Generic cost of capital

Generic cost of capital

Overview

The Alberta Utilities Commission has made a decision on the Generic cost of capital proceeding, determining the final approved return on equity and approved deemed equity ratio for regulated utilties.

The final approved return on equity for AltaGas Utilities Inc., AltaLink Management Ltd., ATCO Electric Ltd., ATCO Gas, ATCO Pipelines, ENMAX Power Corporation, EPCOR Distribution & Transmission Inc., FortisAlberta Inc., the transmission operations of the City of Lethbridge, the transmission operations of the City of Red Deer, and certain electricity transmission assets of TransAlta Corporation, is set at 8.5 per cent for 2018, 2019 and 2020.

The final approved deemed equity ratio for AltaLink Management Ltd., ATCO Electric Ltd., ATCO Gas, ATCO Pipelines, ENMAX Power Corporation, EPCOR Distribution & Transmission Inc., FortisAlberta Inc., the transmission operations of the City of Lethbridge, the transmission operations of the City of Red Deer, and certain electricity transmission assets of TransAlta Corporation, is set at 37 per cent for 2018, 2019 and 2020.

The final approved deemed equity ratio for AltaGas Utilities Inc. is set at 39 per cent for 2018, 2019 and 2020.

The Alberta Utilities Commission periodically approves a rate of return on equity for regulated utilities and also establishes specific deemed equity ratios (the percentage of common equity in the capital structures) for each utility. The deemed equity ratio multiplied by debt and equity funded rate base and further multiplied by the allowed return on equity must result in an overall fair return for equity investors.

The determination of the approved rate of return on equity and deemed equity ratios is part of a complex and technical proceeding, which involves a public hearing involving natural gas and electric distribution and transmission utilities regulated by the AUC, as well as parties representing consumer interests.

The utilities regulated by the AUC that participated in the 2018 generic cost of capital proceeding were: AltaGas Utilities Inc., AltaLink Management Ltd., ATCO Electric Ltd., ATCO Gas, ATCO Pipelines, ENMAX Power Corporation, EPCOR Distribution & Transmission Inc., and FortisAlberta Inc.

AltaGas and the ATCO Utilities co-sponsored expert evidence. Their expert recommended a return on equity of 10.0 per cent, with deemed equity ratios of 40 per cent for each of the ATCO Utilities, and 44 per cent for AltaGas. 

AltaLink, Fortis and EPCOR also co-sponsored expert evidence. Their expert has recommended a return on equity between 9.0 to 10.75 per cent with a deemed equity ratio of 40 per cent. 

ENMAX’s expert recommended a return on equity of 9.5 per cent, with a deemed equity ratio of 42 per cent. 

The proceeding also considered the following:

  • Whether changes in the approved return on equity and deemed equity ratios, established in Decision 20622-D01-20161 (the 2016 generic cost of capital decision) were warranted. The approved rate of return on equity for 2017 is 8.5 per cent. The approved deemed equity ratios were 36 per cent for ENMAX, 41 per cent for AltaGas, and 37 per cent for the remaining utilities prior to the decision.
  • How the Commission should consider the traditional approaches and models used in previous generic cost of capital proceedings for determining an approved return on equity and equity ratios.
  • Whether the Commission consider moving the utilities to one standard methodology for income tax.

Accessing proceeding documents

The eFiling System should be accessed to view the applications and the other documents the AUC will be considering in this proceeding. The system is also used to file submissions and evidence to participate in the proceeding.

To create an account, select "New account" and follow the steps to create a user ID and password. If you have any questions about how to use the system please contact us at info@auc.ab.ca or 403-592-4500.

Documents being considered in this proceeding can be found in the eFiling System (which requires log in). Once you have logged in, enter 22570 in the "go to" section at the top left corner of your screen.

Proceeding 22570

Application status: decision issued

Hearing dates: March 12 to 23, 2018

Hearing location: Calgary hearing room

 

Decision 22570-D01-2018 issued August 2, 2018

 

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