COST OF SHORT-TERM DEBT

Transcription

1 Filed: EB-0-0 Schedule Page of COST OF SHORT-TERM DEBT.0 PURPOSE This evidence details OPG s annual short-term borrowing and associated costs for the bridge year and test period. It also provides actual short-term debt costs for 0 to 0..0 DESCRIPTION OF SHORT-TERM DEBT OPG s cost of short-term debt for the test period was determined using the methodology approved by the OEB in EB , EB and EB-0-0. The short-term debt component of OPG s capital structure reflects its forecast amount of short-term borrowings, and the cost of short-term debt reflects its forecast short-term borrowing cost. OPG s short-term debt is comprised of a commercial paper program backstopped by a bank credit facility. OPG s commercial paper program is used to fund intra-month working capital requirements. OPG expects to continue to use this source of financing in the test period. OPG forecasts that a daily average borrowing of $0M is required to finance OPG s normalized intra-month working capital requirements in the test period. In addition, a bank credit facility continues to be used as the backstop to the commercial paper program. The bank credit facility also provides liquidity support in the event that OPG is unable to issue commercial paper as OPG would be able to borrow by way of bankers acceptances under the bank credit facility. Access to adequate liquidity is an important element that credit rating agencies consider when reviewing credit ratings. The bank facility is $B in size, comprised of two $00M multi-year tranches. In May 0, OPG extended both tranches to May 0. OPG does not expect any borrowing during the bridge or test periods under its accounts receivable securitization program.

2 Filed: EB-0-0 Schedule Page of SHORT-TERM DEBT COST OPG s borrowing rate under the commercial paper program is market-based, comprised of a 0 basis point dealer fee and a corporate spread over the bankers acceptances rate for OPG. The corporate spread forecast over the test period is based on the current corporate spread of basis points. Consistent with the approach used in EB and EB-0-0, OPG has used the Global Insight forecast as the basis for the bankers acceptances interest rate forecast after adjusting for the spread differential between bankers acceptances and the yield on treasury securities. The bankers acceptances rate used is 0. per cent for 0,. per cent for 07,.8 per cent for 08,.0 per cent for 09,. per cent for 00, and.0 per cent for 0. The bank credit facility is forecast to cost $.M in each of 0 to 0, which is a small increase over the actual cost in 0. As in EB , EB and EB-0-0, these costs are included with OPG s short term debt costs, as the bank credit facility is required to support OPG s commercial paper program. Ex. C-- Table summarizes OPG s forecast company-wide cost of short-term debt..0 ALLOCATION TO REGULATED OPERATIONS For the test period, OPG has used the same allocation methodology approved by the OEB in EB , EB and EB-0-0. In summary, the ratio of the construction work in progress and non-cash working capital amounts (fuel inventory and materials/supplies) for OPG s regulated operations to the total construction work in progress and non-cash working capital amounts reported in OPG s audited financial statements is used as the basis for allocating company-wide short-term borrowing. This allocation ratio reflects OPG s use of short-term borrowing to finance its working capital requirements and to assist with managing the cash flow variability of capital projects.

3 Filed: EB-0-0 Schedule Page of For all company-wide short-term borrowing prior to December, 0, the allocation ratio is determined based on actual year-end values in the corresponding years. Consistent with the approach approved in EB , EB and EB-0-0, OPG continues to use the most recent available audited information to determine the allocation factor for the company s short-term debt for 0 to 0. The calculation of the allocation ratio for 0 to 0 is provided in Ex. C-- Table.

4 Numbers may not add due to rounding. Filed: EB-0-0 Schedule Table Table Capitalization and Cost of Capital Allocation of Existing Short-term Debt ($M) Line No. Asset Note Company-Wide: Amount (a) (b) (c) Adjusted Construction Work-In-Progress (CWIP),.9,87.,9.9 CWIP Using Short-term Project Financing (,98.) Fuel Materials/Supplies... CWIP + Non Cash Working Capital,99.,7.9,7.7 Regulated Operations: Adjusted Construction Work-In-Progress (CWIP) 8.,70.7,9.7 7 Fuel Materials/Supplies CWIP + Non Cash Working Capital,0.0,.9,. 0 Total Regulated/Company-Wide CWIP + Non Cash Working Capital (line 9/ line ) 80.% 9.% 9.7% Notes: Newly regulated hydroelectric assets are not included in 0 as they were not prescribed until 0, and are included starting in 0. Ex. C-- Table, line Relates wholly to OPG's unregulated operations. Ex. C-- Table, line 8 From Ex. B-- Table, col. (b). Sum of Ex. B-- Table, col. (b) (Nuclear) and the Regulated Hydroelectric closing balance reflected in actual rate base.

5 Numbers may not add due to rounding. Filed: EB-0-0 Schedule Table Table Capitalization and Cost of Capital Summary of OPG's Actual and Forecast Cost of Short-term Debt ($M) Line No. Description (a) (b) (c) (d) (e) (f) (g) (h) (i) Commercial Paper Amount Interest Rate.7%.0%.0% 0.79%.%.7%.7%.80%.% Commercial Paper Cost Facility Cost Total Short-term Debt Cost (line + line ) Regulated Portion of Short-Term Debt Allocation Factor 80.% 9.% 9.7% 9.7% 9.7% 9.7% 9.7% 9.7% 9.7% 7 Short Term Debt Amount (line x line ) Short-term Debt Cost (line x line ) Notes: Actual daily weighted average balance shown for 0 to 0. Working Capital funding with commercial paper is assumed to be outstanding for the first 0 days of each month in the forecast period. 0 value is from EB-0-0, L-.0-, Staff-00, Att., Table, Note. Allocation factor determined at Ex. C-- Table line allocation is based on 0 actual allocation.