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

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20091231-0037 FERC PDF (Unofficia1) 12/29/2009 Direct Testimony of Michael J. Vilbert Docket ER 10-_-000 Page 21 of35 EXHIBIT NO. SCE-13 I 2 3 4 uncertainty, but it also increased because of the effect that the tunnoil had on investors' risk aversion. Even though the tunnoil has largely resided, neither investors' confidence in the market nor their wealth has returned to pre-crisis levels. As a result, the cost of capital is higher today than before the tunnoil in the capital market. 5 III. THE COMMISSION'S COST OF CAPITAL METHODOLOGY 6 Q33. How is this section of your testimony organized? 7 A33. This section first outlines the steps involved in selecting the sample companies used in 8 the samples. It also describes the discounted cash flow method in general and then 9 provides the specifics of the implementation of the Commission's preferred DCF 10 methodology. Finally, the results of my calculations are presented. A. THE PROXY GROUP 1. Selection of the Proxy Group II 12 Q34. Please explain what criteria you applied in selecting a proxy group. 13 A34. I have reviewed key Commission decisions and selected a sample of electric utilities 14 based on criteria typically used by the Commission?3 To be included in the sample, a 15 company (or its holding company) must operate in the southeastern portion of the U.S.;24 23 My sample selection procedures for the Proxy Group are derived from review of various decisions, including Southern California Edison Company, 92 FERC ~ 61,070 (2000) ("Opinion No. 445"); N.Y. State Elec. & Gas Corp., 92 FERC ~ 61,169 (2000) ("Opinion No. 447"), order on reh'g, 100 FERC ~ 61,021 (2002) ("Opinion No. 447-A"), reh 'g denied, 101 FERC ~ 61,037 (2002) ("Opinion No. 447-B"), order on reh 'g, 103 FERC ~ 61,321 (2003) ("Opinion No. 447-C"); Devon Power LLC, 103 FERC ~ 61,155 (2003); Midwest Indep. <strong>Transmission</strong> Sys. Operator, Inc., 100 FERC ~ 61,292 (2002), reh 'g denied, 102 FERC ~ 61,143 (2003), aff'd on remand, 106 FERC ~ 61,302 (2004); Bangor Hydro-Elec. Co., 117 FERC ~ 61,129 (2006), order on reh'g, 122 FERC ~ 61,265 (2008), order granting clarification, 124 FERC ~ 61,136 (2008) ("Opinion No. 489"); Trans-Allegheny Interstate Line Co., 119 FERC ~ 61,219 (2007), reh'g denied, 121 FERC ~ 61,009 (2007); Southern California Edison Company, 122 FERC ~ 61,187 (2008); Golden Spread Elec. Coop., Inc., e/ al., v. Southwestern Public Service Co., 123 FERC ~ 61,047 (2008) (Opinion No. 501) ("Golden Spread'); and PATH, 122 FERC ~ 61,188. 24 The southeastern U.S. is defined to include Virginia, Tennessee, Kentucky, North Carolina, South Carolina,
20091231-0037 FERC PDF (Unofficia1) 12/29/2009 Direct Testimony of Michael J. Vilbert Docket ERIO- -000 Page 22 of35 EXHIBIT NO. SCE-13 2 3 4 5 6 be publicly-traded and have available recent price and dividend data; pay dividends; have an investment grade credit rating; have available growth rate data from Value Line or I/B/E/S (or comparable sources);25 and not be involved in recent. current or forecasted merger activity for the six-month period used to calculate the dividend yield. Also, any companies whose operations are primarily related to natural gas transmission or distribution are excluded from the sample. 7 Q35. 8 A35. 9 10 II 12 13 14 15 16 17 Please describe your selection of the Proxy Group. I started with a universe of electric utility companies listed under the Central, East and West Electric Utilities industry groups generated by Value Line Investment Survey. I eliminated cooperatives, municipality-owned companies and state agencies. Of the remaining companies, I then determined each member company's parent holding company and eliminated those that were not publicly traded or that had no data available from Bloomberg. Additionally, companies with either a dividend cut or substantial M&A activity over the most recent six month period were excluded. Application of these criteria resulted in a universe of 49 companies. Of these 49 companies, I then restricted the sample to include only companies that own transmission assets in the southeastern U.S. Table 2 below shows the remaining 14 companies that constitute the Full Sample. Georgia, Alabama, Mississippi, Arkansas, Louisiana, Texas and Florida. 25 I rely upon Bloomberg for analyst forecasts of earnings growth rates instead of I1BIE/S because IIB/E/S long-term growth rates are accessible only for subscribers to Thomson Financial. I also use Value Line estimates.
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64 FERC ER07-169 Ameren Energy Mark
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