OEB Issues Decision Regarding Real Estate Transactions by Electricity Distributor

A recent decision of the Ontario Energy Board addressed a series of issues arising from the acquisition and renovation of a building for office and storage purposes by Milton Hydro Distribution Inc. In its consideration of the regulatory treatment of the issues arising from Milton Hydro's real estate transactions, the Board said that the over-arching principle embedded in its performance-based outcomes approach is whether a utility is asking the Board to approve outcomes that customers value.

Using the performance-based outcomes approach to assess the implications of the acquisition and renovation of building space by Milton Hydro led the Board to conclude that two outcomes had no value to customers. First, the Board found that office space was created that exceeds Milton Hydro's reasonable requirements over the planning horizon. Second, the Board found that incremental "premium" costs incurred by Milton Hydro for indoor storage space as a substitute for outdoor storage represent an outcome of no value to customers. The Board reduced rate base to reflect its findings regarding office space and indoor storage space and it also disallowed Operation, Maintenance and Administration (OM&A) costs relating to this space.

Further, the Board found that Milton Hydro had realized an inappropriately low sale value for a property rendered redundant by the acquisition of the new property and, on this basis, determined that the capital gain from the sale of the redundant property was higher than presented by Milton Hydro. The entire amount of the capital gain, as recalculated by the Board, was applied as a credit or reduction to the rate base value of the new property. The Board said that, "This regulatory treatment is most appropriate where one parcel of land acquired for future use is replaced with another."