An anonymous director reports
FORTISBC RECEIVES SECOND STAGE OF GENERIC COST OF CAPITAL DECISION
The British Columbia Utilities
Commission (BCUC) has issued its decision on the second stage of the
generic cost of capital (GCOC) review for B.C. utilities, affecting Fortis Inc.'s FortisBC Inc., FortisBC Energy (Vancouver Island) Inc. (FEVI) and FortisBC Energy (Whistler) Inc. (FEW). These utilities, along with
FortisBC Energy Inc. (FEI), do business collectively as FortisBC, and are
all indirect and wholly owned regulated utility subsidiaries of Fortis
Inc.
Pursuant to the decision on the first stage of the GCOC, which was
received in May, 2013, the return on equity (ROE) for the B.C. benchmark
utility, FEI, was set at 8.75 per cent, and the common equity component in
capital structure for rate-making purposes was set at 38.5 per cent effective
Jan. 1, 2013. As part of the first stage of the GCOC, the BCUC
introduced an automatic adjustment mechanism (AAM) effective
January, 2014, to set the ROE on an annual basis for the benchmark
utility. The AAM will take effect when the actual long-term government
of Canada bond yield exceeds 3.8 per cent. The AAM will be in effect until
Dec. 31, 2015. In January, 2014, the BCUC confirmed that the
necessary conditions for the AAM to be triggered for the 2014 ROE had
not been met, therefore the benchmark ROE remains at 8.75 per cent for 2014.
The BCUC has directed FEI to file an application for the review of the
common equity component and the ROE approved in the first stage of the
GCOC by no later than Nov. 30, 2015.
As part of the decision on the second stage of the GCOC, effective
Jan. 1, 2013, the following has been approved:
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The ROE for FortisBC Inc. has been set at 9.15 per cent, recognizing a risk
premium over the benchmark utility of 0.40 per cent, and the common equity in
capital structure has been set at 40 per cent, both effective Jan. 1, 2013.
The ROE and common equity component in capital structure will remain in
effect through Dec. 31, 2015.
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The ROEs for FEVI and FEW have been set at 9.25 per cent and 9.5 per cent,
respectively, recognizing risk premiums over the benchmark utility of
0.5 per cent and 0.75 per cent, respectively, and the common equity in capital
structure for both companies has been set at 41.5 per cent, all effective
Jan. 1, 2013.
In February, 2014, the BCUC approved the amalgamation of FEI, FEVI, FEW
and Terasen Gas Holdings Inc., which is subject to the consent of the
lieutenant governor in council, and is expected to be effective on or
about Jan. 1, 2015. Once the amalgamation has been effected, the ROE
and capital structure will be the same for the amalgamated entity as
the benchmark utility, FEI, until Dec. 31, 2015.
The decision and orders are available on the BCUC website.
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