ARCHIVED – 2014 Rate of Return on Common Equity (ROE) per Discontinued RH-2-94 Formula
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File OF-Tolls-TollsGen-RRCE 0801
5 December 2013
On 8 October 2009, the National Energy Board (Board) released its decision on the review of its 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 continue to publish this ROE value in 2009 and 2010 and, if requested by parties, beyond 2010.
In its letter of 2 December 2011, the Board indicated it will publish the ROE results pursuant to the discontinued RH-2-94 Formula for calendar years until 2014.
In calculating the ROE for 2014, the Board relied on an average 10-year Government of Canada bond yield forecast of 2.95 per cent (Source: November 2013 Consensus Forecasts). To this forecast, the Board added 57 basis points, which was the average yield differential between the 10- and 30-year Government of Canada bonds observed during the month of October 2013 (Source: Bank of Canada). This calculation produced a forecast 30-year Government of Canada bond yield of 3.52 per cent for 2014, which is 93 basis points higher than the 2.59 per cent forecast yield used in the ROE calculation for 2013. The yield differential of 93 basis points was multiplied by 0.75, producing an upward adjustment of 70 basis points to the 2013 ROE of 7.23 per cent. For the convenience of parties, the ROE for 2014 as determined in accordance with the discontinued RH-2-94 Formula is 7.93 per cent.
Secretary of the Board
2014 Rate of Return on Common Equity (ROE) per Discontinued RH-2-94 Formula [Filing A55792]
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