Topic:"Rate Design" in M12394

following for consideration in NSPML's 2026 Assessment: Date Filed: July 18, 2025 Page 4 of 29 ML Regulations, Section 3. 2 ML Regulations, Section 8(2). 2024 Maritime Link Benefits Report. • Return on Equity Review ("ROE"): As encouraged...

AI summary NSPML is filing its 2026 Assessment Application, proposing a 9% Return on Equity (ROE) despite a recommended range of 10.1 to 10.35% from Concentric Energy Advisors. NSPML also requests a single-year assessment for 2026 due to cost projection uncertainties, despite the Board's suggestion to consider a multi-year assessment.

10 As has been the case since 2018, NSPML will continue to invoice NS Power for 11 recovery of its approved 2026 assessment in equal monthly instalments ($13.25 million 12 per month), apart from FLG2 costs that will be collected in the mon...

AI summary NSPML will invoice NS Power for the recovery of its approved 2026 assessment in equal monthly instalments of $13.25 million, excluding FLG2 costs, which will be collected in the month prior to payments being due. Invoices will be issued on the first day of each month starting January 1, 2026.

21 D. Report Organization 22 The remainder of the report is organized as follows: Section 2 discusses the legal requirements 23 and regulatory precedents for the determination of a fair rate of return. Section 3 provides an 24 overview of...

AI summary The report is organized into sections that cover legal requirements, economic conditions, authorized returns for transmission companies, proxy group selection, ROE estimation methods, capital structure assessment, and overall conclusions.

l, further investment will be discouraged and it will be unable to expand its operations or even maintain existing ones. This will harm not only its shareholders, but also its customers. 6 25 The law regarding fair return for utility cost...

AI summary The text discusses the concept of a fair return for utilities, referencing legal criteria from U.S. Supreme Court cases such as Bluefield Water Works and Hope Natural Gas Co. , which emphasize that a rate of return must be sufficient to ensure financial stability and enable utilities to fulfill their public duties while adapting to changing market conditions.

17 B. The Stand-Alone Principle 18 The Stand-Alone Principle provides that the utility must be regulated as if it were a stand-alone 19 entity, raising capital on the merits of its own business and financial characteristics. In this way, 2...

AI summary The Stand-Alone Principle requires utilities to be regulated as independent entities, ensuring they raise capital based on their own financial and risk profiles. This prevents cross-subsidization within corporate structures and ensures fair returns. NSPML, for example, must compete for capital with other subsidiaries like Tampa Electric Company, which has different return metrics.

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.

NON-CONFIDENTIAL - 1 NSPML is interested in finding a path forward that will support a multi-year or a simplified single- - 2 year approach without subjecting customers or NSPML to material variances caused by factors - 3 beyond NSPML's re...

AI summary NSPML seeks a simplified or multi-year approach for the 2026 Assessment filing, expressing concerns about material variances due to uncontrollable factors. They aim to collaborate with customer representatives on a simplified solution for the 2027 assessment.

7.1 Emera Obligation to Transfer at End of Term - (a) Transfer to Nalcor On or as soon as reasonably possible after the Expiry Date, Nalcor shall acquire and purchase from Emera and Emera shall, or shall cause its Affiliates to, sell and t...

AI summary This section outlines Emera's obligation to transfer ownership of the Maritime Link to Nalcor upon the expiry of the agreement. The transfer includes the Maritime Link and related agreements, and involves regulatory approvals, the timing of the transfer closing, and the allocation of operational and maintenance responsibilities and costs.

12.3 Own Property Damage For the avoidance of doubt, it is the Parties' intent that, subject to any right a Party may have to seek compensation from a third party who caused the Loss or from insurance, each Party shall be responsible for a...

AI summary The Parties agree that each is responsible for Losses to its own property, including facilities, equipment, and materials on the site of Defined Assets, regardless of the cause, including O&M Activities or the actions of the other Party or its affiliates. This applies unless compensation from a third party or insurance is available.

1.2 Construction of Agreement - (a) Interpretation Not Affected by Headings, etc. - The division of this Agreement into articles, sections and other subdivisions, the provision of a table of contents and the insertion of headings are for c...

AI summary This section outlines the general principles for interpreting the agreement, emphasizing that headings and subdivisions are for convenience and do not affect the agreement's construction. It also clarifies the use of singular and plural terms and the interpretation of capitalized derivatives.

5.6 Commercial Terms Governing Emera Variance Amount Transactions - (a) Emera Variance Transactions - In respect of Energy that is delivered and sold by Emera to NSPI in satisfaction of any Emera Variance Amount: - (i) such Energy will be...

AI summary This section outlines the commercial terms for Emera Variance Amount Transactions, specifying that the Energy delivered by Emera to NSPI is non-firm and that NSPI may only resell surplus Energy under specific conditions. Energy is scheduled on a day-ahead basis in accordance with the Scheduling Protocol.

cing at 2400 APT on a Saturday and ending 168 hours (or 167 or 169 hours, as may be required to accommodate a change to or from daylight savings time) later (each a " Delivery Week ") is as follows:

AI summary The text defines a 'Delivery Week' as a period starting at 2400 APT on a Saturday and ending 168 hours later, with adjustments for daylight savings time changes.

NSPML Responses to Nova Scotia Energy Board Information Requests 1 Request IR-43: 2 3 IR-32 to IR-44 Reference Exhibit N-1, Appendix A, Concentric Expert Evidence (refer to 4 Appendix page numbers at the bottom of each page). 5 6 Figure 27...

AI summary The document discusses NSPML's responses to information requests from the Nova Scotia Energy Board, focusing on discrepancies in Return on Equity (ROE) calculations, including errors in 2021 and 2022, and adjustments to equity thickness. It references a Board decision letter (M10528) and highlights inconsistencies in financial reporting.

5.1 Some Notes on Allowed ROEs This section provides evidence demonstrating that allowed ROEs have not declined adequately in response to the reduction in the cost of capital that utilities' have experienced, as long-term government bond y...

AI summary This section shows that allowed ROEs for utilities have not decreased sufficiently in response to the drop in long-term government bond yields and A-rated utility bond yields over the past two decades. The spreads between allowed ROEs and these measures have increased significantly, with NS Power's ROE-RF and ROE-A yield spreads rising by 22% and 18%, respectively, since 2004.

5.3.2 Market DCF Estimates Table 1 showed that real GDP growth has averaged 2.3% over the 1992 to 2024 period, which provides one potential estimate of long-term growth that could be used in the single-stage model, since one might expect l...

AI summary The text discusses market DCF estimates, including real and nominal GDP growth rates and their implications for long-term growth assumptions. It references the Bank of Canada's inflation target and uses the S&P/TSX Composite Index dividend yield to estimate implied equity returns for 2024.

- (c) It was implicitly taken into consideration, as it makes it even more reasonable to compare NSMPL to NS Power for the purposes of estimating the allowed ROE and ER for NSMPL. - (d) Dr. Cleary is not ware of any specific principle or e...

AI summary The text discusses the reasoning behind aligning the allowed Return on Equity (ROE) and Equity Requirement (ER) for NSMPL with NS Power, based on similar risk profiles and the unique financial structure of NSMPL, including low-risk debt from the Maritime Link project. Dr. Cleary's analysis supports the current allowed ER for NS Power as appropriate, despite being higher than previous recommendations for other utilities.

NSPML 2026 Assessment Application – Rebuttal Evidence 1 Ontario (Enbridge) and utilities in Alberta have tended to earn above their approved ROE 3 2 but fails to note that this is not the recent trend in Nova Scotia. 3 4 As stated in NSPML...

AI summary NSPML argues that Dr. Cleary's recommended return on equity (ROE) is too low, considering NSPML's unique operational and financial risks, including its complex assets, high debt ratio, and the need for cooperation with Newfoundland and Labrador Hydro. NSPML also highlights that the recommended ROE is significantly below the average for North American T&D utilities.

ric's main argument was based on allowed ROEs and 15 equity ratios mainly in U.S. jurisdictions, and he argues that returns in other jurisdictions are not relevant.5 16 How do you respond? 17 A. In response to Dr. Cleary's first point, whi...

AI summary Dr. Cleary argues that returns in other jurisdictions are not relevant, but Concentric Energy Advisors counters that investors use these returns as benchmarks. Concentric also provided a market-based analysis of the cost of capital for North American companies, emphasizing that the Fair Return Standard requires the Board to consider comparable investment returns.

CONCLUSIONS AND RECOMMENDATIONS Q. Please summarize your conclusions and recommendations. A. We continue to support our ROE analysis for the North American T&D proxy group, and we continue to find that it is reasonable to add a risk adjust...

AI summary The analysis supports a risk-adjusted ROE of 10.10% to 10.35% for NSPML, citing market data and similar transmission projects. The company's request to maintain a 9.0% ROE is deemed conservative. The testimony of Dr. Cleary does not alter these conclusions.

REGULATORY COMMISSION EXPERIENCE • Supervised financial analysts and accountants in the energy and telecommunications units of the Colorado Public Utilities Commission from 2004 to 2008. In this capacity, he was responsible for the financi...

AI summary The individual supervised financial analysts and accountants at the Colorado Public Utilities Commission from 2004 to 2008, handling financial analysis, audits, and expert testimony in rate cases and regulatory proceedings. They led investigations into regulatory violations and administered a high-cost support mechanism for rural telecommunications.

SPONSOR DATE CASE/APPLICANT DOCKET SUBJECT Colorado PUC Staff 2003 Lake Durango Water Company 03S-052W Allowable expenses – depreciation and taxes Value of purchased water Operating Ratio method Rate design for retail/bulk customers Custom...

AI summary The table lists various regulatory cases and proceedings handled by the Colorado PUC Staff from 2003 to 2004, covering topics such as allowable expenses, depreciation, taxes, rate design, cost of capital, and financial assurance. Each entry includes the sponsor, date, case/applicant, docket number, and subject matter.

- 6. That is, in each year, the approved ROE will be determined by adjusting the notional ROE of 9.0 per cent approved in this decision by the difference in forecast long-term Government of Canada (GoC) bond yield ( YLDt ) and utility bond...

AI summary The approved rate of return on equity (ROE) will be adjusted annually based on forecast long-term Government of Canada bond yields and utility bond yield spreads. The calculation involves weighted averages from bank forecasts and historical data. This method will be used to set the ROE for each subsequent year, starting with data from October 2023 for 2024. The cost-of-capital parameters for water utilities were not addressed in this proceeding.

2 Background and procedural summary 8. On January 3, 2022, the Commission established a bifurcated process for this proceeding with the goal of determining ROE and deemed equity ratios. The first part of the proceeding (Stage 1) establishe...

AI summary The Commission established a bifurcated process to determine ROE and deemed equity ratios. Stage 1, completed in March 2022, set cost-of-capital parameters for 2023. Stage 2, addressed in this decision, establishes a formulaic approach for setting ROE in 2024 and subsequent years, and sets deemed equity ratios for utilities.

ecision 22570-D01-2018, paragraph 192. downward pressure from other factors, the Commission found that the approved ROE for 2018 should be set at or near that of the 2016 proceeding. 25

AI summary The Commission determined that the approved ROE for 2018 should be set at or near the level from the 2016 proceeding, despite downward pressure from other factors.

5.1 The need for a formulaic approach to setting ROE 51. Over the past two decades, the Commission and its predecessors have employed various methodologies to set the approved ROE and deemed equity ratios. Prior to 2004, the 44 Exhibit 270...

AI summary The document discusses the need for a formulaic approach to setting the rate of return on equity (ROE) over the past two decades, noting that the Commission and its predecessors have used various methodologies, often determining parameters on a case-by-case basis for each utility.

ital hearings. 70 - 71. Based on the submissions of parties, the Commission adopts an ERP-based two-factor formulaic approach similar to the one utilized by the OEB. Specifically, the Commission approves the following two-factor formula to...

AI summary The Commission adopts a two-factor formulaic approach for calculating the Rate of Return on Equity (ROE) for 2024 and future test periods. The formula incorporates adjustments for changes in long-term Government of Canada bond yields and utility bond yield spreads. The base ROE is set at 9.0%, with equal weighting for each adjustment factor.

5.4 Periodic reviews of formulaic approach 81. Employing a formulaic approach to determine annual changes in the ROE requires periodic evaluation to ensure that the ROE produced by the formula continues to be in alignment with the standard...

AI summary The document discusses the periodic evaluation of a formulaic approach to determine annual changes in the Rate of Return on Equity (ROE), emphasizing the need to ensure alignment with standards for achieving a fair return.

5.5 Periodic reviews of deemed equity ratios - 90. In order to meet the fair return standard, the Commission has to not only establish a fair ROE, but also determine which proportion of capital invested by the utilities should be financed...

AI summary The Commission discusses the periodic review of deemed equity ratios, emphasizing the need for a fair return standard. It determines that a five-year review cycle is appropriate, aligning with formulaic ROE evaluations. Annual reviews and specific conditions for updates are not supported due to cost and complexity concerns. Mid-term reopeners are permitted under certain conditions.

6.1 Overview 97. The Commission must determine a fair return for the utilities under its jurisdiction as part of fixing just and reasonable rates. In Section 5 of this decision, the Commission determines that it will adopt a formulaic appr...

AI summary The Commission outlines its approach to determining a fair return for utilities under its jurisdiction, focusing on the formulaic method for setting the rate of return on equity (ROE) starting in 2024. The notional ROE serves as an input to the approved formula, and will be used to inform cost-of-capital parameters and other factors in the calculation.

6.2 Comparability of representative utilities - 99. In past GCOC proceedings, the Commission has frequently expressed concern with the wide range of conflicting evidence and polarized opinions on how it should approach setting a fair retur...

AI summary The Commission has historically faced challenges in determining a fair return on capital for utilities due to conflicting evidence and polarized opinions. In the 2018 GCOC proceeding, multiple proxy groups were proposed, leading to the implementation of a comparator group process to identify representative utilities. However, the weight assigned to specific utilities within the comparator group remains unresolved, with parties disagreeing on their true comparability to Alberta utilities.

6.5.1 Adjustment factors for changes in GoC bond yield and utility bond yield spread - 185. In future test years, risk-free rates (approximated by long-term GoC bond yield) and utility bond yield spreads will continue to vary as financial...

AI summary The document discusses adjustment factors for changes in the Government of Canada (GoC) bond yield and utility bond yield spread, explaining how these factors influence the return on equity (ROE) for test years. The approved formulaic approach accounts for fluctuations in these variables relative to their base values.

lity 200 Bank of Canada CANSIM Series V39056. 201 Exhibit 27084-X0469.01, PDF page 82. 202 Exhibit 27084-X0469.01, PDF page 33 at Figure 6, PDF page 80. bond yield spread should consider both A-rated and Baa-rated utility bonds because not...

AI summary The discussion focuses on determining the base utility bond yield spread, considering both A-rated and Baa-rated utility bonds. Concentric recommends averaging or differentiating the resulting ROE for A and sub-A rated utilities. D. D'Ascendis and Dr. Cleary provide specific recommendations for calculating the base spread using historical and current market data.

7.1 Overview, approved deemed equity ratios for 2024, and review timeframe - 202. To satisfy the fair return standard, the Commission is required to determine a fair return on the deemed equity component of invested capital. In this sectio...

AI summary The Commission determines the approved deemed equity ratios for 2024, maintaining a uniform return on equity (ROE) of 9.0% and adjusting deemed equity ratios based on risk differences among utilities. The deemed equity ratio of 37% for most utilities and 39% for Apex is set to ensure a fair return and support credit ratings in the A-range. The ratios will be reviewed every five years or when the ROE formula is reviewed.

- 210. Dr. Villadsen benchmarked her recommended deemed equity ratios against deemed equity ratios approved by other Canadian regulators, noting that the OEB approved a deemed equity ratio of 40 per cent for electric distributors and 36 to...

AI summary The text discusses the determination of deemed equity ratios for utilities, referencing approvals by Canadian and U.S. regulators, and recommendations from experts like Dr. Villadsen, M. Tolleth, and F. Graves. These recommendations consider factors such as market risk, size of utilities, and fair return standards.

7.5.1 Macroeconomic factors 256. While the Commission acknowledges that interest rates and inflation have increased since the 2018 GCOC, resulting in higher capital costs, it is not persuaded that these factors warrant an increase in appro...

AI summary The Commission acknowledges increased interest rates and inflation since 2018 but does not support increasing ROEs or equity ratios. Alberta's regulatory framework allows utilities to recover costs related to inflation and higher interest rates through PBR and COS regulations.

7.5.3 Utility asset disposition risk and the impact of the Court of Appeal decision in ATCO Electric Ltd. v Alberta Utilities Commission , 2023 ABCA 129 - 260. In a letter dated June 6, 2023, 250 the Commission requested that parties provi...

AI summary The Commission requested submissions on the impact of the Wildfires Decision on stranded asset recovery risks. Most parties argued it was premature to assess the impact, as the decision was sent back for reconsideration. The CCA noted the decision may reduce business risk by increasing the likelihood of cost recovery from customers due to weather events. The Commission also stated that UAD-related risk has not significantly changed since the 2018 GCOC decision.

7.6.1 Determination of Commission-approved deemed equity ratio for Fortis - 267. Fortis requested a 300 bps premium above the generic deemed equity ratio for an Alberta utility on the basis that it faces increased business and regulatory r...

AI summary Fortis requested a 300 bps premium above the generic deemed equity ratio due to increased business and regulatory risks, including competition from REAs and a $10 million annual reduction in revenue. The Commission rejected the request, citing negligible threat from REAs and noting that increasing equity thickness would raise rates for customers and place Fortis at a competitive disadvantage.

7.6.2 Determination of Commission-approved deemed equity ratio for Apex - 274. Apex submitted that its deemed equity ratio should be 400 bps higher than the deemed equity ratio of the average distribution utility because it faces higher bu...

AI summary Apex requested a 400 bps higher deemed equity ratio due to higher operational risks from its small size and rural service territory. The Commission acknowledged these risks but rejected the full 400 bps increase, citing a 2018 decision that reduced equity thickness due to inefficiencies from higher equity costs not offset by lower debt costs.

Key Principles The purpose of Stage 1 of the GCOC proceeding is to set a fair return for FEI and FBC. When determining the utilities' cost of capital, the Panel is guided by certain fundamental regulatory principles, including the Fair Ret...

AI summary Stage 1 of the GCOC proceeding aims to establish a fair return for FEI and FBC. The Fair Return Standard requires returns to be comparable to other investments of similar risk, maintain financial integrity, and attract capital on reasonable terms. The BCUC applies the standalone principle, and evidence supports the use of multiple models to estimate ROE.

Panel Determination Beta is a key input into the CAPM and relies on a proxy group of companies to estimate the risk of FEI and FBC compared to the whole market. Consistent with common practice, Mr. Coyne uses five years of data in his anal...

AI summary The Panel evaluates the use of beta in the CAPM for FEI and FBC, considering data from Value Line and Bloomberg. It agrees with Mr. Coyne's approach of averaging these sources and removes two utilities from the proxy group. The Panel also accepts the use of Blume-adjusted betas despite previous BCUC decisions, based on expert recommendations.

25 COURT REPORTER: Sorry, this is Lisa, the reporter. I - 26 don't think the microphone is on for the witness panel. - 27 (Off-record discussion) - 28 MS. STOTHART: So the last question was: Your - 1 proposed ROE of 10 percent is accompani...

AI summary The discussion centers on the relationship between return on equity (ROE) and equity thickness, with the witness confirming that a lower equity thickness generally requires a higher ROE to compensate for increased financial risk. The witness also mentions that calculations for a 40 percent equity thickness are included in their report.

Other key inputs to the projection The Bank of Canada's projection is conditional on several other key inputs and assumptions about their future path. The Bank regularly reviews these assumptions and adjusts the economic projection accordi...

AI summary The Bank of Canada's economic projection is based on several key inputs, including the effects of tariffs and trade tensions on productivity and investment, assumptions about policy uncertainty, and changes in population growth and potential output. The projection also considers oil prices, the Canadian dollar, and the impact of tariff revenues on households and governments.

3 The average of all three methods for the North American Electric proxy group is 9.87 percent, 4 within the range of 9.29 percent to 10.32 percent. Based on this analysis, we believe a reasonable 5 estimate of NSPI's required ROE is 9.9 p...

AI summary The document discusses Nova Scotia Power Inc.'s (NSPI) proposed return on equity (ROE) of 9.0%, which is below the estimated 9.9% based on proxy group analysis. NSPI argues that maintaining the current ROE is necessary for rate stability and affordability, but the analysis highlights the need for a competitive ROE to attract investment and support the energy transition. A common equity ratio of 40.0% is recommended due to NSPI's financial risks and ownership of regulated generation assets.

B. The Stand-Alone Principle The Stand-Alone Principle provides that the utility must be regulated as if it were a stand-alone entity, raising capital on the merits of its own business and financial characteristics. In this way, capital is...

AI summary The Stand-Alone Principle requires utilities to be regulated independently, ensuring they raise capital based on their own financial and risk profiles. NSPI, part of the Emera corporate structure, must compete for capital with other subsidiaries like Tampa Electric Company, which has different authorized ROE and equity ratios. This principle ensures fair returns based on individual risk profiles.

Jurisdiction Adj. Docket/Proceeding Notes Alberta 50 bps 2018 GCOC Decision 22570-D01-2018 and 2024 GCOC Decision 27084- D02-2023 Adjustment of 50 bps is normally included in the allowed return to account for administrative and equity issu...

AI summary The document outlines various adjustments to the allowed return on equity (ROE) across different provinces, including 50 basis points (bps) for administrative and equity issuance costs, flotation costs, and financing flexibility. Nova Scotia's 2023 rate application was resolved through a settlement agreement without specifying flotation costs or financing flexibility. Adjustments vary by jurisdiction, with some provinces using lower or higher values.

A. NSPI's Deemed Common Equity Ratio 4 In February 2023, the Board approved the settlement agreement which included an increase in 5 the deemed common equity ratio for NSPI from 37.5 percent to 40.0 percent for the purposes of 6 establishi...

AI summary The Nova Scotia Utility and Review Board approved an increase in the deemed common equity ratio for Nova Scotia Power Inc. (NSPI) from 37.5% to 40.0% in February 2023, affecting rate-setting and earnings calculations based on a five-quarter average equity thickness.

These risks are not generally faced by other Canadian investor-owned utilities, many of which own little, if any, generation. Further, as discussed in more detail later in this section, while the companies in the U.S. Electric proxy group...

AI summary NSPI faces higher carbon transition risks compared to other utilities due to its significant coal-fired generation and shorter carbon reduction timelines. NSPI proposed a decarbonization plan involving a deferral account (DDA) to mitigate rate impacts. The Board approved this plan with conditions, including securitization of DDA assets and a report by April 30, 2025. NSPI plans to seek securitization approval for $700 million of DDA assets in 2025, with potential deferral of costs if not completed by 2026.

21 g. Alternative Fuel Risk Although NSPI continues to face competition from alternative fuel sources, this risk is declining due to government policy that promotes electrification of buildings and increased purchases of electric vehicles....

AI summary NSPI faces declining alternative fuel risk due to government policy promoting electrification and rising electric vehicle adoption. The percentage of residential electric heating in Nova Scotia increased from 51.1% in 2020 to 60.2% in 2024. Heat pump adoption has grown significantly, impacting NSPI's electricity usage and load management.

b. Recovery of Fuel and Purchased Power Costs NSPI is the only Canadian investor-owned electric utility that owns significant regulated generation, and the Company has an annual FAM. While the FAM includes an incentive component whereby NS...

AI summary NSPI is the only Canadian investor-owned electric utility with significant regulated generation and an annual FAM. The FAM includes an incentive component that was suspended during the 2017-2019 period and again under the 2020-2022 fuel stability plan. The provincial government has purchased a $117 million receivable to reduce deferred fuel costs. Other Canadian utilities, such as FortisBC and Maritime Electric, have different mechanisms for recovering fuel and purchased power costs.

9 c. Volume/Demand Risk NSPI does not have a mechanism to mitigate volume/demand risk due to changes in volume attributable to weather, economic conditions, or energy efficiency and conservation programs. The significance of this risk has...

AI summary NSPI lacks mechanisms to mitigate volume/demand risk due to factors like weather, economic conditions, and energy efficiency programs. As more residential customers switch to electric heating, this risk has increased. Other Canadian utilities have mechanisms like revenue stabilization plans, weather-related variance accounts, and performance-based regulation to manage volumetric risk.

3 d. Conclusions on Business Risk of NSPI Compared to U.S. Electric 4 Utility Proxy Group 5 Based on the business risk analysis, we conclude that NSPI has similar business risk to the U.S. 6 Electric utility proxy group on many factors tha...

AI summary NSPI has similar business risk to the U.S. Electric utility proxy group in the short and intermediate term, but differences exist, including greater carbon transition risk due to reliance on coal and higher volumetric risk due to lack of a decoupling mechanism. NSPI also funds a DSM program but cannot recover lost revenues through an LRAM.

The Board approved NS Power's Advanced Metering Infrastructure (AMI) Project Application in June 2018. The Company filed its Revised AMI Compliance Filing on September 20, 2018, detailing the plan to inform customers about the opt-out[1](#...

AI summary The Nova Scotia Utility and Review Board approved NS Power's AMI Project Application in 2018, but did not approve the proposed AMI opt-out fee in its February 2023 Decision. The Board provided general direction, which NS Power has addressed in a specified section of the filing.

In this Application, NS Power proposes a monthly opt-out charge according to the schedule outlined in [Table 1](#page-116-1) . Table 1 – Proposed Schedule of AMI Opt-out Fee Monthly Charges for 2026 and 2027 Standard Customer Meter Propose...

AI summary NS Power proposes a monthly opt-out charge for customers who do not use AMI meters, with varying rates depending on meter read frequency. The proposal includes reduced read frequencies for certain customer classes to lower costs, estimated to save $1.2 million over 2026 and 2027.

2 Findings included in the Board's Decision under M10431 The NSEB's 2023-2024 GRA Decision provided general direction for pursuing available options: In considering NS Power's requested opt-out fee, the Board questions whether all reasonab...

AI summary The Board questions whether all reasonable options have been explored to minimize or eliminate the proposed opt-out fee for the smart meter program, noting that customers who opt-out will still pay for the capital project through embedded rate costs. The Board is not persuaded that the fee has been fully justified and emphasizes the need for flexible meter reading schedules.

2.1.1 Opt-Out Fees in Other Jurisdictions Section 11 of the Company's AMI Project Application provided a summary of the separate charges implemented by utilities in other jurisdictions for non-standard meter service to recover the cost of...

AI summary This section discusses the opt-out fees for non-standard meter service in other jurisdictions, comparing them to Nova Scotia Power's approach. It notes that other utilities have implemented both initial and monthly fees, while NS Power has opted not to use an initial fee due to the use of AMI meters with OTA billing turned off, reducing administrative costs.

Non-standard Meter Service (AMI) Opt-out Fee 2026-2027 GRA Direct Evidence Appendix 13A Page 8 of 14 Customer-submitted meter reads are used only on an exception basis when NS Power is unable to obtain an on-site reading. Regulation 5.1 re...

AI summary The document discusses the risks and inaccuracies associated with customer-submitted meter reads under the proposed opt-out fee for non-standard meter service (AMI) in 2026-2027. It highlights the potential for errors due to reduced meter read frequency and the limitations of customer-submitted readings compared to manual reads by NS Power.

2.2 Both AMI Project Capital Costs and Savings are Embedded in Rates 9 Regulation 5.1 Meter Reading, "Estimated Meter Reading," page 40. January 1, 2017. 10 Regulation 5.1 Meter Reading, "Estimated Meter Readings in Rural Areas," page 41.

AI summary This section discusses how the capital costs and savings associated with the AMI (Advanced Metering Infrastructure) project are already included in current rates. It references specific regulations related to estimated meter readings and their application in rural areas.

Non-standard Meter Service (AMI) Opt-out Fee 2026-2027 GRA Direct Evidence Appendix 13A Page 9 of 14 The concept of non-participant[11](#page-122-0) contributions to the AMI capital project costs, as these costs are embedded in rates, is b...

AI summary The document discusses the rationale for non-participant contributions to the AMI capital project costs, emphasizing shared infrastructure costs and equitable distribution. It explains that even opt-out customers benefit from AMI infrastructure, and their costs are passed through to them, ensuring no over-recovery. The AMI project is deemed in the public interest, offering cost savings and operational benefits.

2.4 The Need, and Amount, of the Proposed Opt-out Fee has been Fully Explored and Justified NS Power's position is closely aligned with the principles and justifications established by HRWC in its 2016 AMI opt-out proposal and, more recent...

AI summary NS Power argues that an opt-out fee is necessary to cover the extra costs incurred from serving customers who have not installed AMI meters. These costs include manual meter readings and bill estimations, which are disproportionately borne by other customers. The fee is justified based on HRWC's 2020 general rate application and its previous AMI opt-out proposal.

Non-standard Meter Service (AMI) Opt-out Fee 2026-2027 GRA Direct Evidence Appendix 13A Page 14 of 14 Customers currently on a monthly demand read cycle would pay $274.84 annually if billed the proposed opt-out fee of $22.89 per month, in...

AI summary The document discusses the proposed opt-out fee for non-standard meter service (AMI) for 2026-2027, noting that customers on a monthly demand read cycle would pay approximately $274.84 annually. The Board previously approved a similar fee for Halifax Water, and all parties seem to agree that an opt-out charge is reasonable, with Synapse suggesting a range of $10-$12 per month.

Regulatory and Rate-Setting Mechanisms LEI stated that as the perceived stability of future cash flows is a key consideration for investors, a regulated utility's ability to recover its capital and operating costs profoundly relies on avai...

AI summary LEI emphasized the importance of regulatory mechanisms in ensuring cost recovery for utilities, while Dr. Cleary supported retaining current risk assessment policies. Concentric suggested comparing Ontario's mechanisms to peer companies when assessing cost of equity. Nexus argued that Ontario's regulatory environment does not significantly reduce risk and warned against approving a lower ROE for electricity distributors due to systematic underearnings.

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.

Findings Whether a utility finances its operations through capital markets, municipal debt, or government lending, the fundamental risk associated with the utility's activities (such as the regulatory environment, business model, and marke...

AI summary The Ontario Energy Board (OEB) emphasizes that the cost of capital for utilities should be based on risk profiles and use of funds, not ownership structure or financing sources. This approach ensures fairness and consistency in rate-setting, preventing disparities among utilities. The OEB maintains a stable, transparent framework aligned with financial theory and regulatory principles.

Expert Report Proposals LEI recommended using the Capital Asset Pricing Model (CAPM) to estimate ROE. LEI noted that CAPM is one of the most commonly used valuation methods. Using CAPM, LEI calculated a base ROE of 8.95%. Concentric found...

AI summary LEI recommended using CAPM to estimate ROE at 8.95%, while Concentric argued that the OEB's current ROE formula does not meet the FRS and recommended resetting it to 10.0% using DCF, CAPM, and Risk Premium models. Concentric also emphasized the need for periodic formula reviews due to factors beyond government bond yields and credit spreads.

including Enbridge Gas) and electricity transmitters, the following base ROEs would be appropriate and within the range of reasonableness, as proposed by: - CCC of 7.1% - SEC of 7.58% - VECC of 7.73% AMPCO/IGUA stated that this was premise...

AI summary The document outlines recommended base ROEs for Ontario energy utilities, with CCC, SEC, and VECC proposing specific rates. AMPCO/IGUA advocates for a 'common sense' approach to determining ROEs, while Pollution Probe suggests a range between 7.05% and 8.95%. CCC and SEC emphasize the need to move away from proxy group-based models and recommend separate ROE determinations for Enbridge Gas and OPG.

e impact or downgrade(s) to a company's credit rating will also result in additional ratepayer costs, as the downgraded company's access to and cost of funding is also negatively impacted as a result. The OEA concluded that Dr. Cleary's re...

AI summary The OEA argues that Dr. Cleary's ROE recommendations fail the FRS and could negatively impact Ontario utilities' growth and funding access. It emphasizes that the current OEB formula aligns with Canadian utility returns but lags behind U.S. counterparts. The OEA supports evolving the 2009 Report's approach to meet FRS while maintaining foundational principles and ensuring fair returns amid significant capital investments.

Multiple Methodologies In OEB staff's view, it was neither necessary nor advisable for the OEB to pick one of the four expert recommendations in this case, or to make a finding on which methodology (e.g., CAPM, DCF or Risk Premium) or whic...

AI summary OEB staff recommends using multiple methodologies (CAPM, DCF, Risk Premium) to determine ROE, rather than selecting one. EDA and OEA agree that no single method is sufficient, with EDA criticizing averaging ROE figures and OEA emphasizing the value of a multi-model approach.

Submissions OEB staff noted that although the deemed ROE included a 50 basis point adder for "transactional costs" since the 2009 Report, the 2009 Report provided no rationale for embedding such costs in the ROE, nor for how the adder was...

AI summary OEB staff recommended eliminating the 50 basis point adder in the deemed ROE, as it was not justified in the 2009 Report and is no longer needed. AMPCO/IGUA agreed. Concentric and Nexus provided evidence supporting the retention of the adder, but OEB staff believed it overcompensates utilities and suggested alternative remedies.

Expert Report Proposals Expert report proposals regarding two key components of the annual ROE adjustment formula (the Long Canada Bond Forecast (LCBF) and Utility Bond Yield Spread) are discussed in Section 3.4 of this Decision in more de...

AI summary The document outlines expert proposals for adjusting the annual Return on Equity (ROE) formula, focusing on the Long Canada Bond Forecast (LCBF) and Utility Bond Yield Spread. LEI, Concentric, Nexus, and Dr. Cleary each propose different adjustment factors, with varying views on volatility, responsiveness, and empirical relationships.

Submissions OEB staff submitted that LEI, Concentric, and Dr. Cleary proposed similar annual ROE adjustment formulas for adjusting the ROE beyond 2025, building on the approach approved in the 2009 consultation, but with revised factors. O...

AI summary OEB staff proposed updating the ROE adjustment formula beyond 2025, with support from OEA for Concentric's revised factors, while SEC argued for maintaining the 50% adjustment factor due to its balance between macroeconomic changes and stability. Disagreements arose over the validity of proposed adjustments.

Submissions OEB staff and several ratepayer groups submitted that no changes need to be made to the OEB's policy on capital structure in this proceeding and the default equity thickness should remain at 40% for electricity distributors and...

AI summary OEB staff and ratepayer groups argue that the default equity thickness of 40% should remain unchanged for electricity distributors and transmitters, as Concentric's case for increasing it to 45% was not persuasive. They also agree that OPG's equity ratio should be reviewed in a future proceeding. OEB staff emphasized that Ontario's equity ratios are in line with other provinces and that changes in risk have been reflected in ROE adjustments.

Expert Report Proposals LEI recommended that the current approach of allowing the same equity thickness for all electricity transmitters should be maintained: Hydro One and smaller, single-asset transmitters should all have the same equity...

AI summary LEI recommends maintaining the same equity thickness for all electricity transmitters, arguing that their risk profiles are similar to distributors. Concentric disagrees, highlighting the unique risks of single-asset transmitters and suggesting a higher equity ratio for them due to lack of diversification.

Submissions OEB staff agreed with LEI that the current approach of allowing the same equity thickness to all electricity transmitters (and distributors) should be maintained, even if it is a single-asset transmitter. OEB staff submitted th...

AI summary The OEB staff and various stakeholders discuss whether single-asset electricity transmitters should be treated differently from multi-asset transmitters in terms of allowed ROE, equity ratios, and risk premiums. Most parties argue against differentiating based on asset count, while Minogi/TFG and CFN/MCFN advocate for a risk premium in cases of Indigenous equity participation in single-asset transmitters.

Submissions OEB staff and several ratepayer groups agreed with LEI and Dr. Cleary that the status quo approach (considering deemed capital structure regardless of the actual capital structure) should be retained. OEB staff noted that this...

AI summary The document discusses the approach to notional debt in rate-making, with OEB staff and ratepayer groups supporting the status quo of using deemed capital structure. SEC and OEA agree on applying actual weighted average cost of debt to notional debt, while VECC suggests adjusting pricing based on variances between actual and deemed debt. OEB staff and OEA disagree with VECC's proposal, emphasizing utility discretion in managing capital structures.

Electricity Distributors and Transmitters The 2009 Report affirmed the deemed equity ratio of 40% equity / 60% debt for electricity distributors. Since the 2009 Report, the OEB has extended the deemed equity ratio of 40% to electricity tra...

AI summary The OEB has maintained the deemed equity ratio of 40% equity / 60% debt for electricity distributors and transmitters, ensuring consistent financial assumptions for rate-setting. This approach balances fairness between utilities and customers and aligns with FRS, while allowing flexibility in financing.

Use of the DLTDR No expert took issue with the OEB's general policy to rely primarily on the embedded or actual cost for existing long-term debt instruments. The experts disagreed on whether the DLTDR should be used as a cap in certain cir...

AI summary Experts generally agree with the OEB's policy of using actual or embedded costs for existing long-term debt, but disagree on whether the DLTDR should act as a cap. LEI and Dr. Cleary support using DLTDR as a cap for all utilities, while Concentric argues for allowing utilities to forecast their own debt rates under OEB oversight.

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 broadly speaking, to calculate the DSTDR, there are three alternatives to the BA rate: (1) the CORRA reference rate published by the Bank of Canada (or possibly a CORRA futures rate); (2) the Bloomberg...

AI summary OEB staff proposed three alternatives for calculating the DSTDR, with option (2) being administratively simpler. The OEA disagreed with using the Bloomberg index due to its proprietary nature. Ratepayer groups supported CORRA futures rates, while CCC suggested different methodologies for 2025 and 2026 rates. VECC supported Dr. Cleary's proposal using the CORRA rate as of September 30.

Where: BVCAUA3M BVLI is the Bloomberg ticker BVCAUA3M BVLI Index (3-month) which tracks utility bond yields, with the data point as at September 30, taken from Bloomberg LP, for year t. If at any point, the BVCAUA3M BVLI Index (3-month) be...

AI summary The document discusses the application of the Deemed Short-Term Debt Rate (DSTDR) in rate applications for various utilities, including electricity and natural gas distributors, as well as OPG. LEI recommends using DSTDR as a cap for all utilities, while Concentric disagrees, arguing that a cap may not account for utility-specific borrowing costs. Dr. Cleary supports the current approach.

Specific Items Monitored LEI stated that consistent with the OEB's existing policy, OEB staff should continue to monitor the cost of capital parameters and test their reasonableness in the context of prevailing macroeconomic conditions on...

AI summary The Office of the Energy Board (OEB) is advised to monitor cost of capital parameters quarterly and consider including credit ratings and capital injection details in annual reporting. LEI, Dr. Cleary, and Nexus support this approach, while Concentric argues against it, suggesting annual benchmarking of ROEs and macroeconomic factors instead.

Expert Report Proposals Consistent with the OEB's existing policy, LEI stated that the OEB should continue to publish its annual cost of capital parameter updates in October or November, but using 12-month trailing data as of the end of Se...

AI summary The OEB is considering updating its annual cost of capital parameter schedule, with LEI recommending the use of 12-month trailing data, while Concentric suggests using 90-day averages and Dr. Cleary proposes using October data instead of September data for the ROE adjustment formula.

Submissions OEB staff submitted that the OEB's current practice of reviewing the prescribed interest rates for DVAs quarterly should be maintained, with updates only if the formulaic approach results in a change in interest rates of 25 bas...

AI summary OEB staff recommend maintaining the quarterly review of prescribed interest rates for DVAs, with updates only if changes exceed 25 basis points. They suggest using the Bloomberg ticker BVCAUA3M BVLI Index (3-month) for consistency with DSTDR and note three alternatives for calculating these rates, with option (2) being administratively simpler.

Findings The OEB will apply the same approach for determining the prescribed interest rate for DVAs that it has established for the DSTDR, for the same reasons provided under that issue. This approach is to use the Bloomberg ticker BVCAUA3...

AI summary The OEB will use the Bloomberg ticker BVCAUA3M BVLI Index (3-month) to determine the prescribed interest rate for DVAs, similar to the DSTDR approach. The rate for Q2 2025 is set at 3.16%. The OEB rejects Concentric's argument for applying a long-term rate to DVAs, citing double compensation and lack of evidence linking DVAs to long-term debt and equity.

Expert Report Proposals LEI suggested that the OEB needs to determine if the risk profile of the transition to cloud computing solutions warrants an additional risk premium over and above the carrying charges for DVAs (i.e., a higher rate...

AI summary LEI and Concentric recommend that the OEB apply a deemed WACC to cloud computing deferral accounts to align incentives for utilities transitioning to cloud solutions. They argue that cloud computing is less risky but should still be treated similarly to in-house IT systems for regulatory purposes. Nexus and Dr. Cleary did not comment on the issue.

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.

F. Mechanics of Implementation - 14.What on-going monitoring indicators to test the reasonableness of the results generated by its cost of capital methodology should the OEB consider, including the monitoring of market conditions? - 15.How...

AI summary The text outlines a series of questions regarding the ongoing monitoring and implementation of cost of capital methodologies by the Office of the Energy Board (OEB). It focuses on indicators for reasonableness, financial viability, timing of updates, review intervals, trigger mechanisms, and implementation methods for changes in cost of capital parameters.

a) Prescribed Interest Rates 20.Should the prescribed interest rates applicable to DVAs and the construction work in progress (CWIP) account for electricity transmitters, electricity distributors, natural gas utilities, and OPG continue to...

AI summary The document discusses the continued use of the current approach for calculating prescribed interest rates for DVAs and CWIP accounts for various utilities, including OPG, and whether alternative methods should be used. It also raises the question of applying carrying charges or other rates to the Cloud Computing deferral account.

Approach to Long-Term Debt The status quo approach to the long-term debt rate is to use the weighted average of embedded (actual) debt plus forecasted debt rate(s) of new debt in the test period. For Enbridge Gas and OPG, the DLTDR is not...

AI summary The document discusses the approach to long-term debt rates, noting that the status quo uses a weighted average of embedded and forecasted debt rates. For Enbridge Gas and OPG, the DLTDR is not used, while for electricity distributors and transmitters, a DLTDR formula acts as a ceiling in certain cases, referencing the 2009 Report.

ompensate for the risk assumed in relation to the entire spectrum of comparable competitive investments available. The challenge with this principle is finding comparable companies with similar risks. The financial integrity and capital at...

AI summary The fair return standard requires utilities to be compensated for risks similar to competitive investments. The financial integrity and capital attraction principles depend on meeting the comparable investment principle. Determining appropriate debt ratings and attracting capital are key challenges. Expert evidence from NSPML and Board Counsel was presented.

d the CAPM is a forward-looking model, therefore a forecasted beta and its tendency to perform at the average of the market over time is not limited by the historical performance of the industry beta. [85] Dr. Cleary reviewed beta estimate...

AI summary The text discusses the use of beta estimates in the CAPM model, with Dr. Cleary arguing that Canadian utility betas should be between 0.2 and 0.4, while Concentric used higher estimates from external sources. Dr. Cleary emphasizes the use of long-term averages and judgment in determining beta estimates.

ng would not be required for sustaining capital if the Board approved its request for a 40% equity ratio for these capital expenditures. [119] In its response to Industrial Group IR-18, NSPML stated: NSPML has limited cash flow flexibility...

AI summary NSPML is requesting a 31.5% equity payout cap to align with its actual equity thickness due to limited cash flow flexibility. The Board questioned whether the request was influenced by previous disallowances, but NSPML clarified that the disallowances were a result of corporate configuration, not the cause of the request.

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.

1 Request IR-1: 2 3 NSPML states that it, "believes a single-year assessment is the appropriate approach at this time." 4 (p. 9) Does NSPML believe that it could be reasonable to operate using single-year assessments 5 until the Maritime L...

AI summary NSPML believes a single-year assessment is appropriate at this time. The question asks whether it would be reasonable to continue using single-year assessments until the Maritime Link is transferred to NL Hydro.

Refer to M12394, Exhibit N-1, NSPML's application for approval of its 2026 revenue requirement and cost assessment, (the "Application"), page 10 of 29 and respond to the following: a) Please provide a detailed calculation and reconciliatio...

AI summary The document requests detailed calculations and comparisons related to NSPML's 2026 revenue requirement and cost assessment, including reconciliation of components, comparison with previous years, model documentation, and the impact of cost recovery on small business rate classes.

- 25 expedite finalization of each remaining matter. 1 Request IR-11: 2 Reference: Section 3.4 Annual Net Interest Costs, Page 15, lines 17-21. 3 4 5 6 7 This represents total coupon interest costs of $37.5 million, Letter of Credit fees o...

AI summary The text discusses requests for clarification and re-evaluation of financial costs related to NSPML, including letter of credit fees, equity financing costs, and marine survey cost recovery. The Board emphasizes the need for normalization of survey costs over a multi-year period rather than rate-based recovery.

debit between the parties, which may ultimately affect ratepayers. Mr. Dimmell further noted that the inservice LTAMP is an ongoing commercial process between NSPML and NLH that remains confidential. [31] NSPML's other meaning of LTAMP, ac...

AI summary The document discusses NSPML's interpretation of the LTAMP, distinguishing between its internal asset management planning system and the confidential commercial in-service LTAMP. NSPML argues that filing the in-service LTAMP would compromise the confidentiality of ongoing negotiations and potentially waive privilege.

ompensate for the risk assumed in relation to the entire spectrum of comparable competitive investments available. The challenge with this principle is finding comparable companies with similar risks. The financial integrity and capital at...

AI summary The fair return standard requires utilities to be compensated for risks associated with investments. The challenge lies in finding comparable companies. Financial integrity and capital attraction principles are satisfied if the allowed return supports stable investment grades and attracts necessary capital. Expert evidence from NSPML and Board Counsel was presented to the NSUARB.

5.5 Findings [143] It bears repeating that for at least a century, the Supreme Court of Canada has recognized that investors in regulated utilities are entitled to a fair return, which is comparable to the return they would see from other...

AI summary The Supreme Court of Canada has long recognized that regulated utilities must provide investors with a fair return comparable to similar investments. This ensures continued investment and operational stability. Factors like comparable returns and financial integrity are considered, while affordability and reliability are addressed through other regulatory tools.