evaluation. Additionally, both I&E and the OCA submitted that the Commission has indicated a preference for using the DCF method to establish reasonable common equity costs. As a result of its DCF analysis, I&E recommended a cost of common equity of 8.62%. I&E M.B. at 71. The OCA recommended an 8.50% return on common equity primarily based on the DCF model, including a full range of indicators of dividend yields and growth rates intended to reflect what investors actually use and consider. The OCA submitted that current market conditions support this return because the cost of capital in today’s market remains low. OCA M.B. at 54, 64. b. Recommended Decision The ALJs restated their recommendation that, consistent with Commission precedent, they would utilize the DCF method to set UGI’s rate of return on common equity and that they would utilize the CAPM as a comparison. The ALJs also restated that under the DCF method, their recommended dividend yield of 3.95% and growth rate of 5.85% produces a result of 9.80%. According to the ALJs, this appears reasonable as compared to their recommended forecasted CAPM of 9.83% and historic CAPM of 10.18% percent. Therefore, using the DCF result of 9.80% and the additional 0.20% management effectiveness adjustment that they recommended should be granted, the ALJs recommended a rate of return on common equity of 10.00% for UGI. The ALJs declined to add any further upward adjustments requested by the Company, finding this return to be reasonable. The ALJs pointed out that the average equity return for electric utilities was 9.75% in the first quarter of 2018, as compared to the average authorized equity return of 9.74% for all of 2017. R.D. at 89.
evaluation. Additionally, both I&E and the OCA submitted that the Commission has indicated a preference for using the DCF method to establish reasonable common equity costs. As a result of its DCF analysis, I&E recommended a cost of common equity of 8.62%. I&E M.B. at 71. The OCA recommended an 8.50% return on common equity primarily based on the DCF model, including a full range of indicators of dividend yields and growth rates intended to reflect what investors actually use and consider. The OCA submitted that current market conditions support this return because the cost of capital in today’s market remains low. OCA M.B. at 54, 64. b. Recommended Decision The ALJs restated their recommendation that, consistent with Commission precedent, they would utilize the DCF method to set UGI’s rate of return on common equity and that they would utilize the CAPM as a comparison. The ALJs also restated that under the DCF method, their recommended dividend yield of 3.95% and growth rate of 5.85% produces a result of 9.80%. According to the ALJs, this appears reasonable as compared to their recommended forecasted CAPM of 9.83% and historic CAPM of 10.18% percent. Therefore, using the DCF result of 9.80% and the additional 0.20% management effectiveness adjustment that they recommended should be granted, the ALJs recommended a rate of return on common equity of 10.00% for UGI. The ALJs declined to add any further upward adjustments requested by the Company, finding this return to be reasonable. The ALJs pointed out that the average equity return for electric utilities was 9.75% in the first quarter of 2018, as compared to the average authorized equity return of 9.74% for all of 2017. R.D. at 89.
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