First, from a perspective, it is hard to understand why customer’s the customer should pay the Companies 12.86 percent when home mortgage rates and bank prime rates are under 4 percent. Some credit card rates are lower than the proposed charges Companies’ in this proceeding. Second, the proposals are based on Companies’ what it would claim in a base rates proceeding, rather than what it could reasonably be expected to achieve. I am confident that other rate of return experts in a fully litigated proceeding would take issue with the claims. Companies’ OSBA Statement No. 1, at 7-8 (footnote omitted). Consequently, Mr. Knecht proposed a series of changes to cost of capital UGI’s assumptions, as follows: However, in order to avoid an extensive debate on the cost of capital in this proceeding, I propose to rely on industry averages for debt and equity costs. Because GET program investments are incremental, I rely on the industry average incremental cost of debt, as measured by current utility bond yield of 4.75 Moody’s percent. For the equity cost of capital, I suggest that industry averages for regulator approved returns be used. Based on my analysis in base rates case at Docket No. Columbia’s the average equity return awarded to NGDCs in the 2011-2012 period was 9.92 percent, a value that has been dropping slowly over the past several years. I have therefore used 9.92 percent. Regarding the debt to capital ratio, I use a simple average of the three debt to capital ratios Companies’ of 46.46 percent (recognizing that the Companies propose the same overall investment level for each Company). With these adjustments, the incremental pre-tax WACC Companies’ [weighted average cost of capital] would be still far 11.28 percent, in excess of home equity and business prime lending rates. at 8 (footnotes omitted) (emphasis added). Id., In his surrebuttal testimony, Mr. Knecht updated his assumptions for more current information: The St. Louis Federal Reserve reports that current (August 2013 Monthly) AAA Corporate bond yields are 4.52 percent Moody’s
First, from a customer’s perspective, it is hard to understand why the customer should pay the Companies 12.86 percent when home mortgage rates and bank prime rates are under 4 percent. Some credit card rates are lower than the Companies’ proposed charges in this proceeding. Second, the Companies’ proposals are based on what it would claim in a base rates proceeding, rather than what it could reasonably be expected to achieve. I am confident that other rate of return experts in a fully litigated proceeding would take issue with the Companies’ claims. OSBA Statement No. 1, at 7-8 (footnote omitted). Consequently, Mr. Knecht proposed a series of changes to UGI’s cost of capital assumptions, as follows: However, in order to avoid an extensive debate on the cost of capital in this proceeding, I propose to rely on industry averages for debt and equity costs. Because GET program investments are incremental, I rely on the industry average incremental cost of debt, as measured by Moody’s current utility bond yield of 4.75 percent. For the equity cost of capital, I suggest that industry averages for regulator approved returns be used. Based on my analysis in Columbia’s base rates case at Docket No. the average equity return awarded to NGDCs in the 2011-2012 period was 9.92 percent, a value that has been dropping slowly over the past several years. I have therefore used 9.92 percent. Regarding the debt to capital ratio, I use a simple average of the three Companies’ debt to capital ratios of 46.46 percent (recognizing that the Companies propose the same overall investment level for each Company). With these adjustments, the Companies’ incremental pre-tax WACC [weighted average cost of capital] would be 11.28 percent, still far in excess of home equity and business prime lending rates. Id., at 8 (footnotes omitted) (emphasis added). In his surrebuttal testimony, Mr. Knecht updated his assumptions for more current information: The St. Louis Federal Reserve reports that current (August 2013 Monthly) Moody’s AAA Corporate bond yields are 4.52 percent