ATCO Ltd. Annual Report 2017

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FY2017 Annual Report · ATCO Ltd.

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ATCO LTD. | 2017 | ANNUAL REPORT

Our Integrated Solutions

ATCO Ltd. Financial Highlights

Ten-Year Total Return on $100 Investment

Message to Share Owners

Corporate Governance

Directors

Leadership Team

Message from the President & Chief Strategy Officer

Strategic Priorities

Innovation

Growth

Operational Excellence

Community & Indigenous Partnerships

Our Approach to Sustainability

Financial Strength

Management’s Discussion and Analysis

114

Financial Statements

183

Consolidated Annual Results

184

Consolidated Operating Summary

185

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 energy and housing

customers, the strength and determination

solutions globally.

OUR OPERATING PRINCIPLES
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.

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.

In 2017, we partnered with Clark Builders to provide our expertise in a rooftop solar
project at the University of Alberta’s Augustana Campus in Camrose, Alberta.

OUR
INTEGRATED
SOLUTIONS

We are privileged to serve

more than two million

customers around the

world, providing integrated,

forward-thinking solutions

in Structures & Logistics,

Electricity, Pipelines & Liquids

and Retail Energy. From

reliable, sustainable energy

for homes and businesses

to innovative temporary

and permanent structures

and everything in between,

we build communities,

energize industries, and

deliver customer-focused

infrastructure solutions.

RETAIL
ENERGY
SALES

RE SIDENTI AL

• HOMES
• SOLAR PANELS
• MICRO COMBINED HEAT & POWER
• HOME ENERGY MANAGEMENT SYSTEM
• BATTERY STORAGE
• ELECTRIC VEHICLE CHARGING

NATURAL GAS

TRANSMISSION

& DISTRIBUTION

ELECTRICITY

TRANSMISSION

& DISTRIBUTION

MUNICIPAL

SOLAR

HYDRO

DISTRIBUTED

GENERATION

INDUSTRIAL

NATURAL GAS

ELECTRICITY

GENERATION

FIREHALLS

MEDICAL

FACILITIES

SCHOOLS

MODULAR STRUCTURES

ENERGY

STORAGE

INDUSTRIAL WATER

WORKFORCE

HOUSING

• OPERATIONS & MAINTENANCE

• LODGING SERVICES

• SITE SERVICES

MOBILE OFFICES

LED STREET LIGHTS

1 2017 ATCO ANNUAL REPORT

ELECTRIC VEHICLE CHARGING

RETAIL

ENERGY

SALES

RE SIDENTIAL

• HOMES

• SOLAR PANELS

• MICRO COMBINED HEAT & POWER

• HOME ENERGY MANAGEMENT SYSTEM

• BATTERY STORAGE

• ELECTRIC VEHICLE CHARGING

NATURAL GAS
TRANSMISSION
& DISTRIBUTION

ELECTRICITY
TRANSMISSION
& DISTRIBUTION

M UNICIPAL

SOLAR

HYDRO

DISTRIBUTED

GENERATION

INDUSTRIAL

NATURAL GAS

ELECTRICITY
GENERATION

FIREHALLS

MEDICAL
FACILITIES

MODULAR STRUCTURES

SCHOOLS

ENERGY

STORAGE

INDUSTRIAL WATER

WORKFORCE

HOUSING

• OPERATIONS & MAINTENANCE

• LODGING SERVICES

• SITE SERVICES

MOBILE OFFICES

LED STREET LIGHTS

ELECTRIC VEHICLE CHARGING

RETAIL

ENERGY

SALES

RESIDENTIAL

• HOMES

• SOLAR PANELS

• MICRO COMBINED HEAT & POWER

• HOME ENERGY MANAGEMENT SYSTEM

• BATTERY STORAGE

• ELECTRIC VEHICLE CHARGING

NATURAL GAS

TRANSMISSION

& DISTRIBUTION

ELECTRICITY

TRANSMISSION

& DISTRIBUTION

MUNICIPAL

SOLAR

HYDRO

DISTRIBUTED
GENERATION

IN DUSTRIAL

NATURAL GAS

ELECTRICITY
GENERATION

FIREHALLS

MEDICAL

FACILITIES

SCHOOLS

MODULAR STRUCTURES

ENERGY
STORAGE

INDUSTRIAL WATER

WORKFORCE
HOUSING

• OPERATIONS & MAINTENANCE
• LODGING SERVICES
• SITE SERVICES

MOBILE OFFICES

LED STREET LIGHTS

ELECTRIC VEHICLE CHARGING

ATCO LTD.
FINANCIAL
HIGHLIGHTS

This data (other than

funds generated by

operations, capital

investments and adjusted

earnings per share) 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 &

Management’s Discussion

and Analysis.

5 2017 ATCO ANNUAL REPORT

Consolidated Annual Results

YEAR ENDED DECEMBER 31
(Millions of Canadian dollars except per share data)

FINANCIAL

Revenues

2017

2016

4,541

4,045

Adjusted earnings

335

360

Earnings attributable to
Class I & Class II shares

203

340

Total assets

21,775

19,724

Class I & Class II
share owners’ equity

Funds generated by
operations

3,593

3,546

1,813

1,912

Capital investments

1,821

1,609

CLASS I NON-VOTING &
CLASS II VOTING SHARE DATA

Adjusted earnings
per share

2.93

3.15

Earnings per share

1.78

2.97

Dividends paid
per share

Shares outstanding
(thousands)

Weighted average
shares outstanding
(thousands)

1.31

1.14

114,660 114,653

114,352 114,411

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.

APPROXIMATELY

7,000

EMPLOYEES

$22

BILLION IN ASSETS

2M+

GLOBAL CUSTOMERS

100+

COUNTRIES IN OUR
70-YEAR HISTORY

CURRENT OPERATIONS

7 MODULAR BUILDING MANUFACTURING FACILITIES

2 AUSTRALIA

2 CANADA

1 CHILE

2 U.S.

200,000M3

HYDROCARBON STORAGE CAPACITY

64,500KMS

NATURAL GAS PIPELINES

52PJ

NATURAL GAS SEASONAL
STORAGE CAPACITY*

85,200M3/D

WATER INFRASTRUCTURE CAPACITY**

POWER PLANTS WITH A
COMBINED GENERATING
CAPACITY SHARE OF 2,482 MW***

87,000 KMS

ELECTRIC
POWERLINES

*petajoules **cubic metres per day ***megawatts

TEN-YEAR TOTAL RETURN
ON $100 INVESTMENT

$200

$150

$100

$50

$202 $204

$158

2007

2008

2009

2010

2011

2012

2013

2014 2015 2016 2017

Compound Cumulative

Growth Rate Return

Class I Non-Voting (ACO.X)

7.3% $202

Class II Voting (ACO.Y)

7.4% $204

This graph compares the cumulative

share owner return over the last ten years

of the Class I Non-Voting and Class II

Voting shares of the Company (assuming

reinvestment of dividends) with the

cumulative total return of the S&P/TSX

S&P/TSX Composite

4.6% $158

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 6

MESSAGE TO

SHARE OWNERS

Dear Share Owners,

There’s little doubt that 2017 was a
tumultuous year for our world – a
true case study in dichotomous
geopolitical and socioeconomic
trends. While consumer spending,
employment and trade gained
momentum in many countries,
geopolitical strife, catastrophic
natural disasters and deepening
political divisiveness weighed heavily
on our collective consciousness.
And yet, optimism for our shared
economic fortunes endures.

Some business and political leaders
may be satisfied with gradually
improving prospects, lulled into
complacency as the drag of low
commodity prices unwinds and
labour conditions recover. Not so
for your company, nor the 7,000
incredible women and men who have
so firmly fixed their eyes to
the horizon.

As the economic headwinds of
the past several years abate, the
industries in which we operate are
experiencing more far-reaching,
structural changes – disruption
of a pace and scale unparalleled
in modern history. Whether by
reimagining what’s possible for utility
infrastructure using the Internet
of Things, empowering customers
with data-driven distributed energy
resources, or revolutionizing
manufacturing processes using 3D
printing, our technological ecosystem
is changing at rocket-like speed.

Over the course of 2017, we
redoubled our efforts to reinforce

your company’s resilience and robust
operations, while also positioning
ourselves to capture the economic
promise of a truly disruptive future.

IMAGINATIVE SOLUTIONS FOR
A DISRUPTIVE WORLD
Ensuring our success in that uncertain
and evolving future requires that we
act decisively – and that’s exactly what
we have done. The transformative
changes we began in 2015 have firmly
taken root. Our people are now ready
to deliver integrated, forward-thinking
solutions for our customers around
the world.

There are perhaps no better
examples of the tremendous capacity
of our integrated approach than
some of the exciting projects our
teams have been piloting around the
world – pioneering innovative hybrid
energy solutions as a means of not
simply lowering emissions,
but lowering costs as well.

For example, at Red Deer College in
Alberta, our teams provided their
exceptional expertise in design,
engineering, and the deployment
of renewable and natural gas-fired
technologies to power the college and
its Alternative Energy Lab, providing
both clean electricity and a hands-
on learning environment for the
energy innovators of tomorrow. It’s
a solution not unlike what we have
piloted south of Perth, Australia,
with our GasSola project, where we
recently finalized the installation
of rooftop solar, battery storage
and natural gas-fired generation

“Over the course of

2017, we redoubled
our efforts to reinforce
your company’s
resilience and robust
operations, while
also positioning
ourselves to capture
the economic promise
of a truly disruptive

future.”

7 2017 ATCO ANNUAL REPORT

to provide reliable clean energy to
homeowners. Beyond the valuable
data we are gathering on how these
distributed energy technologies
integrate with the grid, these projects
provide us with working knowledge
of how to develop and commercialize
similar projects around the world.
You’ll find many such examples of this
same integrated, imaginative thinking
throughout this year’s report.

HURRICANE MARIA
Of course, not every example of our
holistic approach need be specific
to a single product or service. In
fact, the true strength of our ‘one
ATCO’ philosophy is drawn from
those who personify it, and their
herculean ability to rapidly mobilize
and respond for our customers.
This remarkable agility was on vivid
display in the wake of the devastating
hurricane that ravaged the island of
Puerto Rico in September.

Immediately after Hurricane Maria’s
landfall, a team from across ATCO
travelled to the island to investigate
how we could best support the
community. Perhaps even more
striking than our people’s swift
deployment was the spirit with which
they operated – one team, drawn
from across our vast and diverse
company, united in their unwavering
commitment to our customers. For
more on their exceptional efforts, I
encourage you to read page 31.

GLOBAL GROWTH
Internationally, we also continued to
build momentum in 2017:

In October, George Opocensky, our
Senior Vice President & General
Manager for Electricity in Mexico,
assumed overall accountability for
our Mexico operations. Drawing
upon nearly 30 years of operational
and leadership experience, George
is now focused on further growing
our relationships in the promising

Mexican market and identifying
strategic opportunities for our
complementary products
and services.

In December, we announced the
acquisition of a 35-megawatt
hydroelectric facility in the state of
Veracruz, Mexico. While modest
in size, the facility is an important
stepping stone in building our global
renewable energy portfolio, and
further solidifies our position in
Mexico’s enormously promising – but
largely underdeveloped – energy
sector.

To capitalize on the tremendous
global progress we have made in
recent years, we have deployed
some of our most insightful and
experienced leaders to steward
our continued growth. In May, we
appointed Pat Creaghan as our
Managing Director for ATCO in
Australia. With nearly 30 years of
experience in a variety of operational
and leadership roles – most recently
as our Senior Vice President of
Corporate Development – Pat is
uniquely suited to further build our
growth strategy in Australia.

Also in May, we appointed Ray
Boven as Managing Director for our
operations in South America, based
in Chile. Blessed with abundant
natural resources, yet in significant
need of modern energy and water
infrastructure, the region is ripe with
promise for a company such as ours.
Ray will draw upon his extensive
expertise in the execution of major
projects within our Electricity Global
Business Unit to help expand our
market presence.

As we look to further grow our
international portfolio, it is imperative
that we fully understand the issues
and trends shaping the global
landscape. That is why, in June, we
issued a call for volunteers from

DOMINICAN
REPUBLIC

PUERTO
RICO

“Immediately after

Hurricane Maria’s
landfall, a team from
across ATCO travelled
to the island to
investigate how we
could best support the

community.”

MESSAGE TO SHARE OWNERS 8

across our enterprise to join our
newly formed Strategic Research
& Development Team. Nearly 100
volunteers from across our company
offered to lend their expertise – a
testament to the incredible passion
the people of ATCO have for the
future of your company.

The team worked with some of the
world’s leading academics, strategic
thinkers, government departments
and international organizations
before presenting their findings
to our Board of Directors in late
2017. The speed and enthusiasm
with which they completed this
strategically vital task, and the
exceptional insights they uncovered,
were truly beyond compare. Now,
armed with this extraordinary
research, we have begun to devise an
even more assertive global growth
strategy, one that will open new
geographic and industrial frontiers
that are uniquely suited to our
integrated energy and infrastructure
expertise.

ENGAGING OUR PEOPLE
Of course, building an enterprise
capable of not simply competing,
but winning, in the future depends
on much more than innovative
products and services. It is simply not
enough for these solutions to exist in
isolation. They must be championed
by a truly courageous team –
standard-bearers for our company,
our customers and our Share
Owners. To that end, over the past
year we’ve done far more than simply
harness the power of technology.
We’ve also renewed our efforts to
harness the power of our people.

Early in the year, we implemented
our first-ever global employee
engagement survey. More than
85 per cent of our people participated
– a remarkable response rate for a
company of our size and geographic
diversity. The results provided us
with invaluable insight into areas

of significant strength, including
an overwhelming sense of pride in
our company and its commitment
to Indigenous communities, and
gave voice to the terrific energy
for change that resides within our
people. Beyond simply improving
the agility, speed and decisiveness
with which we operate, our people
have already begun the dismantling
of any unnecessary bureaucracy that
stands in the way of providing for our
customers.

To support our people in delivering
customer-centric solutions, we also
undertook a series of leadership
changes over the course of the
year, appointing some of our most
exceptional leaders from across the
business to new and expanded roles,
while also bidding fond farewell to
some long-serving members of our
company.

In January 2018, we announced the
retirement of a dear friend and long-
serving member of our Executive
Committee, Erhard Kiefer, after more
than 35 years with ATCO. Ever an
advocate for our people, Erhard is the
epitome of the ATCO ‘Heart and Mind’
and brought our Founder’s definition
of Excellence to all he undertook.

Also early this year, to help us capture
the opportunities afforded through
our ever-evolving technological
landscape, we welcomed back
George Constantinescu as Senior Vice
President & Chief Transformation
Officer. George, who previously
served our company for nearly
20 years, will draw upon his
entrepreneurial experience in
energy and non-energy industries to
help ensure we are not only well-
positioned to play a disruptive role
in some of our traditional industries,
but to thrive in new and emerging
sectors.

“It is simply not

enough for these
solutions to exist in
isolation. They must
be championed by a
truly courageous team
– standard-bearers
for our company, our
customers and our

Share Owners. ”

9 2017 ATCO ANNUAL REPORT

A VIEW OF TOMORROW
The people of your company are
truly charting a bold course for the
future. A course that doesn’t simply
embrace the disruptive technological
and digital trends transforming our
industries, but gives shape to them.
I thank them for their renewed
imagination, exceptional engagement
and shared passion for creating a
prosperous future for our company
and our customers. I would also like
to recognize the support provided
by our Board of Directors, and thank
them for their stalwart guidance and
counsel.

To all our Share Owners, on behalf of
our entire leadership team, thank you
for your continued trust. It is truly an
exciting time for your company, and
we have only just begun.

Sincerely,

Nancy Southern
Chair & Chief Executive Officer

In November, we announced the
retirement of Steve Lockwood,
President & Chief Operating Officer,
ATCO Structures & Logistics. With
his retirement, we unveiled a new
structure within our Structures &
Logistics Global Business Unit – one
designed to improve the delivery
of products and services around
the world. Adam Beattie, who was
instrumental in the growth and
diversification of our Structures &
Logistics business in Australia over
the last 15 years, assumes the role
of Senior Vice President & General
Manager, Structures. Concurrently,
Jim Landon, who joined our company
in May as Vice President, Strategic
Research & Development following
an illustrious 28-year career with the
British Army, was appointed Senior
Vice President & General Manager,
Frontec.

Finally, in June, Dennis DeChamplain
assumed the role of Senior Vice
President & Chief Financial Officer,
following the retirement of
Brian Bale after more than 35 years
with our company. Brian’s vision,
inclusive leadership and inexhaustible
courage had long defined our
financial success, and he served you,
our Share Owners, with extraordinary
distinction. Dennis has proven
himself a true master of finance and
regulatory economics over his
26-year career with ATCO, and
in just a few short months
has demonstrated exemplary
commitment to preserving our
financial strength.

MESSAGE TO SHARE OWNERS 10

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.

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.

This fit-for-purpose approach to
governance has worked exceedingly
well over the years, providing our
Board of Directors and senior
management team with the
foundation to create long-term value
for our share owners.

Following are some of the highlights
of our model for corporate
governance. For a more complete
picture, please see the Governance
section of the Management Proxy
Circular.

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
evaluates those practices to ensure
they are keeping with the highest
standards.

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.

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
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 the diverse
nature of skills, talent and experience
each member brings to the Board’s
deliberations.

DESIGNATED AUDIT DIRECTORS
Distinctly unique to ATCO are
the Designated Audit Directors
(DADs) who are directors of either
ATCO or Canadian Utilities. 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.

11 2017 ATCO ANNUAL REPORT

DIRECTORS

From left to right:

Denis M. Ellard Corporate Director

Robert T. Booth, Q.C. Partner, Bennett Jones LLP

Michael R.P. Rayfield Corporate Director

Charles W. Wilson Lead Director

Nancy C. Southern Chair & Chief Executive Officer

Roger J. Urwin, PhD, C.B.E. Corporate Director

Robert J. Routs, PhD Chair of the Supervisory Boards of AEGON N.V. and Royal DSM N.V.

Linda A. Southern-Heathcott Vice Chair, ATCO Ltd. and President & Chief Executive Officer, Spruce Meadows Ltd.

Susan R. Werth Corporate Director

C. Anthony Fountain Chair of Essar Oil Limited

DIRECTORS 12

Our new state-of-the-art campus, ATCO Park, supports
our people in being productive, creative and connected
to their colleagues and the Calgary community.

13 2017 ATCO ANNUAL REPORT

LEADERSHIP TEAM

From the field to the office, our people have always been our greatest competitive advantage. The incredible strength
of our team around the world has enabled us to assemble an exceptionally experienced Executive Team. Comprised of
talented business leaders from a diverse range of industries, our team brings decades of operational excellence and a
shared, unwavering commitment to our customers.

From left to right:

Adam Beattie Senior Vice President & General Manager, Structures

Wayne Stensby Managing Director, Electricity

George Lidgett Managing Director, Pipelines & Liquids

Dennis DeChamplain Senior Vice President & Chief Financial Officer

Nancy Southern Chair & Chief Executive Officer

Siegfried Kiefer President & Chief Strategy Officer

Jim Landon Senior Vice President & General Manager, Frontec

Sett Policicchio Managing Director, Customer Services

George Constantinescu Senior Vice President & Chief Transformation Officer

LEADERSHIP TEAM 14

MESSAGE FROM THE
MESSAGE FROM THE

PRESIDENT & CHIEF STRATEGY OFFICER

It will come as no surprise to our
Share Owners that the world is
changing – perhaps more rapidly
today than at any time since the
Industrial Revolution of the late
18th and early 19th centuries. A
confluence of major global trends has
upended entire industries, reshaped
democracies and redefined what is
possible for businesses, customers
and governments.

TRENDS SHAPING OUR WORLD
Emerging economies have risen to
the fore, spurred by a combination of
population growth, urbanization and
technological development. Some
have gone so far as to characterize
the experience of these emerging
markets as a simultaneous industrial
and urban revolution. And, with
70 per cent of the world’s population
expected to live in these increasingly
modern cities by mid-century,
demand for essential infrastructure
– such as high-quality affordable
housing and sustainable electricity –
will grow substantially.

Simultaneously, the need for all forms
of natural resources is mounting.
The availability of food, energy, water
and raw materials will determine the
continued prosperity of developed
economies and enable emerging
markets to attain the same standard
of living as enjoyed by the developed
world. Even today, the availability of
food and fresh water is insufficient
to support those in the developing
world, and providing the energy
and infrastructure needed to meet
these basic human needs will be a
monumentally important task.

Finally, we’ll need to contend with
those disruptive trends that are
both difficult to predict and colossal
in their impact. Increasing mass
migration, geopolitical conflict and
catastrophic natural disasters are
already placing significant strain on
people, businesses and governments.
Increasingly, countries will need
to expand their efforts to prepare
for, and respond to, the impacts of
these events, and ensure that robust
humanitarian and disaster relief
programs are at the ready.

OPPORTUNITIES FOR
YOUR COMPANY
The common thread that links each of
these global trends is your company’s
ability to respond. In fact, there are
few, if any, better-suited enterprises
in the world to meet the growing
demand for integrated and scalable
disaster response, logistics support,
housing, energy and infrastructure
solutions than ATCO, and our
incredible team of nearly 7,000
people around the world.

Our Structures and Frontec divisions,
with an extraordinary shared global
history spanning more than 100
countries, are uniquely positioned to
respond rapidly to the needs of our
customers, establishing a beachhead
in jurisdictions in immediate need of
disaster relief, humanitarian support,
infrastructure and affordable
housing. From these foundations,
we can begin to introduce the full
breadth of our integrated expertise –
a combination of energy, water and
infrastructure products and services.
And it is through that holistic lens
that we have intensified our focus
on jurisdictions, projects and
opportunities that lend themselves to

“Time and time

again, our company
has demonstrated
that it learns,
adapts and brings
its collective best in
delivering integrated,
innovative solutions
that far exceed the
expectations of our

customers.”

15 2017 ATCO ANNUAL REPORT

We’ve taken great care to cultivate the
expertise, resources and relationships
needed to thrive, wherever we
operate, and I have great confidence
that – drawing upon our collective
capabilities – ATCO will play a
leading role in building and shaping
the industries, communities and
economies emerging in the decades
ahead.

Sincerely,

Siegfried Kiefer
President & Chief Strategy Officer

our complementary capabilities. From
large resource development projects
within emerging markets in need of
energy, workforce accommodations
and industrial water solutions
to communities suffering from
significant electricity and housing
infrastructure deficits, our company
can deliver the solutions
our customers require.

A HOLISTIC POLICY
PERSPECTIVE
While we have redoubled our
efforts to find opportunities for
growth abroad, we continue to work
diligently to create value within our
existing portfolio in Canada. We
are working actively to support our
Indigenous partners in ensuring
access to safe, clean and reliable
electricity, developing innovative
modular housing solutions for new
customers and pioneering innovative
distributed energy solutions for
industrial, residential and commercial
customers.

However, charting a course for
continued growth in Canada
has become a more challenging
prospect. The impacts of multiple
and compounding government
policies and regulations are layering
considerable costs on businesses
and individuals alike, undermining
the confidence of investors, eroding
the attractiveness of our industries
and weakening the confidence of
consumers. It goes without saying
that, in our increasingly globalized
economy, capital flows will continue
to seek certainty.

To that end, we are working earnestly
with governments at all levels,
advocating for a holistic perspective
on policy and its subsequent impacts
to our economic competitiveness.
Because, while none of these
measures are implemented with ill
intent, it’s vital that we appreciate the
long-term, cumulative consequences
to our communities, businesses and
customers.

INDIGENOUS PARTNERSHIPS
The enduring strength of our
relationships with Canada’s
Indigenous Peoples has long been a
hallmark of our approach to business,
and we must make every effort to
increasingly include our Indigenous
communities in our changing
economy.

From transmission projects to
power generation and community
infrastructure, our Indigenous
partners are taking on an increased
role in project development and
ownership – opportunities which
contribute to sustained economic and
social development. Undoubtedly,
this collaborative approach will be
even more important in the years
and decades ahead, as we continue
to forge new partnerships with these
vibrant and diverse communities.

THE NEXT 70 YEARS
AND BEYOND
Over the course of our 70-year
history, ATCO has demonstrated that
it is more than the sum of its parts.
Time and time again, our company
has demonstrated that it learns,
adapts and brings its collective best
in delivering integrated, innovative
solutions that far exceed the
expectations of our customers.

MESSAGE FROM THE PRESIDENT & CHIEF STRATEGY OFFICER 16

Innovation, growth and financial strength

provide the foundation from which we

have built our company. Our long-term

success depends on our ability to expand

into new markets and lines of business,

while offering our customers premier,

comprehensive and integrated solutions

to meet their needs.

These strategic imperatives are supported

by our unwavering commitment to

operational excellence, our people and

the customers and communities we are

privileged to serve around the world.

For detailed information on our strategic

priorities see pg. 53.

STRATEGIC
PRIORITIES

17 2017 ATCO ANNUAL REPORT

S & LIQUID S

E
N
I
L
E
P
I
P

INNOVATION

GROWTH

FINANCIAL
STRENGTH

OPERATIONAL
EXCELLENCE

COMMUNITY
INVOLVEMENT

EL E C T R I C I

STRATEGIC PRIORITIES 18

2017 PERFORMANCE

INNOVATION

To help address demand for vocational education
and training, we partnered with the NSW
Technical and Further Education Department
to develop a state-of-the-art learning facility in
Annandale, New South Wales.

WEEKS
to manufacture
and install our learning
facility in New South Wales

19 2017 ATCO ANNUAL REPORT

From innovative modular structures
for homes and communities to solar
projects and edge-of-grid solutions,
our people are continuously
pioneering new products and services
around the world. In 2017, we
completed a variety of imaginative
projects and initiatives, equipping our
customers with solutions designed to
improve environmental performance,
save energy and reduce costs.

MODULAR SOLUTIONS FOR
THE EDUCATION SECTOR
Around the world, industry and
governments experiencing rapid
growth are seeking affordable,
easily installed and flexible modular
structures. This is particularly true in
the education sector, where the ebb

and flow in class sizes and limited
available space in existing facilities
can strain schools and educators
alike. Fortunately, our innovative
modular construction techniques
are perfectly suited for creating
state-of-the-art, world-class learning
environments.

State of Victoria Classrooms
In April 2017, we announced that we
had been engaged by the State of
Victoria’s Department of Education
and Training in Australia to construct
57 classrooms – part of a larger
opportunity to supply and install
new classrooms, refurbish existing
classrooms, demolish and remove
redundant buildings and transfer
buildings from one school to another.

This program enables the Victoria
Department of Education and
Training to manage fluctuations in
enrollment growth throughout the
state school system.

New South Wales Learning Facility
Earlier in the year, we were also
awarded a contract with the New
South Wales (NSW) Technical and
Further Education Department to
design and construct a two-storey
5,400 sq. ft. permanent modular
learning facility at its inner-city
campus in Annandale, NSW.
Manufactured and installed onsite
in just 14 weeks, the cutting-edge
building includes multipurpose
training rooms, conference rooms
and offices – providing an exceptional
learning environment for the
organization’s many vocational and
training programs.

Ermineskin Cree Nation

Modular School
We frequently seek opportunities to
go beyond simply engaging with our
Indigenous partners, and instead look
to develop infrastructure solutions
that deliver lasting community
benefits. One such example occurred
in the second quarter of 2017, when
we partnered with the Ermineskin
Cree Nation to build a modular school
to support the growing number
of students at the Ehpewapahk
Alternative School in Maskwacis,
Alberta.

To help the community better serve
its people, we built a facility that
includes four classrooms, study
rooms, a library, a fitness centre, a
commercial kitchen, a staff lounge,
offices and open areas for students to
gather and socialize. The school was
also fitted with the latest technology,
including smart boards and solar
panels.

Trinity Western Dormitory
In September, we celebrated the
completion of a modern dormitory
complex that’s home to more than
130 students at Trinity Western
University in Langley, British
Columbia.

Skidmore Hall is a 33,000 sq. ft.,
three-storey residence that was
constructed from 47 of our modular
units. Designed specifically for
student living, the apartment-style
suites include a kitchen, enclosed
bathroom, extra storage space and
shared laundry facilities. Students
also have access to a common
lounge area to gather, study and
relax. Maximizing the advantages of
modular construction, Skidmore Hall
was delivered in just nine months –
including only 3.5 months of onsite
construction – compared to the 12
to 14 months required for traditional
construction.

Knox Grammar School Music Centre
In 2017, we designed and built a
new permanent 6,400 sq. ft. music
centre for Knox Grammar School in
Wahroonga, Australia. Engineering
the acoustics just right was a top
priority. This meant using high-quality
soundproofing techniques applied
to each of the doors and windows,
enabling their students to hone their
craft without interruption from the
rest of the school.

Blending the centre’s aesthetics
with the surrounding challenging
environment played a significant
factor. In total, the building houses
two band rehearsal areas, two music
classrooms and six individual tutoring
rooms, creating a comfortable
practice space for the students.

Skidmore Hall is a 33,000 sq. ft., three-
storey dormitory that is home to more
than 130 students at Trinity Western
University in Langley, B.C.

Our blended offsite manufacturing and construction
program at the Knox Grammar School enabled us to
develop an innovative structure that fits seamlessly
with the surrounding buildings.

INNOVATION 20

Our Managing Director of Electricity,
Wayne Stensby, and President and CEO of
FLO, Louis Tremblay, at the launch of the
first electric vehicle fast-charging corridor
in Alberta.

Our Australian Structures &
Logistics team also secured an
arrangement with the Queensland
State Government to provide rental
modular classrooms for public
schools across the state. We began
building and installing relocatable
classrooms last year, with more
facilities slated for 2018.

FRONTEC’S GLOBAL SOLUTIONS
Our Frontec division has a long
history of providing services to
private, government and military
customers in some of the world’s
most challenging and hostile
environments. Frontec continues
to exemplify the spirit of the ATCO
motto ‘Always There. Anywhere.’

Today’s global landscape is shaped
by a range of technological, economic
and social trends including mass
migration and urbanization. The
effects of climate change are also
playing a role, resulting in an
increase in the frequency, duration
and intensity of natural disasters.
Frontec has the agility, expertise
and capabilities to respond to
such emergencies to support our
customers.

Frontec’s evolving and innovative
global strategy includes the routine
delivery of a range of site services,
facilities maintenance and workforce
camp operations, and in times of
crisis, the rapid mobilization of
holistic solutions in life support
services, energy and structures.

To see this innovative strategy
in action, read about our holistic
emergency response effort in the
aftermath of Hurricane Maria in
Puerto Rico (See pg. 31).

CLEAN ENERGY TECHNOLOGIES
Our energy landscape is changing,
which is why we are investing in
infrastructure that empowers our
customers to take full advantage
of these emerging technologies.
Our solutions are diverse, ranging
from supporting electric vehicle (EV)
charging infrastructure to combining
innovative low-carbon technologies
for use in residential and commercial
applications.

EV Charging Corridor
In November, we unveiled Alberta’s
first EV fast-charging corridor – an
exciting project designed to help
catalyze the electrification of Alberta’s

21 2017 ATCO ANNUAL REPORT

transportation sector. The project,
completed in partnership with FLO,
Canadian Tire and Natural Resources
Canada, saw the deployment of three
charging stations in Calgary,
Red Deer and the Edmonton area.
Each location is equipped with a
Level 3 fast-charging station and
a dual Level 2 charging station to
accommodate all types of electric
vehicles.

Our people provided their local
expertise in connecting the cutting-
edge charging stations to the grid,
while our retail energy business
provides the cost-effective, reliable
electricity required to give our
customers peace of mind as they
commute between Alberta’s three
largest cities. This project is just one
of the many ways we are empowering
our customers to embrace a cleaner
energy future.

Clean Carbon Capture
Beyond enabling our customers
to thrive in a low-carbon future,
we’re also exploring creative ways
to improve our own environmental
performance. In October, we were
among the first in the world to install
a new commercial carbon capture
device at our Whitehorn Operations
Centre in Calgary.

The device, called CARBiNX, helps
reduce both the heating costs and
carbon footprint of the facility.
The unit is expected to deliver
energy savings and greenhouse gas
reductions of approximately 8 to 10
per cent in the winter and 21 to 24
per cent in the summer.

Intelligent Street Light Systems
Municipalities around the world are
increasingly looking to harness light-
emitting diode (LED) street lights to
reduce energy use and maintenance
costs. In October, we partnered
with the City of Lloydminster to
deploy LED street lights and pilot an
Intelligent Street Light System.

We replaced outdated, high-pressure
sodium street lights with LED
bulbs and simultaneously installed
an intelligent street light system.
This technology provides remote
monitoring and “light on demand”
that dims street lights during off-
peak hours, and automatically
brightens them when pedestrians,
cyclists or cars are detected. With
this combination of technologies,
we can reduce street light energy
consumption by up to 80 per cent,
while also reducing maintenance
costs and lowering greenhouse gas
emissions.

By partnering with the City of
Lloydminster to showcase this
pilot at the annual Alberta Urban
Municipalities Association conference,
we were able to generate significant
interest in this technology among
other communities around Alberta.

With these novel technologies,
we can ensure our municipal
customers are on the leading edge in
providing environmentally efficient
– and affordable – services to their
communities.

We continue to pioneer new ways of reducing
our direct and indirect environmental impacts,
as well as enabling our customers to reduce
their impacts. For more information, see the
Environmental Stewardship section of our 2017
Sustainability Report, to be released in June.

In Lloydminster, we converted outdated
street lights to LED bulbs and installed
intelligent street lighting sensors. The
combined technologies reduce costs,
maintenance

Up to

80 %

reduction in street light energy
consumption as a result of LED and
intelligent street lighting

INNOVATION 22

Edge-of-Grid Technology

SOLAR PANELS

MICRO COMBINED
HEAT & POWER UNIT

BATTERY
STORAGE

MODULAR
CONSTRUCTION

Our hybrid house in Mannville, Alberta, combines
solar panels, battery storage and a mCHP unit
that allows the home to completely disconnect
from the grid. We are also pairing our own
modular structures with innovative distributed
energy technologies. For example, read about
our Clean Energy Innovation Hub in Australia on
pg. 24.

Up to55 %

decrease in home
emissions compared to a
standard built home with mCHP

Some of the most innovative
developments in the energy sector
are occurring at the grid’s edge,
downstream of generation and
transmission infrastructure –
sometimes, right in our customers’
backyards. Distributed generation,
storage and digital technologies are
changing the electricity landscape,
and we are enabling our customers
to take part.

Mannville Hybrid House
It’s the ideal combination of three
low-carbon technologies with the
capability to fully energize a
1,200 sq. ft. home.

Located in Mannville, Alberta, this
exciting project consists of a
1.5 kilowatt micro combined heat and
power (mCHP) unit, solar panels and
onsite battery storage to allow the
residence to completely disconnect
from the grid. There’s also no need
for supplementary heat, as the mCHP
unit is the sole source.

A mCHP unit runs on natural gas or
propane, and has the potential to
reduce a customer’s home emissions
by up to 55 per cent compared to a
standard built home. This is just one
edge-of-grid technology that helps
our customers play a more active role
in managing their energy use.

23 2017 ATCO ANNUAL REPORT

GasSola Advancement
In Australia, we continued to make
headway with our GasSola Pilot
Project, which combines rooftop
solar panels, battery storage and a
natural gas-fired generator to provide
reliable, low-cost and flexible energy
to nine homes south of Perth.

Over the course of the year, we
finalized the installation of the hybrid
energy technology at all nine homes
in the trial. We also gathered data
on energy usage from each home to
understand the impacts of the hybrid
technology mix and how natural
gas can be an enabler to smooth
the peaks and troughs of increased
renewable generation into the grid.

The valuable learnings we gain from
this project will help us to improve
the reliability and versatility of our
products to customers in Australia
and around the world.

In recognition of this imaginative
approach, our GasSola Project was
recognized as a finalist in the 2017
Western Australian Energy Awards.

The key technical learnings will be
applied to the ATCO Clean Energy
Innovation Hub (below), while
peak winter and summer energy
production and usage data from the
project is being used to optimize

the system and determine a value
proposition for this type of edge-of-
grid hybrid energy solution.

Clean Energy Innovation Hub
In an extension of our GasSola
Project, we have also begun
development of a commercial-scale
hybrid energy centre known as the
Clean Energy Innovation Hub – a
unique project being undertaken in
Australia. Located at our Jandakot
Operations Centre in Perth, the
Clean Energy Innovation Hub
integrates hydrogen production,
natural gas electricity generation,
solar photovoltaic, battery storage
and associated control systems to
sustainably energize a commercial-
scale micro-grid.

In addition, a modular residential
home built by our Structures division
has been transported and installed
onsite at Jandakot. The home is being
fitted with a GasSola system, as well
as the latest natural gas appliances,
providing a working demonstration of
ATCO ingenuity.

We are using this facility as a live-
testing facility that will analyze the
energy supply needs of the Jandakot
site and allow for flexibility in testing
and optimizing micro-grid technology
configurations from 5 kW to
1,000 kW in size.

JANDAKOT OPERATIONS CENTRE

MODULAR
HYBRID HOME

Our modular home being installed at the Clean Energy Hub
in Australia is outfitted with the latest in cutting-edge energy
technologies and showcases the integrated, customer-centric
solutions we can deliver for customers around the world.

The Clean Energy Innovation Hub is a unique
commercial-scale facility in Australia.

CLEAN ENERGY
INNOVATION HUB

INNOVATION 24

2017 PERFORMANCE

GROWTH

The acquisition of a 35-megawatt
hydroelectric power station in Veracruz,
Mexico, marks the latest milestone in
our continued growth in the region.

Whether in Mexico, Chile, Australia
or Canada’s North, our strategy for
sustainable growth is underpinned
by a firm commitment to our
customers and communities, the
pioneering spirit of our people and
the continuous development of new
products and services. We continue
to invest in vital community-enabling
energy infrastructure today, while
also looking to the evolving mix of
industries, technologies and trends
that will define the needs of our
customers in the decades ahead.

In 2017, we delivered against our
long-term growth strategy with a
diverse assortment of projects and
initiatives.

GLOBAL EXPANSION
Pursuing growth in new and existing
jurisdictions around the world has
continued to be a priority for our
company. We continuously evaluate
opportunities to enter new markets
and explore ways we can offer the
full breadth of our capabilities to our
global customers. In 2017 and into
the early months of 2018, we made
several strides building momentum
on this strategy.

Continued Growth In Mexico
We solidified our position in the
recently reformed Mexican energy
market with the $114 million
acquisition of a 35-megawatt (MW)
hydroelectric power station in the
state of Veracruz.

$1.8 B*

capital investment
in 2017

* For a complete definition of capital investment, please see pg. 101.

25 2017 ATCO ANNUAL REPORT

The acquisition, which closed in
February 2018, advances our flexible
and diverse portfolio of electricity
assets and marks the latest milestone
in our growth within Mexico, where
we continue to expand our integrated
offering of energy and infrastructure
solutions.

During the same month, we signed a
Memorandum of Understanding with
CYDSA S.A.B. de C.V. to collaborate,
explore and develop midstream
opportunities in Mexico’s oil and gas
industry. The initial focus will be on
underground hydrocarbon storage
in both salt cavern formations and
depleted reservoirs, and will also
include opportunities in gas gathering
and processing, as well as natural gas
liquids extraction and fractionation.

In early 2018, we also announced
we’re building, in partnership with
RANMAN Energy, the La Laguna
Cogeneration Facility, a new 26-MW
cogeneration project on the site
of a Chemours Company chemical
facility. Located near the city of
Gómez Palacio in the northern state
of Durango, the project will consume
excess gas and reuse steam produced
by the host facility’s chemical
processes, making it a highly efficient
and low-carbon means of generating
onsite energy. The project is expected
to be operational in the second
quarter of 2019.

In addition, we are actively evaluating
opportunities for our Structures
business to enter the Mexican market
and further continue our growth.

Building Momentum in Chile
2017 saw strong economic growth in
Chile, which continues into the early
months of 2018. To further solidify
our foothold in this South American
market, we’ve designed and are
constructing a new manufacturing
facility through our partnership in
ATCO Sabinco S.A.

The facility, which is projected
to be completed in May 2018, is
approximately 100,000 sq. ft and
has the capacity to rapidly produce
approximately five to six modular
units per day. Since entering the
country in 2016, this step further
cements a strong foundation in South
America and paves the way for future
growth opportunities.

INVESTING IN CAPITAL
INFRASTRUCTURE
In 2017, we invested $1.8 billion*,
driven largely by capital investments
made by our Electricity and Pipelines
& Liquids Global Business Units.
Combined, these two business units
invested nearly $1.7 billion in projects
designed to improve the accessibility,
reliability and sustainability of energy
in the communities we are privileged
to serve, while also delivering strong
capital growth for the company. The
projects were abundant and diverse,
including the Fort McMurray West
500-kilovolt (kV) Transmission Project,
our Urban Pipeline Replacement
Program and the Steel and Plastic
Mains Replacement Programs, all
located in Alberta.

The Fort McMurray West 500-kV Transmission
Project, valued at $1.6 billion, was financed
in part through the largest public-private-
partnership bond in Canadian history.

As we transition to a lower-emitting energy
system, access to secure, reliable energy must
be balanced with customer satisfaction and
affordability. For more information, please see
the Energy Stewardship section of the 2017
Sustainability Report, to be released in June.

Our new manufacturing facility in Chile will
enable us to continue to grow our fleet of
flexible, innovative modular solutions in this
vibrant market.

GROWTH 26

In December, we announced that our Frontec division was selected to support Canadian
Armed Forces sites across the North. NATO, the United Nations, and the Canadian and
U.S. defense departments rely on our proven capability to deliver solutions that keep
military camps operating efficiently.

PROJECT HIGHLIGHTS
From modernizing Alberta’s electricity
grid to exploring new frontiers in
our modular structures business,
our people delivered a variety of
exceptional projects over the course
of 2017.

Fort McMurray West 500-kV
Transmission Project
In February 2017, the preferred route
for our Fort McMurray West 500-kV
Transmission Project (WFMAC) was
approved by the Alberta Utilities
Commission. The project, valued
at $1.6 billion, was financed in part
through the largest public-private-
partnership (P3) bond in Canadian
history. It’s also the first transmission
line to be procured in Canada via a P3
process.

The public engagement process
for the project was extensive and
included engagement with 27
Indigenous communities and more
than 3,000 face-to-face meetings.
This important project allows us
to not only create and build upon
meaningful relationships with
communities in the region, but also
support the continued modernization
of Alberta’s electricity grid.
Construction began in August 2017
and will conclude when the line goes
into service in 2019.

Continuing Our Relationship with The
National Research Council of Canada
Over our 70-year history, our
customers have come to rely on our
ability to consistently deliver premier
products and services.

This tremendous achievement
attracted the attention of two of the
top global publications in project
finance: Project Finance International
(PFI) and IJ Global. Both organizations
named the WFMAC project the “P3
Deal of the Year” and honoured
Alberta PowerLine (APL), along with
its partners, in early 2018.

In early 2018, we unveiled yet another
example of the tremendous level
of trust our customers have in our
company. The National Research
Council (NRC) of Canada selected
ATCO to provide facility maintenance,
renovation and capital construction
services to its buildings in the Ottawa,
Ontario region.

APL, a partnership owned 80 per cent
by Canadian Utilities and 20 per cent
by Quanta Services Inc., was selected
in late 2014 by the Alberta Electric
System Operator through a
competitive global process to
develop, design, build, finance, own,
operate and maintain the 500-km
project that runs from Wabamun,
Alberta to Fort McMurray.

We have been the incumbent
contractor since 2003, and our
familiarity with NRC sites, facilities
and equipment means the NRC can
rely on a proven facility maintenance
plan to accommodate their changing
needs, while minimizing any
disruption to its operations.

The five-year contract commences
on March 1, 2018 and is valued at
approximately $38 million, with
an option to renew for up to five
additional years. We look forward
to building upon our longstanding
relationship with the NRC, and to
enabling this exceptional organization
to focus on its core business.

Supporting the Canadian Forces
in the North
Our people understand the unique
challenges and opportunities
associated with working in the
North, where we’ve been supporting,
partnering and providing innovative
solutions to customers and
communities for decades.

In December, we announced the
latest milestone in our continued
growth in the region after being
chosen by Defence Construction
Canada, the procurement partner
of Canada’s Department of
National Defence, to provide facility
maintenance and support services at
Canadian Armed Forces (CAF) sites
across the Canadian North.

The initial five-year contract, valued at
$79 million, will see us provide facility
inspection, maintenance and repair,
new construction and upgrades,
trade services and environmental
services to CAF sites in Yellowknife,
Whitehorse, Inuvik, Rankin Inlet and
Iqaluit.

Continued on pg. 29

27 2017 ATCO ANNUAL REPORT

Expanding Our Solar Footprint

Solar projects produce clean, reliable
electricity for our customers in
Alberta and across the globe. In
2017, we continued to grow our solar
energy expertise with a variety of
renewable energy projects. Two of
those projects were developed in
partnership with Clark Builders.

The first involved the delivery of a
three-part Alternative Energy Initiative
at Red Deer College (RDC). A key part
of the project was the construction
of a state-of-the-art lab that allows
students to learn about renewable
energies by being immersed in a
hands-on classroom environment.
Students can look at real data,
examine solar panels in multiple
configurations and use onsite
equipment, such as a combined heat
and power (CHP) demo unit, to feed
into their designs.

To support this exciting project, our
people provided their exceptional
expertise in design, engineering and
the deployment of various solar and
cogeneration technologies.

More than 1,000 RDC students will
benefit from the lab each year,
particularly those in the fields

of Engineering Technology and
Carpentry, as well as those studying
to practice as Electricians and
Instrumentation Technicians.

RDC is also converting all exterior
lighting to LED bulbs and will
generate alternative energy on their
main campus through solar panels
and a CHP unit. The project is slated
for completion in April 2018.

In addition to the RDC project, we
also provided our expertise and
commissioning services to a rooftop
solar project with Clark Builders at
the University of Alberta’s Augustana
Campus in Camrose, Alberta.

Our solar efforts are not only paying
off on the energy side. In 2017, our
Saddle Hills project was a finalist
in the 26th Annual Alberta Emerald
Awards, which recognizes and
celebrates outstanding environmental
achievements across all sectors.
Located in northwestern Alberta,
the Saddle Hills project is the largest
off-grid solar installation in Western
Canada, and is uniquely designed to
provide reliable electricity in a remote
northern environment.

Our people worked collaboratively with Clark Builders to deliver a
commercial-scale rooftop solar project at the University of Alberta’s
Augustana Campus in Camrose, Alberta.

1,000

Red Deer College students per
year will study renewable energy
technologies in the hands-on lab

Red Deer College’s Alternative Energy Lab

GROWTH 28

In Montreal, we diversified our portfolio with the construction of a highly
specialized, 30,000 sq. ft. temporary emergency facility that integrates the
technical and operational requirements of a busy emergency room.

This project also builds upon our
legacy of support for the brave men
and women of our armed forces. We
provide operations and maintenance
services at 15 strategic radar sites
that form the Alaska Radar System
for the North American Aerospace
Defense Command, manage and
maintain services at the NATO
Flying Training Centre in Moose Jaw,
Saskatchewan, and provide computer
information systems support on
behalf of NATO and European Union
Forces in Boznia-Herzegovina.

Inter Pipeline Water
Service Project
In the fourth quarter of 2017, we
were selected by Inter Pipeline Ltd.
to provide essential industrial water
services to the company’s propane
dehydrogenation and polypropylene
plant. Located in Strathcona County,
Alberta, the Heartland Petrochemical
Complex will be the first-ever
propane-to-plastics petrochemical
plant in Canada.

Over the last six years, we have
invested more than $70 million in
Alberta’s Industrial Heartland to
develop a multi-user industrial water
system that provides a range of
services including transportation,
storage and clarification to customers
in the region. By tapping into our

infrastructure instead of constructing
their own, customers can free up
valuable space at their facilities and
minimize disruption to the river
ecosystem.

DIVERSIFYING OUR BUSINESS

Temporary Modular Hospital Facility
In Montreal, we pursued an
opportunity to diversify our
business with the manufacturing
and installation of a temporary
emergency building for the Montreal
Heart Institute, as it undergoes a
four-year expansion project. The
nearly 30,000 sq. ft., highly specialized
complex is comprised of 42 modular
units spanning two floors.

The temporary facility was entirely
designed for the hospital from the
ground up, and integrates the needs
of different medical equipment,
medical gases and specialized
healthcare technology. Several
important factors were considered to
meet the technical and operational
requirements of running a busy
emergency room. Extra width was
added to corridors to allow for the
two-way traffic of hospital beds, two
nurse stations and doctor offices
were installed, as well as a nurse call
system for each of the 30 emergency
bed locations and bathrooms.

Through our renewed focus on
innovation, we’ve identified additional
opportunities for growth, such as
non-traditional uses for our modular
structures like seniors housing, police
and fire stations and jails.

Operational Service Agreements
Growth and innovation don’t
always involve new technologies.
Sometimes, it’s about using expertise
you already have in a novel way.
Our Pipelines & Liquids team did
just that by translating seven of our
core capabilities into more than 20
operational service contracts with
customers across Alberta.

Our Operational Services portfolio
consists of operations and
maintenance, meter management,
gas analysis services, operational
training, electronics and
instrumentation, pipeline integrity
and combined heat and power.

Although we’ve provided third-party
services in the past, approaching
the market with a distinct portfolio
offering is a new venture for our
company – and one that represents a
more focused commitment.

29 2017 ATCO ANNUAL REPORT

A Disruptive Force
In Retail Energy

Increase
in market

share 187%

retail
natural gas

160%

retail
electricity

6,100+ Home-On-The-Go

visitors participated
in hands-on cooking classes

30 community

events

93% of retail customers

want more BFK perks

RETAIL ENERGY
Since re-entering the retail energy
market in Alberta, we’ve focused on
finding new ways to add value and
provide choices to the customers
and communities we serve. This has
meant increasing engagement and
empowering all Albertans to make
informed decisions about how they
manage and buy their energy.

With our customer outreach,
competitive rates and exclusive
offers, we’ve cemented ATCOenergy
as a truly disruptive force in Alberta’s
retail energy market. Leading up to
the holidays, our highly successful
“Neighbours” campaign influenced
our competitors across the province,
prompting numerous copycat
campaigns trying to emulate our
customer-centric philosophy.

Our disruptive approach is working.
As of June 2017, our retail natural gas
market share had grown by
187 per cent compared with the
previous year, while our retail
electricity market share grew by more
than 160 per cent.

GRASSROOTS ENGAGEMENT
Thriving in the highly competitive
retail energy industry requires that
we reframe the value we provide to
our customers, while also fostering
new relationships. Last year, we
undertook a host of grassroots
initiatives to help grow our product
offering – many in partnership with
ATCO Blue Flame Kitchen (BFK), which
has more than 90 years of customer
service excellence in Alberta.

Home-On-The-Go
Developed with BFK’s expert
guidance, the Home-On-The-Go is
equipped with a fully functioning
kitchen and is designed for
year-round use, providing hands-on
cooking classes and demonstrations
in markets across Alberta. Coupled
with pop-up ATCOenergy booths, the
Home-On-The-Go’s debut summer
tour connected us with more than
100,000 Albertans. Approximately
6,100 visitors participated in exclusive
cooking classes hosted in the Home-
On-The-Go at 30 community events
across the province.

Online Cooking Classes
Beyond reaching people in their
communities, we’ve also found new
ways to connect with them in their
homes. This past holiday season,
BFK piloted its first-ever online
cooking class, an exclusive offer for
ATCOenergy customers granting them
access to cooking video tutorials. For
four weeks, home-grown sous chefs
followed along with our instructors
to learn how to host memorable
Christmas feasts. The appetite for this
level of engagement was strong, with
93 per cent of surveyed respondents
welcoming more BFK-related perks.

The success of the pilot paves the
way for future digital initiatives
and exclusives for our retail energy
customers.

“Ms. Southern — Thank you so much to you and your organization for your free energy offer
these past two years. It’s generous and much appreciated, especially after this past year!”

The Goodwins

GROWTH 30

2017 PERFORMANCE

OPERATIONAL EXCELLENCE

Safety is top of mind in everything that
we do. Whether it’s through our frequent
public awareness campaigns or our
robust emergency response training, we
are committed to ensuring our people,
customers and communities are safe.

Our deeply embedded focus on
operational excellence is at the core
of who we are. We strive to provide
exceptional service and premier
solutions to our customers across
the globe, while ensuring the safety
and well-being of our people and the
communities we have the privilege to
serve.

RESPONDING FOR
OUR CUSTOMERS

East-Central Alberta Snowstorm
In October, a powerful snowstorm
descended on east-central Alberta,
knocking out power to more than
5,000 of our customers. The storm
brought blizzard conditions with
30 centimetres of heavy, wet snow

and fierce winds that gusted up to
100 km/h, causing power poles to
snap in half and main highways to
completely shut down.

Two helicopters and dozens of our
crew members from across the
province were brought in to respond.
For four days, more than 120 of our
people worked around the clock
to repair power lines and poles,
and safely restore electricity to our
customers.

Puerto Rico Response
On September 20, Hurricane Maria, a
powerful Category 4 hurricane, made
direct landfall in Puerto Rico, causing
catastrophic damage. Immediately
following, we deployed a team of

31 2017 ATCO ANNUAL REPORT

our people from across the company
to support response efforts in the
aftermath. With local infrastructure
in disarray, we partnered with a large
pharmaceutical company to provide
services and accommodations to
enable their people to remain on the
island in the wake of the devastating
storm.

During emergencies,
accommodations, sanitation and
hygiene are urgent priorities. We
quickly erected accommodation tents
to provide a clean and comfortable
place for people to sleep, and
provided around-the-clock laundry
services, personal shower facilities,
washroom tents and a potable
water and septic system. We also
established an ice production facility,
capable of generating 30,000 lbs. of
ice per day, and distributed 10 lb.
bags to those people not staying at
the camp, to help refrigerate food
at home while the island’s electrical
system was being repaired.

These combined services were vital
in ensuring the continuity of our
partner’s operations, while also
offering a sense of normalcy for
workers.

In the wake of the storm, the safety
of our people on the ground was a
top priority. Our team exemplified the

spirit of operational excellence upon
which our company was founded
– working nearly 28,000 exposure
hours with zero recordable or lost-
time injuries.

Rebuilding Fort McMurray
One year later, much has happened
to help heal the community of Fort
McMurray following the devastating
wildfire of 2016, which was named
one of the largest natural disasters in
Canadian history.

Since day one, our people were there
to offer shelter, rebuild infrastructure
and safely restore electricity and
natural gas services. In 2017, we
continued our support, focusing
our efforts on small businesses,
construction work, education and
community events to help families
and businesses move forward. We
also partnered with Habitat for
Humanity to rebuild homes and held
special events like Christmas hay
rides and kids curling bonspiels to
bring some much-needed family fun
to the community.

We remain committed to the people
of Fort McMurray and ensuring their
community emerges stronger and
more vibrant than ever before.

Our team responded in Puerto Rico with
an extraordinary commitment to safety,
working nearly 28,000 exposure hours
without a recordable or lost-time injury.

OPERATIONAL EXCELLENCE 32

Our Site C Workforce Housing project was
recognized for operational excellence,
receiving a top score of 99 per cent in a
safety maintenance audit conducted by
safety association, Enform.

ATCO Site C Workforce
Housing Project

99%

Enform
safety maintenance score

Whether we are developing a
new project, maintaining or
expanding existing infrastructure or
decommissioning our facilities, the
safety of our people, customers and
communities is paramount. For more on
our approach to safety and emergency
preparedness, see the Safety section
of the 2017 Sustainability Report, to be
released in June.

33 2017 ATCO ANNUAL REPORT

SAFETY
Employee Health & Safety
A robust safety culture not only
provides a healthy and safe work
environment for our people, it also
drives innovation and continuous
improvement in how we operate.

Whether it’s through our frequent
public awareness campaigns or
comprehensive emergency response
training, we are committed to
continually improving our safety and
operational integrity programs to
protect our people and the public.

In 2017, our Electricity Generation
division was presented the 2017
President’s Award from the
Canadian Electricity Association
for our committment to excellence
in employee safety. The award
is given to the best performing
corporate utilities for all-injury/illness
frequency and lost-time severity
rates in generation, transmission or
distribution operations.

Supporting Mental Health Awareness
In recognition of the tremendous
importance of mental health, our
Pipelines & Liquids Global Business
Unit rolled out an internal awareness
program in an effort to bring an
increased focus on mental health and
reduce the stigma associated with
mental illness.

The Not Myself Today® campaign is a
public engagement campaign created
by Partners for Mental Health. More
than 100 of our people stepped up to
champion the movement, providing
various educational materials to
employees across Alberta on topics
such as emotional intelligence,
mental health resolution and
workplace bullying.

Our Electricity Global Business Unit is
also getting into the spirit of the Not
Myself Today movement and is rolling
out the campaign in 2018.

Public Safety
We take a proactive approach to
public safety and are actively engaged
with municipalities, governments, first
responders and the communities we
serve to promote the importance of
energy safety. Through our annual
safety campaigns, we work to raise
awareness around safe digging, the
risks associated with powerlines and
the threat of carbon monoxide (CO)
in homes.

In 2017, our crews distributed
approximately 4,000 free CO
detectors to Albertans. To help
engage new Canadians who might
be less familiar with CO safety risks,
we had all of our CO safety material
translated into eight different
languages.

that received a remarkable score
of 99 per cent, the highest ever to
be given by the auditor. The report
cites management involvement and
commitment, hazard identification
and assessment and communications
as key areas of strength, all of which
received a score of 100 per cent.

In addition, our dedicated onsite
Health, Safety & Environment
supervisor received a prestigious
international award for “Quality
Professional in a New Project,” from
the Chartered Quality Institute (CQI)
for his work establishing a new
quality system for the project. CQI
is a global professional body that
advances the practice of quality
management across all industry
sectors.

The 757-unit, 650,000 sq. ft. facility
involved nearly 1.4 million man hours
during construction without a single
lost-time injury. Over the next seven
years, our team will remain onsite
to provide operational support,
including food service, janitorial
maintenance and site services.

We also worked closely with
the Government of Alberta to
ensure important electrical safety
information was added to the
province’s Farm Safety Booklet and
helped educate more than 600
children about farm safety at our
interactive display during Ag for Life’s
Safety Days in Grande Prairie, Alberta.

Site C Workforce Housing Project Wins
Safety Recognition Award
Built to house 1,600 workers involved
in the construction of BC Hydro’s
Site C Clean Energy project, our
workforce housing facility was one of
the largest Structures projects ever
completed in our 70-year history.
Completed on-time and on-budget,
the project in Fort St. John, British
Columbia, has set a high standard for
safety excellence in its operation.

In 2017, Enform, a national safety
association, conducted a safety
maintenance audit on the project

2017 SAFETY BY THE NUMBERS

Carbon monoxide is an
invisible, silent, odourless killer.

WAKE UP.

Carbon monoxide alarms save lives.

Get a free carbon monoxide alarm by
visiting ATCOGas.com/COAlarm

Carbon Monoxide Awareness

4,000

Free CO detectors
given to Albertans

Electricity Distribution

Responded to

service calls 90,394

Natural Gas Distribution

Responded to

service calls 119,856

Alberta PowerLine Project

503,383

HOURS

without a lost-time injury in 2017

Natural Gas Transmission

15 years or
9,500,000 hours

without a lost-time injury

OPERATIONAL EXCELLENCE 34

2017 PERFORMANCE

COMMUNITY & INDIGENOUS PARTNERSHIPS

Our Chair & CEO, Nancy Southern (centre),
meets with migrant students during a natural
gas safety class at our ATCO Blue Flame
Kitchen in Western Australia.

Our relationships with Indigenous
communities continue to evolve as we
pioneer new models of collaboration
and partnership. You’ll find more on
our approach to Indigenous relations
in the Community & Indigenous
Relations section of our 2017
Sustainability Report, which will be
available on our website in June.

35 2017 ATCO ANNUAL REPORT

As a long-term provider of essential
energy and infrastructure services
in hundreds of communities around
the world, we understand that no two
communities are alike. That’s why
our community investment programs
are designed to support the unique
needs of every community we serve.

Natural Gas Safety
In Australia, our ATCO Blue Flame
Kitchen (BFK) welcomed a group of
new migrant students to partake
in our school program that teaches
students about the safe use of
natural gas in the home and how
to cook tasty and nutritious meals.
The students come from diverse
backgrounds, some spending time

in refugee camps and others fleeing
warzones before arriving in Australia.

The hands-on practical training
ensures the students and their
extended families understand how
to use natural gas appliances safely.
In 2017, more than 30 schools
participated in BFK Australia’s
“Adventures with Natural Gas” school
program.

INDIGENOUS ENGAGEMENT

Jasper Interconnection
Transmission Project
In the Canadian Rockies, our Jasper
Interconnection project is adding
45 km of transmission line and a

new substation in Jasper National
Park to connect the community to
Alberta’s electrical grid. Throughout
the project, we worked closely with
23 Indigenous organizations through
Parks Canada’s Indigenous Forum. We
also held 88 consultation meetings,
six Elders mapping sessions, 24 site
visits, one fly-over and committed to
three traditional ceremonies, with
ongoing engagement and community
involvement planned through project
construction and reclamation.

Clean Energy in Canada’s North
Across Canada’s North, communities
are investigating ways to reduce the
use of diesel-generated power and
cut greenhouse gas emissions.
Over the course of 2017, we
agreed to three Memorandums
of Understanding with Indigenous
communities in the Yukon to partner
on the development of renewable
energy and battery storage solutions.
These partnerships will enable each
community to become a direct
participant in the local energy sector
by owning the renewable energy
technology (like solar or wind), while
we provide and operate the energy
storage and control systems.

engaged Indigenous communities
to look at addressing this critical
infrastructure and public health issue.
Currently, we are working with several
communities to develop partnership
agreements to jointly build, operate
and maintain the water infrastructure
necessary to solve their immediate
water needs, while also supporting
the growth of their communities in
the long-term.

Indigenous Education Awards
Our Indigenous Education Awards
Program offers students from First
Nations and Métis communities
the opportunity to apply for
scholarships, bursaries and awards
for demonstrating leadership
capabilities and pursuing higher
education. In previous years, these
awards were given to students from
communities near our natural gas
transmission operations, but this
year we expanded the awards to all
Indigenous students across Alberta.

In 2017, 30 Indigenous students
enrolled in a variety of fields
including Engineering, Education and
Economics were chosen to receive
awards.

Partnering for Clean Water
With some of Canada’s Indigenous
communities facing boil water
advisories, we are taking action and
applying our water management and
infrastructure expertise to support
communities in need. In 2017, we

Through our Structures & Logistics
Scholarship Program, we also
awarded $1,000 scholarships to
eight Indigenous students in British
Columbia for demonstrating a
commitment to education, leadership
and community involvement.

Fifteen Indigenous scholarships
and bursaries were also awarded
to students enrolled with Aurora
College, NAIT, the University of
Alberta, Grande Prairie Regional
College, the University of Lethbridge
and the Aboriginal Veterans Society
of Alberta as part of our longstanding
academic partnerships.

ATCO Indigenous Awareness Training
Building partnerships that stand the
test of time requires understanding
from both parties. To ensure
our people recognize the unique
culture and history of Canada’s
Indigenous Peoples, we partner with
the University of Calgary to offer
the Indigenous Relations Training
program. Through this four-day
program, participants gain a better
understanding of the current
issues facing Canada’s Indigenous
population and how to effectively
build relationships with those
communities going forward.

In 2017, we also launched a Corporate
Indigenous Training program focused
on educating all our employees on
the history of Canada’s Indigenous
Peoples, current issues facing their
communities, trends in education
and employment and building strong
community relations.

2017 Indigenous Education Awards recipients in Edmonton,
Alberta. Since 2011, our company has provided 190 awards
to Indigenous students pursuing a brighter future.

COMMUNITY & INDIGENOUS PARTNERSHIPS 36

INVESTING IN OUR COMMUNITIES

ATCO EPIC combines fundraising events,
auctions, friendly team competitions and
employee pledges that support more than
500 charities around the world.

ATCO EPIC
One way our people give back
is through our award-winning
fundraising campaign, ATCO
EPIC (Employees Participating in
Communities). Our employee-driven
program rallies the spirit of our
people all over the world, combining
fundraising events, volunteerism and
individual donations.

Launched more than a decade ago,
the program leverages the combined
efforts of our people to create a
positive impact in the communities
where we live and work.

Our people are encouraged to
donate directly to the charities
that matter most to them, and our
company enhances their generosity
by matching those donations made to
human health and wellness charities.

In 2017, our people pledged an
astounding $3.4 million to more than
800 charities worldwide. Our people
also gave generously of their personal
time through our ATCO EPIC Time
to Give program, volunteering more
than 8,500 hours in our communities.
Over the past five years our people
have volunteered nearly 95,000 hours
of their time.

Inaugural Mexico Campaign
Members of the ATCO family in
Mexico came together to support
families displaced by the September
19 earthquake in Mexico City. Our
team raised enough money to build
two new homes for families impacted
by the devastating event. We are
planning to welcome these families
into their new homes soon.

37 2017 ATCO ANNUAL REPORT

Soccer Centre - Edmonton

Fire Cadet Graduation - Calgary

Community Barbecue - Yellowknife

Energy Education Mobile - St. Albert

Win Ferguson Elementary School - Fort Saskatchewan

Nulsen Art Day - Perth, Australia

2,000

organizations supported in 281
communities around the world

Spirit North Ski Program - Canmore

Playground Donation - Hanna

Junior Achievement Economics For Success - Calgary

Oilers Hockey Clinic - Grande Prairie

Eagle Release - Saddle Lake Cree Nation

Blind Cricket Program - Perth, Australia

Habitat for Humanity - Edmonton

Jasper In January - Jasper

COMMUNITY & INDIGENOUS PARTNERSHIPS 38

OUR APPROACH TO SUSTAINABILITY

As a trusted global provider of housing, logistical

support, and energy and infrastructure services,

we have a unique role to play in developing

solutions that not only solve our customers’

challenges, but benefit the communities in which

we operate, the environment and the economy.

39 2017 ATCO ANNUAL REPORT

ENERGY
STEWARDSHIP

ENVIRONMENTAL
STEWARDSHIP

SAFETY

COMMUNITY
& INDIGENOUS
RELATIONS

WE FOCUS ON

Access to secure, reliable and affordable energy

underpins the vitality of our communities. It is our

responsibility to understand the evolving energy

needs of our customers, and to develop efficient and

effective energy solutions that support the transition

to a lower-carbon energy system.

Beyond working to minimize our environmental

footprint and the impact associated with our

operations, we look for opportunities to improve the

environmental performance of our customers and

the communities we are privileged to serve.

Safety is the first consideration in everything we

do. We are committed to providing a safe work

environment for our people, and we actively engage

with municipalities, governments, first responders,

and the communities we serve to promote the

importance of energy safety.

We engage in an open, transparent and honest

manner and, where possible, seek opportunities

to create lasting partnerships that contribute to

sustained economic and social development. Along

with our Indigenous and community partners, we are

pioneering new models of collaboration.

Throughout our 2017 Annual Report, you’ll find many examples of projects that demonstrate our commitment
to sustainability. These imaginative solutions are marked with the icons above.

For more information on our sustainability performance, see our 2017 Sustainability Report, to be released in June.

SUSTAINABILITY 40

2017 PERFORMANCE

FINANCIAL STRENGTH

Since 2009, we have experienced
remarkable balance sheet growth.
Spurred by sustained organic growth
in our regulated utilities and the
acquisition of our gas distribution
network in Australia, we have doubled
in size, improved the reliability of
our earnings and enhanced the
predictability of both our earnings
and cash flows. Perhaps most
importantly, this high-quality earnings
base has provided a solid foundation
for continued dividend growth for our
share owners.

2017 EARNINGS PERFORMANCE
We experienced exceptional growth
within our regulated utilities in 2017.
Continued capital investment and
strong rate base growth helped
our regulated businesses deliver
community-enabling energy to more
customers than ever before – while
also delivering more than 7 per cent
earnings growth for our company.

However, across our enterprise, the
year was not without its challenges.
Our Independent Power Plant
businesses were adversely impacted
by lower realized electricity prices,
which offset the sustained and
reliable growth we experienced in our
regulated utilities.

Within our Structures & Logistics
business, a significant reduction in
planned customer capital spending
limited opportunities for major
workforce housing projects, while
fierce competition put downward
pressure on profit margins across
all of our Structures & Logistics
business lines. This persistent profit
margin compression and low major
project activity level also led to an
impairment recorded for Structures &

Logistics assets in Canada and
the United States.

Despite these challenges, with
continued investment in regulated
and long-term contracted assets, a
renewed focus on our customers
and the extraordinary commitment
of nearly 7,000 people around the
globe, our company achieved strong
adjusted earnings of $335 million in
2017.

STREAMLINING OWNERSHIP OF
STRUCTURES & LOGISTICS
In late 2017, we announced
that Canadian Utilities sold its
24.5 per cent ownership in ATCO
Structures & Logistics Ltd. to
ATCO Ltd. With the transaction,
ATCO now owns 100 per cent of
ATCO Structures & Logistics.

The transaction, valued at
$140 million, simplifies Structures &
Logistics’ ownership structure and
enables Canadian Utilities to redeploy
the funds to support its large
investment program in core regulated
and long-term contracted energy
infrastructure assets. For example, in
December 2017 we announced the
acquisition of a long-term contracted
35-MW hydroelectric power station
based in Veracruz, Mexico. The
$114 million transaction closed on
February 20, 2018. We continue to
look for these kinds of investments to
expand and diversify our asset base.

CAPITAL INVESTMENT PLANS
In Canada and around the world,
continued infrastructure investment
will be vital in ensuring sustainable,
reliable and affordable energy
is available when and where our
customers need it. To that end, in

2017 we set a target to invest
$1.8 billion in both our regulated
utilities and long-term contracted
assets – a target we nearly achieved,
with combined investment of
$1.7 billion in regulated and long-term
contracted assets and more than
$1.8 billion in total capital investment.

Moving forward, we expect to
invest approximately $4.4 billion in
regulated utility and commercially
secured capital growth projects
between 2018 and 2020. This
investment is expected to contribute
significant earnings and cash flow,
create long-term value for share
owners and ensure our company
plays an increasingly prominent role
in the modernization of our global
energy infrastructure.

Our three-year plan includes
$3.5 billion of planned capital
investment in our regulated utilities,
which will continue to ensure the
safe, reliable and efficient delivery of
energy to our customers around the
world. We also intend to invest nearly
$1 billion in long-term contracted
capital, including our Fort McMurray
West 500-kV Transmission Project and
contracted hydrocarbon storage in
northern Alberta.

In addition to our anticipated capital
growth plans, we continue to assess
various opportunities to expand
our premier, integrated offering of
products and services in new global
markets.

41 2017 ATCO ANNUAL REPORT

25 year track record of
increasing common share dividends

$1.51

Adjusted Earnings

$360M

$335M

93 94

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

* Compound Annual Growth Rate

2016

2017

QUARTER CENTURY OF
DIVIDEND GROWTH
Whether in the form of capital
appreciation or dividend growth,
sustained value creation is a top
priority.

In 2017, our Board of Directors
increased the quarterly dividends
paid per Class I and Class II Share for
the four quarters of 2017 from
28.50 cents per share to 32.75 cents
per share. On January 11, 2018, the
Board of Directors declared a first
quarter dividend of 37.66 cents per
share, or $1.51 per share annualized.
This is a 15 per cent increase over the
2017 dividend.

With this most recent dividend
declaration, we have increased our
common share dividend each year
since 1993 – a noteworthy quarter-
century track record of value creation
for our share owners.

UNSHAKABLE COMMITMENT
TO FINANCIAL STRENGTH
Our financial strength and flexibility
are crucial to our success. They not
only ensure we have the financial
capacity to fund our existing and
future capital investment plans, but
also allow us to sustain our planned
growth through the ups and downs
of global economic cycles.

In 2017, DBRS maintained its ‘A’ low
credit rating on Canadian Utilities
with a stable outlook. Unfortunately,
Standard & Poor’s (S&P) revised its
long-term corporate credit rating
from ‘A’ with a negative outlook to ‘A-’
with a stable outlook.

While we are disappointed in the
outcome from S&P, our commitment
to sound fiscal stewardship
is unshaken, capital markets
remain open and demand for our
debentures continues unabated.
Which is why, despite the downgrade,
in 2017 we successfully raised
$430 million in debentures at
3.548 per cent – the lowest long-term
interest rate in our history. We also
successfully completed the largest
public-private partnership debt
financing in Canadian history with the
issuance of $1.4 billion of bonds to
finance the Fort McMurray West
500-kV Transmission Project.

LOOKING FORWARD
As we move into 2018 and beyond,
we are firmly committed to
maintaining our durable balance
sheet and our unwavering focus on
continued value creation for you,
our investors.

Capital Investment 2017

Regulated
Utility
Capital

66%

Long-term
Contracted
Capital

29%

Other

Future Regulated Utility &
Contracted Capital Investment

$1.8B

$1.5B

$1.1B

2018

2019

2020

Long-term
Contracted
Capital

Regulated
Utility

FINANCIAL STRENGTH 42

43 2017 ATCO ANNUAL REPORT

ATCO LTD.

MANAGEMENT’S DISCUSSION
AND ANALYSIS

FOR THE YEAR ENDED DECEMBER 31, 2017

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, us, or the Company) during the past year.

This MD&A was prepared as of February 21, 2018, and should be read with the Company's audited consolidated ﬁnancial
statements for the year ended December 31, 2017 (2017 Consolidated 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 (52.6 per cent ownership) and in ATCO Structures & Logistics Ltd.
(100 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. 2017 MANAGEMENT’S DISCUSSION & ANALYSIS 44

TABLE OF CONTENTS

ATCO: What Sets Us Apart ..............................................................................................................................................

Company Overview and Operating Environment........................................................................................................

ATCO Core Values and Vision .........................................................................................................................................

ATCO Strategies ...............................................................................................................................................................

ATCO Scorecard ...............................................................................................................................................................

Strategic Priorities for 2018 ............................................................................................................................................

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

101

102

106

107

110

111

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

ATCO: WHAT SETS US APART

TRACK RECORD OF DIVIDEND GROWTH

We have increased our common share dividend every year for the past 25 years, a track record we are very proud of. On
January 11, 2018, we declared a first quarter dividend of 37.66 cents per share or $1.51 per share on an annualized
basis.

GROWING A HIGH QUALITY EARNINGS BASE

Over the past five years, we have invested over $9 billion in Regulated Utility and long-term contracted operations. The
Regulated Utility portion of our total adjusted earnings has grown from 45 per cent in 2012 to 93 per cent in 2017. 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 2018 to 2020, we expect to invest $4.4 billion in
Regulated Utility and long-term contracted assets, which will continue to strengthen our high quality earnings base. Of
the $4.4 billion planned spend, $3.5 billion will be on Regulated Utilities, and $0.9 billion will be on long-term contracted
assets.

FINANCIAL STRENGTH

Financial strength is fundamental to our 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.

25 year

track record of
dividend
increases

93%

regulated
earnings

$4.4B

3 year capital
investment

range

credit rating

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

COMPANY OVERVIEW AND OPERATING
ENVIRONMENT

ATCO Ltd. is a diversified global enterprise with assets of $22 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 of our businesses. 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.

2017 was another banner year for ATCO's utility
businesses with more than 7 per cent earnings growth.
Continued investment and rate base growth helped our
regulated businesses deliver more energy to more
customers than ever before. However, 2017 was not
without its macroeconomic challenges. Persistent weak
commodity prices impacted financial results in our non-
regulated Structures & Logistics and Independent
Power Plant businesses. Demand for Structures &
Logistics’ workforce housing products is directly related
to capital spending cycles and levels of development
activity in the natural resources sector. A significant
reduction in customer capital expenditure programs
limited our opportunities for major workforce housing
projects, and increased competition put downward
pressure on profit margins across all Structures &
Logistics' business lines. Our Independent Power Plant
business was adversely impacted by lower realized
prices. However, with continued investment in
regulated and long-term contracted assets, and a
renewed sales and customer focus in all of our
businesses, ATCO achieved strong adjusted earnings of
$335 million in 2017.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

STRUCTURES & LOGISTICS

The Structures & Logistics Global Business Unit is made up of three diversified, complementary businesses to meet the
needs of our customers and communities around the world: Modular Structures, Logistics and Facility Operations &
Maintenance Services and Lodging & Support Services. 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
globally across all business lines.

MARKET OPPORTUNITIES

Non-traditional modular markets such as public education facilities,
high density urban residential housing and correctional facilities offer
development opportunities. Our goal is to continue improving space
rental utilization and securing additional long-term services contracts
with customers outside of the natural resource sectors. Expansion will
be focused in select global markets, including Canada, Australia,
South America, Mexico and the U.S. We target markets with rule of
law, excellent long-term growth potential and strategic fit with our
existing asset base.

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 businesses provide electricity distribution, transmission, and generation,
and related infrastructure services.

BUSINESS STRATEGY

Electricity's strategy is to grow its businesses through: investing in regulated electricity distribution and transmission,
and capitalizing on opportunities to provide renewable and firm supply electricity generation. Electricity will continue
expanding its businesses geographically in select global markets to meet the evolving needs of our global customer base
through the development of innovative infrastructure solutions.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

MARKET OPPORTUNITIES

The Government of Alberta's plan to eliminate emissions from
coal-fired electricity generation by 2030 has created a need for
renewable electricity 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.
Expansion will be focused in select global markets, including Canada,
Australia, South America, Mexico and the U.S. We target markets with
stable regulatory environments and rule of law, excellent long-term
growth potential and strategic fit with our existing asset base.

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 capacity market design are resolved.

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: investing in regulated natural gas distribution and
transmission, and to become a premier hydrocarbon liquids storage and industrial water infrastructure provider.
Pipelines & Liquids will continue expanding geographically to meet the evolving needs of our global customer base
through the development of innovative infrastructure solutions.

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. Expansion will be focused in select global
markets, including Canada, Australia, South America, Mexico and
the U.S. We target markets with stable regulatory environments and
rule of law, excellent long-term growth potential and strategic fit
with our existing asset base.

MARKET CHALLENGES

Potential changes in macroeconomic conditions could slow the
growth trajectory of these businesses.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

SIMPLIFIED ORGANIZATIONAL STRUCTURE

(1) Retail Energy was launched in early 2016 to provide retail, commercial and industrial electricity and natural gas service in Alberta.

(2)

In December 2017, ATCO Ltd. purchased Canadian Utilities' 24.5 per cent interest in ATCO Structures & Logistics Ltd.

(3) Regulated businesses include ATCO Gas, ATCO Pipelines, ATCO Gas Australia, ATCO Electric Distribution, and ATCO Electric Transmission.

(4) Alberta PowerLine General Partner Ltd. is the general partner of Alberta PowerLine Limited Partnership (Alberta PowerLine or APL), a partnership between

Canadian Utilities Limited (80 per cent) and Quanta Services, Inc. (20 per cent).

The 2017 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
52.6 per cent (38.8 per cent of the Class A non-voting shares and 89.5 per cent of the Class B common shares), and ATCO
Structures & Logistics Ltd., of which ATCO Ltd. owned 75.5 per cent of the Common Shares. On December 31, 2017,
ATCO purchased Canadian Utilities' 24.5 per cent ownership interest in ATCO Structures & Logistics for $140 million and
now owns 100 per cent.

The 2017 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. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

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:

ATCO LTD. 2017 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.

GLOBAL OPERATIONS

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

ATCO STRATEGIES

Innovation, growth and financial strength provide the foundation from which we have built our company. Our long-term
success depends on our ability to expand into new markets and lines of business, while offering our customers premier,
comprehensive and integrated solutions to meet their needs.

These strategic imperatives are supported by our unwavering commitment to operational excellence, our people and
the customers and communities we are privileged to serve around the world.

Making life easier for our customers by offering vertically integrated
infrastructure solutions around the world.

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 research and development, the Company is able to offer
our customers unique and imaginative solutions that differentiate us from our competitors.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

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.

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 ensure the
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 involvement 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.

FURTHER COMMENTARY REGARDING STRATEGIES AND COMMITMENTS

ATCO’s financial and operational achievements in 2017 relative to the strategies outlined above are included in the
Company's MD&A, 2017 Consolidated 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 2017 Annual Report, Management Proxy Circular and Sustainability Report. The 2017
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. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

ATCO SCORECARD

The following scorecard outlines our performance in 2017.

STRATEGIC
PRIORITIES

INNOVATION

New and existing
products and services

GROWTH

Regulated and long-term
contracted capital
investment

Geographic expansion

FINANCIAL STRENGTH

2017 TARGET

2017 PERFORMANCE

Exploring and testing new
products and methods of
energy delivery to meet
customers' future needs.

Continuous improvement of
existing products and
services.

Deployed three electric vehicle fast-charging stations in
Calgary, Red Deer and Edmonton.

Partnered with the City of Lloydminster to employ a LED
Conversion and Intelligent Street Lighting Pilot Project
which included replacing more than 60 outdated, high-
pressure sodium streetlights with LEDs and installing
intelligent street lighting sensors.

Participated in the development of a hybrid house - a
micro combined heat and power (mCHP) unit which runs
on natural gas or propane, and has the potential to
reduce a customer’s home emissions by up to 75 per
cent compared with a standard built home.

Invest $1.8 billion across
our Regulated Utilities and
in long-term contracted
assets.

Asset expansion into select
global markets including
Canada, Australia, South
America, Mexico and the
U.S.

Invested $1.7 billion in regulated and long-term
contracted assets.

Announced acquisition of a long-term contracted 35 MW
hydroelectric generation asset in Veracruz, Mexico. The
$114 million transaction closed on February 20, 2018.

Installed an additional 7 MW of capacity at a distributed
generation facility in San Luis Potosí, Mexico.

Credit rating

Maintain investment grade
credit rating.

Access to capital
markets

Access to capital at
attractive rates.

Maintained 'A (low)' credit rating with stable outlook with
DBRS Ltd.

Standard & Poor's revised its issuer rating from 'A' with a
negative outlook to 'A-' with a stable outlook.

Raised $430 million in debentures at 3.548 per cent, the
lowest long-term interest rate in the Company's history.

Successfully completed the largest public-private
partnership (P3) debt financing in Canadian history with a
$1.4 billion bond financing for Alberta PowerLine.
Awarded P3 Deal of the Year for the Americas by Project
Finance International.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

STRATEGIC
PRIORITIES
OPERATIONAL EXCELLENCE

2017 TARGET

Lost-time injury rate:
employees

Compare favourably with
Alberta Occupational Health
and Safety rates of 1.25
cases/200,000 hours
worked.

Customer satisfaction

Achieving high service for
the customers and
communities we serve.

Organizational
transformation

Streamline and gain
operational efficiencies

COMMUNITY INVOLVEMENT

2017 PERFORMANCE

Lost time injury rate of 0.25 cases/200,000 hours worked.

Within our Alberta electricity and natural gas distribution
businesses, more than 95 per cent of our customers
agreed we provide good service. Within our energy retail
operations, 76 per cent of customers report who interact
with our call centres are "very satisfied" compared with
an industry average of 71 per cent.

Simplified ATCO’s ownership structure by selling
Canadian Utilities' 24.5 per cent interest in ATCO
Structures & Logistics Ltd. to ATCO Ltd for $140 million.
At the same time, Canadian Utilities acquired a long-term
contracted hydroelectric generation asset in Mexico for
$114 million.

Worked closely with 23 Indigenous organizations through
Parks Canada’s Indigenous Forum for our Jasper
Interconnect Transmission Project; this project is adding
45 km of transmission line and a new substation in Jasper
National Park.

Indigenous relations

Continue to work together
with Indigenous
communities to contribute
to economic and social
development in their
communities.

Signed several Memorandums of Understanding with
Indigenous communities in the Yukon to partner on the
development of renewable energy and battery storage
solutions, enabling each community to become a direct
participant in the local energy sector by owning
renewable electricity sources (solar or wind) while we
provide the energy storage and control systems.

ATCO EPIC
(Employees Participating
in Communities)

Continue to administer the
employee-led campaign to
give employees the
opportunity to contribute to
charitable organizations in
the communities in which
they work.

Began working with several Indigenous communities to
develop partnership agreements to jointly build, operate
and maintain the water infrastructure necessary to solve
their immediate water needs, while also supporting the
growth of their communities in the long-term.

Donated $3.3 million and more than 8,500 hours to more
than 800 charities to make our communities better
places to live and work in 2017.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

STRATEGIC PRIORITIES FOR 2018

The following table outlines our strategic priorities and targets for 2018.

STRATEGIC PRIORITIES

2018 TARGET

INNOVATION

New and existing products and
services

GROWTH

Explore and test new products and methods of energy delivery to meet
customers' future needs.

Demonstrate continuous improvement of existing products and services.

Regulated and long-term
contracted capital investment

Invest $1.8 billion across our Regulated Utilities and in long-term contracted
assets.

Global expansion

FINANCIAL STRENGTH
Credit rating

Continue asset expansion into select global markets including: Canada,
Australia, South America, Mexico and the U.S.

Maintain investment grade credit rating.

Access to capital markets

Access capital at attractive rates.

OPERATIONAL EXCELLENCE

Lost-time injury rate:
employees

Total recordable injury frequency:
employees

Customer satisfaction

Reduce lost-time injury rate from 2017 amount of 0.25 cases/200,000 hours
worked.

Continue improvement in our safety performance, in addition to comparing
favourably to benchmark rates such as Alberta Occupational Health and
Safety, US Private Industry, and industry best practice rates for each of our
global operating units.

Achieving high service for the customers and communities we serve.

Establish company-wide customer satisfaction measurement.

Organizational transformation

Streamline and gain operational efficiencies.

COMMUNITY INVOLVEMENT

Indigenous relations

ATCO EPIC
(Employees Participating
in Communities)

Continue to work together with Indigenous communities to contribute to
economic and social development in their communities.

Continue to administer the employee-led campaign to give employees the
opportunity to contribute to charitable organizations in the communities in
which they work.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

CAPITAL INVESTMENT PLANS

In the 2018 to 2020 period, ATCO expects to invest $4.4 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 $3.5 billion of planned capital investment in the Regulated Utilities. Electric Distribution
and Electric Transmission are planning to invest $1.7 billion, and Natural Gas Distribution, Natural Gas Transmission and
International Natural Gas Distribution are planning to invest $1.8 billion from 2018 to 2020.

In addition to capital investments in the Regulated Utilities, the Company intends to invest a further $0.9 billion in long-
term contracted capital from 2018 to 2020 in the APL Fort McMurray West 500-kV Project, contracted hydrocarbon
storage in northern Alberta, and the first quarter of 2018 acquisition of a long-term contracted 35 MW hydroelectric
power station in Veracruz, Mexico. ATCO also continues to pursue various business development opportunities with
long-term potential, such as the hydrocarbon storage midstream opportunities in Mexico, 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.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

PERFORMANCE OVERVIEW

FINANCIAL METRICS

The following chart summarizes key financial metrics associated with our financial performance.

($ millions, except per share data and outstanding shares)

2017

2016

2015

Year Ended
December 31

Key Financial Metrics

Revenues
Adjusted earnings (1)

Structures & Logistics

Electricity

Pipelines & Liquids

Corporate & Other

Intersegment Eliminations

Adjusted earnings ($ per share)

Earnings attributable to Class I and Class II Shares

Earnings attributable to Class I and Class II Shares ($ per share)

Total assets

Long-term debt and non-recourse long-term debt
Class I and Class II Share owners' equity

Cash dividends declared per Class I and Class II Share ($ per share)
Funds generated by operations (1)
Capital investment (1)

Other Financial Metrics

Weighted average Class I and Class II Shares outstanding (thousands):

Basic

Diluted

4,541

4,045

4,131

335

210

144

(25)

—

2.93

203

1.78

360

213

136

(33)

3.15

340

2.97

293

171

101

(7)

2.55

154

1.34

21,775

19,724

19,055

9,973
3,593

1.31

1,813

1,821

8,318
3,546

1.14

1,912

1,609

8,055
3,356

0.99

1,589

1,919

114,352

114,411

114,832

114,822

114,846

115,300

(1) Additional information regarding these measures is provided in the Non-GAAP and Additional GAAP Measures section of this MD&A.

REVENUES

Revenues in 2017 were $4,541 million, $496 million higher
than the same period in 2016.

These increases were mainly due to revenue recorded for
Alberta PowerLine (APL), higher flow-through revenues in
natural gas distribution, rate base growth in our
Regulated Utilities, and higher revenues from a growing
customer portfolio in retail energy. This was partially
offset by decreased revenues in Structures & Logistics
due to the completion of Modular Structures major
projects in 2016.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

ADJUSTED EARNINGS

Our adjusted earnings for 2017 were $335 million, or $2.93 per share, compared to $360 million, or $3.15 per share, in
2016. The primary drivers of adjusted earnings results were as follows:

•

Structures & Logistics - Adjusted earnings in 2017 were lower than in 2016 mainly due to the completion of
major projects in our Modular Structures business and lower profit margins across all business lines, partially
offset by cost reduction initiatives.

Electricity - Adjusted earnings in 2017 were lower than in 2016 mainly due to lower contributions from forward
sales, increased business development expenses and a planned major outage at the Sheerness Thermal PPA
plant, partially offset by continued capital investment and growth in rate base within Regulated Electricity.

Pipelines & Liquids - Adjusted earnings in 2017 were higher than in 2016 mainly due to continued capital
investment and growth in rate base within Regulated Pipelines & Liquids.

Corporate & Other - Higher earnings were mainly due to improved results in Retail Energy from a growing
customer portfolio.

Our adjusted earnings for the fourth quarter of 2017 were $92 million, or $0.80 per share, compared to $94 million, or
$0.82 per share, in the same period of 2016. Lower earnings were mainly due to lower contributions from our non-
regulated businesses as persistent weak commodity prices impacted financial results in Structures & Logistics and
Electricity.

EARNINGS ATTRIBUTABLE TO CLASS I AND CLASS II SHARES

Earnings attributable to Class I and Class II Shares were $203 million in 2017 compared to $340 million in 2016. Earnings
attributable to Class I and Class II Shares includes significant impairments, timing adjustments related to rate-regulated
activities, and unrealized losses on mark-to-market forward commodity contracts that are not included in adjusted
earnings. The net impact of these items was a reduction of $132 million to earnings attributable to Class I and Class II
Shares in 2017.

In 2017, timing adjustments made in rate-regulated accounting lowered earnings attributable to Class I and Class II
shares by $61 million. Unrealized losses on mark-to-market forward commodity contracts lowered earnings attributable
to Class I and Class II shares by $48 million. Impairment charges of $23 million after tax and non-controlling interests
were recorded relating to certain Structures & Logistics’ workforce housing assets in Canada and the U.S.

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.

ASSETS, DEBT & EQUITY

Our total assets, long-term debt and Class I and Class II
Share owners' equity reflect the significant growth
achieved during 2017 and how that growth was financed.
Total assets grew from $20 billion at the beginning of
2017 to $22 billion at year end. That growth occurred
mainly as a result of continued capital investment in APL
and the Regulated Utilities.

Class I and Class II Share owners' equity increased over
the prior year mainly as a result of 2017 earnings,
partially offset by higher dividends paid to share owners.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

COMMON SHARE DIVIDENDS

In 2017, the Board of Directors increased the quarterly
dividends paid per Class I and Class II Share for the four
quarters of 2017 from 28.50 cents per share to
32.75 cents per share. Dividends paid to Class I and Class
II Share owners totaled $150 million in 2017.

On January 11, 2018, the Board of Directors declared a
first quarter dividend of 37.66 cents per share, a
15 per cent increase over the 2017 dividend.

We have increased our common share dividend each year
since 1993.

FUNDS GENERATED BY OPERATIONS

Funds generated by operations were $1.8 billion in 2017,
compared to $1.9 billion in 2016.

The decrease was mainly due to lower earnings and lower
customer contributions received for utility capital
expenditures.

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
2017 were $586 million and $1,821 million.

Capital spending in our Regulated Utilities and on long-
term contracted capital assets accounted for $556 million
of capital spending in the fourth quarter, and
$1,725 million in the full year of 2017. These investments
either earn a return under a regulated business model or
are under commercially secured long-term contracts.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

GLOBAL BUSINESS UNIT PERFORMANCE

REVENUES

Structures & Logistics revenues of $136 million in the fourth quarter and $515 million in the full year of 2017 were
$18 million higher and $132 million lower than the same periods in 2016. Higher revenues in the fourth quarter of 2017
were mainly due to the sale of used fleet and Modular Structures project activity in the education, health, correctional
facility and construction sectors. Revenues for the full year 2017 were lower than 2016 mainly due to decreased Modular
Structures project activity from the completion of the Wheatstone and BC Hydro Site C projects in the first and third
quarters of 2016. Lower Modular Structures major project activity revenue was partially offset by revenues from the LNG
Modular Structures rental project, the sale of used fleet, and project activity in the education, health, correctional facility
and construction sectors.

ADJUSTED EARNINGS

($ millions)

Modular Structures

Frontec

Logistics and Facility O&M Services

Lodging & Support Services

Total Frontec Adjusted Earnings
Other (1)
Total Structures & Logistics Adjusted Earnings

(1) Other includes financial results for Structures & Logistics’ corporate office.

Three Months Ended
December 31

Year Ended
December 31

2017

2016

Change

2017

2016

Change

—

(6)

(7)

—

(9)

—

(4)

(20)

(25)

(35)

(4)

(3)

(7)

(37)

Adjusted earnings achieved by Structures & Logistics in the fourth quarter and full year of 2017 were $4 million and
$37 million lower than the same periods in 2016. The decreases were mainly due to the completion of major projects in
our Modular Structures business and lower profit margins across all business lines, partially offset by cost reduction
initiatives.

Detailed information about the activities and financial results of Structures & Logistics' businesses is provided in the
following sections.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

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 our customers’ needs. Workforce
Housing delivers modular workforce housing worldwide, including short-term and permanent modular camps, pre-
fabricated and relocatable modular buildings.

Adjusted earnings in the fourth quarter of 2017 were $7 million lower than in the same period of 2016. Lower adjusted
earnings were mainly due to lower profit margins, partially offset by the sale of used fleet.

For the full year 2017, adjusted earnings were $35 million lower than 2016 mainly due to decreased major project
activity due to the completion of the Wheatstone and BC Hydro Site C projects in the first and third quarters of 2016 and
lower profit margins, partially offset by earnings from the LNG Modular Structures rental project, the sale of used fleet,
and project activity in the education, health, correctional facility and construction sectors. Modular Structures will
continue with strategic initiatives to improve space rental utilization, diversify the customer base, lower operating costs,
and expand operations in select geographic markets, which may include bolt-on acquisitions.

Rental Fleet Statistics

The following table compares Structures & Logistics’ manufacturing hours and rental fleet for the fourth quarter and full
year of 2017 and 2016.

North America

Manufacturing hours (thousands)

185%

296

564

(48%)

Three Months Ended
December 31

Year Ended
December 31

2017

2016

Change

2017

2016

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)

13,456

13,629

(1%)

13,456

13,629

473

455

466

500

3,708

4,974

(25%)

3,708

4,974

1,864

2,580

(28%)

1,966

1,962

(1%)

(7%)

(25%)

(1%)

—

Increased manufacturing hours in the fourth quarter of 2017 were mainly due to education, health, correctional facility,
and construction project activity. Decreased manufacturing hours in the full year of 2017 were mainly due to the
completion of major project activity at the BC Hydro Site C and LNG Modular Structures projects in 2016, partially offset
by an increase in manufacturing hours in 2017 primarily due to education, health, correctional facility and construction
sector project activity.

The increase in Space Rental utilization was due to higher construction sector customer activity in North America and
Australia. The increase in the average rental rate for Space Rentals in the fourth quarter of 2017 was mainly due to
strengthening rental rates in Australia from increased construction activity on the eastern seaboard. The decrease in the
average rental rate for Space Rentals in 2017 was due to weakened demand from customers whose business activity is
exposed to commodity price declines. The decrease in Space Rental units was due to the sale of used fleet.

The decrease in the Workforce Housing units and the increase in the utilization rate in the fourth quarter were primarily
due to sales of non-utilized units in Canada, the U.S. and Australia. In the fourth quarter, the decrease in the Workforce
Housing rental rates was mainly due to the impact of foreign exchange on the rental rates relating to the LNG Modular
Structures rental project and overall weakened demand from customers whose business activity is exposed to
commodity price declines.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

FRONTEC

Logistics and Facility O&M Services

Logistics and Facility O&M Services delivers facilities operations and maintenance services, including end-to-end supply
chain management, to our clients in the resources, defence and telecommunications sectors.

Adjusted earnings for the fourth quarter of 2017 were comparable to the same period in 2016. Adjusted earnings for the
full year of 2017 were $4 million lower when compared to the same period in 2016. Lower earnings were mainly due to a
lower profit margin on the Alaska Radar System contract renewal effective October 1, 2016 and the completion of the
Kandahar - First Responders contract with NATO Support Agency at the end of the third quarter of 2016. We continue
with strategic initiatives to lower operating costs and bid on project opportunities to provide Logistics and Facility O&M
Services.

Project Award

In the fourth quarter of 2017, Structures & Logistics was
selected by Defence Construction Canada, the
procurement partner of Canada's Department of
National Defence, to provide facility maintenance and
support services at Canadian Armed Forces (CAF) sites
across the Canadian North commencing March 1, 2018
for a period of five years. The initial contract is valued
at $79 million, with an option for a five-year extension.
We will provide facility inspection, maintenance and
repair, new construction and upgrades, trade services
and environmental services to CAF sites in Yellowknife,
Whitehorse, Inuvik, Rankin Inlet and Iqaluit.

Lodging & Support Services

Lodging & Support Services provides lodging, catering, waste management, and maintenance services to meet the
demands of major, remote resource projects.

Adjusted earnings for the fourth quarter of 2017 were comparable to the same period in 2016. Earnings of $3 million in
the full year of 2017 were $3 million lower than the same period in 2016 mainly due to lower profit margins at the BC
Hydro Site C workforce housing camp in 2017, the completion of our contract at the end of the second quarter of 2017
to provide services at the K+S Potash Canada Legacy Lodge during the construction of the K+S Potash mine in
Saskatchewan, and higher lodging activity and food services provided in the second quarter of 2016 resulting from the
2016 Fort McMurray wildfires. We continue with strategic initiatives to lower operating costs and bid on contract
opportunities to provide Lodging & Support Services.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

REVENUES

Electricity revenues of $698 million in the fourth quarter and $2,341 million in the full year of 2017 were $147 million
and $464 million higher than the same periods in 2016, mainly due to revenue recorded for planning, design and
construction activities at Alberta PowerLine.

ADJUSTED EARNINGS

($ millions)

2017

2016

Change

2017

2016

Change

Three Months Ended
December 31

Year Ended
December 31

Regulated Electricity

Electricity Distribution

Electricity Transmission

Total Regulated Electricity Adjusted Earnings

Non-regulated Electricity

Independent Power Plants

Thermal PPA Plants

International Power Generation

Alberta PowerLine

Total Non-regulated Electricity Adjusted Earnings

Total Electricity Adjusted Earnings

(1)

(6)

(7)

(1)

(13)

(11)

104

175

210

100

169

213

(11)

(5)

(9)

(3)

In the fourth quarter, our Electricity business earned $47 million, $11 million lower than the same period of 2016. Lower
earnings were due to a planned major outage at the Sheerness Thermal PPA plant, lower contributions from forward
sales and increased business development expenses, and lower earnings from APL, partially offset by continued capital
investment and growth in rate base within Regulated Electricity.

In the full year of 2017, our Electricity business earned $210 million, $3 million lower than the same period of 2016.
Lower earnings were due to a planned major outage at the Sheerness Thermal PPA plant, lower contributions from
forward sales and increased business development expenses, partially offset by continued capital investment and
growth in rate base within Regulated Electricity and higher earnings from Alberta PowerLine.

Detailed information about the activities and financial results of Electricity's businesses is provided in the following
sections.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

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.

Electricity Distribution

Our electricity distribution business earned $16 million in the fourth quarter and $71 million in the full year of 2017,
$1 million and $2 million higher than the same periods in 2016. Higher earnings resulted mainly from continued capital
investment and growth in rate base.

Electricity Transmission

Our electricity transmission business earned $27 million in the fourth quarter, $1 million higher than the same period in
2016. Higher earnings were primarily due to an increase in the approved return on equity from 8.3 per cent in 2016 to
8.5 per cent in 2017.

Our electricity transmission business earned $104 million in the full year of 2017, $4 million higher than the same period
in 2016. Higher earnings were primarily due to an increase in the approved return on equity from 8.3 per cent in 2016 to
8.5 per cent in 2017, partially offset by the net impact of regulatory decisions received in 2017 that related to prior years.

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

Our generating availability for the fourth quarter and full year of 2017 and 2016 is shown in the table below. Generating
plant capacity fluctuates with the timing and duration of outages.

Independent Power Plants

Thermal PPA Plants

International Power Generation

Three Months Ended
December 31

Year Ended
December 31

2017

2016

Change

2017

2016

Change

95%

88%

96%

93%

99%

64%

(11%)

32%

94%

93%

98%

92%

95%

88%

(2%)

10%

Higher availability in our Independent Power Plants in the fourth quarter and full year of 2017 was primarily due to
fewer outages in 2017.

Lower availability in our Thermal PPA Plants in the fourth quarter and full year 2017 was primarily due to a planned
major outage at the Sheerness plant.

Higher availability in our International Power Generation in the fourth quarter and full year of 2017 was largely due to
the major outage commencing in late September 2016 at our Osborne facility in Australia.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

Alberta Power Market Summary

Average Alberta Power Pool and natural gas prices and the resulting spark spreads for the fourth quarter and full year
2017 and 2016 are shown in the table below.

Three Months Ended
December 31

Year Ended
December 31

2017

2016

Change

2017

2016

Change

Average Alberta Power Pool electricity price ($/MWh)
Average natural gas price ($/GJ)

Average market spark spread ($/MWh)

22.46
1.64

10.16

22.03
2.94

(0.02)

2%
(44%)

—

22.19
2.05

6.84

18.28
2.06

2.84

21%

—

141%

The average Alberta Power Pool prices for the fourth quarter of 2017 were comparable to the same period in 2016.

For the full year 2017, the average Alberta Pool Price was $3.91 per MWh higher mainly due to the impact of increased
carbon prices, continued demand growth, and modestly improved market fundamentals related to supply and demand.
The continued low prices and low volatility were a result of an increased supply of electricity in recent years, the
Balancing Pool offering coal-fired generation into the merchant energy market at variable cost, and continued low
natural gas prices.

Independent Power Plants

In the fourth quarter of 2017, earnings from our Independent Power Plants were $2 million compared to $8 million in
the same period in 2016. Full year 2017 earnings from our Independent Power Plants were $4 million compared to $15
million in 2016. Lower earnings generated by our Independent Power Plants in the fourth quarter and full year of 2017
were mainly due to lower contributions from realized forward sales, increased business development expenses and
one-time cost-savings recognized in 2016.

Realized Forwards Sales Program

Three Months Ended
December 31

Year Ended
December 31

2017

2016

Change

2017

2016

Change

Average volumes settled (MW)
Average realized spark spread ($/MWh)

305
12.56

255
15.32

20%
(18%)

216
11.67

214
16.40

1%
(29%)

In the fourth quarter of 2017, 305 MW of power forward settled at an average realized spark spread of $12.56 per MWh
compared to 255 MW settled at an average of $15.32 in 2016. Due to the decrease in the realized spark spread, earnings
from forward sales in the fourth quarter of 2017 were lower than the same period in 2016.

In 2017, 216 MW of power forward settled at an average realized spark spread of $11.67 per MWh compared to 214 MW
settled at an average of $16.40 in 2016. Due to the decrease in the realized spark spread, earnings from forward sales in
2017 were lower than in the previous year.

Thermal PPA Plants

The electricity generated by the Battle River unit 5 and Sheerness plants is sold through PPAs. Under the PPAs, we must
make the generating capacity for each generating unit available to the PPA purchaser of that unit. These arrangements
entitle us to recover our forecast fixed and variable costs from the PPA purchaser.

In the fourth quarter of 2017, earnings from our Thermal Power Plants were $7 million less than the same period in
2016. Lower earnings were caused by a planned maintenance outage at the Sheerness plant and lower availability
incentive revenue compared to the same period in 2016.

Full year 2017 earnings of $14 million were $5 million less than 2016. Lower earnings were caused by a planned
maintenance outage at the Sheerness plant and lower availability incentive revenue, partially offset by compensation for
the early retirement of coal-fired electricity generation at the Sheerness power plant.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

The legal action filed by the Government of Alberta in 2016 regarding the determination on the validity and
interpretation of certain terms within the coal PPAs and related regulations remains outstanding and, at this point, only
involves Enmax as a Buyer and its purported termination of the Battle River unit 5 and Keephills PPAs. Previously, the
Balancing Pool had reported that they were unable to make decisions to accept or terminate the PPAs until this legal
action was resolved. In late 2017, Enmax sought injunctive relief on the outstanding decision by the Balancing Pool to
accept the Keephills PPA termination. In November 2017, a Court of Queen's Bench (Alberta) decision instructed the
Balancing Pool to finalize their assessment of the Keephills PPA and make its acceptance decision. This court decision
provided legal precedence that the Government of Alberta's legal action should not encumber the Balancing Pool from
making decisions in regards to the PPAs. The originating application on this legal action from the Government of Alberta
is expected to be heard by the Court of Queen's Bench (Alberta) in November 2018.

In 2017, the Balancing Pool continued to assess the commercial management of the five PPAs which it held (Battle River
unit 5, Genesee, Keephills, Sheerness and Sundance) through its mandate requiring it to manage its generation assets in
a commercial manner and to conduct itself in a fashion that is not contrary to a fair, efficient, and openly competitive
market. The Company owns 100 per cent of Battle River unit 5 and 50 per cent of Sheerness. On September 18, 2017,
the Balancing Pool issued notice of PPA termination of the Sundance unit B and unit C no later than March 31, 2018. In
addition, on January 12, 2018, the Balancing Pool announced that it will begin consultation on the return of the Battle
River unit 5 PPA as proceeding with this PPA termination decision is no longer encumbered by the Government of
Alberta legal action.

The Balancing Pool may terminate a PPA if it:

•

Consults with representatives of customers and the Minister about the reasonableness of the termination;

• Gives to the owner of the generating unit to which the PPA applies six months' notice, or any shorter period

agreed to by the owner, of its intention to terminate; and

•

Pays the owner or ensures that the owner receives an amount equal to the remaining closing net book value of
the generating unit, determined in accordance with the power purchase arrangement, as if the generating unit
had been destroyed, less any insurance proceeds.

ATCO continues to operate Battle River unit 5 and Sheerness units 1 and 2 under the terms of their respective PPAs.
Termination of the Battle River unit 5 by the Balancing Pool would result in the cessation of the PPA and the control of
the underlying PPA unit returning to ATCO.

International Power Generation

Our international power generation activities are conducted by ATCO Power Australia. These businesses supply
electricity from two natural gas-fired electricity generation plants, the Osborne plant in South Australia and the Karratha
plant in Western Australia.

Our international power generation business earned $2 million in the fourth quarter and $9 million in the full year of
2017, $1 million and $1 million higher than the same periods in 2016 due to the impact of the major outage at our
Osborne facility in 2016.

Alberta PowerLine

Alberta PowerLine (APL) is a partnership between Canadian Utilities Limited (80 per cent) and Quanta Services, Inc.
(20 per cent), with a 35-year contract from the Alberta Electric System Operator (AESO) to design, build, own, and
operate the 500 km, Fort McMurray West 500-kV Transmission project, running from Wabamun, near Edmonton to Fort
McMurray, Alberta.

APL's adjusted earnings were $1 million in the fourth quarter and $8 million in the full year of 2017. Earnings were
$1 million lower in the fourth quarter of 2017 when compared to the same period in 2016 mainly due to interest on
bonds issued in October 2017 to finance construction activities. Earnings for the full year were $6 million higher when
compared to the prior year as a result of the commencement of construction activities in August 2017.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

ELECTRICITY MA JOR PROJECT UPDATES

Alberta PowerLine

The design and planning phases of the approximately
500 km, Fort McMurray West 500-kV Project have been
completed and construction commenced in August
2017, keeping the target energization of June 2019 on
track.

On October 2, 2017, APL closed the issuance of an
aggregate of $1.4 billion of bonds with maturities from
June 2032 to March 2054. This represents the largest
public-private partnership debt financing ever
completed in Canada. As a result, APL has been
awarded the P3 Deal of the Year for the Americas by
Project Finance International.

On November 30, 2017, APL submitted a tariff
application as owner of the project. On
January 23, 2018, the AUC approved the application.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

Distributed Generation

Distributed Generation aligns with ATCO'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 2017, ATCO Mexico continued to advance distributed
generation projects in Mexico. ATCO and its Mexican
partner, Grupo Ranman, installed 7 MW of distributed
generation to increase the total capacity installed to
11 MW at a distributed generation facility located in the
World Trade Centre industrial park in San Luis Potosí,
Mexico.

Mexico Tula Cogeneration

In October 2014, ATCO Mexico 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. ATCO continues discussions with Pemex on commercial terms.

Mexico Hydro Facility

In December 2017, Canadian Utilities Limited, an ATCO
company, announced the acquisition of a long-term
contracted, 35 MW hydroelectric power station based in
Veracruz, Mexico. The $114 million transaction closed
on February 20, 2018.

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 in 2021. The first version of the Comprehensive Market Design for the capacity market
was released on January 26, 2018. The proposed first capacity auction will start in November 2019, for an obligation
from November 2021, for a one year term. Multiple aspects of the capacity market design remain under discussion and
consultation. The AESO plans to release its second version of the Comprehensive Market Design in March 2018, with a
final version expected mid-year 2018.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

REVENUES

Pipelines & Liquids revenues of $447 million in the fourth quarter were $7 million lower than the same period in 2016.
Lower revenues in the fourth quarter were mainly due to the sale of excess natural gas in our storage & industrial water
business in 2016. Revenues of $1,630 million in the full year of 2017 were $134 million higher than the same period in
2016, mainly due to growth in rate base and higher flow-through franchise fees paid to municipalities, which are
recovered from customers.

ADJUSTED EARNINGS

($ millions)

2017

2016

Change

2017

2016

Change

Three Months Ended
December 31

Year Ended
December 31

Regulated Pipelines & Liquids

Natural Gas Distribution

Natural Gas Transmission

International Natural Gas Distribution

Total Regulated Pipelines & Liquids Adjusted Earnings

Non-regulated Pipelines & Liquids

Storage & Industrial Water

Total Pipelines & Liquids Adjusted Earnings

—

(3)

138

123

144

136

(7)

Pipelines & Liquids earnings of $49 million in the fourth quarter of 2017 and $144 million in the full year of 2017 were
$5 million and $8 million higher than the same periods in 2016, mainly due to continued capital investment and growth
in rate base within Regulated Pipelines & Liquids.

Detailed information about the activities and financial results of Pipelines & Liquid's businesses is provided in the
following sections.

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.

Our natural gas distribution business earned $32 million in the fourth quarter of 2017, $6 million higher than the same
period of 2016. Increased earnings for the fourth quarter of 2017 were mainly due to growth in rate base and
customers. The earnings variance was also impacted by higher fourth quarter 2016 operations and maintenance costs.
Our natural gas distribution business earned $76 million in 2017, $11 million higher than in 2016. Increased earnings for
the period resulted primarily from growth in rate base and customers.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

Natural Gas Transmission

Our natural gas transmission activities in Alberta are conducted by ATCO Pipelines. This business receives natural gas on
its pipeline system from 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.

Our natural gas transmission business earned $7 million in the fourth quarter of 2017, comparable to the same period
of 2016. Our natural gas transmission business earned $34 million in the full year of 2017, $3 million higher than in
2016, mainly due to growth in rate base.

International Natural Gas Distribution

Our international natural gas distribution activities are conducted by ATCO Gas Australia. It is a regulated provider of
natural gas distribution services in Western Australia, serving metropolitan Perth and surrounding regions.

Our international natural gas distribution business earned $6 million in the fourth quarter and $28 million in the full
year of 2017, $2 million and $1 million higher than the same periods in 2016. Higher earnings in the quarter were mainly
due to continued growth in rate base. Higher earnings in the full year of 2017 were mainly due to continued growth in
rate base, partially offset by warmer weather in 2016 and the favourable impact of a regulatory appeal decision in 2016.

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.

Our storage & industrial water business earned $4 million in the fourth quarter of 2017, $3 million lower than the same
period in 2016, mainly due to sales of excess natural gas in 2016. Our storage & industrial water business earned
$6 million in the full year of 2017, $7 million lower when compared to the same period of 2016. Earnings were lower in
2017 because the prior year included cost savings due to the sale of under-performing assets and sales of excess
natural gas. Earnings for the full year of 2017 include contributions from the hydrocarbon storage facilities that
commenced in the fourth quarter of 2016.

PIPELINES & LIQUIDS MA JOR PROJECT UPDATES

Mexico Midstream Opportunities

As part of our geographic expansion in select global markets, we are pursuing midstream opportunities in Mexico. In the
fourth quarter of 2017, ATCO and CYDSA S.A.B. de C.V. (CYDSA) announced the signing of a Memorandum of
Understanding that will see the two companies work together to explore and develop midstream opportunities in
Mexico's oil and gas industry. The initial focus will be on underground hydrocarbon storage in salt cavern formations
and depleted reservoirs, and will also include opportunities in gas gathering and processing, natural gas liquids (NGL)
extraction and fractionation.

Urban Pipelines Replacement Program

The Urban Pipelines Replacement (UPR) project is replacing and relocating aging, high-pressure natural gas pipelines in
densely populated areas of Calgary and Edmonton to address safety, reliability and future growth. Construction is
expected to be complete in 2020 and the total cost of the UPR project is estimated to be $850 million. Natural gas
distribution and natural gas transmission invested $205 million in the UPR project in 2017 and $653 million since the
program's inception.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

Mains Replacement Program

Natural gas distribution has 8,000 km of plastic pipe and 9,000 km of steel pipe that have been identified for
replacement. The Plastic Mains Replacement program commenced in 2011 and is a 20-year program aimed at replacing
polyvinyl chloride (PVC) and early generation polyethylene (PE) pipe. Natural gas distribution replaced 286 km of plastic
pipe in 2017 and 1,727 km since the program's inception.

The Steel Mains Replacement program replaces steel pipe that is generally more than 60 years old. Natural gas
distribution replaced 57 km of steel pipe in 2017 and 288 km since the program's inception.

Hydrocarbon Storage

Together with our partner, we are 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. We are the
facility operator and have a 60 per cent partnership interest.

The first two caverns are in service with earnings starting in the fourth quarter of 2016. The two remaining caverns are
expected to be completed in the first quarter of 2018.

Industrial Water

In the fourth quarter of 2017, we entered into a long-term commercial agreement with Inter Pipeline Ltd. to provide
water services to Inter Pipeline's newly authorized integrated propane dehydrogenation and polypropylene plant to be
known as the Heartland Petrochemical Complex. The water services contract will commence by 2021 with final
determination of timing subject to customer notice, which is expected in the first quarter of 2018.

With the addition of these services, we continue to grow the Company’s suite of water and wastewater services for
industrial customers throughout Alberta’s Industrial Heartland.

International Natural Gas Transmission - Mexico Tula Pipeline

In 2014, ATCO was awarded a 25-year Transportation Services Agreement with the Comisión Federal De Electricidad
(CFE) to design, build, own and operate a 16 km natural gas pipeline near the town of Tula in the state of Hidalgo,
Mexico. ATCO has completed applications for all required permits and continues to work with the Government of Mexico
regarding land access and the completion of construction.

CORPORATE & OTHER

Our Corporate & Other segment includes Retail Energy through ATCOenergy, launched in 2016 to provide retail
electricity and natural gas services in Alberta, and the commercial real estate we own in Alberta. Corporate & Other also
includes our global corporate head office in Calgary, Canada and our Australia corporate head office in Perth, Western
Australia.

Including eliminations, Corporate & Other adjusted earnings in the fourth quarter and full year of 2017 were $8 million
and $7 million higher than the same periods in 2016, mainly due to improved results in Retail Energy from a growing
customer portfolio.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

REGULATORY DEVELOPMENTS

REGULATED BUSINESS MODELS

The business operations of electric distribution, electric transmission, natural gas distribution and natural gas
transmission are regulated mainly by the AUC. The AUC administers acts and regulations covering such matters as rates,
financing and service area.

Natural gas transmission and electric transmission operate under a cost of service regulation. Under this model, the
regulator establishes the revenues to provide 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.

Natural gas distribution and 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.

International natural gas distribution is regulated mainly by the Economic Regulation Authority (ERA) of Western
Australia. International natural gas distribution operates under cost of service regulation under which the ERA
establishes the revenues for each year to recover a return on projected rate base, including income taxes, depreciation
on the projected rate base, and projected operating costs. For this reason, growth in 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.

Regulated Utilities Mid-Year Rate Base

* COS means Cost of Service Regulation; PBR means Performance Based Regulation

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

GENERIC COST OF CAPITAL (GCOC)

On July 5, 2017, the AUC established a full proceeding schedule for a 2018, 2019 and 2020 GCOC proceeding.
Submissions were filed October 31, 2017 with a hearing set for March 2018. The AUC has indicated its intention to issue
a decision prior to the end of 2018.

The following table contains the ROE and deemed common equity ratios resulting from the most recent GCOC decisions.
The information reflects the most recent amending or varying orders issued after the original decision date. The table
also contains the mid-year rate base for each Alberta utility.

Electric Distribution

Electric Transmission

Natural Gas Distribution

Natural Gas Transmission

Year

2017

2016

2015

2017

2016

2015

2017

2016

2015

2017

2016

2015

AUC Decision
2016 GCOC (3)
2016 GCOC (3)
2013 GCOC (6)

2016 GCOC (3)
2016 GCOC (3)
2013 GCOC (6)

Rate of Return
on Common
Equity (%) (1)

Common Equity
Ratio (%) (2)

8.50

8.30

8.50 (7)
8.30 (7)

8.30

8.50

8.30

8.50

8.30

37.0

38.0

37.0

36.0

37.0

38.0

37.0

Mid-Year Rate
Base
($ millions)
2,476 (4)
2,361 (5)
2,228 (5)

5,227 (8)
5,236 (5)
5,198 (5)

2,537 (4)
2,369 (5)
2,189 (5)

1,633 (9)
1,407 (5)
1,206 (5)

(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 mid-year rate base for 2017 is based on the 2018 to 2022 PBR Rebasing Application filed on August 16, 2017 and includes estimated mid-year work in
progress of $86 million for Electric Distribution and $73 million for Natural Gas Distribution.

The mid-year rate base for 2015 and 2016 is based on the Rule 005 Actuals Package and includes mid-year work in progress.

The ROE and common equity ratio were based on the AUC GCOC decision of March 23, 2015.

The ROE and common equity ratio for 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 for 2017 is based on the 2018 to 2019 GTA application filed on June 16, 2017 and includes mid-year work in progress.

The mid-year rate base for 2017 is based on the 2017 to 2018 General Rate Application filed on October 2, 2017 and includes mid-year work in progress.

International Natural Gas Distribution Access Arrangement Decision

International natural gas distribution's current Access Arrangement period (AA4) is in place from July 2014 to December
2019.

The following table contains the ROE and deemed common equity ratios from the current Access Arrangement. The
table also contains the mid-year rate base.

International Natural Gas Distribution

Year

2017

2016

2015

ERA Decision
2016 AA4 (3)
2016 AA4 (3)
2016 AA4 (3)

Rate of Return
on Common
Equity (%) (1)

Common Equity
Ratio (%) (2)

Mid-Year Rate
Base
($ millions)

7.21

40.0

1,177

1,111

1,083

(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. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

NEXT GENERATION OF PERFORMANCE BASED REGULATION

On December 16, 2016, the AUC released its decision on the second generation 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. On February 5, 2018, the AUC released a regulatory decision that
provides determinations for the going-in rates and incremental capital funding for the second generation of PBR.

The following table compares the key aspects of the PBR First Generation with the PBR Second Generation based on the
AUC's February 5, 2018 decision.

PBR First Generation

PBR Second Generation

Timeframe

Inflation Adjuster
(I Factor)

2013 to 2017

2018 to 2022

Inflation indexes (AWE and CPI)
adjusted annually

Inflation indexes (AWE and CPI) adjusted
annually

Productivity Adjuster
(X Factor)

1.16%

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
inflation, growth and productivity to 2017
dollars; inflated by I-X thereafter over the
PBR term

Treatment of Capital
Costs

• Recovered through going-in rates

• Recovered through going-in rates inflated

inflated by I-X

• Significant capital costs not fully
recovered by the I-X formula and
meeting certain criteria recovered
through a K Factor

by I-X and a K Bar that is based on
inflation adjusted average historical
capital costs for the period 2013-2016. The
K Bar is calculated annually and adjusted
for the actual WACC

• Significant capital costs 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

ROE Used for Going-in
Rates

8.75%

Efficiency Carry-over
Mechanism (ECM)

ECM up to 0.5% additional ROE for the
years 2018 and 2019 based on certain
criteria

Reopener

+/- 300 bps of the approved ROE for
two consecutive years or +/- 500 bps of
the approved ROE for any single year

+/- 300 bps of the approved ROE for two
consecutive years or +/- 500 bps of the
approved ROE for any single year

ROE Used for Reopener
Calculation

2013 to 2016: 8.3%
2017: 8.5%

• 8.5% Placeholder
• At approved ROE pending future GCOC

proceeding decisions

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

ALBERTA UTILITIES REGULATORY DEVELOPMENTS

Utility Asset Disposition

On October 11, 2017, the Alberta Department of Energy commenced its Utility Asset Disposition Stakeholder
Engagement process to review the allocation of gains and losses associated with utility assets that are no longer used or
useful for utility service. This includes assets that are sold to third parties, transferred to non-utility use, or stranded by
unforeseen events or obsolescence. Following the engagement process, a policy recommendation will be made to the
Government of Alberta with any legislative changes expected be made in the spring of 2018.

ELECTRIC TRANSMISSION REGULATORY DEVELOPMENTS

ATCO Electric Transmission 2013 to 2014 Deferral Accounts Application

On September 20, 2017, the AUC issued a decision on Electric Transmission’s 2013 to 2014 Deferral Accounts
Application. The application included $824 million of capital expenditures for the 35 direct-assigned AESO projects that
went into service in 2013 and 2014. While the decision approved the inclusion of the vast majority of the capital
expenditures into rate base, it resulted in a decrease to third quarter 2017 adjusted earnings of $4 million, mainly due to
lower taxes that will be refunded to customers, all of which related to years prior to 2017.

ATCO Electric Transmission 2015 to 2017 General Tariff Application (GTA)

Review and Variance

On March 16, 2017, the AUC issued a decision on the Review and Variance Application relating to the 2015 to 2017 GTA.
The application requested that the AUC review and vary the 2015 to 2017 GTA decision findings for severance costs, line
insurance, head office allocations, 2015 capital maintenance costs and 2013-2014 tax deductions. While the decision
denied the review and vary request for the tax deductions, line insurance and head office allocations, the AUC agreed
with our positions on 2015 capital maintenance costs and a variety of calculation errors. The impact of this decision was
an increase to first quarter 2017 adjusted earnings of $2 million, most of which related to prior years.

Compliance Filing

On June 19, 2017, the AUC issued a decision on Electric Transmission’s Compliance Filing relating to its 2015 to 2017 GTA.
The decision adjusted Electric Transmission’s 2016 and 2017 forecast allocation of labour costs between operating and
maintenance expense and capital, which resulted in a decrease to second quarter 2017 adjusted earnings of $4 million,
of which $3 million related to prior years.

ATCO Electric Transmission 2018 to 2019 General Tariff Application (GTA)

On June 16, 2017, Electric Transmission filed a GTA for its operations for 2018 and 2019. The application requests,
among other things, additional revenues to recover higher depreciation, operating costs and financing associated with
increased rate base in Alberta. The application also requests approval to refund amounts collected from 2013-2016 for
Construction Work in Progress (CWIP), which will result in a reduction in applied-for revenues for 2018 and 2019 as
compared to 2017. This request, if approved, will also result in an increase to 2018 and 2019 rate base of approximately
$130 million per year. On December 18, 2017, the AUC issued its decision on the interim tariff for 2018 which set an
interim tariff based on a continuation of the 2017 revenue requirement. The proposed CWIP in rate-base refund will be
addressed with the final approved tariff. This decision is expected in the fourth quarter of 2018.

Electric Transmission Asset Utilization Proceeding

On June 20, 2017, the AUC publicly announced its intention to commence a proceeding to consider the issue of asset
utilization for electric transmission infrastructure, and how the corporate and property law principles referenced in the
2013 Utility Asset Disposition decision may relate. The AUC has not yet commenced this proceeding.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

NATURAL GAS TRANSMISSION REGULATORY DEVELOPMENTS

ATCO Pipelines 2017 to 2018 General Rate Application (GRA)

On August 29, 2017, ATCO Pipelines received a decision from the AUC regarding its 2017 to 2018 GRA. The decision
largely approved the application as filed, with the exception of some changes to property, plant and equipment
depreciation rates. ATCO Pipelines rates are in place on a prospective basis until the end of 2018.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

SUSTAINABILITY, CLIMATE CHANGE AND
THE ENVIRONMENT

We believe that reducing our environmental impact is integral to the pursuit of operational excellence and long-term
sustainable growth. Our success depends on our 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.

Priority has been placed on reporting core non-financial indicators to provide meaningful efficient and transparent
disclosure in priority areas for customers of our sustainability reporting, namely investors, business partners,
customers, communities, Indigenous groups, employees and government.

Our 2017 Sustainability Report, expected to be released in June 2018, will focus on key material topics including:

• Energy Stewardship: access and affordability, security and reliability, and customer satisfaction,

• Environmental Stewardship: climate change and energy use, and environmental compliance,

• Safety: employee health and safety, public safety, and emergency preparedness, and

• Community and Indigenous Relations.

The 2017 Sustainability Report will be available on our website, at www.ATCO.com.

CLIMATE CHANGE AND THE ENVIRONMENT

Carbon Competitiveness Incentive Regulation

The details of the Carbon Competitiveness Incentive Regulation (CCIR) were released by the Government of Alberta on
December 6, 2017. The CCIR outlines the carbon obligation for Large Final Emitters including those in the Electricity
Sector. The carbon price and Output-based Allocation (OBA) of 0.37 Tonnes CO2e/MWh were in the range that ATCO
anticipated. The carbon cost to thermal generators (including coal) is expected to be largely recovered as a result of
associated higher prices in Alberta’s electricity market.

Phasing in of Renewable Electricity

As part of its Climate Leadership Plan, the Government of Alberta has 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. In December 2017, the Government of Alberta announced the contracts awarded for the
first phase auction of the renewable electricity program, totaling 600 MW. On February 5, 2018, the Government of
Alberta announced the next two auctions totaling 700 MW; further details are expected at the end of February 2018.

On May 10, 2017, the Government of Alberta issued a Negotiated Request for Proposal (NRFP). This proposal aims to
spur the development of approximately 75 MW of solar generation through the purchase of Renewable Energy Credits
from new solar facilities. ATCO is participating in the proposal in partnership with Samsung in the form of three 25 MW
solar projects. ATCO is awaiting a final decision on the NRFP.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

Tax on Carbon Emissions

The Government of Alberta is phasing in a carbon tax across all sectors. An economy-wide carbon tax of $20 per tonne
was implemented in 2017, increasing to $30 per tonne carbon tax in 2018, $40 per tonne in 2021 and $50 per tonne in
2022.

Our natural gas distribution business is impacted by the Alberta economy-wide tax on carbon or carbon levy
implemented in 2017. ATCO calculates consumption from the meter and applies the levy to the tariff bill file for retailers
to bill customers. The retailers pay ATCO and ATCO is 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.

For ATCO Thermal PPA Plants, Battle River unit 5 and Sheerness units 1 and 2, the PPAs allow the Company to recover
costs of compliance with Government of Alberta regulations through the term of the PPAs. 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 the carbon taxes that electricity generation plants incur will be largely recovered through the Alberta capacity
and energy market.

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 greenhouse gas emissions, and ATCO has already implemented a number of programs to
improve efficiency and reduce fugitive and venting emissions.

In addition, 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.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

OTHER EXPENSES AND INCOME

A financial summary of other consolidated expenses and income items for the fourth quarter and full year of 2017 and
2016 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.

($ millions)

Operating costs
Service concession arrangement costs
Gain on sale of joint operation
Earnings from investment in joint ventures
Depreciation, amortization and impairment
Net finance costs
Income taxes

OPERATING COSTS

Three Months Ended
December 31

Year Ended
December 31

2017

2016

Change

2017

2016

Change

784
132

—

7
195
114
20

527
69

—

9
153
96
92

257
63

—

(2)
42
18
(72)

2,407
456

—

23
670
406
163

2,088
69
18
22
615
380
258

319
387
(18)
1
55
26
(95)

Operating costs, which are total costs and expenses less service concession arrangement costs and depreciation and
amortization, increased by $257 million in the fourth quarter and $319 million in the full year of 2017 compared to the
same periods in 2016. Increased costs were mainly due to higher unrealized losses on mark-to-market forward
commodity contracts, an accounting reclassification of a finance lease, and higher operating costs associated with the
ramp up of the retail energy business, commensurate with higher revenues in this business.

SERVICE CONCESSION ARRANGEMENT COSTS

Service concession arrangement costs in the fourth quarter and full year of 2017 are costs Alberta PowerLine has
recorded on third party design, planning and construction activities for the Fort McMurray West 500-kV Project.

GAIN ON SALE OF JOINT OPERATION

In 2016, we sold our 51.3 per cent ownership interest in the Edmonton Ethane Extraction Plant, which resulted in a gain
of $18 million.

EARNINGS FROM INVESTMENT IN JOINT VENTURES

Earnings from investment in joint ventures is mainly comprised of our ownership position in several electricity
generation plants, the Strathcona Storage Limited Partnership which operates hydrocarbon storage facilities near Fort
Saskatchewan, Alberta, ATCO-Sabinco S.A which operates a Structures & Logistics business in Chile, and certain lodge
assets in Structures & Logistics. Earnings in the fourth quarter of 2017 decreased by $2 million when compared to the
same period in 2016, mainly due to lower earnings contributions from Creeburn Lake Lodge in Structures and Logistics.
Earnings for the full year of 2017 were comparable to the same period in 2016.

DEPRECIATION, AMORTIZATION AND IMPAIRMENT

In the fourth quarter and full year of 2017, depreciation, amortization and impairment expense increased by $42 million
and $55 million when compared to the same periods in 2016, mainly due to the ongoing capital investment program in
our Regulated Utilities and the impairment on workforce housing assets in Structures & Logistics during the fourth
quarter of 2017.

NET FINANCE COSTS

Net finance costs increased in the fourth quarter and full year of 2017 when compared to the same periods in 2016,
mainly as a result of incremental debt issued to fund the ongoing capital investment program in our Regulated Utilities.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

INCOME TAXES

Income taxes decreased in the fourth quarter and full year of 2017 when compared to the same periods in 2016, mainly
due to lower earnings before income taxes in the fourth quarter and full year of 2017.

United States of America Tax Reform

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into legislation. As a result of this legislation being
enacted during 2017, the Company is required to revalue its U.S. deferred income tax assets and liabilities based on the
new 27 per cent effective income tax rate which was previously set at 35 per cent. The change in income tax rates had
an immaterial impact on ATCO Structures & Logistics (U.S.A.) Inc.'s deferred income tax liability.

There is expected to be no future impact to ATCO’s Adjusted Earnings or Funds Generated by Operations, other than the
impact of a lower effective tax rate for ATCO Structures & Logistics (U.S.A.) Inc.'s taxable income.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

LIQUIDITY AND CAPITAL RESOURCES

Our financial position is supported by Regulated Utility and long-term contracted operations. Our 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).

We consider 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.

The following table shows the current credit ratings assigned to ATCO Ltd., Canadian Utilities Limited, CU Inc., and ATCO
Gas Australia Limited Partnership.

ATCO Ltd.
Issuer

Canadian Utilities Limited
Issuer
Senior unsecured debt
Commercial paper
Preferred shares

CU Inc.
Issuer and senior unsecured debt
Commercial paper
Preferred shares

ATCO Gas Australia Limited Partnership (1)
Issuer and senior unsecured debt

(1) ATCO Gas Australia Limited Partnership holds the long-term debt for ATCO Gas Australia Pty Ltd.

DBRS Limited

DBRS

A (low)

A
A
R-1 (low)
PFD-2 (high)

A (high)
R-1 (low)
PFD-2 (high)

S&P

A-

A-
BBB+
A-1 (low)
P-2

A-
A-1 (low)
P-2

N/A

BBB+

In July 2017, DBRS Limited (DBRS) affirmed its 'A (high)' issuer rating and stable trend on ATCO Ltd. subsidiary CU Inc. In
August 2017, DBRS affirmed its 'A' issuer rating and stable trend on ATCO Ltd. subsidiary Canadian Utilities Limited. In
September 2017, DBRS affirmed its 'A (low)' issuer rating and stable trend on ATCO Ltd.

Standard & Poor's

In July 2017, Standard & Poor’s (S&P) revised its issuer rating from ‘A’ with a negative outlook to ‘A-‘ with a stable outlook
on ATCO Ltd. and our subsidiaries Canadian Utilities Limited and CU Inc.

In September 2017, S&P revised its rating on Canadian Utilities Limited's senior unsecured debt from 'A-' to 'BBB+'. In the
associated publication, S&P clarified that "This rating action stems solely from the application of our revised issue rating
criteria and does not reflect any change in our assessment of the 'A-' corporate credit rating on CUL."

In July 2017, S&P revised its issuer rating from 'A-' to 'BBB+' with a stable outlook for Canadian Utilities Limited subsidiary
ATCO Gas Australia Limited Partnership as a result of the above noted rating criteria change.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

Alberta PowerLine Limited Partnership

In September 2017, Alberta PowerLine Limited Partnership's senior secured bonds received an 'A (low)' rating with a
stable trend from DBRS and an 'A2' rating with a stable outlook from Moody's Investors Service.

LINES OF CREDIT

At December 31, 2017, ATCO and its subsidiaries had the following lines of credit.

Total

2,540
165

575

3,280

Used

563
17

346

926

Available

1,977
148

229

2,354

($ millions)

Long-term committed
Short-term committed

Uncommitted

Total

Of the $3,280 million in total credit lines, $575 million
was in the form of uncommitted credit facilities with no
set maturity date. The other $2,705 million in credit
lines were committed, with $165 million maturing in
2018. The remaining credit lines mature between 2019
and 2021 and may be extended at the option of the
lenders.

Of the $926 million credit line usage, approximately half
related to letter of credit issuances, with the majority of
the remaining usage pertaining to ATCO Gas Australia
Limited Partnership. Long-term committed credit lines
are used to satisfy all of ATCO Gas Australia Limited
Partnership's term debt financing needs. Credit lines for
ATCO Gas Australia Limited Partnership are provided by
Australian banks, with the majority of all other credit
lines provided by Canadian banks.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

CONSOLIDATED CASH FLOW

At December 31, 2017, the Company's cash position was $494 million, an decrease of $107 million compared to
December 31, 2016. Major movements are outlined in the following table:

($ millions)

Funds generated by operations
Release of restricted project funds (1)

Proceeds on sales of operations

Proceeds from issuance of debentures (long-term debt)

Net (repayment) issue of short-term debt

Cash used for capital investment

Dividends paid to Class I and Class II Share
owners

Dividends paid to non-controlling interests

Interest paid

Repayment of long-term debt

Other

Increase (decrease) in cash position

Three Months Ended
December 31

Year Ended
December 31

2016

Change

2017

2016

Change

600

(137)

1,813

1,912

—

375

(320)

(467)

(33)

(46)

(107)

(3)

(98)

(99)

374

—

374

—

430

(195)

(45)

—

375

(119)

(1,821)

(1,609)

(4)

(9)

(149)

(150)

(198)

(414)

(155)

(127)

(107)

(131)

(187)

(394)

(144)

(96)

(198)

(99)

374

(21)

(100)

(212)

(19)

(11)

(20)

(11)

155

2017

463

374

—

430

(515)

(586)

(37)

(50)

(116)

(152)

(37)

(226)

(1) On October 2, 2017, Alberta PowerLine (APL), a partnership in which our subsidiary, Canadian Utilities, has an 80 per cent ownership interest, issued non-

recourse long-term debt consisting of $1.385 billion Senior Secured Nominal Amortizing Bonds. At December 31, 2017, Alberta PowerLine (APL) had
$965 million of funds restricted under the terms of APL's non-recourse long-term debt financing agreement. The restricted project funds are considered not
available for general use by the Company. Refer to Note 10 of the 2017 Consolidated Financial Statements for additional information regarding Restricted
Project Funds.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

Funds Generated by Operations

Funds generated by operations were $463 million in the fourth quarter of 2017 and $1,813 million in the full year of
2017, $137 million and $99 million lower than the same periods in 2016. The decrease was mainly due to lower earnings
and lower customer contributions received for utility capital expenditures.

Cash Used for Capital Investment

Cash used for capital investment was $586 million in the fourth quarter and $1,821 million in the full year of 2017,
$119 million and $212 million higher than the same periods in 2016, mainly due to increased spending in Alberta
PowerLine, the replacement of aging infrastructure, system upgrades, and growth projects for new customers.

Capital investment for the fourth quarter and full year of 2017 and 2016 is shown in the table below.

($ millions)

Electricity
Electricity Distribution
Electricity Transmission
Electricity Generation
Alberta PowerLine

Total Electricity

Pipelines & Liquids

Natural Gas Distribution
Natural Gas Transmission
International Natural Gas Distribution

International Natural Gas Transmission and
Storage & Industrial Water

Total Pipelines & Liquids

Structures & Logistics

Corporate & Other

Total (1) (2)

Three Months Ended
December 31

Year Ended
December 31

2017

2016

Change

2017

2016

Change

66
83
10
132

291

113
109
27

254

83
43
24
26

176

92
115
27

251

(17)
40
(14)
106

115

21
(6)

—

(12)

(4)

227
211
24
456

918

372
297
92

782

267
203
108
69

647

336
252
90

112

790

(40)
8
(84)
387

271

36
45
2

(91)

(8)

(60)

586

467

119

1,821

1,609

212

(1)

Includes capital expenditures in joint ventures of $6 million and $17 million (2016 - $14 million and $89 million) for the fourth quarter and full year of 2017.

(2)

Includes additions to property, plant and equipment, intangibles and $4 million and $19 million (2016 - $4 million and $18 million) of interest capitalized during construction for
the fourth quarter and full year of 2017.

Debt Issuances and Repayments

On October 2, 2017, Alberta PowerLine (APL), a partnership in which our subsidiary Canadian Utilities has an 80 per cent
ownership interest, issued non-recourse long-term debt consisting of $1.385 billion Senior Secured Amortizing Bonds.
The financing was completed by way of a private placement and is comprised of $549 million of 4.065 per cent Series A
Bonds due December 1, 2053, $548 million of 4.065 per cent Series B Bonds due March 1, 2054, $144 million of 3.351
per cent Series C Bonds due September 1, 2032, and $144 million of 3.340 per cent Series D Bonds due June 1, 2032.
The net proceeds of the financing will be used to fund the construction of APL’s Fort McMurray West 500-kV Project.

On November 22, 2017, CU Inc. issued $430 million of 3.548 per cent 30-year debentures. Proceeds from this issuance
were used to fund capital investments, to repay existing indebtedness, and for other general corporate purposes of the
Alberta Utilities.

CU Inc. also repaid $150 million of 6.145 per cent debentures at maturity on November 22, 2017.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

Base Shelf Prospectuses

CU Inc. Debentures

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 February 21, 2018, aggregate issuances of debentures were
$805 million, with $375 million issued in 2016 and $430 million issued in 2017.

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

We have increased our common share dividend each year
since 1993, a 25 year track record. Dividends paid to Class
I and Class II Share owners totaled $37 million in the
fourth quarter and $150 million in the full year of 2017.

On January 11, 2018 the Board of Directors declared a
first quarter dividend of 37.66 cents per share, a
15 per cent increase over the dividend paid in each of the
previous four quarters. The payment of any dividend is at
the discretion of the Board of Directors and depends on
our financial condition and other factors.

Normal Course Issuer Bid

25 year
track record of
increasing
common
share dividends

We believe that, from time to time, the market price of our Class I Shares may not fully reflect the value of our business,
and that purchasing our own Class I Shares represents an attractive investment opportunity and desirable use of
available funds.

On March 1, 2016, we commenced a normal course issuer bid to purchase up to 3,043,884 outstanding Class I Shares.
The bid expired on February 28, 2017. On March 8, 2017 we commenced a normal course issuer bid to purchase up to
3,037,065 outstanding Class I Shares. The bid will expire on March 7, 2018.

During the year ended December 31, 2017, 35,000 shares were purchased for $2 million.

Canadian Utilities Dividend Reinvestment Plan

In the fourth quarter of 2017, Canadian Utilities issued 367,059 Class A non-voting shares under its DRIP in lieu of cash
dividend payments of $14 million.

During the year ended December 31, 2017, Canadian Utilities issued 2,388,770 (2016 - 1,484,241) Class A non-voting
shares under its DRIP in lieu of cash dividend payments of $90 million (2016 - $52 million). ATCO Ltd. elected to receive
862,822 Class A non-voting shares in lieu of cash dividends of $32 million in 2017. ATCO did not participate in the DRIP in
2016.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

SHARE CAPITAL

ATCO's equity securities consist of Class I Shares and Class II Shares.

At February 20, 2018, we had outstanding 101,336,273 Class I Shares, 13,323,455 Class II Shares, and options to
purchase 725,950 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, except for voting rights.

Of the 10,200,000 Class I Shares authorized for grant of options under our stock option plan, 2,632,550 Class I Shares
were available for issuance at December 31, 2017. Options may be granted to our 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.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

QUARTERLY INFORMATION

The following table shows financial information for the eight quarters ended January 1, 2016 through
December 31, 2017.

($ millions, except for per share data)

Q1 2017

Q2 2017

Q3 2017

Q4 2017

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

($ millions, except for per share data)

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

Adjusted Earnings

1,115
101
0.88
0.87

—

63
59
(5)
117

1,065
44
0.39
0.39

1,067
46
0.40
0.40

1,294
12
0.11
0.11

3
53
23
(8)
71

1
47
13
(6)
55

2
47
49
(6)
92

Q1 2016

Q2 2016

Q3 2016

Q4 2016

1,058
109
0.95
0.95

12
54
56
(1)

121

932
61
0.53
0.53

13
55
22
(9)

923
70
0.61
0.61

12
46
14
(8)

1,132
100
0.88
0.87

6
58
44
(14)

Our financial results for the previous eight quarters reflect continued growth in our Regulated Utility operations as well
as fluctuating commodity prices in electricity generation and sales, and natural gas storage 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.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

Structures & Logistics

Structures & Logistics' adjusted earnings are reflective of the cyclical nature of large natural resource project activity.

In the first nine months of 2016, earnings reflected continued strong Modular Structures manufacturing activity and
high occupancy levels in the Lodging business. Lower fourth quarter 2016 earnings were mainly due to the completion
of major Modular Structures projects.

In 2017, earnings were lower due to lower profit margins across all business lines and decreased Modular Structures
major project activity.

Electricity

Electricity's adjusted earnings 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.

In 2016, earnings reflected continued capital investment and rate base growth and business-wide cost reduction
initiatives. Lower earnings in the third quarter were due to the financial impact of electricity transmission's 2015 to 2017
General Tariff Application regulatory decision.

In 2017, higher first quarter earnings were mainly due to continued capital investment and rate base growth within
Regulated Electricity and lower operating costs. Lower second quarter earnings were mainly due to the timing of
operating and other costs in electric distribution, and the impact of the 2015 to 2017 GTA Compliance decision in electric
transmission. Lower third quarter earnings were mainly due to the impact of the 2013 to 2014 Deferral Accounts
decision in electric transmission. Fourth quarter earnings were lower mainly due to lower contributions in our electricity
generation business from forward sales and increased business development expenses.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

Pipelines & Liquids

Pipelines & Liquids' adjusted earnings reflect the large capital investment 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 2016 reflected continued capital investment, growth in rate base and customers, and
business-wide cost reduction initiatives. In the second and third quarters of 2016, lower earnings were due to lower
seasonal demand in our natural gas distribution business.

In the first quarter of 2017, increased earnings were mainly due to continued capital investment and rate base growth.
Lower earnings in the third quarter of 2017 were mainly due to warmer weather and inflation adjustments to rates in
our international natural gas distribution business. Higher earnings in the fourth quarter of 2017 were primarily a result
of higher rate base and customers.

Earnings Attributable to Class I and Class II Shares

Earnings attributable to Class I and Class II Shares includes timing adjustments related to rate-regulated activities and
unrealized gains or losses on mark-to-market forward commodity contracts. 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 2017, impairment charges of $23 million after tax and non-controlling interests were
recorded relating to Structures & Logistics’ workforce housing assets.

Each quarter, the Company adjusts the deferred tax asset which was recognized as a result of the 2015 Tula
Pipeline Project impairment. The adjustments of less than $1 million in 2017 and $5 million in 2016 are due to a
difference between the tax base currency, which is the Mexican peso, and the U.S. dollar functional currency.

In the first quarter of 2016, we recorded a gain on sale of joint operations of $7 million for the sale of our
51.3 per cent interest in the Edmonton Ethane Extraction Plant.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

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.

We have an established enterprise risk management process that allows us to identify and evaluate our risks by both
severity of impact and probability of occurrence. Materiality thresholds are reviewed annually by the Audit & Risk
Committee. Non-financial risks that may have an impact on the safety of our employees, customers or the general
public and reputation risks are also evaluated. The following table outlines our current significant risks and associated
mitigations.

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 cancellations, delays and cost

procurement practices and entering into fixed price

increases.

contracts when possible.

International Natural Gas Distribution's 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.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

Business Risk: Climate Change

Businesses Impacted:

• Non-regulated

Electricity

• Modular

Structures

Description and Context

Legislative Risks

Associated Strategies:

• Operational Excellence

• Innovation

Risk Management Approach

Legislative Risks

In November 2015, the Government of Alberta

Compensation for the early phase out of any coal units was

announced its Climate Leadership Plan, a

resolved with the Alberta provincial government in the

framework which includes the phasing out of

fourth quarter of 2016. ATCO is evaluating the business

coal-fired electricity, the accelerated phasing in

case regarding a coal-to-gas conversion of its coal-fired

of renewable energy, an economy-wide tax on

electricity. This conversion would involve capital

carbon emissions starting in 2017, and the

expenditures and would potentially extend the life span of

reduction of methane emissions.

the units. Broader coal-to-gas conversions present an

ATCO's Modular Structures' rental fleet has

historically played an important role in

servicing the oil & gas industry in Alberta.

opportunity for increased demand for natural gas

transmission and distribution infrastructure investment in

the near to medium term.

Provincial climate policies that adversely

ATCO estimates that charges assessed to its gas-fired

impact the economic viability of oil & gas

generation will be largely recovered through the market.

operations present a stranded asset risk to

rental fleet assets in the short to medium term.

Physical Risks

Physical risks associated with climate change

may include an increase in extreme weather

events such as heavy rainfall, floods, wildfires,

The Company’s exposure is limited for the Alberta Utilities

because future GHG emission charges are expected to be

recovered in rates, and because future requirements to

upgrade equipment to further reduce methane emissions

are expected to be included in rate base on a go-forward

basis.

extreme winds and ice storms, or changing

The Modular Structures business is making plans to

weather patterns that cause on-going impacts

repurpose its Alberta rental fleet for other uses and

to seasonal temperatures.

dispatch underutilized portions of the rental fleet to

jurisdictions outside of Alberta.

Physical Risks

The majority of the Company's pipeline network is in the

ground, making it less susceptible to extreme weather

events. Assets above ground or on water crossings are

exposed to extreme weather events. The Company follows

regulated engineering code and, where appropriate,

submits regulatory applications for capital expenditures

aimed at creating greater system reliability and resiliency

consistent with the code. The Company maintains in-depth

emergency response measures for extreme weather

events.

ATCO LTD. 2017 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.

under service concession arrangement credit

risk arises from the possibility that a

counterparty to a contract fails to perform

according to the terms and conditions of that

contract. The maximum exposure to credit risk

is the carrying value of loans and receivables

and derivative financial instruments.

The Company minimizes other credit risks by dealing with

credit-worthy counterparties, following established credit-

approval policies, and requiring credit security, such as

letters of credit.

A significant portion of loans and receivables are from the

Company’s operations in Alberta, except for the lease

receivable for the Karratha plant in Australia. The Alberta

Utilities are 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. The cybersecurity program

systems, is subject to potential cyber attacks

includes the utilization of layered access controls,

including unauthorized access of confidential

continuous monitoring, network threat detection, and

information and outage of critical

coordinated incident response through a centralized

infrastructure.

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. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

Business Risk: Energy Commodity Price

Businesses Impacted:

Associated Strategies:

• Non-regulated

• Non-regulated Pipelines

• Financial Strength

Electricity

& Liquids

• Retail Energy

Description and Context

Risk Management Approach

Independent Power Plant's and Retail Energy's

In conducting its business, the Company may use various

earnings are affected by short-term price

instruments, including forward contracts, swaps, and

volatility. Changes to the power reserve margin

options to manage the risks arising from fluctuations in

(electricity supply relative to demand) and

commodity prices. The Company enters into natural gas

natural gas prices can result in volatility in

purchase contracts and forward power sales contracts as

Alberta Power Pool Prices and spark spreads. A

the hedging instrument to manage the exposure to

number of key factors contribute to price

electricity and natural gas market price movements. Under

volatility including electricity demand and

IFRS accounting, entering into hedging instruments may

electricity supply, primarily from Alberta’s coal

result in mark-to-market adjustments that are recorded as

and wind generation.

Storage & Industrial Water's natural gas

storage facility in Carbon, Alberta, is also

exposed to storage price differentials.

unrealized gains or losses on the income statement.

Realized gains or losses are recognized in adjusted

earnings and IFRS earnings when the commodity contracts

are settled.

In addition, Retail Energy monitors forward curves in order

to ensure it is not promoting product offerings that are

unfavourable to the Company.

Business Risk: Financing

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.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

Business Risk: Foreign Currency Exchange Rate

Businesses Impacted:

Associated Strategies:

• Non-regulated

• Regulated

• Financial Strength

Electricity

Pipelines & Liquids

• Structures & Logistics

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. The Company manages

this risk through its policy of matching revenues and

expenses in the same currency. When matching is not

possible, the Company may utilize foreign currency forward

contracts to manage the risk.

Business Risk: Generation Equipment and Technology

Businesses Impacted:

• Non-regulated Electricity

Description and Context

Associated Strategies:

• Financial Strength

• Operational Excellence

Risk Management Approach

Our electricity generating plants are exposed

To reduce this risk, a proactive maintenance program is

to operational risks which can cause outages

regularly carried out with scheduled outages for major

due to issues such as boiler, turbine, and

overhauls and other maintenance. The Company also

generator failures. An extended outage could

carries property insurance and some business interruption

negatively impact earnings and cash flows. If a

insurance for its power plants to protect against extended

generating plant does not meet availability or

outages. PPAs are designed to provide force majeure relief

production targets specified in a PPA or

for thermal plant outages beyond specified time periods

another long-term agreement, the Company

and certain circumstances.

may need to compensate the purchaser for the

loss of production availability.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

Business Risk: Interest Rate

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, 2017, the

Company had fixed interest rates, either directly or through

interest rate swap agreements, on 99 per cent

(2016 - 100 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 Gas Supply

Businesses Impacted:

Associated Strategies:

• Non-regulated

• Financial Strength

Electricity

Pipelines & Liquids

Description and Context

Risk Management Approach

An Alberta natural gas transportation

Our electricity generation natural gas supply management

provider's curtailment protocol in 2017, along

approach is to obtain firm natural gas transport service for

with increased supply, contributed to on-going

our downstream natural gas assets so that the risk of

low natural gas prices and presents

future gas supply curtailments or restrictions are

operational risk of natural gas supply for

minimized.

ATCO’s Alberta natural gas fired power plants

and natural gas storage facilities. Further

curtailments and maintenance are scheduled

for multiple years into the future, which may

result in outages and system constraints to

natural gas transmission systems in Alberta.

To reduce the impact to storage operations, we plan to

structure our natural gas storage portfolio around the

natural gas transportation provider’s planned maintenance

schedules to minimize the impact of natural gas supply

curtailments.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

Business Risk: Natural Resource Sector Business Cycles

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 space rentals business and the

whether or not to purchase products and

Logistics and O&M services contracts that provide support

services offered by the Company. These factors

when Modular Structures natural resource sector

include expected commodity prices, global

customers are going through commodity cycle downturns.

economic and political conditions, and access

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.

Business Risk: Pipeline Integrity

Businesses Impacted:

• Regulated

Pipelines & Liquids

Associated Strategies:

• Operational Excellence

• Community Involvement

Description and Context

Risk Management Approach

The Pipelines & Liquids Global Business Unit

Programs are in place to monitor the integrity of the

has 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 Natural Gas Distribution's and Natural

of a failure can be severe.

Gas Transmission's UPR programs and Natural Gas

Distribution's and International Natural Gas Distribution's

mains replacement programs. The Company also carries

property and liability insurance.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

Business Risk: Regulated Operations

Businesses Impacted:

Associated Strategies:

• Regulated

• Regulated Electricity

• Growth

• Operational Excellence

Pipelines & Liquids

• Financial Strength

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.

various regulatory decisions and cases to assess how they

Electric Distribution and Natural Gas

might impact the Company's regulatory applications for the

Distribution operate under a performance

recovery of prudent costs. The Regulated Utilities are

based regulation (PBR). Under PBR, utility

proactive in demonstrating prudence and continuously

revenues are formula driven, which raises the

look for ways to lower operating costs while maintaining

uncertainty of cost recovery.

service levels.

Business Risk: Liquidity

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 does not invest any of its cash

balances in asset-backed securities. At December 31, 2017,

the Company’s cash position was $494 million and there

were available committed and uncommitted lines of credit

of approximately $2.4 billion which can be utilized for

general corporate purposes.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

Liquidity Risk 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)

2018

2019

2020

2021

2022

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

Construction activities related to Fort
McMurray West 500-kV Transmission
project

Capital expenditures

Other

Total

7
891
10

5
399

15
58
84
1,469

64
303

543

56
12
1,000
2,469

—

1,150
380

20
59
52
1,661

66
277

221

—

581
2,242

—

220
344

35
58
19
676

68
132

—

215
891

—

160
331

32
56
3
582

71
130

—

2
214
796

2023 and
thereafter

—

6,740
6,423

1,335
1,009

—

325
315

33
54

—

727

15,507

27
129

—

162
889

117
298

—

453
15,960

(1)

Interest payments on floating rate debt have been estimated using rates in effect at December 31, 2017. 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, 2017.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS 100

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 and unrealized gains or losses on mark-to-market
forward commodity contracts. 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 2017 Consolidated Financial Statements.

Adjusted earnings per Class I and Class II Share is calculated by dividing adjusted earnings by the weighted average
number of shares outstanding for the period.

Capital investment 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.

101 ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

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 and unrealized gains or losses on mark-to-market forward commodity
contracts. 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)

2017

2016

Revenues

Adjusted earnings

Unrealized losses on mark-to-market

forward commodity contracts

Impairment

Rate-regulated activities

Other

Earnings attributable to Class I

and Class II Shares

Structures
& Logistics

Electricity

Pipelines
& Liquids

Corporate
& Other

Intersegment

Eliminations Consolidated

Three Months Ended
December 31

136
118

2
6

—

(23)

—

(21)
6

698
551

47
58

(29)

—

(26)
3

—

(8)
61

447
454

49
44

—

(2)
7

(2)
(5)
45
46

65
39

(6)
(14)

—

(6)
(14)

(52)
(30)

1,294
1,132

—

2
1

—

2
1

92
94

(29)

—

(23)

—

(26)
11

(2)
(5)
12
100

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS 102

($ millions)

2017

2016

Revenues

Adjusted earnings

Gain on sale of joint operation

Unrealized losses on mark-to-market

forward commodity contracts

Impairment

Rate-regulated activities

Other

Earnings attributable to Class I

and Class II Shares

GAIN ON SALE OF JOINT OPERATION

Structures
& Logistics

Electricity

Pipelines
& Liquids

Corporate
& Other

Intersegment

Eliminations Consolidated

Year Ended
December 31

515
647
6
43

—

(23)

—

(17)
43

2,341
1,877
210
213

1,630
1,496
144
136

214
114
(25)
(33)

—

(48)

—

(69)
(4)

—

93
209

—

3
(22)

—

(5)
147
116

—

(25)
(33)

(159)
(89)

—

5
4

—

5
5

4,541
4,045
335
360

—

(48)

—

(23)

—

(61)
(22)

—

(5)
203
340

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 were deployed for continued capital growth in industrial water infrastructure and
hydrocarbon storage in Alberta's Industrial Heartland region.

UNREALIZED GAINS/(LOSSES) ON MARK-TO-MARKET FORWARD COMMODITY CONTRACTS

In order to optimize the available merchant capacity and manage exposure to electricity market price movements for
our Independent Power Plants, we enter into forward contracts. The MW capacity limits on forward commodity
contracts were increased in 2016 which heightens the potential for higher unrealized gains or losses in advance of the
settlement of the contract.

Effective first quarter 2017, adjusted earnings do not include unrealized gains or losses on mark-to-market forward
commodity contracts. Removal of the unrealized gains or losses on mark-to-market forward commodity contracts
provides a better representation of the operating results of the Independent Power Plants and more closely aligns us
with our electricity generation and utility company peer disclosure. Realized gains or losses are recognized in adjusted
earnings when the commodity contracts are settled.

Unrealized losses of $48 million in 2017 resulted from a rise in the forward spark spread which caused our unsettled
power positions to be out of the money. The spark spread expansion is a result of changes in both the electricity
generation and natural gas markets.

The forward power market significantly increased due to: Balancing Pool announcements that the Sundance unit B and
unit C PPAs would be returned in 2018; as well as subsequent announcements that some of those coal-fired generation
units will be retired and mothballed in 2018. In addition, on January 1, 2018, a carbon tax was fully implemented through
the Carbon Competitiveness Incentive Regulation resulting in a significant increase in variable costs for coal-fired
generation of approximately $15 per MWh.

103 ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

Changes in the Alberta natural gas market were related to supply and demand fundamentals, natural gas transportation
provider curtailment methodology, unplanned transportation outages, and other factors. Additional natural gas
transportation curtailments and maintenance are scheduled in 2018 and beyond, resulting in potential outages and
system constraints to the natural gas transmission system in Alberta.

IMPAIRMENT

In the fourth quarter of 2017, the Company recorded an impairment of $23 million after tax and non-controlling interest
relating to certain Structures & Logistics' workforce housing assets in Canada and space rental assets in the U.S. The
impairment was included in depreciation, amortization and impairment expense. The Company determined these
assets were impaired due to a reduction in utilization, sustained decreases in key commodity prices as well as a
significant reduction in the capital expenditure programs of key customers.

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 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 regulators' decisions on revenues.

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)

Revenues to be billed in future periods

Deferred income taxes (2)
Impact of warmer temperatures (3)
Impact of inflation on rate base (4)

Regulatory decisions received
Settlement of regulatory decisions and other items (5)

Three Months Ended
December 31

Year Ended
December 31

2017

2016

Change

2017

2016

Change

(14)

(11)

—

(3)

—

(12)

(26)

—

(2)

(3)

—

(3)

(2)

(27)

(37)

—

(54)

(2)

(8)

(38)

(61)

(48)

(15)

(5)

(22)

(6)

(3)

(46)

(39)

(1)

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.

(2)

Income taxes are billed to customers when paid by the Company.

(3) Natural Gas Distribution's 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.

(4)

The inflation-indexed portion of International Natural Gas Distribution'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.

(5)

In 2017, Electric Transmission recorded an increase in adjusted earnings of $17 million in relation to settlement of the final 2015-2017 General Tariff
Application rate and $14 million in relation to a refund of previously collected capitalized pension costs.

ATCO LTD. 2017 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

Future removal and site
restoration costs.

Revenues to be
billed in future
periods

Deferred income taxes, impact of
warmer temperatures and
impact of inflation on rate base.

Regulatory
decisions received

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 2017 Consolidated
Financial Statements.

Settlement of
regulatory
decisions and
other items

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 2017
Consolidated Financial Statements.

OTHER

Each quarter, the Company adjusts the deferred tax asset which was recognized as a result of the 2015 Tula Pipeline
Project impairment. The adjustments of less than $1 million in 2017 and $5 million in 2016 are due to a difference
between the tax base currency, which is the Mexican peso, and the U.S. dollar functional currency.

105 ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

RECONCILIATION OF FUNDS GENERATED BY
OPERATIONS TO CASH FLOWS FROM
OPERATING ACTIVITIES

($ millions)

2017

2016
Funds generated by operations

Changes in non-cash working capital

Change in receivable under service concession arrangement

Cash flows from operating activities

Three Months Ended
December 31

Year Ended
December 31

463
600

(20)

(61)

(156)

(77)
287
462

1,813
1,912

(45)

(516)

(77)
1,331
1,790

ATCO LTD. 2017 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 is 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 28 of the 2017 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 need 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. For further information, see note 37 of the 2017 Consolidated Financial Statements.

•

IFRS 9 (2014) Financial Instruments - this standard replaces IAS 39 Financial Instruments: Recognition and
Measurement and previous versions of IFRS 9. It incorporates IFRS 9 (2013), with a further classification
category for financial assets, and includes a new impairment model for financial instruments. The Company
early adopted two out of three components of this standard (Classification and Measurement and Hedge
Accounting) on January 1, 2015. This standard was effective on January 1, 2018, at which time the Company
adopted the final component, Impairments. This component includes a new expected credit loss model for
calculating impairment on financial assets and replaces the current incurred loss impairment model. The new
standard will increase bad debt provisioning for all trade receivables, however the impact is not expected to be
material due to current provisioning procedures, the low credit risk with current counterparties, and collateral
and parental guarantee arrangements in place for the Company's significant receivables.

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 completed as of the effective date. The Company has applied the full retrospective
transition method. 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 are impacted by the new
revenue recognition model.

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.

107 ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of December 31, 2017, 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).

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, 2017.

Internal Control Over Financial Reporting

As of December 31, 2017, 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, 2017.

There was no change in the Company’s internal control over financial reporting that occurred during the period
beginning on January 1, 2017, and ended on December 31, 2017, that materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial reporting.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS 108

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, 2017.
Copies of these documents may be obtained upon request from Investor Relations at 3rd Floor, West Building, 5302
Forand Street S.W., Calgary, Alberta, T3E 8B4, telephone 403-292-7500, fax 403-292-7532 or email
investorrelations@atco.com.

109 ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

GLOSSARY

AESO means the Alberta Electric System Operator.

Alberta Power Pool means the market for electricity in
Alberta operated by AESO.

Alberta Utilities means Electric Distribution (ATCO
Electric Distribution), Electric Transmission (ATCO Electric
Transmission), Natural Gas Distribution (ATCO Gas) and
Natural Gas Transmission (ATCO Pipelines).

AUC means the Alberta Utilities Commission.

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 the other members of the Executive
Committee.

Company means ATCO Ltd. and, unless the context
otherwise requires, includes its subsidiaries and joint
arrangements.

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.

GAAP means Canadian generally accepted accounting
principles.

GHG means greenhouse gas.

Gigajoule (GJ) is a unit of energy equal to approximately
948.2 thousand British thermal units.

IFRS means International Financial Reporting Standards.

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
electricity over a one-hour period.

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. PPAs
are legislatively mandated and approved by the AUC.

Regulated Utilities means Electric Distribution (ATCO
Electric Distribution), Electric Transmission (ATCO Electric
Transmission), Natural Gas Distribution (ATCO Gas),
Natural Gas Transmission (ATCO Pipelines) and
International Natural Gas Distribution (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.

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS 110

APPENDIX 1
FOURTH QUARTER FINANCIAL INFORMATION

Financial information for the three months ended December 31, 2017 and 2016 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

Unrealized (losses) gains on mark-to-market forward commodity contracts

Cost of sale of electricity generation asset on transition to finance lease

Other

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

111 ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

Three Months Ended
December 31

2017

1,294

2016

1,132

(147)

(67)

(70)

(43)

(29)

(132)

(75)

(195)

(55)

(28)

(73)

(115)

(82)

(1,111)

190

(123)

(114)

(20)

$0.11

(164)

(51)

(76)

(36)

(25)

(69)

(44)

(153)

(60)

(23)

—

(51)

(749)

392

(101)

(96)

296

(92)

204

100

104

204

$0.88

$0.87

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
Investment in joint ventures
Changes in non-cash working capital
Other
Cash flows used in investing activities

Financing activities

Net repayment of short-term debt
Issue of long-term debt
Repayment of long-term debt

Release of restricted project funds

Repayment of non-recourse long-term debt
Issue of shares by subsidiary companies
Net (purchase) issue of Class I Shares
Dividends paid to Class I and Class II Share owners
Dividends paid to non-controlling interests
Interest paid
Debt issue costs
Other
Cash flows used in financing activities

Decrease in cash position
Foreign currency translation
Beginning of period
End of period

Three Months Ended
December 31

2017

2016

56
407
(20)
(156)
287

(412)

—

(32)

—

39
(10)
(415)

(515)
488
(152)

374

(3)

—

(2)
(37)
(50)
(116)
(11)
(77)
(101)

(229)
3
720
494

204
396
(61)
(77)
462

(339)
1
(41)
(12)
(37)
2
(426)

(320)
375
(3)

—

(5)
12
2
(33)
(46)
(107)
(3)
(6)
(134)

(98)
(1)
700
601

ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS 112

113 ATCO LTD. 2017 MANAGEMENT'S DISCUSSION & ANALYSIS

ATCO LTD.
CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2017

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 114

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.
The Company and its Operations .........................................................................................................................
2. Basis of Presentation ..............................................................................................................................................

Information on Financial Performance

Segmented Information .........................................................................................................................................
3.
4.
Revenues ..................................................................................................................................................................
5. Other Costs and Expenses .....................................................................................................................................
Sale of Joint Operation ...........................................................................................................................................
6.
Interest Expense......................................................................................................................................................
7.
Income Taxes ...........................................................................................................................................................
8.
Earnings per Share ..................................................................................................................................................
9.

Information on Financial Position

10. Restricted Project Funds ........................................................................................................................................
11. Leases .......................................................................................................................................................................
12.
Inventories ...............................................................................................................................................................
13. Property, Plant and Equipment .............................................................................................................................
14.
Intangibles ...............................................................................................................................................................
15. Goodwill ...................................................................................................................................................................
16. Receivable under Service Concession Arrangement ..........................................................................................
17. Short-Term Debt ......................................................................................................................................................
18. Asset Retirement Obligations and Other Provisions ..........................................................................................
19. Long-Term Debt.......................................................................................................................................................
20. Non-Recourse Long-Term Debt .............................................................................................................................
21. Retirement Benefits ................................................................................................................................................
22. Deferred Revenues .................................................................................................................................................
23. Class I and Class II Shares ......................................................................................................................................

Information on Cash Flow

Page
116
117
118
119
120
121
122

123
123

124
131
131
131
131
132
134

134
135
136
137
138
139
139
139
140
141
142
143
148
149

24. Cash Flow Information ...........................................................................................................................................

150

Risk

25. Financial Instruments .............................................................................................................................................
26. Risk Management ...................................................................................................................................................
27. Capital Disclosures ..................................................................................................................................................
28. Significant Judgments, Estimates and Assumptions ...........................................................................................

Group Structure

29. Subsidiaries ..............................................................................................................................................................
30.
Joint Arrangements .................................................................................................................................................
31. Non-controlling Interests .......................................................................................................................................

Other Information

32. Share-Based Compensation Plans ........................................................................................................................
33. Contingencies ..........................................................................................................................................................
34. Commitments ..........................................................................................................................................................
35. Related Party Transactions ....................................................................................................................................
36. Subsequent event ...................................................................................................................................................
37. Accounting Policies .................................................................................................................................................

152
155
159
160

162
162
164

166
169
169
170
170
171

115 ATCO LTD. 2017 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.

Chair, President & Chief Executive Officer

Senior Vice President & Chief Financial Officer

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 116

February 21, 2018

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, 2017 and December 31, 2016 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, 2017 and December 31, 2016 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.

117 ATCO LTD. 2017 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
Unrealized (losses) gains on mark-to-market forward commodity contracts
Cost of sale of electricity generation asset on transition to finance lease
Other

Gain on sale of joint operation

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

2016

4,045

(581)
(216)
(244)
(130)
(81)
(69)
(315)
(615)
(205)
(101)
7

—

(222)
(2,772)

2017

4,541

(514)
(269)
(213)
(149)
(100)
(456)
(276)
(670)
(229)
(124)
(123)
(115)
(295)
(3,533)

—

1,031

1,313

25
(431)
(406)

625
(163)

462

203
259
462

$1.78
$1.77

16
(396)
(380)

933
(258)

675

340
335
675

$2.97
$2.96

Note

13,14

11
5

9
9

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 118

CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME

(millions of Canadian Dollars)

Earnings for the year

Other comprehensive loss, net of income taxes

Items that will not be reclassified to earnings:
Re-measurement of retirement benefits (1)

Items that are or may be reclassified subsequently to earnings:
Cash flow hedges (2)
Cash flow hedges reclassified to earnings (3)
Foreign currency translation adjustment (3)
Share of other comprehensive income of joint ventures (3)

Other comprehensive loss

Comprehensive income for the year

Comprehensive income attributable to:
Class I and Class II Shares

Non-controlling interests

(1) Net of income taxes of $8 million for the year ended December 31, 2017 (2016 - $3 million).

(2) Net of income taxes of $11 million for the year ended December 31, 2017 (2016 - $(3) million).

(3) Net of income taxes of nil.

See accompanying Notes to Consolidated Financial Statements.

Note

Year Ended
December 31

2016

675

2017

462

(21)

(16)

(30)

(2)

(13)

—

(45)

(66)

396

167

229

396

(49)

(41)

(57)

618

305

313

618

119 ATCO LTD. 2017 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
Restricted project funds
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
Restricted project funds
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 (loss) income

Non-controlling interests
Total equity
Total liabilities and equity

See accompanying Notes to Consolidated Financial Statements.

Note

2017

December 31
2016

11
12
8
10

13
14
15
30
11
8
16
10

17
19
20

8
18
21
22

19
20

501
710
15
70
51
861
67
2,275

17,343
587
71
245
395
65
593
104
97
21,775

7
891
38
68
10
5
15
1,034

1,261
130
368
1,676
126
8,552
1,401
14,548

167
10
3,418
(2)
3,593
3,634
7,227
21,775

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

DIRECTOR

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 120

1
2
1

A
T
C
O
L
T
D

2
0
1
7
C
O
N
S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Class I and
Class II
Shares

Note

Contributed
Surplus

Retained
Earnings

Accumulated
Other
Comprehensive
(loss) income

(millions of Canadian Dollars)

December 31, 2015

Earnings for the year

Other comprehensive loss

Losses on retirement benefits transferred to
retained earnings

Shares issued, purchased and canceled

Dividends

Share-based compensation
Changes in ownership interest in subsidiary company (1)
Other

December 31, 2016

Earnings for the year

Other comprehensive loss

Losses on retirement benefits transferred to
retained earnings

Shares issued, purchased and canceled

Dividends

Share-based compensation
Changes in ownership interest in subsidiary company (1)
Other

December 31, 2017

23,31

165

—

(1)

—

3,130

340

—

(8)

(17)

(131)

—

167

3,345

—

167

—

(1)

—

203

—

(11)

(2)

(150)

(1)

(11)

Non-
Controlling
Interests

Total

Total Equity

3,356

3,537

6,893

340

(35)

—

(18)

(131)

—

335

(22)

—

675

(57)

—

(239)

(370)

(31)

—

3,546

3,653

7,199

203

(36)

—

(2)

259

(30)

—

(150)

(256)

(2)

(11)

(1)

(45)

(4)

462

(66)

—

(406)

(3)

—

(15)

—

(35)

—

(36)

—

(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.

3,418

(2)

3,593

3,634

7,227

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

Proceeds on sale of joint operation

Investment in joint ventures

Changes in non-cash working capital

Other

Cash flows used in investing activities

Financing activities

Net (repayment) issue of short-term debt

Issue of long-term debt

Repayment of long-term debt

Release of restricted project funds

Repayment of non-recourse long-term debt

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

Debt issue costs

Other

Cash flows used in financing activities

Decrease in cash position (1)
Foreign currency translation

Beginning of year

End of year

(1)

Cash position includes $55 million which is not available for general use by the Company (2016 - $40 million).

See accompanying Notes to Consolidated Financial Statements.

Note

2017

2016

Year Ended
December 31

10, 20

462

1,351

(516)

1,331

675

1,237

(45)

(77)

1,790

(1,231)

(1,338)

(98)

—

(18)

(95)

(85)

(137)

(1,300)

(1,611)

(45)

488

(155)

374

(14)

(1)

(150)

(198)

(414)

(11)

(6)

(128)

(97)

(10)

601

494

450

(144)

—

(15)

(131)

(187)

(394)

(3)

(367)

(188)

(10)

799

601

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 122

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

DECEMBER 31, 2017

(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 4th floor, West Building, 5302 Forand Street SW, Calgary, Alberta T3E 8B4. 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 29). 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 (see Note 30). 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 February 21, 2018.

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 37.

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.

123 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

USE OF ESTIMATES AND JUDGMENTS

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 28.

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 the other members of the Executive Committee.

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. This company
offers workforce housing, modular facilities, site support services and logistics and
operations management.

Electricity

Pipelines & Liquids

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, Australia and Mexico.

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. 2017 CONSOLIDATED FINANCIAL STATEMENTS 124

Results by operating segment for the year ended December 31 are shown below.

2017

2016

Revenues - external

Revenues - intersegment

Revenues

Operating expenses (1)

Depreciation, amortization and

impairment

Gain on sale of joint operation

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

514
646

1
1
515
647

(470)
(545)

(71)

(40)

—

3
5

—

(1)
(23)
66

4
(17)
(19)
49
6
43

625

790
33

2,290
1,852

51
25
2,341
1,877

(1,461)
(735)

(373)

(357)

—

17
17

(270)
(249)
254
553

(71)
(151)
183
402
210
213

12,993

11,506
454

572

1,567
1,474

63
22
1,630
1,496

(871)
(829)

(226)

(220)

—

(146)
(142)
390
323

(107)
(100)
283
223
144
136

7,489

6,919
777

734

170
73

44
41
214
114

(222)
(138)

(11)

—

12
13
(7)
(22)

13
14
6
(8)
(25)
(33)

751

600
84

—

(159)
(89)
(159)
(89)

161
90

—

(2)
(1)
11
13

(2)
(4)
9
9

—

(83)

(91)

—

4,541
4,045

—

4,541
4,045

(2,863)
(2,157)

(670)

(615)

—

23
22

(406)
(380)
625
933

(163)
(258)
462
675
335
360

21,775

19,724
1,348

1,451

(1)

Includes total costs and expenses, excluding depreciation, amortization and impairment expense.

(2)

Includes additions to property, plant and equipment and intangibles and $19 million of interest capitalized during construction for the year ended
December 31, 2017 (2016 - $18 million).

125 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

GEOGRAPHIC SEGMENTS

Financial information by geographic area is summarized below.

Revenues - external

Canada
Australia
Other
Total

Non-current assets

Canada
Australia
Other
Total

2017
4,082
369
90
4,541

Property, Plant
and Equipment

2017
15,820
1,298
225
17,343

2016
15,405
1,278
258
16,941

Intangible Assets

Other Assets (1)

2017
567
20

—

587

2016
531
15

—

546

2017
268
32
38
338

2016
247
35
31
313

2017
16,655
1,350
263
18,268

2016
3,598
364
83
4,045

Total

2016
16,183
1,328
289
17,800

(1) Other assets exclude financial instruments, deferred income tax assets and goodwill.

ADJUSTED EARNINGS

Adjusted earnings are earnings attributable to Class I and II Shares after adjusting for:

•

the timing of revenues and expenses for rate-regulated activities,

one-time gains and losses,

unrealized gains and losses on mark-to-market forward commodity contracts,

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.

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 126

The reconciliation of adjusted earnings and earnings for the year ended December 31 is shown below.

2017

2016

Adjusted earnings

Gain on sale of joint
operation (Note 6)

Unrealized losses on mark-to-market

forward commodity contracts

Impairment

Rate-regulated activities

Other

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

6
43

—

(23)

—

(17)
43

210
213

—

(48)

—

(69)
(4)

—

93
209

144
136

(25)
(33)

—

3
(22)

—

(5)
147
116

—

(25)
(33)

—

5
4

—

5
5

335
360

—

(48)

—

(23)

—

(61)
(22)

—

(5)
203
340
259
335
462
675

Unrealized gains and losses on mark-to-market forward commodity contracts

The Company enters into forward contracts in order to optimize available merchant capacity and manage exposure to
electricity market price movements for its Independent Power Plants. The MW capacity limits on forward commodity
contracts were increased in 2016 which heightens the potential for higher unrealized gains or losses in advance of the
settlement of the contract. The forward contracts are measured at fair value. Unrealized gains and losses due to
changes in the fair value of the forward contracts are recognized in earnings where hedge accounting is not applied. The
CODM believes that removal of the unrealized gains or losses on mark-to-market forward commodity contracts provides
a better representation of operating results for the Company's Independent Power Plants. Realized gains or losses are
recognized in adjusted earnings when the commodity contracts are settled.

Impairment

In the fourth quarter of 2017, the Company recognized an impairment of $34 million ($23 million, after-tax and non-
controlling interests) relating to certain workforce housing assets in Canada and space rentals assets in the U.S. (see
Note 13).

127 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

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.

The Company uses standards issued by the Financial Accounting Standards Board (FASB) in the United States as another
source of generally accepted accounting principles 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.

Rate-regulated accounting differs from IFRS in the following ways:

Timing Adjustment

Items

RRA Treatment

IFRS Treatment

1. Additional

revenues billed in
current period

Future removal and site
restoration costs.

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.

2. Revenues to be
billed in future
periods

Deferred income taxes, impact
of warmer temperatures and
impact of inflation on rate base.

3. Regulatory

decisions received

Regulatory decisions received
which relate to current and prior
periods.

4. Settlement of
regulatory
decisions and
other items

Settlement of amounts
receivable or payable to
customers and other items.

The Company recognizes
revenues associated with
recoverable costs in advance
of future billings to
customers.

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.

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 128

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)

Revenues to be billed in future periods

Deferred income taxes (2)
Impact of warmer temperatures (3)
Impact of inflation on rate base (4)

Regulatory decisions received
Settlement of regulatory decisions and other items (5)

2017

2016

(54)
(2)
(8)
9
(38)
(61)

(48)
(15)
(5)
6
8
(22)

(1)

(2)

(3)

(4)

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.

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.

(5)

In 2017, ATCO Electric recorded an increase in adjusted earnings of $17 million in relation to settlement of final 2015-2017 General Tariff Application rate and
$14 million in relation to refund of previously collected capitalized pension costs.

129 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

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 2017 and 2016 are provided below.

Decision

Timing

Amount Description

1. 2013-2014
Deferral
Accounts
Application

September
2017

(4) The Alberta Utilities Commission (AUC) issued a decision on ATCO

Electric Transmission’s 2013 to 2014 Deferral Accounts Application.
The Application included $824 million of capital expenditures for
the 35 direct-assigned AESO projects that went into service in 2013
and 2014. While the decision approved the inclusion of the vast
majority of the capital expenditures into rate base, it resulted in a
decrease to adjusted earnings, which relates to years prior to
2017.

2. ATCO Electric
General Tariff
Application
(GTA)
Compliance
Filing

June 2017

(5) The AUC issued a decision on ATCO Electric’s Compliance Filing

relating to its 2015 to 2017 General Tariff Application. The decision
adjusted ATCO Electric’s 2016 and 2017 forecast allocation of
labour costs between operating and maintenance expense and
capital.

3. ATCO Electric

August 2016

(10) The GTA decision covers the operations of ATCO Electric

GTA

4. 2016-2017

August 2016

Generic Cost of
Capital Decision
(GCOC)

5. ATCO Gas

July 2016

Australia Access
Arrangement
Decision

Other

Transmission for 2015 to 2017 and resulted in final rates that were
lower than the approved interim rates from 2015, mainly due to
lower approved operating costs.

1 The GCOC decision established the return on equity (ROE) and
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.

Each quarter, the Company adjusts the deferred tax asset which was recognized as a result of the 2015 Tula Pipeline
Project impairment. The adjustment of less than $1 million in 2017 (2016 - $5 million) is due to a difference between the
tax base currency, which is Mexican pesos, and the U.S. dollar functional currency.

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 130

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

Sale of electricity generation asset on transition to finance lease (Note 11)

Finance lease income

2017
533

3,050

293

516

116

2016
415

3,232

288

—

4,541

4,045

5. OTHER COSTS AND EXPENSES

Other costs and expenses include rent, realized 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. SALE OF JOINT OPERATION

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 non-controlling interests).
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.

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

Short-term debt

Other

Less: interest capitalized (Note 13)

2017
396

450

(19)

431

2016
385

414

(18)

396

Borrowing costs capitalized to property, plant and equipment during 2017 were calculated by applying a weighted
average interest rate of 4.82 per cent to expenditures on qualifying assets (2016 - 4.89 per cent).

131 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

8. INCOME TAXES

INCOME TAX EXPENSE

The components of income tax expense are summarized below.

Current income tax expense

Canada

Australia

United States

Adjustment in respect of prior years

Deferred income tax expense

Reversal of temporary differences

Adjustment in respect of prior years

The reconciliation of statutory and effective income tax expense is as follows:

Earnings before income taxes

Income taxes, at statutory rates

International financing

Foreign tax rate variance

Foreign exchange on deferred tax asset

Equity earnings

Unrecognized deferred income tax assets

Non-taxable (gains) losses

Tax cost of preferred share financings

Other

INCOME TAX ASSETS AND LIABILITIES

625

169

(8)

—

(4)

(5)

163

2017
%

27.0

(1.3)

0.5

—

(0.6)

0.8

(0.8)

0.3

0.2

26.1

2017

2016

—

163

933

252

(9)

(8)

—

258

(12)

187

196

258

2016
%

27.0

(1.0)

0.4

1.0

(0.8)

0.6

0.2

—

27.6

Income tax assets and liabilities in the consolidated balance sheet at December 31 are summarized below.

Balance Sheet Presentation

2017

2016

Income tax assets

Current

Deferred

Income tax liabilities

Current

Deferred

Income taxes receivable

Deferred income tax assets

Other current liabilities

Deferred income tax liabilities

116

1,261

1,278

116

1,199

1,215

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 132

DEFERRED INCOME TAXES

The changes in deferred income tax assets are as follows:

Movements

December 31, 2015

(Charge) credit to earnings

Charge to other
comprehensive income

Other

December 31, 2016

(Charge) credit to earnings

Other

December 31, 2017

Property,
Plant and
Equipment
40

(6)

—

(1)

(2)

Intangibles

Reserves

—

(3)

—

(3)

—

(2)

(10)

—

(6)

—

Tax Loss Carry
Forwards and
Tax Credits
2

Retirement
Benefit
Obligations
2

—

(1)

—

Other

—

(2)

—

Total

(12)

(1)

(2)

—

(2)

The Company expects approximately $1 million of its deferred income tax assets to reverse within the next twelve
months.

The changes in deferred income tax liabilities are as follows:

Movements

December 31, 2015

Charge (credit) to earnings

Charge (credit) to other
comprehensive income
Consolidation of Barking (1)
Other

December 31, 2016

Charge (credit) to earnings

Charge (credit) to other
comprehensive income

Other

December 31, 2017

Property,
Plant and
Equipment
1,123

127

—

(2)

1,259

140

—

(2)

1,397

Intangibles

Reserves

102

—

117

(13)

—

104

(43)

—

(3)

(27)

(11)

(1)

(42)

Tax Loss Carry
Forwards and
Tax Credits
(91)

Retirement
Benefit
Obligations
(114)

—

(76)

(22)

—

(1)

(4)

—

(117)

(8)

(1)

(98)

(134)

Other

(9)

—

(2)

—

Total

1,007

184

(1)

(2)

1,199

(19)

(3)

1,261

(1)

In March 2016, the Company increased its ownership in Barking Power Limited (Barking), an entity that holds land assets in the U.K., from 51 per cent to 100
per cent. Barking was previously accounted for as a joint venture and is now consolidated.

The Company expects approximately $19 million of its deferred income tax liabilities to reverse within the next twelve
months.

At the end of 2017, the Company had $448 million of non-capital tax losses and credits which expire between 2024 and
2037 and $31 million of tax losses which do not expire. The Company recognized deferred income tax assets of
$112 million for losses and credits that expire. No deferred income tax assets were recorded for losses that do not
expire.

The Company had $116 million of aggregate temporary differences for investments in subsidiaries, branches and joint
ventures for which deferred income tax liabilities were not recognized (2016 - $114 million).

133 ATCO LTD. 2017 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

10. RESTRICTED PROJECT FUNDS

2017

2016

114,351,929 114,410,703

147,586

322,606

132,814

302,359

114,822,121 114,845,876

462

(259)

203

675

(335)

340

$1.78

$1.77

$2.97

$2.96

At December 31, 2017, Alberta PowerLine (APL), a partnership between Canadian Utilities Limited and Quanta Services
Inc., had $965 million of funds restricted under the terms of APL's non-recourse long-term debt financing agreement
signed in October 2017 (see Note 20). The restricted project funds are released as the project progresses (see Note 16),
subject to satisfaction of certain performance conditions under the financing agreement.

Restricted project funds are comprised of:

Current assets
Restricted cash
Restricted funds invested in structured deposit note (1)

Non-current assets
Restricted cash
Restricted funds for construction holdbacks (2)

Year Ended
December 31, 2017

351
510
861

69
35
104
965

(1)

At December 31, 2017, the Company had $510 million of funds invested in a structured deposit note, which pays interest at a fixed rate of 1.707 per cent per
annum, and will mature by the end of 2018.

(2)

At December 31, 2017, the Company had $35 million of restricted funds for construction lien holdbacks.

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 134

11. 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

2017

2016

737

(329)

622

(310)

410

395

410

238

447

737

300

410

314

302

314

197

380

622

237

314

During the year ended December 31, 2017, $4 million of contingent rent was recognized as income from these finance
leases (2016 - $3 million).

Sale of electricity generation asset on transition to finance lease

In December 2017, ATCO Power signed a contract amendment that triggered a reassessment of the accounting
treatment of the Muskeg River generating plant (Muskeg). Due to the nature of the contract amendment, IFRS requires
that this agreement is accounted for as a finance lease. As this lease is considered a manufacturer's type lease for
accounting purposes, $100 million and $16 million, respectively, was recorded in revenues to recognize the fair value of
the lease receivable (see Note 4) and the derecognition of related customer contributions. The revenues were offset by
$115 million of cost of sale of electricity generation asset representing the net book value of Muskeg property, plant and
equipment. The transaction resulted in a gain of less than $1 million after tax and non-controlling interests.

135 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

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

2017

2016

215

330

548

189

671

863

During the year ended December 31, 2017, $10 million of contingent rent was recognized as income from these
operating leases (2016 - $16 million).

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, 2017, $35 million was recognized as an expense for these operating leases (2016 - $35 million).

12. INVENTORIES

Inventories at December 31 are comprised of:

Natural gas and fuel in storage

Raw materials and consumables

Work-in-progress

Finished goods

2017
16

2016
17

For the year ended December 31, 2017, inventories recognized as an expense were $280 million (2016 - $320 million).

Inventories with a carrying value of $10 million were pledged as security for liabilities at December 31, 2017 (2016 -
$7 million).

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 136

13. PROPERTY, PLANT AND EQUIPMENT

A reconciliation of the changes in the carrying amount of property, plant and equipment is as follows:

Utility
Transmission
& Distribution

Electricity
Generation

Land and
Buildings

Construction
Work-in-
Progress

Other

Total

Cost

December 31, 2015

Additions

Transfers

Retirements and disposals

Changes to asset retirement costs

Foreign exchange rate adjustment

December 31, 2016

Additions

Transfers
Retirements and disposals (1)
Transfer to finance lease (Note 11)

Changes to asset retirement costs

Foreign exchange rate adjustment

16,601

2,034

422

701

(153)

—

(46)

(15)

(3)

(1)

17,525

2,051

385

678

(127)

—

(5)

(187)

(1)

—

802

119

(5)

—

(20)

920

(49)

—

December 31, 2017

18,465

1,869

999

Accumulated depreciation and impairment

December 31, 2015

Depreciation

Retirements and disposals

Foreign exchange adjustment

December 31, 2016

Depreciation and impairment

Retirements and disposals

Transfer to finance lease (Note 11)

Foreign exchange rate adjustment

December 31, 2017

Net book value

December 31, 2016

December 31, 2017

3,427

1,261

408

(101)

(5)

3,729

413

(127)

—

4,016

13,796

14,449

(14)

—

1,312

(3)

(72)

—

1,305

739

564

168

(5)

(2)

180

(18)

—

184

740

815

794

859

(823)

(45)

—

(4)

781

746

(760)

(53)

—

(9)

705

—

(3)

—

(6)

699

629

1,665

(148)

(5)

(7)

1,661

(126)

—

(6)

21,896

1,494

—

(366)

(8)

(78)

22,938

1,260

—

(360)

(187)

(6)

(3)

1,604

23,642

725

(106)

(6)

694

109

(81)

—

(4)

718

967

886

5,666

573

(226)

(16)

5,997

612

(229)

(72)

(9)

6,299

16,941

17,343

(1)

Includes $13 million of land held for sale, which was reclassified to prepaid expenses and other current assets.

The additions to property, plant and equipment included $19 million of interest capitalized during construction for the
year ended December 31, 2017 (2016 - $18 million).

In 2016, ATCO Pipelines and NOVA Gas Transmission Ltd. exchanged ownership of certain natural gas pipelines and
related facilities as part of the integration of natural gas transmission service in Alberta. 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 $467 million were pledged as security for liabilities at
December 31, 2017 (2016 - $692 million).

137 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

IMPAIRMENTS

Structures & Logistics Segment

Workforce housing and space rental assets

In the fourth quarter of 2017, the Company recognized a pre-tax impairment of $34 million ($23 million, after-tax and
non-controlling interests) relating to certain workforce housing assets in Canada and space rental assets in the U.S.. The
impairment was included in depreciation, amortization and impairment expense. The Company determined these
assets were impaired due to a reduction in utilization, sustained decreases in key commodity prices as well as a
significant reduction in the capital expenditure programs of key clients. The expected future cash flows range from 6 to
12 years which represents the assets remaining useful lives, and were discounted at a pre-tax rate of 18.9 per cent. The
growth rate used to extrapolate cash flow projections was 2 per cent. After recognizing this impairment, the recoverable
amount of these assets was $19 million at December 31, 2017. This amount was determined using value in use. If the
utilization rate had decreased by 10 per cent, the impairment would have increased by $4 million.

14. 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 15). A reconciliation of the changes in the
carrying amount of intangible assets is as follows:

Computer
Software

Land
Rights

Other

Total

Cost

December 31, 2015

Additions

Retirements

December 31, 2016

Additions

Retirements

December 31, 2017

Accumulated amortization

December 31, 2015

Amortization

Retirements

December 31, 2016

Amortization

Retirements

December 31, 2017

Net book value

December 31, 2016

December 31, 2017

529

—

608

(21)

662

315

—

367

(21)

397

241

265

302

(2)

324

(1)

346

—

(1)

285

303

—

(6)

—

(1)

(6)

(1)

864

103

(8)

959

(23)

1,034

362

(6)

413

(23)

447

546

587

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 138

15. GOODWILL

The carrying value of goodwill for the Electricity and Pipelines & Liquids segments is shown below.

Electricity

Pipelines & Liquids

Carrying value

2017

2016

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
11.2 and 16.0 (2016 - 9.1 and 17.1) and price-to-earnings value of 18.7 and 22.3 (2016 - 16.8 and 24.3) 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.

16. RECEIVABLE UNDER SERVICE CONCESSION ARRANGEMENT

In December 2014, Alberta PowerLine (APL), a partnership between Canadian Utilities Limited, a subsidiary of the
Company, and Quanta Services 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 (Transmission Project).

The Transmission 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 Transmission 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 complete. Construction commenced in 2017 and the Transmission Project is
anticipated to be in service in 2019. The receivable due from the AESO was $593 million at December 31, 2017 (2016 -
$77 million). Payments will commence once the asset is in service. Contracted undiscounted cash flows from the
Transmission Project are expected to be $3.7 billion.

In October 2017, APL issued non-recourse long-term debt to fund the Transmission Project activities (see Note 20).

Revenues, service concession arrangement costs and operating profit for the year ended December 31, 2017, are
$516 million, $456 million and $60 million, respectively (2016 - $77 million, $69 million and $8 million).

17. SHORT-TERM DEBT

At December 31, 2017, the Company had borrowed $10 million of short-term debt under its short-term committed
credit facilities at an interest rate of 3.20 per cent maturing in June 2018. (2016 - $55 million of commercial paper at an
interest rate of 0.89 per cent, maturing in January 2017).

139 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

18. 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, natural gas storage facilities 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, 2015

Additions

Utilized in the year

Reversals of unused amounts

Accretion expense

Revisions in discount rate

Foreign exchange rate adjustment

December 31, 2016

Additions

Utilized in the year

Reversals of unused amounts

Accretion expense

Revisions in discount rate

December 31, 2017

Less: current portion

Long-term portion

ASSET RETIREMENT OBLIGATIONS

Asset
Retirement
Obligations
162

(1)

(12)

(9)

(2)

163

(5)

—

(6)

155

128

Other

(45)

(12)

—

(11)

(1)

—

Total

233

(46)

(24)

(9)

(2)

182

(16)

(1)

(6)

168

130

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 2018 and 2261. The weighted average pre-tax, risk-free discount rate used to
calculate the fair value of the AROs at December 31, 2017 was 2.72 per cent (2016 - 2.71 per cent).

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 140

19. LONG-TERM DEBT

Long-term debt outstanding at December 31 is as follows:

CU Inc. debentures - unsecured

Effective
Interest Rate

4.881% (2016 - 4.982%)

(Interest is the average effective interest rate weighted by principal amounts outstanding)

CU Inc. other long-term obligation, due December 2019 - unsecured (1)
Canadian Utilities Limited debentures - unsecured,

3.122% due November 2022

3.200%

3.187%

2017

7,605

200

2016

7,325

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, $74 million AUD (2016 - $79 million AUD) (2)

ATCO Gas Australia Limited Partnership credit facility, payable in

Australian dollars, at BBSY Rates, due December 2019,
$250 million AUD (2016 - $250 million AUD) (2)

ATCO Gas Australia Limited Partnership revolving credit facility, payable

in Australian dollars, at BBSY Rates, due December 2019,
$427 million AUD (2016 - $427 million AUD) (2)

ATCO Structures & Logistics credit facility, at BA Rates, due

Floating (3)

244

243

Floating (3)

417

414

November 2020 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 (2)

Floating

Less: deferred financing charges

Less: amounts due within one year

BBSY - Bank Bill Swap Benchmark Rate

BA - Bankers’ Acceptance

(43)

8,557
(5)
8,552

—

(42)

8,220
(155)
8,065

(1) During 2017, the expiry date of the CU Inc. other long-term obligation was extended from June 2018 to December 2019.

(2)

The above interest rates have additional margin fees at a weighted average rate of 1.28 per cent (2016 - 1.14 per cent). The margin fees are subject to
escalation.

(3)

Floating interest rates have been partially or completely hedged with interest rate swaps (see Note 25).

DEBENTURE ISSUANCES

During 2017, CU Inc. issued $430 million of 3.548 per cent debentures maturing on November 22, 2047 (2016 -
$375 million of 3.763 per cent debentures maturing on November 19, 2046).

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 $465 million at
December 31, 2017 (2016 - $566 million).

141 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

20. NON-RECOURSE LONG-TERM DEBT

Non-recourse long-term debt outstanding at December 31 is comprised of project financing received by ATCO Power
and Alberta PowerLine, and is as follows:

Project Financing

ATCO Power:

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

Alberta PowerLine:

Series A Bonds, at fixed rate of 4.065%, due to 2053

Series B Bonds, at fixed rate of 4.065%, due to 2054

Series C Bonds, at fixed rate of 3.351%, due to 2032

Series D Bonds, at fixed rate of 3.340%, due to 2032

Less: deferred financing charges

Less: amounts due within one year

Alberta PowerLine

Effective
Interest Rate

2017

2016

8.950%

8.240%

7.840%

7.870%

7.890%

4.277%

4.274%

3.690%

3.679%

549

548

144

(54)

1,416

(15)

1,401

—

(1)

(14)

In October 2017, Alberta PowerLine issued long-term debt consisting of $1,385 million Senior Secured Nominal
Amortizing Bonds. This long-term debt is non-recourse to the Company. The financing was issued by way of a private
placement. The net proceeds of $1,332 million will be used to fund the construction of the Fort McMurray 500 kV
Transmission Project (see Note 16).

Immediately on completion of the financing, the net proceeds were transferred to an escrow account, and are released
as the Transmission Project progresses, subject to satisfaction of certain performance conditions under the financing
agreement. Of the net proceeds from the financing, $965 million is included in restricted project funds (see Note 10).

Principal payments on the Bonds will commence in 2019 when the Transmission Project is operational, and will be made
on a fixed amortization schedule until the Bonds maturity dates. Interest on Series A and Series D Bonds is due semi-
annually in arrears on June 1 and December 1, of each year, commencing on December 1, 2017. Interest on Series B and
Series C Bonds is due semi-annually in arrears on March 1 and September 1, of each year, commencing on
March 1, 2018.

Pledged assets

ATCO Power's 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, 2017, was $374 million (2016 - $381 million). The Cory and Muskeg projects are accounted for as finance
lease receivables.

Alberta PowerLine's non-recourse long-term debt is secured by charges on the Transmission Project's assets and by an
assignment of the Transmission Project's cash flow, bank accounts, outstanding contracts and agreements.

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 142

21. 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 of Directors of Canadian Utilities Limited 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.

143 ATCO LTD. 2017 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 (1)

Return on plan assets, excluding amounts included

in interest income

Foreign exchange rate adjustment

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
TPL (1)
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

2017

2016

2,674

100

(113)

—

2,775

—

2,728

106

(125)

(69)

(9)

2,674

—

2,889

117

2,918

117

111

(113)

(7)

—

114

—

3,024

—

(5)

—

114

(125)

(7)

(69)

(9)

119

2,889

249

119

215

—

(4)

—

(2)

—

117

(1) The Company's subsidiary, Thames Power Limited (TPL), 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. 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 were removed from the Company's retirement benefit obligations at December 31, 2016.

(2) The non-registered, non-funded defined benefit pension plans accrued benefit obligations increased to $161 million at December 31, 2017 due to a decrease in
the liability discount rate partially offset by experience adjustments (2016 - decreased to $145 million due to experience adjustments partially offset by a
decrease in the liability discount rate).

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 144

BENEFIT PLAN COST

The components of benefit plan cost are as follows:

Current service cost

Interest cost

Interest income

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 on plan assets from:

Return on plan assets, excluding amounts included
in net interest expense

(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
29

111

(100)

2017

OPEB Plans

—

Pension
Benefit Plans
33

114

(106)

2016

OPEB Plans

—

2017

2016

Pension
Benefit Plans

OPEB Plans

Pension
Benefit Plans

OPEB Plans

(135)

(114)

(28)

—

(4)

(1)

—

(54)

(33)

(21)

—

(3)

—

(1) Losses net of income taxes were $21 million for the year ended December 31, 2017 (2016 - $16 million).

145 ATCO LTD. 2017 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

2016

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

Accrued interest and

dividends receivable

2017

243
352
137

—

732

862

632

—

254
313
221
11
799

882

670

53
46
1,651

43
196
239

1,545

—

86
2,775

3
100

83
2,360

254
313
221

—

788

882

670

—

1,605

—

86
2,479

—

11
11

—

46
46

43
196
239

—

296

—

13
13

—

54
54

60
187
247

—

314

243
352
137
13
745

862

632

51
54
1,599

60
187
247

83
2,674

3
100

(1) The land and building are occupied by the Company.

At December 31, 2017, plan assets include Class A non-voting shares of Canadian Utilities Limited having a market value
of $8 million (2016 - $8 million) and Class I Shares of the Company having a market value of $9 million (2016 - $10
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 2018 is $27 million. The next actuarial valuation for funding
purposes must be completed as of December 31, 2018.

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 146

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

2017

2016

3.90%

1.50%

3.60%

2.00%

n/a

3.90%

n/a

3.60%

n/a

5.43%

4.50%

4.00%

4.10%

1.50%

3.90%

2.00%

n/a

4.10%

n/a

3.90%

n/a

5.57%

4.50%

4.00%

(1)

(2)

The assumed average compensation increase is 1.50 per cent for 2017 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 13.5 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 a diversified portfolio offers an appropriate risk-
return profile, the Company continues to invest in equity securities, global fixed income and Canadian real estate in
addition to Canadian fixed income. 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.

147 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

Life expectancy

Should pensioners live longer than assumed, benefit obligations and liabilities will be larger than expected.

SENSITIVITIES

The 2017 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

10%

(370)

417

461

(20)

(344)

(9)

(71)

(7)

—

(5)

(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.

22. DEFERRED REVENUES

Deferred revenues from customer contributions and other sources are as follows:

Customer contributions

Other

CUSTOMER CONTRIBUTIONS

2017
1,676

—

1,676

2016
1,687

1,689

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

Derecognition on transition to finance lease (Note 11)

Amortization

End of year

2017
1,687

(16)

(56)

1,676

2016
1,647

104

—

(64)

1,687

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 148

23. 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, 2017 is
shown below.

AUTHORIZED AND ISSUED

Authorized:
Issued and outstanding:

December 31, 2015

Purchased and canceled
Stock options exercised
Converted: Class II to Class I
December 31, 2016
Purchased and canceled
Stock options exercised
Converted: Class II to Class I
December 31, 2017

Class I Non-Voting

Shares
300,000,000

Amount

Shares
50,000,000

Class II Voting

Amount

Shares
350,000,000

Total

Amount

101,451,223

(460,000)
89,000
141,100
101,221,323
(35,000)
41,500
100,450
101,328,273

175

13,573,005

(1)
3

—

177

—

179

—

(141,100)
13,431,905

—

(100,450)
13,331,455

—

115,024,228

177

(460,000)
89,000

—

114,653,228
(35,000)
41,500

—

(1)
3

—

179

—

114,659,728

181

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

114,659,728

181

114,653,228

Shares held in trust for the mid-term incentive plan

(329,504)

(14)

(300,824)

Shares outstanding, net of shares held in trust

114,330,224

167

114,352,404

179

(12)

167

2017

2016

Amount

DIVIDENDS

The Company declared and paid cash dividends of $1.3100 per Class I and Class II Share during 2017 (2016 - $1.1400).
The Company’s policy is to pay dividends quarterly on its Class I and Class II Shares. The payment and amount of any
quarterly dividend is at the discretion of the Board and depends on the financial condition of the Company and other
factors.

On January 11, 2018, the Company declared a first quarter dividend of $0.3766 per Class I and Class II Share.

149 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

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.

NORMAL COURSE ISSUER BID

On March 8, 2017, ATCO Ltd. began a normal course issuer bid to purchase up to 3,037,065 outstanding Class I Shares.
The bid expires on March 7, 2018. On March 1, 2016, ATCO Ltd. began a 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, 2017, 35,000 shares were purchased for $2 million, resulting in no impact to share
capital and a decrease to retained earnings of $2 million. (2016 - 460,000 shares were purchased for $18 million,
resulting in a decrease to share capital and retained earnings of $1 million and $17 million, respectively).

24. CASH FLOW INFORMATION

ADJUSTMENTS TO RECONCILE EARNINGS TO CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile earnings to cash flows from operating activities are summarized below.

Depreciation, amortization and impairment

Gain on sale of joint operation

Earnings from investment in joint ventures, net of dividends and distributions received

Income taxes

Unearned availability incentives

Unrealized losses (gains) on mark-to-market forward commodity contracts

Contributions by customers for extensions to plant

Amortization of customer contributions

Net finance costs

Income taxes paid

Other

2017
670

—

163

(8)

123

(56)

406

(80)

2016
615

(18)

(1)

258

(14)

(7)

104

(64)

380

(63)

1,351

1,237

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 150

CHANGES IN NON-CASH WORKING CAPITAL

The changes in non-cash working capital are summarized below.

2017

2016

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

(114)

(11)

(10)

133

(1)

(3)

—

DEBT RECONCILIATION

The reconciliation of the changes in debt for the year ended December 31 is shown below.

Short-term
debt

Long-term
debt

Non-recourse
debt

(9)

(68)

(45)

(1)

(2)

(135)

(137)

Total

8,055

346

(28)

(3)

8,373

1,659

(57)

7,943

306

(28)

(3)

8,220

333

(3)

112

(15)

—

1,371

—

(54)

8,557

1,416

9,983

Liabilities from financing activities

December 31, 2015

Net issue (repayment) of debt

Foreign currency translation

Debt issue costs

Amortization of deferred financing charges

December 31, 2016

Net issue (repayment) of debt

Foreign currency translation

Debt issue costs

Amortization of deferred financing charges

December 31, 2017

—

(45)

—

151 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

CASH POSITION

Cash position in the consolidated statement of cash flow at December 31 is comprised of:

Cash

Short-term investments
Restricted cash (1)
Cash and cash equivalents

Bank indebtedness

2017
443

501

(7)

494

2016
563

606

(5)

601

(1) Cash balances which are restricted under the terms of joint arrangement agreements are considered not available for general use by the Company.

25. 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

Fair Value Method

Measured at Amortized Cost

Cash and cash equivalents, accounts receivable,
restricted project funds, 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 Determined using quoted market prices for the same or

Measured at Fair Value

Interest rate swaps

Foreign currency contracts

Commodity contracts

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).

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 152

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

FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE

December 31, 2017

December 31, 2016

Note

Carrying
Value

Fair
Value

Carrying
Value

Fair
Value

410

593

8,557

1,416

568

593

9,737

1,562

314

8,220

433

9,139

114

The Company's derivative instruments are measured at fair value. At December 31, 2017, 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 are as follows:

Recurring Measurements

December 31, 2017

Financial Assets

Prepaid expenses and other current assets

Other assets

Financial Liabilities
Other current liabilities (1)
Other liabilities (1)

December 31, 2016

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

Foreign
Currency
Forward
Contracts

Total Fair Value
of Derivatives

—

(1)

As at December 31, 2017, the Company paid a total of $54 million of cash collateral to third parties on commodity forward positions related to future periods.
The contracts held with these third parties have an enforceable master netting arrangement, which allows the right to offset.

153 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

During the year ended December 31, 2017, losses before income taxes of $41 million million were recognized in other
comprehensive income (OCI) (2016 - gains of $9 million) and $2 million was reclassified to the statement of earnings
(2016 - $1 million).

No hedge ineffectiveness was recognized in the statement of earnings during 2017 (2016 - $4 million). Over the next
12 months, the Company estimates that losses before income taxes of $12 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 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)

December 31, 2017
Purchases (3)
Sales (3)

Currency

Canadian dollars

Australian dollars

U.S. dollars

Maturity

December 31, 2016
Purchases (3)
Sales (3)

Currency

Canadian dollars

Australian dollars

U.S. dollars

Maturity

—

749

—

19,237,000

—

85,926,700

7,326,745

—

1,731,365

27,445,800

14,101,265

—

2020

2018-2021

2018-2020

2018-2021

2018-2020

—

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

(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

—

129

2018

—

2017

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 154

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

2017

Financial Assets
Derivative assets (1)
Accounts receivable

Financial Liabilities
Derivative liabilities (1)

2016

Financial Assets
Derivative assets (1)
Accounts receivable

Financial Liabilities
Derivative liabilities (1)

204

151

—

(66)

(54)

—

(19)

—

138

—

(1)

—

(1)

—

(19)

—

138

(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.

26. 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.

155 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

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 99 per cent
(2016 - 100 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 $1 million. This
analysis has been determined based on the exposure to interest rates for financial instruments outstanding at
December 31, 2017.

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
2

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, 2017.

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.

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 $2 million and $7 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.

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 156

CREDIT RISK

Credit risk is the risk of financial loss due to a counterparty's 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

2017
4

(1)

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

2017
35

2016
8

—

(4)

2016
19

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, 2017, the Company held $217 million in letters of credit for certain counterparty receivables (2016 -
$233 million). The Company did not take possession of any collateral it holds as security in 2017 and 2016. The Company
has also entered into guarantee arrangements with Centrica plc. relating to the retail energy supply functions performed
by Direct Energy (see Note 33).

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,

157 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

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
2,540

165

575

3,280

Used
563

346

926

2017

Available
1,977

148

229

2,354

Total
2,687

324

3,089

Used
516

137

662

2016

Available
2,171

187

2,427

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 17)

Long-term debt (Note 19)

Letters of credit

Commercial paper

2017
7

475

434

926

2016
5

414

188

662

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, 2017 of the Company's financial
liabilities based on the contractual undiscounted cash flows.

2019

2020

2021

2022

2023 and
thereafter

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)

2018

891

399

—

1,150

380

1,469

1,661

—

220

344

676

—

160

331

582

—

325

315

—

6,740

6,423

1,335

1,009

—

727

15,507

(1)

Interest payments on floating rate debt have been estimated using rates in effect at December 31, 2017. 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, 2017.

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 158

27. 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 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 (loss) income

Non-controlling interests

Total equity

Total capitalization

Debt capitalization

2017
7

8,557

1,416

9,990

167

3,418

(2)

3,634

7,227

17,217

2016
5

8,220

8,378

167

3,345

3,653

7,199

15,577

58%

54%

For the year ended December 31, 2017, 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.

159 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

28. 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.

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 160

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 and 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 21.

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.

161 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

29. SUBSIDIARIES

Principal operating subsidiaries are listed below. Subsidiaries are wholly owned, unless otherwise indicated.

Principal Operating Subsidiaries

ATCO Structures & Logistics (1)

Canadian Utilities Limited (2)

ATCO Power
Alberta PowerLine (3)
ATCO Energy Solutions

ATCO Gas Australia
ATCO Power Australia
ATCO Energy
CU Inc.

ATCO Electric

ATCO Gas
ATCO Pipelines

Principal Place
of Business

Canada

Canada
Canada
Canada
Canada

Australia
Australia
Canada
Canada
Canada

Canada
Canada

Principal Activity

Workforce housing, modular facilities, construction, site support
services and logistics and operations management.

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
Holding company
Electricity transmission, distribution and related infrastructure
development

Natural gas distribution and related infrastructure development
Natural gas transmission and related infrastructure development

(1) On December 31, 2017, Canadian Utilities Limited transferred its 24.5 per cent ownership in ATCO Structures & Logistics to ATCO Ltd.. As a result, at

December 31, 2017, ATCO Ltd. has 100.0 per cent ownership interest in ATCO Structures & Logistics.

(2) At December 31, 2017, ATCO Ltd. has an ownership interest of 52.6 per cent (2016 - 52.8 per cent).

(3) At December 31, 2017 and 2016, Canadian Utilities Limited has an ownership interest of 80.0 per cent.

30. 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

JOINT VENTURES

Operating
Jurisdiction

Canada

Ownership % Principal Activity

50.0

40.0

50.0

70.0

Electricity generation

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

Operating
Jurisdiction

Canada

Australia

Strathcona Storage Limited Partnership

Pipelines & Liquids

Canada

Sabinco Soluciones Modulares S.A.

Structures & Logistics Chile

Ownership % Principal Activity

50.0

60.0

50.0

Electricity generation

Hydrocarbon storage

Modular structures

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 162

Aggregate information for the Company’s interest in joint ventures is shown below.

Earnings for the year

Other comprehensive income

Comprehensive income for the year

Dividends received

Aggregate carrying amount of interests in joint ventures

Investment in joint ventures

2017

2016

—

245

239

In 2017, the Company contributed $7 million to the Strathcona Storage Limited Partnership, which is developing salt
caverns for hydrocarbon storage (2016 - $59 million).

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. Sabinco operates 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.

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 $141 million at December 31, 2017.

Restrictions

The Company requires approval from its joint venture partners before any dividends or distributions can be paid.

163 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

31. 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

2017

47.4

10.5

61.2

2016

47.2

10.7

61.1

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 Flow

Cash flows from operating activities

Cash flows used in investing activities

Cash flows used in financing activities

Increase (decrease) in cash position

Dividends paid to NCI

Class A and Class B share owners

Equity preferred shares

2017

2016

4,027

490

428

259

229

3,399

629

580

335

313

2,040

18,785

(948)

985

17,796

(892)

(13,415)

(11,469)

6,462

3,634

1,312

(1,018)

(217)

124

198

6,420

3,653

1,622

(1,456)

(341)

(175)

112

187

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 2017, non-controlling interests acquired 1,525,948 Class A non-voting shares of Canadian Utilities Limited, using
re-invested dividends of $58 million (2016 - 1,484,241 shares using re-invested dividends of $52 million). The shares
were priced at an average of $37.70 per share (2016 - $35.01 per share).

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 164

EQUITY PREFERRED SHARES

Equity preferred shares held by non-controlling interests at December 31 are shown below.

CU Inc. Equity Preferred Shares

Cumulative Redeemable Preferred Shares, at 2.243% to 4.60% (1)

Canadian Utilities Limited Equity Preferred Shares

Cumulative Redeemable Second Preferred Shares, at 3.403% to 5.25% (2)
Perpetual Cumulative Second Preferred Shares, at 4.60% (3)

Issuance costs

2017

190

1,400

110

(30)

1,670

2016

190

1,400

110

(30)

1,670

(1) Effective June 1, 2016, the annual dividend rate for the Series 4 Preferred Shares was reset to 2.243 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.

(2) Effective June 1, 2017, the annual dividend rate for the Series Y Preferred Shares was reset to 3.403 per cent for the next five years. Prior to June 1, 2017, the

annual dividend rate was 4.00 per cent.

(3) Effective October 3, 2017, the annual dividend rate for the Series V Preferred Shares was reset to 4.60 per cent for the next five years. Prior to October 3, 2017,

the annual dividend rate was 4.00 per cent.

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

0.2875
25.00
0.1401875
25.00
Cumulative Redeemable Second Preferred Shares
0.2126875
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

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, 2022 (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)

Perpetual Cumulative Second Preferred Shares

Series V

25.00

0.2875

No premium Currently redeemable Not convertible

(1)

(2)

Plus accrued and unpaid dividends.

Cumulative, payable quarterly as and when declared by the Board.

(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.

165 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

32. 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

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

$45.14 - $48.82

$50.33 - $51.97

$22.94 - $51.97

Number
Outstanding

112,000

118,750

153,150

84,650

181,750

79,750

730,050

2017

Weighted
Average
Exercise Price

$36.26

48.80

28.98

46.36

Options

10,200,000

2,732,750

678,100

86,750

(89,000)

(4,500)

$38.42

671,350

Options

10,200,000

2,632,550

671,350

108,000

(41,500)

(7,800)

730,050

462,250

$33.97

422,050

Weighted
Average
Remaining
Contractual Life
0.2

Outstanding

Weighted
Average
Exercise Price

$22.94

Number
Exercisable

112,000

118,750

86,350

67,300

32,700

45,150

26.33

37.23

44.96

47.93

51.89

2.5

6.4

5.3

8.4

6.8

5.2

$38.42

462,250

$33.97

2016

Weighted
Average
Exercise Price

$34.49

39.17

25.17

45.19

$36.26

$31.61

Exercisable

Weighted
Average
Exercise Price

$22.94

26.33

35.91

44.96

46.92

51.96

Compensation expense related to stock options was less than $1 million in each of 2017 and 2016, with a corresponding
increase to contributed surplus.

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 166

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

$45.14 - $48.82

$50.33 - $51.97

$22.94 - $51.97

Number
Outstanding

12,000

116,750

161,150

100,650

218,750

93,750

703,050

2017

Weighted
Average
Exercise Price

$37.04

48.86

25.21

41.54

$41.57

SARs

739,850

130,000

(147,000)

(19,800)

703,050

SARs

790,500

102,750

(123,900)

(29,500)

739,850

358,250

$37.08

419,550

Weighted
Average
Remaining
Contractual Life
0.2

Outstanding

Weighted
Average
Exercise Price

$22.94

Number
Exercisable

12,000

116,750

84,350

67,300

32,700

45,150

26.29

37.36

44.95

47.90

51.85

2.5

6.5

5.4

8.3

6.5

6.1

$41.57

358,250

$37.08

2016

Weighted
Average
Exercise Price

$35.19

39.47

26.05

42.09

$37.04

$31.66

Exercisable

Weighted
Average
Exercise Price

$22.94

26.29

35.93

44.96

46.92

51.96

In 2017, compensation expense related to SARs was $1 million (2016 - $3 million). The total carrying value of liabilities
arising from SARs at December 31, 2017 was $4 million (2016 - $6 million). The total intrinsic value of all vested SARs at
December 31, 2017 was $3 million (2016 - $6 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
$48.80

1.22%

16.95%

2.68%

2017

SARs
$48.86

1.21%

13.49%

2.68%

Expected holding period prior to exercise

7.2 years

6.0 years

Options
$39.17

0.73%

25.65%

2016

SARs
$39.47

0.72%

20.87%

2.91%
7.1 years

2.89%
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.

167 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

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

2017

Weighted
Average
Grant Date
Fair Value
$46.32

49.58

51.03

50.09

—

$46.36

MTIPs

300,824

123,050

(5,227)

(94,085)

4,942

329,504

MTIPs

306,987

103,118

(7,000)

(101,380)

(901)

300,824

(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
$45.14 - $49.60
$50.33 - $53.79
Unallocated shares
$37.05 - $53.79

Number
Outstanding

53,891
33,668
180,824
30,143
30,978
329,504

Weighted
Average
Remaining
Contractual Life
1.2
1.0
1.4
2.4

—

1.4

2016

Weighted
Average
Grant Date
Fair Value
$47.94

41.76

52.79

45.73

—

$46.32

Outstanding

Weighted
Average
Grant Date
Fair Value
$38.90
42.85
48.51
50.67

—

$46.36

Compensation expense related to MTIP grants was a credit of $3 million for 2017 (2016 - credit of less than $1 million)
with a corresponding decrease to contributed surplus.

The Company, through a trustee, purchased 35,550 shares during 2017 to be distributed to employees on vesting of the
awards (2016 - nil).

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 168

33. 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.

34. 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:

Operating leases

Purchase obligations:

Coal purchase contracts

Operating and maintenance agreements

Construction activities related to Fort
McMurray 500 kV Transmission project
(Note 16)
Capital expenditures

Other

2018

303

543

1,000

2019

277

221

—

581

2020

132

—

2021

130

—

2022

129

—

2023 and
thereafter

117

298

—

215

214

162

453

169 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

35. RELATED PARTY TRANSACTIONS

TRANSACTIONS WITH SUBSIDIARY

During the year ended December 31, 2017 the Company acquired 862,822 Class A non-voting shares of Canadian
Utilities Limited under its DRIP, using re-invested dividends of $32 million. The shares were priced at an average of
$37.62 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 $5 million relating to
management fees and other charges (2016 - $10 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 (2016 - $8 million).

The Company received $1 million (2016 - nil) in electricity and gas sales revenue and incurred $2 million in advertising,
promotion and other expenses from entities related through common control (2016 - $2 million).

KEY MANAGEMENT COMPENSATION

Information on management compensation is shown below.

Salaries and short-term employee benefits

Retirement benefits

Share-based compensation

2017
12

2016
7

Key management personnel comprise members of executive management and the Board, a total of 18 individuals
(2016 - 17 individuals).

36. SUBSEQUENT EVENT

In December 2017, the Company announced it had entered into an agreement to acquire a 100 per cent ownership
interest in Electricidad del Golfo (EGO) for aggregate consideration of approximately $114 million. EGO owns a long-term
contracted, 35 megawatt hydroelectric power station based in Veracruz, Mexico.

The acquisition closed on February 20, 2018. The fair value calculation of the major classes of assets acquired and
liabilities assumed will be completed in the first quarter of 2018.

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 170

37. 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

171 ATCO LTD. 2017 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. 2017 CONSOLIDATED FINANCIAL STATEMENTS 172

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.

173 ATCO LTD. 2017 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

28 to 65 years
10 to 103 years
3 to 80 years
3 to 120 years

3 to 40 years
5 to 47 years
50 years
5 to 55 years

12 to 17 years
1 to 74 years

49 years
40 years
42 years
41 years

20 years
39 years
50 years
31 years

19 years
26 years

2.0%
2.5%
2.4%
2.5%

5.1%
2.6%
2.2%
3.2%

5.2%
3.8%

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. 2017 CONSOLIDATED FINANCIAL STATEMENTS 174

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.

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.

175 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 176

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.

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

177 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

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.

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,

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 178

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

2017
1.252

0.9783

2016
1.3427

0.9707

2017
1.298

0.9947

2016
1.3256

0.9854

179 ATCO LTD. 2017 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.

Effective Date
Effective for annual periods
on or after January 1, 2018.

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 completed as of the
effective date. The Company has applied the full retrospective
transition method.

The Company is party to numerous contracts with customers that
will be impacted by the new standard.

Under IFRS 15, the timing and amount of revenue recognition for
certain non-regulated contracts in the Electricity global business
unit will be significantly impacted by the new revenue recognition
model. Under IFRS 15, the Company will also be assessed as an
agent for certain revenue streams in the Corporate & Other
segment, resulting in these revenues being recorded net of related
costs. The following transitional adjustments are expected to have a
material effect on the Company's financial statements:

• Decrease to retained earnings of approximately $76

million, non-controlling interests of approximately $68
million and deferred income tax liabilities of approximately
$54 million, at January 1, 2017, with a corresponding
increase of $198 million to deferred revenues. This is due
to the reversal of revenues previously recognized that will
be instead recognized in earnings in future years, up to
and including 2043. As a result, revenues will increase by
approximately $42 million ($16 million after tax and non-
controlling interests) for the year ended
December 31, 2017. Included in these revenues are
revenues of approximately $38 million ($15 million after
tax and non-controlling interests) which relate to the sale
of electricity generation asset on transition to finance lease
(see Note 11).

•

Increase to revenues of approximately $79 million during
the year ended December 31, 2017, with an offsetting
increase to costs and expenses and interest expense, due
to recognition of non-cash consideration and a financing
component on deferred revenues, respectively.

• Decrease to revenues with an offsetting decrease to costs
and expenses during the year ended December 31, 2017,
of approximately $61 million, due to the agent
classification of certain charges collected from customers
on behalf of distribution and transmission service
providers.

ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS 180

Standard
IFRS 9 (2014)
Financial
Instruments

IFRS 16 Leases

Description
This final standard replaces IAS 39 Financial Instruments:
Recognition and Measurement and previous versions of IFRS 9. It
incorporates IFRS 9 (2013), with a further classification category for
financial assets, and includes a new impairment model for financial
instruments.

The Company early adopted two out of three components of this
standard (Classification and Measurement and Hedge Accounting) on
January 1, 2015. The Company adopted the final component,
Impairments, on January 1, 2018. This component includes a new
expected credit loss model for calculating impairment on financial
assets and replaces the current incurred loss impairment model.
The new standard will increase bad debt provisioning for all trade
receivables, however the impact is not expected to be material due
to current provisioning procedures, the low credit risk with current
counterparties, and collateral and parental guarantee
arrangements in place for the Company's significant receivables.

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. Lessor accounting under the new standard retains
similar classifications to the previous guidance, however the new
standard may change the accounting treatment of certain
components of lessor contracts and sub-leasing arrangements.

The Company is currently assessing the impact of the new
standard.

Effective Date
Effective for annual periods
on or after January 1, 2018.

Effective for annual periods
on or after January 1, 2019.
The Company will not early
adopt this standard.

181 ATCO LTD. 2017 CONSOLIDATED FINANCIAL STATEMENTS

182

2017 PERFORMANCE

CONSOLIDATED ANNUAL RESULTS (1)

(Millions of Canadian dollars, except as indicated)

2017

2016

2015

2014

2013

EARNINGS STATEMENT
Revenues
Earnings attributable to Class I and Class II shares
Adjusted earnings (2)

- Structures & Logistics
- Electricity
- Pipelines & Liquids
- Corporate & Other and eliminations

Adjusted earnings (2)

BALANCE SHEET
Cash (3)
Total assets
Capitalization

- Bank indebtedness
- Short-term debt
- Long-term debt
- Non-recourse long-term debt
- Non-controlling interests
- Share owners’ equity

Capitalization

CASH FLOW STATEMENT
Funds generated by operations (4)
Capital expenditures (5)
- Structures & Logistics
- Electricity
- Pipelines & Liquids
- Corporate & Other and eliminations

Capital expenditures

PER SHARE DATA
Earnings per share ($)
Adjusted earnings per share ($)
Dividends paid per share ($)
Equity per share ($)
Class I Non-Voting closing share price ($)
Class II Voting closing share price ($)

4,541
203

4,045
340

4,131
154

4,554
420

4,359
418

6
210
144
(25)
335

43
213
136
(32)
360

27
171
101
(6)
293

67
195
106
6
374

96
206
83
5
390

494
21,775

601
19,724

799
19,055

590
17,689

741
16,010

7
10
8,557
1,416
3,634
3,593
17,217

5
55
8,220
98
3,653
3,546
15,577

1
-
7,943
112
3,537
3,356
14,949

5
-
7,256
127
3,112
3,168
13,668

2
-
6,230
165
3,153
2,860
12,410

1,813

1,912

1,589

1,786

1,854

33
454
777
84
1,348

1.78
2.93
1.31
31.34
45.00
44.90

70
572
734
75
1,451

2.97
3.15
1.14
30.93
44.66
44.78

61
935
824
48
1,868

1.34
2.55
0.99
29.18
35.70
35.50

91
1,622
620
40
2,373

3.66
3.26
0.86
27.51
47.66
47.75

116
1,810
521
71
2,518

3.64
3.40
0.75
24.84
46.66
46.35

Full disclosure of all financial information is available on the SEDAR website - www.sedar.com.

(1) Financial results have been prepared in
accordance with International Financial
Reporting Standards (IFRS).

(2) Adjusted earnings are earnings attributable to
Class I & Class II shares after adjusting for the
timing of revenues and expenses associated
with rate-regulated activities and unrealized
gains or losses on mark-to-market forward
commodity contracts. 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. Descriptions of the
adjustments are provided in the Segmented
Information note of the Financial Statements.

in non-cash working capital and change
in receivable under service concession
arrangement. This measure is not defined by
IFRS and GAAP and may not be comparable to
similar measures used by other companies.

(3) Cash is defined as cash and cash equivalents

(5) Includes purchases of property, plant

less current bank indebtedness.

(4) Funds generated by operations is defined as
cash flow from operations before changes

and equipment and intangibles, including
capitalized interest.

183 CONSOLIDATED ANNUAL RESULTS

2017 PERFORMANCE

CONSOLIDATED OPERATING SUMMARY

(Millions of Canadian dollars, except as indicated)

2017

2016

2015

2014

2013

Structures & Logistics
Capital expenditures (1)
Workforce housing lease fleet (units in thousands)
Workforce housing lease fleet utilization (%)
Space rental lease fleet (units in thousands)
Space rental lease fleet utilization (%)

33
4
37
13
70

70
5
38
14
64

61
3
51
13
68

91
3
77
13
75

116
3
83
13
77

Electricity
Electricity distribution and transmission operations
Capital expenditures (1)
Power lines (thousands of kilometres)
Electricity distributed (millions of kilowatt hours)
Average annual use per residential customer (kWh)
Customers at year-end (thousands)
Electricity generation operations
Capital expenditures (1)
Generating capacity (megawatts)
Generating capacity owned (megawatts)
Availability (%)

438
87
11,961
7,325
256

24
3,887
2,482
94

470
88
11,659
7,198
256

102
3,870
2,473
93

850
87
11,832
7,476
256

85
3,857
2,462
93

1,602
86

1,763
86
11,600 11,283
7,743
248

7,815
252

20
3,890
2,479
95

47
4,890
2,734
94

Pipelines & Liquids
Natural gas distribution operations
Capital expenditures (1)
Pipelines (thousands of kilometres)
Maximum daily demand (terajoules)
Natural gas distributed (petajoules)
Average annual use per residential customer

(gigajoules) for ATCO Gas

Average annual use per residential customer

(gigajoules) for ATCO Gas Australia
Customers at year-end (thousands)
Natural gas transmission operations
Capital expenditures (1)
Pipelines (thousands of kilometres)

Energy storage & industrial water operations
Capital expenditures (1)
Seasonal natural gas storage capacity (petajoules)
Salt cavern storage capacity (thousands of m3) (2)

Industrial water infrastructure
intake capacity (thousands of m3/day)

(1) Includes purchases of property, plant and equipment and intangibles,

including capitalized interest.

464
55
2,381
287

116

426
55
2,097
263

411
54
2,216
264

371
54
2,269
289

353
54
2,182
275

116

117

1,952

1,924

1,893

1,846

1,802

303
9

10
52
200

282
9

26
52
200

363
9

194
9

147
9

50
52
-

55
46
-

21
44
-

(2) ATCO Energy Solutions, together with a partner, is developing four salt
caverns with capacity to store approximately 400,000 cubic metres of
hydrocarbons. The first two caverns are in service with earnings starting
in the 4th quarter of 2016. The two remaining caverns are expected to be
completed in the 1st quarter of 2018.

CONSOLIDATED OPERATING SUMMARY 184

GENERAL INFORMATION

INCORPORATION

REGISTRAR & TRANSFER AGENT

ATCO Ltd. was incorporated under the laws of the
province of Alberta on August 31, 1962.

Class I Non-Voting and
Class II Voting Shares

ANNUAL MEETING

The Annual Meeting of Share Owners
will be held at 10:00 a.m. on Tuesday,
May 15, 2018, at The Fairmont Palliser Hotel,
133 - 9 Avenue S.W., Calgary, AB.

AUDITORS

PricewaterhouseCoopers LLP
Calgary, AB

LEGAL COUNSEL

Bennett Jones LLP
Calgary, AB

STOCK EXCHANGE LISTINGS

Class I Non-Voting Shares
Symbol ACO.X

Class II Voting Shares
Symbol ACO.Y

Listing: The Toronto Stock Exchange

INVESTOR RELATIONS

Email: investorrelations@atco.com
Telephone: 403-292-7500
Fax: 403-292-7532

Mailing Address:
Investor Relations c/o ATCO
3rd floor, West Building
5302 Forand St SW
Calgary, AB
Canada T3E 8B4

185 2017 ATCO ANNUAL REPORT

AST Trust Company (Canada)
Calgary/Montreal/Toronto/Vancouver

Telephone:
8:00 a.m. to 6:30 p.m. ET
Monday - Friday
Toll-Free in North America:
1-800-387-0825

Outside of North America:
1-416-682-3860

Fax in North America:
1-888-249-6189

Fax Outside of North America:
1-514-985-8843

Email: inquiries@astfinancial.com

www.astfinancial.com

Mailing Address:
AST Trust Company (Canada)
P.O. Box 700
Station B
Montreal QC
Canada H3B 3K3

FSC TO COME
AT PRESS TIME

PRINTED IN CANADA

In recognition of its beautiful Alberta heritage,
ATCO has featured scenes of Alberta in annual
reports since 1990.

COVER: Three large bull elk in the Rocky
Mountains in Alberta’s Banff National Park.

5302 Forand St SW Calgary AB Canada T3E 8B4

T. 403 292 7500 F. 403 292 7623

ATCO.com