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Notice to Public on Commission’s Response to DOMLEC for WACC

On June 18th, 2015 \\ Posted in: News, Regulation \\ by \\ 0 Comment \\ Tags: ,

Tough Decisions Ahead Road Sign

Notice for Public Information on the Commission’s Response to DOMLEC’s Application for Reconsideration of the IRC’s Decision Document Weighted Average Cost of Capital for Dominica Electricity Services Limited (DOMLEC) – Document Reference 2015/001/D

Take notice that the Commission has responded to DOMLEC on its Petition for Reconsideration of the Decision of the Independent Regulatory Commission on Weighted Average Cost of Capital (Document Reference 2015/001/D), which was issued on April 23rd, 2015.

THE RESPONSES ARE AS FOLLOWS:

  • Decision 1: DOMLEC’s capital structure shall be 40% debt and 60% equity for the tariff period 2015 – 2017.
    DOMLEC requested 33.1% debt and 66.9% equity

    The Commission’s Response: DOMLEC’s Request was denied and Decision One (1) is being upheld as per Document Reference 2015/001/D.

  • Decision 3: The Commission determined that the risk free rate shall be the US 10 Year Treasury Bond rate as at December 2014 – that is 2.17%
    DOMLEC requested a US 30 Year Treasury Bond rate as 3.34%

    The Commission’s Response: DOMLEC’s Request was denied and Decision three (3) is being upheld as per Document Reference 2015/001/D.

  • Decision 4: The Commission proposes that there will be no risk premium due to DOMLEC’s size
    DOMLEC requested a risk premium for size

    The Commission’s Response: DOMLEC’s Request was denied and Decision Four (4) is being upheld as per Document Reference 2015/001/D.

  • Decision 5: The Commission will use the group of 35 companies in power sector used by Professor Damodaran as the proxy utilities.
    DOMLEC proposed 15 power utilities

    The Commission’s Response: DOMLEC’s Request was denied and Decision Five (5) is being upheld as per Document Reference 2015/001/D.

  • Decision 6: The Commission determines the Mature Market Risk Premium of 5.21%, stated by Professor Damodaran as the implied equity risks approach.
    DOMLEC requested a Risk Premium of 8%.

    The Commission’s Response: DOMLEC’s Request was denied and Decision Six (6) is being upheld as per Document Reference 2015/001/D.

  • Decision 7: The Commission has determined that, based on the results of the application of the DCF and CAPM methodologies, DOMLEC’s cost of equity for the tariff period shall be 10.44%
    DOMLEC requested 14.5%

    The Commission’s Response: DOMLEC’s Request was denied and Decision Seven (7) is being upheld as per Document Reference 2015/001/D.

  • Decision 8: The Commission has determined that the WACC to be applied to DOMLEC’s regulatory asset base shall be 8.56%
    DOMLEC requested 11.6%

    The Commission’s Response: DOMLEC’s Request was denied and Decision Eight (8) is being upheld as per Document Reference 2015/001/D.


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