO, and was appointed to this
position on April 1, 2003. The
Lead Director provides the Board
with the leadership necessary to
ensure independent oversight of
management. The Lead Director is an
independent director and must be a
member of GOCOM.
DESIGNATED AUDIT DIRECTORS
ATCO has identified Designated Audit
Directors (DADs) who are directors
of either ATCO or Canadian Utilities
Limited. Each DAD is assigned to
one of our Global Business Units
to provide oversight based on their
strengths and experience in various
industry sectors.
Each DAD meets quarterly with the
relevant leadership of the Global
Business Unit, and holds annual
meetings with internal and external
auditors. In addition, they review the
financial statements and operating
results of their respective Global
Business Unit, discuss risks with
management, and report on both
operating results and risks to our
Audit & Risk Committee.
DIRECTORS
Robert T. Booth, Q.C.
Partner, Bennett Jones LLP
Denis M. Ellard
Corporate Director
C. Anthony Fountain
Chair of Sellafield Ltd.
Michael R.P. Rayfield
Corporate Director
Robert J. Routs, PhD
Chair of the Supervisory Boards of
AEGON N.V. and Royal DSM N.V.
Nancy C. Southern
Chair, President &
Chief Executive Officer
Linda A. Southern-Heathcott
Vice Chair, ATCO Ltd. and
President & Chief Executive Officer,
Spruce Meadows Ltd.
Roger J. Urwin, PhD, C.B.E.
Corporate Director
Susan R. Werth
Corporate Director
Charles W. Wilson
Lead Director
DIRECTORS 10
11 2016 ATCO ANNUAL REPORT
LEADERSHIP TEAM
Nancy C. Southern
Chair, President &
Chief Executive Officer
Erhard M. Kiefer
Senior Vice President &
Chief Administration Officer
George J. Lidgett
Managing Director,
Pipelines & Liquids
Brian R. Bale
Senior Vice President &
Chief Financial Officer
Siegfried W. Kiefer
Chief Strategy Officer, ATCO Ltd.
& Canadian Utilities Limited and
President, Canadian Utilities Limited
Stephen H. Lockwood
President & Chief Operating Officer,
ATCO Structures & Logistics Ltd.
Settimio F. Policicchio
Managing Director,
Shared Services
Wayne K. Stensby
Managing Director, Electricity
LEADERSHIP TEAM 12
Message from the
CHIEF STRATEGY OFFICER
Siegfried Kiefer welcomes delegates at
the 2016 Alberta Urban Municipalities
Association convention in Edmonton.
Two years ago, we began a
transformation that was without
parallel in our history – sweeping
change that established vertically
integrated business units and
provided them the autonomy they
need to make nimble, strategic
decisions. This transformative
momentum continued to drive us
forward in 2016, setting the stage for
what would be a dynamic year not
only for ATCO, but for our customers
around the world.
From significant energy reform in
our home province of Alberta, to the
historic Paris Agreement on climate
change, the global policy landscape
in which we operate underwent
considerable change. Meanwhile, a
modest recovery in commodity prices
provided beleaguered resource-based
economies some respite, jump-
starting a slow recovery in economic
growth.
These developments have left many
of our customers at a cross-roads
as they seek to balance the need for
economic stability with environmental
sustainability. For ATCO, these trends
afford us a strategic window of
opportunity ― one through which we
can further demonstrate to the world
the full scope, scale and imagination
of our “One ATCO” expertise.
It has always been our mission to
solve our customers’ problems, big
and small, anytime, anywhere. As a
worldwide economic recovery takes
root, global energy systems evolve,
developing markets emerge and
technological innovation accelerates,
we are uniquely positioned to do
exactly that.
VALUE CREATION FROM
OUR CORE
We have worked tirelessly over
the last year to find targeted
opportunities for growth within
our existing lines of business and
geographies. Often, this involves
bringing multiple ATCO solutions to
bear ― combining the full breadth of
our expertise and delivering products
and services our customers didn’t
realize were possible.
For example, while we have played
a key role in the growth of Alberta’s
Industrial Heartland for more
than 65 years, we continue to
find opportunities to expand our
customer-focused service offering.
In July, we launched an innovative
water treatment service in the
region, which is a critical process for
many of our industrial customers.
The addition of water treatment
broadens our already considerable
suite of industrial water services and
13 2016 ATCO ANNUAL REPORT
further allows our customers to focus
on their core business. In fact, the
Industrial Heartland has become a
model of the comprehensive services
ATCO can provide, ranging from
power generation to energy storage,
electricity transmission, industrial
water, and natural gas transmission
and distribution.
Internationally, we are moving
to create similar scale in key
geographies where we have already
established a solid foundation.
Our existing presence in markets
like Australia and Mexico provides
us with invaluable knowledge of
the local operating environment,
regulatory framework and community
relationships, all of which are critical
as we look to grow our footprint in
those countries.
In Mexico, we recently energized
phase one of an innovative
distributed power generation solution
to support the energy needs of
industrial customers in the World
Trade Centre Industrial Park in the
state of San Luis Potosí. The project,
which consists of a high-voltage
substation, five modular natural gas-
fired electricity generating units and
an associated distribution network,
is efficient and flexible, and can be
expanded to meet additional demand
in the years to come as the number
of tenants in the park grows. This
project highlights the merits of our
integrated approach, combining our
industry-leading expertise in power
generation and distribution with
strong local partnerships to deliver
a single cost-effective and reliable
solution.
SUSTAINABLE GROWTH
Our long-term success depends not
only on our ability to anticipate our
customers’ requirements today, but
to understand what they will need to
thrive tomorrow. Accordingly, while
we had tremendous success in 2016
creating value within our existing
portfolio of products and services,
we are continuously looking to
identify the trends that are shaping
the future.
As an example, we are actively
positioning ourselves to play a key
role in the transformation underway
in the global energy industry. While
disruptive technologies and new
policies are taking shape around the
world, nowhere is the transition more
evident than in Alberta.
In November, we announced that
we had successfully reached a
conditional agreement to help
transition the province away from its
dependence on coal-fired electricity,
part of a broader government-
led restructuring of the electricity
market. This development heralds a
new era for the province’s electricity
producers, marking a notable shift
toward lower-carbon electricity
production and energy efficiency.
We are working alongside the
government during this process to
ensure the reliability and affordability
of electricity are preserved, and
have agreed to collaborate on the
conversion of coal-fired generation to
natural gas, the exploration of hydro
generation, and the development of
Alberta’s new capacity market.
Beyond Alberta’s borders, we are
also evaluating opportunities to
expand into new businesses and
geographies that leverage our
capabilities to bring solutions to new
and existing customers. For example,
we are investing in a range of clean
energy technologies, including solar,
hydro, biomass and more. We are
also working with our Indigenous
communities to explore opportunities
to move from diesel to renewables,
and are industry leaders in highly
efficient natural gas technologies.
Globally, we continue to seek new
markets that would benefit from our
integrated capabilities to improve
their environmental and energy
stewardship.
PRESERVING AND CREATING
MEANINGFUL COMMUNITY
PARTNERSHIPS
One of the single greatest
determinants of our growth strategy,
whether in Canada or abroad, will be
the extent to which we can maintain
strong and mutually beneficial
relationships with the communities,
Indigenous peoples, and governments
where we operate. As we’ve seen
around the world and most notably
here in North America, the failure to
create strong partnerships can derail
even the best laid plans.
At ATCO we will continue to focus
our efforts on a long-term approach
based on respect, trust and genuine
openness to the needs and interests
of our customers and communities
that will not only create shared
understanding, but shared prosperity.
Moving forward, we will continue
to leverage the knowledge we have
developed over our 70-year history,
our pioneering spirit, and our
committed approach to building long-
term relationships with customers
and communities to achieve
sustainable and reliable growth in our
enterprise.
Thank you to the people of ATCO
for their tremendous efforts and
commitment. Without such a great
team, none of the accomplishments
to-date, nor the bright prospects for
the future would be possible.
[Original signed by S.W. Kiefer]
Siegfried Kiefer
Chief Strategy Officer, ATCO Ltd. &
Canadian Utilities Limited and
President, Canadian Utilities Limited
MESSAGE FROM THE CHIEF STRATEGY OFFICER 14
L W A Y S T HERE. ANYWHERE.
L W A Y S T HERE. ANYWHERE.
A
A
EST. 1947
EST. 1947
CELEBRATING ATCO’S
70TH ANNIVERSARY
2017 marks a very special year for ATCO as we celebrate
70 years of sustainable growth, good commerce and an
unwavering commitment to excellence and caring for
our customers around the world.
R.D Southern was just 17 years old when ATCO was
originally founded as Alberta Trailer Hire in 1947. With
initial revenues of $1,077 and 15 utility trailers,
R.D. Southern and his father, S.D. Southern, set a bold
course to service Alberta’s booming oil industry.
Seventy years later, ATCO is a diversified $20 billion
enterprise with approximately 7,000 employees
worldwide providing innovative and integrated solutions
in Structures & Logistics, Electricity, Pipelines & Liquids
and Retail Energy.
Our history has been shaped by imagination, courage,
perseverance and integrity. Our achievements over the
years reflect the ‘Heart & Mind’ of ATCO and have laid
the foundation for a future that is filled with possibility
and promise.
1947
1947
1959
1960
1947
ATCO began in 1947 in Alberta, Canada
when father S.D. and son R.D. Southern
started Alberta Trailer Hire to provide
housing accommodations to workers in
Canada’s first oil boom.
1959
The rapidly growing demand for modular
housing led to the opening of ATCO’s
original manufacturing facility in Airdrie,
Alberta, a former Royal Canadian
Air Force hangar.
15 2016 ATCO ANNUAL REPORT
1968
1975
1961
1980
1960
ATCO’s first large overseas contract
supplied international workforce housing
for the Mangla Dam project in Pakistan.
This was followed by the Guri Dam project
in Venezuela, both of which established
ATCO on the world stage.
1961
Operations expanded to Australia with
the opening of a 70,000 sq. ft. modular
structures manufacturing facility in
Adelaide, South Australia. This facility
was expanded to 110,000 sq. ft. in 1971.
Over 26 years of operation in Australia,
ATCO became a leader in the supply of
relocatable housing and once had a rental
fleet of 6,500 units.
1968
On January 9, 1968 ATCO became a
publicly traded company on the Toronto
Stock Exchange with 700,000 common
shares listed at $7.50 each. Only nine
months later, ATCO shares had more than
doubled to $20.00.
1975
From the mid to late 70s, massive housing
projects for thousands of workers in the
Middle East confirmed ATCO as the world
leader in workforce housing.
Atco wins controlof Canadian Utilities By PAUL TAYLORAtco Ltd. of Calgary has emerged as the apparent winner in a bid for control of Canadian Utilities Ltd of Edmonton.agreement is subject to certain terms and condi-tions. Atco will have to obtain at least 14.07 million shares of IU under the tender offer. As wellvide a stable source of earnings for Atco, which is involved in the volatile business of oil and gas exploration and development, and 1991
1998
2003
1988
1988
2000
2006
1980
ATCO purchased 58.1 per cent of Canadian
Utilities Limited from Philadelphia-
based International Utilities returning
it to Canadian ownership. This pivotal
acquisition was a turning point for the
company as it introduced consistent and
reliable earnings to ATCO’s balance sheet
and represented a long-term investment
in Alberta.
1988
ATCO supplied the dramatic natural gas
flare atop the Calgary Tower, as well as
several major shelter and accommodation
contracts for the 1988 Olympic Winter
Games held in Calgary.
1988
ATCO was awarded a five-year contract
worth $114.2 million to operate and
maintain Canada’s new North Warning
System.
1991
By 1991, ATCO and its partners had
secured $1.4 billion in financing for the
Barking Power Station – a 1,000 MW
natural gas-fired facility located in East
London. To-date, this is the largest power
station ATCO has ever been involved with.
1998
ATCO returned to Australia with the
acquisition of a modular manufacturing
and leasing company, adding two
manufacturing facilities and a fleet of
more than 2,000 space rental and
workforce housing units, and the
commencement of construction
on a 180 MW cogeneration plant.
2000
ATCO provided support services to
Canadian Forces in Bosnia-Herzegovina ―
one of many future military contracts the
company would deliver in its history.
2011
2014
2017
2016
2014
2015
2003
ATCO brought its emission-free, 32 MW
Oldman River hydroelectric generating
facility online. Now jointly owned with
the Piikani Nation, it was ATCO’s first-ever
hydroelectric project and its first electricity
generating facility in southern Alberta.
2006
ATCO began its unique and highly
successful EPIC (Employees Participating
in Communities) fundraising initiative,
benefiting more than 500 charitable
and non-profit organizations. Since its
inception, the program’s cumulative
fundraising total has reached more than
$31 million.
2011
ATCO expanded its business in Australia
with one of the largest acquisitions in
the company’s history – the $1.1-billion
purchase of WA Gas Networks, the largest
gas distribution utility in Western Australia.
2014
ATCO entered Mexico and is awarded
two major projects, marking a significant
long-term commitment to the people and
industries of Mexico.
2015
ATCO completed the longest transmission
line in Alberta’s history. The Eastern
Alberta Transmission Line will play a
critical role helping meet increased
demand and bringing renewable energy to
Albertans across the province.
2016
In January, ATCO launched ATCOenergy,
a new electricity and natural gas retail
company that promises Albertans
outstanding service and lower costs for
their homes and businesses.
Growth and financial strength are
the pivotal strategies we use to build
our business. Our long-term success
is dependent on our ability to grow
by expanding into new markets and
business lines, while continuing to offer
our customers comprehensive and
premier products and services when
and where they need them. These
two critical strategies are supported
by our commitment to innovation and
operational excellence and meaningful
engagement with our employees and
the communities we have the privilege
to serve.
For detailed information on our strategic
priorities see pg. 51 of the Management’s
Discussion and Analysis.
STRATEGIC
PRIORITIES
17 2016 ATCO ANNUAL REPORT
19 2016 ATCO ANNUAL REPORT
S
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P
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E
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&
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INNOVATION
OPERATIONAL
EXCELLENCE
GROWTH
FINANCIAL
STRENGTH
COMMUNITY
INVOLVEMENT
ELE C T R I C I
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STRATEGIC PRIORITIES 18
2016 PERFORMANCE
GROWTH
1
The 650,000 sq. ft. Site C
Workforce Housing Facility was
one of the largest construction
projects in ATCO’s history.
$1.6 B*
capital investment
in 2016
ATCO is focused on long-term,
sustainable growth achieved
through investment, geographic
expansion and the development
of new products and services that
complement our existing business
lines. We continuously evaluate
opportunities to enter new markets,
acquire new assets and develop new
business lines so that we can better
serve our global customers and
provide long-term value for our
share owners.
In 2016, several strides were
made in delivering our long-term
growth strategy.
INVESTING IN CAPITAL
INFRASTRUCTURE
In 2016, we invested more than
$1.6 billion*, driven largely by
capital investments made by our
Electricity and Pipelines & Liquids
Global Business Units. Combined,
investments by these two business
units totalled nearly $1.4 billion and
delivered strong capital growth for
the company. The projects involved
were numerous and diverse,
including continued investment in the
Urban Pipeline Replacement Program
and our Steel and Plastic Mains
Replacement Programs, all
located in Alberta.
* For a complete definition of capital investment, please see pg. 100 of the MD&A.
19 2016 ATCO ANNUAL REPORT
PROJECT HIGHLIGHTS
In 2016, we undertook a number of
significant projects across each of our
Global Business Units that delivered
growth for the organization.
Site C Workforce Housing Project
In October 2016, we celebrated the
completion of a 757-unit, 650,000
sq. ft. workforce housing facility.
This eight-year, $470 million contract
was finished on-time and on-budget
to support the development of BC
Hydro’s Site C Clean Energy Project.
Using pre-fabricated modular
construction technology, the
innovative facility was completed in
less than 13 months with ATCO crews
working nearly 1.4 million hours
without a single lost-time injury.
Approximately 1,600 Site C
construction workers will now
live comfortably as they finish
construction of the dam, enjoying the
modern design and many amenities
available at the facility. Featuring a
hair salon, convenience store, coffee
shop, gymnasium with running track
and weight training area, a licensed
lounge, as well as single-occupancy
bedrooms with ensuite bathrooms,
televisions and Wi-Fi – the facility
serves as a temporary community
with all the comforts of home.
With the lodge constructed, our
team will remain onsite for eight
years to provide operational support,
including food service, janitorial,
maintenance and site services.
Lake Charles Workforce
Housing Facility
In October 2016, we also completed
our largest-ever U.S. workforce
housing construction project. The
14-month Lake Charles project is a
true testament to the luxury, privacy
and versatility of our modular
housing units.
Nearly 1,900 workers constructing
an LNG facility in Louisiana will enjoy
the individual comfort built into
the design of the 462-unit facility.
Each room includes a bathroom,
temperature controls, TV and DVD
player, mini-fridge, and ample
storage. The facility also includes
laundry facilities, gyms, recreation
spaces, a movie theatre and outdoor
recreation space with BBQ areas,
basketball, soccer and baseball fields.
Hydrocarbon Storage Facility
In the fourth quarter, we officially
commissioned the first two of four
NGL salt caverns included in a long-
term partnership with Petrogas.
The salt cavern facility can store
propane, butane and ethylene
and is connected to Petrogas’ Fort
Saskatchewan hydrocarbon truck
and rail terminal, as well as other
NGL facilities in the area. The current
capacity of commissioned salt
caverns is 200,000 m3. Construction
of the remaining two caverns is
expected to be complete by the end
of 2017 bringing total capacity to
400,000 m3.
The 462-unit Lake Charles facility was designed
for the individual comfort of its 1,900 residents.
200,000m3
hydrocarbon storage capacity
Our salt cavern facility at the ATCO Heartland
Energy Centre allows us to leverage our industrial
water infrastructure in the area to wash
two caverns simultaneously which shortens
development time. The central location also
provides our customers with transportation
options to solve the logistical challenges of
moving product to market or securing it to avoid
processing interruptions.
GROWTH 20
GLOBAL EXPANSION
From our first international project
with Boeing in 1959, to our expansion
into Australia in 1961, and our
service with the Canadian military
in the Arctic, we have a proven
history of service excellence around
the world. As the international
community evolves in response to
changing global conditions and new
communities are faced with unique
energy infrastructure needs, we
continue to seek out new markets to
offer our dependable and integrated
solutions.
San Luis Potosí
Distributed Generation Solution
In 2016, along with our partner
RANMAN Energy, we completed
the first phase of an innovative
distributed power generation solution
at the World Trade Centre Industrial
Park in San Luis Potosí, Mexico.
The project will deliver reliable and
efficient onsite electricity to the
700-hectare park’s industrial tenants,
with excess energy being sold back to
the grid.
The project, which includes a high-
voltage substation, five modular
natural gas-fired electricity generating
units and an associated distribution
network, will be completed in two
phases. With four megawatts (MW) of
capacity currently available, the joint-
venture partners plan to expand this
facility to up to 20 MW by December
2017. The project is also highly
scalable, and further capacity can
be added as new tenants establish
operations within the industrial park.
Chile
In early 2016, we formed a new
partnership in South America and
expanded our modular structures
business into Santiago, Chile. This
was accomplished by acquiring
50 per cent of Sabinco Soluciones
Modulares S.A. from Sitrans Servicios
Integrados de Tranportes Ltda. and
launching ATCO-Sabinco S.A. With
the partnership, we are establishing
a foothold in South America that will
allow us to introduce the full suite of
integrated service offerings available
through our Global Business Units.
Our partner’s diverse client base
and local knowledge allow us to
confidently enter the market and
establish our growth strategy for the
region. The agreement also included
the purchase of a land position for a
future manufacturing facility – setting
the stage for additional opportunity in
the years to come.
DIVERSIFYING OUR BUSINESS
Permanent Modular Construction
In Australia, our Structures &
Logistics Global Business Unit
has been successful pursuing
growth opportunities through the
diversification of our permanent
modular business line. In 2016, we
were engaged by the Department of
Education and Training in the state
of Victoria to design, manufacture,
transport and install buildings for
public schools. In 2016, we completed
more than 150 projects, with more
than 30 in progress for 2017. These
projects delivered time and cost-
savings to our customer and included
energy-saving features such as
automated building management
systems for ventilation, air
conditioning and light.
In April, ATCO was also engaged
by Sydney University to design,
manufacture and install six
permanent health educational
modular facilities in the community
of Broken Hill, New South Wales,
Australia. Our ability to deliver in
remote locations and with tight
turnaround times resulted in
the successful completion of this
$2.1 million project.
Our innovative
distributed power
generation solution
will deliver up to
20 megawatts of
reliable and efficient
onsite electricity in
a growing industrial
park in Mexico.
21 2016 ATCO ANNUAL REPORT
RETAIL ENERGY
As part of our ongoing efforts to
diversify and broaden the scope of
our business, in January 2016 we
re-entered Alberta’s retail energy
market with ATCOenergy, the
province’s newest electricity and
natural gas retailer. ATCOenergy was
uniquely designed to be the premier
electricity and natural gas retailer
in Alberta’s competitive landscape,
offering exceptional service and real
savings to homes and businesses –
competitive advantages that have
served the company well over its
first year.
GROWING OUR
CUSTOMER BASE
In November, in recognition of
the perseverance and resilience
of Albertans, our Chair, President
& Chief Executive Officer, Nancy
Southern, issued a special offer to all
residential ATCOenergy customers –
the gift of free electricity and natural
gas for the month of January 2017.
Over the course of the six-week
campaign, we visited 15 communities,
participated in 20 holiday events and
festivals and engaged thousands of
prospective and existing customers.
Our call centres received record-
breaking call volumes as Albertans
from every corner of the province
made the switch.
STRENGTHENING OUR
CONNECTION WITH ALBERTANS
As we look to the future,
strengthening our connection with
customers will continue to be a major
focus of our business.
The unique partnership between
ATCOenergy and ATCO Blue Flame
Kitchen (BFK) provides an opportunity
to differentiate our organization
and play a bigger role in our
customers’ lives.
BFK is a well-established and
cherished brand that has provided
recipes and trusted household
advice to Albertans for more than 87
years. While ATCOenergy is new to
the province, the energy retailer has
quickly been embraced by Albertans
eager to enjoy the positive energy
we’ve delivered through outstanding
customer service and great savings
on their electricity and natural gas
bills. Bringing these two customer-
facing teams together creates an
opportunity to enhance our
retail offering.
Over the coming year, we will be
launching a new online shopping
platform that goes beyond retail
electricity and natural gas plans,
to offer products and services
that will enhance our customers’
lives at home. We are currently
engaging Albertans to gain a better
understanding of the types of
products and services that meet their
needs and interests. ATCO customers
can look forward to additional
discounts and exclusive offers once
our new online store is launched.
This is an exciting new chapter in
ATCO’s long history of providing
quality products and exceptional
service to households across Alberta.
energy in the month of January 2017. I know this is something
you do not have to do but it comes as a welcome surprise.
And yes it is one of those ways of delivering positive energy to
“I would like to thank you for your generous gift of free
families in the province. This is surely an act of kindness.”
Joanne, ATCOenergy Customer
increase in call volume
443%
5M+
social media impressions
A GIFT
FROM OUR ATCO FAMILY TO YOURS
FREE ENERGY
FOR YOUR HOME THIS JANUARY
In recognition of the courage shown by Albertans in the face of difficult times, ATCO is delivering a special gift this
holiday season – free electricity and natural gas for your home in January. This gift will be given to all our current
valued ATCOenergy customers and any new customers that sign up by December 31, 2016.
MAKE THE SWITCH TODAY! 1.844.OUR.ATCO (687.2826) | ATCOenergy.com
OFFER EXPIRES DECEMBER 31, 2016
Merry Christmas
from
Offer available to existing and new ATCOenergy residential customers who have signed up with ATCOenergy by December 31, 2016 at 11:59 PM. Customers will receive an energy credit for their January electricity and/or natural gas
consumption, for the services switched, as applicable. Customers will see this credit applied as a “Gift from ATCOenergy” in the Energy Charges section of their monthly statement. The energy credit does not apply towards: Delivery Charges,
Local Access or Municipal Franchise Fees, Administration Fees, Taxes, Levies or other charges beyond the commodity. This credit has no cash value. ATCOenergy will not be offering substitutions, exchanges, or refunds. All customers are free
to purchase natural gas services from the default supply provider or from a retailer of their choice and to purchase electricity services from the regulated rate provider or from a retailer of their choice. The delivery of natural gas and electricity
Campaign Dates:
to you is not affected by your choice. If you change who you purchase natural gas services or electricity services from, you will continue receiving natural gas and electricity from the distribution company in your service area. For a current list
of retailers you may choose from, visit www.ucahelps.gov.ab.ca or call 310-4822 (toll free in Alberta). Some offers, in whole or in part, may not be available in gas co-ops, municipally-owned utilities, and some Rural Electrification Associations.
November 18 – December 31, 2016
increase in web traffic
152%
76%
increase in
residential customers
GROWTH 22
2016 PERFORMANCE
FINANCIAL STRENGTH
2
PLACEHOLDER ONLY
Senior Vice President & Chief Financial
Officer, Brian Bale, at the 2016 ATCO
Annual General Meeting.
Two years ago, we began an
organizational transformation to
streamline our business. Championed
by the highly skilled people of
ATCO, this exhaustive effort to
modernize our processes and drive
down costs has created tangible
benefits in virtually every corner
of your Company. These benefits
were clearly evident in 2016, as we
achieved annual adjusted earnings
of $360 million, compared to
$293 million in 2015.
Driven by a renewed focus on our
customers, our people executed with
excellence, supporting continued
capital investment and growth in our
regulated utilities, delivering higher
profit margins and occupancy levels
in our modular structures business,
and improving the efficiency with
which we conduct our business.
GROWING A HIGH-QUALITY
EARNINGS BASE
Our financial strength is the bedrock
of our strategy and generating
reliable, predictable cash flows is
fundamental to our ability to fund
the projects and initiatives necessary
to achieve long-term growth.
Accordingly, capital spending in our
regulated utilities and long-term
contracted capital assets accounted
for 86 per cent, or $1.4 billion, of total
capital spending in 2016.
In fact, in the last five years, the
quality and reliability of our earnings
has improved substantially. Over
that time, we have invested nearly
$10 billion in our regulated utilities,
and their contribution to total
adjusted earnings has grown from
39 per cent to 81 per cent. These
stable investments, which earn a
return under a regulatory business
model, provide us with a steady
platform from which we can grow
our business in the future.
The remaining 14 per cent of our
capital investment in 2016 was
largely driven by the acquisition
of the remaining interest in our
Barking power company in the
United Kingdom and the acquisition
of 50 per cent of Sabinco Soluciones
Modulares S.A., a modular structures
provider in Chile. The newly formed
ATCO-Sabinco S.A. pairs our
significant operational expertise with
our partner’s intimate knowledge of
the local environment, and provides
us with an important strategic
foothold in the promising
South American market.
DIVIDEND GROWTH
The reliable strength of our earnings
underpins our continued ability
to grow our dividend. With the
declaration of a sixth consecutive
15 per cent increase in common
share dividends over the preceding
year by our Board of Directors in
January 2017, we have consistently
increased our common share
dividend every year since 1993.
23 2016 ATCO ANNUAL REPORT
Track Record of Dividend Growth*
$1.14
15 % C A G R **
1 3 % C A G R * *
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
* On January 12, 2017, ATCO declared a first quarter dividend of $0.3275 per share, or $1.31 per share
annualized. This is a 15 per cent increase over the quarterly dividends declared in 2016.
** Compound Annual Growth Rate
This noteworthy 24-year track record
is one of which I am particularly
proud, and it underscores your
Company’s continued commitment
and ability to generate value on
your behalf.
CAPITAL INVESTMENT PLANS
Drawing upon the tremendous
momentum we have established over
the past year, we intend to continue
to grow our business by investing
in strategically suitable projects
throughout our global portfolio.
Between 2017 and 2019, we plan to
invest $5 billion in regulated utility
and commercially secured capital
growth projects. We expect that this
capital investment will continue to
create long-term value and contribute
significant earnings and cash flows.
CONTINUED FINANCIAL
STRENGTH
Our enduring financial strength
and flexibility are true advantages
for your Company, particularly in
today’s volatile geopolitical and
macroeconomic environment. Over
the past year, we continued to
make prudent decisions to bolster
the strength of our balance sheet
and preserve the financial flexibility
necessary to fund existing and
future capital investments.
In 2016, Standard & Poor’s Rating
Services affirmed its “A” with
a negative outlook corporate
credit rating for ATCO Ltd. and its
subsidiaries Canadian Utilities Limited
and CU Inc. In August 2016, DBRS
Limited affirmed its rating for the
Company as “A” (low) with a stable
trend. Maintaining our “A” credit
ratings is fundamental to our current
and future success and ensures we
have access to capital markets at
attractive rates.
In November 2016, ATCO’s subsidiary,
CU Inc., issued $375 million of
3.763 per cent 30-year debentures.
Proceeds from these issuances were
used to fund our capital investments
in 2016. In June 2016, we reset the
dividend rate from 3.80 per cent to
2.24 per cent on CU Inc.’s Series 4
Preferred Shares.
REGULATORY DEVELOPMENTS
I am pleased to report that the
financial impacts of the significant
regulatory lag we experienced in 2015
in Alberta and Australia is now firmly
in our rearview mirror, and we are
well on our way to getting back to
prospective regulatory rate-making.
Indeed, we received a number of
regulatory decisions in 2016 that
provide much better clarity on the
business environment going forward
for all of our utilities.
Going forward, we will be relentless in
the pursuit of improved productivity
and efficiency in every part of our
organization; we will continue to
invest in strategic assets that create
stable earnings and cash flows; and
we will maintain a strong balance
sheet, all with a steady focus on
continued value creation for you,
our Share Owners.
[Original signed by B.R. Bale]
Brian R. Bale
Senior Vice President &
Chief Financial Officer
“The quality of our
earnings has improved
substantially, leading to
greater predictability of
earnings and cash flows.”
ATCO Adjusted Earnings
$360M
$293M
3 %
2
2015
2016
Regulated Utility & Contracted
Capital Investment 2016
Other
Long-term
Contracted
Capital
14%
71%
Regulated
Utility
Capital
15%
Future Regulated Utility &
Contracted Capital Investment
$1.8B
$1.8B
$1.4B
Long-term
Contracted
Capital
Regulated
Utility
2017
2018
2019
FINANCIAL STRENGTH 24
2016 PERFORMANCE
INNOVATION
3
Our off-grid solar project
at the Saddle Hills
Telecommunications Site in
northwestern Alberta is the
largest in Western Canada,
and is uniquely designed to
provide reliable electricity
in a remote northern
environment.
25 2016 ATCO ANNUAL REPORT
We believe that well-focused research
and development creates a lasting
competitive advantage. In 2016 we
completed a number of imaginative
projects designed to grow our
expertise, while simultaneously
developing unique solutions that can
meet the needs of our customers
around the world.
RENEWABLES
The global energy sector is in
the midst of a once-in-a-lifetime
transformation as the rise of
renewable technologies transforms
how we generate, transmit, distribute
and consume energy. ATCO will
play a key role in enabling that
transition. Across our operations, we
are exploring ways to economically
reduce our carbon footprint and
pioneering innovative renewable
energy solutions for our customers,
including hydro, solar, biomass and
others.
Saddle Hills Off-Grid Solar Solution
In October, we energized
Western Canada’s largest off-grid
solar project at the Saddle Hills
Telecommunications Site northwest
of Grande Prairie. Developed in
partnership with the Alternative
Energy Program at the Northern
Alberta Institute of Technology, the
system is capable of generating 75
kilowatts and storing 250 kilowatt
hours of energy, to supply 100 per
cent of the power needed to run the
remote site.
The Saddle Hills Site is an integral part
of our telecommunication network,
and requires its own energy source
in order to function. The facility was
previously powered by propane
thermal electric generators, but as
they neared the end of their life
cycles and the demand for electricity
increased beyond capacity, we chose
to pursue a cleaner, more cost-
effective solution.
The development of an efficient and
entirely off-grid solar solution in such
a remote, northern location – with
a cooler climate and fewer hours of
daylight – provided our teams with
valuable insights into the application
of solar technology that are directly
transferrable to our customers in
other sectors.
GasSola
In Australia, we began a new
research and development project
that combines the reliability of our
natural gas network with renewable
energy technologies including battery
storage and rooftop solar panels. The
initial stage of the GasSola project has
seen nine homes with rooftop solar
panels in the City of Busselton, in
Western Australia’s southwest region,
equipped with a natural gas-fired
generator, battery technology and a
communications system.
The project will track energy use
and examine the role of the natural
gas generator at each home in
providing electricity when solar panel
or battery supply is insufficient and
local electricity demand is peaking
or unavailable. It will also test the
communication systems between
ATCO and the electricity network
provider to automate the process of
starting the natural gas generator
when the electricity network is
experiencing capacity issues.
The trial seeks to demonstrate how
natural gas-fuelled, scalable hybrid
technology in both residential and
commercial market segments can
assist in providing firm generation
to support renewables, ultimately
increasing energy security and
potentially reducing the need for
costly electricity network upgrades
in constrained parts of the power
network.
ENERGY EFFICIENCY
Energy efficiency is increasingly
recognized as one of the most
affordable and effective means to
reduce environmental impacts while
supporting economic growth. For our
customers, this means lower energy
costs, improved reliability and lower
greenhouse gas emissions.
Across our portfolio, we are exploring
a variety of novel technologies
designed to improve our own
operational energy efficiency while
delivering environmental and
financial benefits to the customers
who depend on us.
Temporary Heat & Power Generation
Natural gas is safe, reliable and
abundant, and increasing its use as
an alternative fuel in heat and power
applications can reduce emissions
and improve energy efficiency.
In 2016, we worked with PCL
Construction and Ivanhoe Cambridge
to utilize natural gas for construction
heat and power generation at the
new 500,000 sq. ft. outlet mall near
Edmonton’s International Airport.
We installed natural gas lines prior
to the building being erected to fuel
natural gas space heaters and a
natural gas generator for use during
construction.
This solution offers our customers
a number of benefits including
significantly reduced fuel costs, lower
labour costs and lower greenhouse
gas emissions.
SADDLE HILLS
OFF-GRID
SOLAR SOLUTION
solar panels
288
5
DAYS
total reserve energy to
keep the site fully powered
2Hours
to charge the battery bank
from 20% to 100%
INNOVATION 26
MyHEAT Partnership
In September, ATCOenergy
announced its support for MyHeat
Inc., an innovative Alberta-based
company that uses thermal infrared
images to map building heat loss.
The MyHEAT platform gives users the
ability to visualize and compare the
heat escaping from every building in
a town or city, and is available free
of charge online. The interactive tool
provides users with the information
they need to understand their energy
loss, increase efficiency, reduce
consumption and save money.
MyHEAT is currently available for
the residents of Airdrie, Calgary,
Edmonton, Grande Prairie, Red
Deer, Lethbridge, Okotoks, St. Albert
and Sherwood Park. In the coming
months, the company aims to include
additional Alberta communities, with
a planned roll out across major urban
Canadian cities over the next year.
SUSTAINABLE SOLUTIONS
Our customers increasingly expect
our products and services to go
beyond efficiency in order to
create meaningful improvements
in environmental performance.
Across our portfolio, we continue to
develop innovative, customer-focused
solutions that pair our globally
competitive costs with superior
operational and environmental
performance.
Integrated Multi-User Water System
Over the last seven years, we have
invested more than $70 million into
projects that expand our industrial
water system in Alberta’s Industrial
Heartland and allow our customers
to connect to a single integrated
system. This integrated system
offers a number of environmental
efficiencies including reducing the
need for multiple intakes by industrial
operators along the river, while
also increasing the opportunity for
wastewater treatment and recycling.
Through our integrated multi-user
water system, we offer customers:
• Water supply and return
infrastructure (intakes, wells,
outfalls)
• Pump stations
• Water transportation
(pipeline and truck)
• Storage (tanks and ponds)
• Water and wastewater treatment
• Wastewater recycling and disposal
• Temporary water supply for
hydro-testing
In 2016, we launched an innovative
water treatment service in the region
to provide our customers in Alberta’s
Industrial Heartland with the water
they need and allow them to focus on
their core business. Now, customers
can receive treated water directly to
their facility and eliminate the need to
manage water treatment onsite.
We are helping our customers reduce emissions
and operating costs with Micro Combined Heat
& Power technology, using onsite natural gas to
efficiently generate heat and electricity. In 2016,
we established a pilot program involving several
Alberta homes and a natural gas regulating
station to determine the viability of this new
potential service offering.
27 2016 ATCO ANNUAL REPORT
Over the last seven years, we have invested more than $70 million into projects
that expand our industrial water system in Alberta’s Industrial Heartland.
Across Alberta, we own and maintain more than
185 substations that supply electricity to homes and
businesses across the province. Our Next Generation
Substation design reimagines the traditional
substation by reducing its size, making it quicker to
build and lowering the cost of construction.
INNOVATION 28
2016 PERFORMANCE
OPERATIONAL EXCELLENCE
4
We strive to provide a healthy and safe
work environment, and continually
improve our safety programs to protect
our employees, contractors and the
communities we are privileged to serve.
92%
unplanned outages in 2016
combined generating plant
availability with minimal
The pursuit of operational excellence
has long been at the heart of our
organization. We strive to deliver
reliable and exceptional products and
services to our customers around the
world, while ensuring the safety of
our people and the communities
we serve is at the forefront of all
that we do.
To support our commitment to
operational excellence, we have
restructured our business and
launched a transformation initiative
designed to increase efficiencies,
improve processes and support the
company in achieving our strategic
priorities. This work has resulted in
lower operational costs in 2016 and
increased collaboration between
business units, ultimately leading
to more holistic solutions for our
customers.
RESPONDING FOR OUR
CUSTOMERS
Northern Alberta Ice Storms
In May, while ATCO employees
were actively responding to the Fort
McMurray wildfire, our crews were
also battling blazes along the British
Columbia / Alberta border. Wildfires
throughout the Peace Country
region of northwestern Alberta were
challenging emergency crews when a
sudden cold snap dropped 20 inches
of snow onto the area.
29 2016 ATCO ANNUAL REPORT
“Excellence is the heart and mind of ATCO. Excellence means
going far beyond the call of duty. Doing more than others expect.
This is what excellence is all about. It comes from striving,
maintaining the highest standards, looking after the smallest detail
and going the extra mile. Excellence means caring.
It means making a special effort to do more.”
R.D. Southern, Founder, ATCO
SAFETY
Employee Health & Safety
Safety is the first consideration in
everything we do. We are dedicated
to providing a safe work environment
for our employees and contractors,
promoting public safety and
minimizing environmental impacts
in every project we undertake. We
strive to continually improve our
safety programs by providing training,
procedures and equipment that
support a “zero injury” culture.
Thanks largely due to a focus on
continuous improvement, visible
commitment and active participation
by our management and employees,
and increased sharing of lessons
learned, we have been able to
substantially reduce reportable injury
rates since 2008.
Public Safety
We are also committed to the
safety of our customers and the
communities we serve. Through
annual targeted safety campaigns
we work to raise awareness of the
importance of safe digging, the
dangers of making contact with
power lines, the threat of carbon
monoxide in our homes, the supplies
to have on-hand in case of an
emergency and the steps to take to
prevent fires.
With heavy snowfall and broken trees
damaging many kilometres of power
line, 11,000 customers in 17 of our
northern Alberta service areas were
suddenly without power. Incident
Command Centres were opened in
Grande Prairie, Peace River and Slave
Lake and our local crews worked
around the clock for three days to
remove downed trees, repair lines
and equipment and restore power to
our customers.
Osborne Outage
The continued reliable operation of
the Osborne Cogeneration facility
in Adelaide, Australia saw the plant
undergo the most significant overhaul
of its gas and steam turbines and
generators since being commissioned
in 1998. With up to 117 specialist
service providers onsite, close
coordination and adherence to
work management systems was
essential to a successful outcome.
Our Osborne employees managed all
activities during what were at times
extreme weather conditions.
The predominantly outdoor facility
experienced some of the wettest and
windiest conditions on record, which
when combined with a ‘system black’
event in South Australia that disabled
the entire state’s electricity grid, the
operational expertise of our team
was critical. The team persevered,
and after a total of 50,000 hours,
completed the seven-week overhaul
allowing Osborne to re-synchronize
to the national electricity grid and
once again supply its critical base-
load power to South Australian
consumers.
SAFETY BY THE NUMBERS
In 2016, we celebrated several significant
safety milestones across our company:
Fort McMurray Wildfire
Emergency Response
650 employees without
a lost-time incident
Camp Services
5,000,000
hours of work without
a lost-time incident
Site C Workforce Housing Project
1,400,000
hours of work without
a lost-time incident
Gas Transmission
14 YEARS
without a lost-time
incident
Electricity Generation
1,000,000+
hours of work without
a lost-time incident
Carbon monoxide is an
invisible, silent, odourless killer.
Carbon Monoxide
Awareness
WAKE UP.
Carbon monoxide detectors save lives.
Learn more at
ATCOGas.com/COSafety
1,150 free CO detectors
given to Albertans
The wildfire that engulfed Fort McMurray was the largest
and costliest natural disaster Canada has ever faced – an
unprecedented tragedy that forced nearly 90,000 people
from their homes and burned nearly 6,000 km2 in the
heart of one of Canada’s most economically vital regions.
We have a significant presence in Fort McMurray, including
operating and maintaining natural gas and electricity
transmission and distribution infrastructure, electricity
generation, along with two workforce housing camps
north of the community and a significant fleet of modular
units. The community is also home to tens of thousands
of our customers and more than one hundred of our
employees.
31 2016 ATCO ANNUAL REPORT
That’s why, as the residents began evacuating the city on
May 3, our employees were already in motion. Having
monitored and assessed the growing threat of the fire in
in the days leading up to the evacuation, a coordinated
and integrated ATCO response was already well underway
by the time the first cars hit the highway. Within hours,
the doors to our Creeburn Lake Lodge opened to house
evacuees and hundreds of our highly skilled employees
marched resolutely into the heart of the crisis to provide
crucial infrastructure support.
ATCO RESPONDS
FORT MCMURRAY
WILDFIRE
PROVIDING A HOME AWAY FROM HOME
For hundreds of residents fleeing the endangered
community, burning highways to the south left them with
nowhere else to go. Fortunately, a handful of dedicated
ATCO employees were already hard at work preparing our
facilities to house those seeking shelter.
At 5:45 p.m. on May 3, minutes after the mandatory
evacuation order was issued, ATCO tweeted that the doors
of Creeburn Lake Lodge near Fort McKay were open to
evacuees. Within minutes, the tweet had been shared
hundreds of times by fleeing residents desperate to find
a safe place to rest. Evacuees began to arrive within the
hour and by the end of the evening, all 500 rooms were
filled by women, men, children, dogs, cats and even a pig
— all were welcome. For weeks after this initial influx of
evacuees, Creeburn Lake Lodge, and later Barge Landing
Lodge, hosted hundreds of evacuated residents and first
responders.
Meanwhile, in Calgary, efforts were underway to mobilize
a camp to house our employees and other emergency
personnel already on the ground in the region. This camp
would be the first deployment of many for the Structures
& Logistics team in the weeks to follow, as they mobilized
assets from across Western Canada to provide tired
responders with much-needed meals and well-deserved
rest.
ATCO RESPONDS 32
OUR RESPONSE
BY THE NUMBERS
From the start, our employees
were part of the recovery efforts
during the devastating wildfire
in Fort McMurray. So, what did our
response look like?
90,000
people
displaced
29 days of mandatory evacuation
nearly 6,000 km2 burned
650+
ATCO employees
on the ground
1,200
beds rapidly deployed
to the region
56,000+ meals served in 8 days
2,650 kms of mains leak
surveyed
22,606
natural gas
customers
impacted
41,202
electricity
customers
impacted
KEEPING THE LIGHTS ON
AND THE GAS SYSTEM SAFE
Early on in the crisis, it became
apparent that extraordinary efforts
would be necessary to provide
emergency responders with the
natural gas and electricity they would
need to respond to, and later recover
from, the fires.
The decision was made quickly to
shut off the natural gas distribution
system feeding the city to prevent
fuelling the fire any further. Shortly
thereafter, the high-pressure
transmission pipelines that fed the
gas distribution system were shut
down as well. To ensure gas was
available when and where it was
needed, compressed natural gas
assets were quickly deployed to
the evacuated city. These assets
would prove essential during the
early stages of the crisis. We worked
closely with the Regional Emergency
Operations Centre to identify crucial
customers that required gas to
support the restoration efforts in the
rest of the community. This incredible
effort marked the largest emergency
deployment of portable natural gas
infrastructure in our history.
While keeping the gas system safe
was important, ensuring the lights
stayed on was equally critical. Our
electric crews were on the ground
from day one, working hand-in-
hand with emergency personnel
to maintain and restore essential
electricity service to aid in the
response including water pumping
stations, telecommunications
facilities, the fire hall, the emergency
dispatch centre and the Regional
Emergency Operations Centre. During
the ordeal, we met daily with the
Alberta Electric System Operator
as well as oil sands customers to
review the ever-changing state of
the transmission system and adjust
operations to ensure grid stability.
Just west of the city, fire tore across
the Athabasca River, damaging two
major electrical transmission lines
spanning 1,400 metres across the
river. To get to the remote site to
repair these lines, crews had to
traverse creeks and coulees for
about eight kilometres, including
building several temporary bridges
across the Horse River for trucks and
equipment.
WELCOME HOME
When the decision was made to
finally allow residents to return on
June 1, ATCO was there to greet them.
The mission was simple ― support
the natural gas relighting efforts
by ensuring that customers were
entered into the dispatch system, and
answer any questions customers had
about their electricity and natural gas
service. This was no simple task, as a
steady tide of residents ― more than
50
560
kms of power line repaired
poles repaired
10,000+
online service requests
60,000+ website visits to our utility
restoration map and 9,300+ calls to our
customer assistance centres
0
35 2016 ATCO ANNUAL REPORT
lost-time
incidents
On May 7, 10 of our state-of-the-art modular units were loaded onto flatbed trucks and sent overnight to
Fort McMurray, providing a much-needed home away from home for first responders and our employees.
42,000 in all ― would pass through
the seven Community Information
Centres set up to greet residents
and provide them with essential
information.
In addition to the 20 ATCO employees
who had eagerly volunteered to staff
the Community Information Centres,
35 ATCO summer students and one
ATCO Blue Flame Kitchen chef were
also on the ground in Fort McMurray
to lend a hand. The students and
our chef helped staff two ATCO
meal camps, which had been set
up to serve hot meals to returning
residents and first responders. The
hardworking students certainly
made their presence felt, dishing out
56,000 hot meals over just eight days.
Following the evacuation period,
ATCOenergy also worked closely with
local distribution companies, handling
hundreds of customer bills to ensure
our valued customers were treated
fairly during this challenging time.
THE STRENGTH OF “ONE ATCO”
From responding to the needs
of more than 40,000 electricity
customers and 22,000 natural gas
customers, to supporting emergency
responders on the ground and
assessing and repairing our own
infrastructure, our response to the
wildfire was dynamic and complex.
At the height of our response, we
had more than 650 employees in the
community — countless more were
in our offices, dedicated full-time to
supporting the response effort.
Those efforts have been recognized
broadly by our industry peers and
partners in government. In late
January 2017, ATCO was honoured
with the Alberta Emergency
Management Agency’s Emergency
Management Achievement Award,
which celebrates exemplary
achievement in emergency
management and recognizes groups
that have made contributions toward
building a better prepared and more
disaster resilient province. Earlier in
the month, we were recognized by
the Edison Electric Institute, the trade
association serving the electric power
industry internationally, with an
Emergency Recovery Award.
Truly, our response brought
our company together in
an unparalleled fashion, illustrating
the formidable capabilities,
unrelenting determination and
impassioned commitment to our
customers we have established over
the last seven decades ― it truly was
a “One ATCO” effort.
1
2
4
3
1 One of our employees surveys the damage to a natural gas
regulating station.
2 Our crews were on the ground from day one, working in
lockstep with first responders and our government partners.
3 Our line maintenance teams were mobilized early in the crisis,
assessing the damage and making necessary repairs.
4 We were honoured to be recognized by the Alberta Emergency
Management Agency for our response in Fort McMurray — an
award made possible entirely by the dedication and courage of
our employees.
ATCO RESPONDS 34
2016 PERFORMANCE
COMMUNITY & INDIGENOUS PARTNERSHIPS
5
“WE STRIVE TO BUILD
AND MAINTAIN SINCERE,
MUTUALLY BENEFICIAL
RELATIONSHIPS
WITH INDIGENOUS
COMMUNITIES BASED
ON RESPECT, TRUST,
UNDERSTANDING AND
Ski Fit North Alberta, led by two-
time Olympic medallist Beckie Scott,
empowers and educates Alberta’s First
Nations and Métis youth through the
power of sport.
4,000
students from 29 communities
participated in the 2015/16
Ski Fit North Alberta Program
35 2016 ATCO ANNUAL REPORT
As a longstanding member of
hundreds of communities around
the world, we place a great deal of
importance on developing meaningful
partnerships based on respect, trust
and a genuine openness to the needs
of our community and Indigenous
partners.
This approach to building lasting
relationships has long been the
hallmark of how we conduct our
business. Over the course of 2016,
we continued to establish important
relationships while helping create
healthy and vibrant communities.
SKI FIT NORTH ALBERTA
Led by two-time Olympic medallist
and Program Director, Beckie Scott,
Ski Fit North Alberta travels to
Indigenous communities throughout
Alberta engaging, empowering and
educating Alberta’s First Nations and
Métis children through the power
of sport. In partnership with Cross
Country Canada and Cross Country
Alberta, Ski Fit North provides a
unique opportunity for Alberta’s
Indigenous youth to experience the
positive impact of outdoor activity,
learn more about the importance of
proper nutrition, and interact with
former Olympic athletes.
Nation to represent their culture and
environment of the Foothills.
EDUCATION PROGRAMS
We are committed to breaking down
employment barriers and creating a
lasting legacy through programs that
encourage mentorship, education
and employment in Indigenous
communities.
Indigenous Education Awards
Our Indigenous Education Awards
Program supports Indigenous
students from First Nations and
Métis communities in close proximity
to our facilities in Alberta. These
awards, bursaries and scholarships
are awarded to students who
demonstrate leadership capabilities
and strive to be role models in their
schools and communities.
In 2016, 29 students from 11 First
Nations and Métis communities were
chosen to receive an award. The
students were enrolled in a range
of programs, including engineering,
biological sciences, arts, commerce
and justice studies. Since the program
was launched in 2011, 161 students
have received financial support from
ATCO to assist in their education.
We also awarded 29 other
scholarships and bursaries to
Indigenous students studying at
NAIT, Keyano College, the University
of Alberta, Aurora College and
community colleges and trade
schools across Canada.
We have had the privilege to serve
as the title sponsor for the program
for the last two years. Involvement
in the program provides us with an
invaluable opportunity to connect
with Indigenous youth in many of
the communities we serve. Beyond
experiencing cross-country skiing, our
ATCO Blue Flame Kitchen enriches
the experience with recipe cards and
tips on how to prepare healthy snacks
at home.
PIIKANI NATION
MULTI-PURPOSE CENTRE
We strive to build and maintain
sincere, mutually beneficial
relationships with Indigenous
communities based on respect, trust,
understanding and transparency. Our
partnership with the Piikani Nation in
southern Alberta, which dates back
nearly 20 years, is one such example.
In 2007, we partnered with the Piikani
Nation on a joint venture to generate
hydroelectric power on the Oldman
River on the Piikani Nation Reserve.
In 2016, we built upon that
longstanding relationship with the
completion of the Piikani Nation
Multi-Purpose Centre.
Hockey has long been a favourite
past-time for the Piikani Nation,
but their previous facility, built in
1977, was no longer functional and
a replacement was sorely needed.
The new 39,000 sq. ft. Sprung
Performance Structure, featuring an
NHL-quality rink and bleacher seating
to accommodate 300 people, was
engineered to withstand extreme
winds and heavy snowfall in the
area. The facility was pre-fabricated
and assembled onsite and designed
using colours chosen by the Piikani
In 2016, we completed
construction on a 39,000 sq. ft.
Multi-Purpose Centre for the
Piikani Nation.
COMMUNITY & INDIGENOUS PARTNERSHIPS 36
The innovative approach
to natural gas safety
delivered through ATCO
Blue Flame Kitchen’s
Schools Program at
our Operations Centre
in Jandakot, Western
Australia, has been
acknowledged with
the highly regarded
Kidsafe Award at the
2016 Western Australian
Department of Commerce
Consumer Protection
Awards.
37 2016 ATCO ANNUAL REPORT
The charitable organizations and
causes that matter the most to
our employees also matter to us.
Our employee-driven fundraising
campaign, ATCO EPIC (Employees
Participating in Communities), plays
a central role in our community
investment efforts by empowering
our people to get involved.
Launched more than a decade ago,
the program leverages the combined
efforts of our employees to create
an outsized positive impact in the
communities where we live and work.
Our employees are encouraged to
donate to the charities of their choice,
and we match all donations to human
health and wellness organizations ―
effectively doubling the support those
organizations receive.
In 2016, in the face of a sustained
economic downturn and continued
pressure on charitable organizations,
our employees stepped up and raised
an astounding $3.3 million, benefiting
more than 500 charities. In 2016, our
employees also gave generously of
their personal time through our ATCO
EPIC Time to Give volunteer program.
Employees volunteered more than
12,000 hours in our communities.
This tremendous show of support
for the hundreds of organizations
working tirelessly to help our
communities thrive, is a point of pride
for our people, and a reminder of the
pervasive nature of our commitment
to our core values.
“When I started with
the ATCO EPIC team, I saw
a passion to give back to
the communities where
we live and work. Our
employees truly want to
give back and truly care
about the communities in
which we live and work. To
work for ATCO, a company
that not only supports that
initiative, but matches their
employees’ contributions, is
something to be proud of.”
Dennis Gilson
Human Resources Business Partner
Structures & Logistics
During the celebration events held in February 2017, $3.3 million was raised by the
company and our people for charitable causes through the 2016 campaign.
COMMUNITY & INDIGENOUS PARTNERSHIPS 38
OUR APPROACH TO
SUSTAINABILITY
39 2016 ATCO ANNUAL REPORT
Our long-term success depends not only
on our ability to deliver value-oriented
solutions for our customers, but to do so in
a sustainable manner. As a global provider
of essential energy and infrastructure
solutions, we have a unique opportunity
to solve challenges for our customers in a
way that benefits the communities in which
we operate, the environment and the
economy.
We also have a responsibility to pursue
improved operational performance and
stewardship within our own operations ―
whether through our relationship with the
environment, protecting the health and
safety of our employees and the public, or
by providing secure and reliable energy for
our customers around the world.
Through a collaborative assessment
process, the four key topics below
have been identified as central to our
sustainability efforts. For detailed
information on how we are performing in
each of these areas, please see our 2016
Sustainability Report, to be released later
this year.
1 ENVIRONMENTAL STEWARDSHIP
Beyond working to minimize environmental
impacts associated with our operations, we
are continuously looking for opportunities
to improve environmental performance on
behalf of the customers and communities
we are privileged to serve.
Climate Change & Energy Use
• A smooth transition to a cleaner energy
future must balance reliability and
affordability. We are actively involved
in innovation and the development of
clean, efficient, and effective energy
solutions, including solar, natural gas and
hydro. We incorporate energy efficiency
considerations into our business
activities, identify areas to improve
both environmental and economic
performance, and work with our
customers to reduce energy demand and
improve energy efficiency.
unique opportunity to solve challenges for our customers in a way that benefits the
“As a global provider of essential energy and infrastructure solutions, we have a
communities in which we operate, the environment and the economy.”
Environmental Compliance
• Our businesses develop and
maintain proactive environmental
management systems, which
provide the framework for
environmental protection, and we
regularly measure our performance
and incorporate learnings into our
project planning and operations.
2 ENERGY STEWARDSHIP
Access to secure, reliable and
affordable energy underpins the
vitality of our communities and
enables economic sustainability.
From meaningfully engaging
with and seeking feedback from
our customers, to developing
and delivering affordable energy
solutions and reliable, integrated
energy infrastructure, we take our
responsibility for energy stewardship
very seriously.
Access & Affordability
• Affordable energy is fundamental
to everything we do. Without it,
our customers cannot sustainably
power their homes, or energize
the facilities that drive economic
growth. We take care to provide
cost-effective products and solutions
to our customers, and advocate
for energy efficiency as a means to
reduce costs.
Customer Satisfaction
• The satisfaction of our customers
has driven our business for 70 years.
Through listening and engagement,
we have a unique opportunity to
develop innovative processes and
technologies to solve challenges
for our customers, as well as
the wider community including
first responders, regulators and
others. We ensure our customers
are able to share feedback on
our performance, and work to
incorporate those learnings into
how we operate.
Security & Reliability
• To ensure a reliable and secure
supply over the long-term, we
must not only maintain existing
infrastructure, but invest in new
and replacement facilities. We
continually evaluate the need
for investment in order to meet
evolving demand for energy in the
communities where we operate.
3 SAFETY
Safety is the first consideration in
everything we do, and ensuring
the continued well-being of our
employees, contractors, customers
and the public is paramount. We
actively engage in numerous public
safety campaigns designed to raise
awareness among customers and the
public of the importance of energy
safety.
Employee Health & Safety
• We strive to continually improve
safety programs with the objective
of providing the awareness, training,
procedures, equipment and follow-
up to ensure active participation
by management and employees.
A positive safety culture supports
innovation and drives positive
change, enabling employees and
contractors to continuously adapt
how they think and act, on and off
the job.
Public Safety & Emergency
Preparedness
• Our focus on safety includes
the customers who use our
products and services, as well
as the public who live and work
near our operations. We maintain
comprehensive emergency
response plans for each of our lines
of business, and actively engage our
customers on safety topics related
to the products and services we
provide.
COMMUNITY &
4 INDIGENOUS RELATIONS
Community and Indigenous relations
demand a long-term approach
that is based on respect, trust and
genuine openness to the needs and
interests of our customers and the
communities where we work and
live. As a longstanding member of
hundreds of communities around
the world, often providing essential
services, we seek to go beyond
simple engagement and work to find
opportunities for partnership and
economic and social development.
Innovation goes beyond technology.
We continue to pioneer new ways
of engaging and collaborating
with communities and our valued
Indigenous partners. Developing
mutually beneficial, long-term
relationships is essential to our
success.
SUSTAINABILITY 40
41 2016 ATCO ANNUAL REPORT
ATCO LTD.
MANAGEMENT’S DISCUSSION
AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2016
This Management’s Discussion and Analysis (MD&A) is meant to help readers understand key operational
and financial events that influenced the results of ATCO Ltd. (ATCO, our, we, or the Company) during the past year.
This MD&A was prepared as of March 2, 2017, and should be read with the Company’s audited consolidated
financial statements for the year ended December 31, 2016 (2016 Annual Financial Statements). Additional
information, including the Company’s Annual Information Form (AIF), is available on SEDAR at www.sedar.com.
The Company is controlled by Sentgraf Enterprises Ltd. and its controlling share owner, the Southern family. The
Company includes controlling positions in Canadian Utilities Limited (52.8 per cent ownership) and in ATCO
Structures & Logistics Ltd. (75.5 per cent ownership). Throughout this MD&A, the Company’s earnings attributable to
Class I and Class II Shares and adjusted earnings are presented after non-controlling interests.
Terms used throughout this MD&A are defined in the Glossary at the end of this document.
ATCO LTD. 2016 MANAGEMENT’S DISCUSSION & ANALYSIS 42
TABLE OF CONTENTS
ATCO ..........................................................................................................................................................................
Company Overview and Operating Environment ................................................................................................
ATCO Core Values and Vision..................................................................................................................................
ATCO Strategies........................................................................................................................................................
Strategic Achievements in 2016 .............................................................................................................................
Strategic Priorities for 2017 ....................................................................................................................................
Performance Overview............................................................................................................................................
Global Business Unit Performance ........................................................................................................................
Structures & Logistics .........................................................................................................................................
Electricity ..............................................................................................................................................................
Pipelines & Liquids..............................................................................................................................................
Corporate & Other ..............................................................................................................................................
Regulatory Developments ......................................................................................................................................
Sustainability, Climate Change and the Environment .........................................................................................
Other Expenses and Income ..................................................................................................................................
Liquidity and Capital Resources .............................................................................................................................
Share Capital ............................................................................................................................................................
Quarterly Information .............................................................................................................................................
Business Risks and Risk Management ..................................................................................................................
Non-GAAP and Additional GAAP Measures ..........................................................................................................
Reconciliation of Adjusted Earnings to Earnings Attributable to Class I and Class II Shares..........................
Reconciliation of Funds Generated by Operations to Cash Flows from Operating Activities.........................
Other Financial Information ...................................................................................................................................
Glossary ....................................................................................................................................................................
Appendix 1 Fourth Quarter Financial Information ..............................................................................................
Page
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43
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
ATCO
TRACK RECORD OF DIVIDEND GROWTH
We have increased our common share dividend every year for the past 24 years, a track record we are very
proud of. On January 12, 2017 we declared a first quarter dividend of 32.75 cents per share or $1.31 per share
on an annualized basis, a 15 per cent increase over the 2016 annualized dividend.
GROWING A HIGH QUALITY EARNINGS BASE
Over the past five years, we have invested nearly $10 billion in Regulated Utility and long-term contracted
operations. The Regulated Utility portion of our total adjusted earnings has grown from 39 per cent in 2011 to
81 per cent in 2016. Our highly contracted and regulated earnings base provides the foundation for continued
dividend growth.
FUTURE CAPITAL INVESTMENT
We will continue to grow our business in the years ahead. In the period 2017 to 2019, we expect to invest
$5 billion in Regulated Utility and long-term contracted assets, which will continue to strengthen ATCO's high
quality earnings base. Of the $5 billion planned spend, $3.8 billion is on Regulated Utilities, and $1.2 billion is on
long-term contracted assets.
FINANCIAL STRENGTH
Financial strength is fundamental to ATCO's current and future success. It ensures we have the financial
capacity to fund our existing and future capital investment. We are committed to maintaining our strong,
investment grade credit ratings, which allow us to access capital at attractive rates.
15%
dividend CAGR
2012 - 2017
81%
regulated
earnings
$5B
3 year capital
investment
A
credit
rating
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 44
COMPANY OVERVIEW AND OPERATING
ENVIRONMENT
ATCO Ltd. is a diversified global enterprise with assets of $20 billion and approximately 7,000 employees
engaged in Structures & Logistics, Electricity, Pipelines & Liquids, and Retail Energy. We carefully monitor market
opportunities and challenges in each of our Global Business Units to best position the Company for long-term
success, while continuing to deliver value to share owners.
The long-term success of ATCO is dependent upon our ability to grow the business by expanding into new
markets and into new business lines. To achieve this, we are expanding our sales and customer focus in all our
activities. At the same time, we continue to pursue cost-savings and efficiencies in every part of our
organization to ensure we deliver the most competitive solutions to our customers.
2016 presented several macroeconomic challenges
for the Company: geopolitical uncertainty, low
global economic growth and weak commodity
prices impacted the business environment in all
the global markets we operate in, but particularly
in Alberta where the majority of our asset base is
located. However, with continued investment in
regulated and long-term contracted assets, a
renewed sales and customer focus in all our
activities, and the pursuit of cost-savings in every
part of our organization, ATCO achieved strong
earnings of $360 million in 2016.
While 2017 poses some of the same geopolitical and macroeconomic challenges, there is less uncertainty in a
few areas. Regulatory decisions received in 2016 mean we have much better clarity on the business
environment for all of our utilities; this is discussed in more detail in the Regulatory Developments section of
this MD&A. Announcements from the Government of Alberta on Electricity Market Reform and further clarity on
the Climate Leadership Plan address some of the questions about the power market; these are discussed in
more detail in the Electricity section, and the Sustainability, Climate Change and Environment section of this
MD&A.
45
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
STRUCTURES & LOGISTICS
The Structures & Logistics Global Business Unit is made up of four diversified, complementary businesses to
meet the needs of our customers and communities around the world: Modular Structures, Logistics and Facility
Operations & Maintenance Services, Lodging & Support Services and Sustainable Communities. Together these
businesses offer workforce housing, innovative modular facilities, construction, site support services, and
logistics and operations management.
BUSINESS STRATEGY
Structures & Logistics' business strategy is to grow a stable base of earnings through its customer service-
related segments, while continuing to pursue business-wide cost reduction initiatives to increase its competitive
position on project-related activity.
MARKET OPPORTUNITIES
The anticipated future expansion of the LNG market, particularly in
the U.S. and Canada, is expected to result in increased development
of gas reserves requiring innovative modular facilities, remote
workforce housing and site support services. Non-traditional modular
markets such as public education facilities, high density urban
residential housing and correctional facilities offer additional
development opportunities.
MARKET CHALLENGES
The global economic slow-down in natural resource-based economies
has continued to result in decreased private sector capital investment
programs, and increased competition for major modular structures
projects.
ELECTRICITY
The Electricity Global Business Unit's activities are conducted through two regulated businesses; ATCO Electric
Distribution and ATCO Electric Transmission, and three non-regulated businesses; ATCO Power, ATCO Power
Australia and Alberta PowerLine (APL). Together these companies provide electricity distribution, transmission,
and generation, and related infrastructure services.
BUSINESS STRATEGY
Electricity's strategy is to grow its businesses through continued investment and leverage of expertise in
regulated electricity distribution and transmission, capitalize on the opportunity to provide renewable and firm
supply electricity generation for Albertans, and expand its businesses geographically to meet the evolving needs
of our global customer base through the development of innovative infrastructure solutions.
MARKET OPPORTUNITIES
The Government of Alberta's plan to eliminate emissions from
coal-fired power generation by 2030 has created a need for
renewable power generation and firm capacity, such as gas-fired and
hydroelectric power generation, as well as energy storage, to
backstop the renewable power supply. Additional electricity
distribution and transmission investment opportunities may result
from this changing power market in addition to ongoing investment
opportunities for customer growth and system replacements.
MARKET CHALLENGES
Near term, power market challenges related to the Alberta energy-
only market put downward pressure on market pricing until surplus
supply and additional clarity on market design are resolved.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 46
PIPELINES & LIQUIDS
The Pipelines & Liquids Global Business Unit activities are conducted through three regulated businesses; ATCO
Gas, ATCO Pipelines, and ATCO Gas Australia, and one non-regulated business; ATCO Energy Solutions. These
companies offer complementary products and services that enable them to deliver comprehensive natural gas
distribution and transmission services, energy storage, and industrial water solutions to existing and new
customers.
BUSINESS STRATEGY
Pipelines & Liquids' strategy is to grow its businesses through continued investment and leverage of expertise
in regulated natural gas distribution and transmission, and utilize its advantaged position in the Industrial
Heartland of Alberta to become a premier hydrocarbon liquids storage and industrial water infrastructure
provider in Alberta. Pipelines & Liquids will continue expanding geographically to meet the evolving needs of
our global customer base.
MARKET OPPORTUNITIES
The development of pipelines in Alberta is expected to increase the
need for energy storage to manage supply and demand, and the
industry trend toward sustainability is expected to increase demand
for industrial water solutions. The regulated businesses expect to
see continued growth based on projected customer growth and
system replacements.
MARKET CHALLENGES
Potential changes in macroeconomic conditions could slow the
growth trajectory of these businesses.
47
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
SIMPLIFIED ORGANIZATIONAL STRUCTURE
(1) ATCOenergy was launched in January 2016 to provide retail, commercial and industrial electricity and natural gas service in Alberta.
(2) Regulated operations include ATCO Gas, ATCO Pipelines, ATCO Gas Australia, ATCO Electric Distribution, and ATCO Electric Transmission.
The consolidated financial statements include the accounts of ATCO Ltd., including a proportionate share of
joint venture investments. Principal subsidiaries are Canadian Utilities Limited (Canadian Utilities), of which
ATCO Ltd. owns 52.8 per cent (38.9 per cent of the Class A non-voting shares and 89.3 per cent of the Class B
common shares), and ATCO Structures & Logistics Ltd., of which ATCO Ltd. owns 75.5 per cent of the Common
Shares.
The consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS) and the reporting currency is the Canadian dollar. Certain comparative figures throughout this
MD&A have been reclassified to conform to the current presentation.
ATCO’s website, www.atco.com, is a valuable source for the latest news of the Company’s activities. Prior years’
reports are also available on this website.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 48
ATCO CORE VALUES AND VISION
EXCELLENCE: THE HEART & MIND OF ATCO
"Going far beyond the call of duty. Doing more than others expect.
This is what excellence is all about. It comes from striving, maintaining the highest
standards, looking after the smallest detail and going the extra mile. Excellence means
caring. It means making a special effort to do more."
R.D. Southern, Founder, ATCO
CORE VALUES
It is ATCO’s Heart and Mind that drives the Company’s approach to service reliability and product quality;
employee, contractor and public safety; and environmental stewardship.
Our pursuit of excellence governs the way we act and make decisions. At ATCO we strive to live by the following
values:
•
•
•
Integrity: We are honest, ethical and treat others with fairness, dignity and respect.
Transparency: We are clear about our
intentions and communicate openly.
Entrepreneurship: We are creative,
innovative and take a measured approach
to opportunities, balanced with a long-
term perspective.
• Accountability: We make good decisions,
take personal ownership of tasks, are
responsible for our actions and deliver on
our commitments.
•
•
•
Collaboration: We work together, share
ideas and recognize the contribution of
others.
Perseverance: We persevere in the face of
adversity with courage, a positive attitude
and a fierce determination to succeed.
Caring: We care about our customers, our
employees, their families, our
communities and the environment.
49
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
CORE VISION
Our core vision is to improve the lives of our customers by providing sustainable, innovative and
comprehensive solutions globally. We believe in well-managed risk and a disciplined approach to growth. We
fuel the imagination of our people to drive growth over the long-term, ultimately delivering value to our
customers and our share owners.
Our strong financial and operating performance reflects our approach to sales and our customers, the strength
and determination of our people, a deeply embedded focus on operational excellence with its inherent cost
controls, and careful consideration of the environmental and social impact of our actions - now and for the
future.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 50
ATCO STRATEGIES
Growth and financial strength are the pivotal
strategies employed to build our enterprise. The
long-term success of the Company is dependent on
our ability to grow our business by expanding into
new markets and business lines while offering our
customers complete services and products to meet
their needs.
These strategic imperatives are supported by the
Company's commitment to innovation and
operational excellence. We are also committed to
engaging with our employees throughout their
careers and to helping create healthy, vibrant
communities in which the Company does business
and in which our people live and work.
"Making life easier for our customers by offering vertically integrated
infrastructure solutions around the world."
GROWTH
Long-term sustainable growth is paramount. The Company approaches this strategy by: expanding
geographically to meet the global needs of customers; developing significant, value-creating greenfield projects;
and fostering continuous improvement and innovation through research and development.
The ongoing exploration of opportunities to acquire assets provides the Company with additional growth
potential. The Company will pursue the acquisition and development of complementary assets that have future
growth potential and provide long-term value for share owners.
FINANCIAL STRENGTH
Financial strength is fundamental to the Company’s current and future success. It ensures the Company has the
financial capacity to fund existing and future capital investments through a combination of predictable cash
flow from operations, cash balances on hand, committed credit facilities and access to capital markets. It
enables the Company to sustain its operations and to grow through economic cycles, thereby providing long-
term financial benefits.
The Company continuously reviews its holdings to evaluate opportunities to sell mature assets and redeploy the
proceeds into growing areas of the Company. The viability of such opportunities depends on the outlook of
each business as well as general market conditions. This ongoing focus supports the optimal allocation of
capital across the Company.
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ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
INNOVATION
The Company seeks to create a work environment where employees are encouraged to take a creative and
innovative approach to meeting our customers' needs. By committing to continuous improvement through
research and development, the Company is able to offer our customers unique and imaginative solutions that
differentiate us from our competitors.
OPERATIONAL EXCELLENCE
The Company approaches operational excellence by achieving high service, reliability, and product quality for
our customers and the communities we serve. We are uncompromising about maintaining a safe work
environment for employees and contractors, promoting public safety and striving to minimize environmental
impact. We have long range plans for ensuring timely supply of goods and services that are critical to a
company's ability to meet its core business objectives.
COMMUNITY INVOLVEMENT
ATCO maintains a respectful and collaborative community approach, where meaningful partnerships and
positive relationships are built with community leaders and groups that will enhance economic and social
development. Community investment involves developing partnerships with Indigenous and community groups
that may be affected by projects and operations worldwide, and building ongoing, positive Indigenous
relationships that contribute to economic and social development in their communities. The Company also
engages with governing authorities, regulatory bodies, and landowners. We encourage partnerships throughout
the organization and at all levels that will serve to benefit non-profit organizations through volunteer efforts,
providing products and services in-kind, and general advice where required.
FURTHER COMMENTARY REGARDING STRATEGIES AND COMMITMENTS
ATCO’s financial and operational achievements in 2016 relative to the strategies outlined above are included in
the Company's MD&A, 2016 Annual Financial Statements and AIF. Further commentary regarding strategies and
commitments to growth, financial strength, innovation, operational excellence, and community involvement will
be provided in the forthcoming 2016 Annual Report, Management Proxy Circular and Sustainability Report. The
2016 Management Proxy Circular also contains discussion of the Company's corporate governance practices.
ATCO’s website, www.atco.com, is a valuable source for the latest news of the Company’s activities. Prior years’
reports are also available on this website.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 52
STRATEGIC ACHIEVEMENTS IN 2016
In 2016, ATCO achieved a number of notable successes in the Structures & Logistics, Electricity and Pipelines &
Liquids Global Business Units in support of each of our principal strategic imperatives.
GROWTH
STRUCTURES & LOGISTICS BUSINESS UNIT
Wheatstone Project
In the first quarter of 2016, Structures & Logistics completed the Wheatstone modular project in Western
Australia. The total value for Structures & Logistics' scope of work was AUD $384 million.
Chile Acquisition
In the second quarter of 2016, Structures & Logistics announced that it was expanding its international modular
structures business by investing $25 million in Sabinco Soluciones Modulares S.A. (Sabinco) for a 50 per cent
ownership interest. The new company operates under the name ATCO-Sabinco S.A.
Site C Clean Energy Workforce Housing Project
In the third quarter of 2016, Structures & Logistics completed the manufacture and install phase of the
1,600-bed workforce housing facility for workers constructing the Site C Clean Energy Project on the Peace River
in northeast British Columbia. Structures & Logistics is also providing a full suite of lodge-related services
including catering, janitorial, maintenance, medical and fire protection until 2022. The total value for Structures
& Logistics' scope of work is $470 million.
LNG Modular Structures Project
In the third quarter of 2016, Structures & Logistics completed the manufacturing of the 462 unit, 1,900 person
workforce housing facility at a major LNG project near Lake Charles, Louisiana. Under the terms of the
agreement, the new workforce housing units will be leased for a 29 month period which commenced in January
2016. At the end of the lease term, the units will be returned to the Company's fleet, thereby expanding its
footprint in the U.S. market.
ELECTRICITY BUSINESS UNIT
Capital Investment in Regulated Utilities
In 2016, the Electricity Business Unit invested $470 million in assets that earn a return under a regulated
business model. This capital was invested mainly in new customer connections and system replacements.
Fort McMurray West 500-kilovolt (kV) Transmission Project (Fort McMurray 500 kV Project)
In December 2014, APL, a partnership between ATCO's subsidiary, Canadian Utilities Limited, and Quanta
Capital Solutions Inc., was awarded a 35-year, $1.4 billion contract by the AESO to design, build, own, and
operate the Fort McMurray 500 kV Project. In December 2015, APL submitted the Facilities Application for the
project to the AUC. The public hearing was completed in November 2016 and a decision approving the route
was received in the first quarter of 2017. The design and planning phases are underway and construction is
expected to commence in 2017. The project is anticipated to be in service in 2019.
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ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
Distributed Generation
Distributed generation aligns with the Company's
strategy of taking a creative and innovative
approach to meeting our customers' needs by
building a fleet of portable natural gas-fired units
that can be deployed for temporary or permanent
projects. In the first quarter of 2016, ATCO Power
signed a 10-year contract to build and operate a
two unit, 3 MW natural-gas fired units located
southeast of Grande Prairie, Alberta with a capital
investment of $8 million. In the fourth quarter of
2016, the Company and its Mexican partner, Grupo
Ranman, completed the first phase of a distributed
generation facility located in the World Trade
Centre industrial park in San Luis Potosí,
Mexico. Two 2 MW natural gas-fired units were
installed to service initial customers. ATCO Power
plans to expand this facility to up to 20 MW by
December 2017.
Strathcona Cogeneration Plant
In September 2016, Inter Pipeline Ltd. acquired the shares of The Williams Companies Inc.’s and Williams
Partners L.P’s Canadian businesses, including Williams Canada Propylene ULC (now Inter Pipeline Propylene
ULC following a name change). ATCO Power has been selected by Inter Pipeline Propylene ULC to build and
operate a natural gas-fired cogeneration plant to meet the high pressure steam and electricity needs of Inter
Pipeline Propylene ULC’s proposed propane dehydrogenation facility to be located in the Alberta Industrial
Heartland region. ATCO's proposed 90 MW cogeneration plant is contingent on Inter Pipeline Ltd.’s Final
Investment Decision for the facility. ATCO received its AUC approvals for the cogeneration plant in September
2016.
PIPELINES & LIQUIDS BUSINESS UNIT
Capital Investment in Regulated Utilities
In 2016, the Pipelines & Liquids Business Unit invested $678 million in assets that earn a return under a
regulated business model. This capital was invested mainly in the Urban Pipelines Replacement program, the
Mains Replacement Programs, new customer connections and system replacements.
Urban Pipelines Replacement Program
Construction continued on ATCO Pipelines' AUC-approved UPR program in 2016. Construction will continue
until 2020 and the total cost of the UPR program is estimated to be $850 million, which includes the cost to
integrate the new high-pressure network with ATCO Gas' low-pressure distribution system. In 2016, ATCO Gas
and ATCO Pipelines invested $185 million in the UPR program. The program will replace and relocate aging,
high-pressure natural gas pipelines in densely populated areas of Calgary and Edmonton to address safety,
reliability and future growth.
Mains Replacement Programs
ATCO Gas has 8,000 kms of plastic pipe and 9,000 kms of steel pipe that have been identified for replacement.
The Plastic Mains Replacement program is a 20-year program aimed at replacing polyvinyl chloride (PVC) and
early generation polyethylene (PE) pipe. The Steel Mains Replacement program replaces steel pipe that is
generally more than 60 years old. In 2016, ATCO Gas replaced 242 kms of plastic pipe, and 41 kms of steel pipe.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 54
Hydrocarbon Storage
ATCO Energy Solutions, together with our partner, is developing four salt caverns with capacity to store
approximately 400,000 cubic metres of hydrocarbons at the ATCO Heartland Energy Centre near Fort
Saskatchewan, Alberta. Long-term contracts have been secured for all four salt caverns. The total partnership
investment is approximately $200 million. ATCO Energy Solutions is the facility operator and has a 60 per cent
partnership interest.
Construction of the first two caverns is complete and operations are underway with earnings starting in the
fourth quarter of 2016. Construction of the two remaining caverns is expected to be complete by the end of
2017. As ATCO Energy Solutions secures additional customers and develops the supporting infrastructure, the
Company has the potential to develop up to 40 caverns with the mineral rights it currently has in place in
Alberta’s Industrial Heartland.
Industrial Water
In the fourth quarter of 2015, ATCO Energy Solutions entered into a long-term commercial agreement with Air
Products Canada Ltd. (Air Products) to provide water pre-treatment services in addition to the existing water
transportation services contract for Air Products' hydrogen facility near Fort Saskatchewan. Construction on this
project was completed, and commercial operations commenced in the fourth quarter of 2016.
RETAIL ENERGY
As part of the Company's continued growth strategy, ATCOenergy was launched in January 2016, selling
electricity and natural gas to residential and small commercial customers. ATCOenergy is a logical step in the
vertically integrated growth of the Company.
ATCOenergy is comprised of three business lines: ATCOhome, ATCObusiness and the ATCO Blue Flame
Kitchen. ATCOhome intends to be a preeminent retailer of electricity and natural gas by leveraging the strength
of the ATCO brand with a compelling value proposition that includes sign-up incentives, loyalty rewards,
competitive rates and flexible plans for customers. ATCObusiness sells electricity and natural gas to large
commercial retail customers. ATCO Blue Flame Kitchen, which has a long history in Alberta spanning more than
eight decades, was integrated with ATCOenergy in 2016.
FINANCIAL STRENGTH
Cost Management
ATCO is taking a focused and disciplined approach
to pursuing cost-savings and efficiencies in every
part of the organization to ensure we deliver the
most competitive solutions to our customers. ATCO
achieved a 19 per cent reduction in operating costs
in 2016 compared to the previous year. Lower
operating costs were one of the primary reasons
for improved earnings in 2016.
Capital Redeployment
The Company continuously reviews opportunities to divest non-core assets. In the first quarter of 2016, ATCO
Energy Solutions sold its 51.3 per cent ownership in the Edmonton Ethane Extraction Plant. The $21 million of
proceeds from the sale were deployed for continued capital growth in industrial water infrastructure and
hydrocarbon storage in Alberta's Industrial Heartland region.
55
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
Debt Issuance
In November 2016, the Company's subsidiary, CU Inc., issued $375 million of 3.763 per cent debentures
maturing on November 19, 2046. Proceeds from these issuances were used to fund significant capital
investments, to repay existing indebtedness, and for other general corporate purposes of the Alberta Utilities.
Credit Ratings
The Company has maintained strong investment grade credit ratings, which allow access to capital markets at
competitive rates. In 2016, Standard & Poor's Rating Services affirmed its "A" with a negative outlook corporate
credit rating for ATCO Ltd. and its subsidiaries Canadian Utilities Limited and CU Inc. In August 2016, DBRS
Limited (DBRS) affirmed its rating for the Company as "A" (low) with a stable trend.
INNOVATION
Coal to Gas Conversion
In November 2016, ATCO announced it will work with the Government of Alberta on the conversion of coal-fired
power generation to natural gas. This initiative is part of a broader transition in the province to cleaner sources
of electricity while ensuring these measures support affordable, reliable and sustainable energy for all
Albertans.
Solar
In October 2016, ATCO announced the energization of Western Canada’s largest off-grid solar project, located at
the Saddle Hills Telecommunication Site northwest of Grande Prairie. This groundbreaking system is capable of
generating 75 kilowatts and storing 250 kilowatt hours of energy, and will provide 100 per cent of the power
required at the remote site, which is an integral part of ATCO’s telecommunications network.
This solar project is the latest in a growing suite of
clean and innovative solutions offered by the
Company. The launch of ATCOenergy in January
2016, brought more choice to Albertans, including
green energy options for its customers.
ATCOenergy customers can choose either
25 per cent or 100 per cent of their electricity to
come from renewable sources. ATCO also
continues to explore a range of renewable and low-
carbon energy technologies for residential and
business customers.
In Australia, ATCO began a new research and development project that combines the reliability of our natural
gas network with renewable energy technologies including battery storage and rooftop solar panels. The initial
stage of the GasSola project has seen nine homes with rooftop solar panels in the City of Busselton, in Western
Australia’s southwest region, equipped with a natural gas-fired generator, battery technology and a
communications system.
The project seeks to demonstrate how natural gas and scalable hybrid technology in both residential and
commercial market segments can assist in providing firm generation to support renewables, ultimately
increasing energy security and potentially reducing the need for costly electricity network upgrades in
constrained parts of the power network.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 56
Energy Efficiency
In 2016, ATCO worked with PCL Construction and Ivanhoe Cambridge to utilize natural gas for construction heat
and power generation at the new 500,000 sq. ft. outlet mall near Edmonton’s International Airport. ATCO
installed natural gas lines prior to the building being erected to fuel natural gas space heaters and a natural gas
power generator for use during construction.
The use of natural gas, as opposed to propane or diesel, to provide heat and power during residential and
commercial construction offers our customers a number of benefits, including significantly reduced fuel costs,
lower labour costs and lower greenhouse gas emissions. ATCO continues to work with other builders and
developers to pilot similar projects on multi-family and commercial sites.
Micro Combined Heat & Power
We are helping our customers reduce emissions and operating costs with Micro Combined Heat & Power (CHP)
technology, using onsite natural gas to efficiently generate heat and electricity. In 2016, we invested more than
$225,000 into a pilot program involving several Alberta homes and a natural gas regulating station to determine
the viability of this new potential service offering. We are also investigating the effectiveness of integrating solar
panels and batteries for use in isolated locations without access to the grid.
With a micro CHP unit, customers can economically meet their heat and electricity needs while reducing
greenhouse gas emissions by 50 per cent to 55 per cent.
Water Treatment
ATCO is developing the industrial water treatment
infrastructure to provide treated water through a
multi-user water system to customers throughout
Alberta’s Industrial Heartland, near Edmonton.
With treated water delivered directly to their
facility, customers benefit from substantially
improved industrial water quality and can free up
land on their sites previously dedicated to water
treatment.
By allowing customers to connect to an integrated
single system, ATCO’s multi-user system provides
several environmental benefits including reducing
the number of intake points required on the river
and providing the ability to capture and reuse
treated wastewater from customer operations.
OPERATIONAL EXCELLENCE
Generating Plant Availability
ATCO Power continued its solid performance of providing industry leading, reliable, responsible and cost-
effective solutions for our customers and partners around the world in 2016. Generating plant availability was
more than 90 per cent with minimal unplanned outages.
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ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
Maintenance Overhaul
The Osborne Cogeneration facility in Adelaide, Australia underwent the most significant overhaul of its gas and
steam turbines and generators since being commissioned in 1998. The predominantly outdoor facility
experienced some of the wettest and windiest conditions on record, which when combined with a ‘system black’
event in South Australia that disabled the entire state’s electricity grid, the operational expertise of our team
was critical. The team persevered, and after a total of 50,000 man-hours, completed the seven-week overhaul
allowing Osborne to re-synchronize to the national electricity grid and again supply its critical base-load power
to South Australian consumers.
Customer Response
In May 2016, a sudden cold snap dropped 20 inches of snow onto the Peace Country region of northwestern
Alberta. With heavy snowfall and broken trees damaging many kilometres of power line, 11,000 customers in
17 of our Northern Alberta service areas were without power. ATCO Incident Command Centres were opened in
Grande Prairie, Peace River and Slave Lake and local crews worked around the clock for three days to remove
downed trees and repair lines to restore power to our customers.
Also in May, ATCO crews went above and beyond during the Fort McMurray wildfires to protect property in the
community and keep important electricity services running so that firefighters could keep the flames at bay. For
weeks, our employees worked in dangerous conditions, including dense smoke and heat, to repair and
maintain damaged critical electrical infrastructure. Within a month of the largest evacuation and the most
devastating fire in Canadian history, ATCO had restored service to Fort McMurray without a single lost-time
safety incident.
In January 2017, the Edison Electric Institute (EEI), a trade association representing all North American owned
electric companies, presented ATCO with an Emergency Recovery Award, recognizing the tremendous response
of our employees working together during the 2016 Fort McMurray wildfire. The EEI’s Emergency Recovery
Awards recognizes “companies that faced difficult circumstances caused by extraordinary events” and that put
forth “an outstanding effort to restore service to the public”.
Health and Safety
Safety is the first consideration in everything we do. We strive to continually improve our safety programs with
the objective of providing the awareness, training, procedures, equipment and follow-up to drive our “zero
injury” culture. Since we launched our Sustainability Report in 2008, employee lost-time and reportable injury
rates have declined substantially, largely due to a focus on continuous improvement, visible commitment and
active participation by management and employees, and increased sharing of lessons learned. ATCO compares
favourably with the lost-time injury rate for Alberta Occupational Health and Safety.
In May 2016, Structures & Logistics was recognized by Bechtel for safety performance on the Chevron-operated
Wheatstone LNG project in Western Australia. With approximately 200 employees on-site at any one time, the
Structures & Logistics team maintained focus and worked to execute safely and on-time for the project. The
performance evaluation criteria include environmental safety and health, labour and employee relations,
schedule, cost and quality.
In November 2016, Structures & Logistics' Camp Services team celebrated a safety milestone of achieving five
million man-hours without a lost-time incident.
In September 2016, ATCO Pipeline's employees reached 14 consecutive years without a lost-time incident. This
remarkable accomplishment is a credit to ATCO's ongoing efforts and focus in this area.
A more detailed report on the Company's Health and Safety performance will be provided in our Sustainability
Report which is expected to be published in May 2017.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 58
COMMUNITY INVOLVEMENT
Building and Sustaining Positive Indigenous Relationships
ATCO has more than 40 joint-venture partnerships, Memorandums of Understanding and other relationships
with Indigenous communities. Some of our Indigenous partnerships are celebrating more than 25 years of
working together.
In 2016, ATCO's Sustainable Communities completed the construction of a Multi-Purpose Centre, featuring an
NHL size hockey rink, for the Piikani Nation of Alberta to provide the local community with a new hub to meet,
play, and thrive.
In 2016, once again ATCO was the title sponsor of Ski Fit North Alberta (SFNA), bringing fun and fitness to
Indigenous youth through cross-country skiing. In partnership with Cross Country Canada and Cross Country
Alberta, SFNA provides a unique opportunity for Alberta’s Indigenous youth to experience the positive impact of
outdoor activity, learn more about the importance of proper nutrition, and interact with former Olympic
athletes.
ATCO EPIC - Employees Participating in Communities
This internationally acclaimed program gives employees the opportunity to contribute to charitable
organizations in the communities where they live and work. The administration of the employee-led campaign
is funded by ATCO, ensuring 100 per cent of employee donations go towards employees’ charities of choice.
ATCO honors employees’ generosity by matching
their charitable donations made to health and
wellness organizations. In 2016, ATCO EPIC donated
$3.6 million to more than 800 charities, and ATCO
employees volunteered more than 12,000 hours to
make our communities better places to work and
live. Over the past 10 years, the ATCO EPIC program
has raised more than $31 million.
Indigenous Education Awards
Donated
$3.6 million
in 2016
In 2016, ATCO's Indigenous Education Awards Program supported 30 students from 11 First Nations and Métis
communities by providing awards, bursaries and scholarships to students who demonstrated leadership
capabilities and strived to be role models in their schools and communities. Since the program was launched in
2011, 161 students have received financial support from ATCO to assist in their education. ATCO also awarded
29 other scholarships and bursaries to Indigenous students studying at NAIT, Keyano College, the University of
Alberta, Aurora College and community colleges and trade schools across Canada.
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ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
STRATEGIC PRIORITIES FOR 2017
GROWTH
In 2017, ATCO intends to invest $1.8 billion in capital growth opportunities across our Regulated Utilities and in
long-term contracted operations. This capital investment is expected to contribute significant earnings and cash
flow and create long-term value for share owners.
FINANCIAL STRENGTH
Maintaining our strong financial position enables the Company to sustain its operations and to grow through
economic cycles, thereby providing long-term financial benefits to our share owners. This is particularly
important with today’s weaker global economic conditions. Our “A” credit ratings are fundamental to our
current and future success. It ensures the Company has the financial capacity to fund our existing and future
capital investments through access to capital markets at attractive rates.
INNOVATION
ATCO will continue to explore new technologies and ways of delivering energy to our customers. The Company's
research and development focus will underpin its success in the years ahead through continuous improvement
of existing products and services as well as exploring and testing new products and methods of delivery to meet
our customers' future needs. For example, ATCO will work with the Government of Alberta on the conversion of
coal-fired power generation to natural gas, the exploration of hydro generation potential in Alberta, and the
development of Alberta’s new capacity power market.
OPERATIONAL EXCELLENCE
ATCO approaches operational excellence by achieving high service, reliability, and product quality for our
customers and the communities we serve. The Company is uncompromising about maintaining a safe work
environment for employees and contractors, promoting public safety and striving to minimize environmental
impacts. We will focus on continually improving our safety programs and achieving lost-time injury rates that
compare favourably with Alberta Occupational Health and Safety rates.
In late 2015, the Company initiated an organizational transformation to streamline and gain operational
efficiencies. These transformation initiatives have created tangible benefits and will provide a competitive
advantage for the organization and cost effective solutions for our customers. ATCO will continue to look for
opportunities for improved productivity.
COMMUNITY INVOLVEMENT
ATCO will continue to build on and sustain positive Indigenous relationships through ongoing communication
and mutual sharing of interests and ways of working together to contribute to economic and social
development in their communities.
We encourage partnerships throughout the organization to benefit non-profit organizations through volunteer
efforts, providing products and services in-kind, and general advice where required. ATCO will continue to
administer the employee-led ATCO EPIC campaign to give employees the opportunity to contribute to charitable
organizations in the communities in which they live and work.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 60
CAPITAL INVESTMENT PLANS
In the 2017 to 2019 period, ATCO expects to invest an additional $5 billion in Regulated Utility and commercially
secured capital growth projects. This capital investment is expected to contribute significant earnings and cash
flow and create long-term value for share owners.
This three year plan includes $3.8 billion of planned capital investment in the Regulated Utilities. ATCO Electric
Distribution and ATCO Electric Transmission are planning to invest $1.8 billion, and ATCO Gas, ATCO Pipelines
and ATCO Gas Australia are planning to invest $2 billion from 2017 to 2019.
In addition to capital investments in the Regulated Utilities, the Company intends to invest a further $1.2 billion
in long-term contracted capital from 2017 to 2019 in the APL Fort McMurray 500 kV Project and contracted
hydrocarbon storage and distributed generation in Alberta. ATCO also continues to pursue various business
development opportunities with long-term potential, such as the Tula cogeneration power plant in Mexico and
the Strathcona cogeneration power plant in Alberta, which are not included in these capital growth investment
estimates.
Future Regulated Utility and Contracted Capital Investment
* Includes the Company's proportionate share of investment in partnership interests and cash used for service concession arrangements.
61
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
PERFORMANCE OVERVIEW
FINANCIAL METRICS
The following chart summarizes key financial metrics associated with the Company’s financial performance.
($ millions, except per share data and outstanding shares)
2016
2015
2014
Year Ended
December 31
Key Financial Metrics
Adjusted earnings (1)
Structures & Logistics
Electricity
Pipelines & Liquids
Corporate & Other
Intersegment Eliminations
Earnings attributable to Class I and Class II Shares
Revenues
Total assets
Long-term debt
Class I and Class II Share owners' equity
Cash dividends declared per Class I and Class II Share (cents per share)
Capital investment (1)
Funds generated by operations (1)
Other Financial Metrics
Weighted average Class I and Class II Shares outstanding (thousands):
Basic
Diluted
360
43
213
136
(33)
1
340
4,045
19,724
8,318
3,546
1.14
1,609
1,912
293
27
171
101
(7)
1
154
4,131
19,055
8,055
3,356
0.99
1,919
1,589
374
67
195
106
11
(5)
420
4,554
17,689
7,383
3,168
0.86
2,391
1,786
114,411
114,832
114,848
114,846
115,300
115,462
(1) Additional information regarding these measures is provided in the Non-GAAP and Additional GAAP Measures section.
ADJUSTED EARNINGS
The Company's adjusted earnings for 2016 were $360 million, an increase of $67 million compared to 2015. The
primary drivers of earnings results were as follows:
•
•
•
•
Structures & Logistics - Higher adjusted earnings in 2016 were mainly due to Modular Structures major
project activity, increased occupancy levels in the Lodging business and business-wide cost reduction
initiatives.
Electricity - Higher adjusted earnings in 2016 were mainly due to continued capital investment and
growth in rate base within Regulated Electricity and business-wide cost reduction initiatives.
Pipelines & Liquids - Higher adjusted earnings in 2016 were primarily due to continued capital
investment and growth in rate base within the Regulated Pipelines & Liquids businesses and business-
wide cost reduction initiatives.
Corporate & Other - Lower earnings were primarily attributable to dividend costs associated with
Canadian Utilities' preferred share issuances in the second half of 2015 and higher business
development expenses.
Additional details on the financial performance of the Company's Business Units are discussed in the Global
Business Unit Performance section of this MD&A.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 62
EARNINGS ATTRIBUTABLE TO CLASS I AND CLASS II SHARES
Earnings attributable to Class I and Class II Shares were $340 million in 2016, $186 million higher compared to
2015 mainly due to continued capital investment and growth in rate base in the Regulated Utilities and
business-wide cost reduction initiatives. Earnings attributable to Class I and Class II Shares includes timing
adjustments related to rate-regulated activities that are not included in adjusted earnings.
More information on these and other items is included in the Reconciliation of Adjusted Earnings to Earnings
Attributable to Class I and Class II Shares section of this MD&A.
REVENUES
In 2016, revenues of $4,045 million were $86 million
lower when compared to 2015.
Higher revenues from the Regulated Utilities and APL
were offset by lower revenues in Structures &
Logistics and ATCO Energy Solutions, primarily due to
decreased Modular Structures project activity and
forgone revenues due to the sale of both the
Emissions Management business and several of ATCO
Energy Solutions' gas processing facilities in late 2015
and early 2016.
ASSETS, DEBT & EQUITY
The Company’s total assets, long-term debt and
Class I and Class II Share owners’ equity reflect the
significant growth achieved during 2016 and how that
growth was financed. Total assets grew from
$19 billion at the beginning of 2016 to $20 billion at
year end. That growth occurred mainly in the Alberta
Utilities as a result of significant capital investment.
Class I and Class II Share owners’ equity increased
over the prior year mainly as a result of 2016
earnings, partially offset by higher dividends paid to
share owners.
COMMON SHARE DIVIDENDS
In 2016, the Board of Directors increased the
quarterly dividends paid per Class I and Class II Share
for the four quarters of 2016 from 24.75 cents per
share to 28.50 cents per share, an increase of 15 per
cent over 2015. Dividends paid to Class I and Class II
Share owners totaled $131 million in 2016.
On January 12, 2017, the Board of Directors declared
a first quarter dividend of 32.75 cents per share. This
represents a 15 per cent increase over the quarterly
dividends declared in 2016. ATCO has increased its
common share dividend each year since 1993. In
each of the last six years, the Company has increased
its quarterly dividend by 15 per cent.
63
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
CAPITAL INVESTMENT
Capital investment includes additions to property,
plant and equipment, intangibles, capital
expenditures in joint ventures and service concession
arrangements. Total capital investment in the fourth
quarter and full year of 2016 were $467 million and
$1,609 million.
Capital spending in the Company's Regulated Utilities
and on long-term contracted capital assets accounted
for $399 million of capital spending in the fourth
quarter and $1,384 million in the full year of 2016.
These investments either earn a return under a
regulatory business model or are under commercially
secured long-term contracts.
The remaining expenditures were mainly related to
the Company's purchase of the remaining 49 per cent
of Barking Power Limited (Barking) in the first quarter
of 2016 and an investment in Sabinco for a
50 per cent ownership interest, which was completed
in the second quarter of 2016. Sabinco's established
presence in Chile provides a strong foundation for
expansion, with potential growth opportunities in
other South American markets.
FUNDS GENERATED BY OPERATIONS
Funds generated by operations in 2016 were
$1,912 million, compared to $1,589 million in 2015.
Continued capital investment and growth in rate base
in the Company's Regulated Utilities, and business-
wide cost reduction initiatives led to higher funds
generated by operations.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 64
GLOBAL BUSINESS UNIT PERFORMANCE
REVENUES
In the fourth quarter and full year of 2016, revenues in Structures & Logistics were lower than the same periods
in 2015 by $150 million and $222 million. Lower revenues were mainly due to decreased Modular Structures
project activity, as well as forgone revenues due to the sale of the Emissions Management business in the
fourth quarter of 2015.
ADJUSTED EARNINGS
($ millions)
Modular Structures
Logistics and Facility O&M Services
Lodging & Support Services
Other (1)
Total Structures & Logistics Adjusted Earnings
Three Months Ended
December 31
Year Ended
December 31
2016
2015
Change
2016
2015
Change
14
1
—
(9)
6
17
2
—
(6)
13
(3)
(1)
—
(3)
(7)
52
10
6
(25)
43
44
10
(4)
(23)
27
8
—
10
(2)
16
(1) Other includes financial results for Sustainable Communities and Structures & Logistics’ corporate office. Emissions Management was sold in the
fourth quarter of 2015 and is included in the 2015 results.
Adjusted earnings achieved by Structures & Logistics in the fourth quarter of 2016 were $7 million lower
compared to the same period of 2015. Lower adjusted earnings were due primarily to lower Modular Structures
major project activity.
Adjusted earnings for the full year of 2016 were $16 million higher than 2015. This increase was primarily due
to higher profit margins on Modular Structures major project activity, increased occupancy levels in the Lodging
business, and business-wide cost reduction initiatives. Partially offsetting these increases were lower Space
Rentals and Workforce Housing utilizations and lower Space Rental rates, and forgone earnings due to the sale
of the Emissions Management business in the fourth quarter of 2015.
Detailed information about the activities and financial results of Structures & Logistics' businesses is provided in
the following sections.
MODULAR STRUCTURES
Modular Structures manufactures, sells and leases transportable workforce housing and space rental products.
Space Rentals sells and leases mobile office trailers in various sizes and floor plans to suit customers’ needs.
Workforce Housing delivers modular workforce housing worldwide, including short-term and permanent
modular camps, pre-fabricated and relocatable modular buildings.
65
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
Adjusted earnings in the fourth quarter of 2016 were lower than in the same period of 2015 by $3 million.
Lower adjusted earnings were due mainly to lower project activity resulting primarily from the completion of
the Wheatstone project in the first quarter of 2016 and the BC Hydro Site C Clean Energy project in the third
quarter of 2016, and were partially offset by increased earnings relating to the LNG Modular Structures project,
which commenced in the first quarter of 2016.
For the full year of 2016 adjusted earnings were $8 million higher than 2015. Higher adjusted earnings were
primarily due to the BC Hydro Site C Clean Energy project which commenced in the third quarter of 2015 and
the LNG Modular Structures project which commenced in the first quarter of 2016, as well as cost reduction
initiatives. Partially offsetting these increases were the completion of the Wheatstone project in the first quarter
of 2016, and lower Space Rental and Workforce Housing fleet utilizations and lower Space Rental rental rates.
Major Structures & Logistics Project Updates
Wheatstone Project
In the first quarter of 2016, Structures & Logistics completed the Wheatstone modular project in Western
Australia. The total value for Structures & Logistics' scope of work was AUD $384 million.
Chile Acquisition
In the second quarter of 2016, ATCO announced that it was expanding its international modular structures
business by investing $25 million in Sabinco for a 50 per cent ownership interest. Sitrans Servicios Integrados de
Tranportes Ltda. retained 50 per cent ownership of the company, which now operates under the name ATCO-
Sabinco S.A.
Headquartered in Santiago, Chile, ATCO-Sabinco S.A.'s fleet of space rental and workforce housing units
accounts for approximately 10 per cent of the Chilean market. ATCO-Sabinco S.A.'s established presence in Chile
also provides a strong foundation upon which the partnership can expand, with potential growth opportunities
in other South American markets.
Site C Clean Energy Workforce Housing Project
In the third quarter of 2016, Structures & Logistics
completed the manufacture and install phase of
the 1,600 person workforce housing facility for
workers constructing the Site C Clean Energy
Project on the Peace River in northeast British
Columbia. Structures & Logistics is also providing a
full suite of lodge-related services including
catering, janitorial, maintenance, medical and fire
protection until 2022. The total value for Structures
& Logistics' scope of work over the term of the
contract is $470 million. The earnings from the
lodge-related services are being recorded in the
Lodging & Support Services business.
LNG Modular Structures Project
In the third quarter of 2016, Structures & Logistics completed manufacturing 462 modular units. The installation
and customer turnover of all the manufactured units occurred in the fourth quarter of 2016. This work was
done under a contract to design, construct, transport, install and rent the modular units at a major LNG project
near Lake Charles, Louisiana. The units are being used to provide sleeping accommodation for 1,900 persons,
kitchen and dining facilities, and a recreation centre.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 66
Under the terms of the agreement, the new
workforce housing units are being leased for a 29
month period which commenced in January 2016.
At the end of the lease term, the units will be
returned to the Company's fleet, thereby
expanding its footprint in the U.S. market. The
earnings from this contract are being recorded as
workforce housing rental income in the Modular
Structures business.
Rental Fleet Statistics
The following table compares Structures & Logistics’ manufacturing hours and rental fleet for the quarter and
year ended December 31, 2016 and 2015.
North America
Manufacturing hours (thousands)
34
246
(86%)
564
571
(1%)
Three Months Ended
December 31
Year Ended
December 31
2016
2015
Change
2016
2015
Change
Global Space Rentals
Number of units
Average utilization (%)
Average rental rate ($ per month)
Global Workforce Housing
Number of units
Average utilization (%)
Average rental rate ($ per month)
13,629
13,302
2% 13,629
13,302
65
455
64
549
1%
(17%)
64
500
68
576
4,974
3,354
32
35
2,580
1,465
48%
(3%)
76%
4,974
3,354
38
51
1,962
1,805
2%
(4%)
(13%)
48%
(13%)
9%
Decreased manufacturing hours in the fourth quarter of 2016 were mainly attributable to the completion of
major project activity at the Site C project. The decrease in the Workforce Housing and Space Rental utilization
and Space Rental rates was due to overall weakened demand from customers whose business activity is
exposed to commodity price declines. The change in the Workforce Housing units and rental rates is mainly due
to the LNG Modular Structures Project, additions to the Australian rental fleet and additions from the
acquisition of the 50 per cent interest in ATCO-Sabinco S.A.
LOGISTICS AND FACILITY O&M SERVICES
The Logistics and Facility O&M Services division delivers facilities operations and maintenance services,
including end-to-end supply chain management, to clients in the resources, defense and telecommunications
sectors.
Adjusted earnings for the fourth quarter and full year of 2016 were comparable to the same periods of 2015.
The Company continues to pursue and bid on project opportunities to provide Logistics and Facility O&M
Services.
LODGING & SUPPORT SERVICES
The Lodging & Support Services division provides lodging, catering, waste management, and maintenance
services to meet the demands of major, remote resource projects.
Adjusted earnings for the fourth of 2016 were comparable to the same period in 2015. Adjusted earnings for
the full year of 2016 were $10 million higher when compared to the same period of 2015. Higher earnings were
primarily attributable to higher occupancy levels at Structures & Logistics' lodges, the mobilization of the main
camp at the BC Hydro Site C Clean Energy Workforce Housing project, and cost reduction initiatives.
67
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
REVENUES
Electricity revenues of $551 million in the fourth quarter and $1,877 million for the full year of 2016 were
$87 million and $106 million higher when compared to the same periods of 2015.
Higher revenues in the fourth quarter of 2016 were mainly due to revenue recorded for APL. Higher 2016
revenues in Regulated Electricity were attributable to growth in rate base and revenue recorded for APL,
partially offset by lower revenues in ATCO Power due to lower Alberta Power Pool prices.
ADJUSTED EARNINGS
($ millions)
2016
2015
Change
2016
2015
Change
Three Months Ended
December 31
Year Ended
December 31
Regulated Electricity
ATCO Electric Distribution
ATCO Electric Transmission
Total Regulated Electricity Adjusted Earnings
Non-regulated Electricity
ATCO Power
Independent Power Plants
Thermal PPAs
ATCO Power Australia
Alberta PowerLine
Total Non-regulated Electricity Adjusted Earnings
Total Electricity Adjusted Earnings
15
26
41
8
6
1
2
17
58
12
11
23
1
7
2
—
10
33
3
15
18
7
(1)
(1)
2
7
25
69
100
169
15
19
8
2
44
213
50
82
132
7
22
10
—
39
171
19
18
37
8
(3)
(2)
2
5
42
In fourth quarter and full year of 2016, adjusted earnings generated by Electricity of $58 million and
$213 million were $25 million and $42 million higher than in the fourth quarter and full year of 2015. Higher
earnings were primarily due to continued capital investment and growth in rate base within Regulated
Electricity and business-wide cost reduction initiatives.
Detailed information about the activities and financial results of Electricity's businesses is provided in the
following sections.
REGULATED ELECTRICITY
Our Regulated Electricity activities are conducted by ATCO Electric Distribution and ATCO Electric Transmission
and their subsidiaries, ATCO Electric Yukon, Northland Utilities (NWT) and Northland Utilities (Yellowknife).
These businesses provide regulated electricity distribution, transmission and distributed generation mainly in
northern and central east Alberta, the Yukon and the Northwest Territories. The service territory includes the oil
sands areas near Fort McMurray and the heavy oil areas near Cold Lake and Peace River.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 68
Electricity Distribution
ATCO Electric Distribution’s adjusted earnings of $15 million in the fourth quarter and $69 million in the full year
of 2016 were $3 million and $19 million higher when compared to the same periods of 2015. Higher earnings
resulted primarily from growth in rate base, business-wide cost reduction initiatives and the adverse earnings
impact associated with the Generic Cost of Capital (GCOC) and Capital Tracker regulatory decisions received in
2015.
Electricity Transmission
ATCO Electric Transmission's adjusted earnings of $26 million in the fourth quarter and $100 million in the full
year of 2016 were $15 million and $18 million higher when compared to the same periods of 2015. Higher
earnings resulted primarily from growth in rate base, business-wide cost reduction initiatives, and the adverse
impact associated with the GCOC regulatory decision received in 2015, partially offset by the impact of the ATCO
Electric Transmission GTA decision received in August 2016.
NON-REGULATED ELECTRICITY
Our non-regulated electricity activities are conducted by ATCO Power, ATCO Power Australia and Alberta
PowerLine. These businesses supply electricity from natural gas, coal-fired and hydroelectric generating plants
in western Canada, Ontario, Australia and Mexico and non-regulated electricity transmission in Alberta.
Generating Plant Availability
Generating availability for the quarter and year ended December 31, 2016 and 2015 is shown in the table
below. Generating plant capacity fluctuates with the timing and duration of outages. Generating availability
remained strong with a combined availability of 92 per cent in 2016 and minimal unplanned outages.
Independent Power Plants availability was lower in the fourth quarter and full year of 2016. Lower availability in
the fourth quarter was primarily due to planned minor outages at the Cory, Muskeg, Scotford, and Battle River
unit 3 plants. There was also a higher frequency of outages at the Rainbow plant due to planned capital project
work during the quarter. The lower availability for the year was primarily due to planned major outages at the
Joffre facility in 2016.
Thermal PPA Plant availability was higher in 2016 compared to 2015, mainly due to the planned major outage at
Battle River unit 5 in the second quarter of 2015.
Lower availability in ATCO Power Australia in the fourth quarter and full year 2016 was mainly due to the
planned major outage at the Osborne Cogeneration facility.
Independent Power Plants
Thermal PPA Plants
ATCO Power Australia
Independent Power Plants
Three Months Ended
December 31
Year Ended
December 31
2016
2015
Change
2016
2015
Change
93%
99%
64%
96%
95%
99%
(3%)
4%
(35%)
92%
95%
88%
95%
88%
98%
(3%)
7%
(10%)
Adjusted earnings generated by Independent Power Plants in the fourth quarter and full year of 2016 were $7
million and $8 million higher than the same periods in 2015. Higher earnings were due to higher forwards sales
as well as lower expenses due to cost-savings initiatives, partially offset by lower Alberta Pool Prices and spark
spreads.
69
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
Average Alberta Power Pool and natural gas prices and the resulting spark spreads for the quarter and year
ended December 31, 2016 and 2015 are shown in the table below.
Three Months Ended
December 31
Year Ended
December 31
2016
2015
Change
2016
2015
Change
Average Alberta Power Pool electricity price ($/MWh)
22.03
21.19
Average natural gas price ($/GJ)
Average spark spread ($/MWh)
2.94
(0.02)
2.35
3.56
4%
25%
(101%)
18.28
2.06
2.84
33.34
2.56
14.14
(45%)
(20%)
(80%)
Lower Alberta Power Pool prices and reduced price volatility in the full year of 2016 were primarily attributable
to an increased supply of electricity and lower demand in the Alberta market compared to 2015. The transition
to the current low price environment occurred in the fourth quarter of 2015. Alberta Power Pool prices for the
fourth quarter of 2016 were comparable to the same period in 2015; however, natural gas prices were higher,
resulting in a lower spark spread.
Thermal PPAs
The electricity generated by the Battle River unit 5 and Sheerness plants is sold through PPAs. Under the PPAs,
ATCO Power must make the generating capacity for each generating unit available to the PPA purchaser of that
unit. These arrangements entitle ATCO Power to recover its forecast fixed and variable costs from the PPA
purchaser. Under the terms of the PPAs, ATCO Power is subject to an incentive related to the generating unit
availability. Incentives are payable by the PPA counterparties for availability in excess of predetermined targets.
These amounts are amortized based on estimates of future generating unit availability and future electricity
prices over the term of the PPAs.
Fourth quarter and full year 2016 adjusted earnings from the Thermal PPAs were $1 million and $3 million
lower than the same periods in 2015, primarily due to higher fourth quarter 2015 earnings resulting from the
amortization of accumulated incentives associated with the PPAs, partly offset by lower maintenance expenses
and cost reduction initiatives in 2016.
International Power Generation
The Company's international power generation activities are conducted by ATCO Power Australia. This business
supplies electricity from two natural gas-fired generation plants in Adelaide, South Australia, and Karratha,
Western Australia. Additionally, the Bulwer Island cogeneration plant in Brisbane formerly provided electricity
and steam. As a result of British Petroleum's (BP) announcement to close its Brisbane oil refinery in mid-2015,
the Bulwer Island plant was closed on June 23, 2015.
ATCO Power Australia's adjusted earnings of $1 million in the fourth quarter and $8 million in the full year of
2016 were $1 million and $2 million lower than the same periods in 2015, primarily due to the closure of the
Bulwer Island plant at the end of the second quarter of 2015 and a planned maintenance outage at the
Osborne generating plant in the second half of 2016.
Alberta PowerLine
APL's adjusted earnings were $2 million higher in the fourth quarter and full year of 2016 when compared to
the same periods in 2015. The Fort McMurray 500 kV Project has been accounted for as a service concession
arrangement under IFRS because the AESO controls the output of the transmission facilities as a part of the
greater Alberta network and the ownership of the transmission facilities will transfer to the AESO at the end of
the service agreement. Under a service concession arrangement, revenues and costs relating to the design,
planning and construction phases of the project are recognized based on a percentage of completion, and
revenues and costs relating to the operating phase will be recognized as the service is rendered. The accounting
for APL is discussed further in Note 15 of the Company's 2016 Annual Financial Statements.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 70
Major Electricity Project Updates
Alberta PowerLine Fort McMurray 500 kV Project
In December 2014, APL was awarded a 35-year, $1.4 billion contract by the AESO to design, build, own, and
operate the Fort McMurray 500 kV Project. This project will increase the capacity of the electricity system in
northeast Alberta and help to ensure that this economically vital area of the province has the power it needs.
In December 2015, APL submitted the Facilities Application for the project to the AUC. The public hearing was
completed in November 2016 and a decision approving the route was received in the first quarter of 2017. The
design and planning phases are underway and construction is expected to commence in 2017. The project is
anticipated to be in service in 2019.
Distributed Generation
In 2016, ATCO Power continued to advance distributed generation projects in Alberta and Mexico. Distributed
generation aligns with the Company's strategy of taking a creative and innovative approach to meeting our
customers' needs by building a fleet of portable natural gas-fired units that can be deployed for temporary or
permanent projects.
In the first quarter of 2016, ATCO Power signed a
10-year contract to build and operate a two unit,
3 MW natural gas-fired units located southeast of
Grande Prairie, Alberta with a capital investment of
$8 million. In the fourth quarter of 2016, the
Company and its Mexican partner, Grupo Ranman,
completed the first phase of a distributed
generation facility located in the World Trade
Centre industrial park in San Luis Potosí,
Mexico. Two 2 MW natural gas-fired units were
installed to service initial customers. ATCO Power
plans to expand this facility to up to 20 MW by
December 2017.
Mexico Tula Cogeneration
In October 2014, the Company and its Mexican partner, Grupo Hermes S.A. de C.V., were selected by PMX
Cogeneracion S.A.P.I. de C.V., an affiliate of Mexico's state-owned petroleum company Pemex, to commence the
project development and approval process for a natural gas cogeneration plant at the Miguel Hidalgo refinery
near the town of Tula in the state of Hidalgo, Mexico.
During 2015 and 2016, ATCO and Grupo Hermes worked with Pemex to further the development of the plant.
Commercial discussions continue with Pemex, who remains committed to the project and to working with ATCO
and Grupo Hermes.
71
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
Strathcona Cogeneration Plant
In September 2016, Inter Pipeline Ltd. acquired the shares of The Williams Companies Inc.’s and Williams
Partners L.P’s Canadian businesses, including Williams Canada Propylene ULC (now Inter Pipeline Propylene
ULC following a name change). ATCO Power has been selected by Inter Pipeline Propylene ULC to build and
operate a natural gas-fired cogeneration plant to meet the high pressure steam and electricity needs of Inter
Pipeline Propylene ULC’s proposed propane dehydrogenation facility to be located in the Alberta Industrial
Heartland region. In December 2016, the Government of Alberta announced that Inter Pipeline's project would
receive $200 million in royalty credits through the Petrochemical Diversification Program. ATCO's proposed 90
MW cogeneration plant is contingent on Inter Pipeline Ltd.’s final investment decision for the facility, which is
expected during the second quarter of 2017. ATCO received its AUC approvals for the cogeneration plant on
September 28, 2016.
Alberta Electricity Market Reform
On November 23, 2016, the Government of Alberta announced its intention to change the existing energy-only
electricity market to a capacity market in 2021. A capacity market includes a market component for the
provision of capacity, or the ability to produce electricity, in addition to the market for the production of
electricity. The Government of Alberta indicated that it will work closely with industry, consumer groups and
other stakeholders to establish the framework and implement the capacity market by 2021.
In the near-term, ATCO will assess the economic viability of converting some of its coal-fired electricity
generation to natural gas which will include participating in the development of greenhouse gas regulations for
natural gas-fired electricity generation. In addition, ATCO will work alongside the Government of Alberta in
exploring the potential of hydroelectric power as a means to provide reliable, emissions-free baseload
generation in the province. Hydro, as the only form of renewable energy generation with dispatch control, is an
optimal solution to replace coal-fired generation while supporting the reliability and sustainability of Alberta's
electricity grid.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 72
REVENUES
Pipelines & Liquids revenues of $454 million in the fourth quarter of 2016 were $42 million higher compared to
the same period of 2015 mainly due to continued capital investment and growth in rate base.
Revenues of $1,496 million in 2016 were $29 million lower when compared to 2015. Revenues were lower
mainly due to the divestiture and closure of several gas processing facilities in ATCO Energy Solutions in late
2015 and early 2016, partially offset by increased revenues in Regulated Pipelines & Liquids mainly due to
growth in rate base.
ADJUSTED EARNINGS
($ millions)
Regulated Pipelines & Liquids
ATCO Gas
ATCO Pipelines
ATCO Gas Australia
Total Regulated Pipelines & Liquids Adjusted Earnings
Non-regulated Pipelines & Liquids
ATCO Energy Solutions
Total Pipelines & Liquids Adjusted Earnings
Three Months Ended
December 31
Year Ended
December 31
2016
2015
Change
2016
2015
Change
26
7
4
37
7
44
27
6
4
37
8
45
(1)
1
—
—
(1)
(1)
65
31
27
123
13
136
56
22
15
93
8
101
9
9
12
30
5
35
Pipelines & Liquids' adjusted earnings of $44 million in the fourth quarter of 2016 were comparable to the same
period of 2015. Adjusted earnings of $136 million in 2016 were $35 million higher than 2015. Higher adjusted
earnings were primarily due to continued capital investment and growth in rate base and business-wide cost
reduction initiatives.
Detailed information about the activities and financial results of Pipelines & Liquid's businesses is provided in
the following sections.
73
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
REGULATED PIPELINES & LIQUIDS
Natural Gas Distribution
Our natural gas distribution activities throughout Alberta and in the Lloydminster area of Saskatchewan are
conducted by ATCO Gas. It services municipal, residential, business and industrial customers.
ATCO Gas' adjusted earnings of $26 million in the fourth quarter of 2016 were $1 million lower when compared
to the same period in 2015, primarily due to higher operations and maintenance costs in the quarter. Earnings
of $65 million in the full year of 2016 were $9 million higher when compared to the same period of 2015. Higher
earnings resulted primarily from growth in rate base and customers, business-wide cost reduction initiatives
and the adverse earnings impact associated with the GCOC and Capital Tracker regulatory decisions received in
the first quarter of 2015.
Natural Gas Transmission
Our natural gas transmission activities in Alberta are conducted by ATCO Pipelines. This business receives
natural gas on its pipeline system at various gas processing plants as well as from other natural gas
transmission systems and transports it to end users within the province or to other pipeline systems, primarily
for export out of the province.
ATCO Pipelines' adjusted earnings of $7 million in the fourth quarter and $31 million in the full year of 2016
were $1 million and $9 million higher when compared to the same periods of 2015. Higher earnings were
primarily due to growth in rate base and the adverse earnings impact associated with the GCOC decision
received in the first quarter of 2015.
International Natural Gas Distribution
ATCO Gas Australia is part of our international natural gas distribution activities. It is a regulated provider of
natural gas distribution services in Western Australia, serving metropolitan Perth and surrounding regions.
ATCO Gas Australia's adjusted earnings of $4 million in the fourth quarter of 2016 were comparable to the same
period in 2015. Earnings of $27 million in the full year of 2016 were $12 million higher when compared to the
same period of 2015. Higher earnings were primarily attributable to the impact of the Access Arrangement
regulatory decision received in the second quarter of 2015 and the appeal decision received in the second
quarter of 2016, continued growth in rate base and business-wide cost reduction initiatives.
NON-REGULATED PIPELINES & LIQUIDS
Storage & Industrial Water
Our industrial water services and non-regulated natural gas and hydrocarbon storage, processing and
transmission activities are conducted by ATCO Energy Solutions.
ATCO Energy Solution's adjusted earnings of $7 million in the fourth quarter of 2016 were lower when
compared to the same period in 2015. Decreased earnings were primarily due to higher sales of excess natural
gas in 2015, partially offset by higher demand and prices for storage services, and earnings contributions from
the commencement of additional industrial water and hydrocarbon storage projects.
Adjusted earnings of $13 million in the full year of 2016 were $5 million higher than in 2015. Increased earnings
were primarily due to higher demand and prices for storage services, earnings contributions from the
commencement of additional industrial water and hydrocarbon storage projects in late 2015 and 2016 and
business-wide cost reductions, partially offset by higher sales of excess natural gas in 2015.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 74
Major Pipelines & Liquids Project Updates
Urban Pipelines Replacement Program
Construction continued on ATCO Pipelines' AUC-approved UPR program in 2016. Construction will continue
until 2020 and the total cost of the UPR program is estimated to be $850 million, which includes the cost to
integrate the new high-pressure network with ATCO Gas' low-pressure distribution system. In 2016, ATCO Gas
and ATCO Pipelines invested $185 million in the UPR program. The program will replace and relocate aging,
high-pressure natural gas pipelines in densely populated areas of Calgary and Edmonton to address safety,
reliability and future growth.
Mains Replacement Programs
ATCO Gas has 8,000 kms of plastic pipe and 9,000 kms of steel pipe that have been identified for replacement.
The Plastic Mains Replacement program is a 20-year program aimed at replacing polyvinyl chloride (PVC) and
early generation polyethylene (PE) pipe. The Steel Mains Replacement program replaces steel pipe that is
generally more than 60 years old. In 2016, ATCO Gas replaced 242 kms of plastic pipe, and 41 kms of steel pipe.
Hydrocarbon Storage
ATCO Energy Solutions, together with our partner,
is developing four salt caverns with capacity to
store approximately 400,000 cubic metres of
hydrocarbons at the ATCO Heartland Energy Centre
near Fort Saskatchewan, Alberta. Long-term
contracts have been secured for all four salt
caverns. The total partnership investment is
approximately $200 million. ATCO Energy Solutions
is the facility operator and has a 60 per cent
partnership interest.
Construction of the first two caverns is complete
and operations are underway with earnings
contributions commencing in the fourth quarter of
2016. Construction of the two remaining caverns is
expected to be complete by the end of 2017.
Industrial Water
Through the ATCO Heartland Industrial Water System, ATCO Energy Solutions’ multi-user water system
connected to the North Saskatchewan River, ATCO provides integrated water services including pipeline
transportation, water treatment, recycling and disposal to industrial customers. This industrial water system
also supplies water for the development of salt caverns for the Company’s hydrocarbon storage facilities in the
region. The Company's river intake system and modern pump station facility has the capacity to withdraw 3,550
cubic metres per hour, with a current deliverability of 1,300 cubic metres per hour.
In the fourth quarter of 2015, ATCO Energy Solutions entered into a long-term commercial agreement with Air
Products to provide water pre-treatment services in addition to the existing water transportation services
contract for Air Products' hydrogen facility near Fort Saskatchewan. Construction on this project was completed,
and commercial operations commenced in the fourth quarter of 2016. With the addition of this service, ATCO
Energy Solutions has the potential to further grow the Company’s suite of water and wastewater services for
industrial customers throughout Alberta’s Industrial Heartland.
75
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
Capital Redeployment
In the first quarter of 2016, ATCO Energy Solutions sold its 51.3 per cent ownership in the Edmonton Ethane
Extraction Plant. Proceeds of the sale totaled $21 million. The proceeds from the sale will be deployed for
continued capital growth in industrial water infrastructure and hydrocarbon storage in Alberta's Industrial
Heartland region.
International Natural Gas Transmission - Mexico Tula Pipeline
In 2014, ATCO signed a 25-year Transportation Services Agreement with the Comisión Federal de Electricidad
(CFE) to design, build and operate a 16 km natural gas pipeline near the town of Tula in the state of Hidalgo,
Mexico. ATCO has completed the majority of construction and continues to work with the Government of
Mexico regarding land access and the completion of construction.
Corporate & Other
The Corporate & Other segment includes the recent launch of retail energy through ATCOenergy to provide
retail electricity and natural gas services in Alberta, the commercial real estate owned by the Company in
Alberta, and the strategic investment and expansion into Mexico. Corporate & Other also includes the
Company's global corporate head office in Calgary, Canada and ATCO Australia's corporate head office in Perth,
Western Australia.
Corporate & Other adjusted earnings in the fourth quarter and full year of 2016 were lower when compared to
the same periods in 2015. Lower earnings were primarily due to dividend costs associated with Canadian
Utilities' preferred share issuances in the second half of 2015 and ATCOenergy business development expenses.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 76
REGULATORY DEVELOPMENTS
REGULATED BUSINESS MODELS
The business operations of ATCO Electric Distribution, ATCO Electric Transmission, ATCO Gas and ATCO Pipelines
are regulated mainly by the AUC. The AUC administers acts and regulations covering such matters as rates,
financing and service area.
The transmission operations of ATCO Pipelines and ATCO Electric Transmission operate under a cost of service
regulation. Under this model, the regulator establishes the revenues needed for a fair return on utility
investment using mid-year calculations of the total investment less depreciation, otherwise known as Mid-Year
Rate Base. Growth in Mid-Year Rate Base is a leading indicator of the business' earnings trend, depending on
the equity ratio of the Mid-Year Rate Base and the Rate of Return on Common Equity.
The distribution operations of ATCO Gas and ATCO Electric Distribution operate under performance based
regulation (PBR). Under PBR, revenue is determined by a formula that adjusts customer rates for inflation and
expected productivity improvements. The AUC reviews the utilities' results annually to ensure the rate of return
on common equity is within certain upper and lower boundaries. To do these calculations, the AUC reviews Mid-
Year Rate Base. For this reason, growth in Mid-Year Rate Base can be a leading indicator of the business'
earnings trend, depending on the ability of the business to maintain costs based mainly on the formula that
adjusts rates for inflation and productivity improvements.
ATCO Gas Australia is regulated mainly by the Economic Regulation Authority (ERA) of Western Australia. ATCO
Gas Australia operates under cost of service regulation under which the ERA establishes the revenues for each
year to recover a return on projected Mid-Year Rate Base, including income taxes, depreciation on the projected
rate base, and projected operating costs. For this reason, growth in Mid-Year Rate Base can be a leading
indicator of the business' earnings trend, depending on the ability of the business to maintain costs within
approved limits along with several other annual adjustments.
Further discussion of these regulations is discussed in the Company's Annual Information Form in the
Government Regulation section.
Regulated Utilities Mid-Year Rate Base
* COS means Cost of Service Regulation; PBR means Performance Based Regulation
77
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
Generic Cost of Capital (GCOC)
In October 2016, the Company received the AUC 2016 GCOC decision. The decision established the return on
equity (ROE) and deemed common equity ratios for the Alberta Utilities for 2016 and 2017. The approved ROE
and common equity ratios for 2017 will remain in place on an interim basis for 2018 and for subsequent years
until changed by the AUC. For ATCO Electric Distribution and ATCO Gas, the 2016 GCOC decision only applies to
incremental capital funding and does not apply to the base PBR formula. Based on the changes to the approved
ROE and common equity ratios, the net impact is expected to be an improvement to 2017 adjusted earnings for
ATCO, mainly due to the increase in the approved ROE and common equity ratio for ATCO Electric Transmission.
The following table compares the ROE and deemed common equity ratios resulting from the 2013 and 2016
GCOC decisions. The information reflects the most recent amending or varying orders issued after the original
decision date.
Year
AUC Decision
Rate of Return
on Common
Equity (%) (1)
Common
Equity
Ratio (%) (2)
Mid-Year
Rate Base
($ millions)
ATCO Electric Distribution
ATCO Electric Transmission
ATCO Gas
ATCO Pipelines
2017
2016
2015
2014
2017
2016
2015
2014
2017
2016
2015
2014
2017
2016
2015
2014
2016 GCOC (3)
2016 GCOC (3)
2013 GCOC (4)
2013 GCOC (4)
2016 GCOC (3)
2016 GCOC (3)
2013 GCOC (4)
2013 GCOC (4)
2016 GCOC (3)
2016 GCOC (3)
2013 GCOC (4)
2013 GCOC (4)
2016 GCOC (3)
2016 GCOC (3)
2013 GCOC (4)
2013 GCOC (4)
8.50
8.30
8.30
8.30
8.50 (5)
8.30 (5)
8.30
8.30
8.50
8.30
8.30
8.30
8.50
8.30
8.30
8.30
37.0
37.0
38.0
38.0
37.0
37.0
36.0
36.0
37.0
37.0
38.0
38.0
37.0
37.0
37.0
37.0
—
2,315 (6)
2,130 (7)
1,949
—
5,218 (8)
5,198 (9)
4,413
—
2,352 (10)
2,145 (11)
1,988
—
1,263 (12)
1,144
979
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Rate of return on common equity is the rate of return on the portion of rate base considered to be financed by common equity.
The common equity ratio is the portion of rate base considered to be financed by common equity.
The AUC released its GCOC decision for the periods 2016 to 2017 on October 7, 2016.
The ROE and common equity ratio were based on the last AUC GCOC decision of March 23, 2015.
The ROE and common equity ratio for ATCO Electric Transmission were approved on an interim basis on October 7, 2016, and were approved on a
final basis on December 16, 2016.
The mid-year rate base forecast for 2016 is based of the 2016-2017 Capital Tracker Compliance application filed on April 14, 2016.
The mid-year rate base for 2015 is based on the Rule 005 Actuals Package filed on May 2, 2016.
The mid-year rate base forecast for 2016 is based of the 2015-2017 GTA Compliance application filed on December 14, 2016.
The mid-year rate base for 2015 is based on the Rule 005 Actuals Package filed on May 2, 2016.
(10) The mid-year rate base forecast for 2016 is based on the 2016 forecast included in the 2016-2017 Capital Tracker Compliance Application filed on
May 12, 2016.
(11) The mid-year rate base for 2015 is based on the Rule 005 Actuals Package filed on May 16, 2016.
(12) The mid-year rate base for 2016 is from the 2017/2018 General Rate Application (GRA) filed September 22, 2016.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 78
NEXT GENERATION OF PERFORMANCE BASED REGULATION (PBR 2)
On December 16, 2016, the AUC released its decision on the second generation of PBR plan framework for
electricity and natural gas distribution utilities in Alberta. Under the 2018 to 2022 second generation PBR
framework, utility rates will continue to be adjusted by a formula that estimates inflation annually and assumes
productivity improvements. The framework also contains modified provisions for supplemental funding of
capital expenditures that are not recovered as part of the base inflation less productivity formula. Regulatory
applications to determine going-in rates will be filed by March 31, 2017. This decision does not apply to the
transmission operations of ATCO Electric and ATCO Pipelines; these continue to be regulated under Cost of
Service regulation.
The following table compares the key aspects of the PBR First Generation with the PBR Second Generation
based on the AUC's December 16, 2016 decision.
PBR First Generation
PBR Second Generation
Timeframe
Inflation Adjuster
(I Factor)
2013 to 2017
Inflation indexes (AWE and CPI)
adjusted annually
Productivity Adjuster
(X Factor)
1.16%
2018 to 2022
Unchanged
0.30%
O&M
Based on approved 2012 forecast
O&M levels; inflated by I-X
thereafter over the PBR term
Based on the lowest annual actual O&M
level during 2013-2016, adjusted for
anomalies, inflation and growth to 2017
dollars; inflated by I-X thereafter over the
PBR term
Treatment of Capital
Expenditures
• Recovered through going-in rates
• Recovered through going-in rates inflated
inflated by I-X
• Significant capital expenditures
not fully recovered by the I-X
formula and meeting certain
criteria recovered through a K
Factor
ROE Used for Going-in
Rates
8.75%
Efficiency Carry-over
Mechanism (ECM)
Reopener
ECM up to 0.5% additional ROE for
the years 2018 and 2019 based on
certain criteria
+/- 300 bps of the approved ROE
for two consecutive years or +/- 500
bps of the approved ROE for any
single year
by I-X and a K Bar that is based on
inflation adjusted average historical
capital expenditures for the period
2013-2016
• Significant capital expenditures that are
extraordinary, not previously incurred and
required by a third party recovered
through a “Type I” K Factor
• 8.5%
• + 0.5% ROE ECM achieved from PBR First
Generation added to 2018 and 2019
ECM up to 0.5% additional ROE for the years
2023 and 2024 based on certain criteria
Unchanged
ROE Used for Reopener
Calculation
2013 to 2016: 8.3%
2017: 8.5%
2018 approved ROE (once known) and
approved rates thereafter
79
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
ATCO Electric Transmission 2015 to 2017 General Tariff Application (GTA)
In March 2015, ATCO Electric Transmission filed a general tariff application for its operations for 2015, 2016 and
2017. The application requested, among other things, additional revenues to recover higher financing,
depreciation and operating costs associated with growth in rate base in Alberta. In August 2016, the AUC issued
a decision on the GTA with final rates that were lower than the approved interim rates from 2015 mainly due to
lower approved O&M and G&A costs. The impact of this decision was a reduction to 2016 adjusted earnings of
$10 million of which $6 million relates to 2016 and $4 million relates to 2015.
PBR Capital Tracker Applications
The Capital Tracker is a mechanism included in the 2013-2017 PBR regulatory model to allow the Company to
recover capital investments that meet certain criteria and are not recoverable through the base PBR formula.
The decisions for the 2014 Capital Tracker true-up and the 2016-2017 Capital Tracker applications were received
by ATCO Electric Distribution in March 2016 and ATCO Gas in April 2016. These decisions included approval of
incremental funding for the majority of the Company's applied-for forecast Capital Tracker programs for 2016
and 2017.
ATCO Gas Australia Access Arrangement Decision
In July 2015, the Western Australia Economic Regulation Authority (ERA) released its Final Decision for ATCO Gas
Australia's next Access Arrangement period (AA4) from July 2014 to December 2019. The Australian Competition
Tribunal (ACT) decision resulted in a reduced utility ROE from 10.41 per cent (AA3) to 7.21 per cent (AA4).
ATCO Gas Australia lodged an Appeal Application with the ACT on October 1, 2015 seeking leave to appeal a
number of key items, including, but not limited to, ROE and the recovery of operating expenses, depreciation
and corporate income tax expenses. The ACT decision was received in July 2016 resulting in an increase of
approximately $3 million to 2016 adjusted earnings mainly due to an improvement in the recoverability of
certain expenses.
The following table compares the ROE and deemed common equity ratios resulting from the 2016 ERA
Amended Final Decision.
ATCO Gas Australia
Year
ERA Decision
2016
2015
2014
2016 AA4 (3)
2016 AA4 (3)
2016 AA4 (3)
Mid-Year
Rate Base
($ millions)
Rate of Return
on Common
Equity (%) (1)
Common
Equity
Ratio (%) (2)
1,111
1,083
953
7.21
7.21
8.81
40.0
40.0
40.0
(1)
(2)
(3)
Rate of return on common equity is the rate of return on the portion of rate base considered to be financed by common equity.
The common equity ratio is the portion of rate base considered to be financed by common equity.
The ERA released its AA4 Amended Final Decision on September 10, 2015. This was superseded when the ERA released its AA4 Revised Final
Decision on October 25, 2016.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 80
SUSTAINABILITY, CLIMATE CHANGE AND
THE ENVIRONMENT
ATCO believes that reducing its environmental impact is integral to the pursuit of operational excellence and
long-term sustainable growth. ATCO's success depends on its ability to operate in a responsible and sustainable
manner, today and in the future.
SUSTAINABILITY REPORTING
ATCO has been publishing external sustainability reports since 2008. Reporting is based upon the
internationally recognized Global Reporting Initiative (GRI) Sustainability Reporting Guidelines, covering a broad
spectrum of metrics (i.e. Environment, Health & Safety, Employees and Communities).
Priority has been placed on reporting core non-financial indicators to provide meaningful, efficient and
transparent disclosures in priority areas for “customers” of our sustainability reporting (i.e. investors, business
partners, customers, communities, Indigenous groups, employees, and government).
In 2016, a more detailed key topic assessment was completed to further engage groups impacted by our
operations, to take steps toward alignment with evolving international guidance (GRI Sustainability Reporting
Standards), and to inform the redesign of our sustainability disclosures and communication.
The 2016 Sustainability Report, expected to be released in May 2017, will be focused on key material topics
including: Environmental Stewardship (climate change and energy use, and environmental compliance), Energy
Stewardship (access and affordability, security and reliability, and customer satisfaction), Safety (employee
health and safety, public safety, and emergency preparedness), and Community and Indigenous Relations.
CLIMATE CHANGE AND THE ENVIRONMENT
The following is an overview of environmental regulatory developments, predominantly focused on Alberta and
Canada as the majority of our assets are located within these jurisdictions.
Government of Alberta's Provincial Climate Leadership Plan
In November 2015, the Government of Alberta announced its Climate Leadership Plan, a proposed framework
which includes:
1. phasing out of coal-fired generation by 2030,
2. phasing in of renewable energy,
3. an economy-wide tax on carbon emissions starting in 2017, and
4.
the reduction of methane emissions.
ATCO shares the province's vision to reduce emissions and improve environmental performance. ATCO has
been working closely with the Government to increase renewable power generation in the market, while
maintaining the reliability of the electrical grid, protecting jobs and mitigating costs for consumers.
81
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
1. Phasing Out of Coal-fired Generation by 2030
On November 24, 2016, ATCO Power and the Government of Alberta entered into a conditional
agreement for transition payments on the elimination of coal-fired emissions from the Sheerness
Generating Station (Sheerness) on or before December 31, 2030. As compensation for the capital
invested in Sheerness, ATCO Power will receive cash payments from the Government of $4.7 million
annually for 14 years, commencing in 2017 and terminating in 2030. Sheerness units 1 and 2 were
otherwise scheduled to retire in 2036 and 2040.
Thermal PPAs
On July 25, 2016, the Government of Alberta commenced legal action to determine the validity and
interpretation of certain terms within the coal PPAs and related regulations. The legal action filed by
the Government seeks to prevent the PPAs from being returned to the Balancing Pool. ATCO has never
been a buyer of a coal PPA, and the proceeding seeks no direct relief against ATCO.
In December 2016, the Government of Alberta announced it had reached an agreement to settle the
legal action against TransCanada Energy. The agreement completely removes TransCanada Energy
from the court proceedings and settles the matter between the parties as well as all arbitrations with
the Balancing Pool. As a result, the Sheerness units 1 and 2 PPAs have been returned to the Balancing
Pool, who retains the rights and obligations under the PPAs.
A legal action remains outstanding between the Government of Alberta and Enmax for its return of
certain PPAs to the Balancing Pool, including the Battle River unit 5 PPA.
ATCO continues to operate Battle River unit 5 and Sheerness units 1 and 2 under the terms of their
respective PPAs. ATCO will monitor and, in its capacity as a respondent, participate in the proceeding.
2. Phasing in of Renewable Energy
As part of its Climate Leadership Plan, the Government of Alberta published a firm target that
30 per cent of electricity used in Alberta will come from renewable sources such as wind, hydro and
solar by 2030. The Government will support 5,000 MW of additional renewable energy capacity.
Support will be provided to projects that are based in Alberta, are new or expanded, are greater than
five MW in size, and meet the definition of renewable sources as defined by Natural Resources Canada.
On November 3, 2016, the Government of Alberta appointed the AESO to administer a competitive
process to procure up to 5,000 MW of renewable energy by 2030. The AESO plans to gather feedback
from industry on draft commercial terms before the first auction anticipated in 2017 for delivery in
2019. ATCO continues to examine renewable opportunities that support its strategic objectives as
active participants in Alberta’s electricity transformation.
3. Tax on Carbon Emissions
The Government of Alberta will phase in the carbon tax across all sectors in two steps. An economy-
wide carbon tax of $20 per tonne will be implemented in 2017, followed by a $30 per tonne carbon tax
in 2018.
Primary impacts to ATCO from the Alberta economy-wide tax on carbon or carbon levy implemented in
2017 is to our natural gas distribution business. ATCO will calculate consumption from the meter and
apply the levy to the tariff bill file for retailers to bill customers. The retailers pay ATCO and ATCO will be
responsible for monthly remittance to the Government of Alberta. This is the same process ATCO
carries out on behalf of the Government for collecting and remitting GST.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 82
Regulation is under development to determine how the carbon levy will be applied to generating units
with greenhouse gas emissions above a defined limit. For ATCO Power’s PPA Thermal power units,
Battle River unit 5 and Sheerness units 1 and 2, the PPA allows the Company to recover costs of
compliance with Alberta regulations through the term of the PPA. If the costs are for operations after
the PPA term, the plant owner, not the PPA counterparty, bears the burden of these costs. Longer term,
we anticipate carbon costs will be largely recovered through the Alberta power market.
4. Reduction of Methane Emissions
The Government of Alberta's plan is to reduce methane emissions by 45 per cent from oil and gas
operations by 2025 by applying new emissions design standards to new Alberta facilities, and
developing a five-year voluntary Joint Initiative on Methane Reductions and Verification.
Future provincial regulations or reduction targets for methane emissions predominantly affect the
Company's fugitive or venting emissions from natural gas pipeline-related operations. Fugitive and
venting emissions typically account for less than four per cent of ATCO's direct greenhouse gas
emissions, and ATCO has already implemented a number of programs to improve efficiency and
reduce fugitive and venting emissions.
The Company's exposure is limited for the Alberta Utilities because requirements to upgrade
equipment in order to further reduce methane emissions are expected to be included in rate base on a
go-forward basis.
Government of Canada Proposals on the Environment
Phasing out Coal-fired Generation
In November 2016, the Government of Canada announced electricity regulations to phase-out coal-fired
electricity by December 31, 2029. Because Alberta's Climate Leadership Plan already includes a proposal to
phase out coal-fired electricity by December 31, 2030, this Government of Canada plan is unlikely to materially
impact ATCO.
Tax on Carbon Emissions
In October 2016, the Government of Canada passed a motion in the House of Commons to ratify the Paris
Climate Change Accord. At the same time, the Government announced a requirement for some form of carbon
pricing in all jurisdictions in Canada by 2018; proposing a national benchmark requirement of $10 per tonne of
CO2 by 2018, rising by $10 each year to $50 per tonne in 2022. The Government has stated that it will work with
the provinces and territories to ensure that all monies raised by the carbon tax will stay in the direct control of
the respective provinces and territories.
Reduction of Methane Emissions
The Government of Canada has announced a target to reduce methane to 40 per cent below 2012 levels by
2025. The Company's exposure is limited for the Alberta Utilities because requirements to upgrade equipment
in order to further reduce methane emissions are expected to be included in rate base on a go-forward basis.
83
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
OTHER EXPENSES AND INCOME
A financial summary of other consolidated expenses and income items for the quarters and years ended
December 31, 2016 and 2015 is given below. These amounts are presented in accordance with IFRS accounting
standards. They have not been adjusted for the timing of revenues and expenses associated with rate-regulated
activities and other items that are not in the normal course of business.
Three Months Ended
December 31
Year Ended
December 31
2016
2015
Change
2016
2015
Change
737
(210) 2,088
2,584
(496)
527
69
—
9
—
49
(3)
69
(49)
12
153
328
(175)
96
92
79
(2)
17
94
69
18
22
615
380
258
—
49
3
756
289
198
69
(31)
19
(141)
91
60
($ millions)
Operating costs
Service concession arrangement costs
Gain on sales of operations and revaluation of joint venture
Earnings from investment in joint ventures
Depreciation, amortization and impairment
Net finance costs
Income taxes
OPERATING COSTS
Operating costs, which are total costs and
expenses less service concession arrangement
costs and depreciation, amortization and
impairment, decreased by $210 million in the
fourth quarter and $496 million in the full year of
2016 when compared to the same periods in 2015.
Lower operating costs are being realized in 2016 as
a result of the Company's restructuring exercise in
2015, leading to ongoing business-wide cost
reduction initiatives. The decrease is also due to
lower raw materials costs resulting from lower
manufacturing activity in the Structures & Logistics
modular structures business, and lower fuel costs
resulting from the sale and closure of certain non-
core NGL and gas gathering and processing assets
in ATCO Energy Solutions in late 2015 and early
2016.
SERVICE CONCESSION ARRANGEMENT COSTS
Service concession arrangement costs increased in the fourth quarter and full year of 2016 when compared to
the same periods in 2015. The increase is attributable to costs APL has recorded on the design and planning
phases of the Fort McMurray 500 kV Project. The accounting for APL is discussed further in Note 15 to the 2016
Annual Financial Statements.
GAIN ON SALES OF OPERATIONS AND REVALUATION OF JOINT VENTURE
The gain on sales in 2016 was due to the sale of the ATCO Energy Solutions' Edmonton Ethane Extraction Plant
in the first quarter of 2016. Higher contributions in 2015 were mainly due to the gain on sales of Structures &
Logistics' Emissions Management business, the revaluation of the ATCO Power's Barking investment, and the
sale of certain ATCO Energy Solutions' non-core NGL and gas gathering and processing assets.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 84
EARNINGS FROM INVESTMENT IN JOINT VENTURES
Earnings from investment in joint ventures is mainly comprised of the Company's ownership position in several
power generation plants, the Strathcona Storage Limited Partnership, ATCO-Sabinco S.A., and certain lodge
assets in Structures & Logistics. Lower earnings in 2015 were primarily due to an impairment recorded in the
second quarter of 2015 by Structures & Logistics of $8 million as a result of challenging market conditions in its
joint venture lodge business and costs associated with the acquisition of an increased ownership position in
Barking in the fourth quarter of 2015.
DEPRECIATION, AMORTIZATION AND IMPAIRMENT
In the fourth quarter and full year of 2016, depreciation, amortization and impairment expense decreased by
$175 million and $141 million, when compared to the same periods in 2015. The decreased expense was mainly
due to impairments recorded in 2015 as a result of challenging market conditions.
NET FINANCE COSTS
Net finance costs increased in the fourth quarter and full year of 2016 when compared to the same periods in
2015. These increases were primarily due to interest costs which were previously capitalized now being
recorded as interest expense, mainly resulting from the completion of the $1.8 billion Eastern Alberta
Transmission Line (EATL) project during the fourth quarter of 2015. Higher interest expense is also the result of
incremental debt issued to fund the Regulated Utilities' ongoing capital investment program.
INCOME TAXES
Income taxes increased in the fourth quarter and full year of 2016 when compared to the same periods in 2015,
mainly due to higher earnings before taxes driven by continued capital investment and growth in rate base
within the Regulated Utilities and business-wide cost reduction initiatives.
85
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position is supported by Regulated Utility and long-term contracted operations. Its
business strategies, funding of operations, and planned future growth are supported by maintaining strong
investment grade credit ratings and access to capital markets at competitive rates. Primary sources of capital
are cash flow from operations and the debt and preferred share capital markets. An additional source of capital
is the Class A non-voting shares Canadian Utilities issues under its Dividend Reinvestment Plan (DRIP).
The Company considers it prudent to maintain enough liquidity to fund approximately one full year of cash
requirements to preserve strong financial flexibility. Liquidity is generated by cash flow from operations and is
supported by appropriate levels of cash and available committed credit facilities.
CREDIT RATINGS
Credit ratings are important to the Company's financing costs and ability to raise funds. The Company intends
to maintain strong investment grade credit ratings in order to provide efficient and cost effective access to
funds required for operations and growth.
In July 2016, Standard & Poor's Rating Services (S&P) affirmed its "A" with a negative outlook corporate credit
rating on ATCO Ltd. and its subsidiaries Canadian Utilities Limited and CU Inc. In August 2016, DBRS Limited
(DBRS) affirmed its rating on the Company as "A" (low) with a stable trend.
In October 2016, S&P affirmed its rating on ATCO Gas Australia's debt as "A-" with a negative outlook.
LINES OF CREDIT
At December 31, 2016, the Company and its subsidiaries had the following lines of credit.
($ millions)
Long-term committed
Short-term committed
Uncommitted
Total
Total
2,687
78
324
3,089
Used
516
9
137
662
Available
2,171
69
187
2,427
Of the $3,089 million in total credit lines,
$324 million was in the form of uncommitted credit
facilities with no set maturity date. Of the
remaining credit lines, $78 million mature in late
2017, and $2,687 million mature between 2018 and
2020 and may be extended at the option of the
lenders.
The majority of the $662 million usage was
associated with ATCO Gas Australia. Long-term
committed credit lines are used to satisfy all of
ATCO Gas Australia's term debt financing needs.
Credit lines for ATCO Gas Australia are provided by
Australian banks, with the majority of all other
credit lines provided by Canadian banks.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 86
CONSOLIDATED CASH FLOW
At December 31, 2016, the Company's cash position was $601 million, a decrease of $198 million compared to
2015. Major movements are outlined in the following table:
($ millions)
Funds generated by operations
Proceeds on sales of operations
Proceeds from issuance of debentures
Net (repayment) issue of short-term debt
Cash used for capital investments
Issue of equity preferred shares by subsidiary
company
Dividends paid to Class I and Class II Share owners
Dividends paid to non-controlling interests
Interest paid
Other (1)
(Decrease) increase in cash position
Three Months Ended
December 31
Year Ended
December 31
2016
2015
Change
2016
2015
Change
600
—
375
(320)
(467)
—
(33)
(46)
(107)
(101)
(99)
354
57
250
—
(641)
—
(28)
(44)
(102)
95
(59)
246
(57)
125
(320)
1,912
1,589
28
375
55
57
650
—
174
(1,609)
(1,919)
—
(5)
(2)
(5)
(196)
(40)
—
(131)
(187)
(394)
(247)
(198)
375
(114)
(163)
(370)
104
209
323
(29)
(275)
55
310
(375)
(17)
(24)
(24)
(351)
(407)
(1)
Includes $18 million of Class I Shares purchased under the Company's normal course issuer bid in 2016.
87
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
Funds generated by operations
Funds generated by operations were $600 million in the fourth quarter and $1,912 million in the full year of
2016, compared to $354 million and $1,589 million in the same periods in 2015. The increases were mainly as a
result of higher earnings attributable to Class I and Class II Shares driven by capital investment and rate base
growth in the Regulated Utilities, and business-wide cost reduction initiatives.
Cash used for capital investments
Cash used for capital investments was $467 million in the fourth quarter and $1,609 million in the full year of
2016, compared to $641 million and $1,919 million in the same periods of 2015. Decreased investment was due
to previously disclosed and planned lower capital spending in Electric Transmission year-over-year, mainly
resulting from the completion of the EATL project during the fourth quarter of 2015.
Capital investment for the quarters and years ended December 31, 2016 and 2015 is shown in the table below.
($ millions)
Electricity
ATCO Electric Distribution
ATCO Electric Transmission
ATCO Power (1)
Alberta PowerLine
Total Electricity
Pipelines & Liquids
ATCO Gas
ATCO Pipelines
ATCO Gas Australia
Non-regulated Capital Investment (2)
Total Pipelines & Liquids
Structures & Logistics
Corporate & Other
Total (3) (4)
Three Months Ended
December 31
Year Ended
December 31
2016
2015
Change
2016
2015
Change
83
43
24
26
176
92
115
27
17
251
15
25
100
141
23
9
273
100
127
23
82
332
15
21
(17)
(98)
1
17
(97)
(8)
(12)
4
(65)
(81)
—
4
267
203
108
69
647
336
252
90
112
790
97
75
355
471
85
24
935
331
257
80
207
875
61
48
(88)
(268)
23
45
(288)
5
(5)
10
(95)
(85)
36
27
467
641
(174) 1,609
1,919
(310)
(1)
Includes ATCO Power Australia's capital expenditures in joint ventures of $6 million (2015 - nil) for the quarter and year ended December 31, 2016.
(2) Non-regulated Capital Investment includes ATCO Pipelines Mexico and ATCO Energy Solutions.
(3)
Includes capital expenditures in joint ventures of $14 million and $89 million (2015 - $19 million and $51 million) for the quarter and year ended December 31, 2016.
(4)
Includes additions to property, plant and equipment, intangibles and $4 million and $18 million (2015 - $20 million and $97 million) of interest capitalized during
construction for the quarter and year ended December 31, 2016.
Debt issuances and repayments
On November 19, 2016, CU Inc. issued $375 million of 3.763 per cent 30-year debentures. Proceeds from this
issuance were used to fund significant capital investments, to repay existing indebtedness, and for other
general corporate purposes of the Alberta Utilities.
Base Shelf Prospectuses
CU Inc. Debentures and Preferred Shares
On May 16, 2016, CU Inc. filed a base shelf prospectus that permits it to issue up to an aggregate of $1.5 billion
of debentures over the 25-month life of the prospectus. As of March 1, 2017, aggregate issuances of debentures
were $375 million.
Effective June 1, 2016, the annual dividend rate on CU Inc.'s Cumulative Redeemable Preferred Shares Series 4
was reset from 3.80 per cent to 2.24 per cent for the next five-year period.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 88
Canadian Utilities Debt Securities and Preferred Shares
On April 12, 2016, Canadian Utilities filed a base shelf prospectus that permits it to issue up to an aggregate of
$2 billion of debt securities and preferred shares over the 25-month life of the prospectus. No debt securities or
preferred shares have been issued to date under this base shelf prospectus.
Dividends and Common Shares
The Company has increased its common share
dividend each year since 1993. In each of the last six
years, the Company has increased its quarterly
dividend by 15 per cent. Dividends paid to Class I and
Class II Share owners in the quarter and year ended
December 31, 2016 totaled $33 million and
$131 million. On January 12, 2017, the Board of
Directors declared a first quarter dividend of
32.75 cents per share. The payment of any dividend
is at the discretion of the Board of Directors and
depends on the Company's financial condition and
other factors.
Normal Course Issuer Bid
15% increase in
quarterly dividend
for the sixth
consecutive year
The Company believes that, from time to time, the market price of its Class I Shares may not fully reflect the
value of its business, and that purchasing its own Class I Shares represents an attractive investment opportunity
and desirable use of available funds.
On March 2, 2015, ATCO commenced a normal course issuer bid to purchase up to 2,030,168 outstanding
Class I Shares. The bid expired on February 29, 2016. On March 1, 2016, ATCO commenced a new normal course
issuer bid to purchase up to 3,043,884 outstanding Class I Shares. The bid expired on February 28, 2017.
During the year ended December 31, 2016, 460,000 shares were purchased for $18 million.
Canadian Utilities Dividend Reinvestment Plan
In the fourth quarter of 2016, Canadian Utilities issued 395,544 Class A non-voting shares under its DRIP in lieu
of cash dividend payments of $14 million.
During the year ended December 31, 2016, Canadian Utilities issued 1,484,241 (2015 - 2,792,302) Class A non-
voting shares under its DRIP in lieu of cash dividend payments of $52 million (2015 - $99 million).
89
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
SHARE CAPITAL
ATCO's equity securities consist of Class I Shares and Class II Shares.
At March 1, 2017, the Company had outstanding 101,237,123 Class I Shares, 13,417,705 Class II Shares, and
options to purchase 669,750 Class I Shares.
CLASS I NON-VOTING SHARES AND CLASS II VOTING SHARES
Each Class II Share may be converted into one Class I Share at any time at the share owner’s option. If an offer
to purchase all Class II Shares is made, and such offer is accepted and taken up by the owners of a majority of
the Class II Shares, and, if at the same time, an offer is not made to the Class I Share owners on the same terms
and conditions, then the Class I Shares will be entitled to the same voting rights as the Class II Shares. The two
share classes rank equally in all other respects.
Of the 10,200,000 Class I Shares authorized for grant of options under ATCO's stock option plan, 2,732,750
Class I Shares were available for issuance at December 31, 2016. Options may be granted to the Company's
officers and key employees at an exercise price equal to the weighted average of the trading price of the shares
on the Toronto Stock Exchange for the five trading days immediately preceding the grant date. The vesting
provisions and exercise period (which cannot exceed 10 years) are determined at the time of grant.
QUARTERLY INFORMATION
The following table shows financial information for the eight quarters ended March 31, 2015 through
December 31, 2016.
($ millions except for per share data)
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Revenues
Earnings attributable to Class I and Class II Shares
Earnings per Class I and Class II Share ($)
Diluted earnings per Class I and Class II Share ($)
Adjusted earnings
Structures & Logistics
Electricity
Pipelines & Liquids
Corporate & Other and Intersegment Eliminations
Total adjusted earnings
1,058
109
0.95
0.95
12
54
56
(1)
121
932
61
0.53
0.53
13
55
22
(9)
81
923
70
0.61
0.61
12
46
14
(8)
64
1,132
100
0.88
0.87
6
58
44
(14)
94
($ millions except for per share data)
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Revenues
Earnings attributable to Class I and Class II Shares
Earnings per Class I and Class II Share ($)
Diluted earnings per Class I and Class II Share ($)
Adjusted earnings
Structures & Logistics
Electricity
Pipelines & Liquids
Corporate & Other and Intersegment Eliminations
Total adjusted earnings
1,072
94
0.82
0.82
5
34
42
(3)
78
947
8
0.07
0.06
(2)
53
6
—
57
985
53
0.46
0.46
11
51
8
(4)
66
1,127
(1)
(0.01)
(0.01)
13
33
45
1
92
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 90
Adjusted Earnings
The financial results for the previous eight quarters reflect continued growth in the Company’s Regulated Utility
operations as well as fluctuating commodity prices in electricity generation and sales, and natural gas gathering,
processing, storage and liquids extraction operations. In addition, interim results will vary due to the seasonal
nature of demand for electricity and natural gas, the timing of utility regulatory decisions and the cyclical
demand for workforce housing and space rental products and services. Financial results in 2016 are reflective of
improved earnings from business-wide cost reduction initiatives.
Structures & Logistics
Adjusted earnings in the Structures & Logistics Business Unit are reflective of the cyclical nature of large natural
resource project activity in 2015 and 2016. Reduced lodging occupancy levels and room rates along with lower
manufacturing activity and profit margins contributed to lower earnings in the first half of 2015. Improved
earnings in the second half of 2015 and the first nine months of 2016 are associated with increased Modular
Structures manufacturing activity, higher occupancy levels in the Lodging business and business-wide cost
reduction initiatives. The completion of major Modular Structures projects during 2016 is reflected in lower
fourth quarter 2016 earnings.
Electricity
Adjusted earnings in the Electricity Business Unit reflect the large capital investment made by Regulated
Electricity in the previous eight quarters. These investments, which earn a return under a regulated business
model, drive growth in adjusted earnings. Adjusted earnings have also been affected by the timing of certain
major regulatory decisions, and Alberta Power Pool pricing and spark spreads. Earnings in the first quarter of
2015 include the financial impact of the GCOC and Capital Tracker decisions in Regulated Electricity. Lower
earnings in the fourth quarter of 2015 were mainly due to regulatory lag which required an update to the
forecast costs as compared to prospective costs originally filed in ATCO Electric Transmission's 2015 to 2017
General Tariff Application. Higher earnings in 2016 were primarily due to continued capital investment and rate
base growth and business-wide cost reduction initiatives. Lower earnings in the third quarter of 2016 were due
to the financial impact of the GTA decision.
91
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
Pipelines & Liquids
Adjusted earnings in the Pipelines & Liquids Business Unit reflect the large capital investments made by
Regulated Pipelines & Liquids in the previous eight quarters. These investments, which earn a return under a
regulated business model, drive growth in adjusted earnings. Adjusted earnings have also been affected by the
timing of certain major regulatory decisions, seasonality, and commodity prices. Earnings in the first quarter of
2015 include the financial impact of the GCOC and Capital Tracker decisions in Regulated Pipelines & Liquids.
Earnings in the second quarter of 2015 reflect the impact of the Access Arrangement decision on ATCO Gas
Australia, and lower frac spreads and storage fees in ATCO Energy Solutions. Higher operations and
maintenance costs and lower seasonal demand in ATCO Gas are reflected in third quarter earnings of 2015.
Higher earnings in the fourth quarter of 2015 and first half of 2016 were primarily attributable to continued
capital investment, growth in rate base and customers, and business-wide cost reduction initiatives. Higher
earnings in the fourth quarter of 2016 were mainly due to continued capital investment, growth in rate base
and customers, and business-wide cost reduction initiatives.
Earnings attributable to Class I and Class II Shares
Earnings attributable to Class I and Class II Shares include timing adjustments related to rate-regulated
activities. They also include one-time gains and losses, significant impairments, restructuring charges and other
items that are not in the normal course of business or a result of day-to-day operations recorded at various
times over the past eight quarters. These items are excluded from adjusted earnings and are highlighted below:
•
•
•
•
•
•
•
•
in the fourth quarter of 2016, the Company adjusted the deferred tax asset which was recognized as a
result of the Tula Pipeline Project impairment. The adjustment of $5 million is due to a difference
between the tax base currency, which is Mexican pesos, and the U.S. dollar functional currency;
in the first quarter of 2016, ATCO recorded a gain on sale of joint operation of $7 million for the sale of
ATCO Energy Solutions' 51.3 per cent interest in the Edmonton Ethane Extraction Plant;
in the fourth quarter of 2015, ATCO recorded gains on sales of operations and a gain on a revaluation
of a joint venture of $28 million for the sale of the Emissions Management business, the sale of certain
non-core natural gas gathering and processing assets, and the revaluation of the Company's Barking
investment;
in the fourth quarter of 2015, impairment charges of $91 million were recorded relating to Structures &
Logistics’ workforce housing assets, the Battle River units 3 and 4 power generation assets, the Mexico
Tula Pipeline, as well as certain gas gathering and processing facilities;
in the fourth quarter of 2015, the Company recorded a restructuring charge of $44 million. These costs
were primarily related to staff reductions and associated severance costs;
in the third quarter of 2015, the Company recognized a restructuring charge of $3 million;
in the second quarter of 2015, the Company recognized a restructuring charge of $3 million and an
impairment of Structures & Logistics open lodge assets of $13 million; and
in the second quarter of 2015, the Company made an adjustment of $37 million to current and
deferred income taxes associated with the Government of Alberta corporate income tax rate increase
from 10 to 12 per cent. $34 million of this adjustment related to deferred income taxes recorded by the
Alberta Utilities that were excluded from adjusted earnings.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 92
BUSINESS RISKS AND RISK
MANAGEMENT
The Board of Directors (Board) is responsible for understanding the principal risks of the businesses in which
the Company is engaged. The Board also must achieve a prudent balance between risks incurred and the
potential return to share owners. It must confirm controls are in place that effectively monitor and manage
those risks for the Company's long-term viability.
The Board has an Audit & Risk Committee, which reviews significant risks associated with future performance
and growth. This committee is responsible for confirming that management has procedures in place to mitigate
identified risks.
Business Risk: Capital Investment
Businesses Impacted:
• All businesses
Description and Context
Associated Strategies:
• Growth
• Financial Strength
Risk Management Approach
The Company is subject to the normal risks
The Company attempts to reduce the risks of project
associated with major capital projects,
delays and cost increases by careful planning, diligent
including delays and cost increases.
procurement practices and entering into long-term
contracts when possible. ATCO Gas Australia capital
investment is planned and approved by the regulator.
Planned capital investments for the Alberta Utilities are
based on the following significant assumptions: projects
identified by the AESO will proceed as currently scheduled;
the remaining planned capital investments are required to
maintain safe and reliable service and meet planned
growth in the Alberta Utilities’ service areas; regulatory
approval for capital projects can be obtained in a timely
manner; and access to capital market financings can be
maintained. The Company believes these assumptions are
reasonable.
93
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
Business Risk: Credit Risk
Businesses Impacted:
• All businesses
Description and Context
Associated Strategies:
• Financial Strength
Risk Management Approach
For cash and cash equivalents and accounts
Cash and cash equivalents credit risk is reduced by
receivable, credit risk represents the carrying
investing in instruments issued by credit-worthy financial
amount on the consolidated balance sheet.
institutions and in federal government issued short-term
Derivative, lease receivable and receivable
instruments. The Company minimizes these risks by
under service concession arrangement credit
dealing with large, credit-worthy counterparties with
risk arises from the possibility that a
established credit-approval policies. A significant portion of
counterparty to a contract fails to perform
loans and receivables are from the Company’s operations
according to the terms and conditions of that
in Alberta, except for the lease receivable for the Karratha
contract. The maximum exposure to credit risk
plant in Australia. Accounts receivable credit risk is reduced
is the carrying value of loans and receivables
by a large and diversified customer base and credit
and derivative financial instruments.
security, such as letters of credit. The Alberta Utilities are
also able to recover an estimate for doubtful accounts
through approved customer rates and to request recovery
through customer rates for any material losses from
retailers beyond the retailer security mandated by
provincial regulations.
Business Risk: Cybersecurity
Businesses Impacted:
• All businesses
Description and Context
Associated Strategies:
• Operational Excellence
• Innovation
Risk Management Approach
The Company’s reliance on technology, which
ATCO has an enterprise wide cybersecurity program that
supports its information and industrial control
covers all technology assets and is aligned to industry best
systems, is subject to potential cyberattacks
practices. The cybersecurity program includes the
including unauthorized access of confidential
utilization of layered access controls, continuous
information and outage of critical
monitoring, network threat detection, and coordinated
infrastructure.
incident response through a centralized information
technology response centre. The Company’s cybersecurity
management is consolidated under a common
organizational structure to increase effectiveness and
compliance across the entire enterprise.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 94
Business Risk: Energy Commodity Price Risk
Businesses Impacted:
Associated Strategies:
• ATCO Power
• ATCO Energy Solutions
• Financial Strength
• ATCOenergy
Description and Context
Risk Management Approach
ATCO Power earnings are affected by short-
In conducting its business, the Company may use various
term price volatility. Changes to the power
instruments, including forward contracts, swaps, and
reserve margin (power supply relative to
options to manage the risks arising from fluctuations in
demand) and natural gas prices can result in
commodity prices. The Company enters into natural gas
volatility in Alberta Power Pool Prices and
purchase contracts and forward power sales contracts as
spark spreads. A number of key factors
the hedging instrument to manage the exposure to
contribute to price volatility including electricity
electricity and natural gas market price movements. All
demand and electricity supply, primarily from
such instruments are used only to manage risk and
Alberta’s coal and wind generation. ATCO
optimize the available merchant capacity.
Energy Solutions' natural gas storage facility in
Carbon, Alberta, is also exposed to storage
price differentials.
Business Risk: Financing Risk
Businesses Impacted:
• All businesses
Description and Context
Associated Strategies:
• Financial Strength
Risk Management Approach
The Company’s financing risk relates to the
To address this risk, the Company manages its capital
price volatility and availability of external
structure to maintain strong credit ratings which allow
financing to fund the capital expenditure
continued ease of access to the capital markets. The
program and refinance existing debt
Company also considers it prudent to maintain sufficient
maturities. Financing risk is directly influenced
liquidity to fund approximately one full year of cash
by market factors. As financial market
requirements to preserve strong financial flexibility. This
conditions change, these risk factors can affect
liquidity is generated by cash flow from operations and
the availability of capital and also the relevant
supported by appropriate levels of cash and available
financing costs.
committed credit facilities.
95
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
Business Risk: Foreign Currency Exchange Rate
Businesses Impacted:
Associated Strategies:
• Structures & Logistics • ATCO Gas Australia
• Financial Strength
• ATCO Power Australia • ATCO Pipelines
Mexico
Description and Context
Risk Management Approach
The Company’s earnings from, and carrying
In conducting its business, the Company may use various
values of, its foreign operations are exposed to
instruments, including forward contracts, swaps, and
fluctuations in exchange rates. The Company is
options, to manage the risks arising from fluctuations in
also exposed to transactional foreign exchange
exchange rates. All such instruments are used only to
risk through transactions denominated in a
manage risk and not for trading purposes. This foreign
foreign currency.
exchange impact is partially offset by foreign denominated
financing and by hedging activities. Revenues and expenses
in functional currencies other than Canadian dollars are
translated at the average monthly rates of exchange during
the period. Gains or losses on translation of the assets and
liabilities of foreign operations are included in the foreign
currency translation adjustment account in accumulated
other comprehensive income in the 2016 Annual Financial
Statements. The Company manages this risk through its
policy of matching revenues and expenses in the same
currency. When matching is not possible, the Company
utilizes foreign currency forward contracts to manage the
risk.
Business Risk: Generation Equipment and Technology Risk
Businesses Impacted:
Associated Strategies:
• ATCO Power
• ATCO Power Australia
• Financial Strength
• Operational Excellence
Description and Context
Risk Management Approach
ATCO Power and ATCO Power Australia's
To reduce this risk, a proactive maintenance program is
generating plants are exposed to operational
regularly carried out with scheduled outages for major
risks which can cause outages due to issues
overhauls and other maintenance. The Company also
such as boiler, turbine, and generator failures.
carries property and some business interruption insurance
An extended outage could negatively impact
for its power plants to protect against extended outages.
earnings and cash flows. If a generating plant
PPAs are designed to provide force majeure relief for
does not meet availability or production
regulated plant outages beyond specified time periods and
targets specified in a PPA or another long-term
certain circumstances.
agreement, the Company may need to
compensate the purchaser for the loss of
production availability.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 96
Business Risk: Interest Rate Risk
Businesses Impacted:
• All businesses
Description and Context
Associated Strategies:
• Financial Strength
Risk Management Approach
The interest rate risk faced by the Company is
In conducting its business, the Company may use various
largely a result of its recourse and non-
instruments, including forward contracts, swaps, and
recourse long-term debt at variable rates as
options to manage the risks arising from fluctuations in
well as cash and cash equivalents. The
interest rates. All such instruments are used only to
Company also has exposure to interest rate
manage risk and not for trading purposes. The Company
movements that occur beyond the term of
has converted certain variable rate long-term debt and
maturity of the fixed-rate investments.
non-recourse long-term debt to fixed rate debt through
interest rate swap agreements. At December 31, 2016, the
Company had fixed interest rates, either directly or through
interest rate swap agreements, on 100 per cent
(2015 - 99 per cent) of total long-term debt and non-
recourse long-term debt. Consequently, the exposure to
fluctuations in future cash flows, with respect to debt, from
changes in market interest rates was limited. The
Company’s cash and cash equivalents include fixed rate
instruments with maturities of generally 90 days or less
that are reinvested as they mature.
Business Risk: Natural Resource Sector Cyclical Risk
Businesses Impacted:
• Structures & Logistics
Associated Strategies:
• Growth
• Operational Excellence
• Financial Strength
Description and Context
Risk Management Approach
Demand for Structures & Logistics’ products
Modular Structures' cost structure is weighted to variable
and services is directly related to capital
costs which provides flexibility in moderating costs when
spending cycles and levels of development
project activity slows. The Structures & Logistics business is
activity in various industries, primarily in the
not a capital intensive business so market entry and exit
natural resources sector. Several key factors
costs are relatively low. A base of more stable earnings and
influence customers’ decision-making on
cash flows exists within the workforce housing and space
whether or not to purchase products and
rentals business and the Logistics and O&M services
services offered by the Company. These factors
contracts that provide support when Modular Structures
include expected commodity prices, global
natural resource sector customers are going through
economic and political conditions, and access
commodity cycle downturns.
to debt financing and equity capital. Any
adverse impact on these key decision factors
for a prolonged period could affect demand for
the Company’s products and services.
97
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
Business Risk: Pipeline Integrity
Businesses Impacted:
Associated Strategies:
• ATCO Gas
• ATCO Gas Australia
• Operational Excellence
• Community Involvement
• ATCO Pipelines
Description and Context
Risk Management Approach
ATCO Gas, ATCO Pipelines and ATCO Gas
Programs are in place to monitor the integrity of the
Australia have significant pipeline
pipeline infrastructure and replace pipelines as required to
infrastructure. Although the probability of a
address safety, reliability, and future growth. These
pipeline rupture is very low, the consequences
programs include ATCO Gas' and ATCO Pipelines’ UPR
of a failure can be severe.
programs and ATCO Gas' and ATCO Gas Australia's mains
replacement programs. The Company also carries property
and liability insurance.
Business Risk: Regulated Operations
Businesses Impacted:
Associated Strategies:
• ATCO Electric Distribution • ATCO Gas
• Growth
• Operational Excellence
• ATCO Electric Transmission • ATCO Pipelines
• Financial Strength
• ATCO Gas Australia
Description and Context
Risk Management Approach
The Regulated Utilities are subject to the
The Regulated Utilities file forecasts in the rate-setting
normal risks faced by regulated companies.
process to recover the costs of providing services and earn
These risks include the regulator's approval of
a fair rate of return. The determination of a fair rate of
customer rates that permit a reasonable
return on the common equity component of rate base is
opportunity to recover service costs on a
determined in a generic cost of capital proceeding in
timely basis, including a fair return on rate
Alberta and an Access Arrangement proceeding in
base. These risks also include the regulator's
Australia. The Regulated Utilities continuously monitor
potential disallowance of costs incurred. ATCO
various regulatory decisions and cases to assess how they
Electric Distribution and ATCO Gas operate
might impact the Company's regulatory applications for the
under a performance based regulation (PBR).
recovery of prudent costs. The Regulated Utilities are
Under PBR, utility revenues are formula driven,
proactive in demonstrating prudence and continuously
which raises the uncertainty of cost recovery.
look for ways to lower operating costs while maintaining
service levels.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 98
Business Risk: Liquidity Risk
Businesses Impacted:
• All businesses
Description and Context
Associated Strategies:
• Financial Strength
Risk Management Approach
Liquidity risk is the risk that the Company will
Cash flow from operations provides a substantial portion of
not be able to meet its financial obligations.
the Company’s cash requirements. Additional cash
requirements are met with the use of existing cash
balances and externally through bank borrowings and the
issuance of long-term debt, non-recourse long-term debt
and preferred shares. Commercial paper borrowings and
short-term bank loans under available credit lines are used
to provide flexibility in the timing and amounts of long-term
financing. The Company has a policy not to invest any of its
cash balances in asset-backed securities. At
December 31, 2016, the Company’s cash position was
$601 million and there were available committed and
uncommitted lines of credit of approximately $2.4 billion
which can be utilized for general corporate purposes.
Liquidity Risk (discussed in the Business Risks and Risk Management table above) includes contractual financial
obligations which the Company will meet with cash flow from operations, existing cash balances and external
financing, if necessary. These contractual obligations for the next five years and thereafter are shown below.
($ millions)
2017
2018
2019
2020
2021
Financial Liabilities
Bank indebtedness
Accounts payable and accrued liabilities
Short-term debt
Long-term debt:
Principal
Interest expense (1)
Non-recourse long-term debt:
Principal
Interest expense
Derivatives (2)
Commitments
Operating leases
Purchase obligations:
Coal purchase contracts
Operating and maintenance agreements
Capital expenditures
Other
Total
5
694
55
155
392
14
7
2
1,324
29
64
293
593
8
987
2,311
—
—
—
8
384
15
6
4
417
25
66
290
564
1
946
1,363
—
—
—
1,142
367
15
5
5
1,534
10
70
254
125
—
459
1,993
—
—
—
162
328
14
4
5
513
10
71
108
7
2
198
711
2022 and
thereafter
—
—
—
6,635
6,336
30
4
—
—
—
—
160
310
11
3
—
484
13,005
7
74
106
7
2
196
680
1
145
337
—
—
483
13,488
(1)
Interest payments on floating rate debt have been estimated using rates in effect at December 31, 2016. Interest payments on debt that has been
hedged have been estimated using hedged rates.
(2)
Payments on outstanding derivatives have been estimated using exchange rates and commodity prices in effect at December 31, 2016.
99
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
NON-GAAP AND ADDITIONAL GAAP
MEASURES
Funds generated by operations is defined as cash flow from operations before changes in non-cash working
capital and change in receivable under service concession arrangement. In management’s opinion, funds
generated by operations is a significant performance indicator of the Company’s ability to generate cash during
a period to fund capital expenditures. Funds generated by operations does not have any standardized meaning
under IFRS and might not be comparable to similar measures presented by other companies. A reconciliation of
funds generated by operations to cash flows from operating activities is presented in this MD&A.
Adjusted earnings are defined as earnings attributable to Class I and Class II Shares after adjusting for the
timing of revenues and expenses associated with rate-regulated activities. Adjusted earnings also exclude one-
time gains and losses, significant impairments, and items that are not in the normal course of business or a
result of day-to-day operations.
Adjusted earnings present earnings from rate-regulated activities on the same basis as was used prior to
adopting IFRS - that basis being the U.S. accounting principles for rate-regulated activities. Management’s view
is that adjusted earnings allow for a more effective analysis of operating performance and trends. A
reconciliation of adjusted earnings to earnings attributable to Class I and Class II Shares is presented in this
MD&A. Adjusted earnings is an additional GAAP measure presented in Note 3 of the 2016 Annual Financial
Statements.
Capital investments is defined as cash used for capital expenditures and service concession arrangements.
Capital expenditures include additions to property, plant and equipment, intangibles and the Company's
proportional share of capital expenditures in joint ventures, as well as interest capitalized during construction.
In management's opinion, capital investment reflects the Company's total cash investment in assets.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 100
RECONCILIATION OF ADJUSTED
EARNINGS TO EARNINGS ATTRIBUTABLE
TO CLASS I AND CLASS II SHARES
Adjusted earnings are earnings attributable to Class I and Class II Shares after adjusting for the timing of
revenues and expenses associated with rate-regulated activities. Adjusted earnings also exclude one-time gains
and losses, significant impairments, and items that are not in the normal course of business or a result of day-
to-day operations.
Adjusted earnings are a key measure of segment earnings that management uses to assess segment
performance and allocate resources. It is management’s view that adjusted earnings allow a better assessment
of the economics of rate regulation in Canada and Australia than IFRS earnings.
($ millions)
2016
2015
Revenues
Adjusted earnings
Gain on sales of operations and
revaluation of joint venture
Restructuring costs
Impairment
Rate-regulated activities
Earnings attributable to Class I
and Class II Shares
Structures
& Logistics
Electricity
Pipelines
& Liquids
Corporate
& Other
Intersegment
Eliminations Consolidated
Three Months Ended
December 31
118
268
6
13
—
16
—
(6)
—
(42)
—
—
6
(19)
551
464
58
33
—
10
—
(13)
—
(14)
3
18
61
34
454
412
44
45
—
2
—
(19)
(5)
(35)
7
(4)
46
(11)
39
18
(14)
—
—
—
—
(6)
—
—
—
—
(14)
(6)
(30)
(35)
—
1
—
—
—
—
—
—
1
—
1
1
1,132
1,127
94
92
—
28
—
(44)
(5)
(91)
11
14
100
(1)
101 ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
($ millions)
2016
2015
Revenues
Adjusted earnings
Gain on sales of operations and
revaluation of joint venture
Restructuring costs
Impairments
Rate-regulated activities
Earnings attributable to Class I
and Class II Shares
Structures
& Logistics
Electricity
Pipelines
& Liquids
Corporate
& Other
Intersegment
Eliminations Consolidated
Year Ended
December 31
647
869
43
27
—
16
—
(7)
—
(55)
—
—
43
(19)
1,877
1,771
213
171
1,496
1,525
136
101
—
10
—
(17)
—
(14)
(4)
(5)
209
145
7
2
—
(20)
(5)
(35)
(22)
(9)
116
39
114
54
(33)
(7)
—
—
—
(6)
—
—
—
—
(33)
(13)
(89)
(88)
1
1
—
—
—
—
—
—
4
1
5
2
4,045
4,131
360
293
7
28
—
(50)
(5)
(104)
(22)
(13)
340
154
GAIN ON SALE OF OPERATIONS AND REVALUATION OF JOINT VENTURE
Structures & Logistics
In 2015, Structures & Logistics completed the sale of its Emissions Management business. Included in the sale
was Emissions Management's global operations in Canada, United States and Mexico and the transfer of
current contracts and employees. Proceeds on the sale were $60 million, of which $10 million was related to a
working capital true-up adjustment. In 2016, $7 million of the working capital was collected, the remaining
$3 million is receivable in 2017. The sale resulted in a gain of $16 million in 2016.
Electricity
In 2015, the Company increased its ownership in Thames Power Limited (TPL) from 50 per cent to 100 per cent.
TPL owns a 51 per cent interest in Barking Power Limited. Cash consideration for the purchase was $25 million.
This acquisition resulted in a revaluation gain of $10 million on the existing ownership interest in the Barking
land. This transaction was performed to strategically position ATCO Power for future opportunities in the UK
market, including the potential repowering of the existing Barking site if economically feasible in future years.
Pipelines & Liquids
In 2016, as a result of an ongoing review of economic conditions and prospects, the Company sold its
51.3 per cent interest in the Edmonton Ethane Extraction Plant. Proceeds from the sale totaled $21 million,
resulting in a one-time gain of $7 million. The proceeds will be deployed for continued capital growth in
industrial water infrastructure and hydrocarbon storage in Alberta's Industrial Heartland region.
In 2015, the Company sold certain non-core natural gas gathering and processing assets for proceeds of
$7 million cash, resulting in a gain of $2 million.
RESTRUCTURING COSTS
In 2015, the Company recorded restructuring costs of $50 million. These costs were primarily related to staff
reductions and associated severance costs as well as the restructuring of a fuel supply contract in ATCO Power.
These costs were incurred in order to maintain the Company's competitive position while continuing with safe
and reliable service for our customers.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 102
IMPAIRMENTS
Structures & Logistics
In 2015, the Company recorded impairment charges of $55 million relating to Structures & Logistics' open lodge
assets and workforce housing assets in North America and Australia. This charge was as a result of a sustained
reduction in contracted rooms and rates and reduced utilizations and rental rates charged as a result of
ongoing low commodity prices and reduced capital expenditure programs of key clients.
Electricity
In 2015, the Company recorded impairment charges of $14 million relating to the Battle River units 3 and 4
power generation assets. The Company determined that the net book value of these assets were not
recoverable for accounting purposes due to new emissions performance standards and new carbon pricing
announced in 2015 to phase out coal-fired electricity, which impacts emissions costs, and due to ongoing soft
market conditions in the Alberta power market.
Pipelines & Liquids
In 2016, the Company adjusted the deferred tax asset which was recognized as a result of the Tula Pipeline
Project impairment. The adjustment of $5 million is due to a difference between the tax base currency, which is
Mexican pesos, and the U.S. dollar functional currency.
In 2015, the Company recorded an impairment of $32 million relating to the Mexico Tula Pipeline Project. The
Company determined these construction work in progress assets were impaired as a result of significantly
higher land access costs than originally forecast.
In 2015, the Company recorded impairment charges of $3 million relating to certain gas processing facilities.
The Company determined that the carrying value of these assets exceeded the recoverable amounts due to a
significant and prolonged decline in commodity prices which reduced future cash flow forecasts.
RATE-REGULATED ACTIVITIES
There is currently no specific guidance under IFRS for rate-regulated entities that the Company is eligible to
adopt. In the absence of this guidance, the utilities do not recognize assets and liabilities from rate-regulated
activities as may be directed by regulatory decisions. Instead, the utilities recognize revenues in earnings when
amounts are billed to customers, consistent with the regulator-approved rate design. Operating costs and
expenses are recorded when incurred. Costs incurred in constructing an asset that meet the asset recognition
criteria are included in the related property, plant and equipment or intangible asset.
As a result, the Company uses standards issued by the Financial Accounting Standards Board (FASB) in the
United States as another source of generally accepted accounting principles (GAAP) to account for rate-
regulated activities in its internal reporting provided to the Chief Operating Decision Maker (CODM). The CODM
believes that earnings presented in accordance with the FASB standards are a better representation of the
operating results of the Company’s rate-regulated activities. Therefore, the Company presents adjusted
earnings as part of its segmented disclosures on this basis. Rate-regulated accounting (RRA) standards impact
the timing of how certain revenues and expenses are recognized when compared to non-rate regulated
activities, to appropriately reflect the economic impact of a regulators' decisions on revenues.
103 ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
Earnings adjustments to reflect rate-regulated accounting are shown in the following table.
($ millions)
Additional revenues billed in current period
Future removal and site restoration costs (1)
Finance costs on major transmission capital projects (2)
Revenues to be billed in future periods
Deferred income taxes (3)
Impact of temperatures on revenues (4)
Impact of inflation on rate base (5)
Regulatory decisions received
Settlement of regulatory decisions and other items
Three Months Ended
December 31
Year Ended
December 31
2016
2015 Change
2016
2015 Change
5
—
3
7
(11)
(11)
—
—
2
15
11
(4)
(1)
3
17
14
2
(7)
—
4
1
(1)
(2)
(3)
32
—
(48)
(15)
(5)
6
8
18
33
(86)
(11)
(6)
45
(6)
(22)
(13)
14
(33)
38
(4)
1
(39)
14
(9)
(1)
(2)
(3)
(4)
(5)
Removal and site restoration costs are billed to customers over the estimated useful life of the related assets based on forecast costs to be incurred
in future periods.
Finance costs incurred by ATCO Electric during construction of major transmission capital projects are billed to customers when incurred.
Income taxes are billed to customers when paid by the Company.
ATCO Gas' customer rates are based on a forecast of normal temperatures. Fluctuations in temperatures may result in more or less revenue being
recovered from customers than forecast. Revenues above or below the normal in the current period are refunded to or recovered from customers
in future periods.
The inflation-indexed portion of ATCO Gas Australia's rate base is billed to customers through the recovery of depreciation in subsequent periods
based on the actual rate of inflation. Under rate-regulated accounting, revenue is recognized in the current period for the inflation component of
rate base when it is earned. Differences between the amounts earned and the amounts billed to customers are deferred and recognized in
revenues over the service life of the related assets.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 104
Rate-regulated accounting differs from IFRS in the following ways:
Timing Adjustment
Items
RRA Treatment
IFRS Treatment
Additional
revenues billed
in current period
Revenues to be
billed in future
periods
Regulatory
decisions
received
Settlement of
regulatory
decisions and
other items
Future removal and site
restoration costs, finance
costs on major transmission
capital projects and impact
of colder temperatures.
Deferred income taxes,
transmission access
payments, transmission
capital deferral, impact of
warmer temperatures and
impact of inflation on rate
base for ATCO Gas Australia.
For further details on
regulatory decisions that
caused a timing adjustment
financial impact, refer to the
Regulatory Developments
section in this MD&A as well
as the Segmented
Information presented in
Note 3 of the 2016 Annual
Financial Statements.
Settlement of amounts
receivable or payable to
customers and other items.
The Company defers the
recognition of cash received
in advance of future
expenditures.
The Company recognizes
revenues associated with
recoverable costs in advance
of future billings to
customers.
The Company recognizes
revenues when amounts are
billed to customers and
costs when they are
incurred.
The Company recognizes
costs when they are
incurred, but does not
recognize their recovery until
customer rates are changed
and amounts are collected
through future billings.
The Company recognizes the
earnings from a regulatory
decision pertaining to
current and prior periods
when the decision is
received.
The Company does not
recognize earnings from a
regulatory decision when it
is received as regulatory
assets and liabilities are not
recorded under IFRS.
The Company recognizes the
amount receivable or
payable to customers as a
reduction in its regulatory
assets and liabilities when
collected or refunded
through future billings.
The Company recognizes
earnings when customer
rates are changed and
amounts are recovered or
refunded to customers
through future billings.
For further details on additional revenues billed in the current period, revenues to be billed in future periods,
and settlement of regulatory decisions and other items, refer to the Segmented Information presented in
Note 3 of the 2016 Annual Financial Statements.
105 ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
RECONCILIATION OF FUNDS GENERATED
BY OPERATIONS TO CASH FLOWS FROM
OPERATING ACTIVITIES
Funds generated by operations is defined as cash flow from operations before changes in non-cash working
capital and change in receivable under service concession arrangement. In management’s opinion, funds
generated by operations is a significant performance indicator of the Company’s ability to generate cash during
a period to fund capital expenditures. Funds generated by operations does not have any standardized meaning
under IFRS and might not be comparable to similar measures presented by other companies.
($ millions)
2016
2015
Funds generated by operations
Changes in non-cash working capital (1)
Change in receivable under service concession arrangement (2)
Cash flows from operating activities
Three Months Ended
December 31
Year Ended
December 31
600
354
(61)
45
(77)
—
462
399
1,912
1,589
(45)
91
(77)
—
1,790
1,680
(1)
(2)
Refer to Note 23 of the 2016 Annual Financial Statements for detailed descriptions of the adjustments.
Refer to Note 15 of the 2016 Annual Financial Statements for a detailed description of the adjustment.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 106
OTHER FINANCIAL INFORMATION
OFF-BALANCE SHEET ARRANGEMENTS
ATCO Ltd. does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a
current or future effect on the results of operations or financial condition, including, without limitation, the
Company's liquidity and capital resources.
CONTINGENCIES
The Company can be party to a number of disputes and lawsuits in the normal course of business. The
Company believes the ultimate liability arising from these matters will have no material impact on its
consolidated financial statements.
SIGNIFICANT ACCOUNTING ESTIMATES
The Company’s significant accounting estimates are described in Note 27 of the 2016 Annual Consolidated
Financial Statements, which are prepared in accordance with IFRS. Management makes estimates and
judgments that could significantly affect how policies are applied, amounts in the consolidated financial
statements are reported, and contingent assets and liabilities are disclosed. Most often these estimates and
judgments concern matters that are inherently complex and uncertain. Judgments and estimates are reviewed
on an ongoing basis; changes to accounting estimates are recognized prospectively.
ACCOUNTING CHANGES
Certain new or amended standards or interpretations issued by the International Accounting Standards Board
(IASB) or IFRS Interpretations Committee (IFRIC) do not have to be adopted in the current period.
The standards issued, but not yet effective, which the Company anticipates may have a material effect on the
consolidated financial statements are described below:
•
•
IFRS 15 Revenue from Contracts with Customers - this standard replaces IAS 18 Revenue and related
interpretations and is effective on or after January 1, 2018. It provides a framework to determine when
to recognize revenue and at what amount. It applies to new contracts created on or after the effective
date and to existing contracts not yet completed as of the effective date. The Company is party to
numerous contracts with customers that will be impacted by the new standard. Under IFRS 15, the
timing of revenue recognition for certain contracts may be significantly impacted by the new revenue
recognition model and transitional adjustments are currently being reviewed. The Company will not
early adopt the standard.
IFRS 16 Leases - this standard replaces IAS 17 Leases and related interpretations and is effective on or
after January 1, 2019. It requires a lessee to recognize assets and liabilities on the balance sheet for the
rights and obligations created by leases. Lessor accounting remains substantially unchanged. The
Company is currently assessing the impact and will not early adopt the standard.
There are no other standards or interpretations issued, but not yet effective, that the Company anticipates may
have a material effect on the consolidated financial statements once adopted.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of December 31, 2016, management evaluated the effectiveness of the Company’s disclosure controls and
procedures as required by the Canadian Securities Administrators. This evaluation was performed under the
supervision of, and with the participation of, the Chief Executive Officer (CEO) and the Chief Financial Officer
(CFO).
107 ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
Disclosure controls and procedures are designed to provide reasonable assurance that information required to
be disclosed in documents filed with securities regulatory authorities is recorded, processed, summarized and
reported on a timely basis. The controls also seek to assure this information is accumulated and communicated
to management, including the CEO and the CFO, as appropriate, to allow timely decisions on required
disclosure.
Management, including the CEO and the CFO, does not expect the Company's disclosure controls and
procedures will prevent or detect all errors. The inherent limitations in all control systems are that they can
provide only reasonable, not absolute, assurance that all control issues and instances of error, if any, within the
Company have been detected.
Based on this evaluation, the CEO and the CFO have concluded that the Company’s disclosure controls and
procedures were effective at December 31, 2016.
Internal Control Over Financial Reporting
As of December 31, 2016, management evaluated the effectiveness of the Company’s internal control over
financial reporting as required by the Canadian Securities Administrators. This evaluation was performed under
the supervision of, and with the participation of, the CEO and the CFO.
The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with IFRS. Internal control over financial reporting, no matter how well designed, has inherent
limitations. Therefore, internal control over financial reporting can provide only reasonable assurance regarding
the reliability of financial statement preparation and may not prevent or detect all misstatements.
Based on this evaluation, the CEO and the CFO have concluded that the Company’s internal control over
financial reporting was effective at December 31, 2016.
There was no change in the Company’s internal control over financial reporting that occurred during the period
beginning on January 1, 2016, and ended on December 31, 2016, that materially affected, or is reasonably likely
to materially affect, the Company’s internal control over financial reporting.
FORWARD LOOKING INFORMATION
Certain statements contained in this MD&A constitute forward-looking information. Forward-looking
information is often, but not always, identified by the use of words such as “anticipate”, “plan”, “estimate”,
“expect”, “may”, “will”, “intend”, “should”, and similar expressions. Forward-looking information involves known
and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially
from those anticipated in such forward-looking information. The Company believes that the expectations
reflected in the forward-looking information are reasonable, but no assurance can be given that these
expectations will prove to be correct and such forward-looking information should not be unduly relied upon.
The Company’s actual results could differ materially from those anticipated in any forward-looking information
contained in this MD&A as a result of regulatory decisions, competitive factors in the industries in which the
Company operates, prevailing economic conditions, and other factors, many of which are beyond the control of
the Company.
Any forward-looking information contained in this MD&A represents the Company’s expectations as of the date
hereof, and is subject to change after such date. The Company disclaims any intention or obligation to update
or revise any forward-looking information whether as a result of new information, future events or otherwise,
except as required by applicable securities legislation.
ADDITIONAL INFORMATION
ATCO has published its audited consolidated financial statements and its MD&A for the year ended December
31, 2016. Copies of these documents may be obtained upon request from Investor Relations at 1500, 909 -11th
Avenue S.W., Calgary, Alberta, T2R 1N6, telephone 403-292-7500, fax 403-292-7532 or email
investorrelations@atco.com.
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 108
GLOSSARY
AESO means the Alberta Electric System Operator.
Alberta Power Pool means the market for electricity
in Alberta operated by AESO.
Alberta Utilities means ATCO Electric Distribution,
ATCO Electric Transmission, ATCO Gas and ATCO
Pipelines.
GAAP means Canadian generally accepted
accounting principles.
Gigajoule (GJ) is a unit of energy equal to
approximately 948.2 thousand British thermal units.
IFRS means International Financial Reporting
Standards.
AUC means the Alberta Utilities Commission.
Km means kilometre.
Availability is a measure of time, expressed as a
percentage of continuous operation, that a
generating unit is capable of producing electricity,
regardless of whether the unit is actually generating
electricity.
Class I Shares means Class I Non-Voting Shares of
the Company.
Class II Shares means Class II Voting Shares of the
Company.
CODM means Chief Operating Decision Maker, and is
comprised of the Chair, President and Chief Executive
Officer, and five other senior executives.
Company means ATCO Ltd. and, unless the context
otherwise requires, includes its subsidiaries.
DRIP means the dividend reinvestment plan of
Canadian Utilities (refer to the Canadian Utilities
Dividend Reinvestment Plan section of this MD&A).
Earnings means Adjusted Earnings as defined in the
Non-GAAP and Additional GAAP Measures section of
this MD&A.
ERA means the Economic Regulatory Authority
(Western Australia).
Facilitator means Mr. Terry Boston, who was
appointed as the Coal Phase-Out Facilitator to help
navigate the province's transition from coal to cleaner
sources of power.
Frac spread means the premium or discount
between the purchase price of natural gas and the
selling price of extracted natural gas liquids on a heat
content equivalent basis.
LNG means liquefied natural gas.
Megawatt (MW) is a measure of electric power equal
to 1,000,000 watts.
Megawatt hour (MWh) is a measure of electricity
consumption equal to the use of 1,000,000 watts of
power over a one-hour period.
NGL means natural gas liquids, such as ethane,
propane, butane and pentanes plus, that are
extracted from natural gas and sold as distinct
products or as a mix.
PBR means Performance Based Regulation.
PPA means Power Purchase Arrangements that
became effective on January 1, 2001, as part of the
process of restructuring the electric utility business in
Alberta. PPA are legislatively mandated and approved
by the AUC.
Regulated Utilities means ATCO Electric
Distribution, ATCO Electric Transmission, ATCO Gas,
ATCO Pipelines and ATCO Gas Australia.
Spark spread is the difference between the selling
price of electricity and the marginal cost of producing
electricity from natural gas. In this MD&A, spark
spreads are based on an approximate industry heat
rate of 7.5 GJ per MWh.
U.K. means United Kingdom.
U.S. means United States of America.
109 ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
APPENDIX 1
FOURTH QUARTER FINANCIAL
INFORMATION
Financial information for the three months ended December 31, 2016 and 2015 is shown below.
CONSOLIDATED STATEMENT OF EARNINGS
(millions of Canadian Dollars except per share data)
Revenues
Costs and expenses
Salaries, wages and benefits
Energy transmission and transportation
Plant and equipment maintenance
Fuel costs
Purchased power
Service concession arrangement costs
Materials and consumables
Depreciation, amortization and impairment
Franchise fees
Property and other taxes
Other
Gain on sales of operations and revaluation of joint venture
Earnings from investment in joint ventures
Operating profit
Interest income
Interest expense
Net finance costs
Earnings before income taxes
Income taxes
Earnings for the period
Earnings attributable to:
Class I and Class II Shares
Non-controlling interests
Earnings per Class I and Class II Share
Diluted earnings per Class I and Class II Share
Three Months Ended
December 31
2015
1,127
(218)
(47)
(94)
(50)
(21)
—
(149)
(328)
(51)
(19)
(88)
(1,065)
49
(3)
108
4
(83)
(79)
29
2
31
(1)
32
31
$(0.01)
$(0.01)
2016
1,132
(164)
(51)
(76)
(36)
(25)
(69)
(44)
(153)
(60)
(23)
(48)
(749)
—
9
392
5
(101)
(96)
296
(92)
204
100
104
204
$0.88
$0.87
ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS 110
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions of Canadian Dollars)
Operating activities
Earnings for the period
Adjustments to reconcile earnings to cash flows from operating activities
Changes in non-cash working capital
Change in receivable under service concession arrangement
Cash flows from operating activities
Investing activities
Additions to property, plant and equipment
Proceeds on disposal of property, plant and equipment
Additions to intangibles
Acquisition of Thames Power Limited
Proceeds on sales of operations
Investment in joint ventures
Changes in non-cash working capital
Other
Cash flows used in investing activities
Financing activities
Net issue of short-term debt
Issue of long-term debt
Repayment of long-term debt
Repayment of non-recourse long-term debt
Issue of shares by subsidiary companies
Net issue (purchase) of Class I Shares
Dividends paid to Class I and Class II Share owners
Dividends paid to non-controlling interests
Interest paid
Other
Cash flows (used in) from financing activities
Decrease in cash position
Foreign currency translation
Beginning of period
End of period
Three Months Ended
December 31
2016
2015
204
396
(61)
(77)
462
(339)
1
(41)
—
—
(12)
(37)
2
(426)
(320)
375
(3)
(5)
12
2
(33)
(46)
(107)
(9)
(134)
(98)
(1)
700
601
31
323
45
—
399
(513)
—
(89)
(25)
57
(8)
84
(17)
(511)
—
278
(57)
(5)
3
(6)
(28)
(44)
(102)
1
40
(72)
13
858
799
111 ATCO LTD. 2016 MANAGEMENT'S DISCUSSION & ANALYSIS
ATCO LTD.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2016
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENT 112
TABLE OF CONTENTS
Management's Responsibility for Financial Reporting ..............................................................................................
Independent Auditor’s Report .........................................................................................................................................
Consolidated Statement of Earnings .............................................................................................................................
Consolidated Statement of Comprehensive Income .................................................................................................
Consolidated Balance Sheet.............................................................................................................................................
Consolidated Statement of Changes in Equity ............................................................................................................
Consolidated Statement of Cash Flow ...........................................................................................................................
Notes to Consolidated Financial Statements
General Information
1.
2.
The Company and its Operations........................................................................................................................
Basis of Presentation ............................................................................................................................................
Information on Financial Performance
Segmented Information .......................................................................................................................................
3.
4.
Revenues ................................................................................................................................................................
5. Other Costs and Expenses ...................................................................................................................................
Sales of Operations and Revaluation of Joint Venture......................................................................................
6.
Interest Expense ....................................................................................................................................................
7.
Income Taxes .........................................................................................................................................................
8.
Earnings per Share ................................................................................................................................................
9.
Information on Financial Position
10. Leases .....................................................................................................................................................................
Inventories .............................................................................................................................................................
11.
12. Property, Plant and Equipment ...........................................................................................................................
13.
Intangibles ..............................................................................................................................................................
14. Goodwill ..................................................................................................................................................................
15. Receivable under Service Concession Arrangement.........................................................................................
16. Short-Term Debt ....................................................................................................................................................
17. Asset Retirement Obligations and Other Provisions.........................................................................................
18. Long-Term Debt .....................................................................................................................................................
19. Non-Recourse Long-Term Debt ...........................................................................................................................
20. Retirement Benefits ..............................................................................................................................................
21. Deferred Revenues................................................................................................................................................
22. Class I and Class II Shares.....................................................................................................................................
Information on Cash Flow
Page
114
115
116
117
118
119
120
121
121
122
128
128
128
129
129
132
133
134
135
137
138
138
138
139
140
141
141
146
147
23. Cash Flow Information ..........................................................................................................................................
148
Risk
24. Financial Instruments ...........................................................................................................................................
25. Risk Management ..................................................................................................................................................
26. Capital Disclosures ................................................................................................................................................
27. Significant Judgments, Estimates and Assumptions .........................................................................................
Group Structure
28. Subsidiaries ............................................................................................................................................................
29.
Joint Arrangements ...............................................................................................................................................
30. Non-controlling Interests......................................................................................................................................
Other Information
31. Share-Based Compensation Plans ......................................................................................................................
32. Contingencies ........................................................................................................................................................
33. Commitments ........................................................................................................................................................
34. Related Party Transactions...................................................................................................................................
35. Accounting Policies................................................................................................................................................
149
152
156
157
159
159
161
163
165
166
166
167
113 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT'S RESPONSIBILITY FOR
FINANCIAL REPORTING
Management is responsible for preparing the consolidated financial statements in accordance with International
Financial Reporting Standards, which include amounts based on estimates and judgments. Management is also
responsible for the preparation of the Management's Discuss and Analysis and other financial information contained in
the Company's Annual Report, and ensures that it is consistent with the consolidated financial statements.
Management has established internal accounting and financial reporting control systems, which are subject to periodic
review by the Company’s internal auditors, to meet its responsibility for reliable and accurate reporting. Integral to these
control systems are a code of ethics and management policies that provide guidance and direction to employees, as well
as a system of corporate governance that provides oversight to the Company’s operating, reporting and risk
management activities.
The consolidated financial statements are approved by the Board of Directors on the recommendation of the Audit &
Risk Committee. The Audit & Risk Committee is comprised entirely of independent Directors. The Audit & Risk
Committee meets regularly with management and the independent auditors to review significant accounting and
financial reporting matters, to assure that management is carrying out its responsibilities and to review and approve the
consolidated financial statements.
PricewaterhouseCoopers LLP, our independent auditors, are engaged to perform an audit of the consolidated financial
statements and expresses a professional opinion on the results. The Independent Auditor's Report to the Share Owners
appears on the following page. PricewaterhouseCoopers LLP have full and independent access to the Audit & Risk
Committee and management to discuss their audit and related matters.
[Original signed by N.C. Southern]
[Original signed by B.R. Bale]
Chair, President & Chief Executive Officer
Senior Vice President & Chief Financial Officer
114
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 2
March 2, 2017
Independent Auditor’s Report
To the Share Owners of ATCO Ltd.
We have audited the accompanying consolidated financial statements of ATCO Ltd. and its subsidiaries, which
comprise the consolidated balance sheets as at December 31, 2016 and December 31, 2015 and the
consolidated statements of earnings, comprehensive income, changes in equity and cash flow for the years
then ended, and the related notes, which comprise a summary of significant accounting policies and other
explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal control as
management determines is necessary to enable the preparation of consolidated financial statements that are
free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a
basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of ATCO Ltd. and its subsidiaries as at December 31, 2016 and December 31, 2015 and their financial
performance and their cash flows for the years then ended in accordance with International Financial Reporting
Standards.
Chartered Professional Accountants
Calgary, Alberta
PricewaterhouseCoopers LLP
111 5th Avenue SW, Suite 3100, Calgary, Alberta, Canada T2P 5L3
T: +1 403 509 7500, F: +1 403 781 1825, www.pwc.com/ca
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
115 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF EARNINGS
(millions of Canadian Dollars except per share data)
Revenues
Costs and expenses
Salaries, wages and benefits
Energy transmission and transportation
Plant and equipment maintenance
Fuel costs
Purchased power
Service concession arrangement costs
Materials and consumables
Depreciation, amortization and impairment
Franchise fees
Property and other taxes
Other
Gain on sales of operations and revaluation of joint venture
Earnings from investment in joint ventures
Operating profit
Interest income
Interest expense
Net finance costs
Earnings before income taxes
Income taxes
Earnings for the year
Earnings attributable to:
Class I and Class II Shares
Non-controlling interests
Earnings per Class I and Class II Share
Diluted earnings per Class I and Class II Share
See accompanying Notes to Consolidated Financial Statements.
Year Ended
December 31
2015
4,131
(696)
(189)
(298)
(244)
(78)
—
(510)
(756)
(201)
(87)
(281)
(3,340)
49
3
843
13
(302)
(289)
554
(198)
356
154
202
356
$1.34
$1.33
2016
4,045
(581)
(216)
(244)
(130)
(81)
(69)
(315)
(615)
(205)
(101)
(215)
(2,772)
18
22
1,313
16
(396)
(380)
933
(258)
675
340
335
675
$2.97
$2.96
Note
4
15
12,13
5
6
29
7
8
9
9
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 116
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
(millions of Canadian Dollars)
Earnings for the year
Other comprehensive (loss) income, net of income taxes
Items that will not be reclassified to earnings:
Re-measurement of retirement benefits (1)
Share of re-measurement of retirement benefits of joint ventures (2)
Items that are or may be reclassified subsequently to earnings:
Cash flow hedges (3)
Cash flow hedges reclassified to earnings (4)
Foreign currency translation adjustment (4)
Share of other comprehensive income of joint ventures (4)
Other comprehensive (loss) income
Comprehensive income for the year
Comprehensive income attributable to:
Class I and Class II Shares
Non-controlling interests
(1) Net of income taxes of $3 million for the year ended December 31, 2016 (2015 - $(43) million).
(2) Net of income taxes of nil for the year ended December 31, 2016 (2015 - $1 million).
(3) Net of income taxes of $(3) million for the year ended December 31, 2016 (2015 - nil).
(4) Net of income taxes of nil.
See accompanying Notes to Consolidated Financial Statements.
Note
20
29
29
Year Ended
December 31
2015
356
77
(2)
75
—
(2)
92
1
91
166
522
259
263
522
2016
675
(16)
—
(16)
6
1
(49)
1
(41)
(57)
618
305
313
618
117 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
(millions of Canadian Dollars)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable
Finance lease receivables
Inventories
Income taxes receivable
Prepaid expenses and other current assets
Non-current assets
Property, plant and equipment
Intangibles
Goodwill
Investment in joint ventures
Finance lease receivables
Deferred income tax assets
Receivable under service concession arrangement
Other assets
Total assets
LIABILITIES
Current liabilities
Bank indebtedness
Accounts payable and accrued liabilities
Asset retirement obligations and other provisions
Other current liabilities
Short-term debt
Long-term debt
Non-recourse long-term debt
Non-current liabilities
Deferred income tax liabilities
Asset retirement obligations and other provisions
Retirement benefit obligations
Deferred revenues
Other liabilities
Long-term debt
Non-recourse long-term debt
Total liabilities
EQUITY
Class I and Class II Share owners' equity
Class I and Class II Shares
Contributed surplus
Retained earnings
Accumulated other comprehensive income
Non-controlling interests
Total equity
Total liabilities and equity
See accompanying Notes to Consolidated Financial Statements.
Note
2016
December 31
2015
23
10
11
8
12
13
14
29
10
8
15
17
16
18
19
8
17
20
21
18
19
22
30
606
603
12
56
49
58
1,384
16,941
546
71
239
302
67
77
97
19,724
5
694
48
18
55
155
14
989
1,199
134
332
1,689
33
8,065
84
12,525
167
11
3,345
23
3,546
3,653
7,199
19,724
800
624
9
87
33
58
1,611
16,230
502
71
194
302
82
—
63
19,055
1
847
79
17
—
5
15
964
1,007
154
307
1,649
46
7,938
97
12,162
165
11
3,130
50
3,356
3,537
6,893
19,055
[Original Signed by N.C. Southern]
[Original Signed by R.J. Urwin]
DIRECTOR
DIRECTOR
118
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 6
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(millions of Canadian Dollars)
December 31, 2014
Earnings for the year
Other comprehensive income
Gains on retirement benefits transferred to
retained earnings
Equity preferred shares issued by subsidiary company,
net of issue costs
Shares issued, purchased and cancelled
Dividends
Share-based compensation
Changes in ownership interest in subsidiary company (1)
Other
December 31, 2015
Earnings for the year
Other comprehensive loss
Losses on retirement benefits transferred to
retained earnings
Shares issued, purchased and cancelled
Dividends
Share-based compensation
Changes in ownership interest in subsidiary company (1)
Other
Attributable to Equity Owners of the Company
Class I and
Class II
Shares
Note
Contributed
Surplus
Retained
Earnings
Accumulated Other
Comprehensive
Income
Non-
Controlling
Interests
Total
Total
Equity
161
11
—
—
—
—
—
4
—
—
—
—
—
—
—
—
—
—
165
11
—
—
—
(1)
—
3
—
—
—
—
—
—
—
—
—
—
3,010
154
—
41
—
(10)
(114)
3
46
—
3,130
340
—
(8)
(17)
(131)
—
31
—
20
30
22,30
22,30
31
20
22,30
22,30
31
(14)
3,168
3,112
6,280
154
105
—
—
(10)
(114)
7
46
—
202
61
356
166
—
—
368
47
368
37
(210)
(324)
1
(46)
2
8
—
2
3,356
3,537
6,893
340
(35)
—
(18)
(131)
3
31
—
335
(22)
—
63
675
(57)
—
45
(239)
(370)
5
(31)
5
8
—
5
105
(41)
—
—
—
—
—
—
50
—
(35)
8
—
—
—
—
—
December 31, 2016
167
11
3,345
23
3,546
3,653
7,199
(1) The changes in ownership interest in subsidiary company are due to Canadian Utilities Limited's dividend reinvestment plan and share-based compensation plans.
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOW
(millions of Canadian Dollars)
Operating activities
Earnings for the year
Adjustments to reconcile earnings to cash flows from operating activities
Changes in non-cash working capital
Change in receivable under service concession arrangement
Cash flows from operating activities
Investing activities
Additions to property, plant and equipment
Proceeds on disposal of property, plant and equipment
Additions to intangibles
Acquisition of Thames Power Limited
Proceeds on sales of operations
Investment in joint ventures
Changes in non-cash working capital
Other
Cash flows used in investing activities
Financing activities
Net issue of short-term debt
Issue of long-term debt
Repayment of long-term debt
Repayment of non-recourse long-term debt
Issue of equity preferred shares by subsidiary company
Issue of shares by subsidiary companies
Net purchase of Class I Shares
Dividends paid to Class I and Class II Share owners
Dividends paid to non-controlling interests
Interest paid
Other
Cash flows (used in) from financing activities
(Decrease) increase in cash position (1)
Foreign currency translation
Beginning of year
End of year
(1) Cash position includes $40 million which is not available for general use by the Company (2015 - $49 million).
See accompanying Notes to Consolidated Financial Statements.
Note
2016
2015
Year Ended
December 31
675
1,237
(45)
(77)
356
1,233
91
—
1,790
1,680
(1,338)
(1,637)
15
(95)
—
28
(85)
(137)
1
1
(134)
(25)
57
(28)
(60)
(27)
(1,611)
(1,853)
55
450
(144)
(15)
—
15
(15)
(131)
(187)
(394)
(1)
(367)
(188)
(10)
799
601
—
795
(152)
(15)
375
4
(7)
(114)
(163)
(370)
(10)
343
170
39
590
799
23
23
15
6
6
23
16
30
22
30
23
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 120
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2016
(Tabular amounts in millions of Canadian Dollars, except as otherwise noted)
1. THE COMPANY AND ITS OPERATIONS
ATCO Ltd. was incorporated under the laws of the province of Alberta and is listed on the Toronto Stock Exchange. Its
head office and registered office is at 700, 909-11th Avenue SW, Calgary, Alberta, T2R 1N6. The Company is controlled by
Sentgraf Enterprises Ltd. and its controlling share owner, the Southern family.
ATCO Ltd. is engaged in the following business activities:
•
•
•
Structures & Logistics (workforce housing, innovative modular facilities, construction, site support services, and
logistics and operations management);
Electricity (electricity generation, distributed generation, and electricity distribution, transmission and
infrastructure development); and
Pipelines & Liquids (natural gas transmission, distribution and infrastructure development, energy storage, and
industrial water solutions).
The consolidated financial statements include the accounts of ATCO Ltd. and its subsidiaries (see Note 28). The
statements also include the accounts of a proportionate share of the Company's investments in joint operations and its
equity-accounted investments in joint ventures. In these financial statements, "the Company" means ATCO Ltd., its
subsidiaries and joint arrangements.
2. BASIS OF PRESENTATION
STATEMENT OF COMPLIANCE
The consolidated financial statements are prepared according to International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB) and interpretations of the IFRS Interpretations
Committee (IFRIC).
The Board of Directors (Board) authorized these consolidated financial statements for issue on March 2, 2017.
BASIS OF MEASUREMENT
The consolidated financial statements are prepared on a historic cost basis, except for derivative financial instruments,
retirement benefit obligations and cash-settled share-based compensation liabilities which are carried at remeasured
amounts or fair value. The Company's significant accounting policies are described in Note 35.
Certain comparative figures have been reclassified to conform to the current presentation.
FUNCTIONAL AND PRESENTATION CURRENCY
The consolidated financial statements are presented in Canadian dollars. Each entity within the Company determines its
own functional currency based on the primary economic environment in which it operates.
121 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
USE OF ESTIMATES AND JUDGEMENTS
Management makes estimates and judgments that could significantly affect how policies are applied, amounts in the
consolidated financial statements are reported, and contingent assets and liabilities are disclosed. Most often these
estimates and judgments concern matters that are inherently complex and uncertain. Judgments and estimates are
reviewed on an on-going basis; changes to accounting estimates are recognized prospectively. The significant
judgments, assumptions and estimates are described in Note 27.
3. SEGMENTED INFORMATION
The Company’s operating segments are reported in a manner consistent with the internal reporting provided to the
Chief Operating Decision Maker (CODM). The CODM is comprised of the Chair, President and Chief Executive Officer,
and five other senior executives.
The accounting policies applied by the segments are the same as those applied by the Company, except for those used
in the calculation of adjusted earnings. Intersegment transactions are measured at the exchange amount, as agreed to
by the related parties.
Management has determined that the operating subsidiaries in the reportable segments below share similar economic
characteristics, as such, they have been aggregated.
SEGMENT DESCRIPTIONS AND PRINCIPAL OPERATING ACTIVITIES
Structures & Logistics
The Structures & Logistics segment includes ATCO Structures & Logistics and ATCO
Sustainable Communities. Together these companies offer workforce housing, modular
facilities, site support services and logistics and operations management.
Electricity
Pipelines & Liquids
The segment also included the Emissions Management business until it was sold on
December 31, 2015 (see Note 6). Emissions Management provided noise and air emissions
control and waste heat recovery systems for industrial facilities.
The Electricity segment includes ATCO Electric, ATCO Power, Alberta PowerLine, and ATCO
Power Australia. Together these businesses provide electricity generation, transmission,
distribution and related infrastructure solutions in Western Alberta, Ontario, the Yukon, the
Northwest Territories and Australia.
The Pipelines & Liquids segment includes ATCO Gas, ATCO Pipelines, ATCO Gas Australia,
ATCO Energy Solutions and ATCO Pipelines Mexico. These businesses provide integrated
natural gas transmission, distribution and storage, industrial water solutions and related
infrastructure development throughout Alberta, the Lloydminster area of Saskatchewan,
Western Australia and Mexico.
Corporate & Other
The Corporate & Other segment includes commercial real estate owned by the Company in
Alberta and ATCO Energy, a retail electricity and natural gas business in Alberta.
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 122
SEGMENTED RESULTS
Results by operating segment for the year ended December 31 is shown below.
2016
2015
Revenues - external
Revenues - intersegment
Revenues
Operating expenses (1)
Depreciation, amortization
and impairment
Gain on sales of operations and
revaluation of joint venture
Earnings from investment
in joint ventures
Net finance costs
Earnings before income taxes
Income taxes
Earnings for the year
Adjusted earnings
Total assets
Capital expenditures (2)
Structures
& Logistics
Electricity
Pipelines
& Liquids
Corporate
& Other
Intersegment
Eliminations
Consolidated
646
867
1
2
647
869
(545)
(796)
(40)
(113)
—
19
5
(9)
(1)
(2)
66
(32)
(17)
10
49
(22)
43
27
790
929
70
61
1,852
1,758
25
13
1,877
1,771
(735)
(874)
(357)
(343)
—
25
17
12
(249)
(158)
553
433
(151)
(153)
402
280
213
171
11,506
11,060
572
935
1,474
1,487
22
38
1,496
1,525
(829)
(960)
(220)
(297)
18
5
—
—
(142)
(137)
323
136
(100)
(58)
223
78
136
101
6,919
6,394
734
824
73
19
41
35
114
54
(138)
(46)
(11)
(7)
—
—
—
—
13
13
(22)
14
14
2
(8)
16
(33)
(7)
600
697
75
48
—
—
(89)
(88)
(89)
(88)
90
92
13
4
—
—
—
—
(1)
(5)
13
3
(4)
1
9
4
1
1
(91)
(25)
—
—
4,045
4,131
—
—
4,045
4,131
(2,157)
(2,584)
(615)
(756)
18
49
22
3
(380)
(289)
933
554
(258)
(198)
675
356
360
293
19,724
19,055
1,451
1,868
(1)
Includes total costs and expenses, excluding depreciation, amortization and impairment expense.
(2)
Includes additions to property, plant and equipment and intangibles and $18 million of interest capitalized during construction for the year ended
December 31, 2016 (2015 - $97 million).
GEOGRAPHIC SEGMENTS
Financial information by geographic area is summarized below.
Revenues - external
Canada
Australia
Other
Total
123 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
2016
3,598
364
83
4,045
2015
3,429
533
169
4,131
Non-current assets
Canada
Australia
Other
Total
Property, Plant
and Equipment
2016
15,405
1,278
258
16,941
2015
14,863
1,282
85
16,230
Intangible Assets
Other Assets (1)
2016
531
15
—
546
2015
494
8
—
502
2016
247
35
31
313
2015
173
37
44
254
2016
16,183
1,328
289
17,800
Total
2015
15,530
1,327
129
16,986
(1) Other assets exclude financial instruments, deferred income tax assets and goodwill.
ADJUSTED EARNINGS
Adjusted earnings are earnings attributable to Class I and Class II Shares after adjusting for:
•
•
•
•
the timing of revenues and expenses for rate-regulated activities,
one-time gains and losses,
significant impairments, and
items that are not in the normal course of business or a result of day-to-day operations.
Adjusted earnings are a key measure of segment earnings used by the CODM to assess segment performance and
allocate resources. Other accounts in the consolidated financial statements have not been adjusted as they are not used
by the CODM for those purposes.
The reconciliation of adjusted earnings and earnings for the year ended December 31 is shown below.
2016
2015
Adjusted earnings
Gain on sales of operations and
revaluation of joint venture
Restructuring costs
Impairments
Rate-regulated activities
Earnings attributable to Class I
and Class II Shares
Earnings attributable to
non-controlling interests
Earnings for the year
Structures
& Logistics
Electricity
Pipelines
& Liquids
Corporate
& Other
Intersegment
Eliminations
Consolidated
43
27
—
16
—
(7)
—
(55)
—
—
43
(19)
213
171
—
10
—
(17)
—
(14)
(4)
(5)
209
145
136
101
7
2
—
(20)
(5)
(35)
(22)
(9)
116
39
(33)
(7)
—
—
—
(6)
—
—
—
—
(33)
(13)
1
1
—
—
—
—
—
—
4
1
5
2
360
293
7
28
—
(50)
(5)
(104)
(22)
(13)
340
154
335
202
675
356
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 124
Gain on sales of operations and revaluation of joint venture
The Company adjusted for the following one-time gains and losses, after-tax and non-controlling interests (NCI), in 2016
and 2015:
Natural gas gathering and processing assets
Emissions Management business
Thames Power Limited
Restructuring costs
Note
6
6
6
Segment
2016
2015
Pipelines & Liquids
Structures & Logistics
Electricity
7
—
—
7
2
16
10
28
In 2015, the Company recorded restructuring costs of $50 million, after-tax and NCI, that were not in the normal course
of business. These costs were primarily related to severance costs associated with staff reductions and lease
termination costs.
Impairments
The Company adjusted for the following impairments, after-tax and NCI, in 2016 and 2015:
Natural gas pipeline and processing assets (1)
Lodge and workforce housing assets
Electricity generation assets
Note
12
12,29
12
Segment
2016
Pipelines & Liquids
Structures & Logistics
Electricity
5
—
—
5
2015
35
55
14
104
(1)
In 2016, the Company adjusted the deferred tax asset which was recognized as a result of the Tula Pipeline Project impairment. The adjustment of $5 million is
due to a difference between the tax base currency, which is Mexican pesos, and the U.S. dollar functional currency.
Rate-regulated activities
ATCO Electric and its subsidiaries, ATCO Electric Yukon, Northland Utilities (NWT) and Northland Utilities (Yellowknife), as
well as ATCO Gas, ATCO Pipelines and ATCO Gas Australia are collectively referred to in the consolidated financial
statements as utilities.
There is currently no specific guidance under IFRS for rate-regulated entities that the Company is eligible to adopt. In the
absence of this guidance, the utilities do not recognize assets and liabilities from rate-regulated activities as may be
directed by regulatory decisions. Instead, the utilities recognize revenues in earnings when amounts are billed to
customers, consistent with the regulator-approved rate design. Operating costs and expenses are recorded when
incurred. Costs incurred in constructing an asset that meet the asset recognition criteria are included in the related
property, plant and equipment or intangible asset.
The Company uses standards issued by the Financial Accounting Standards Board (FASB) in the United States as another
source of generally accepted accounting principles (GAAP) to account for rate-regulated activities in its internal reporting
provided to the CODM. The CODM believes that earnings presented in accordance with the FASB standards are a better
representation of the operating results of the Company’s rate-regulated activities. Therefore, the Company presents
adjusted earnings as part of its segmented disclosures on this basis. Rate-regulated accounting (RRA) standards impact
the timing of how certain revenues and expenses are recognized when compared to non-rate regulated activities, to
appropriately reflect the economic impact of a regulators' decisions on revenues.
125 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
Rate-regulated accounting differs from IFRS in the following ways:
Timing Adjustment
Items
RRA Treatment
IFRS Treatment
The Company defers the
recognition of cash received
in advance of future
expenditures.
The Company recognizes
revenues when amounts are
billed to customers and costs
when they are incurred.
1. Additional
revenues billed in
current period
2. Revenues to be
billed in future
periods
Future removal and site
restoration costs, finance costs
on major transmission capital
projects and impact of colder
temperatures.
Deferred income taxes,
transmission access payments,
transmission capital deferral,
impact of warmer temperatures
and impact of inflation on rate
base for ATCO Gas Australia.
The Company recognizes
revenues associated with
recoverable costs in advance
of future billings to
customers.
3. Regulatory
decisions received
Regulatory decisions received
which relate to current and prior
periods. See regulatory decisions
below.
The Company recognizes the
earnings from a regulatory
decision pertaining to current
and prior periods when the
decision is received.
The Company recognizes
costs when they are incurred,
but does not recognize their
recovery until customer rates
are changed and amounts
are collected through future
billings.
The Company does not
recognize earnings from a
regulatory decision when it is
received as regulatory assets
and liabilities are not
recorded under IFRS.
4. Settlement of
regulatory
decisions and
other items
Settlement of amounts
receivable or payable to
customers and other items.
The Company recognizes the
amount receivable or
payable to customers as a
reduction in its regulatory
assets and liabilities when
collected or refunded
through future billings.
The Company recognizes
earnings when customer
rates are changed and
amounts are recovered or
refunded to customers
through future billings.
The significant timing adjustments as a result of the differences between rate-regulated accounting and IFRS are as
follows:
Additional revenues billed in current period
Future removal and site restoration costs (1)
Finance costs on major transmission capital projects (2)
Revenues to be billed in future periods
Deferred income taxes (3)
Impact of temperatures on revenues (4)
Impact of inflation on rate base (5)
Regulatory decisions received
Settlement of regulatory decisions and other items
2016
2015
32
—
(48)
(15)
(5)
6
8
(22)
18
33
(86)
(11)
(6)
45
(6)
(13)
(1)
(2)
(3)
(4)
(5)
Removal and site restoration costs are billed to customers over the estimated useful life of the related assets based on forecast costs to be incurred in future
periods.
Finance costs incurred by ATCO Electric during construction of major transmission capital projects are billed to customers when incurred.
Income taxes are billed to customers when paid by the Company.
ATCO Gas' customer rates are based on a forecast of normal temperatures. Fluctuations in temperatures may result in more or less revenue being recovered
from customers than forecast. Revenues above or below the normal in the current period are refunded to or recovered from customers in future periods.
The inflation-indexed portion of ATCO Gas Australia's rate base is billed to customers through the recovery of depreciation in subsequent periods based on the
actual rate of inflation. Under rate-regulated accounting, revenue is recognized in the current period for the inflation component of rate base when it is
earned. Differences between the amounts earned and the amounts billed to customers are deferred and recognized in revenues over the service life of the
related assets.
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 126
Regulatory decisions received
Under rate-regulated accounting, the Company recognizes earnings from a regulatory decision pertaining to current and
prior periods when the decision is received. A description of the significant regulatory decisions recognized in adjusted
earnings in 2016 and 2015 are provided below.
Decision
Timing
Amount Description
1. ATCO Electric
General Tariff
Application
(GTA)
October 2016
(10) The GTA decision covers the operations of ATCO Electric
Transmission for 2015, 2016 and 2017 and resulted in final rates
that are lower than the approved interim rates from 2015, mainly
due to lower approved operating costs.
2. 2016-2017
August 2016
1 The GCOC decision established the return on equity (ROE) and
Generic Cost of
Capital Decision
(GCOC)
3. ATCO Gas
July 2016
Australia Access
Arrangement
Decision
deemed common equity ratios for the Alberta utilities for 2016 and
2017. For ATCO Electric Distribution and ATCO Gas, the 2016 GCOC
decision only applies to the K factor mechanism and does not
apply to the base performance based regulation formula.
3 An appeal application was lodged with the Australian Competition
Tribunal as a result of the decision received from the Economic
Regulation Authority (ERA). The appeal application decision
resulted in an improvement in the recoverability of certain
expenses.
July 2015
(10) The ERA released its final decision for ATCO Gas Australia's next
Access Arrangement period from July 2014 to December 2019. The
decision resulted in a reduced ROE.
4. 2013-2015
March 2015
(27) The 2013 GCOC decision established the ROE and deemed
Generic Cost of
Capital Decision
(2013 GCOC)
5. Capital Tracker
March 2015
Decision
common equity ratios for the Alberta utilities for 2013 to 2015. The
ROE was reduced from 8.75 per cent to 8.30 per cent and the
deemed common equity ratios were reduced by one per cent from
what was previously approved.
(8) Decisions for the 2013, 2014 and 2015 Capital Tracker applications
included approval of incremental funding for substantially all of the
Company's applied for Capital Tracker programs. However, the
decisions resulted in lower Capital Tracker rates than previously
approved due to the AUC requiring the utilities to use the actual
cost of debt in the rate determinations, which was lower than the
forecast cost of debt that was previously being used.
127 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
4. REVENUES
The significant categories of revenues recognized during the year are as follows:
Sale of goods
Rendering of services
Operating lease income
Service concession arrangement income
Finance lease income
5. OTHER COSTS AND EXPENSES
2016
415
3,232
288
77
33
2015
611
3,206
283
—
31
4,045
4,131
Other costs and expenses include rent, utilities, realized and unrealized gains and losses on derivative financial
instruments, goods and services such as professional fees, contractor costs, technology related expenses, advertising,
and other general and administrative expenses.
6. SALES OF OPERATIONS AND REVALUATION OF JOINT VENTURE
SALE OF NATURAL GAS GATHERING AND PROCESSING ASSETS
On January 1, 2016, the Company sold its 51.3 per cent ownership interest in the Edmonton Ethane Extraction Plant for
cash proceeds of $21 million, resulting in a gain of $18 million ($7 million after-tax and NCI). Commencing January 1,
2016, the Company no longer recognizes these assets in its financial position, results of operations and cash flows in the
consolidated financial statements. These assets were previously reported in the Pipelines & Liquids segment.
On December 31, 2015, the Company sold certain non-core natural gas gathering and processing assets for cash
proceeds of $7 million, resulting in a gain of $5 million ($2 million after-tax and NCI). Commencing December 31, 2015,
the Company no longer recognizes these assets in its financial position, results of operations and cash flows in the
consolidated financial statements. These assets were previously reported in the Pipelines & Liquids segment.
REVALUATION OF EXISTING INTEREST IN JOINT VENTURE
On November 2, 2015, the Company increased its ownership in Thames Power Limited (TPL) from 50 per cent to
100 per cent. TPL owns a 51 per cent joint interest in Barking Power Limited (Barking), an entity that holds land assets in
the U.K. Cash consideration for the purchase was $25 million. The transaction was accounted for as an asset acquisition
and resulted in a revaluation gain of $25 million ($10 million after-tax and NCI) on the Company's existing ownership
interest in TPL, and its related entities. This transaction was performed to strategically position the Company for future
opportunities in the U.K. market.
TPL also has a 100 per cent ownership interest in Thames Power Services Limited, which has a defined benefit plan for
employees. In 2015, trustees for the pension plan entered into a policy with Pension Insurance Corporation (PIC) and
transferred the majority of plan assets to PIC in order to secure the benefits of the defined benefit plan. The pension
plan assets and liabilities were included in the Company's retirement benefit obligations at December 31, 2015 (see
Note 20). Individual policies were issued to members in September 2016, discharging TPL's legal obligation for benefits
under the defined benefit plan. The pension plan assets and liabilities have been removed from the Company's
retirement benefit obligations at December 31, 2016.
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 128
SALE OF ATCO EMISSIONS MANAGEMENT
On December 31, 2015, the Company completed the sale of its Emissions Management business. Included in the sale
was all of Emissions Management's global operations in Canada, United States and Mexico and the transfer of current
contracts and employees. Proceeds on the sale were $60 million, of which $10 million was related to a working capital
true-up adjustment. In 2016, $7 million of the working capital was collected, the remaining $3 million is receivable in
2017. A one-time gain of $19 million was recognized as a result of this transaction ($16 million after-tax and NCI).
Commencing December 31, 2015, the Company no longer recognizes ATCO Emissions Management in its financial
position, results of operations and cash flows in the consolidated financial statements. ATCO Emissions Management
was previously reported in the Structures & Logistics segment.
7. INTEREST EXPENSE
Interest expense primarily arises from interest on long-term debentures. The components of interest expense are
summarized below.
Long-term debt
Non-recourse long-term debt
Retirement benefits net interest expense
Amortization of deferred financing charges
Accretion of asset retirement obligations
Other
Less: interest capitalized (Note 12)
2016
385
8
6
3
4
8
414
(18)
396
2015
365
11
11
3
3
6
399
(97)
302
Borrowing costs capitalized to property, plant and equipment during 2016 were calculated by applying interest rates
ranging from 2.90 per cent to 5.30 per cent to expenditures on qualifying assets (2015 - 2.76 per cent to 5.50 per cent).
8. INCOME TAXES
INCOME TAX EXPENSE
The components of income tax expense are summarized below.
Current income tax expense
Canada
Australia
United States
Other
Adjustment in respect of prior years
Deferred income tax expense
Reversal of temporary differences
Amount relating to change in tax rates
Adjustment in respect of prior years
129 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
2016
2015
57
15
2
—
(12)
62
187
—
9
196
258
26
30
1
1
(4)
54
71
70
3
144
198
The reconciliation of statutory and effective income tax expense is as follows:
Earnings before income taxes
Income taxes, at statutory rates
Change in deferred income taxes resulting from increase
in provincial corporate tax rate
International financing
Foreign tax rate variance
Foreign exchange on deferred tax asset
Equity earnings
Unrecognized deferred income tax assets
Disposition of investment at capital gains rate
Tax cost of preferred share financings
Other
933
252
—
(9)
4
9
(8)
6
—
2
2
258
2016
%
27.0
—
(1.0)
0.4
1.0
(0.8)
0.6
—
0.2
0.2
27.6
554
144
70
(10)
2
—
(1)
3
(4)
3
(9)
2015
%
26.0
12.6
(1.8)
0.4
—
(0.2)
0.5
(0.7)
0.5
(1.6)
198
35.7
INCOME TAX ASSETS AND LIABILITIES
Income tax assets and liabilities in the consolidated balance sheet at December 31 are summarized below.
Balance Sheet Presentation
2016
2015
Income tax assets
Current
Deferred
Income tax liabilities
Current
Deferred
Income taxes receivable
Deferred income tax assets
Other current liabilities
Deferred income tax liabilities
DEFERRED INCOME TAXES
The changes in deferred income tax assets are as follows:
49
67
116
16
1,199
1,215
33
82
115
12
1,007
1,019
Movements
December 31, 2014
Credit (charge) to earnings
Charge to other
comprehensive income
Other
December 31, 2015
(Charge) credit to earnings
Charge to other
comprehensive income
Other
December 31, 2016
Property,
Plant and
Equipment
(9)
47
—
2
40
(6)
—
(1)
33
Intangibles
Reserves
—
—
—
—
—
(3)
—
—
(3)
35
—
—
1
36
(10)
—
—
26
Tax Loss Carry
Forwards and
Tax Credits
1
Retirement
Benefit
Obligations
1
2
—
(1)
2
7
—
1
10
2
(1)
—
2
—
(1)
—
1
Other
Total
2
(1)
—
1
2
—
—
(2)
—
30
50
(1)
3
82
(12)
(1)
(2)
67
The Company does not expect any of its deferred income tax assets to reverse within the next twelve months.
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 130
The changes in deferred income tax liabilities are as follows:
Intangibles
Reserves
Movements
December 31, 2014
Charge (credit) to earnings
Charge to other
comprehensive income
Acquisition of TPL (Note 6)
Other
December 31, 2015
Charge (credit) to earnings
Charge (credit) to other
comprehensive income
Consolidation of Barking
(Note 29)
Other
Property,
Plant and
Equipment
910
214
—
—
(1)
1,123
127
—
11
(2)
85
17
—
—
—
102
15
—
—
—
December 31, 2016
1,259
117
Tax Loss Carry
Forwards and
Tax Credits
(34)
Retirement
Benefit
Obligations
(149)
(58)
—
—
1
(91)
15
—
—
—
2
42
(9)
—
(114)
(1)
(4)
—
2
(76)
(117)
Other
(2)
29
—
—
3
30
(9)
—
—
(2)
19
Total
778
194
42
(9)
2
1,007
184
(1)
11
(2)
1,199
(32)
(10)
—
—
(1)
(43)
37
3
—
—
(3)
The Company expects approximately $7 million of its deferred income tax liabilities to reverse within the next twelve
months.
At the end of 2016, the Company had $326 million of non-capital tax losses and credits which expire between 2029 and
2036 and $20 million of tax losses which do not expire. The Company recognized deferred income tax assets of
$86 million for losses and credits that expire. No deferred income tax assets were recorded for losses that do not expire.
The Company recognized deferred income tax assets of nil directly to equity (2015 - $2 million).
The Company had $114 million of aggregate temporary differences for investments in subsidiaries, branches and joint
ventures for which deferred income tax liabilities were not recognized (2015 - $124 million).
131 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
9. EARNINGS PER SHARE
Earnings per Class I Non-Voting (Class I) and Class II Voting (Class II) Share are calculated by dividing the earnings
attributable to Class I and Class II Shares by the weighted average shares outstanding. Diluted earnings per share are
calculated using the treasury stock method, which reflects the potential exercise of stock options and vesting of shares
under the Company's mid-term incentive plan (MTIP) on the weighted average Class I and Class II Shares outstanding.
The earnings and average number of shares used to calculate earnings per share are as follows:
Average shares
Weighted average shares outstanding
Effect of dilutive stock options
Effect of dilutive MTIP
Weighted average dilutive shares outstanding
Earnings for earnings per share calculation
Earnings for the year
Non-controlling interests
Earnings and diluted earnings per Class I and Class II Share
Earnings per Class I and Class II Share
Diluted earnings per Class I and Class II Share
2016
2015
114,410,703 114,831,792
132,814
302,359
154,752
313,302
114,845,876 115,299,846
675
(335)
340
356
(202)
154
$2.97
$2.96
$1.34
$1.33
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 132
10. LEASES
THE COMPANY AS LESSOR
The Company is party to certain arrangements that convey the right to use electricity generation and non-regulated
electricity transmission assets. These arrangements are classified as finance leases, with the Company as the lessor.
Certain assets under power purchase agreements (PPA) are classified as operating leases as the Company (as lessor) still
retains substantially all the risks and rewards of ownership. Operating leases also include rentals of modular structures.
Finance leases
The total net investment in finance leases is shown below. Finance lease income is recognized in revenues.
Net investment in finance leases
Finance lease - gross investment
Unearned finance income
Unguaranteed residual value
Current portion
Non-current portion
Gross receivables from finance leases
In one year or less
In more than one year, but not more than five years
In more than five years
Net investment in finance leases
In one year or less
In more than one year, but not more than five years
In more than five years
2016
2015
622
(310)
635
(326)
2
314
12
302
314
45
197
380
622
12
65
237
314
2
311
9
302
311
42
191
402
635
9
55
247
311
During the year ended December 31, 2016, $3 million of contingent rent was recognized as income from these finance
leases (2015 - $4 million).
Operating leases
The aggregate future minimum lease payments receivable under non-cancellable operating leases are:
Minimum lease payments receivable
In one year or less
In more than one year, but not more than five years
In more than five years
2016
2015
189
671
3
863
202
698
96
996
During the year ended December 31, 2016, $16 million of contingent rent was recognized as income from these
operating leases (2015 - $30 million).
133 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
THE COMPANY AS LESSEE
Operating leases
The Company has entered into long-term operating leases for office premises and equipment. During the year ended
December 31, 2016, $35 million was recognized as an expense for these operating leases (2015 - $49 million).
11. INVENTORIES
Inventories at December 31 are comprised of:
Natural gas and fuel in storage
Raw materials and consumables
Work-in-progress
Finished goods
2016
17
25
5
9
56
2015
20
40
14
13
87
For the year ended December 31, 2016, inventories recognized as an expense were $320 million (2015 - $445 million).
Inventories with a carrying value of $7 million were pledged as security for liabilities at December 31, 2016 (2015 -
$17 million).
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 134
12. PROPERTY, PLANT AND EQUIPMENT
The Company continues to invest in utility infrastructure in Alberta, particularly in electricity transmission facilities. A
reconciliation of the changes in the carrying amount of property, plant and equipment is as follows:
Utility
Transmission
& Distribution
Power
Generation
Land and
Buildings
Construction
Work-in-
Progress
Other
Total
Cost
December 31, 2014
Additions
Transfers
Retirements and disposals
Changes to asset retirement costs
Foreign exchange rate adjustment
13,529
348
2,718
(73)
8
71
1,980
66
38
(54)
4
—
December 31, 2015
16,601
2,034
Additions
Transfers
Retirements and disposals
Changes to asset retirement costs
Foreign exchange rate adjustment
422
701
(153)
—
(46)
26
10
(15)
(3)
(1)
December 31, 2016
17,525
2,051
Accumulated depreciation and impairment
December 31, 2014
3,136
1,208
Depreciation and impairment
Retirements and disposals
Changes to asset retirement costs
Foreign exchange adjustment
December 31, 2015
Depreciation
Retirements and disposals
Foreign exchange adjustment
December 31, 2016
Net book value
December 31, 2015
December 31, 2016
357
(73)
—
7
106
(53)
—
—
3,427
1,261
408
(101)
(5)
3,729
13,174
13,796
65
(14)
—
1,312
773
739
756
25
37
(18)
—
2
802
119
24
(5)
—
(20)
920
169
14
(16)
—
1
168
19
(5)
(2)
180
634
740
2,390
1,303
(2,894)
(14)
—
9
794
859
(823)
(45)
—
(4)
781
—
85
—
—
—
85
—
—
(3)
82
709
699
1,658
55
101
(131)
(42)
24
1,665
68
88
(148)
(5)
(7)
20,313
1,797
—
(290)
(30)
106
21,896
1,494
—
(366)
(8)
(78)
1,661
22,938
683
164
(116)
(12)
6
725
81
(106)
(6)
694
940
967
5,196
726
(258)
(12)
14
5,666
573
(226)
(16)
5,997
16,230
16,941
The additions to property, plant and equipment included $18 million of interest capitalized during construction for the
year ended December 31, 2016 (2015 - $97 million).
As part of the integration of natural gas transmission service in Alberta, ATCO Pipelines and NOVA Gas Transmission Ltd.
exchanged ownership of certain natural gas pipelines and related facilities during 2016. The net book value of assets
disposed of was $51 million compared to assets acquired of $65 million, resulting in an increase in the net book value of
utility, transmission and distribution assets of $14 million. The net assets acquired were settled in cash.
Property, plant and equipment with a carrying value of $692 million were pledged as security for liabilities at
December 31, 2016 (2015 - $739 million).
135 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
IMPAIRMENTS
Structures & Logistics Segment
Lodge assets
In June 2015, the Company recognized a pre-tax impairment of $9 million relating to certain lodge assets. The
impairment was included in depreciation, amortization and impairment expense. The Company determined these
assets were impaired due to a reduction in contracted rooms and rates charged as a result of continued and sustained
decreases in key commodity prices as well as a significant reduction in the capital expenditure programs of key clients.
The recoverable amount of the joint venture lodge asset was calculated based on cash flow projections expected to be
derived from the lodge being operational until July 2018. The expected future cash flows were discounted at a pre-tax
rate of 15.0 per cent. The remaining lodge assets were closed and are expected to be dismantled. The impairment
charge decreased the carrying amount for all impaired lodge assets to nil. This amount was determined using value in
use.
Workforce housing assets
In December 2015, the Company recognized a pre-tax impairment of $57 million relating to its workforce housing fleet
in Canada and Australia. The impairment was included in depreciation, amortization and impairment expense. The
Company determined these assets were impaired due to a reduction in utilization and rates as a result of sustained
decreases in key commodity prices as well as a significant reduction in the capital expenditure programs of key clients.
The Canadian and Australian expected future cash flows were discounted at pre-tax rates of 17 per cent and 12 per cent,
respectively. After recognizing this impairment, the recoverable amount of these assets was $94 million at December 31,
2015. This amount was determined using value in use. If the utilization rate had decreased by 10 per cent, the
impairment would have increased by $14 million.
Electricity Segment
Electricity generation assets
In December 2015, the Company recognized a pre-tax impairment of $35 million relating to the Battle River units 3 and
4 electricity generation assets. The impairment was included in depreciation, amortization and impairment expense. The
Company determined that the net book value of these assets were not recoverable due to new environmental
regulations which impacted emissions costs and ongoing soft market conditions in the Alberta power market.
Management made assumptions about operating costs, forward Alberta power pool prices to forecast expected future
cash flows. The cash flows were discounted at a pre-tax rate of 12 per cent. After recognizing this impairment, the
recoverable amount of these assets was nil at December 31, 2015. This amount was determined using value in use.
Pipelines & Liquids Segment
Natural gas pipeline and processing assets
In December 2015, the Company recognized a pre-tax impairment of $85 million relating to its Tula Pipeline Project in
Mexico. The impairment was included in depreciation, amortization and impairment expense. The Company determined
these construction work in progress assets were impaired as a result of significantly higher land access costs than
originally forecast. The expected future cash flows were discounted at an after-tax rate of 9 per cent. After recognizing
this impairment, the recoverable amount of these assets was $63 million at December 31, 2015. This amount was
determined using a fair value less cost to sell model. If the discount rate had increased by 1 per cent, the impairment
would have increased by $10 million.
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 136
In December 2015, the Company recognized a pre-tax impairment of $9 million relating to certain natural gas processing
facilities. The impairment was included in depreciation, amortization and impairment expense. The Company
determined that the carrying value of these assets exceeded the recoverable amounts due to a significant and
prolonged decline in commodity prices which reduced future cash flow forecasts. Management made assumptions
about gas volumes, the price of natural gas, and operational capacity based on industry information and Company
forecasts of expected future cash flows. The cash flows were discounted at a pre-tax rate of 10 per cent. After
recognizing this impairment, the recoverable amount of these assets was $9 million at December 31, 2015. This amount
was determined using value in use.
13. INTANGIBLES
Intangible assets consist mainly of computer software not directly attributable to the operation of property, plant and
equipment and land rights. Goodwill is also an intangible asset (see Note 14). A reconciliation of the changes in the
carrying amount of intangible assets is as follows:
Computer
Software
Land
Rights
Other
Total
Cost
December 31, 2014
Additions
Disposals
Foreign exchange rate adjustment
December 31, 2015
Additions
Disposals
December 31, 2016
Accumulated amortization
December 31, 2014
Amortization
Disposals
Foreign exchange rate adjustment
December 31, 2015
Amortization
Disposals
December 31, 2016
Net book value
December 31, 2015
December 31, 2016
483
56
(10)
—
529
79
—
608
279
44
(8)
—
315
52
—
367
214
241
229
73
—
—
302
24
(2)
324
32
3
—
—
35
4
—
39
267
285
27
7
(2)
1
33
—
(6)
27
12
1
(2)
1
12
1
(6)
7
21
20
739
136
(12)
1
864
103
(8)
959
323
48
(10)
1
362
57
(6)
413
502
546
137 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
14. GOODWILL
The carrying value of goodwill for the Electricity and Pipelines & Liquids segments is shown below.
Electricity
Pipelines & Liquids
Carrying value
2016
38
33
71
2015
38
33
71
The recoverable amount was measured based on each segment’s fair value less costs of disposal, which was calculated
using publicly available enterprise values and price-to-earnings multiples of comparable, actively traded companies.
Each segment’s fair value less costs of disposal was compared to its carrying value and was sufficient to support the
carrying value of allocated goodwill.
The Company used an average enterprise value-to-earnings before interest, taxes, depreciation, and amortization of
9.1 and 17.1 (2015 - 10.2 and 13.2) and price-to-earnings value of 16.8 and 24.3 (2015 - 16.3 and 18.7) for the Electricity
and Pipelines & Liquids segments, respectively, to calculate fair value less costs of disposal.
The fair value measurements are categorized in Level 3 of the fair value hierarchy.
15. RECEIVABLE UNDER SERVICE CONCESSION ARRANGEMENT
In December 2014, Alberta PowerLine (APL), a partnership between Canadian Utilities Limited and Quanta Capital
Solutions, Inc., was awarded a 35-year contract by the Alberta Electric System Operator (AESO) to design, build, own, and
operate the Fort McMurray 500 kV Transmission project.
The project has been accounted for as a service concession arrangement as the AESO controls the output of the
transmission facilities as a part of the greater Alberta network and the ownership of the transmission facilities will
transfer to the AESO at the end of the service agreement. Under a service concession arrangement, the Company does
not recognize the transmission facilities as property, plant and equipment, instead, a financial asset representing
amounts due from the AESO has been recognized as a long-term receivable in the consolidated balance sheet. Revenues
and costs relating to the design, planning and construction phases of the project are recognized based on percentage of
completion and revenues and costs relating to the operating phase will be recognized as the service is rendered.
Design and route planning activities are in progress. Construction is expected to commence in 2017 and the project is
anticipated to be in service in 2019. The receivable due from the AESO was $77 million at December 31, 2016 (2015 - nil).
Payments will commence once the asset is in service. Contracted undiscounted cash flows from the project are expected
to be $3.7 billion.
Revenues and operating profit for the year ended December 31, 2016, are $77 million and $8 million, respectively (2015 -
nil).
16. SHORT-TERM DEBT
At December 31, 2016, the Company had $55 million of commercial paper outstanding at an interest rate of
0.89 per cent, maturing in January 2017 (2015 - nil). The commercial paper is supported by the Company's long-term
committed credit facilities (Note 25).
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 138
17. ASSET RETIREMENT OBLIGATIONS AND OTHER PROVISIONS
Asset retirement obligations (AROs) represent the present value of the costs to be incurred to retire the Company’s
power generation plants and natural gas liquids extraction and processing plants. The other provision relates mainly to
restructuring costs and expected warranty claims on modular buildings.
The changes in AROs and other provisions are as follows:
December 31, 2014
Additions
Utilized in the year
Reversals of unused amounts
Accretion expense
Revisions in discount rate
Foreign exchange rate adjustment
December 31, 2015
Additions
Utilized in the year
Reversals of unused amounts
Accretion expense
Revisions in discount rate
Foreign exchange rate adjustment
December 31, 2016
Less: current portion
Long-term portion
ASSET RETIREMENT OBLIGATIONS
Asset
Retirement
Obligations
198
9
(6)
(16)
3
(26)
—
162
21
(1)
(12)
4
(9)
(2)
163
31
132
Other
20
64
(11)
(3)
—
—
1
71
5
(45)
(12)
—
—
—
19
17
2
Total
218
73
(17)
(19)
3
(26)
1
233
26
(46)
(24)
4
(9)
(2)
182
48
134
The Company estimates that the undiscounted amount of cash flows required to settle the AROs is approximately
$5.1 billion, which will be incurred between 2017 and 2261. The weighted average pre-tax, risk-free discount rate used to
calculate the fair value of the AROs at December 31, 2016 was 2.71 per cent (2015 - 2.90 per cent).
OTHER PROVISIONS
In order to maintain the Company's competitive position, a restructuring and transformation process was implemented
in 2015. The Company provided for staff and other costs directly attributable to restructuring, including lease
termination costs, at December 31, 2015.
The Company has provided for warranty claims based on current sales levels and information available on repair and
maintenance costs for products sold. The Company expects that the majority of the warranty claims costs will be
incurred in the next year.
139 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
18. LONG-TERM DEBT
Long-term debt outstanding at December 31 is as follows:
CU Inc. debentures - unsecured
Effective
Interest Rate
4.982% (2015 - 5.046%)
(Interest is the average effective interest rate weighted by principal amounts outstanding)
CU Inc. other long-term obligation, due June 2018 - unsecured
Canadian Utilities Limited debentures - unsecured
2012 3.122% due November 2022
2.700%
3.187%
2016
7,325
3
200
2015
6,950
3
200
ATCO Power Australia credit facility, payable in Australian dollars,
at BBSY Rates, due February 2020, secured by a pledge of project assets
and contracts, $79 million AUD (2015 - $84 million AUD) (1)
ATCO Gas Australia Limited Partnership credit facility, payable in
Australian dollars, at BBSY Rates, due December 2019,
$250 million AUD (2015 - $250 million AUD) (1)
ATCO Gas Australia Limited Partnership revolving credit facility, payable
in Australian dollars, at BBSY Rates, due December 2019,
$427 million AUD (2015 - $427 million AUD) (1)
ATCO Structures & Logistics credit facility, at BA Rates, due
Floating (2)
77
85
Floating (2)
243
252
Floating (2)
414
430
September 2018 secured by a general assignment of ATCO Structures
& Logistics’ present and future property, assets, undertakings and equity
interests in certain of its restricted subsidiaries and joint ventures (1)
Floating
Less: deferred financing charges
Less: amounts due within one year
BBSY - Bank Bill Swap Benchmark Rate
BA - Bankers’ Acceptance
—
(42)
8,220
(155)
8,065
64
(41)
7,943
(5)
7,938
(1)
The above interest rates have additional margin fees at a weighted average rate of 1.14 per cent (2015 - 1.20 per cent). The margin fees are subject to
escalation.
(2)
Floating interest rates have been partially or completely hedged with interest rate swaps (see Note 24).
DEBENTURE ISSUANCES
During 2016, CU Inc. issued $375 million of 3.763 per cent debentures maturing on November 19, 2046 (2015 -
$400 million of 3.964 per cent debentures maturing on July 27, 2045, and $250 million of 4.211 per cent debentures
maturing on October 29, 2055).
PLEDGED ASSETS
The ATCO Power Australia credit facility is guaranteed by Canadian Utilities Limited and is secured by a mortgage on
certain assets of the Karratha Power Plant and an assignment of certain contracts and agreements. The Karratha Power
Plant is accounted for as a finance lease receivable.
The book value of assets pledged to maintain the Company's long-term credit facilities was $566 million at
December 31, 2016 (2015 - $726 million).
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 140
19. NON-RECOURSE LONG-TERM DEBT
Non-recourse long-term debt outstanding at December 31 is as follows:
Project Financing
Joffre notes, at fixed rate of 8.590%, due to 2020
Scotford notes, at fixed rate of 7.930%, due to 2022
Muskeg River notes, at fixed rate of 7.560%, due to 2022
Cory:
Notes, at fixed rate of 7.586%, due to 2025
Notes, at fixed rate of 7.601%, due to 2026
Other long-term obligation, at a fixed rate of 8.160%, due to 2016
Less: deferred financing charges
Effective
Interest Rate
8.950%
8.240%
7.840%
7.870%
7.890%
Less: amounts due within one year
PLEDGED ASSETS
2016
2015
18
17
14
26
24
—
(1)
98
(14)
84
24
19
16
28
26
1
(2)
112
(15)
97
The non-recourse long-term debt is secured by charges on the projects’ assets and by an assignment of the projects’
bank accounts, outstanding contracts and agreements. The book value of the pledged assets at December 31, 2016, was
$381 million (2015 - $403 million). The Cory project is accounted for as a finance lease receivable.
20. RETIREMENT BENEFITS
The Company maintains registered defined benefit and defined contribution pension plans for most of its employees. It
also provides other post-employment benefits (OPEB), principally health, dental and life insurance, for retirees and their
dependents. The defined benefit pension plans provide for pensions based on employees’ length of service and final
average earnings. As of 1997, new employees of Canadian Utilities Limited and its subsidiaries, and, as of 2005, new
employees of ATCO Structures & Logistics, automatically participate in the defined contribution pension plans.
The Company also maintains non-registered, non-funded defined benefit pension plans for certain officers and key
employees.
The majority of benefit payments are made from trustee-administered funds; however, there are a number of unfunded
plans where the Company makes the benefit payments. Plan assets held in trusts are governed by provincial and federal
legislation and regulations, as is the relationship between the Company and the trustee. The Pension Committee of the
Board is responsible for governance of the funded plans and policy decisions related to benefit design, liability
management, and funding and investment, including selection of investment managers and investment options for the
plans.
141 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
BENEFIT PLAN ASSETS, OBLIGATIONS AND FUNDED STATUS
The changes in Company's pension and OPEB plan assets and obligations are as follows:
Market value of plan assets
Beginning of year
Interest income
Employee contributions
Employer contributions
Benefit payments
TPL (Note 6)
Return on plan assets, excluding amounts included
in interest income
Foreign exchange rate adjustment
Other
End of year
Accrued benefit obligations
Beginning of year
Current service cost
Interest cost
Employee contributions
Benefit payments from plan assets
Benefit payments by employer
Curtailment gain (1)
TPL (Note 6)
Actuarial losses (gains)
Foreign exchange rate adjustment
End of year (2)
Funded status
Net retirement benefit obligations
Pension
Benefit Plans
OPEB Plans
Pension
Benefit Plans
OPEB Plans
2016
2015
2,728
106
1
30
(125)
(69)
12
(9)
—
2,674
2,918
33
114
1
(125)
(7)
—
(69)
33
(9)
2,889
215
—
—
—
—
—
—
—
—
—
—
2,528
98
2
44
(97)
69
87
1
(4)
2,728
—
—
—
—
—
—
—
—
—
—
117
2,851
122
2
4
—
—
(4)
—
—
(2)
—
117
117
39
113
2
(97)
(8)
(23)
69
(29)
1
2,918
190
2
5
—
—
(3)
(1)
—
(8)
—
117
117
(1)
In 2015, the Company recorded a curtailment gain of $24 million related to significant employee reductions. The gain is reported in salaries, wages and benefits
expenses.
(2) The non-registered, non-funded defined benefit pension plans accrued benefit obligations decreased to $145 million at December 31, 2016 due to experience
adjustments partially offset by a decrease in the liability discount rate (2015 - increased to $149 million due to experience adjustments partially offset by an
increase in the liability discount rate).
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 142
BENEFIT PLAN COST
The components of benefit plan cost are as follows:
Current service cost
Interest cost
Interest income
Curtailment gain
Defined benefit plans cost
Defined contribution plans cost
Total cost
Less: capitalized
Net cost recognized
RE-MEASUREMENT OF RETIREMENT BENEFITS
Re-measurements of the pension and OPEB plans are as follows:
Gains (losses) on plan assets from:
Return on plan assets, excluding amounts included
in net interest expense
Other
(Losses) gains on plan obligations from:
Changes in demographic assumptions
Changes in financial assumptions
Experience adjustments
(Losses) gains recognized in other
comprehensive income (1)
Pension
Benefit Plans
33
114
(106)
—
41
33
74
29
45
2016
OPEB Plans
2
4
—
—
6
—
6
3
3
Pension
Benefit Plans
39
113
(98)
(23)
31
38
69
37
32
2015
OPEB Plans
2
5
—
(1)
6
—
6
3
3
2016
2015
Pension
Benefit Plans
OPEB Plans
Pension
Benefit Plans
OPEB Plans
12
—
12
—
(54)
21
(33)
(21)
—
—
—
5
(3)
—
2
2
87
(4)
83
—
39
(10)
29
112
—
—
—
5
2
1
8
8
(1) (Losses) gains net of income taxes were $(16) million for the year ended December 31, 2016 (2015 - $77 million).
143 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
PLAN ASSETS
The market values of the Company’s defined benefit pension plan assets at December 31 are as follows:
Quoted
Un-quoted
Total
Quoted
Un-quoted
Total
2015
%
Plan asset mix
Equity securities
Public
Canada
United States
International
Private
Fixed income securities
Government bonds
Corporate bonds
and debentures
Securitizations
Mortgages
Real estate
Land and building (1)
Real estate funds
Cash and other assets
Cash
Short-term notes and
money market funds
Qualifying insurance policy
Accrued interest and
dividends receivable
2016
%
28
252
366
201
—
819
793
569
53
—
60
1,415
9
—
—
—
68
26
—
8
243
352
137
13
745
862
632
51
54
1,599
60
187
247
35
39
—
9
83
2,674
3
100
102
2,336
243
352
137
—
732
862
632
51
—
1,545
—
—
—
35
39
—
9
83
2,360
—
—
—
13
13
—
—
—
54
54
60
187
247
—
—
—
—
—
314
—
—
—
20
20
—
—
—
46
46
70
180
250
—
—
76
—
76
392
30
54
9
252
366
201
20
839
793
569
53
46
1,461
70
180
250
68
26
76
8
178
2,728
7
100
(1) The land and building are occupied by the Company.
At December 31, 2016, plan assets include Class A non-voting shares of Canadian Utilities Limited having a market value
of $8 million (2015 - Class A non-voting and Class B common shares having a market value of $32 million) and Class I
Shares of the Company having a market value of $10 million (2015 - $37 million).
FUNDING
In 2016, an actuarial valuation for funding purposes as of December 31, 2015 was completed for the registered defined
benefit pension plans. The estimated contribution for 2017 is $27 million. The next actuarial valuation for funding
purposes must be completed as of December 31, 2018.
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 144
WEIGHTED AVERAGE ASSUMPTIONS
The significant assumptions used to determine the benefit plan cost and accrued benefit obligation are as follows:
Benefit plan cost
Discount rate for the year
Average compensation increase for the year (1)
Accrued benefit obligations
Discount rate at December 31
Long-term inflation rate
Health care cost trend rate:
Drug costs (2)
Other medical costs
Dental costs
Pension
Benefit Plans
OPEB Plans
Pension
Benefit Plans
OPEB Plans
2016
2015
4.10%
1.50%
3.90%
2.00%
n/a
n/a
n/a
4.10%
n/a
3.90%
n/a
5.57%
4.50%
4.00%
4.00%
3.25%
4.10%
2.00%
n/a
n/a
n/a
4.00%
n/a
4.10%
n/a
5.70%
4.50%
4.00%
(1)
(2)
The assumed average compensation increase is 1.50 per cent for 2016 to 2018 and 2.50 per cent thereafter.
The Company uses a graded drug cost trend rate which assumes a rate of 4.50 per cent in 2024.
The weighted average duration of the defined benefit obligation is 13.7 years.
RISKS
The Company is exposed to a number of risks related to its defined benefit pension plans and OPEB plans. The most
significant risks are described below.
Investment risk
The Company makes investment decisions for its funded plans using an asset-liability matching framework. Within this
framework, the Company’s objective over time is to increase the proportion of plan assets in fixed income securities with
maturities that match the expected benefit payments as they fall due. However, due to the long-term nature of the
benefit obligations, the strength of the Company, and the belief that equities offer the best returns over the long-term
with an acceptable level of risk, the Company continues to invest in equity securities. This investment is an important
element of the Company’s long-term strategy to manage the plans efficiently. The equity securities are in a diversified
portfolio of high-quality businesses. The Company has not changed the processes used to manage its risks from
previous periods.
Interest rate risk
A decrease in long-term interest rates will increase accrued benefit obligations, which will be partially offset by an
increase in the value of the plans’ bond holdings. Other things remaining the same, a further decrease in long-term
interest rates will cause the funded status to deteriorate, while increases in interest rates will result in gains.
Compensation risk
The present value of the accrued benefit obligations is calculated using the estimated future compensation of plan
participants. Should future compensation be higher than estimated, benefit obligations will increase.
Inflation risk
Accrued benefit obligations are linked to inflation, and higher inflation will lead to increased obligations. For the defined
benefit pension plans, inflation risk is mitigated because the indexing of benefit payments is capped at an annual
increase of 3.0 per cent.
The majority of plan assets are also affected by inflation. As inflation rises, long-term interest rates will likely rise,
pushing up bond yields and reducing the value of existing fixed rate bonds. The relationship between equities and
inflation is not as clear, but generally speaking, high inflation has a negative impact on equity valuations. Overall, rising
inflation will likely reduce a plan surplus or increase a deficit.
145 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
Life expectancy
Should pensioners live longer than assumed, benefit obligations and liabilities will be larger than expected.
SENSITIVITIES
The 2016 sensitivities of key assumptions used in measuring the Company's pension and OPEB plans are as follows:
Assumption
Discount rate
Future compensation rate
Long-term inflation rate (1)
Health care cost trend rate
Life expectancy
Accrued Benefit Obligation
Net Benefit Plan Cost
Percent
Change
Increase in
Assumption
Decrease in
Assumption
Increase in
Assumption
Decrease in
Assumption
1%
1%
1%
1%
10%
(356)
25
404
11
75
456
(24)
(334)
(9)
(67)
(10)
1
12
—
2
14
(1)
(9)
—
(2)
(1)
The long-term inflation rate for pension plans reflects the fact that pension plan benefit payments have historically been indexed annually to increases in the
Canadian Consumer Price Index to a maximum increase of 3.0 per cent per annum.
The above sensitivities have been calculated independently of each other. Actual experience may result in changes in a
number of assumptions simultaneously.
21. DEFERRED REVENUES
Deferred revenues from customer contributions and other sources are as follows:
Customer contributions
Other
CUSTOMER CONTRIBUTIONS
2016
1,687
2
1,689
2015
1,647
2
1,649
Customer contributions for extensions to plant are included in deferred revenues and recognized as revenue over the
life of the related asset. Changes in deferred customer contribution revenues are summarized below.
Beginning of year
Receipt of customer contributions
Amortization
Foreign exchange rate adjustment
End of year
2016
1,647
104
(64)
—
1,687
2015
1,508
197
(59)
1
1,647
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 146
22. CLASS I AND CLASS II SHARES
A reconciliation of the number and dollar amount of outstanding Class I and Class II Shares at December 31, 2016 is
shown below.
AUTHORIZED AND ISSUED
Authorized:
Issued and outstanding:
December 31, 2014
Purchased and canceled
Stock options exercised
Converted: Class II to Class I
December 31, 2015
Purchased and canceled
Stock options exercised
Converted: Class II to Class I
December 31, 2016
Class I Non-Voting
Shares
300,000,000
Amount
Shares
50,000,000
Class II Voting
Amount
Shares
350,000,000
Total
Amount
101,506,223
(275,800)
158,600
62,200
101,451,223
(460,000)
89,000
141,100
101,221,323
171
13,635,205
—
4
—
175
(1)
3
—
177
—
—
(62,200)
13,573,005
—
—
(141,100)
13,431,905
2
—
—
—
2
—
—
—
2
115,141,428
173
(275,800)
158,600
—
115,024,228
(460,000)
89,000
—
114,653,228
—
4
—
177
(1)
3
—
179
Class I and Class II Shares have no par value.
MID-TERM INCENTIVE PLAN
The Company's MTIP trust is considered a special purpose entity which is consolidated in these financial statements.
The Class I Shares, while held in trust, are accounted for as a reduction of share capital. The consolidated Class I and
Class II Shares outstanding at December 31 is shown below.
Shares issued and outstanding
114,653,228
179
115,024,228
Shares held in trust for the mid-term incentive plan
(300,824)
(12)
(306,987)
Shares outstanding, net of shares held in trust
114,352,404
167
114,717,241
177
(12)
165
2016
2015
Shares
Amount
Shares
Amount
DIVIDENDS
The Company declared and paid cash dividends of $1.1400 per Class I and Class II Share during 2016 (2015 - $0.9900).
The Company’s policy is to pay dividends quarterly on its Class I and Class II Shares. Increases in the quarterly dividend
are addressed by the Board in the first quarter of each year. The payment of any dividend is at the discretion of the
Board and depends on the financial condition of the Company and other factors.
On January 12, 2017, the Company declared a first quarter dividend of $0.3275 per Class I and Class II Share.
SHARE OWNER RIGHTS
Each Class II Share may be converted into one Class I Share at any time at the share owner’s option. If an offer to
purchase all Class II Shares is made, and such offer is accepted and taken up by the owners of a majority of the Class II
Shares, and if, at the same time, an offer is not made to the Class I Share owners on the same terms and conditions,
then the Class I Shares will be entitled to the same voting rights as the Class II Shares. The two share classes rank equally
in all other respects.
147 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
NORMAL COURSE ISSUER BID
On March 2, 2015, ATCO Ltd. began a normal course issuer bid to purchase up to 2,030,168 outstanding Class I Non-
Voting Shares. The bid expired on February 29, 2016. On March 1, 2016, ATCO Ltd. began a new normal course issuer bid
to purchase up to 3,043,884 outstanding Class I Non-Voting Shares. The bid expired on February 28, 2017.
During the year ended December 31, 2016, 460,000 shares were purchased for $18 million (2015 - 275,800 shares were
purchased for $10 million). The purchases resulted in a decrease to share capital and retained earnings of $1 million and
$17 million, respectively (2015 - nil and $10 million).
23. CASH FLOW INFORMATION
ADJUSTMENTS TO RECONCILE EARNINGS TO CASH FLOWS FROM OPERATING ACTIVITES
Adjustments to reconcile earnings to cash flows from operating activities are summarized below.
Depreciation, amortization and impairment
Gain on sales of operations and revaluation of joint venture
Earnings from investment in joint ventures, net of dividends and distributions received
Income taxes
Unearned availability incentives
Contributions by customers for extensions to plant
Amortization of customer contributions
Net finance costs
Income taxes paid
Other
CHANGES IN NON-CASH WORKING CAPITAL
The changes in non-cash working capital are summarized below.
Operating activities
Accounts receivable
Inventories
Prepaid expenses and other current assets
Accounts payable and accrued liabilities
Provisions and other current liabilities
Investing activities
Accounts receivable
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
2016
615
(18)
(1)
258
(14)
104
(64)
380
(63)
40
2015
756
(49)
18
198
(30)
197
(59)
289
(81)
(6)
1,237
1,233
2016
2015
5
25
2
(9)
(68)
(45)
(1)
1
(2)
(135)
(137)
47
(26)
13
16
41
91
6
29
—
(95)
(60)
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 148
CASH POSITION
Cash position in the consolidated statement of cash flows at December 31 is comprised of:
Cash
Short-term investments
Restricted cash (1)
Cash and cash equivalents
Bank indebtedness
2016
563
3
40
606
(5)
601
2015
666
85
49
800
(1)
799
(1) Cash balances which are restricted under the terms of project financing agreements or joint arrangement agreements are considered not available for general
use by the Company.
24. FINANCIAL INSTRUMENTS
FAIR VALUE MEASUREMENT
Financial instruments are measured at amortized cost or fair value. Fair value represents the estimated amounts at
which financial instruments could be exchanged between knowledgeable and willing parties in an arm’s length
transaction. Determining fair value requires management judgment. The valuation methods used to determine the fair
value of each financial instrument and its associated level in the fair value hierarchy is described below.
Financial Instruments
Measured at Amortized Cost
Fair Value Method
Cash and cash equivalents, accounts receivable, bank
indebtedness, accounts payable and accrued
liabilities and short-term debt
Assumed to approximate carrying value due to their
short-term nature.
Lease receivables and receivable under service
concession arrangement
Determined using a risk-adjusted, pre-tax interest rate to
discount future cash receipts (Level 2).
Long-term debt and non-recourse long-term debt
Measured at Fair Value
Interest rate swaps
Foreign currency contracts
Commodity contracts
Determined using quoted market prices for the same or similar
issues. Where the market prices are not available, fair values
are estimated using discounted cash flow analysis based on the
Company’s current borrowing rate for similar borrowing
arrangements (Level 2).
Determined using interest rate yield curves at period-end
(Level 2).
Determined using quoted forward exchange rates at
period-end (Level 2).
Determined using observable period-end forward curves, with
inputs validated by publicly available market providers. The fair
values were also determined using extrapolation formulas
using readily observable inputs and implied volatility (Level 2).
149 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL INSTRUMENTS MEASURED AT AMORTIZED COST
The fair values of the Company’s financial instruments measured at amortized cost are as follows:
Recurring
Measurements
Financial Assets
Lease receivables
Receivable under service concession arrangement
Financial Liabilities
Long-term debt
Non-recourse long-term debt
Note
Carrying
Value
10
15
18
19
314
77
8,220
98
2016
Fair
Value
433
77
9,139
114
Carrying
Value
311
—
7,943
112
2015
Fair
Value
493
—
8,679
137
FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE
The Company's derivative instruments are measured at fair value. At December 31, 2016, the following derivative
instruments were outstanding:
•
•
•
interest rate swaps for the purpose of limiting interest rate risk on the variable future cash flows of long-term
debt and non-recourse long-term debt held in a joint venture,
foreign currency forward contracts for the purpose of limiting exposure to exchange rate fluctuations relating to
expenditures denominated in U.S. and Australian dollars; and
natural gas and forward power sale and purchase contracts for the purpose of limiting exposure to electricity
and natural gas market price movements.
The balance sheet classification and fair values of the Company’s derivative financial instruments at December 31 are as
follows:
Recurring Measurements
2016
Financial Assets
Prepaid expenses and other current assets
Other assets
Financial Liabilities
Other current liabilities
Other liabilities
2015
Financial Assets
Prepaid expenses and other current assets
Other assets
Financial Liabilities
Other current liabilities
Other liabilities
Subject to Hedge Accounting
Not Subject to Hedge
Accounting
Interest
Rate Swaps
Commodities
Commodities
Foreign
Currency
Forward
Contracts
Total Fair Value
of Derivatives
—
—
—
3
—
—
—
—
6
17
—
7
4
3
3
5
7
6
2
5
1
—
2
—
—
—
—
—
1
—
—
—
13
23
2
15
6
3
5
5
During the year ended December 31, 2016, losses before income taxes of $9 million were recognized in other
comprehensive income (OCI) (2015 - gains of $1 million) and gains before income taxes of $1 million were reclassified to
the statement of earnings (2015 - $2 million).
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 150
There was hedge ineffectiveness of $4 million during 2016 that was recognized in the statement of earnings (2015 - nil).
Over the next 12 months, the Company estimates that gains before income taxes of $6 million will be reclassified from
accumulated other comprehensive income (AOCI) to earnings.
Notional and maturity summary
The notional value and maturity dates of the Company's derivative instruments outstanding at December 31 are as
follows:
Subject to Hedge Accounting
Not Subject to Hedge Accounting
Notional value and maturity
Interest Rate
Swaps Natural Gas (1)
Power (2) Natural Gas (1)
Power (2)
2016
Purchases (3)
Sales (3)
Currency
Canadian dollars
Australian dollars
U.S. dollars
Maturity
2015
Purchases (3)
Sales (3)
Currency
Canadian dollars
Australian dollars
U.S. dollars
Maturity
—
—
4
754
—
24,892,000
—
35,985,800
3,755,080
—
—
—
—
3,027,960
20,421,000
4,055,037
—
—
—
—
—
—
—
—
—
2019-2020
2017-2021
2017-2020
2017-2021
2017-2020
—
—
6
759
—
19,479,000
—
6,767,000
556,080
—
—
—
—
2,722,233
1,761,000
65,720
—
—
—
—
—
—
—
—
—
2019-2020
2016-2020
2016-2020
2016-2018
2016-2017
(1) Notional amounts for the natural gas purchase contracts are the maximum volumes that can be purchased over the terms of the contracts.
(2) Notional amounts for the forward power sale and purchase contracts are the commodity volumes committed in the contracts.
(3)
Volumes for natural gas and power derivatives are in GJ and MWh, respectively.
Foreign
Currency
Forward
Contracts
—
—
—
—
35
2017
—
—
—
—
35
2016
151 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
OFFSETTING FINANCIAL ASSETS AND LIABILITIES
Netting arrangements and similar agreements provide counterparties the legal right to set-off liabilities against assets
received. The following financial assets and financial liabilities are subject to offsetting at December 31:
Effects of Offsetting on the Balance Sheet
Related Amounts not Offset
Gross Amount
Gross Amount
Offset
Net Amount
Recognized
Amounts
Subject to
Master Netting
Arrangements
Financial
Instrument
Collateral
Net Amount
2016
Financial Assets
Derivative assets (1)
Accounts receivable
Financial Liabilities
Derivative liabilities (1)
2015
Financial Assets
Derivative assets (1)
Accounts receivable
Financial Liabilities
Derivative liabilities (1)
36
69
14
8
60
10
—
(19)
—
—
(25)
—
36
50
14
8
35
10
(1)
—
(1)
(2)
—
(2)
(19)
—
—
(4)
—
—
16
50
13
2
35
8
(1) The Company enters into derivative transactions based on master agreements in which there is a set-off provision under certain circumstances, such as default.
The agreements do not meet the criteria for offsetting in the consolidated balance sheet since the Company does not presently have a legally enforceable right
to set-off. This right is enforceable only if certain credit events occur in the future.
25. RISK MANAGEMENT
FINANCIAL RISKS
The Company is exposed to a variety of risks associated with the use of financial instruments: market risk, credit risk and
liquidity risk. The Company may use various derivative financial instruments to manage its exposure in these areas. All
such instruments are used to manage risk and are not for trading purposes.
The Company’s Board is responsible for understanding the principal risks of the Company’s business, achieving a proper
balance between risks incurred and the potential return to share owners, and confirming there are controls in place to
effectively monitor and manage those risks with a view to the long-term viability of the Company. The Board established
the Audit & Risk Committee to review significant risks associated with future performance, growth and lost opportunities
identified by management that could materially affect the Company’s ability to achieve its strategic or operational
targets. This committee is responsible for confirming that management has procedures in place to mitigate identified
risks.
The source of risk exposure and how each is managed is outlined below.
MARKET RISK
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes
in interest rates. The Company’s interest-bearing assets and liabilities include cash and cash equivalents, bank
indebtedness, long-term debt and non-recourse long-term debt. The interest rate risk faced by the Company is primarily
due to its cash and cash equivalents and floating rate long-term debt.
Cash and cash equivalents include fixed rate instruments with maturities of generally 90 days or less that are reinvested
as they mature. The Company is exposed to interest rate movements after these investments mature.
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 152
The Company's risk management policy is to hedge all material interest rate risk exposures related to long-term
financings when the risk is incurred, unless commercial arrangements or mechanisms are in place to offset such interest
rate risk. The Company has fixed interest rates, either directly or through interest rate swap agreements, on
100 per cent (2015 - 99 per cent) of total long-term debt and non-recourse long-term debt. Consequently, the exposure
to fluctuations in market interest rates is limited.
A 25 basis point increase or decrease in Australian interest rates would increase or decrease OCI by $3 million. This
analysis has been determined based on the exposure to interest rates for financial instruments outstanding at
December 31, 2016.
Foreign exchange risk
Foreign exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to
changes in foreign exchange rates. The Company operates internationally and is exposed to foreign exchange risk from
financial instruments denominated in currencies other than the functional currency of an operation and on its net
investments in foreign subsidiaries. The majority of this currency risk arises from exposure to the U.S. dollar and
Australian dollar. The Company offsets foreign exchange volatility in part by entering into foreign currency derivative
contracts and by financing with foreign-denominated debt. The Company's risk management policy is to hedge all
material transactions with foreign exchange risks arising from the sale or purchase of goods and services where revenue
or the costs to be incurred are denominated in a currency other than the functional currency of the transacting
company.
A 10 per cent increase or decrease in foreign exchange rates would each increase or decrease OCI by the following:
U.S. dollar
Australian dollar
OCI
7
53
The sensitivity analysis is based on management’s assessment that an average 10 per cent increase or decrease in this
currency relative to the Canadian dollar is a reasonable potential change over the next year. This analysis has been
determined based on the exposure to foreign exchange for financial instruments outstanding at December 31, 2016.
The sensitivity analysis excludes translation risk associated with the translation of subsidiaries that have a different
functional currency than the functional currency of the Company.
Energy commodity price risk
Energy commodity price risk is the risk that the fair value or future cash flows of natural gas and power sales and
purchases will fluctuate due to changes in market prices. The Company’s electricity generation business is exposed to
commodity price movements, particularly to the market price of electricity and natural gas. At December 31, 2016,
approximately 743 MW of power generating plant capacity out of a total capacity owned by ATCO Power of 2,297 MW is
merchant capacity, which can be sold in the Alberta merchant electricity market.
Natural gas for contracted capacity is provided either under a long-term supply agreement or is the responsibility of the
off-taker. Natural gas capacity not contracted is purchased on a daily basis at spot prices. The Company pays market
prices for substitute energy when it is unable to supply energy from its contracted capacity.
The Company’s policy is to hedge and optimize the available merchant capacity related to electricity production and
related natural gas consumption. The Company enters into natural gas purchase contracts and forward power sales
contracts as the hedging instrument to manage the exposure to electricity and natural gas market price movements.
Hedge accounting is applied up to an allowable amount of forecasted merchant production to a maximum of a five year
term.
The Company is also exposed to seasonal summer/winter natural gas price spreads in its natural gas storage business.
A 10 per cent increase or decrease in the forward price of natural gas or power in Alberta would each increase or
decrease earnings and OCI by $5 million and $9 million, respectively. This analysis assumes that changes in the forward
price of natural gas affect the mark-to-market adjustment of the natural gas purchase contracts derivative asset.
153 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
CREDIT RISK
Credit risk is the risk of financial loss due to a counterparties inability to discharge their contractual obligations to the
Company. The Company is exposed to credit risk on its cash and cash equivalents, accounts receivable, derivative
instrument assets, receivable under service concession arrangement and lease receivables. The exposure to credit risk
represents the total carrying amount of these financial instruments in the consolidated balance sheet.
The Company manages its credit risk on cash and cash equivalents by investing in instruments issued by credit-worthy
financial institutions and in short-term instruments issued by the federal government.
Accounts receivable credit risk is reduced by a large and diversified customer base and credit security such as letters of
credit. The utilities are also able to recover an estimate for doubtful accounts through approved customer rates and to
request recovery through customer rates for any losses from retailers beyond the retailer security mandated by
provincial regulations.
Changes during the year in the Company's allowance for doubtful accounts was as follows:
Beginning of year
Impairment of receivables
Receivables written off as uncollectible
End of year
2016
8
—
(4)
4
The aging analysis of trade receivables that are past due but not impaired at December 31 is as follows:
30 to 90 days
Greater than 90 days
2016
19
5
24
2015
6
2
—
8
2015
15
13
28
Derivative credit risk arises from the possibility that a counterparty to a contract fails to perform according to its terms
and conditions. This risk is minimized by dealing with large, credit-worthy counterparties according to established credit
approval policies.
Lease receivable credit risk arises from the possibility that a counterparty to a lease arrangement fails to make lease
payments according to its terms and conditions. This risk is minimized by dealing with large, credit-worthy
counterparties according to established credit approval policies.
Receivable under service concession arrangement credit risk arises from the possibility that the counterparty to the
service concession arrangement fails to make payments according to its terms and conditions. This risk is minimized as
the counterparty is the AESO, which is a large, credit-worthy counterparty.
The Company does not have a concentration of credit risk with any counterparty, except for lease receivables and long-
term receivable under service concession arrangement, which by their nature are with a single counterparty.
At December 31, 2016, the Company held $233 million in letters of credit for certain counterparty receivables (2015 -
$259 million). The Company did not take possession of any collateral it holds as security in 2016 and 2015. The Company
has also entered into guarantee arrangements with Centrica plc. relating to the retail energy supply functions performed
by Direct Energy (see Note 32).
LIQUIDITY RISK
Liquidity risk is the risk that the Company will not be able to meet its financial obligations associated with its financial
liabilities that are settled in cash or another financial asset. Liquidity risk arises from the Company's general funding
needs and in the management of its assets, liabilities and capital structure. The Company considers it prudent to
maintain sufficient liquidity to fund approximately one full year of cash requirements to preserve strong financial
flexibility. Cash flow from operations provides a substantial portion of the Company’s cash requirements. Additional
cash requirements are met with the use of existing cash balances, bank borrowings and issuance of long-term debt,
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 154
non-recourse long-term debt and preferred shares. Commercial paper borrowings and short-term bank loans are also
used under available credit lines to provide flexibility in the timing and amounts of long-term financing.
Lines of credit
The Company has the following lines of credit that enable it to obtain financing for general business purposes:
Long-term committed
Short-term committed
Uncommitted
Total
2,687
78
324
3,089
Used
516
9
137
662
2016
Available
2,171
69
187
2,427
Total
3,034
—
323
3,357
Used
563
—
124
687
2015
Available
2,471
—
199
2,670
Long-term committed credit facilities have maturities greater than one year. Uncommitted credit facilities have no set
maturity and the lender can demand repayment at any time.
Lines of credit utilized at December 31 are comprised of:
Current bank indebtedness
Short-term debt (Note 16)
Long-term debt (Note 18)
Letters of credit
Commercial paper
2016
5
55
414
188
662
2015
1
—
494
192
687
The Company is authorized to issue $1.2 billion of commercial paper against its long-term committed credit facilities.
Maturity analysis of financial obligations
The table below analyzes the remaining contractual maturities at December 31, 2016 of the Company's financial
liabilities based on the contractual undiscounted cash flows.
Bank indebtedness
Accounts payable and accrued liabilities
Short-term debt
Long-term debt:
Principal
Interest expense (1)
Non-recourse long-term debt:
Principal
Interest expense
Derivatives (2)
2017
5
694
55
155
392
14
7
2
2018
2019
2020
2021
2022 and
thereafter
—
—
—
8
384
15
6
4
—
—
—
1,142
367
15
5
5
—
—
—
162
328
14
4
5
513
—
—
—
160
310
11
3
—
—
—
—
6,635
6,336
30
4
—
484
13,005
1,324
417
1,534
(1)
Interest payments on floating rate debt have been estimated using rates in effect at December 31, 2016. Interest payments on debt that has been hedged have
been estimated using hedged rates.
(2)
Payments on outstanding derivatives have been estimated using exchange rates and commodity prices in effect at December 31, 2016.
155 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
26. CAPITAL DISCLOSURES
The Company’s objectives when managing capital are to:
1. Safeguard the Company’s ability to continue as a going concern so it can continue to provide returns to share
owners and benefits for other stakeholders.
2. Maintain strong investment-grade credit ratings in order to provide efficient and cost-effective access to funds
required for operations and growth.
3. Remain within the capital structure approved by the AUC for the utilities.
The Company considers both its regulated and non-regulated operations, as well as changes in economic conditions and
risks impacting its operations, in managing its capital structure. The Company may adjust the dividends paid to share
owners, issue or purchase Class I and Class II Shares, issue or redeem preferred shares, and issue or repay short-term
debt, long-term debt and non-recourse long-term debt. Financing decisions are based on assessments by management
in line with the Company’s objectives, with a goal of managing the financial risk to the Company as a whole.
While the Alberta utilities have as their objective to be capitalized according to the AUC-approved capital structure, the
Company as a whole is not restricted in the same manner. The Company sets its capital structure relative to risk and to
meet financial and operational objectives, while factoring in the decisions of the regulator.
The Company also manages capital to comply with the customary covenants on its long-term debt. A common financial
covenant for a large portion of the Company’s debentures and credit facilities is that total debt divided by total
capitalization must be less than 75 per cent. The Company defines total debt as the sum of bank indebtedness, short-
term debt, long-term debt and non-recourse long-term debt (including their respective current portions). It defines total
capitalization as the sum of Class I and Class II Shares, contributed surplus, retained earnings, AOCI, NCI and total debt.
Management maintains the debt capitalization ratio well below 75 per cent to sustain access to cost-effective financing.
Debt capitalization does not have standardized meaning under IFRS and might not be comparable to similar measures
presented by other companies. Also, the definitions of total debt and total capitalization vary slightly in the Company’s
debt-related agreements.
The Company’s capitalization at December 31 is as follows:
Bank indebtedness
Short-term debt
Long-term debt
Non-recourse long-term debt
Total debt
Class I and Class II Shares
Contributed surplus
Retained earnings
Accumulated other comprehensive income
Non-controlling interests
Total equity
Total capitalization
Debt capitalization
2016
5
55
8,220
98
8,378
167
11
3,345
23
3,653
7,199
2015
1
—
7,943
112
8,056
165
11
3,130
50
3,537
6,893
15,577
14,949
54%
54%
For the year ended December 31, 2016, the Company complied with externally imposed requirements on its capital,
including covenants related to debentures and credit facilities. The Company will continue to assess its capital structure
and objectives in light of any future decisions received from the AUC.
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 156
27. SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS
Significant judgments, estimates and assumptions made by the Company are outlined below.
SIGNIFICANT ACCOUNTING JUDGMENTS
Joint arrangements
Judgment is required when assessing the classification of a joint arrangement as a joint operation or a joint venture.
When making this assessment, the Company considers the structure of the arrangements, the legal form of any
separate vehicles, the contractual terms of the arrangements, and other facts and circumstances.
Service concession arrangements
Judgment is required when assessing whether contracts with government entities fall within the scope of IFRIC 12 Service
Concession Arrangements. Judgment also needs to be exercised when determining the classification to be applied to the
service concession asset, allocation of consideration between revenue generating activities, classification of costs
incurred and the effective interest rate to be applied to the service concession asset.
Impairment of long-lived assets
Indicators of impairment are considered when evaluating whether or not an asset is impaired. Factors which could
indicate an impairment exists include: significant underperformance relative to historical or projected operating results,
significant changes in the way in which an asset is used or in the Company’s overall business strategy, significant
negative industry or economic trends, or adverse decisions by regulators. Events indicating an impairment may be
clearly identifiable or based on an accumulation of individually insignificant events over a period of time. Measurement
uncertainty is increased where the Company is not the operator of a facility. The Company continually monitors its
operating facilities and the markets and business environment in which it operates. Judgments and assessments about
conditions and events are made order to conclude whether a possible impairment exists.
Property, plant and equipment and intangibles
The Company makes judgments to: assess the nature of the costs to be capitalized and the time period over which they
are capitalized in the purchase or construction of an asset; evaluate the appropriate level of componentization where an
asset is made up of individual components for which different depreciation and amortization methods and useful lives
are appropriate; distinguish major overhauls to be capitalized from repair and maintenance activities to be expensed;
and determine the useful lives over which assets are depreciated and amortized.
Leases
The Company evaluates contract terms and conditions to determine whether they contain or are leases. Where a lease
exists, the Company determines whether substantially all of the significant risks and rewards of ownership are
transferred to the customer, in which case it is accounted for as a finance lease, or remain with the Company, in which
case it is accounted for as an operating lease.
Income taxes
The Company makes judgments with respect to changes in tax legislation, regulations and interpretations thereof.
Judgment is also applied to estimating probable outcomes, when temporary differences will reverse, and whether tax
assets are realizable.
When tax legislation is subject to interpretation, management periodically evaluates positions taken in tax filings and
records provisions where appropriate. The provisions are management’s best estimates of the expenditures required to
settle the present obligations at the balance sheet date, using a probability weighting of possible outcomes.
157 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS
Revenue recognition
An estimate of usage not yet billed is included in revenues from the regulated distribution of natural gas and electricity.
The estimate is derived from unbilled gas and electricity distribution services supplied to customers. This estimate is
from the date of the last meter reading and uses historical consumption patterns. Management applies judgment to the
measure and value of the estimated consumption.
Service concession arrangements
Contracts falling under IFRIC 12 require the use of estimates over the term of the arrangement, including estimates of
the services performed to date as a proportion of the total services to be performed. Any change in the long term
estimates could result in significant variation in the amounts recognized under service concession arrangements.
Useful lives of property, plant and equipment and intangibles
Useful lives are estimated based on current facts and past experience taking into account the anticipated physical life of
the asset, existing long-term sales agreements and contracts, current and forecast demand, and the potential for
technological obsolescence.
Impairment of long-lived assets
The Company continually monitors its long-lived assets and the markets and business environment in which it operates
for indications of asset impairment. Where necessary, the Company estimates the recoverable amount for the cash
generating unit (CGU) to determine if an impairment loss is to be recognized. These estimates are based on
assumptions, such as the price for which the assets in the CGU could be obtained or future cash flows that will be
produced by the CGU, discounted at an appropriate rate. Subsequent changes to these estimates or assumptions could
significantly impact the carrying value of the assets in the CGU.
Retirement benefits
The Company consults with qualified actuaries when setting the assumptions used to estimate retirement benefit
obligations and the cost of providing retirement benefits during the period. These assumptions reflect management’s
best estimates of the long-term inflation rate, projected salary increases, retirement age, discount rate, health care costs
trend rates, life expectancy and termination rates. The discount rate is determined by reference to market yields on high
quality corporate bonds. Since the discount rate is based on current yields, it is only a proxy for future yields. Key
assumptions used to determine the retirement benefit cost and obligation are shown in Note 20.
Income taxes
Management periodically evaluates positions taken in tax filings where tax legislation is subject to interpretation, and
records provisions where appropriate. The provisions are management’s best estimates of the expenditures required to
settle the present obligations at the balance sheet date measured using a probability weighting of possible outcomes.
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 158
28. SUBSIDIARIES
Principal operating subsidiaries are listed below. Subsidiaries are wholly owned, unless otherwise indicated.
Principal Operating Subsidiaries
Principal Place
of Business
Principal Activity
CU Inc.
ATCO Electric
ATCO Gas
ATCO Pipelines
Canadian Utilities Limited (1)
ATCO Power
Alberta PowerLine (2)
ATCO Energy Solutions
ATCO Gas Australia
ATCO Power Australia
ATCO Energy
ATCO Structures & Logistics (3)
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Australia
Australia
Canada
Canada
Holding company
Electricity transmission, distribution and related infrastructure
development
Natural gas distribution and related infrastructure development
Natural gas transmission and related infrastructure development
Holding company
Electricity generation and related infrastructure services
Design, build, own, and operate transmission infrastructure
Develops, owns and operates non-regulated energy and water-
related infrastructure
Natural gas distribution
Electricity generation
Electricity and natural gas retailer
Workforce housing, modular facilities, site support services and
logistics and operations management.
(1) At December 31, 2016, ATCO Ltd. has an ownership interest of 52.8 per cent (2015 - 53.1 per cent).
(2) At December 31, 2016 and 2015, Canadian Utilities Limited has an ownership interest of 80.0 per cent.
(3) ATCO Ltd. has an ownership interest of 75.5 per cent and Canadian Utilities Limited, has an ownership interest of 24.5 percent. On a consolidated basis, the
Company owns 88.5 per cent of ATCO Structures & Logistics.
29. JOINT ARRANGEMENTS
JOINT OPERATIONS
Significant joint operations, all of which are included in the Electricity segment, are listed below.
Significant Joint Operations
Sheerness Generating Plant
Joffre Cogeneration Plant
Cory Cogeneration Plant
Muskeg River Cogeneration Plant
Operating
Jurisdiction
Canada
Canada
Canada
Canada
Ownership % Principal Activity
50.0
40.0
50.0
70.0
Electricity generation
Electricity generation
Electricity generation
Electricity generation
159 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
JOINT VENTURES
The following joint ventures are considered the most significant; however, they are not individually material to the
operations of the Company.
Significant Joint Ventures
Brighton Beach Plant
Osborne Cogeneration Plant
Segment
Electricity
Electricity
Operating
Jurisdiction
Canada
Australia
Strathcona Storage Limited Partnership
Pipelines & Liquids
Canada
Sabinco Soluciones Modulares S.A.
Structures & Logistics Chile
Ownership % Principal Activity
50.0
50.0
60.0
50.0
Electricity generation
Electricity generation
Hydrocarbon storage
Modular structures
Aggregate information for the Company’s interest in joint ventures is shown below.
Earnings for the year
Other comprehensive income (loss)
Comprehensive income for the year
Dividends received
Aggregate carrying amount of interests in joint ventures
Investment in joint ventures
2016
2015
22
1
23
21
239
3
(1)
2
21
194
In April 2016, the Company expanded its international modular structures business into the Chilean market by investing
$25 million in Sabinco Soluciones Modulares S.A. (Sabinco) for a 50 per cent ownership interest. At December 31, 2016,
$21 million has been paid. The remaining $4 million will be paid in March 2017. Sabinco will operate under the name
ATCO-Sabinco S.A. The Company has accounted for its 50 per cent ownership interest as a joint venture which is
reported in the Structures & Logistics segment.
In 2016, the Company contributed $59 million to the Strathcona Storage Limited Partnership, which is developing salt
caverns for hydrocarbon storage (2015 - $28 million).
In March 2016, the Company increased its ownership in Barking from 51 per cent to 100 per cent. Barking was
previously accounted for as a joint venture and is now consolidated.
Impairment
In June 2015, the Company recognized an impairment of $8 million in equity earnings, in the Structures & Logistics
segment, relating to certain lodge joint venture assets. The Company determined these assets were impaired due to a
reduction in contracted rooms and rates charged as a result of continued and sustained decreases in key commodity
prices as well as a significant reduction in the capital expenditure programs of key clients. The recoverable amount of
the joint venture lodge asset was calculated based on cash flow projections expected to be derived from the lodge being
operational until July 2018. The expected future cash flows were discounted at a pre-tax rate of 15.0 per cent. After
recognizing this impairment, the recoverable amount of these assets was nil at December 31, 2015. This amount was
determined using value in use.
Commitments
The joint ventures have contractual obligations in the normal course of business. The Company’s total share of these
unrecognized commitments, based on the contractual undiscounted cash flows, was $175 million at December 31, 2016.
Restrictions
The Company requires approval from its joint venture partners before any dividends or distributions can be paid.
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 160
30. NON-CONTROLLING INTERESTS
Non-controlling interests in Canadian Utilities Limited at December 31 are as follows:
Class A non-voting shares and Class B common shares
Total ownership interest held
Proportion of voting rights held
Proportion of non-voting rights held
2016
%
47.2
10.7
61.1
2015
%
46.9
11.7
60.6
The summarized consolidated financial information for Canadian Utilities Limited, before inter-company eliminations, is
provided below.
Consolidated Statement of Comprehensive Income
Revenues
Earnings for the year
Total comprehensive income
Attributable to NCI:
Earnings for the year
Total comprehensive income
Consolidated Balance Sheet
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Attributable to NCI
Consolidated Statement of Cash Flows
Cash flows from operating activities
Cash flows used in investing activities
Cash flows (used in) from financing activities
(Decrease) increase in cash position
Dividends paid to NCI
Class A and Class B share owners
Equity preferred shares
2016
2015
3,399
629
580
335
313
3,264
360
491
202
263
985
17,796
(892)
1,057
17,012
(799)
(11,469)
(11,077)
6,420
3,653
1,622
(1,456)
(341)
(175)
112
75
187
6,193
3,537
1,616
(1,806)
353
163
99
64
163
CANADIAN UTILITIES LIMITED DIVIDEND REINVESTMENT PLAN
Canadian Utilities Limited has a dividend reinvestment plan (DRIP) that allows eligible Class A non-voting and Class B
common share owners of Canadian Utilities Limited to reinvest all or a portion of their dividends in additional Class A
non-voting shares.
During 2016, NCI acquired 1,484,241 Class A non-voting shares of Canadian Utilities Limited, using re-invested dividends
of $52 million (2015 - 1,312,550 shares using re-invested dividends of $47 million). The shares were priced at an average
of $35.01 per share (2015 - $35.49 per share).
161 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
EQUITY PREFERRED SHARES
Equity preferred shares held by non-controlling interests at December 31 are shown below.
Cumulative Redeemable Preferred Shares, at 2.24% to 4.60%
Cumulative Redeemable Second Preferred Shares, at 4.00% to 5.25%
Perpetual Cumulative Second Preferred Shares, at 4.00%
Issuance costs
2016
190
1,400
110
(30)
1,670
2015
190
1,400
110
(30)
1,670
Effective June 1, 2016, the annual dividend rate for the Series 4 Preferred Shares was reset to 2.24 per cent for the five-
year period commencing June 1, 2016. Prior to June 1, 2016, the annual dividend rate was 3.80 per cent.
On August 7, 2015, Canadian Utilities Limited issued $125 million Cumulative Redeemable Second Preferred Shares
Series EE at $25.00 per share under its base shelf prospectus. On September 24, 2015, Canadian Utilities Limited issued
$250 million Cumulative Redeemable Second Preferred Shares Series FF at $25.00 per share under its base shelf
prospectus. Issuance costs of $7 million, net of income taxes, were recorded as a reduction of NCI in the year ended
December 31, 2015.
Rights and privileges
Preferred shares
Redemption
Amount (1)
Quarterly Dividend (2)
Reset Premium (3)
Date Redeemable/
Convertible
Convertible To
Cumulative Redeemable Preferred Shares
Series 1
Series 4
25.00
25.00
0.2875
0.1401875
Cumulative Redeemable Second Preferred Shares
0.2500
25.00
0.30625
25.00
0.30625
25.00
0.28125
25.00
0.28125
25.00
0.328125
25.00
0.28125
25.00
Series Y
Series AA
Series BB
Series CC
Series DD
Series EE
Series FF
(1)
(2)
Plus accrued and unpaid dividends.
Cumulative, payable quarterly as and when declared by the Board.
Does not reset Currently redeemable Not convertible
Series 5 (5)
June 1, 2021 (4)
1.36%
2.40%
Does not reset
Does not reset
Does not reset
Does not reset
Does not reset
June 1, 2017 (4)
Series Z (5)
September 1, 2017 (6) Not convertible
September 1, 2017 (6) Not convertible
June 1, 2018 (6) Not convertible
September 1, 2018 (6) Not convertible
September 1, 2020 (6) Not convertible
Series GG (5)
3.69% December 1, 2020 (4)
(3) Dividend rate will reset on the date redeemable/convertible and every five years thereafter at a rate equal to the Government of Canada yield plus the reset
premium noted.
(4)
(5)
(6)
Redeemable by the Company or convertible by the holder on the date noted and every five years thereafter.
If converted, holders will be entitled to receive quarterly floating rate dividends equal to the Government of Canada Treasury Bill yield plus the reset premium
noted. Holders have the option to convert back to the original preferred shares series on subsequent redemption dates.
Subject to a redemption premium of 4 per cent per share. The redemption premium declines by 1 per cent in each succeeding twelve month period from the
redeemable date.
The Series V Perpetual Cumulative Second Preferred Shares are redeemable at the option of the Company on October 3,
2017, at the stated value plus accrued and unpaid dividends.
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 162
31. SHARE-BASED COMPENSATION PLANS
PLAN FEATURES
Share based forms of compensation are granted at the discretion of the Corporate Governance – Nomination,
Compensation and Succession Committee. Plan features are described below.
Form of compensation
Eligibility
Vesting Period
Term
Stock options
(1)
Officers and key employees
Share appreciation rights
(1) Directors, officers and key
employees
Mid-term incentive plan
Officers and key employees
20% per year
over 5 years
20% per year
over 5 years
2-3 years (2)
10 years
10 years
Settlement
Class I Non-Voting Shares (3)
Cash
2-3 years
Class I Non-Voting Shares (4)
(1)
Exercise price is equal to the weighted average of the trading price of the shares on the Toronto Stock Exchange for the five trading days immediately
preceding the date of grant.
(2) Based on achieving certain performance criteria.
(3)
(4)
Issued from Treasury.
Purchased on the secondary market.
STOCK OPTION PLAN
Information about the options outstanding and exercisable at December 31 is summarized below.
Options authorized for grant
Options available for issuance
Outstanding options, beginning of year
Granted
Exercised
Forfeited
Outstanding options, end of year
Options exercisable, end of year
Options
Range of
Exercise Prices
$22.94
$25.35 - $29.47
$35.12 - $39.75
$44.20 - $44.97
$45.83 - $47.70
$51.96 - $51.97
$22.94 - $51.97
Number
Outstanding
126,000
135,950
159,650
88,750
85,750
75,250
671,350
2016
Weighted
Average
Exercise Price
$34.49
39.17
25.17
45.19
$36.26
Options
10,200,000
2,732,750
678,100
86,750
(89,000)
(4,500)
671,350
Options
10,200,000
2,815,000
762,900
87,250
(158,600)
(13,450)
678,100
422,050
$31.61
438,050
Weighted
Average
Remaining
Contractual Life
1.2
Outstanding
Weighted
Average
Exercise Price
$22.94
Number
Exercisable
126,000
135,950
60,500
51,950
17,550
30,100
26.47
37.16
44.96
46.93
51.96
3.6
7.3
6.3
8.2
7.2
5.4
$36.26
422,050
$31.61
2015
Weighted
Average
Exercise Price
$30.52
46.85
21.41
43.28
$34.49
$28.47
Exercisable
Weighted
Average
Exercise Price
$22.94
26.47
35.18
44.97
46.93
51.96
Compensation expense related to stock options was less than $1 million in each of 2016 and 2015, with a corresponding
increase to contributed surplus.
163 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
SHARE APPRECIATION RIGHTS
Information about the stock appreciation rights (SARs) outstanding and exercisable at December 31 is summarized
below.
Outstanding SARs, beginning of year
Granted
Exercised
Forfeited
Outstanding SARs, end of year
SARs exercisable, end of year
SARs
Range of
Exercise Prices
$22.94
$25.35 - $29.47
$35.12 - $39.75
$44.20 - $44.97
$45.83 - $47.70
$51.96 - $51.97
$22.94 - $51.97
Number
Outstanding
123,500
135,950
181,650
108,750
104,750
85,250
739,850
2016
Weighted
Average
Exercise Price
$35.19
39.47
26.05
42.09
SARs
731,300
104,250
(31,600)
(13,450)
$37.04
790,500
SARs
790,500
102,750
(123,900)
(29,500)
739,850
419,550
$31.66
454,450
Weighted
Average
Remaining
Contractual Life
1.2
Outstanding
Weighted
Average
Exercise Price
$22.94
Number
Exercisable
123,500
135,950
60,500
51,950
17,550
30,100
26.47
37.12
44.95
46.91
51.96
3.6
7.3
6.4
8.2
7.2
5.6
$37.04
419,550
$31.66
2015
Weighted
Average
Exercise Price
$33.13
46.85
22.52
43.28
$35.19
$28.45
Exercisable
Weighted
Average
Exercise Price
$22.94
26.47
35.18
44.97
46.93
51.96
In 2016, compensation expense related to SARs was $3 million (2015 - credit of $5 million). The total carrying value of
liabilities arising from SARs at December 31, 2016 was $6 million (2015 - $5 million). The total intrinsic value of all vested
SARs at December 31, 2016 was $6 million (2015 - $4 million).
STOCK OPTION AND SARS WEIGHTED AVERAGE ASSUMPTIONS
The Company uses the Black-Scholes option pricing model to estimate the weighted average fair value of the stock
options and SARs granted. The following weighted average assumptions were used:
Class I share price
Risk-free interest rate
Share price volatility (1)
Estimated annual Class I share dividend
Options
$39.17
0.73%
25.65%
2.91%
2016
SARs
$39.47
0.72%
20.87%
2.89%
Expected holding period prior to exercise
7.1 years
6.0 years
Options
$45.79
0.81%
22.78%
2015
SARs
$46.85
0.83%
22.22%
2.07%
7.0 years
2.12%
6.0 years
(1)
The share price volatility is based on historical data and reflects the assumption that historical volatility over a period similar to the life of the option or SAR is
indicative of future trends, which may not necessarily be indicative of exercise patterns that may occur.
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 164
MID-TERM INCENTIVE PLAN
Information about the MTIPs outstanding at December 31 is summarized below.
Outstanding MTIPs, beginning of year
Granted
Vested
Forfeited
Change in unallocated shares (1)
Outstanding MTIPs, end of year
2016
Weighted
Average
Grant Date
Fair Value
$47.94
41.76
52.79
45.73
—
$46.32
MTIPs
306,987
103,118
(7,000)
(101,380)
(901)
300,824
MTIPs
310,692
123,750
(95,650)
(31,400)
(405)
306,987
(1) Unallocated shares are Class I Shares held by the trustee which have not been awarded to officers or key employees.
MTIPs
Range of Prices
$37.05 - $39.75
$42.29 - $44.76
$46.00 - $48.37
$51.97 - $53.79
Unallocated shares
$37.05 - $53.79
Number
Outstanding
56,000
47,350
112,388
59,050
26,036
300,824
Weighted
Average
Remaining
Contractual Life
2.2
1.9
1.5
0.2
—
1.4
2015
Weighted
Average
Grant Date
Fair Value
$44.26
47.06
35.62
48.73
—
$47.94
Outstanding
Weighted
Average
Grant Date
Fair Value
$38.92
43.19
47.88
52.88
—
$46.32
Compensation expense related to MTIP grants was a credit of less than $1 million for 2016 (2015 - expense of $4 million)
with a corresponding decrease (2015 - increase) to contributed surplus.
The Company, through a trustee, did not purchase any shares during 2016 to be distributed to employees on vesting of
the awards (2015 - $5 million).
32. CONTINGENCIES
Measurement inaccuracies occur from time to time on electricity and gas metering facilities. The measurement
adjustments relating to the Canadian utilities are settled between the parties according to the Electricity and Gas
Inspections Act (Canada) and related regulations. The AUC may disallow recovery of a measurement adjustment if it
finds that controls and timely follow-up are inadequate. The measurement adjustments relating to ATCO Gas Australia
are reconciled by the market operator and settled between the parties. Recovery of the costs is via a predetermined
allowance contained in the current Access Arrangement.
The Company is party to a number of other disputes and lawsuits in the normal course of business. The Company
believes that the ultimate liability arising from these matters will have no material impact on the consolidated financial
statements.
In 2004, ATCO Gas and ATCO Electric transferred their retail energy supply businesses to Direct Energy. The legal
obligations of ATCO Gas and ATCO Electric for the retail functions transferred to Direct Energy, which include the supply
of natural gas and electricity to customers as well as billing and customer care, remain if Direct Energy fails to perform.
In certain circumstances, the functions will revert to ATCO Gas and/or ATCO Electric, with no refund of the transfer
proceeds to Direct Energy. Centrica plc., Direct Energy’s parent company, provided a $300 million guarantee, supported
by a $235 million letter of credit for Direct Energy’s obligations to ATCO Gas and ATCO Electric under the transaction
agreements. However, there can be no assurance that the coverage under these agreements will be adequate to defray
all costs that could arise if the obligations are not met.
165 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
33. COMMITMENTS
In addition to commitments disclosed elsewhere in the financial statements, the Company has entered into a number of
operating leases, coal purchase contracts, operating and maintenance agreements and agreements to purchase capital
assets. Approximate future undiscounted payments under these agreements are as follows:
2017
29
64
293
593
8
987
2018
25
66
290
564
1
946
2019
10
70
254
125
—
459
2020
10
71
108
7
2
198
2021
7
74
106
7
2
196
2022 and
thereafter
1
145
337
—
—
483
Operating leases
Purchase obligations:
Coal purchase contracts
Operating and maintenance agreements
Capital expenditures
Other
34. RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH SUBSIDIARY
During the year ended December 31, 2015, the Company acquired 1,479,752 Class A non-voting shares of Canadian
Utilities Limited under its DRIP, using re-invested dividends of $52 million. The shares were priced at an average of
35.37 per share. The Company did not participate in the DRIP during 2016.
OTHER
In transactions with the Company’s joint ventures, the Company recognized revenues of $10 million relating to
management fees and other charges (2015 - $6 million).
In transactions with the Company’s group pension plans, the Company paid occupancy costs of $8 million relating to
property owned by the pension plans (2015 - $8 million).
The Company incurred $2 million in advertising, promotion and other expenses from an entity related through common
control (2015 - $2 million).
KEY MANAGEMENT COMPENSATION
Information on management compensation is shown below.
Salaries and short-term employee benefits
Retirement benefits
Share-based compensation
2016
7
2
6
15
2015
9
2
(4)
7
Key management personnel comprise members of executive management and the Board, a total of 17 individuals
(2015 - 19 individuals).
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 166
35. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Subsidiaries are consolidated from the date control is obtained until the date control ends. Control exists where the
Company has power over the investee, exposure or rights to variable returns from the investee and the ability to use its
power over the investee to affect returns.
All intra-group balances and transactions are eliminated on consolidation.
Interests in subsidiaries owned by other parties are included in NCI. NCI in subsidiaries are identified separately from
equity attributable to Class I and Class II owners of the Company. Earnings and each component of OCI are attributed to
the Class I and Class II owners of the Company and to NCI, even if this results in the NCI having a deficit balance.
Earnings attributable to the Class I and Class II owners are determined after adjusting for dividends on equity preferred
shares held by NCI.
Changes in the Company’s ownership interests that do not result in a loss of control are accounted for as equity
transactions. The carrying amounts of the Company’s interest and the NCI are adjusted to reflect the changes in their
relative interests in the subsidiaries. Any difference between the amount by which the NCI are adjusted and the fair
value of the consideration paid or received is recognized directly in equity and attributed to the Class I and Class II
owners of the Company.
JOINT ARRANGEMENTS
A joint arrangement can be classified as either a joint operation or joint venture and represents the contractually agreed
sharing of control by two or more parties. A joint operation is an arrangement in which the Company has the rights and
obligations to the corresponding assets and liabilities of the arrangement, whereas a joint venture is an arrangement in
which the Company has the rights to the net assets of the arrangement.
Joint operations are proportionately consolidated by including the Company’s share of assets, liabilities, revenues,
expenses and OCI in the respective consolidated accounts.
Joint ventures are equity accounted. Under this method, the Company’s interests in joint ventures are initially recognized
at cost. The interests are subsequently adjusted to recognize the Company’s share of post-acquisition profits or losses,
movements in OCI and dividends or distributions received.
The Company’s interests in joint ventures are tested for recoverability when events or circumstances indicate a possible
impairment. An impairment loss is recognized in earnings when the carrying value of the Company’s interest in an
individual joint venture is higher than its recoverable amount. The recoverable amount is the higher of fair value less
disposal costs and value in use. An impairment loss may be reversed if there is objective evidence that a change in the
estimated recoverable amount of the investment is warranted.
BUSINESS COMBINATIONS
Business combinations are accounted for using the acquisition method. Assets acquired and liabilities assumed are
measured at their fair value at the acquisition date. Acquisition costs are expensed in the period incurred.
SERVICE CONCESSION ARRANGEMENTS
Service concession arrangements are contracts between the Company and government entities and can involve the
design, build, finance, operation and maintenance of public infrastructure in which the government entity controls:
(i)
the services provided by the Company; and
(ii) a significant residual interest in the infrastructure.
Service concession arrangements are classified as either a financial asset or an intangible asset, or both. A financial
asset is recognized when the Company has an unconditional right to receive a specified amount of cash or other
financial asset over the life of the arrangement. The financial asset is measured at the fair value of consideration
received or receivable upon initial recognition. When the Company delivers more than one category of activities in a
167 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
service concession arrangement, the consideration received or receivable is allocated by reference to the relative fair
value of the activity, when amounts are separately identifiable. The Company recognizes an intangible asset when it has
a right to charge for usage of the public infrastructure. The intangible asset is measured at fair value upon initial
recognition. Subsequent to initial recognition, both the financial and intangible asset are measured at cost less
accumulated amortization and impairment losses, if any.
REVENUE RECOGNITION
Revenues from the regulated distribution of natural gas in Canada and Australia and the regulated distribution of
electricity in Canada include variable and fixed charges. Variable charges are recognized using meter readings on
delivery of the commodity to customers and include an estimate of usage not yet billed. Fixed charges are based on the
distribution service provided during the period.
Revenues for the use of regulated electricity transmission facilities are based on an annual tariff and are recognized
evenly throughout the year.
Revenues from the regulated transmission of natural gas are recognized based on AUC-approved revenue requirement
(cost of service).
Certain additions to property, plant and equipment, mainly in the utilities, are made with the assistance of
non-refundable cash contributions from customers. These contributions are made when the estimated revenue is less
than the cost of providing service or where the customer needs special equipment. Since these contributions will
provide customers with on-going access to the supply of natural gas or electricity, they are classified as deferred
revenues and are recognized in revenues over the life of the related asset.
Revenues from power generating plants are recognized on delivery of output or on availability of delivery as prescribed
by contracts. In addition, incentives and penalties associated with the PPAs are recognized in earnings on a straight-line
basis as lease income. Accumulated incentives in excess of accumulated penalties are deferred. For an individual PPA,
any surplus of the accumulated and estimated future incentives over the accumulated and estimated future penalties is
amortized to revenues on a straight-line basis over the remaining term of the PPA. Conversely, any shortfall is expensed
in the year the shortfall occurs.
Revenues from natural gas storage and processing capacity are recognized according to contracts. Revenues from the
sale of natural gas liquids are recognized on delivery.
Revenues from the supply of contracted products and services are recorded using the percentage of completion
method. The percentage of completion is based either on actual labour hours incurred as a proportion of the total
estimated labour hours for the contract or on contract costs incurred as a proportion of the total estimated contract
costs. Full provision is made for any anticipated loss. Other revenues are recognized when products are delivered or
services provided. Billings in excess of earned revenue are classified as deferred revenues on the consolidated balance
sheet.
SHORT-TERM EMPLOYEE BENEFITS
Short-term employee benefits are recognized as an expense in salaries, wages and benefits as employees render
service. These benefits include wages, salaries, social security contributions, short-term compensated absences,
incentives and non-monetary benefits, such as medical care. Costs for employee services incurred in constructing an
asset that meet the asset recognition criteria are included in the related property, plant and equipment or intangible
asset.
Termination benefits are recognized as an expense in salaries, wages and benefits at the earlier of when the Company
can no longer withdraw the offer of those benefits and when the Company recognizes costs for a restructuring that
includes the payment of termination benefits. In the case of an offer made to encourage voluntary redundancy, the
termination benefits are measured based on the number of employees expected to accept the offer.
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 168
FRANCHISE FEES
Municipal governments charge franchise fees to the utilities in Canada for the exclusive right to provide service in their
community. These costs are charged to customers through rates approved by the regulator. Franchise fee revenues and
expenses are, therefore, recognized separately and are not recorded on a net basis.
INCOME TAXES
Income taxes are the sum of current and deferred taxes. Income tax is recognized in earnings, except to the extent it
relates to items recorded in OCI or in equity.
Current tax is calculated on taxable earnings using rates enacted or substantively enacted at the balance sheet date in
the jurisdictions in which the Company operates.
The liability method is used to determine deferred income tax on temporary differences between the financial
statement carrying amounts of assets and liabilities and their respective tax bases. Deferred income tax is calculated
using the enacted or substantively enacted tax rates that are expected to apply in the period when the liability is settled
or the asset is realized. If expected tax rates change, deferred income taxes are adjusted to the new rates.
Deferred income tax assets and liabilities are not recognized if the temporary differences arise from the initial
recognition of goodwill or of other assets and liabilities in a transaction, other than a business combination, that does
not affect accounting or taxable earnings. The tax effect of temporary differences from investments in subsidiaries and
joint arrangements are not accounted for where the Company is able to control the reversal of the temporary
differences and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income
tax assets are recognized only when it is probable that future taxable earnings will be available against which the
temporary differences can be applied.
Current income tax assets and liabilities are offset where the Company has the legally enforceable right to offset and the
Company intends to either settle on a net basis or realize the asset and settle the liability simultaneously.
Deferred income tax assets and liabilities are offset where the Company has a legally enforceable right to set off tax
assets and liabilities, and when the deferred income tax assets and liabilities relate to income taxes levied by the same
tax authority.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash at bank, bankers’ acceptances, certificates of deposit issued or guaranteed by
credit worthy financial institutions and federal government issued short-term investments with maturities generally of
90 days or less at purchase.
INVENTORIES
Inventories are valued at the lower of cost or net realizable value. The cost of inventories that are interchangeable is
assigned using the weighted average cost method. For inventories that are not interchangeable, cost is assigned using
specific identification of their individual costs. Net realizable value is the estimated selling price in the ordinary course of
business, less variable selling expenses.
The cost of inventories is comprised of all purchase, conversion and other costs to bring inventories to their present
condition and location. Purchase costs consist of the purchase price, import duties, non-recoverable taxes, transport,
handling and other costs directly attributable to the purchase of finished goods, materials or services. Conversion costs
include direct material and labour costs and a systematic allocation of fixed and variable overheads incurred in
converting materials into finished goods. The standard cost method is used to approximate cost in the Company’s
Structures & Logistics manufacturing operations.
169 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost less accumulated depreciation and any recognized impairment
losses. Cost includes expenditures that are directly attributable to the purchase or construction of the asset, such as
materials, labour, borrowing costs incurred during construction, contracted services and asset retirement costs.
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset only when it is probable
that future economic benefits will flow to the Company and the cost can be measured reliably.
Major overhaul costs are capitalized and depreciated on a straight-line basis over the period to the next major overhaul,
which varies from three to eight years. The cost of repair and maintenance activities performed every two years or less
which do not enhance or extend the useful life of the asset are expensed when incurred.
Borrowing costs attributable to a construction period of substantial duration are added to the cost of the asset. The
effective interest method is used to calculate capitalized interest using specified rates for specific borrowings and a
weighted average rate for general borrowings. Interest capitalization starts when borrowing costs and expenditures are
incurred at the onset of construction and ends when construction is substantially complete.
The Company allocates the amount initially recognized in property, plant and equipment to its significant components
and depreciates each component separately. Assets are depreciated mainly on a straight-line basis over their estimated
useful lives. No depreciation is provided on land and construction work-in-progress.
The carrying amount of a replaced asset is derecognized when the cost of replacing the asset is capitalized. When an
asset is derecognized, any resulting gain or loss is recorded in earnings.
Depreciation periods for the principal categories of property, plant and equipment are shown in the table below.
Utility transmission and distribution:
Electricity transmission equipment
Electricity distribution equipment
Gas transmission equipment
Gas distribution plant and equipment
Power generation plant and equipment:
Gas-fired
Coal-fired
Hydroelectric
Buildings
Other:
Rental assets
Other plant, equipment and machinery
Useful Life
Average
Useful Life
Average
Depreciation Rate
17 to 66 years
14 to 103 years
3 to 82 years
3 to 120 years
3 to 40 years
5 to 47 years
50 years
1 to 50 years
12 to 17 years
1 to 66 years
49 years
36 years
39 years
39 years
23 years
39 years
50 years
33 years
16 years
25 years
2.0%
2.8%
2.6%
2.5%
4.3%
2.6%
2.3%
3.0%
6.2%
3.6%
Depreciation methods and the estimated residual values and useful lives of assets are reviewed on an annual basis. Any
changes in these accounting estimates are recorded prospectively.
INTANGIBLES
Intangible assets are recorded at cost less accumulated amortization and any recognized impairment losses. The
Company amortizes intangible assets on a straight-line basis over their useful lives. Useful life is not longer than
10 years for computer software and between 60 and 100 years for land rights based on the contractual life of the
underlying agreements. Software work-in-progress is not amortized as the software is not available for use.
Amortization methods and useful lives of assets are reviewed annually. Any changes in these accounting estimates are
recorded prospectively.
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 170
IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLES
Property, plant and equipment and intangible assets with finite lives are tested for recoverability when events or
circumstances indicate a possible impairment. Impairment is assessed at the CGU level, which is the smallest identifiable
group of assets that generates independent cash inflows. An impairment loss is recognized in earnings when the CGU’s
carrying value is higher than its recoverable amount. The recoverable amount is the greater of the CGU’s fair value less
disposal costs and its value in use. An impairment loss may be reversed in whole or in part if there is objective evidence
that a change in the estimated recoverable amount is warranted. A reversal of an impairment loss shall not exceed the
carrying amount that would have been determined (net of depreciation) had no impairment loss been recognized for
the asset in prior years.
GOODWILL
Goodwill is not amortized. The carrying value of goodwill is tested for impairment annually or more frequently if there is
an indicator of impairment. Impairment is tested at the operating segment level. If the carrying value of the segment to
which goodwill has been assigned exceeds its recoverable amount, then any excess of the carrying value of a segment's
goodwill over its recoverable amount is expensed and is not subsequently reversed.
LEASES
A finance lease exists when the terms of the lease transfer substantially all the risks and rewards incidental to ownership
of the leased asset to the lessee. Amounts due from lessees under finance leases are recorded as finance lease
receivables. They are initially recognized at amounts equal to the present value of the minimum lease payments
receivable. Payments that are part of the leasing arrangement are divided between a reduction in the finance lease
receivable and finance lease income. Finance lease income is recognized so as to produce a constant rate of return on
the Company’s investment in the lease and is included in revenues.
Assets subject to operating leases are included in property, plant and equipment and are depreciated. Income from
operating leases is recognized in earnings on a straight-line basis over the lease term.
When the Company has purchased goods or services as a lessee, and the lease is an operating lease, rental payments
are expensed on a straight-line basis over the life of the lease.
For both finance and operating leases, contingent rents are recognized in earnings in the period in which they are
incurred. Contingent rent is that portion of lease payments that is not fixed in amount but varies based on a future
factor, such as the amount of use or production.
PROVISIONS
The Company recognizes provisions when:
(i)
there is a current legal or constructive obligation as a result of a past event,
(ii) a probable outflow of economic benefits will be required to settle the obligation; and
(iii) a reliable estimate of the obligation can be made.
If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that
reflects current market assessments of the time value of money and the risks specific to the liability. If discounting is
used, the increase in the provision due to the passage of time is recognized in interest expense.
171 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
CONTINGENCIES
A contingent liability is a possible obligation, and a contingent asset is a possible asset, that arises from past events and
whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not
wholly within the control of the Company. A contingent liability may also be a present obligation that arises from past
events that is not recognized because it is not probable that an outflow of economic resources will be required to settle
the obligation or the amount of the obligation cannot be measured reliably.
Neither contingent liabilities nor assets are recognized in the consolidated financial statements. However, a contingent
liability is disclosed, unless the possibility of an outflow of resources is remote. A contingent asset is only disclosed
where an inflow of economic benefits is probable.
Management evaluates the likelihood of contingent events based on the probability of exposure to potential loss. Actual
results could differ from these estimates.
ASSET RETIREMENT OBLIGATIONS
AROs are legal and constructive obligations connected with the retirement of tangible long-lived assets. These
obligations are measured at management’s best estimate of the expenditure required to settle the obligation and are
discounted to present value when the effect is material. Cash flows for AROs are adjusted to take risks and uncertainties
into account and are discounted using a pre-tax, risk-free discount rate.
Initially, an ARO is recorded in provisions, with a corresponding increase to property, plant and equipment.
Subsequently, the carrying amount of the provision is accreted over the estimated time period until the obligation is to
be settled; the accretion expense is recognized as interest expense. The asset is depreciated over its estimated useful
life. Revaluations of the ARO at each reporting period take into account changes in estimated future cash flows and the
discount rate.
FINANCIAL INSTRUMENTS
The Company classifies financial assets when they are first recognized as amortized cost or fair value through profit or
loss. Classification is determined based on the Company’s business model for managing financial assets and the
contractual cash flow characteristics of the financial assets. Financial assets are measured at amortized cost if the
financial asset is:
(i) held for the purpose of collecting contractual cash flows, and
(ii) the contractual cash flows of the financial asset solely represent payments of principle and interest.
All other financial assets are classified as fair value through profit or loss.
Financial liabilities are classified as amortized cost or fair value through profit or loss.
Amortized cost
Financial instruments classified as amortized cost are initially measured at fair value and subsequently measured at
their amortized cost using the effective interest method.
Fair value through profit or loss
Financial instruments classified as fair value through profit or loss are initially measured at fair value with subsequent
changes in fair value recognized in earnings.
Transaction costs
Transaction costs directly attributable to the purchase or issue of financial assets or financial liabilities that are not fair
value through profit or loss are added to the fair value of such assets or liabilities when initially recognized. Transaction
costs for long-term debt are amortized over the life of the respective financial liability using the effective interest
method. The Company’s long-term debt, non-recourse long-term debt and equity preferred shares are presented net of
their respective transaction costs.
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 172
Offsetting financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated balance sheet:
(i)
if there is a legally enforceable right to offset the recognized amounts, and
(ii)
if the Company intends either to settle on a net basis or to realize the assets and settle the liabilities
simultaneously.
Derecognition of financial instruments
Financial assets are derecognized:
(i) when the right to receive cash flows from the financial assets has expired or been transferred, and
(ii) the Company has transferred substantially all the risks and rewards of ownership.
Financial liabilities are derecognized when the obligation is discharged, cancelled, or expired.
Fair value hierarchy
The Company uses quoted market prices when available to estimate fair value. Models incorporating observable market
data, along with transaction specific factors, are also used to estimate fair value. Financial assets and liabilities are
classified in the fair value hierarchy according to the lowest level of input that is significant to the fair value
measurement. Management’s judgment as to the significance of a particular input may affect placement within the fair
value hierarchy levels.
The hierarchy is as follows:
•
•
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either
directly (i.e., as prices) or indirectly (i.e., derived from prices).
•
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The Company applies settlement date accounting to the purchases and sales of financial assets. Settlement date
accounting means recognizing an asset on the day it is received by the Company and recognizing the disposal of an
asset on the day it is delivered by the Company. Any gain or loss on disposal is also recognized on that day.
IMPAIRMENT OF FINANCIAL INSTRUMENTS
At each reporting date, the Company assesses whether there is objective evidence that a financial asset or group of
financial assets is impaired. If such evidence exists, an impairment loss is recognized in earnings.
Impairment losses on financial assets carried at amortized cost are calculated as the difference between the amortized
cost and the present value of estimated future cash flows discounted at the financial asset’s original effective interest
rate. Impairment losses on financial assets carried at amortized cost may be reversed in whole or in part if there is
objective evidence that a change in the estimated recoverable amount is warranted. The revised recoverable amount
cannot exceed the carrying amount had no impairment charge been recognized in previous periods.
DERIVATIVE FINANCIAL INSTRUMENTS
Contracts settled net in cash or in another financial asset are classified as derivatives, unless they meet the Company’s
own use requirements.
All derivative financial instruments are measured at fair value. The gain or loss that results from changes in fair value of
the derivative is recognized in earnings immediately, unless the derivative is designated and effective as a hedging
instrument, in which case the timing of recognition in earnings depends on the hedging relationship.
173 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
Where the Company elects to apply hedge accounting, the Company documents the relationship between the derivative
and the hedged item at inception of the hedge, based on the Company’s risk management policies. A qualitative
assessment of the effectiveness of the hedging relationship is performed at each reporting period if both the critical
terms of the hedging relationship and the economic relationship between the hedged item and hedging instrument
continue to remain the same or similar. If the mismatch in terms is significant, a quantitative assessment may be
required. Ineffectiveness, if any, is measured at the end of each reporting period.
If the risk management hedge ratio used to form the economic relationship of the hedged item and hedging instrument
changes, rebalancing of the hedging relationship is required. Under this circumstance, an adjustment to the quantities
of the hedged item or hedging instrument would be allowed to realign the hedging relationship in accordance with the
appropriate risk management hedge ratio. The Company can only discontinue hedge accounting prospectively if there is
no longer an economic relationship between the hedged item and hedging instrument, the risk management objective
changes, the derivative no longer is designated as a hedging instrument, or the underlying hedged item is derecognized.
Cash flow hedges
The Company enters into interest rate swaps, foreign currency forward contracts and natural gas and forward power
purchase and sale contracts to offset the risk of volatility in the variable cash flows arising from a recognized asset or
liability, a highly probable forecast transaction or a firm commitment in a foreign currency transaction. The effective
portion of changes in fair value of the derivative is recognized in OCI, whereas the ineffective portion is recognized in
earnings immediately. Sources of hedge ineffectiveness can occur as a result of credit risk, change in hedge ratio,
changes in the timing of payment, and forecast adjustments leading to over-hedging. The cumulative gain or loss in
AOCI is transferred to earnings when the hedged item affects earnings. If a forecast transaction results in the
recognition of a non-financial asset or liability, the amount in AOCI is added to the initial cost of the non-financial asset
or liability.
If the Company discontinues hedge accounting, the cumulative gain or loss in AOCI is transferred to earnings at the
same time as the hedged item affects earnings.
The amount in AOCI is immediately transferred to earnings if the hedged item is derecognized or it is probable that a
forecast transaction will not occur in the originally specified time frame.
RETIREMENT BENEFITS
The Company accrues for its obligations under defined benefit pension and OPEB plans.
Pension plan assets at the balance sheet date are reported at fair value. Accrued benefit obligations at the balance sheet
date are determined using a discount rate that reflects market interest rates. The rates are equivalent to those on high
quality corporate bonds that match the timing and amount of expected benefit payments.
The cost for defined benefit plans includes net interest expense. This expense is calculated by applying the discount rate
to the net defined benefit asset or liability at the beginning of the year plus projected contributions and benefit
payments during the year.
Gains and losses resulting from experience adjustments and changes in assumptions used to measure the accrued
benefit obligations are recognized in OCI in the period in which they occur. Those gains and losses are then transferred
directly to retained earnings.
Employer contributions to the defined contribution pension plans are expensed as employees render service.
For defined benefit pension plans and OPEB plans, service cost is recognized as an expense in salaries, wages and
benefits, and net interest expense is recognized in interest expense. The cost of defined contribution pension plans is
recognized as an expense in salaries, wages and benefits. Past service costs are recognized immediately in earnings in
the period of a plan amendment or curtailment. The change in the present value of the defined benefit pension plans
resulting from a curtailment is accounted for as a past service cost. When retirement benefit costs for employee services
are incurred in constructing an asset and meet asset recognition criteria, they are included in the related property, plant
and equipment or intangible asset.
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 174
SHARE-BASED COMPENSATION PLANS
The Company expenses stock options granted by ATCO Ltd. and its subsidiary, Canadian Utilities Limited. The Company
determines the fair value of the options on the date of grant. The fair value is recognized over the vesting period of the
options granted by applying graded vesting, adjusted for estimated forfeitures. The fair value of the ATCO Ltd. options is
recorded in salaries, wages and benefits expense and contributed surplus. Contributed surplus is reduced as the ATCO
Ltd. options are exercised, and the amount initially recorded in contributed surplus is credited to Class I and Class II
Share capital. The fair value of the Canadian Utilities Limited options is recorded in salaries, wages and benefits expense
and non-controlling interests.
SARs are cash-settled and are measured at fair value. The fair value is recognized over the vesting period of the SARs
granted by applying graded vesting, adjusted for estimated forfeitures. The fair value of SARs is recorded in salaries,
wages and benefits expense and accounts payable and accrued liabilities and other non-current liabilities. The liabilities
are re-measured at each reporting period.
The MTIP awards are equity-settled with shares purchased on the secondary market. They are measured at fair value
based on the purchase price of the Company’s Class I Non-Voting Shares at the date of grant. The awards are held by a
trust until the shares are vested, at which time they are transferred to the employee. The fair value of the MTIP awards is
recognized in salaries, wages and benefits expense over the vesting period, with a corresponding charge to contributed
surplus.
RELATED PARTY TRANSACTIONS
Transactions with related parties in the normal course of business are measured at the exchange amount. Transfers of
assets or business combinations between entities under common control are measured at the carrying amount.
FOREIGN CURRENCY TRANSLATION
Foreign currency transactions
Transactions denominated in foreign currencies are translated at the exchange rate at the date of the transaction.
Monetary assets and liabilities and non-monetary assets and liabilities measured at fair value denominated in a foreign
currency are adjusted to reflect the exchange rate at the balance sheet date. Gains or losses on translation of these
monetary and non-monetary items are recognized in earnings. Non-monetary items not measured at fair value are not
retranslated after they are first recognized.
Foreign operations
The assets and liabilities of subsidiaries whose functional currencies are other than Canadian dollars are translated into
Canadian dollars at the exchange rate at the balance sheet date. Revenues and expenses are translated at the average
monthly exchange rates during the period, which approximates the foreign exchange rates on the dates of the
transactions. Gains or losses on translation are included in other comprehensive income.
If the Company disposes of its entire interest in a foreign operation, or loses control, joint control, or significant
influence over a foreign operation, the accumulated foreign currency translation gains or losses related to the foreign
operation are recognized in earnings.
The exchange rates for the major currencies used in the preparation of the consolidated financial statements were as
follows:
U.S. dollar
Australian dollar
Exchange Rates
as at December 31
Average Exchange Rates for
Year Ended December 31
2016
1.3427
0.9707
2015
1.3840
1.0083
2016
1.3256
0.9854
2015
1.2788
0.9605
175 ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
Certain new or amended standards or interpretations issued by the IASB or IFRIC do not need to be adopted in the
current period. Standards issued, but not yet effective, which the Company anticipates may have a material effect on the
consolidated financial statements or note disclosures are described below.
Standard
IFRS 15 Revenue
from Contracts with
Customers
Description
This standard replaces IAS 18 Revenue and related interpretations. It
provides a framework to determine when to recognize revenue and
at what amount. It applies to new contracts created on or after the
effective date and to existing contracts not yet completed as of the
effective date.
Effective Date
Effective for annual periods
on or after January 1, 2018.
The Company will not early
adopt this standard.
The Company is party to numerous contracts with customers that
will be impacted by the new standard. The Company has
established a working group to review the adoption of IFRS 15 and
education sessions have been, and will continue to be, provided for
employees, senior management and the Audit Committee to
increase knowledge, awareness and impacts of the standard.
Positions papers on issue-specific differences in the new standard
are substantially complete and are in discussion with the
Company’s external auditor. Under IFRS 15, the timing of revenue
recognition for certain contracts may be significantly impacted by
the new revenue recognition model and transitional adjustments
are currently being reviewed. The Company is currently evaluating
the impact of the new standard on financial reporting computer
systems and internal controls over financial reporting.
This standard replaces IAS 17 Leases and related interpretations. It
introduces a new approach to lease accounting that requires a
lessee to recognize assets and liabilities for the rights and
obligations created by leases. It brings most leases on-balance
sheet for lessees, eliminating the distinction between operating and
finance leases. However, lessor accounting remains similar to
previous guidance and the distinction between operating and
finance leases is retained.
The Company has developed a detailed project plan to review and
implement the new standard and a working group has been
formed to assess its impact.
IFRS 16 Leases
Effective for annual periods
on or after January 1, 2019.
The Company will not early
adopt this standard.
ATCO LTD. 2016 CONSOLIDATED FINANCIAL STATEMENTS 176