Topic:"Capital Expenditures" in M12394

this time. The material near term expenditures forecasted during this period are the cable protection project4F 5 and updating or replacement of HVDC station control and monitoring system. In addition to the items ordered by the Board for...

AI summary NSPML is requesting adjustments to its capital structure and approval for a single-year assessment to recover its 2026 revenue requirement of $198.7 million from NS Power. The application includes requests related to aligning debt-to-equity requirements and accommodating liquidity needs.

2.1 Asset Management Cost Uncertainties There are several cost uncertainties that are not practical to manage or mitigate to the benefit of customers several years into the future. These uncertainties and the associated operational conside...

AI summary NSPML faces uncertainties in long-term operational and maintenance costs due to factors like unpredictable vessel availability for marine surveys and ongoing contract negotiations for converter stations. These uncertainties complicate accurate cost estimation for future projects.

20 Vegetation Management 21 22 As anticipated in the 2025 Assessment Application, a larger scope of vegetation 23 management activities is forecasted to be required in 2026 as compared to 2025, 24 increasing the cost in 2026 by approximate...

AI summary The 2025 Assessment Application forecasts an increase in vegetation management costs for 2026 by approximately $0.5 million. NSPML is using LiDAR7F technology for condition-based vegetation management, following an Integrated Vegetation Management approach widely used in the industry.

Date Filed: July 18, 2025 Page 13 of 29 10 that a depreciation study should be updated every 5-7 With the exception of the Woodbine AC station, which is to be transferred to NS Power Inc. 2025 Assessment (M11791), Decision paragraph 36. 1...

AI summary The document discusses the need for updating a depreciation study, noting that no significant changes have occurred since the final costing. An update is planned once the Cable Projection Project is completed in 2026, as recommended by Gannett Fleming.

7 3.3.2 Sustaining Capital 8 9 NSPML anticipates that it will incur sustaining capital expenditures in 2026 for Submarine Cable Protection Project of $32,962,333 (pending approval)10F 11 10 , in addition to 11 $0.5 million of routine capit...

AI summary NSPML anticipates incurring sustaining capital expenditures of $32.96 million for the Submarine Cable Protection Project in 2026, in addition to $0.5 million for routine capital, totaling $33.5 million. This includes only the depreciable amount for 2026.

17 Table 3 Capital Initiatives (Amountsin $millions) 2026 Comments Submarine Cable Protection 33.0 As outlined in the capital application (M12285) Routine Capital 0.5 Recurring, smaller expenditures including any maintenance, repairs, alte...

AI summary Table 3 outlines capital initiatives for 2026, including a $33.0 million allocation for submarine cable protection and $0.5 million for routine capital expenditures. The submarine cable protection initiative is referenced through a capital application (M12285).

1 3.3.3 Capital Depreciation 2 3 Consistent with the Final Costs Decision and its approved depreciation policy, NSPML 4 seeks to recover $57.2 million in depreciation during 2026 which is calculated in accordance with NSPML's NSEB approved...

AI summary NSPML seeks to recover $57.2 million in depreciation during 2026, primarily due to the Cable Protection Project. This aligns with the Final Costs Decision and NSPML's approved depreciation policy, which includes the opening rate base plus sustaining capital.

15 3.4.1 Annual Net Interest Costs 16 The requested recovery of annual net interest costs in 2026 is $37.7 million. This represents total coupon interest costs of $37.5 million, Letter of Credit fees of $0.4 million, interest on long-term...

AI summary The document discusses the requested recovery of annual net interest costs in 2026, totaling $37.7 million, including coupon interest, letter of credit fees, and interest on long-term debt, partially offset by interest revenue and disallowed interest. It also references outstanding close-out matters and financing considerations for the NSPML Cable Protection Project.

1 expense as a result of a reduction in NSPML's approved Project Costs arising from the 2 Final Cost Decision. 3 4 The debt financing of ML under the ML Credit Agreement is based on the $1.3 billion 5 of bonds issued by ML Financing Trust...

AI summary The document discusses the impact of the Final Cost Decision on NSPML's Project Costs, including the amortization of Deferred Financing Charges and the debt financing under the ML Credit Agreement. The reduction in coupon interest costs and the recovery of Deferred Financing Costs in the 2026 revenue requirement are highlighted.

6.2 ROE Analysis and Asset Complexity - Not a Traditional Transmission Asset Factors which differentiate NSPML's risks from those of the average T&D company, are discussed below including management and maintenance of NSPML's highly comple...

AI summary This section discusses the unique risks associated with NSPML, emphasizing its complex asset management, complex agreements, and current capital structure, which differentiate it from typical transmission and distribution companies.

Highly Complex Asset: As further elaborated upon in Concentrics's Expert Evidence, the Maritime Link is a highly complex set of assets. The High Voltage Direct Current ("HVDC") interconnection comes with increased operational risk as compa...

AI summary The Maritime Link is a highly complex asset involving HVDC technology, subsea cables, and complex agreements with NLH. It has a higher debt-to-equity ratio compared to traditional T&D utilities, increasing operational and financial risks. Comparators with subsea transmission assets are limited, and ROE ranges are provided for reference.

7.0 REGULATED CAPITAL STRUCTURE NSPML is requesting that the Board approve (i) a revised regulated capital structure for sustaining capital to align with NS Power's 60 percent debt and 40 percent equity metrics and (ii) to adopt a flexibil...

AI summary NSPML is requesting the Board to approve a revised regulated capital structure aligning with NS Power's 60% debt and 40% equity metrics and to adopt a flexibility band regarding the 70/30 regulated capital structure on original project costs.

7.1 Analysis of Capital Structure NSPML's capital structure of 70/30 was initially set in 2013, with the lower capital structure supported by the Federal Load Guarantee ("FLG"). The benefits of such a capital structure as supported by the...

AI summary NSPML's capital structure was initially set at 70/30 in 2013 with support from the Federal Loan Guarantee. However, with the removal of FLG2, NSPML's debt-to-equity ratio increased to 78% debt and 22% equity, leading to higher financial risk. NSPML argues that aligning with the T&D proxy group's average of 49% equity would help improve its capital structure and future borrowing costs.

9.0 REQUEST FOR RELIEF In consideration of the above, NSPML respectfully requests that the Board issue an Order pursuant to sections 64 of the Public Utilities Act and 8 of the ML Regulations: 1. Approving a 2026 assessment for NSPML in th...

AI summary NSPML requests the Board to approve a 2026 assessment of $198.7 million, a Return on Equity of 9 percent, and a regulated capital structure with 60% debt and 40% equity, along with flexibility for original project capital.

generation. It was also intended to help meet Canadian federal 9 regulations requiring a 50% reduction in coal emissions by 2030 and Nova Scotia regulations 10 requiring 40% renewable energy by 2020. 11 The authorized ROE for NSPML has his...

AI summary The document discusses the Maritime Link project and its financing, including the use of a federal loan guarantee, the authorized return on equity (ROE) for NSPML, and the need to estimate the cost of capital for rate-making purposes. The ROE for NSPML has historically been linked to that of NS Power.

1 Figure 1: Summary of Results4 CAPM – Historical MRP 8.82% Multi-Stage DCF 9.28% Risk Premium 9.92% Average 9.34% - 2 In our report, we also discuss the unique business and financial risks of NSPML, and compare the 3 authorized return for...

AI summary The document presents different methods for calculating the weighted average cost of capital (WACC), including CAPM, Multi-Stage DCF, and Risk Premium, and discusses the unique financial risks of NSPML compared to other transmission companies, which are primarily above ground AC operations.

1 C. The Relationship Between Capital Structure and ROE 2 The cost of common equity depends in part on the company's capital structure. The common 3 equity ratio and equity rate of return must therefore be considered together to determine...

AI summary The relationship between a company's capital structure and return on equity (ROE) is discussed, emphasizing that lower common equity ratios increase financial risk and require higher rates of return to compensate shareholders. The decision on capital structure by regulators affects the required rate of return on common equity.

15 F. Capital Market Conclusions 16 Interest rates on government and utility bonds have increased to some extent since January 2023, 17 when the UARB approved the settlement in NS Power's previous GRA. This indicates that despite 18 the un...

AI summary Interest rates on government and utility bonds have increased since January 2023, but the cost of utility capital has remained relatively stable. Long-term interest rates in Canada are expected to rise, while those in the U.S. are expected to decline. These projections have been incorporated into financial models such as CAPM, Risk Premium, and multi-stage DCF.

20 4. CAPM Results 21 Our CAPM analysis for the North American Electric T&D proxy group produces an ROE estimate 22 of 8.82 percent, including an adjustment of 50 basis points for flotation costs and financial 23 flexibility. CONCENTRIC EN...

AI summary The CAPM analysis for the North American Electric T&D proxy group estimates an ROE of 8.82 percent, adjusted for flotation costs and financial flexibility. A reference is made to a British Columbia Utilities Commission decision.

3 A. NSPML's Deemed Capital Structure 8 examined the business and financial risk profile of NSPML. 4 NSPML has a deemed capital structure of 30% common equity and 70% long-term debt, which was approved by the Board in 2013.56 5 The capital...

AI summary The document discusses NSPML's deemed capital structure, which is 30% common equity and 70% long-term debt, approved by the Board in 2013. This structure is influenced by a Federal Loan Guarantee for the Maritime Link project.

27 3. Risk Premium for NSPML 28 Given the greater business and financial risk of NSPML as compared to the North American T&D 29 proxy group companies, we conclude that a risk premium above the proxy group average return is reasonable. Conc...

AI summary The text discusses the risk premium for NSPML, concluding that a risk premium above the proxy group average return is reasonable due to the greater business and financial risk of NSPML. The Hamada equation was used to estimate the risk premium, resulting in a recommended range of 75 to 100 basis points, leading to an estimated ROE of 10.10% to 10.35%.

Original Maritime Link Project (in millions of $) 2022 2023 2024 2025 (est.) 2026 (est.) Opening Rate Base 1,752.4 1,689.1 1,631.4 1,576.0 1,516.8 Difference between approved and actual ML Project spend as at December 31, 2021 (4.7) Net ca...

AI summary The document presents financial data related to the Original Maritime Link Project and Sustaining Capital, including rate base changes, capital additions, depreciation, and deferrals. The data spans from 2022 to 2026, highlighting fluctuations in the rate base and capital additions over time. FLG2 is excluded from rate base calculations for rate setting purposes.

3.0 SUSTAINING CAPITAL OUTLOOK In the context of sustaining capital requirements, NSPML is unique in that it is focused on the asset management and operations of a singlular linear transmission asset. While the combination of assets within...

AI summary NSPML's sustaining capital outlook focuses on periodic maintenance and upgrades for the Maritime Link transmission asset. Major projects are expected to be periodic rather than annual, with mid-size initiatives increasing around asset milestones. The outlook is subject to change based on asset health, market factors, and vendor availability.

require reinvestment at approximately 15 years in operations. 1 5.4 HVAC Controls and Protections (C&P) 2 3 The High Voltage Alternating Current (HVac) equipment protects the electric power system 4 and the grid against abnormal power syst...

AI summary The document discusses the need for reinvestment in HVAC and HVDC systems after approximately 15 years of operations. It outlines the replacement of critical equipment, such as HVDC controls and protection systems, as recommended by the OEM for the 15-20 year operations period. These replacements are essential for maintaining the reliability and safety of the Maritime Link and interconnected grids.

years and project timing and costs will be primarily driven by asset condition at the time. 1 7.0 SUMMARY 2 3 NSPML will continue to focus on meeting its obligations regarding the operation and 4 maintenance of the Maritme Link in accordan...

AI summary NSPML will focus on maintaining the Maritme Link in accordance with Good Utility Practice. Near-term sustaining capital requirements include the Submarine Cable Protection project (M12285) and a Station Control and Monitoring project. Routine sustaining capital will be reported and approved as needed, with insights provided in annual reporting.

13 2027 2026 2025 20 Z 4 20 DZZ 021 )Z0 019 D18 Description Estimated Assessment Approved Approved Approved Actual Approved Approved Approved Approved Approved Labour and Administration 9.8 9.5 8.6 8.6 7.2 7.5 7.4 6.9 8.3 6,8 6.9 2.4 2.9 2...

AI summary The text presents a detailed table of cost estimates, assessments, and approvals across various categories such as Labour and Administration, Maintenance and Inspection, Insurance, and others, spanning multiple years. It includes figures for 2027, 2026, 2025, and earlier years, with some entries having inconsistencies or missing data. NSPML has applied a 3% escalation rate for 2027 forecasting purposes.

Historical Data % change on previous year 2021 2022 2023 2024 GDP (Mainland) 4.5 4.3 0.7 0.6 GDP (Total) 3.9 3.2 0.1 2.1 Private Consumption 5.1 7.4 -1.4 1.3 Gross Fixed Investment 0.7 0.3 -1.5 -1.9 Manufacturing Production 3.2 -0.3 -0.2 1...

AI summary The text presents historical economic data for Norway from 2021 to 2024, including GDP growth, inflation, investment, and other economic indicators. It highlights fluctuations in GDP, private consumption, and wage growth, along with nominal GDP and population statistics for 2023.

Italy Histor ical С onsens sus Fo recasts s % change over previous year 2021 2025 2026 2027 2028 2029 2030 2031-35 1 Gross Domestic Product 8.9 4.8 0.7 0.7 0.5 8.0 0.9 0.9 8.0 8.0 0.6 Household Consumption 5.9 6.2 0.4 0.5 0.9 0.9 8.0 0.6 0...

AI summary The text presents economic data and forecasts for Italy and Canada, including GDP growth, investment, industrial production, and consumer prices. It includes historical and projected figures from 2021 to 2035, highlighting trends in economic performance and inflation rates.

Capital Asset Pricing Model - Historical MRP [1] [2] [3] [4] [5] [6] [7] [8] Average Market Risk Basic CAPM North American Electric T&D Proxy Group Ticker Bloomberg Value Line Average Beta Risk Free Rate Premium Calculation Flotation Cost...

AI summary The text presents a table analyzing the Capital Asset Pricing Model (CAPM) for various North American electric transmission and distribution companies, including metrics like beta, risk-free rate, market risk premium, and calculated CAPM values. The table includes entities like Canadian Utilities Limited, HydroOne Ltd., and Consolidated Edison, Inc.

CAD Millions BALANCE SHEET 2024 Forecast 2025 Forecast 2026 Forecast CAD Millions Assets Current assets 12.4 13.1 12.5 Receivables - - Total 12.4 13.1 12.5 CWIP Property, plant & equipment - ML Project 1,765.3 1,765.3 1,765.3 Accumulated D...

AI summary The document outlines NSPML's 2024 to 2026 financial forecasts, including balance sheet details and projected capital investments for the Maritime Link. Concentric argues that sustaining capital over the next 25-30 years should be financed with a higher deemed equity ratio (40%) due to increased risk, affecting rate base calculations and current rate payers.

NON-CONFIDENTIAL b) Concentric understands that NSPML's first material sustaining capital will occur in 2026 related to the submarine capital protection project. The recommendation to increase equity ratio is for future sustaining capital...

AI summary NSPML's first material sustaining capital investment is expected in 2026 related to a submarine capital protection project. The recommendation to increase the equity ratio applies only to future sustaining capital investments, and there is no intergenerational equity risk associated with these investments.

CONFIDENTIAL (ATTACHMENTS ONLY) 1 Request IR-01: 2 3 Reference: Section 2.1 Asset Management Cost Uncertainties (p.7). 4 (a) For each of the identified uncertainties, please discuss when the 5 uncertainty is anticipated to resolve, and wha...

AI summary The document contains a series of information requests related to asset management cost uncertainties, marine surveys, converter station agreements, and transmission line maintenance costs. It also asks for an assessment of the costs associated with these activities and the reasons for any delays in completing the assessment.

CONFIDENTIAL (ATTACHMENT ONLY) 1 Request IR-07: 2 3 4 5 6 Reference: Page 14, lines 3-5. Gannett Fleming has recommended that once NSPML's first material capital project (regarding the Cable Projection Project) is completed in 2026, NSPML...

AI summary The document discusses a request for information regarding NSPML's depreciation study update, including the letter of instruction provided to Gannett Fleming and NSPML's commitment to updating the study in 2026 as part of the 2027 assessment.

NON- CONFIDENTIAL 1 Request IR-18: 2 3 Reference: Page 26, lines 19-24. 4 NSPML is requesting that the Board grant flexibility in NSPML's equity 5 6 thickness using a range of +/-1.5 percent which results in a range of 28.5-31.5 percent eq...

AI summary NSPML is requesting flexibility in its equity thickness during the operating phase of a project, proposing a range of +/-1.5 percent. This request is being evaluated in light of the Board's 2013 decision, which restricted payout of earnings in excess of the approved ROE with a 30% equity thickness. The disallowance of ~$9 million has created an imbalance in the regulated equity, impacting the rate base.

NON- CONFIDENTIAL 1 increased the shareholder investment without the ability to earn on the additional 2 investment as NSPML's rates are set at 30% of rate base, although the equity thickness has 3 been above 30%, NSPML is not able to earn...

AI summary NSPML faces challenges in managing its capital structure due to rate base limitations and the Holdback mechanism, impacting its ability to finance capital projects. It requests flexibility to payout earnings based on actual equity thickness, similar to regulatory approaches in other jurisdictions that use ROE or capital structure incentives.

NSPML Responses to Industrial Group Information Requests 1 Request IR-19: 14 d) No. The Joint Operations Agreement, to which NLH is a counterparty, contemplates 15 the establishment and maintenance of a Long Term Asset Management Plan (LTA...

AI summary NSPML responds to information requests regarding the Joint Operations Agreement and the Long Term Asset Management Plan (LTAMP), noting that Annual Maintenance Plans are approved by the JOC. NSPML also discusses its request for a higher common equity ratio of 40% in its capital structure.

NSPML Responses to Nova Scotia Energy Board Information Requests 1 Request IR-03: 14 already embedded in NSPML's operating costs, to the new LTSA is considered 15 "material". 16 c) Please explain why NSPML is unable to estimate the costs f...

AI summary NSPML responds to Nova Scotia Energy Board information requests regarding the renewed LTSA, explaining that the contract is significant to NSPML due to its relationship with Hitachi and its impact on cost containment and stability. NSPML notes that the contract's costs are not considered material in an accounting sense but are important for operational and financial planning.

NON-CONFIDENTIAL 1 vegetation to identify deficiencies and overall condition of structures, conductor, and 2 ROWs. This information obtained via inspections is used as a key input to understand 3 transmission asset and ROW risk and target...

AI summary NS Power conducts inspections of transmission assets and rights-of-way to identify deficiencies and assess risks. A risk-based approach is used to prioritize corrective actions, with some issues addressed immediately and others incorporated into future capital projects.

6 \ Note that this expenditure represents the receipt of orders detailed in the 2024 and 2025 Assessment under 7 sustaining capital. Subsequent to the 2025 Assessment filing on July 4, 2024, NSPML learned that Hitachi 8 had changed the min...

AI summary NSPML requested sustaining capital for IGBT units based on estimated costs, but Hitachi changed the minimum order to 50 units with a 68-week lead time. An order was placed in December 2024, with delivery expected in 2026. Previously, OEM provided IGBTs under warranty with a spares level of 74 units maintained annually.

Request IR-21: 2 1 IR-2 to IR-31 Reference Exhibit N-1 Pages 4 -29 4 - 5 Page 14 - 6 NSPML stated that sustaining capital expenditures of about $0.5 million (excluding the - 7 proposed submarine cable protection capital application) are ex...

AI summary NSPML is requesting incremental funding for sustaining capital expenditures, excluding the proposed submarine cable protection application. The request includes estimates for future capital investments in 2027, 2028, and 2029, including projects less than $1 million.

17 Calendar Year (Operations Year) Initiative 2026 (8) 2027 (9) 2028 (10) 2029 (11) Routine General 0.5 0.5 0.5 0.5 Routine IGBTs 1.1 1 Marine 32.9 - - - HVDC SCM Total 35 21 2 1 18

AI summary The table outlines various initiatives and their associated costs across multiple years, with significant expenditures noted for the Marine initiative in 2026 and a decline in subsequent years. Routine General and Routine IGBTs are also listed with varying costs.

a) Please see table below with calculation for estimated sustaining capital rate base: Description Q4 2025 Q1 2026 Q2 2026 Q3 2026 Q4 2026 Sustaining Capital Expenditures 1.5 2.8 2.9 35.9 36.0 Accumulated Depreciation (0.1) (0.1) (0.1) (0....

AI summary The table provides a calculation for the estimated sustaining capital rate base across multiple quarters, showing expenditures, accumulated depreciation, and ending balance for each quarter from Q4 2025 to Q4 2026, with a 5-quarter average of 15.5.

case of Emera, descriptions of and preliminary cost estimates for any opportunities for Maritime Link Life Extension Projects that may be undertaken as part of the O&M Activities on the Maritime Link. The JOC shall review and may consider...

AI summary The JOC is responsible for reviewing and considering O&M information related to Maritime Link Life Extension Projects, and may approve such matters subject to conditions. Managers must ensure timely submission of matters for approval and provide all requested information.

5.4 Financial Principles In preparing the Initial LTAMP Cost Estimates and the In-Service LTAMP Cost Estimates, the Parties shall adhere to and assist each other in adhering to the following principles: - (a) the Parties shall develop and...

AI summary This section outlines financial principles for preparing Initial and In-Service LTAMP Cost Estimates, emphasizing the use of a common cost estimating methodology, constant dollars for base cost estimates, and inclusion of relevant federal taxes such as carbon taxes, while excluding certain income and provincial taxes.

Input Source (all to equal the amounts contained in the Application) amount of annual energy to be delivered 0.986 TWh transmission losses The then most current estimate of transmission losses as determined pursuant to Schedule 3 of this A...

AI summary The document outlines inputs required for an application, specifying how various financial and operational parameters are determined based on current estimates and agreements. It details the calculation of energy delivery, transmission losses, capital costs, AFUDC rates, operating and maintenance costs, tax rates, and capital cost allowance classes. The process involves Emera preparing a draft for Nalcor's review.

NON-CONFIDENTIAL 1 Request IR-27: 2 3 IR-2 to IR-31 Reference Exhibit N-1 Pages 4 -29 4 5 Page 23 6 NSPML refers at several points in the application to the impact of the FLG2 which changed 7 NSPML's capital structure to about 78/22 debt t...

AI summary NSPML discusses the impact of FLG2 on its capital structure, which has shifted to approximately 78% debt and 22% equity, increasing its financial risk compared to typical T&D utilities. This change has resulted in higher financing costs and increased risk exposure.

NSPML Responses to Nova Scotia Energy Board Information Requests 1 NSPML's balance sheet. Actual factors will be known at the time when future 2 borrowings are pursued." 3 c) Please confirm whether it is still NSPML's view that the FLG2 tr...

AI summary NSPML confirms that the FLG2 transaction did not negatively impact its return on equity or creditworthiness. It also explains that its request for a change in its regulated capital structure is to align with industry standards, strengthen its balance sheet, and harmonize with NSP's financial profile.

1.1 Qualifications This evidence is prepared by Dr. Sean Cleary, CFA of Queen's University. I am a Professor of Finance at the Smith School of Business at Queen's University. I earned my Ph.D. in Finance at the University of Toronto in 199...

AI summary Dr. Sean Cleary, a finance professor and expert witness, outlines his qualifications and experience in cost of capital proceedings, including his work with various regulatory bodies and his research in corporate finance and capital markets.

ally- weighted average of my capital asset pricing model (CAPM) estimate of 6.9%, my discounted cash flow (DCF) estimate of 7.9%, and my bond yield plus risk premium (BYPRP) approach estimate of 8.0%. As mentioned above, this ROE recommend...

AI summary The document discusses the recommended Return on Equity (ROE) for NS Power and NSPML, based on estimates from the Capital Asset Pricing Model (CAPM), Discounted Cash Flow (DCF), and Bond Yield Plus Risk Premium (BYPRP) approaches. It also addresses the allowed equity return (ER) for NSPML, considering its unique risks and the impact of the Maritime Link project's guaranteed loan.

3.2 Concentric's Proxy Group Concentric notes on page 39 of Appendix A that: "Since ROE is a market-based concept and given that NSPML is not publicly-traded, it is necessary to establish a group of companies that are both publicly-traded...

AI summary Concentric uses a proxy group of publicly-traded North American electric utilities to estimate the cost of equity for NSPML. However, the proxy group used in this proceeding includes a higher proportion of U.S. utilities, which are argued to be less comparable to Canadian utilities due to higher business risk. This raises concerns about the accuracy of the DCF and CAPM analyses.

3.4 CAPM Estimates Implementing the CAPM to determine Ke requires an estimate of the risk-free rate (RF), which is normally based on existing 30-year government bond yields, as it is meant to represent the actual existing risk-free asset t...

AI summary The text discusses the use of the Capital Asset Pricing Model (CAPM) to estimate the risk-free rate (RF) and highlights that Concentric's approach of using forecasted yields for 2026-2028 is flawed due to upward bias. Evidence from previous proceedings, including the 2024 Ontario Energy Board (OEB) proceedings, supports this claim. The text also notes that Concentric's forecasts are close to actual bond yields as of September 2025.

6 4.1.2 Capital Market Conditions The 30-year Government of Canada bond yield as of September 29, 2025 was 3.63%, while the 10-year yield was 3.18%. The total cost of borrowing to utilities is a function of both the level of government yie...

AI summary This section discusses capital market conditions, focusing on government and utility bond yields from 2003 to 2025. It notes that as of August 2025, the A-rated utility yield was 4.92%, with a spread of 1.11% over the 30-year government bond yield of 3.81%, which is below the long-term average spread of 1.39%.

%) higher. While not reported in Figure 10, it is useful to note that this widening of allowed ROE and RF and A-yield spreads was not unique to NS, but very similar to that which occurred in Ontario The working papers for Figures 9 and 10...

AI summary The text discusses the widening of allowed return on equity (ROE) and risk-free (RF) and A-yield spreads, noting that this trend is not unique to Nova Scotia but also occurred in Ontario. It explains how the spread between ROE and RF relates to the market risk premium (MRP) and how different methods, such as the CAPM and bond yield plus risk premium approach, are used to estimate the cost of equity for utilities like NS Power.

5.2.5 Final CAPM Estimates While government bond yields have risen over the past few years, they still remain relatively low, both in absolute terms and by historical standards. A-rated Canadian utility bond yield spreads were sitting at 1...

AI summary The analysis discusses adjustments to the Capital Asset Pricing Model (CAPM) estimates for Nova Scotia Power, considering bond yield spreads, risk premiums, and financial flexibility. Adjustments include subtracting 0.14% for liquidity issues, adding 0.40% for higher debt costs, and 0.50% for financial flexibility, leading to a final ROE of 6.9%.

6. CAPITAL STRUCTURE RECOMMENDATIONS My recommendations are that NSPML's ER for original capital should remain at 30%, and that its ER for "sustaining capital" should equal that of the requested allowed ER for NS Power, which is currently...

AI summary The section recommends maintaining NSPML's equity ratio (ER) for original capital at 30% and aligning its ER for sustaining capital with NS Power's allowed ER of 40%, which is considered reasonable. The section aims to estimate an appropriate ER for NS Power.

Expert Witness Experience: September 2025-August 2026 – Nova Scotia Energy and Regulatory Boards Tribunal (NSERBT). Prepare evidence and make recommendations regarding the Nova Scotia Power GRA Proceedings. July-December 2025 – Nova Scotia...

AI summary The document outlines the expert witness experience of an individual involved in various regulatory proceedings across Canada, including Nova Scotia Power GRA and Maritime Link projects, as well as advising on appropriate return on equity (ROE), capital structure, and risk margin recommendations for utilities in Alberta, Ontario, and Newfoundland.

- "Debt Rating Initiations: Natural Evolution or Opportunistic Behavior?" 2013. Co-authored with Laurence Booth, University of Toronto, and Lynnette Purda, Queen's University. Journal of Modern Accounting and Auditing, Vol. 9 (No. 12), 157...

AI summary The text lists several academic publications focusing on financial management, investment strategies, and capital markets. These works explore topics such as debt rating initiations, institutional investment horizons, and the cost of equity capital, authored by various researchers including Laurence Booth and others.

Response: - (a) Clearly it would be preferable to have a larger sample, but Dr. Cleary believes the proxy group is adequate. He further notes that Concentric's North American proxy group consists of only five utilities (including three U.S...

AI summary Dr. Cleary argues that a smaller Canadian proxy group is preferable to a larger U.S. group due to differences in risk and regulatory environments. He notes that U.S. utilities are riskier and that using U.S. data introduces biases, such as a 1.1% upward bias in CAPM estimates due to higher U.S. interest rates. He relies on his Canadian DDM estimate of 7.91% as the appropriate cost of equity.

1 2.0 CAPITAL STRUCTURE 2 3 As set out in NSPML's Application, NSPML seeks an equity ratio of 40% for sustaining 4 capital investment moving forward, while maintaining the 30% equity ratio for existing 5 capital investments (excluding FLG2...

AI summary NSPML seeks to increase its equity ratio to 40% for future capital investments while maintaining a 30% ratio for existing ones. Dr. Cleary supports this change but NSPML argues that the federal loan guarantee does not reduce equity risk. NSPML also requests a +/- 1.5% flexibility for existing capital investments to manage the 70/30 debt-equity ratio.

NSPML 2026 Assessment Application - Appendix A - Concentric Rebuttal Evidence - Page 21 of 49 JAMES M. COYNE AND JOHN P. TROGONOSKI REBUTTAL EVIDENCE PREPARED FOR NSP MARITIME LINK INC. 1 the Canadian average. Dr. Cleary's short-term econo...

AI summary The rebuttal evidence argues that Dr. Cleary's short-term economic outlook for Nova Scotia is not suitable for determining the cost of capital for utility assets, as longer-term data should be used. It also suggests that if Nova Scotia is expected to have stronger economic growth than the rest of Canada, lower growth rates should not be applied in the DCF model.

2 ALBERTA DECISIONS AS SUPPORT FOR DR. CLEARY'S POSITIONS 3 Q. Dr. Cleary quotes numerous decisions of the Alberta Utilities Commission over the past 4 decade and implies that the AUC agrees with many of his methods and model inputs. 5 Wha...

AI summary Dr. Cleary cites Alberta Utilities Commission (AUC) decisions to support his methods and model inputs, but the response highlights that the AUC has rejected several of his arguments, including his use of a Canadian-only proxy group, risk premium, growth rates, and beta coefficient recommendations.

2 DEEMED EQUITY RATIO FOR NSPML 3 Q. Please summarize Dr. Cleary's evidence as it relates to NSPML's deemed equity ratio. 4 A. Dr. Cleary recommends that NSPML's equity ratio for original capital should remain at 30% 5 and that its equity...

AI summary Dr. Cleary recommends NSPML's equity ratio for original capital remain at 30% and for sustaining capital match NS Power's 40%. However, the conclusion is that NSPML has greater business risk than average, and the 30% deemed equity ratio is low compared to other Canadian investor-owned utilities. The FLG during the Maritime Link project supported the 30% ratio, but this is disputed.

SPONSOR DATE CASE/APPLICANT DOCKET NO. SUBJECT Enbridge Gas Distribution 2022 Enbridge Gas Distribution EB-2022-0200 Capital Structure and Business Risk Ontario Energy Association 2024 Enbridge Gas, the Coalition of Large Distributors, Ont...

AI summary The text presents a table listing various regulatory proceedings related to capital structure, cost of capital, and return on capital across different jurisdictions and utility companies, including Enbridge Gas Distribution, Maritime Electric Company, and Duke Energy Ohio, Inc.

SPONSOR DATE CASE/APPLICANT DOCKET SUBJECT Alberta Utilities Commission ENMAX Power Corp. 2022 ENMAX Power Corp. Application No. 27084 Generic Cost of Capital (electric and gas) Beverage Container Management Board (Alberta) Beverage Contai...

AI summary The document lists various regulatory proceedings related to cost of capital, rate adjustments, and other utility-related matters across different jurisdictions, including Alberta and Colorado. It includes information on applicants, dates, docket numbers, and subjects under review.

NSPML Opening Statement December 15, 2025 Before I provide a statement on the 2026 NSPML Assessment, I wanted to briefly provide an operational update on the Maritime Link. At NSPML, our number one priority is the safety of our employees,...

AI summary NSPML reports strong safety performance in 2025 with zero injuries and highlights the Maritime Link's high availability and energy delivery performance. The 2026 Assessment Application requests $198.7M, with $22.0M allocated for Operations and Maintenance.

& Labrador. NSPML's 2026 Assessment Application is for $198.7M,of which $22.0M relates to Operations and Maintenance of the Maritime Link with the remainder being depreciation and financing costs. Our 2026 Assessment has been carefully com...

AI summary NSPML's 2026 Assessment Application requests $198.7M, with $22.0M for Operations and Maintenance of the Maritime Link. The application emphasizes maintaining low-cost operations and references Concentric Energy Advisors' recommended return on equity range while requesting continuation of the 9% ROE for affordability. The application addresses areas from the 2025 decision, including a multi-year assessment and asset management plan.

a proxy for market data. For the other two models, D. D'Ascendis relied on market data; however, they require the Commission's determinations on a number of new variables such as the expected utility bond yields and expected returns for an...

AI summary The document discusses the evaluation of different risk premium models, including the Market Equity Risk Premium (MERP), Capital Asset Pricing Model (CAPM), and Discounted Cash Flow (DCF). The Commission favors CAPM and DCF over alternative models like the predictive risk premium model, citing their broader acceptance and the empirical challenges of the latter.

- 187. Ideally, the values for these adjustment factors should be determined through an empirical exercise based on the strength of the relationship between interest rates and ERPs observed by analysing historical data. To that effect, the...

AI summary The Commission discusses the determination of adjustment factors for changes in GoC bond yield and utility bond yield spread. It notes that statistical analyses were inconclusive, with most parties deferring to OEB's 0.5 adjustment factors, while Concentric recommended 0.5 based on their regressions. Dr. Cleary suggested 0.75, but the Commission is not persuaded by this.

7.4.1 Equity ratios associated with credit metrics 234. In the 2018 GCOC decision (tables 11-14), the Commission provided a sensitivity analysis to illustrate the effect of a range of equity ratios on the three principal credit metrics for...

AI summary The document discusses equity ratios associated with credit metrics, referencing the 2018 GCOC decision and the Commission's sensitivity analysis on the impact of equity ratios on credit metrics for distribution and transmission utilities. It outlines parameter values used by the Commission in the 2018 GCOC decision and in the current proceeding.

Mid-year CWIP as a percentage of invested capital - 246. The weighted average mid-year CWIP as a percentage of invested capital for the distribution utilities based on the 2023 Rule 005 reports is 2.89 per cent, and is 3.10 per cent for th...

AI summary The weighted average mid-year CWIP as a percentage of invested capital for distribution utilities is 2.89%, and for transmission utilities, it is 3.10%. These figures are used by the Commission in its credit metric calculations, as they represent the most recent data available. The Commission has updated its credit metric calculations at various equity ratios, reflecting an income tax rate of zero to address the impact of zero income tax on credit metrics.

T. A. Loski, Commissioner EXECU JTIVE SU UMMARY i 1.0 INTRODUCTION 1.1 Background 1 1.2 Purpose and Scope of the Generic Cost of Capital Proceeding 1 1.3 Regulatory Process 2.0 KEY P KEY PRINCIPLES AND DECISION FRAMEWORK 2.1 Legislative Re...

AI summary This document outlines the structure and key considerations of a generic cost of capital proceeding, including legislative requirements, peer data analysis, credit ratings, financial models, and determinations on capital structure and return on equity. It discusses the use of various financial models like CAPM and DCF, as well as considerations related to business risk and flotation costs.

5.2 Capital Asset Pricing Model The CAPM is commonly used in business valuation and regulatory jurisdictions to estimate ROE. The CAPM financial model estimates the expected return of an investment or security based on its riskiness relati...

AI summary The Capital Asset Pricing Model (CAPM) is discussed as a method to estimate Return on Equity (ROE) in regulatory contexts. It is based on a formula involving the risk-free rate, beta, and market risk premium. Dr. Lesser supports its use, while FortisBC argues that adjustments like Hamada significantly affect ROE calculations.

Business investment remains weak Tariffs and trade policy uncertainty are expected to remain a significant headwind to investment into 2026. Growth in business investment remains subdued mainly due to reduced US demand for Canadian exports...

AI summary Business investment remains weak due to trade policy uncertainty and reduced US demand for Canadian exports. Capital expenditures in the oil and gas sector are expected to slow as the Trans Mountain Expansion Project reaches full capacity. Inventory reductions are also expected to weigh on GDP growth in 2026.

CI Number: 43324 Date: January 27, 2022 Expenditure Profile Type of Filing Year Budget Amount Project Estimate Capital Project Authorization X 2013 54,114 54,114 Unforeseen and Unbudgeted (U&U) 2014 323,882 319,327 Planned & Advanced (P&A)...

AI summary The document presents an expenditure profile with budget amounts, project estimates, and types of filings from 2013 to 2021, including categories such as Unforeseen and Unbudgeted, Planned & Advanced, Subsequent Approval Item, and Authorization to Overspend.

Summary of Related CIs +/- 2 years Pursuant to Section 11.2 of the CEJC, related CIs for Transmission projects include "Work completed on the same asset class (Padmount transformers, Breakers, etc.) or in the same location (feeder, Transmi...

AI summary The document outlines related Capital Improvement (CI) projects for Transmission assets in Nova Scotia, including specific projects from 2014 to 2015, their costs, and the depreciation class and estimated useful life of the Transmission Plant.

Variance Explanation The reduction of $3,440,719 from $22,067,148in the original submission to $18,626,428in this submission is due to the completion of subsequent additional detailed engineering and scoping. The design was subsequently op...

AI summary A variance explanation details a reduction of $3,440,719 in costs due to optimized design and reduced material requirements for a transmission project, resulting from the use of a heavier conductor and subsequent engineering adjustments.

Parent CI Number : - Asset Location : 1455 - 1455 Transmission Plant General Budget Version UARB Submissions Capital Item Accounts Exp. Type Utility Account Forecast Amount Additions 0200 - TP - Land Rights 1,437,235 Additions 0300 - TP -...

AI summary The document presents a detailed breakdown of capital expenditures related to transmission and distribution infrastructure, including costs for land rights, buildings, wood poles, and other equipment, along with labor and material expenses for the period 2013-2020.

CI Number: 43678 Date: January 27, 2022 Expenditure Profile Type of Filing Year Budget Amount Project Estimate Capital Project Authorization X 2014 68,290 68,290 Unforeseen and Unbudgeted (U&U) 2015 1,345,363 1,345,363 Planned & Advanced (...

AI summary The document presents a detailed expenditure profile for various years, including budget amounts, project estimates, and types of filings such as Unforeseen and Unbudgeted, Planned & Advanced, and Authorization to Overspend. The total expenditure amounts are also provided.

Original Submission $19,251,601 Current Amount $20,387,278 Variance $1,135,677 Submitted on behalf of NOVA SCOTIA POWER INCORPORATED Approved on behalf of NOVA SCOTIA UTILITY AND REVIEW BOARD January 21, 2022 Authorized Signatory DATE DATE...

AI summary The document shows a financial submission by Nova Scotia Power Inc. with an original amount of $19,251,601, a current amount of $20,387,278, and a variance of $1,135,677. It includes a CI number (43678) and signatories from Nova Scotia Power and the Nova Scotia Utility and Review Board.

Title: Separate L8004/L7005 on Canso Crossing Double Circuit Tower (DCT) Start Date: 2014/01 In-Service Date: 2018/07 Final Cost Date: 2021/11 Function: Transmission Forecast Amount: $20,387,278

AI summary This document outlines a capital improvement project titled 'Separate L8004/L7005 on Canso Crossing Double Circuit Tower (DCT)', which began in 2014, became operational in 2018, and had its final cost recorded in 2021. The project is part of the transmission infrastructure with a forecasted cost of $20,387,278.

Summary of Related CIs (+/- 2 years): Pursuant to Section 11.2 of the CEJC, related CIs for Transmission projects include "Work completed on the same asset class (Padmount transformers, Breakers, etc.) or in the same location (feeder, Tran...

AI summary The document summarizes related Capital Improvements (CIs) for Transmission projects in Nova Scotia, including specific projects and their costs, along with the depreciation class for Transmission Plant assets.

Why do this Project this Way? The option executed under this project was compared to two alternatives to determine the most cost-effective and technically feasible option: - Swap L7005 and L6515 which would place L7005 on the Canso Causewa...

AI summary The project option chosen involves building a second crossing at Auld's Cove to physically separate two lines, as it is the most technically feasible, cost-effective, and minimizes environmental and customer impact. Other alternatives were deemed either unsafe or too costly.

Reason for Variance The increase of $1,135,677over the 2018 ACE Plan budget of $19,251,601 to $20,387,278 in this submission is due to the completion of subsequent additional detailed engineering and scoping. At the time of the 2018 ACE Pl...

AI summary The increase in the 2018 ACE Plan budget is attributed to additional detailed engineering, specialized contractor costs such as using a Skycrane helicopter for tower installation, and post-construction avian monitoring required by environmental regulations.

Asset Location : - Budget Version UARB Submissions 1455 1455 Transmission Plant General Capital Item Accounts Exp. Type Utility Account Forecast Amount Additions 0200 - TP - Land Rights 672,151 Additions 0300 - TP - Bldg.,Struct.Grnd. 24,5...

AI summary This document outlines the budget submissions related to Transmission Plant General under the Nova Scotia Utility and Review Board (NSUARB). It includes detailed capital item accounts with forecast amounts for additions and retirements, as well as cost estimates for various labor and material expenses associated with infrastructure projects.

CI Number: 45066 Date: January 27, 2022 Expenditure Profile Type of Filing Year Budget Amount Project Estimate Capital Project Authorization X 2014 159,565 159,565 Unforeseen and Unbudgeted (U&U) 2015 3,372,430 2,192,324 Planned & Advanced...

AI summary The document outlines a capital improvement expenditure profile for various years, including budget amounts, project estimates, and types of filings such as Unforeseen and Unbudgeted (U&U), Planned & Advanced (P&A), and Authorization to Overspend (ATO). It includes a total expenditure of $3,957,530 with a project estimate of $2,691,017.

Summary of Related CIs +/- 2 years: Pursuant to Section 11.2 of the CEJC, related CIs for Transmission projects include "Work completed on the same asset class (Padmount transformers, Breakers, etc.) or in the same location (feeder, Transm...

AI summary The summary outlines related capital improvements (CIs) for transmission projects, including specific projects from 2014 to 2015, their costs, and the depreciation class and useful life for transmission plant equipment.

Why do this project this way? Completing the project this way had the least impact to NS Power customers and the NS Power transmission system. The alternative wasthe construction of additional transmission capacity (the construction of a n...

AI summary The project was completed in a way that minimized impact on NS Power customers and the transmission system. Alternatives considered included building new transmission lines or rebuilding sections of existing lines during planned maintenance, with the latter option resulting in lower overall capital costs.

Reason for Variance: The reduction of $1,266,513 from $3,957,530 in the original submission to $2,691,017 in this submission is due to a large decrease in the number of structures that needed to be replaced. The original budgetestimate was...

AI summary The reduction of $1,266,513 in the budget is due to a decrease in the number of structures needing replacement, as identified by Lidar & Thermal studies. This has led to cost reductions across most budget categories, as detailed in the Variance Page.

CI Number: 45067 Date: January 27, 2022 Expenditure Profile Type of Filing Year Budget Amount Project Estimate Capital Project Authorization X Unforeseen and Unbudgeted (U&U) 2014 1,030,887 899,897 Planned & Advanced (P&A) 2015 2,242,625 1...

AI summary The document presents an expenditure profile for a capital improvement project over several years, including budget amounts, project estimates, and authorization types. It highlights variations between budgeted and actual costs, as well as different authorization categories like planned & advanced and authorization to overspend.

Original Submission $3,750,474 Current Amount $2,982,714 Variance ($767,760) Submitted on behalf of NOVA SCOTIA POWER INCORPORATED Approved on behalf of NOVA SCOTIA UTILITY AND REVIEW BOARD January 21, 2022 Authorized Signatory DATE DATE L...

AI summary The document shows a variance between the original submission of $3,750,474 and the current approved amount of $2,982,714 for a CI Number 45067, with a difference of $767,760. It includes signatures from Nova Scotia Power Incorporated and the Nova Scotia Utility and Review Board.

2,982,714 Capital Item Acco punts Ехр. Туре Utility Account Forecast Amount Additions 0300 - TP - Bldg.,Struct.Grnd. 752,279 Additions 0700 - TP - Environmental 2,345 Total Cost:

AI summary The text presents a table with capital item account details, including categories such as 'Building, Structural, Ground' and 'Environmental,' along with forecast amounts. The total cost is listed, but no further details or context are provided.

Original Cost: Transmission 45067-T801 Location: CI# / FP#:

AI summary The text refers to an original cost associated with a transmission project, identified by the code 45067-T801, and mentions a location linked to a Capital Improvement (CI) or Funding Plan (FP) number.

67N Onslow 345 kV Node Swap Title: Description Unit Quantity Unit Estimate Total Estimate Cost Support Reference Completed Similar Projects (FP#'s) 530050 Regular Labour Administrative Support Staff Lot 1 $ 5,902 $ 5,902 Environmental Staf...

AI summary The document provides a detailed cost breakdown for the 67N Onslow 345 kV Node Swap project, including labor, travel, materials, and other expenses. It outlines various labor categories, their quantities, unit estimates, and total costs, as well as material costs for components like concrete, structural steel, and disconnect switches.

COST OF CAPITAL REPORT PREPARED FOR NOVA SCOTIA POWER INC. B. Risk Analysis 53 Section 7: Overall Conclusions and Recommendations 82

AI summary The document is a cost of capital report prepared for Nova Scotia Power Inc., including sections on risk analysis and overall conclusions and recommendations.

1 • selection of Canadian, U.S. Electric and North American Electric proxy groups with 2 companies comparable to NSPI with respect to business and financial risks; 3 • estimation of the cost of common equity for the proxy group companies u...

AI summary The document discusses the estimation of the cost of common equity for proxy group companies using methods such as DCF, CAPM, and Risk Premium. It compares authorized ROEs for investor-owned electric utilities in Canada and the U.S., with the North American Electric proxy group being considered most representative of NSPI due to similar risk profiles.

1 C. The Relationship Between Capital Structure and ROE 2 The cost of common equity depends in part on the company's capital structure. The common 3 equity ratio and equity rate of return must therefore be considered together to determine...

AI summary The text discusses how the capital structure of a company affects the required rate of return on common equity, emphasizing that lower common equity ratios necessitate higher returns to compensate shareholders for increased financial risk. It also highlights the importance of considering both business and financial risks when determining the capital structure.

3 A. Summary and Relevance to Utility Cost of Capital 4 Utilities raise debt and equity in a global market influenced by macroeconomic fundamentals, 5 capital markets and central bank policies. The cost of debt for utilities is observable...

AI summary Utilities raise debt and equity in a global market influenced by macroeconomic factors, capital markets, and central bank policies. The cost of debt is observable, but the return on equity (ROE) must be estimated based on macroeconomic and capital market factors, including real GDP growth, inflation, interest rates, central bank policy, investor confidence, and financial market volatility.

15 F. Capital Market Conclusions Interest rates on government and utility bonds have remained about the same as when the UARB approved the settlement in NSPI's previous GRA. This indicates that despite the uncertainties in the economy, the...

AI summary The document discusses the stability of interest rates on government and utility bonds since the UARB approved the settlement in NSPI's previous GRA. It highlights long-term challenges for the utility industry, including climate change, decarbonization, and grid modernization, as well as emerging load growth from electrification and data centers. Economic forecasts and modeling approaches such as CAPM, Risk Premium, and DCF are referenced.

Dr. Marshall Blume was among the first to study beta. Specifically, he studied four groups of betas, ranging from a very low beta group (averaging 0.50, and similar to the utility industry) to a very high beta group. Dr. Blume found that h...

AI summary This text discusses Dr. Marshall Blume's research on beta migration, showing that betas tend to move toward the grand mean of 1.0 over time. The findings are relevant to the Capital Asset Pricing Model (CAPM) and the forward-looking estimation of the cost of capital, as highlighted in studies cited and referenced in a cost of capital report for Nova Scotia Power Inc.

b. Implication of Capital Structure on Rate of Return The capital structure relates to a company's financial risk, which represents the risk that a company may not have adequate cash flows to meet its financial obligations, and is a functi...

AI summary The capital structure of a company, particularly the proportion of debt, influences its financial risk and, consequently, the rate of return. Higher debt levels increase fixed obligations and financial risk for equity holders, making it a key factor in determining a fair return.

1 j. Conclusions on Business Risk 2 As discussed in this Section, NSPI's risk profile is characterized by the following factors: 1) 3 ownership of substantial regulated generation assets; 2) the need to retire a substantial amount 4 of the...

AI summary NSPI's business risk profile includes regulated generation assets, retirement of thermal generation, capital investments for renewable transition, FAM audits, volumetric risk, weaker economic trends, and storm exposure. The company requests continuation of the storm rider pilot. Credit agencies are closely monitoring NSPI's decarbonization risks.

Criteria Score Deemed Equity Below Average Allowed ROE Good Energy Cost Recovery Below Average Capital and Operating Cost Recovery Good Cost of Service vs. Incentive Rate Excellent Mechanism Political Interference Poor Stranded Cost Recove...

AI summary The document presents a table with various criteria and their corresponding scores, including Deemed Equity, Allowed ROE, Energy Cost Recovery, and others. It also mentions a section labeled '2 e. Capital Cost Recovery', indicating a discussion on capital cost recovery mechanisms.

Capital Investment In order to provide an opt-out option to customers, a capital investment was required to modify various NS Power systems to support a new, non-standard meter service. Like many IT investments, this involved the design, b...

AI summary A capital investment was made to modify NS Power systems to support a new, non-standard meter service, allowing customers an opt-out option. The costs are associated with the AMI Project and included in CI 47124. No capital costs were incurred in 2022, 2023, or 2024.

s, March 28, 2024, p. 6. extent that energy transition increased or decreased the need for capital investments, this is dealt with through the regular rate cases, rather than a generic consideration. Several ratepayer groups submitted that...

AI summary The document discusses the impact of energy transition on capital investments and risk for electricity utilities. Ratepayer groups argue that energy transition is not currently significant and may reduce risk, while others highlight the need for new capital and the importance of accounting for energy transition risk in return on equity (ROE) decisions.

Equity Investors' Perspective Equity investors are more exposed to market volatility and regulatory changes and typically require a higher return to compensate for the greater risk of investing in a utility as an equity investor (versus a...

AI summary Equity investors demand higher returns due to greater exposure to market and regulatory risks. They prefer a higher equity ratio to protect against financial distress and preserve returns. The OEB faces the challenge of balancing cost of capital parameters to satisfy both equity and debt investors while avoiding excessive rates or regulatory scrutiny.

Submissions OEB staff submitted that the approach to setting the cost of capital parameters and capital structure should not depend on a utility's ownership and the source of funds. OEB staff noted that its view is consistent with the view...

AI summary The OEB staff and various organizations argue that the cost of capital parameters and capital structure should not be based on a utility's ownership type. However, CCMBC and Energy Probe argue that the source of funds and ownership should matter, as government-owned utilities have different financial protections compared to private ones. Energy Probe also criticizes the lack of benchmarking against U.S. municipally owned utilities.

sts are amortized over infinity. The difficulty with this statement is that there is no evidence on the record that the costs were scrutinized in the first place, and certainly not in the 2009 Report. Concentric argued that the equity on t...

AI summary The text discusses the amortization of costs over infinity and the lack of evidence supporting the addition of 50 basis points to the ROE. Concentric argues that the flotation cost adder provides financial flexibility, citing a Canadian precedent. However, no empirical basis is provided for the 50 basis points addition, and the estimated annual flotation costs of $150 million are considered excessive given the rarity of equity issuance in Ontario.

Expert Report Proposals LEI stated that the OEB's current approach of revising the capital structure upon application if warranted due to an increase in business/financial risks is a reasonable practice, as the OEB has noted that risks rar...

AI summary LEI and Dr. Cleary agree that the OEB's approach to revising capital structure based on risk changes is reasonable. Concentric argues that Ontario's equity ratios are too low compared to U.S. peers and recommends a minimum deemed equity ratio of 45% for all Ontario utilities, with a specific recommendation for OPG to increase its equity ratio to meet the FRS.

rmination of whether the FRS is met. The OEA stated that there was no disagreement amongst the parties that the ROE and capital structure must be assessed together to determine whether the FRS is met. OEB staff and several ratepayer groups...

AI summary The document discusses the assessment of the Fair Return Standard (FRS) and the need to evaluate Return on Equity (ROE) and capital structure together. OEA, OEB staff, and ratepayer groups argue against increasing equity thickness for Ontario utilities. CME and CCC caution against using U.S. utilities as comparators. VECC and CCMBC support the OEB's approach of setting a uniform ROE and adjusting capital structure based on risk differences.

Findings The OEB has reviewed the appropriateness of the capital structure for electricity transmitters, electricity distributors, natural gas utilities, and OPG considering the FRS. As part of the 2009 Report, the OEB determined that a de...

AI summary The OEB has reviewed and maintained a deemed capital structure of 60% debt and 40% equity for electricity distributors and transmitters, aligning with the FRS. OPG's capital structure is set at 55% debt and 45% equity, with a recommendation to submit evidence for potential changes. The OEB rejects the need for an upward ROE adjustment if the capital structure remains unchanged.

Findings The OEB has considered whether a different approach to setting capital structure is warranted for single-asset electricity transmitters versus multiple-asset transmitters (i.e., whether a risk premium should be applied to the equi...

AI summary The OEB concludes that no distinction is needed in the capital structure approach for single-asset and multiple-asset electricity transmitters, as current mechanisms like DVAs sufficiently mitigate financial risks. While acknowledging concerns about Indigenous equity participation, the OEB finds no evidence of heightened risk for single-asset transmitters and reaffirms the current 2009 Cost of Capital Framework as appropriate.

Enbridge Gas The current OEB-approved capital structure for Enbridge Gas is based on a deemed 38% equity component, with the remaining 62% financed through short-term and longterm debt. The difference is that the deemed structure is not se...

AI summary The OEB adjusted Enbridge Gas's deemed capital structure to 62% debt and 38% equity in the EB-2022-0200 proceeding, based on an updated assessment of business and financial risks. The current approach to determining debt costs, including actual and forecasted rates, is deemed appropriate and aligns with FRS.

OPG OPG's current approved equity ratio is 45%. The current OEB-approved capital structure is based on a deemed 45% equity component, with the remaining 55% financed through short-term and long-term debt. As with Enbridge Gas, the deemed c...

AI summary OPG's current approved equity ratio is 45%, with the remaining 55% financed through short-term and long-term debt. The OEB finds that the current approach for determining debt costs is appropriate, ensuring regulatory stability and compliance with FRS. Short-term debt is used to true up the deemed capital structure to OPG's actual capitalization.

Findings The DLTDR will continue to be applicable to all electricity distributors and transmitters, as well as EPCOR Natural Gas (both Aylmer and South Bruce), rebasing rates in 2025 and beyond, in prescribed circumstances, unless some oth...

AI summary The OEB concludes that the DLTDR will continue to be used for rate rebasing, with modifications to its calculation and clarity on applicability. Actual market-based debt will be prioritized, and the DLTDR will be set annually, with the 2025 rate at 4.51%. The OEB will assess prudence in debt management for OPG and Enbridge Gas.

Submissions OEB staff submitted that the OEB's current practice of reviewing the prescribed interest rates for the CWIP account quarterly should be maintained, with updates only made if the formulaic approach results in a change in interes...

AI summary OEB staff recommend maintaining the current practice of reviewing the prescribed interest rates for the CWIP account quarterly, using a debt-based rate, and applying the status quo rate to all projects under construction regardless of the construction period.

Findings The OEB will continue to use the FTSE Canada Mid Term Bond Index All Corporate yield as the prescribed interest rate for CWIP. The OEB finds it reasonable to use a mid-term index for CWIP that will be added to rate base at the nex...

AI summary The OEB continues to use the FTSE Canada Mid Term Bond Index All Corporate yield as the prescribed interest rate for CWIP, maintaining the rate at 4.23% for Q2 2025. The OEB disagrees with Concentric's argument that the current approach significantly understates the cost of capital for utilities during the construction phase.

THE ONTARIO ENERGY BOARD ORDERS THAT: - 1. The following cost of capital parameters are approved on a final basis, effective January 1, 2025. Please refer to the Decision for details regarding implementation and applicability. - a. The Dee...

AI summary The Ontario Energy Board (OEB) has finalized cost of capital parameters effective January 1, 2025, including a Deemed Return on Equity of 9.00%, Deemed Long-Term Debt Rate of 4.51%, and Deemed Short-Term Debt Rate of 3.91%. Prescribed interest rates for deferral and variance accounts and construction work in progress are also set, with updates to occur annually and quarterly. Utilities must report new long-term debt over $50 million annually.

A. General Issues - 1. Should the approach to setting cost of capital parameters and capital structure differ depending on: - a) The source of the capital (i.e., whether a utility finances its business through the capital markets or throug...

AI summary This section of the proceeding explores whether the approach to setting cost of capital parameters and capital structure should vary based on the source of capital and ownership type, considers risk factors related to the energy transition and macroeconomic conditions, and examines how regulatory and rate-setting mechanisms influence utility risk.

Table 2 – Summary of Revised Methodology – Cost of Capital Electricity Natural Gas Distributors Deemed Capital Structure 40% equity, 56% long-term debt, 4% short term debt 45% equity, 55% debt90 The capital structure shall be determined at...

AI summary Table 2 outlines the revised methodology for the cost of capital, specifying deemed capital structures for electricity and natural gas distributors, with variations based on service territories and the requirement to determine capital structures at future cost-based rates applications.

3 ROE and Sustaining Capital DER 4 5 In its Decision, the NSEB determined an ROE of 8.75 percent for NSPML. Table 1 6 provides a comparative assessment of the impact of the 9.0 percent ROE requested by 7 the Company to the 8.75 percent ROE...

AI summary The NSEB set an ROE of 8.75 percent for NSPML, contrasting with the 9.0 percent ROE requested by the Company. Table 1 compares the impact of these ROE rates on NSPML's rate base and sustaining capital.

12 In addition, the Board determined that the DER for sustaining capital should continue 13 at 70 percent debt and 30 percent equity. Table 2 provides a comparative assessment of 14 the impact of maintaining the 70/30 equity financing stru...

AI summary The Board has decided to maintain the DER for sustaining capital at a 70% debt and 30% equity structure, as outlined in Table 2, which compares this structure to the requested 60/40 structure.

3 ROE and Sustaining Capital DER 4 5 In its Decision, the NSEB determined an ROE of 8.75 percent for NSPML. Table 1 6 provides a comparative assessment of the impact of the 9.0 percent ROE requested by 7 the Company to the 8.75 percent ROE...

AI summary The NSEB set an ROE of 8.75 percent for NSPML, contrasting with the 9.0 percent requested by the Company. The impact of this decision on NSPML's rate base and sustaining capital is analyzed in Table 1.

12 In addition, the Board determined that the DER for sustaining capital should continue 13 at 70 percent debt and 30 percent equity. Table 2 provides a comparative assessment of 14 the impact of maintaining the 70/30 equity financing stru...

AI summary The Board has decided to maintain the DER for sustaining capital at a 70 percent debt and 30 percent equity structure, as outlined in Table 2, which compares this structure with the requested 60/40 split.

[2] NSPML requested approval to: - set the 2026 annual cost assessment, effective January 1, 2026, at $198.7 million, which is lower than the total 2025 annual assessment of $200.6 million set by the Board, and includes $39.7 million for r...

AI summary NSPML requested approval to set the 2026 annual cost assessment at $198.7 million, maintain a 9% return on equity, revise the regulated capital structure to 60% debt and 40% equity, and allow flexibility in equity thickness for original project capital costs.

[3] NSPML's cost assessment request is broken down as follows: Description $M Operating & Maintenance 22.0 Depreciation 57.2 Debt Financing Costs • Interest (Net) 37.7 Amortization of Deferred Financing Costs 1.4 Equity Financing Costs 40....

AI summary NSPML's cost assessment request is detailed in a table listing various cost categories, including operating and maintenance, depreciation, debt and equity financing costs, and FLG2, with a total of $198.7 million.

2.1 Findings - [9] NSPML said it would address the rate base treatment of any 2026 sustaining capital expenditures when it files its rate base reconciliation for outstanding insurance, warranty, expropriation and contract claims. It said t...

AI summary NSPML has committed to addressing the rate base treatment of 2026 sustaining capital expenditures in its rate base reconciliation. The Board emphasizes the need to monitor sustaining capital expenses to avoid undue rate pressures and intergenerational equity issues, and reiterates the requirement for NSPML to provide a rate base continuity schedule in future applications.

o file the LTAMP once complete. The LTAMP was not filed with the Board in 2022. - [34] On September 6, 2023, in response to NSUARB IR-4 in the 2024 NSPML cost assessment matter (M11285), NSPML stated: The Lower Churchill Project Commercial...

AI summary The Long Term Asset Management Plan (LTAMP) was not filed with the Board in 2022 or 2023. NSPML anticipates completing the LTAMP in 2024, though it may be delayed into 2025 due to the complexity of the process and the need for alignment with NLH.

4.1 Findings - [28] The significance of the LTAMP was reviewed by the NSUARB in its 2025 NSPML cost assessment decision: - [37] Beyond the LTAMP's importance to establishing expected NSPML capital needs, the LTAMP can also be used to estab...

AI summary The NSUARB reviewed the significance of the LTAMP in its 2025 NSPML cost assessment decision. The Board emphasized the importance of the LTAMP for establishing capital needs and multi-year cost assessments for the Maritime Link. NSPML filed a single-year assessment due to ongoing matters and the need for operational certainty.

5.0 RETURN ON EQUITY AND CAPITAL STRUCTURE [38] NSPML's existing cost of capital is based on an approved return on equity of 9.0% for ratemaking purposes, as decided in the initial Maritime Link decision, 2013 NSUARB 154 ( 2013 Maritime Li...

AI summary NSPML's existing return on equity is 9.0%, as approved in the 2013 Maritime Link decision. NSPML submitted a report recommending a higher return on equity (10.10% to 10.35%), but proposed to maintain the 9.0% rate to avoid increasing customer rates. NSPML also requested changes to its capital structure, including a shift to a 60% debt and 40% equity sustaining capital structure and introducing flexibility in its regulated capital structure for original project costs.

5.2 Return on Equity [53] The assessment of an appropriate return on equity typically relies on the application of several established financial models, including, but not limited to, the Discounted Cash Flow (DCF) Model; Capital Asset Pri...

AI summary The assessment of return on equity for NSPML involves multiple financial models, including DCF, CAPM, and Risk Premium. Concentric analyzed proxy companies and adjusted for risks, concluding a return on equity of 9.35% before adjusting for NSPML's subsea cable operations, which increased the range to 10.10% to 10.35%.

5.2.1.1 Capital Asset Pricing Model [71] The CAPM accounts for the risk of common equity relative to risk-free securities such as government bonds. The CAPM estimates the required return of a security based on the relationship between the...

AI summary The Capital Asset Pricing Model (CAPM) is discussed, explaining its components such as the risk-free rate, market risk premium, and beta. Different estimates of return on equity are provided by Concentric and Dr. Cleary based on their respective analyses.

5.3 Capital Structure [116] NSPML said that sustaining capital is not supported by federal government guarantees, and the 30% deemed equity ratio used with the guaranteed financing of the Maritime Link is materially lower than equity ratio...

AI summary NSPML argues that the 30% deemed equity ratio for the Maritime Link is lower than industry standards and requests a 40% equity ratio for sustaining capital investments. It also seeks flexibility in regulated equity balances, citing fixed federal guarantees on original capital debt. Dr. Cleary supports the 40% equity ratio for sustaining capital, aligning it with NS Power's current ratio.

5.5.1.2 Capital Asset Pricing Model [158] Overall, the Board observes that the CAPM produced lower return on equity results for each expert than the other models they used. [159] Notwithstanding the statistical analysis Dr. Cleary provided...

AI summary The Board evaluated the use of the Capital Asset Pricing Model (CAPM) and found it produced lower return on equity results compared to other models. Concerns were raised about the reliability of Consensus Economics forecasts and the use of 30-year government bond yields based on a single data point.

5.5.2 Capital Structure [202] NSPML is a single purpose entity. It was created to secure lower cost financing under a federal loan guarantee for the development of the Maritime Link. This included constituting NSPML as a more highly levera...

AI summary NSPML is a highly leveraged entity established to secure lower cost financing for the Maritime Link project under a federal loan guarantee. The Board acknowledges the 30% equity ratio used in the 2013 approval but declines NSPML's request to increase it to 40% or allow a higher return on equity, citing insufficient evidence of changed circumstances and the need to maintain cost controls.

6.0 2026 SUSTAINING CAPITAL COSTS [208] NSPML expects to incur sustaining capital expenditures of about $33.5 million in 2026. This total amount is comprised of its Submarine Cable Protection Project of $32,962,333, which was approved by t...

AI summary NSPML expects to incur $33.5 million in sustaining capital expenditures in 2026, including the Submarine Cable Protection Project and routine capital projects. These costs will add depreciation expenses, and adjustments to the Maritime Link Project capital costs are expected but not expected to have a material impact on rate base or revenue requirement.

6.1 Findings [212] The Board finds that it is appropriate for NSPML to include the forecast sustaining capital expenses of $0.5 million for the smaller individual projects in its 2026 revenue requirement. As noted above, these capital asse...

AI summary The Board has determined that NSPML should include $0.5 million in forecast sustaining capital expenses for smaller individual projects in its 2026 revenue requirement. These expenses will be depreciated over the assets' depreciable life, with only the 2026 portion included in the current assessment. NSPML is directed to address the rate base treatment of 2026 sustaining capital expenditures in its rate base reconciliation for outstanding claims.

9.0 DEPRECIATION [224] NSPML's depreciation rates were set based on a 2021 depreciation study conducted by Gannett Fleming. The rates were set to recover the original cost of the Maritime Link over 35 years to match the delivery duration o...

AI summary NSPML's depreciation rates are based on a 2021 study by Gannett Fleming and are set to recover the original cost of the Maritime Link over 35 years. Grant Thornton recommended updating the study every five to seven years, but NSPML argued against it due to no major changes since Final Costing and plans to update it after the cable protection project in 2026.

Question: - (a) Please provide the dollar estimates (by year) of the "additional capital investment" that will be required by NSPML over the next "25-30 years" that Concentric references in the quote above. - (b) If the "majority of this r...

AI summary The question asks for dollar estimates of capital investment required by NSPML over 25-30 years and seeks an explanation for adjusting the equity ratio in 2026, despite the majority of investment being expected in later years, potentially impacting current rate payers.

Request IR-19: - Page 12 - a) How many FTEs are budgeted in 2026? Please provide a listing of the proposed 2026 staffing complement (FTEs) along with job titles and brief position descriptions, as well as a comparison with 2023, 2024 and 2...

AI summary The document outlines a series of questions related to staffing and budgeting for 2025 and 2026, including FTE numbers, position changes, incentive payments, and capital applications. It focuses on staffing complements, budget allocations, and specific matters such as submarine cable protection.

Request IR-20: - In Matter M11791 relating to the 2025 cost assessment application, Board Staff IR-7(b) asked the - following: - "In its Reply Submissions dated December 5, 2023, in the proceeding for NSPML's 2024 - assessment (M11285), NS...

AI summary The document requests NSPML to update inventory and failure rate data for IGBTs, including projections for 2025 and 2026, provide capital expenditures, and explain discrepancies in inventory estimates.

Request IR-21: - Page 14 - NSPML stated that sustaining capital expenditures of about $0.5 million (excluding the proposed - submarine cable protection capital application) are expected to be required and incremental - funding for those ex...

AI summary NSPML is requesting funding for sustaining capital expenditures, excluding the proposed submarine cable protection application, and is seeking estimates for future capital investments in 2027, 2028, and 2029, including projects under $1 million.

Request IR-22: - Page 17 - NSPML states: "Applying the requested (see Section 7) 40 percent equity thickness to NSPML's - forecasted 2026 sustaining capital average rate base of $15.5 million yields an average sustaining - capital equity i...

AI summary NSPML is asked to provide calculations and reconciliations related to its 2026 sustaining capital rate base and equity thickness. Specifically, it must show how it arrived at the $15.5 million rate base, reconcile discrepancies between figures in Attachment 1 and Table 3, confirm the equity investment under a 30% thickness, and provide estimated equity financing costs.

Request IR-25: - Page 22 - NSPML states: "The converter technology housed inside the converter stations at both ends of - the interconnection in Nova Scotia and Newfoundland includes thousands of components, - including multiple layers of...

AI summary NSPML outlines the unique risks and spares requirements associated with converter stations in the Maritime Link project, emphasizing their complexity compared to traditional HVAC transmission assets. The request asks NSPML to detail these risks, explain their differences from HVAC systems, and confirm if increased O&M costs and sustaining capital projections account for these factors.

Request IR-27: - Page 23 - NSPML refers at several points in the application to the impact of the FLG2 which changed - NSPML's capital structure to about 78/22 debt to equity. NSPML submits that this places it at - higher risk: - Page 19,...

AI summary NSPML highlights that the FLG2 has significantly altered its capital structure to approximately 78% debt and 22% equity, increasing its financial risk compared to typical T&D utilities. This change has also led to higher financing costs and greater leverage, impacting its authorized return on equity.

Request IR-31: - Page 28 - NSPML states: "In the 2025 Assessment Decision, the Board directed NSPML to file its Asset - Management Plan as part of its 2026 Assessment Application. Please see partially confidential - Attachment 2 for NSPML'...

AI summary The document outlines a regulatory inquiry (Request IR-31) regarding NSPML's submission of its Long-Term Asset Management Plan (LTAMP) as part of its 2026 Assessment Application. It questions whether the submitted 10-year Asset Management Outlook meets the definition of an LTAMP, the timeline for its preparation, and the costs incurred in its development.

- 3 Gannett Fleming has recommended that once NSPML's first material capital 4 project (regarding the Cable Projection Project) is completed in 2026, NSPML 5 will update the depreciation study. - 6 (a) Please provide a copy of the letter o...

AI summary The document requests information regarding Gannett Fleming's recommendation for NSPML to update its depreciation study after the completion of a capital project in 2026, including the letter of instruction, Gannett Fleming's response, and NSPML's commitment to filing an updated study as part of the 2027 Assessment.

12 Request IR-8: - 13 Reference: Page 14, Footnote 12. - 14 Please provide a schedule of the IGBTs, itemizing the number in use, replaced, spare inventory, - 15 and orders. - 16 Request IR-9: - 17 Reference: Section 3.3.3 Capital Depreciat...

AI summary The document contains several requests for information related to infrastructure, depreciation, and outstanding matters. These include requests for a schedule of IGBTs, reconciliation of depreciation figures, and details on unresolved close-out matters.

3 Request IR-18: 4 Reference: Page 26, lines 19-24. NSPML is requesting that the Board grant flexibility in NSPML's equity thickness using a range of +/-1.5 percent which results in a range of 28.5- 31.5 percent equity and 68.5-71.5 percen...

AI summary NSPML is requesting flexibility in its equity thickness during the operating stage of the project, proposing a range of +/-1.5 percent. The request is aligned with the Board's 2013 decision regarding NS Power, but the Board is asked to clarify how this aligns with the 30% equity thickness rule and whether other utilities apply different capital structures for sustaining capital.

20 Reference: Section 7 – Regulated Capital Structure. - 21 (a) Please confirm that approval of a revised capital structure of 60% debt and 22 40% equity in respect of sustaining capital, and continuation of the 9% ROE 23 will increase NSP...

AI summary The document asks whether approving a revised capital structure of 60% debt and 40% equity for NSPML, along with maintaining a 9% return on equity, would increase profits compared to the current approved capital structure.

- 25 (b) What is the difference in profit from the proposed change in capital 26 structure? 1 Request IR-20: - 2 Reference: Section 8 Asset Management Outlook, page 28; and Attachment 2 Asset

AI summary The question asks about the difference in profit resulting from a proposed change in capital structure, referencing Section 8 of the Asset Management Outlook and Attachment 2.

29 1 (a) Please confirm whether the change in the capital structure was initially 2 recommended by Concentric or suggested to Concentric by NSPML? - 3 (b) If this was initially requested by NSPML, how did NSPML initially come up 4 with the...

AI summary The text presents a regulatory inquiry regarding a change in capital structure, specifically asking whether the change was recommended by Concentric or suggested by NSPML and how NSPML arrived at the proposed 40% equity thickness.

[2] NSPML requested approval to: - set the 2026 annual cost assessment, effective January 1, 2026, at $198.7 million, which is lower than the total 2025 annual assessment of $200.6 million set by the Board, and includes $39.7 million for r...

AI summary NSPML requested approval to set the 2026 annual cost assessment at $198.7 million, maintain a 9% return on equity, revise its capital structure to 60% debt and 40% equity, and allow flexibility in equity thickness for original project capital costs.

2.0 RATE BASE [7] In its Order dated February 25, 2022, following the Final Project Costs decision (2022 NSUARB 18 (M10206)), the Nova Scotia Utility and Review Board (NSUARB) confirmed NSPML's opening rate base, after adjustments, of $1,7...

AI summary The NSUARB confirmed NSPML's opening rate base of $1,752.4 million in its February 2022 order. NSPML stated that no adjustments have been made to the rate base for outstanding claims and that any future adjustments would occur after claims are settled. NSPML's proposed equity financing costs are based on 30% and 40% equity thickness on forecast 2026 rate bases.

2.1 Findings - [9] NSPML said it would address the rate base treatment of any 2026 sustaining capital expenditures when it files its rate base reconciliation for outstanding insurance, warranty, expropriation and contract claims. It said t...

AI summary NSPML has committed to addressing the rate base treatment of 2026 sustaining capital expenditures in its rate base reconciliation. The Board emphasizes the importance of monitoring sustaining capital expenses to prevent undue rate pressures and intergenerational equity issues, and reiterates the need for NSPML to provide a rate base continuity schedule in future applications.

Assessment decision: [31] NSPML's LTAMP aims to identify and document appropriate asset management strategies and techniques to adequately maintain NSPML's assets over the long-term. The LTAMP is specifically defined in the "Nalcor Energy...

AI summary NSPML's Long Term Asset Management Plan (LTAMP) aims to document strategies for maintaining assets over the long-term, as defined in the Nalcor Energy and Emera Inc. Amended and Restated Joint Operations Agreement. The plan includes details on operations and maintenance activities and their expected annual costs.

4.1 Findings - [28] The significance of the LTAMP was reviewed by the NSUARB in its 2025 NSPML cost assessment decision: - [37] Beyond the LTAMP's importance to establishing expected NSPML capital needs, the LTAMP can also be used to estab...

AI summary The NSUARB reviewed the significance of the LTAMP in its 2025 NSPML cost assessment decision. The Board emphasized the importance of the LTAMP for establishing NSPML's capital needs and for multi-year cost assessments. NSPML responded to the CA's inquiry by explaining that single-year assessments continued due to uncertainties in operational matters, including the LTAMP. The Board's oversight role under the Public Utilities Act is highlighted, along with the need for certainty in operational and capital matters before considering multi-year assessments.

5.0 RETURN ON EQUITY AND CAPITAL STRUCTURE [38] NSPML's existing cost of capital is based on an approved return on equity of 9.0% for ratemaking purposes, as decided in the initial Maritime Link decision, 2013 NSUARB 154 ( 2013 Maritime Li...

AI summary NSPML is proposing to maintain a 9% return on equity despite a recommendation of 10.10% to 10.35% from Concentric Energy Advisors. It also seeks to revise its capital structure to 60% debt and 40% equity for sustaining capital and introduce flexibility in its regulated capital structure for original project costs.

5.2 Return on Equity [53] The assessment of an appropriate return on equity typically relies on the application of several established financial models, including, but not limited to, the Discounted Cash Flow (DCF) Model; Capital Asset Pri...

AI summary The assessment of return on equity for NSPML involves multiple financial models like DCF, CAPM, and Risk Premium. Concentric analyzed market conditions and selected proxy companies to estimate an appropriate return on equity, adjusting for NSPML's specific risks. A final range of 10.10% to 10.35% was proposed, though adjustments were cautioned against due to potential over-conservatism.

5.3 Capital Structure [116] NSPML said that sustaining capital is not supported by federal government guarantees, and the 30% deemed equity ratio used with the guaranteed financing of the Maritime Link is materially lower than equity ratio...

AI summary NSPML argues that its sustaining capital investments should have a 40% equity ratio, similar to NS Power, to better align with other utilities and improve its capital structure. It also requests flexibility in its regulated equity balances, though this flexibility would not be needed if the 40% equity ratio is approved.

risk or prejudice to NSPML going forward. [139] Regarding the request for the ±1.5% flexibility in capital structure, the Industrial Group referred to paragraph 302 of the NSUARB's decision in 2013: [302] The Board understands the flexibil...

AI summary The Industrial Group requested ±1.5% flexibility in the capital structure for NSPML, referencing a 2013 NSUARB decision that allowed up to 35% actual equity during Phase 3 and flexibility in Phase 4, but prohibited payout of earnings exceeding the approved return on equity with a 30% equity thickness.

5.5.1.2 Capital Asset Pricing Model [158] Overall, the Board observes that the CAPM produced lower return on equity results for each expert than the other models they used. [159] Notwithstanding the statistical analysis Dr. Cleary provided...

AI summary The Board notes that the CAPM produced lower return on equity results compared to other models. It remains unconvinced about the accuracy of the Consensus Economics forecasts and the use of a single day's 30-year bond yield data, citing potential anomalies and insufficient demonstration of systematic bias.

5.5.2 Capital Structure [202] NSPML is a single purpose entity. It was created to secure lower cost financing under a federal loan guarantee for the development of the Maritime Link. This included constituting NSPML as a more highly levera...

AI summary NSPML, a single-purpose entity, requested a higher equity ratio for sustaining capital, but the Board declined the request, citing insufficient evidence of changes since 2013 that justify higher equity costs. The Board emphasized the historical basis of the 30% equity ratio and the need for NSPML to address these concerns in a future proceeding.

6.0 2026 SUSTAINING CAPITAL COSTS [208] NSPML expects to incur sustaining capital expenditures of about $33.5 million in 2026. This total amount is comprised of its Submarine Cable Protection Project of $32,962,333, which was approved by t...

AI summary NSPML expects to incur $33.5 million in sustaining capital expenditures in 2026, including a Submarine Cable Protection Project and routine capital projects. These costs will add to depreciation expenses, and NSPML will provide a final accounting for outstanding close-out matters shortly after resolution by third parties.

6.1 Findings [212] The Board finds that it is appropriate for NSPML to include the forecast sustaining capital expenses of $0.5 million for the smaller individual projects in its 2026 revenue requirement. As noted above, these capital asse...

AI summary The Board has approved the inclusion of $0.5 million in sustaining capital expenses for 2026 in NSPML's revenue requirement. These expenses, along with the Submarine Cable Protection Project, will be depreciated over the assets' depreciable life, with only the 2026 portion included in the assessment. NSPML is directed to address the rate base treatment of these expenditures in its rate base reconciliation.