ARCHIVED - 2012 Rate of Return on Common Equity (ROE) per Discontinued RH-2-94 Formula
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2 December 2011
On 8 October 2009, the Board released its decision on the review of the RH-2-94 Decision, finding that there was a doubt as to the ongoing correctness of the RH-2-94 Decision and determining that it would no longer be in effect. The Board indicated that because some settlements between pipeline companies and shippers reference the ROE generated by the RH-2-94 Formula, the Board would publish this ROE value in 2009 and 2010 and if requested by parties, beyond 2010.
On 6 October 2011, the Board received a request to provide the 2012 ROE result in accordance with the RH-2-94 Formula. The Board will publish the ROE results pursuant to the discontinued RH-2-94 Formula for calendar years until 2014 unless parties ask the Board to extend this practice further.
In calculating the ROE for 2012, the Board relied upon an average 10-year Government of Canada bond yield forecast of 2.45 percent (Source: November 2011 Consensus Forecasts). To this forecast, the Board added 61 basis points, which was the average yield differential between the 10- and 30-year Government of Canada bonds observed during the month of October 2011 (Source: Financial Post). This calculation produced a forecast 30-year Government of Canada bond yield of 3.06 percent for 2012, which is 66 basis points lower than the 3.72 percent forecast yield used in the ROE calculation for 2011. The yield differential of 66 basis points was multiplied by 0.75, producing a downward adjustment of 50 basis points to the 2011 ROE of 8.08 percent. For the convenience of parties, the ROE for 2012 as determined by the discontinued RH-2-94 Formula is 7.58 percent.
2012 Rate of Return on Common Equity (ROE) per Discontinued RH-2-94 Formula [Filing A37437]
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