Policy Options for Funding Capital Investments

Case number

The Board’s RRFE Report envisages that distributors will engage in longer term planning, including engaging customers on their needs and expectations, and to take into account ratepayers’ ability and willingness to pay. Longer term planning, based on sound asset management practices, should enable distributors to plan, prioritize and pace capital programs accordingly. In turn, this should also provide for more predictability and stability of rates while allowing the distributors to make necessary investments.

In light of the Board’s expectations, the Board considered revised approaches to the funding of capital. Of consideration was whether the current rate regulatory cycle under the Price Cap Incentive Rate-setting option (Price Cap IR) results in distributors planning for more capital expenditures in the year of rebasing (or the prior year ) to maximize the rate base at that point in time rather than planning based on good asset management practices. A goal would be to facilitate the optimization and pacing of expenditures throughout the term of Price Cap IR thus avoiding large increases in capital expenditures at the time of rebasing.

As directed by the Board, Board staff developed two new mechanisms on which it sought comments before bringing new policy options to the Board for consideration:

  1. Eliminate the effect of the half year rule on test year capital additions for the intervening years between rebasing applications (i.e. during the subsequent IR plan) by adjusting for the incremental revenue requirement (depreciation expense plus return on capital and associated taxes/PILs) of the test year capital additions. This is proposed to be accomplished through an adjustment (to be referred to as the D1-factor) to the price cap formula in the first IR application subsequent to the cost of service application that resulted in rebased rates. The half year rule would still apply for the test year.
  2. Introduce a new funding mechanism that would enable reviews during a cost of service application for the need and prudence of any proposed incremental capital module funding requests for discrete projects that are part of a distributor’s DSP, and that are planned to come into service during the IRM period. The rate adjustment would still occur in the IRM year in which the asset would come into service. The revised mechanism will be named an Advanced Capital Module (“ACM”).
Date Issue / Document
January 22, 2016

The OEB has issued a Supplemental Report of the OEB on New Policy Options for the Funding of Capital Investments.

September 18, 2014

The OEB has issued its Report of the Board on New Policy Options for the Funding of Capital Investments: The Advanced Capital Module.

June 20, 2014

The OEB has issued a letter regarding policy options relating to the funding of capital investments.