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Employee Future Benefits | 12 Months Ended
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Dec. 31, 2016
Compensation and Retirement Disclosure [Abstract] |
Employee Future Benefits | EMPLOYEE FUTURE BENEFITS The Corporation and its subsidiaries each maintain one or a combination of defined benefit pension plans, OPEB plans, and defined contribution pension plans. For the defined benefit pension and OPEB plan arrangements, the benefit obligation and the fair value of plan assets are measured for accounting purposes as at December 31 of each year. Actuarial valuations are required to determine funding contributions for pension plans, at least, every three years for Fortis’ Canadian and Caribbean subsidiaries. The most recent valuations were as of December 31, 2013 for FortisBC Electric, FortisBC Energy (plans covering unionized employees) and Caribbean Utilities; December 31, 2014 for Newfoundland Power, FortisOntario and the Corporation; and December 31, 2015 for FortisAlberta and FortisBC Energy (plan covering non-unionized employees). ITC, UNS Energy and Central Hudson perform annual actuarial valuations, as their funding contribution requirements are based on maintaining annual target fund percentages. ITC, UNS Energy and Central Hudson have all met the minimum funding requirements. 26. EMPLOYEE FUTURE BENEFITS (cont’d) The Corporation’s investment policy is to ensure that the defined benefit pension and OPEB plan assets, together with expected contributions, are invested in a prudent and cost-effective manner to optimally meet the liabilities of the plans for its members. The investment objective of the defined benefit pension and OPEB plans is to maximize return in order to manage the funded status of the plans and minimize the Corporation’s cost over the long term, as measured by both cash contributions and defined benefit pension and OPEB expense for consolidated financial statement purposes. The Corporation’s consolidated defined benefit pension and OPEB plan weighted average asset allocations were as follows.
Plan assets as at December 31 | 2016 Target Allocation |  |
(%) | 2016 |  | 2015 |
Equities | 50 | 50 |  | 51 |
Fixed income | 46 | 45 |  | 44 |
Real estate | 4 | 4 |  | 4 |
Cash and other | — | 1 |  | 1 |
| 100 | 100 |  | 100 |
The fair value measurements of defined benefit pension and OPEB plan assets by fair value hierarchy, as defined in Note 30, were as follows.
Fair value of plan assets as at December 31, 2016 |  |  |
(in millions) | Level 1 |  | Level 2 |  | Level 3 |  | Total |
Equities | $ | 507 |  | $ | 942 |  | $ | — |  | $ | 1,449 |
Fixed income | 124 |  | 1,180 |  | — |  | 1,304 |
Real estate | — |  | 13 |  | 103 |  | 116 |
Private equities | — |  | — |  | 10 |  | 10 |
Cash and other | 6 |  | 13 |  | — |  | 19 |
| $ | 637 |  | $ | 2,148 |  | $ | 113 |  | $ | 2,898 |
Fair value of plan assets as at December 31, 2015 |  |  |
(in millions) | Level 1 |  | Level 2 |  | Level 3 |  | Total |
Equities | $ | 417 |  | $ | 922 |  | $ | — |  | $ | 1,339 |
Fixed income | — |  | 1,166 |  | — |  | 1,166 |
Real estate | — |  | 14 |  | 97 |  | 111 |
Private equities | — |  | — |  | 10 |  | 10 |
Cash and other | 3 |  | 18 |  | — |  | 21 |
| $ | 420 |  | $ | 2,120 |  | $ | 107 |  | $ | 2,647 |
26. EMPLOYEE FUTURE BENEFITS (cont’d) The following table is a reconciliation of changes in the fair value of pension plan assets that have been measured using Level 3 inputs for the years ended December 31, 2016 and 2015.
(in millions) | 2016 |  | 2015 |
Balance, beginning of year | $ | 107 |  | $ | 93 |
Actual return on plan assets held at end of year | 8 |  | 9 |
Foreign currency translation impacts | (1 | ) | 5 |
Purchases, sales and settlements | (1 | ) | — |
Balance, end of year | $ | 113 |  | $ | 107 |
The following is a breakdown of the Corporation’s and subsidiaries’ defined benefit pension and OPEB plans and their respective funded status.
| Defined Benefit Pension Plans | OPEB Plans
(in millions) | 2016 |  | 2015 |  | 2016 |  | 2015 |
Change in benefit obligation (1) |  |  |  |
Balance, beginning of year | $ | 2,828 |  | $ | 2,604 |  | $ | 574 |  | $ | 564 |
Liabilities assumed on acquisition | 167 |  | — |  | 111 |  | — |
Service costs | 66 |  | 68 |  | 18 |  | 17 |
Employee contributions | 17 |  | 17 |  | 2 |  | 1 |
Interest costs | 112 |  | 109 |  | 23 |  | 23 |
Benefits paid | (119 | ) | (118 | ) | (23 | ) | (21 | )
Actuarial losses (gains) | 45 |  | (102 | ) | (1 | ) | (50 | )
Past service credits/plan amendments | (10 | ) | — |  | — |  | (10 | )
Foreign currency translation impacts | (69 | ) | 250 |  | (28 | ) | 50 |
Balance, end of year (2) | $ | 3,037 |  | $ | 2,828 |  | $ | 676 |  | $ | 574 |
Change in value of plan assets |  |  |  |
Balance, beginning of year | $ | 2,466 |  | $ | 2,216 |  | $ | 181 |  | $ | 154 |
Assets assumed on acquisition | 85 |  | — |  | 65 |  | — |
Actual return on plan assets | 187 |  | 30 |  | 13 |  | — |
Benefits paid | (119 | ) | (118 | ) | (23 | ) | (21 | )
Employee contributions | 17 |  | 17 |  | 2 |  | 1 |
Employer contributions | 47 |  | 99 |  | 18 |  | 17 |
Foreign currency translation impacts | (37 | ) | 222 |  | (4 | ) | 30 |
Balance, end of year | $ | 2,646 |  | $ | 2,466 |  | $ | 252 |  | $ | 181 |
Funded status | $ | (391 | ) | $ | (362 | ) | $ | (424 | ) | $ | (393 | )
(1) | Amounts reflect projected benefit obligation for defined benefit pension plans and accumulated benefit obligation for OPEB plans.
(2) | The accumulated benefit obligation for defined benefit pension plans, excluding assumptions about future salary levels, was $2,741 million as at December 31, 2016 (December 31, 2015 - $2,595 million).
26. EMPLOYEE FUTURE BENEFITS (cont’d) The following table summarizes the employee future benefit assets and liabilities and their classifications on the consolidated balance sheet.
| Defined Benefit Pension Plans | OPEB Plans
(in millions) | 2016 |  | 2015 |  | 2016 |  | 2015 |
Assets |  |  |  |
Defined benefit pension assets: |  |  |  |
Long-term other assets (Note 9) | $ | 32 |  | $ | 11 |  | $ | — |  | $ | — |
Liabilities |  |  |  |  |
Defined benefit pension liabilities: |  |  |  |  |
Current (Note 13) | 13 |  | 5 |  | — |  | — |
Long-term other liabilities (Note 16) | 410 |  | 368 |  | — |  | — |
OPEB plan liabilities: |  |  |  |
Current (Note 13) | — |  | — |  | 13 |  | 8 |
Long-term other liabilities (Note 16) | — |  | — |  | 411 |  | 385 |
Net liabilities | $ | 391 |  | $ | 362 |  | $ | 424 |  | $ | 393 |
The net benefit cost for the Corporation’s defined benefit pension plans and OPEB plans were as follows.
| Defined Benefit Pension Plans | OPEB Plans
(in millions) | 2016 |  | 2015 |  | 2016 |  | 2015 |
Components of net benefit cost |  |  |  |
Service costs | $ | 66 |  | $ | 68 |  | $ | 18 |  | $ | 17 |
Interest costs | 112 |  | 109 |  | 23 |  | 23 |
Expected return on plan assets | (145 | ) | (140 | ) | (12 | ) | (12 | )
Amortization of actuarial losses | 48 |  | 57 |  | 2 |  | 5 |
Amortization of past service credits/plan amendments | 1 |  | 2 |  | (10 | ) | (12 | )
Regulatory adjustments | 6 |  | 1 |  | 9 |  | 6 |
Net benefit cost | $ | 88 |  | $ | 97 |  | $ | 30 |  | $ | 27 |
26. EMPLOYEE FUTURE BENEFITS (cont’d) The following table provides the components of accumulated other comprehensive loss and regulatory assets and liabilities, which would otherwise have been recognized as accumulated other comprehensive loss, for the years ended December 31, 2016 and 2015, which have not been recognized as components of net benefit cost.
| Defined Benefit Pension Plans | OPEB Plans
(in millions) | 2016 |  | 2015 |  | 2016 |  | 2015 |
Unamortized net actuarial losses | $ | 19 |  | $ | 16 |  | $ | — |  | $ | 4 |
Unamortized past service costs | 1 |  | 1 |  | 2 |  | — |
Income tax recovery | (5 | ) | (5 | ) | (1 | ) | (1 | )
Accumulated other comprehensive loss (Note 20) | $ | 15 |  | $ | 12 |  | $ | 1 |  | $ | 3 |
Net actuarial losses | $ | 479 |  | $ | 513 |  | $ | 53 |  | $ | 41 |
Past service credits | (11 | ) | — |  | (31 | ) | (33 | )
Amount deferred due to actions of regulators | 12 |  | 23 |  | 32 |  | 39 |
| $ | 480 |  | $ | 536 |  | $ | 54 |  | $ | 47 |
Regulatory assets (Note 8 (ii)) | $ | 480 |  | $ | 536 |  | $ | 96 |  | $ | 91 |
Regulatory liabilities (Note 8 (ii)) | — |  | — |  | (42 | ) | (44 | )
Net regulatory assets | $ | 480 |  | $ | 536 |  | $ | 54 |  | $ | 47 |
The following table provides the components recognized in comprehensive income or as regulatory assets, which would otherwise have been recognized in comprehensive income.
| Defined Benefit Pension Plans | OPEB Plans
(in millions) | 2016 |  | 2015 |  | 2016 |  | 2015 |
Current year net actuarial losses (gains) | $ | 4 |  | $ | — |  | $ | (2 | ) | $ | (1 | )
Past service credits/plan amendments | — |  | — |  | — |  | (1 | )
Amortization of actuarial gains | — |  | 1 |  | — |  | — |
Income tax recovery | (1 | ) | — |  | — |  | — |
Total recognized in comprehensive income | $ | 3 |  | $ | 1 |  | $ | (2 | ) | $ | (2 | )
Assets assumed on acquisition | $ | 23 |  | $ | — |  | $ | 3 |  | $ | — |
Current year net actuarial (gains) losses | (1 | ) | 8 |  | — |  | (28 | )
Past service credits/plan amendments | (10 | ) | — |  | — |  | (10 | )
Amortization of actuarial losses | (47 | ) | (56 | ) | (4 | ) | (5 | )
Amortization of past service costs | (1 | ) | (1 | ) | 13 |  | (2 | )
Foreign currency translation impacts | (9 | ) | 49 |  | 1 |  | (6 | )
Regulatory adjustments | (11 | ) | 5 |  | (6 | ) | 7 |
Total recognized in regulatory assets | $ | (56 | ) | $ | 5 |  | $ | 7 |  | $ | (44 | )
Net actuarial losses of $1 million are expected to be amortized from accumulated other comprehensive income into net benefit cost in 2017 related to defined benefit pension plans. Net actuarial losses of $43 million, past service credits of $1 million and regulatory adjustments of $2 million are expected to be amortized from regulatory assets into net benefit cost in 2017 related to defined benefit pension plans. Net actuarial losses of $1 million, past service credits of $10 million and regulatory adjustments of $8 million are expected to be amortized from regulatory assets into net benefit cost in 2017 related to OPEB plans. 26. EMPLOYEE FUTURE BENEFITS (cont’d)
Significant weighted average assumptions | Defined Benefit Pension Plans | OPEB Plans
% | 2016 |  | 2015 |  | 2016 |  | 2015 |
Discount rate during the year (1) | 4.08 |  | 4.00 |  | 4.14 |  | 3.95 |
Discount rate as at December 31 | 4.00 |  | 4.21 |  | 4.00 |  | 4.12 |
Expected long-term rate of return on plan assets (2) | 6.25 |  | 6.25 |  | 6.25 |  | 6.95 |
Rate of compensation increase | 3.36 |  | 3.48 |  | — |  | — |
Health care cost trend increase as at December 31 (3) | — |  | — |  | 4.70 |  | 4.67 |
(1) | ITC and UNS use the split discount rate methodology for determining current service and interest costs. All other subsidiaries use the single discount rate approach.
(2) | Developed by management with assistance from external actuaries using best estimates of expected returns, volatilities and correlations for each class of asset. The best estimates are based on historical performance, future expectations and periodic portfolio rebalancing among the diversified asset classes.
(3) | The projected 2017 weighted average health care cost trend rate is 6.62% for OPEB plans and is assumed to decrease over the next 12 years by 2028 to the weighted average ultimate health care cost trend rate of 4.70% and remain at that level thereafter.
For 2016 the effects of changing the health care cost trend rate by 1% were as follows.
(in millions) | 1% increase in rate |  | 1% decrease in rate |
Increase (decrease) in accumulated benefit obligation | $ | 89 |  | $ | (71 | )
Increase (decrease) in service and interest costs | 19 |  | (13 | )
The following table provides the amount of benefit payments expected to be made over the next 10 years.
| Defined Benefit Pension Payments |  | OPEB Payments |
Year | (in millions) |  | (in millions) |
2017 | $ | 133 |  | $ | 24 |
2018 | 135 |  | 25 |
2019 | 140 |  | 27 |
2020 | 146 |  | 28 |
2021 | 152 |  | 30 |
2022 - 2026 | 848 |  | 173 |
During 2017 the Corporation expects to contribute $63 million for defined benefit pension plans and $31 million for OPEB plans. In 2016 the Corporation expensed $31 million (2015 - $28 million) related to defined contribution pension plans.

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