SCEG OATT Formula Transmission Rate Filing.pdf - SCANA ...

20091231-0037 FERC PDF (Unofficia1) 12/29/2009
Direct Testimony of Michael J. Vilbert
Docket ER I0-_-000
Page 15 of35
EXHIBIT
NO_ SCE-13
Table I. Percentage point spreads between U.S. Moody's Utility Bonds and U.S. Treasury Bonds (20
year maturity)
Moody's A-Rated Moody's BBB-Rated
Utility and Utility and
Periods Government Bonds Government Bonds Notes
Period I - Average Mar-2002 - Dec-2007 1.30 1.62 [I]
Period 2 - Average Sep-2008 . Sep-2009 2.37 3.54 [2]
Period 3 - Average Sep-2009 1.39 1.98 [3]
Period 4 - Average 15-Day (Sep. 9, 2009 to Sep. 2' 1.38 1.96 [4]
Spread Increase between Period 2 and Period 1 1.07 1.93 [5] ~ [2]- [I]
Spread Increase between Period 3 and Period 1 0.09 0.36 [6] ~ [3]- [I]
Spread Increase between Period 4 and Period 1 0.08 0.35 [7] ~ [4]- [I]
Source:
Spreads for the periods are calculated from Bloomberg's yield data.
Average daily yields for the indices were retrieved from Bloomberg as of September 30, 2009.
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Second, as noted earlier, the stock market plummeted in value as investors attempted to
move out of investments considered risky to those of lower risk. Increased risk aversion
translates into a requirement for an investment to provide a higher expected return for a
given level of risk. Under such circumstances, prices of investments fall until investors
can again expect to earn their (now higher) required rate of return. Of course, part of the
fall in prices is the result of a fall in expected cash flows, but it is also the result of
increased market risk and/or risk aversion.
8 Q28. How different is the overall economic environment now compared to other time
9 periods in which you have testified?
10 A28. We now live in a very different economic environment compared to one or two years
11 ago. The U.S. and world economies are slowly recovering from a state of recession
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triggered by the deep financial crisis that emerged from the U.S. housing bubble, and
from the use of sophisticated structures that concealed the true risk faced by the investors.
Stock markets are still down, and markets are only cautiously improving.
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More specifically, as Figure 2 below indicates, the S&P 500 index is now down by
approximately 20 percent compared to mid-2008, which represents a recovery from a loss
of about 50 percent earlier in the year.