August 27, 2015
IN THE MATTER OF
THE SECURITIES LEGISLATION OF ONTARIO
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
HYDRO ONE LIMITED
HYDRO ONE INC.
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting the entity that will become the sole shareholder of the Filer, a corporation to be incorporated under the Business Corporations Act (Ontario) and named Hydro One Limited (the Parent), from the requirements under section 3.2 of National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards (NI 52-107) that financial statements (a) be prepared in accordance with Canadian GAAP applicable to publicly accountable enterprises; and (b) disclose an unreserved statement of compliance with IFRS in the case of annual financial statements and an unreserved statement of compliance with IAS 34 in the case of an interim financial report, which requirements are also applicable to financial statements included in a prospectus (the Exemption Sought).
Furthermore, the principal regulator in the Jurisdiction has received a request from the Filer for a decision that the application and this decision be kept confidential and not be made public until the earlier of: (i) the date on which the Filer and/or the Parent publicly discloses all of the information in the application and this decision that has not been previously disclosed; (ii) the date on which the Filer and/or the Parent publicly discloses the granting of the Exemption Sought; (iii) the date on which the Parent obtains a receipt for a preliminary long form prospectus relating to the proposed initial public offering of the Parent (the IPO); (iv) the date on which the Filer advises the principal regulator that there is no longer any need for the application and this decision to remain confidential; and (v) the date that is 90 days after the date of this decision (the Confidentiality Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
- the Ontario Securities Commission is the principal regulator for this application;
- the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (the Passport Jurisdictions); and
- the decision of the principal regulator automatically results in an equivalent decision in the Passport Jurisdictions.
Terms defined in National Instrument 14-101 Definitions, MI 11-102 and NI 52-107 have the same meaning if used in this decision, unless otherwise defined, and the term “activities subject to rate regulation” has the meaning given in the Handbook.
This decision is based on the following facts represented by the Filer.
- The Filer is incorporated under the Business Corporations Act (Ontario) and is currently wholly-owned by the Province of Ontario (Province). The head office of the Filer is located at 483 Bay Street, South Tower, 8th Floor, Toronto, Ontario M5G 2P5.
- The Filer is a reporting issuer in each of the provinces of Canada and is not in default of securities legislation in any jurisdiction.
- Prior to the filing of the preliminary prospectus for the proposed IPO, the Parent will be incorporated under the Business Corporations Act (Ontario) and will, until completion of the IPO, be wholly-owned by the Province. The head office of the Parent will be located at 483 Bay Street, South Tower, 8th Floor, Toronto, Ontario M5G 2P5.
- Prior to completion of the IPO, the Parent will complete a series of reorganizational steps (the Pre-Closing Steps) such that after completion of the Pre-Closing Steps:
- the authorized share capital of the Parent will consist of, among other things, an unlimited number of common shares with all of the common shares of the Parent held by the Province;
- the Filer will be a wholly-owned subsidiary of the Parent and its financial statements will be consolidated into the financial statements of the Parent; and
- the Parent will be a holding company which, through its subsidiaries (including the Filer and its subsidiaries):
- distributes electricity and engages in electricity conservation and demand management activities; and
- transmits electricity to local distribution companies (LDCs) and non-LDC customers throughout Ontario.
- Following completion of the Pre-Closing Steps, the Province will sell a portion of its common shares held in the Parent to a syndicate of underwriters for distribution to the public under a long form prospectus filed by the Parent with the securities regulatory authorities in each of the provinces and territories of Canada in connection with the IPO.
- Upon completion of the IPO, the bulk of the Parent’s business conducted through its subsidiaries (including the Filer and its subsidiaries) will be subject to rate regulation by the Ontario Energy Board (OEB), which has broad powers relating to the licensing, standards of conduct and service and the regulation of rates charged by electricity distributors and transmitters in Ontario, including those subsidiaries of the Parent engaged in such activities. No change in the business of the Filer and its subsidiaries will occur as a result of the IPO other than the fact certain immaterial businesses of the Filer and its subsidiaries are expected to be transferred to the Parent or one of its subsidiaries prior to, in connection with, or immediately following, the closing of the IPO. In addition, prior to the IPO, it is expected that the shares of Hydro One Brampton Networks Inc., a subsidiary of the Filer, will be transferred to the Province.
- The Filer is a SEC issuer that prepares and reports its financial statements in accordance with U.S. GAAP as permitted by Section 3.7 of NI 52-107.
- Upon completion of the IPO, the Parent will not be an SEC issuer.
- Upon acquisition of all of the outstanding shares of the Filer, the Parent will have activities subject to rate regulation.
- The International Accounting Standards Board (IASB) continues to work on a project focusing on accounting specific to activities subject to rate regulation. It is not yet known when this project will be completed or whether IFRS will include a specific standard that is mandatory for entities with activities subject to rate regulation.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that:
- the Exemption Sought is granted to the Parent in respect of the Parent’s financial statements required to be filed (or included in any prospectus of the Parent) on or after the date of this decision, provided that the Parent prepares those financial statements in accordance with U.S. GAAP; and
- the Exemption Sought will terminate in respect of the Parent on the earliest of the following:
- if the Parent does not complete the Pre-Closing Steps and the IPO in the manner contemplated in this decision;
- January 1, 2019;
- if, after all of the outstanding shares of the Filer are acquired by the Parent, the Parent thereafter ceases to have activities subject to rate regulation, the first day of the Parent’s financial year that commences after the Parent ceases to have activities subject to rate regulation; and
- the effective date prescribed by the IASB for the mandatory application of a standard within IFRS specific to entities with activities subject to rate regulation.
Furthermore, the decision of the principal regulator is that the Confidentiality Sought is granted.