In December 2009, the Ontario Energy Board released a Report on the Cost of Capital for Ontario’s Regulated Utilities (EB-2009-0084). In the 2009 Report, the Board indicated that it will continue to use a formula-based equity risk premium approach to determine Return on Equity for regulated utilities. The Board also indicated that the Long Canada Bond Forecast continues to be an appropriate base for the equity risk premium determination. However, in order to ensure that the formulaic approach accommodates changing economic and financial conditions, the Board decided to refine and re-set the formula-based ROE approach.

In the 2009 Report, the Board said that it will periodically review the formulaic ROE adjustment mechanism and that a review period of five years is appropriate. In 2014, Board Staff commenced a review of the results of the current policy since its inception at the end of 2009, the actual financial results of rate-regulated utilities and the performance of the existing policy in relation to expected outcomes.

Board Staff’s Report summarizing its review of the cost of capital policy was issued on January 14, 2016. In the course of the work that underlies the 2016 Report, Board Staff reviewed the actual results achieved by Ontario’s rate-regulated utilities and it conducted a jurisdictional review of approaches to cost of capital followed by other regulators in Canada, the United States, the United Kingdom and Australia. Board Staff also considered other aspects of the regulation of utilities under the OEB’s jurisdiction, including Multi-Year Applications and the use of Deferral and Variance Accounts.

Board Staff concluded that the OEB’s cost of capital policy has worked as intended, that movement in the parameters has followed macroeconomic trends and activity, and that the approach has not resulted in excessive or anomalous volatility. Board Staff noted that, to the extent that volatility was observed in the financial performance of utilities, this was largely due to factors other than the effect of the cost of capital policy.