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Posted in: Green Energy | Energy Policy | Ontario | Ratemaking | Utility Mergers

Apr 11, 2015

Ontario Energy Board March Report

By Fred D. Cass

On March 26, 2015, the Ontario Energy Board released a report on changes to its rate-making policies that it will adopt in order to support consolidation of Ontario's electricity distributors. The Board's report followed a consultation process to consider changes to regulatory requirements that may facilitate efficiency improvements. The consultation process included a Board staff Discussion Paper issued in March 2014 that is available here.

In its report, the Board concluded that it will change its ratemaking policies to allow consolidating electricity distributors to apply for an extended period of up to 10 years to defer rate rebasing, which is an increase from the five-year period previously allowed under Board policies. The effect of this change is to provide an incentive for consolidation because the net savings of efficiencies achieved through consolidation may accrue to an electricity distributor's shareholder for an extended period. For the extended period (the period from five to 10 years after the consolidation), the Board will require the consolidating entity to implement an earnings sharing mechanism under which earnings more than 300 basis points over the Board-allowed return on equity will be shared 50/50 between the distributor and its customers.

In order to address concerns that consolidating distributors might not have the ability to finance capital investments, the Board confirmed that consolidating distributors under an Annual Incentive Regulation Plan will have the option to use the Board's Incremental Capital Module during the deferred rebasing period. The Board also confirmed that, as clarified in an earlier Board report, distributors may apply for an Incremental Capital Module that includes normal and expected capital investments.

In addition to these policies aimed at encouraging the electricity distribution sector to seek out efficiencies, especially through consolidation, the report explains which of the Board's incentive rate-making models will apply to consolidating distributors during any deferred rebasing period, at the conclusion of an existing incentive regulation plan. The Board's report can be found here.

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