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

20091231-0037 FERC PDF (Unofficia1) 12/29/2009
Direct Testimony of Michael J. Vilbert
AppendixB
Docket No. ERIO- -000
EXHIBIT
NO. SCE-IS
Page B-9
QI2.
2
3 A12.
4
5
6 Q13.
7 A13.
8
9
10
II
12
13
14
IS
16
17 Q14.
18 A14.
19
20
21
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23
Is the sustainable growth rate the only growth rate you use in your implementatiou
of the Commission's preferred DCF model?
No. Consistent with the Commission's practice, I also estimate a version of the model
where g is set equal to the long-term earnings growth rates provided by securities analysts.
My source for security analysts' forecasts is Bloomberg through their BEst Estimates. 13
How is the dividend yield determined?
In the Commission-based methodology, Po is the stock price calculated as the average of
the highest and lowest closing common stock price over the most recent six month period.
In other words, the low dividend yield is the annualized current quarterly dividend, (i.e.,
the current dividend times 4), divided by the average of the highest closing prices over
the most recent six months, and the high dividend yield is the annualized dividend
divided by the average of the lowest closing prices over the most recent six months. The
result of combining the high and low dividend yields with the two estimates of the
dividend growth rate is four estimates of the cost of equity for each sample company.
The highest (lowest) of the four estimates is reported as the high (low) estimate for the
company which in tum are used to establish the range of reasonableness for the sample.
How is the growth rate determined?
The estimate of g is either the average long-term (5-year) analyst growth rate forecast or
the sustainable growth rate as calculated in Equation (B-5) above where b is the expected
retention ratio, r is the expected return on common equity, s is the expected growth in the
number of common equity shares, and v is the accretion ratio.
The procedure in the testimony of Commission staff witnesses Randolph A.
Barlow l4 and Franklin D. KnightlS to implement the DCF model confirms that I
13 BEst is Bloomberg's version of analyst forecasts comparable to l/B/E/S.
14 Prepared Direct Answering Testimony of Commission Staff Witness Randolph A. Barlow, Pacific Gas and
Electric Company, Dockets Nos. ER03-409-000, ER03-666-000, October 17,2003.
15 Direct Testimony of Commission Staff Witness Franklin D. Knight, Allegheny Power, Docket No. ER02-
136-004, November 25, 2002.