FortisBC receives second stage of generic cost of capital decision

Mar 26, 2014

SURREY, BC – 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. The decision affects 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. (TSX:FTS).

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% and the common equity component in capital structure for rate-making purposes was set at 38.5% effective January 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%. The AAM will be in effect until December 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% 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 November 30, 2015.

As part of the decision on the second stage of the GCOC, effective January 1, 2013, the following has been approved:

• The ROE for FortisBC Inc. has been set at 9.15%, recognizing a risk premium over the benchmark utility of 0.40%, and the common equity in capital structure has been set at 40%, both effective January 1, 2013.  The ROE and common equity component in capital structure will remain in effect through December 31, 2015.
• The ROEs for FEVI and FEW have been set at 9.25% and 9.50%, respectively, recognizing risk premiums over the benchmark utility of 0.50% and 0.75%, respectively, and the common equity in capital structure for both companies has been set at 41.5%, all effective January 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 January 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 December 31, 2015.

The decision and orders are available on the BCUC website at www.BCUC.com.

 

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