Cost of Capital and 2nd Generation Incentive Regulation Mechanism Consultations

Case number

EB-2006-0087, EB-2006-0088, EB-2006-0089

Launched

April 27, 2006

Sector

Electricity

Status

Archived

Details

Cost of Capital (EB-2006-0088), 2nd Generation Incentive Regulation Mechanism (EB-2006-0089), Licence Amendment Proceeding (EB-2006-0087)

This project, part of the Board's multi-year electricity distribution rate setting plan (the "Plan"), developed a simple, practical and mechanistic incentive rate adjustment, including the cost of capital to be used, for the years 2007 to 2010.During the Plan, as several rate-related studies are carried out, rates have to be set on a regular basis for a portion of the distributor population. This project established the method of adjusting rates over the period of the Plan and:

confirmed the cost of capital to be used in adjusting annual revenue requirements for 2007 and beyond; and
established an incentive mechanism for the Plan period.

An overview of the Board's approach to this project is described in the "kick-off" letter issued in April, 2006.

Updates

Date	Issue / Document
January 29, 2007	The Board has released instructions on 2007 Smart Metering Rates as an Addendum to the Report of the Board on 2nd Generation Incentive Regulation Mechanism. Cover letter Addendum for Smart Metering Rates Smart Metering Rate Adder model
December 20, 2006	The Board issued its final Report of the Board on Cost of Capital and 2nd Generation Incentive Regulation for Ontario's Electricity Distributors and the 2007 electricity distribution rate application model. Cover Letter Final Report of the Board 2007 IRM Excel Model
December 14, 2006	Written comments on the Board's draft report received by December 12, 2006: The 'Distributors' The Coaltion of Large Distributors (CLD) Electricity Distributors Association (EDA) Energy Cost Management Inc. (ECMI) Energy Probe Research Foundation Hydro One London Property Management Association Newmarket Hydro Ltd. Ontario Energy Association Power Workers' Union (PWU) School Energy Coalition (SEC) Vulnerable Energy Consumers Coalition (VECC)
November 30, 2006	The Board issued its Report of the Board on Cost of Capital and 2nd Generation Incentive Regulation for Ontario's Electricity Distributors and Associated Guidelines. Cover Letter Report of the Board and Associated Guidelines
November 22, 2006	The Board has posted a Decision issued on Monday November 20, 2006 in the Board's generic licence amendment proceeding - EB-2006-0087. Decision
November 20, 2006	The Board has posted submissions filed by parties on November 17, 2006 in response to Procedural Order No. 2 in the generic licence amendment proceeding - EB-2006-0087. Board Staff Energy Cost Management Inc. (ECMI)
November 8, 2006	Final submissions received by October 27, 2006: The 'Distributors' Schedule A Schedule B Schedule C The Coaltion of Large Distributors (CLD) Consumers Council of Canada Electricity Distributors Association (EDA) Energy Cost Management Inc. (ECMI) Grimsby Hydro One Industrial Gas Users Association (IGUA) London Hydro London Property Management Association Ontario Energy Association Power Workers' Union (PWU) School Energy Coaltion (SEC) Thunder Bay Union Vulnerable Energy Consumers Coalition (VECC)
November 8, 2006	The Board has issued Procedural Order No. 2 in the Licence Amendment Proceeding (EB-2006-0087). Procedural Order No.2– Licence Amendment Proceeding
October 27, 2006	Pursuant to Procedural Order No. 1 of the Licence Amendment Proceeding - EB-2006-0087. Algoma Coalition The 'Distributors' The Coaltion of Large Distributors (CLD) Consumers Council of Canada Submission Electricity Distributors Association (EDA) Energy Cost Management Inc. (ECMI) Energy Probe Hydro One Industrial Gas Users Association (IGUA) London Hydro Submission North Bay Hydro Power Workers' Union (PWU) School Energy Coaltion (SEC) Vulnerable Energy Consumers Coalition (VECC) Submission
October 13, 2006	Responses from parties received by the Board to the questions from parties posted on September 28th: Board Staff Board Staff Responses Dr. Lazar’s and Dr. Prisman’s Responses Dr. Lowry’s Responses Chatham-Kent Hydro Cover Letter Responses to Board staff Questions Appendix 1 Appendix 2 Responses to School Energy Coalition Questions Appendix 1 Appendix 2 Appendix 1 & 3 Appendix 3a Appendix 3b Appendix 3c Financial Statements Middlesex Power (filed with Chathem-Kent) Financial Statements The Coalition of Large Distributors (CLD) Responses to Board Staff Questions Responses to School Energy Coalition Questions Attachment 1 - Financial Statements (cover) Enersource Corporation Inc. Enersource Hydro Mississauga Inc. Hamilton Utilities Corporation Horizon Utilities Corporation Hydro Ottawa Holding Inc. Hydro Ottawa Limited PowerStream Inc. Toronto Hydro Corporation Toronto Hydro-Electric System Limited Veridian Connections Inc. Veridian Corporation Attachment 2 – Bond Rating Reports (cover) Enersource Corporation Hydro Ottawa PowerStream Inc. Toronto Hydro Toronto Hydro Corporation Veridian Connections Inc. Attachment 3 – Bill Impact Analysis (cover) Enersource Hydro Mississauga Inc. Horizon Utilities Corporation Hydro Ottawa Limited PowerStream Inc. Toronto Hydro-Electric System Limited Veridian Connections Inc. Canadian Niagara Power Inc. Responses to Questions Bluewater Power Distribution Corporation, Chatham-Kent Energy, Newmarket Hydro Ltd. And Welland Hydro-Electric Systems Corp. Responses to School Energy Coalition Questions Newmarket Hydro Cover Letter Responses to Board staff Questions Responses to Chatham-Kent Hydro Questions Answers to information requests at September 19th technical conference (cover) Responses from 19 September 2006 Technical Conference Responses to Chatham-Kent Hydro's Questions from 19 September 2006 Technical Conference COLLUS Power Corp Cover letter Responses to Board staff Questions Responses to School Energy Coalition Questions Attachment 1 Attachment 2 Attachment 3 Financial Statements Energy Cost Management, Inc. (ECMI) Responses Electricity Distributors' Association (EDA) Responses Energy Probe Cover letter Responses Grimsby Power Incorporated Responses to School Energy Coalition Questions (Cover letter) Responses Rate Impacts Hydro One Networks, Inc. Responses (incl. financial statements) Haldimand County Hydro Responses Hearst Power Responses 2006 Electricity Distribution Rates Decision Financial Statements London Hydro Responses to Board staff Questions Responses to School Energy Coalition Questions Financial Statements School Energy Coalition Responses to Board staff Questions St. Thomas Energy Inc. Cover Letter Responses to Board staff Questions Responses to School Energy Coalition Questions Bill Impact Analysis (%) Bill Impact Analysis Financial Statements Vulnerable Energy Consumer's Coalition (VECC) Cover letter Dr. Booth’s Responses to Board staff Questions Dr Booth’s Responses to CLD Questions Waterloo North Hydro Responses to Board staff Questions Responses to School Energy Coalition Questions Attachment 1 Attachment 2 Attachment 3 Attachment 4 Financial Statements Whitby Hydro Electric Corporation Letter
October 6, 2006	The Board has issued Procedural Order No. 1 in the Licence Amendment Proceeding (EB-2006-0087) with respect to the amending of electricity distributor licences to make provision for methods and techniques to be applied by the Board in determining distribution rates for licensed electricity distributors. Parties to the proceeding may file written submissions by October 20, 2006. Procedural Order No.1 - Licence Amendment Proceeding
September 28, 2006	Questions to parties received by the Board September 27th: Bluewater Power Board Staff Chatham-Kent Hydro Inc. The Coalition of Large Distributors (CLD) Questions Electricity Distributors' Association Hydro One Networks Inc. School Energy Coalition
September 28, 2006	Responses to information requests that arose during the September 18-22 Technical Conference. Hydro One Networks' responses to information requests Public Interest Advocacy Centre response to information request (Please refer to page 52 of the September 20th transcript) Time-Series Processes of Utility Betas
September 15, 2006	Board staff posted presentation materials from stakeholders and interested parties that are participating in the technical conference being held the week of September 18, 2006 on cost of capital and incentive regulation. Dr. F. Lazar & Dr. E. Prisman on Cost of Capital Dr. M. Lowry on Incentive Regulation Board Staff Cost of Capital Incentive Regulation The Coalition of Large Distributors Cost of Capital Mr. D. Charmichael on Cost of Capital Incentive Regulation Dr. A. Yatchew on Incentive Regulation Mr. R. Warrington on Cost of Capital (with Newmarket Hydro Ltd.) Electricity Distributors' Association and Christensen Associates Hydro One Networks Inc. Ms. K. McShane on Cost of Capital Incentive Regulation Mr. J. Todd on Incentive Regulation Hydro One's Responses to OEB Guide for Presentations
September 6, 2006	The Board has provided a list of general questions that participants to the technical conference being held the week of September 18, 2006 on cost of capital and incentive regulation may find useful to guide them in preparing presentations and in topics for questioning at the conference. Guide for Presentations
August 16, 2006	Written comments on Board staff's July 25, 2006 discussion paper and expert reports received on the cost of capital and 2nd generation incentive regulation for Ontario's electricity distributors: The Association of Power Producers of Ontario Chatham-Kent Hydro The Coalition of Large Distributors (CLD): CLD Incentive Regulation Comments Incentive Creation as the Key to Incentive Regulation" (Dr. A. Yatchew) CLD Cost of Capital Comments "Comments on Board Staff's Proposals Dated July 25, 2006 Regarding Cost of Capital" (Mr. D. Carmichael) Consumers Council of Canada Electricity Distributors' Association "Rate of Return for Ontario's Electricity Distributors" (Christensen Associates Energy Consulting, LLC) Energy Cost Management Inc. Hydro One Networks Inc. "Capital Structure and Fair Return on Equity" (Ms. K.C. McShane) "Capital Investment Incentives in the OEB's 2ndGeneration Incentive Regulation Mechanism for Ontario Electricity Distributors" (Elenchus Research Associates) Industrial Gas Users Association Jointly sponsored evidence "Cost of Capital for Ontario's Electricity Distributors" (Dr. L. Booth) London Hydro London Property Management Association Newmarket Hydro Ltd. Expert Testimony (Energy and Environmental Economics, Inc.) School Energy Coalition Cost of Capital Comparison Analysis Spreadsheet The Power Workers Union Thunder Bay Hydro Vulnerable Energy Consumer's Coalition
July 25, 2006	The Board has issued the Staff Discussion Paper on the cost of capital and 2nd generation incentive regulation for Ontario's electricity distributors. This Paper and the results of the consultations will be factored into the Board's preparation of the proposed Codes on the cost of capital and on the 2nd Generation IRM. Cover Letter Staff Discussion Paper on the Cost of Capital and 2nd Generation Incentive Regulation for Ontario's Electricity Distributors
July 7, 2006	The Board is commencing a proceeding on its own motion under section 74 of the Ontario Energy Board Act, 1998 to amend the licences of electricity distributors to make provision for methods and techniques to be applied by the Board in determining distribution rates for licensed electricity distributors. Notice of Proceeding and Notice of Written Hearing to amend electricity distributor licences Avis d’Instance et avis d’audience
July 6, 2006	Written comments received from interested parties on Board staff's July 19, 2006 Draft Staff Report containing proposals for cost of capital and 2nd generation incentive regulation for Ontario's electricity distributors: Chatham-Kent Hydro Inc. Cornerstone Hydro Electric Concepts Association Inc. Electricity Distributors' Association Energy Cost Management Inc. Energy Probe Research Enersource Hydro Mississauga Inc. Guelph Hydro Electric Systems Inc. The Utilities Hydro One Networks Inc. London Hydro London Property Management Association Newmarket Hydro Ltd. Ontario Energy Association School Energy Coalition Toronto Hydro-Electric System Limited The Power Workers Union Veridian Connections Inc. Vulnerable Energy Consumer's Coalition Waterloo North Hydro Inc.
June 21, 2006	Board staff hosted an information session for interested parties on incentive regulation and the cost of capital on June 20, 2006. Opening Remarks to the Stakeholder Information Session on Cost of Capital and Incentive Regulation The Board's Multi-Year Electricity Distribution Rate Plan Incentive Regulation for Incentive Regulation for Ontario Power Distribution (Dr. Mark Lowry of Pacific Economics Group) Calculating the Cost of Capital for LDCs in Ontario (Dr. Eli Prisman and Dr. Fred Lazar of the Schulich School of Business) Staff Proposals for the Cost of Capital and 2nd Generation Incentive Regulation
June 20, 2006	The Board has issued a Draft Staff Report regarding proposals for cost of capital and 2nd generation incentive regulation for Ontario's electricity distributors. Cover Letter Draft Staff Report: Proposals for Cost of Capital and 2nd Generation Incentive Regulation for Ontario's Electricity Distributors
June 20, 2006	The Board posted a paper on cost of capital prepared by Dr. Fred Lazar and Dr. Eli Prisman of the Schulich School of Business. Calculating the Cost of Capital for LDCs in Ontario Copy of interest rates raw Copy of beta estimates Copy of spt tsx Regression N3 rates Regression N6 rates Regression N3 discreet rates Regression N6 discreet rates Sources The Schulich School of Business has been contracted to examine the cost of capital using the benchmark OEB Decision of May 11, 2005 and the 2006 Electricity Distribution Rate Handbook as the points of departure. The above paper addresses the following issues: differentiation among the LDCs; return on equity; cost of debt; capital structure; and implications of industry sector evolution. This paper is intended to provide stakeholders with a common frame of reference in considering the issues that arise in the cost of capital. The paper closes with summary conclusions as to what might be appropriate for power distributors in Ontario.
June 14, 2006	The Board posted a paper on incentive regulation prepared by Dr. Mark Newton Lowry of Pacific Economics Group. Second-Generation Incentive Regulation for Ontario Power Distributors Pacific Economics Group (PEG) was recently retained by the Board as an advisor on incentive regulation, also referred to as performance-based ratemaking (PBR), issues. The paper discusses criteria for the design of regulatory systems and uses this framework to discuss PBR and its advantages over the traditional cost of service approach to regulation. It then considers at some length the major issues in the design of a PBR plan. This discussion is intended to provide stakeholders with a common frame of reference in considering the issues that arise in PBR plan design. The paper concludes with recommendations for second generation incentive regulation for power distributors in Ontario.
April 27, 2006	The Board issued a kick-off letter outlining the process that it intends to use in relation to the cost of capital and 2nd generation incentive regulation mechanism elements of its multi-year electricity distribution rate setting plan. Letter Appendix A: OEB's Multi-year electricity distribution rate setting plan
December 1, 1998	Paper prepared for Board staff by Dr. William T. Cannon: A Discussion Paper on the Determination of Return on Equity and Return on Rate Base for Electricity Distribution Utilities in Ontario