ATCO Ltd. Annual Report 2019

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FY2019 Annual Report · ATCO Ltd.

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ATCO Ltd.
Annual Report

FOR THE YEAR ENDED DECEMBER 31, 2019

CONTENTS

Message from the Chair & CEO

Management’s Discussion and Analysis

Consolidated Financial Statements

Consolidated Annual Results

Consolidated Operating Summary

General Information

163

165

166

Message from the Chair & CEO

Dear ATCO Share Owners,

Reflecting upon the past year, I cannot help but remark upon the profound political,
economic and social changes occurring around the world.

We are living in unprecedented times. COVID-19 has swept the globe, prompting
governments to implement measures unlike anything ever seen in peacetime. The virus
is also leaving significant economic damage in its wake, putting the global economic
and financial system on precarious footing, while creating immense uncertainty for our
customers and communities.

As we look beyond the pandemic, it is likely that we will continue to face rising
trade tensions between major economies, geopolitical conflict, and cumbersome
government policy.

Growing political and economic disenchantment is perhaps the most common outcome
of these global trends.

CREATING OPPORTUNTUNITY FROM UNCERTAINTY

Central to the pervasive disillusionment swirling around the world is the sense of a lack
of opportunity. People need hope, and to believe that opportunities are available to make
their lives better, for their families and communities.

Providing hope and creating opportunity is a foundational pillar in ATCO’s success. Despite
today’s uncertainty, we believe there are still many opportunities for our integrated
expertise and diverse products and services to make a positive difference in the lives
of our customers, the communities we serve, and global constituents at large.

Not only are we uniquely positioned to equip governments, corporates and regions with
the solutions they need to better their lives and those of their constituents, but we are also
poised to make lasting contributions in jurisdictions around the world.

Our future is based upon a holistic, long-term perspective—one that resists short-
term pressures—as has been our course the past seven decades. Our objective
is to create truly sustainable, intergenerational prosperity. This is the same
philosophy that has enabled us to deliver premium returns and increase our
annual dividend for the past 27 years.

In these uncertain times, top-tier operations and a patient approach to
finding strategic investments opportunities are paramount. For those
reasons, we remain uncompromising in our capital investment discipline
and are preserving our financial flexibility to weather economic adversity.

These priorities also underpin our strategy, which is to deliver the
enduring essentials required for a healthy global economy: housing,
energy, logistics and transportation, water, agriculture, and real estate.

We began our company by building structures for people to live and
work in, and then expanded into delivering the energy required for
industry and communities to thrive. Through Neltume Ports, we have
an integral role in the transport of goods to global markets, and ATCO
Frontec continues to provide logistics support in regions of conflict
and natural disaster recovery.

Championing an entrepreneurial spirit has long been our
hallmark. That is why we have launched SpaceLab—a
construct in which our employees from around the
world can combine their creativity, subject matter
expertise, and execution discipline to advance and
commercialize new products and services that align
with our strategy.

NEW MODELS FOR PROJECT DEVELOPMENT

We are also extremely proud of our groundbreaking
approach to Indigenous partnerships and economic
development. Over the course of the year, we reached
several historic milestones and delivered world-class
projects that exemplify the innovative, collaborative
and customer-focused service that has long defined our
method of operating.

These projects serve as examples for the world for the types of innovative
partnerships needed to advance our shared social and economic goals
against a backdrop of global disruption.

Take, for example, the completion, energization and sale of Alberta
PowerLine (APL)—a true Canadian success story, and an example of how
industry and Indigenous communities can work together to develop world-
class energy infrastructure that benefits all constituents.

APL, a partnership between Canadian Utilities and Quanta Services, was
selected in 2014 by the Alberta Electric System Operator to design, build,
own and operate the Fort McMurray West 500-kV Transmission Project—
the longest 500-kv AC line in the country.

Throughout this project, we conducted extensive landowner and
community engagement, entailing more than 3,000 face-to-face meetings
that produced a permit and license application with no Indigenous or NGO
objections. We also implemented a comprehensive Indigenous contracting
strategy for the project totalling $85 million, which helped enable us to
complete this state-of-the-art transmission line ahead of schedule, on-
budget and with an impeccable safety record in March 2019.

In June, we announced the sale of APL, and the opportunity for Indigenous
communities along the route to obtain a stake in this award-winning
$1.6-billion project, providing a stable long-term investment that further
enables economic and social development.

With the completion of the sale in December 2019, seven Indigenous
communities in Alberta: Athabasca Chipewyan First Nation, Bigstone
Cree Nation, Gunn Métis Local 55, Mikisew Cree First Nation, Paul First
Nation, Sawridge First Nation and Sucker Creek First Nation now have a
combined 40 per cent equity ownership in this essential piece of Canadian
energy infrastructure.

I am deeply appreciative of the collaboration and commitment from all
Indigenous communities along the line, whose centuries-old culture,
histories, and knowledge helped us in shaping the route and taught us
so much about the migratory paths of our wildlife.

In October, we celebrated the grand opening of the ATCO Homes
For Heroes Village, a community of 15 tiny homes in Calgary, Alberta
for transitioning homeless veterans of the Canadian Armed Forces.
The community formed by these homes features a resource centre,
community gardens and memorials to Canadian soldiers who lost their
lives in Afghanistan.

Nearly 250 man hours were spent carefully building each home, and
they were designed and constructed to the highest standards. Every unit
is enhanced for energy efficiency and environmental performance, and
to minimize operating costs for residents. But, above all else, they are
designed as a community—a place of safety, comfort and fellowship.

The Canadian military and its veterans are an institution that continues
to inspire pride, perseverance and courage in all Canadians. Their service
at home and abroad should be heralded and cherished by our nation’s
citizens, and we were profoundly honoured play a small role in deference
to their sacrifice.

Another proud moment for ATCO in 2019 was the opening of our Clean
Energy Innovation Hub in Jandakot, Western Australia. This industry-
leading facility is a test bed for solar photovoltaics, battery storage, green
hydrogen production and use, as well as hydrogen blending with our
natural gas infrastructure.

Supported with $1.6 million in Australian Renewable Energy Agency
funding, the Hub is already providing invaluable insights into how our
gas distribution network can enable customers to achieve their clean
energy aspirations.

THE FUTURE

These are just a few examples of the collaborative models for project
development we are pioneering around the world. In every instance, our
achievements from 2019 are underpinned by our pursuit of Excellence.

Equally, they are made possible by the people of your company—6,500 of
the brightest and most determined minds from diverse cultures and an
array of global industries, working as ‘One ATCO’ to achieve our shared
vision: delivering inspired solutions for a better world. In no uncertain
terms, they are our greatest competitive advantage and strength.

I am so very proud of the people of ATCO! I believe we are uniquely
positioned at the forefront of global trends, and we will focus our
investments in those essential services which are universally vital
to economic and social development.

In closing, I would like to express my deepest appreciation to our Board
of Directors. Their wisdom and guidance are at the heart of our success,
and I am eminently thankful for their continued support. I am also grateful
for the continued support of you, our share owners, as we enter a new
decade in ATCO’s long and dynamic history—and a prosperous future for
generations to come.

Sincerely yours,

Nancy Southern
Chair & Chief Executive Officer, ATCO Ltd.

P.S. In addition to our many 2019 achievements, I have watched with
immense pride as the people of ATCO mobilized to help support
communities devastated by the Australian bushfires.

In early February 2020, we deployed 13 of our modular structures to the
heritage community of Mogo in New South Wales as part of the Business
Council of Australia’s terrific BizRebuild initiative. In a bid to reinvigorate
Mogo’s tourism-dependent economy, our structures are now serving as
a pop-up mall for businesses that lost everything in the catastrophic fires,
and as an office for the local Aboriginal Land Council. We have pledged
an additional $1 million contribution to BizRebuild, which is working with
extraordinary efficiency to restore the jobs and small businesses that hold
communities together.

Individual employees from across our global enterprise have also rallied
in support of their friends and colleagues in Australia, collectively raising
more than $100,000 in donations to charitable organizations in Australia
through our ATCO EPIC program.

Our history has long been defined by the courageous response of our
people in the face of crisis. Our ability to rapidly deploy our people and
our products is the granite-like strength of our company around the world,
and we do so because we truly care about the communities where we
have the privilege to work and live: Always There. Anywhere.

ATCO LTD.

MANAGEMENT’S DISCUSSION AND
ANALYSIS

FOR THE YEAR ENDED DECEMBER 31, 2019

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 December 31, 2019.

This MD&A was prepared as of February 26, 2020, and should be read with the Company's audited consolidated financial

statements (2019 Consolidated Financial Statements) for the year ended December 31, 2019. 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 (Canadian Utilities or CU) (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 40 per cent equity investment in Neltume Ports S.A. (Neltume Ports). 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.

TABLE OF CONTENTS

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

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

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

Global Operations ...........................................................................................................................................................

Organizational Structure ................................................................................................................................................

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

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

Strategic Priorities for 2020 ............................................................................................................................................

Corporate Governance ...................................................................................................................................................

Performance Overview ...................................................................................................................................................

Global Business Unit Performance ...............................................................................................................................

Structures & Logistics ...................................................................................................................................................

Neltume Ports ...............................................................................................................................................................

ATCO Corporate & Other ..............................................................................................................................................

Canadian Utilities .........................................................................................................................................................

Electricity .................................................................................................................................................................

Pipelines & Liquids .................................................................................................................................................

Canadian Utilities 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

ATCO LTD. 2019 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 27 years, a track record of which we are very proud. On
January 9, 2020, we declared a first quarter dividend of 43.52 cents per share or $1.74 per share on an annualized basis. 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 strive to deliver growth within our 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.

GLOBAL GROWTH PLANS

In the years ahead, ATCO will continue to grow and expand our business with a focus on disciplined capital investment in select
global markets.

COMMITMENT TO FINANCIAL STRENGTH

Financial strength is fundamental to our current and future success. It ensures we have the financial capacity to grow our existing
business and seek future opportunities that will ensure long term intergenerational prosperity. We remain committed to
maintaining our strong, investment grade credit ratings.

Dividend Growth

Diversified Infrastructure

Global Growth

Range Credit Rating

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 2

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

ATCO CORE VISION AND VALUES

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 VISION

Delivering inspired solutions for a better world. Always there. Anywhere.

CORE VALUES

It is ATCO’s Heart and Mind that drives the Company’s approach to service reliability and product quality. Our
pursuit of excellence governs the way we act and make decisions.

ATCO STRATEGIES

ATCO is focused on investments that put us at the forefront of global trends. We strive to deliver growth within our
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 continue offering our customers premier, comprehensive and integrated
solutions to meet their needs and expand into new markets.

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

3 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

"Making life easier for our customers by offering integrated

solutions around the world."

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 our customers; developing significant, value-creating greenfield projects; and fostering continuous
improvement.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 4

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

We pursue the acquisition and development of complementary assets and businesses 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 flows from operations, cash
balances on hand, 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 our environmental impact. We ensure the timely
supply of goods and services that are critical to our customers' ability to meet their 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 2019 relative to the strategies outlined above are included in this
MD&A, the 2019 Consolidated Financial Statements and 2019 AIF. Further commentary regarding strategies and
commitments to growth, financial strength, innovation, operational excellence, and community involvement will be
provided in the forthcoming 2019 Management Proxy Circular, Year in Review, and Sustainability Report. The 2019
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.

5 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

GLOBAL OPERATIONS

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, commercial real estate, 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.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 6

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

ORGANIZATIONAL STRUCTURE

(1) ATCO Investments Ltd. (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., the general partner of Alberta PowerLine Limited Partnership (Alberta PowerLine or APL), was a partnership
between Canadian Utilities Limited (80 per cent) and Quanta Services, Inc. (20 per cent). In December of 2019, Canadian Utilities, along with Quanta
Services Inc. completed the previously announced sale of APL. Canadian Utilities received aggregate proceeds of $222 million for its interest in APL and
will remain as the operator over its 35-year contract with the Alberta Electric System Operator.

(5) Retail Energy, through ATCO Energy Ltd. (ATCOenergy), provides retail, commercial and industrial electricity and natural gas service in Alberta.
(6) On September 30, 2019, Canadian Utilities announced the sale of its Canadian fossil fuel-based electricity generation portfolio for aggregate proceeds of

$821 million. The sale was completed in the fourth quarter of 2019.

The 2019 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, of which ATCO Ltd. owns 52.2 per cent (38.3 per cent of the Class A non-voting
shares and 90.2 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). On December 31, 2019, ATCO purchased Canadian Utilities' 100 per cent
ownership interest in ASHCOR Technologies Ltd., an Alberta-based company engaged in marketing fly ash.

The 2019 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.

7 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

COMPANY OVERVIEW AND OPERATING
ENVIRONMENT

With approximately 6,500 employees and assets of $22 billion, ATCO is a diversified global holding corporation with
investments in Structures & Logistics (workforce housing, innovative modular facilities, construction, site support
services, and logistics and operations management); Energy Infrastructure (electricity transmission, distribution and
generation; natural gas transmission and distribution; energy storage and industrial water solutions; and electricity
and natural gas retail sales); Transportation (ports and transportation logistics); and Commercial Real Estate.

The long-term success of ATCO is dependent upon our ability to grow the business by expanding into new markets
and new business lines. Our steadfast commitment to our five strategic priorities of innovation, growth, financial
strength, operational excellence and community involvement has allowed ATCO to endure periods of immense
instability while continuing to grow. These priorities underpin our present strategy of delivering essential services
for global economic prosperity through Housing, Energy, Logistics and Transportation, Water, Agriculture and Real
Estate.

At the heart of ATCO’s strategy is the desire to be a unified provider of essential services for our customers, allowing
them to avoid the challenges of utilizing a fragmented network of providers. Our unique market position, integrated
capabilities, and exceptional customer care combine to create a competitive advantage that is difficult to replicate,
and one that continues to deliver value to share owners through exceptional earnings and dividend growth.

ATCO achieved adjusted earnings in 2019 of
$365 million or $10 million higher than 2018. Higher
earnings from Structures & Logistics were mainly due
to work on the LNG Canada Cedar Valley Lodge
contract. Higher earnings from Neltume Ports were
due to a full year of earnings contributions following
ATCO's acquisition of a 40 per cent ownership interest
of Neltume Ports in September 2018.

STRUCTURES & LOGISTICS

The Structures & Logistics Global Business Unit's activities are conducted through two complementary businesses:
ATCO Structures and ATCO 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, workforce lodging services, facility
operations and maintenance, defence operations services, and disaster and emergency management services.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 8

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

ATCO Structures

BUSINESS STRATEGY

ATCO Structures' strategy is to continue to grow a base of stable earnings 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.

MARKET OPPORTUNITIES
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 contracts. We
continue to focus on customer diversification opportunities outside
of the natural resource sector. Non-traditional modular markets
such as public education facilities, high density urban residential
housing, hotels and correctional facilities offer development
opportunities. Expansion will be focused in select global markets,
including Canada, Australia, Latin America and the U.S.

MARKET CHALLENGES
The global natural resource sector continues to face economic
headwinds, with ongoing lower private sector capital investment.
There is a high level of competition in the markets in which we
operate both from traditional competitors and new product
developers looking to enter or diversify into markets in which ATCO
Structures operates.

Permanent modular classroom, Victoria, Australia

ATCO Frontec

BUSINESS STRATEGY

ATCO Frontec's strategy is to be a customer service business focused on providing workforce lodging services,
facility operations and maintenance services, defence operations services, and disaster and emergency
management services.

MARKET OPPORTUNITIES
Our focus in 2020 will be centered on expanding camp service
offerings in new geographies and markets. ATCO Frontec's northern
operations are also focused on growth opportunities as the Arctic
experiences more global attention and government contracts
continue to come up for renewal. Canadian and international
contract wins in 2019 in the disaster and emergency management
division present an operating platform for continued growth.

MARKET CHALLENGES
Continued uncertainty in the natural resource sector in Canada will
limit the demand for workforce housing and the associated camp
services that ATCO Frontec operates. ATCO Frontec is pursuing
contracts with customers whose projects remain subject to
comprehensive approval processes.

Silvertip mining camp, British Columbia

9 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

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. The business employs approximately 6,100 people and in 2019, it handled 46 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 port opportunities across 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 Ports' 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 macroeconomic
factors. Latin American Gross Domestic Product (GDP) growth is
expected to slow its pace. Neltume Ports' positioning provides some
geographic mitigation for slowing global trade and its container and
bulk shipments are expected to remain stable.

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.

Container port operations, Arica, Chile

CANADIAN UTILITIES

Canadian Utilities is a diversified global energy infrastructure corporation delivering service excellence and
innovative business solutions in Electricity (electricity transmission, distribution, and generation); Pipelines & Liquids
(natural gas transmission and distribution, 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 non-regulated electricity generation and transmission. Together these
businesses provide electricity distribution, transmission, generation, and related infrastructure services.

BUSINESS STRATEGY

Electricity's strategy is to grow its businesses through: investing in regulated electricity distribution and
transmission, capitalizing on opportunities to provide long-term contracted electricity transmission services and
renewable and natural gas-fired electricity generation.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 10

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 10

MARKET OPPORTUNITIES
The electricity regulated businesses expect to see continued
investment opportunities based on customer growth and system
replacements. Expansion will be focused in select global markets,
including Canada, Australia, Latin America and the U.S.

Electricity targets select markets with stable regulatory
environments and rule of law, excellent long-term growth potential,
and strategic fit with our existing asset base and complementary
skills.

MARKET CHALLENGES
Potential changes in macroeconomic conditions or government
policy could slow the growth trajectory of these businesses.

Electricity transmission towers, Alberta

Pipelines & Liquids

The Pipelines & Liquids Global Business Unit's 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.

MARKET OPPORTUNITIES
The pipelines and liquids regulated businesses expect to see
continued growth based on forecasted customer growth and
system replacements. Expansion of pipelines in Alberta is expected
to increase the need for energy storage to manage supply and
demand. Expansion will be focused in select global markets,
including Canada, Australia, Latin America, and the U.S.

Pipelines & Liquids targets select markets with stable regulatory
environments and rule of law, excellent long-term growth potential,
and strategic fit with our existing asset base and complementary
skills.

MARKET CHALLENGES
Potential changes in macroeconomic conditions or government
policy could slow the growth trajectory of these businesses.

Natural gas transmission control station,
Drayton Valley, Alberta

11 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

11 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

ATCO SCORECARD

The following scorecard outlines our performance in 2019.

STRATEGIC
PRIORITIES

INNOVATION
New and
existing
products and
services

2019 TARGET

2019 PERFORMANCE

Expand permanent
modular construction into
hotels, schools, affordable
housing and seniors' living
centres.

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

Leveraging off of its expertise in modular housing, ATCO
Structures partnered with the Homes for Heroes Foundation to
build a village of 15 modular tiny homes to provide housing
and a robust support system for veterans who are experiencing
homelessness. This project was completed on schedule in
November.

ATCO Structures secured multiple projects for the Government
of British Columbia's (BC) supportive housing program. A
52-unit apartment complex in Vernon, BC was successfully
completed in June and a 30-unit apartment building in Powell
River, BC was substantially complete in December.

ATCO Structures was awarded a contract for two Marriott
hotels situated near Napa Valley and Oakland, California.
Modular supply manufacturing was completed in the fourth
quarter of 2019 for the first hotel.

ATCO Structures provided classroom spaces for 6,000 students
in public and private campuses, and built our first ever police
station in Australia.

In July, we officially opened the Clean Energy Innovation Hub in
Jandakot, Western Australia. This hub uses solar renewable
energy to produce hydrogen, enabling us to be part of the next
energy wave with hydrogen, and repositioning the international
natural gas distribution business as the energy mix evolves.

Canadian Utilities continued to expand its number of electric
vehicle (EV) direct current, fast charging stations. A total of
15 charging stations were installed in 2019 and additional
stations are planned for 2020.

In 2019, Canadian Utilities successfully constructed and
energized the Fort Chipewyan phase one 600-kW solar farm,
which will displace 160,000 litres of diesel annually. Also in
2019, Canadian Utilities and Indigenous Partner Three Nations
Energy obtained government funding and executed contracts
to build an Indigenous owned phase two 2,200-kW solar farm,
with a Canadian Utilities owned energy storage and microgrid
controls system. The project is on track to be energized in
October 2020.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 12

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 12

STRATEGIC
PRIORITIES
New and
existing
products and
services

2019 TARGET
• 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.

2019 PERFORMANCE
ATCO Electric Yukon (AEY), in partnership with the Vuntut
Gwitchin First Nation in Old Crow, Yukon, installed solar panels
to offset diesel consumption in this fly-in only community. We
helped facilitate the installation of the Nation's 940-kW solar
array together with the AEY owned battery and microgrid
controller. By the summer of 2020, the project will have the
potential to save 190,000 litres of diesel fuel annually. This was
the first Energy Purchase Agreement contract signed in the
Yukon.
In our natural gas and electric utility operations we have
implemented remote monitoring technology, digitized stations
and are in the process of implementing workforce and asset
management systems, which will digitize our work processes,
creating operational efficiencies and will enable enhanced data
collection from our infrastructure.

The conversion of coal-fired power generation to lower-
emitting natural gas at the Battle River unit 5 Generating
Station commenced in 2019. Conversion continued until the
sale of the assets in the third quarter to Heartland Generation
Ltd.

Launch of the ATCOenergy eCommerce platform was achieved
in 2019.

ATCOenergy's digital strategy was a success in 2019 with a
move to more targeted marketing through digital platforms.
The digital platforms provide customer insights with respect to
buying patterns, areas of interest, understanding of customer
journeys and how best to adapt digital mediums to cater to
customer requirements.

In 2019, a division was formally established within ATCO
Frontec to provide disaster and emergency management
services. Building on a long history of successful disaster
response operations within ATCO, a team is now in place with a
mandate to expand this offering. During the course of the year,
the division achieved the following:

• Negotiated the delivery of a temporary office complex
in the Bahamas in response to Hurricane Dorian;

•

Secured emergency management consulting contracts
for domestic clients; and

Awarded a contract to provide workforce housing and
camp support services for ECC Constructors LLC’s
1,500-person Tuscan Ridge Lodge near Chico,
California. The nine-month contract has supported
and will support ECC’s efforts to provide
environmental remediation and debris cleanup in the
Butte County region of northern California, in
particular the community of Paradise, which was
devastated by the “Camp Fire” wildfire in November
2018.

13 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

13 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

STRATEGIC
PRIORITIES
New and
existing
products and
services

GROWTH
Regulated and
long-term
contracted
capital
investment

2019 TARGET
Explore and test new
products and methods of
energy delivery to meet
customers' future needs.

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.

Global
expansion

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

2019 PERFORMANCE
In 2019, an innovation team was formed to assist in the
execution of ATCO’s transformation mandate: to create a
culture and capability that is future-ready, aware, creative,
competent, and agile. This team will aim to bring ATCO’s
strategic vision into reality.

Invested $1.2 billion across our Regulated Utilities and long-
term contracted assets in 2019 as planned.

In March, Alberta PowerLine, a partnership between ATCO and
Quanta Services, energized the Fort McMurray West 500-kV
Transmission Line three months ahead of the contract
schedule target of June, 2019, on-budget and with an
impeccable safety record.

We began engineering and procurement activities in relation to
the 26-MW La Laguna cogeneration power project in Mexico in
partnership with RANMAN Energy. Total planned investment
with the La Laguna project is approximately $70 million.

In November, Canadian Utilities announced the expansion of
our existing storage business at the ATCO Heartland Energy
Centre near Fort Saskatchewan, Alberta. The expansion will
involve the development of a fifth hydrocarbon storage cavern
and a pipeline that will connect the facility to the existing
pipeline networks in the region.

In February, Neltume Ports acquired an additional 15 per cent
ownership in Terminal Puerto de Arica S.A. (TPA), bringing its
total ownership in TPA to 50 per cent. TPA is a container port
located in northern Chile with a diversified cargo mix mainly
serving Bolivian trade.

In 2019, ATCO Structures increased the workforce housing fleet
size by 4 per cent primarily from the execution of workforce
housing rental contracts in Western Australia and the
U.S. Space rental fleet size increased by 6 per cent in 2019
mainly as a result of ATCO Structures expanding its space
rentals presence in the U.S., increasing the fleet size in Central
Canada and expanding in Latin America.

ATCO Structures expanded its space rentals presence in the
U.S. through opening its first sales branch in Aurora, Colorado
and moving its corporate office to Houston, Texas.

In the fourth quarter of 2019, Canadian Utilities entered into a
partnership with Impulso Capital, a Chilean developer, to build
and operate the 18-MW Cabrero Solar project. This project,
located in southern Chile, will provide clean solar energy to the
Chilean electricity grid. The first 3-MW is under construction,
and is expected to be operational in 2020. The remaining
15-MW is scheduled for completion in 2021. The total
investment in this project is expected to be approximately
$24 million.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 14

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 14

STRATEGIC
PRIORITIES

2019 TARGET

2019 PERFORMANCE

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

Customer
satisfaction

Continue improvement in
our safety performance, in
addition to comparing
favourably to benchmark
rates such as Alberta
Occupational Health and
Safety, U.S. private
industry, and industry best
practice rates for each of
our global operating units.
Achieve high service for
the customers and
communities we serve.
Results from customer
satisfaction surveys should
be consistent with or
better than in prior years.

Organizational
transformation

Streamline and gain
operational efficiencies.

• Adopt lean

manufacturing
processes and increase
production automation
for ATCO Structures'
North American
manufacturing facilities.

• Continue to optimize
ERP implementation.

15 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

15 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

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

Maintained 'A-' credit rating with a stable outlook with Standard
& Poor's.

We strengthened our balance sheet through the sale of the
Canadian fossil fuel-based electricity generation assets and
Alberta PowerLine which together generated approximately
$1 billion of gross proceeds in 2019. The sale of Alberta
PowerLine also removed approximately $1.4 billion of debt
from Canadian Utilities' balance sheet thereby improving our
financial strength.

In 2019, we raised $580 million in 30-year debentures at
2.96 per cent, the lowest long-term coupon achieved in the
Company’s history.

Our lost-time incident frequency compares very favourably to
benchmarks such as Alberta Occupational Health and Safety,
U.S. private industry and industry best practice rates. ATCO
achieved a 25 per cent reduction in the lost time incident rate
in 2019 to 0.12 incidents/200,000 hours worked.

Our total recordable incident frequency in 2019 was
2.20 incidents/200,000 hours worked which is an increase
relative to 2018 results.

Within the Alberta electricity and natural gas distribution
businesses, more than 94 per cent of customers agreed that
Canadian Utilities provides good service. Within our energy
retail operations, 75 per cent of customers who interact with
call centres are "very satisfied". These results compare
favourably to industry averages and are consistent with
previous years.

The reconfiguration of our Canadian ATCO Structures
manufacturing facility and updated building processes
contributed to improved manufacturing performance in 2019.

In 2019, we continued to optimize the cloud-based Enterprise
Resource Planning (ERP) system that was implemented in 2018.
Moving from a highly customized environment to one with
limited customizations improved the quarterly upgrade
installation time and employee productivity. Optimization
examples include the development of a standardized reporting
catalogue, a reduction in the month end close from 13 days to
5 days, the creation of a standardized delegation of authority
matrix, and a reduction in manual journal entries by
50 per cent.

STRATEGIC
PRIORITIES
Organizational
transformation

2019 TARGET
• Complete strategic
review of Canadian
electricity generation
assets.

• Complete strategic
review of Alberta
PowerLine ownership
interest.

COMMUNITY INVOLVEMENT
Indigenous
relations

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

2019 PERFORMANCE
In the fourth quarter of 2019, following a strategic review,
Canadian Utilities finalized the sale of its 2,276-MW Canadian
fossil fuel-based electricity generation portfolio in a series of
transactions for aggregate proceeds of $821 million. Following
the close of the transaction, Canadian Utilities continues to
own 244-MW of electricity generation assets in Canada, Mexico
and Australia. The remaining generation portfolio is 90 per cent
contracted with an 8 year average contract life.

In December of 2019, following a strategic review, Canadian
Utilities, along with Quanta Services Inc. completed the sale of
Alberta Powerline (APL), a partnership between Canadian
Utilities (80 per cent) and Quanta Services Inc. (20 per cent).
Canadian Utilities received aggregate proceeds of $222 million.
Canadian Utilities will remain as the operator of APL over its
35-year contract with the Alberta Electric System Operator.

ATCO awarded $66,000 to 53 students across Canada for the
ATCO Indigenous Education Awards Program.

Our Indigenous Relations team held 11 Corporate Indigenous
Training sessions for 242 ATCO employees in eight locations
across Alberta, Yukon and the Northwest Territories.

We sponsor the University of Calgary Indigenous Relations
Leadership Certificate, a four day program which helps
participants gain a better understanding of the issues facing
Canada’s Indigenous population today.

Seven Indigenous communities in Alberta purchased 40 per
cent of Alberta PowerLine, a partnership between ATCO and
Quanta Services. This investment will enable the communities
to become direct owners and participants in Alberta’s energy
sector. We will continue to partner with Indigenous
communities to establish maintenance and operational
contracts over our 35-year contract as operator with the
Alberta Electric System Operator.

In 2019, we opened the Six Seasons Garden at our Jandakot
Operations Centre in Western Australia, with the objective to
strengthen our relationships with Aboriginal and Torres Strait
Islander Peoples. The Garden recognizes and celebrates the
Noongar people, who have lived in the south-west of Western
Australia for more than 45,000 years and are one of the largest
Aboriginal cultural blocks in Australia.

In 2019, ATCO Mexico launched the Child Nutrition Project in
partnership with the non-profit organization, Mexico Tierra de
Amaranto. We are working to ensure that elementary students
in the Indigenous community of Mecuilca, in the state of
Veracruz, receive the nutrition they need to be successful in
school.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 16

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 16

STRATEGIC
PRIORITIES
ATCO EPIC
(Employees
Participating
in
Communities)

2019 TARGET
Continue to administer the
employee-led campaign to
give employees the
opportunity to contribute
to charitable organizations
in the communities in
which they work.

2019 PERFORMANCE
With the combined efforts of our employees around the world,
we pledged more than $2.7 million to support hundreds of
community charities through our annual ATCO EPIC campaign,
taking the program’s cumulative fundraising total to more than
$44 million since its inception in 2006.

ATCO made a gift in-kind donation of $1.5 million to the Homes
for Heroes Foundation and provided our expertise in the
design, build, manufacture, delivery and placement of units on
ATCO-supplied pile foundations.

ATCO's employees volunteered 7,731 hours of their time in the
communities in which they work.

17 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

17 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

STRATEGIC PRIORITIES FOR 2020

The following table outlines our strategic priorities for 2020.

2020 PRIORITIES

INNOVATION

New and existing
products and
services

GROWTH

Regulated and long-
term contracted
capital investment

Global expansion

Continue to expand permanent modular construction into hotels, schools, affordable housing and seniors'
living centers.
Explore and test new products and methods of energy delivery to meet customers' future needs.

• Continue to expand number of electric vehicle charging stations in Alberta.
• Continue to reduce or replace diesel consumption with more energy efficient solutions for customers in

remote communities.

Demonstrate continuous improvement of existing products and services.
Complete ATCO Park real estate land use amendments to improve value and future optionality.

Continue to invest across our Regulated Utilities and in long-term contracted assets.

Continue expansion into select global markets including: Canada, Australia, Latin America.
Reposition ATCO Structures' rental fleet into growing regions and further expand space rental business in
selected regions.
Expand ATCO Frontec's North American business and diversify the customer base.
Seek opportunities with Neltume Ports' available cash in brownfield, greenfield and M&A opportunities.
Increase number of customers for international natural gas distribution in Australia.

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

Compare favourably to safety benchmarks.

Total recordable
incident frequency:
employees

Customer
satisfaction

Achieve high service for the customers and communities we serve. Results from customer satisfaction surveys
should be consistent with or better than prior years.

Streamline and gain operational efficiencies.

Organizational
transformation

•

Improve processes and increase production automation for ATCO Structures' North American
manufacturing facilities.
Continue to improve global manufacturing and sourcing strategies to increase ATCO Structures'
manufacturing competitive advantage.
Continue to optimize enterprise resource planning, workforce and asset management, and
computerized maintenance management systems.

COMMUNITY INVOLVEMENT

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.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 18

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 18

CORPORATE GOVERNANCE

Ensuring that our business operates in a transparent, ethical and accountable manner is at the core of creating
strong and sustainable value for our share owners and in promoting the Company's well-being over the long term.

We do not 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 prudently managing our financial resources.

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 intergenerational 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 2019 Management Proxy Circular, which will be available in March 2020.

From left to right: Michael Rayfield, Denis Ellard, Robert Booth, Charles Wilson, Nancy Southern, Linda Southern-Heathcott, Roger Urwin,
Susan Werth, Robert Routs

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 (DADs), also reinforce the effectiveness and rigor of our governance model.

Much like our business operations, the strength of our Board of Directors is due in no small part to the diverse
nature of skills, talent and experience each member brings to Board 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 Designated Audit Directors 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 senior leadership of their Global Business Unit or business division, and holds
annual meetings with internal and external auditors. In addition, they review their respective businesses' financial
statements and operating results, discuss risks with management, and report on both operating results and risks to
our Audit & Risk Committee.

19 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

19 ATCO LTD. 2019 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)

2019

2018

2017

Year Ended
December 31

Key Financial Metrics

Revenues
Adjusted earnings (1)

Structures & Logistics

Neltume Ports

ATCO Corporate & Other

Canadian Utilities Limited

Electricity

Pipelines & Liquids

Canadian Utilities 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 (cents per share)
Funds generated by operations (1)
Capital investment (1)

Other Financial Metrics

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

Basic

Diluted

4,706

365

4,888

4,600

355

335

(6)

221

137

(39)

3.19

513

4.49

228

130

(39)

3.10

328

2.87

—

210

144

(35)

2.93

219

1.92

21,703

23,344

21,786

9,436

4,000

1.62

1,927

1,324

10,798

3,755

1.51

1,897

2,518

9,973

3,527

1.31

1,813

1,821

114,370 114,394 114,352

114,746 114,788 114,822

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

REVENUES

Revenues in 2019 were $4,706 million, $182 million lower than in 2018. Lower revenues were mainly due to the
completion of construction activity at APL in the first quarter of 2019 and forgone revenue following the sale of the
Canadian fossil fuel-based electricity generation portfolio in the third quarter of 2019. Lower revenues were partially
offset by higher revenues in ATCO Structures due to the LNG Canada Cedar Valley Lodge contract and higher flow-
through revenues in natural gas distribution for third party franchise and transmission fees, and growth in the
regulated rate base.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 20

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 20

ADJUSTED EARNINGS

Our adjusted earnings in 2019 were $365 million or $3.19 per share, compared to $355 million or $3.10 per share
recorded in 2018. Higher earnings were recorded in Structures & Logistics, and Neltume Ports.

The primary drivers of adjusted earnings results were as follows:

• Structures & Logistics adjusted earnings in 2019 were $22 million higher than in 2018. The increase was

mainly due to incremental earnings from the LNG Canada Cedar Valley Lodge contract.

• Neltume Ports adjusted earnings in 2019 were $11 million higher than in 2018. ATCO's first full year of

ownership in Neltume Ports was 2019. On September 12, 2018, ATCO invested in a 40 per cent interest in
Neltume Ports.

• ATCO Corporate & Other adjusted earnings in 2019 were $23 million lower than in 2018, mainly due to higher
interest expense associated with the financing of ATCO's investment in Nelltume Ports and lower earnings
from ATCO Investments, which completed two commercial real estate transactions in the third quarter of
2018.

• Canadian Utilities adjusted earnings in 2019 were comparable to 2018.

Adjusted Earnings
($ Millions)

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 $513 million in 2019, $185 million higher compared to 2018.
Earnings attributable to Class I and Class II Shares include timing adjustments related to rate-regulated activities,
unrealized gains or losses on mark-to-market forward and swap commodity contracts, 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. These items are not included in adjusted earnings.

In 2019, Canadian Utilities closed a series of transactions related to the sale of its Canadian fossil fuel-based
electricity generation business and its ownership interest in Alberta PowerLine, resulting in ATCO recording a gain
on sale of operations of $65 million (after non-controlling interests). Transaction costs recorded in previous quarters
that relate to the sale of Alberta PowerLIne have been consolidated into this gain. As the gain is related to a series of
one-time transactions, it is excluded from adjusted earnings.

21 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

21 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

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

Total assets of $21.7 billion in 2019 were $1.6 billion lower compared to 2018. Long-term debt and non-recourse
long-term debt decreased by approximately $1.4 billion in 2019 compared to 2018. These changes were mainly due
to the sale of Canadian Utilities' ownership interest in Alberta PowerLine and sale of its Canadian fossil fuel-based
electricity generation business. Class I and Class II Share owners' equity increased by $245 million in 2019 compared
to the prior year mainly due to 2019 earnings, partially offset by dividends paid to share owners.

COMMON SHARE DIVIDENDS

Dividends paid to Class I and Class II Share owners totaled $186 million in 2019.

On January 9, 2020, the Board of Directors declared a first quarter dividend of 43.52 cents per share. We have
increased our common share dividend each year since 1993.

FUNDS GENERATED BY OPERATIONS

Funds generated by operations were $1,927 million in 2019, $30 million higher than in 2018. The increase was
mainly due to higher funds generated by operations in Structures & Logistics and the Alberta Utilities, partially offset
by lower funds generated as a result of the sale of the Canadian fossil-fuel based electricity business in the third
quarter of 2019.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 22

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 22

CAPITAL INVESTMENT

Total capital investment of $1.3 billion in 2019 was $1.2 billion lower than the previous year mainly due to the
completion of construction activities in Alberta PowerLine in the first quarter of 2019, the 2018 investment in
Neltume Ports and the acquisition of a long-term contracted hydroelectric power station in Veracruz, Mexico.

Capital spending in the Regulated Utilities accounted for $1,035 million or 78 per cent of total capital invested in
2019. The remaining $289 million or 22 per cent invested in 2019 included the completion of construction at Alberta
PowerLine, global expansion of the ATCO Structures space rental fleet, planned capital maintenance in the electricity
generation fleet as well as the acquisition of an increased port ownership interest by Neltume Ports.

23 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

23 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

GLOBAL BUSINESS UNIT PERFORMANCE

REVENUES

Structures & Logistics revenues of $245 million in the fourth quarter of 2019 were $105 million higher than the
same period in 2018, mainly due to incremental revenues from ATCO Structures' LNG Canada Cedar Valley Lodge
contract.

Structures & Logistics revenues of $803 million in 2019 were $292 million higher than the same period in 2018.
Higher revenues were mainly due to incremental revenue from the LNG Canada Cedar Valley Lodge contract, and
ATCO Frontec North American camp services and maintenance contracts. Also contributing to higher ATCO
Structures revenue were higher space rental activity, as well as higher trade sale and rental activity in workforce
housing.

ADJUSTED EARNINGS

($ millions)

ATCO Structures

ATCO Frontec

Total Structures & Logistics Adjusted Earnings

Three Months Ended
December 31

Year Ended
December 31

2019

2018

Change

2019

2018

Change

(2)

—

Structures & Logistics recorded adjusted earnings of $14 million in the fourth quarter of 2019 and $37 million in the
full year of 2019, $9 million and $22 million higher than the same periods in 2018. The increase was mainly due to
incremental earnings from ATCO Structures' LNG Cedar Valley Lodge contract and incremental ATCO Frontec
earnings from North American camp services and maintenance contracts.

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

ATCO STRUCTURES

ATCO 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.

ATCO Structures recorded adjusted earnings of $13 million in the fourth quarter of 2019 and $32 million in the full
year of2019, $6 million and $17 million higher than the same periods in 2018. Higher adjusted earnings were mainly
due to continued work on the LNG Canada Cedar Valley Lodge contract, higher space rental activity in Canada and
higher workforce housing sale and rental activity in the United States and Australia.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 24

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 24

Rental Fleet Statistics

The following table compares ATCO Structures' manufacturing hours and rental fleet for the fourth quarter and full
year of 2019 and 2018.

North America

Manufacturing hours (thousands)

252

156

62%

988

487

103%

Three Months Ended
December 31

Year Ended
December 31

2019

2018

Change

2019

2018

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)

16,353

15,321

7% 16,353

15,321

605

548

(1%)

10%

568

519

2,866

2,774

18%

2,866

2,774

1,882

1,969

(4%)

1,872

1,877

(3%)

—

The increase in manufacturing hours in the fourth quarter and full year of 2019 was mainly due to increased LNG
Canada Cedar Valley Lodge manufacturing activity and manufacturing of additional units to support the expansion
of the Canadian and U.S. space rental fleet.

The increase in the number of space rental units was mainly due to the strategic expansion of the space rental fleet
in the United States, central Canada, British Columbia (BC), Mexico and Chile. The decrease in utilization during the
fourth quarter and full year of 2019 was mainly driven by timing between the addition of new units to the fleet and
deployment of units on rental contracts. The increase in the average rental rate was mainly due to the addition of
new fleet assets rented out at higher rental rates combined with strong activity in the construction sector,
particularly in central Canada.

The increase in the number of workforce housing units was mainly due to securing a large workforce housing rental
project in Western Australia partially offset by used fleet sales of non-utilized units in Canada, the U.S., and
Australia. The increase in utilization was mainly due to rental projects in Western Australia, California and British
Columbia. The decrease in the average rental rate was primarily due to the lower rates in Canada and Australia
partially offset by higher rates in the U.S.

RECENT DEVELOPMENTS

Canada

LNG Canada Cedar Valley Lodge Contract

ATCO Structures, through its joint ventures with Bird Construction and the Haisla Nation, continues to progress on
both manufacturing and site construction work for the LNG Canada Cedar Valley Lodge contract. Manufacturing
commenced in the first quarter of 2019 and is planned to continue through 2020. Throughout the fourth quarter of
2019, modules were delivered and installed on site. The facility is being built to house workers involved in the
construction of LNG Canada’s natural gas liquefaction and export facility in Kitimat, BC. The project is one of the
largest accommodation facilities ever built in Canada.

25 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

25 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

LNG Canada Cedar Valley Lodge - Kitimat, BC

Homes For Heroes

During the fourth quarter of 2019, ATCO Structures
completed the handover of Homes for Heroes ATCO
Village, a community of 15 modular tiny homes in
Calgary, Alberta to go along with a robust support
system for veterans of the Canadian Armed Forces
who are experiencing homelessness.

ATCO Village, Homes for Heroes - Calgary, Alberta

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 26

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 26

United States

Permanent Modular Construction - Marriott hotels

During the fourth quarter of 2019, ATCO Structures
successfully completed the manufacturing supply of
Marriott branded units for the Marriott Fairfield Inn
located near Oakland, California under a $7 million
contract. A second $7 million manufacturing supply
contract for a Marriott branded hotel in Napa Valley,
California is in production and expected to be
complete in the first quarter of 2020.

Rendering of Marriott Fairfield - Napa Valley, California

Supplementing the established workforce housing business line and growth in permanent modular construction in
the United States, ATCO Structures has established a new space rentals branch in Aurora, Colorado. This permanent
operation enhanced ATCO Structures' expansion in the U.S. space rentals market in 2019 and resulted in a fleet
increase to 398 units at 77 per cent utilization.

Tuscan Ridge

In 2019, ATCO Structures was awarded a $50 million contract for the installation and rental of a 1,500-person camp
for fire disaster relief in Chico, California. The contract began in March 2019 and continued until the end of January
2020.

Australia

ATCO Structures is working on the design, manufacture and installation of a 400-room, two story accommodation
village in Karratha, Western Australia. The total contract value is $22 million with final handover expected in May
2020.

In the fourth quarter of 2019, ATCO Structures began work on a $47 million contract to relocate and install an
800-room camp in Western Australia with completion planned for March 2020.

800-room camp - near Karratha, Western Australia

27 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

27 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

ATCO FRONTEC

ATCO Frontec provides facility operations and maintenance services, workforce lodging and support services,
defence operations services, and disaster and emergency management services.

ATCO Frontec recorded adjusted earnings of $1 million in the fourth quarter of 2019, $3 million higher than the
same period in 2018. Higher adjusted earnings were mainly due to incremental earnings from North American
camp services and maintenance contracts which include the Tuscan Ridge contract in Chico, California, the Silvertip
mining contract in northern BC, the Coastal GasLink Pipeline support services project in BC, and the Elkford Lodge
TECK Coal contract in BC.

ATCO Frontec recorded adjusted earnings of $5 million in 2019, $5 million higher than the same period in 2018.
Higher adjusted earnings were mainly due to incremental earnings from North American camp services and
maintenance contracts which includes the Tuscan Ridge contract in Chico, California and the BC Hydro Site C Two
Rivers Lodge in Northern BC.

RECENT DEVELOPMENTS

Canada

BC Hydro Site C Two Rivers Lodge

In 2016, ATCO Frontec commenced an operations and maintenance contract at the BC Hydro Site C Two Rivers
Lodge for up to 1,750 workers. The original operations and maintenance services contract is in place until late 2022.

In May 2019, ATCO Frontec was awarded an expansion to the operations and maintenance contract at the BC Hydro
Site C Two Rivers Lodge. ATCO Frontec will provide operations and maintenance services for an additional 150 new
workforce housing accommodation rooms being installed by ATCO Structures. The total value of the ATCO
Structures rental and ATCO Frontec expansion contracts is $15 million.

BC Hydro Site C Two Rivers Lodge, Near Fort St. John, British Columbia

Elkford Lodge

ATCO Frontec was awarded a $10 million contract by TECK Coal Limited for camp maintenance including food
services, housekeeping and janitorial services for the 500-person Elkford Lodge in British Columbia that was
supplied by ATCO Structures. The contract began in May 2019 and will continue until late 2021.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 28

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 28

International

NATO Headquarters Communications and Infrastructure Systems Support

In November 2019, ATCO Frontec was awarded a $2 million one-year contract extension to provide NATO Support
and Procurement Agency (NSPA) communication and information systems support to the NATO headquarters at the
Camp Butmir near Sarajevo, Bosnia.

In October 2019, ATCO Frontec won a rebid to provide NSPA around-the-clock fire protection services to NATO
troops, known as Kosovo Force, at the Novo Selo Camp near Pristina, Kosovo. The five-year contract is valued at $3
million.

Papa Air Base Facilities Management

In May 2019, ATCO Frontec was awarded a $2 million contract extension by NSPA NATO Airlift Management Program
to provide facilities maintenance, cleaning, landscaping, snow and ice clearing, and pest control at Papa Air Base in
Hungary. The extension will continue until April 2021.

U.S.

Tuscan Ridge

In April 2019, ATCO Frontec was awarded a $20 million contract for camp maintenance including food services,
housekeeping and janitorial services for the 1,500-person camp supplied by ATCO Structures for fire disaster relief
in Chico, California. The contract continued until the end of January, 2020.

29 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

29 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

Neltume Ports, a subsidiary of Ultramar, is a port operator and developer with a diversified portfolio of
16 multipurpose, bulk cargo and container port facilities and three port operations services. The business is located
primarily in Chile, with smaller operations in Uruguay, Argentina, and Brazil.

ADJUSTED EARNINGS

($ millions)

Neltume Ports

Three Months Ended
December 31

Year Ended
December 31

2019

2018

Change

2019

2018

Change

Neltume Ports recorded adjusted earnings of $4 million in the fourth quarter of 2019, $1 million higher than same
period in 2018 mainly due to higher container volume at the Terminal Pacifico Sur (TPS) port.

Neltume Ports recorded adjusted earnings of $15 million in 2019, $11 million higher than in 2018. ATCO's first full
year of ownership in Neltume Ports was 2019. On September 12, 2018, ATCO invested in a 40 per cent interest in
Neltume Ports.

RECENT DEVELOPMENTS

TPA Ownership Interest Increase

In February 2019, Neltume Ports acquired an additional 15 per cent ownership in Terminal Puerto Arica S.A. (TPA),
bringing the total ownership to 50 per cent. This acquisition gave Neltume Ports operational control of TPA,
strengthening its port operator role in the concession. TPA is a container port located in northern Chile with a
diversified cargo mix mainly servicing Bolivian trade. ATCO paid $9 million for its equity share of this investment.

TGN Contract

In July 2019, Terminal Graneles del Norte (TGN), a Neltume port, was awarded an important 25-year copper
concentrate loading contract. This contract aligns with our growth strategy to secure a significant share of Chilean
mining related activity, triggers the development of a new copper concentrate loading terminal, and extends the
existing TGN concession arrangement for another 15 years, from 2026 to 2041.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 30

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 30

New Port - AutoMobile International Terminal

In January 2020, Neltume Ports entered into a 50/50
joint venture (JV) partnership with Terminal Zarate to
build and operate a roll-on roll-off (RoRo) terminal in
Mobile, Alabama. The JV will invest 30 per cent of the
construction costs. Neltume Ports’ portion of the
investment will be approximately US$9 million and
will be funded with existing cash reserves. The
Alabama State Port Authority will provide the
remaining capital funding. The JV will operate the
terminal beginning in 2021 under a 10-year
concession agreement with two consecutive 10-year
extensions at the JV’s election for a total of up to
30 years. The port will primarily support the import
and export needs of the growing local automotive
sector in the region.

Neltume Ports’ partner, Terminal Zarate, a member
company of Grupo Murchison, provides port
operations services, integrated logistics, warehousing
and other related business activities in Argentina and
Uruguay. Terminal Zarate operates the largest RoRo
terminal in Latin America.

This investment opportunity allows Neltume Ports to grow and diversify, by both geography and product type, while
partnering with an experienced and respected partner.

31 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

31 ATCO LTD. 2019 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.

ADJUSTED EARNINGS

($ millions)

2019

2018

Change

2019

2018

Change

ATCO Corporate & Other

(9)

(11)

(6)

(23)

Three Months Ended
December 31

Year Ended
December 31

ATCO Corporate & Other adjusted earnings in the fourth quarter of 2019 were $11 million lower than the same
period in 2018 mainly due to the timing of certain expenditures and higher interest expense associated with the
financing of ATCO's investment in Neltume Ports.

ATCO Corporate & Other adjusted earnings in the full year of 2019 were $23 million lower than in 2018 mainly due
to higher interest expense associated with the financing of ATCO's investment in Neltume Ports and lower income
from ATCO Investments, which completed two commercial real estate transactions in 2018.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 32

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 32

Canadian Utilities is a diversified global energy infrastructure corporation delivering service excellence and
innovative business solutions in Electricity (electricity transmission, distribution and generation); Pipelines & Liquids
(natural gas transmission and distribution, energy storage, and industrial water solutions); and Retail Energy
(electricity and natural gas retail sales).

ELECTRICITY

REVENUES

Revenues of $419 million in the fourth quarter and $2,155 million in the full year of 2019 were $218 million and
$703 million lower than the same periods in 2018. Lower revenues were mainly due to reduced construction activity
at Alberta Powerline, forgone revenue associated with the sale of the Canadian fossil fuel-based electricity
generation portfolio in the third quarter of 2019, and the Balancing Pool's termination of the Battle River unit 5 PPA
in the third quarter of 2018. Lower revenues were partially offset by higher flow through revenues in electricity
transmission for the amortization of customer contributions in the fourth quarter of 2019.

ADJUSTED EARNINGS

($ millions)

2019

2018

Change

2019

2018

Change

Three Months Ended
December 31

Year Ended
December 31

Regulated Electricity

Electricity Distribution

Electricity Transmission

Total Regulated Electricity Adjusted Earnings

Non-regulated Electricity

Independent Power Plants

Thermal PPA Plants

International Electricity Generation

Alberta PowerLine

Total Non-regulated Electricity Adjusted Earnings

Total Electricity Adjusted Earnings

—

(6)

(3)

(7)

(15)

(8)

106

172

151

221

228

(29)

—

(5)

(28)

(7)

Electricity earnings of $46 million in the fourth quarter of 2019 were $8 million lower than the same period in 2018.
Lower earnings were mainly as a result of the forgone earnings from the sale of the Canadian fossil fuel-based
electricity generation business in the third quarter of 2019 and lower earnings contributions from Alberta PowerLine
mainly due to the completion of construction activities in the first quarter of 2019. Lower earnings were partially
offset by the positive impact of the electricity transmission 2018-2019 general tariff application (GTA) decision which
was received in July 2019, overall cost efficiencies and lower income taxes.

Electricity earnings of $221 million in 2019 were $7 million lower than in 2018. Lower earnings were mainly due to
favourable earnings realized in 2018 associated with the Balancing Pool’s termination of the Battle River unit 5 PPA
and the associated availability incentive and performance payments, forgone earnings from the sale of the
Canadian fossil fuel-based electricity generation business in the third quarter of 2019, and lower earnings
contributions from Alberta PowerLine mainly due to the completion on construction activities in the first quarter of

33 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

33 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

2019. Lower earnings were partially offset by the positive impact of the electricity transmission 2018-2019 GTA
decision which was received in July 2019, overall cost efficiencies and lower income taxes.

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

In the fourth quarter of 2019, electricity distribution adjusted earnings of $16 million were $2 million higher
compared to the same period in 2018. Higher earnings were mainly due to cost efficiencies and lower income taxes.

In 2019, electricity distribution adjusted earnings of $66 million were $7 million higher compared to 2018. Higher
earnings were mainly due to the ongoing implementation of cost efficiencies, lower income taxes, and continued
growth in the rate base.

Electricity Transmission

Electricity transmission recorded adjusted earnings of $27 million in the fourth quarter of 2019 and $106 million in
the full year of 2019, $5 million and $14 million higher than the same periods in 2018. Higher adjusted earnings
were mainly due to the impact of the 2018-2019 GTA decision received in July 2019 which approved higher rates for
2018 and 2019, as well as costs efficiencies and lower income taxes.

NON-REGULATED ELECTRICITY

Non-regulated electricity activities supply electricity from hydroelectric and natural gas generating plants in western
Canada, Australia and Mexico and non-regulated electricity transmission in Alberta.

Independent Power Plants

Independent Power Plants recorded adjusted earnings of nil in the fourth quarter of 2019, $6 million lower than the
same period in 2018. Lower earnings were mainly due to the sale of the Canadian fossil fuel-based electricity
generation business in the third quarter of 2019. Lower earnings in the fourth quarter of 2019 were also due to
earnings associated with the sale of the Barking Power assets that were recognized in the fourth quarter of 2018.

Independent Power Plants recorded adjusted earnings of $15 million in 2019, $6 million higher compared to the same
period in 2018. Higher earnings were mainly due to increased market prices in the first nine months of 2019 and cost
efficiencies, partially offset by higher planned maintenance costs in the first nine months of 2019 and earnings
associated with the sale of the Barking Power assets in the fourth quarter of 2018.

Thermal PPA Plants

Thermal PPA Plants recorded adjusted earnings of nil in the fourth quarter of 2019 as a result of the sale of the
Canadian fossil fuel-based portfolio in the third quarter of 2019.

Earnings of $15 million in 2019, were $29 million lower compared to the same period in 2018. Lower earnings were
mainly due to favourable earnings realized in 2018 associated with the Balancing Pool's termination of the Battle River
unit 5 PPA, and forgone earnings associated with the sale of the Canadian fossil fuel-based electricity generation
business in the third quarter of 2019.

International Electricity Generation

International electricity generation supplies electricity in Australia and Mexico. In Australia, two natural gas-fired
generation plants supply electricity in Australia: the Osborne plant in South Australia and the Karratha plant in Western
Australia. Source Energy Co. also provides energy solutions to residential and commercial customers in Australia using
a combination of grid electricity and solar energy. In Mexico, electricity is supplied from a distributed electricity
generation station near San Luis Potosí and a hydroelectric generation station near Veracruz.

International electricity generation adjusted earnings of $2 million in the fourth quarter of 2019 were $1 million higher
compared to the same period in 2018. Higher earnings were mainly due to the earnings impact of an unplanned
outage at the Osborne plant in the fourth quarter of 2018.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 34

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 34

International electricity generation adjusted earnings of $6 million in the full year 2019 were comparable to 2018.

Alberta PowerLine

Prior to its sale, Alberta PowerLine (APL) was 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 of $1 million in the fourth quarter of 2019, were $7 million lower compared to the same period
in 2018. Lower earnings were mainly due to an Early Energization Incentive recorded in fourth quarter of 2018 and the
completion of construction activities in the first quarter of 2019.

APL's adjusted earnings of $13 million in the full year of 2019 were $5 million lower than in 2018 mainly due to an Early
Energization Incentive recorded in fourth quarter of 2018, and the completion of construction activities in the first
quarter of 2019, partially offset by lower income taxes from a lower Alberta corporate income tax rate and higher
service concession arrangement interest income.

ELECTRICITY RECENT DEVELOPMENTS

Sale of Canadian Fossil Fuel-Based Electricity Generation Business

In the fourth quarter of 2019, Canadian Utilities finalized the sale of its 2,276-MW Canadian fossil fuel-based
electricity generation portfolio in a series of transactions. In September, Canadian Utilities sold 10 partly- or
fully-owned natural gas-fired and coal-fired electricity generation assets in Alberta and BC to Heartland Generation
Ltd., an affiliate of Energy Capital Partners. In August, Canadian Utilities sold its 50 per cent ownership interest in
the 580-MW Brighton Beach joint venture, located in Windsor, Ontario, to Ontario Power Generation Inc. In July,
Canadian Utilities completed the sale of its 50 per cent ownership interest in the 260-MW Cory Cogeneration Station
to SaskPower International. Canadian Utilities received $821 million of aggregate proceeds on the sale.

Following the close of the transactions, Canadian Utilities continues to own 244-MW of electricity generation assets
in Canada, Mexico and Australia that are 90 per cent contracted with a weighted average contract term of 8 years.

Sale of ASHCOR Technologies

On December 31, 2019, Canadian Utilities sold its 100 per cent investment in ASHCOR Technologies Ltd. (Ashcor), an
Alberta-based company engaged in marketing fly ash, to ATCO for aggregate consideration of $35 million. Ashcor
was previously reported in the Electricity segment in the Thermal PPA business line.

Sale of Alberta PowerLine

In March 2019, APL energized the Fort McMurray West 500-kV Transmission Line, three months ahead of schedule,
on-budget and with an impeccable safety record.

In the second quarter of 2019, Canadian Utilities and Quanta Services Inc. entered into agreements to sell APL.
Canadian Utilities offered an opportunity for Indigenous communities along the electricity transmission line route to
obtain up to a 40 per cent equity interest.

With the completion of the sale in December 2019, seven Indigenous communities in Alberta have a combined
40 per cent equity ownership in this essential Canadian energy infrastructure project: Athabasca Chipewyan First
Nation, Bigstone Cree Nation, Gunn Metis Local 55, Mikisew Cree First Nation, by way of its business arm, the
Mikisew Group of Companies, Paul First Nation, Sawridge First Nation and Sucker Creek First Nation.

The remaining 60 per cent of APL was acquired by a consortium including TD Asset Management Inc., for and on
behalf of TD Greystone Infrastructure Fund (Global Master) L.P., and IST3 Investment Foundation acting on behalf of
its investment group IST3 Infrastruktur Global. The sale transaction also included the assumption of $1.4 billion of
APL debt.

Canadian Utilities received aggregate proceeds of $222 million for its interest in APL and will remain as the operator
of APL over its 35-year contract with the Alberta Electric System Operator.

35 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

35 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

Chile Distribution-Connected Solar Generation Facility

In the fourth quarter of 2019, Canadian Utilities entered into a partnership with Impulso Capital, a Chilean
developer, to build and operate the 18-MW Cabrero Solar project. This project, located in southern Chile, will
provide clean solar energy to the Chilean electricity grid. The first 3-MW is under construction, and is expected to be
operational in 2020. The remaining 15-MW is scheduled for completion in 2021. The total investment in this project
is expected to be approximately $24 million.

PIPELINES & LIQUIDS

PIPELINES & LIQUIDS REVENUES

Pipelines & Liquids revenues of $483 million in the fourth quarter and $1,649 million in the full year of 2019 were
$100 million and $179 million higher than the same periods in 2018. Higher revenues were mainly due to higher
flow-through revenues in natural gas distribution for third party franchise and transmission fees, and higher
revenue from growth in the regulated rate base and number of natural gas distribution customers.

ADJUSTED EARNINGS

($ millions)

2019

2018

Change

2019

2018

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

(1)

—

129

124

137

130

(1)

Pipelines & Liquids adjusted earnings of $54 million in the fourth quarter of 2019 were comparable to the same
period in 2018.

Pipelines & Liquids recorded adjusted earnings of $137 million in 2019, $7 million higher than in 2018. Higher
earnings were mainly due to ongoing growth in the regulated rate base, cost efficiencies, incremental earnings from
hydrocarbon storage, and lower income taxes.

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

REGULATED PIPELINES & LIQUIDS

Natural Gas Distribution

Natural gas distribution serves municipal, residential, business and industrial customers throughout Alberta and in
the Lloydminster area of Saskatchewan.

Natural gas distribution recorded earnings of $32 million in the fourth quarter of 2019, $1 million lower than the
same period in 2018. Lower earnings were mainly due to the timing of operations and maintenance costs.

Natural gas distribution recorded adjusted earnings of $62 million in 2019, $5 million higher than in 2018. Higher
earnings were mainly due to cost efficiencies, ongoing growth in the rate base and customers, and lower income
taxes.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 36

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 36

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 recorded adjusted earnings of $9 million in the fourth quarter of 2019, $1 million lower
than the same period in 2018. Lower adjusted earnings were mainly due to the timing of operations and
maintenance costs.

Natural gas transmission recorded adjusted earnings of $39 million in 2019, $1 million higher than in 2018. Higher
adjusted earnings were mainly due to continued growth in the rate base.

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.

In the fourth quarter of 2019, international natural gas distribution adjusted earnings of $8 million, were $1 million
higher than the same period in 2018. Higher adjusted earnings were mainly due to rate base growth and cost
efficiencies.

The international natural gas distribution business recorded adjusted earnings of $28 million in 2019, $1 million
lower than in 2018, mainly due to a difference between inflation rates in the first quarters of 2018 and 2019. The
published inflation rate for the first quarter of 2019, when applied to the rate of return calculations, produced a
reduction to the revenues and earnings in 2019.

NON-REGULATED PIPELINES & LIQUIDS

Storage & Industrial Water

Storage & industrial water provides non-regulated natural gas storage and transmission activities, hydrocarbon
storage, and industrial water services in Alberta.

Storage & industrial water recorded adjusted earnings of $5 million in the fourth quarter of 2019, $1 million higher
than the same period in 2018 mainly due to higher demand and pricing for natural gas storage services and cost
efficiencies.

Storage & industrial water recorded adjusted earnings of $8 million in 2019, $2 million higher than in 2018. Higher
earnings were mainly due to cost efficiencies, incremental earnings from two additional hydrocarbon storage
caverns that became operational in the second quarter of 2018, and lower income taxes.

PIPELINES & LIQUIDS RECENT DEVELOPMENTS

Urban Pipelines Replacement Program

The Urban Pipelines Replacement (UPR) program 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 program is estimated to be
approximately $900 million. Natural gas distribution and natural gas transmission have invested $795 million in the
UPR program since its inception.

Mains Replacement Program

Natural gas distribution has two mains replacement programs which were approved in 2011, the plastic mains
replacement and the steel mains program. The plastic mains replacement includes 8,000-km of polyvinyl chloride
(PVC) and early generation polyethylene (PE) pipe that are planned for replacement by 2031. Natural gas
distribution has replaced 2,015-km of PVC and PE pipe since the approval of this program. The steel mains program
includes 9,000-km of steel pipe that is monitored and continually evaluated for replacement based on the
performance history. Natural gas distribution has replaced 327-km of steel pipe since the approval of this program.

37 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

37 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

International Natural Gas Transmission - Mexico Tula Pipeline

In 2014, 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. Canadian Utilities is involved in a number of disputes arising from landowner and communal
landholder claims against the project. We continue to work with the Government of Mexico and other parties to
achieve a timely resolution of these disputes.

Hydrocarbon Storage

In the fourth quarter of 2019, storage & industrial water secured long-term contracts for a fifth salt cavern storage
facility at the ATCO Heartland Energy Centre. As well, we secured long-term contracts for the construction and
operation of a pipeline connecting the new salt cavern facility to existing pipelines in the area for receipt and
delivery of hydrocarbon products. Construction began in the fourth quarter of 2019, with full operation targeted for
late 2021.

Industrial Water

In the fourth quarter of 2017, Canadian Utilities entered into a long-term commercial agreement with Inter Pipeline
Ltd. to provide water services to Inter Pipeline's integrated propane dehydrogenation and polypropylene plant to be
known as the Heartland Petrochemical Complex. Construction activities began in 2019 and are expected to be
complete in the second quarter of 2020.

Pembina-Keephills Transmission Pipeline

In August 2018, natural gas transmission filed a facilities application requesting approval for the installation of the
Pembina-Keephills transmission pipeline. The 59-km high-pressure natural gas pipeline 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. A decision was received on August 6, 2019 approving the project as filed. Construction has
commenced and the pipeline is expected to be in service by mid-2020. The estimated cost to construct this project
is approximately $230 million and is included in natural gas transmission's three year capital investment plan.

Pembina-Keephills transmission pipeline construction, near Wabamun Lake, Alberta

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 38

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 38

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. In addition, Canadian Utilities Corporate & Other includes CU Inc. and Canadian
Utilities preferred share dividend and debt expenses.

ADJUSTED EARNINGS

($ millions)

2019

2018

Change

2019

2018

Change

Canadian Utilities Corporate & Other

(8)

(10)

(39)

—

Three Months Ended
December 31

Year Ended
December 31

Including intersegment eliminations, Canadian Utilities Corporate & Other adjusted earnings in the fourth quarter of
2019 were $2 million higher compared to the same period in 2018 mainly due to timing of certain other expenses.

Canadian Utilities Corporate and Other adjusted earnings for 2019 were comparable to 2018.

39 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

39 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

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 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 changes in 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 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 a five-year period to recover a return on forecasted rate base, including income taxes, depreciation on the
forecasted rate base, and forecasted operating costs based on forecasted throughput. For this reason, growth in mid-year
rate base can be a leading indicator of the business' earnings trend, depending on the ability of the business to maintain
costs within approved forecasts.

Regulated Utilities Mid-Year Rate Base

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 40

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 40

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.

The following table contains the ROE and deemed common equity ratios resulting from the most recent GCOC decisions
and also contains the mid-year rate base for each of Canadian Utilities' Alberta-based utilities.

Electricity Distribution

Electricity Transmission

Natural Gas Distribution

Natural Gas Transmission

Year

2019

2018

2017

2019

2018

2017

2019

2018

2017

2019

2018

2017

AUC Decision
2018 GCOC (4)

2018 GCOC (4)

2016 GCOC (3)

2018 GCOC (4)

2016 GCOC (3)

2018 GCOC (4)

2016 GCOC (3)

2018 GCOC (4)

2016 GCOC (3)

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

Common
Equity
Ratio (%) (2)

8.50

37.0

Mid-Year Rate
Base
($ millions)
2,669 (5)

2,498 (6)

2,471 (7)

5,262 (8)

5,280 (6)

5,287 (7)

2,847 (5)

2,715 (6)

2,549 (7)

1,971 (9)

1,791 (6)

1,614 (7)

(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 2016 GCOC decision for the periods 2016 to 2017 on October 7, 2016.
The AUC released its 2018 GCOC decision for the periods 2018 to 2020 on August 2, 2018.
The mid-year rate base for 2019 is equal to the year over year growth in rate base reflected in the 2020 PBR Annual Rate Filings applied to the 2018 actual mid-
year rate base and includes mid-year work in progress.
The mid-year rate base for 2018 is based on the Rule 005 Actuals Package and includes mid-year work in progress.
The mid-year rate base for 2017 is based on the Rule 005 Actuals Package and includes mid-year work in progress.
The mid-year rate base for 2019 is based on the electricity transmission 2018-2019 General Tariff Application Compliance Filing and includes estimated mid-year
work in progress.
The mid-year rate base for 2019 is based on the natural gas transmission 2019-2020 General Rate Application Compliance Filing and includes estimated mid-
year work in progress.

GCOC (POST-2020)

In December 2018, the AUC initiated the 2021 GCOC proceeding. The main focus of the proceeding will be to determine
the rate of return for the years 2021 and 2022, as well as consideration of returning to a formula-based approach. Initial
evidence was filed in January 2020 focusing on comparability to other investments, capital attractiveness and financial
integrity. The AUC expects to issue a decision in 2020.

PERFORMANCE BASED REGULATION

In December 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.

In February 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. On January 30,
2020, the AUC issued a decision, which provided updated clarification on what would qualify for anomaly adjustments.
Parties can now re-apply for applicable anomalies, which if approved, would re-establish 2018 going in rates. Applications
are to be submitted in early 2020 with a decision from the AUC expected before the end of the year.

41 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

41 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

Timeframe

2018 to 2022

PBR Second Generation

Inflation Adjuster (I Factor)

Inflation indices (AWE and CPI) adjusted annually

Productivity Adjuster (X Factor) 0.30%

O&M

Treatment of Capital Costs

ROE Used for Going-in Rates

Efficiency Carry-over
Mechanism (ECM)

Reopener

ROE Used for Reopener
Calculation

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
• Recovered through going-in rates inflated 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

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

• 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

ACCESS ARRANGEMENT - INTERNATIONAL NATURAL GAS DISTRIBUTION

International natural gas distribution's Access Arrangement period (AA4) was 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

2019

2018

2017

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

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

Common Equity
Ratio (%) (2)

7.21

40.0

Mid-Year Rate
Base
($ millions)
1,178 (4)
1,211 (5)
1,179 (6)

(1)
(2)
(3)

(4)

(5)

(6)

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.
2019 mid- year rate base was impacted by a strengthening Canadian dollar in 2019. The 2019 mid-year rate base was calculated using a foreign exchange rate
of Australian $1 to Canadian $0.91 compared to Canadian $0.96 in 2018. The mid-year rate base in Australian dollars was $1,293 in 2019 and $1,260 in 2018,
which is a $33 million increase from 2018 to 2019.
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.
2017 mid-year rate base was impacted by a strengthening Australian dollar in 2017. The 2017 mid-year rate base was calculated using a foreign exchange rate
of Australian $1 to Canadian $0.98 compared to Canadian $0.97 in 2016. The mid-year rate base in Australian dollars was $1,205 in 2017 and $1,145 in 2016,
which is a $60 million increase from 2016 to 2017.

ACCESS ARRANGEMENT 5

International natural gas distribution received the final decision related to the five-year Access Arrangement 5 (AA5)
application from the Economic Regulation Authority (ERA) on November 15, 2019. The ERA also published its final rate of
return guidelines which outline the parameters for the weighted average cost of capital (WACC) applicable to AA5. The AA5
WACC calculation was completed using a 20-business day period of observation in September 2019 to determine the risk
free rate portion of the WACC calculation prior to the final decision. The WACC also determines the regulated return on
equity (ROE) for international natural gas distribution. The AA5 ROE is 5.02 per cent compared to 7.21 per cent in the
previous Access Arrangement. The final decision also includes rebasing of revenues for the recovery of operating costs,

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 42

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 42

the approved capital expenditure program, and the forecast of demand and throughput. The common equity ratio for AA5
will be 45 per cent compared to 40 per cent in the previous Access Arrangement.

The tariffs included in the AA5 final decision are applicable for the period January 1, 2020 to December 31, 2024.

ALBERTA REGULATORY UPDATES

ELECTRICITY TRANSMISSION AND DISTRIBUTION REGULATORY UPDATES

ELECTRICITY DISTRIBUTION DEPRECIATION PROCEEDING

In the third quarter of 2019, the AUC issued a decision on depreciation parameters that extends the overall depreciable
life of the electricity distribution assets and incorporates historical retirements related to severe weather events. The AUC
determined the depreciation parameters as filed are reasonable, resulting in an electricity distribution depreciation rate
change and lowered depreciation expense in the third and fourth quarters of 2019.

ELECTRICITY TRANSMISSION AND ELECTRICITY DISTRIBUTION RECOVERY OF 2016 REGIONAL MUNICIPALITY OF WOOD
BUFFALO WILDFIRE COSTS

In October 2019, the AUC issued its decisions associated with electricity transmission and electricity distribution's
application for the recovery of costs related to the 2016 Regional Municipality of Wood Buffalo wildfire.

Electricity transmission's applied-for cost recoveries were all substantially approved as part of the electricity transmission
2018-2019 GTA.

Approximately 90 per cent of the applied-for cost recoveries were approved in electricity distribution’s application. The
capital cost to replace the destroyed assets was approved as filed as were the majority of the operating and maintenance
costs and recovery for lost revenues. However, the value of electricity distribution’s destroyed assets was deemed to be an
extraordinary retirement and was not approved for recovery in customer rates, resulting in a reduction to 2019 adjusted
earnings of $1 million.

ELECTRICITY TRANSMISSION 2020-2022 GENERAL TARIFF APPLICATION (GTA)

In October 2019, electricity transmission filed a GTA for its operations for 2020, 2021, and 2022. The application requests,
among other things, additional revenues to recover higher depreciation costs. The application also requests, at electricity
transmission’s discretion, the ability to advance an application to establish 2023 and 2024 revenue requirements by
escalating the 2022 approved revenue requirement. A decision from the AUC is expected by the fourth quarter of 2020.

ELECTRICITY TRANSMISSION HANNA REGION TRANSMISSION DEVELOPMENT DEFERRAL APPLICATION

In February 2017, electricity transmission filed an application seeking approval of approximately $688 million of capital
additions related to the Hanna Regional Transmission Development program incurred between 2012 and 2015. A decision
from the AUC was received in June 2019 approving the vast majority of capital additions into rate base as prudently
incurred.

ELECTRICITY TRANSMISSION 2018-2019 GTA

In June 2017, electricity transmission filed a GTA for its operations for 2018 and 2019. The decision was received in July
2019 approving the majority of requested capital expenditures and operating costs as filed. The impact of this decision
was an increase to second quarter 2019 adjusted earnings of $9 million.

ELECTRICITY TRANSMISSION 2015-2017 DIRECT ASSIGNED PROJECTS DEFERRAL APPLICATION

In March 2019, electricity transmission filed an application seeking the approval of approximately $2.2 billion of capital
additions from transmission projects with in-service dates between 2015-2017. The application includes $1.8 billion in
capital additions from the Eastern Alberta Transmission Line.

43 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

43 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

NATURAL GAS TRANSMISSION REGULATORY UPDATES

NATURAL GAS TRANSMISSION 2019-2020 GENERAL RATE APPLICATION (GRA)

In July 2018, natural gas transmission filed a GRA for 2019 and 2020. The decision was received in June 2019 approving the
majority of requested capital expenditures and operating costs requested as filed. The adjustments directed by the AUC in
the decision had a $2 million positive impact in the second quarter 2019 adjusted earnings.

PBR REGULATORY UPDATES

1ST GENERATION PERFORMANCE BASED REGULATION (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 1st 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.

In February 2019, the AUC issued its decision that the re-opening of the plan was not warranted, agreeing with Canadian
Utilities' submission that the achievements of the utilities were not due to a flaw in the PBR plan, but rather were the
result of management decisions responding to the incentives the plan created. This process is closed.

COMMON MATTERS REGULATORY UPDATES

INFORMATION TECHNOLOGY (IT) COMMON MATTERS

In August 2014, ATCO subsidiary, Canadian Utilities sold its IT services business to Wipro Ltd. (Wipro) and signed a ten-year
IT Master Services Agreement (MSA) effective January 1, 2015. Proceeds of the sale were $204 million, resulting in a one-
time after-tax gain of $74 million which was recorded in earnings attributable to Class I and Class II shares. In 2014, the
Company did not include this gain on sale in adjusted earnings because it was a significant one-time event.

In 2015, the AUC commenced an Information Technology Common Matters (IT Common Matters) proceeding to review the
recovery of information technology costs by the Alberta Utilities from January 1, 2015 going forward. In June 2019, the AUC
issued its decision regarding the IT Common Matters proceeding and directed the Alberta Utilities to reduce the first-year
of the Wipro MSA by 13 per cent and to apply a glide path that reduces pricing by 4.61 per cent in each of years 2 through
10. For natural gas distribution and electricity distribution, the AUC’s direction impacts the PBR 2018 going-in rates and
treatment of capital costs. For the natural gas transmission and electricity transmission utilities, the AUC's direction
impacts the revenue requirement dating back to 2015. The Alberta Utilities presented a considerable amount of evidence,
including independent expert benchmarking and price review studies, to show that the Wipro MSA rates were at fair
market value (FMV). As such, there was no cross subsidization between the sale price of Canadian Utilities' IT services
business to Wipro in the 2014 transaction and the establishment of IT rates under the MSA. Despite these efforts, the AUC
determined that the Alberta Utilities failed to demonstrate that the IT pricing in the MSA would result in just and
reasonable rates.

As a result of the AUC’s IT Common Matters decision, a $12 million reduction to the previously recorded 2014 after-tax
gain on sale of $74 million was recorded in 2019. Going forward, the IT Common Matters decision is expected to further
reduce the previously recorded gain. Consistent with the treatment in 2014, the $12 million reduction recognized in
2019, along with ongoing impacts associated with this decision, are not included in adjusted earnings.

In July 2019, the Alberta Utilities filed a leave to appeal application with the Alberta Court of Appeal in relation to the AUC
Decision on the IT Common Matters proceeding. In October 2019, the Alberta Court of Appeal denied the Alberta Utilities
leave to appeal application.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 44

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 44

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 2019 Sustainability Report, which will be published in June 2020, will focus on the material topics listed below.

• 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 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, Sustainability Framework Reference Document, and other disclosures are 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.

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.

Carbon Pricing / Output-Based Pricing Systems

The Government of Canada imposed a carbon levy of $20 per tonne as of January 1, 2019, increasing to $30 per tonne in
April 2020. By 2022, it is expected to reach $50 per tonne.

In addition, the Government of Canada released the Output-Based Pricing System Regulations in June 2019. In Alberta,
the Technology Innovation and Emissions Reduction (TIER) regulations meet the federal government's stringency
requirements for carbon emitting pricing systems for Large Industrial Emitters and came into force on January 1, 2020.

In the third quarter of 2019, Canadian Utilities announced the sale of its 2,276-MW Canadian fossil fuel-based electricity
generation business in a series of transactions. These sale transactions remove coal-fired electricity generation assets
from Canadian Utilities' asset portfolio and significantly reduce overall greenhouse gas emissions as of October 1, 2019.

Under the National Greenhouse and Energy Reporting scheme in Australia, the safeguard mechanism applies to

facilities with direct covered emissions of more than 100,000 tonnes of carbon dioxide equivalent per year. These

facilities are required to keep their net emissions at or below emissions baselines set by the Clean Energy Regulator or

surrender Australia Carbon Credit Units to offset their emissions and stay below their baseline.

Fuel Switching / Clean Fuel Standards

In June 2019, the Government of Canada released a paper on the Clean Fuel Standards Proposed Regulatory Approach.
A key design element being proposed 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. The regulations will come into
force for the liquid class in 2022 and the gaseous and solid classes in 2023.

45 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

45 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

In 2018, Canadian Utilities installed three electric
vehicle (EV) charging stations between Calgary and
Edmonton, Alberta providing end-users an opportunity
to replace liquid fuel with a low-carbon emitting energy.
In 2019, Canadian Utilities continued to expand its
number of EV direct current, fast charging stations with
15 stations installed and 5 additional stations planned
to be in service by the end of the first quarter of 2020.

In Australia, with support from the Australian
Renewable Energy Agency (ARENA) we are investing
$3.7 million in a leading research and development
facility at our Jandakot Operations Centre, called the
Clean Energy Innovation Hub. The Clean Energy
Innovation Hub is a test bed for hybrid energy solutions
integrating natural gas, solar PV, battery storage and
hydrogen production.

We also continue to explore and implement
opportunities for fuel switching to lower-emitting
options such as reducing or replacing diesel
consumption with more energy efficient solutions for
customers in remote communities.

EV charging station, Lethbridge, Alberta

Methane Reductions

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 per cent from 2012 levels by 2025.

The federal and provincial methane regulations affect a portion of the Company’s fugitive and venting emissions from
Canadian natural gas pipeline-related operations. The Company's exposure is limited 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. The Company has already implemented a number of programs to improve efficiency and reduce fugitive and
venting emissions in the natural gas distribution and transmission businesses, and will comply with both sets of rules
until equivalency is reached.

Climate Change Resiliency

We carefully manage climate-related 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. 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. We have also mapped and continue to regularly inspect pipeline water crossings.

In our 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 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.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 46

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 46

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 which enables us to continue to strengthen our emergency response capabilities.

Climate Change Challenges and Opportunities

While climate-related challenges and opportunities are integrated into our strategy and risk management processes,
ATCO understands that specifically disclosing climate-related information may be useful for the investment community.
In addition to the material risks described in the Business Risks and Risk Management section of this MD&A, the table
below provides further information on how we address specific climate-related challenges and opportunities. We plan to
continue to progress these disclosures in the future.

Challenges

Opportunities

Category/
Driver
Policy/
Regulatory

Market

Technology

Operations in several
jurisdictions subject to
emissions limiting regulations

Aggressive shifts in policy
which do not allow for
transition in an effective,
affordable manner

Changes in carbon policy, costs
of operations, and commodity
prices

Changing customer behaviour

Replacement of current
products/services with lower-
emitting options

Prosumer movement may
affect energy load profiles

Reputational Public perception of carbon

risk

Physical

Extreme weather events

Long-term changes in
temperature and weather
patterns

Continued fuel switching to
lower-emitting options

Coal-to-gas conversions present
opportunity for increased
demand for natural gas
transmission infrastructure
investment in the near to
medium term

Increase in demand for lower-
emitting technologies

A transition to lower-emitting
energy systems provides
opportunity to utilize expertise
in: generation, integration and
delivery of new energy sources
including hydrogen, renewable
natural gas, EV networks; and
transmission and distribution
infrastructure to ensure energy
network reliability and security

Increase in demand for trusted
long-term partners to deliver
lower-emitting solutions

Climate change mitigation and
adaptation
Rapidly deployable structures
and logistics services

Mitigation Options/Measures

Active participation in policy
development, industry groups,
regulatory discussions, etc.

Business diversification

Sale of 2,276-MW of Canadian fossil
fuel-based electricity generation
significantly reduces overall GHG
emissions of the Company

Participation in carbon markets

Business diversification

Internal innovation teams to
evaluate new technologies

Transparent reporting

Climate change resiliency efforts

Emergency Response and
Preparedness plans and training

47 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

47 ATCO LTD. 2019 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 2019
and 2018 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

Depreciation and amortization

Proceeds from termination of Power Purchase Arrangement

Gain on sale of Operations

Gain on sale of Barking Power assets

Earnings from investment in associate company

Earnings from investment in joint ventures

Net finance costs

Income taxes

OPERATING COSTS

Three Months Ended
December 31

Year Ended
December 31

2019

2018

Change

2019

2018

Change

663

172

—

115

623

158

—

(35)

—

125

(125)

130

(15)

2,598

2,378

127

637

—

174

—

484

664

682

—

125

478

231

220

(537)

(45)

(62)

174

(125)

(1)

(165)

Operating costs, which are total costs and expenses less service concession arrangement costs and depreciation
and amortization, increased by $40 million in the fourth quarter of 2019 when compared to the same period in
2018. Higher operating costs were mainly due to higher materials costs in ATCO Structures from increased activity
on the LNG Canada Cedar Valley Lodge contract, partially offset by lower operating expenses due to the sale of the
Canadian fossil-fuel based electricity generation business in the third quarter of 2019.

Operating costs increased by $220 million in 2019 when compared to 2018. Higher operating costs were mainly due
to higher materials costs in ATCO Structures from increased activity on the LNG Cedar Valley Lodge contract, higher
losses on mark-to-market forward and swap commodity contracts, and higher flow-through power costs in
ATCOenergy. Higher expenses were partially offset by lower operating costs due to the sale of the Canadian fossil-
fuel based electricity generation business in the third quarter of 2019.

SERVICE CONCESSION ARRANGEMENT COSTS

Service concession arrangement costs were recorded for third party construction and operation activities for APL's
Fort McMurray West-500kV Project. Service concession arrangement costs in the fourth quarter and full year 2019
were $35 million and $537 million lower compared to the same periods in 2018, mainly due to the completion of
construction activities in March 2019. The project was energized on March 28, 2019 and costs incurred subsequent
to this date relate to operating and maintenance activities.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization increased by $14 million in the fourth quarter of 2019 mainly due to higher
depreciation costs in electricity transmission.

Depreciation and amortization decreased by $45 million in 2019. Lower depreciation is mainly due to a depreciation
rate change in the third quarter of 2019 extending the overall depreciable life of the electricity distribution assets,
and the ceasing of depreciation of the Canadian fossil fuel-based electricity generation assets that were classified as
held for sale in the second quarter of 2019 and subsequently sold in the third quarter of 2019. Lower depreciation
expense was partially offset by higher depreciation costs in electricity transmission, ongoing capital investment, and
the implementation of IFRS 16 in 2019.

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 48

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 48

PROCEEDS FROM TERMINATION OF POWER PURCHASE ARRANGEMENT

On September 30, 2018, the Battle River unit 5 PPA was terminated by the Balancing Pool and dispatch control was
returned to Canadian Utilities. Canadian Utilities received a $62 million payment from the Balancing Pool in the third
quarter of 2018.

GAIN ON SALE OF OPERATIONS

In the fourth quarter of 2019, Canadian Utilities completed a series of transactions on the sale of our Canadian
fossil fuel-based electricity generation portfolio and ownership interest in Alberta PowerLine. These sales resulted in
a gain on sale of operations of $174 million (before income tax). This gain on sale includes $10 million of transaction
costs recognized in previous quarters.

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 income tax).

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. Earnings from investment in
associate company were $4 million in the fourth quarter and $15 million in the full year of 2019. Higher earnings in
2019 were mainly due to a full year of ownership following the acquisition of our 40 per cent interest of Neltume
Ports in September, 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 at the
ATCO Heartland Energy Centre near Fort Saskatchewan, Alberta, and ATCO-Sabinco S.A which operates a Structures
& Logistics business in Chile, and certain ATCO Frontec facility operations and maintenance contracts.

Earnings from investment in joint ventures increased by $1 million in the fourth quarter of 2019 compared to the
same period in 2018 mainly due to higher earnings from the Strathcona Storage Limited Partnership due to two
additional hydrocarbon storage caverns that became operational in the second quarter of 2018.

Earnings from investment in joint ventures decreased by $1 million in the full year of 2019 compared to the same
period in 2018 mainly due to the impact of the new PPA at the Osborne generation plant in Australia, and lower
earnings in electricity generation due to the sale of Brighton Beach in the third quarter of 2019, partially offset by
higher earnings from the Strathcona Storage Limited Partnership due to two additional hydrocarbon storage
caverns that became operational in the second quarter of 2018.

NET FINANCE COSTS

Net finance costs decreased by $15 million in the fourth quarter of 2019 when compared to the same period in
2018, mainly due to lower interest expense under service concession arrangement accounting as a result of the
completion of construction of APL in the first quarter of 2019. Decreased net finance costs were also due to lower
interest expenses on non-recourse long-term debt from the sale of the Canadian fossil-fuel based electricity
generation business in the third quarter of 2019, and lower interest expense on long-term CU Inc. debt refinanced
in the third quarter of 2019.

Net finance costs increased by $6 million in 2019 when compared to the same period in 2018, mainly due to interest
expense associated with the Neltume Ports investment, partially offset by lower interest expense under service
concession arrangement accounting as a result of the completion of construction of APL in the first quarter of 2019.
Decreased net finance costs were also due to lower interest expenses on non-recourse long-term debt from the sale
of the Canadian fossil-fuel based electricity generation business in the third quarter of 2019, and lower interest
expense on long-term CU Inc. debt refinanced in the third quarter of 2019.

49 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

49 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

INCOME TAXES

Income taxes increased by $5 million in the fourth quarter of 2019 compared to the same period in 2018, mainly
due to the sale of APL, partially offset by a decrease in earnings.

Income taxes decreased by $165 million in 2019 compared to 2018 mainly due to lower corporate income tax rates
enacted by the Government of Alberta in June 2019, partially offset by higher earnings before income taxes in 2019.
The Government of Alberta enacted a phased decrease in the provincial corporate income tax rate from 12 per cent
to 8 per cent over four years, commencing with a one per cent decrease on July 1, 2019 followed by a one per cent
reduction on January 1st of each of the next three years.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 50

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 50

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 17, 2019, DBRS Limited (DBRS) affirmed its 'A (high)' long-term corporate credit rating and stable outlook on
ATCO subsidiary CU Inc. On August 9, 2019, DBRS affirmed its 'A' long-term corporate credit rating and stable
outlook on ATCO subsidiary Canadian Utilities. On August 30, 2019, DBRS affirmed its 'A (low)' long-term corporate
credit rating and stable outlook on ATCO.

On October 3, 2019, S&P Global Ratings (S&P) affirmed its 'A-' long-term issuer credit rating and stable outlook on
ATCO Ltd. and its subsidiaries Canadian Utilities and CU Inc.

On November 11, 2019, S&P affirmed its 'BBB+' long-term issuer credit rating and stable outlook on ATCO subsidiary
ATCO Gas Australia Pty Ltd.

51 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

51 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

LINES OF CREDIT

At December 31, 2019, ATCO and its subsidiaries had the following lines of credit.

Total

2,985
18
571

3,574

Used

839
13
174

1,026

Available

2,146
5
397

2,548

($ millions)

Long-term committed
Short-term committed
Uncommitted

Total

Of the $3,574 million in total credit lines, $571 million
was in the form of uncommitted credit facilities with
no set maturity date. The other $3,003 million in
credit lines was committed, with maturities between
2021 and 2023, and may be extended at the option of
the lenders.

Of the $1,026 million credit line usage, $620 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.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 52

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 52

CONSOLIDATED CASH FLOW

At December 31, 2019, the Company's cash position was $1,140 million, an increase of $449 million compared to
December 31, 2018. Major movements are outlined in the following table:

($ millions)

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

Proceeds on sales of assets and operations

Net Issue of long-term debt

Net 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

Other

Increase in cash position

Year Ended
December 31

2019

2018

Change

1,927

1,897

329

903

(175)

726

219

814

165

(397)

684

(736)

(340)

(1,324)

(2,518)

1,194

(186)

(294)

(498)

(311)

449

(173)

(214)

(485)

(234)

197

(13)

(80)

(13)

(77)

252

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

53 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

53 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

CONSOLIDATED CASH FLOW

Funds Generated by Operations

Funds generated by operations were $1,927 million in 2019, $30 million higher compared to 2018. The increase was
mainly due to higher earnings in Structures & Logistics and the Alberta Utilities, partially offset by lower funds
generated as a result of the sale of the Canadian fossil-fuel based electricity business in the third quarter of 2019.

Cash Used for Capital Investment

Cash used for capital investment was $382 million in the fourth quarter of 2019, $38 million lower than the same
period in 2018. Lower capital spending was mainly due to lower capital spending in electricity transmission, the
completion of construction activities in Alberta PowerLine in the first quarter of 2019, and lower capital investment
in ATCO Structures' rental fleet. This lower capital spending was partially offset by higher capital spending in natural
gas transmission with the commencement of construction in late 2019 on the Pembina-Keephills Transmission
Pipeline.

Cash used for capital investment was $1,324 million in 2019, $1,194 million lower than the same period in 2018.
Lower capital spending was mainly due to the completion of construction activities in Alberta PowerLine in the first
quarter of 2019, the 2018 investment in a 40 per cent ownership interest in Neltume Ports in the third quarter of
2018, the acquisition of Electricidad del Golfo in the first quarter of 2018 and lower capital spending in electricity
transmission in 2019. Lower capital spending was partially offset by higher capital investment in natural gas
transmission due to the commencement of construction on the Pembina-Keephills Transmission Pipeline in late
2019.

Capital investment in the fourth quarter and full year of 2019 and 2018 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

Intersegment Eliminations

ATCO Total (1) (2)

Three Months Ended
December 31

Year Ended
December 31

2019

2018

Change

2019

2018

Change

73
26
12

—

111

92
130
19

260

374

—

(20)

63
81
15
44
203

80
65
24

174

380

—

10
(55)
(3)
(44)
(92)

12
65
(5)

—

(6)

224
165
59
95
543

284
293
69

677

227
240
156
664
1,287

290
239
93

648

1,226

1,951

(10)

105

—

(2)

(20)

113

444

—

(3)
(75)
(97)
(569)
(744)

(6)
54
(24)

(10)

(725)

(8)

(435)

(6)

(20)

382

420

(38)

1,324

2,518

(1,194)

(1)

Includes capital expenditures in joint ventures of nil and $2 million (2018 - $5 million and $20 million) for the fourth quarter and full year of 2019.

(2)

Includes additions to property, plant and equipment, intangibles and $2 million and $16 million (2018 - $4 million and $20 million) of interest capitalized
during construction for the fourth quarter and full year of 2019.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 54

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 54

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 26, 2020, aggregate issuances of debentures
were $965 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.

Dividends and Common Shares

We have increased our common share dividend each
year since 1993, a 27-year track record. Dividends paid
to Class I and Class II Share owners totaled $47 million
in the fourth quarter and $186 million in the full year of
2019.

On January 9, 2020, the Board of Directors declared a
first quarter dividend of 43.52 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

27 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, 2019, we commenced a normal course issuer bid to purchase up to 1,014,294 outstanding Class I
Shares. This bid will expire on March 7, 2020. From March 8, 2019 to December 31, 2019, 101,350 shares were
purchased for $5 million.

55 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

55 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

SHARE CAPITAL

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

At February 25, 2020, we had outstanding 101,468,481 Class I Shares, 13,199,647 Class II Shares, and options to
purchase 691,600 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, 2,444,450 Class I
Shares were available for issuance at December 31, 2019. Options may be granted to our officers and key
employees at an exercise price equal to the weighted average of the trading price of the shares on the Toronto Stock
Exchange for the five trading days immediately preceding the grant date. The vesting provisions and exercise period
(which cannot exceed 10 years) are determined at the time of grant.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 56

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 56

QUARTERLY INFORMATION

The following table shows financial information for the eight quarters ended March 31, 2018 through
December 31, 2019.

($ millions, except for per share data)

Q1 2019

Q2 2019

Q3 2019

Q4 2019

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 Class I and Class II Share ($)
Adjusted earnings

Structures & Logistics
Neltume Ports
ATCO Corporate & Other
Canadian Utilities
Electricity
Pipelines & Liquids
Canadian Utilities Corporate & Other

Total adjusted earnings

($ millions, except for per share data)

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 Class I and Class II Share ($)
Adjusted earnings

Structures & Logistics
Neltume Ports
ATCO Corporate & Other
Canadian Utilities
Electricity
Pipelines & Liquids
Canadian Utilities Corporate & Other

Total adjusted earnings

ADJUSTED EARNINGS

1,324
112
0.98
0.98
0.98

3
4

—

61
51
(7)
112

1,103
158
1.38
1.37
0.68

1,097
160
1.40
1.40
0.65

1,182
83
0.73
0.72
0.88

7
4

—

55
23
(11)
78

13
3
3

59
9
(13)
74

14
4
(9)

46
54
(8)
101

Q1 2018

Q2 2018

Q3 2018

Q4 2018

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

—

51
53
(8)
99

—

(2)

53
14
(10)
61

3
1
15

70
9
(11)
87

1,174
135
1.18
1.18
0.94

5
3
2

54
54
(10)
108

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.

57 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

57 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

STRUCTURES & LOGISTICS

In the second quarter of 2018, earnings increased compared to the prior quarters mainly due to higher used fleet
sales and space rental activity in ATCO 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 ATCO 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.

In the first quarter of 2019, earnings increased compared to the first quarter of 2018 mainly due to higher space
rental earnings, commencement of work on the LNG Canada Cedar Valley Lodge contract, and higher lodging
occupancy at the BC Hydro Site C workforce housing camp.

In the second, third and fourth quarters of 2019, earnings increased compared to the same periods in 2018, mainly
due to incremental earnings from ATCO Structures' LNG Canada Cedar Valley Lodge contract and incremental ATCO
Frontec earnings from North American camp services and maintenance contracts.

NELTUME PORTS

On September 12, 2018, ATCO invested in a 40 per cent interest in Neltume Ports. In the third quarter and fourth
quarter of 2018, Neltume Ports earned $1 million and $3 million.

In the first, second and third quarters of 2019, Neltume Ports earned $4 million, $4 million and $3 million.

Neltume Ports recorded adjusted earnings of $4 million in the fourth quarter of 2019. Earnings were $1 million
higher compared to the same period of 2018 mainly due to higher container volume at the TPS port.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 58

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 58

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 2018, earnings were adversely impacted by performance base regulation rate rebasing under Alberta's regulated
model in electricity distribution and lower electricity transmission interim rates approved by the AUC.

In the first quarter of 2018, Electricity earnings were adversely impacted by realized forward sales and minor plant
outage costs in the Independent Power Plants, partially offset by earnings from Alberta PowerLine due to
construction activity and earnings in Thermal PPAs due to the recognition of availability incentives.

In the second quarter of 2018, earnings increased compared to the second quarter of 2017 mainly due to improved
market conditions for Independent Power Plants and higher recognition of availability incentives in the Thermal PPA
Plants.

In the third quarter of 2018, earnings increased compared to the third quarter of 2017 mainly 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 due to lower scheduled construction activity at Alberta PowerLine.

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.

In the first quarter of 2019, higher earnings were mainly due to increased Alberta power market prices, ongoing
growth in the regulated rate base and cost efficiencies in electricity distribution.

In the second quarter of 2019, higher earnings compared to the second quarter of 2018 were mainly due to the
impact of the electricity transmission 2018-2019 GTA decision, continued growth in the regulated rate base, cost
efficiencies, and lower income taxes.

Electricity earnings in the third and fourth quarters of 2019 were lower compared to the third and fourth quarters of
2018, mainly due to the forgone earnings from the sale of the Canadian fossil fuel-based electricity generation
business in the third quarter of 2019 and lower earnings contributions from Alberta PowerLine as a result of the
completion of construction activities in the first quarter of 2019. Lower earnings were partially offset by the positive
impact of the electricity transmission 2018-2019 general tariff application decision which was received in the second
quarter of 2019, overall cost efficiencies and lower income taxes.

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 2018, earnings were adversely impacted by performance base regulation rate rebasing under Alberta's regulated
model in natural gas distribution.

In the first quarter of 2018, earnings were positively impacted by higher seasonal demand and growth in rate base
across the pipelines & liquids' regulated businesses.

59 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

59 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

In the second and third quarters of 2018, lower earnings compared to the same periods in 2017 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 compared to the fourth quarter of 2017 were mainly due to growth in
rate base, the timing of regulatory decisions and higher seasonal demand.

In the first quarter of 2019, lower earnings compared to the first quarter of 2018 were mainly due to inflation rate
adjustments applied to the rate of return calculations in international natural gas distribution, partially offset by
ongoing growth in the regulated rate base and cost efficiencies in natural gas distribution.

In the second quarter of 2019, higher earnings compared to the second quarter of 2018 were mainly due to ongoing
growth in the regulated rate base and the impact of the natural gas transmission 2019-2020 general rate application
GRA decision, earnings growth in the hydrocarbon storage business, cost efficiencies, and lower income taxes.

In the third and fourth quarters of 2019, adjusted earnings were comparable to the same periods in 2018.

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 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 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.

In the fourth quarter of 2018, Canadian Utilities sold its 100 per cent ownership interest in Barking Power
assets. A gain in the amount of $46 million was excluded from adjusted earnings.

In the second, third and fourth quarters of 2019, Canadian Utilities closed a series of transactions related
to the sale of its Canadian fossil fuel-based electricity generation portfolio and Alberta PowerLine
resulting in a gain on sale of operations of $65 million. As these transactions are one-time in nature, they
are excluded from adjusted earnings.

•

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 60

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 60

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

Risk Management Approach

• Financial Strength

The Company is subject to the normal risks

The Company attempts to reduce the risks of project delays and cost

associated with major capital projects,

increases by careful planning, diligent procurement practices and entering

including cancellations, delays and cost

into fixed price contracts when possible.

increases.

International natural gas distribution's planned capital investment is

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.

61 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

61 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

Business Risk: Climate Change

Businesses Impacted:

• All businesses

Description and Context

Policy risks

Associated Strategies:

• Operational Excellence

• Innovation

Risk Management Approach

Policy risks

ATCO has operations in several jurisdictions

The sale of the Canadian fossil fuel-based electricity generation portfolio

subject to emission regulations, including

significantly reduced overall GHG emissions and removed coal-fired

carbon pricing, output-based performance

electricity generation assets from our asset portfolio as of October 1, 2019.

The Company’s exposure is limited for the Regulated Utilities because

GHG emission charges are generally recovered in rates. In addition, future

requirements, such as upgrading equipment to further reduce methane

emissions, are expected to be included in rate base on a go-forward basis.

ATCO Structures is further mitigating risk through the diversification of

customers, geography, and end use of products, including the pursuit of

three main business lines: space rentals, workforce housing, and

permanent modular construction.

standards, and other emission management

policies. For example, in Alberta the output-

base Technology Innovation and Emissions

Reduction (TIER) Regulations replaced the

federal output-based pricing system as of

January 1, 2020.

ATCO Structures' rental fleet has historically

played an important role in servicing large

industry such as the oil and gas industry.
Provincial and federal climate policies that

adversely impact the economic viability of

these operations present an under-utilized

asset risk to rental fleet assets in the short to

medium term.

Physical Risks

Physical risks associated with climate change

may include an increase in extreme weather

events such as heavy rainfall, floods, wildfires,

extreme winds and ice storms, or changing

weather patterns that cause ongoing impacts

to seasonal temperatures. Electricity

transmission, distribution and pipeline assets

above ground or on water crossings are

Physical Risks
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.

exposed to extreme weather events.

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.

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.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 62

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 62

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 investing in

receivable and contract assets, credit risk

instruments issued by credit-worthy financial institutions and in federal

represents the carrying amount on the

government issued short-term instruments.

consolidated balance sheet. Derivative,

finance 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.

Geographically, a significant portion of loans and receivables are from the

Company’s operations in Alberta, followed by operations in Australia and

Mexico. The largest credit risk concentration is from the Alberta Utilities,

which 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 the retailers beyond the retailer security

mandated by provincial regulations. The second largest concentration of
credit risk is within the Structures & Logistics business. The counterparties'

financial quality is monitored regularly to ensure appropriate mitigation of

credit risk.

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 covering all

supports its information and industrial control

technology assets. The cybersecurity program includes employee

systems, is subject to potential cyber-attacks

awareness, layered access controls, continuous monitoring, network threat

including unauthorized access of confidential

detection, and coordinated incident response through a centralized

information and outage of critical

Security Operations Centre. The Company’s cybersecurity management is

infrastructure.

consolidated under a common, centralized organization structure to

increase effectiveness and compliance across the entire enterprise.

63 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

63 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

Business Risk: Energy Commodity Price

Businesses Impacted:

Associated Strategies:

• Retail Energy

• Non-regulated

• Financial Strength

Pipelines & Liquids

Description and Context

Risk Management Approach

Retail Energy's earnings are affected by short-

In conducting its business, the Company may use various instruments,

term price volatility.

including forward contracts, swaps, and options to manage the risks arising

Storage & industrial water's natural gas

storage facility in Carbon, Alberta, is also

exposed to storage price differentials.

from fluctuations in commodity prices. 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. Under IFRS accounting, entering into hedging

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

unrealized gains or losses on the income statement. Realized gains or

losses are recognized in adjusted earnings and IFRS earnings when the

commodity contracts are settled.

In addition, Retail Energy monitors forward curves in order to ensure it is

not promoting product offerings that are unfavourable to the Company.

Effective September 30, 2019, the Company announced the sale of its

Canadian fossil fuel-based electricity generation portfolio. Following the

close of the transaction, Canadian Utilities owns 244-MW of electricity

generation assets in Canada, Mexico and Australia that are 90 per cent

contracted with a weighted average contract length of 8 years.

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 structure to maintain

price volatility and availability of external

strong credit ratings which allow continued ease of access to the capital

financing to fund the capital expenditure

markets. The Company also considers it prudent to maintain sufficient

program and refinance existing debt

liquidity to fund approximately one full year of cash requirements to

maturities. Financing risk is directly influenced

preserve strong financial flexibility. This liquidity is generated by cash flows

by market factors. As financial market

from operations and supported by appropriate levels of cash and available

conditions change, these risk factors can affect

committed credit facilities.

the availability of capital and also the relevant

financing costs.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 64

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 64

Business Risk: Foreign Currency Exchange

Businesses Impacted:

• All businesses

Associated Strategies:

• Financial Strength

Description and Context

Risk Management Approach

The Company’s earnings from, and carrying

In conducting its business, the Company may use various instruments,

values of, its foreign operations are exposed to

including forward contracts, swaps, and options, to manage the risks

fluctuations in exchange rates. The Company

arising from fluctuations in exchange rates. All such instruments are used

is also exposed to transactional foreign

only to manage risk and not for trading purposes. This foreign exchange

exchange risk through transactions

impact is partially offset by foreign denominated financing and by hedging

denominated in a foreign currency.

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: 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 instruments,

largely a result of its long-term debt at variable

including forward contracts, swaps, and options to manage the risks

rates as well as cash and cash equivalents. The

arising from fluctuations in interest rates. All such instruments are used

Company also has exposure to interest rate

only to manage risk and not for trading purposes. The Company has

movements that occur beyond the term of

converted certain variable rate long-term debt and to fixed rate debt

maturity of the fixed-rate investments.

through interest rate swap agreements. At December 31, 2019, the

Company had fixed interest rates, either directly or through interest rate

swap agreements, on 98 per cent (2018 - 98 per cent) of total 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.

65 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

65 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

Business Risk: Natural Gas Supply

Businesses Impacted:

Associated Strategies:

• Non-regulated Pipelines & Liquids

• Financial Strength

Description and Context

Risk Management Approach

An Alberta natural gas transportation

To reduce the impact to natural gas storage operations, Canadian Utilities

provider's curtailment protocol in

structures its natural gas storage portfolio around the natural gas

2017 contributed to ongoing low natural gas

transportation provider’s planned maintenance schedules to minimize the

prices in Alberta. While the protocol was

impact of natural gas supply curtailments.

changed in the later part of 2019, it still

presents operational risk for natural gas

storage facilities in the downstream market; all

storage in Alberta is under interruptible

transport. Further natural gas transportation

maintenance is scheduled for multiple years

into the future, which may result in

transportation constraints.

Business Risk: Natural Resource Sector Business Cycles

Businesses Impacted:

• Structures & Logistics
• Neltume Ports

Description and Context

Associated Strategies:

• Growth
• Financial Strength

Risk Management Approach

• Operational Excellence

Demand for Structures & Logistics’ products

ATCO Structures' cost structure is weighted to variable costs which

and services, and the services provided by

provides flexibility in moderating costs when project activity slows. The

Neltume Ports are directly related to capital

Structures & Logistics business is not a capital intensive business so

spending cycles and levels of development

market entry and exit costs are relatively low. A base of more stable

activity in various industries, primarily in the

earnings and cash flows exists within the space rentals business and the

natural resources sector. Several key factors

facility operations & maintenance service contracts that provide support

influence customers’ decision-making on

when ATCO Structures' natural resource sector customers are going

whether or not to purchase products and

through commodity cycle downturns. Neltume Ports has a diversified

services offered by the Company and/or to

operational portfolio linked to a mix of economic activity in Chile, Uruguay,

utilize the services provided by Neltume Ports.

Argentina, and Brazil.

These factors include expected commodity

prices, global economic and political

conditions, and access to debt financing and

equity capital. Any adverse impact on these

key decision factors for a prolonged period

could affect demand for the Company’s

products and services.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 66

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 66

Business Risk: Pipeline Integrity

Businesses Impacted:

• Pipelines & Liquids

Description and Context

Associated Strategies:

• Operational Excellence

• Community Involvement

Risk Management Approach

Pipelines & Liquids has significant pipeline

Programs are in place to monitor the integrity of the pipeline

infrastructure. Although the probability of a

infrastructure and replace pipelines as required to address safety,

pipeline rupture is very low, the consequences

reliability, and future growth. These programs include natural gas

of a failure can be severe.

distribution and natural gas transmission's Urban Pipeline Replacement

and Integrity programs, and natural gas distribution and international

natural gas distribution's Mains Replacement programs. The Company

also carries property and liability insurance.

Business Risk: Political

Businesses Impacted:

• All businesses

Associated Strategies:

• Growth

• Financial Strength

• Operational Excellence

Description and Context

Risk Management Approach

Operations are exposed to a risk of change in

Participation in policy consultations with governments and engagement of

the business environment due to political

stakeholder groups ensures ongoing communication and that the impacts

change. Legislative changes may impact the

and costs of proposed policy changes are identified and understood.

financial performance of operations. This

Where appropriate, the Company works with its peers and industry

could negatively impact earnings, return on

associations to develop common positions and strategies. Geographic

equity and assets, and credit metrics.

diversification of assets by region and by country reduces the impact of

political and legislative changes.

67 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

67 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

Business Risk: Regulated Operations

Businesses Impacted:

Associated Strategies:

• Regulated

• Regulated Electricity • Growth

• Operational Excellence

Pipelines & Liquids

• Financial Strength

Description and Context

Risk Management Approach

The Regulated Utilities are subject to the

The Regulated Utilities file forecasts in the rate-setting process to recover

normal risks faced by regulated companies.

the costs of providing services and earn a fair rate of return. The

These risks include the regulator's approval of

determination of a fair rate of return on the common equity component

customer rates that permit a reasonable

of rate base is determined in a generic cost of capital proceeding in

opportunity to recover service costs on a

Alberta and an Access Arrangement proceeding in Australia. The

timely basis, including a fair return on rate

Regulated Utilities continuously monitor various regulatory decisions and

base. These risks also include the regulator's

cases to assess how they might impact the Company's regulatory

potential disallowance of costs incurred.

applications for the recovery of prudent costs. The Regulated Utilities are

Electricity distribution and natural gas

proactive in demonstrating prudence and continuously look for ways to

distribution operate under performance

lower operating costs while maintaining service levels.

based regulation (PBR). Under PBR, utility

revenues are formula driven, which raises the

uncertainty of cost recovery. In Australia, the

ERA assesses appropriate returns, prudent

levels of operating costs, capital expenditure

and expected throughput on the network

through an Access Arrangement proceeding.

Business Risk: Technological Transformation and Disruption

Businesses Impacted:

• All businesses

Associated Strategies:

• Growth

• Operational Excellence

• Financial Strength

• Innovation

Description and Context

Risk Management Approach

The introduction and rapid, widespread

The strategic plans of each Business Unit incorporate and address the

adoption of transformative technology could

evolution of their business into areas of transformative technology.

lead to disruption of ATCO's existing business

Achievement of technological currency and implementation of innovative

models and new competitive market

initiatives have been adopted as key strategies for the Company and

dynamics. Failure to effectively identify and

annual key performance indicators in these areas are monitored to ensure

manage disruptive technology and / or
changing consumer attitudes and preferences

continuing evolution. The business constantly seeks opportunities to
minimize costs by monitoring trends occurring in other jurisdictions that

may result in disruptions to the business and

may be ahead of the technological curve.

an inability to achieve strategic and financial

objectives.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 68

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 68

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 flows from operations provides a substantial portion of the Company’s

not be able to meet its financial obligations.

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, 2019, the

Company’s cash position was $1,140 million and there were available

committed and uncommitted lines of credit of approximately $2.5 billion

which can be utilized for general corporate purposes.

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)

2020

2021

2022

2023

2024

2025 and
thereafter

Financial Liabilities
Accounts payable and accrued liabilities
Long-term debt:

Principal
Interest expense (1)

Derivatives (2)

Commitments
Purchase obligations:

Operating and maintenance agreements
Capital expenditures

Other

Total

675

200
412
11
1,298

343
128
12
483
1,781

—

557
394
8
959

327
370
1
698

511
352
1
864

322

327

325

—

322
1,281

—

327
1,025

—

325
1,189

123
337

—

460

287

—

287
747

7,767
6,687

—

14,454

—

24
14,478

(1)

Interest payments on floating rate debt have been estimated using rates in effect at December 31, 2019. 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, 2019.

69 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

69 ATCO LTD. 2019 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 and swap 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 2019 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. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 70

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 70

RECONCILIATION OF ADJUSTED EARNINGS
TO EARNINGS ATTRIBUTABLE TO CLASS I
AND CLASS II SHARES

Adjusted earnings are earnings attributable to Class I and Class II Shares after adjusting for the timing of revenues
and expenses associated with rate-regulated activities and unrealized gains or losses on mark-to-market forward
and swap 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)

2019

2018

Revenues

Adjusted earnings (loss)

Loss on sale of
operations

Sale of Barking Power

assets

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

Rate-regulated activities

IT Common Matters

decision

Other

Earnings (loss)

attributable to Class I
and Class II Shares

Structures
& Logistics

Neltume
Ports

ATCO
Corporate
& Other

Canadian Utilities Limited

Three Months Ended
December 31

ATCO
Consolidated

Electricity

Pipelines
& Liquids

CUL
Corporate
& Other

Consolidated

245

140

—

(1)

(9)

—

419

637

(7)

—

(3)

(1)

—

(6)

108

483

383

—

(2)

(28)

(2)

—

(6)

—

(8)

(10)

—

(1)

—

(1)

—

(1)

—

(11)

(9)

929

1,035

(7)

—

(6)

(20)

(3)

—

(7)

—

125

1,182

1,174

101

108

(7)

—

(4)

(20)

(3)

—

(6)

—

135

71 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

71 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

($ millions)

2019

2018

Revenues

Adjusted earnings (loss)

Gain on sale of
operations

Restructuring and
other costs

Proceeds from
termination of PPA

Sale of Barking Power
Assets

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

Rate-regulated activities

IT Common Matters

decision

Other

Structures
& Logistics

Neltume
Ports

ATCO
Corporate
& Other

Canadian Utilities Limited

Electricity

Pipelines
& Liquids

CUL
Corporate
& Other

Consolidated

Year Ended
December 31

ATCO
Consolidated

803

511

—

(9)

—

(2)

—

(6)

—

2,155

2,858

221

228

—

1,649

1,470

137

130

—

(19)

(11)

—

(7)

(28)

(6)

—

337

262

—

(43)

(6)

—

(6)

—

161

101

(39)

—

(3)

—

(1)

—

(1)

—

(34)

(40)

3,905

4,377

4,706

4,888

319

—

365

355

—

(33)

(39)

—

(69)

(12)

—

(7)

—

464

298

—

(69)

(12)

—

(6)

—

513

328

Earnings (loss)

attributable to Class I
and Class II Shares

(3)

GAIN ON SALE OF OPERATIONS

In 2019, Canadian Utilities closed a series of transactions related to the sale of its Canadian fossil fuel-based
electricity generation portfolio and ownership interest in Alberta PowerLine. These sales resulted in an aggregate
gain of $125 million (after-tax), ($65 million to ATCO after non-controlling interests). Transaction costs recorded in
previous quarters that relate to the sale of Alberta PowerLine have been consolidated into this gain. As this gain is
related to a series of one-time transactions, it is 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 related 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.

PROCEEDS FROM TERMINATION OF PPA

On September 30, 2018, the Battle River unit 5 PPA was terminated by the Balancing Pool and dispatch control was
returned to Canadian Utilities. ATCO subsidiary Canadian Utilities received a $62 million payment ($24 million to
ATCO after-tax and non-controlling interests) from the Balancing Pool. The payment has been recorded as proceeds
from termination of PPA in the statement of earnings in 2018. Additional Battle River generating facility coal-related

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 72

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 72

costs and Asset Retirement Obligations of $5 million (after-tax) were also recorded. These one-time receipts and
costs in the net amount of $19 million were excluded from adjusted earnings.

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.

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

Prior to the sale of the Canadian fossil fuel based electricity generation portfolio, the Company entered 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 were measured at fair value. Unrealized gains and losses due to changes in the fair value of the
forward contracts were recognized in the Electricity operating segment earnings where hedge accounting was not
applied.

In addition, the Company’s retail electricity and natural gas business in Alberta enters into fixed-price swap
commodity contracts to manage exposure to electricity and natural gas prices and volumes. Prior to the sale of
operations, these contracts were accounted for as normal purchase agreements as they were with an affiliate
company and the own use exemption was applied. Starting September 30, 2019, these contracts are measured at
fair value. Unrealized gains and losses due to changes in the fair value of the fixed-price swap commodity contracts
are recognized in the Corporate & Other segment earnings.

The CODM believes that removal of the unrealized gains or losses on mark-to-market forward and swap commodity
contracts provides a better representation of operating results for the Company's operations.

Realized gains or losses are recognized in adjusted earnings when the commodity contracts are settled.

RATE-REGULATED ACTIVITIES

ATCO Electric and its subsidiaries, ATCO Electric Yukon, Northland Utilities (NWT) and Northland Utilities
(Yellowknife), as well as natural gas distribution, natural gas transmission and international natural gas distribution
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 regulator's decisions on
revenues.

73 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

73 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

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.

Regulatory
decisions received

Regulatory decisions received
which relate to current and prior
periods.

Settlement of
regulatory
decisions and
other items

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

The Company defers the
recognition of cash
received in advance of
future expenditures.

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

The Company recognizes
revenues when amounts are
billed to customers and
costs when they are
incurred.

The Company recognizes
costs when they are
incurred, but does not
recognize their recovery until
customer rates are changed
and amounts are collected
through future billings.

The Company recognizes
the earnings from a
regulatory decision
pertaining to current and
prior periods when the
decision is received.

The Company does not
recognize earnings from a
regulatory decision when it
is received as regulatory
assets and liabilities are not
recorded under IFRS.

The Company recognizes
the amount receivable or
payable to customers as a
reduction in its regulatory
assets and liabilities when
collected or refunded
through future billings.

The Company recognizes
earnings when customer
rates are changed and
amounts are recovered or
refunded to customers
through future billings.

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)

Deferred income taxes due to decrease in provincial
corporate income tax (4)

Impact of warmer temperatures (2)
Impact of inflation on rate base (5)

Regulatory decisions received (see below)
Settlement of regulatory decisions and other items (6)

Three Months Ended
December 31

Year Ended
December 31

2019

2018

Change

2019

2018

Change

(1)

—

(3)

(1)

(13)

(14)

—

(3)

(8)

—

(3)

—

(2)

(4)

—

(54)

(55)

106

—

(7)

—

(8)

—

(51)

(69)

(20)

(5)

106

—

167

(1)

Removal and site restoration costs are billed to customers over the estimated useful life of the related assets based on forecast costs to be incurred in
future periods.

(2) Natural gas distribution customer rates are based on a forecast of normal temperatures. Fluctuations in temperatures may result in more or less

(3)
(4)

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.
In the second quarter of 2019, the Government of Alberta enacted a phased decrease in the provincial corporate income tax rate from 12 per cent to
8 per cent. This decrease is being phased in increments from July 1, 2019 to January 1, 2022. As a result of this change, the Alberta Utilities decreased
deferred income taxes and increased earnings in 2019 by $106 million.

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 74

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 74

(5)

(6)

The inflation-indexed portion of the international natural gas distribution 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 2018, electricity transmission recorded a decrease in earnings of $20 million mainly related to a refund of deferral account balances relating to
2013 and 2014. Natural gas distribution also recorded a reduction in earnings of $31 million related to a refund of previously over-collected
transmission costs.

Regulatory Decisions Received

Under rate-regulated accounting, the Company recognizes earnings from a regulatory decision pertaining to current
and prior periods when the decision is received. A description of the significant regulatory decisions recognized in
adjusted earnings in 2019 is provided below.

Decision
Information
Technology
(IT) Common
Matters

2. ATCO Electric
Transmission
General Tariff
Application
(GTA)

Amount Description

12 In August 2014, the Company sold its IT services business to Wipro Ltd. (Wipro) and
signed a ten-year IT Master Services Agreement (MSA) effective January 1, 2015.

In 2015, the Alberta Utilities Commission (AUC) commenced an Information
Technology Common Matters proceeding to review the recovery of IT costs by the
Alberta Utilities from January 1, 2015 going forward. On June 5, 2019, the AUC issued
its decision regarding the IT Common Matters proceeding and directed the Alberta
Utilities to reduce the first-year of the Wipro MSA by 13 per cent and to apply a glide
path that reduces pricing by 4.61 per cent in each of years 2 through 10. The
reduction in adjusted earnings resulting from the decision for the period January 1,
2015 to December 31, 2019 was $12 million. Of this amount, $8 million relates to the
period January 1, 2015 to June 30, 2019 and was recorded in the second quarter of
2019. The remaining $4 million was recorded in the second half of 2019.

(9)

In June 2017, ATCO Electric Transmission filed a GTA for its operations for 2018 and
2019. The decision was received in July 2019 approving the majority of capital
expenditures and operating costs requested. The increase in adjusted earnings
resulting from the decision was $9 million, of which $5 million relates to 2018.

IT COMMON MATTERS DECISION

As described in the IT Common Matters decision above, in August 2014, the Company sold its IT services business to
Wipro Ltd. (Wipro) and signed a ten-year IT Master Services Agreement (MSA) effective January 1, 2015. Proceeds of
the sale were $204 million, resulting in a one-time after-tax and NCI gain of $74 million. In 2014, the Company did
not include this gain on sale in adjusted earnings because it was a significant one-time event.

In June 2019, the AUC issued its decision regarding the IT Common Matters proceeding which is described in the
regulatory decisions received section above. In the proceeding, the Company presented a considerable amount of
evidence, including expert benchmarking and price review studies, to support that the Wipro MSA rates were at fair
market value. As such, there was no cross subsidization between the sale price of the Company's IT services
business to Wipro in the 2014 transaction and the establishment of IT rates under the MSA. Despite these efforts
the AUC found that the Alberta Utilities failed to demonstrate that the IT pricing in the MSA would result in just and
reasonable rates.

Consistent with the treatment in 2014, the $12 million reduction recognized in 2019, along with future impacts
associated with this decision, will be excluded from adjusted earnings.

OTHER

For the year ended December 31, 2019, the Company has recognized costs of $6 million after tax and NCI relating to
a number of disputes related to the Tula Pipeline project. The Company continues to work with the involved parties
to achieve a resolution of these disputes. As these costs relate to a significant non-recurring event, they are
excluded from adjusted earnings.

75 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

75 ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS

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

($ millions)

2019

2018

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

469
490

(21)

(28)

(93)
443
376

1,927
1,897

(205)

(95)

(180)

(803)
1,542
999

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 76

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 76

RECONCILIATION OF CAPITAL INVESTMENT
TO CAPITAL EXPENDITURES

($ millions)

2019

2018

Capital Investment

Capital expenditure
in joint ventures

Business
combinations (1)

Service concession
arrangement

Capital Expenditures

($ millions)

2019

2018

Capital Investment

Equity investment in
associate company

Capital expenditure
in joint ventures

Business
combinations (1)

Service concession
arrangement

Capital Expenditures

Structures
& Logistics

Neltume
Ports

ATCO
Corporate
& Other

Canadian Utilities Limited

Three Months Ended
December 31

ATCO
Consolidated

Electricity

Pipelines
& Liquids

CUL
Corporate
& Other

Consolidated

—

(1)

—

(24)

—

(17)

—

(17)

111

203

(1)

(3)

—

(44)

110

156

260

174

(1)

—

261

173

—

374

380

—

(4)

—

(44)

374

332

382

420

—

(5)

—

(24)

—

(44)

382

347

Year Ended

December 31

Structures
& Logistics

Neltume
Ports

ATCO
Corporate
& Other

Canadian Utilities Limited

ATCO
Consolidated

Electricity

Pipelines
& Liquids

CUL
Corporate
& Other

Consolidated

105

113

—

(1)

—

(24)

—

105

444

(9)

(444)

—

(16)

543

1,287

677

648

—

(16)

—

(2)

(14)

—

(112)

(95)

(664)

446

497

—

(5)

—

677

643

—

1,226

1,951

—

(2)

(19)

1,324

2,518

(9)

(444)

(2)

(20)

—

(112)

(95)

(664)

1,129

1,156

(136)

(95)

(664)

1,218

1,254

(1) Business combinations includes Canadian Utilities' first quarter 2018 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.

77 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

77 ATCO LTD. 2019 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 26 of the 2019 Consolidated Financial Statements,
which are prepared in accordance with IFRS. Management makes judgments and estimates 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 judgments and estimates 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

On January 1, 2019, the Company adopted the new accounting standard, IFRS 16 Leases, which replaces IAS 17 Leases
and related interpretations. This standard 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.

The Company adopted the standard using the modified retrospective approach which does not require restatement of
prior period financial information, as it recognizes the cumulative impact on the opening balance sheet and applies the
standard prospectively. Accordingly, the comparative information in the 2019 Consolidated Financial Statements is not
restated.

On adoption of the new standard on January 1, 2019, the Company recognized $107 million of right-of-use assets and
$107 million of lease liabilities. The right-of-use assets and lease liabilities relate to leases for land and buildings. From
January 1, 2019, the Company recognizes depreciation expense on right-of-use assets and interest expense on lease
liabilities with lease payments recorded as a reduction of the lease liability. Prior to the adoption of IFRS 16, lease
payments were recorded as expenses in the statement of earnings. The adoption of IFRS 16 has not had a significant
impact on earnings. Further information on the adoption of IFRS 16, right-of-use assets and lease liabilities are provided
in Notes 3 and 20 of the 2019 Consolidated Financial Statements.

In June 2019, the IFRS Interpretations Committee, acting on a request for interpretation, concluded that a pipeline sub-
surface arrangement is, or contains, a lease under IFRS 16. A pipeline sub-surface arrangement is an agreement with a
landowner to lay an underground pipeline in exchange for consideration. It contains a lease because the underground
space is physically distinct from the landowner’s land, and the owner of the pipeline has exclusive use of the
underground space. The Company has assessed the impact of the interpretation on its pipeline sub-surface
arrangements. Based on the analysis performed, the impact on the 2019 Consolidated Financial Statements is not
significant.

There are no other new or amended standards issued, but not yet effective, that the Company anticipates will have a
material effect on the 2019 Consolidated Financial Statements once adopted.

DISCLOSURE CONTROLS AND PROCEDURES

As of December 31, 2019, 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).

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 78

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 78

Disclosure controls and procedures are designed to provide reasonable assurance that information required to be
disclosed in documents filed with securities regulatory authorities is recorded, processed, summarized and reported on
a timely basis. The controls also seek to assure this information is accumulated and communicated to management,
including the CEO and the CFO, as appropriate, to allow timely decisions on required disclosure.

Management, including the CEO and the CFO, does not expect the Company's disclosure controls and procedures will
prevent or detect all errors. The inherent limitations in all control systems are that they can provide only reasonable, not
absolute, assurance that all control issues and instances of error, if any, within the Company have been detected.

Based on this evaluation, the CEO and the CFO have concluded that the Company’s disclosure controls and procedures
were effective at December 31, 2019.

INTERNAL CONTROL OVER FINANCIAL REPORTING

As of December 31, 2019, 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, 2019.

There was no change in the Company’s internal control over financial reporting that occurred during the period
beginning on January 1, 2019, and ended on December 31, 2019, 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 2019 Consolidated Financial Statements and its MD&A for the year ended December 31, 2019.
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.

79 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

79 ATCO LTD. 2019 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.

Average weekly earnings (AWE) is an indicator of
short-term employee earnings growth.

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 & 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.

Consumer price index (CPI) measures the average
change in prices over time that consumers pay for a
basket of goods and services.

Earnings means Adjusted Earnings as defined in the
Non-GAAP and Additional GAAP Measures section of
this MD&A.

GAAP means Canadian generally accepted accounting
principles.

GHG means greenhouse gas.

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

IFRS means International Financial Reporting
Standards.

K Bar means the AUC allowance for capital additions
under performance based regulation.

Kilowatt (kW) is a measure of electric power equal to
1,000 watts.

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.

NCI means non controlling interest

PBR means Performance Based Regulation.

PPA means Power Purchase Arrangements.

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).

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 80

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 80

APPENDIX 1
FOURTH QUARTER FINANCIAL INFORMATION

Financial information for the three months ended December 31, 2019 and 2018 is shown below.

CONSOLIDATED STATEMENT OF EARNINGS

Three Months Ended
December 31

2019

1,182

2018

1,174

(139)

(49)

(66)

(28)

(51)

(9)

(151)

(172)

(68)

(17)

(94)

(844)

—

370

(124)

(115)

255

(90)

165

$0.73

$0.72

(155)

(44)

(66)

(60)

(52)

(44)

(79)

(158)

(50)

(43)

(74)

(825)

—

125

3
6

483

(134)

(130)

353

(85)

268

135

133

268

$1.18

(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 and amortization

Franchise fees

Property and other taxes

Other

Gain on Sale of Operations

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

81 — ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS

81 ATCO LTD. 2019 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

Proceeds on sales of operations, net of cash disposed

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

Repayment of lease liabilities
Net purchase of Class I Shares
Dividends paid to Class I and Class II Share owners
Dividends paid to non-controlling interests
Interest paid
Other
Cash flows (used in) from financing activities

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

Three Months Ended
December 31

2019

2018

165
304
2
(28)
443

(353)
3

—

(27)

(5)

—

222

(127)

—

13
(10)
146

(7)

(5)
(5)
(47)
(73)
(143)
(1)
(132)

184
(35)
991
1,140

268
222
(21)
(93)
376

(275)
2
219

(68)

(24)

(7)

—

(4)

(125)

(225)
662
(71)
81

(5)

—

(5)
(43)
(54)
(138)
17
219

470
8
213
691

ATCO LTD. 2019 MANAGEMENT’S DISCUSSION & ANALYSIS — 82

ATCO LTD. 2019 MANAGEMENT'S DISCUSSION & ANALYSIS 82

ATCO LTD.
CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2019

83 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

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 Policy .............................................................................................................................................

Information on Financial Performance

Page
2
85
3
86
6
89
90
7
91
8
92
9
93
10

11
11
12

Segmented Information ....................................................................................................................................................

Revenues .............................................................................................................................................................................

4.
5.
6. Other Costs and Expenses ................................................................................................................................................
Interest Expense .................................................................................................................................................................
7.
8.
9.

Income Taxes ......................................................................................................................................................................

Earnings per Share .............................................................................................................................................................

Information on Financial Position

Inventories ..........................................................................................................................................................................

10.
11. Property, Plant and Equipment .........................................................................................................................................
Intangibles ...........................................................................................................................................................................
12.
13. Goodwill ...............................................................................................................................................................................
14. Receivable under Service Concession Arrangement ......................................................................................................
15. Short-Term Debt .................................................................................................................................................................
16. Long-Term Debt ..................................................................................................................................................................
17. Non-Recourse Long-Term Debt ........................................................................................................................................
18. Retirement Benefits ...........................................................................................................................................................
19. Balances from Contracts with Customers .......................................................................................................................
20. Leases ..................................................................................................................................................................................
21. Class I Non-Voting and Class II Voting Shares .................................................................................................................

14
21
23
23
23
26

104

106

109

110

111

112

113

115

120

121

124

26
27
28
29
29
30
30
32
32
37
38
41

Information on Cash Flow

22. Cash Flow Information .......................................................................................................................................................

125

Risk

23. Financial Instruments ........................................................................................................................................................
24. Risk Management ...............................................................................................................................................................
25. Capital Disclosures .............................................................................................................................................................
26. Significant Judgments, Estimates and Assumptions .......................................................................................................

Group Structure

27. Business Combinations .....................................................................................................................................................
Investment in Equity Interest in Associate Company .....................................................................................................
28.
29. Subsidiaries .........................................................................................................................................................................
Joint Arrangements ............................................................................................................................................................
30.
31. Non-Controlling Interests ..................................................................................................................................................

Other Information

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

127

130

134

44
47
51
52

135

137

142

144

145

146

54
59
61
62
63

148

150

151

65
67
68
68
68

1 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 84

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]

Executive Vice President & Chief Financial Officer

85 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 2

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, 2019 and December
31, 2018, and its financial performance and its cash flows for the years then ended in accordance with International
Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS).

What we have audited

The Company's consolidated financial statements comprise:

•

the consolidated statements of earnings for the years ended December 31, 2019 and December 31, 2018;

the consolidated statements of comprehensive income for the years ended December 31, 2019 and
December 31, 2018;

the consolidated balance sheets as at December 31, 2019 and December 31, 2018;

the consolidated statements of changes in equity for the years ended December 31, 2019 and December 31,
2018;

the consolidated statements of cash flows for the years ended December 31, 2019 and December 31, 2018;
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.

3 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 86

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.

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.

87 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 4

•

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 26, 2020

5 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 88

CONSOLIDATED STATEMENTS
OF EARNINGS

(millions of Canadian Dollars except per share data)

Note

2019

2018

Year Ended
December 31

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 and amortization
Franchise fees
Property and other taxes
Other

Proceeds from termination of Power Purchase Arrangement
Gain on sale of operations
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 tax expense

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.

4,706

4,888

(538)
(203)
(272)
(199)
(207)
(127)
(480)
(637)
(239)
(154)
(306)
(3,362)

—

174

—

15
24
1,557

27
(511)
(484)

1,073
(66)

1,007

513
494
1,007

$4.49
$4.47

(599)
(179)
(238)
(221)
(175)
(664)
(270)
(682)
(208)
(185)
(303)
(3,724)

—

125
4
25
1,380

29
(507)
(478)

902
(231)

671

328
343
671

$2.87
$2.86

11,12,20

4
27
11
28
30

9
9

89 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 6

CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME

(millions of Canadian Dollars)

Earnings for the year

Year Ended
December 31

2019

1,007

2018

671

Other comprehensive (loss) income, net of income taxes

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

(44)

Items that are or may be reclassified subsequently to earnings:
Cash flow hedges (2)
Cash flow hedges reclassified to earnings (3)
Cash flow hedges reclassified to earnings as a result of sale of operations (4)
Foreign currency translation adjustment (5)
Foreign currency translation adjustment reclassified to earnings (5)
Share of other comprehensive loss in associate company (5)
Share of other comprehensive loss of joint ventures (5)

Other comprehensive (loss) income

Comprehensive income for the year

Comprehensive income attributable to:
Class I and Class II Shares

Non-controlling interests

(1) Net of income taxes of $14 million for the year ended December 31, 2019 (2018 - $2 million).

(2) Net of income taxes of $1 million for the year ended December 31, 2019 (2018 - nil).

(3) Net of income taxes of $(3) million for the year ended December 31, 2019 (2018 - $(3) million)

(4) Net of income taxes of $(2) million for the year ended December 31, 2019 (2018 - nil).

(5) Net of income taxes of nil.

See accompanying Notes to Consolidated Financial Statements.

(2)

(83)

—

(2)

—

(70)

(114)

893

431

462

893

(5)

(4)

—

(2)

718

368

350

718

7 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 90

CONSOLIDATED BALANCE SHEETS

(millions of Canadian Dollars)

ASSETS
Current assets
Cash and cash equivalents
Accounts receivable and contract assets
Finance lease receivables
Inventories
Restricted project funds
Receivable under service concession arrangement
Prepaid expenses and other current assets

Non-current assets
Property, plant and equipment
Intangibles
Right-of-use assets
Goodwill
Investment in joint ventures
Investment in associate company
Finance lease receivables
Deferred income tax assets
Receivable under service concession arrangement
Other assets
Total assets

LIABILITIES
Current liabilities
Accounts payable and accrued liabilities
Lease liabilities
Other current liabilities
Short-term debt
Long-term debt
Non-recourse long-term debt

Non-current liabilities
Deferred income tax liabilities
Retirement benefit obligations
Customer contributions
Lease liabilities
Other liabilities
Long-term debt
Non-recourse long-term debt
Total liabilities

EQUITY
Class I and Class II Share owners' equity
Class I and Class II shares
Contributed surplus
Retained earnings
Accumulated other comprehensive (loss) income

Non-controlling interests
Total equity
Total liabilities and equity

Note

2019

2018

December 31

22
19
20
10

11
12
3,20
13
30
28
20
8
14

3,20

15
16
17

8
18
19
3,20

16
17

1,140
731
9
64

—

93
2,037

17,857
662
96
82
187
468
170
83

—

61
21,703

675
15
47

—

173

—

910

1,319
429
1,720
84
120
9,263

—

13,845

173
12
3,832
(17)
4,000
3,858
7,858
21,703

691
745
15
66
339
67
174
2,097

17,865
672

—

82
240
491
380
85
1,329
103
23,344

921

—

144
175
488
20
1,748

1,399
384
1,798

—

283
8,909
1,381
15,902

169
11
3,535
40
3,755
3,687
7,442
23,344

See accompanying Notes to Consolidated Financial Statements.

[Original signed by N.C. Southern]
DIRECTOR

[Original signed by R.J. Urwin]
DIRECTOR

91 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 8

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(millions of Canadian Dollars)

December 31, 2017

Earnings for the year

Other comprehensive income

Other comprehensive income
Losses on retirement benefits transferred to
retained earnings

Losses on retirement benefits transferred to
retained earnings
Shares issued, purchased and cancelled
Dividends

Dividends

Shares issued, purchased and cancelled
Share-based compensation
Changes in ownership interest in subsidiary company (1)
Other

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

December 31, 2018

Earnings for the year

December 31, 2018

Other comprehensive loss

Earnings for the year

Other comprehensive loss

Losses on retirement benefits transferred to
retained earnings

Losses on retirement benefits transferred to
Shares issued, purchased and cancelled
retained earnings
Dividends

Shares issued, purchased and cancelled
Share-based compensation

Class I and
Class II
Shares

167

Contributed
Surplus

167

—

169

—

169

—

Note

18
21,31
21,31

21,31

21,31
18
21,31

21,31

Retained
Earnings
Retained
Earnings
3,352
3,352
328
328

—

(3)

(3)
(4)
(173)
(4)
3
(173)
32
3

—

32
3,535

—

513
3,535

—

513

(25)

—

(5)
(25)
(186)
(5)

—

Accumulated
Other
Accumulated
Comprehensive
Other
Income
Comprehensive
Income
(2)
(2)

—

39
39
3

—

—
—

—

40
(82)

—

(82)
25

—

—
—

Non-
Controlling
Non-
Interests
Controlling
Interests
3,576

3,576
343

343
8

—

(277)

63
1
(277)
(32)

5
(32)

3,687

494
3,687
(32)
494

(32)

—

3
(294)

Total
Total

3,527
3,527
328
328
39
39

—

(4)

—

(173)

(4)
6
(173)
32
6

—

32
3,755

—

513
3,755
(82)
513

(82)

—

(4)

(4)
4
(186)

Total Equity

Total Equity
7,103

7,103
671

671

—

(450)

7
(450)

—

7,442

—

1,007

7,442

(114)

1,007

(114)

—

(4)

7
(480)

(186)

—

(294)

—

(480)

—

Dividends

Share-based compensation

December 31, 2019

173
3
(1) The changes in ownership interest in subsidiary company are due to Canadian Utilities Limited's dividend reinvestment program and share-based compensation plans. Effective January 10, 2019, Canadian

4,000
4

12
1

3,858

(17)

—

7,858

(186)
3,832

21,31

December 31, 2019

Utilities Limited suspended its dividend reinvestment program.

173

3,832

(17)

4,000

3,858

7,858

(1) The changes in ownership interest in subsidiary company are due to Canadian Utilities Limited's dividend reinvestment program and share-based compensation plans. Effective January 10, 2019, Canadian

See accompanying Notes to Consolidated Financial Statements.

Utilities Limited suspended its dividend reinvestment program.

See accompanying Notes to Consolidated Financial Statements.

9 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 92

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
Acquisition, net of cash acquired
Investment in equity interest in associate company
Proceeds on sale of operations, net of cash disposed

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

Financing activities
Net (repayment) issue of short-term debt
Issue of long-term debt
Repayment of long-term debt
Release of restricted project funds
Repayment of non-recourse long-term debt
Repayment of lease liabilities
Issue of shares by subsidiary companies
Net purchase of Class I Shares
Dividends paid to Class I and Class II Share owners
Dividends paid to non-controlling interests
Interest paid
Other
Cash flows (used in) from financing activities

Increase in cash position (1)
Foreign currency translation
Beginning of year
End of year

Year Ended
December 31

Note

2019

2018

22
22

27
28
27

15,22
16,22
16,22

17,22
20

21
31

1,007
920
(205)
(180)
1,542

(1,128)
4

—

(74)
(5)
(9)
903

—

7
13
(289)

(175)
632
(554)
329
(32)
(19)
3
(2)
(186)
(294)
(498)
14
(782)

471
(22)
691
1,140

671
1,226
(95)
(803)
999

(1,121)
5

219

(113)
(94)
(455)

—

(6)
(67)
(12)
(1,644)

165
1,660
(846)
726
(16)

—

1
(2)
(173)
(214)
(485)
21
837

192
5
494
691

(1)

Cash position includes $79 million which is not available for general use by the Company (2018 - $64 million).

See accompanying Notes to Consolidated Financial Statements.

93 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 10

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

DECEMBER 31, 2019

(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 transmission, distribution and generation);

Pipelines & Liquids (natural gas transmission and distribution, energy storage, and industrial water
solutions);

•

Retail Energy (electricity and natural gas retail sales) (included in Corporate & Other segment); and

• Neltume Ports (ports and transportation logistics) (see Note 28).

The consolidated financial statements include the accounts of ATCO Ltd. and its subsidiaries (see Note 29). The
statements also include the accounts of a proportionate share of the Company's investments in joint operations, its
equity-accounted investments in joint ventures (see Note 30) and its equity-accounted investment in associate
company (see Note 28). 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 26, 2020.

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 36.

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.

11 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 94

USE OF JUDGMENTS AND ESTIMATES

Management makes judgments and estimates 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 judgments and estimates 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 26.

3. CHANGE IN ACCOUNTING POLICY

LEASES

The Company adopted IFRS 16 Leases on January 1, 2019, which introduces a new approach to lease accounting. The
Company adopted the standard using the modified retrospective approach, which does not require restatement of
prior year financial information, as it recognizes the cumulative impact on the opening balance sheet and applies
the standard prospectively. Accordingly, the comparative information in these consolidated financial statements has
not been restated.

At the inception of a contract, the Company assesses whether the contract is, or contains, a lease based on whether
the contract conveys the right to control the use of an identified asset for a period of time in exchange for
consideration. This policy is applied to contracts in existence at January 1, 2019, and is applied to contracts entered
into, or modified, on or after January 1, 2019.

Practical expedients

Effective January 1, 2019, the IFRS 16 transition date, the Company elected to use the following practical expedients
under the modified retrospective transition approach:

•

Leases with lease terms of less than twelve months (short-term leases) and leases of low-value assets (less
than $5,000 U.S. dollars) (low-value leases) that have been identified at transition, were not recognized in
the consolidated balance sheet;

Right-of-use assets on transition were measured at the amount equal to the lease liabilities at transition,
adjusted by the amount of any prepaid or accrued lease payments;

For certain leases having associated initial direct costs, the Company, at initial measurement on transition,
excluded these directs costs from the measurement of the right-of-use assets; and

Any provision for onerous lease contracts previously recognized at the date of adoption of IFRS 16, has
been applied to the associated right-of-use asset recognized upon transition.

The Company's consolidated financial statements were not impacted by the adoption of IFRS 16 Leases in relation to
lessor accounting. Lessors will continue with the dual classification model for recognized leases with the resultant
accounting remaining unchanged from IAS 17 Leases.

Sub-surface Rights

The Company has assessed the impact of the interpretation on its pipeline sub-surface arrangements. Based on the
analysis performed, the impact on the consolidated financial statements is not significant.

95 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 12

IMPACT OF CHANGES IN ACCOUNTING POLICY

Impact of adoption of IFRS 16 on consolidated financial statements

On January 1, 2019, the Company recognized $107 million of right-of-use assets and $107 million of lease liabilities.
The Company applied its weighted average incremental borrowing rate at January 1, 2019, 3.00 per cent, to
determine the amount of lease liabilities. The effect of the adjustment to the amounts recognized in the Company's
consolidated balance sheet at January 1, 2019 is shown below.

(millions of Canadian Dollars)

ASSETS
Non-current assets
Right-of-use assets
Total assets

LIABILITIES
Current liabilities
Lease liabilities
Non-current liabilities
Lease liabilities
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

December 31,
2018,
as previously
reported

Note

IFRS 16 re-
measurement
adjustments
on January 1,
2019

—

23,344

—

15,902

169
11
3,535
40
3,755
3,687
7,442
23,344

107
107

89
107

—

107

Restated

107
23,451

89
16,009

169
11
3,535
40
3,755
3,687
7,442
23,451

The reconciliation of differences between the operating lease commitments disclosed at December 31, 2018 (when
applying IAS 17 Leases), discounted using the weighted average incremental borrowing rate at January 1, 2019, and
the lease liabilities recognized upon adoption of IFRS 16 Leases, is shown below.

Operating lease commitments at December 31, 2018, as previously reported

Adjustment to reflect discounting of the operating lease commitments at

December 31, 2018, using the weighted average incremental borrowing rate

Lease liabilities at January 1, 2019, before exemptions and other adjustments

Exemptions applied upon recognition of lease liabilities:

Short-term leases

Recognition of the lease term extension option (1)
Lease liabilities recognized at January 1, 2019

(1)

Recognition of the lease term extension option relates to leases where the extension option is reasonably certain to be exercised.

101

(10)

(2)

107

13 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 96

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.

Management has determined that the operating subsidiaries in the reportable segments below share similar
economic characteristics, as such, they have been aggregated.

SEGMENT DESCRIPTIONS AND PRINCIPAL OPERATING ACTIVITIES

Structures & Logistics

Electricity

Canadian
Utilities Limited

Pipelines & Liquids

The Structures & Logistics segment includes ATCO Structures & Logistics.
This company offers workforce housing, modular facilities, site support
services and logistics and operations management.

The Electricity segment includes ATCO Electric, ATCO Power (2010) (in
2019, the Company sold its Canadian fossil fuel-based electricity
generation portfolio, see Note 27), Alberta PowerLine (before sale of
operations, see Note 27), 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 28).

ATCO Corporate & Other includes commercial real estate owned by the
Company and intersegment eliminations.

97 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 14

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

2019

2018

Revenues - external

Revenues -
intersegment
Revenues

Operating expenses (1)

Depreciation and
amortization

Proceeds from

termination of
Power Purchase
Arrangement

Gain on sale of

operations (Note 27)

Gain on sale of Barking

Power assets

(Note 11)

Earnings from
investment in
associate company

Earnings from
investment in joint
ventures

Net finance costs

Earnings (loss) before

income taxes

Income tax (expense)

recovery

Earnings (loss) for the

year

Adjusted earnings

(loss) for the year

Total assets

Capital expenditures (2)

Structures

Neltume

Corporate

Canadian Utilities Limited

& Logistics

Ports

& Other

Electricity

Pipelines &
Liquids

Corporate

& Other Consolidated

ATCO

Consolidated

801
511

—

803
511

(702)
(464)

(45)

(37)

—

(7)
(3)
52
8

(15)
(2)
37
6
37
15

987

790
105

—

15
4

—

15
4
15
4

466

491

—

(2)

—

(2)

—

22
37

(10)

(7)

—

(15)
(6)
(5)
24

2
(4)
(3)
20
(6)
17

206

244
(16)

2,146
2,841

9
17
2,155
2,858

(1,030)
(1,671)

(317)

(386)

1,588
1,415

61
55
1,649
1,470

(924)
(860)

(258)

(254)

—

174

—

125

—

(310)
(322)
681
681

(30)
(176)
651
505
221
228

11,411

13,494
446

497

—

(156)
(156)
323
209

(12)
(59)
311
150
137
130

8,195

7,842
677

643

171
121

(70)
(72)
101
49

(91)
(84)

(7)

—

4
9
7
(24)

(11)
10
(4)
(14)
(39)
(39)

438

483
6

3,905
4,377

—

3,905
4,377

(2,045)
(2,615)

(582)

(638)

—

174

—

4,706
4,888

—

4,706
4,888

(2,725)
(3,042)

(637)

(682)

—

174

—

125

—

(462)
(469)
1,011
866

(53)
(225)
958
641
319
319

20,044

21,819
1,129

1,156

(484)
(478)
1,073
902

(66)
(231)
1,007
671
365
355

21,703

23,344
1,218

1,254

(1)

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

(2)

Includes additions to property, plant and equipment and intangibles and $16 million of interest capitalized during construction for the year ended
December 31, 2019 (2018 - $20 million).

15 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 98

GEOGRAPHIC SEGMENTS

Financial information by geographic area is summarized below.

Revenues - external

Canada
Australia
Other
Total

Non-current assets

Canada
Australia
South America
Other
Total

2019

4,180
364
162
4,706

Property, Plant
and Equipment

2019
16,247
1,288

2018
16,283
1,323

—

322
17,857

259
17,865

Intangible Assets

Other Assets (1)

2019
635
14

—

13
662

2018
640
18

—

14
672

2019
229
54
492
6
781

2018
267
31
518
11
827

2019
17,111
1,356
492
341
19,300

2018

4,414
379
95
4,888

Total

2018
17,190
1,372
518
284
19,364

(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 and swap 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.

99 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 16

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

2019

2018

Structures

Neltume

Corporate

Canadian Utilities Limited

& Logistics

Ports

& Other

Electricity

Pipelines
& Liquids

Corporate

& Other Consolidated

ATCO

Consolidated

Adjusted earnings
(loss)

Gain on sale of

operations (Note 27)

Restructuring and
other costs

37
15

—

(9)

15
4

—

(6)
17

—

221
228

—

137
130

—

(19)

(11)

Proceeds from
termination of
Power Purchase
Arrangement

—

(3)

Sale of Barking Power

assets (Note 11)

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

Rate-regulated
activities

IT Common Matters
decision

Other

Earnings (loss)
attributable

to Class I and Class II
Shares
Earnings attributable
to non-controlling
interests
Earnings for the year

Gain on sale of operations

—

(7)

64
(28)

(6)

—

337

262

—

33
(43)

(6)

—

(6)

—

161

(39)
(39)

—

(3)

—

(1)
2

—

(1)

—

(34)

(40)

319
319

—

(33)

—

96
(69)

(12)

—

(7)

—

464

298

365
355

—

(39)

—

98
(69)

(12)

—

(6)

—

513

328

494

343

1,007
671

In 2019, the Company closed a series of transactions related to the sale of its Canadian fossil fuel-based electricity
generation portfolio and Alberta PowerLine (see Note 27). These sales resulted in an aggregate gain of $174 million
($65 million after-tax and non-controlling interests (NCI)). As the sale of operations is not in the normal course of
business, the related gain on sale of operations has been excluded from adjusted earnings.

Restructuring and other costs

In 2018, restructuring and other costs not in the normal course of business of $39 million after-tax and NCI were
recorded. These costs mainly related to staff reductions and associated severance costs, as well as costs related to
decisions to discontinue certain projects that no longer represented long-term strategic value to the Company.

17 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 100

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 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 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.

These one-time receipts and costs in the net amount of $19 million after-tax and NCI were excluded from adjusted
earnings.

Sale of Barking Power assets

In December 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 11) ($53 million after tax and NCI). Of the $53 million after-tax and NCI gain,
$46 million was excluded from Adjusted Earnings.

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

Prior to the sale of Canadian fossil fuel-based electricity generation portfolio (see Note 27), the Company entered
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 were measured at fair value. Unrealized gains and losses due to changes in the fair value of
the forward contracts were recognized in the earnings of the Electricity operating segment where hedge accounting
was not applied.

In addition, the Company’s retail electricity and natural gas business in Alberta enters into fixed-price swap
commodity contracts to manage exposure to electricity and natural gas prices and volumes. Prior to the sale of the
Canadian fossil fuel-based electricity generation portfolio (see Note 27), these contracts were accounted for as
normal purchase agreements as they were with an affiliate company and the own use exemption was applied.
Starting September 30, 2019, these contracts are measured at fair value because the contracts are with a third party
and the own use exemption no longer applies. Unrealized gains and losses due to changes in the fair value of the
fixed-price swap commodity contracts are recognized in the earnings of the Corporate & Other segment.

Realized gains or losses are recognized in adjusted earnings when the commodity contracts are settled.

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.

101 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 18

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.

For the year ended 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)
Deferred income taxes due to decrease in provincial corporate income tax (4)
Impact of warmer temperatures (2)
Impact of inflation on rate base (5)
Regulatory decisions received (see below)
Settlement of regulatory decisions and other items (6)

2019

2018

34
7

(54)
106

—

(7)
3
9
98

39
6

(55)

—

(8)

—

(51)
(69)

(1)

(2)

(3)

(4)

(5)

Removal and site restoration costs are billed to customers over the estimated useful life of the related assets based on forecast costs to be incurred in
future periods.

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.

In the second quarter of 2019, the Government of Alberta enacted a phased decrease in the provincial corporate income tax rate from 12 per cent to 8
per cent. This decrease is being phased in increments from July 1, 2019 to January 1, 2022 (see Note 8). As a result of this change, the Alberta Utilities
decreased deferred income taxes and increased earnings in 2019 by $106 million.

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.

(6)

In 2018, ATCO Electric Transmission 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 related to a refund of previously over-collected transmission costs.

19 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 102

Regulatory decisions received

Decision
Information
Technology (IT)
Common
Matters

Amount Description

12 In August 2014, the Company sold its IT services business to Wipro Ltd. (Wipro)
and signed a ten-year IT Master Services Agreement (MSA) effective January 1,
2015.

In 2015, the Alberta Utilities Commission (AUC) commenced an Information
Technology Common Matters proceeding to review the recovery of IT costs by
the Alberta Utilities from January 1, 2015 going forward. On June 5, 2019, the
AUC issued its decision regarding the IT Common Matters proceeding and
directed the Alberta Utilities to reduce the first-year of the Wipro MSA by 13
per cent and to apply a glide path that reduces pricing by 4.61 per cent in each
of years 2 through 10. The reduction in adjusted earnings resulting from the
decision for the period January 1, 2015 to December 31, 2019 was $12 million.
Of this amount, $8 million relates to the period January 1, 2015 to June 30,
2019 and was recorded in the second quarter of 2019. The remaining $4
million was recorded in the second half of 2019.

2. ATCO Electric
Transmission
General Tariff
Application
(GTA)

(9)

In June 2017, ATCO Electric Transmission filed a GTA for its operations for 2018
and 2019. The decision was received in July 2019 approving the majority of
capital expenditures and operating costs requested. The increase in adjusted
earnings resulting from the decision was $9 million, of which $5 million relates
to 2018.

IT Common Matters decision

Consistent with the treatment in 2014, the $12 million reduction recognized in 2019, along with future impacts
associated with this decision, will be excluded from adjusted earnings.

Other

103 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 20

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:

2019

2018

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

Total

Structures
& Logistics

Electricity

Pipelines
& Liquids

Corporate
& Other (1)

Total

—

188
171
188
171

—

310
99
105
94
89
62

—

504
255

—

108
83
109
83

—

801
511

412
526
18
19

—

430
545

589
567
674
622

—

47
47
32
25

—

1,342
1,261

21
35
65
172
86
207

232
803
56
25

2,146
2,841

—

18
13

—

18
13

988
905
278
245

—

19
18
207
183

—

23
47
1,515
1,398

—

55
4

1,588
1,415

—

162
114

—

162
114

—

9
7

412
526
36
32
188
171
636
729

1,577
1,472
952
867
310
99
105
94
89
62
66
65
239
208
162
114
23
47
3,523
3,028

22
35
173
255
195
290

232
803
120
38

171
121

4,706
4,888

(1)

Includes revenues from the Corporate & Other in Canadian Utilities Limited and ATCO Ltd.

21 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 104

Disaggregation of revenues by rate-regulated and non-rate-regulated business operations for the year ended
December 31 is shown below:

2019

2018

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

Total non-rate-regulated business operations
Total

Remaining performance obligations

662
712
1,374

1,072
295
152
1,519
2,893

208
262
40
232
742

23
23

606
89
106
162
85
1,048
1,813
4,706

624
640
1,264

935
252
168
1,355
2,619

318
418
33
803
1,572

47
47

353
62
94
114
27
650
2,269
4,888

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, 2019, the most significant remaining performance obligations are as
follows:

(i)

the Company's 35-year service agreement to operate Fort McMurray 500 kV Transmission project (see Note
14) that amounts to $0.8 billion. The Company expects that approximately 2 per cent of the amount will be
recognized as revenue during the year ending December 31, 2020, subject to satisfaction of related
performance obligations;

(ii) provision of storage and industrial water services over the life of a contract that in aggregate approximates
$0.3 billion. The Company expects that approximately 5 per cent of the amount will be recognized as
revenue during the year ending December 31, 2020; and

(iii) manufacturing of transportable workforce housing and space rental products under the terms of fixed

price contracts that in aggregate approximates $0.2 billion. The Company expects that approximately 69
per cent will be recognized as revenue during the year ending December 31, 2020.

105 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 22

6. OTHER COSTS AND EXPENSES

Other costs and expenses include rent, 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.

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

Short-term debt

Interest expense on lease liabilities (Note 20)

Other

Less: interest capitalized (Notes 11,12)

2019

427

527

(16)

511

2018

420

—

527

(20)

507

Borrowing costs capitalized to property, plant and equipment during 2019 were calculated by applying a weighted
average interest rate of 4.54 per cent (2018 - 4.70 per cent) to expenditures on qualifying assets.

8. INCOME TAXES

IMPACT OF CHANGE IN INCOME TAX RATE

In May 2019, the Alberta government passed Bill 3, the Job Creation Tax Cut, which will reduce the Alberta provincial
corporate tax rate from 12 per cent to 8 per cent in a phased approach between July 1, 2019 and January 1, 2022.

As a result of this change the Company made an adjustment in 2019 to income taxes of $211 million. Of this
amount, $1 million relates to current income taxes and $210 million relates to deferred income taxes.

As the tax rate change came into effect on July 1, 2019, the combined federal and Alberta statutory Canadian
income tax rate for 2019 is 26.5 per cent. Prior to the change, the combined federal and Alberta statutory Canadian
income tax rate for 2019 was 27.0 per cent.

23 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 106

INCOME TAX EXPENSE

The components of income tax expense for the year ended December 31 are summarized below.

Current income tax expense
Canada
Australia
United States
Mexico
Change in income taxes resulting from decrease in provincial corporate tax rate
Adjustment in respect of prior years

Deferred income tax expense
Reversal of temporary differences
Change in income taxes resulting from decrease in provincial corporate tax rate
Adjustment in respect of prior years

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

2019

2018

80
(5)
(2)
2
(1)
3
77

203
(210)
(4)
(11)
66

902

244

85
(6)
(1)

—

(2)
76

154

—

1
155
231

2018

27.0

Earnings before income taxes

Income taxes, at statutory rates

Change in income taxes resulting from decrease in

provincial corporate tax rate

Statutory and deferred tax rate variance

Equity earnings

Unrecognized deferred income tax assets

Non-taxable gains

Tax cost of preferred share financings

International financing

Foreign tax rate variance

Other

1,073

284

2019

26.5

(211)

(19.7)

—

(8)

(7)

(2)

—

(0.8)

(0.7)

0.6

(0.2)

0.2

—

0.2

6.1

(4)

(8)

(5)

(4)

231

(0.4)

0.4

(0.9)

0.2

(0.5)

0.2

(0.4)

25.6

INCOME TAX ASSETS AND LIABILITIES

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

Balance Sheet Presentation

2019

2018

Income tax assets

Current

Deferred

Income tax liabilities

Current

Deferred

Prepaid expenses and other current assets

Deferred income tax assets

Other current liabilities

Deferred income tax liabilities

116

1,319

1,331

141

1,399

1,450

107 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 24

DEFERRED INCOME TAXES

The changes in deferred income tax assets are as follows:

Movements

December 31, 2017
(Charge) credit to earnings
Foreign exchange adjustment
Other
December 31, 2018
(Charge) credit to earnings
Credit to other comprehensive income
Change in income taxes resulting from

decrease in provincial corporate tax rate

Business combinations
Foreign exchange adjustment
Other
December 31, 2019

Property,
Plant and
Equipment

Intangibles Reserves

Tax Loss Carry
Forwards and
Tax Credits

Retirement
Benefit

Obligations Other

Total

32
(39)
1

—

(6)
(10)

—

7
(1)

—

(9)

(2)
(5)

—

(7)
3

—

(2)

42
(4)

—

38
1

—

(2)

(33)

—

14
36

—

50
23

—

(4)

—

1
7

—

8
2
15

—

(7)

—

(2)

—

4
2
3

—

(1)

—

(1)
3

87
(7)
1
4
85
22
15

(5)

(32)
(1)
(1)
83

The Company expects approximately $7 million of its deferred income tax assets to reverse within the next twelve
months.

The changes in deferred income tax liabilities are as follows:

Intangibles Reserves

Tax Loss Carry
Forwards and
Tax Credits

Retirement
Benefit

Obligations Other

Total

Movements

December 31, 2017
Charge (credit) to earnings

Charge (credit) to other
comprehensive income

Business combinations

Other

December 31, 2018
Charge (credit) to earnings
Charge (credit) to other
comprehensive income
Change in income taxes resulting from

decrease in provincial corporate tax rate

Business combinations
Foreign exchange adjustment
Other
December 31, 2019

Property,
Plant and
Equipment

1,397
142

—

(4)

1,540
223

104
7

—

121
(4)

—

(220)

(109)
(4)

—

1,430

(18)

(2)

—

(61)
11

—

(48)
(22)

—

(98)
(8)

—

(2)

—

(108)
15

—

(134)
(1)

33 1,241
(3)
148

(2)

—

(1)

—

(137)
8

31 1,399
221

—

(14)

—

(4)

(215)

(14)

—

(89)
(4)
2
16 1,319

(14)

(83)

(127)

The Company does not expect any of its deferred income tax liabilities to reverse within the next twelve months.

At December 31, 2019, the Company had $550 million of non-capital tax losses and credits which expire between
2025 and 2039 and $89 million of tax losses which do not expire. The Company recognized deferred income tax
assets of $152 million for losses and credits that expire.

The Company had $167 million of aggregate temporary differences for investments in subsidiaries, branches and
joint ventures for which deferred income tax liabilities were not recognized (2018 - $119 million).

25 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 108

9. EARNINGS PER SHARE

Earnings per Class I Non-Voting (Class I) and Class II Voting (Class II) Share are calculated by dividing the earnings
attributable to Class I and Class II Shares by the weighted average shares outstanding. Diluted earnings per share
are calculated using the treasury stock method, which reflects the potential exercise of stock options and vesting of
shares under the Company's mid-term incentive plan (MTIP) on the weighted average Class I and Class II Shares
outstanding.

The earnings and average number of shares used to calculate earnings per share for the year ended December 31
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 attributable to Class I and Class II Shares

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. INVENTORIES

Inventories at December 31 are comprised of:

Natural gas and fuel in storage

Raw materials and consumables

Work-in-progress

Finished goods

2019

2018

114,369,909 114,393,769

47,937

327,978

51,104

343,186

114,745,824 114,788,059

1,007

(494)

513

$4.49

$4.47

2019
21

671

(343)

328

$2.87

$2.86

2018
13

For the year ended December 31, 2019, inventories recognized as an expense were $341 million (2018 - $224
million).

Inventories with a carrying value of $10 million were pledged as security for liabilities at December 31, 2019 (2018 -
$18 million).

109 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 26

11. 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, 2017

Additions

Transfers
Retirements and disposals (1)
Business acquisitions (Note 27)

Changes to asset retirement costs

Foreign exchange rate adjustment

18,465

1,869

879

(72)

—

(24)

(35)

999

106

(114)

—

(1)

December 31, 2018

19,315

1,950

1,007

Additions

Transfers

Retirements and disposals
Sale of operations (1)
Foreign exchange rate adjustment

874

(87)

—

(72)

December 31, 2019

20,083

(27)

(1,801)

(1)

142

Accumulated depreciation

December 31, 2017

Depreciation

Retirements and disposals

Foreign exchange rate adjustment

December 31, 2018

Depreciation

Retirements and disposals
Sale of operations (1)
Foreign exchange rate adjustment

December 31, 2019

Net book value

December 31, 2018

December 31, 2019

4,016

1,305

444

(72)

(4)

(30)

4,384

1,338

434

(86)

—

(12)

4,720

14,931

15,363

(18)

(1,335)

—

612

125

(15)

(13)

—

996

184

(10)

—

201

(15)

—

212

806

784

705

964

(1,011)

(1)

—

670

1,095

(971)

(15)

(21)

(10)

748

—

(4)

587

669

1,604

100

(75)

—

1,683

(55)

(21)

(24)

23,642

1,161

—

(297)

108

24,625

1,203

—

(199)

(1,856)

(107)

1,697

23,666

718

(51)

754

(41)

(13)

(11)

781

929

916

6,299

614

(163)

6,760

583

(160)

(1,348)

(26)

5,809

17,865

17,857

(1) In the second quarter of 2019, as a result of the announced sale of the Canadian fossil fuel-based electricity generation portfolio, property, plant and

equipment with a net book value of $508 million was reclassified as held for sale. The sale of operations transactions closed in the second half of 2019
(Note 27).

The additions to property, plant and equipment included $15 million of interest capitalized during construction for
the year ended December 31, 2019 (2018 - $20 million).

Property, plant and equipment with a carrying value of $274 million were pledged as security for liabilities at
December 31, 2019 (2018 - $602 million).

SALE OF BARKING POWER ASSETS

In December 2018, Canadian Utilities Limited, a subsidiary of the Company, sold its 100 per cent ownership
interests in Thames Power Services Limited (TPSL) and Barking Power Limited (BPL). BPL was an entity that held
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.

27 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 110

The total proceeds received on sale of TPSL and BPL were $219 million. The Company 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 included in other

liabilities

Loss on reclassification of the cumulative foreign currency translation adjustment
Costs of disposal
Gain on sale of Barking Power assets

(1)

Includes $101 million of cost of land sold in the United Kingdom, as part of sale of Barking Power assets.

219
(90)

(15)
(5)
125

12. 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, 2017

Additions

Business acquisitions (Note 27)

Retirements

December 31, 2018

Additions
Sale of operations (1)
Retirements

Foreign exchange rate adjustment

December 31, 2019

Accumulated amortization

December 31, 2017

Amortization

Retirements

December 31, 2018

Amortization
Sale of operations (1)
Retirements

Foreign exchange rate adjustment

December 31, 2019

Net book value

December 31, 2018

December 31, 2019

662

—

(3)

730

(25)

(122)

(1)

637

397

(3)

445

(15)

(117)

(1)

363

285

274

346

—

371

—

389

—

323

336

—

(10)

(2)

—

(2)

—

1,034

(3)

1,174

(35)

(124)

(1)

1,087

447

(3)

502

(17)

(117)

(1)

425

672

662

(1) In the second quarter of 2019, as a result of the announced sale of the Canadian fossil fuel-based electricity generation intangible assets with a net book

value of $18 million were reclassified as held for sale. The sale of operations transactions closed in the second half of 2019 (Note 27).

The additions to intangibles included $1 million of interest capitalized during construction for the year ended
December 31, 2019 (2018 - $2 million).

111 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 28

13. GOODWILL

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

Electricity

Pipelines & Liquids

Structures & Logistics

Carrying value

2019

2018

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 27).

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 27).

The recoverable amount was measured based on each segment’s fair value less costs of disposal, which was
calculated using publicly available enterprise values and price-to-earnings multiples of comparable, actively traded
companies. Each segment’s fair value less costs of disposal was compared to its carrying value and was sufficient to
support the carrying value of allocated goodwill.

The Company used an average enterprise value-to-earnings before interest, taxes, depreciation, and amortization of
11.8 and 13.6 (2018 - 10.6 and 13.9) and price-to-earnings value of 19.6 and 16.3 (2018 - 23.9 and 25.3) 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.

14. 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 was 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 were recognized based on percentage of completion and revenues and costs relating to the operating phase
are recognized as the service is rendered.

Construction commenced in 2017 and the Transmission Project went into service on March 29, 2019.

In October 2017, APL issued non-recourse long-term debt to fund the Transmission Project activities (see Note 17).

On June 24, 2019, Canadian Utilities Limited announced that it had entered into agreements to sell its entire
ownership interest in APL. At that time, Canadian Utilities Limited classified the assets and liabilities of the APL
disposal group, including the receivable under service concession arrangement, as assets held for sale. The
transaction closed on December 18, 2019 (see Note 27).

Revenues, service concession arrangement costs and operating profit for the year ended December 31, 2019, are
$232 million, $127 million and $105 million, respectively (2018 - $803 million, $664 million and $139 million).

29 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 112

15. SHORT-TERM DEBT

At December 31, 2019, the Company had no commercial paper outstanding (2018 - $175 million of commercial
paper outstanding at a weighted average effective interest rate of 2.25 per cent, matured in January 2019).

The commercial paper is supported by the Company's long-term committed credit facilities.

16. 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 2021 - unsecured (2)
Canadian Utilities Limited debentures - unsecured,

3.122% due November 2022

Effective
Interest Rate

4.616% (2018 - 4.838%)

3.95% (2018 - 3.95%)

2019

8,090

2018

7,990

3.187%

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, $63 million AUD (2018 - $69 million AUD) (3)

ATCO Gas Australia revolving credit facility, payable in Australian dollars, at
BBSY rates, due July 2021, $275 million AUD (2018 - $275 million AUD) (3)

ATCO Gas Australia revolving credit facility, payable in Australian dollars, at
BBSY rates, due July 2023, $405 million AUD (2018 - $400 million AUD) (3)

Electricidad del Golfo credit facility, payable in Mexican pesos, at Mexican
Interbank rates, due March 2023, $570 million MXP (2018 - $570 million
MXP)

ATCO Investments Ltd. mortgage, at BA rates, payable in Canadian dollars,

due March 2028

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

250

369

138

200

264

385

150

200

(49)

9,436
(173)
9,263

(48)

9,397
(488)
8,909

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

(2) During 2019, the expiry date of the CU Inc. other long-term obligation was extended from December 2020 to June 2021.

(3) During 2019, the above interest rates had additional margin fees at a weighted average rate of 0.99 per cent (2018 - 1.16 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 23).

(5)

The 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

On September 5, 2019, CU Inc. issued $580 million of 2.963 per cent debentures maturing on September 7, 2049
(2018 - $385 million of 3.95 per cent debentures maturing on November 23, 2048).

CU Inc. repaid $180 million of 5.432 per cent debentures on January 23, 2019 and $300 million of 6.8 per cent
debentures on August 13, 2019.

113 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 30

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 revolving credit facility, 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, 2019. The second
tranche is a $450 million Australian dollars revolving credit facility, maturing in July 2023, at BBSY rates plus a
margin. $369 million ($405 million Australian dollars) was borrowed under this tranche at December 31, 2019. The
floating BBSY interest rates are hedged to December 31, 2024 with an interest rate swap agreement which fixes the
interest rate at 0.9708% (see Note 23).

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 27). 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 23).

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 23).

ATCO Ltd. extendible revolving credit facility

As part of the financing for the Neltume Ports investment (see Note 28), in August 2018, ATCO Ltd. entered into a
$150 million long-term revolving credit facility at BA rates, maturing in August 2021. In 2019, the Company repaid
$12 million of the credit facility.

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.

At December 31, 2019, the book value of assets pledged to maintain the Company's long-term credit facilities was
$709 million at (2018 - $789 million).

31 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 114

17. NON-RECOURSE LONG-TERM DEBT

Non-recourse long-term debt outstanding at December 31 was 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

SALE OF OPERATIONS

Effective
Interest Rate

2019

2018

8.950%

8.240%

7.840%

7.870%

7.890%

4.277%

4.274%

3.690%

3.679%

—

549

548

144

(53)

1,401

(20)

1,381

Following the announcement of agreements to sell the Canadian fossil fuel-based electricity generation portfolio
and Alberta PowerLine, the Company included $1,394 million of non-recourse long-term debt in liabilities of the
disposal groups classified as held for sale at June 30, 2019. Subsequently, the Company assumed $18 million of
ATCO Power's non-recourse long-term debt previously classified in liabilities of the disposal group, and repaid this
balance in September 2019. The Company also made scheduled payments of $5 million on the Alberta PowerLine
non-recourse long-term debt. The remaining $1,371 million of non-recourse long-term debt was included in net
assets of the operations sold (Note 27).

The Company's total repayment towards non-recourse long-term debt during the year ended December 31, 2019,
was $32 million.

18. 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 Committees of the Boards of Directors of Canadian Utilities Limited and ATCO Structures & Logistics are
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.

115 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 32

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
Curtailment gain (1)
Actuarial losses (gains)
Past service credit (2)
End of year (3)

Funded status

Net retirement benefit obligations

Pension
Benefit Plans

OPEB Plans

Pension
Benefit Plans

OPEB Plans

2019

2018

2,667

(127)

246

2,903

—

2,775

(119)

(106)

2,667

—

2,933

118

3,024

119

108

(127)

(8)

(10)

297

(6)

3,207

304

—

(5)

(2)

—

125

105

(119)

(7)

—

(95)

—

2,933

266

—

(4)

—

(4)

—

118

(1)

In 2019, as a result of a reduction of plan members due to the sale of the Canadian fossil fuel-based electricity generation portfolio (see Note 27), the
Company recorded a curtailment gain of $12 million. This gain is included in salaries, wages and benefits expense in the consolidated statements of
earnings.

(2)

In 2019, as a result of amendments to the non-registered, non-funded defined benefit pension plans, the Company recognized $6 million of past service
credit. The past service credit is included in salaries, wages and benefits expense in the consolidated statements of earnings.

(3) The non-registered, non-funded defined benefit pension plans accrued benefit obligations increased to $166 million at December 31, 2019 due to a

decrease in the liability discount rate and experience adjustments (2018 - decreased to $156 million due to an increase in the liability discount rate and
experience adjustments).

33 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 116

BENEFIT PLAN COST

The components of benefit plan cost are as follows:

Current service cost

Interest cost

Interest income

Curtailment gain

Past service credit

Defined benefit plans cost

Defined contribution plans cost

Total cost

Less: capitalized

Net cost recognized

Pension
Benefit Plans
19

108

(95)

(10)

(6)

2019

OPEB Plans

—

(2)

—

Pension
Benefit Plans
24

105

(95)

—

2018

OPEB Plans

—

RE-MEASUREMENT OF RETIREMENT BENEFITS

Re-measurements of the pension and OPEB plans are as follows:

Gains (losses) on plan assets from:

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

(Losses) gains on plan obligations from:

Changes in financial assumptions

Experience adjustments

(Losses) gains recognized in other

comprehensive income (1)

2019

2018

Pension
Benefit Plans

OPEB Plans

Pension
Benefit Plans

OPEB Plans

246

(297)

—

(297)

(51)

—

(7)

—

(7)

(106)

(11)

—

(1) Losses net of income taxes were $44 million for the year ended December 31, 2019 (2018 - $5 million).

117 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 34

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

2018

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

2019

137
202
153

—

492

1,056

718

—

1,814

—

6
329
228
10
573

1,141

672

118
122
2,053

30
203
233

44
2,903

1
100

70
2,376

6
329
228

—

563

1,141

672

118
4
1,935

—

44
2,542

—

10
10

—

118
118

30
203
233

—

361

—

11
11

—

54
54

31
195
226

—

291

137
202
153
11
503

1,056

718

40
54
1,868

31
195
226

70
2,667

3
100

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

At December 31, 2018, plan assets included holdings of Class A shares of Canadian Utilities Limited and Class I Non-
Voting Shares of the Company, with the market values of $5 million and $6 million, respectively. In 2019, these
holdings were sold.

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 2020 is $19 million. The next actuarial valuation for
funding purposes must be completed as of December 31, 2020.

35 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 118

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 (1)
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 (2)
Other medical costs

Dental costs

Pension
Benefit Plans

OPEB Plans

Pension
Benefit Plans

OPEB Plans

2019

2018

3.80%

2.50%

3.10%

2.00%

n/a

3.80%

n/a

3.10%

n/a

5.17%

4.00%

3.60%

2.50%

3.80%

2.00%

n/a

3.60%

n/a

3.80%

n/a

5.30%

4.50%

4.00%

(1)

The discount rate assumption for the year was 3.80 per cent up to September 30, 2019, at which time there was a plan curtailment due to the sale of the
Canadian fossil fuel-based electricity generation portfolio (see Note 27). The discount rate assumption for the period from October 1, 2019 to December
31, 2019, was 3.00 per cent.

(2)

The Company uses a graded drug cost trend rate, which assumes a 5.17 per cent rate per annum, grading down to 4.00 per cent in and after 2040.

The weighted average duration of the defined benefit obligation is 13.2 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.

119 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 36

SENSITIVITIES

The 2019 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

10%

(359)

416

443

(12)

(344)

(8)

(84)

—

(7)

—

(9)

—

(2)

(1)

The long-term inflation rate for pension plans reflects the fact that pension plan benefit payments have historically been indexed annually to increases
in the Canadian Consumer Price Index to a maximum increase of 3.0 per cent per annum.

The above sensitivities have been calculated independently of each other. Actual experience may result in changes
in a number of assumptions simultaneously.

19. 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, 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, 2017

Revenue from satisfied performance obligations

Customer billings and other items not included in revenue

Business acquisitions (Note 27)

Reversal of credit loss allowance, net

Payments received

Foreign exchange rate adjustment

December 31, 2018

Revenue from satisfied performance obligations

Customer billings and other items not included in revenue
Sale of operations (1)
Payments received

Foreign exchange rate adjustment and other

December 31, 2019

2019

700
31
731

2018

719
26
745

695

3,684

422

(4,093)

719

4,132

545

(72)

(4,621)

(3)

700

(1)

In the second quarter of 2019, as a result of the announced sale of the Canadian fossil fuel-based electricity generation portfolio and the ownership
interest in Alberta PowerLine, trade accounts receivable and contract assets of $72 million were reclassified as assets held for sale. The sale of
operations transactions closed in the second half of 2019 (Note 27).

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

37 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 120

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, 2017

Receipt of customer contributions

Derecognition on termination of Power Purchase Arrangement

Amortization

December 31, 2018

Receipt of customer contributions
Sale of operations (1)
Amortization

December 31, 2019

Note

1,808

(35)

(65)

1,798

(97)

(66)

1,720

(1)

In the second quarter of 2019, as a result of the announced sales of the Canadian fossil fuel-based electricity generation portfolio, customer
contributions of $97 million were reclassified as liabilities held for sale. The sale of operations transactions closed in the second half of 2019 (Note 27).

20. LEASES

THE COMPANY AS LESSEE

Right-of-use assets

The Company's right-of-use assets mainly relate to the lease of land and buildings.

Cost

January 1, 2019, on adoption of IFRS 16

Additions

Foreign exchange rate adjustment

December 31, 2019

Accumulated depreciation

January 1, 2019, on adoption of IFRS 16

Depreciation

December 31, 2019

Net book value

January 1, 2019, on adoption of IFRS 16

December 31, 2019

2019

Land and
Buildings

Note

107

(2)

114

—

107

121 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 38

Lease liabilities

The Company has recognized lease liabilities in relation to the arrangements to lease land and buildings. The
reconciliation of movements in lease liabilities is as follows:

January 1, 2019, on adoption of IFRS 16

Additions

Interest expense

Lease payments

Foreign exchange rate adjustment

Less: amounts due within one year

December 31, 2019

Note

The maturity analysis of the undiscounted contractual balances of the lease liabilities is as follows:

In one year or less

In more than one year, but not more than five years

In more than five years

The amounts expensed in the consolidated statements of earnings for the year ended December 31, 2019, in
relation to short-term leases and low-value leases are as follows:

Short-term leases

Low-value leases

2019

107

(19)

(1)

(15)

116

During the year ended December 31, 2019, no expenses were incurred in relation to low-value leases or leases with
variable payments.

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.

As at December 31, 2019, the Company's operating leases include rentals of modular structures. As at December 31,
2018, the Company's operating leases also included certain assets under power purchase agreements (PPA) that
were classified as operating leases because the Company had retained substantially all the risks and rewards of
ownership. The assets under PPA were sold as part of the Canadian fossil fuel-based electricity generation portfolio
(Note 27).

39 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 122

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

2019

2018

331

(152)

683

(291)

—

179

170

179

105

200

331

126

179

395

380

395

209

422

683

293

395

During the year ended December 31, 2019, $2 million of contingent rent was recognized as income from these
finance leases (2018 - $21 million).

Sale of operations

Following the announcement of agreements to sell the Canadian fossil fuel-based electricity generation portfolio
(see Note 27), the Company included $218 million of finance lease receivables in assets of the disposal groups
classified as held for sale at June 30, 2019. Subsequently, $214 million of finance lease receivables was included in
net assets of the operations sold.

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

2019

2018

—

114

116

232

During the year ended December 31, 2019 and 2018, no contingent rent was recognized as income from these
operating leases.

123 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 40

21. CLASS I NON-VOTING AND CLASS II VOTING SHARES

A reconciliation of the number and dollar amount of outstanding Class I and Class II Shares at December 31, 2019 is
shown below.

AUTHORIZED AND ISSUED

Authorized:
Issued and outstanding:

December 31, 2017

Purchased and cancelled
Stock options exercised
Converted: Class II to Class I
December 31, 2018
Purchased and cancelled
Stock options exercised
Converted: Class II to Class I
December 31, 2019

Class I Non-Voting

Shares
300,000,000

Amount

Shares
50,000,000

Class II Voting

Amount

Shares
350,000,000

Total

Amount

101,328,273

(116,800)
117,200
100,208
101,428,881
(101,350)
107,950
28,300
101,463,781

179

13,331,455

—

182

—

185

—

(100,208)
13,231,247

—

(28,300)
13,202,947

—

114,659,728

181

(116,800)
117,200

—

114,660,128
(101,350)
107,950

—

184

—

114,666,728

187

Class I and Class II Shares have no par value.

MID-TERM INCENTIVE PLAN

The Company's MTIP trust is considered a special purpose entity which is consolidated in these financial
statements. The Class I Shares, while held in trust, are accounted for as a reduction of share capital. The
consolidated Class I and Class II Shares outstanding at December 31 is shown below.

Shares issued and outstanding

Shares held in trust for the mid-term incentive plan

Shares outstanding, net of shares held in trust

DIVIDENDS

2019

2018

Amount

114,666,728

(321,948)

114,344,780

187

(14)

173

114,660,128

(342,212)

114,317,916

184

(15)

169

The Company declared and paid cash dividends of $1.6192 per Class I and Class II Share during 2019 (2018 -
$1.5064). 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 9, 2020, the Company declared a first quarter dividend of $0.4352 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.

41 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 124

NORMAL COURSE ISSUER BID

On March 8, 2019, ATCO Ltd. began a normal course issuer bid to purchase up to 1,014,294 outstanding Class I
Shares. The bid expires on March 7, 2020. The prior year normal course issuer bid to purchase up to 2,026,725
outstanding Class I Shares began on March 8, 2018 and expired on March 7, 2019.

During the year ended December 31, 2019, 101,350 shares were purchased for $5 million, resulting in no impact to
share capital and a decrease to retained earnings of $5 million (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).

22. CASH FLOW INFORMATION

ADJUSTMENTS TO RECONCILE EARNINGS TO CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile earnings to cash flows from operating activities for the year ended December 31 are
summarized below.

Depreciation and amortization

Gain on sale of operations

Gain on sale of Barking Power assets

Earnings from investment in associate company

Dividends received from associate company

Note

Dividends and distributions received from investment in joint ventures,

net of earnings
Income tax expense

Unearned availability incentives

Unrealized gains on mark-to-market forward and swap 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

2019

637

(174)

—

(15)

(7)

(66)

—

484

(94)

(16)

920

2018

682

—

(125)

(4)

—

231

—

(42)

(65)

(35)

478

(55)

1,226

125 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 42

(55)

(149)

140

(37)

(95)

—

(2)

(66)

(67)

Total

9,983

963

(11)

(9)

CHANGES IN NON-CASH WORKING CAPITAL

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

2019

2018

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

(5)

(37)

(202)

(25)

(205)

(6)

DEBT RECONCILIATION

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

Short-term
debt

Long-term
debt

Non-recourse
debt

Liabilities from financing activities

December 31, 2017

Net issue (repayment) of debt

Foreign currency translation

Assumption of debt on acquisition of EGO (Note 27)

Debt issue costs

Amortization of deferred financing charges

December 31, 2018

Net (repayment) issue of debt

Foreign currency translation

Sale of operations (Note 27)

Debt issue costs

Amortization of deferred financing charges

December 31, 2019

165

—

175

(175)

—

8,557

814

(11)

(9)

1,416

(16)

—

9,397

1,401

10,973

(38)

—

(4)

9,436

(32)

—

(129)

(38)

(1,371)

—

(4)

9,436

See Note 20 for the reconciliation of the changes in lease liability for the year ended December 31, 2019.

CASH POSITION

Cash position in the consolidated statements of cash flows at December 31 is comprised of:

Cash
Restricted cash (1)
Cash and cash equivalents

2019
1,061
79
1,140

2018
627
64
691

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

43 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 126

23. 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,
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 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 and
quoted spot market prices with inputs validated by publicly
available market providers (Level 2).

Determined using statistical techniques to derive period-end
forward curves using unobservable inputs or extrapolation
from spot prices in certain commodity contracts (Level 3).

FINANCIAL INSTRUMENTS MEASURED AT AMORTIZED COST

At December 31, 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

Carrying
Value

179

—

2019

Fair
Value

227

—

9,436

11,098

—

Carrying
Value

395

1,396

9,397

1,401

2018

Fair
Value

487

1,396

10,042

1,474

127 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 44

FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE

The Company's derivative instruments are measured at fair value. At December 31, 2019, 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;

foreign currency forward contracts for the purpose of limiting exposure to exchange rate fluctuations
relating to expenditures denominated in U.S. dollars, Australian dollars and Mexican pesos; 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

Rate Swaps Commodities Commodities

Interest

Foreign
Currency
Forward
Contracts

Total Fair
Value of
Derivatives

Subject to Hedge
Accounting

Not Subject to Hedge
Accounting

December 31, 2019

Financial Assets

Prepaid expenses and other current assets

Other assets

Financial Liabilities
Other current liabilities (1) (2)
Other liabilities (1) (2)

December 31, 2018

Financial Assets

Prepaid expenses and other current assets

Other assets

Financial Liabilities
Other current liabilities (1) (2)
Other liabilities (1) (2)

—

(1)

(2)

At December 31, 2019, financial liabilities include $7 million of Level 3 derivative financial instruments (2018 - nil).

At December 31, 2018, the Company paid $18 million of cash collateral to third parties on commodity forward positions related to future periods.
The contracts held with these third parties had an enforceable master netting arrangement, which allowed the right to offset. In 2019, these
contracts were disposed by the Company as part of the sale of the Canadian fossil fuel-based electricity generation portfolio (Note 27).

During the year ended December 31, 2019, losses before income taxes of $3 million were recognized in other
comprehensive income (OCI) (2018 - losses of $4 million) and losses before income taxes of $22 million were
reclassified to the statement of earnings (2018 - losses of $11 million), of which $11 million were reclassified on
sale of the Canadian fossil fuel-based electricity generation portfolio (Note 27).

Hedge ineffectiveness of $19 million was recognized in the statement of earnings during 2019 (2018 - $1
million). Over the next 12 months, the Company estimates that losses before income taxes of less than $1
million will be reclassified from accumulated other comprehensive income (AOCI) to earnings.

45 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 128

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, 2019
Purchases (3)
Sales (3)

Currency

Canadian dollars

Australian dollars

Mexican pesos

U.S. dollars

Maturity

December 31, 2018
Purchases (3)
Sales (3)

Currency

Canadian dollars

Australian dollars

Mexican pesos

U.S. dollars

British pounds

Maturity

— 19,680,771

2,627,765

—

— 20,456,673

2,215,145

7,000,000

743

570

—

2020-2028

2020-2024

2020-2021

—

— 12,545,000

— 58,518,200

3,254,650

—

100

744

570

—

1,193,640

7,740,700

7,574,926

—

Foreign
Currency
Forward
Contracts

—

100

2020

—

140

2019-2028

2019-2021

2019-2020

2019-2022

2019-2021

2019

(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.

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:

2019

Financial Assets

Accounts receivable and contract assets

(37)

Effects of Offsetting on the Balance Sheet

Gross Amount

Gross Amount
Offset

Net Amount
Recognized

2018

Financial Assets
Derivative assets (1)
Accounts receivable and contract assets

Financial Liabilities
Derivative liabilities (1)

222

103

—

(77)

(18)

145

(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.

129 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 46

24. 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 and 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
98 per cent (2018 - 98 per cent) of total long-term debt. Consequently, the exposure to fluctuations in market
interest rates is limited.

A 25 basis point increase or decrease in interest rates would increase or decrease earnings by less than $1 million.
This analysis has been determined based on the exposure to interest rates for financial instruments outstanding at
December 31, 2019.

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
42

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, 2019.

47 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 130

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 electricity sales and
purchases will fluctuate due to changes in market prices. Fluctuations in market prices result from changes in
supply and customer demand, fuel costs, market conditions, weather, regulatory policies, and other factors. The
Company’s retail energy and natural gas storage businesses are exposed to commodity price movements,
particularly to the market price of natural gas and electricity.

Anticipated price risks are calculated based on the Company’s customer demand requirements and supply
requirements to natural gas and electricity. These are consistently observed and analyzed to ensure that operational
and commercial strategic policies to mitigate pricing risk are met.

The Company manages its price risk as part of its strategy by entering into hedging contracts, including short-term
and long-term fixed price sale and purchase contracts. Management actively monitors its derivative transactions in
accordance with its risk management policy. This policy sets out pre-defined risks and financial parameters so that
price fluctuations do not materially affect the margins the Company ultimately receives.

The Company is also exposed to seasonal natural gas price spreads in its natural gas storage operations.
Management mitigates this risk by entering into short-term and long-term firm capacity arrangements, where
appropriate.

The Company’s natural gas and electricity contracts associated with financial derivatives are significantly influenced
by the variability of forward spot prices.

A 10 per cent increase or decrease in the forward price of natural gas or electricity would each increase or decrease
earnings and OCI by $1 million and $1 million, respectively. This analysis assumes that changes in the forward price
of natural gas and electricity affects the mark-to-market adjustment of the purchase and sale contracts.

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 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.

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, which by its nature is 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, the summary of the expected credit loss

131 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 48

rates for respective credit ratings is as follows:

December 31, 2019

December 31, 2018

High
(AA to AAA)

Medium
(BBB to A)

Low
(BB and below)

0%-0.02% 0.06%-0.16% 0.53%-3.41%

0%-0.03% 0.05%-0.26% 0.36%-1.05%

At December 31, 2019, the Company had less than $150 million of accounts receivable and contract assets classified
as Low (BB and below) (2018 - less than $200 million).

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:

December 31, 2017
Reversal of credit loss allowance
December 31, 2018
Reversal of credit loss allowance
Accounts receivable and contract assets written off as uncollectible
December 31, 2019

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

2019
640
25
10
25
700

11
(2)
9
(4)
4
9

2018
615
62
12
30
719

At December 31, 2019, the Company held $246 million in letters of credit for certain counterparty receivables (2018
- $246 million). The Company did not take possession of any collateral it holds as security in 2019 or 2018. The
Company has also entered into guarantee arrangements with Centrica plc. relating to the retail energy supply
functions performed by Direct Energy (see Note 33).

LIQUIDITY RISK

Liquidity risk is the risk that the Company will not be able to meet its financial obligations associated with its
financial liabilities that are settled in cash or another financial asset. Liquidity risk arises from the Company's
general funding needs and in the management of its assets, liabilities and capital structure. The Company considers
it prudent to maintain sufficient liquidity to fund approximately one full year of cash requirements to preserve
strong financial flexibility. Cash flow from operations provides a substantial portion of the Company’s cash
requirements. Additional cash requirements are met with the use of existing cash balances, bank borrowings and
issuance of long-term debt 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
2,985
18
571
3,574

Used
839
13
174
1,026

2019

Available
2,146
5
397
2,548

Total
3,036

—

571
3,607

Used
1,114

—

342
1,456

2018

Available
1,922

—

229
2,151

49 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 132

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:

Short-term debt (Note 15)
Long-term debt
Letters of credit

Commercial paper

2019

—

797
229
1,026

2018

175
846
435
1,456

The Company is authorized to issue $1.2 billion of commercial paper against its long-term committed credit
facilities.

Maturity analysis of financial obligations

The table below analyzes the remaining contractual maturities at December 31, 2019 of the Company's financial
liabilities based on the contractual undiscounted cash flows.

Accounts payable and accrued liabilities
Long-term debt:

Principal
Interest expense (1)

Derivatives (2)

2020

675

200
412
11
1,298

2021

2022

2023

2024

2025 and
thereafter

—

557
394
8
959

327
370
1
698

511
352
1
864

123
337

—

460

7,767
6,687

—

14,454

(1)

Interest payments on floating rate debt have been estimated using rates in effect at December 31, 2019. 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, 2019.

133 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 50

25. 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 debt. A common financial
covenant for the Company’s debentures and credit facilities is that total debt divided by total capitalization must be
less than 75 per cent. The Company defines total debt as the sum of bank indebtedness, short-term debt, long-term
debt and non-recourse long-term debt (including their respective current portions). It defines total capitalization as
the sum of Class I and Class II Shares, contributed surplus, retained earnings, AOCI, NCI and total debt.
Management maintains the debt capitalization ratio well below 75 per cent to sustain access to cost-effective
financing.

Debt capitalization does not have standardized meaning under IFRS and might not be comparable to similar
measures presented by other companies. Also, the definitions of total debt and total capitalization vary slightly in
the Company’s debt-related agreements.

The Company’s capitalization at December 31 is as follows:

Short-term debt

Long-term debt

Non-recourse long-term debt

Total debt

Class I and Class II Shares

Contributed surplus

Retained earnings

Accumulated other comprehensive (loss) income

Non-controlling interests

Total equity

Total capitalization

Debt capitalization

2019

—

9,436

—

9,436

173

3,832

(17)

3,858

7,858

2018

175

9,397

1,401

10,973

169

3,535

3,687

7,442

17,294

18,415

55%

60%

For the year ended December 31, 2019, 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.

51 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 134

26. 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.

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

135 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 52

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.

In the situation where the implicit interest rate in the lease is not readily determined, the Company uses judgment
to estimate the incremental borrowing rate for discounting the lease payments. The Company's incremental
borrowing rate generally reflects the interest rate that the Company would have to pay to borrow a similar amount
at a similar term and with a similar security. The Company estimates the lease term by considering the facts and
circumstances that create an economic incentive to exercise an extension or termination option. Certain qualitative
and quantitative assumptions are used when evaluating these incentives.

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.

Disposal groups and assets classified as held for sale

In 2019, the Company made judgments with regards to classification of assets and liabilities of certain businesses as
assets and liabilities held for sale and their operations as discontinued operations (see Note 27). The Company used
significant judgment in evaluating whether the sales were considered highly probable and considered the progress
of negotiations towards the significant terms of the sales. As a result, the Company classified the disposal groups as
assets and liabilities held for sale. The Company also used significant judgment in evaluating whether a disposal
group represented a major line of business or geographical area of operations to be classified as discontinued
operations, including considerations as to whether a disposal group was significant in relation to a reportable
segment. The Company concluded that the disposal groups should not have been classified as discontinued
operations since they were not considered a separate major line of business or geographical area of operations.

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 24.

Service concession arrangements

Contracts falling under IFRIC 12 Service Concession Arrangements 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.

53 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 136

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.

Leases

Useful lives of right-of-use assets are 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.

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 18.

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.

27. BUSINESS COMBINATIONS

SALE OF OPERATIONS

In 2019, proceeds on sale of operations, net of cash disposed, and gain on sale of operations are summarized as
follows:

(millions of Canadian Dollars)

Proceeds on sale of operations:

Cash consideration received in 2019

Cash and cash equivalents disposed

Proceeds on sale of operations received in 2019, net of cash and

cash equivalents disposed

Cash consideration received in 2020 on final closing adjustments

Total proceeds on sale of operations, received and receivable, net of

cash and cash equivalents disposed

Gain (loss) on sale of operations before income taxes

Gain (loss) on sale of operations after income taxes and NCI

Sale of the Canadian
fossil fuel-based
electricity
generation portfolio

Sale of Alberta
PowerLine
operations

770
(89)

681

694

175
78

222

—

222

—

222

(1)
(13)

Total

992
(89)

903

916

174
65

137 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 54

Sale of the Canadian fossil fuel-based electricity generation portfolio

On May 27, 2019, the Company announced that it had entered into agreements to sell its Canadian fossil fuel-based
electricity generation portfolio (Electricity generation disposal group).

An agreement with Heartland Generation Ltd., an affiliate of Energy Capital Partners, closed on September 30, 2019,
and included the sale of 10 partly or fully owned natural gas-fired and coal-fired electricity generation assets located
in Alberta and British Columbia. In two other separate transactions, the Company entered into agreements to sell its
50 per cent ownership interest in the Cory Cogeneration Station to SaskPower International and its 50 per cent
ownership interest in Brighton Beach Power to Ontario Power Generation. This portfolio of transactions all closed in
the third quarter of 2019 and resulted in gross proceeds of $821 million. An additional $13 million was received in
January 2020 for settlement of customary post-closing purchase price adjustments.

Prior to the sale, the Company had classified the assets and liabilities of the Electricity generation disposal group as
assets held for sale. These assets and liabilities were reported in the Electricity operating segment.

The below summary illustrates major classes of assets and liabilities of the Electricity generation disposal group at
June 30, 2019, when the assets and liabilities were classified as held for sale, and the major classes of assets and
liabilities included in sale of operations.

(millions of Canadian Dollars)

ASSETS

Current assets

Cash and cash equivalents

Accounts receivable and contract assets

Finance lease receivables

Prepaid expenses and other current assets

Non-current assets

Property, plant and equipment

Intangibles

Investment in joint ventures

Finance lease receivables

Deferred income tax assets

Other assets

Assets of the disposal group

LIABILITIES

Current liabilities

Accounts payable, accrued liabilities and other current liabilities
Non-recourse long-term debt (1)

Non-current liabilities

Deferred income tax liabilities

Customer contributions

Other liabilities
Non-recourse long-term debt (1)
Liabilities of the disposal group

Net assets of the disposal group

Assets and
liabilities of the
disposal group
classified as
held for sale at
June 30, 2019

Assets and
liabilities of the
disposal group
prior to sale of
operations

Assets and
liabilities of
disposal group
sold

141
68
11
40
260

508
18
35
207
12
23
1,063

110
15
125

23
97
163
45
453

89
77
12
18
196

535
17
35
202
32
49
1,066

159
10
169

33
96
187
32
517

1,066

517
549

(1)

As part of the negotiation process with Heartland Generation Ltd., the Company assumed $18 million of non-recourse long-term debt previously
classified in liabilities of the disposal group. This amount was repaid in September 2019 (see Note 17).

55 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 138

The gain on sale of the Canadian fossil fuel-based electricity generation portfolio is shown below.

(millions of Canadian Dollars)

Aggregate consideration as per share purchase agreement

Debt adjustments (1)
Working capital and other purchase price adjustments made in 2019

Cash consideration received in 2019

Cash consideration received in 2020 on final closing adjustments

Cash consideration received and receivable

Carrying value of net assets sold and other items

Carrying value of net assets sold
Transaction costs (2)
Write-down of natural gas inventory (3)
Other directly attributable costs

Gain on sale before income taxes

Income tax expense

Gain on sale after income taxes

Non-controlling interests

Gain on sale after income taxes and non-controlling interests

821

(109)

770

783

(549)

(29)

(19)

(11)

(608)

175

(25)

150

(72)

(1) Debt adjustments include $37 million of non-recourse long-term debt of Cory Cogeneration Station assumed by SaskPower International, $67 million of

non-recourse long-term debt of Brighton Beach Power assumed by Ontario Power Generation and $5 million of non-recourse debt assumed by
Heartland Generation Ltd.

(2)

(3)

Transaction costs relate to success fees, legal costs and other advisory costs directly attributable to the sale of operations.

Prior to the sale of the Electricity generation disposal group, certain natural gas inventory in the electricity generation business was valued at cost in the
balance sheet as the value was supported by electricity generation operations. As a result of the sale of this business, the natural gas inventory, which
was retained by the Company, was revalued to the lesser of cost or net realizable value as the cost will no longer be supported by electricity generation’s
revenues. This resulted in a write-down of $19 million.

Sale of Alberta PowerLine operations

On June 24, 2019, the Company announced that it had entered into agreements to sell its entire 80 per cent
ownership interest in Alberta PowerLine (APL disposal group), a partnership between the Company and Quanta
Services Inc.

The transaction closed on December 18, 2019 for gross proceeds of $222 million and the assumption of $1.4 billion
of debt, excluding deferred financing charges.

Prior to the sale, the Company had classified the assets and liabilities of the APL disposal group as assets held for
sale. These assets and liabilities were reported in the Electricity operating segment.

The below summary illustrates major classes of assets and liabilities of the APL disposal group at June 30, 2019,
when the assets and liabilities were classified as held for sale, and the major classes of assets and liabilities included
in sale of operations.

139 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 56

(millions of Canadian Dollars)

ASSETS

Current assets

Accounts receivable and contract assets

Restricted project funds

Receivable under service concession arrangement

Non-current assets

Receivable under service concession arrangement

Other assets

Assets of the disposal group

LIABILITIES

Current liabilities

Accounts payable, accrued liabilities and other current liabilities

Non-recourse long-term debt

Non-current liabilities

Deferred income tax liabilities
Other liabilities (1)
Non-recourse long-term debt

Liabilities of the disposal group

Net assets of disposal group classified as held for sale

(1)

Represents the Canadian Utilities Limited 20 per cent non-controlling ownership interest classified as other liabilities.

The loss on sale of Alberta PowerLine is shown below.

(millions of Canadian Dollars)

Aggregate consideration as per share purchase agreement

Carrying value of net assets sold and other items

Carrying value of net assets sold
Transaction costs (1)

Loss on sale before income taxes

Income tax expense

Loss on sale after income taxes

Non-controlling interests

Loss on sale after income taxes and non-controlling interests

(1)

Transaction costs relate to success fees, legal costs and other advisory costs directly attributable to the sale of operations.

Assets and
liabilities of the
disposal group
classified as
held for sale at
June 30, 2019

Assets and
liabilities of the
disposal group
prior to sale of
operations

Assets and
liabilities of
disposal group
sold

4
235
109
348

1,425

—

1,773

146
15
161

51
60
1,319
1,591
182

7
83
106
196

1,470
18
1,684

25
20
45

56
62
1,309
1,472
212

1,684

1,472
212

222

(212)

(11)

(223)

(1)

(24)

(25)

(13)

57 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 140

BUSINESS ACQUISITIONS

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 statements 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 statements
of earnings.

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 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. Management is currently in
the process of determining if the performance targets have been met.

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 was recorded in other liabilities.

At December 31, 2019, $29 million of the purchase consideration was paid. Of this amount, $24 million was paid in
2018, and $5 million in 2019.

141 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 58

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 attributable to Class I and Class II shares 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.

28. INVESTMENT IN EQUITY INTEREST IN ASSOCIATE COMPANY

On September 12, 2018, the Company invested in a 40 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, 2019, $465 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 16 for details on the issue of long-term
debt.

The Company has significant influence over Neltume Ports due to its 40 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).

59 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 142

At the date of investment, the fair value of the identifiable net assets of Neltume Ports 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

The summarized financial information for Neltume Ports is provided below. This includes the balance sheets and
selected information from the statements of earnings and comprehensive income.

December 31
2019

December 31
2018

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
Other comprehensive (loss) income

ATCO's share of earnings
ATCO's share of other comprehensive (loss) income

(1)

(2)

Year ended December 31, 2019.

For the period from September 12, 2018 to December 31, 2018.

322
78
400

1,186
1,586

(48)
(57)
(105)

(215)
(95)
(310)

(415)

1,171
468

340
84
424

1,252
1,676

(56)
(78)
(134)

(210)
(105)
(315)

(449)

1,227
491

2019 (1)

2018 (2)

328

(62)
8
(14)
(2)

37
(6)

15
(2)

116

(14)
3
(5)
(2)

10
3

—

143 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 60

A reconciliation of the carrying amount of the investment in associate company is as follows:

Balance at the beginning of the period
ATCO's share of net earnings
ATCO's share of other comprehensive loss
Dividends received
Foreign exchange
Carrying amount of the investment

29. SUBSIDIARIES

Year ended
December 31,
2019

491
15
(2)
(12)
(24)
468

Period from
September 12,
2018,
to December
31, 2018
471
4

—

16
491

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

Principal Operating Subsidiaries

Principal Place
of Business

Principal Activity

Subsidiaries at December 31, 2019 and December 31, 2018

ATCO Structures & Logistics

Canada

Inversiones ATCO Chile Limitada Chile
Canadian Utilities Limited (1)
ATCO Energy Solutions

Canada
Canada

Electricidad del Golfo
ATCO Gas Australia
ATCO Power Australia
ATCO Energy
ATCO Power (2010) (2)
CU Inc.

ATCO Electric

ATCO Gas
ATCO Pipelines

Mexico
Australia
Australia
Canada
Canada
Canada
Canada

Canada
Canada

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

Holds 40% investment in associate, Neltume Ports S.A.
Holding company
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
Electricity generation and related infrastructure services
Holding company
Electricity transmission, distribution and related infrastructure
development

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

Subsidiaries at December 31, 2018, and sold during the year ended December 31, 2019 (see Note 27)
ATCO Power Canada (3)
Alberta PowerLine (4)

Electricity generation and related infrastructure services
Design, build, own, and operate transmission infrastructure

Canada
Canada

(1) At December 31, 2019, ATCO Ltd. has an ownership interest of 52.2 per cent (2018 - 52.2 per cent).

(2) Following the sale of the Canadian fossil fuel-based electricity generation portfolio (see Note 27), ATCO Power (2010) holds the remaining Canadian

electricity generation and related infrastructure assets.

(3)

Included the Canadian fossil fuel-based electricity generation portfolio sold in 2019 (see Note 27).

(4) Prior to the sale of operations on December 19, 2019, Canadian Utilities Limited had an ownership interest of 80 per cent.

61 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 144

30. JOINT ARRANGEMENTS

JOINT OPERATIONS

In 2019, the Company disposed of its significant joint operations as part of the sale of the Canadian fossil fuel-based
electricity generation portfolio (see Note 27). Prior to the sale, the significant joint operations, all of which were
included in the Electricity segment, were as follows.

Significant Joint Operations

Sheerness Generating Plant

Joffre Cogeneration Plant

Cory Cogeneration Plant

Muskeg River Cogeneration Plant

JOINT VENTURES

Operating
Jurisdiction

Canada

Ownership %

Principal Activity

Electricity generation

In 2019, the Company disposed of its 50 per cent ownership in Brighton Beach Plant joint venture as part of the sale
of the Canadian fossil fuel-based electricity generation portfolio (see Note 27). Prior to the sale, Brighton Beach
Plant was included in the Electricity segment.

The following joint ventures are considered the most significant; however, they are not individually material to the
operations of the Company.

Significant Joint Ventures

Osborne Cogeneration Plant

Segment

Electricity

Operating
Jurisdiction

Australia

Strathcona Storage Limited Partnership

Pipelines & Liquids

Canada

Sabinco Soluciones Modulares S.A.

Structures & Logistics Chile

Ownership % Principal Activity

Electricity generation

Hydrocarbon storage

Modular structures

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

Earnings for the year

Other comprehensive loss

Comprehensive income for the year

Dividends received

Aggregate carrying amount of interests in joint ventures

Investment in joint ventures

2019
24

—

187

2018
25

(2)

240

In 2019, the Company did not make any contributions to joint ventures (2018 - $6 million to the Strathcona Storage
Limited Partnership).

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 $45 million at December
31, 2019 (2018 - $122 million).

Restrictions

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

145 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 62

31. 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., 70 per cent owned subsidiary of
ATCO Structures & Logistics (Note 27)

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

2019

3,853

3,858

2019

47.8

9.8

61.8

2018

3,682

3,687

2018

47.8

10.1

61.7

The summarized consolidated financial information for Canadian Utilities Limited, before inter-company
eliminations, is provided below.

Consolidated Statements of Comprehensive Income

2019

2018

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 (used in) from financing activities

Increase in cash position

Dividends paid to NCI

Class A and Class B share owners

Equity preferred shares

3,905

958

892

494

462

1,714

18,330

(739)

(12,384)

6,921

3,853

1,358

(172)

(788)

398

220

294

4,377

641

657

343

350

1,856

19,963

(1,645)

(13,612)

6,562

3,682

870

(1,065)

367

172

140

214

CANADIAN UTILITIES LIMITED DIVIDEND REINVESTMENT PLAN

In 2019 and 2018, Canadian Utilities Limited had a dividend reinvestment program (DRIP) that allowed 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.

63 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 146

Effective January 10, 2019, Canadian Utilities Limited suspended its dividend reinvestment program. No Class A non-
voting shares were issued under the DRIP during the year ended December 31, 2019.

During the year ended December 31, 2018, non-controlling interests acquired 2,000,420 Class A non-voting shares
of Canadian Utilities Limited, using re-invested dividends of $63 million. The shares were priced at an average of
$31.37 per share.

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%

Perpetual Cumulative Second Preferred Shares, at 4.60%

Issuance costs

Rights and privileges

2019

190

1,400

110

(30)

1,670

2018

190

1,400

110

(30)

1,670

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.

147 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 64

32. SHARE-BASED COMPENSATION PLANS

PLAN FEATURES

Share based forms of compensation are granted at the discretion of the Corporate Governance – Nomination,
Compensation and Succession Committee. Plan features are described below.

Form of compensation

Eligibility

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

Options exercisable, end of year

Options

Range of
Exercise Prices

$28.32

$35.12 - $38.93

$40.38 - $44.97

$45.40 - $49.51

$50.33 - $51.97

$28.32 - $51.97

2019

Weighted
Average
Exercise Price

$41.31

49.51

29.04

45.92

$44.40

$43.21

Options

10,200,000

2,444,450

705,500

106,000

(107,950)

(10,550)

693,000

397,850

Options

10,200,000

2,539,900

730,050

110,750

(117,200)

(18,100)

705,500

422,700

2018

Weighted
Average
Exercise Price

$38.42

42.06

23.40

45.60

$41.31

$39.17

Number
Outstanding

34,000

135,200

176,650

270,750

76,400

693,000

Weighted
Average
Remaining
Contractual Life
1.2

4.5

6.1

7.7

4.4

6.0

Outstanding

Weighted
Average
Exercise Price

$28.32

37.30

43.26

48.60

51.89

Exercisable

Weighted
Average
Exercise Price

$28.32

36.80

44.34

47.70

51.93

Number
Exercisable

34,000

103,600

92,650

93,900

73,700

$44.40

397,850

$43.21

Compensation expense related to stock options was less than $1 million in each of 2019 and 2018, with a
corresponding increase to contributed surplus.

65 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 148

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

$28.32

$35.12 - $38.93

$40.38 - $44.97

$45.40 - $49.51

$50.33 - $51.97

$28.32 - $51.97

2019

Weighted
Average
Exercise Price

$41.76

49.51

29.04

47.51

$44.56

$43.21

SARs

787,500

127,000

(107,950)

(31,550)

775,000

397,850

2018

Weighted
Average
Exercise Price

$41.57

42.01

24.38

44.94

$41.76

$39.17

SARs

703,050

140,750

(13,200)

(43,100)

787,500

422,700

Number
Outstanding

34,000

142,200

201,650

318,750

78,400

775,000

Weighted
Average
Remaining
Contractual Life
1.2

4.6

6.4

7.8

4.5

6.2

Outstanding

Exercisable

Weighted
Average
Exercise Price

$28.32

37.38

43.14

48.61

51.86

Number
Exercisable

34,000

103,600

92,650

93,900

73,700

Weighted
Average
Exercise Price

$28.32

36.80

44.34

47.70

51.93

$44.56

397,850

$43.21

In 2019, compensation expense related to SARs was an expense of $3 million (2018 - credit of $2 million). The total
carrying value of liabilities arising from SARs at December 31, 2019 was $3 million (2018 - $2 million). The total
intrinsic value of all vested SARs at December 31, 2019 is $3 million (2018 - $2 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
$49.51

1.47%

18.88%

3.25%

2019

SARs
$49.51

1.47%

18.85%

3.25%

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

7.1 years

5.9 years

7.2 years

5.9 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.

149 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 66

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

2019

Weighted
Average
Grant Date
Fair Value
$44.34

44.46

42.62

41.77

—

$45.00

MTIPs

342,212

108,650

(28,770)

(48,558)

(51,586)

321,948

MTIPs

329,504

131,450

(70,573)

(74,575)

26,406

342,212

(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

$40.38 - $44.38
$45.40 - $49.60
$50.33 - $50.75
Unallocated shares
$40.38 - $50.75

Number
Outstanding

217,100
74,500
24,550
5,798
321,948

Weighted
Average
Remaining
Contractual Life
1.9
0.3
0.4

—

1.4

2018

Weighted
Average
Grant Date
Fair Value
$46.36

41.45

46.09

45.67

—

$44.34

Outstanding

Weighted
Average
Grant Date
Fair Value
$42.85
49.39
50.68

—

$45.00

Compensation expense related to MTIP grants was an expense of $2 million for 2019 with a corresponding increase
to contributed surplus (2018 - expense of $3 million with a corresponding increase to contributed surplus).

The Company, through a trustee, purchased 10,000 shares during 2019 to be distributed to employees on vesting of
the awards (2018 - 76,500 shares).

33. CONTINGENCIES

Measurement inaccuracies occur from time to time on electricity and gas metering facilities. The measurement
adjustments relating to the Canadian utilities are settled between the parties according to the Electricity and Gas
Inspections Act (Canada) and related regulations. The AUC may disallow recovery of a measurement adjustment if it
finds that controls and timely follow-up are inadequate. The measurement adjustments relating to ATCO Gas
Australia are reconciled by the market operator and settled between the parties. Recovery of the costs is via a
predetermined allowance contained in the current Access Arrangement.

The Company is party to a number of other disputes and lawsuits in the normal course of business. The Company
believes that the ultimate liability arising from these matters will have no material impact on the consolidated
financial statements.

In 2004, ATCO Gas and ATCO Electric transferred their retail energy supply businesses to Direct Energy. The legal
obligations of ATCO Gas and ATCO Electric for the retail functions transferred to Direct Energy, which include the
supply of natural gas and electricity to customers as well as billing and customer care, remain if Direct Energy fails
to perform. In certain circumstances, the functions will revert to ATCO Gas and/or ATCO Electric, with no refund of
the transfer proceeds to Direct Energy.

Centrica plc., Direct Energy’s parent company, provided a $300 million guarantee, supported by a $235 million letter
of credit for Direct Energy’s obligations to ATCO Gas and ATCO Electric under the transaction agreements. However,
there can be no assurance that the coverage under these agreements will be adequate to defray all costs that could
arise if the obligations are not met.

67 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 150

34. COMMITMENTS

In addition to commitments disclosed elsewhere in these financial statements, the Company has entered into a
number of operating and maintenance agreements and agreements to purchase capital assets. Approximate future
undiscounted payments under these agreements are as follows:

Purchase obligations:

Operating and maintenance agreements
Capital expenditures

Other

35. RELATED PARTY TRANSACTIONS

2020

2021

2022

2023

2024

2025 and
thereafter

343
128

483

322

—

322

327

—

327

325

—

325

287

—

287

—

In transactions with the Company’s joint ventures, the Company recognized revenues of $6 million relating to
management fees and other charges (2018 - $6 million).

In transactions with the Company’s group pension plans, the Company paid occupancy costs of $8 million relating to
property owned by the pension plans (2018 - $8 million).

The Company received less than $1 million (2018 - less than $1 million) in electricity and gas sales revenue and
incurred $3 million in advertising, promotion and other expenses from entities related through common control
(2018 - $3 million).

KEY MANAGEMENT COMPENSATION

Information on management compensation is shown below.

Salaries and short-term employee benefits

Retirement benefits

Share-based compensation

2019
11

2018
11

Key management personnel comprise members of executive management and the Board, a total of 19 individuals
(2018 - 20 individuals).

36. 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.

151 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 68

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.

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 assets are measured at
cost less accumulated amortization and impairment losses, if any.

69 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 152

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 System 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.

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 arrangements (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

153 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 70

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) was 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.

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.

71 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 154

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.

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.

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ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 72

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
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
4 to 58 years
3 to 120 years

7 years
43 to 50 years
10 to 73 years

12 to 17 years
1 to 74 years

52 years
51 years
41 years
40 years

7 years
56 years
36 years

19 years
18 years

1.9%
2.0%
2.5%
2.5%

13.1%
1.8%
2.8%

5.2%
5.6%

Depreciation methods and the estimated residual values and useful lives of assets are reviewed on an annual basis.
Any changes in these accounting estimates are recorded prospectively.

INTANGIBLES

Intangible assets are recorded at cost less accumulated amortization and any recognized impairment losses. The
Company amortizes intangible assets on a straight-line basis over their useful lives. Useful life is not longer than
10 years for computer software and between 74 and 98 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

The Company as a lessee

A right-of-use asset representing the right to use the underlying asset with a corresponding lease liability is
recognized when the leased asset becomes available for use by the Company.

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The right-of-use asset is recognized at cost and is depreciated on a straight-line basis over the shorter of the
estimated useful life of the asset and the lease term on a straight-line basis. The cost of the right-of-use asset is
based on the following:

•

the amount of initial recognition of related lease liability;

adjusted by any lease payments made on or before inception of the lease;

increased by any initial direct costs incurred; and

decreased by lease incentives received and any costs to dismantle the leased asset.

The lease term includes consideration of an option to extend or to terminate if the Company is reasonably certain
to exercise that option. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and
adjusted for certain re-measurements of the lease liability.

Lease liabilities are initially recognized at the present value of the lease payments. The lease payments are
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s
incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.
Subsequent to recognition, lease liabilities are measured at amortized cost using the effective interest rate method.
Lease liabilities are remeasured when there is a change in future lease payments arising mainly from a change in an
index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual
value guarantee, or if the Company changes its assessment of whether it will exercise a purchase, renewal or
termination option.

The payments related to short-term leases and low-value leases are recognized as other expenses over the lease
term in the consolidated statements of earnings.

Prior to January 1, 2019, assets subject to operating leases were included in property, plant and equipment and
were depreciated. Income from operating leases was recognized in earnings on a straight-line basis over the lease
term. When the Company had purchased goods or services as a lessee, and the lease was an operating lease, rental
payments were expensed on a straight-line basis over the life of the lease. For both finance and operating leases,
contingent rents were recognized in earnings in the period in which they were incurred. Contingent rent was that
portion of lease payments that was not fixed in amount but varied based on a future factor, such as the amount of
use or production.

The Company as a lessor

A finance lease exists when the terms of the lease transfer substantially all the risks and rewards incidental to
ownership of the leased asset to the lessee. Amounts due from lessees under finance leases are recorded as
finance lease receivables. They are initially recognized at amounts equal to the present value of the minimum lease
payments receivable. Payments that are part of the leasing arrangement are divided between a reduction in the
finance lease receivable and finance lease income. Finance lease income is recognized so as to produce a constant
rate of return on the Company’s investment in the lease and is included in revenues.

ASSETS AND LIABILITIES OF DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE

Assets and liabilities of disposal groups are classified as held for sale if their carrying amount will be recovered
principally through a sale transaction. They are measured at the lower of their carrying value and fair value less
costs to sell, except for deferred tax assets, assets arising from employee benefits and financial assets and liabilities
that are carried at fair value.

Assets held for sale are not depreciated or amortized while they are classified as held for sale. Interest and other
expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognized.

157 — ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 74

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

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, included in other liabilities, with a corresponding increase to property,
plant and equipment. Subsequently, the carrying amount of the provision is accreted over the estimated time
period until the obligation is to be settled; the accretion expense is recognized as interest expense. The asset is
depreciated over its estimated useful life. Revaluations of the ARO at each reporting period take into account
changes in estimated future cash flows and the discount rate.

FINANCIAL INSTRUMENTS

The Company classifies financial assets when they are first recognized as amortized cost or fair value through profit
or loss. Classification is determined based on the Company’s business model for managing financial assets and the
contractual cash flow characteristics of the financial assets. Financial assets are measured at amortized cost if the
financial asset is:

(i) held for the purpose of collecting contractual cash flows, and

(ii) the contractual cash flows of the financial asset solely represent payments of principle and interest.

All other financial assets are classified as fair value through profit or loss.

Financial liabilities are classified as amortized cost or fair value through profit or loss.

Amortized cost

Financial instruments classified as amortized cost are initially measured at fair value and subsequently measured at
their amortized cost using the effective interest method.

Fair value through profit or loss

Financial instruments classified as fair value through profit or loss are initially measured at fair value with
subsequent changes in fair value recognized in earnings.

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Transaction costs

Transaction costs directly attributable to the purchase or issue of financial assets or financial liabilities that are not
classified as 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
amount cannot exceed the carrying amount that would have been determined had no impairment charge been
recognized in previous periods.

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

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ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 76

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.

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.

77 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 160

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 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 OCI.

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.

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ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS 78

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

2019
1.2963

0.9112

2018
1.3644

0.9613

2019
1.3281

0.9227

2018
1.2957

0.9687

ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET ADOPTED

At December 31, 2019, there are no new or amended standards and interpretations that need to be adopted in
future periods and will have a significant impact on the Company.

79 ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS

ATCO LTD. 2019 CONSOLIDATED FINANCIAL STATEMENTS — 162

CONSOLIDATED ANNUAL RESULTS (1)

YEAR ENDED DECEMBER 31, 2019

(Millions of Canadian dollars, except as indicated)

2019

2018

2017

2016

2015

EARNINGS STATEMENT
Revenues
Earnings attributable to Class I and Class II

Adjusted earnings (3)

Structures & Logistics
Canadian Utilities Limited
- Electricity
- Pipelines & Liquids
- Corporate & Other
Neltume Ports
Corporate & Other
Adjusted earnings (2)

BALANCE SHEET
Cash (3)
Total assets
Capitalization

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

Capitalization

CASH FLOW STATEMENT
Funds generated by operations (4)
Capital investments (4)
Structures & Logistics
Canadian Utilities Limited
- Electricity
- Pipelines & Liquids
- Corporate & Other
Neltume Ports
Corporate & Other and eliminations

Capital investments

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

4,706

513

221
137
(39)
15
(6)
365

1,140

21,703

—

9,436

—

3,858
4,000
17,294

4,888

4,600

4,045

4,131

328

219

340

154

228
130
(39)
4
17
355

210
144
(35)

—

10
335

213
136
(35)

—

3
360

171
101
(15)

—

9
293

691

494

601

799

23,344

21,786

19,724

19,055

—

175
9,397
1,401
3,687
3,755
18,415

7
10
8,557
1,416
3,576
3,527
17,093

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

—

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

1,927

1,897

1,813

1,912

1,589

105

113

543
677
6
9
(16)
1,324

4.49
3.19
1.62
34.88
49.77
49.55

1,287
648
16
444
10
2,518

2.87
3.10
1.51
32.75
38.61
38.55

918
782
3

—

81
1,821

1.92
2.93
1.31
30.76
45.00
44.90

647
790
5

—

70
1,609

2.97
3.15
1.14
30.93
44.66
44.78

935
875
9

—

39
1,919

1.34
2.55
0.99
29.18
35.70
35.50

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

(1)

(2)

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

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 and swap 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

163 — ATCO LTD. 2019 CONSOLIDATED ANNUAL RESULTS

operations. Descriptions of the adjustments are provided in Note 4 of the 2019 Consolidated Financial
Statements.

(3) Cash is defined as cash and cash equivalents less current bank indebtedness.

(4)

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. Capital investments 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. These measures are not
defined by IFRS and may not be comparable to similar measures used by other companies.

ATCO LTD. 2019 CONSOLIDATED ANNUAL RESULTS — 164

CONSOLIDATED OPERATING SUMMARY

YEAR ENDED DECEMBER 31, 2019

(Millions of Canadian dollars, except as indicated)
Structures & Logistics

Capital investments (1)
Workforce housing lease fleet (units in thousands)
Workforce housing lease fleet utilization (%)
Space rental lease fleet (units in thousands)
Space rental lease fleet utilization (%)

Neltume
Port products handling (millions of tonnes)

Electricity

Electricity distribution and transmission

operations

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

Pipelines & Liquids

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

(gigajoules) for ATCO Gas

Average annual use per residential customer

(gigajoules) for ATCO Gas Australia

Customers at year-end (thousands)
Natural gas transmission operations
Capital investments (1)
Pipelines (thousands of kilometres)
Energy storage & industrial water operations
Capital investments (1)
Seasonal natural gas storage capacity (petajoules)
Salt cavern storage capacity (thousands of m3)

Industrial water infrastructure intake capacity

(thousands of m3/day)

2019

2018

2017

2016

2015

105

113

3
48
16
72

389

75
12,664
7,227
260

344
244

353

55
2,304
311

112

2,003

295

52
400

3
40
15
75

467

75
12,928
7,398
258

156

3,922
2,517

383

55
2,292
304

111

1,978

248

52
400

4
37
13
70

5
38
14
64

3
51
13
68

—

438

75
11,961
7,325
256

3,887
2,482

464

55
2,381
287

116

1,952

303

52
200

470

76
11,659
7,198
256

108

3,870
2,473

426

55
2,097
263

116

1,924

282

52
200

826

75
11,832
7,476
256

3,857
2,462

411

54
2,216
264

117

1,893

363

101

—

(1) Capital investments 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. This
measure is not defined by IFRS and may not be comparable to similar measures used by other companies.

(2) On September 12, 2018, ATCO invested in a 40 per cent interest in Neltume Ports, a leading port operator and
developer in South America. Neltume Ports, a subsidiary of Ultramar, is a port operator and developer with a
diversified portfolio of 16 multipurpose bulk cargo and container port facilities and three port operation
services. The business is located primarily in Chile, with smaller operations in Uruguay, Argentina, and Brazil. The
port product handling volume for 2018 represents an annual amount. The volume of products handled includes
copper, forestry products, consumer goods and agricultural products.

165 — ATCO LTD. 2019 CONSOLIDATED OPERATING SUMMARY

GENERAL INFORMATION

INCORPORATION
ATCO Ltd. was incorporated under the laws of the
province of Alberta on August 31, 1962.

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

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

Printed in Canada

ATCO LTD. 2019 GENERAL INFORMATION — 166

P
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5302 FORAND ST SW
CALGARY AB CANADA
T3E 8B4

403 292 7500
ATCO.COM