In previous posts we have discussed support for the
consolidation of electricity utilities in the province from both
the OEB and the government of Ontario. The handbook is
intended to provide guidance on the process for review of
consolidation applications by the OEB, the information needed in
support of an application and the approach the OEB will take in
assessing the merits of any proposed consolidation in meeting the
public interest. The handbook is relatively concise. However, a few
of the key topics covered in the handbook are summarized below.
The "No Harm Test"
The OEB will continue to apply the "no harm" test in
reviewing consolidation applications as developed in the 2005 Combined Proceeding decision. In applying the
"no harm" test, the OEB primarily focuses its review on
impacts of the proposed transaction on the price and quality of
service to customers, as well as, the cost effectiveness, economic
efficiency and financial liability of the electricity distribution
Price & Adequacy, Reliability and Quality of Service
In order to demonstrate that a proposed consolidation will have
"no harm" to the price paid by customers, applicants must
show that there is a reasonable expectation, based on the
underlying cost structures of the utilities, that the costs to
serve the acquired customers following consolidation will be no
higher than they otherwise would have been, both now and in the
Utilities are expected to deliver continuous improvement for
both reliability and service quality. Under the "no harm"
test, applicants must be able to demonstrate that this continuous
improvement is expected to carry on after consolidation.
Promoting Economic Efficiency and Cost Effectiveness &
The OEB will assess the impact of the proposed consolidation on
the economic efficiency and cost effectiveness of a utility by
evaluating those aspects of utility operations identified by an
applicant where it is expected that consolidation will result in
sustained operational efficiencies.
Improvement in financial strength is one of the expected
underlying benefits of consolidation. The OEB will consider the
impact of a transaction on the ongoing financial viability of the
acquiring or consolidated entity. In the context of a utility
purchase, the selling price of a utility is relevant under the
"no harm" test only for the purpose of determining
whether or not the price and any premium paid above the historic
book value of the assets involved will create a financial burden on
the acquiring company. Such premiums over historic value are not
recoverable through distribution rates and a utility will not be
permitted to earn any return on them.
The handbook incorporates rate-making policies set out in the
OEB's two-part report, Rate-making Associated with Distributor
Consolidation. Incremental transaction and
integration costs associated with consolidation are generally not
recoverable through rates. Distributors have advised the OEB that
these costs are often significant and may constitute a barrier to
consolidation. In response to these concerns, the OEB allows
distributors to defer rebasing for up to 10 years after
consolidation so as to allow distributors to fully realize the
anticipated efficiency gains and offset the costs of the
transaction. Further details on the OEB's rate-making
consolidation report and policies can be found in an earlier post
on the topic
The handbook sets out detailed filing requirements for
consolidation applications, including what documents are and are
not relevant to assessing whether the transaction is in the public
interest. Applications filed with the OEB must include
certification by a senior officer of the applicant that the
evidence filed is accurate, consistent and complete to the best of
his or her knowledge.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Canada is a constitutional monarchy, a parliamentary democracy and a federation comprised of ten provinces and three territories. Canada's judiciary is independent of the legislative and executive branches of Government.
The Government of Alberta recently announced a number of policy changes that will impact the Alberta Electricity Market, composed of its generators, transmitters, distributors, retailers, electricity consumers and wholesale electricity market.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).