The Commission’s cost of capital analysis has considered and accounted for the regulatory risk that these companies have compared to other enterprises having corresponding risks, and that no increase to the cost of equity is necessary in this case. The 5.88% equity risk premium figure is supported by the evidence. It is not necessary to adopt a single, overall weighted cost of capital for all ten CHCF-A recipient companies. A 10.80% cost of equity is reasonable for each company. We have not been persuaded that risk,” or “industry-specific,” “regulatory risk” premiums should be added to the CAPM calculation for equity “liquidity returns. The average returns of the Small LECs are commensurate with returns on investment in other enterprises having corresponding risks. We have not been persuaded that any of the alleged regulatory risks are not already adequately addressed through other regulatory means. We have not been persuaded that a 20% to 25% multiplier for liquidity risk is necessary and we do not include such a multiplier in the cost of equity calculation. The five-year average capital structure of the ten Applicants is 69.76% equity to 30.24% debt. The actual five-year average capital structure of the ten Applicants is very close to the 70/30 hypothetical structure recommended by Applicants. A reasonable capital structure for a small telephone company is between 60% and 80% equity.
The Commission’s cost of capital analysis has considered and accounted for the regulatory risk that these companies have compared to other enterprises having corresponding risks, and that no increase to the cost of equity is necessary in this case. The 5.88% equity risk premium figure is supported by the evidence. It is not necessary to adopt a single, overall weighted cost of capital for all ten CHCF-A recipient companies. A 10.80% cost of equity is reasonable for each company. We have not been persuaded that “industry-specific,” “regulatory risk,” or “liquidity risk” premiums should be added to the CAPM calculation for equity returns. The average returns of the Small LECs are commensurate with returns on investment in other enterprises having corresponding risks. We have not been persuaded that any of the alleged regulatory risks are not already adequately addressed through other regulatory means. We have not been persuaded that a 20% to 25% multiplier for liquidity risk is necessary and we do not include such a multiplier in the cost of equity calculation. The five-year average capital structure of the ten Applicants is 69.76% equity to 30.24% debt. The actual five-year average capital structure of the ten Applicants is very close to the 70/30 hypothetical structure recommended by Applicants. A reasonable capital structure for a small telephone company is between 60% and 80% equity.