ROBERT J. PELLATT COMMISSION SECRETARY Commission.Secretary@bcuc.com web site: http://www.bcuc.com VIA FACSIMILE Mr. C.P. Donohue Director, Regulatory Affairs & Gas Supply Pacific Northern Gas Ltd. 950 - 1185 West Georgia Street Vancouver, B.C. V6E 4E6 Mr. Scott Thomson Vice President, Finance and Regulatory Affairs Terasen Gas Inc. 16705 Fraser Highway Surrey, B.C. V3S 2X7 Dear Sirs: Re: Return on Common Equity for a Low Risk Benchmark Utility for the Year 2004 Pursuant to the BCUC Decision dated June 10, 1994 regarding Return on Common Equity and attached Order No. G-35-94 as amended by Order No. G-80-99 and Order No. G-109-01, the Commission has determined that 9.15 percent is the appropriate return on common equity for a low risk benchmark utility in the year 2004. The calculation and other documentation in support of this finding are attached. The appropriate ROEs in 2004 for individual utilities will incorporate the risk premium for each utility relative to the low-risk benchmark. Each utility is required to submit an application for approval to the Commission to vary its rates in line with the determinations made in this letter. JWF/cms Attachments cc: Mr. R. Brian Wallace Bull, Housser & Tupper Mr. Richard Gathercole, Executive Director The British Columbia Public Interest Advocacy Centre MiscCor/Return on Common Equity 2004 LETTER NO. L-57-03 SIXTH FLOOR, 900 HOWE STREET, BOX 250 VANCOUVER, B.C. CANADA V6Z 2N3 TELEPHONE: (604) 660-4700 BC TOLL FREE: 1-800-663-1385 FACSIMILE: (604) 660-1102 November 20, 2003 Mr. George Isherwood Regulatory Affairs Executive Aquila Networks Canada (British Columbia) Ltd. P.O. Box 130 Trail, B.C. V1R 4L4 Mr. Geoffrey Higgins Manager, Regulatory Affairs Terasen Gas (Vancouver Island) Inc. 1675 Douglas Street P.O. Box 3777 Victoria, B.C. V8W 3V3 Yours truly, Original signed by: Constance M. Smith for: Robert J. Pellatt Mr. Richard Stout, Chief Regulatory Officer British Columbia Hydro and Power Authority Mr. J.D.V. Newlands, President Pacific Western Energy Products & Services Inc.
LETTER NO. L-57-03 Attachment Page 1 of 2 CALCULATION OF ALLOWED 2004 RATE OF RETURN ON COMMON EQUITY FOR A LOW-RISK BENCHMARK UTILITY (PER COMMISSION ORDER NO. G-80-99, AS AMENDED BY ORDER NO. G-109-01) A forecast of long-term Canada bonds is developed based on the Consensus Economics forecast of 10-year bonds (step 1) and the observed spread between 10- and 30-year bonds over a defined period (step 2). This establishes a forecast yield for long Canada bonds (step 3). 1. Ten Year Canada Bond Yield – end of February, 2004 5.000% (Consensus Economics, November 2003 Consensus Forecast) Ten Year Canada Bond Yield – end of November, 2004 5.300% (Consensus Economics, November 2003 Consensus Forecast) Average of 3 and 12 Month Forecasts 5.150% 2. Add Yield Spread Between 10-Year (June 1, 2013; 5.25%) and 30-Year (June 1, 2033; 5.75%) for all Trading Days in October, 2003. 0.497% 3. Equals Forecast Yield on Long-Term Canada Bonds 5.647% Where the forecast yield is greater than 6.0 per cent, the sliding scale applies to the difference between 6.0 per cent and the forecast yield, and this amount is added to 9.5 per cent. Where the forecast yield is 6.0 percent or below, no sliding scale adjustment is applied and the equity risk premium is fixed at 3.50 percent (step 4). The equity risk premium is added to the forecast Long Canada yield to determine the unrounded allowed ROE (step 5). The unrounded ROE in percentage terms is rounded to the nearest 2 decimal places (step 7). 4. Equity Risk Premium when the forecast Long Canada Yield is 6.0% or below 3.500% 6. Unrounded Allowed ROE 9.147% 7. Rounded Allowed ROE 9.15%
LETTER NO. L-57-03 Attachment Page 2 of 2 2004 ROE Determination -- 10 to 30 Year Spreads 10 yr. 30 yr. Spread Trading Days in October Yield Yield (basis points) 1-Oct 4.55 5.12 57 2 4.60 5.15 55 3 4.75 5.26 51 6 4.72 5.25 53 7 4.79 5.30 51 8 4.76 5.28 52 9 4.83 5.32 49 10 4.82 5.30 48 14 4.91 5.38 47 15 4.97 5.43 46 16 5.02 5.47 45 17 4.93 5.40 47 20 4.88 5.36 48 21 4.86 5.33 47 22 4.80 5.29 49 23 4.85 5.35 50 24 4.79 5.29 50 27 4.83 5.32 49 28 4.78 5.30 52 29 4.85 5.36 51 30 4.90 5.38 48 31 4.84 5.33 49 Average Spread 49.7 Note: Source: 10 yr. Bond is Canada June 1, 2013; 5.25% Financial Post 30 yr. Bond is Canada June 1, 2033; 5.75% October 2, 2003 - November 1, 2003
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.