Canadian utility providers know they must gain more control over operating costs to secure rate increase approvals from regulators, according to KPMG's Between the Regulator and a Hard Place. "Across Canada, regulators at all levels are pushing back on rate increase requests, and insisting providers demonstrate a strategic approach to cost-cutting before agreeing to further rate increases," said Tom Vandeloo, Partner and National Cost Optimization Leader, KPMG in Canada. "Utility companies insist that rate increases are critical to funding infrastructure renewal. Despite their efforts to cut costs, regulators are pushing for formalized cost-optimization programs and, more importantly, results." With this trend as a backdrop, KPMG undertook a survey of Canadian generation, transmission, and distribution companies from coast-to-coast to see how they viewed the situation, how they are dealing with the pressure to cut costs and what they see as the most important issues and response measures. Key survey findings include:
• Eighty-six percent of respondents cited the need for capital investment in infrastructure renewal and expansion as the number one reason for requesting rate increases, with rising operating expenses as the second (67 percent)
• Over 62 percent of respondents have sought rate increases in excess of three percent over the past three years, and regulators have granted that level of increase less than half the time
• Sixty-two percent of respondents noted reducing operations, maintenance, and administration costs as the number one cost-cutting measure in light of regulator push-back, with cutting capital programs (38 percent) and eliminating staff (29 percent) as other key cost-cutting measures
• Ninety-five percent of respondents felt the level of regulator resistance to rate increases was moderate to high, with only five percent declaring it low
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