CU Inc. - Annual Report 2021 | FinancialReports.eu

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CU INC. CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2020

		Page
Management's Responsibility for Financial Reporting...........................................................................		2
Independent Auditor’s Report...................................................................................................................		3
Consolidated Statements of Earnings......................................................................................................		7
Consolidated Statements of Comprehensive Income............................................................................		8
Consolidated Balance Sheets.....................................................................................................................		9
Consolidated Statements of Changes in Equity.......................................................................................		10
Consolidated Statements of Cash Flows..................................................................................................		11
Notes to Consolidated Financial Statements
*General Information*
1.	The Company and its Operations...........................................................................................................	12
2.	Basis of Presentation................................................................................................................................	12
*Information on Financial Performance*
3.	Segmented Information...........................................................................................................................	13
4.	Revenues....................................................................................................................................................	17
5.	Other Costs and Expenses.......................................................................................................................	17
6.	Interest Expense.......................................................................................................................................	17
7.	Income Taxes.............................................................................................................................................	18
*Information on Financial Position*
8.	Inventories.................................................................................................................................................	19
9.	Property, Plant and Equipment...............................................................................................................	20
10.	Intangibles.................................................................................................................................................	21
11.	Long-Term Debt........................................................................................................................................	21
12.	Retirement Benefits..................................................................................................................................	22
13.	Balances from Contracts with Customers.............................................................................................	23
14.	Leases.........................................................................................................................................................	25
15.	Equity Preferred Shares and Equity Preferred Shares to Parent Company......................................	26
16.	Class A and Class B Shares......................................................................................................................	27
*Information on Cash Flow*
17.	Cash Flow Information.............................................................................................................................	28
*Risk*
18.	Financial Instruments...............................................................................................................................	29
19.	Risk Management.....................................................................................................................................	30
20.	Capital Disclosures...................................................................................................................................	33
21.	Significant Judgments, Estimates and Assumptions.............................................................................	34
*Group Structure*
22.	Subsidiaries...............................................................................................................................................	36
*Other Information*
23.	Contingencies............................................................................................................................................	36
24.	Commitments............................................................................................................................................	36
25.	Related Party Transactions......................................................................................................................	37
26.	Accounting Policies...................................................................................................................................	38

1 CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

Management is responsible for preparing the consolidated financial statements of CU Inc. (the Company) 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 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 Committee. The Audit Committee is comprised entirely of independent Directors. The Audit 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 Owner appears on the following page. PricewaterhouseCoopers LLP have full and independent access to the Audit Committee and management to discuss their audit and related matters.

[Original signed by S.W. Kiefer] President & Chief Executive Officer

[Original signed by D.A. DeChamplain] Executive Vice President & Chief Financial Officer

February 24, 2021

CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

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Independent auditor’s report

To the Share Owner of CU Inc.

Our opinion

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of CU Inc. and its subsidiaries (together, the Company) as at December 31, 2020 and 2019, 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, 2020 and 2019;
the consolidated statements of comprehensive income for the years ended December 31, 2020 and 2019;
the consolidated balance sheets as at December 31, 2020 and 2019;
the consolidated statements of changes in equity for the years ended December 31, 2020 and 2019;
the consolidated statements of cash flows for the years ended December 31, 2020 and 2019; and
the notes to consolidated financial statements, which include significant accounting policies and other explanatory information.

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.

PricewaterhouseCoopers LLP

111-5th Avenue SW, Suite 3100, Calgary, Alberta, Canada T2P 5L3 T: +1 403 509 7500, F: +1 403 781 1825

“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

3 CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

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Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2020. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matter	How	our audit addressed the key audit matter
Assessment of unbilled revenue related to Utilities	Our	approach to addressing the matter included the
segment	following procedures, among others:
Refer to note 4 – Revenues and note 21 – Significant	•	Tested the reasonableness of the estimate of
Judgments, Estimates and Assumptions to the		unbilled revenue through evidence obtained f rom
consolidated financial statements.		events occurring up to the date of the auditor's
		report, which includes the following:
The Company had $115 million of unbilled revenue
related to Utilities segment as at December 31, 2020.		– Tested a sample of billings made after
		December 31, 2020 and compared the
The revenue recognized by the Company includes an		relevant amounts of these billings to the
estimate of consumption by customers of natural gas		corresponding estimate of unbilled revenue
and electricity that has not yet been billed (unbilled		recorded.
revenue).		– Agreed the pricing applied to the sample of
		billings to the externally published rates.
The estimate is derived from unbilled gas and
electricity distribution services supplied to customers	•	Tested the operating effectiveness of internal
and is based on historical consumption patterns.		controls relating to billed and unbilled revenue,
Management applies judgment to the measure and		including information technology (IT) general
value of the estimated consumption.		controls of the relevant IT systems that
		management uses for meter readings and billings.
We determined that this is a key audit matter due to (i)
the significance of the unbilled revenue; (ii) the
judgment applied by management to estimate the
consumption; and (iii) the significant auditor effort in
performing procedures to test the estimated amount of
unbilled revenue.

Other information

Management is responsible for the other information. The other information comprises the Management’s Discussion and Analysis.

CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

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Our opinion on the consolidated financial statements does not cover the other information and we do not express 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.

If, based on the work we have performed, 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.

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.

5 CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

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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.
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.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Shannon Ryhorchuk.

[Original signed by “PricewaterhouseCoopers LLP”]

Chartered Professional Accountants

Calgary, Alberta February 24, 2021

CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF EARNINGS

OF EARNINGS
			Year Ended
			December 31
(millions of Canadian Dollars)	Note	2020	2019
Revenues	4	2,730	2,787
Costs and expenses
Salaries, wages and benefits		(215)	(199)
Energy transmission and transportation		(225)	(197)
Plant and equipment maintenance		(166)	(184)
Fuel costs		(11)	(13)
Purchased power		(92)	(82)
Depreciation and amortization	9, 10, 14	(520)	(496)
Franchise fees		(243)	(239)
Property and other taxes		(66)	(63)
Other	5	(291)	(253)
		(1,829)	(1,726)
Operating profit		901	1,061
Interest income		1	26
Interest expense	6	(369)	(370)
Net finance costs		(368)	(344)
Earnings before income taxes		533	717
Income tax(expense) recovery	7	(129)	29
Earnings for theyear		404	746

See accompanying Notes to Consolidated Financial Statements.

7 CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
	Year Ended December 31
(millions of Canadian Dollars) Note	2020 2019
Earnings for theyear	404 746
Other comprehensive loss, net of income taxes Items that will not be reclassified to earnings: Re-measurement of retirement benefits (1) 12	(11) (9)
Comprehensive income for theyear	393 737

(1) Net of income taxes of $3 million for the year ended December 31, 2020 (2019 - $2 million).

See accompanying Notes to Consolidated Financial Statements.

CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS
	December 31
(millions of Canadian Dollars) Note 2020	2019
ASSETS Current assets Cash 17 13 Short-term advances to parent company 25 65 Accounts receivable and contract assets 13 380 Trade accounts receivable from parent and affiliate companies 13, 25 13 Inventories 8 14 Prepaid expenses and other current assets 16	1 70 356 14 14 14
501 Non-current assets Property, plant and equipment 9 15,815 Intangibles 10 602 Right-of-use assets 14 11 Other assets 23	469 15,550 577 6 10
Total assets 16,952	16,612
LIABILITIES Current liabilities Bank indebtedness 17 3 Short-term advances from parent company 25 97 Accounts payable and accrued liabilities 405 Accounts payable to parent and affiliate companies 25 11 Lease liabilities 14 2 Provisions and other current liabilities 3 93 Long-term debt 11 160	— — 379 28 2 8 100
771 Non-current liabilities Deferred income tax liabilities 7 1,368 Retirement benefit obligations 12 176 Customer contributions 13 1,727 Lease liabilities 14 9 Other liabilities 11 Long-term debt 11 7,941	517 1,276 157 1,705 4 16 7,951
Total liabilities 12,003	11,626
EQUITY Equity preferred shares 15 187 Equity preferred shares to parent company 15, 25 79 Class A and Class B share owner's equity Class A and Class B shares 16 1,056 Retained earnings 3,627	187 79 1,056 3,664
4,683	4,720
Total equity 4,949	4,986
Total liabilities and equity 16,952	16,612

See accompanying Notes to Consolidated Financial Statements.

[Original signed by S.W. Kiefer] [Original signed by L.M. Charlton] DIRECTOR DIRECTOR

9 CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

						Accumulated
(millions of Canadian Dollars)	Note	Class A and Class B Shares		Equity Preferred Shares	Retained Earnings	Other Comprehensive Income	Total Equity
December 31, 2018			1,056	266	3,323	—	4,645
Earnings for the year			—	—	746	—	746
Other comprehensive loss			—	—	—	(9)	(9)
Losses on retirement benefits
transferred to retained earnings	12		—	—	(9)	9	—
Dividends	15, 16		—	—	(396)	—	(396)
December 31, 2019			1,056	266	3,664	—	4,986
Earnings for the year			—	—	404	—	404
Other comprehensive loss			—	—	—	(11)	(11)
Losses on retirement benefits
transferred to retained earnings	12		—	—	(11)	11	—
Dividends	15, 16		—	—	(431)	—	(431)
Other			—	—	1	—	1
December 31, 2020			1,056	266	3,627	—	4,949

See accompanying Notes to Consolidated Financial Statements.

CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

OF CASH FLOWS

CONSOLIDATED STATEMENTS OF CASH FLOWS
	Year Ended December 31
(millions of Canadian Dollars) Note	2020 2019
Operating activities Earnings for the year Adjustments to reconcile earnings to cash flows from operating activities 17 Changes in non-cash workingcapital 17	404 746 1,073 819 (16) (13)
Cash flows from operating activities	1,461 1,552
Investing activities Additions to property, plant and equipment Proceeds on disposal of property, plant and equipment Additions to intangibles Repayment of long-term advances by affiliate company Changes in non-cash workingcapital 17	(716) (890) — 1 (78) (61) — 130 (5) (1)
Cash flows used in investing activities	(799) (821)
Financing activities Net repayment of short-term debt Issue of long-term debt 11 Repayment of long-term debt 11 Repayment of lease liabilities 14 Dividends paid on equity preferred shares 15 Dividends paid to Class A and Class B share owner 16 Interest paid Interest received from parent and affiliate companies 25 Other	— (25) 150 581 (100) (480) (2) (2) (11) (11) (420) (385) (371) (379) — 25 (1) (5)
Cash flows used in financing activities	(755) (681)
(Decrease) increase in cash position Beginningofyear	(93) 50 71 21
End ofyear 17	(22) 71

See accompanying Notes to Consolidated Financial Statements.

11 CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

(Tabular amounts in millions of Canadian Dollars, except as otherwise noted)

1. THE COMPANY AND ITS OPERATIONS

CU Inc. was incorporated under the laws of Canada and its debt and equity preferred shares are listed on the Toronto Stock Exchange. Its head office and registered office is at 4th floor, West Building, 5302 Forand Street SW, Calgary, Alberta T3E 8B4. The Company is controlled by Canadian Utilities Limited, which in turn is principally controlled by ATCO Ltd. and its controlling share owner, the Southern family.

CU Inc. is engaged in the following business activities:

Electricity (electricity transmission and distribution); and
Natural gas (natural gas transmission and distribution).

The consolidated financial statements include the accounts of CU Inc. and its subsidiaries (see Note 22). In these financial statements, "the Company" means CU Inc. and its subsidiaries.

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 24, 2021.

BASIS OF MEASUREMENT

The consolidated financial statements are prepared on a historic cost basis, except for 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 26.

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.

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 21.

CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

3. SEGMENTED INFORMATION

SEGMENT DESCRIPTIONS AND PRINCIPAL OPERATING ACTIVITIES

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 President and Chief Executive Officer, and the other members of the Executive Committee.

The accounting policies applied by the segments are the same as those applied by the Company, except for those used in the calculation of adjusted earnings. Intersegment transactions are measured at the exchange amount, as agreed to by the related parties.

In 2020, the Company changed the title of its Pipelines & Liquids operating segment to the Natural Gas operating segment.

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

Electricity	The Electricity segment includes ATCO Electric Transmission and ATCO Electric Distribution. These businesses provide regulated electricity transmission, distribution and related infrastructure solutions in northern and central east Alberta, the Yukon and the Northwest Territories.
Natural Gas	The Natural Gas segment includes ATCO Gas and ATCO Pipelines. These businesses provide integrated natural gas transmission, distribution and related infrastructure development throughout Alberta and in the Lloydminster area of Saskatchewan.

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

2020 2019			Electricity	Natural Gas	Corporate & Other	Intersegment Eliminations	Consolidated
Revenues - external			1,354	1,376	—	—	2,730
			1,417	1,370	—	—	2,787
Revenues - intersegment			2	1	—	(3)	—
			1	1	—	(2)	—
Revenues			1,356	1,377	—	(3)	2,730
			1,418	1,371	—	(2)	2,787
Operating expenses	(1)		(513)	(799)	—	3	(1,309)
			(484)	(751)	—	5	(1,230)
Depreciation and amortization			(309)	(211)	—	—	(520)
			(296)	(200)	—	—	(496)
Net finance costs			(229)	(131)	(8)	—	(368)
			(231)	(127)	14	—	(344)
Earnings (loss) before income taxes			305	236	(8)	—	533
			407	293	14	3	717
Income tax (expense) recovery			(76)	(55)	2	—	(129)
			37	(4)	(3)	(1)	29
Earnings (loss) for the year			229	181	(6)	—	404
			444	289	11	2	746
Adjusted earnings (loss)			305	235	(6)	—	534
			329	194	(1)	2	524
Total assets			10,272	6,645	47	(12)	16,952
			10,211	6,377	75	(51)	16,612
Capital expenditures		(2)	366	440	—	—	806
			389	577	—	—	966

(1) Includes total costs and expenses, excluding depreciation and amortization expense.

(2) Includes additions to property, plant and equipment and intangibles and $12 million of interest capitalized during construction for the year ended December 31, 2020 (2019 - $15 million).

13 CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

ADJUSTED EARNINGS

Adjusted earnings are earnings for the period after adjusting for:

the timing of revenues and expenses for rate-regulated activities;
dividends on equity preferred shares of the Company;
one-time gains and losses;
significant impairments; and
items that are not in the normal course of business or a result of day-to-day operations.

Adjusted earnings are a key measure of segment earnings used by the CODM to assess segment performance and allocate resources. Other accounts in the consolidated financial statements have not been adjusted as they are not used by the CODM for those purposes.

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

2020 2019	Electricity	Natural Gas	Corporate & Other	Intersegment Eliminations	Consolidated
Adjusted earnings (loss)	305	235	(6)	—	534
	329	194	(1)	2	524
Early termination of the master service agreement for managed IT services	(23)	(29)	—	—	(52)
	—	—	—	—	—
Prepayment penalty received on early settlement of long-term advances to affiliate company	— —	— —	— 12	— —	— 12
Rate-regulated activities	(44)	(18)	—	—	(62)
	121	101	—	—	222
IT Common Matters decision	(11)	(8)	—	—	(19)
	(12)	(11)	—	—	(23)
Dividends on equity preferred shares of the Company	6 6	5 5	— —	— —	11 11
Other	(4)	(4)	—	—	(8)
	—	—	—	—	—
Earnings (loss) for the year	229	181	(6)	—	404
	444	289	11	2	746

Early termination of the master service agreement for managed IT services

On December 31, 2020, the Company's parent, Canadian Utilities Limited, signed a Master Services Agreement (MSA) with IBM Canada Ltd. (IBM) to provide managed information technology (IT) services. These services are currently provided by Wipro Ltd. (Wipro) under a ten-year MSA expiring December 2024. The transition of the managed IT services from Wipro to IBM will be completed over a six-month period, which commenced February 1, 2021.

On December 31, 2020, the Company recognized an onerous contract provision of $66 million ($52 million aftertax), which represents management’s best estimate of the costs to exit the Wipro MSA. The provision is included in provisions and other current liabilities in the consolidated balance sheets and other expenses in the consolidated statements of earnings. The actual costs will be finalized later in 2021. The onerous contract provision is not in the normal course of business and has been excluded from Adjusted Earnings.

CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

Prepayment penalty received on early settlement of long-term advances to affiliate company

In 2019, the Company recorded $16 million ($12 million after-tax) related to a prepayment penalty fee on the early repayment of $78 million of long-term advances issued to its affiliate company. The repaid amounts were originally due from 2020 to 2023 (see Note 25).

Rate-regulated activities

ATCO Electric and its subsidiaries, ATCO Electric Yukon, Northland Utilities (NWT) and Northland Utilities (Yellowknife), as well as ATCO Gas and ATCO Pipelines 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.

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

	Timing Adjustment	Items	RRA Treatment	IFRS Treatment
1.	Additional revenues	Future removal and site	The Company defers the	The Company recognizes
	billed in current	restoration costs, and impact	recognition of cash received	revenues when amounts are
	period	of colder temperatures.	in advance of future	billed to customers and costs
			expenditures.	when they are incurred.
2.	Revenues to be	Deferred income taxes and	The Company recognizes	The Company recognizes
	billed in future	impact of warmer	revenues associated with	costs when they are incurred,
	periods	temperatures.	recoverable costs in advance	but does not recognize their
			of future billings to	recovery until customer rates
			customers.	are changed and amounts
				are collected through future
				billings.
3.	Regulatory	Regulatory decisions received	The Company recognizes the	The Company does not
	decisions received	which relate to current and	earnings from a regulatory	recognize earnings from a
		prior periods.	decision pertaining to	regulatory decision when it is
			current and prior periods	received as regulatory assets
			when the decision is	and liabilities are not
			received.	recorded under IFRS.
4.	Settlement of	Settlement of amounts	The Company recognizes the	The Company recognizes
	regulatory	receivable or payable to	amount receivable or	earnings when customer
	decisions and	customers and other items.	payable to customers as a	rates are changed and
	other items		reduction in its regulatory	amounts are recovered or
			assets and liabilities when	refunded to customers
			collected or refunded	through future billings.
			through future billings.

15 CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, the significant timing adjustments as a result of the differences between rateregulated accounting and IFRS are as follows:

				2020	2019
Additional revenues billed in current period
Future removal and site restoration costs	(1)			78	65
Impact of colder temperatures (2)				2	13
Revenues to be billed in future periods
Deferred income taxes (3)				(104)	(95)
Deferred income taxes due to decrease in provincial corporate income tax			(4)	—	210
Regulatory decisions received (see below)				—	6
Settlement of regulatory decisions and other items		(5)		(38)	23
				(62)	222

(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) 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.

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

(4) 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. This decrease was phased in increments from July 1, 2019 (see Note 7). As a result of this change, the Alberta Utilities decreased deferred income taxes and increased earnings in 2019 by $210 million.

(5) In 2020, ATCO Electric Distribution recorded a decrease in earnings of $26 million related to payments to customers for transmission costs and capital related items.

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	Amount	Description
1.	Information	23	In August 2014, CU Inc.'s parent, Canadian Utilities Limited, sold its IT services
	Technology (IT)		business to Wipro Ltd. (Wipro) and signed a ten-year IT Master Services
	Common Matters		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 $23 million.
2.	ATCO Electric	(17)	In June 2017, ATCO Electric Transmission filed a GTA for its operations for
	Transmission		2018 and 2019. The decision was received in July 2019 approving the majority
	General Tariff		of capital expenditures and operating costs requested. The increase in
	Application (GTA)		adjusted earnings resulting from the decision of $17 million was recorded in
			2019.

IT Common Matters decision

Consistent with the treatment of the gain on sale in 2014 from the IT services business by CU Inc.’s parent, Canadian Utilities Limited, financial impacts associated with the IT Common Matters decision are excluded from adjusted earnings. The amount excluded from adjusted earnings for the year ended December 31, 2020 was $19 million (2019 - $23 million).

Other

In 2020, the Company recorded other costs of $8 million, after tax, that were not in the normal course of business. These costs related to the continued transformation and realignment of certain functions in the Company.

CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

4. REVENUES

The Company disaggregates revenues based on the nature of revenue streams. The disaggregation of revenues by each operating segment for the year ended December 31 is shown below:

2020
2019	Electricity (1)	Natural Gas (1)	Corporate & Other	Total
Revenue Streams
*Rendering of Services*
Distribution services	531	818	—	1,349
	589	849	—	1,438
Transmission services	716	296	—	1,012
	674	278	—	952
Customer contributions	34	21	—	55
	46	19	—	65
Franchise fees	31	212	—	243
	32	207	—	239
Total rendering of services	1,312	1,347	—	2,659
	1,341	1,353	—	2,694
*Other*	42	29	—	71
	77	16	—	93
Total	1,354	1,376	—	2,730
	1,418	1,369	—	2,787

(1) For the year ended December 31, 2020, Electricity and Natural Gas segments include $115 million of unbilled revenue (2019 - $112 million). At December 31, 2020, $115 million of the unbilled trade accounts receivables are included in trade accounts receivable and contract assets (2019 - $112 million).

5. OTHER COSTS AND EXPENSES

Other costs and expenses include costs related to early termination of the master service agreement for managed information technology services (see Note 3), rent, utilities, and goods and services such as professional fees, contractor costs, technology related expenses, advertising and other general and administrative expenses.

6. INTEREST EXPENSE

Interest expense primarily arises from interest on long-term debentures. The components of interest expense are summarized below.

summarized below.
	2020	2019
Long-term debt	371	371
Retirement benefits net interest expense	7	7
Amortization of deferred financing charges	2	2
Other	1	5
	381	385
Less: interest capitalized_(Notes 9, 10)_	(12)	(15)
	369	370

Borrowing costs capitalized to property, plant and equipment during 2020 were calculated by applying a weighted average interest rate of 4.53 per cent (2019 - 4.62 per cent) to expenditures on qualifying assets.

17 CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

7. INCOME TAXES

IMPACT OF CHANGE IN INCOME TAX RATE

On May 28, 2019, the Alberta government passed Bill 3, the Job Creation Tax Cut (Bill 3), which reduces the Alberta provincial corporate tax rate from 12.0 per cent to 8.0 per cent in a phased approach between July 1, 2019 and January 1, 2022. As a result of this change, in 2019, the Company recorded an adjustment to current and deferred income taxes of $1 million and $210 million, respectively.

On October 20, 2020, Bill 35, Tax Statutes (Creating Jobs and Driving Innovation) (Bill 35) received first reading in the legislative assembly of Alberta and became substantively enacted for financial reporting purposes. The Bill received Royal Assent on December 9, 2020. Bill 35 accelerated the reduction of the Alberta provincial corporate tax rate, which was previously announced in Bill 3, to 8.0 per cent on July 1, 2020. The financial impact of this change is not significant.

The income tax rate for 2020 is 24.0 per cent (2019 - 26.5 per cent).

INCOME TAX EXPENSE

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

	2020	2019
Current income tax expense
Expenses for the year	35	15
Change in income taxes resulting from decrease in provincial corporate tax rate	—	(1)
Adjustment in respect ofprioryears	(2)	3
	33	17
Deferred income tax expense
Reversal of temporary differences	88	167
Change in income taxes resulting from decrease in provincial corporate tax rate	5	(210)
Adjustment in respect ofprioryears	3	(3)
	96	(46)
	129	(29)

The reconciliation of statutory and effective income tax expense for the year ended December 31 is as follows:

		2020		2019
Earnings before income taxes	533	%	717	%
Income taxes, at statutory rates	128	24.0	190	26.5
Change in income taxes resulting from decrease in provincial corporate tax rate	5	0.9	(211)	(29.4)
Statutory and deferred tax rate variance	(4)	(0.7)	(9)	(1.2)
Other	—	—	1	—
	129	24.2	(29)	(4.1)

INCOME TAX ASSETS AND LIABILITIES

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

	Balance Sheet Presentation	2020	2019
Income tax assets
Current	Prepaid expenses and other current assets	—	1
Income tax liabilities
Current	Provisions and other current liabilities	26	8
Deferred	Deferred income tax liabilities	1,368	1,276

CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

DEFERRED INCOME TAXES

The changes in deferred income tax liabilities are as follows:

Movements	Property, Plant and Equipment	Intangibles	Reserves	Tax Loss Carry Forwards and Tax Credits	Retirement Benefit Obligations	Other	Total
December 31, 2018	1,298	106	—	(67)	(40)	28	1,325
Charge (credit) to earnings	168	(2)	—	9	—	(11)	164
Charge to other comprehensive income	—	—	—	—	(2)	—	(2)
Change in income taxes resulting from decrease in provincial
corporate tax rate	(202)	(18)	—	4	6	—	(210)
Other	—	—	—	—	—	(1)	(1)
December 31, 2019	1,264	86	—	(54)	(36)	16	1,276
Charge (credit) to earnings	123	4	(2)	(4)	(2)	(28)	91
Credit to other
comprehensive income	—	—	—	—	(3)	—	(3)
Change in income taxes resulting from decrease in provincial
corporate tax rate	—	—	—	5	—	—	5
Other	—	—	—	—	—	(1)	(1)
December 31, 2020	1,387	90	(2)	(53)	(41)	(13)	1,368

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

At December 31, 2020, the Company had $230 million of non-capital tax losses and credits which expire between 2034 and 2040. The Company recognized deferred income tax assets of $53 million for these losses and credits.

8. INVENTORIES

Inventories at December 31 are comprised of:

8. INVENTORIES Inventories at December 31 are comprised of:
	2020	2019
Natural gas and fuel in storage	9	9
Raw materials and consumables	5	5
	14	14

For the year ended December 31, 2020, inventories of $2 million were used in operations and expensed (2019 - $2 million).

19 CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

9. PROPERTY, PLANT AND EQUIPMENT

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

Utility Transmission & Distribution Land and Buildings Construction Work-in- Progress Other Total	Utility Transmission & Distribution Land and Buildings Construction Work-in- Progress Other Total
Cost December 31, 2018 17,946 618 455 657 19,676 Additions — — 935 — 935 Transfers 865 12 (891) 14 — Retirements and disposals (86) (16) (15) (11) (128)
December 31, 2019 18,725 614 484 660 20,483 Additions — — 740 (1) 739 Transfers 849 6 (886) 31 — Retirements and disposals (75) (17) — (21) (113) Changes to asset retirement costs 1 — — — 1
	— — 1
December 31, 2020 19,500 603	338 669 21,110
Accumulated depreciation December 31, 2018 4,165 156 — 266 4,587 Depreciation 397 18 — 43 458 Retirements and disposals (85) (16) — (11) (112)
December 31, 2019 4,477 158 — 298 4,933 Depreciation 421 13 — 41 475 Retirements and disposals (75) (17) — (21) (113)
December 31, 2020 4,823 154	— 318 5,295
Net book value December 31, 2019 14,248 456 December 31, 2020 14,677 449	484 362 15,550
	338 351 15,815

The additions to property, plant and equipment included $12 million of interest capitalized during construction for the year ended December 31, 2020 (2019 - $14 million).

Pioneer natural gas pipeline acquisition

On September 30, 2020, the Company entered into an agreement to acquire the 130 km Pioneer Pipeline from Tidewater Midstream & Infrastructure Ltd. and its partner TransAlta Corporation for a purchase price of $255 million.

NOVA Gas Transmission Ltd. (NGTL) and the Company subsequently agreed that, consistent with the geographic footprints defined in their Integration Agreement, the Company would subsequently transfer to NGTL the approximately 30 km segment of the Pioneer Pipeline located in the NGTL footprint for approximately $63 million. The Company will retain ownership and continue to operate the portion of the Pioneer Pipeline located in its footprint.

The transaction is subject to satisfaction of customary conditions, including regulatory approvals by the Alberta Utilities Commission and the Alberta Energy Regulator, which are expected in the second quarter of 2021.

CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

10. INTANGIBLES

Intangible assets consist mainly of computer software not directly attributable to the operation of property, plant and equipment and land rights. A reconciliation of the changes in the carrying amount of intangible assets is as follows:

follows:
	Computer Software Land Rights Work-in- Progress Other Total
Cost December 31, 2018 Additions Transfers Retirements	525 363 72 9 969 — — 60 — 60 34 19 (53) — — (115) — — — (115)
December 31, 2019 Additions Transfers Retirements	444 382 79 9 914
	— — 78 — 78
	49 25 (74) — —
	(177) — — — (177)
December 31, 2020	316 407 83 9 815
Accumulated amortization December 31, 2018 Amortization Retirements	361 48 — 3 412 34 5 — 1 40 (115) — — — (115)
December 31, 2019 Amortization Retirements	280 53 — 4 337
	46 7 — — 53 (177) — — — (177)
December 31, 2020	149 60 — 4 213
Net book value December 31, 2019 December 31, 2020	164 329 79 5 577
	167 347 83 5 602

The additions to intangibles include interest capitalized during construction of nil for the year ended December 31, 2020 (2019 - $1 million).

11. LONG-TERM DEBT

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

11. LONG-TERM DEBT Long-term debt outstanding at December 31 is as follows:
		Effective
		Interest Rate	2020	2019
CU Inc. debentures - unsecured (1)		4.487% (2019 - 4.616%)	8,140	8,090
CU Inc. other long-term obligation, due June 2022 - unsecured	(2)	2.45% (2019 - 3.95%)	6	6
Less: deferred financingcharges			(45)	(45)
			8,101	8,051
Less: amounts due within oneyear			(160)	(100)
			7,941	7,951

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

(2) During 2020, the expiry date of the CU Inc. other long-term obligation was extended from June 2021 to June 2022.

21 CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

DEBENTURE ISSUANCES AND REPAYMENTS

On September 28, 2020, the Company, issued $150 million of 2.609 per cent debentures maturing on September 28, 2050. The Company also repaid $100 million of 11.77 per cent debentures on November 30, 2020.

On September 5, 2019, the Company issued $580 million of 2.963 per cent debentures maturing on September 7, 2049. The Company also 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.

12. RETIREMENT BENEFITS

The Company, together with Canadian Utilities Limited and its subsidiary companies, maintains registered defined benefit and defined contribution pension plans for most of its employees. It also provides other post-employment benefits, 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 automatically participate in the defined contribution pension plan.

The Company, together with Canadian Utilities Limited and its subsidiary companies, also maintains non-registered, non-funded defined benefit pension plans for certain officers and key employees.

Information about the plans as a whole, in aggregate, can be found in the Canadian Utilities Limited consolidated financial statements for the year ended December 31, 2020.

Contributions to the registered group defined benefit pension plan, which is accounted for as a defined contribution pension plan, are expensed as paid. Other post-employment benefit (OPEB) and non-registered defined benefit pension plans, which the Company funds out of general revenues, are administered on a combined basis with Canadian Utilities Limited and its subsidiary companies. For non-registered defined benefit pensions, the Company is assessed a percentage of the total cost of the plans.

THE COMPANY'S BENEFIT PLANS

Information about the Company’s participation in the group benefit plans is as follows:

		2020		2019
	Pension		Pension
	Benefit Plans	OPEB Plans	Benefit Plans	OPEB Plans
Benefit plan cost
Defined benefit plans cost	20	5	17	5
Defined contributionplans cost	18	—	17	—
Total cost	38	5	34	5
Less: Capitalized	22	3	20	3
Net cost recognized	16	2	14	2
Accrued benefit obligations
Beginning of year	53	104	53	96
Defined benefit plan cost	20	5	17	5
Benefit payments	(5)	(4)	(5)	(3)
Contributions to defined benefit plans	(11)	—	(17)	—
Actuarial losses (1)	4	10	5	6
End ofyear	61	115	53	104

(1) Losses net of income taxes were $11 million for the year ended December 31, 2020 (2019 - losses of $9 million).

CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

WEIGHTED AVERAGE ASSUMPTIONS

The significant assumptions used to determine the benefit plan cost and accrued benefit obligation were as follows:

		2020		2019
	Pension		Pension
	Benefit Plans	OPEB Plans	Benefit Plans	OPEB Plans
Benefit plan cost
Discount rate for the year	3.10 %	3.10 %	3.80 %	3.80 %
Average compensation increase for theyear	2.50 %	n/a	2.50 %	n/a
Accrued benefit obligations
Discount rate at December 31	2.58 %	2.58 %	3.10 %	3.10 %
Long-term inflation rate	2.00 %	n/a	2.00 %	n/a
Health care cost trend rate:
Drug costs (1)	n/a	5.11 %	n/a	5.17 %
Other medical costs	n/a	4.00 %	n/a	4.00 %
Dental costs	n/a	4.00 %	n/a	4.00 %

(1) The Company uses a graded drug cost trend rate, which assumes a 5.11 per cent rate per annum, grading down to 4.00 per cent in and after 2040.

FUNDING

An actuarial valuation for funding purposes as of December 31, 2019 was completed in 2020 for the registered defined benefit pension plans. The estimated contribution for 2021 is $11 million. The next actuarial valuation for funding purposes must be completed as of December 31, 2022.

13. 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:

	2020	2019
Trade accounts receivable and contract assets	376	350
Other accounts receivable	4	6
Accounts receivable and contracts assets	380	356
Trade accounts receivable fromparent and affiliate companies	13	14

23 CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

The significant changes in trade accounts receivable and contract assets and trade accounts receivable from parent and affiliate companies are as follows:

		Trade accounts
		receivable
	Trade accounts	from parent
	receivable and	and affiliate
	contract assets	companies	Total
December 31, 2018	358	36	394
Revenue from satisfied performance obligations	2,668	47	2,715
Credit loss allowance	(1)	—	(1)
Customer billings and other items not included in revenue	—	(11)	(11)
Payments and settlements	(2,675)	(58)	(2,733)
December 31, 2019	350	14	364
Revenue from satisfied performance obligations	2,651	24	2,675
Credit loss allowance	(1)	—	(1)
Payments and settlements	(2,624)	(25)	(2,649)
December 31, 2020	376	13	389

CUSTOMER CONTRIBUTIONS

Certain additions to property, plant and equipment are made with the assistance of non-refundable cash contributions from customers. These contributions are made when the estimated revenue is less than the cost of providing service or where the customer needs special equipment. Since these contributions will provide customers with on-going access to the supply of natural gas or electricity, they represent deferred revenues and are recognized in revenues over the life of the related asset.

Changes in customer contributions balance are summarized below.

in revenues over the life of the related asset. Changes in customer contributions balance are summarized below.
	2020	2019
Beginning of year	1,705	1,683
Receipt of customer contributions	69	87
Amortization	(55)	(65)
Transfers from other liabilities	8	—
End ofyear	1,727	1,705

CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

14. LEASES

RIGHT-OF-USE ASSETS

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

	Land and
	Buildings
Cost
January1, 2019	8
December 31, 2019	8
Additions	7
Disposals	(1)
December 31, 2020	14
Accumulated depreciation
January 1, 2019	—
Depreciation	2
December 31, 2019	2
Depreciation	2
Disposals	(1)
December 31, 2020	3
Net book value
December 31, 2019	6
December 31, 2020	11

25 CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

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:

reconciliation of movements in lease liabilities is as follows:
January 1, 2019	8
Interest expense (1)	—
Leasepayments	(2)
December 31, 2019	6
Additions	7
Interest expense (1)	—
Leasepayments	(2)
December 31, 2020	11
Less: amounts due within oneyear	(2)
December 31, 2020	9

(1) During the years ended December 31, 2020 and 2019, interest expense was less than $1 million.

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

In one year or less	2
In more than one year, but not more than five years	4
In more than fiveyears	18
	24

During the year ended December 31, 2020, $4 million was expensed in relation to low-value leases, less than a million was expensed in relation to short-term leases, and no expenses were incurred in relation to leases with variable payments (2019 - $4 million was expensed in relation to low-value leases, less than a million in relation to short-term leases, and nil in relation to leases with variable payments).

15. EQUITY PREFERRED SHARES AND EQUITY PREFERRED SHARES TO PARENT COMPANY

EQUITY PREFERRED SHARES

Authorized and issued

Authorized: an unlimited number of Preferred Shares, issuable in series.

		2020		2019
Issued	Shares	Amount	Shares	Amount
Cumulative Redeemable Preferred Shares
4.60% Series 1	4,600,000	115	4,600,000	115
2.243% Series 4	3,000,000	75	3,000,000	75
Issuance costs		(3)		(3)
		187		187

Rights and privileges

Preferred shares	Redemption Amount (1)	Quarterly Dividend (2)	Reset Premium	(3)	Date Redeemable/Convertible	Convertible	To
Series 1	25.00	0.2875	Does not reset		Currently redeemable	Not convertible
Series 4	25.00	0.1401875	1.36	%	June 1, 2021 (4)	Series 5	(5)

(1) Plus accrued and unpaid dividends.

(2) 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) Redeemable by the Company or convertible by the holder on the date noted and every five years thereafter.

(5) 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.

CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

EQUITY PREFERRED SHARES TO PARENT COMPANY

Authorized and issued

Authorized: an unlimited number of Series Second Preferred Shares, issuable in series.

		2020		2019
Issued	Shares	Amount	Shares	Amount
Perpetual Cumulative Second Preferred Shares
4.60% Series V	3,176,578	79	3,176,578	79

Rights and privileges

The Series V Perpetual Cumulative Second Preferred Shares are redeemable at the option of the Company at the stated value plus accrued and unpaid dividends.

DIVIDENDS

Cash dividends declared and paid per share during the year ended December 31 are as follows:

DIVIDENDS Cash dividends declared and paid per share during the year ended December 31 are as	follows:
(dollarsper share)	2020	2019
Cumulative Redeemable Preferred Shares
4.60% Series 1	1.1500	1.1500
2.243% Series 4	0.5608	0.5608
Perpetual Cumulative Second Preferred Shares
4.60% Series V	1.1500	1.1500

The payment of dividends is at the discretion of the Board and depends on the financial condition of the Company and other factors.

On January 14, 2021, the Company declared first quarter eligible dividends of $0.28750 per Series 1 Preferred Share and $0.1401875 per Series 4 Preferred Share.

16. CLASS A AND CLASS B SHARES

The number and dollar amount of outstanding Class A non-voting and Class B common shares at December 31 is shown below.

	Class A Non-Voting	Class A Non-Voting		Class B Common		Total
	Shares	Amount	Shares	Amount	Shares	Amount
Authorized:	Unlimited		Unlimited
Issued and outstanding:
December 31, 2019 and 2020	3,570,322	654	2,188,262	402	5,758,584	1,056

Class A and B shares have no par value.

The Company declared and paid cash dividends of $72.93 per Class A non-voting share and Class B common share during 2020 (2019 - $66.86). The payment and amount of dividends is at the discretion of the Board and depends on the financial condition of the Company and other factors.

27 CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

17. 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.

summarized below.
	2020	2019
Depreciation and amortization	520	496
Income tax expense (recovery)	129	(29)
Contributions by utility customers for extensions to plant	69	87
Amortization of customer contributions	(55)	(65)
Net finance costs	368	344
Income taxes recovered	1	6
Provision on early termination of the master service agreement for managed
IT services (Note 3)	66	—
Other	(25)	(20)
	1,073	819

CHANGES IN NON-CASH WORKING CAPITAL

The changes in non-cash working capital for the year ended December 31 are summarized below.

	2020	2019
Operating activities
Accounts receivable and contract assets	(19)	2
Accounts receivable from parent and affiliate companies	1	23
Prepaid expenses and other current assets	(2)	—
Accounts payable and accrued liabilities	36	(14)
Accounts payable to parent and affiliate companies	(35)	(14)
Provisions and other current liabilities	3	(10)
	(16)	(13)
Investing activities
Inventories	—	1
Accounts receivable and contract assets	(5)	7
Prepaid expenses and other current assets	—	2
Accountspayable and accrued liabilities	—	(11)
	(5)	(1)

CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

DEBT RECONCILIATION

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

	Short-term debt Long-term debt
Liabilities from financing activities December 31, 2018 Net (repayment) issue of debt Debt issue costs Amortization of deferred financingcharges	25 7,952 (25) 101 — (4) — 2
December 31, 2019 Net issue of debt Debt issue costs Amortization of deferred financingcharges	— 8,051
	— 50
	— (2) — 2
December 31, 2020	— 8,101

CASH POSITION

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

	2020	2019
Cash	13	1
Short-term advances toparent company	65	70
Cash and cash equivalents	78	71
Bank indebtedness	(3)	—
Short-term advances fromparent company	(97)	—
	(22)	71

18. 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, short-term advances to parent company, accounts	Assumed to approximate carrying value due to their
receivable and contract assets, accounts receivable	short-term nature.
from parent and affiliate companies, bank
indebtedness, short-term advances from parent
company, accounts payable and accrued liabilities,
and accounts payable to parent and affiliate
companies
Long-term debt	Determined using quoted market prices for the same or
	similar issues. Where the market prices are not
	available, fair values are estimated using discounted
	cash flow analysis based on the Company’s current
	borrowing rate for similar borrowing arrangements
	(Level 2).

29 CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

The fair values of the Company’s financial instruments measured at amortized cost at December 31 are as follows:

	2020 2019
Recurring Measurements	Carrying Value Fair Value Carrying Value Fair Value
Financial Liabilities Long-term debt	8,101 10,435 8,051 9,685

OFFSETTING FINANCIAL ASSETS

At December 31, the following financial assets are subject to offsetting, enforceable master netting arrangements and similar agreements:

and similar agreements:
			2020			2019
		Gross Amount	Net Amount		Gross Amount	Net Amount
Financial Assets	Gross Amount	Offset	Recognized	Gross Amount	Offset	Recognized
Accounts receivable and
contract assets	61	(39)	22	59	(37)	22

19. 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’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 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

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 is exposed to foreign exchange risk from financial instruments denominated in currencies other than the functional currency of an operation. The majority of this currency risk arises from exposure to the U.S. dollar. The Company offsets foreign exchange volatility in part by entering into foreign currency derivative contracts. 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.

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 accounts receivable and contract 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 by investing in instruments issued by credit-worthy financial institutions and in short-term instruments issued by the federal government.

CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

The Company does not have a concentration of credit risk with any counterparty. Accounts receivable and contract assets credit risk is reduced by a large and diversified customer base and credit security such as letters of credit. The utilities are also able to recover an estimate for doubtful accounts through approved customer rates and to request recovery through customer rates for any losses from retailers beyond the retailer security mandated by provincial regulations. At December 31, 2020, the Company held $199 million in letters of credit for certain counterparty receivables (2019 - $193 million). The Company has also entered into guarantee arrangements with Direct Energy's parent company relating to the retail energy supply functions performed by Direct Energy (see Note 23).

Accounts receivable are non-interest bearing and are generally due in 30 to 90 days.

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 rates for respective credit ratings is as follows:

23). Accounts receivable are non-interest bearing and are generally due in 30 to 90 days. 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 rates for respective credit ratings is as follows:	23). Accounts receivable are non-interest bearing and are generally due in 30 to 90 days. 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 rates for respective credit ratings is as follows:	23). Accounts receivable are non-interest bearing and are generally due in 30 to 90 days. 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 rates for respective credit ratings is as follows:	23). Accounts receivable are non-interest bearing and are generally due in 30 to 90 days. 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 rates for respective credit ratings is as follows:
High (AA to AAA) Medium (BBB to A) (BB and below)
December 31, 2020 December 31, 2019	0%-0.02%	0.05%-0.16%	0.51%-3.20%
	0%-0.02%	0.06%-0.16%	0.53%-3.41%

At December 31, 2020, the Company had less than $20 million of accounts receivable and contract assets classified as Low (BB and below) (2019 - less than $20 million).

Where the Company believes there is a high probability of a customer default, additional credit allowances are recorded.

The net credit loss allowance recognized during 2020, was $1 million (2019 - $1 million). As at December 31, 2020, the expected credit loss allowance was $2 million (2019 - $1 million).

The aging analysis of trade receivables that are past due but not impaired at December 31 is as follows:

	2020	2019
Up to 30 days	364	341
31 to 60 days	5	4
61 to 90 days	2	1
Over 90 days	5	4
	376	350

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. 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 Class A and B 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:

business purposes:
			2020			2019
	Total	Used	Available	Total	Used	Available
Long-term committed	900	—	900	900	1	899
Uncommitted	128	85	43	128	77	51
	1,028	85	943	1,028	78	950

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.

31 CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

Lines of credit utilized at December 31 are comprised of:

Lines of credit utilized at December 31 are comprised of:
	2020	2019
Letters of credit	85	78

Commercial paper

The Company is authorized to issue $700 million 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, 2020, of the Company's financial liabilities based on the contractual undiscounted cash flows.

						2026 and
	2021	2022	2023	2024	2025	thereafter
Accounts payable and accrued liabilities	405	—	—	—	—	—
Accounts payable to parent and affiliate companies	11	—	—	—	—	—
Long-term debt:
Principal	160	131	100	120	—	7,635
Interest expense	354	345	336	327	325	6,396
	930	476	436	447	325	14,031

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, as reported in the consolidated financial statements for the year ended December 31, 2019.

the year ended December 31, 2019.
						2025 and
	2020	2021	2022	2023	2024	thereafter
Accounts payable and accrued
liabilities	379	—	—	—	—	—
Accounts payable to parent
and affiliate companies	28	—	—	—	—	—
Long-term debt:
Principal	100	166	125	100	120	7,485
Interest expense	369	358	341	332	323	6,622
	876	524	466	432	443	14,107

PANDEMIC RISK

An outbreak of infectious disease, a pandemic or a similar public health threat, such as the COVID-19 pandemic, could adversely impact the Company by causing operating, supply chain and project development delays and disruptions, labor shortages and shutdowns as a result of government regulation and prevention measures, increased strain on employees and compromised levels of customer service, any of which could have a negative impact on the Company’s operations.

Any deterioration in general economic and market conditions resulting from a public health threat could negatively affect demand for electricity and natural gas, revenue, operating costs, timing and extent of capital expenditures, results of financing efforts, or credit risk and counterparty risk; any of which could have a negative impact on the Company’s business.

While the Company’s investments are largely focused on regulated utilities and long-term contracted businesses with strong counterparties creating a resilient investment portfolio, the extent of the COVID-19 pandemic and its future impact on the Company remains uncertain. In response to the evolving situation, the Company's Pandemic Plan was activated in February 2020. The plan included travel restrictions, limited access to facilities, a direction to work from home whenever possible, physical distancing measures and other protocols (including the use of personal protective equipment while at a work premise). Since then, the Company has been following

CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

recommendations by local and national public health authorities across the globe to adjust operational requirements as needed to ensure a coordinated approach across the Company. As a result of these efforts and the Company’s experience in crisis response, the Company’s operations, financial position and performance have not been significantly impacted for the year ended December 31, 2020.

20. CAPITAL DISCLOSURES

The Company’s objectives when managing capital are to:

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.
Maintain strong investment-grade credit ratings in order to provide efficient and cost-effective access to funds required for operations and growth.
Remain within the capital structure approved by the AUC for the utilities.

The Company considers the impact of the AUC’s decisions with respect to the company’s subsidiaries, 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 the share owner, issue or purchase Class A and Class B shares, and issue or redeem preferred shares, short-term debt and 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 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 a large portion of the Company’s debentures and credit facilities is that total debt divided by total capitalization must be less than 75 per cent. The Company defines total debt as the sum of bank indebtedness, short-term debt and long-term debt (including current portion). It defines total capitalization as the sum of Class A and Class B shares, retained earnings, equity preferred shares, 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:

the Company’s debt-related agreements. The Company’s capitalization at December 31 is as follows:
	2020	2019
Bank indebtedness	3	—
Short-term advances from parent company	97	—
Long-term debt	8,101	8,051
Total debt	8,201	8,051
Class A and Class B shares	1,056	1,056
Retained earnings	3,627	3,664
Equity preferred shares	187	187
Equity preferred shares toparent company	79	79
Total equity	4,949	4,986
Total capitalization	13,150	13,037
Debt capitalization	62 %	62 %

For the year ended December 31, 2020, 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.

33 CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

21. SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS

Significant judgments, estimates and assumptions made by the Company are outlined below.

SIGNIFICANT ACCOUNTING JUDGMENTS

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.

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. The Company continually monitors its operating facilities and the markets and business environment in which it operates. Judgments and assessments about conditions and events are made order to conclude whether a possible impairment exists.

Property, plant and equipment and intangibles

The Company makes judgments to: assess the nature of the costs to be capitalized and the time period over which they are capitalized in the purchase or construction of an asset; evaluate the appropriate level of componentization where an asset is made up of individual components for which different depreciation and amortization methods and useful lives are appropriate; distinguish major overhauls to be capitalized from repair and maintenance activities to be expensed; and determine the useful lives over which assets are depreciated and amortized.

Leases

The Company evaluates contract terms and conditions to determine whether they contain or are leases. Where a lease exists, the Company determines whether substantially all of the significant risks and rewards of ownership are transferred to the customer, in which case it is accounted for as a finance lease, or remain with the Company, in which case it is accounted for as an operating lease.

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.

CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS

Revenue recognition

An estimate of usage not yet billed is included in revenues from the regulated distribution of natural gas and electricity. The estimate is derived from unbilled gas and electricity distribution services supplied to customers and is based on 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 19.

Useful lives of property, plant and equipment and intangibles

Useful lives are estimated based on current facts and past experience taking into account the anticipated physical life of the asset, existing long-term sales agreements and contracts, current and forecast demand, and the potential for technological obsolescence.

Impairment of long-lived assets

The Company continually monitors its long-lived assets and the markets and business environment in which it operates for indications of asset impairment. Where necessary, the Company estimates the recoverable amount for the cash generating unit (CGU) to determine if an impairment loss is to be recognized. These estimates are based on assumptions, such as the price for which the assets in the CGU could be obtained or future cash flows that will be produced by the CGU, discounted at an appropriate rate. Subsequent changes to these estimates or assumptions could significantly impact the carrying value of the assets in the CGU.

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.

Onerous contracts

In assessing the unavoidable costs of meeting obligations under an onerous contract at the reporting date, the Company identifies and quantifies any compensation or penalties, other costs arising from the need to terminate a contract or inability to fulfil it. This process involves judgment about the future events, interpretation of legal terms of a contract, as well as estimates on the timing and amount of future cash flows. The change in used estimates and underlying assumptions can significantly impact the amount of recognized provision in relation to onerous contracts.

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. Significant assumptions used to determine the retirement benefit cost and obligation are shown in Note 12.

Asset retirement obligations

The Company's estimates regarding asset retirement costs and related obligations change as a result of changes in cost estimates, legal and constructive requirements, market rates and technological advancement. The significant assumptions used to record asset retirement obligations include, but are not limited to, expected timing of retirement of an asset, scope and costs of retirement and reclamation activities, rates of inflation and a pre-tax riskfree discount rate. The estimates and assumptions for asset retirement obligations are reviewed at each reporting period. Changes to the estimates or assumptions could significantly impact the carrying values of the asset retirement obligations.

35 CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

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.

22. SUBSIDIARIES

Principal operating subsidiaries, all of which are wholly owned, are listed below.

Principal Operating Subsidiaries	Principal Place of Business	Principal Activity
ATCO Electric	Canada	Electricity transmission, distribution and related infrastructure development
ATCO Gas	Canada	Natural gas distribution and related infrastructure development
ATCO Pipelines	Canada	Naturalgas transmission and related infrastructure development

23. CONTINGENCIES

Measurement inaccuracies occur from time to time on electricity and gas metering facilities. These measurement adjustments 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 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 Partnership (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.

Prior to and as at December 31, 2020, 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.

On January 5, 2021, Centrica plc. closed a transaction to sell its entire ownership interest in Direct Energy to NRG Energy Inc. (NRG). Effective January 5, 2021, NRG provided a $300 million guarantee, supported by a $300 million letter of credit for Direct Energy’s obligations to ATCO Gas and ATCO Electric under the transaction agreements.

24. 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:

	2021 2022 2023 2024 2025 2026 and thereafter
Purchase obligations: Operating and maintenance agreements Capital expenditures Other
	362 303 314 284 43 145
	207 — — — — — 12 — — — — —
	581 303 314 284 43 145

CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

25. RELATED PARTY TRANSACTIONS

Transactions between the Company and its subsidiaries have been eliminated on consolidation and are not included in this note.

TRANSACTIONS WITH PARENT COMPANY OR ULTIMATE PARENT

Transaction	Recorded As	2020	2019
Rent, aircraft usage and licensing fees	Other expenses	17	16
Capital projects and building rent	Property, plant and equipment	4	6
Interest on short-term advances (1)	Interest income	—	2
Interest on short-term advances (1)	Interest expense	1	1
Equity preferred share dividends_(Note 15)_	Retained earnings	4	4

(1) The interest rates on short-term advances are based on the Bank of Canada overnight rate plus an applicable spread.

TRANSACTIONS WITH AFFILIATE COMPANIES

Transaction	Recorded As	2020	2019
Natural gas and electricity distribution, and management, planning and engineering services	Revenues Deferred revenues	24 —	45 1
Interest on long-term advances	Interest income	—	7
Long-term advances prepayment penalty fee	Interest income	—	16
Purchase of natural gas	Fuel costs	4	5
Office services	Other expenses	5	3

Affiliate companies are subsidiaries of the Company’s parent or ultimate parent.

These transactions are in the normal course of business and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

RELATED PARTY LOANS AND BALANCES

Balances			Recorded As	2020	2019
Receivables from related parties		(1)	Accounts receivable from parent company	1	—
			Accounts receivable from affiliate companies	12	14
Short-term advances (2)			Short-term advances to parent company	65	70
			Short-term advances from parent company	97	—
Payables to related parties	(1)		Accounts payable to parent company	9	24
			Accounts payable to affiliate companies	2	4
Equity preferred shares_(Note 15)_			Equity preferred shares toparent company	79	79

(1) Generally due within 30 days or less from the date of the transaction. The amounts outstanding are unsecured, bear no interest and will be settled in cash. No provisions are held against receivables from related parties.

(2) The interest rates on short-term advances are based on the Bank of Canada overnight rate plus an applicable spread.

In the third quarter of 2019, the Company received settlements of $130 million of long-term advances from Alberta Power (2000) Ltd., a subsidiary of the Company's parent. Of this amount, $52 million matured in August 2019, and $78 million was originally due to mature between 2020 and 2023. In accordance with the financing agreement with Alberta Power (2000) Ltd., the early settlement of the long-term advances resulted in a prepayment penalty fee of $16 million that was recorded in interest income in the statements of earnings for year ended December 31, 2019.

37 CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

KEY MANAGEMENT COMPENSATION

Information on management compensation for the year ended December 31 is shown below.

		2020	2019
Salaries and short-term employee benefits		8	6
Retirement benefits		2	2
Share-based compensation	(1)	(3)	5
		7	13

(1) In 2020, relates to certain forfeitures of mid-term incentive plan grants.

Key management personnel comprise members of executive management and the Board, a total of 14 individuals (2019 - 14 individuals).

26. 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.

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 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 tariffapproved 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.

CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

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 other comprehensive income (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 are not accounted for where the Company is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognized only when it is probable that future taxable earnings will be available against which the temporary differences can be applied.

Current income tax assets and liabilities are offset where the Company has the legally enforceable right to offset and the Company intends to either settle on a net basis or realize the asset and settle the liability simultaneously.

Deferred income tax assets and liabilities are offset where the Company has a legally enforceable right to set off tax assets and liabilities, and when the deferred income tax assets and liabilities relate to income taxes levied by the same tax authority.

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.

39 CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

Conversion costs include direct material and labour costs and a systematic allocation of fixed and variable overheads incurred in converting materials into finished goods.

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, and contracted services. 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.

Borrowing costs attributable to a construction period of substantial duration are added to the cost of the asset. The effective interest method is used to calculate capitalized interest using specified rates for specific borrowings and a weighted average rate for general borrowings. Interest capitalization starts when borrowing costs and expenditures are incurred at the onset of construction and ends when construction is substantially complete.

The Company allocates the amount initially recognized in property, plant and equipment to its significant components and depreciates each component separately. Assets are depreciated mainly on a straight-line basis over their estimated useful lives. No depreciation is provided on land and construction work-in-progress.

The carrying amount of a replaced asset is derecognized when the cost of replacing the asset is capitalized. When an asset is derecognized, any resulting gain or loss is recorded in earnings.

Depreciation periods for the principal categories of property, plant and equipment are shown in the table below.

	Useful Life	Average Useful Life	Average Depreciation Rate
Utility transmission and distribution:
Electricity transmission equipment	2 to 65 years	51 years	1.9 %
Electricity distribution equipment	10 to 103 years	44 years	2.3 %
Gas transmission equipment	4 to 57 years	42 years	2.4 %
Gas distributionplant and equipment	6 to 57years	43years	2.3 %
Buildings	12 to 50years	33years	3.0 %
Otherplant, equipment and machinery	4 to 50years	16years	6.1 %

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 80 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.

CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

LEASES

The Company as a lessee

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.

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.

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.

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.

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.

Current legal or constructive obligations arising from onerous contracts are recognized as provisions when the unavoidable cost of meeting the obligation under the contract exceeds the economic benefits expected to be received.

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.

41 CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

CONTINGENCIES

A contingent liability is a possible obligation, and a contingent asset is a possible asset, that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company. A contingent liability may also be a present obligation that arises from past events that is not recognized because it is not probable that an outflow of economic resources will be required to settle the obligation or the amount of the obligation cannot be measured reliably.

Neither contingent liabilities nor assets are recognized in the consolidated financial statements. However, a contingent liability is disclosed, unless the possibility of an outflow of resources is remote. A contingent asset is only disclosed where an inflow of economic benefits is probable.

Management evaluates the likelihood of contingent events based on the probability of exposure to potential loss. Actual results could differ from these estimates.

ASSET RETIREMENT OBLIGATIONS

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.

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 and equity preferred shares are presented net of their respective transaction costs.

CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

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, the Company estimates credit loss allowances at initial recognition and throughout the life of the receivable.

43 CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

RETIREMENT BENEFITS

The Company participates, together with Canadian Utilities Limited and its subsidiary companies, in a registered group defined benefit pension plan (the Group Plan). The assets of the Group Plan are not segregated for each participating entity and are used to provide pensions to all members of this plan. In this circumstance, the Company is required to account for the Group Plan as a defined contribution plan whereby contributions are expensed as paid. Contributions related to current service cost are allocated in proportion to capped pensionable earnings for each company. Contributions related to the amortization of the unfunded liability are allocated in proportion to the corresponding going-concern liability for each company which was established based on the actuarial valuations for funding purposes as of December 31, 2019.

The minimum funding requirements for the Group Plan are comprised of the contributions related to current service cost and the amortization of the unfunded liability as determined by the actuary. The Company does not have any liability to the Group Plan other than the minimum funding requirements of its subsidiaries. In the event of a withdrawal from the Group Plan or the termination of the Group Plan, the companies will still be required to contribute to the Group Plan where such contributions are required under pension regulations.

The Company participates, together with Canadian Utilities Limited and its subsidiary companies, in OPEB and nonregistered group defined benefit pension plans. These plans are administered on a combined basis, and the Company accrues for its obligations under these plans. Costs of these benefits are determined using the projected unit credit method and reflect management’s best estimates of wage and salary increases, age at retirement and expected health care costs. The Company consults with qualified actuaries when setting the assumptions used to estimate benefit obligations and the cost of providing retirement benefits during the period.

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.

For the non-registered defined benefit pension plans, the Company is assessed a percentage of the total cost of the plans.

For the non-registered defined benefit pension plan and the OPEB plans, gains and losses resulting from changes in assumptions, including the liability discount rate and future compensation rates, used to measure the accrued benefit obligations are recognized in OCI in the period in which they occur. Those gains and losses are then transferred directly to retained earnings.

Employer contributions to the defined contribution pension plans are expensed as employees render service.

For non-registered 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 retirement benefits for registered defined benefit pension plans and 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. 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.

RELATED PARTY TRANSACTIONS

Transactions with related parties in the normal course of business are measured at the exchange amount. Transfers of assets between entities under common control are measured at the carrying amount.

FOREIGN CURRENCY TRANSLATION

Transactions denominated in foreign currencies are translated at the exchange rate on the date of the transaction.

ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET ADOPTED

At December 31, 2020, 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.

CU INC. 2020 CONSOLIDATED FINANCIAL STATEMENTS

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CU Inc. — Annual Report 2021

44857_rns_2021-02-25_55a77ef1-d957-4f74-a6ff-d243aa138b46.pdf

CU INC. CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

Independent auditor’s report

Our opinion

What we have audited

Basis for opinion

Independence

Key audit matters

Other information

Responsibilities of management and those charged with governance for the consolidated financial statements

Auditor’s responsibilities for the audit of the consolidated financial statements

CONSOLIDATED STATEMENTS OF EARNINGS

OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

OF CASH FLOWS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

1. THE COMPANY AND ITS OPERATIONS

2. BASIS OF PRESENTATION

STATEMENT OF COMPLIANCE

BASIS OF MEASUREMENT

FUNCTIONAL AND PRESENTATION CURRENCY

USE OF JUDGMENTS AND ESTIMATES

3. SEGMENTED INFORMATION

SEGMENT DESCRIPTIONS AND PRINCIPAL OPERATING ACTIVITIES

ADJUSTED EARNINGS

Early termination of the master service agreement for managed IT services

Prepayment penalty received on early settlement of long-term advances to affiliate company

Rate-regulated activities

Regulatory decisions received

IT Common Matters decision

Other

4. REVENUES

5. OTHER COSTS AND EXPENSES

6. INTEREST EXPENSE

7. INCOME TAXES

IMPACT OF CHANGE IN INCOME TAX RATE

INCOME TAX EXPENSE

INCOME TAX ASSETS AND LIABILITIES

DEFERRED INCOME TAXES

8. INVENTORIES

9. PROPERTY, PLANT AND EQUIPMENT

Pioneer natural gas pipeline acquisition

10. INTANGIBLES

11. LONG-TERM DEBT

DEBENTURE ISSUANCES AND REPAYMENTS

12. RETIREMENT BENEFITS

THE COMPANY'S BENEFIT PLANS

WEIGHTED AVERAGE ASSUMPTIONS

FUNDING

13. BALANCES FROM CONTRACTS WITH CUSTOMERS

ACCOUNTS RECEIVABLE AND CONTRACT ASSETS

CUSTOMER CONTRIBUTIONS

14. LEASES

RIGHT-OF-USE ASSETS

LEASE LIABILITIES

15. EQUITY PREFERRED SHARES AND EQUITY PREFERRED SHARES TO PARENT COMPANY

EQUITY PREFERRED SHARES

Authorized and issued

Rights and privileges

EQUITY PREFERRED SHARES TO PARENT COMPANY

Authorized and issued

Rights and privileges

DIVIDENDS

16. CLASS A AND CLASS B SHARES

17. CASH FLOW INFORMATION

ADJUSTMENTS TO RECONCILE EARNINGS TO CASH FLOWS FROM OPERATING ACTIVITIES

CHANGES IN NON-CASH WORKING CAPITAL

DEBT RECONCILIATION

CASH POSITION

18. FINANCIAL INSTRUMENTS

FAIR VALUE MEASUREMENT

OFFSETTING FINANCIAL ASSETS

19. RISK MANAGEMENT

FINANCIAL RISKS

CU Inc. Annual Report 2021