The National Energy Board (NEB) has charted a new course for
cost of capital determination. In a decision released on March 19,
2009 regarding the 2007 and 2008 cost of capital of Trans
Québec & Maritimes Pipeline Inc. (TQM), Decision
RH-1-2008 (TQM Decision), the NEB departed from its long-standing,
formulaic methodology and adopted a market-based approach for TQM,
based on an After Tax Weighted Average Cost of Capital (ATWACC)
methodology. Stikeman Elliott acted as counsel to TQM.
The TQM Decision has potentially significant ramifications for
other pipelines regulated by the NEB and for the returns allowed to
other regulated utilities in Canada.
Cost Of Capital - Background
Regulation is a surrogate for competition in the determination
of the price that a regulated utility may charge for its services.
The major elements of that price are (1) operating, maintenance and
administrative expenses, (2) depreciation (return of capital) and
(3) cost of capital - the
