A recent decision of the Ontario Energy Board addressed
a series of issues arising from the acquisition and renovation of a
building for office and storage purposes by Milton Hydro
Distribution Inc. In its consideration of the regulatory treatment
of the issues arising from Milton Hydro's real estate
transactions, the Board said that the over-arching principle
embedded in its performance-based outcomes approach is whether a
utility is asking the Board to approve outcomes that customers
Using the performance-based outcomes approach to assess the
implications of the acquisition and renovation of building space by
Milton Hydro led the Board to conclude that two outcomes had no
value to customers. First, the Board found that office space was
created that exceeds Milton Hydro's reasonable requirements
over the planning horizon. Second, the Board found that incremental
"premium" costs incurred by Milton Hydro for indoor
storage space as a substitute for outdoor storage represent an
outcome of no value to customers. The Board reduced rate base to
reflect its findings regarding office space and indoor storage
space and it also disallowed Operation, Maintenance and
Administration (OM&A) costs relating to this space.
Further, the Board found that Milton Hydro had realized an
inappropriately low sale value for a property rendered redundant by
the acquisition of the new property and, on this basis, determined
that the capital gain from the sale of the redundant property was
higher than presented by Milton Hydro. The entire amount of the
capital gain, as recalculated by the Board, was applied as a credit
or reduction to the rate base value of the new property. The Board
said that, "This regulatory treatment is most appropriate
where one parcel of land acquired for future use is replaced with
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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.
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