BCUC Completes Stage 1 of Generic Cost of Capital Proceeding

BCUC Completes Stage 1 of Generic Cost of Capital Proceeding

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VANCOUVER, British Columbia, Sept. 05, 2023 (GLOBE NEWSWIRE) — Today, the British Columbia Utilities Commission (BCUC) completed Stage 1 of its Generic Cost of Capital proceeding, which determined a new allowed rate of return for FortisBC Energy Inc. (FEI) and FortisBC Inc. (FBC).

FEI and FBC are the largest investor‐owned natural gas and electric utilities in British Columbia and their allowed earnings are regulated by the BCUC. In determining the fair return for both utilities, the BCUC considered each utility’s financial and business risks, reviewed multiple financial models and analyses, and heard expert testimony over the course of the proceeding.

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The BCUC applied the Fair Return Standard, which requires that invested capital must allow the regulated utility to compensate its shareholders similarly to those with comparable investments, maintain the utility’s financial integrity, and the utility’s ability to attract new investments. Based on these elements, the BCUC determined a fair and reasonable return on capital for FEI and FBC, effective January 1, 2023, as follows:

Utility Equity Thickness Return on Equity
FEI (gas) 45% 9.65%
FBC (electric) 41% 9.65%

The BCUC found that FEI’s overall business risk for its shareholder and investors increased since the BCUC’s last review, primarily driven by the energy transition. However, FBC’s overall business risk remained the same. The difference between FEI and FBC’s business risks is reflected in the BCUC’s decision on the utilities’ equity thickness. To determine the allowed return on equity, the BCUC used multiple financial models and considered the most recent market data examined in the proceeding.

In its decision, the BCUC also directed FEI and FBC to submit filings that reflect and implement the approved capital structure and allowed return on equity to determine their permanent rates for 2023. Current rates for the utilities were approved on an interim basis, pending the outcome of Stage 1 of this Generic Cost of Capital proceeding.

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The proceeding will now move onto Stage 2, which will determine the cost of capital for other utilities in BC. Stage 2 begins in November 2023.

To learn more about the proceeding or the BCUC’s decision, please visit the proceeding webpage or see Order G-236-23.

Background

The BCUC is responsible for ensuring that shareholders of the utilities it regulates are afforded a reasonable opportunity to earn a fair return on their invested capital, per section 59 of the Utilities Commission Act.

In January 2021, the BCUC established an open and transparent public proceeding to review the Generic Cost of Capital for public utilities as there have been changes in the financial markets since the BCUC’s last review in 2016. In its previous Generic Cost of Capital proceedings in 2016 and 2013, the BCUC set a return based on a benchmark utility, where other utilities are compared to the benchmark to adjust for their own risk profile. Fortis Energy Inc. has served as the benchmark utility since 2013.

To review a fair rate of return for public utilities, the BCUC holds an open proceeding where the public, interveners, regulated utilities, and finance experts are invited to participate. The BCUC reviews the information filed by all parties to determine what is a fair return for public utilities in BC.

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About the BCUC 

The BCUC is an independent regulatory body, responsible for regulating BC’s energy utilities, compulsory automobile insurance rates, and intra-provincial pipeline rates. It is the BCUC’s role to balance the interests of ratepayers with the interests of the businesses it regulates. The BCUC carries out fair and transparent reviews of matters within its jurisdiction and considers public input where public interest is impacted. The BCUC is also the Administrator of BC’s Fuel Price Transparency Act and is responsible for collecting and publishing information about gasoline and diesel activities in BC, in an effort to promote competitiveness and public confidence in the fuel market.

CONTACT INFORMATION 

Krissy Van Loon
Manager, Communications
Phone: 604.660.4727
Email: Krissy.VanLoon@bcuc.com

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