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Ontario Energy Board Announces Oral Hearing to Review Cost of Capital

On March 6, 2024, the Ontario Energy Board (OEB) issued a Notice of Hearing announcing its intention to hold an oral hearing to review the cost of capital that rate-regulated electricity and gas utilities are permitted to recover through rates. While the details of the proceeding have not yet been announced, it is anticipated the OEB will review the currently existing return on equity (ROE) formula, the deemed equity thickness currently approved for regulated utilities and the methodology used to set long-term and short-term debt.

While components of specific utilities’ cost of capital have arisen during various proceedings over the years, this will be the first comprehensive review of the cost of capital parameters by the OEB since its Report of the Board on the Cost of Capital for Ontario Regulated Utilities, dated December 11, 2009 (2009 Report).

The 2009 Report was the result of a consultative process initiated by the OEB for the purposes of reviewing its cost of capital policies. Like the 2009 proceeding, it is anticipated that the 2024 review will consider the fair return standard which, the OEB acknowledged in its 2009 Report, constituted the overarching principle for setting the cost of capital. It is further anticipated that a number of expert witnesses will be engaged by the parties and possibly OEB Staff, and that there could be a fairly wide divergence of views on the various elements of the cost of capital. Parties will likely make comparisons to utilities in other Canadian and U.S. jurisdictions, particularly given the generally higher deemed equity thickness and allowed ROE rates in the U.S.  

It is likely that the OEB will release an Issues List setting out the matters that the proceeding will consider and a Procedural Order setting out the next steps in the proceeding once all interventions are received and the list of participants has been settled.

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