Regulatory Risk: The allowed ROE and capital structure at Newfoundland Power have been set for 2013 through 2015 and remain unchanged from 2012. Newfoundland Power plans to file an application in May 2013 to obtain final approval for customer electricity rates, effective January 1, 2013, commencing in July 2013 for collection from customers.
Final allowed ROEs and capital structure for 2013 remain outstanding for FortisBC and FortisAlberta. The results of cost of capital proceedings could materially impact the earnings of the above-noted utilities.
PBR commenced at FortisAlberta for a five-year term, which began January 1, 2013. In March 2013 interim distribution electricity rates under PBR were approved by the AUC in addition to the recovery, on an interim basis, of 60% of the revenue requirement associated with 2013 capital tracker expenditures applied for by FortisAlberta. While the AUC's 2012 PBR decision provides for a capital tracker mechanism to address recovery of certain capital expenditures outside of the PBR formula, the mechanism has yet to be tested to confirm its applicability to FortisAlberta's capital programs. Final decisions on FortisAlberta's rates are expected in the second half of 2013.
For further information, refer to the "Material Regulatory Decisions and Applications" section of this MD&A.
Completion of the Acquisition of CH Energy Group: Fortis announced in February 2012 that it had entered into an agreement to acquire CH Energy Group for US$65.00 per common share in cash, for an aggregate purchase price of approximately US$1.5 billion, including the assumption of approximately US$500 million of debt on closing. CH Energy Group is an energy delivery company headquartered in Poughkeepsie, New York. Its main business, Central Hudson, is a regulated transmission and distribution utility serving approximately 300,000 electric and 75,000 natural gas customers in eight counties of New York State's Mid-Hudson River Valley. Approval of the acquisition by the PSC is the last significant matter required to close the transaction. A Settlement Agreement among Fortis, CH Energy Group, PSC Staff, registered interveners and other parties was filed with the PSC in January 2013. The parties to the Settlement Agreement have concluded that, based on the terms of the Settlement Agreement the acquisition is in the public interest and have recommended approval by the PSC. The deadline for submission of public comments in the proceeding was extended to May 1, 2013 by the PSC. On May 3, 2013 administrative law judges issued a Recommended Decision in connection with the acquisition asserting that without modification of the terms of the Settlement Agreement, the benefits of the acquisition are outweighed by perceived detriments remaining after mitigation. The Recommended Decision is an advisory opinion that will be considered by the PSC in determining whether to approve the acquisition. Submissions responding to the Recommended Decision are due by May 17, 2013 with responses to such submissions due by May 24, 2013. Fortis intends to engage in further discussions to obtain PSC approval of the acquisition. While no assurance regarding closing of the transaction can be given until an order is issued by the PSC, a final decision from the PSC regarding the acquisition and subsequent closing of the transaction is expected in June 2013. Based on the terms of the current Settlement Agreement, the acquisition is expected to be accretive to earnings per common share of Fortis within the first full year of ownership, excluding acquisition-related expenses.
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