EXHIBIT 5 COST OF CAPITAL

Transcription

1 EXHIBIT COST OF CAPITAL 09 Cost of Service Chapleau Public Utilities Corporation EB Page of

2 EB Cost of Service Inc August, 08. TABLE OF CONTENTS Table of Contents.... Capital Structure.... OEB Appendix -OA Capital Structure / Cost of Capital.... OEB Appendix -OB Cost of Instruments Cost of Capital Capital Structure Return on Weighted Average Cost of Long-Term Short-Term Notional... Appendices... Page of

3 EB Cost of Service Inc August, 08 Table of Figures Table - Overview of Capital Structure... Table - OEB Appendix -OA Capital Structure/Cost of Capital... Table - OEB Appendix -OB Cost of Instruments... 8 Table - Derivation of WACC... 9 Page of

4 EB Cost of Service Inc August, CAPITAL STRUCTURE In this Exhibit, CPUC presents evidence regarding its capital structure, its debt financing and the calculation of its return on equity for the 09 Test Year. CPUC seeks to recover a weighted average cost of capital of.0% through rates in the 09 Test Year. CPUC has followed the Report of the Board on Cost of Capital for Ontario s Regulated Utilities, December, 009, as well as the Review of the Existing Methodology of the Cost of Capital for Ontario s Regulated Utilities, January, 0, in determining the applicable cost of capital. In calculating the applicable cost of capital, CPUC has used the OEB s deemed capital structure of % long-term debt, % short-term debt, and 0% equity, and the Cost of Capital parameters in the OEB s letter of November, 0, for the allowed return on equity ( ROE ). CPUC is not seeking any changes in its Capital Structure from its 0 Board Approved Structure. CPUC understands that the OEB will most likely update the ROE for 09 at a later date, and therefore commits to updating its Application to reflect the OEB s updated Cost of Capital Parameters for 09 applications and as new information is issued, to the extent that updated information is applicable to the Application. MFR Statement that LDC adopts OEB's guidelines for cost of capital and confirms that updates will be done. Alternatively - utility specific cost of capital with supporting evidence MFR Explanation for any changes in capital structure Page of

5 EB Cost of Service Inc August, 08 CPUC s cost of capital for 08 & 09 has been calculated as.0% as shown in the table below: Table - Overview of Capital Structure Particulars Cost Rate (%) Long-term.% Short-term.9% Total.0% Common 9.00% Preferred Shares Total 9.00% WACC.0% 8 All rates above are consistent with the letter issued by the OEB on November, 0. For ratemaking purposes, the utility used a weighted debt rate of.0% as a long-term debt rate. Retirements of debt or preference shares and buy-back of common shares; and Short-Term, Long-Term, preference shares as well as common share offerings do not apply to CPUC as the CPUC does not issue any preference shares and common equity shares. MFR Calculation of cost for each capital component MFR - If proposing any rate that is different from the OEB guidelines, a justification of the proposed rate(s), including key assumptions MFR Completed Appendix -OA for last OEB approved and test year Page of

6 EB Cost of Service Inc August, 08. OEB APPENDIX -OA CAPITAL STRUCTURE / COST OF CAPITAL Appendix -OA below presents the capital structure for the last Board Approved and Test year. Table - OEB Appendix -OA Capital Structure/Cost of Capital Year : Particulars Capitalization Ratio Cost Rate Return Long-term.00% $980,9.% $0,8 Short-term.00% () $0,0.9% $,0 Total 0.0% $,00,0.0% $,90 Common 0.00% $00,0 9.00% $,08 Total 0.0% $00,0 9.00% $,08 09 Total 00.0% $,0,.0% $0, Year : Particulars Capitalization Ratio Cost Rate Return Long-term.00% $,0,.% $,9 Short-term.00% () $,.08% $,0 Total 0.0% $,08,.% $,00 Common 0.00% $,0 9.% $,8 Total 0.0% $,0 9.% $,8 08 Total 00.0% $,80,8.0% $,9 Year : 0 Long-term.00% $89,.% $9, Short-term.00% () $,08.08% $, Total 0.0% $90,.% $0,89 Common 0.00% $0,8 9.% $8,0 Total 0.0% $0,8 9.% $8,0 Total 00.0% $,00,9.0% $99, MFR Completed Appendix -OA for last OEB approved and test year Page of

7 EB Cost of Service Inc August, 08 Year: 0 Long-term.00% $90,.% $, Short-term.00% () $8,0.08% $, Total 0.0% $,09,08.% $,8 Common 0.00% $8,0 9.% $,8 Total 0.0% $8,0 9.% $,8 Total 00.0% $,,8.0% $0, Year: 0 Long-term.00% $9,.% $, Short-term.00% () $,9.08% $,9 Total 0.0% $,00,8.% $, Common 0.00% $9, 9.% $,00 Total 0.0% $9, 9.% $,00 Total 00.0% $,,0.0% $0,80 Year: 0 Particulars Capitalization Ratio Cost Rate Return Long-term.00% $9,9.% $,8 Short-term.00% () $8,9.08% $, Total 0.0% $,0,.% $,0 Common 0.00% $89,8 9.% $,89 Total 0.0% $89,8 9.% $,89 Total 00.0% $,,09.0% $0,908 Year: 0 Particulars Capitalization Ratio Cost Rate Return Long-term.00% $90,8.% $9,8 Short-term.00% () $,.08% $, Total 0.0% $98,09.% $,90 Common 0.00% $,0 9.% $8,8 Total 0.0% $,0 9.% $8,8 Total 00.0% $,,.0% $00,0 Page of

8 EB Cost of Service Inc August, 08 Year: 0 Board Approved Particulars Capitalization Ratio Cost Rate Return Long-term.00% $,08.% $,0 Short-term.00% () $,.08% $, Total 0.0% $8,9.% $,9 Common 0.00% $, 9.% $0,9 Total 0.0% $, 9.% $0,9 Total 00.0% $,8,.0% $8,88 Year: 0 Board Approved Particulars Capitalization Ratio Cost Rate Return Long-term.00% $8,88.% $, Short-term.00% () $0,9.08% $,8 Total 0.0% $90,0.% $8,0 Common 0.00% $0,9 9.% $,8 Total 0.0% $0,9 9.% $,8 Total 00.0% $,,8.0% $9, Page 8 of

9 EB Cost of Service Inc August, 08. OEB APPENDIX -OB COST OF DEBT INSTRUMENTS CPUC used the deemed debt rate for the purpose of rate making. However, CPUC does not have any debt therefore OEB Appendix -OB is not required. Table - OEB Appendix -OB Cost of Instruments Year 09 Long Term Description Lender Affiliated or Third-Party? Fixed or Variable- Rate? Start Date Term (years) Principal ($) Rate (%) (Note ) Interest ($) (Note ) Nil Nil Nil Nil Nil Nil Nil Nil nil MFR Completed Appendix -OB for historical, bridge and test years Page 9 of

10 EB Cost of Service Inc August, 08. COST OF CAPITAL This evidence summarizes the capital structure, method, and cost of financing CPUC s capital requirements for CAPITAL STRUCTURE The proposed rates for the cost of capital in 08 & 09 are presented in Section. Table. The rates shown for short-term, long-term debt and return on equity are those set out in the Board s letter of November, 0 Cost of Capital Parameter Updates for 09 Cost of Service Applications RETURN ON EQUITY CPUC has used a ROE of 9.00% for 08 & 09 as established by the Board for Cost of Service applications with a January/May, 09 implementation date. CPUC recognizes that the ROE will be updated by Board guidelines and as such commits to updating the cost capital parameters as new information is made available... WEIGHTED AVERAGE COST OF DEBT CPUC proposes a weighted average cost of debt of.0% which is based on the calculations as set out in the table below. Table - Derivation of WACC Particulars Cost Rate (%) Long-term.% Short-term.9% Total.0% Common 9.00% Preferred Shares Total 9.00% Total WACC.0% 8 Page 0 of

11 EB Cost of Service Inc August, LONG-TERM DEBT CPUC is not forecasting any debt in 08 & 09. However, it is likely that the utility will need to obtain long term debt in the near future if studies and analysis of the current substation show that it will need to be replaced. If this event occurs, the utility will seek long-term debt from either a financial institution or Infrastructure Ontario. CPUC does not have any promissory notes to present 8 CPUC is not forecasting any new long-term debt in the bridge and test year other than the debt explained above SHORT-TERM DEBT CPUC does not forecast that it will redeem any debt and has not issued any preference shares. Hence CPUC does not record either a profit or loss on redemption of debt and preference shares. CPUC is not forecasting any new debt in the bridge and test years. Not-For-Profit CPUC is a for profit entity corporation and as such all requirements related to a not-for-profit organization do not apply. 0 MFR Explanation of debt rate for each existing debt instrument 8 MFR - Copies of promissory notes or other debt arrangements with affiliates 9 MFR Forecast of new debt in bridge and test year - details including estimate of rate 0 MFR Not for profit evidence N/A Page of

12 EB Cost of Service Inc August, 08.. NOTIONAL DEBT The OEB clarified the treatment of notional debt (that portion of deemed debt exceeding a utility s actual debt), where notional debt is used as the plug to true up actual debt to the allowed debt thickness for rate-setting purposes. Notional debt can be either positive (i.e. deemed debt is greater than actual debt) or negative (where deemed debt is less than actual debt). The profit on debt is calculated to be $,90 is detailed at Table below. Capitalization Ratio Actual Cost Rate Return Capitalization Ratio Notional Cost Rate Return.00% $0.% $0.00% $980,9.% $0,8.00% $0.9% $0.00% $0,0.9% $,0 0.0% $0.0% $0 0.0% $,00,0.0% $,90 MFR - Profit or loss on redemption of debt Page of

13 EB Cost of Service Inc August, 08 APPENDICES n/a No debt Page of