ATCO LTD. | 2018 | ANNUAL REPORT
CONTENTS
Our Purpose
Our Integrated Solutions
Corporate Structure
Strategic Priorities
ATCO Ltd. Financial Highlights
Ten-Year Total Return on $100 Investment
Message to Share Owners
Message from the President & Chief Strategy Officer
Corporate Governance
Directors
Executive Leadership Team
Structures & Logistics
Charting a Course Around the World
Energy
Connecting Our Customers to Resources
Ports & Transportation
Investment Positions ATCO for Growth
Investments
Unlocking Hidden Value on the Balance Sheet
Community & Indigenous Partnerships
Building Stronger Communities
Sustainability
Innovative, Sustainable Solutions
Management’s Discussion and Analysis
Financial Statements
Consolidated Annual Results
Consolidated Operating Summary
General information
1
2
6
7
8
9
10
12
14
15
17
19
23
26
27
28
31
33
117
198
199
200
OUR PURPOSE
“ 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.”
1
– R.D. Southern
Founder, ATCO
ATCO provides workforce housing and camp services for BC Hydro’s Site C Two Rivers Lodge in Fort St. John, British Columbia. The site consists of 757
modular units totaling 650,000 square feet.
2018 ATCO ANNUAL REPORT 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, retail
energy, pipelines and
liquids, and ports and
transportation. 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.
STRUCTURES & LOGISTICS
• Relocatable Structures
• Permanent Structures
• Emergency Response
• Operations & Maintenance
• Lodging Services
• Site Services
ENERGY
• Electricity Generation
• Electricity Transmission
• Electricity Distribution
• Natural Gas Distribution
• Natural Gas Transmission
• Energy Storage
• Industrial Water
• Retail Electricity and Natural Gas
(Home & Business)
PORTS & TRANSPORTATION
• Port Facilities
• Port Operations
Services
ATCO INVESTMENTS
• Commercial
Real Estate
VEHICLES
• Electric charging
• Natural gas refueling
ELECTRIC VEHICLE
CHARGING
MUNICIPAL
RETAIL ENERGY
SALES
RE SIDENTI AL
HOMES
• Solar panels
• Micro Combined Heat & Power (mCHP)
• Geothermal
• Home energy management systems
• Electric vehicle charging
ELECTRICITY TRANSMISSION & DISTRIBUTION
POWER GENERATION
INDUSTRIAL
NATURAL GAS TRANSMISSION
& DISTRIBUTION
DISTRIBUTED
GENERATION
ELECTRICITY
GENERATION
SOLAR
LOGISTICS
ENERGY
STORAGE
HYDRO
INDUSTRIAL
WATER
EMERGENCY RESPONSE
OPERATIONS & MAINTENANCE
LODGING SERVICES
SITE SERVICES
RELOCATABLE STRUCTURES
PORTS &
TRANSPORTATION
T
H
I
S
G
E
T
S
T
R
I
M
M
E
D
O
F
F
MEDICAL
FACILITIES
FIREHALLS
SCHOOLS
PERMANENT STRUCTURES
LED STREET LIGHTS
MOBILE OFFICES
2018 ATCO ANNUAL REPORT
CURRENT OPERATIONS
5
Electricity, Pipelines & Liquids,
Structures & Logistics and
Investments
Electricity, Pipelines & Liquids
and Structures & Logistics
Neltume Ports and
Structures & Logistics
Neltume Ports
Structures & Logistics
$23
BILLION IN ASSETS
2M+
GLOBAL CUSTOMERS
100+
COUNTRIES IN OUR
70-YEAR HISTORY
APPROXIMATELY
6,000
EMPLOYEES
F
F
O
D
E
M
M
I
R
T
S
T
E
G
S
I
H
T
8MODULAR BUILDING
MANUFACTURING
FACILITIES
AUSTRALIA - 2
CHILE - 1
CANADA - 2
U.S.A. - 2
MEXICO - 1
* megawatts
** petajoules
*** cubic metres per day
21
POWER PLANTS
WITH A COMBINED
GENERATING CAPACITY SHARE
OF 2,517 MW*
87,000 KM
ELECTRIC POWERLINES
HYDROCARBON STORAGE CAPACITY
400,000M3
64,500KM
52PJ NATURAL GAS SEASONAL
85,200M3/D
NATURAL GAS PIPELINES
STORAGE CAPACITY**
WATER INFRASTRUCTURE CAPACITY***
PORT FACILITIES
16
3
PORT OPERATIONS
SERVICES
BUSINESSES
CORPORATE STRUCTURE
ATCO is a $23 billion enterprise operating globally with a diverse
portfolio in four segments that positions us to deliver essential
services to our global customers: ATCO Structures & Logistics,
Canadian Utilities Limited, ATCO Investments and Neltume Ports.
At the heart of our business are 6,000 employees, carrying
forward more than seven decades of innovation and service
excellence in solving our clients’ challenges, big and small—from
major infrastructure projects to home energy delivery.
Structures & Logistics provides workforce housing, innovative
modular facilities, construction, site support services, and
logistics and operations management to a broad range of
industry partners and public services.
Canadian Utilities Limited is a diverse energy company focused
on electricity generation, transmission, and distribution; natural
gas transmission and distribution; energy storage and industrial
water solutions; and electricity and natural gas retail sales.
ATCO Investments focuses on commercial real estate and
currently owns properties including office and industrial space,
as well as land holdings with significant development potential.
Neltume Ports is the newest pillar in the ATCO portfolio. In 2018,
we expanded our infrastructure expertise with the purchase
of a 40 per cent stake in Neltume Ports, a leading company in
port operation and development in the growing South American
market. Neltume connects our customers to markets through
16 port facilities and three port operations services businesses.
We build communities, energize industries and deliver customer-
focused solutions like no other company in the world.
100%
52.2%
40%
100%
NELTUME PORTS
INVESTMENTS
STRATEGIC PRIORITIES
Innovation
We seek to create a work environment where employees are encouraged to take a
creative and innovative approach to meeting our customers’ needs. By committing to
applied research and development, we are able to offer our customers unique and
imaginative solutions that differentiate us from our competitors.
7
Growth
Long-term sustainable growth is paramount. We approach this strategy by: expanding
geographically to meet the global needs of customers; developing significant, value-
creating greenfield projects; and fostering continuous improvement.
Acquisition opportunities provide ATCO with additional growth potential. We 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 our current and future success. It ensures ATCO
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 ATCO to sustain
our operations and to grow through economic cycles, thereby providing long-term
financial benefits.
We continuously review ATCO’s holdings to evaluate opportunities to sell mature
assets and recycle 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 ATCO.
Operational Excellence
ATCO achieves operational excellence through 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 and customer expectations.
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 creates the opportunity to develop partnerships with
Indigenous and community groups that may be affected by projects and operations
worldwide, and build ongoing, positive Indigenous relationships that contribute
to economic and social development in their communities. We also engage with
governing authorities, regulatory bodies, and landowners. We encourage partnerships
throughout the organization. We encourage our employees to participate in
community initiatives that will serve to benefit non-profit organizations through
volunteer efforts, and the provision of products and services in-kind.
2018 ATCO ANNUAL REPORT ATCO LTD. FINANCIAL HIGHLIGHTS
8
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). The reporting
currency is the Canadian dollar.
For further information, please see the ATCO Ltd. Consolidated Financial Statements & Management’s Discussion and Analysis.
Consolidated Annual Results
YEAR ENDED DECEMBER 31
(Millions of Canadian dollars except per share data)
2018
20171
CLASS I NON-VOTING & CLASS II VOTING SHARE DATA
FINANCIAL
Revenues
4,888
4,600
Earnings attributable to
Class I & Class II shares
328
219
Earnings attributable to
non-controlling interests
Earnings for the year
Adjusted earnings
343
671
355
274
493
335
Total assets
23,344
21,786
Class I & Class II
share owners’ equity
Funds generated by
operations
3,755
3,527
1,897
1,813
Capital investments
2,518
1,821
Adjusted earnings
per share
Earnings per share
Dividends paid per share
Shares outstanding
2018
3.10
2.87
1.51
20171
2.93
1.92
1.31
114,660
114,660
Weighted average shares
114,394
114,352
FORWARD-LOOKING INFORMATION:
Certain statements contained in this Annual Report constitute forward-looking information.
Forward-looking information is often, but not always, identified using 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.
1 2017 numbers have been restated to account for the impact of IFRS 15 - Revenues from
Contracts with Customers. Additional detail on IFRS 15 is discussed in Note 3 of the 2018
Consolidated Financial Statements.
ATCO CONTINUED DIVIDEND GROWTH
26-year track record of increasing common share dividends*
$1.62
per share
1993
2000
2010
2019
* On January 10, 2019, ATCO declared a first quarter dividend of $0.4048 per share, or $1.62 per share annualized.
2018 ATCO ANNUAL REPORT 9
$256 $253
$214
TEN-YEAR TOTAL RETURN
ON $100 INVESTMENT
$300
$250
$200
$150
$100
$50
$0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Class I Non-Voting (ACO.X)
Class II Voting (ACO.Y)
S&P/TSX Composite
Compound
Growth Rate
Cumulative
Return
9.9%
9.7%
7.9%
$256
$253
$214
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 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.
2018 ATCO ANNUAL REPORT 10
MESSAGE TO SHARE OWNERS
Dear Owners of ATCO,
On behalf of our Board of Directors, my family, and the people
of ATCO, I wish to thank you for your support and belief in
our enterprise.
investments are in Canada, allowing us to prosper and grow as
a nation, and therefore, our industries have enjoyed a strong,
competitive advantage.
In my role at ATCO and through our business activities around
the world, I am continually reminded of how very fortunate we
are to live and be headquartered in Canada, and how important
our duty is to participate in the critical discussions that shape
the policies of Canadian order to continue to succeed in a rapidly
changing world order.
The best policies come from a collective group of civil service
professionals and from those we elect. Collectively, they must
bring vision to their deliberations in determining policy, and our
political leaders must have the determination and the courage
to defend against groups with extreme views of self interest, be
they from the left or right of the political spectrum center.
Even with the best of intentions to develop and implement good
policy, our political leaders must stay vigilant with regard to
Canada has been the first choice for foreign direct investment
and the preferred choice to make a new home or build a
new business. We are a nation blessed with an abundance of
resources and beauty.
However, pervasive change is hitting the Canadian economy
hard. Our competitive advantage is being eroded and the
prospects for growth have been muted by rapidly increasing
taxation on individuals and industry.
Unfavourable resource development policies and uncertainty
in our regulatory environment have caused an exodus of
investment capital. Despite this anti-business climate Canada
finds itself in, your company has performed and continues to
grow, and I am so very proud of the hard working men and
women of ATCO!
the outcomes of policy so that unintended
consequences don’t create a negative
effect on the nation’s ability to
compete globally or impose barriers
for prosperity on its citizens.
Policy development requires
balance, wisdom and the
courage to strive for
excellence. It requires
understanding and
transparency – moderation
and tolerance . . . . and when
policy isn’t working, it requires
courage and leadership to
recognize it and change.
Canada has been the
hallmark of good
policy. The
majority of your
company’s
Amidst national and international political turmoil, the determined
and committed people of your company have been the foundation
of our operational and financial performance. This foundation is
essential for your company to endure through periods of instability
and disruption, allowing ATCO to continue to grow.
Despite the current headwinds around the world, as a company,
ATCO remains focused on the enduring essentials for all
economies – shelter, energy, water and transportation – we
continue to deliver solutions to businesses and individuals in our
global market place.
THE ESSENTIALS
The first essential, and the heart of ATCO’s business for more
than 70 years is shelter. From our earliest days, what was
then called Alberta Trailer Company was focused on innovative
and efficient solutions to meet customer needs for workforce
shelters in often distant, difficult and demanding environments.
We have grown from that base and built a global reputation
as a leader in rapid, adaptable, high-quality and cost-effective
solutions. We still proudly build award-winning worker
accommodation for industrial sites, and we also design, build
and deliver residential housing and public health, security and
educational facilities.
We have continued to build on our global market opportunities.
In 2018, we completed construction of two new state-of-the-art
manufacturing plants in Australia and Chile. And early this year,
we acquired a leading modular building manufacturer in Mexico,
which will operate under the name ATCO Espaciomovil. These
new operations will provide the most advanced design and
delivery solutions in the modular housing industry, with access
2018 ATCO ANNUAL REPORT to the world’s fastest-growing markets.
issue and has maintained an A credit rating.
11
CONNECTIONS
I introduced my message to you with a reflection on the
disruptive, uncertain and sometimes divisive trends in the
Canadian economy. I would like to conclude it with reflections on
your company’s role as a builder and connector of essentials in
global trade in the regions and communities where we operate.
We have tremendous expertise in connecting supply and
demand in ways that are consistent with—and very often a step
ahead of—global trends.
While we are proudly headquartered in Canada, our investments
in Australia, South America, Europe and Africa are important to
our global enterprise. These investments solidify our place in
global markets: we are literally ‘on the ground’ in five continents.
ATCO is striving to continue our track record. We have sought
out the best ideas and the best people, who now number more
than 6,000 strong. This team includes industry veterans and
many of the best and brightest up-and-comers, who have written
the book for operational excellence in safety and reliability and
will carry the torch of entrepreneurial innovation to write the
next chapters in our business.
I am honoured to be part of this team that is driving our success
and very grateful for the guidance provided by our Board of
Directors. I am looking forward to 2019 and many, many years
beyond.
ATCO. Always there. Anywhere.
Sincerely,
Nancy Southern
Chair & Chief Executive Officer
More broadly, we continue to develop ATCO Investments—a real
estate management business that aims to leverage our expertise
in commercial property development and leasing that provides
both stable revenue and growth opportunities for the company.
The second essential for ATCO and the global economy is
energy, which has been a key pillar of our company for nearly 50
years with our Canadian Utilities business. We have built a track
record of providing reliable and affordable energy to industrial
and residential customers. We have invested in renewable
hydropower generation in Mexico, and plan to further develop
sustainable energy production with a cogeneration facility
in Mexico’s Durango State that will turn ‘waste heat’ used for
petrochemical production into ‘useful heat’ for low-emission
power generation.
The third essential in our global portfolio is water, which is
critical not only to everyday life, but also to those industries
that support our quality of life. Our water supply must be
sustainable, reliable and responsibly managed. ATCO’s full-cycle
approach to water systems aims to meet these demands, most
recently with our investment in Alberta’s Industrial Heartland to
provide services to an industrial hub that is central to Canada’s—
and North America’s—petrochemical and energy supply. We
will continue to explore innovation for water conservation,
treatment and infrastructure, which are becoming a defining
element of the global economy.
The last key essential is also our newest: investing in and literally
delivering consumer goods—with ports and transportation.
Our $450 million investment and partnership in Neltume Ports
provides us with international market connections from 16
South American ports that supply approximately 16 per cent
of global agricultural and mining products, as well as other
consumer goods. While ports and transportation is a new ATCO
business, the strategy of matching supply, transportation and
safe and reliable delivery to customers is very exciting and very
much in line with our expertise—and we have, with our partner
Ultramar, an unmatched proficiency and opportunity in this
growing market.
WHAT SETS US APART
Despite the shifts and changes in the global environment in
which we operate, our outstanding financial performance has
consistently set us apart from our competitors. We have grown
our common share dividends every year for the past 26 years,
consistent with the sustainable growth of our multi-faceted
business. We aim to continue this track record. Over the past ten
years, your company has doubled in size without a single equity
2018 ATCO ANNUAL REPORT MESSAGE FROM THE PRESIDENT
& CHIEF STRATEGY OFFICER
12
From the earliest days of the family business that became the
global enterprise of today’s ATCO, we’ve had a constant focus on
delivering what customers, investors, and communities need.
In our formative years, it was the engagement with our
customers that led to the innovative design of a new
product —the iconic white and yellow banded
units of the Alberta Trailer Company, now
known as ATCO.
We’ve grown to a much larger company today,
spanning five continents and covering a larger
spectrum of products and services. Over
the years, the complexity of our business
and operations has increased, but we have
remained focused on five fundamental
priorities to guide our decisions. They are
known as our five strategic pillars, and I am
pleased to report that we made
significant strides with each of
them in 2018.
OPERATIONAL EXCELLENCE
ATCO’s visionary founder,
Ron Southern, summarized
the pursuit of excellence
as “striving for and
maintaining the highest
standards, looking after
the smallest detail and
going the extra mile.”
A fundamental tenet
underpinning our
method of operating
is our pursuit of
excellence in all that
we do.
A key component
of operational
excellence is
providing a safe work
environment for our
people. I am pleased
to report that in 2018,
we achieved a 36 per
cent reduction in the lost
time incident rate in our
company through awareness
and incident prevention
campaigns. These incident
rate reductions were achieved
right across ATCO, and as an
organization we continue to
compare favorably against industry benchmark comparisons.
In fact, our natural gas transmission business has achieved
a remarkable 16 years with no lost time injuries. That is an
unmatched record in the pipeline industry.
Operational excellence is also measured by the people we
serve: our customers. Within the Alberta electricity and natural
gas distribution businesses, more than 95 per cent of Alberta
customers agreed that ATCO provides good service. Our focus
on reliability has shown that we have not only improved system
reliability, but we are outperforming Alberta Utilities Commission
requirements and our peers. Customer satisfaction will continue
to be a strategic priority for us in 2019, as we strive to achieve
the highest quality service for the customers and communities
we serve.
We have a track record of operational excellence that
distinguishes ATCO as an employer, supplier and business
partner of choice. I highlight this because at ATCO we believe
the safest workplaces are also the best managed workplaces,
and will attract the best people, who will ultimately deliver the
best results. In our business, that means the effective, efficient,
and reliable delivery of essential services, not only in Alberta but
around the globe.
GROWTH
Growing our business is fundamentally about taking our
skills, products and services to new markets. ATCO is uniquely
positioned with a combination of capabilities in essential
services that allow our customers to conduct their business
around the world. We started by building structures for people
to live and work in, expanded into providing the energy required
for industry and residential communities, and now, with our
investment in Neltume Ports, we’ve taken the next step into the
transportation of goods to market.
A great example of our growth potential using our collective
capabilities, is the provision of infrastructure to the mining sector
around the world. Mining and the resource sector generally
undertake their development in frontier areas, since that is where
the resources are located. ATCO can provide the shelter required
for their workforce, the energy for their processing, the logistics
for food and camp maintenance, the water supply and now the
transportation to get their product to market.
We need to look no further than the development of Canada’s
LNG industry. ATCO, in partnership with the Haisla First Nation,
is building the largest workforce housing camp in Canada’s
history. We are providing electricity to the upstream production
facilities, and looking to invest in the midstream support for the
related liquids production and storage facilities.
It is this unique combination of collective capabilities that will
distinguish ATCO and provide a competitive advantage as we
look to follow our customers into new market opportunities
2018 ATCO ANNUAL REPORT INNOVATION
Companies that thrive over the long-term continually adapt
to the changing world and ever-increasing expectations of
customers. Innovation cannot be forced; it must be nurtured and
encouraged in the organization and supported by the decisions
we make every day.
The expansion of our modular construction capabilities to
provide permanent modular buildings for use as hotels, schools,
homes, and prisons is yet another innovative approach utilizing
our capabilities to deliver on what our customers need.
Innovation is important in every project, even if it’s the type of
project we’ve done many times before. Alberta PowerLine, a
500-kilovolt transmission project, is an excellent example. Our
people have been recognized by stakeholders as taking novel
approaches to an Indigenous contracting strategy, an Indigenous
equity ownership model, as well as an award-winning public-
private partnership bond that is the largest in Canadian history.
The genuine approach to stakeholder consultation combined
with innovative concepts to the project construction, financing,
contracting and ownership, has allowed us to deliver a 500
km line through 20 Indigenous communities without a single
objection in the permit and license hearings. We also expect to
energize this line three months early and on budget.
Innovation not only affects how we do things but also what
we do. Through our efforts in research and development, we
intend to play a lead role in the transition to a cleaner energy
future. Our Clean Energy Innovation Hub in Australia is one
example of how we will work with the science of renewable
energy in our search for low-emission fuel sources, in this
case hydrogen. Our world class efforts of converting coal-fired
generation to natural gas, reducing the use of diesel fuels in
remote communities, and taking advantage of combined heat
and energy facilities are further examples of innovating our
way to a cleaner energy future.
FINANCIAL STRENGTH
An organization’s financial strength enables it to be agile and
seize opportunities. We are not complacent about our portfolio.
We continually assess our assets to ensure we sustain and
grow our operations through the economic ups and downs of
the countries where we operate. In 2018, we began exploring
strategic alternatives for our Canadian thermal electricity
generation business.
Growth is not just a result of our internal decisions. There are
external factors that can impact an organization’s ability to grow.
In particular, legislative, policy and regulatory frameworks can
constrain growth. As Nancy noted in her letter, the Canadian
federal government has introduced several new pieces of
legislation that have the potential to threaten investment and
growth in the resource sector. In parallel the Alberta government
has undertaken its own policy measures with respect to the
13
environment, emissions and energy. While these actions are
all founded with good intentions, the process for investment
approvals has become more complex, broader in scope,
lengthier and—in the end—creates greater uncertainty for
companies and investors.
At ATCO we have always believed that it is our duty to engage
in discussions with governments at every level regarding public
policy decisions that have the potential to impact business, our
province and our country. With regard to these policies, and in
particular Bill 69, we have had extensive meetings with Ministers,
Premiers, Members of Parliament, Members of a Senate
Committee, Deputy Ministers—and even the Prime Minister’s
Office—and we will continue to actively engage and work with
governments at all levels to amend these policies so they benefit
all Canadians.
COMMUNITY INVOLVEMENT
ATCO has been built from the ground up in our communities.
We have maintained a constant focus on working with our
community neighbours, from the first steps of testing the
feasibility of a project, through the regulatory process,
construction and ongoing operation. We believe in mutually
beneficial solutions, where we all enjoy the benefits of
commercial activity and ensure impacts are responsibly
managed. This is only possible with the trust that comes from
transparency and dialogue—and truly listening to our customers,
partners and community members. We also give back to the
communities where we do business, where our employees live,
work, and raise their families. The people of ATCO volunteer
through our ATCO EPIC Program (Employees Participating In
Communities), and I am so proud of the difference they make
in their communities every day.
I would like to thank the 6,000 people who come to work
for ATCO around the world, dedicated to bringing their best
each and every day to deliver to our customers, colleagues,
and communities. I encourage our share owners to read the
pages of this annual report and learn about some of their
accomplishments in 2018. I’m always impressed by what we
can do as a team, working together.
Sincerely,
Siegfried Kiefer
President & Chief Strategy Officer
2018 ATCO ANNUAL REPORT CORPORATE GOVERNANCE
14
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.
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.
In 1995, ATCO was among the first public companies in Canada
to introduce the concept of a lead director. Mr. Charles W. Wilson
is the current lead director for ATCO, and was appointed to this
position on April 1, 2003. The lead director provides the Board
with the leadership necessary to ensure independent oversight
of management. The lead director is an independent director
and must be a member of GOCOM.
Designated Audit Directors
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.
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 in keeping with the highest standards.
Key elements of our corporate governance system include the
oversight and diligence provided by the Board, the lead director,
the Audit & Risk Committee and our 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.
2018 ATCO ANNUAL REPORT DIRECTORS
15
From left to right:
Robert T. Booth, Q.C. Partner, Bennett Jones LLP
Michael R.P. Rayfield Corporate Director
Susan R. Werth Corporate Director
Charles W. Wilson Lead Director
Nancy C. Southern Chair & Chief Executive Officer
Roger J. Urwin, PhD, C.B.E. Corporate Director
Denis M. Ellard Corporate Director
Linda A. Southern-Heathcott Vice Chair, ATCO Ltd. and President & Chief Executive Officer, Spruce Meadows Ltd.
C. Anthony Fountain Chair of Nayara Energy Limited
Robert J. Routs, PhD Chair of the Supervisory Board of Royal DSM N.V.
2018 ATCO ANNUAL REPORT 16
Our state-of-the-art campus, ATCO Park, located in Calgary, Alberta, serves as our global headquarters and supports our people in being
innovative, collaborative and connected to the community.
2018 ATCO ANNUAL REPORT EXECUTIVE LEADERSHIP TEAM
17
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. Comprising 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 M. Beattie Senior Vice President & General Manager, Structures
George J. Lidgett Managing Director, Pipelines & Liquids
Wayne K. Stensby Managing Director, Electricity
Dennis A. DeChamplain Senior Vice President & Chief Financial Officer
Nancy C. Southern Chair & Chief Executive Officer
Siegfried W. Kiefer President & Chief Strategy Officer
Jim Landon Senior Vice President & General Manager, Frontec
M. George Constantinescu Senior Vice President & Chief Transformation Officer
Marshall F. Wilmot President, ATCO Energy & Chief Digital Officer
2018 ATCO ANNUAL REPORT 18
Dandenong North Primary School in the state of Victoria, Australia was completed in 2018. This architectural design shows how our permanent
modular structures can be used in innovative and modern ways.
2018 ATCO ANNUAL REPORT STRUCTURES & LOGISTICS
CHARTING A COURSE AROUND THE WORLD
19
From our very first customer contract in 1947, ATCO
has been a pioneer in the modular construction
industry. Over more than 70 years, we have built
a global reputation for award-winning, turnkey
solutions for clients in a multitude of countries,
environments, industries and public services.
Structures & Logistics is made up of two divisions:
Structures and Frontec.
The strategy of the Structures division is to continue
to grow stable base earnings within our three
business lines: space rentals, workforce housing
and permanent modular construction. These
complementary business lines, combined with our
geographic diversity and prudent cost management,
provide for a leading, globally competitive position
and a balanced model that can withstand global
economic cycles. Supporting ATCO’s full spectrum of
services, our Frontec division focuses on operational
support, logistics and management, including
employee support services, facility operations
and maintenance, and disaster and emergency
management, sometimes in high-risk environments.
Our activities in 2018 were guided by ATCO’s strategic
priorities. In Structures, we demonstrated innovation
in accommodation facilities, growth across the globe,
and an unwavering commitment to operational
excellence. We actively seek partnerships with
Indigenous communities on our projects and in the
delivery of services.
Innovation in Accommodation
ATCO will play a key role in providing
accommodation for workers building and
supporting construction of LNG Canada’s Kitimat
natural gas liquefaction and export facility—one
of the largest accommodation facilities ever
built in Canada. In collaboration with the Haisla
Nation, facilitated by a pre-existing joint venture,
we successfully secured the contract to design,
engineer and manufacture a 4,500-person
workforce accommodation centre. The Cedar
Valley Lodge will provide a modern, high-tech and
high-convenience accommodation and recreational
facility for workers.
ATCO is also working in a joint-venture partnership
with the Haisla Nation to provide workforce
accommodation facilities and operational support
services for three workforce accommodation
facilities in the Haisla territory that will support
construction of the Coastal GasLink pipeline.
Coastal GasLink will connect natural gas production
centered at the Dawson Creek hub in the British
Columbia interior to the LNG Canada site.
In 2018, we were awarded four government
sponsored permanent multi-story affordable
housing apartment projects in British Columbia.
These projects showcase ATCO’s ability to rapidly
deliver quality multi-story residential solutions using
factory-built modular construction techniques to
address the growing demand for affordable housing.
ATCO has operated a
successful partnership
with the Haisla Nation
since 2011, delivering
multiple accommodation
projects within the Kitimat
region of British Columbia.
We are proud to support
this crucial energy
infrastructure project,
alongside our valued
partners within the
Haisla Nation.
4,500
PEOPLE
will be housed at one of the
largest accommodation facilities
ever built in Canada
2018 ATCO ANNUAL REPORT 20
Global Growth in Australia and Chile
ATCO is building on our global market opportunities. In
2018, we completed construction of two new state-of-the-
art manufacturing facilities in Australia and Chile. These
new facilities will provide the most advanced manufacturing
capabilities in the modular building industry, with access to the
world’s fastest growing markets.
Our new Australian facility in the Gold Coast region complements
existing manufacturing operations in Western Australia. We
plan to meet customers’ needs in traditional markets such as
resources and infrastructure, as well as engaging in emerging
markets in the health, education, justice and commercial sectors.
The new facility will manufacture a wide range of modular
products including school classrooms, libraries, hospital facilities,
construction offices and sporting amenities.
8
MODULAR UNITS
can be produced each day in our Chilean facility
ATCO’s new manufacturing facility in Santiago, Chile, further
solidifies our growing business in South America. In partnership
with Ultramar, ATCO Sabinco now has the capacity to rapidly
produce up to eight modular units per day. This new facility
will enable us to secure new workforce housing projects in
South America. This is a market where businesses are looking
for partners to deliver cost-efficiency, flexibility and thoughtful
management of social and environmental impacts—all core
focus areas for ATCO.
Modular Structures Acquisition in Mexico
In 2018, we acquired a majority ownership position in
Espaciomovil, a leading modular building manufacturer
in Mexico, which will now operate under the name ATCO
Espaciomovil. With this acquisition, we are now the largest
manufacturer of modular products in the Mexican market, with
the second largest fleet of rental assets in the country. The
company serves a diverse customer base across Central America
with a wide range of modular products including workforce
accommodation, classrooms, offices, hospitals, hotels, retail,
commercial buildings and a fleet of approximately 1,300 modular
rental units.
Expanding into Africa
From our earliest days working in Canada’s rural and northern
communities, ATCO has developed expertise in providing
infrastructure in areas at the edge of—or sometimes off—the
conventional utilities grid of power and water. We see a real
opportunity to expand our track record of flexible and efficient
operations, working in challenging physical environments with
high environmental and safety standards. To build on these
opportunities, we have opened our first permanent African hub
in Nairobi, Kenya, with the mission of growing our business
through this region of huge potential. Our business focus is
initially on remote-site workforce camps. We have developed
a fully integrated camp system that can be tailored to clients’
needs and deployed in as little as two weeks.
Currently, we are also providing consulting services to the World
Food Programme, the United Nations’ logistics arm. This is a
critical project that will foster trust and provide valuable insight
into the realities of business in Africa, underpinning other
discussions with potential clients about how our products and
services can provide support in times of crisis.
Future opportunities for ATCO in Kenya include infrastructure
development, technical knowledge transfer, and the resource
and power sectors, both renewable and nonrenewable.
Mobilizing in the North
Our people understand the unique challenges and opportunities
associated with working in the North, where we’ve been
providing innovative solutions to customers and communities
for decades.
After winning a contract in late 2017 to service the Canadian
Armed Forces, we have been mobilizing in Yellowknife,
Whitehorse, Inuvik, Rankin Inlet and Iqaluit to provide facility
inspection, maintenance and repair, new construction and
upgrades, and trade and environmental services.
Operational excellence is a
strategic priority at ATCO.
That means highly efficient
service, reliable delivery and
unsurpassed product quality,
with safety our first consideration
in everything we do.
2018 ATCO ANNUAL REPORT GLOBAL RENTAL UTILIZATION
21
2018
2017
CHANGE
Global Space Rentals
75%
70%
+5%
Global Workforce Housing
40%
37%
+3%
Global rental operations
In the last two years, we have seen an increase in the rental of our modular units. We continue to optimize our fleet of space rentals and workforce housing units globally.
Operational Excellence for
Cell Network Support
In many northern communities, reliable cellular coverage is not
just convenient—it’s critical.
Fuel for Iqaluit
More than just the distance, the challenges of working in
the remote North include the short seasonal timelines for
maintenance and extreme weather over large parts of the year.
To bring fuel to Nunavut’s capital, Iqaluit, ATCO and long-term
partner Nunavut Petroleum Corporation continue to manage the
bulk fuel storage facility, pipeline distribution system and delivery
of gasoline, diesel, home heating and aviation fuels. In place since
1996, our contract was extended in 2018 for two years.
Silvertip Mine Camp
ATCO is committed to employment and training opportunities
for Indigenous Peoples in our business communities. As part
of our joint efforts with Iyon Kechika Contracting and the Kaska
First Nation, ATCO will provide food services, commissary,
cleaning and maintenance services to a 300-person residence at
Coeur Mining, Inc.’s Silvertip mine in northern British Columbia,
near the Yukon border. This contract will be for three years from
2018 until 2021.
In a 20-year joint-venture partnership with the Northern
Aboriginal Services Company, ATCO has been providing facility
maintenance and logistics services at 157 NorthwesTel remote
microwave sites that provide network and cellular telephone
services in the region. Our contract to provide these services was
extended another five years in 2018. With some sites over 40
years old and 46 sites accessible only by helicopter, we are proud
to have met a target of 99.99 per cent system availability.
99.99%
SYSTEM AVAILABILTY
with our support services
2018 ATCO ANNUAL REPORT
22
Crews assemble one of more than 1,350 transmission towers for the Fort McMurray West 500 kV project, powering industrial demand while
ensuring that Albertans have access to reliable, cost-effective electricity.
2018 ATCO ANNUAL REPORT ENERGY
CONNECTING OUR CUSTOMERS TO RESOURCES
23
ATCO connects energy and water resources with the people and
businesses who need it, including:
• Electricity Transmission, Distribution & Generation
From reliable, sustainable power generation to distribution
you can count on, we provide the electricity customers need.
• Natural Gas Transmission & Distribution
We own and operate pipelines in Alberta and Western
Australia that deliver safe, clean, reliable and affordable
natural gas to homes and businesses.
• Industrial Water
A reliable water supply is essential for many industrial
operations. Our multi-user system in Alberta’s Industrial
Heartland allows businesses to tie their facilities into our
existing infrastructure for reliable and responsible solutions
to their water needs.
• Energy Storage
We serve the midstream sector of Western Canada’s energy
industry, offering tailored natural gas liquids and hydrocarbon
storage, transportation and processing solutions.
We pride ourselves in driving innovation in all we do. Whether
a unique approach to funding projects or testing hybrid energy
solutions, we go beyond the status quo as we focus on growing
our business while maintaining operational excellence. Engaging
our communities, clients, and retail customers allows us to fully
understand their needs and provide solutions that not only build
the financial strength of our company, but support the people
we live and work with every day.
Innovating with Alberta PowerLine
2018 saw Alberta PowerLine, a partnership with Quanta Services,
remain committed to excellence in building the Fort McMurray
West 500 kilovolt (kV) Transmission Project stretching 500
kilometres (km) northeast from Wabamun, near Edmonton. We
continue to engage with stakeholders and Indigenous Peoples
in genuine, heartfelt dialogue as a fundamental foundation of
the project. Construction was completed and we achieved early
energization in March 2019.
This project is a critical addition to the province’s transmission
system and will enable continued growth in northern Alberta,
with the region consuming about the same amount of power as
either of Alberta’s major cities, Edmonton and Calgary.
We engaged extensively with landowners and communities
as we designed and constructed the project. In addition,
we implemented a comprehensive Indigenous contracting
strategy, creating opportunities for skills training and local
economic development.
We have been meeting with Indigenous communities about an
equity ownership model that will afford them the opportunity
to acquire an ownership stake in the project. This model will
enable Indigenous communities to become direct owners
and participants in Alberta’s energy sector and support local
community development initiatives.
We also incorporated Indigenous Peoples’ interests in our
approach to environmental protection: the Woodland Caribou is
not only a threatened species important to Alberta’s biodiversity,
but also plays a central role in the cultures and histories
of the Indigenous communities close to this project. Our
comprehensive Caribou Protection Program is now setting a new
standard for construction in Alberta.
Alberta PowerLine was financed in part through the largest
public-private partnership bond in Canadian history and has
been recognized for creating a new standard of excellence
in public-private partnership projects. This unique funding
competition resulted in significant savings to the project.
2018 ATCO ANNUAL REPORT 24
Replacing Coal with Lower-Emission
Natural Gas
ATCO continues to lead the transition to sustainable energy
infrastructure and a low-carbon energy future. Our goal is to
be the first major power supplier in Alberta to convert its coal-
fired power generation plants to natural gas.
In 2018, we completed a project to enable co-firing of our
Battle River Unit 4 power plant with natural gas. Natural gas
can now be used to generate approximately half of the unit’s
155 megawatt (MW) total generating capacity. In late 2019, we
expect to complete the project’s next phase to allow natural
gas co-firing on Unit 5, for 100 per cent of its 385 MW capacity.
The conversion of Unit 5 will be the first full conversion of a coal
power plant to natural gas in the province.
In addition to the work underway at our Battle River facilities, ATCO
has finalized plans to convert our coal units at Sheerness to run
on natural gas. Conversion will be completed, and our portfolio will
be off coal, no later than 2022.
Directly supporting the coal-to-gas conversion of power
producers in the area, the Pembina-Keephills project is a 59
km high-pressure natural gas pipeline. The pipeline will supply
natural gas to the Genesee generating station and has capacity
to support the forecast demands of other power producers
in the area. A regulatory application was filed with the Alberta
Utilities Commission in 2018. Construction is expected to be
complete in 2020.
Advancing our Water Strategy
ATCO’s infrastructure expertise covers pipelines, energy
generation and transmission. But it also includes one of our
most critical resources: water. Our customers depend on
carefully managed, sustainable and reliable industrial water
solutions. As part of our Industrial Water Solutions strategy,
in 2018 we signed an agreement to provide water services
to support Canada’s first propane-to-plastics petrochemical
plant—Inter Pipeline’s Heartland Petrochemical Complex located
in Strathcona County, Alberta. Construction on this project is
expected to start in 2019.
$70M
invested in
Alberta’s
Industrial
Heartland
This is just the most recent step in our water strategy. Overall,
ATCO has invested more than $70 million in Alberta’s Industrial
Heartland to develop a multi-user industrial water system that
leverages common infrastructure to provide a range of water
services including transportation, storage and treatment for
industrial customers. ATCO’s infrastructure provides a ready-
made solution for partners, while helping to support a regional
water strategy and the increasingly discerning environmental
focus of our customers.
Doubling our Energy Storage
When we think about the layers of geology deep underground,
we often think about ‘extracting’ resources like oil or natural gas.
But for ATCO, we also think about ‘storing’—managing safe and
reliable storage in the same geological formations that are the
source of our resources.
In 2018, we completed construction of the final two of four
hydrocarbon storage caverns in Phase 1 at the ATCO Heartland
Energy Centre near Fort Saskatchewan, Alberta. These geological
‘safes’ doubled our contracted storage capacity to 400,000 cubic
metres. This storage capacity provides our customers with an
environmentally secure and safe facility to manage their natural
gas and hydrocarbon inventories.
400,000
CUBIC METRES
of hydrocarbon storage
Source Energy Co. Acquisition
An exciting step in ATCO’s international growth strategy is
the acquisition of Source Energy Co. in Australia in 2018.
The company is expert at managing energy needs for high-
density apartment buildings, using a mix of rooftop solar
panels and energy from the grid, matched with smart metering
technology. The company provides customers with a clear view
of energy options with advice on how to save energy and money
with sustainable solutions. For ATCO, smart metering technology
also provides valuable insights into customers’ energy
consumption. This data helps guide our investment decisions
in residential solar power, battery storage and low-emission
natural gas solutions.
With the addition of Source Energy Co., ATCO is building on a
growing renewable energy market and learning more about how
we can efficiently include renewables in our energy supply.
2018 ATCO ANNUAL REPORT 25
Innovation is a strategic
priority at ATCO. With a
commitment to research
and development, we offer
customers unique and
imaginative solutions to meet
their needs in a way that sets
us apart.
ATCOENERGY’S COMPETITIVE RESIDENTIAL MARKET SHARE
12.0%
10.0%
e
r
a
h
S
t
e
k
r
a
M
8.0%
6.0%
4.0%
2.0%
0.0%
Se pt 2016
Se pt 2017
Se pt 2018
Over two years from September 2016 to September 2018, ATCOenergy’s competitive
market share increased from 2.8 per cent to 10 per cent.
Clean Energy Innovation Hub
The Clean Energy Innovation Hub (CEIH), supported by funding
from the Australian Renewable Energy Agency (ARENA), will be
a test bed for hybrid energy solutions that integrate natural gas,
solar and battery storage.
We know natural gas already delivers a lower carbon footprint
than other traditional energy sources, and we intend to play a
leading role in an even cleaner energy future. The CEIH is at the
heart of those plans. But what truly sets this project apart is our
research and development into the use of renewable energy to
produce, store and ultimately use hydrogen as a fuel source.
Harnessing the power of renewable energy through battery
storage or conversion to a stable source like hydrogen is part of
our energy future, and a very exciting journey for ATCO.
The CEIH has been under construction throughout 2018 and is
on track for an official opening by mid-2019.
ATCOenergy
In 2018, we continued to move aggressively towards securing
greater market share in Alberta’s competitive retail energy
landscape for both electricity and natural gas. When we
launched in 2016, the market was dominated by four major
players who controlled over 98 per cent of the competitive
market. Our goal was to move into the number three position by
2020—an ambitious goal for a newcomer.
Following significant growth in our first year of business, our
competitive residential market share increased from 6.6 per
cent to 10 per cent from the end of September 2017 to the end
of September 2018, the last date for which market surveillance
numbers were available. This represents a 51.5 per cent increase
in customers. This increase took us from fifth in the market to
the third competitive energy retailer in Alberta, meeting our five-
year goal in less than three years.
Much of ATCOenergy’s rapid growth can be attributed to our
engagement with Albertans. A series of unique, customer-centric
and data-driven marketing campaigns helped Albertans get
to know ATCOenergy and sign up for our services. With each
campaign, we continued to establish innovative ways to meet
our customers in the physical and digital spaces they inhabit. As
a result, customer engagement and satisfaction have increased
steadily and, in some cases, dramatically. In 2018, customer
engagement through webchat and social media channels
increased by 69 per cent from the year before.
To tailor messages to our growing base of current and
potential customers, and to reach them with greater speed and
accuracy, in 2018 we implemented a new customer relationship
management tool. In addition, we automated our internal
process for managing new customer agreements, resulting in
cost savings over the last three months of 2018 that has already
recovered implementation costs.
2018 ATCO ANNUAL REPORT
26
We are diversifying our extensive portfolio of infrastructure assets and services. We’ve acquired 40 per cent of Neltume Ports, a leading port operator and developer in South America.
Pictured is a port in Valparaiso, Chile - one of Neltume’s 16 port facilities.
PORTS & TRANSPORTATION
INVESTMENT POSITIONS ATCO FOR GROWTH
Growth is a strategic priority
at ATCO. Growth includes
expanding geographically,
building on and leveraging
our business strengths,
developing new projects
and fostering continuous
improvement.
In a move that diversified our infrastructure portfolio into
new industries and regions, in 2018 ATCO acquired a 40
per cent stake in Neltume Ports for approximately $450 million.
The company is a leader in port operations and development
in South America with 16 port facilities and three port
operations services businesses.
Neltume Ports is a subsidiary of Ultramar, already a strategic
partner with ATCO, and operates primarily in Chile and Uruguay
along with operations in Brazil and Argentina. Headquartered in
Santiago, Chile, it has built a unique portfolio of multi-purpose,
bulk cargo and container terminals. The company handles nearly
44 million tonnes of product annually, including copper, forestry
products, consumer goods and agricultural products, and
employs approximately 6,700 employees.
While this is a new business for us, it is well aligned with ATCO’s
existing infrastructure investments and provides an opportunity
to further expand into South America, which is poised for
significant growth.
We first partnered with Ultramar in 2016 through our joint
venture ATCO Sabinco, which recently completed construction
of a new, 118,000 square foot (ft2) manufacturing facility in
Santiago. Now, we continue to strengthen this important
relationship based on a foundation of shared values.
2018 ATCO ANNUAL REPORT 27
INVESTMENTS
UNLOCKING HIDDEN VALUE ON THE BALANCE SHEET
Established in 2017, ATCO Investments generates revenue from
commercial real estate activities across ATCO’s Global Business
Units. Earnings from this business come from three avenues:
sales of commercial and industrial properties and land, leasing
real estate to third parties to generate steady revenue, and
investigating high-return development projects in the longer term.
Our portfolio includes 15 commercial real estate properties
throughout Alberta, including 417,000 ft2 of saleable or leasable
office space, 90,000 ft2 of saleable or leasable industrial space,
and 431 acres of land with high development potential. We are
actively investigating opportunities to broaden our portfolio.
In 2018, ATCO Investments successfully sold four properties
for total adjusted earnings of $13 million. We have identified
other properties that have sales potential in the future, which
we will continue to explore. We also have several commercial
properties that are leased to third parties and continue to
actively pursue additional leasing opportunities, which adds
revenue growth potential.
Potential real estate development projects include new
construction on ATCO-owned land and repurposing existing
buildings to meet market demand. As part of ATCO’s global
growth strategy, we will also look at acquiring and developing
properties in regions or cities around the globe where there is an
existing ATCO presence.
Financial strength is a strategic
priority at ATCO. We ensure
we have the financial capacity
to sustain our operations
and grow through economic
cycles and across global
economies. We continuously
evaluate opportunities to sell
mature assets and redeploy
the proceeds to growing areas,
ensuring the optimal allocation
of capital across the company.
2018 ATCO ANNUAL REPORT 28
ATCO is committed to providing Indigenous education and training programs that allow us to contribute to vibrant communities, build stronger workforces and create
opportunities to share experiences and learn from local expertise.
COMMUNITY & INDIGENOUS PARTNERSHIPS
BUILDING STRONGER COMMUNITIES
At ATCO, we understand our success depends on strong
relationships in the communities where we work and live. That
means we are transparent about what we do and our plans for
the future. We listen to what our neighbours and community
partners have to say, and we look for opportunities to give back
through community involvement and investment initiatives.
The areas where we operate include many Indigenous communities
and traditional lands. We have a long history of working with
Indigenous communities and we are committed to building and
sustaining long-term relationships. Our goal is to develop mutually
beneficial solutions, in Canada and internationally. The diversity of
our operations results in a variety of opportunities to engage with
Indigenous Peoples—as customers, business partners, colleagues,
employees and neighbours.
Indigenous Youth Leadership Program
Alberta’s future leaders must reflect the diversity of our people.
To support Indigenous youth in reaching their potential, ATCO
piloted a program to showcase career opportunities. In 2018,
119 Grade 9 students from seven Indigenous communities
across Alberta participated in one-day tour trips to local
businesses to learn new perspectives on opportunities available
to high school graduates.
Building on this foundation, 17 selected Grade 9 students
participated in a four-day program where they met with leaders
in government, academia, trades, emergency services, health
care, commerce and the community to learn from experts and
share their unique points of view.
ATCO looks forward to building on the success of the pilot
program to ignite the imaginations of Indigenous youth and
inspire the next generation of leaders.
2018 ATCO ANNUAL REPORT Australian Reconciliation Action Plan
In 2018, ATCO launched our Reconciliation Action Plan in Australia
to strengthen our relationships with Aboriginal and Torres Strait
Islander Peoples. After working closely with local Aboriginal
Elders and community representatives, one of our first projects
was the development of a community garden. Going forward,
we have prepared an action plan that outlines our commitments
to Reconciliation, including our approach to employment
and supplier selection. We are seeking to create long-term
partnerships with Indigenous organizations that will help them
grow their communities and develop sustainable businesses.
Reconciliation is a complex issue that requires action at many
levels. We are working to embed Reconciliation principles right
across our business in Australia.
Homes for Heroes Partnership
Sometimes assisting others to safety and security can have an
impact on the helpers when they return home. ATCO is proud
to be a Building Partner with the Homes for Heroes Foundation.
The foundation assists homeless Canadian Armed Forces
veterans progress towards a stable and secure life by providing
housing and a robust support system, fundamental components
of stability and dignity. In 2018, ATCO showcased the first of our
permanent modular ‘tiny homes’ designed and constructed to
meet the needs of our Canadian military veterans transitioning
from homelessness.
ATCO built two fully equipped homes in 2018. The community
is a village that will ultimately include 20 tiny homes, a
resource centre and community gardens, and is designed to be
transitional, with the goal to have residents live in the home until
they are ready to move back to town and city neighborhoods or
be transferred to more long-term living communities.
ATCO supports the foundation in their belief that a structured
yet nurturing environment will support positive progress for
our veterans.
to be built for veterans20H
O
M
E
S
29
Community involvement is
a strategic priority at ATCO.
We believe meaningful
partnerships and positive
relationships with Indigenous
groups and communities
enhance economic and social
development.
ATCO EPIC
Supporting a community starts with people. Our ATCO
EPIC—Employees Participating in Communities—program
is a grassroots initiative involving employee-led committees
that plan, implement and administer workplace fundraising
campaigns. In 2018, ATCO donated more than $2.72 million to
support more than 800 charitable and non-profit organizations
around the world taking the program’s cumulative fundraising
total to more than $41.3 million since its inception in 2006.
ATCO matches dollar-for-dollar employee donations made to
human health and wellness charities. As well, we support our
employees’ volunteer efforts, given generously through our
Time to Give Program, with a financial contribution to the
charity of our employees’ choice.
Engaging Indigenous Students Through
Hands-On Cooking
Our Blue Flame Kitchen team recently launched the Indigenous
School program in partnership with Alberta PowerLine. This two-
level program teaches students about food safety and cooking
nutritious meals.
The Kids Can Cook program kicked off in Saddle Lake Cree
Nation, with our instructors teaching younger students about
healthy eating, basic food skills and creating healthy snacks. The
Teens Can Cook program launched in Alexander First Nation.
Our Home-On-The-Go, with a completely functioning mobile
kitchen, was onsite to provide a practical cooking class. As well
as making a nutritious breakfast and learning about kitchen
safety, students tested their chemistry skills to discover the
science behind food.
These hands-on learning opportunities help us build stronger
relationships with our Indigenous communities and give back
in a unique way.
2018 ATCO ANNUAL REPORT 30
Solar panels, such as these test panels installed at our Old Crow Project with the Vuntut Gwitchin First Nation, help remote communities in
Canada’s North reduce diesel consumption.
2018 ATCO ANNUAL REPORTSolar panels, such as these test panels installed at our Old Crow Project with the Vuntut Gwitchin First Nation, help remote communities in Canada’s North reduce diesel consumption. SUSTAINABILITY
INNOVATIVE, SUSTAINABLE SOLUTIONS
31
Affordable, reliable and sustainable—our success depends on
ensuring our products and services meet all these goals. Our
more than two million customers around the world expect
nothing less.
As a global provider of modular housing, disaster response,
logistical support, and energy infrastructure products and
services, we play a central role in delivering long-term,
sustainable solutions. Innovation is key: from integrated energy
systems to partnerships with Indigenous communities, we are
solving customer challenges in a way that balances responsible
development with safety and environmental stewardship and
the interests of communities and landowners.
Because our business is diverse, we have a range of
opportunities to demonstrate our commitment to sustainable
solutions, including:
• Indigenous Peoples’ economic participation in projects and
sincere engagement across the full spectrum of our businesses.
• Greenhouse gas emissions reduction initiatives, including
energy efficiency programs.
• Options for lower-emitting energy solutions for commercial and
residential customers, including renewable energy.
• Programs to support the safety and health of our people and
communities.
• Off-grid/microgrid solutions using a combination of innovative
technologies.
The ATCO Sustainability Report is aligned with the internationally
recognized Global Reporting Initiative (GRI) standards. Our
reporting is also guided by frameworks such as the Sustainability
Accounting Standards Board and the recommendations of the
Financial Stability Board’s Task Force on Climate-related Financial
Disclosures.
Additional detail on how sustainability strategies are reflected
in our business can be found on page 78 of this report. Our
comprehensive Sustainability Report, which will be released in
June 2019, provides further insight into how we work across our
operations to improve our sustainability performance.
Safety
Safety is the first consideration in everything
we do. We are committed to providing a
safe work environment and actively engage
the communities we serve to promote the
importance of safety.
Environmental Stewardship
As a critical infrastructure provider, a
collaborative and long-term approach to
minimizing our environmental footprint is
vital, along with providing customers and
the communities we serve opportunities to
improve their environmental performance.
Energy Stewardship
Secure, reliable and affordable energy
underpins the economic vitality of our
communities. It is our responsibility to
understand the evolving needs of our
customers and develop solutions that
support the transition to a lower-carbon
energy system.
Community &
Indigenous Relations
Building respectful and mutually beneficial
relationships has long defined how we do
business. Along with our Indigenous and
community partners, we are continually
exploring new ways to collaborate.
2018 ATCO ANNUAL REPORT 32
2018 ATCO ANNUAL REPORT ATCO LTD.
MANAGEMENT’S DISCUSSION
AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2018
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 year ended ended December 31, 2018.
This MD&A was prepared as of February 27, 2019, and should be read with the Company’s audited consolidated financial
statements (2018 Consolidated Financial Statements) for the year ended December 31, 2018. 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 (52.2 per cent ownership), ATCO Structures & Logistics Ltd. (100
per cent ownership), and ATCO Investments Ltd. (100 per cent ownership). The Company also has a non-controlling equity
investment in Neltume Ports S.A. (40 per cent). 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. 2018 MANAGEMENT’S DISCUSSION & ANALYSIS 33
TABLE OF CONTENTS
ATCO: What Sets Us Apart ..............................................................................................................................................
Company Overview and Operating Environment........................................................................................................
Organizational Structure ................................................................................................................................................
ATCO Core Values and Vision .........................................................................................................................................
ATCO Strategies ...............................................................................................................................................................
ATCO Scorecard ...............................................................................................................................................................
Strategic Priorities for 2019 ............................................................................................................................................
Performance Overview ...................................................................................................................................................
Global Business Unit Performance ...............................................................................................................................
Structures & Logistics ..................................................................................................................................................
Canadian Utilities .........................................................................................................................................................
Electricity .................................................................................................................................................................
Pipelines & Liquids .................................................................................................................................................
Canadian Utilities Corporate & Other..................................................................................................................
Neltume Ports ...............................................................................................................................................................
ATCO Corporate & Other ..............................................................................................................................................
Regulatory Developments ..............................................................................................................................................
Sustainability, Climate Change and Energy Transition................................................................................................
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 ................................
Reconciliation of Capital Investment to Capital Expenditures ...................................................................................
Other Financial Information ...........................................................................................................................................
Glossary ............................................................................................................................................................................
Appendix 1 Fourth Quarter Financial Information ......................................................................................................
Page
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51
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ATCO LTD. 2018 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 26 years, a track record of which we are very proud. On
January 10, 2019, we declared a first quarter dividend of 40.48 cents per share or $1.62 per share on an annualized basis. As a
holding company, ATCO continues to grow its dividends consistent with the sustainable growth of its investments.
DIVERSIFIED INFRASTRUCTURE HOLDINGS
ATCO is focused on investments that put us at the forefront of global trends. We will strive to deliver growth within our holding
company portfolio with a focus on select opportunities in the essential global services of: housing, logistics and transportation,
agriculture, water, real estate, energy and energy infrastructure.
Over the past ten years, ATCO subsidiary Canadian Utilities has more than doubled its asset base by investing approximately
$15 billion in regulated and long-term contracted energy infrastructure. This highly contracted and regulated earnings base
provides the foundation for continued dividend growth.
GLOBAL GROWTH PLANS
In 2018, ATCO expanded its presence in Latin America with an investment in Neltume Ports, a leading port operator in South
America, along with Modular Structures fleet expansions and an acquisition of a hydroelectric generation facility in Mexico. In the
years ahead, we will continue to grow and expand our business with a focus on the select global markets of: Australia, Latin
America, United States and Canada. In the period 2019 to 2021, ATCO subsidiary Canadian Utilities expects to invest $3.6 billion
in Regulated Utility and long-term contracted assets in Canada, Australia, and Mexico, which will continue to strengthen our high
quality earnings base. Of the $3.6 billion planned spend, $3.5 billion will be on Regulated Utilities.
COMMITMENT TO 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.
Dividend Growth
Diversified Infrastructure
Global Growth
A
Range Credit Rating
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
35
COMPANY OVERVIEW AND OPERATING
ENVIRONMENT
ATCO Ltd. is a diversified global enterprise with assets of $23 billion and approximately 6,000 employees engaged in
Structures & Logistics, Energy and Energy Infrastructure, Transportation, and Commercial Real Estate. We carefully
monitor market opportunities and challenges in each of our investments 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 enhanced our sales and customer focus in all of our businesses and
expanded our global investment portfolio in 2018. At the same time, we continued to pursue cost-savings and
efficiencies in every part of our organization to ensure we deliver the most competitive solutions to our customers.
ATCO achieved strong adjusted earnings in 2018 of
$355 million driven by improved results in the non-
regulated businesses mainly due to improved profit
margins and demand for Structures & Logistics’ space
rentals and permanent modular construction activity,
strong results in electricity generation, Alberta
PowerLine and commercial real estate, and earnings
additions from an investment in Neltume Ports, a
port operator and developer in South America.
Continued rate base growth and operational cost
improvements in Canadian Utilities' regulated
businesses partially offset the adverse earnings
impact of rate re-basing in several of our Alberta
Utilities.
36
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
STRUCTURES & LOGISTICS
The Structures & Logistics Global Business Unit's activities are conducted through two complementary businesses:
Modular Structures and Frontec. Diversified by geography, product and service offerings, these businesses meet the
needs of customers and communities globally. Together these businesses offer workforce and residential housing,
innovative modular facilities, construction, site support services, remote lodging and logistics, operations
management and emergency management and disaster response.
BUSINESS STRATEGY
Modular Structures
Modular Structures' strategy is to continue to grow stable earnings providing modular structures through three
main business lines: space rentals, workforce housing, and permanent modular construction. These complementary
business lines, combined with our geographic diversity and prudent cost management create a leading, globally
competitive business that is balanced to withstand global economic cycles.
Frontec
Frontec's strategy is to be a customer service business focused on providing workforce lodging services, facilities
management, and emergency management and disaster response services in remote locations globally.
MARKET OPPORTUNITIES
Modular Structures
Our goal is to continue growing our global space rental business while
streamlining our manufacturing platform to scale quickly and profitably
when needed to capture workforce housing opportunities. We will focus
on diversification opportunities with customers outside of the natural
resource sector. Non-traditional modular markets such as public
education facilities, high density urban residential housing and
correctional facilities offer development opportunities. Expansion will be
focused in select global markets, including Canada, Australia, Latin
America and the U.S. We target markets with rule of law and excellent
long-term growth potential.
Frontec
Support services and logistics operations will focus on growth
opportunities in emergency management and disaster response and
with international development agencies.
MARKET CHALLENGES
Modular Structures
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.
Frontec
Emergency management and disaster response requirements and
locations are unpredictable. An economic slow-down in natural
resource-based economies has continued to result in decreased private
sector capital investment for workforce lodging camps.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
37
Site C Workforce Housing Camp
CANADIAN UTILITIES
Canadian Utilities is a diversified global energy infrastructure corporation delivering service excellence and
innovative business solutions in Electricity (electricity generation, transmission, and distribution); Pipelines & Liquids
(natural gas transmission, distribution and infrastructure development, energy storage, and industrial water
solutions); and Retail Energy (electricity and natural gas retail sales).
Electricity
The Electricity Global Business Unit's activities are conducted through two regulated businesses: Electricity
Distribution and Electricity Transmission, and four non-regulated businesses: Independent Power Plants, Thermal
PPA Power Plants, International Electricity Generation 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 natural gas-fired electricity generation.
Electricity will pursue cost reduction initiatives and efficiencies to transform into an even more customer centric
business. Electricity will continue expanding its businesses geographically in select global markets to meet the
evolving needs of a global customer base through the development of innovative infrastructure solutions
underpinned by long-term contracts.
MARKET OPPORTUNITIES
The regulated businesses expect to see continued investment
opportunities based on customer growth and system replacements.
Further electricity distribution and transmission investment
opportunities may result from the changing power market in Alberta.
A global trend toward renewable electricity generation and energy
storage and natural gas-fired electricity generation to backstop the
renewable power supply presents opportunities for growth.
Expansion will be focused in select global markets, including Canada,
Australia, and Latin America. Electricity targets 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.
Oldman River Hydroelectric Plant
38
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
Pipelines & Liquids
The Pipelines & Liquids Global Business Unit activities are conducted through three regulated businesses: Natural
Gas Distribution, Natural Gas Transmission, and International Natural Gas Distribution, and one non-regulated
business: Storage & Industrial Water. These businesses 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 becoming a premier hydrocarbon liquids storage and industrial water infrastructure provider.
Pipelines & Liquids continues to pursue cost reduction initiatives and efficiencies to transform into an even more
customer centric business. Pipelines & Liquids is focused on expanding geographically to meet the evolving needs
of a global customer base through the development of innovative infrastructure solutions underpinned by long-
term contracts.
MARKET OPPORTUNITIES
The regulated businesses expect to see continued growth based on
forecasted customer growth and system replacements. The
continued expansion 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. Expansion will be focused in
select global markets, including Canada, Australia, Latin America,
and the U.S. Pipelines & Liquids targets 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.
Natural Gas Pipeline Valve Assembly
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
39
NELTUME PORTS
Neltume Ports is a port operator and developer with a diversified portfolio of multipurpose, bulk cargo and
container terminals located in Chile, Uruguay, Argentina, and Brazil. Neltume Ports operates 16 port facilities and
three port operation services businesses with assets that are highly diversified across both cargo types and volume
mix. Neltume Ports employs approximately 6,700 people. In 2018, it handled nearly 44 million tonnes of product,
including copper, forestry products, consumer goods and agricultural products.
BUSINESS STRATEGY
Neltume Ports' strategy is to grow its businesses through: increasing volumes at existing ports, increasing
ownership in existing ports, and investing in opportunities across select geographies within the Americas.
International growth opportunities allow Neltume Ports to further diversify its cargo type and customer base. Most
of the ports are secured by long-term contracts or concessions and are strategically located near major resource or
agriculture hubs, as well as high density areas of economic importance. The business environment is also supported
by key partnerships with shipping lines and cargo owners.
MARKET OPPORTUNITIES
Through Neltume Port's exposure to global trade and
transportation, the business is able to capitalize on increasing
demand for resources, agriculture and forestry products, as well as
growing macro-economic factors. Latin American GDP growth is
expected to continue at a strong pace; driven by agricultural
exports, global trends in electrification and energy demand, and
continued demand for copper and other energy related products.
Container throughput is expected to grow at a greater pace than
GDP growth. Bulk shipments are expected to increase as demand
for exports such as copper increase. Berth extension opportunities
allow terminals to receive larger ships and volumes and may also
arise from economic growth.
MARKET CHALLENGES
Potential changes in macroeconomic conditions could slow the
growth trajectory of the business. There is exposure to certain
countries with a higher possibility of political unrest and economic
volatility.
Terminal Pacifico Sur
40
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
ORGANIZATIONAL STRUCTURE
(1) ATCO Investments includes commercial real estate investments held for sale, lease or development.
(2) Regulated businesses include Natural Gas Distribution, Natural Gas Transmission, International Natural Gas Distribution, Electricity Distribution, and
Electricity Transmission.
(3) Canadian Utilities' 100 per cent owned subsidiary CU Inc. includes Natural Gas Distribution, Natural Gas Transmission, Electricity Distribution, and
Electricity 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).
(5) Retail Energy, through ATCO Energy Ltd. (ATCOenergy) was launched in early 2016 to provide retail, commercial and industrial electricity and natural gas
service in Alberta.
The 2018 Consolidated Financial Statements include the accounts of ATCO Ltd., including a proportionate share of
joint venture investments and its equity-accounted investment in associate company (Neltume Ports). Principal
subsidiaries are Canadian Utilities Limited (Canadian Utilities), of which ATCO Ltd. owns 52.2 per cent (38.3 per cent
of the Class A non-voting shares and 89.9 per cent of the Class B common shares), and ATCO Structures & Logistics
Ltd., of which ATCO Ltd. owns 100 per cent of the common shares. ATCO Ltd. also owns 100 per cent of the common
shares of ATCO Investments Ltd. (ATCO Investments) which includes commercial real estate investments held for
sale, lease, or development.
The 2018 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. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
41
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:
42
ATCO LTD. 2018 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. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
43
ATCO STRATEGIES
ATCO is focused on investments that put us at the forefront of global trends. We will strive to deliver growth within
our holding company portfolio with a focus on select opportunities in the essential global services of: housing,
logistics and transportation, agriculture, water, real estate, energy and energy infrastructure.
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."
44
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
INNOVATION
We seek to create a work environment where employees are encouraged to take a creative and innovative approach
to meeting our customers' needs. By committing to applied research and development, we are able to offer our
customers unique and imaginative solutions that differentiate us from our competitors.
GROWTH
Long-term sustainable growth is paramount. We approach this strategy by: expanding geographically to meet the
global needs of customers; developing significant, value-creating greenfield projects; and fostering continuous
improvement.
Acquisition opportunities provide ATCO with additional growth potential. We 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 our current and future success. It ensures ATCO 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 ATCO to sustain our
operations and to grow through economic cycles, thereby providing long-term financial benefits.
We continuously review ATCO's holdings to evaluate opportunities to sell mature assets and recycle 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 ATCO.
OPERATIONAL EXCELLENCE
We achieve operational excellence through 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 creates the opportunity to develop partnerships with Indigenous and community groups
that may be affected by projects and operations worldwide, and build ongoing, positive Indigenous relationships
that contribute to economic and social development in their communities. We also engage with governing
authorities, regulatory bodies, and landowners. We encourage partnerships throughout the organization. We
encourage our employees to participate in community initiatives that will serve to benefit non-profit organizations
through volunteer efforts, and the provision of products and services in-kind.
FURTHER COMMENTARY REGARDING STRATEGIES AND COMMITMENTS
ATCO’s financial and operational achievements in 2018 relative to the strategies outlined above are included in this
MD&A, the 2018 Consolidated Financial Statements and 2018 AIF. Further commentary regarding strategies and
commitments to growth, financial strength, innovation, operational excellence, and community involvement will be
provided in the forthcoming 2018 Management Proxy Circular and Sustainability Report. The 2018 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. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
45
ATCO SCORECARD
The following scorecard outlines our performance in 2018.
STRATEGIC
PRIORITIES
INNOVATION
2018 TARGET
2018 PERFORMANCE
Partnered with the Homes for Heroes Foundation, which assists
homeless Canadian Armed Forces veterans. 20 modular “tiny
homes" will be built as transitional housing for veterans so they
can progress with dignity towards a long-term living
arrangement in a neighbourhood.
Completed two affordable housing projects in Surrey, British
Columbia in 2018 and were awarded three more permanent
modular construction projects in British Columbia.
Expanded permanent modular construction product offerings
and completed several projects, including classrooms,
community centres, hotels and independent apartment
complexes in Australia and North America.
Achieved 10 per cent market share and became the 3rd largest
energy retailer in Alberta.
Converted Battle River unit 4 from coal-fired electricity
generation to co-fire with natural gas, lowering emissions and
improving efficiency.
Exploring and testing new
products and methods of
energy delivery to meet
customers' future needs.
Continuous improvement of
existing products and services.
Installed three electric vehicle charging stations in Calgary, Red
Deer and Edmonton, Alberta.
New and existing
products and
services
Advanced research at the Clean Energy Innovation Hub in
Western Australia including using excess renewable energy to
produce hydrogen. The data gathered through this project will
provide technical insights into how hydrogen could act as a
future balancing fuel supporting the electricity grid.
Began installing shared energy infrastructure for apartment
buildings in Australia through a mix of solar technology and
energy from the grid, alleviating some of the high capital costs of
investing in renewable energy.
Launched ATCO Investments, which includes commercial real
estate investments held for sale, lease, or development. Sold
four properties in its portfolio for adjusted earnings of $13
million.
GROWTH
Regulated and
long-term
contracted capital
investment
Geographic
expansion
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 $1.9 billion in regulated and long-term contracted
assets.
Completed the $112 million acquisition of a long-term
contracted 35 MW hydroelectric generation asset in Veracruz,
Mexico.
46
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
STRATEGIC
PRIORITIES
2018 TARGET
2018 PERFORMANCE
FINANCIAL STRENGTH
Credit rating
Maintain investment grade
credit rating.
Access to capital
markets
Access to capital at attractive
rates.
OPERATIONAL EXCELLENCE
Maintained 'A (low)' credit rating with stable outlook with DBRS.
Maintained 'A-' with a stable outlook with Standard & Poor's.
Strengthened the balance sheet through the sale of the Barking
Power assets in the U.K. Sold assets for proceeds of $219 million.
CU Inc. raised $385 million in 30-year debentures at 3.95 per
cent, one of the lowest, long-term coupons achieved in the
Company’s history.
Completed the Company’s inaugural hybrid bond offering with a
$200 million financing at an attractive rate of 5.5 per cent.
Lost-time
employee injury
rate:
Reduce lost-time injury rate
from 2017 amount of 0.25
cases/200,000 hours worked.
Achieved a 36 per cent reduction in the lost time injury rate in
2018 to 0.16 cases/200,000 hours worked.
Total recordable
injury frequency:
employees
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.
Achieved a 35 per cent reduction in total recordable injury
frequency in 2018 to 1.41 cases/200,000 hours worked. This was
achieved through awareness and incident prevention
campaigns. These incident rate reductions were achieved across
ATCO and we continue to compare favourably to industry
benchmarks.
Customer
satisfaction
Achieving high service for the
customers and communities we
serve.
Establish company-wide
customer satisfaction
measurement.
Within the Alberta electricity and natural gas distribution
businesses, more than 95 per cent of customers agreed that
Canadian Utilities provides good service. Within the energy retail
operations, 76 per cent of customers who interact with call
centres are "very satisfied" compared with an industry average
of 72 per cent.
With the increasing breadth of our investments, we continue to
define how we measure customer satisfaction.
Organizational
transformation
Streamline and gain operational
efficiencies.
Integrated natural gas distribution & transmission management
teams.
Implemented program for improved customer connections
across the electricity distribution business to materially reduce
the time and cost of projects.
Implemented Enterprise Resource Planning (ERP) in the cloud
systems thereby streamlining enterprise business processes to
increase productivity, lower costs, and enhance financial
controls.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
47
STRATEGIC
PRIORITIES
2018 TARGET
2018 PERFORMANCE
COMMUNITY INVOLVEMENT
Partnering with the Haisla First Nation on housing contracts for
LNG Canada and Coastal Gaslink Pipelines.
Partnering with Iyon Kechika Contracting Ltd. of the Daylu Dena
Council and member of the Kaska First Nation on the Coeur
Mining Logistics and O&M Services contract.
Continued with the Canada-wide expansion of the Indigenous
Education Awards program, providing 50 awards totaling
$65,500 in 2018.
Hosted a Blue Flame Kitchen Skills program, visiting 7
communities and engaging with 539 students.
8 communities and 119 youth engaged in the inaugural
Governor General Indigenous Youth Leadership Program (now
called ATCO Explore for 2019).
34 communities visited with 4,570 students involved and 38
schools engaged in the Spirit North program.
Expansion of the ATCO Indigenous Relations Committee to
include representatives of ATCO Mexico & ATCO Australia.
In 2018, ATCO and its employees donated $2.72 million and
more than 7,700 hours to more than 800 charities to make our
communities better places to live and work in.
Indigenous
relations
Continue to work together with
Indigenous communities to
contribute to economic and
social development in their
communities.
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.
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ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
STRATEGIC PRIORITIES FOR 2019
The following table outlines our strategic priorities and targets for 2019.
STRATEGIC
PRIORITIES
INNOVATION
2019 TARGET
Expand permanent modular construction into hotels, schools and affordable housing
and seniors' living centers.
Explore and test new products and methods of energy delivery to meet customers'
future needs.
• Expand number of electric vehicle charging stations in Alberta.
• Reduce or replace diesel consumption with more energy efficient solutions for
customers in remote communities.
Demonstrate continuous improvement of existing products and services.
• Complete coal-to-natural gas conversion of Battle River unit 5.
Launch eCommerce platform and digital strategy for ATCOenergy.
Formalize the emergency management and disaster response business offering.
Invest $1.2 billion across our Regulated Utilities and in long-term contracted assets.
• Complete construction of Alberta PowerLine by March 2019.
• Commence construction of natural gas cogeneration power plant in Mexico.
Expand hydrocarbon and waste storage services.
Continue asset expansion into select global markets including: Canada, Australia, Latin
America, and the U.S.
New and existing products
and services
GROWTH
Regulated and long-term
contracted capital
investment
Global expansion
FINANCIAL STRENGTH
Credit rating
Maintain investment grade credit rating.
Access to capital markets
Access capital at attractive rates.
OPERATIONAL EXCELLENCE
Lost-time incident frequency:
employees
Total recordable incident
frequency: employees
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.
Customer satisfaction
Achieve high service for the customers and communities we serve. Results from
customer satisfaction surveys should be consistent or better than in prior years.
Organizational
transformation
COMMUNITY INVOLVEMENT
Indigenous relations
ATCO EPIC
(Employees Participating
in Communities)
Streamline and gain operational efficiencies.
• Adopt lean manufacturing processes and increase production automation for
Modular Structures' North American manufacturing facilities.
• Continue to optimize ERP implementation.
• Complete strategic review of Canadian electricity generation assets.
• Complete strategic review of Alberta PowerLine ownership interest.
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. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
49
CAPITAL INVESTMENT PLANS
In the 2019 to 2021 period, ATCO subsidiary Canadian Utilities expects to invest $3.6 billion in Regulated Utility and
commercially secured energy infrastructure 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. Electricity Distribution
and Electricity 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 2019 to 2021.
In addition to capital investments in the Regulated Utilities, Canadian Utilities intends to invest $0.1 billion in long-term
contracted capital in the APL Fort McMurray West 500-kV Project, contracted industrial water storage in northern Alberta,
and in a long-term contracted cogeneration facility in Mexico. ATCO also continues to pursue various business
development opportunities with long-term potential, such as Neltume Port's growth opportunities and Modular Structures
global rental fleet expansion and targeted acquisitions, which are not included in these capital growth investment
estimates.
Future Regulated Utility and Contracted Capital Investment
* Includes the Company's proportionate share of investment in partnership interests and cash used for service concession arrangements.
50
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
PERFORMANCE OVERVIEW
FINANCIAL METRICS
The following chart summarizes key financial metrics associated with our financial performance.
($ millions, except per share data and outstanding shares)
Key Financial Metrics
Revenues
Adjusted earnings (1)
Structures & Logistics
Canadian Utilities Limited
Electricity
Pipelines & Liquids
Canadian Utilities Corporate & Other
Neltume Ports
ATCO Corporate & Other
Adjusted earnings ($ per share) (1)
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):
Year Ended
December 31
2018
2017 (2)
2016
4,888
4,600
4,045
355
15
228
130
(39)
4
17
3.10
328
2.87
335
6
210
144
(35)
—
10
2.93
219
1.92
360
43
213
136
(40)
—
8
3.15
340
2.97
23,344
21,786
19,724
10,798
3,755
1.51
1,897
2,518
9,973
3,527
1.31
1,813
1,821
8,318
3,546
1.14
1,912
1,609
Basic
Diluted
114,394
114,352
114,411
114,788
114,822
114,846
(1) Additional information regarding these measures is provided in the Non-GAAP and Additional GAAP Measures section of this MD&A.
(2) These numbers have been restated to account for the impact of IFRS 15. Additional detail on IFRS 15 is discussed in Note 3 of the 2018 Consolidated
Financial Statements.
REVENUES
Revenues in 2018 were $4,888 million, $288 million
higher than in 2017. Higher revenues in 2018 were
mainly due to revenue recorded at ATCO subsidiary
Canadian Utilities for construction activities at Alberta
PowerLine, improved power market conditions for the
Independent Power Plants, and Thermal PPA revenue
recorded for the termination of the Battle River unit 5
PPA.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
51
ADJUSTED EARNINGS
Our adjusted earnings in 2018 were $355 million, or
$3.10 per share, compared to $335 million or $2.93 per
share in 2017. Higher earnings were recorded in
Structures & Logistics, and ATCO Corporate, and ATCO's
investment in Neltume Ports contributed earnings for
the first time.
The primary drivers of adjusted earnings results were as follows:
• Structures & Logistics adjusted earnings in 2018 were $9 million higher than in 2017. The increase was mainly
due to higher space rentals activity, higher trade sale activity particularly in permanent modular construction,
and higher lodging occupancy at the BC Hydro Site C workforce housing camp.
• Canadian Utilities adjusted earnings in 2018 were comparable to 2017.
• Neltume Ports adjusted earnings in 2018 were $4 million. This represents ATCO's share of adjusted earnings
from the closing date of the investment on September 12, 2018 to December 31, 2018.
• ATCO Corporate & Other adjusted earnings in 2018 were $7 million higher than in 2017, mainly due to higher
earnings in ATCO Investments from the sale of four properties in the commercial real estate portfolio.
Additional detail on the financial performance of our Global Business Units is discussed in the Global Business Unit
Performance section of this MD&A.
EARNINGS ATTRIBUTABLE TO CLASS I AND CLASS II SHARES
Earnings attributable to Class I and Class II Shares were $328 million in 2018, or a $109 million increase compared to
$219 million in 2017. Earnings attributable to Class I and Class II Shares include significant impairments, timing
adjustments related to rate-regulated activities, unrealized losses on mark-to-market forward commodity contracts,
one-time gains and losses, and items that are not in the normal course of business or a result of day-to-day
operations. These items are not included in adjusted earnings. The main drivers of the increase were a 2018 gain on
sale of ATCO subsidiary Canadian Utilities' 100 per cent ownership interest in the Barking Power assets, and
unrealized gains on mark-to-market forward commodity contracts.
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 2018 and how that growth was financed. Total assets grew from $21.8 billion in 2017 to $23.3 billion at year
end 2018. That growth occurred mainly as a result of the investment in Neltume Ports, 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 2018 earnings, partially offset by higher dividends paid to share owners.
52
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
COMMON SHARE DIVIDENDS
On January 10, 2019, the Board of Directors declared a
first quarter dividend of 40.48 cents per share.
Dividends paid to Class I and Class II Share owners
totaled $173 million in 2018.
We have increased our common share dividend each
year since 1993.
FUNDS GENERATED BY OPERATIONS
Funds generated by operations were $1,897 million in
2018, $84 million higher than in 2017. The increase was
mainly due to higher customer contributions for utility
capital expenditures, and lower cash income taxes paid.
CAPITAL INVESTMENT
Total capital investment in 2018 was $2,518 million.
Capital spending in the Regulated Utilities and on long-
term contracted capital assets accounted for
$1,894 million in 2018. Of this capital invested,
$1,089 million was invested in Regulated Utilities, and
$805 million was invested in long-term contracted
assets including Alberta PowerLine and the Mexico
hydroelectric power station acquisition. These
investments either earn a return under a regulated
business model or are under commercially secured
long-term contracts. We also invested approximately
$450 million for a 40 per cent equity interest in
Neltume Ports, a leading port operator and developer
in South America. The remaining $180 million invested
in 2018 included the acquisition of a modular
structures manufacturing facility in Mexico, and
expansion of the Modular Structures space rental fleet
globally.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
53
GLOBAL BUSINESS UNIT PERFORMANCE
REVENUES
Structures & Logistics revenues of $140 million in the fourth quarter of 2018 were $3 million higher than in 2017,
mainly due to increased international trade sale activity, higher lodging occupancy at BC Hydro Site C, and the
commencement of the Real Property North project in March 2018.
Structures & Logistics revenues of $511 million in 2018 were $5 million lower than in 2017, mainly due to the ramp
down of certain projects as planned and lower revenues from used fleet sales, partially offset by increased
international trade sale and space rentals activity, higher lodging occupancy at BC Hydro Site C, and the start of the
Real Property North project in March 2018.
ADJUSTED EARNINGS
($ millions)
Modular Structures
Frontec
Logistics and Facility O&M Services
Lodging & Support Services
Total Frontec Adjusted Earnings
Other (1)
Total Structures & Logistics Adjusted Earnings
Three Months Ended
December 31
Year Ended
December 31
2018
2017
Change
2018
2017
Change
8
2
1
3
(6)
5
7
1
—
1
(6)
2
1
1
1
2
—
3
24
7
4
11
(20)
15
17
6
3
9
(20)
6
7
1
1
2
—
9
(1) Other includes financial results for Structures & Logistics’ corporate office.
Adjusted earnings achieved by Structures & Logistics in the fourth quarter and full year of 2018 were $3 million and
$9 million higher than the same periods in 2017. The increase was mainly due to higher space rentals activity, higher
trade sale activity particularly in permanent modular construction, and higher lodging occupancy at the BC Hydro
Site C workforce housing camp.
Detailed information about the activities and financial results of the Structures & Logistics' businesses is provided in
the following sections.
MODULAR STRUCTURES
Modular Structures manufactures, sells and leases transportable workforce and residential 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 construction, pre-fabricated and relocatable modular buildings.
Adjusted earnings in the fourth quarter and full year of 2018 were $1 million and $7 million higher than the same
periods in 2017. Higher adjusted earnings were mainly due to higher space rentals activity and profit margins in
54
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
Canada, Australia, Mexico and Chile, and higher trade sales particularly in permanent modular construction in
Canada and Australia. Higher earnings were partially offset by lower workforce housing rental earnings in the U.S.
mainly due to the ramping down of the LNG Modular Structures rental project.
Rental Fleet Statistics
The following table compares Structures & Logistics’ manufacturing hours and rental fleet for the fourth quarter and
full year of 2018 and 2017.
North America
Manufacturing hours (thousands)
156
97
61%
487
296
65%
Three Months Ended
December 31
Year Ended
December 31
2018
2017
Change
2018
2017
Change
Global Space Rentals
Number of units
Average utilization (%)
Average rental rate ($ per month)
Global Workforce Housing
Number of units
Average utilization (%)
Average rental rate ($ per month)
15,321
13,456
14% 15,321
13,456
74
548
72
473
2%
16%
75
519
70
466
14%
5%
11%
2,774
3,708
(25%)
2,774
3,708
(25%)
36
41
1,969
1,864
(5%)
6%
40
37
1,877
1,966
3%
(5%)
Increased manufacturing hours in the fourth quarter and full year of 2018 were mainly due to increased trade sale
activity in permanent modular construction in North America and Australia, and due to expansion of the space
rental fleet.
The increase in the number of space rental units is mainly due to the acquisition of ATCO Espaciomovil in Mexico as
well as expansion of the space rental fleet in the United States. The increase in space rental utilization and rental
rates have increased in all geographies, but was particularly pronounced in central Canada and the eastern
seaboard of Australia mainly due to strong activity in the construction sector.
The decrease in the workforce housing units is mainly due to used fleet sales of non-utilized units in Canada and
Australia. The decrease in fourth quarter utilization is mainly due to the ramp down of the LNG Modular Structures
project in Lake Charles, Louisiana and the redeployment of Barge Landing workforce housing units. The increase in
the 2018 utilization rate was primarily due to fleet sales of non-utilized units in Canada and Australia. The fourth
quarter 2018 rental rate increase is due to an Alberta-based workforce housing project coming off rent at a lower
than average rate. The decrease in rental rate in 2018 is mainly due to the ramp down of the LNG Modular
Structures Project.
MODULAR STRUCTURES RECENT DEVELOPMENTS
LNG Canada Workforce Accommodation Modular Supply Contract
In December 2018, ATCO announced that, through its wholly owned entity ATCO Structures LNG Limited
Partnership, it entered into a joint venture with a subsidiary of Bird Construction Inc. to design, engineer and
construct a 4,500-person workforce accommodation centre, known as the Cedar Valley Lodge. The facility will be
built to house workers involved in the construction of LNG Canada’s natural gas liquefaction and export facility. The
Bird-ATCO Joint Venture will execute a modular supply contract for 4,500 accommodation rooms for the Cedar Valley
Lodge Project through a joint venture between ATCO and the Haisla Nation. Design and engineering for the project
is currently underway, with construction expected to begin in spring 2019.
The project is one of the largest accommodation facilities ever built in Canada and will provide high quality
amenities for the LNG Canada workforce. ATCO has executed several operational support services contracts and
modular site accommodation projects within the Kitimat region. Since 2011, the Company has operated a successful
joint-venture partnership with the Haisla Nation.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
55
Coastal Gaslink Pipeline Contract
In December 2018, Structures & Logistics and its joint-venture partner, the Haisla Nation, were chosen to provide
workforce housing and operational support services for three camps in the Haisla territory to support the
construction of the Coastal GasLink pipeline in British Columbia. The contract has a combined value of
approximately $40 million.
The three camps are proposed to commence operations in phases starting in March 2019 and continue operations
until August 2022. ATCO has operated a successful partnership with the Haisla Nation since 2011, delivering
multiple camp and modular site accommodation projects within the Kitimat region of British Columbia.
LNG Modular Structures Project
In April 2018, Structures & Logistics executed a contract extension to supply accommodations for 750 persons at the
Lake Charles, Louisiana LNG Modular Structures project. The extension agreement runs until June 2019. The original
29-month contract was awarded in 2015 for the design, construction, transportation, installation and rental of
modular units for a 1,900-person village. The original 29-month agreement was completed in May 2018.
Mexico Modular Structures Acquisition
In 2018, Structures & Logistics acquired a majority
ownership position in ATCO Espaciomovil, a leading
modular building manufacturer in Mexico. With a
182,000 sq. ft. manufacturing plant and
approximately 1,300 modular rental units in
operation, ATCO is now the largest manufacturer of
modular products in the Mexican market, with the
second largest fleet of modular rental assets in the
country. The fleet is currently 80 per cent utilized on
existing rental contracts. ATCO Espaciomovil serves a
diverse customer base across Mexico and Central
America. Its manufacturing facility, located in
Guadalajara, Mexico, produces a wide range of
modular products including workforce
accommodation, classrooms, offices, hospitals, and
retail and commercial buildings that include hotel
amenities.
Chile Modular Structures Manufacturing Facility
Guadalajara Manufacturing Facility, Mexico
To further solidify our foothold in South America, Structures & Logistics designed and constructed a new modular
structures manufacturing facility in Santiago, Chile through our partnership with Ultramar in ATCO Sabinco S.A.
Construction was completed in the second quarter of 2018. The 118,000 sq. ft. facility has the capacity to rapidly
produce up to eight modular units per day.
Chile Modular Structures Manufacturing Facility
56
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
Australia Manufacturing Facility
In the fourth quarter of 2018, Structures & Logistics opened a custom-built 330,000 sq. ft. manufacturing facility
near Brisbane, Queensland which will complement an existing manufacturing plant in Perth, Western Australia. The
new facility will meet the growing demand in traditional markets such as mining and construction, and also serve
emerging permanent modular construction markets within the health, education, justice and commercial sectors.
Brisbane Manufacturing Facility, Australia
Permanent Modular Construction
Emerging permanent modular construction markets within the health, education, justice and commercial sectors
offer development opportunities outside of the traditional natural resource sector. Over the last several years,
Modular Structures has been developing a customer base in these new market sectors.
In 2018, Structures & Logistics completed several trade sales for permanent modular construction projects,
including classrooms for the state of Victoria, Australia, and community centres, hotels and independent apartment
complexes in North America. Modular Structures will continue to pursue these diversification opportunities going
forward.
Permanent Modular classroom in the state of Victoria, Australia
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
57
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. Logistics and
Facility Services also offers emergency management and disaster responses services.
Adjusted earnings for the fourth quarter and full year of 2018 were $1 million higher than the same periods in 2017
mainly due to higher activity at various facility contracts.
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 and full year of 2018 were $1 million higher than the same periods in 2017.
Higher adjusted earnings were mainly due to higher lodging occupancy at the BC Hydro Site C workforce housing
camp.
FRONTEC RECENT DEVELOPMENTS
Coeur Mining Logistics and O&M Services Contract
In December 2018, Frontec successfully secured a
new contract to provide camp support services to
Coeur Mining, Inc.’s Silvertip mine in northern British
Columbia, approximately 8 km south of the Yukon
border. As part of the contract, Frontec will provide
food services and commissary, housekeeping and
janitorial, maintenance and front desk management
for the 300-person facility. In an effort to provide
employment and training opportunities to local
Indigenous Peoples, Frontec has partnered with Iyon
Kechika Contracting Ltd. of the Daylu Dena Council
and members of the Kaska First Nation to assist in
the completion of the contract.
Real Property North Contract
Coeur Mining, Inc.’s Silvertip mine camp
In March 2018, Frontec commenced a five year contract with the Defence Construction Canada to provide facility
maintenance and support services at Canadian Armed Forces (CAF) sites across the Canadian North. Frontec
provides 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. The five year contract
has an option to renew for up to five additional years.
58
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
Canadian Utilities is a diversified global energy infrastructure corporation delivering service excellence and
innovative business solutions in Electricity (electricity generation, transmission, and distribution); Pipelines & Liquids
(natural gas transmission, distribution and infrastructure development, energy storage, and industrial water
solutions); and Retail Energy (electricity and natural gas retail sales).
ELECTRICITY
ELECTRICITY REVENUES
Electricity revenues of $637 million in the fourth quarter of 2018 were $130 million lower than the same period in
2017, mainly due to the prior year revenue recognition associated with the Muskeg lease conversion in fourth
quarter 2017 and lower revenues recorded due to reduced construction activity for Alberta PowerLine (APL). These
lower revenues were partially offset by revenues from improved market conditions for Independent Power Plants
and recognition of early energization incentives for APL recognized in the fourth quarter of 2018.
Electricity revenues of $2,858 million in 2018 were $398 million higher than in 2017, mainly due to revenue recorded
for construction activities at APL, improved market conditions for the Independent Power Plants, and Thermal PPA
revenue recorded for the termination of the Battle River unit 5 PPA, partially offset by the prior year revenue
recognition associated with the Muskeg lease conversion.
ELECTRICITY ADJUSTED EARNINGS
($ millions)
Regulated Electricity
Electricity Distribution
Electricity Transmission
Total Regulated Electricity Adjusted Earnings
Non-regulated Electricity
Independent Power Plants
Thermal PPA Plants
International Electricity Generation
Alberta PowerLine
Total Non-regulated Electricity Adjusted
Earnings
Total Electricity Adjusted Earnings
Three Months Ended
December 31
Year Ended
December 31
2018
2017 (1)
Change
2018
2017 (1)
Change
14
22
36
6
3
1
8
18
54
16
27
43
1
4
2
1
8
51
(2)
(5)
(7)
5
(1)
(1)
7
10
3
59
92
151
9
44
6
18
77
228
71
104
175
2
18
7
8
35
210
(12)
(12)
(24)
7
26
(1)
10
42
18
(1) These numbers have been restated to account for the impact of IFRS 15. Additional detail on IFRS 15 is discussed in Note 3 of the 2018 Consolidated
Financial Statements.
Electricity earnings were $54 million and $228 million in the fourth quarter and full year of 2018, $3 million and
$18 million higher than the same periods in 2017. Higher fourth quarter earnings were mainly due to higher
earnings from APL and improved conditions in the Alberta power market. Higher earnings in 2018 were mainly due
to earnings associated with the Balancing Pool's termination of the Battle River unit 5 PPA, earnings associated with
the sale of the Barking Power assets, higher earnings from APL, and improved conditions in the Alberta power
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
59
market. These improved earnings contributions were partially offset by rate rebasing under Alberta's regulated
model in electricity distribution and transmission and lower interim rates approved by the Alberta Utilities
Commission (AUC) for electricity transmission.
Detailed information about the activities and financial results of Electricity's businesses is provided in the following
sections.
REGULATED ELECTRICITY
Regulated Electricity provides regulated electricity distribution, transmission and distributed generation mainly in
northern and central east Alberta, the Yukon and the Northwest Territories.
Electricity Distribution
Electricity distribution earned $14 million and $59 million in the fourth quarter and full year of 2018, $2 million and
$12 million lower than the same periods in 2017. Lower earnings were mainly due to the earnings impact of
operating cost reduction initiatives over the first generation Performance Based Regulation (PBR) period flowing into
customer rates under the 2018 to 2022 second generation PBR framework. The lower earnings from PBR rebasing
were partially offset by earnings from continued growth in rate base and additional return on equity (ROE) due to
the impact of the PBR efficiency carry-over mechanism (ECM), higher industrial demand, and new operational
efficiencies realized in 2018. The ECM is granted to distribution utilities in the first two years of the second
generation PBR for demonstrating superior cost savings in the prior PBR period.
Electricity Transmission
Electricity transmission earned $22 million and $92 million in the fourth quarter and full year of 2018, $5 million and
$12 million lower than the same periods in 2017. Lower earnings were mainly due operating cost reduction
initiatives flowing into customer rates in the 2018 to 2019 General Tariff Application (GTA) and due to the earnings
impact of lower interim rates approved by the AUC. Upon receipt of the AUC's decision on the GTA, which is
expected in mid-2019, existing interim rates will be updated to include the impact of the decision. If the AUC
decision approves all of the aspects of the GTA, the total potential increase to 2018 earnings would be an additional
$7 million and would be recognized in 2019 adjusted earnings upon receipt of the decision in 2019.
NON-REGULATED ELECTRICITY
Non-regulated electricity activities supply electricity from natural gas, coal-fired and hydroelectric generating plants
in Western Canada, Ontario, Australia and Mexico and non-regulated electricity transmission in Alberta.
Generating Plant Availability
Electricity generating availability for the fourth quarter and full year of 2018 and 2017 is shown in the table below.
Generating plant capacity fluctuates with the timing and duration of outages.
Independent Power Plants
Thermal PPA Plants
International Electricity Generation
Three Months Ended
December 31
Year Ended
December 31
2018
2017
Change
2018
2017
Change
96%
94%
79%
95%
88%
96%
1%
6%
(17%)
94%
95%
94%
94%
93%
98%
—
2%
(4%)
Availability in Independent Power Plants in the fourth quarter of 2018 and for the full year of 2018 was comparable
to the same periods in 2017.
Higher availability in Thermal PPA Plants in the fourth quarter and full year of 2018 is primarily due to a planned
major outage at the Sheerness plant in 2017.
Lower availability in International Electricity Generation Plants in the fourth quarter and full year of 2018 was due to
an unplanned outage at the Osborne plant in Adelaide, Australia. This was the first significant unplanned outage in
its 20-year history. The Osborne plant returned to service in November 2018.
60
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
Alberta Power Market Summary
Average Alberta Power Pool and natural gas prices and the resulting spark spreads for the fourth quarter and full
year of 2018 and 2017 are shown in the table below.
Three Months Ended
December 31
Year Ended
December 31
2018
2017
Change
2018
2017
Change
Average Alberta Power Pool electricity price ($/MWh)
Average natural gas price ($/GJ)
Average market spark spread ($/MWh)
55.52
1.48
44.45
22.46
33.06
50.35
22.19
1.64
(0.16)
10.16
34.29
1.42
39.69
2.05
6.84
28.16
(0.63)
32.85
The average Alberta Power Pool electricity price for the fourth quarter and full year of 2018 was higher compared to
the same periods in 2017. The quarter and full year increases were mainly due to an increase in carbon prices
affecting overall variable price offers in the market, lower electricity supply as a result of the retirement of 560 MW
and mothballing of 776 MW of coal-fired generation in Alberta, commercial offer behavior, and an increase in
demand.
Realized Forwards Sales Program
Three Months Ended
December 31
Year Ended
December 31
2018
2017
Change
2018
2017
Change
Average volumes settled (MW)
Average realized spark spread ($/MWh)
430
22.88
305
12.56
125
10.32
325
19.47
216
11.67
109
7.80
In the fourth quarter of 2018, 430 MW of power that was sold forward settled at an average realized spark spread of
$22.88 per MWh compared to 305 MW settled at an average of $12.56 per MWh in the same period of 2017.
Forward sales in 2018 resulted in a loss position compared to earnings in 2017 due to the realized spark spread
being lower than the market spark spread of $44.45 per MWh shown above in the Alberta Power Market Summary.
In 2018, 325 MW of power that was sold forward settled at an average realized spark spread of $19.47 per MWh
compared to 216 MW settled at an average of $11.67 per MWh in 2017. Forward sales in 2018 resulted in a loss
position compared to earnings in 2017 due to the realized spark spread being lower than the market spark spread
of $39.69 per MWh shown above in the Alberta Power Market Summary.
Independent Power Plants
In the fourth quarter and full year of 2018, earnings from Independent Power Plants were $5 million and
$7 million higher compared to the same periods in 2017. Higher earnings generated by Independent Power Plants
were mainly due to earnings associated with the sale of the Barking Power assets, and an increase in Alberta market
prices, partially offset by lower earnings from realized forward sales.
Thermal PPA Plants
The electricity generated by the Sheerness plants, and by Battle River unit 5 until September 30, 2018, is sold
through PPAs. Under the PPAs, generating capacity must be made for each generating unit available to the PPA
purchaser of that unit. These arrangements entitle us to recover forecast fixed and variable costs from the PPA
purchaser. Under the IFRS 15 accounting standard, an operations and maintenance margin is included on these
fixed and variable costs and is recognized over the term of the PPAs. Under the terms of the PPAs, counterparties
are also subject to an incentive related to the generating unit availability. Incentives are payable by the PPA
counterparties for availability in excess of predetermined targets. These performance obligation amounts are
recognized based on the estimates of planned outages that impact future generating unit availability and future
electricity prices over the term of the PPAs. Merchant earnings from Battle River unit 5 are recorded in Thermal PPA
Plants in the fourth quarter of 2018.
In the fourth quarter of 2018, earnings from Thermal Power Plants were $1 million lower than the same period in
2017. Earnings from increased Alberta market prices and lower operating costs were offset by earnings foregone
due to the turn back of Battle River unit 5 PPA.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
61
In 2018, earnings from Thermal Power Plants were $26 million higher than 2017 mainly due to higher earnings from
the Balancing Pool's termination of the Battle River unit 5 PPA in the third quarter of 2018. With the termination of
the Battle River unit 5 PPA, $13 million of operations and maintenance margin was recognized as earnings in the
third quarter of 2018. The termination of the Battle River unit 5 PPA also triggered the recognition of $5 million of
earnings from the availability incentive pool as part of the completion of performance obligations. Higher earnings
in 2018 were also due to higher availability incentives under the Sheerness PPA.
International Electricity Generation
International electricity generation activities supplies electricity from two natural gas-fired electricity generation
plants in Australia: the Osborne plant in South Australia and the Karratha plant in Western Australia and from
distributed electricity generation near San Luis Potosí, Mexico and hydroelectric generation near Veracruz, Mexico.
International electricity generation adjusted earnings were $1 million lower in the fourth quarter and full year of
2018 compared to the same periods in 2017. Higher earnings from the electricity generation in Mexico were offset
due to an unplanned outage at the Osborne plant. The Osborne plant returned to service in November 2018.
Alberta PowerLine
Alberta PowerLine is a partnership between Canadian Utilities (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 $8 million and $18 million in the fourth quarter and full year of 2018, $7 million and
$10 million higher when compared to the same periods in 2017. Higher earnings were mainly due to an early
energization incentive recognized in the fourth quarter and increased construction activity in 2018.
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ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
ELECTRICITY RECENT DEVELOPMENTS
Alberta PowerLine
In August 2017, construction commenced on the approximately 500 km Fort McMurray West 500-kV Project. In
2018, construction continued on the project. Fourth quarter and full year 2018 capital investment of $44 million and
$664 million was mainly due to tower assembly and line stringing. The target energization date was June 2019. Due
to the project being ahead of schedule, the expected energization date has been advanced to March 2019 resulting
in the recognition of an early energization incentive.
Construction of Alberta PowerLine
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
63
Sale of Barking Power Assets in the U.K.
In the fourth quarter of 2018, ATCO subsidiary Canadian Utilities sold its 100 per cent ownership interest in the
Barking Power assets. The total proceeds received on sale of the Barking Power assets were $219 million. The sale
resulted in a net increase to adjusted earnings of $6 million related to the reversal of the reclamation costs that
were previously recorded. This transaction is consistent with ATCO's strategy of selling mature assets and recycling
the proceeds into growing areas of the Company.
Thermal PPAs
The electricity generated by the Sheerness plants is sold through PPAs. Until September 30, 2018, the electricity
generated by the Battle River unit 5 plant was sold through a PPA. Under the PPAs, Canadian Utilities must make the
generating capacity for each generating unit available to the PPA purchaser of that unit. These arrangements entitle
Canadian Utilities to recover its forecast fixed and variable costs from the PPA purchaser.
On March 21, 2018, the Alberta Balancing Pool provided notice of their intent to terminate the PPA for Battle River
unit 5. Effective September 30, 2018, the Battle River unit 5 PPA was terminated by the Balancing Pool and dispatch
control was returned to Canadian Utilities. Associated with this change, ATCO recorded $22 million in earnings for
the completion of performance obligations and availability incentives were recognized in earnings in the third
quarter of 2018. These earnings would have been recognized in the normal course of business over the life of the
PPA and are included in adjusted earnings.
In line with coal to natural gas conversion plans for the Battle River generating facility, the non-coal related asset life
was extended to 2037 effective October 1, 2018, which is consistent with the treatment for the Sheerness
generating facility.
Sheerness units 1 and 2 remain under PPA contract and Canadian Utilities will continue to operate Sheerness under
the terms of that PPA which expires at the end of 2020.
Coal to Natural Gas Conversion Strategy
Canadian Utilities is planning to be the first coal-fired generator in Alberta to end coal-fired power generation in its
fleet. In the first quarter of 2018, Canadian Utilities successfully completed a project to co-fire natural gas at Battle
River unit 4, enabling the use of natural gas for 50 per cent of the unit's 155 MW generating capacity. In the next
phase of this initiative, a conversion project will allow co-firing of natural gas on Battle River unit 5 for 100 per cent
of its 385 MW capacity, with an expected completion in late 2019. A full conversion of Battle River unit 4 and Battle
River unit 3 is under analysis.
Canadian Utilities is committed to the conversion of Sheerness unit 1 and unit 2 to run on natural gas. Full
conversion of Sheerness is planned to be completed in advance of firm natural gas supply, which has been secured
for the second quarter of 2022.
Primrose and Rainbow Lake Contracts
During the fourth quarter of 2018, contract renegotiations for both Primrose and Rainbow Lake were completed.
The Primrose contract, which will be a finance lease, will be in effect for a 10-year period commencing on
January 1, 2019. The Rainbow Lake contract amendment takes effect in the second quarter of 2019 until 2030.
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 final version of the Comprehensive Market Design for the capacity market was released on June 29, 2018. The
proposed first capacity auction will start in November 2019, for an obligation from November 2021 for a one year
term. The AESO has developed rules for the implementation of the capacity market design and submitted them to
the AUC in January 2019 with approval expected by July 2019. The Government of Alberta released the Capacity
Market Regulation and amendments to the Fair, Efficient and Open Competition Regulation in December 2018 to
facilitate the implementation of the capacity market.
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ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
Osborne PPA Extension
Canadian Utilities has negotiated a five year extension to the Power Purchase Agreement with Origin Energy
Electricity Limited for the 180 MW Osborne Power facility, located near Adelaide, Australia. The original agreement,
for 180 MW of contracted capacity, was scheduled to expire in 2018 and has now been extended to December 31,
2023. While the extension agreement includes lower pricing terms than the current agreement, the five year
extension represents an outperformance of the project returns contemplated in the original investment decision.
Mexico Hydro Facility
In February 2018, Canadian Utilities completed the acquisition of Electricidad del Golfo, which owns a long-term
contracted, 35 MW hydroelectric power station based in the state of Veracruz, Mexico. The transaction was recorded
for an aggregate purchase price of $112 million.
Electricdad del Golfo Hydroelectric Power Station
Mexico Cogeneration Facility
In March 2018, we announced that Canadian Utilities
will build a 26 MW cogeneration project, known as
the La Laguna Cogeneration facility, on the site of the
Chemours Company Mexicana S. de R.L. de C.V.'s
chemical facility near Gómez Palacio, in the state of
Durango, Mexico. Developed in partnership with
RANMAN Energy, the La Laguna Cogeneration facility
will provide low-carbon and cost-effective electricity
and heat under a long-term agreement. Engineering
and procurement activities are underway. The total
investment associated with the project is
approximately $70 million, and the facility is expected
to be operational in 2020.
Rendition of La Laguna Cogeneration
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
65
Strategic Review of Canadian Electricity Generation Assets
Canadian Utilities announced on September 13, 2018, that it is exploring strategic alternatives for its Canadian
electricity generation business. This process is consistent with the Company’s practice of continually evaluating and
optimizing its portfolio of businesses. There can be no assurance that this process will lead to any transaction.
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ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
PIPELINES & LIQUIDS
PIPELINES & LIQUIDS REVENUES
Pipelines & Liquids revenues of $383 million in the fourth quarter and $1,470 million in the full year of 2018 were
$64 million and $160 million lower than the same periods in 2017. Lower revenues were mainly due to lower flow-
through revenues primarily in natural gas distribution for third party transmission rate recovery from customers as
well as the revenue impact of PBR rate rebasing in natural gas distribution.
PIPELINES & LIQUIDS ADJUSTED EARNINGS
($ millions)
2018
2017
Change
2018
2017
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
33
10
7
50
4
54
32
7
6
45
4
49
1
3
1
5
—
5
57
38
29
76
34
28
(19)
4
1
124
138
(14)
6
130
6
144
—
(14)
Pipelines & Liquids earnings of $54 million in the fourth quarter in 2018 were $5 million higher than the same
period in 2017. Higher earnings were mainly due to growth in rate base.
In 2018, earnings were $130 million, $14 million lower than in 2017. Lower earnings were mainly due to rate
rebasing under Alberta's regulated model in natural gas distribution, partially offset by growth in rate base across
the Regulated Pipelines & Liquids businesses.
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
Natural gas distribution services municipal, residential, business and industrial customers throughout Alberta and in
the Lloydminster area of Saskatchewan.
Natural gas distribution earnings in the fourth quarter were $1 million higher than the same period in 2017 mainly
due to the timing of regulatory decisions recorded in 2017.
Earnings in 2018 were $19 million lower than in 2017. Lower earnings were mainly due to the earnings impact of
operating cost reduction initiatives over the first generation PBR period flowing into customer rates under the 2018
to 2022 second generation PBR framework. The lower earnings from PBR rebasing were partially offset by earnings
from continued growth in rate base and customers, additional return on equity (ROE) due to the PBR efficiency
carry-over mechanism (ECM), and continued operational efficiencies realized in 2018. The ECM is granted to
distribution utilities in the first two years of the second generation PBR for demonstrating superior cost savings in
the prior PBR period.
Natural Gas Transmission
Natural gas transmission 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 of Alberta or to
other pipeline systems, primarily for export out of the province.
Natural gas transmission earned $10 million in the fourth quarter and $38 million in the full year of 2018, $3 million
and $4 million higher than the same periods in 2017. Higher earnings were mainly due to continued growth in rate
base.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
67
International Natural Gas Distribution
International natural gas distribution is a regulated provider of natural gas distribution services in Western Australia,
serving metropolitan Perth and surrounding regions.
International natural gas distribution business earned $7 million in the fourth quarter and $29 million in the full
year of 2018, $1 million higher than the same periods in 2017. Higher earnings, mainly due to continued rate base
growth, were partially offset by the foreign exchange impact of a weaker Australian currency compared to the
Canadian dollar.
NON-REGULATED PIPELINES & LIQUIDS
Storage & Industrial Water
Storage & Industrial Water provides industrial water services and non-regulated natural gas and hydrocarbon
storage, and transmission activities in Alberta.
Storage & industrial water business earned $4 million in the fourth quarter and $6 million in the full year of 2018,
comparable to the same periods in 2017. Higher earnings from the hydrocarbon storage assets were offset by lower
contributions from ancillary services.
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ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
PIPELINES & LIQUIDS RECENT DEVELOPMENTS
Hydrocarbon Storage
In 2018, construction was completed on two more salt caverns, doubling the capacity at the ATCO Heartland Energy
Centre near Fort Saskatchewan, Alberta. Long-term contracts have been secured for all four caverns, which have a
combined hydrocarbon storage capacity of 400,000 cubic metres. The first two caverns have been in service since
the fourth quarter of 2016, and the two new caverns began contributing earnings in the second quarter of 2018.
ATCO Heartland hydrocarbon storage facility
Industrial Water
In the fourth quarter of 2017, ATCO Subsidiary Canadian Utilities 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. In the first quarter
of 2018, it was confirmed with Inter Pipeline that the water services contract will commence in 2020.
With the addition of these services, we continue to grow the suite of water and wastewater services for industrial
customers throughout Alberta’s Industrial Heartland.
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
approximately $900 million. Natural gas distribution and natural gas transmission invested $750 million in the UPR
program since the program's inception.
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
potential 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 1,841 km of plastic pipe 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 305 km of steel pipe since the program's inception.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
69
International Natural Gas Transmission - Mexico Tula Pipeline
In 2014, ATCO subsidiary Canadian Utilities 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.
Pembina-Keephills Project
The Pembina-Keephills project is a 59 km high-pressure natural gas pipeline located approximately 80 km south-
west of Edmonton, Alberta. The project directly supports coal-to-gas conversion of power producers in the Genesee
and surrounding areas of Alberta with the capacity to deliver up to 550 TJ per day. The pipeline will supply natural
gas to the Genesee generating station and has capacity to support the forecast demands of other power producers
in the area. Construction is expected to start in mid-2019 and be completed by early-2020. The estimate to
construct this project is approximately $200 million and is included in our three year capital investment plan.
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ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
CANADIAN UTILITIES CORPORATE & OTHER
Canadian Utilities' Corporate & Other segment includes Retail Energy through ATCOenergy, launched in 2016 to
provide retail electricity and natural gas services in Alberta. Corporate & Other also includes the global corporate
head office in Calgary, Canada, the Australia corporate head office in Perth, Australia and the Mexico corporate head
office in Mexico City, Mexico. Canadian Utilities Corporate and Other also includes CU Inc. and Canadian Utilities
preferred share dividend expenses.
Including intersegment eliminations, Canadian Utilities Corporate & Other adjusted earnings in the fourth quarter of
2018 were comparable to the same period in 2017.
Canadian Utilities Corporate and Other adjusted earnings for 2018 were $4 million lower than in 2017 mainly due to
the timing of certain expenses, as well as forgone earnings from the sale of Canadian Utilities' 24.5 per cent
ownership interest in Structures & Logistics to ATCO which was completed on December 31, 2017.
In 2018, ATCOenergy achieved 10 per cent market share and became the third largest energy retailer in Alberta.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
71
Neltume Ports is a port operator and developer with a diversified portfolio of multipurpose, bulk cargo and
container terminals located in Chile, Uruguay, Argentina, and Brazil.
ADJUSTED EARNINGS
($ millions)
2018
2017
Change
2018
2017
Change
Total Neltume Ports Adjusted Earnings
3
—
3
4
—
4
Three Months Ended
December 31
Year Ended
December 31
Neltume Ports adjusted earnings in 2018 were $4 million. This represents ATCO's share of adjusted earnings from
the closing date of the investment on September 12, 2018 to December 31, 2018.
NELTUME PORTS RECENT DEVELOPMENTS
On September 12, 2018, ATCO invested in a 40 per cent interest in Neltume Ports, a leading port operator and
developer in South America, for approximately CAD$450 million. Neltume Ports, a subsidiary of Ultramar, operates
16 port facilities and three port operation services businesses located in Chile, Uruguay, Argentina, and Brazil.
Neltume Ports’ portfolio is highly diversified across both cargo types and volume mix. Neltume Ports employs
approximately 6,700 people. In 2018, it handled nearly 44 million tonnes of product annually, including copper,
forestry products, consumer goods and agricultural products.
ATCO funded its investment in Neltume Ports with a combination of cash on-hand and funds from committed credit
facilities, and refinanced a portion through a capital markets transaction in the form of a $200 million hybrid debt
instrument. Funds from ATCO’s investment will be used by Neltume Ports to finance opportunities for growth.
Increased Port Ownership
In October 2018, Neltume Ports acquired an additional 21 per cent ownership in Terminales Graneleras Uruguayas
(TGU) bringing the total ownership to 54 per cent. This will allow Neltume Ports to exercise operational control and
therefore strengthen its port operator role in the concession. TGU is a bulk port that stores and transfers mainly soy,
wheat and corn and is located in the port of Nueva Palmira, north of Montevideo, Uruguay. The transaction was
contemplated in ATCO's original equity investment in Neltume Ports.
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ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
ATCO Corporate & Other contains ATCO Investments which is a commercial real estate business that holds
investments for sale, lease or development. ATCO Corporate & Other also includes the global corporate head office
in Calgary, Canada,, ATCO licensing fees received, and financing expenses associated with the Neltume Ports
investment.
ATCO Corporate & Other adjusted earnings in the fourth quarter of 2018 were $2 million, $2 million lower than the
same period in 2017, mainly due to interest paid on the $200 million hybrid debenture used to fund ATCO's
investment in Neltume Ports.
ATCO Corporate & Other adjusted earnings in 2018 were $17 million, $7 million higher than in 2017 mainly due to
higher earnings from ATCO Investments, partially offset by the timing of certain expenses.
ATCO CORPORATE & OTHER RECENT DEVELOPMENTS
Commercial Real Estate Transactions
On July 31, 2018, ATCO Investments sold two Calgary properties in its commercial real estate portfolio for a total of
$10 million of adjusted earnings.
On September 30, 2018, ATCO Investments sold two Edmonton land parcels in its commercial real estate portfolio
for a total of $3 million of adjusted earnings.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
73
REGULATORY DEVELOPMENTS
REGULATED BUSINESS MODELS
The business operations of electricity distribution, electricity transmission, natural gas distribution and natural gas
transmission are regulated mainly by the Alberta Utilities Commission (AUC). The AUC administers acts and regulations
covering such matters as rates, financing and service area.
Natural gas transmission and electricity transmission operate under a cost of service (COS) 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 electricity distribution operate under performance based regulation (PBR). Under PBR,
revenue is determined by a formula that adjusts customer rates for inflation less an estimated amount for 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 incentive based regulation (IBR) under which the ERA
establishes the prices for each five year period to recover a return on projected rate base, including income taxes,
depreciation on the projected rate base, and forecasted operating costs based on projected throughput. 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 forecasts.
Regulated Utilities Mid-Year Rate Base
* IBR means Incentive Based Regulation; COS means Cost of Service Regulation; PBR means Performance Based Regulation
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ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
GENERIC COST OF CAPITAL (GCOC)
In August 2018, the AUC issued a decision approving a Return on Equity (ROE) of 8.5 per cent and capital structure of 37
per cent equity for the 2018, 2019 and 2020 periods for all Alberta utilities. This decision presented no change to the
2018 interim approved ROE and capital structure. In December 2018, the AUC initiated the 2021 GCOC proceeding. The
main focus of the proceeding will be to evaluate if a formula-based approach should be used for the ROE.
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.
Electricity Distribution
Electricity Transmission
Natural Gas Distribution
Natural Gas Transmission
Year
2018
2017
2016
2018
2017
2016
2018
2017
2016
2018
2017
2016
AUC Decision
2018 GCOC (4)
2016 GCOC (3)
2016 GCOC (3)
2018 GCOC (4)
2016 GCOC (3)
2016 GCOC (3)
2018 GCOC (4)
2016 GCOC (3)
2016 GCOC (3)
2018 GCOC (4)
2016 GCOC (3)
2016 GCOC (3)
Rate of Return
on Common
Equity (%) (1)
Common
Equity
Ratio (%) (2)
8.50
8.50
8.30
8.50
8.50 (7)
8.30 (7)
8.50
8.50
8.30
8.50
8.50
8.30
37.0
37.0
37.0
37.0
37.0
37.0
37.0
37.0
37.0
37.0
37.0
37.0
Mid-Year Rate
Base
($ millions)
2,585 (5)
2,471 (6)
2,361 (6)
5,095 (8)
5,097 (6)
5,236 (6)
2,717 (5)
2,549 (6)
2,369 (6)
1,802 (9)
1,614 (6)
1,407 (6)
(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 AUC released its GCOC decision for the periods 2018 to 2020 on August 2, 2018.
The mid-year rate base for 2018 is based on the 2019 PBR application filed on September 10, 2018 and includes estimated mid-year work in progress for
Electricity Distribution and Natural Gas Distribution.
The mid-year rate base for 2016 and 2017 is based on the Rule 005 Actuals Package and includes mid-year work in progress.
The ROE and common equity ratio for Electricity 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 2018 is based on the 2018 to 2019 GTA application update filed on September 4, 2018 and includes mid-year work in progress.
The mid-year rate base for 2018 is based on the 2019 to 2020 General Rate Application filed on July 30, 2018 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
2018
2017
2016
ERA Decision
2016 AA4 (3)
2016 AA4 (3)
2016 AA4 (3)
Rate of Return
on Common
Equity (%) (1)
Common Equity
Ratio (%) (2)
7.21
7.21
7.21
40.0
40.0
40.0
Mid-Year Rate
Base
($ millions)
1,211 (4)
1,179
1,111
(1)
(2)
(3)
(4)
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.
2018 Mid-Year Rate Base was impacted by a strengthening Canadian dollar in 2018. The 2018 Mid-Year Rate Base was calculated using a foreign exchange
rate of Australian $1 to Canadian $0.96 compared to Canadian $0.98 in 2017. The Mid-Year Rate Base in Australian dollars was $1,260 in 2018 and $1,205
in 2017, which is a $55 million increase from 2017 to 2018.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
75
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
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 provided determinations for the going-in rates and
incremental capital funding for the second generation of PBR. In November 2018, the AUC issued a Phase I Review and
Variance decision to reassess anomaly adjustments for all Alberta distribution utilities for the purposes of establishing
2018 going-in rates. On February 14, 2019, the AUC commenced a proceeding to undertake that review. 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 indices (AWE and CPI) adjusted
annually
Inflation indices (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%
• 2018: 8.5% excluding impact of ECM
• 2019: 8.5% excluding impact of ECM
• 2020: 8.5%
• 2021 and beyond: At approved ROE
pending future GCOC proceeding
decisions
76
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
ATCO GAS Z FACTOR DECISION (REGIONAL MUNICIPALITY OF WOOD BUFFALO WILDFIRE)
In June 2018, the AUC issued a decision on natural gas distribution's Z factor application for the recovery of costs and
lost revenues associated with the 2016 Wood Buffalo wildfire near Fort McMurray, Alberta. Substantially all requested
costs and lost revenues were approved as filed.
PBR RE-OPENER
In June 2018, the AUC initiated a process for electricity distribution and natural gas distribution as the re-opener clause
was triggered by both utilities in 2017, the final year of the First Generation PBR plan. The PBR re-opener thresholds are
triggered if a utility's earnings are +/- 500 bps from the approved ROE in one year or +/- 300 bps from approved ROE in
two consecutive years. The AUC has determined that it will proceed with a two-phase process. Within the first phase of
the proceeding, the Commission will determine whether a re-opener of the utilities' 2013 to 2017 plans is warranted
and, if warranted, it will then outline the scope of the second phase.
Electricity distribution and natural gas distribution have filed a submission for the first phase stating that the higher
earnings were a direct result of management’s response to the incentive to implement efficiency improvements and
not due to a flaw in the PBR framework.
ATCO ELECTRIC 2018-2019 GENERAL TARIFF APPLICATION (GTA)
In June 2017, electricity transmission filed a GTA for its operations for 2018 and 2019. In September 2018, electricity
transmission filed an update to its application as directed by the AUC. The September 2018 application update
incorporated, among other things, achieved operating cost efficiencies and resulted in a reduction to the originally
applied-for revenues. Due to additional process steps, as directed by the AUC, a decision is now expected in mid-2019.
If the decision approves all the aspects of the GTA as filed, the favorable earnings impact for 2018 would be an
additional $7 million and would be recognized in 2019 adjusted earnings upon receipt of the decision.
In January 2019, the AUC issued a decision on the interim rates for the 2019 portion of the GTA. The AUC approved a
2019 rate that represents a continuation of the approved 2018 interim rates. The approved amount represents just
over 96 per cent of the applied-for revenue requirement.
ATCO PIPELINES 2019-2020 GENERAL RATE APPLICATION (GRA)
In July 2018, natural gas transmission filed a GRA for 2019 and 2020. The application requests, among other things,
additional revenues due to rate base growth driven by capital expenditures, such as the Pembina-Keephills Pipeline
project, and operations and maintenance expenditures. A decision from the AUC is expected in mid-2019.
ATCO GAS AUSTRALIA ACCESS ARRANGEMENT
International natural gas distribution submitted Access Arrangement 5 (AA5) to the ERA on August 31, 2018. The ERA is
expected to deliver a draft AA5 decision by the end of the first quarter of 2019 and ATCO Gas Australia will have an
opportunity to respond to the draft decision. A final ERA decision on AA5 is expected in the third quarter of 2019. The
tariffs included in the final decision will be applicable as of January 1, 2020 until December 31, 2024.
INFORMATION TECHNOLOGY COMMON MATTERS
In December 2018, the record for the Information Technology Common Matters proceeding, which was initiated in
2015, was closed. This proceeding impacts the recovery of information technology costs by the Alberta Utilities. A
decision is expected in the first quarter of 2019.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
77
SUSTAINABILITY, CLIMATE CHANGE AND
ENERGY TRANSITION
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
Our annual Sustainability Report, expected to be released in June 2019, 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 Sustainability Report is based upon the internationally recognized Global Reporting Initiative (GRI) Standards.
Our reporting is also guided by frameworks such as the Sustainability Accounting Standards Board (SASB) and the
Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) recommendations.
The 2018 Sustainability Report, GRI Content Index, and other disclosures will be available on our website, at
www.ATCO.com.
CLIMATE CHANGE AND ENERGY TRANSITION
To contribute to a lower carbon future, we continue to pursue initiatives looking at integrating lower intensity fuels,
such as natural gas, hydrogen, renewables, and other clean energy solutions.
Climate Change Policy
We actively and constructively work with federal and provincial governments with the goal of finding the best long-
term solutions. We participate in a wide number of discussions, and the following are examples of where we are
focusing our efforts.
Coal-to-Gas Conversion
ATCO subsidiary Canadian Utilities is planning to be the first coal-fired generator in Alberta to convert the coal-fired
power generation fleet to burn lower emitting natural gas.
In 2018, Canadian Utilities was the first coal-fired generator in Alberta to receive a permit to allow a full conversion
for one of the coal units to run on natural gas. Canadian Utilities successfully completed a project to co-fire natural
gas at the coal unit, Battle River unit 4, enabling the use of natural gas for up to 50 per cent of the unit’s 150 MW
generating capacity. The next phase of the initiative will allow the full conversion of a second 385 MW unit, Battle
River unit 5, with an expected completion in late 2019. A full conversion of Battle River unit 4 and Battle River unit 3
is under analysis.
Converting coal-fired electricity generation to natural gas electricity generation allows significant and immediate
reductions to greenhouse gases and air emissions and extends the life of existing assets. In addition, reliability and
affordability are maintained by utilizing existing resources, such as a skilled labour force and existing electricity
transmission infrastructure.
Carbon Pricing / Output-Based Pricing Systems
The Government of Alberta is phasing in a carbon tax across all sectors. The economy-wide carbon tax of $20 per
tonne in 2017 was increased to $30 per tonne in 2018 and is scheduled to rise to $40 per tonne in 2021 and $50 per
tonne in 2022, based on alignment with the Government of Canada carbon tax.
78
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
Sheerness units 1 and 2 PPAs allow for the recovery of the 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. The coal-to-gas conversion plans for Battle River and Sheerness
will not only lower emissions, but will also make the plants more cost effective.
We continue to explore fuel switching opportunities such as reducing or replacing diesel consumption with more
energy efficient solutions for customers in remote communities.
The Alberta Utilities' financial exposure to carbon pricing is not considered significant for electricity transmission
and distribution because of their limited direct carbon emissions. Carbon taxes and other costs or requirements to
upgrade equipment for the Alberta Utilities are expected to be included in customer rates on a go-forward basis.
Clean Fuel Standards
We have been actively engaging with the Government of Canada on proposed Clean Fuel Standards which will be
important to future fuel switching options and innovation. In December 2018, the Government of Canada released a
Regulatory Design Paper for the Clean Fuel Standard. One of the key design elements covered in the paper is that
credits can be generated when end-users displace liquid transportation fuel with natural gas, propane or a non-
carbon energy carrier (such as electricity or hydrogen).
In 2018, ATCO subsidiary Canadian Utilities installed three electric vehicle charging stations between Calgary and
Edmonton, Alberta providing end-users an opportunity to replace liquid fuel with a non-carbon emitting energy. In
2019, Canadian Utilities plans to significantly expand its number of electric vehicle charging stations in Alberta.
Methane Reductions
The Government of Alberta's plan is to reduce methane emissions by 45 per cent from 2012 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 Canadian Utilities' greenhouse gas emissions. Canadian Utilities has already
implemented a number of programs to improve efficiency and reduce fugitive and venting emissions in the natural
gas distribution and transmission businesses.
We continue to monitor developments, such as provincial equivalency to the Government of Canada announcement
to reduce methane emissions from the oil and gas sector by 40 to 45 percent from 2012 levels by 2025.
These methane regulations could affect a portion of the Company’s fugitive or venting emissions from Canadian
natural gas pipeline-related operations. But 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.
Phasing-in of Renewable Electricity
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 of Alberta's Renewable Electricity
Program (REP) is intended to encourage the development of this large-scale renewable electricity generation to
support the target. The AESO is responsible for implementing and administering the program through a series of
competitions that incent the development of renewable electricity generation through the purchase of renewable
attributes.
On October 2, 2018, the Government of Alberta announced a Request for Proposal (RFP) for a new solar energy
procurement process for 135,000 MWh per year for 20 years. Canadian Utilities submitted a proposal for 50 MW of
solar generation to this procurement process. The successful proponents were announced on February 15, 2019.
Canadian Utilities was not awarded a contract through this solar procurement process.
We have 75 MWs of potential solar projects located near Three Hills and Drumheller, Alberta, where Canadian
Utilities and Samsung have obtained permits to build and operate solar power generation facilities. We will continue
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
79
to look for opportunities to advance these solar projects either through future Government of Alberta REP
competitions, solar RFP procurement processes or through other long-term contracts.
We actively look for renewable energy generation investment opportunities in other jurisdictions. In 2018, we
acquired a 35 MW hydroelectric generation asset in Veracruz, Mexico.
Climate Change Resiliency
Climate-related risks are included within the Company's established risk management process. We continue to
carefully manage physical risks, including preparing for, and responding to, extreme weather events through
activities such as proactive route selection, asset hardening, regular maintenance, and insurance. The Company
follows regulated engineering codes and continues to evaluate ways to create greater system reliability and
resiliency. When planning for capital investment or acquiring assets we consider site specific climate and weather
factors, such as flood plain mapping and extreme weather history.
In electricity transmission and distribution operations, grid resiliency initiatives focus on prevention, protection, and
reaction. Prevention includes minimizing operational risks and ensuring system adequacy through system planning
and coordination. Protection is focused on improving grid resiliency through activities such as retrofitting and
vegetation management to reduce incidents that result in outages. For example, in addition to other regular
maintenance activities, Wildfire Management Plans include requirements to conduct annual patrols of all power
lines in forest protection areas. Finally, we look to restore services in the shortest possible timeframe through grid
modernization, adequate contingency planning and dispatch.
In natural gas transmission and distribution activities, the majority of the Company’s pipeline network is
underground, making it less susceptible to extreme weather events. We work with regulators to increase resiliency
where appropriate through asset improvement projects. For example, we are replacing shallow water crossings with
deeper, directionally drilled lines and we are hardening water crossings to prevent further erosion and exposure of
pipelines. We have also mapped and continue to regularly inspect pipeline water crossings.
In our modular structures and logistics activities, we look to leverage our expertise to produce high-efficiency
structures in response to evolving building codes. Our modular housing units are built in factories, which
significantly reduces our emissions and environmental impact. In addition, the availability of deployable modular
housing and logistical services can be an important asset when extreme weather events occur around the world.
We have streamlined our Crisis Response and Emergency Preparedness systems, and we continuously improve our
ability to rapidly mobilize and effectively respond to crises globally. We incorporate learnings from responding to
extreme weather events, such as the 2013 Calgary Flood and 2016 Fort McMurray wildfire in Alberta and 2017
Hurricane Maria in Puerto Rico, which enables us to continue to strengthen our emergency response capabilities.
80
ATCO LTD. 2018 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 2018
and 2017 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 Barking Power assets
Proceeds from termination of Power Purchase Arrangement
Earnings from investment in associate company
Earnings from investment in joint ventures
Depreciation, amortization and impairment
Net finance costs
Income taxes
s
Three Months Ended
December 31
Year Ended
December 31
2018
2017 (1)
Change
2018
2017 (1)
Change
623
44
125
—
3
6
158
130
85
782
132
—
—
—
7
195
116
34
(159)
2,378
2,413
(88)
125
—
3
(1)
(37)
14
51
664
125
62
4
25
682
478
231
456
—
—
—
23
670
417
174
(35)
208
125
62
4
2
12
61
57
(1) These numbers have been restated to account for the impact of IFRS 15. Additional detail on IFRS 15 is discussed in Note 3 of the 2018 Consolidated
Financial Statements.
OPERATING COSTS
Operating costs, which are total costs and expenses less service concession arrangement costs and depreciation,
amortization and impairment, decreased by $159 million in the fourth quarter when compared to the same period
in 2017. Lower operating costs were mainly due to lower unrealized losses on mark-to-market forward commodity
contracts for the Independent Power Plants and Thermal PPA Plants not governed by a PPA, and costs recognized in
the fourth quarter of 2017 relating to the accounting reclassification of a finance lease.
In 2018, operating costs decreased by $35 million when compared to 2017. Decreased costs were mainly due to
unrealized gains on mark-to-market forward commodity contracts for the Independent Power Plants and costs
recognized on the accounting reclassification of a finance lease in the fourth quarter of 2017, partially offset by
higher salaries and wages resulting from severance payments, planned maintenance expenses, higher purchased
power costs in ATCOenergy due to a growing customer portfolio, and higher carbon taxes for electricity generation
which are offset by higher electricity generation revenues.
SERVICE CONCESSION ARRANGEMENT COSTS
Service concession arrangement costs in the fourth quarter and full year of 2018 are costs Alberta PowerLine has
recorded on third party construction activities for the Fort McMurray West 500-kV Project.
GAIN ON SALE OF BARKING POWER ASSETS
In the fourth quarter of 2018, ATCO subsidiary Canadian Utilities sold its 100 per cent ownership interest in the
Barking Power assets. In accordance with IFRS accounting standards, ATCO recorded a gain on sale of $125 million
before tax.
PROCEEDS FROM TERMINATION OF POWER PURCHASE ARRANGEMENT
Effective September 30, 2018, the Battle River unit 5 PPA was terminated by the Balancing Pool and dispatch control
was returned to ATCO subsidiary Canadian Utilities. Canadian Utilities received a $62 million payment from the
Balancing Pool.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
81
EARNINGS FROM INVESTMENT IN ASSOCIATE COMPANY
Earnings from investment in associate company is comprised of our 40 per cent ownership interest in Neltume
Ports, a leading port operator and developer in South America with operations in 16 port facilities and three port
operation services businesses located in Chile, Uruguay, Argentina, and Brazil. From the date of investment in
Neltume Ports, earnings from investment in associate company of $3 million and $4 million were recorded in the
fourth quarter and full year of 2018.
EARNINGS FROM INVESTMENT IN JOINT VENTURES
Earnings from investment in joint ventures is mainly comprised of ownership positions 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 were $1 million lower in the fourth quarter of 2018 compared to the same period in 2017 mainly due to an
unplanned outage at the Osborne plant, the first significant unplanned outage in its 20-year history. Earnings were
$2 million higher in 2018 compared to 2017 mainly due to higher earnings contributions from the hydrocarbon
storage facilities.
DEPRECIATION, AMORTIZATION AND IMPAIRMENT
In the fourth quarter of 2018, depreciation, amortization and impairment expense was $37 million lower compared
to the same period in 2017 mainly due to the impairment on workforce housing assets recognized in Structures &
Logistics in the fourth quarter of 2017.
In 2018, depreciation and amortization was $12 million higher compared to 2017 mainly due to the ongoing capital
investment program in the Regulated Utilities as well as costs related to decisions to discontinue certain projects
that no longer represent long-term strategic value to the Company.
NET FINANCE COSTS
Net finance costs increased by $14 million and $61 million in the fourth quarter and full year of 2018 when
compared to the same periods in 2017, mainly as a result of incremental debt issued to fund the ongoing capital
investment program in the Regulated Utilities, and Alberta PowerLine's project financing completed in October
2017.
INCOME TAXES
Income taxes increased by $51 million in the fourth quarter and $57 million in the full year of 2018 when compared
to the same periods in 2017 mainly due to higher earnings before income taxes.
82
ATCO LTD. 2018 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.
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 Pty Ltd.
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 Pty Ltd. (1)
Issuer and senior unsecured debt
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+
(1) ATCO Gas Australia Pty Ltd. is a regulated provider of natural gas distribution services in Western Australia, serving metropolitan Perth and surrounding
regions.
On July 13, 2018, DBRS Limited (DBRS) affirmed its 'A (high)' long-term corporate credit rating and stable trend on
ATCO subsidiary CU Inc. On August 10, 2018, DBRS affirmed its 'A' long-term corporate credit rating and stable trend
on ATCO subsidiary Canadian Utilities Limited. On August 30, 2018, DBRS affirmed its 'A (low)' long-term corporate
credit rating and stable trend on ATCO.
On September 21, 2018, S&P Global Ratings (S&P) affirmed its 'BBB+' long-term issuer credit rating and stable
outlook on ATCO subsidiary ATCO Gas Australia Pty Ltd.
On September 27, 2018, S&P affirmed its 'A-' long-term issuer credit rating and stable outlook on ATCO Ltd. and its
subsidiaries Canadian Utilities Limited and CU Inc.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
83
LINES OF CREDIT
At December 31, 2018, ATCO and its subsidiaries had the following lines of credit.
($ millions)
Long-term committed
Uncommitted
Total
Total
2,772
571
3,343
Used
850
342
1,192
Available
1,922
229
2,151
Of the $3,343 million in total credit lines, $571 million
was in the form of uncommitted credit facilities with
no set maturity date. The other $2,772 million in
credit lines were committed, with maturities between
2020 and 2023, and may be extended at the option of
the lenders.
Of the $1,192 million credit line usage, $385 million
was related to ATCO Gas Australia Pty Ltd., with the
majority of the remaining usage pertaining to the
issuance of letters of credit. Long-term committed
credit lines are used to satisfy all of ATCO Gas
Australia Pty Ltd.'s term debt financing needs.
84
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
CONSOLIDATED CASH FLOW
At December 31, 2018, the Company's cash position was $691 million, an increase of $197 million compared to
December 31, 2017. Major movements are outlined in the following table:
($ millions)
Funds generated by operations(1)
Proceeds from sale of Barking Power assets
Release of restricted project funds (2)
Issue of 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
2018
2017
Change
2018
2017
Change
490
219
81
662
(225)
(420)
(43)
(54)
(138)
(71)
(23)
478
463
—
374
488
(515)
(586)
(37)
(50)
(116)
(152)
(95)
(226)
27
219
(293)
174
290
166
(6)
(4)
(22)
81
72
704
1,897
1,813
219
726
1,660
165
—
374
488
(45)
(2,518)
(1,821)
(173)
(214)
(485)
(846)
(234)
197
(150)
(198)
(414)
(155)
1
(107)
84
219
352
1,172
210
(697)
(23)
(16)
(71)
(691)
(235)
304
(1) Additional information regarding this measure is provided in the Non-GAAP and Additional GAAP Measures section of this MD&A.
(2) 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, 2018, Alberta PowerLine (APL) had
$339 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 2018 Consolidated Financial Statements for additional information regarding
Restricted Project Funds.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
85
Funds Generated by Operations
Funds generated by operations were $490 million and $1,897 million in the fourth quarter and full year of 2018,
$27 million and $84 million higher than the same periods in 2017. The increase was mainly due to higher customer
contributions for utility capital expenditures, and lower cash income taxes paid.
Cash Used for Capital Investment
Cash used for capital investment was $420 million in the fourth quarter of 2018, $166 million lower than the same
period in 2017. Lower capital spending was mainly due to decreased spending on Alberta PowerLine and in natural
gas distribution and transmission.
Cash used for capital investment was $2,518 million in 2018, $697 million higher than in 2017. Higher capital
spending was mainly due to the investment in Neltume Ports, increased spending in Alberta PowerLine, and the
acquisition of a Mexico hydroelectric facility In Electricity Generation, partially offset by lower planned capital
investment in natural gas distribution.
Capital investment for the fourth quarter of 2018 and 2017 is shown in the table below.
($ 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
CU Corporate & Other
Canadian Utilities Total
Structures & Logistics
Neltume Ports
ATCO Corporate & Other
ATCO Total (1) (2)
Three Months Ended
December 31
Year Ended
December 31
2018
2017
Change
2018
2017
Change
63
81
15
44
203
80
65
24
5
174
3
380
35
—
5
66
83
10
132
291
113
109
27
5
254
1
546
11
—
29
(3)
(2)
5
(88)
(88)
(33)
(44)
(3)
—
(80)
2
227
240
156
664
1,287
290
239
93
26
648
16
227
211
24
456
918
372
297
92
21
782
3
(166)
1,951
1,703
24
—
(24)
113
444
10
37
—
81
420
586
(166)
2,518
1,821
—
29
132
208
369
(82)
(58)
1
5
(134)
13
248
76
444
(71)
697
(1)
(2)
Includes capital expenditures in joint ventures of $5 million and $20 million (2017 - $6 million and $17 million) for the fourth quarter and full year of
2018.
Includes additions to property, plant and equipment, intangibles and $4 million and $20 million (2017 - $4 million and $19 million) of interest capitalized
during construction for the fourth quarter and full year of 2018.
Debt Issuances and Repayments
On November 1, 2018, the Company issued $200 million of fixed-to-floating rate subordinated notes due November
1, 2078. The financing was completed by way of a private placement. The net proceeds of the financing were used to
repay a portion of the bank indebtedness incurred to fund the acquisition of a 40 per cent interest in Neltume Ports.
On November 21, 2018, CU Inc. issued $385 million of 3.95 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.
86
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
Base Shelf Prospectuses
CU Inc. Debentures
On June 11, 2018, 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 27, 2019, aggregate issuances of debentures
were $385 million.
Canadian Utilities Debt Securities and Preferred Shares
On June 11, 2018, 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.
ATCO Financing of Neltume Ports Investment
On August 30, 2018, the Company entered into two credit facilities totaling $350 million, with the purpose of
funding a portion of the investment in Neltume Ports. One credit facility for $150 million matures in August 2021.
The other credit facility for $200 million was terminated shortly after the Company completed the issuance of the
fixed-to-floating rate subordinated notes.
ATCO Gas Australia Refinancing
In July 2018, ATCO Gas Australia completed the refinancing of A$275 million and A$450 million in committed credit
lines, extending the maturities to 2021 and 2023.
Dividends and Common Shares
We have increased our common share dividend each
year since 1993, a 26-year track record. Dividends paid
to Class I and Class II Share owners totaled $43 million
in the fourth quarter and $173 million in the full year of
2018.
On January 10, 2019 the Board of Directors declared a
first quarter dividend of 40.48 cents per share. 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
26 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. The purchase of Class I Shares, at appropriate prices, will also minimize any dilution resulting
from the exercise of stock options.
On March 8, 2018, we commenced a normal course issuer bid to purchase up to 2,026,725 outstanding Class I
Shares. This bid will expire on March 7, 2019. During the year ended December 31, 2018, 116,800 shares were
purchased for $4 million.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
87
SHARE CAPITAL
ATCO's equity securities consist of Class I Shares and Class II Shares.
At February 26, 2019, we had outstanding 101,429,481 Class I Shares, 13,230,647 Class II Shares, and options to
purchase 703,700 Class I Shares.
CLASS I NON-VOTING SHARES AND CLASS II VOTING SHARES
Each Class II Share may be converted into one Class I Share at any time at the share owner’s option. If an offer to
purchase all Class II Shares is made, and such offer is accepted and taken up by the owners of a majority of the
Class II Shares, and, if at the same time, an offer is not made to the Class I Share owners on the same terms and
conditions, then the Class I Shares will be entitled to the same voting rights as the Class II Shares. The two share
classes rank equally in all other respects, except for voting rights.
Of the 10,200,000 Class I Shares authorized for grant of options under our stock option plan, 2,539,900 Class I
Shares were available for issuance at December 31, 2018. Options may be granted to our officers and key
employees at an exercise price equal to the weighted average of the trading price of the shares on the Toronto Stock
Exchange for the five trading days immediately preceding the grant date. The vesting provisions and exercise period
(which cannot exceed 10 years) are determined at the time of grant.
88
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
QUARTERLY INFORMATION
The following table shows financial information for the eight quarters ended March 31, 2017 through December 31,
2018.
($ millions, except for per share data)
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Revenues
Earnings (loss) attributable to Class I and Class II Shares
Earnings (loss) per Class I and Class II Share ($)
Diluted earnings (loss) per Class I and Class II Share ($)
Adjusted earnings per share per Class I and Class II Share ($)
Adjusted earnings
Structures & Logistics
Canadian Utilities
Electricity
Pipelines & Liquids
Canadian Utilities Corporate & Other
Neltume Ports
ATCO Corporate & Other
Total adjusted earnings
($ 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 per share per Class I and Class II Share ($)
Adjusted earnings
Structures & Logistics
Canadian Utilities
Electricity
Pipelines & Liquids
Canadian Utilities Corporate & Other
Neltume Ports
ATCO Corporate & Other
Total adjusted earnings
1,500
90
0.78
0.78
0.87
1,103
(12)
(0.10)
(0.10)
0.53
1,111
115
1.01
1.00
0.76
1,174
135
1.18
1.18
0.94
1
51
53
(8)
—
2
99
6
53
14
(10)
—
(2)
61
3
70
9
(11)
1
15
87
5
54
54
(10)
3
2
108
Q1 2017(1)
Q2 2017(1)
Q3 2017(1)
Q4 2017(1)
1,123
100
0.87
0.86
1.01
1,070
42
0.37
0.37
0.60
1,062
45
0.40
0.40
0.47
1,345
32
0.28
0.28
0.84
—
62
59
(8)
—
3
116
3
51
23
(8)
—
—
69
1
46
13
(9)
—
3
54
2
51
49
(10)
—
4
96
(1) These numbers have been restated to account for the impact of IFRS 15. Additional detail on IFRS 15 is discussed in Note 3 of the 2018 Consolidated Financial
Statements.
Adjusted Earnings
Our financial results for the previous eight quarters reflect continued growth and regulatory decisions in Regulated
Utility operations as well as fluctuating commodity prices in electricity generation and sales, and natural gas storage
operations. 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. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
89
Structures & Logistics
From 2017 to the first quarter of 2018, earnings were lower due to lower profit margins across all business lines and
decreased Modular Structures project activity.
In the second quarter of 2018, earnings increased compared to the second quarter of 2017 due to higher used fleet
sales and space rental activity in Modular Structures, partially offset by lower workforce housing rental earnings in the
U.S.
In the third quarter of 2018, earnings increased compared to the third quarter of 2017 mainly due to improved margins
on both used workforce housing fleet sales and space rentals in Canada and Australia, as well as increased space rental
activity and asset expansions in Mexico and Chile in Modular Structures.
In the fourth quarter of 2018, earnings increased compared to the fourth quarter of 2017 mainly due to higher space
rentals activity, higher trade sale activity particularly in permanent modular construction in Canada and Australia, and
higher occupancy at the BC Hydro Site C workforce housing camp.
Canadian Utilities
Electricity
Electricity adjusted earnings are impacted by the timing of certain major regulatory decisions, and Alberta Power Pool
pricing and spark spreads.
In 2017, 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 electricity distribution, and the impact of the 2015 to 2017 GTA Compliance decision in electricity
transmission. Third quarter earnings were lower mainly due to the impact of the 2013 to 2014 Deferral Accounts
decision in electricity transmission. Fourth quarter earnings were impacted by lower contributions in the electricity
generation business from forward sales and increased business development expenses.
In the first quarter of 2018, our regulated utility earnings were impacted by rate rebasing under Alberta's regulated
model in electricity distribution and lower electricity transmission interim rates approved by the AUC. Lower earnings in
our Independent Power Plants due to lower realized forward sales and minor plant outage costs were partially offset
by higher earnings from Alberta PowerLine and Thermal PPAs.
In the second quarter of 2018, higher earnings were mainly due to improved market conditions for Independent Power
Plants and higher recognition of availability incentives in the Thermal PPA Plants, partially offset by rate rebasing under
Alberta's regulated model in electricity distribution and lower electricity transmission interim rates approved by the
AUC.
In the third quarter of 2018, earnings increased primarily due to the completion of performance obligations and
additional availability incentive earnings which resulted from the Battle River unit 5 PPA termination, and improved
market conditions for Independent Power Plants. These improved earnings were partially offset by lower earnings from
rate rebasing under Alberta's regulated model in electricity distribution, lower electricity transmission interim rates
approved by the AUC, and lower earnings from lower scheduled construction activity at Alberta PowerLine.
90
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
In the fourth quarter of 2018, higher earnings compared to the fourth quarter of 2017 were mainly due to earnings
from the sale of the Barking Power assets and improved conditions in the Alberta power market, as well as higher APL
earnings recorded as result of an early energization incentive. These improved earnings contributions were partially
offset by rate rebasing under Alberta's regulated model in electricity distribution and lower electricity transmission
interim rates approved by the AUC.
Pipelines & Liquids
Pipelines & Liquids' adjusted earnings are impacted by the timing of certain major regulatory decisions, seasonality,
and demand for hydrocarbon and natural gas storage and water services.
In the first quarter of 2017, earnings were mainly due to continued capital investment and rate base growth. Earnings
in the second quarter of 2017 were impacted by lower seasonal demand in our natural gas distribution business. In the
third quarter of 2017, lower earnings were impacted by inflation adjustments to rates in our international natural gas
distribution business. Higher earnings in the fourth quarter of 2017 were primarily a result of a higher rate base and an
increased number of customers.
In the first quarter of 2018, higher seasonal demand and growth in rate base across the Pipelines & Liquids regulated
utilities were partially offset by lower earnings in natural gas distribution mainly due to the impact of rate rebasing
under Alberta's regulated model.
In the second and third quarters of 2018, lower earnings were mainly due to lower seasonal demand and the impact of
rate rebasing under Alberta's regulated model in natural gas distribution, partially offset by growth in rate base across
our Regulated Pipelines & Liquids businesses.
In the fourth quarter of 2018, higher earnings were mainly due to growth in rate base, the timing of regulatory
decisions and higher seasonal demand.
Neltume Ports
In the third quarter and fourth quarter of 2018, Neltume Ports earned $1 million and $3 million. On September 12,
2018, ATCO invested in a 40 per cent interest in Neltume Ports.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
91
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 in Canada and space rental assets in
the U.S. 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.
In the fourth quarter of 2017, the Company recorded an increase to earnings of $31 million ($16 million
after-tax and NCI) on derecognition of customer contributions related to a sale of electricity generation
assets on transitioning to finance lease accounting which resulted from the implementation of IFRS 15.
In the second quarter of 2018, restructuring and other costs not in the normal course of business of $39
million after-tax were recorded. These costs mainly relate to staff reductions and associated severance
costs, as well as costs related to decisions to discontinue certain projects that no longer represent long-term
strategic value to the Company.
In the third quarter of 2018, the Battle River unit 5 PPA was terminated by the Balancing Pool and dispatch
control was returned to ATCO subsidiary Canadian Utilities. Canadian Utilities received a payment from the
Balancing Pool and also recorded additional coal-related costs and Asset Retirement Obligations associated
with the Battle River generating facility. This one-time receipt and costs in the net amount of $19 million
after-tax was excluded from adjusted earnings.
•
In the fourth quarter of 2018, Canadian Utilities sold its 100 per cent ownership interest in Barking Power
assets. An after-tax gain in the amount of $46 million was excluded from adjusted earnings.
92
ATCO LTD. 2018 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. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
93
Business Risk: Climate Change
Businesses Impacted:
• Electricity
• Pipelines & Liquids
• Modular
Structures
Associated Strategies:
• Operational Excellence
• Innovation
Description and Context
Legislative Risks
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 subsidiary Canadian Utilities
coal-fired electricity, the accelerated phasing in
is proceeding with coal-to-natural gas conversion of its
of renewable energy, an economy-wide tax on
coal-fired electricity. This conversion involves modest
carbon emissions that started in 2017, and the
capital expenditures and extends the life span of the units.
reduction of methane emissions.
Broader coal-to-gas conversions present an opportunity for
ATCO's Modular Structures' rental fleet has
historically played an important role in
increased demand for natural gas transmission
infrastructure investment in the near to medium term.
servicing the oil & gas industry in Alberta.
Carbon taxes assessed to the natural gas-fired generation
Provincial climate policies that adversely
fleet are largely recovered through the market.
impact the economic viability of oil & gas
The Company’s exposure is limited for the Alberta Utilities
operations presents an under-utilized asset
because GHG emission charges are recovered in rates, and
risk to rental fleet assets in the short to
because future requirements to upgrade equipment to
medium term.
Physical Risks
Physical risks associated with climate change
may include an increase in extreme weather
further reduce methane emissions are expected to be
included in rate base on a go-forward basis.
The Modular Structures business is redeploying its Alberta
rental fleet for other uses.
events such as heavy rainfall, floods, wildfires,
Physical Risks
extreme winds and ice storms, or changing
weather patterns that cause on-going impacts
to seasonal temperatures. Electricity
transmission, distribution and pipeline assets
above ground or on water crossings are
exposed to extreme weather events.
The Company continues to carefully manage physical risks,
including preparing for, and responding to, extreme
weather events through activities such as proactive route
selection, asset hardening, regular maintenance, and
insurance. The Company follows regulated engineering
codes, continues to evaluate ways to create greater system
reliability and resiliency and, where appropriate, submits
regulatory applications for capital expenditures aimed at
creating greater system reliability and resiliency within the
code. When planning for capital investment or acquiring
assets we consider site specific climate and weather
factors, such as flood plain mapping and extreme weather
history. Prevention activities include Wildfire Management
Plans and vegetation management at electricity
transmission and distribution operations. The majority of
the Company's natural gas pipeline network is in the
ground, making it less susceptible to extreme weather
events. The Company maintains in-depth emergency
response measures for extreme weather events.
94
ATCO LTD. 2018 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 and contract assets, credit risk
investing in instruments issued by credit-worthy financial
represents the carrying amount on the
institutions and in federal government issued short-term
consolidated balance sheet. Derivative, finance
instruments.
lease receivable and receivable 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 finance
lease receivable for the Karratha power 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
supports its information and industrial control
covering all technology assets. The cybersecurity program
systems, is subject to potential cyber attacks
includes employee awareness, 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.
Security Operations Centre. The Company’s cybersecurity
management is consolidated under a common, centralized
organization structure to increase effectiveness and
compliance across the entire enterprise.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
95
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, merchant Thermal
In conducting its business, the Company may use various
Power Plant's, and Retail Energy's earnings are
instruments, including forward contracts, swaps, and
affected by short-term price volatility. Changes
options to manage the risks arising from fluctuations in
to the power reserve margin (electricity supply
commodity prices. The Company enters into natural gas
relative to demand) and natural gas prices can
purchase contracts and forward power sales contracts as
result in volatility in Alberta Power Pool Prices
the hedging instrument to manage the exposure to
and spark spreads. A number of key factors
electricity and natural gas market price movements. Under
contribute to price volatility including electricity
IFRS accounting, entering into hedging instruments may
demand and electricity supply, primarily from
result in mark-to-market adjustments that are recorded as
Alberta’s coal and wind generation.
unrealized gains or losses on the income statement.
Storage & Industrial Water's natural gas
storage facility in Carbon, Alberta, is also
exposed to storage price differentials.
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.
96
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
Business Risk: Foreign Currency Exchange Rate
Businesses Impacted:
• All businesses
Description and Context
Associated Strategies:
• Financial Strength
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 plant outages beyond specified time periods and
another long-term agreement, the Company
certain circumstances.
may need to compensate the purchaser for the
loss of production availability.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
97
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, 2018, the
Company had fixed interest rates, either directly or through
interest rate swap agreements, on 98 per cent
(2017 - 99 per cent) of total long-term debt and non-
recourse long-term debt. Consequently, the exposure to
fluctuations in future cash flows, with respect to debt, from
changes in market interest rates was limited. The
Company’s cash and cash equivalents include fixed rate
instruments with maturities of generally 90 days or less
that are reinvested as they mature.
Business Risk: Natural Gas Supply
Businesses Impacted:
Associated Strategies:
• Non-regulated
• 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 and warm weather in
our downstream natural gas fired generation assets so that
2018, contributed to on-going low natural gas
the risk of future gas supply curtailments or restrictions are
prices in Alberta and presents operational risk
minimized (curtailment primarily affects interruptible
of natural gas supply for the Company's
contracts).
Alberta natural gas fired power plants without
firm transport contracts in place and natural
gas storage facilities (all storage in Alberta is
under interruptible transport). Further
curtailments and maintenance are scheduled
for multiple years into the future, which may
result in gas transportation constraints.
To reduce the impact to storage operations, Canadian
Utilities plans to structure its natural gas storage portfolio
around the natural gas transportation provider’s planned
maintenance schedules to minimize the impact of natural
gas supply curtailments.
98
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
Business Risk: Natural Resource Sector Business Cycles
Businesses Impacted:
Associated Strategies:
• Structures & Logistics
• Neltume Ports
• 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, and the services provided by
costs which provides flexibility in moderating costs when
Neltume Ports is directly related to capital
project activity slows. The Structures & Logistics business is
spending cycles and levels of development
not a capital intensive business so market entry and exit
activity in various industries, primarily in the
costs are relatively low. A base of more stable earnings and
natural resources sector. Several key factors
cash flows exists within the space rentals business and the
influence customers’ decision-making on
Logistics and O&M services contracts that provide support
whether or not to purchase products and
when Modular Structures natural resource sector
services offered by the Company and/or to
customers are going through commodity cycle downturns.
utilize the services provided by Neltume Ports.
Neltume Ports has a diversified operational portfolio linked
These factors include expected commodity
to a mix of economic activity in Chile, Uruguay, Argentina,
prices, global economic and political
and Brazil.
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:
• 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 infrastructure.
pipeline infrastructure and replace pipelines as required to
Although the probability of a pipeline rupture
address safety, reliability, and future growth. These
is very low, the consequences of a failure can
programs include Natural Gas Distribution's and Natural
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. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
99
Business Risk: Political
Businesses Impacted:
Associated Strategies:
• Pipelines & Liquids
• Electricity
• Growth
• Operational Excellence
• Financial Strength
Description and Context
Risk Management Approach
Operations are exposed to a risk of change in
Participation in policy consultations and engagement of
business environment due to political change.
stakeholder groups like the AUC, the Alberta Electric
Legislative changes may impact the financial
System Operator (AESO), and various interveners ensures
performance of operations. This could
ongoing communication and that the impacts and costs of
negatively impact earnings, return on equity
proposed changes are identified and understood. Where
and assets, and credit metrics. The Company
appropriate, the Company works with other Alberta utilities
has a large percentage of its assets in one
to develop common strategies. Geographical diversification
political jurisdiction (Alberta).
outside of Alberta will reduce the impact of any political
and legislative changes.
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
Electricity Distribution and Natural Gas
might impact the Company's regulatory applications for the
Distribution operate under performance based
recovery of prudent costs. The Regulated Utilities are
regulation (PBR). Under PBR, utility revenues
proactive in demonstrating prudence and continuously
are formula driven, which raises the
look for ways to lower operating costs while maintaining
uncertainty of cost recovery. In Australia, the
service levels.
ERA assesses appropriate returns, prudent
levels of operating costs, capital expenditure
and expected throughput on the network
through an Access Arrangement proceeding.
100 ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
Business Risk: Technological Transformation & Disruption
Businesses Impacted:
• All Businesses
Associated Strategies:
• Innovation
• Operational Excellence
• Financial Strength
• Growth
Description and Context
Risk Management Approach
The introduction and rapid, widespread
The strategic plans of each GBU incorporate and address
adoption of transformative technology (such as
the evolution of their business into areas of transformative
distributed energy generation) could lead to
technology. Innovation has been adopted on a key strategy
disruption of ATCO's existing business models
for the Company and annual key performance indicators
and new competitive market dynamics. Failure
are on innovation monitored to ensure the businesses
to effectively identify disruptive technology
evolve.
and / or changing consumer attitudes and
preferences may result in disruptions to the
business and an inability to achieve strategic
and financial objectives.
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, 2018,
the Company’s cash position was $691 million and there
were available committed and uncommitted lines of credit
of approximately $2.2 billion which can be utilized for
general corporate purposes.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS 101
Liquidity Risk includes contractual financial obligations which the Company will meet with cash flow from
operations, existing cash balances and external financing, if necessary. These contractual obligations for the
next five years and thereafter are shown below.
($ millions)
2019
2020
2021
2022
2023
Financial Liabilities
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
921
175
488
433
20
59
65
2,161
21
64
333
118
93
11
640
2,801
—
—
216
406
34
58
34
748
19
66
329
—
4
—
418
1,166
—
—
577
389
32
56
6
1,060
15
67
325
—
2
2
411
1,471
2024 and
thereafter
—
—
7,310
6,599
1,306
956
—
—
—
526
345
28
53
—
952
16,171
8
27
328
—
—
—
29
56
406
—
—
—
—
—
328
365
33
54
—
780
9
68
329
—
—
—
406
1,186
363
1,315
491
16,662
(1)
Interest payments on floating rate debt have been estimated using rates in effect at December 31, 2018. 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, 2018.
102 ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
NON-GAAP AND ADDITIONAL GAAP
MEASURES
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 4 of the 2018 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.
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.
Capital investment is defined as cash used for capital expenditures, business combinations, service concession
arrangements, and cash used in the Company's proportional share of capital expenditures in joint ventures, and
cash used for equity investment in associate companies. In management's opinion, capital investment reflects the
Company's total cash investment in assets. Capital expenditures includes additions to property, plant and
equipment and intangibles as well as interest capitalized during construction. A reconciliation of capital investments
to capital expenditures is presented in this MD&A.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS 103
RECONCILIATION OF ADJUSTED EARNINGS
TO 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)
2018
2017 (1)
Revenues
Adjusted earnings
Derecognition of
customer
contributions
Unrealized gains
(losses) on mark-
to-market forward
commodity contracts
Sale of Barking Power
assets
Impairment
Rate-regulated
activities
Other
Earnings attributable
to Class I and Class II
Shares
Structures
& Logistics
Canadian Utilities Limited
Electricity
Pipelines
& Liquids
CUL
Corporate
& Other
Consolidated
Three Months Ended
December 31
Neltume
Ports
ATCO
Corporate
& Other
Consolidated
140
137
5
2
—
—
—
—
—
—
—
(23)
—
—
—
—
5
(21)
637
767
54
51
—
16
1
(29)
46
—
—
—
7
(26)
—
—
108
12
383
447
54
49
—
—
—
—
—
—
—
—
(28)
(2)
—
(2)
26
45
15
(6)
(10)
(10)
—
—
—
—
—
—
—
—
1
—
—
—
(9)
(10)
1,035
1,208
98
90
—
16
1
(29)
46
—
—
—
(20)
(28)
—
(2)
125
47
—
—
3
—
—
—
—
—
—
—
—
—
—
—
—
—
3
—
(1)
1
2
4
—
—
—
—
—
—
—
—
—
2
—
—
2
6
1,174
1,346
108
96
—
16
1
(29)
46
—
—
(23)
(20)
(26)
—
(2)
135
32
(1) These numbers have been restated to account for the impact of IFRS 15. Additional detail on IFRS 15 is discussed in Note 3 of the 2018 Consolidated
Financial Statements.
104 ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
($ millions)
2018
2017 (1)
Revenues
Adjusted earnings
Proceeds from
termination of PPA
Restructuring and
other costs
Derecognition of
customer
contributions
Unrealized gains
(losses) on mark-
to-market forward
commodity contracts
Sale of Barking Power
assets
Impairment
Rate-regulated
activities
Earnings attributable
to Class I and Class II
Shares
Structures
& Logistics
Canadian Utilities Limited
Electricity
Pipelines
& Liquids
CUL
Corporate
& Other
Consolidated
Year Ended
December 31
Consolidated
Neltume
Ports
ATCO
Corporate
& Other
511
516
15
6
—
—
2,858
2,460
228
210
19
—
1,470
1,630
130
144
—
—
(9)
(19)
(11)
—
—
—
—
—
—
—
—
(23)
—
—
6
(17)
—
—
16
16
(48)
46
—
—
—
(28)
(69)
262
109
—
—
—
—
—
—
—
—
—
(43)
3
76
147
49
(5)
(39)
(35)
—
—
(3)
—
—
—
—
—
—
—
—
—
2
—
(40)
(35)
4,377
4,085
319
319
19
—
(33)
—
—
16
16
(48)
46
—
—
—
(69)
(66)
298
221
—
—
4
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4
—
—
(1)
17
10
—
—
3
—
—
—
—
—
—
—
—
—
—
5
20
15
4,888
4,600
355
335
19
—
(39)
—
—
16
16
(48)
46
—
—
(23)
(69)
(61)
328
219
(1) These numbers have been restated to account for the impact of IFRS 15. Additional detail on IFRS 15 is discussed in Note 3 of the 2018 Consolidated
Financial Statements.
PROCEEDS FROM TERMINATION OF PPA
In the third quarter of 2018, the Battle River unit 5 PPA was terminated by the Balancing Pool and dispatch control
was returned to ATCO subsidiary Canadian Utilities. Canadian Utilities received a payment from the Balancing Pool
and also recorded additional coal-related costs and Asset Retirement Obligations associated with the Battle River
generating facility. This one-time receipt and costs in the net amount of $19 million were excluded from adjusted
earnings.
RESTRUCTURING AND OTHER COSTS
In the second quarter of 2018, restructuring and other costs not in the normal course of business of $39 million
were recorded. These costs mainly relate to staff reductions and associated severance costs, as well as costs related
to decisions to discontinue certain projects that no longer represent long-term strategic value to the Company.
DERECOGNITION OF CUSTOMER CONTRIBUTIONS
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 be accounted for as a finance lease. As a result, the Company recorded an increase to
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS 105
earnings of $16 million on derecognition of customer contributions related to a sale of electricity generation assets
on transitioning to finance lease accounting which resulted from the implementation of IFRS 15.
UNREALIZED GAINS (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 and Thermal Plants not governed by a Power
Purchase Arrangement. 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 and Thermal Plants not
governed by a Power Purchase Arrangement. Realized gains or losses are recognized in adjusted earnings when the
commodity contracts are settled.
SALE OF BARKING POWER ASSETS
In the fourth quarter of 2018, ATCO subsidiary Canadian Utilities sold its 100 per cent ownership interest in Barking
Power assets. An after-tax gain in the amount of $46 million was excluded from adjusted earnings.
IMPAIRMENT
In the fourth quarter of 2017, the Company recorded an impairment of $23 million 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
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 as utilities.
There is currently no specific guidance under IFRS for rate-regulated entities that the Company is eligible to adopt.
In the absence of this guidance, the utilities do not recognize assets and liabilities from rate-regulated activities as
may be directed by regulatory decisions. Instead, the utilities recognize revenues in earnings when amounts are
billed to customers, consistent with the regulator-approved rate design. Operating costs and expenses are recorded
when incurred. Costs incurred in constructing an asset that meet the asset recognition criteria are included in the
related property, plant and equipment or intangible asset.
The Company uses standards issued by the Financial Accounting Standards Board (FASB) in the United States as
another source of generally accepted accounting principles 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.
106 ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
At December 31, the significant timing adjustments as a result of the differences between rate-regulated accounting
and IFRS are as follows:
($ millions)
Additional revenues billed in current period
Future removal and site restoration costs (1)
Impact of colder temperatures (2)
Revenues to be billed in future periods
Deferred income taxes (3)
Impact of warmer temperatures (2)
Impact of inflation on rate base (4)
Regulatory decisions received (5)
Settlement of regulatory decisions and other items (6)
Three Months Ended
December 31
Year Ended
December 31
2018
2017
Change
2018
2017
Change
8
—
(14)
(3)
(8)
—
(3)
(20)
3
—
(14)
—
(3)
—
(12)
(26)
5
—
—
(3)
(5)
—
9
6
39
6
(55)
—
(8)
—
(51)
(69)
32
—
(54)
(2)
(8)
9
(38)
(61)
7
6
(1)
2
—
(9)
(13)
(8)
(1)
(2)
(3)
(4)
(5)
(6)
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.
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.
Income taxes are billed to customers when paid by the Company.
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.
In 2017, the most significant regulatory decision received was the General Tariff Application related to ATCO Electric Transmission operations.
In 2018, ATCO Electric Transmission operations recorded a decrease in earnings of $20 million mainly related to a refund of deferral account balances
relating to 2013 and 2014. ATCO Gas also recorded a reduction in earnings of $31 million mainly related to a refund of previously over-collected
transmission costs. In 2017, ATCO Electric Transmission operations recorded a decrease in earnings of $17 million related to the settlement of final
2015-2017 General Tariff Application rate and a decrease to earnings of $14 related to the refund of previously collected capitalized pension costs.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS 107
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, and impact of
colder temperatures.
Revenues to be
billed in future
periods
Deferred income taxes, impact of
warmer temperatures, and
impact of inflation on rate base.
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.
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.
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.
Settlement of
regulatory
decisions and
other items
Settlement of amounts
receivable or payable to
customers and other items.
The Company recognizes
the amount receivable or
payable to customers as a
reduction in its regulatory
assets and liabilities when
collected or refunded
through future billings.
The Company recognizes
earnings when customer
rates are changed and
amounts are recovered or
refunded to customers
through future billings.
108 ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
RECONCILIATION OF FUNDS GENERATED BY
OPERATIONS TO CASH FLOWS FROM
OPERATING ACTIVITIES
Funds generated by operations is defined as cash flow from operations before changes in non-cash working capital
and change in receivable under service concession arrangement. In management’s opinion, funds generated by
operations is a significant performance indicator of the Company’s ability to generate cash during a period to fund
capital expenditures. Funds generated by operations does not have any standardized meaning under IFRS and
might not be comparable to similar measures presented by other companies.
($ millions)
2018
2017 (1)
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
490
463
(21)
(20)
(93)
(156)
376
287
1,897
1,813
(95)
34
(803)
(516)
999
1,331
(1) These numbers have been restated to account for the impact of IFRS 15. Additional detail on IFRS 15 is discussed in Note 3 of the 2018 Consolidated
Financial Statements.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS 109
RECONCILIATION OF CAPITAL INVESTMENT
TO CAPITAL EXPENDITURES
Capital investment is defined as cash used for capital expenditures, business combinations, service concession
arrangements, and cash used in the Company's proportional share of capital expenditures in joint ventures, and
cash used for equity investment in associate companies. In management's opinion, capital investment reflects the
Company's total cash investment in assets. Capital expenditures includes additions to property, plant and
equipment and intangibles as well as interest capitalized during construction. A reconciliation of capital investments
to capital expenditures is presented in this MD&A.
($ millions)
2018
2017
Capital Investment
Capital
expenditure in
joint ventures
Business
combinations(1)
Service concession
arrangement
Capital
Expenditures
($ millions)
2018
2017
Capital Investment
Equity investment
in associate
company
Capital
expenditure in
joint ventures
Business
combinations (1)
Service concession
arrangement
Capital
Expenditures
Structures
& Logistics
Canadian Utilities Limited
Electricity
Pipelines
& Liquids
CUL
Corporate
& Other
Consolidated
Three Months Ended
December 31
Neltume
Ports
ATCO
Corporate
& Other
Consolidated
35
11
(1)
(1)
(24)
—
—
—
10
10
203
291
(3)
(4)
—
—
(44)
(132)
156
155
174
254
(1)
(1)
—
—
—
—
173
253
3
1
—
—
—
—
—
—
3
1
380
546
(4)
(5)
—
—
(44)
(132)
332
409
—
—
—
—
—
—
—
—
—
—
5
29
—
—
—
—
—
—
5
29
420
586
(5)
(6)
(24)
—
(44)
(132)
347
448
Structures
& Logistics
Canadian Utilities Limited
Electricity
Pipelines
& Liquids
CUL
Corporate
& Other
Consolidated
Neltume
Ports
ATCO
Corporate
& Other
Year Ended
December 31
Consolidated
113
37
1,287
918
648
782
—
—
(1)
(4)
—
—
(14)
(8)
(24)
(112)
—
—
—
88
33
—
(664)
(456)
497
454
—
—
(5)
(5)
—
—
—
—
643
777
16
3
—
—
—
—
—
—
—
—
16
3
1,951
1,703
—
—
(19)
(13)
(112)
—
(664)
(456)
1,156
1,234
444
—
(444)
—
—
—
—
—
—
—
—
—
10
81
—
—
—
—
—
—
—
—
10
81
2,518
1,821
(444)
—
(20)
(17)
(136)
—
(664)
(456)
1,254
1,348
(1) Business combinations includes ATCO subsidiary Canadian Utilities' acquisition of Electricidad de Golfo, a long-term contracted, 35 MW
hydroelectric power station in the state of Veracruz, Mexico. This also includes an acquisition for 70 per cent ownership interest in ATCO
Espaciomovil, a modular manufacturing business in Mexico.
110 ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
OTHER FINANCIAL INFORMATION
OFF BALANCE SHEET ARRANGEMENTS
ATCO 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 2018 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) have been adopted in the current period. The standards issued, but not yet
effective, which the Company anticipates may have a material effect on the 2018 Consolidated Financial Statements are
described below. For further information, see Note 38 of the 2018 Consolidated Financial Statements.
•
IFRS 16 Leases - This standard replaced IAS 17 Leases and related interpretations. It introduces a new approach
to lease accounting that requires a lessee to recognize right-of-use assets and lease 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 in the process of finalizing its
calculations using the modified retrospective approach effective January 1, 2019, without restatement of
comparative information. The Company has elected to use certain practical expedients:
•
Leases of low-value assets and short-term leases that have a lease term of twelve months or less will
not be recognized in the consolidated balance sheet on January 1, 2019. Payments on these leases will
continue to be recognized as a lease expense generally on a straight-line basis over the lease term; and
•
Right-of-use assets will be measured with an equivalent value recorded for the related lease liabilities.
The adoption of the new standard is expected to result in the recognition of a right-of-use asset and lease
liability of approximately $110 million at January 1, 2019. The estimated impact may change as a result of
additional updates on contractual terms, assumptions, and other circumstances arising after the date of the
2018 Consolidated Financial Statements.
There are no other new or amended standards issued, but not yet effective, that the Company anticipates will have a
material effect on the consolidated financial statements once adopted.
DISCLOSURE CONTROLS AND PROCEDURES
As of December 31, 2018, 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.
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS 111
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, 2018.
INTERNAL CONTROL OVER FINANCIAL REPORTING
As of December 31, 2018, 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, 2018.
There was no change in the Company’s internal control over financial reporting that occurred during the period
beginning on January 1, 2018, and ended on December 31, 2018, that materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial reporting.
FORWARD-LOOKING INFORMATION
Certain statements contained in this MD&A constitute forward-looking information. Forward-looking information is
often, but not always, identified by the use of words such as “anticipate”, “plan”, “estimate”, “expect”, “may”, “will”,
“intend”, “should”, and similar expressions. Forward-looking information involves known and unknown risks,
uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in
such forward-looking information. The Company believes that the expectations reflected in the forward-looking
information are reasonable, but no assurance can be given that these expectations will prove to be correct and such
forward-looking information should not be unduly relied upon.
The Company’s actual results could differ materially from those anticipated in any forward-looking information
contained in this MD&A as a result of regulatory decisions, competitive factors in the industries in which the Company
operates, prevailing economic conditions, and other factors, many of which are beyond the control of the Company.
Any forward-looking information contained in this MD&A represents the Company’s expectations as of the date hereof,
and is subject to change after such date. The Company disclaims any intention or obligation to update or revise any
forward-looking information whether as a result of new information, future events or otherwise, except as required by
applicable securities legislation.
ADDITIONAL INFORMATION
ATCO has published its 2018 Consolidated Financial Statements and its MD&A for the year ended December 31, 2018.
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.
112 ATCO LTD. 2018 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 Electricity Distribution (ATCO
Electric Distribution), Electricity 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 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.
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.
Gigajoule (GJ) is a unit of energy equal to
approximately 948.2 thousand British thermal units.
IFRS means International Financial Reporting
Standards.
K Bar means the AUC allowance for capital additions
under performance based regulation.
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 electricity utility business in
Alberta. PPAs are legislatively mandated and approved
by the AUC.
Regulated Utilities means Electricity Distribution
(ATCO Electric Distribution), Electricity 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. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS 113
APPENDIX 1
FOURTH QUARTER FINANCIAL INFORMATION
Financial information for the three months ended December 31, 2018 and 2017 is shown below.
CONSOLIDATED STATEMENT OF EARNINGS
Three Months Ended
December 31
(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 gains (losses) on mark-to-market forward commodity contracts
Cost of sale of electricity generation asset on transition to finance lease
Other
Gain on sale of Barking Power assets
Earnings from investment in associate company
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
2018
1,174
(155)
(44)
(66)
(60)
(52)
(44)
(79)
(158)
(50)
(43)
2
—
(76)
(825)
125
3
6
483
4
(134)
(130)
353
(85)
268
135
133
268
$1.18
$1.18
(1)
2017
1,346
(147)
(49)
(70)
(58)
(29)
(132)
(75)
(195)
(55)
(28)
(73)
(115)
(83)
(1,109)
—
—
7
244
9
(125)
(116)
128
(34)
94
32
62
94
$0.28
$0.28
(1) These numbers have been restated to account for the impact of IFRS 15. Additional detail on IFRS 15 is discussed in Note 3 of the 2018 Consolidated Financial
Statements.
114 ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
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
Proceeds on sale of Barking Power assets
Additions to intangibles
Acquisition, net of cash acquired
Investment in equity interest in associate company
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
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 from (used in) financing activities
Increase (decrease) in cash position
Foreign currency translation
Beginning of period
End of period
Three Months Ended
December 31
2018
2017
268
222
(21)
(93)
376
(275)
2
219
(68)
(24)
(7)
32
(4)
(125)
(225)
662
(71)
81
(5)
(5)
(43)
(54)
(138)
(9)
26
219
470
8
213
691
94
369
(20)
(156)
287
(412)
—
—
(32)
—
—
39
(10)
(415)
(515)
488
(152)
374
(3)
(2)
(37)
(50)
(116)
(11)
(77)
(101)
(229)
3
720
494
ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS 115
116 ATCO LTD. 2018 MANAGEMENT'S DISCUSSION & ANALYSIS
ATCO LTD.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2018
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 117
TABLE OF CONTENTS
Management's Responsibility for Financial Reporting ............................................................................................................
Independent Auditor’s Report .......................................................................................................................................................
Consolidated Statements of Earnings ..........................................................................................................................................
Consolidated Statements of Comprehensive Income ..............................................................................................................
Consolidated Balance Sheets .........................................................................................................................................................
Consolidated Statements of Changes in Equity .........................................................................................................................
Consolidated Statements of Cash Flows .....................................................................................................................................
Notes to Consolidated Financial Statements
General Information
1.
2.
3.
The Company and its Operations .....................................................................................................................................
Basis of Presentation .........................................................................................................................................................
Change in Accounting Policies ..........................................................................................................................................
Information on Financial Performance
Segmented Information ....................................................................................................................................................
4.
Revenues .............................................................................................................................................................................
5.
6. Other Costs and Expenses ................................................................................................................................................
Interest Expense .................................................................................................................................................................
7.
Income Taxes ......................................................................................................................................................................
8.
Earnings per Share .............................................................................................................................................................
9.
Information on Financial Position
10. Restricted Project Funds ....................................................................................................................................................
11. Leases ..................................................................................................................................................................................
Inventories ..........................................................................................................................................................................
12.
13. Property, Plant and Equipment .........................................................................................................................................
Intangibles ...........................................................................................................................................................................
14.
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. Balances from Contracts with Customers .......................................................................................................................
23. Class I Non-Voting and Class II Voting Shares .................................................................................................................
Information on Cash Flow
Page
119
120
123
124
125
126
127
128
128
129
135
141
142
143
143
145
146
147
148
149
151
151
152
152
153
154
156
157
161
162
24. Cash Flow Information .......................................................................................................................................................
164
Risk
25. Financial Instruments ........................................................................................................................................................
26. Risk Management ...............................................................................................................................................................
27. Capital Disclosures .............................................................................................................................................................
28. Significant Judgments, Estimates and Assumptions .......................................................................................................
Group Structure
29. Business Combinations .....................................................................................................................................................
Investment in Equity Interest in Associate Company .....................................................................................................
30.
31. Subsidiaries .........................................................................................................................................................................
Joint Arrangements ............................................................................................................................................................
32.
33. Non-Controlling Interests ..................................................................................................................................................
Other Information
34. Share-Based Compensation Plans ...................................................................................................................................
35. Contingencies .....................................................................................................................................................................
36. Commitments .....................................................................................................................................................................
37. Related Party Transactions ................................................................................................................................................
38. Accounting Policies .............................................................................................................................................................
166
169
173
174
176
178
180
180
181
184
186
187
187
188
118 ATCO LTD. 2018 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 Discussion and Analysis and other financial information
contained in the Company's Annual Report, and ensures that it is consistent with the consolidated financial
statements.
Management has established internal accounting and financial reporting control systems, which are subject to
periodic review by the Company’s internal auditors, to meet its responsibility for reliable and accurate reporting.
Integral to these control systems are a code of ethics and management policies that provide guidance and direction
to employees, as well as a system of corporate governance that provides oversight to the Company’s operating,
reporting and risk management activities.
The consolidated financial statements are approved by the Board of Directors on the recommendation of the Audit
& Risk Committee. The Audit & Risk Committee is comprised entirely of independent Directors. The Audit & Risk
Committee meets regularly with management and the independent auditors to review significant accounting and
financial reporting matters, to assure that management is carrying out its responsibilities and to review and approve
the consolidated financial statements.
PricewaterhouseCoopers LLP, our independent auditors, are engaged to perform an audit of the consolidated
financial statements and expresses a professional opinion on the results. The Independent Auditor's Report to the
Share Owners appears on the following page. PricewaterhouseCoopers LLP have full and independent access to the
Audit & Risk Committee and management to discuss their audit and related matters.
[Original signed by N.C. Southern]
Chair & Chief Executive Officer
[Original signed by D. A. DeChamplain]
Senior Vice President & Chief Financial Officer
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 119
INDEPENDENT AUDITOR'S REPORT
To the Share Owners of ATCO Ltd.
OUR OPINION
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
financial position of ATCO Ltd. and its subsidiaries (together, the Company) as at December 31, 2018, December 31,
2017 and January 1, 2017, and its financial performance and its cash flows for the years ended December 31, 2018
and December 31, 2017 in accordance with International Financial Reporting Standards (IFRS).
What we have audited
The Company's consolidated financial statements comprise:
•
•
•
•
•
•
the consolidated statements of earnings for the years ended December 31, 2018 and December 31, 2017;
the consolidated statements of comprehensive income for the years ended December 31, 2018 and
December 31, 2017;
the consolidated balance sheets as at December 31, 2018, December 31, 2017 and January 1, 2017;
the consolidated statements of changes in equity for the years ended December 31, 2018 and December 31,
2017;
the consolidated statements of cash flows for the years ended December 31, 2018 and December 31, 2017;
and
the notes to the consolidated financial statements, which include a summary of significant accounting
policies.
BASIS FOR OPINION
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial
statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of
the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance
with these requirements.
OTHER INFORMATION
Management is responsible for the other information. The other information comprises the Management's
Discussion and Analysis, which we obtained prior to the date of this auditor's report and the information, other than
the consolidated financial statements and our auditor's report thereon, included in the annual report, which is
expected to be made available to us after that date.
Our opinion on the consolidated financial statements does not cover the other information and we do not and will
not express an opinion or any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially inconsistent with
the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
120 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
If, based on the work we have performed on the other information that we obtained prior to the date of this
auditor’s report, we conclude that there is a material misstatement of this other information, we are required to
report that fact. We have nothing to report in this regard. When we read the information, other than the
consolidated financial statements and our auditor's report thereon, included in the annual report, if we conclude
that there is a material misstatement therein, we are required to communicate the matter to those charged with
governance.
RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED
FINANCIAL STATEMENTS
Management is responsible for the preparation and fair presentation of the consolidated financial statements in
accordance with IFRS, 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.
In preparing the consolidated financial statements, management is responsible for assessing the Company's ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or
has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it
exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated
financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional
judgment and maintain professional skepticism throughout the audit. We also:
•
•
•
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit 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 Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that
may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in our auditor’s report to the related
disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report.
However, future events or conditions may cause the Company to cease to continue as a going concern.
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 121
•
•
Evaluate the overall presentation, structure and content of the consolidated financial statements, including
the disclosures, and whether the consolidated financial statements represent the underlying transactions
and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Company to express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the group audit. We remain solely responsible
for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Shannon Ryhorchuk.
[Original signed by “PricewaterhouseCoopers LLP”]
PricewaterhouseCoopers LLP
Chartered Professional Accountants
Calgary, Alberta
February 27, 2019
122 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS
OF EARNINGS
(millions of Canadian Dollars except per share data)
Note
2018
Year Ended
December 31
2017
(Note 3)
Revenues
5
4,888
4,600
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 gains (losses) on mark-to-market forward commodity contracts
Cost of sale of electricity generation asset on transition to finance lease
Other
Proceeds from termination of Power Purchase Arrangement
Gain on sale of Barking Power assets
Earnings from investment in associate company
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.
(599)
(179)
(238)
(221)
(175)
(664)
(270)
(682)
(208)
(185)
42
—
(345)
(3,724)
62
125
4
25
1,380
29
(507)
(478)
902
(231)
671
328
343
671
$2.87
$2.86
(514)
(208)
(213)
(215)
(100)
(456)
(276)
(670)
(229)
(124)
(123)
(115)
(296)
(3,539)
—
—
—
23
1,084
25
(442)
(417)
667
(174)
493
219
274
493
$1.92
$1.91
16
13,14
11
6
4
13
30
32
7
8
9
9
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 123
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME
(millions of Canadian Dollars)
Earnings for the year
Other comprehensive income (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 (4)
Foreign currency translation adjustment reclassified to earnings (4)
Share of other comprehensive loss of joint ventures (4)
Note
21
13
32
Other comprehensive income (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 $2 million for the year ended December 31, 2018 (2017 - $8 million).
(2) Net of income taxes of nil for the year ended December 31, 2018 (2017 - $11 million).
(3) Net of income taxes of $(3) million for the year ended December 31, 2018 (2017 - nil).
(4) Net of income taxes of nil.
See accompanying Notes to Consolidated Financial Statements.
Year Ended
December 31
2017
(Note 3)
493
(21)
(30)
(2)
(13)
—
—
(45)
(66)
427
183
244
427
2018
671
(5)
(4)
9
34
15
(2)
52
47
718
368
350
718
124 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(millions of Canadian Dollars)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable and contract assets
Finance lease receivables
Inventories
Income taxes receivable
Restricted project funds
Receivable under service concession arrangement
Prepaid expenses and other current assets
Non-current assets
Property, plant and equipment
Intangibles
Goodwill
Investment in joint ventures
Investment in associate company
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
Customer contributions
Other liabilities
Long-term debt
Non-recourse long-term debt
Total liabilities
EQUITY
Class I and Class II Share owners' equity
Class I and Class II shares
Contributed surplus
Retained earnings
Accumulated other comprehensive income (loss)
Non-controlling interests
Total equity
Total liabilities and equity
December 31
2018
December 31
2017
(Note 3)
January 1
2017
(Note 3)
Note
24
22
11
12
8
10
16
13
14
15
32
30
11
8
16
10
24
18
17
19
20
8
18
21
22
19
20
23
33
691
745
15
66
56
339
67
118
2,097
17,865
672
82
240
491
380
85
1,329
—
103
23,344
—
921
41
103
175
488
20
1,748
1,399
139
384
1,798
144
8,909
1,381
15,902
169
11
3,535
40
3,755
3,687
7,442
23,344
501
704
15
70
51
861
—
66
2,268
17,343
587
71
245
—
395
87
593
104
93
21,786
7
894
38
68
10
5
15
1,037
1,241
130
368
1,808
146
8,552
1,401
14,683
167
10
3,352
(2)
3,527
3,576
7,103
21,786
606
603
12
56
49
—
—
57
1,383
16,941
546
71
239
—
302
92
77
—
93
19,744
5
698
48
18
55
155
14
993
1,171
134
332
1,870
46
8,065
84
12,695
167
11
3,267
23
3,468
3,581
7,049
19,744
See accompanying Notes to Consolidated Financial Statements.
[Original signed by N.C. Southern, DIRECTOR]
[Original signed by R.J. Urwin, DIRECTOR]
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 125
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(millions of Canadian Dollars)
December 31, 2016, as previously reported
IFRS 15 re-measurement adjustments
January 1, 2017, restated
Earnings for the year, as previously reported
IFRS 15 re-measurement adjustments
Other comprehensive loss
Losses on retirement benefits transferred to
retained earnings
Shares issued, purchased and cancelled
Dividends
Share-based compensation
Changes in ownership interest in subsidiary company (1)
Other
3
3
3
3
21
23,33
23,33
34
December 31, 2017, restated, after IFRS 15
re-measurement adjustments
December 31, 2017, as previously reported
IFRS 15 and IFRS 9 re-measurement adjustments
January 1, 2018, restated
Earnings for the year
Other comprehensive income
Losses on retirement benefits transferred to
retained earnings
Shares issued, purchased and cancelled
Dividends
Share-based compensation
Changes in ownership interest in subsidiary company (1)
Other
3
3
3
21
23,33
23,33
34
Class I and
Class II
Shares
Note
Contributed
Surplus
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
167
—
167
—
—
—
—
—
—
—
—
—
167
167
—
167
—
—
—
—
—
2
—
—
11
—
11
—
—
—
—
—
—
(1)
—
—
10
10
—
10
—
—
—
—
—
1
—
—
3,345
(78)
3,267
203
16
—
(11)
(2)
(150)
(1)
45
(11)
3,356
3,418
(66)
3,352
328
—
(3)
(4)
(173)
3
32
—
23
—
23
—
—
(36)
11
—
—
—
—
—
(2)
(2)
—
(2)
—
39
3
—
—
—
—
—
Non-
Controlling
Interests
Total Equity
3,653
(72)
3,581
259
15
(30)
7,199
(150)
7,049
462
31
(66)
Total
3,546
(78)
3,468
203
16
(36)
—
(2)
—
58
—
56
(150)
(256)
(406)
(2)
45
(11)
(1)
(45)
(4)
(3)
—
(15)
3,531
3,577
7,108
3,593
(66)
3,527
328
39
—
(4)
3,634
(58)
3,576
343
8
—
63
7,227
(124)
7,103
671
47
—
59
(173)
(277)
(450)
6
32
—
1
(32)
5
7
—
5
December 31, 2018
169
11
3,535
40
3,755
3,687
7,442
(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.
126 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(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
Proceeds on sale of Barking Power assets
Additions to intangibles
Acquisitions, net of cash acquired
Investment in equity interest in associate company
Investment in joint ventures
Changes in non-cash working capital
Other
Cash flows used in investing activities
Financing activities
Net issue (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 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 from (used in) financing activities
Increase (decrease) in cash position (1)
Foreign currency translation
Beginning of year
End of year
Note
2018
Year Ended
December 31
2017
(Note 3)
24
24
16
13
29
30
24
17,24
19,24
19,24
10
24
23
33
24
671
1,226
(95)
(803)
999
493
1,320
34
(516)
1,331
(1,121)
(1,231)
5
219
(113)
(94)
(455)
(6)
(67)
(12)
40
—
(98)
—
—
(18)
4
3
(1,644)
(1,300)
165
1,660
(846)
726
(16)
1
(2)
(173)
(214)
(485)
(9)
30
837
192
5
494
691
(45)
488
(155)
374
(14)
4
(1)
(150)
(198)
(414)
(11)
(6)
(128)
(97)
(10)
601
494
(1)
Cash position includes $64 million which is not available for general use by the Company (2017 - $55 million).
See accompanying Notes to Consolidated Financial Statements.
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 127
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2018
(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.
ATCO Ltd. is controlled by Sentgraf Enterprises Ltd. and its controlling share owner, the Southern family.
ATCO Ltd. is engaged in the following global business activities:
•
Structures & Logistics (workforce housing, innovative modular facilities, construction, site support services,
and logistics and operations management);
•
Canadian Utilities Limited, including:
•
•
Electricity (electricity generation, distributed generation, and electricity distribution, transmission and
infrastructure development);
Pipelines & Liquids (natural gas transmission, distribution and infrastructure development, energy
storage, and industrial water solutions);
•
Retail Energy (included in Corporate & Other segment); and
• Neltume Ports (ports and transportation logistics) (see Note 30).
The consolidated financial statements include the accounts of ATCO Ltd. and its subsidiaries (see Note 31). The
statements also include the accounts of a proportionate share of the Company's investments in joint operations, its
equity-accounted investments in joint ventures (see Note 32) and its equity-accounted investment in associate
company (see Note 30). In these financial statements, "the Company" means ATCO Ltd., its subsidiaries, joint
arrangements and the associate company.
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 27, 2019.
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 39.
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.
128 ATCO LTD. 2018 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, estimates and assumptions are described in Note 28.
3. CHANGE IN ACCOUNTING POLICIES
FINANCIAL INSTRUMENTS CREDIT LOSSES
The Company adopted the final component of IFRS 9 Financial Instruments, Impairments, on January 1, 2018. This
component includes a new expected credit loss model. The new model takes into account an expectation of future
events by estimating credit losses based on an assessment of counterparty credit risk. The change results in earlier
recognition of bad debt expense. See below for the impact of adopting IFRS 9 on January 1, 2018.
REVENUE RECOGNITION
The Company adopted IFRS 15 Revenue from Contracts with Customers on January 1, 2018, using the full retrospective
transition method. Under the full retrospective transition method, the comparative figures for 2017 in the
Company's consolidated financial statements have been restated. Certain practical expedients have been applied.
See Note 39 for accounting policies on revenue recognition.
Practical expedients
Effective January 1, 2017, the IFRS 15 transition date, the Company elected to use the following practical expedients:
(i)
Information on the remaining performance obligations that have an original expected duration of one year
or less is not disclosed;
(ii) For periods presented before January 1, 2018, the IFRS 15 adoption date, the information regarding the
amount of the transaction price allocated to the remaining performance obligations and an explanation of
when the Company expects to recognize this amount as revenue, are not disclosed;
(iii) Costs to obtain or fulfill a contract with an amortization period of less than a year have been expensed as
incurred;
(iv) Where the Company has a right to consideration from a customer in an amount that corresponds directly
with the value to the customer of the Company's performance to date, revenue is recognized in the amount
to which the Company has a right to invoice (Right-to-Invoice). Such performance obligations include:
•
•
•
•
•
•
•
Provision of certain lodging and support services;
Provision of continuous distribution of electricity service;
Provision of continuous distribution of natural gas service;
Provision of transmission of electricity service;
Provision of transmission of natural gas service;
Certain operating and maintenance services; and
Supply of electricity and natural gas to businesses and households.
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 129
Remaining performance obligations
The Company is party to performance obligations, which have a duration of more than one year, are not subject to
the Right-to-Invoice practical expedient, and do not include variable consideration which is constrained (remaining
performance obligations). At December 31, 2018, the most significant remaining performance obligations are as
follows:
(i)
the Company's 35-year service concession arrangement that amounts to $1.0 billion. The Company expects
that approximately 11 per cent of the amount will be recognized as revenue during the three months
ending March 31, 2019, and approximately 5 per cent of the amount will be recognized as revenue during
the nine months ending December 31, 2019, subject to satisfaction of related performance obligations.
(ii) Provision of the contracted electricity generation capacity over the life of a contract under the terms of
fixed payments consideration that in aggregate approximates $0.2 billion. The Company expects that
approximately 3 per cent of the amount will be recognized as revenue during the three months ending
March 31, 2019, and approximately 6 per cent of the amount will be recognized as revenue during the nine
months ending December 31, 2019.
(iii) Provision of storage and industrial water services over the the life of a contract that in aggregate
approximates $0.2 billion. The Company expects that approximately 2 per cent of the amount will be
recognized as revenue during the three months ending March 31, 2019, and approximately 4 per cent of
the amount will be recognized as revenue during the nine months ending December 31, 2019.
(iv) Manufacturing of the transportable workforce housing and space rental products under the terms of fixed
price contracts that in aggregate approximates $0.3 billion. The Company expects that approximately 14
per cent of the remaining performance obligation will be recognized as revenue during the three months
ending March 31, 2019, and approximately 33 per cent will be recognized as revenue during the nine
months ending December 31, 2019.
130 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
IMPACT OF CHANGES IN ACCOUNTING POLICIES
The impact on amounts recognized in the Company's consolidated statement of earnings for the year ended
December 31, 2017, is shown below.
(millions of Canadian Dollars except per share data)
Year Ended December 31, 2017
Note
As previously
reported
IFRS 15 re-
measurement
adjustments
Restated
Revenues
(ii), (iii), (iv), (v)
4,541
59
4,600
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 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 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
(iv)
(iii)
(iii)
(v)
(ii)
9
9
(514)
(269)
(213)
(149)
(100)
(456)
(276)
(670)
(229)
(124)
(123)
(115)
(295)
(3,533)
23
1,031
25
(431)
(406)
625
(163)
462
203
259
462
$1.78
$1.77
—
61
—
(66)
—
—
—
—
—
—
—
—
(1)
(6)
—
53
—
(11)
(11)
42
(11)
31
16
15
31
$0.14
$0.14
(514)
(208)
(213)
(215)
(100)
(456)
(276)
(670)
(229)
(124)
(123)
(115)
(296)
(3,539)
23
1,084
25
(442)
(417)
667
(174)
493
219
274
493
$1.92
$1.91
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 131
The cumulative effect of the adjustments made to the amounts recognized in the Company's consolidated balance
sheets as at January 1, 2017, and at December 31, 2017, is shown below.
Note
As previously
reported
IFRS 15 re-
measurement
adjustments
January 1, 2017
Restated
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
(ii)
(ii)
(ii)
(ii)
(ii)
(ii)
(ii)
—
—
—
—
—
(1)
(1)
—
—
—
—
—
25
—
(4)
20
—
4
—
—
—
—
—
4
(28)
—
—
181
13
—
—
170
—
—
(78)
—
(78)
(72)
(150)
20
606
603
12
56
49
57
1,383
16,941
546
71
239
302
92
77
93
19,744
5
698
48
18
55
155
14
993
1,171
134
332
1,870
46
8,065
84
12,695
167
11
3,267
23
3,468
3,581
7,049
19,744
(millions of Canadian Dollars)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable and contract assets
Finance lease receivables
Inventories
Income taxes receivable
Prepaid expenses and other current assets
Non-current assets
Property, plant and equipment
Intangibles
Goodwill
Investment in joint ventures
Finance lease receivables
Deferred income tax assets
Receivable under service concession arrangement
Other assets
Total assets
LIABILITIES
Current liabilities
Bank indebtedness
Accounts payable and accrued liabilities
Asset retirement obligations and other provisions
Other current liabilities
Short-term debt
Long-term debt
Non-recourse long-term debt
Non-current liabilities
Deferred income tax liabilities
Asset retirement obligations and other provisions
Retirement benefit obligations
Customer contributions
Other liabilities
Long-term debt
Non-recourse long-term debt
Total liabilities
EQUITY
Class I and Class II Share owners' equity
Class I and Class II Shares
Contributed surplus
Retained earnings
Accumulated other comprehensive income
Non-controlling interests
Total equity
Total liabilities and equity
132 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
(millions of Canadian Dollars)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable and contract assets
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
Customer contributions
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
Non-controlling interests
Total equity
Total liabilities and equity
Note
As previously
reported
IFRS 15 re-
measurement
adjustments
IFRS 9 re-
measurement
adjustments
Restated
December 31, 2017
(i)
(ii)
(ii)
(ii)
(ii)
(ii)
(ii)
(ii)
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
—
—
—
—
—
—
(1)
(1)
—
—
—
—
—
22
—
—
(4)
17
—
3
—
—
—
—
—
3
(19)
—
—
132
20
—
—
136
—
—
(62)
—
(62)
(57)
(119)
17
—
(6)
—
—
—
—
—
(6)
—
—
—
—
—
—
—
—
—
(6)
—
—
—
—
—
—
—
—
(1)
—
—
—
—
—
—
(1)
—
—
(4)
—
(4)
(1)
(5)
(6)
501
704
15
70
51
861
66
2,268
17,343
587
71
245
395
87
593
104
93
21,786
7
894
38
68
10
5
15
1,037
1,241
130
368
1,808
146
8,552
1,401
14,683
167
10
3,352
(2)
3,527
3,576
7,103
21,786
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 133
Impact of adoption of IFRS 9 on consolidated financial statements
(i) To determine the amount of expected credit losses, the Company used default and recoverability probabilities
for the majority of its operations and a credit loss allowance matrix for certain operations in the Structures &
Logistics and Corporate & Other operating segments.
At January 1, 2018, the total credit loss allowance was $11 million, which includes $9 million determined based
on third party average default and recoverability probabilities and $2 million based on the credit loss allowance
matrix method. This resulted in an increase of $6 million in the credit loss allowance on adoption of IFRS 9.
Impact of adoption of IFRS 15 on consolidated financial statements
(ii) The timing differences between consideration received and satisfaction of the provision of availability or
existence of the contracted electricity generation capacity performance obligation in the Electricity operating
segment resulted in the recognition of customer contributions on January 1, 2017 and over the remaining terms
of the IPP contracts. Customer contributions represent a significant financing component, as there is a benefit
that has been or will be realized due to the timing of the consideration received in advance of satisfaction of the
performance obligation.
At January 1, 2017, the Company recorded a decrease to retained earnings of $78 million, non-controlling
interests of $72 million, deferred income tax liabilities of $28 million, prepaid expenses and other current assets
of $1 million, other assets of $4 million, with a corresponding increase of $181 million to customer
contributions, $13 million to other liabilities, $25 million to deferred income tax assets and $4 million to current
portion of customer contributions included in accounts payable and accrued liabilities.
At December 31, 2017, the Company recorded a decrease to retained earnings of $62 million, non-controlling
interests of $57 million, deferred income tax liabilities of $19 million, prepaid expenses and other current assets
of $1 million, other assets of $4 million, with a corresponding increase of $132 million to customer
contributions, $20 million to other liabilities, $22 million to deferred income tax assets and $3 million to current
portion of customer contributions included in accounts payable and accrued liabilities.
The customer contributions recorded at transition to IFRS 15 will be recognized in earnings in future years, up
to and including 2043.
During the year ended December 31, 2017, the Company recorded a decrease to revenues from electricity
generation and delivery of $10 million, and a decrease to income taxes of $3 million, respectively, due to the
recognition of customer contributions. The Company also recorded an increase to revenues from electricity
generation and delivery of $59 million, and an increase to income taxes of $16 million, respectively, due to the
derecognition of customer contributions upon transition to finance lease (see Note 11). The Company also
recorded a decrease to revenues from electricity generation and delivery of $7 million, and a decrease to
income taxes of $2 million, respectively, due to the recognition of variable constraints. As a result of these
adjustments, in the consolidated statement of cash flow for the year ended December 31, 2017, the Company
recorded an increase to earnings of $31 million, with a corresponding decrease of $31 million to adjustments to
reconcile earnings to cash flows from operating activities, respectively.
(iii) As a result of recognizing non-cash consideration received from customers during the year ended December 31,
2017 at fair value, the Company recorded an increase to revenue from electricity generation and delivery of $66
million and from logistics and facility operations and maintenance services of $1 million, with a corresponding
increase of $66 million to fuel costs and $1 million to other expenses, respectively.
(iv) As a result of the agent classification of certain charges collected from customers on behalf of distribution and
transmission services providers during the year ended December 31, 2017, the Company recorded a decrease
to revenue from commodity sales of $61 million, with a corresponding decrease of $61 million to energy
transmission and transportation costs, respectively.
(v) As a result of recognizing the financing component on upfront consideration received from customers during
the year ended December 31, 2017, the Company recorded an increase to revenue from electricity generation
and delivery of $11 million, with a corresponding increase of $11 million to interest expense, respectively.
134 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
4. 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 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.
REORGANIZATION OF OPERATING SEGMENTS
In the third quarter of 2018, the Company reorganized its operating segments as follows:
•
•
the equity interest in Neltume Ports (see Note 30) is reported as a separate operating segment; and
Corporate & Other is now shown separately for ATCO and Canadian Utilities.
Comparative amounts for prior periods have been restated to reflect the reorganized segments.
Management has determined that the operating subsidiaries in the reportable segments below share similar
economic characteristics, as such, they continue to be reported on an aggregated basis.
The descriptions and principal operating activities of the reorganized reportable segments are as follows:
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
Canadian
Utilities Limited
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 Alberta, Ontario, the Yukon, the Northwest
Territories, Australia and Mexico.
The Pipelines & Liquids segment includes ATCO Gas, ATCO Pipelines,
ATCO Gas Australia, and ATCO Energy Solutions. 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
Canadian Utilities Limited Corporate & Other includes intersegment
eliminations and ATCO Energy, a retail electricity and natural gas
business in Alberta.
Neltume Ports
Corporate & Other
The Neltume Ports segment includes the equity interest in Neltume
Ports S.A., a leading port operator and developer in South America.
Neltume Ports operates sixteen port facilities and three port operation
services businesses located in Chile, Uruguay, Argentina and Brazil (see
Note 30).
ATCO Corporate & Other includes commercial real estate owned by the
Company and intersegment eliminations.
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 135
Results by operating segment for the year ended December 31 are shown below.
2018
Structures
Canadian Utilities Limited
& Logistics
Electricity
Pipelines
& Liquids
Corporate
& Other Consolidated
Neltume Corporate
Ports
& Other
Consolidated
2017 (restated)
Revenues - external
Revenues -
intersegment
Revenues
Operating expenses (1)
Depreciation,
amortization and
impairment
Other intersegment
gains and losses
Proceeds from
termination of
Power Purchase
Arrangement
Gain on sale of land
(Note 13)
Earnings from
investment in
associate company
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)
511
515
—
1
511
516
(464)
(471)
(37)
(71)
—
—
—
—
—
—
—
—
1
3
(3)
—
8
(23)
(2)
4
6
(19)
15
6
790
622
88
33
2,841
2,432
17
28
2,858
2,460
(1,671)
(1,527)
(386)
(373)
—
—
62
—
125
—
—
—
15
17
(322)
(281)
681
296
(176)
(82)
505
214
228
210
13,494
13,007
497
454
1,415
1,596
55
34
1,470
1,630
(860)
(871)
(254)
(226)
—
—
—
—
—
—
—
—
9
3
(156)
(146)
209
390
(59)
(107)
150
283
130
144
7,842
7,489
643
777
121
57
(72)
(62)
49
(5)
(84)
(21)
2
1
—
26
—
—
—
—
—
—
—
—
9
7
(24)
8
10
16
(14)
24
(39)
(35)
483
343
16
3
4,377
4,085
—
—
4,377
4,085
(2,615)
(2,419)
(638)
(598)
—
26
62
—
125
—
—
—
24
20
(469)
(420)
866
694
(225)
(173)
641
521
319
319
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4
—
—
—
—
—
4
—
—
—
4
—
4
—
21,819
20,839
1,156
1,234
491
—
—
—
—
—
—
(1)
—
(1)
37
21
(7)
(1)
—
(26)
—
—
—
—
—
—
—
—
(6)
3
24
(4)
(4)
(5)
20
(9)
17
10
244
325
10
81
4,888
4,600
—
—
4,888
4,600
(3,042)
(2,869)
(682)
(670)
—
—
62
—
125
—
4
—
25
23
(478)
(417)
902
667
(231)
(174)
671
493
355
335
23,344
21,786
1,254
1,348
(1)
Includes total costs and expenses, excluding depreciation, amortization and impairment expense.
(2)
Includes additions to property, plant and equipment and intangibles and $20 million of interest capitalized during construction for the year ended
December 31, 2018 (2017 - $19 million).
136 ATCO LTD. 2018 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
2018
4,414
379
95
4,888
Property, Plant
and Equipment
2018
16,283
1,323
259
17,865
2017
15,820
1,298
225
17,343
Intangible Assets
Other Assets (1)
2018
640
18
14
672
2017
567
20
—
587
2018
267
31
38
336
2017
264
32
38
334
2018
17,190
1,372
311
18,873
2017
(restated)
4,141
369
90
4,600
Total
2017
16,651
1,350
263
18,264
(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. 2018 CONSOLIDATED FINANCIAL STATEMENTS 137
The reconciliation of adjusted earnings and earnings for the year ended December 31 is shown below.
2018
2017 (restated)
Adjusted earnings
Proceeds from
termination of
Power Purchase
Arrangement
Restructuring and
other costs
Derecognition of
customer
contributions
(Muskeg) (Note 11)
Unrealized gains
(losses) on mark-to-
market forward
commodity contracts
Sale of Barking Power
assets (Note 13)
Impairment
Rate-regulated
activities
Earnings attributable
to Class I and Class II
Shares
Earnings attributable
to non-controlling
interests
Earnings for the year
Structures
& Logistics
Canadian Utilities Limited
Neltume Corporate
Electricity
Pipelines
& Liquids
Corporate
& Other Consolidated
Ports
& Other
Consolidated
15
6
—
—
228
210
19
—
130
144
—
—
(9)
(19)
(11)
—
—
—
—
—
—
—
—
(23)
—
—
6
(17)
—
—
16
16
(48)
46
—
—
—
(28)
(69)
262
109
—
—
—
—
—
—
—
—
—
(43)
3
76
147
(39)
(35)
—
—
(3)
—
—
—
—
—
—
—
—
—
2
—
(40)
(35)
319
319
19
—
(33)
—
—
16
16
(48)
46
—
—
—
(69)
(66)
298
221
4
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4
—
17
10
—
—
3
—
—
—
—
—
—
—
—
—
—
5
20
15
355
335
19
—
(39)
—
—
16
16
(48)
46
—
—
(23)
(69)
(61)
328
219
343
274
671
493
Proceeds from termination of Power Purchase Arrangement
Effective September 30, 2018, the Battle River unit 5 Power Purchase Arrangement (PPA) was terminated by the
Balancing Pool and dispatch control was returned to Canadian Utilities Limited. Canadian Utilities Limited received a
$62 million payment ($24 million after-tax and non-controlling interests (NCI)) from the Balancing Pool and recorded
this amount as proceeds from termination of Power Purchase Arrangement in the statement of earnings for the
year ended December 31, 2018. Battle River generating facility coal-related costs and Asset Retirement Obligations
of $12 million ($5 million after-tax and NCI) were also recorded. Due to the termination of the Battle River unit 5
PPA, the related cash generating unit was tested for impairment, and no impairment loss was required to be
recorded.
This one-time receipt and costs in the net amount of $19 million after-tax and NCI were excluded from adjusted
earnings.
Restructuring and other costs
In the second quarter of 2018, the Company recorded restructuring and other costs of $39 million, after-tax and
NCI, that were not in the normal course of business. These costs mainly relate to staff reductions and associated
severance costs, as well as costs related to decisions to discontinue certain projects that no longer represent long-
term strategic value to the Company.
138 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
Derecognition of customer contributions
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 be accounted for as a finance lease. As a result, the Company recorded an increase to
earnings of $31 million after-tax ($16 million after-tax and NCI) on derecognition of customer contributions on
transitioning to finance lease accounting.
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 and Thermal Plants not governed by a Power
Purchase Arrangement. 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 and Thermal Plants not
governed by a Power Purchase Arrangement. Realized gains or losses are recognized in adjusted earnings when the
commodity contracts are settled.
Sale of Barking Power assets
On December 14, 2018, Canadian Utilities Limited sold its 100 per cent ownership interests in Thames Power
Services Limited and Barking Power Limited. The Company recorded a gain on sale of the Barking Power assets of
$125 million before tax and NCI (See Note 13) ($53 million after tax and NCI). Of the $53 million after-tax and NCI
gain, $46 million was excluded from Adjusted Earnings.
Impairment
In 2017, the Company recognized an impairment of $34 million ($23 million, after-tax and NCI) relating to certain
workforce housing assets in Canada and space rentals assets in the U.S. (see Note 13).
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 as utilities.
There is currently no specific guidance under IFRS for rate-regulated entities that the Company is eligible to adopt.
In the absence of this guidance, the utilities do not recognize assets and liabilities from rate-regulated activities as
may be directed by regulatory decisions. Instead, the utilities recognize revenues in earnings when amounts are
billed to customers, consistent with the regulator-approved rate design. Operating costs and expenses are recorded
when incurred. Costs incurred in constructing an asset that meet the asset recognition criteria are included in the
related property, plant and equipment or intangible asset.
The Company uses standards issued by the Financial Accounting Standards Board (FASB) in the United States as
another source of generally accepted accounting principles 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.
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 139
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, and impact
of colder temperatures.
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.
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.
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 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.
At December 31, 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)
Impact of colder temperatures (2)
Revenues to be billed in future periods
Deferred income taxes (3)
Impact of warmer temperatures (2)
Impact of inflation on rate base (4)
Regulatory decisions received (5)
Settlement of regulatory decisions and other items (6)
2018
2017
39
6
(55)
—
(8)
—
(51)
(69)
32
—
(54)
(2)
(8)
9
(38)
(61)
(1)
(2)
(3)
(4)
(5)
(6)
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.
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.
Income taxes are billed to customers when paid by the Company.
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.
In 2017, the most significant regulatory decision received was the General Tariff Application related to ATCO Electric Transmission operations.
In 2018, ATCO Electric Transmission operations recorded a decrease in earnings of $20 million mainly related to a refund of deferral account balances
relating to 2013 and 2014. ATCO Gas also recorded a reduction in earnings of $31 million mainly related to a refund of previously over-collected
transmission costs. In 2017, ATCO Electric Transmission operations recorded a decrease in earnings of $17 million related to the settlement of final
2015-2017 General Tariff Application rate and a decrease to earnings of $14 related to the refund of previously collected capitalized pension costs.
140 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
5. REVENUES
The Company disaggregates revenues based on the revenue streams and by regulated and non-regulated business
operations. The disaggregation of revenues by revenue streams by each operating segment for the year ended
December 31 are shown below:
2018
2017 (restated)
Revenue Streams
Sale of Goods
Electricity generation and delivery
Commodity sales
Modular structures - goods
Total sale of goods
Rendering of Services
Distribution services
Transmission services
Modular structures - services
Logistics and facility operations and
maintenance services
Lodging and support
Customer contributions
Franchise fees
Retail electricity and natural gas services
Storage and industrial water
Total rendering of services
Lease income
Finance lease
Operating lease
Total lease income
Service concession arrangement
Other (2)
Total
Structures
& Logistics
Electricity
Pipelines
& Liquids
Corporate
& Other (1)
Total
—
—
—
—
171
165
171
165
—
—
—
—
99
115
94
78
62
68
—
—
—
—
—
—
—
—
526
215
19
17
—
—
545
232
567
505
622
629
—
—
—
—
—
—
47
87
25
22
—
—
—
—
255
261
1,261
1,243
—
—
83
88
83
88
—
—
2
1
35
33
172
206
207
239
803
516
25
202
—
—
13
13
—
—
13
13
905
1,039
245
256
—
—
—
—
—
—
18
18
183
207
—
—
47
55
1,398
1,575
—
—
—
—
—
—
—
—
4
8
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
114
52
—
—
114
52
—
—
—
—
—
—
—
—
7
5
526
215
32
30
171
165
729
410
1,472
1,544
867
885
99
115
94
78
62
68
65
105
208
229
114
52
47
55
3,028
3,131
35
33
255
294
290
327
803
516
38
216
511
515
2,841
2,432
1,415
1,596
121
57
4,888
4,600
(1)
Includes revenues from the Corporate & Other in Canadian Utilities Limited and ATCO Ltd.
(2)
In 2017, Electricity has included $175 million of gain on sale of electricity generation asset on transition to a finance lease (see Note 11) .
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 141
Disaggregation of revenues by rate-regulated and non-rate-regulated business operations is shown below:
Rate-regulated business operations
Rate-regulated Electricity
Electricity Distribution
Electricity Transmission
Rate-regulated Pipelines & liquids
Natural Gas Distribution
Natural Gas Transmission
International Natural Gas Distribution
Total rate-regulated business operations
Non-rate-regulated business operations
Non-rate-regulated Electricity
Independent Power Plants
Thermal PPA Plants
International Power Generation
Service concession arrangement
Non-rate-regulated Pipelines & liquids
Storage and Industrial Water
Other non-rate-regulated business operations
Modular Structures
Lodging and Support
Logistics and Facility Operations and Maintenance Services
Retail Electricity and Natural Gas Services
Other (1)
Total non-rate-regulated business operations
Total
Year Ended
December 31
2017
(restated)
556
641
1,197
1,086
263
182
1,531
2,728
257
260
21
516
1,054
55
55
368
68
78
52
197
763
1,872
4,600
2018
624
640
1,264
935
252
168
1,355
2,619
318
418
19
803
1,558
47
47
353
62
94
114
41
664
2,269
4,888
(1)
In 2017, Electricity has included $175 million of gain on sale of electricity generation asset on transition to a finance lease (see Note 11) .
6. 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.
142 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
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)
2018
420
60
14
5
3
11
14
527
(20)
507
2017
(restated)
396
21
15
3
2
11
13
461
(19)
442
Borrowing costs capitalized to property, plant and equipment during 2018 were calculated by applying a weighted
average interest rate of 4.70 per cent to expenditures on qualifying assets (2017 - 4.82 per cent).
8. INCOME TAXES
INCOME TAX EXPENSE
The components of income tax expense are summarized below.
Current income tax expense
Canada
Australia
United States
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
Equity earnings
Unrecognized deferred income tax assets
Non-taxable gains
Tax cost of preferred share financings
Other
902
244
(5)
2
(4)
4
(8)
2
(4)
231
2018
%
27.0
(0.5)
0.2
(0.4)
0.4
(0.9)
0.2
(0.4)
25.6
2018
2017
(Restated)
85
(6)
(1)
(2)
76
154
1
155
231
667
180
(8)
3
(4)
5
(5)
2
1
174
64
5
8
2
79
95
—
95
174
2017
(Restated)
%
27.0
(1.3)
0.5
(0.6)
0.8
(0.8)
0.3
0.2
26.1
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 143
INCOME TAX ASSETS AND LIABILITIES
Income tax assets and liabilities in the consolidated balance sheet at December 31 are summarized below.
Income tax assets
Current
Deferred
Income tax liabilities
Current
Deferred
Balance Sheet Presentation
Income taxes receivable
Deferred income tax assets
Other current liabilities
Deferred income tax liabilities
DEFERRED INCOME TAXES
The changes in deferred income tax assets are as follows:
2018
56
85
141
51
1,399
1,450
2017
(Restated)
51
87
138
17
1,241
1,258
Movements
December 31, 2016, as previously
reported
IFRS 15 re-measurement adjustments
January 1, 2017, restated
Credit (charge) to earnings
IFRS 15 re-measurement adjustments
Other
December 31, 2017, restated
(Charge) credit to earnings
Foreign exchange adjustment
Other
December 31, 2018
Property,
Plant and
Equipment
Note
Intangibles Reserves
Tax Loss Carry
Forwards and
Tax Credits
Retirement
Benefit
Obligations Other
Total
3
3
3
33
—
33
1
—
(2)
32
(39)
1
—
(6)
(3)
—
(3)
1
—
—
(2)
(5)
—
—
(7)
26
25
51
(6)
(3)
—
42
(4)
—
—
38
10
—
10
4
—
—
14
36
—
—
50
1
—
1
—
—
—
1
7
—
—
8
—
—
—
—
—
—
(2)
—
4
2
67
25
92
—
(3)
(2)
87
(7)
1
4
85
The Company expects approximately $3 million of its deferred income tax assets to reverse within the next twelve
months.
144 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
The changes in deferred income tax liabilities are as follows:
Property,
Plant and
Equipment
Note
Intangibles Reserves
Tax Loss Carry
Forwards and
Tax Credits
Retirement
Benefit
Obligations Other
Total
Movements
December 31, 2016, as previously
reported
IFRS 15 re-measurement adjustments
January 1, 2017, restated
Charge (credit) to earnings
IFRS 15 re-measurement adjustments
Credit to other comprehensive
income
Other
December 31, 2017, restated, after
IFRS 15 re-measurement adjustments
IFRS 9 re-measurement adjustments
January 1, 2018, restated
Charge (credit) to earnings
Charge (credit) to other
comprehensive income
Acquisition
Other
December 31, 2018
3
3
3
3
3
3
1,259
—
1,259
140
—
—
(2)
1,397
—
1,397
142
—
(4)
5
1,540
117
—
117
(13)
—
—
—
104
—
104
7
—
10
—
(3)
(28)
(31)
(27)
9
(11)
(1)
(61)
—
(61)
11
2
—
—
(76)
—
(76)
(22)
—
—
—
(98)
—
(98)
(8)
—
(2)
—
(117)
19 1,199
—
(117)
(8)
—
(8)
(1)
—
(28)
19 1,171
84
14
9
—
—
1
(19)
(3)
(134)
34 1,242
—
(134)
(1)
(2)
—
—
(1)
(1)
33 1,241
148
(3)
—
—
6
2
(1)
4
31 1,399
121
(48)
(108)
(137)
The Company expects approximately $1 million of its deferred income tax liabilities to reverse within the next twelve
months.
At December 31, 2018, the Company had $614 million of non-capital tax losses and credits which expire between
2025 and 2038 and $44 million of tax losses which do not expire. The Company recognized deferred income tax
assets of $158 million for losses and credits that expire.
The Company had $119 million of aggregate temporary differences for investments in subsidiaries, branches and
joint ventures for which deferred income tax liabilities were not recognized (2017 - $116 million).
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.
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 145
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
2018
2017
(restated)
114,393,769 114,351,929
51,104
343,186
147,586
322,606
114,788,059 114,822,121
671
(343)
328
493
(274)
219
$2.87
$2.86
$1.92
$1.91
At December 31, 2018, Alberta PowerLine (APL), a partnership between Canadian Utilities Limited and Quanta
Services Inc., that 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 (Project), had $339 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 at December 31 are comprised of:
Current assets
Restricted cash (1)
Restricted funds invested in structured deposit note (2)
Restricted funds for construction lien holdbacks
Non-current assets
Restricted cash
Restricted funds for construction lien holdbacks
2018
230
—
109
339
—
—
—
339
2017
351
510
—
861
69
35
104
965
(1)
At December 31, 2018, includes $100 million of funds contributed by APL partners as part of the equity contribution requirements, that are not available
for general use by the Company (2017 - nil).
(2)
The funds invested in a structured deposit note, which paid interest at a fixed rate of 1.707 per cent per annum, matured at the end of 2018.
146 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
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
2018
2017
683
(291)
737
(329)
3
395
15
380
395
52
209
422
683
15
87
293
395
2
410
15
395
410
52
238
447
737
15
95
300
410
During the year ended December 31, 2018, $21 million of contingent rent was recognized as income from these
finance leases (2017 - $4 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 $75 million, respectively, was recorded in other revenues to
recognize the fair value of the lease receivable and the derecognition of related customer contributions (see Note 5).
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 $23 million after tax and non-
controlling interests.
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 147
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
2018
2017
114
116
2
232
215
330
3
548
During the year ended December 31, 2018, no contingent rent was recognized as income from these operating
leases (2017 - $10 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, 2018, $32 million was recognized as an expense for these operating leases (2017 - $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
2018
13
34
15
4
66
2017
16
34
9
11
70
For the year ended December 31, 2018, inventories recognized as an expense were $224 million (2017 - $280
million).
Inventories with a carrying value of $18 million were pledged as security for liabilities at December 31, 2018 (2017 -
$10 million).
148 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
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, 2016
Additions
Transfers
Retirements and disposals (1)
Transfer to finance lease (Note 11)
Changes to asset retirement costs
Foreign exchange rate adjustment
December 31, 2017
Additions
Transfers
Retirements and disposals (2)
Business combinations (Note 29)
Changes to asset retirement costs
Foreign exchange rate adjustment
17,525
2,051
385
678
(127)
—
(5)
9
10
1
(5)
(187)
(1)
—
18,465
1,869
67
879
(72)
—
—
(24)
13
1
(35)
87
7
8
920
85
40
(49)
—
—
3
999
17
106
(114)
—
—
(1)
December 31, 2018
19,315
1,950
1,007
Accumulated depreciation
December 31, 2016
Depreciation and impairment (3)
Retirements and disposals
Transfer to finance lease (Note 11)
Foreign exchange adjustment
December 31, 2017
Depreciation
Retirements and disposals
Foreign exchange rate adjustment
December 31, 2018
Net book value
December 31, 2017
December 31, 2018
3,729
413
(127)
—
1
4,016
444
(72)
(4)
1,312
68
(3)
(72)
—
1,305
57
(30)
6
4,384
1,338
14,449
14,931
564
612
180
22
(18)
—
—
184
27
(10)
—
201
815
806
781
746
(760)
(53)
—
—
(9)
705
964
(1,011)
(1)
—
—
13
670
82
—
—
—
(6)
76
—
—
7
83
629
587
1,661
34
41
(126)
—
—
(6)
1,604
120
25
(75)
1
—
8
22,938
1,260
—
(360)
(187)
(6)
(3)
23,642
1,181
—
(297)
88
7
4
1,683
24,625
694
109
(81)
—
(4)
718
86
(51)
1
754
886
929
5,997
612
(229)
(72)
(9)
6,299
614
(163)
10
6,760
17,343
17,865
(1)
(2)
(3)
Includes $13 million of land held for sale, which was reclassified to prepaid expenses and other current assets.
Includes $101 million of cost of land sold in the United Kingdom, as part of sale of Barking Power assets (see below).
Includes an impairment of $34 million relating to workforce housing and space rental assets (see below).
The additions to property, plant and equipment included $20 million of interest capitalized during construction for
the year ended December 31, 2018 (2017 - $19 million).
Property, plant and equipment with a carrying value of $602 million were pledged as security for liabilities at
December 31, 2018 (2017 - $467 million).
SALE OF BARKING POWER ASSETS
On December 14, 2018, Canadian Utilities Limited sold its 100 per cent ownership interests in Thames Power
Services Limited (TPSL) and Barking Power Limited (BPL). BPL is an entity that holds land assets in the United
Kingdom. As these entities had no significant ongoing operations, the sale was accounted for as a sale of assets, net
of attributed liabilities (Barking Power assets), whereby land was the major asset disposed of.
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 149
The total proceeds received on sale of TPSL and BPL were $219 million. Canadian Utilities Limited recorded a gain
on sale of Barking Power assets of $125 million ($52 million after tax and NCI). The reconciliation of gain on sale of
Barking Power assets is shown below:
Sale of Barking Power assets proceeds
Cost of sale of Barking Power assets, net of liabilities (1)
Reversal of unused amounts of related asset retirement obligation (Note 18)
Loss on reclassification of the cumulative foreign currency translation adjustment
Costs of disposal
Gain on sale of Barking Power assets, before tax and NCI
(1)
Includes $101 million of cost of land sold in the United Kingdom, as part of sale of Barking Power assets.
219
(90)
16
(15)
(5)
125
IMPAIRMENT
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 NCI) 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 ranged from 6 to 12
years which represented 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.
150 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
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. A reconciliation of the changes in the carrying
amount of intangible assets is as follows:
Computer
Software
Land
Rights
Other
Total
Cost
December 31, 2016
Additions
Retirements
December 31, 2017
Additions
Business combinations (Note 29)
Retirements
December 31, 2018
Accumulated amortization
December 31, 2016
Amortization
Retirements
December 31, 2017
Amortization
Retirements
December 31, 2018
Net book value
December 31, 2017
December 31, 2018
15. GOODWILL
608
75
(21)
662
71
—
(3)
730
367
51
(21)
397
51
(3)
445
265
285
324
23
(1)
346
25
—
—
371
39
5
(1)
43
5
—
48
303
323
27
—
(1)
26
1
46
—
73
7
1
(1)
7
2
—
9
19
64
959
98
(23)
1,034
97
46
(3)
1,174
413
57
(23)
447
58
(3)
502
587
672
The carrying value of goodwill for the Electricity, Pipelines & Liquids and Structures & Logistics segments is shown
below.
Electricity
Pipelines & Liquids
Structures & Logistics
Carrying value
2018
2017
47
33
2
82
38
33
—
71
On February 20, 2018, Canadian Utilities Limited acquired a 100 per cent ownership interest in Electricidad del Golfo
resulting in an increase of $9 million to goodwill for the Electricity operating segment (see Note 29).
On December 19, 2018, ATCO Structures & Logistics purchased a 70 per cent interest in a modular building
manufacturer in Mexico, which will now operate under the name ATCO Espaciomovil, resulting in an increase of $2
million to goodwill for the Structures & Logistics operating segment (see Note 29).
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.
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 151
The Company used an average enterprise value-to-earnings before interest, taxes, depreciation, and amortization of
10.6 and 13.9 (2017 - 11.2 and 16.0) and price-to-earnings value of 23.9 and 25.3 (2017 - 18.7 and 22.3) 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 $1,396 million at December 31, 2018
(2017 - $593 million). Payments will commence once the asset is in service. Contracted undiscounted cash flows
from the Transmission Project are expected to be $4.1 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, 2018, are
$803 million, $664 million and $139 million, respectively (2017 - $516 million, $456 million and $60 million).
17. SHORT-TERM DEBT
At December 31, short-term debt is as follows:
Commercial paper - due January 2019
Other - due June 2018
Weighted Average
Effective Interest Rate
2.25%
3.20%
2018
175
—
175
2017
—
10
10
The outstanding commercial paper balance was fully repaid in January 2019.
The commercial paper is supported by the Company's long-term committed credit facilities.
152 ATCO LTD. 2018 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, greenhouse gas payments and expected warranty claims on modular buildings.
The changes in AROs and other provisions are as follows:
December 31, 2016
Additions
Utilized in the year
Reversals of unused amounts
Accretion expense
Other
December 31, 2017
Additions
Utilized in the year
Reversals of unused amounts (1)
Accretion expense
Other
December 31, 2018
Less: current portion
Long-term portion
Asset
Retirement
Obligations
163
1
(5)
—
2
(6)
155
8
(5)
(16)
3
3
148
(9)
139
Other
19
6
(11)
(1)
—
—
13
58
(38)
(1)
—
—
32
(32)
—
Total
182
7
(16)
(1)
2
(6)
168
66
(43)
(17)
3
3
180
(41)
139
(1)
Reversal of unused amounts includes $16 million related to the sale of Barking Power assets in December 2018 (see Note 13).
ASSET RETIREMENT OBLIGATIONS
The Company estimates that the undiscounted, inflated amount of cash flows required to settle the AROs is
approximately $5.1 billion, which will be incurred between 2019 and 2261. The weighted average pre-tax, risk-free
discount rate used to calculate the fair value of the AROs at December 31, 2018 was 2.72 per cent (2017 - 2.72 per
cent).
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 153
19. LONG-TERM DEBT
Long-term debt outstanding at December 31 is as follows:
CU Inc. debentures - unsecured (1)
CU Inc. other long-term obligation, due June 2020 - unsecured (2)
Canadian Utilities Limited debentures - unsecured,
3.122% due November 2022
Effective
Interest Rate
4.838% (2017 - 4.881%)
3.95% (2017 - 3.20%)
2018
7,990
5
2017
7,605
3
3.187%
200
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, $69 million AUD (2017 - $74 million AUD) (3)
Floating (4)
66
73
ATCO Gas Australia Limited Partnership credit facility, payable in
Australian dollars, at BBSY rates, due December 2019
(2017 - $250 million AUD)
ATCO Gas Australia Limited Partnership revolving credit facility, payable
in Australian dollars, at BBSY rates, due December 2019,
(2017 - $427 million AUD)
ATCO Gas Australia credit facility, payable in Australian dollars, at BBSY
rates, due July 2021, $275 million AUD (3)
ATCO Gas Australia revolving credit facility, payable in Australian dollars, at
BBSY rates, due July 2023, $400 million AUD (3)
Electricidad del Golfo credit facility, payable in Mexican pesos, at Mexican
Interbank rates, due March 2023, 570 million MXP
ATCO Investments Ltd. mortgage, at BA rates, payable in
Canadian dollars, due March 2028
Floating (4)
Floating (4)
Floating (4)
Floating (4)
Floating (4)
Floating (4)
ATCO Ltd. extendible revolving credit facility, at BA rates, due August 2021 (3)
Floatings
ATCO Ltd. fixed-to-floating rate subordinated notes, due November 2078
ATCO Structures & Logistics credit facility, at BA rates, due November 2020 (3) Floatings
5.50% (5)
Less: deferred financing charges
Less: amounts due within one year
BBSY - Bank Bill Swap Benchmark Rate
BA - Bankers’ Acceptance
—
—
264
385
39
98
150
200
48
(48)
9,397
(488)
8,909
244
417
—
—
—
—
—
—
58
(43)
8,557
(5)
8,552
(1) Interest rate is the average effective interest rate weighted by principal amounts outstanding.
(2) During 2018, the expiry date of the CU Inc. other long-term obligation was extended from December 2019 to June 2020.
(3) During 2018, the above interest rates had additional margin fees at a weighted average rate of 1.16 per cent (2017 - 1.28 per cent). The margin fees are
subject to escalation.
(4)
Floating interest rates have been partially or completely hedged with interest rate swaps (see Note 25).
(5)
The above rate of 5.50 per cent is fixed for the period from November 1, 2018 to October 31, 2028. Starting November 1, 2028, on every interest reset
date (February 1, May 1, August 1, November 1) of each year until November 1, 2048, the interest rate will be reset to the three month BA plus 2.92 per
cent. Starting November 1, 2048, on every interest reset date of each year until November 1, 2078, the interest rate will be reset to BA rate plus 3.67 per
cent.
DEBENTURE ISSUANCES
During 2018, CU Inc. issued $385 million of 3.95 per cent debentures maturing on November 23, 2048 (2017 -
$430 million of 3.548 per cent debentures maturing on November 22, 2047).
154 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
OTHER LONG TERM DEBT ISSUANCES AND REPAYMENTS
ATCO Gas Australia re-financing
In July 2018, as part of a re-financing, the Company's subsidiary, ATCO Gas Australia Limited Partnership, repaid in
full the outstanding balance of its two credit facilities in the amount of $658 million ($677 million Australian dollars).
ATCO Gas Australia then entered into a new syndicated loan facility, consisting of two tranches. The first tranche is a
$275 million Australian dollars loan, maturing in July 2021, at the Australia bank bill swap benchmark rate (BBSY)
plus an applicable margin. This tranche was fully drawn at December 31, 2018. The second tranche is a $450 million
Australian dollars revolving credit facility, maturing in July 2023, at BBSY rates plus a margin. $385 million ($400
million Australian dollars) was borrowed under this tranche at December 31, 2018. The floating BBSY interest rates
are hedged to December 31, 2019 with an interest rate swap agreement which fixes the interest rate at 2.392% (see
Note 25).
Electricidad del Golfo credit facility
On February 20, 2018, the Company assumed $42 million of long-term debt on acquisition of Electricidad del Golfo
(EGO) (see Note 29). On March 20, 2018, the Company issued additional long-term debt of $40 million under a fixed-
term credit facility, at Mexican interbank rates maturing in March 2023, that was used to fund the retirement of
EGO's long-term debt with its Mexican counterparty. To mitigate the variable interest rate risk, the Company entered
into interest rate swap agreements to fix the interest rate at 8.77 per cent for the fixed-term facility (see Note 25).
The long-term debt assumed on acquisition of EGO was repaid on April 2, 2018.
ATCO Investments Ltd. mortgage
In February 2018, the Company entered into a $100 million mortgage agreement, at BA rates maturing in March
2028. To mitigate the variable interest rate risk, the Company entered into interest swap agreements to fix the
interest rate at 4.12 per cent for the mortgage agreement (see Note 25).
ATCO Ltd. extendible revolving credit facility
As part of the financing for the Neltume Ports investment (see Note 30), ATCO Ltd. entered into a new $150 million
long-term revolving credit facility in August 2018. The credit facility matures in August 2021 and was fully drawn at
December 31, 2018 at BA interest rates.
ATCO Ltd. fixed-to-floating rate subordinated notes
On November 1, 2018, ATCO Ltd. issued $200 million of fixed-to-floating rate subordinated notes due
November 1, 2078. The notes are subject to optional redemption by ATCO Ltd., whereby on or after November 1,
2028, ATCO Ltd. may redeem the notes in whole at any time or in part on an interest payment date.
The notes are subject to automatic conversion, without the consent of the holders of the notes, into preferred
shares, that will carry the right to receive cumulative preferential cash dividends at the same rate as the interest rate
that would have accrued on the notes. The automatic conversion into preferred shares occurs under limited
circumstances whereby ATCO Ltd. or a third party initiates proceedings under the Bankruptcy and Insolvency
Act (Canada). The fair value of the automatic conversion feature was deemed to be nominal at inception.
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 ATCO Investments Limited mortgage is secured by certain of the Company's real estate holdings.
The ATCO Structures & Logistics credit facility is 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.
The book value of assets pledged to maintain the Company's long-term credit facilities was $789 million at
December 31, 2018 (2017 - $583 million).
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 155
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
2018
2017
8.950%
8.240%
7.840%
7.870%
7.890%
4.277%
4.274%
3.690%
3.679%
9
12
9
20
19
549
548
144
144
(53)
1,401
(20)
1,381
14
15
12
23
21
549
548
144
144
(54)
1,416
(15)
1,401
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 are 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, at December 31, 2018, $239 million is
included in restricted project funds (2017 - $965 million) (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, 2018, is $384 million (2017 - $374 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.
156 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
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.
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
Return on plan assets, excluding amounts included
in interest income
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
Actuarial (gains) losses
End of year (1)
Funded status
Pension
Benefit Plans
OPEB Plans
Pension
Benefit Plans
OPEB Plans
2018
2017
2,775
95
1
21
(119)
(106)
2,667
3,024
24
105
1
(119)
(7)
(95)
2,933
—
—
—
—
—
—
—
2,674
100
1
27
(113)
86
2,775
—
—
—
—
—
—
—
119
2,889
117
3
4
—
—
(4)
(4)
118
29
111
1
(113)
(7)
114
3,024
2
4
—
—
(5)
1
119
Net retirement benefit obligations
266
118
249
119
(1) The non-registered, non-funded defined benefit pension plans accrued benefit obligations decreased to $156 million at December 31, 2018 due to an
increase in the liability discount rate and experience adjustments (2017 - increased to $161 million due to a decrease in the liability discount rate partially
offset by experience adjustments).
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 157
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
Pension
Benefit Plans
24
105
(95)
34
30
64
27
37
2018
OPEB Plans
3
4
—
7
—
7
3
4
Pension
Benefit Plans
29
111
(100)
40
32
72
29
43
2017
OPEB Plans
2
4
—
6
—
6
3
3
RE-MEASUREMENT OF RETIREMENT BENEFITS
Re-measurements of the pension and OPEB plans are as follows:
(Losses) gains on plan assets from:
Return on plan assets, excluding amounts included
in net interest expense
Gains (losses) on plan obligations from:
Changes in demographic assumptions
Changes in financial assumptions
Experience adjustments
(Losses) gains recognized in other
comprehensive income (1)
2018
2017
Pension
Benefit Plans
OPEB Plans
Pension
Benefit Plans
OPEB Plans
(106)
—
74
21
95
(11)
—
—
3
1
4
4
86
4
(135)
17
(114)
(28)
—
4
(4)
(1)
(1)
(1)
(1) Losses net of income taxes were $5 million for the year ended December 31, 2018 (2017 - $21 million).
158 ATCO LTD. 2018 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
2017
%
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
2018
%
19
254
313
221
—
788
882
670
53
—
70
1,605
8
—
—
—
15
57
14
137
202
153
11
503
1,056
718
40
54
1,868
31
195
226
12
48
10
70
2,667
3
100
86
2,479
137
202
153
—
492
1,056
718
40
—
1,814
—
—
—
12
48
10
70
2,376
—
—
—
11
11
—
—
—
54
54
31
195
226
—
—
—
—
291
—
—
—
11
11
—
—
—
46
46
43
196
239
—
—
—
—
296
29
59
9
254
313
221
11
799
882
670
53
46
1,651
43
196
239
15
57
14
86
2,775
3
100
(1) The land and building are occupied by the Company.
At December 31, 2018, plan assets include Class A non-voting shares of Canadian Utilities Limited having a market
value of $5 million (2017 - $8 million) and Class I Shares of the Company having a market value of $6 million (2017 -
$9 million). These investments are held by a fund that is managed by an independent investment manager on an
arms-length-basis.
FUNDING
In 2018, an actuarial valuation for funding purposes as of December 31, 2017 was completed for the registered
defined benefit pension plans. The estimated contribution for 2019 is $21 million. The next actuarial valuation for
funding purposes must be completed as of December 31, 2020.
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 159
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
Accrued benefit obligations
Discount rate at December 31
Long-term inflation rate
Health care cost trend rate:
Drug costs (1)
Other medical costs
Dental costs
Pension
Benefit Plans
OPEB Plans
Pension
Benefit Plans
OPEB Plans
2018
2017
3.60%
2.50%
3.80%
2.00%
n/a
n/a
n/a
3.60%
n/a
3.80%
n/a
5.30%
4.50%
4.00%
3.90%
1.50%
3.60%
2.00%
n/a
n/a
n/a
3.90%
n/a
3.60%
n/a
5.43%
4.50%
4.00%
(1)
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 13.8 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.
Life expectancy
Should pensioners live longer than assumed, benefit obligations and liabilities will be larger than expected.
160 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
SENSITIVITIES
The 2018 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
Per cent
Change
Increase in
Assumption
Decrease in
Assumption
Increase in
Assumption
Decrease in
Assumption
1%
1%
1%
1%
10%
(384)
17
439
11
78
478
(16)
(362)
(9)
(86)
4
1
10
—
2
(6)
(1)
(8)
—
(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. BALANCES FROM CONTRACTS WITH CUSTOMERS
Balances from contracts with customers are comprised of accounts receivable and contract assets and customer
contributions:
ACCOUNTS RECEIVABLE AND CONTRACT ASSETS
At December 31, 2018, accounts receivable and contract assets are as follows:
Trade accounts receivable and contract assets
Other accounts receivable
The significant changes in trade accounts receivable and contract assets are as follows:
December 31, 2016
Revenue from satisfied performance obligations
Customer billings and other items not included in revenue
Credit loss allowance, net
Payments received
Foreign exchange rate adjustment
December 31, 2017, as previously reported
IFRS 9 re-measurement adjustments (Note 3)
January 1, 2018, restated
Revenue from satisfied performance obligations
Customer billings and other items not included in revenue
Business combinations
Reversal of credit loss allowance, net
Payments received
Foreign exchange rate adjustment
December 31, 2018
2018
719
26
745
2017
(restated)
695
9
704
601
3,436
575
(1)
(3,915)
5
701
(6)
695
3,684
426
2
2
(4,093)
3
719
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 161
CUSTOMER CONTRIBUTIONS
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 represent deferred revenues
and are recognized in revenues over the life of the related asset.
Changes in customer contributions balance are summarized below.
December 31, 2016, as previously reported
IFRS 15 re-measurement adjustment
January 1, 2017, restated
Receipt of customer contributions
Derecognition on transition to finance lease, before IFRS 15 re-measurement adjustment
Amortization
IFRS 15 re-measurement adjustment
December 31, 2017, restated
December 31, 2017, as previously reported
IFRS 15 re-measurement adjustments
January 1, 2018, restated
Receipt of customer contributions
Derecognition on termination of Power Purchase Arrangement
Amortization
December 31, 2018
23. CLASS I NON-VOTING AND CLASS II VOTING SHARES
Note
3
3
11
3
3
3
4
1,687
181
1,868
61
(16)
(56)
(49)
1,808
1,676
132
1,808
90
(35)
(65)
1,798
A reconciliation of the number and dollar amount of outstanding Class I and Class II Shares at December 31, 2018 is
shown below.
AUTHORIZED AND ISSUED
Authorized:
Issued and outstanding:
December 31, 2016
Purchased and canceled
Stock options exercised
Converted: Class II to Class I
December 31, 2017
Purchased and canceled
Stock options exercised
Converted: Class II to Class I
December 31, 2018
Class I Non-Voting
Shares
300,000,000
Amount
Shares
50,000,000
Class II Voting
Amount
Shares
350,000,000
Total
Amount
101,221,323
(35,000)
41,500
100,450
101,328,273
(116,800)
117,200
100,208
101,428,881
177
13,431,905
—
2
—
179
—
3
—
182
—
—
(100,450)
13,331,455
—
—
(100,208)
13,231,247
2
—
—
—
2
—
—
—
2
114,653,228
179
(35,000)
41,500
—
114,659,728
(116,800)
117,200
—
—
2
—
181
—
3
—
114,660,128
184
Class I and Class II Shares have no par value.
162 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
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
114,660,128
184
114,659,728
Shares held in trust for the mid-term incentive plan
(342,212)
(15)
(329,504)
Shares outstanding, net of shares held in trust
114,317,916
169
114,330,224
181
(14)
167
2018
2017
Shares
Amount
Shares
Amount
DIVIDENDS
The Company declared and paid cash dividends of $1.5064 per Class I and Class II Share during 2018 (2017 -
$1.3100). 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 10, 2019, the Company declared a first quarter dividend of $0.4048 per Class I and Class II Share.
SHARE OWNER RIGHTS
Each Class II Share may be converted into one Class I Share at any time at the share owner’s option. If an offer to
purchase all Class II Shares is made, and such offer is accepted and taken up by the owners of a majority of the
Class II Shares, and if, at the same time, an offer is not made to the Class I Share owners on the same terms and
conditions, then the Class I Shares will be entitled to the same voting rights as the Class II Shares. The two share
classes rank equally in all other respects, except for voting rights.
NORMAL COURSE ISSUER BID
On March 8, 2018, ATCO Ltd. began a normal course issuer bid to purchase up to 2,026,725 outstanding Class I
Shares. The bid expires on March 7, 2019. The prior year normal course issuer bid to purchase up to 3,037,065
outstanding Class I Shares began on March 8, 2017 and expired on March 7, 2018.
During the year ended December 31, 2018, 116,800 shares were purchased for $4 million, resulting in no impact to
share capital and a decrease to retained earnings of $4 million (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).
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 163
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 land (Note 13)
Earnings from investment in associate company
Dividends and distributions received from investment in joint ventures,
net of earnings
Income taxes
Unrealized (gains) losses on mark-to-market forward commodity contracts
Contributions by customers for extensions to plant
Amortization of customer contributions
Derecognition of customer contributions on termination of Power Purchase
Arrangement
Net finance costs
Income taxes paid
Other
CHANGES IN NON-CASH WORKING CAPITAL
The changes in non-cash working capital are summarized below.
Operating activities
Accounts receivable and contract assets
Inventories
Prepaid expenses and other current assets
Accounts payable and accrued liabilities
Provisions and other current liabilities
Investing activities
Accounts receivable and contract assets
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
2018
682
(125)
(4)
5
231
(42)
90
(65)
(35)
478
(55)
66
2017
(restated)
670
—
—
2
174
123
61
(105)
—
417
(80)
58
1,226
1,320
2018
2017
(55)
6
(149)
140
(37)
(95)
—
(2)
1
(66)
(67)
(114)
(11)
(10)
133
36
34
(1)
(3)
—
8
4
164 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
DEBT RECONCILIATION
The reconciliation of the changes in debt for the year ended December 31 is shown below.
Liabilities from financing activities
December 31, 2016
Net (repayment) issue of debt
Foreign currency translation
Debt issue costs
Amortization of deferred financing charges
December 31, 2017
Net issue (repayment) of debt
Foreign currency translation
Assumption of debt on business combination (Note 29)
Debt issue costs
Amortization of deferred financing charges
December 31, 2018
CASH POSITION
Short-term
debt
Long-term
debt
Non-recourse
debt
55
(45)
—
—
—
10
165
—
—
—
—
8,220
333
5
(3)
2
8,557
814
(11)
42
(9)
4
98
1,371
—
(54)
1
1,416
(16)
—
—
—
1
Total
8,373
1,659
5
(57)
3
9,983
963
(11)
42
(9)
5
175
9,397
1,401
10,973
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
2018
627
—
64
691
—
691
2017
443
3
55
501
(7)
494
(1) Cash balances which are restricted under the terms of joint arrangement agreements are considered not available for general use by the Company.
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 165
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
and contract assets, 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.
Finance 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).
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
Finance lease receivables
Receivable under service concession arrangement
Financial Liabilities
Long-term debt
Non-recourse long-term debt
December 31, 2018
December 31, 2017
Note
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
11
16
19
20
395
1,396
9,397
1,401
487
1,396
10,042
1,474
410
593
8,557
1,416
568
593
9,737
1,562
166 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE
The Company's derivative instruments are measured at fair value. At December 31, 2018, 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. dollars, Australian dollars, Mexican pesos and British
pounds, 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, 2018
Financial Assets
Prepaid expenses and other current assets
Other assets
Financial Liabilities
Other current liabilities (1)
Other liabilities (1)
December 31, 2017
Financial Assets
Prepaid expenses and other current assets
Other assets
Financial Liabilities
Other current liabilities
Other liabilities
Subject to Hedge
Accounting
Not Subject to Hedge
Accounting
Interest
Rate Swaps Commodities Commodities
Foreign
Currency
Forward
Contracts
Total Fair
Value of
Derivatives
1
1
—
4
—
—
4
—
2
2
15
8
2
3
14
16
—
4
34
27
3
1
32
35
2
—
4
—
—
—
4
—
5
7
53
39
5
4
54
51
(1)
At December 31, 2018, the Company paid a total of $18 million of cash collateral to third parties on commodity forward positions related to future
periods (December 31, 2017 - $54 million). The contracts held with these third parties have an enforceable master netting arrangement, which
allows the right to offset.
During the year ended December 31, 2018, losses before income taxes of $4 million were recognized in other
comprehensive income (OCI) (2017 - losses of $41 million) and losses of $11 million were reclassified to the
statement of earnings (2017 - gains of $2 million).
Hedge ineffectiveness of $1 million was recognized in the statement of earnings during 2018 (2017 - nil). Over
the next 12 months, the Company estimates that losses before income taxes of $13 million will be reclassified
from accumulated other comprehensive income (AOCI) to earnings.
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 167
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, 2018
Purchases (3)
Sales (3)
Currency
Canadian dollars
Australian dollars
Mexican pesos
U.S. dollars
British pounds
Maturity
December 31, 2017
Purchases (3)
Sales (3)
Currency
Canadian dollars
Australian dollars
U.S. dollars
Maturity
Foreign
Currency
Forward
Contracts
—
—
—
—
140
46
74
— 12,545,000
58,518,200
3,254,650
—
100
744
570
—
—
1,193,640
7,740,700
7,574,926
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2019-2028
2019-2021
2019-2020
2019-2022
2019-2021
2019
— 19,237,000
— 85,926,700
7,326,745
—
3
749
—
—
—
—
—
1,731,365 27,445,800 14,101,265
—
—
—
—
—
—
—
—
—
2020
2018-2021
2018-2020
2018-2021
2018-2020
—
—
—
—
129
2018
(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.
168 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
OFFSETTING FINANCIAL ASSETS AND LIABILITIES
Netting arrangements and similar agreements provide counterparties the legal right to set-off liabilities against
assets received. The following financial assets and financial liabilities are subject to offsetting at December 31:
2018
Financial Assets
Derivative assets (1)
Accounts receivable and contract assets
Financial Liabilities
Derivative liabilities (1)
2017
Financial Assets
Derivative assets (1)
Accounts receivable and contract assets
Financial Liabilities
Derivative liabilities (1)
Effects of Offsetting on the Balance Sheet
Gross Amount
Gross Amount
Offset
Net Amount
Recognized
8
222
103
8
204
151
—
(77)
(18)
—
(66)
(54)
8
145
85
8
138
97
(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, short-term debt, 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.
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
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 169
98 per cent (2017 - 99 per cent) of total long-term debt and non-recourse long-term debt. Consequently, the
exposure to fluctuations in market interest rates is limited.
A 25 basis point increase or decrease in Australian interest rates would increase or decrease earnings by $1 million.
This analysis has been determined based on the exposure to interest rates for financial instruments outstanding at
December 31, 2018.
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
51
58
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, 2018.
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 $1 million and $4 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.
170 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
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 and
contract assets, finance lease receivable, receivable under service concession arrangement and derivative
instrument assets. 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 and contract assets and finance lease receivable credit risk is reduced by transacting with
credit-worthy customers in accordance with the established credit approval policies, diversified customer base and
through collateral arrangements such as letters of credit, corporate guarantees and cash deposits. The utilities are
also able to recover an estimate for their credit loss allowances through approved customer rates and to request
recovery through customer rates for any losses from retailers beyond the retailer security mandated by provincial
regulations.
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.
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 mitigated by dealing with large, credit-worthy counterparties and continuous
monitoring of the counterparty risk exposure. The Company has in certain instances entered into master netting
agreements with its derivative counterparties, which provides a right to offset for certain exposures between the
parties.
The Company does not have a concentration of credit risk with any counterparty, except for finance lease
receivables and the long-term receivable under service concession arrangement, which by their nature are with a
single counterparty.
Depending on the nature of accounts receivable and contract assets, the Company estimates credit losses based on
the expected credit loss rates for respective credit ratings. At December 31, 2018, the summary of the expected
credit loss rates for respective credit ratings is as follows:
Expected credit loss rate
High
(AA to AAA)
Medium
(BBB to A)
Low
(BB and below)
0%-0.03% 0.05%-0.26% 0.36%-1.05%
At December 31, 2018, the Company had less than $200 million of accounts receivable and contract assets classified
as Low (BB and below).
Where the Company believes there is a high probability of a customer default, additional credit allowances are
recorded.
The reconciliation of changes in the Company's credit loss allowance is as follows:
January 1, 2017
Credit loss allowance
Accounts receivable and contract assets written off as uncollectible
December 31, 2017, as previously reported
IFRS 9 re-measurement adjustment (Note 3)
January 1, 2018, restated
Reversal of credit loss allowance
Accounts receivable and contract assets written off as uncollectible
December 31, 2018
4
2
(1)
5
6
11
(2)
—
9
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 171
The aging analysis of the trade receivables that are past due but not impaired at December 31 is as follows:
Up to 30 days
31 to 60 days
61 to 90 days
Over 90 days
2018
615
62
12
30
719
2017
640
31
4
17
692
At December 31, 2018, the Company held $246 million in letters of credit for certain counterparty receivables (2017
- $217 million). The Company did not take possession of any collateral it holds as security in 2018 and 2017. The
Company has also entered into guarantee arrangements with Centrica plc. relating to the retail energy supply
functions performed by Direct Energy (see Note 35).
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, 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
At December 31, 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
2,772
—
571
3,343
Used
850
—
342
1,192
2018
Available
1,922
—
229
2,151
Total
2,540
165
575
3,280
Used
563
17
346
926
2017
Available
1,977
148
229
2,354
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
Letters of credit
Commercial paper
2018
—
175
582
435
1,192
2017
7
10
475
434
926
The Company is authorized to issue $1.2 billion of commercial paper against its long-term committed credit
facilities.
172 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
Maturity analysis of financial obligations
The table below analyzes the remaining contractual maturities at December 31, 2018 of the Company's financial
liabilities based on the contractual undiscounted cash flows.
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)
2019
921
175
488
433
20
59
65
2020
2021
2022
2023
2024 and
thereafter
—
—
216
406
34
58
34
—
—
577
389
32
56
6
—
—
328
365
33
54
—
780
—
—
526
345
28
53
—
—
—
7,310
6,599
1,306
956
—
952
16,171
2,161
748
1,060
(1)
Interest payments on floating rate debt have been estimated using rates in effect at December 31, 2018. 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, 2018.
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 based 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.
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 173
The Company’s capitalization at December 31 is as follows:
Bank indebtedness
Short-term debt
Long-term debt
Non-recourse long-term debt
Total debt
Class I and Class II Shares
Contributed surplus
Retained earnings
Accumulated other comprehensive income (loss)
Non-controlling interests
Total equity
Total capitalization
Debt capitalization
2018
2017
(restated)
—
175
9,397
1,401
10,973
169
11
3,535
40
3,687
7,442
18,415
7
10
8,557
1,416
9,990
167
10
3,352
(2)
3,576
7,103
17,093
60%
58%
For the year ended December 31, 2018, 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.
28. SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS
Significant judgments, estimates and assumptions made by the Company are outlined below.
SIGNIFICANT ACCOUNTING JUDGMENTS
Revenue related items
The Company makes judgments with respect to: determining whether the promised goods and services are
considered distinct performance obligations by considering the relationship of such promised goods and services;
allocating the transaction price for each distinct performance obligation identified through stand-alone selling price;
evaluating when a customer obtains control of the goods or services promised; and evaluating whether the
Company acts as principal or agent on certain flow-through charges to customers.
Impairment of financial assets
The impairment loss allowance for financial assets is based on assumptions about risk of default and expected loss
rates. The Company makes judgments in making these assumptions and selecting the inputs to the impairment
calculation, based on the Company's past history, existing market conditions as well as forward looking estimates at
the end of each reporting period.
Associates
Judgment is required when assessing the classification of an investment as an associate. When making this
assessment, the Company considers the structure of the investment, the legal form of any separate vehicles, the
contractual terms of the investment, and other facts and circumstances.
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.
174 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
Impairment of financial assets
The impairment loss allowance for financial assets are based on assumptions about risk of default and expected
loss rates. For details regarding significant assumptions and key inputs used to calculate impairment loss allowance,
see Note 26.
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.
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 175
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.
29. BUSINESS COMBINATIONS
ACQUISITION OF ELECTRICITY GENERATION BUSINESS IN MEXICO
On February 20, 2018, Canadian Utilities Limited acquired a 100 per cent ownership interest in Electricidad del Golfo
(EGO). EGO owns a long-term contracted, 35 megawatt hydroelectric power station based in Veracruz, Mexico. The
acquisition is reported in the Electricity operating segment.
The aggregate consideration paid for EGO was $112 million, which is comprised of $70 million cash paid, net of cash
acquired, and the assumption of EGO's long-term debt of $42 million. There is no contingent consideration with this
acquisition.
The fair values of the identifiable assets acquired and liabilities assumed were as follows:
Cash and cash equivalents
Accounts receivable and contract assets
Prepaid expenses and other current assets
Property, plant & equipment
Intangible assets
Goodwill
Accounts payable and accrued liabilities
Deferred income tax liabilities
Deferred revenues
Long-term debt
Total identifiable net assets acquired
9
2
2
88
34
9
(3)
(19)
(1)
(42)
79
The fair value of the acquired accounts receivable approximated the carrying value due to their short-term nature.
None of the accounts receivable acquired were impaired and the full contractual amount was collected.
From the date of acquisition, revenues of $14 million, and earnings attributable to Class I and Class II shares of $2
million, were included in the consolidated statement of earnings for the year ended December 31, 2018, as a result
of the acquisition. Transaction costs of $2 million for incremental legal and advisory services fees were expensed
during the year ended December 31, 2018 and included in other costs and expenses in the consolidated statement
of earnings.
176 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
The Company's pro-forma consolidated revenues and earnings attributable to Class I and Class II shares for the year
ended December 31, 2018, would have been $4,890 million and $328 million, respectively, if the acquisition had
occurred on January 1, 2018. These pro-forma adjustments reflect adjustments for depreciation and amortization
assuming the fair values attributed in the purchase price allocation occurred on January 1, 2018. These pro-forma
results may not necessarily be indicative of actual results had the acquisition occurred on January 1, 2018.
ACQUISITION OF MODULAR MANUFACTURING OPERATIONS IN MEXICO
Effective December 19, 2018, through a series of purchase transactions, the Company obtained a 70 per cent
interest in a modular building manufacturer in Mexico, which will now operate under the name ATCO Espaciomovil.
The business combination is reported in the Structures & Logistics operating segment.
As part of the transaction, the seller was granted a 30 per cent minority interest in ATCO Espaciomovil. Of this 30 per
cent interest, 15 per cent is contingent consideration, subject to the subsidiary achieving certain pre-determined
financial performance targets during the year ending December 31, 2019. If the subsidiary fails to meet the
performance targets, up to 15 per cent of the interest will revert back to the Company.
The purchase consideration is comprised of $29 million cash and $5 million in contingent consideration. The fair
value of the contingent consideration was estimated by calculating the present value of probability-adjusted future
discounted cash flows, and has been recorded in other liabilities at December 31, 2018.
At December 31, 2018, $24 million of the purchase consideration has been paid.
The fair values of the identifiable assets acquired and liabilities assumed were as follows:
Accounts receivable and contract assets
Inventory
Property, plant and equipment
Intangibles
Deferred income tax liabilities
Net identifiable assets acquired
Non-controlling interests
Goodwill
Total identifiable net assets acquired
4
3
20
12
(2)
37
(5)
2
34
The fair value of the acquired accounts receivable and contract assets approximated the carrying value due to their
short-term nature. None of the accounts receivable and contract assets acquired were impaired and the full
contractual amount is expected to be collected.
Transaction costs of $1 million for incremental legal and advisory services fees were expensed during the year
ended December 31, 2018, and included in other costs and expenses in the consolidated statements of earnings.
ATCO Espaciomovil contributed revenues and earnings of less than $1 million for the period from December 19,
2018, to December 31, 2018.
The Company's pro-forma consolidated revenues and earnings attributable to Class I and Class II shares for the year
ended December 31, 2018, would have been $4,913 million and $333 million if the acquisition had occurred on
January 1, 2018. These pro-forma adjustments reflect adjustments for depreciation and amortization assuming the
fair values attributed in the purchase price allocation occurred on January 1, 2018. These pro-forma results may not
necessarily be indicative of actual results had the acquisition occurred on January 1, 2018.
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 177
30. INVESTMENT IN EQUITY INTEREST IN ASSOCIATE COMPANY
On September 12, 2018, the Company invested in a forty per cent interest in Neltume Ports S.A. (Neltume Ports), a
leading port operator and developer in South America, for aggregate consideration of $471 million (equivalent of
$357 million U.S. dollars). Neltume Ports, a subsidiary of Ultramar, operates sixteen port facilities and three port
operation services businesses located in Chile, Uruguay, Argentina and Brazil.
The aggregate consideration for the equity interest in Neltume Ports of $471 million is comprised of cash paid for
the subscription of shares of $444 million, contingent consideration of $15 million and transaction costs of $12
million. At December 31, 2018, $455 million of the aggregate consideration has been paid.
The fair value of contingent consideration of $15 million includes $9 million of additional cash contribution relating
to an acquisition of an asset by Neltume Ports, and $6 million of additional contribution relating to the achievement
of financial performance targets over three years from 2019 to 2021. In February 2019, Neltume Ports completed
its asset acquisition and the Company paid the additional cash contribution of $9 million.
The Company funded its investment in Neltume Ports with a combination of cash on-hand and the issue of short-
term and long-term committed credit facilities. The short-term financing was refinanced in November 2018 with the
issuance of $200 million fixed-to-floating rates subordinated notes. See Note 19 for details on the issue of long-
term debt.
The Company has significant influence over Neltume Ports due to its forty per cent interest and other provisions in
the shareholders agreement. As such, the Company accounts for its investment using the equity method of
accounting, whereby the initial investment of $471 million shall be adjusted for the Company's share of Neltume
Ports' earnings, other comprehensive income, dividends received from Neltume Ports, and foreign exchange.
The equity interest in Neltume Ports is reported as a separate operating segment (see Note 4).
As of the date of these financial statements, the fair value of the acquired interest in identifiable net assets of
Neltume Ports is preliminary, pending receipt of the final valuation report. The preliminary fair value of the
identifiable net assets of Neltume Ports at September 12, 2018 is provided below:
Cash and cash equivalents
Accounts receivable and contract assets
Other net assets
Property, plant & equipment
Intangible assets
Investment in associates
Goodwill
Accounts payable and accrued liabilities
Deferred income tax liabilities
Long-term debt
Total identifiable net assets acquired
159
52
44
90
105
151
84
(84)
(15)
(115)
471
From the date of the investment in Neltume Ports, equity earnings of $4 million were recorded in the consolidated
statement of earnings for period ended December 31, 2018. Completion of the acquisition accounting and related
purchase price allocation may result in changes to reported earnings from the equity accounted investment.
Management does not expect these adjustments to be significant. In addition, there was a $16 million increase in
the investment due to foreign exchange movement which is shown as a foreign currency translation adjustment in
the consolidated statement of comprehensive income.
The summarized financial information for Neltume Ports, in aggregate from the date of investment is provided
below. This includes the balance sheet at December 31, 2018 and selected information from the statement of
earnings and comprehensive income for the period September 12, 2018 to December 31, 2018.
178 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
Balance sheet
Cash and cash equivalents
Other current assets
Current assets
Non-current assets
Total assets
Financial liabilities (1)
Other current liabilities
Current liabilities
Financial liabilities (1)
Other non-current liabilities
Non-current liabilities
Total liabilities
Net assets
ATCO's share of net assets
(1) Financial liabilities are comprised mainly of long-term debt.
Selected information from the statement of earnings and comprehensive income
Revenues
Depreciation and amortization
Interest income
Interest expense
Income taxes
Earnings for the period
Other comprehensive income
Comprehensive income for the period
340
84
424
1,252
1,676
(56)
(78)
(134)
(210)
(105)
(315)
(449)
1,227
491
116
(14)
3
(5)
(2)
10
3
13
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 179
31. SUBSIDIARIES
Principal operating subsidiaries are listed below. Subsidiaries are wholly owned, unless otherwise indicated.
Principal Operating Subsidiaries
ATCO Structures & Logistics (1)
Principal Place
of Business
Canada
Inversiones ATCO Chile Limitada Chile
Canadian Utilities Limited (2)
Principal Activity
Workforce housing, modular facilities, construction, site support
services and logistics and operations management.
Holds 40% investment in associate, Neltume Ports S.A.
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
Electricity generation and related infrastructure services
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
Canada
Canada
Canada
Canada
Mexico
Australia
Australia
Canada
Canada
Canada
Canada
Canada
ATCO Power
Alberta PowerLine (3)
ATCO Energy Solutions
Electricidad del Golfo
ATCO Gas Australia
ATCO Power Australia
ATCO Energy
CU Inc.
ATCO Electric
ATCO Gas
ATCO Pipelines
(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, 2018, ATCO Ltd. has 100.0 per cent ownership interest in ATCO Structures & Logistics.
(2) At December 31, 2018, ATCO Ltd. has an ownership interest of 52.2 per cent (2017 - 52.6 per cent).
(3) At December 31, 2018 and 2017, Canadian Utilities Limited has an ownership interest of 80.0 per cent.
32. 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
Canada
Canada
Canada
Ownership %
Principal Activity
50.0
40.0
50.0
70.0
Electricity generation
Electricity generation
Electricity generation
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
Electricity
Operating
Jurisdiction
Canada
Australia
Strathcona Storage Limited Partnership
Pipelines & Liquids
Canada
Sabinco Soluciones Modulares S.A.
Structures & Logistics Chile
Ownership % Principal Activity
50.0
50.0
60.0
50.0
Electricity generation
Electricity generation
Hydrocarbon storage
Modular structures
180 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
Aggregate information for the Company’s interest in joint ventures is shown below.
Earnings for the year
Other comprehensive loss
Comprehensive income for the year
Dividends received
Aggregate carrying amount of interests in joint ventures
Investment in joint ventures
2018
2017
25
(2)
23
30
240
23
—
23
25
245
In 2018, the Company contributed $6 million (2017 - $7 million) to the Strathcona Storage Limited Partnership,
which completed construction of two salt caverns for hydrocarbon storage in 2018.
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 $122 million at
December 31, 2018 (2017 - $141 million).
Restrictions
The Company requires approval from its joint venture partners before any dividends or distributions can be paid.
33. NON-CONTROLLING INTERESTS
Non-controlling interests at December 31 are as follows:
NCI in Canadian Utilities Limited
NCI in ATCO Espaciomovil S.A.P.I. de C.V., an 70 per cent owned subsidiary of
ATCO Structures & Logistics (Note 29)
NCI in CANADIAN UTILITIES LIMITED
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
2018
3,682
5
3,687
2018
%
47.8
10.1
61.7
2017
(restated)
3,576
—
3,576
2017
%
47.4
10.5
61.2
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 181
The summarized consolidated financial information for Canadian Utilities Limited, before inter-company
eliminations, is provided below.
Consolidated Statements of Comprehensive Income
Revenues
Earnings for the year
Total comprehensive income
Attributable to NCI:
Earnings for the year
Total comprehensive income
Consolidated Balance Sheets
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Attributable to NCI
Consolidated Statements of Cash Flows
Cash flows from operating activities
Cash flows used in investing activities
Cash flows from (used in) financing activities
Increase in cash position
Dividends paid to NCI
Class A and Class B share owners
Equity preferred shares
2018
2017
(restated)
4,377
641
657
343
350
1,856
19,963
(1,645)
(13,612)
6,562
3,682
870
(1,065)
367
172
140
74
214
4,085
521
459
274
244
2,036
18,803
(951)
(13,548)
6,340
3,576
1,312
(1,018)
(217)
77
124
74
198
CANADIAN UTILITIES LIMITED DIVIDEND REINVESTMENT PLAN
In 2017 and 2018, Canadian Utilities Limited has a dividend reinvestment program (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 2018, non-controlling interests acquired 2,000,420 Class A non-voting shares of Canadian Utilities Limited,
using re-invested dividends of $63 million (2017 - 1,525,948 shares using re-invested dividends of $58 million). The
shares were priced at an average of $31.37 per share (2017 - $37.70 per share).
Effective January 10, 2019, the Canadian Utilities Limited suspended its dividend reinvestment program.
182 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
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%
Canadian Utilities Limited Equity Preferred Shares
Cumulative Redeemable Second Preferred Shares, at 3.403% to 5.25% (1)
Perpetual Cumulative Second Preferred Shares, at 4.60% (2)
Issuance costs
2018
190
1,400
110
(30)
1,670
2017
190
1,400
110
(30)
1,670
(1) 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.
(2) 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
25.00
25.00
Series 1
Series 4
0.2875
0.1401875
Cumulative Redeemable Second Preferred Shares
0.2126875
0.30625
0.30625
0.28125
0.28125
0.328125
0.28125
Series Y
Series AA
Series BB
Series CC
Series DD
Series EE
Series FF
25.00
25.00
25.00
25.00
25.00
25.00
25.00
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.
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 183
34. 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
Stock options
(1)
Officers and key employees
Share appreciation rights
(1) Directors, officers and key
employees
Mid-term incentive plan
Officers and key employees
Vesting Period
20% per year
over 5 years
20% per year
over 5 years
2-3 years (2)
Term
Settlement
10 years Class I Non-Voting Shares (3)
10 years
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
2018
Weighted
Average
Exercise Price
$38.42
42.06
23.40
45.60
Options
10,200,000
2,632,550
671,350
108,000
(41,500)
(7,800)
$41.31
730,050
Options
10,200,000
2,539,900
730,050
110,750
(117,200)
(18,100)
705,500
Options exercisable, end of year
422,700
$39.17
462,250
2017
Weighted
Average
Exercise Price
$36.26
48.80
28.98
46.36
$38.42
$33.97
Options
Range of
Exercise Prices
$25.35 - $29.47
$35.12 - $38.93
$40.38 - $44.97
$45.14 - $48.82
$50.33 - $51.97
$25.35 - $51.97
Weighted
Average
Remaining
Contractual Life
1.5
Outstanding
Weighted
Average
Exercise Price
Exercisable
Weighted
Average
Exercise Price
Number
Exercisable
$26.29
116,750
$26.29
5.4
7.1
7.4
5.4
5.7
37.21
43.31
47.96
51.89
99,450
81,150
65,350
60,000
36.38
44.96
47.48
51.94
$41.31
422,700
$39.17
Number
Outstanding
116,750
147,750
189,800
173,250
77,950
705,500
Compensation expense related to stock options was less than $1 million in each of 2018 and 2017, with a
corresponding increase to contributed surplus.
184 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
SHARE APPRECIATION RIGHTS
Information about the stock appreciation rights (SARs) outstanding and exercisable at December 31 is summarized
below.
Outstanding SARs, beginning of year
Granted
Exercised
Forfeited
Outstanding SARs, end of year
SARs exercisable, end of year
SARs
Range of
Exercise Prices
$25.35 - $29.47
$35.12 - $38.93
$40.38 - $44.97
$45.14 - $48.82
$50.33 - $51.97
$25.35 - $51.97
2018
Weighted
Average
Exercise Price
$41.57
42.01
24.38
44.94
$41.76
SARs
703,050
140,750
(13,200)
(43,100)
787,500
SARs
739,850
130,000
(147,000)
(19,800)
703,050
422,700
$39.17
358,250
2017
Weighted
Average
Exercise Price
$37.04
48.86
25.21
41.54
$41.57
$37.08
Outstanding
Exercisable
Weighted
Average
Remaining
Contractual Life
1.5
Weighted
Average
Exercise Price
Number
Exercisable
Weighted
Average
Exercise Price
$26.29
116,750
$26.29
5.5
7.3
7.3
5.5
5.9
37.29
43.17
47.96
51.85
99,450
81,150
65,350
60,000
36.38
44.96
47.48
51.94
$41.76
422,700
$39.17
Number
Outstanding
116,750
154,750
221,800
202,250
91,950
787,500
In 2018, compensation expense related to SARs was a credit of $2 million (2017 - expense of $1 million). The total
carrying value of liabilities arising from SARs at December 31, 2018 was $2 million (2017 - $4 million). The total
intrinsic value of all vested SARs at December 31, 2018 was $2 million (2017 - $3 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
$42.03
1.96%
16.12%
3.58%
2018
SARs
$41.98
1.96%
12.38%
3.59%
Expected holding period prior to exercise
7.2 years
5.9 years
Options
$48.80
1.22%
16.95%
2017
SARs
$48.86
1.21%
13.49%
2.68%
7.2 years
2.68%
6.0 years
(1)
The share price volatility is based on historical data and reflects the assumption that historical volatility over a period similar to the life of the option or
SAR is indicative of future trends, which may not necessarily be indicative of exercise patterns that may occur.
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 185
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
2018
Weighted
Average
Grant Date
Fair Value
$46.36
41.45
46.09
45.67
—
$44.34
MTIPs
329,504
131,450
(70,573)
(74,575)
26,406
342,212
MTIPs
300,824
123,050
(5,227)
(94,085)
4,942
329,504
(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
$38.93
$40.38 - $44.73
$45.14 - $49.60
$50.33 - $50.75
Unallocated shares
$38.93 - $50.75
Number
Outstanding
44,000
122,400
92,528
25,900
57,384
342,212
Weighted
Average
Remaining
Contractual Life
0.2
2.2
1.2
1.4
—
1.5
2017
Weighted
Average
Grant Date
Fair Value
$46.32
49.58
51.03
50.09
—
$46.36
Outstanding
Weighted
Average
Grant Date
Fair Value
$38.93
41.48
48.9
50.68
—
$44.34
Compensation expense related to MTIP grants was an expense of $3 million for 2018 with a corresponding increase
to contributed surplus (2017 - credit of $3 million with a corresponding decrease to contributed surplus).
The Company, through a trustee, purchased 76,500 shares during 2018 to be distributed to employees on vesting of
the awards (2017 - 35,550 shares).
35. 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.
186 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
36. 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:
2019
21
64
333
118
93
11
640
2020
19
66
329
—
4
—
2021
15
67
325
—
2
2
2022
9
68
329
—
—
—
2023
8
27
328
—
—
—
2024 and
thereafter
29
56
406
—
—
—
418
411
406
363
491
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
37. RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH SUBSIDIARY
During the year ended December 31, 2018, the Company did not participate in the DRIP of Canadian Utilities Limited.
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.
OTHER
In transactions with the Company’s joint ventures, the Company recognized revenues of $6 million relating to
management fees and other charges (2017 - $5 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 (2017 - $8 million).
The Company received less than $1 million (2017 - $1 million) in electricity and gas sales revenue and incurred $3
million in advertising, promotion and other expenses from entities related through common control (2017 - $2
million).
KEY MANAGEMENT COMPENSATION
Information on management compensation is shown below.
Salaries and short-term employee benefits
Retirement benefits
Share-based compensation
2018
11
2
2
15
2017
12
2
1
15
Key management personnel comprise members of executive management and the Board, a total of 20 individuals
(2017 - 18 individuals).
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 187
38. 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.
ASSOCIATES
Associates are those entities over which the Company has significant influence, but not control or joint control, over
the financial and operating policies. This is generally the case where the group holds between 20% and 50% of the
voting rights.
Associates are equity accounted. Under this method, the Company’s interests in associates 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 associates 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 associate 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.
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.
188 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
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 activity in a
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
Revenue is allocated to the respective performance obligations based on relative transaction prices, and is
recognized as goods and services are delivered to the customer. Revenue is measured as the amount of
consideration expected to be received in exchange for the goods transferred or services delivered. The amount of
revenue recognized reflects the time value of money where a significant financing component has been identified.
Contract modifications are accounted for prospectively or as a cumulative catch-up adjustment depending on the
nature of the change.
Where the amount of goods and services delivered to the customer corresponds directly to the amount invoiced,
the Company recognizes revenue equal to what it has the right to invoice.
Where the Company arranges for another party to provide a specified good or service (that is, it does not control
the specified good or service provided by another party before that good or service is transferred to the customer),
only revenues net of payments to the other party for the goods or services provided are recognized.
Non-cash considerations received from the Company’s customers are included in the amount of revenue recognized
and measured at fair value.
Costs incurred directly to obtain or fulfill a contract are capitalized and amortized to expense over the life of the
contract.
Electricity generation and delivery
Revenue from independent power plant (IPP) contracts providing generation capacity to customers is recognized
over the contract term and is measured based on fixed or variable capacity payments. Revenue from operating and
maintaining the plant is recognized as the Company incurs costs to service the plant.
Electricity and natural gas transmission
Revenue from electricity and natural gas transmission services is recognized when service is provided to customers
and is measured in proportion to the amount it has the right to invoice under the contract.
Customer contributions for extensions to plant are recognized as revenue over the life of the related asset.
Electricity and natural gas distribution
Revenue from distribution of electricity and natural gas is recognized when the services are provided to the
customer based on metered consumption, which is adjusted periodically to reflect differences between estimated
and actual consumption. Distribution of regulated and non-regulated electricity and natural gas is based on tariff-
approved rates established by the Alberta Electric Systems Operator and Natural Gas Exchange and rates stipulated
in the contracts, respectively. The Company recognizes revenue in an amount that corresponds directly with the
services delivered and the amount invoiced.
Customer contributions for extensions to plant are recognized as revenue over the life of the related asset.
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 189
Gas storage and transportation
Revenue from hydrocarbon storage and transportation is recognized as the service is rendered to customers based
on the length of the required service and contracted schedule of injections and withdrawals from the storage
facilities.
Modular structures and related services
Revenue on manufactured modular structures is recognized upon delivery to or acceptance by the customer.
Revenue from certain long-term contracts that relate to highly customized modular structures is recognized over
time based on the costs incurred.
Lease revenue
Power purchase agreements (PPA) for the generation of electricity are accounted for as operating leases, finance
leases or executory contracts, depending on the terms of the PPAs.
Operating lease PPAs are subject to incentives and penalties relating to the generating unit’s availability. Incentives
are paid to the Company by the PPA counterparties for availability in excess of predetermined targets, whereas
penalties are paid by the Company to the PPA counterparties when the availability targets are not achieved. The
Company recognizes operating lease income on a declining rate base method, in accordance with the lease
contract. Accumulated incentives in excess of accumulated penalties are deferred and operating lease income is
recognized over the remaining term of the PPA. Conversely, any shortfall is expensed in the year the shortfall
occurs.
Certain PPAs are classified as finance leases. Finance lease income is included in revenues. Non-lease components
of the PPAs are accounted for based on the applicable performance obligations.
Service concession arrangement
Revenue on design and construction of the Fort McMurray 500 kV Transmission project (Project) is recognized based
on the stage of completion of the related services. Revenue on operating and maintenance of the Project are
recognized as related costs are incurred using the applicable markup.
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 fees do
not represent a separate performance obligation to a customer and are recovered through utility transmission and
distribution prices. The recovery is part of the provision of continuous electricity and natural gas transmission and
distribution service performance obligation. Franchise fees invoiced to customers are recognized as revenues.
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.
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.
190 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 191
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
2 to 65 years
10 to 103 years
3 to 80 years
3 to 120 years
3 to 40 years
5 to 47 years
45 years
10 to 55 years
12 to 17 years
1 to 74 years
50 years
37 years
41 years
40 years
22 years
41 years
45 years
35 years
22 years
18 years
2.0%
2.7%
2.4%
2.5%
4.5%
2.5%
2.2%
2.9%
4.6%
5.4%
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.
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.
192 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 193
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.
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 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 evidence that a change in the estimated recoverable amount is warranted. The revised recoverable
194 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
amount cannot exceed the carrying amount that would have been determined had no impairment charge been
recognized in previous periods.
From January 1, 2018, the Company applies the expected credit loss allowance matrix based on historical credit loss
experience, aging of financial assets, default probabilities, forward-looking information specific to the counterparty,
and industry-specific economic outlooks.
For accounts receivable and contract assets and finance lease receivables, the Company estimates credit loss
allowances at initial recognition and throughout the life of the receivable. For receivable under service concession
arrangement, the Company estimates credit loss allowances from possible default events within the twelve months
after the balance sheet date.
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 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.
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 195
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, 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.
196 ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS
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
2018
1.3644
0.9613
2017
1.2520
0.9783
2018
1.2957
0.9687
2017
1.2980
0.9947
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. The following outlines the new accounting pronouncement that is applicable to, or may have a
future material effect on, the Company.
Effective Date
Effective for annual periods
on or after January 1, 2019.
Standard
IFRS 16 Leases
Description
This standard replaced IAS 17 Leases and related interpretations.
It introduces a new approach to lease accounting that requires a
lessee to recognize right-of-use assets and lease 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 in the process of finalizing its calculations using
the modified retrospective approach effective January 1, 2019,
without restatement of comparative information. The Company
has elected to use certain practical expedients:
•
Leases of low-value assets and short-term leases that
have a lease term of twelve months or less will not be
recognized in the consolidated balance sheet on January
1, 2019. Payments on these leases will continue to be
recognized as a lease expense generally on a straight-
line basis over the lease term; and
•
Right-of-use assets will be measured with an equivalent
value recorded for the related lease liabilities.
The adoption of the new standard is expected to result in the
recognition of a right-of-use asset and lease liability of
approximately $110 million at January 1, 2019. The estimated
impact may change as a result of additional updates on
contractual terms, assumptions, and other circumstances arising
after the date of these consolidated financial statements.
In addition, Neltume Ports, an associate of the Company, is also
in the process of finalizing its calculations to adopt the new
standard. As the Company records its investment in Neltume
Ports using the equity method, the adoption of the new standard
is not expected to have a significant impact.
ATCO LTD. 2018 CONSOLIDATED FINANCIAL STATEMENTS 197
2018 PERFORMANCE
CONSOLIDATED ANNUAL RESULTS (1)
198
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).
Descriptions of the adjustments are provided in Note 4 of the 2018 Consolidated
Financial Statements.
(2) 2017 numbers have been restated to account for the impact of IFRS 15. Additional
(4) Cash is defined as cash and cash equivalents less current bank indebtedness.
detail on IFRS 15 is discussed in Note 3 of the 2018 Consolidated Financial
Statements.
(3) 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.
(5) 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. This measure is not defined by IFRS and may not be
comparable to similar measures used by other companies.
(6) Includes purchases of property, plant and equipment and intangibles, including
capitalized interest.
2018 ATCO ANNUAL REPORT(Millions of Canadian dollars, except as indicated)20182017 (2)(restated)201620152014EARNINGS STATEMENTRevenues4,8884,6004,0454,1314,554Earnings attributable to Class I and Class II shares 328219340154420Adjusted earnings (3)Structures & Logistics156432767Canadian Utilities Limited- Electricity 228210213171195- Pipelines & Liquids130144136101106- Corporate & Other (39)(35)(35)(15)5Neltume Ports4––––Corporate & Other 1710391Adjusted earnings (3)355335360293374BALANCE SHEETCash (4) 691494601799590Total assets23,34421,78619,72419,05517,689CapitalizationBank indebtedness–7515Short-term debt1751055––Long-term debt9,3978,5578,2207,9437,256Non-recourse long-term debt1,4011,41698112127Non-controlling interests 3,6873,5763,6533,5373,112Share owners’ equity3,7553,5273,5463,3563,168Capitalization18,41517,09315,57714,94913,668CASH FLOW STATEMENTFunds generated by operations (5)1,8971,8131,9121,5891,786Capital expenditures (6)Structures & Logistics8833706191Canadian Utilities Limited- Electricity4974545729351,622- Pipelines & Liquids643777734824620- Corporate & Other1635932Corporate & Other108170398Capital expenditures1,2541,3481,4511,8682,373PER SHARE DATAEarnings per share ($)2.871.92 2.97 1.34 3.66Adjusted earnings per share ($)3.102.933.152.553.26Dividends paid per share ($) 1.51 1.31 1.140.99 0.86Equity per Class I and Class II share ($)32.7530.7630.93 29.18 27.51Class I non-voting closing share price ($)38.61 45.00 44.6635.70 47.66Class II voting closing share price ($)38.55 44.9044.78 35.5047.75 2018 PERFORMANCE
CONSOLIDATED OPERATING SUMMARY
199
(1) Includes purchases of property, plant and equipment and intangibles, including
capitalized interest.
(2) On September 12, 2018, ATCO acquired a 40 per cent interest in Neltume Ports, a
leading port operator and developer in South America. Neltume Ports, a subsidiary
of Ultramar, operates 16 port facilities and three port operation services businesses
located in Chile, Uruguay, Argentina, and Brazil. The amount shown for port
throughput represents the amount of product handled, including copper, forestry
products, consumer goods and agricultural products, for the year ended
December 31, 2018.
2018 ATCO ANNUAL REPORT (Millions of Canadian dollars, except as indicated)20182017201620152014STRUCTURES & LOGISTICSCapital expenditures (1)8833706191Workforce housing lease fleet (units in thousands)34533Workforce housing lease fleet utilization (%)4037385177Space rental lease fleet (units in thousands)1513141313Space rental lease fleet utilization (%)7570646875ELECTRICITYElectricity distribution and transmission operationsCapital expenditures (1)4684384708501,602Power lines (thousands of kilometres)8787888786Electricity distributed (millions of kilowatt hours)12,92811,96111,65911,83211,600Average annual use per residential customer (kWh)7,3987,3257,1987,4767,815Customers at year-end (thousands)258256256256252Electricity generation operationsCapital expenditures (1)29161028520Generating capacity (megawatts)3,9223,8873,8703,8573,890Generating capacity owned (megawatts)2,5172,4822,4732,4622,479Availability (%)9494939395PIPELINES & LIQUIDSNatural gas distribution operationsCapital expenditures (1)383464426411371Pipelines (thousands of kilometres)5555555454Maximum daily demand (terajoules)2,2922,3812,0972,2162,269Natural gas distributed (petajoules)304287263264289Average annual use per residential customer (gigajoules) for ATCO Gas111116116117117Average annual use per residential customer (gigajoules) for ATCO Gas Australia1414151414Customers at year-end (thousands)1,9781,9521,9241,8931,846Natural gas transmission operationsCapital expenditures (1)248303282363194Pipelines (thousands of kilometres)99999Energy storage & industrial water operationsCapital expenditures (1)1210265055Seasonal natural gas storage capacity (petajoules)5252525246Salt cavern storage capacity (thousands of m3)400200200––Industrial water infrastructure intake capacity (thousands of m3/day)85858560–NeltumePort throughput (millions of tonnes) (2) 44–––– REGISTRAR & TRANSFER AGENT
Class I Non-Voting and
Class II Voting Shares
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
GENERAL INFORMATION
200
INCORPORATION
ATCO Ltd. was incorporated under the laws of the
province of Alberta on August 31, 1962.
ANNUAL MEETING
The Annual Meeting of Share Owners
will be held at 10:00 a.m. on Wednesday May 15, 2019,
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
In recognition of its beautiful Canadian heritage,
ATCO has featured scenes of Canada in annual
reports since 1990.
COVER: A red fox surveys the winter landscape
in his forest home.
Printed in Canada
FSC TO COME
AT PRESS TIME
2018 ATCO ANNUAL REPORT 5302 FORAND ST SW CALGARY AB CANADA T3E 8B4 | 403 292 7500
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