Generic Cost of Capital
On May 7, 2015, AltaGas Utilities Inc., AltaLink Management Ltd., ATCO Electric Ltd., ATCO Gas, ATCO Pipelines, ENMAX Power Corporation, EPCOR Distribution & Transmission Inc., and Fortis Alberta Inc. (collectively, the “Alberta Utilities”) submitted an application to the AUC to set the return on equity (“ROE”) and capital structures for the 2016 year on a final basis. The AUC had previously set the ROE and capital structures for 2013, 2014 and 2015 on a final basis in Decision 2191-D01-2015. In that decision, the AUC also set the ROE and capital structures for 2016 on an interim basis.
The Alberta Utilities applied to accept the interim ROE for 2016 established in 2191-D01-2015, and set the ROE and capital structures for 2016 on a final basis in order to reduce the potential for regulatory lag and to ensure certainty for ratepayers. The Alberta Utilities submitted that certain matters (such as the filing of appeals related to the Utility Asset Disposition hearings) may not accommodate the filing of complete submissions for a potential 2016 generic cost of capital proceeding.
The Office of the Utilities Consumer Advocate, the Consumers’ Coalition of Alberta, and the City of Calgary (collectively, the “Customers”) partially opposed the proposal, noting the general downward trend in Government of Canada benchmark bond yields. The Customers also submitted that certain equity increases given by the AUC in previous generic cost of capital decisions as a means of providing credit metric relief for specific utilities may no longer be required in 2016. The Customers submitted that many of the Alberta Utilities capital spending programs underpinning such credit metric relief programs may already be complete.
The AUC determined that without support from the Customers, the Alberta Utilities’ proposal to set the 2016 ROE and capital structures at levels approved in Decision 2191-D01-2015 would not be in the public interest. The AUC therefore opted to initiate a normal course generic cost of capital proceeding for 2016 and 2017.
The AUC held that regulatory lag with respect to the 2016 ROE can be avoided through strict adherence to the process schedule set by the AUC. While the AUC acknowledged that such an approach may not permit wholly prospective approvals of ROE and capital structures for 2016, it addresses procedural and evidentiary needs, and balances the interests of both the Alberta Utilities and the Customers.
As a result, the AUC determined that the interim 2016 ROE and capital structures will remain in place until changed by a decision of the AUC.
