Cost of Capital and 2nd Generation Incentive Regulation Mechanism Consultations

Case number
EB-2006-0087, EB-2006-0088, EB-2006-0089
Launched
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.

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.

December 14, 2006

Written comments on the Board's draft report received by December 12, 2006:

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.

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.

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.

November 8, 2006

Final submissions received by October 27, 2006:

November 8, 2006

The Board has issued Procedural Order No. 2 in the Licence Amendment Proceeding (EB-2006-0087).

October 27, 2006

Pursuant to Procedural Order No. 1 of the Licence Amendment Proceeding - EB-2006-0087.

October 13, 2006

Responses from parties received by the Board to the questions from parties posted on September 28th:

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.

September 28, 2006

Questions to parties received by the Board September 27th:

September 28, 2006

Responses to information requests that arose during the September 18-22 Technical Conference.

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.

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.

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:

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.

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.

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:

June 21, 2006

Board staff hosted an information session for interested parties on incentive regulation and the cost of capital on June 20, 2006.

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.

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.

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.

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.

December 1, 1998

Paper prepared for Board staff by Dr. William T. Cannon: