REBUTTAL TESTIMONY ROBERT B. HEVERT ON BEHALF OF SOURCEGAS ARKANSAS INC.

Transcription

1 IN THE MATTER OF THE JOINT APPLICATION) OF SOURCEGAS ARKANSAS INC., SOURCEGAS INC., SOURCEGAS LLC, SOURCEGAS HOLDINGS LLC, AND BLACK HILLS UTILITY HOLDINGS, INC. FOR ALL NECESSARY AUTHORIZATIONS AND APPROVALS FOR BLACK HILLS UTILITY HOLDINGS, INC. TO ACQUIRE SOURCEGAS HOLDINGS LLC DOCKET NO U REBUTTAL TESTIMONY OF ROBERT B. HEVERT ON BEHALF OF SOURCEGAS ARKANSAS INC. SoureeGas Arkansas Inc. 655 E. Millsap Road Suite 104 Fayetteville, Arkansas Filed: December 2, 2015 Page 1 of 40

2 TABLE OF CONTENTS I. INTRODUCTION AND OVERVIEW 4 II. "OVERCAPITALIZATION" ADJUSTMENT 10 Overview 10 Subjective Nature of the "Overcapitalization" Adjustment. 14 Relationship Between Capital and Rate Base 20 Fungible Nature of Capital and Liabilities 26 Disincentives and Other Adverse Effects 30 III. BASIS OF RETURN ON EQUITY RECOMMENDATION 32 IV. MR. MARCUS' RECOMMENDED CONDITIONS 36 ATTESTATION 39 CERTIFICATE OF SERVICE 40 Page 2 of 40

3 EXHIBITS Exhibit Rebuttal Exhibit RBH-1 Rebuttal Exhibit RBH-2 Rebuttal Exhibit RBH-3 Rebuttal Exhibit RBH-4 Rebuttal Exhibit RBH-5 Rebuttal Exhibit RBH-6 Rebuttal Exhibit RBH-7 Rebuttal Exhibit RBH-8 Rebuttal Exhibit RBH-9 Rebuttal Exhibit RBH-10 Description Mr. Marcus' "Overcapitalization" Adjustment, Docket No U, Direct Testimony; Components of Capitalization and Rate Base Mr. Marcus' "Overcapitalization" Adjustment, Docket No U, Direct Testimony; Capitalization Effect Only Mr. Marcus' "Overcapitalization" Adjustment, Docket No U, Direct Testimony; Capitalization and Revised Cost Rates Mr. Marcus' "Overcapitalization" Adjustment, Docket No U, Surrebuttal Testimony; Components of Capitalization and Rate Base Mr. Marcus' "Overcapitalization" Adjustment, Docket No U, Surrebuttal Testimony; Capitalization Effect Only Mr. Marcus' "Overcapitalization" Adjustment, Docket No U, Surrebuttal Testimony; Capitalization Effect Only Summary of Mr. Marcus' Results Mr. Marcus' "Overcapitalization" Adjustment, Docket No U, Surrebuttal Testimony; Adjustment Based on Net Plant; Capitalization Effect Only Summary of Rate Proceedings Before the Arkansas Public Service Commission Proxy Group EBIT/interest Coverage Ratios Page 3 of 40

4 REBUTTAL TESTIMONY OF ROBERT B. HEVERT I. INTRODUCTION AND OVERVIEW 1 Q. Please state your name and affiliation. 2 A. My name is Robert B. Revert. I am Managing Partner of Sussex Economic Advisors, 3 LLC. 4 Q. On whose behalf are you submitting this testimony? 5 A. I am submitting this Rebuttal Testimony ("Rebuttal Testimony") before the Arkansas 6 Public Service Commission ("Commission") on behalf of 7 ("SGA" or the ""). 8 Q. Have you previously filed Direct Testimony in this proceeding? 9 A. No, I have not. 10 Q. Are you the same Robert Hevert that filed Direct, Rebuttal, and Sur-Surrebuttal 11 Testimony in SGA's current general rate case, Commission Docket No U? 12 A. Yes, I am. 13 Q. What is the purpose of your Rebuttal Testimony in this proceeding? 14 A. The purpose of my Rebuttal Testimony is to respond to portions of the Direct 15 Testimonies of Mr. William P. Marcus, and Dr. David E. Dismukes, both on behalf of the 16 Office of the Arkansas Attorney General. My Rebuttal Testimony focuses on two issues 17 discussed principally by Mr. Marcus, both of which he includes in the general category of Page 4 of 40

5 1 "Compliance Issues Related to Docket No U." 1 Although Dr. Dismukes refers to 2 those issues, he does so only in reference to Mr. Marcus' testimony. 2 Consequently, my 3 Rebuttal Testimony focuses on Mr. Marcus' Direct Testimony. 4 Q. Please describe your educational background. 5 A. I hold a Bachelor's degree in Business and Economics from the University of Delaware, 6 and an MBA with a concentration in Finance from the University of Massachusetts. I 7 also hold the Chartered Financial Analyst designation. 8 Q. Please describe your experience in the energy and utility industries. 9 A. I have worked in regulated industries for over twenty-five years, having served as an 10 executive and manager with consulting firms, a financial officer (Vice President and 11 Assistant Treasurer) of a publicly traded natural gas utility (at the time, Bay State Gas 12 ), and an analyst at a telecommunications utility. At Bay State Gas, I 13 was responsible for strategic and financial planning; treasury operations; issuing 14 securities, including testifying in support of securities issuances; evaluating capital 15 investments; and assisting in various aspects of investor relations activities. 16 In my role as a consultant, I have advised numerous energy and utility clients on a 17 wide range of financial and economic issues including corporate and asset-based 18 transactions, asset and enterprise valuation, transaction due diligence, dividend policy, 19 and strategic matters. As an expert witness, I have provided testimony in more than proceedings regarding various financial and regulatory matters, including financial and 21 regulatory issues relating to corporate transactions. A summary of my professional and 2 Public Direct Testimony of William Perea Marcus, at 18. Public Direct Testimony and Exhibits of David E. Dismukes, Ph.D., at 16. Page 5 of 40

6 1 educational background, including a list of my testimony in prior proceedings, is included 2 in Attachment A to my Direct Testimony. 3 Q. Please briefly summarize the points raised by Mr. Marcus in his Direct Testimony 4 that you will address in your Rebuttal Testimony. 5 A. My Rebuttal Testimony responds to Mr. Marcus' assertion in this docket that in Docket 6 No U (the 's pending general rate case), the violated the 7 Stipulation and Settlement Agreement approved by the Commission in Docket No U in two respects: (1) The "overcapitalized" its balance sheet and by doing 9 so, both raised the cost of capital, and enabled the recovery of "some" financial return on 10 a portion of its Goodwill balance; and (2) My Direct Testimony in Docket No U 11 referred to SourceGas LLC's credit rating "as a rationale for higher rates of retum" In connection with the asserted violations in Docket No, U, Mr. Marcus 13 offers two sets of recommendations as conditions of the Commission's approval of the 14 transaction at issue in this proceeding, the first regarding his "overcapitalization" 15 concern, and the second relating to SGA's parent company's credit rating. As to his 16 "overcapitalization" concern, Mr. Marcus recommends that in Docket No U, the 17 should be prohibited from including Goodwill 4 "on SGA's books"; and that in 18 any future rate proceeding, the successor company to SGA should not be allowed to 19 include Goodwill on SGA's books "when developing its capital structure or for any other 3 4 Direct Testimony of William Perea Marcus, at Throughout the balance of my Rebuttal Testimony, I refer to "Goodwill" as the balance of "Excess Acquisition Costs GW", account number in the 's Schedule E.1.2 (which totaled $107,730,914). Generally speaking, "Goodwill" represents the excess of the purchase price over the book value. Page 6 of 40

7 1 purpose". 5 In particular, Mr. Marcus recommends that if, in any future rate proceeding, 2 capitalization exceeds rate base, the "financial capital" (which he defines as debt and 3 equity) portion of the 's capital structure should be reduced proportionately, 4 such that total capital equals the rate base. 6 5 Regarding the cost of capital to be used in future rate proceedings, Mr. Marcus 6 recommends that the Commission retain "a prohibition" against the use of the holding 7 company's financial position and credit rating, and SGA's parent company's financial 8 position and credit rating, as support for recommended returns on either debt or equity.' 9 Q. Please now provide a summary of the observations contained in your Rebuttal 10 Testimony. 11 A. My principal observations are as follows: 12 a Mr. Marcus' proposed "overcapitalization" adjustment is highly subjective. Not 13 only did Mr. Marcus change the method of calculation during the pendency of 14 Docket No U, he has not validated the principal assumption on which is 15 adjustment is based, i.e., that every dollar of capital in excess of rate base can be 16 assigned to Goodwill. Moreover, Mr. Marcus' adjustment would penalize the 17 simply because the Commission has chosen to set rates under the 18 Modified Balance Sheet Approach, not because of any financing decision it may 19 or may not have made. 5 Public Direct Testimony of William Perea Marcus, at Ibid. Ibid. Page 7 of 40

8 1 Mr. Marcus' adjustment is predicated on his assumption that capital is fungible, 2 but for the capital supporting Goodwill. That assumption, however, runs counter 3 to the long-standing finding that all capital is fungible. In addition, Mr. Marcus' 4 adjustment requires that debt and equity equal to the amount of the capital 5 surplus 8 should be reduced assuming a capital structure of percent common 6 equity, and percent debt. Mr. Marcus has not identified, however, how the 7 transaction that gave rise to the Goodwill balance was financed. If, as Mr. 8 Marcus suggests, the capital supporting Goodwill was not fungible, and was 9 financed in a manner other than 50/50 (equity/debt), Mr. Marcus' adjustment 10 would reflect still another level of subjectivity. 1 1 It is quite common for natural gas utilities to have capital balances in excess of 12 their rate base. Mr. Marcus' adjustment, therefore, would penalize the 13 for a relationship that is common among its peers. 14 Mr. Marcus' "overcapitalization" adjustment may create disincentives to pursue 1 5 low-cost financing opportunities, and likely would diminish measures of financial 16 integrity. The consequence would be to frustrate the 's ability to 17 compete for capital with other natural gas utility companies, 18 Although Mr. Marcus is correct that I referred to SourceGas LLC's credit rating 19 in my Direct Testimony in Docket No U, he is incorrect that in doing so I 20 sought a "higher rate of return". Mr. Marcus therefore is mistaken when he 21 concludes that my testimony in that docket contained a "flagrant" violation of the 8 That is, the capital that Mr. Marcus believes is assigned to Goodwill. Page 8 of 40

9 1 Stipulation and Settlement Agreement approved by the Commission in Docket 2 No U. 3 Given its subjective nature, its premise that capital fungibility does not apply, and 4 its likely dilutive effect on the 's financial profile, I disagree with Mr. 5 Marcus' recommendation that Commission's approval in this docket should be 6 conditioned on the requirement to enforce "overcapitalization" adjustments in 7 future rate proceedings. 8 I agree that rates for companies such as SGA should be set on a stand-alone basis. 9 I disagree, however, that doing so necessarily requires a prohibition against 10 reviewing the credit ratings and metrics of parent or holding companies. To the 11 extent those ratings reasonably reflect the ongoing risks attendant to natural gas 12 utility operations, they may be reasonable data points. 13 Lastly, please note that the absence of a response in my Rebuttal Testimony to 14 any particular point raised by Mr. Marcus in his Direct Testimony in this proceeding, or 15 in his testimony in Docket No U, should not be interpreted as agreement with 16 that point. 17 Page 9 of 40

10 II. "OVERCAPITALIZATION" ADJUSTMENT 1 Overview 2 Q. Please provide a brief summary Mr. Marcus' position regarding his proposed 3 "overcapitalization" adjustment. 4 A. Mr. Marcus first points to Paragraph 4B of the Stipulation and Settlement Agreement 5 approved by the Commission in Docket No U (the " Settlement 6 Agreement"), which states that SourceGas LLC and AWG "agree that the cost of capital 7 as currently reflected in AWG's rates shall not be adversely affected as a result of the 8 acquisition." He then makes two observations: (1) there remains an approximately $107 9 million balance of Goodwill on the 's balance sheet; and (2) under "Staff's 10 case" filed in Docket No U, the 's "total capitalization" exceeds its rate 11 base by some $66.5 million. 12 Mr. Marcus argues that because the 's total capitalization exceeded its 13 rate base, it has "overcapitalized" its balance sheet and, therefore, has "adversely affected 14 the cost of capital" by assigning ADIT, CAOL and deposits to Goodwill. He reasons that 15 by doing so, the has violated paragraph 4B of the Settlement 16 Agreement. 9 In particular, Mr. Marcus argues that, under the Modified Balance Sheet 17 Approach (the "MBSA"), "having more equity and debt capital than necessary for utility 18 operations in order to finance goodwill (as SGA has attempted to do in Docket No U) does adversely affect (raise) the cost of capital for SGA, thus violating the [Order 9 Ibid., at 21. Page 10 of 40

11 1 No. 4 in Docket No U]." 1 Mr. Marcus further argues that laissigning zero-cost 2 capital to fund goodwill also has the effect of allowing SGA to recover some financial 3 return on the portion of its goodwill"" again, in violation of Paragraph 4B. 4 In essence, Mr. Marcus asserts that because its financial capitalization exceeds its 5 rate base, 12 the has assigned all sources of capital to Goodwill, thereby 6 violating the Settlement Agreement in two respects: (1) it has increased the 7 overall cost of capital to ratepayers by diluting the amount of zero-cost capital applied to 8 the rate base; and (2) it has recovered "some financial return" on its Goodwill balance. 9 To support his position, Mr. Marcus argues that although the Commission has 10 found that "all capital is fungible in financing the company, goodwill is an exception." He notes that when SourceGas LLC acquired the (then, Arkansas Western Gas, 12 or "AWG") from Southwestern Energy ("SWN"), the purchase price exceeded "the 13 utility's regulated rate base minus ADIT, CAOL, and deposits" at closing. Mr. Marcus 14 further states that the difference was funded with debt and equity alone, 14 although he 15 does not identify the proportions or amounts of either debt or equity used for that 16 purpose. Lastly, Mr. Marcus states that but for the Commission's use of the MBSA, the Dr) Ibid., at 19. (clarification included) t Ibid., at 21. [clarifications added] 12 As discussed below, Mr. Marcus has changed his definition of both capital and assets, as they relate to his "overcapitalization" adjustment. 13 Public Direct Testimony of William Perea Marcus, at 20. Please note that in page 20, Mr, Marcus refers to total capitalization and rate bases balances of $421.7 million and $354.2 million, respectively. The difference between the two is $67.5 million, not $66.5 million (as noted on page 20, line 5 of Mr. Marcus' testimony in this proceeding). The $66.5 million amount is consistent with the figure calculated in Table 1, below, and consistent with Mr. Marcus' Exhibit WPM-5, Table 1 to his direct testimony in this proceeding. 14 Public Direct Testimony of William Perea Marcus, at 20. "ADIT" refers to Accumulated Deferred Income Taxes "CAOL" refers to Current, Accrued and Other Liabilities. Page 11 of 40

12 Docket No, U Rebuttal Testimony of Robert B. Revert 1 "overcapitalization would not exist, because the excess financial capital would be pro- 2 rated down to the revised lower rate base." 15 3 Q. As a preliminary matter, did the include Goodwill in its rate base in 4 Docket No U? 5 A. No, it did not, 16 nor has Mr. Marcus asserted as much. Rather, Mr. Marcus' position is 6 limited to his view that the has "assigned" zero-cost capital to Goodwill and 7 that by doing so, it has increased its overall cost of capital, and has recovered "some 8 financial return" on its Goodwill balance. 9 Q. What are your specific concerns with Mr. Marcus' analyses and conclusions? 10 A. First, Mr. Marcus' proposed adjustment assumes that every surplus dollar of capital 11 (however defined) over assets (however defined) is directly assigned to Goodwill. As 12 discussed in my Rebuttal Testimony in Docket No U, there are many reasons 13 why capital may exceed assets. And as discussed in more detail below, it is very 14 common among natural gas utilities for capital to exceed net utility plant, or for total 15 capital to exceed rate base. That a surplus exists does not demonstrate that zero-cost 16 capital has been directly assigned to Goodwill, as Mr. Marcus assumes. In effect, Mr. 17 Marcus' adjustment is based on a broad assumption that he has not validated: that capital 18 in excess of rate base can be assigned to Goodwill. His assumption certainly is not Public Direct Testimony of William Perea Marcus, at 20. See, Docket No U, SourceGas Arkansas, Schedule E.1.1. See, also, Docket No U, Direct Testimony of W.B. Marcus, at 11. There, Mr. Marcus notes that Goodwill cannot be included in the rate base, Page 12 of 40

13 Docket No, U 1 supported by industry practice and experience. Still, rather than validating his 2 assumption, Mr. Marcus argues that it is up to the to disprove it." 3 Second, over the course of his testimony in Docket No U, Mr. Marcus 4 rather significantly changed his definition of "overcapitalization", with no stated rationale 5 other than had he not done so, his adjustment would have been even larger. Putting aside 6 the premise of his adjustment in the first instance, that change in method indicates a 7 degree of subjectivity that exposes the to considerable uncertainty and risk. 8 Third, Mr. Marcus' proposal assumes that capital is fungible, except for capital 9 supporting Goodwill. As discussed below, however, the Commission has long held that 10 capital and liabilities are fungible. Moreover, in prior proceedings Commission Staff 11 ("Staff") has not recommended an "overcapitalization" adjustment, nor has the 12 Commission applied one even when Mr. Marcus' two conditions had been met (that is, 13 capital exceeds rate base, and the subject company has a Goodwill balance on its balance 14 sheet). Consequently, Mr. Marcus' recommendation represents a marked change from 15 prior Commission practice. 16 Fourth, Mr. Marcus acknowledges that but for the MBSA, there would be no 17 "overcapitalization" adjustment. Mr. Marcus' adjustment therefore penalizes the 18 because of the regulatory framework in which it operates, not because of any 19 action it has or has not taken. Here again, the basis of Mr. Marcus' "overcapitalization" 20 adjustment, and the nature of its application are highly subjective. 17 Docket No U, Surrebuttal Testimony of William B. Marcus, at 6. Page 13 of 40

14 1 Lastly, putting aside the subjective nature of his proposal, Mr. Marcus' 2 adjustment would dilute the 's financial integrity relative to its peers, and may 3 provide a disincentive for utilities such as SGA to pursue low-cost financing 4 opportunities. 5 Subjective Nature of the "Overcapitalization" Adjustment 6 Q. Please now describe the method by which Mr. Marcus calculated his 7 "overcapitalization" adjustment. 8 A. Mr. Marcus notes that in Docket No U, the total capitalization in Staff's Direct 9 case is $421.4 million, relative to a rate base amount of $354.9 million. The difference 10 between the two, $66.5 million, is the amount that Mr. Marcus refers to as "excess 11 capital". 18 The derivation of that $66.5 million amount is provided in Mr. Marcus' 12 Surrebuttal Testimony in Docket No U, a portion of which he included as 13 Exhibit WPM-5 to his Direct Testimony in this docket. I have reproduced Mr. Marcus' 14 calculation in Table 1, below. 15 Table 1: Mr. Marcus' Excess Ca italization Calculation 19 Line Item Amount Notes 1 Rate Base $ 354,863,882 GPF-2 2 Net Plant in Service $ 301,691,764 GPF Financial Capital 5 Long-term Debt $ 148,563,336 SDT-1 6 Short-term Debt 24,184,729 SDT-1 7 Common Equity 172,748,066 SDT-1 8 Total Financial Capital $ 345,496,131 L5+L6+L ADIT $ 37,089,343 SDT-1 11 Other Items 38,815,230 SDT Ibid., at 9. "GPF-2" refers to Direct Exhibits of Gail P. Fritchman, Exhibit GPF-2, Docket U. "SDT-1" refers to Direct Exhibits of Shannon D. Todd, Exhibit SDT-1, Docket U. Page 14 of 40

15 All Capitalization Excess All Capitalization over Rate Base Total Financial Capital Plus ADIT in excess of Net Plant $ 421,400,704 $ 66,536,822 80,893,710 L10+ L11 L12 -Li L8 44,10 - L2 2 3 Q. Is the calculation from Mr. Marcus' Surrebuttal Testimony in Docket No U consistent with the approach that Mr. Marcus applied in his Direct Testimony in 4 that docket? 5 A, No, it is not. In his Direct Testimony, Mr. Marcus defined "overcapitalization" as the 6 difference between the sum of debt, equity, and ADIT on the one hand, and net plant on 7 the other. In his Surrebuttal Testimony, Mr. Marcus defined "overcapitalization" as the 8 difference between total capital and the rate base. Table 2 (below) summarizes the 9 differences between his two approaches. 10 Table 2: Components of Overcapitalization Ad ustment Item Direct Testimony ( W 0 Surrebuttal Testimony ( u)21 Components of Capital Long-Term Debt Preferred Stock Common Equity Accumulated Deferred Income Taxes Pre-1971 ADITC Post-1970 ADITC Customer Deposits Short-Term/Interim Debt Current, Accrued, and Other Liabilities Capital Leases Definition of Assets 20 Docket No U, Direct Testimony of W. B. Marcus at 12, Docket No U, Surrebuttal Testimony of W. B. Marcus, at 9 (Table 1);, Direct Testimony of William Perea Marcus, Attachment WPM-5, at 9. Page 15 of 40

16 1 Net Plant in Service Working Capital Items 2 As Mr. Marcus noted, had he maintained the method of calculation used in his Direct 3 Testimony, the "overcapitalization" amount in his Surrebuttal Testimony would have 4 been $80.9 million (an increase of $14.3 million; see Table 1, above). 5 Q. Did Mr. Marcus explain the basis for his changed definition of "overcapitalization" 6 between his Direct and Surrebuttal Testimonies (in Docket No U)? 7 A. Other than noting that his proposed adjustment is smaller under the revised method than 8 it would have been under his original approach (i.e., $66.5 million versus $80.9 million), 9 he did not Q. Are the components of capital used to calculate the "overcapitalization" adjustment 11 in Mr. Marcus' Surrebuttal Testimony in Docket No U consistent with his 12 discussion of "overcapitalization" in this proceeding? 13 A. No, they are not. In his Direct Testimony in this docket, Mr. Marcus states that "having 14 more equity and debt capital than necessary for utility operations in order to finance 15 goodwill (as SGA has attempted to do in Docket No U) does adversely affect 16 (raise) the cost of capital for SGA..." 23 That is, Mr. Marcus defines "capital" as the sum See Exhibit WPM- 5, at 8. Public Direct Testimony of William Perea Marcus, at 19. Emphasis added Page 16 of 40

17 1 of debt and equity. His $66.5 million adjustment, however, depends on all sources of 2 capital (including zero-cost capital items) Q. Are you able to calculate the range of adjustments that flow from the various 4 methods of calculation discussed above? 5 A. Yes. The effect of the changes summarized in Table 2, together with the change in 6 capitalization ratios, is to reduce Mr. Marcus' recommended overall after-tax Rate of 7 Return from percent (as provided in his Direct Testimony in Docket No U) to percent (the result of his Surrebuttal calculation in Docket No U), a 9 difference of approximately 22 basis points. 25 On a pre-tax basis, Mr. Marcus's proposal 10 reduces his proposed overall rate of return from percent to percent, a 11 reduction of approximately 32 basis points (again, from his Direct Testimony in Docket 12 No U). 26 Assuming the $354.9 million rate base amount included in Mr. 13 Marcus' analysis, that 32 basis point reduction in the pre-tax rate of return produces a 14 $1.149 million reduction in the 's revenue requirement Public Direct Testimony of William Perea Marcus, at 20; see also Exhibit WPM-5, at 9. Aside from the changes discussed above, I recognize that Mr. Marcus' "overcapitalization" adjustment reflects changes in the proportions by which debt and equity balances were adjusted from the capital structure. In both cases, Mr. Marcus maintained the percent equity ratio, but reduced the Long-Term Debt ratio from percent to percent (with a corresponding increase to the short-term debt ratio) between his Direct and Surrebuttal Testimonies. I understand that Mr. Marcus' percent long-term debt ratio reflects Staffs position in Docket No U, which was included in the Stipulation and Settlement Agreement in that docket. See Exhibit WPM-5, at 9. See Exhibit WPM-5, at 9. $1.149 million = % x $354,863,882. The difference between $1.149 million and the $1.125 million reported by Mr. Marcus appears to be due to rounding in the rate of return calculation. Page 17 of 40

18 1 Table 3: Changes in Mr. Marcus' Approae hes in Docket No U 28 DIRECT TESTIMONY SURREBUTTAL TESTIMONY DIFFERENCE Total Capitalization $ 377,253,812 $ 421,400,704 $ 44,146,892 Total Assets $ 338,643,689 $ 354,863,882 $ 16,220,193 "Overcapitalization" Amount $ 38,610,123 $ 66,536,822 $ 27,926,699 Rate Base $ 393,026,975 $ 354,863,882 $ 27,926,699 Capitalization Ratios for Adjustment Long-Term Debt 49.00% 43.00% -6.00% Short-Term Debt 1.00% 7.00% 6.00% Common Equity 50.00% 50.00% 0.00% Pre-Tax Return (%) Capitalization Effect Only % % % Capitalization and Cost Rates % % % After-Tax Return (%) Capitalization Effect Only % % % Capitalization and Cost Rates % % % Reduction in Pre-Tax Return from Position (%) Capitalization Effect Only % % % Capitalization and Cost Rates % % % 2 3 Q. 4 5 A Reduction in Pre-Tax Return from Position ($) Capitalization Effect Only (717,004) $ (2,181,227) $ (1,464,223) Capitalization and Cost Rates $ (5,599,383) $ (6,205,075) $ (605693) What would have been the effect on Mr. Marcus' adjustment if he had maintained the method of calculation from his Direct to his Surrebuttal Testimony? As noted in Table 1 (and as Mr. Marcus observed), the adjustment amount would have been approximately $80.9 million. Holding all else equal, the pre-tax rate of return would have fallen to percent, and the revenue requirement (in dollar amounts) would have decreased by approximately $2.53 million (relative to the $717,000 discussed in Mr. Marcus' Exhibit WPM-4, see also Rebuttal Exhibit RBH-8). 28 See, Rebuttal Exhibits RBH-1 through RBH-6. Page 18 of 40

19 Docket No, U 1 Q. Do you have any further observations regarding Mr. Marcus' method of 2 calculation? 3 A. Yes, I do. In his Direct Testimony in Docket No U, Mr. Marcus referred to the 4 adjusted after-tax and pre-tax returns of percent and 9,014 percent, respectively, 5 which reflected his capitalization adjustment and the 's recommended capital 6 cost rates. Mr. Marcus observed that the effect of those rates is a reduction to the 7 's pre-tax return of approximately $717, In his Surrebuttal Testimony, 8 however, Mr. Marcus noted that the "impact of overcapitalization is to reduce the total 9 rate of return by 21 basis points (32 basis points after tax) with [his] recommended return 10 on equity and debt and Staff's capital structure." 30 That is, Mr. Marcus changed his point 11 of reference from the 's filed position (in his Direct Testimony) to his prior 12 position (in his Surrebuttal Testimony). 13 Relative to the 's filed position (that is, his original point of reference), 14 Mr. Marcus' Surrebuttal recommendation would reduce the after-tax return to percent, and the pre-tax return to percent; those adjustments reflect decreases of and 62 basis points, respectively. 31 In dollar terms, Mr. Marcus' adjustment would 17 reduce the 's revenue requirement by approximately $2.18 million. Taking into 18 account Mr. Marcus' recommended cost rates, his revised recommendation would reduce 29 Exhibit WPM-4, at Exhibit WPM-5, at 9. [clarification added]. Please note that Mr. Marcus appears to have reversed his references to the before and after-tax rate of return. The corresponding amounts are noted in Table 3 as bold text. 31 Relative to the 's filed after and pre-tax returns of percent and percent, respectively. See, also, Rebuttal Exhibit RBH-5. Page 19 of 40

20 1 the 's revenue requirement by approximately $6.2 million from its filed position 2 (see Table 3, and Rebuttal Exhibit RBH-6). 3 Q. What are your principal observations and conclusions regarding the methods by 4 which Mr. Marcus calculated his recommended "overcapitalization" adjustment? 5 A. My principal observation is that from his Direct Testimony to his Surrebuttal Testimony 6 (in Docket No U) Mr. Marcus changed the fundamental premise of his 7 calculation with no explanation other than the adjustment was smaller than it otherwise 8 would have been. My conclusion is that because Mr. Marcus believes that any difference 9 between capitalization and assets is directly assignable to Goodwill, changing the 10 definition of both terms (that is, capitalization and assets) suggests a level of subjectivity 11 that renders his approach highly questionable Relationship Between Capital and Rate Base 14 Q. Do you agree with Mr. Marcus that any difference between total capital and rate 15 base is assignable to Goodwill? 16 A. No, I do not. In my Rebuttal Testimony in Docket No U, I provided an example 17 demonstrating why it is quite understandable that capitalization would not equal rate 18 base. 32 In that example, the factors explaining the difference between the two relate to 19 differences among depreciation rates, the amortization rates of debt, and the retention of 20 equity. There may well be other factors, but the point is that "assigning" the surplus to 21 Goodwill, as Mr. Marcus proposes, is problematic. Although Mr. Marcus felt the 32 Docket No U,, at Page 20 of 40

21 Docket No, U 1 example in my Rebuttal Testimony was removed from the specific circumstances of that 2 docket, he did not explain why, given those factors, any difference between total capital 3 and assets, however defined and whenever measured, necessarily is directly assignable to 4 Goodwill. Rather, he simply assumed that to be the case. 5 Q. What is the relevance of Mr. Marcus' assumption that the surplus of capital over 6 net plant is "assigned" to Goodwill? 7 A. If Mr. Marcus chooses to recommend an adjustment in the order of $2.20 million (see 8 Table 3), he should be very clear as to how each of the 66,536,822 dollars that gave rise 9 to his adjustment can only be attributed to Goodwill. He has not done so. Rather, he has 10 made a broad assumption and suggests that it is the 's responsibility to disprove 11 that assumption. Mr. Marcus' adjustment overlooks the fact that capital often exceeds 12 rate base, even for companies other than SGA. That is, Mr. Marcus' "overcapitalization" 13 adjustment would penalize the for a relationship that is typical among its 14 p eers Q. Have you reviewed the relationship between capital and assets within the proxy 16 companies used in your analyses in Docket No U? 17 A. Yes, I have. To be consistent in that review, I focused on the definitions of plant and 18 capitalization used in Mr. Marcus' Direct Testimony. 34 Based on data provided by SNL 19 Financial (for the year 2014), J calculated "Net Plant" as the sum of Net Utility Plant and 20 Non-Current Gas Stored. Total Capital was represented by the sum of Common Equity, 33 As discussed below, Mr. Marcus also suggests that were it not for the Commission's use of the MI3SA, there would be no adjustment since the surplus would be "pro-rated" down in proportion to the components of the ratemaking capital structure. 34 Because the MBSA is not common among the proxy companies, replicating that method likely would introduce a degree of inconsistency in the analysis. Page 21 of 40

22 1 Preferred Stock, Long-term Debt, Short-Term Debt, and Accumulated Deferred Income 2 Taxes. To ensure that I gathered the data on a consistent basis, I compared the SNL- 3 reported figures for SGA to those contained in the 's 2014 Gas Utility Annual 4 Report, as filed with the Commission. 5 Q. What did that data reveal? 6 A. For the twenty operating companies within the proxy group, fifteen had financial capital 7 greater than net plant; the mean and median ratio of capital to net plant was That is 8 the case even though the majority of those companies did not have Goodwill balances 9 included in Net Utility Plant. SGA's capital exceeded its net plant by 7.00 percent (that 10 is, its ratio of capital to net plant was 1.07; see Chart 1, below). 11 Chart 1: Ratio of Financial Capital to Net Utility Plant 35 Wa.shi %toil Ga.s Light 1.00 Virgi anatural Gas5 Inc. ci Southwest Gas Corporation Soi.rth Jersey' Cia,s Comp any Piedmont Natural Gas, Inc. I 15 Northwest I% Loral Gas Northam I Ulnae: Gas Carripany 220 er sey Natural Gas uouri C9 5 Energy 119 Laclede Gas Columba Sas of VI rgini a, I ricoporeted Col umbi a Gas of Pennwlva ni a, Inc Coi um bi a Gas of Ohio, Incur porated Colurn hi a Ens of Maryla off, ircorporated 1 OSA Col um ei a Gas of Kentucky, Incorporated Chattanooga Gas- Bay Zit ate Ges Atmos E riergy Corporation Atlanta Gas Light CQrnpny AI abama Gas Corporation 1 0 Sr= -UM 2 a:. IDA- Avere.ge MMI ,2 SourceGa s Arkansas I rt , 2 I B t 2 4 n O. SO Source: SNL Financial, FERC Form 2. Page 22 of 40

23 1 Because it is common for capital to exceed Net Utility Plant, even for companies without 2 Goodwill balances, there is no reason to assume that such differences are directly 3 "assignable" to Goodwill, as Mr. Marcus assumes. Rather, it is likely that factors such as 4 capital additions, depreciation rates, earnings retention rates, additions to ADIT, the 5 perpetual nature of equity relative to the depreciating nature of assets, and other variables 6 explain the difference. 7 Q. Looking to Docket No U, did the amount of total capital included in Staff's 8 overall Rate of Return calculation exceed the total rate base? 9 A. Yes, it did. I understand that under the Stipulation and Settlement Agreement in that 10 docket (the " Settlement Agreement"), 36 the overall Rate of Return is based on 11 Staff's capital structure and cost rates; those amounts are provided in Surrebuttal Exhibit 12 SDT-1 to Ms. Shannon Todd's Sun-ebuttal Testimony. As that exhibit notes, the total 13 capital (that is, the approach used in Mr. Marcus' Surrebuttal Testimony) equals 14 $420,431,671. I further understand that the Total Adjusted Rate Base under the Settlement Agreement is $374,183, That is, under the Settlement 16 Agreement, the ratio of capital to rate base is approximately 1.12, very consistent with 17 the 1.11 average indicated in Chart 1, above. 18 Q. Did Staff propose an "overcapitalization" adjustment in Docket No U? 19 A. No, Staff did not. 36 I understand that the Attorney General is not party to the Stipulation and Settlement Agreement. 37 Docket No, U Agreement Attachment No. 1, at 13. Page 23 of 40

24 Docket No, U 1 Q. Did the total capitalization also exceed the rate base in the 's last rate case 2 (Docket No U)? 3 A. Yes, it did. I understand that the Stipulation and Settlement Agreement in that docket 4 looked to Staff's Sumbuttal case, which included approximately $341.6 million of 5 capital, and reflected a rate base of $273.7 million. 38 There, the ratio of capital to rate 6 base was approximately Q. Has Staff's total capitalization exceeded its proposed rate base in other cases before 8 the Commission? 9 A. Yes, it has. As shown in Rebuttal Exhibit RBH-9, I have reviewed thirteen prior rate 10 cases before the Commission in which Staff's Direct or Surrebuttal position included 11 both capitalization and rate base amounts. In eleven of those thirteen cases, total 12 capitalization exceeded the rate base. In ten of the thirteen cases, there was a Goodwill 13 amount on the subject company's balance sheet. 4 Although in several instances the 14 Goodwill balance (relative to the rate base) was somewhat small, it was greater than zero. 15 In that regard, if "overcapitalization" is at issue, it would be so regardless of amount of 16 the Goodwill balance (that is, the principle would hold). In none of those cases, however, 17 did the Commission require an "overcapitalization" adjustment See, APSC Docket No U, Surrebuttal Testimony of Michael Marchand, Surrebuttal Exhibit MM-1; Agreement Attachment No, 1 The rate base amount of $273.7 million reflects the adjusted rate base of $271.6 million contained in Second Errata Surrebuttal Exhibit GPF-1, with an additional adjustment of $2,1 million as explained in the Settlement Testimony of Robert Booth, at page 4. I understand that the Attorney General was party to the Stipulation and Settlement Agreement in Docket No U. Also referred to as "Acquisition Adjustment". Page 24 of 40

25 Docket No, U 1 Q. Are there specific examples that may demonstrate why total capital may exceed the 2 rate base? 3 A. Yes, there are. I understand that in Staff's Surrebuttal case in Docket No U, 4 Staff calculated SGA's adjusted rate base based to be $365,040, I further 5 understand that in its Surrebuttal case, Staff's total capitalization, including Current and 6 Other Liabilities, was $420,431,671, 42 Included in Current and Other Liabilities was a $5 7 million deposit paid by Big River Steel, LLC ("Big River Steel") to SGA. As stated by 8 Staff Witness Don Malone, because that $5 million deposit will be repaid to Big River 9 Steel when gas is first delivered by SGA, the deposit appropriately resides in CAOL, 10 rather than as part of Customer Deposits. 43 Either way, the $5 million amount is 11 reflected in the total capitalization underlying the 5.41 percent return included in Staff's 12 Surrebuttal case in Docket No U. 13 Although the $5 million deposit is included in the capital structure, the capital 14 additions related to the Big River Steel project were not included in the $365,040,102 rate 15 base in Staff's Surrebuttal case. 44 As Witness Rocheleau explained, the 16 agreed to exclude those capital additions from Gas Plant In Service because 17 "while the project will be ready for its intended use before the end of the pro forma year, 18 gas will not commence flowing thereafter for approximately six months, as the steel plant Surrebuttal Exhibits of Gail P. Fritchman, Surrebuttal Exhibit GPF-1. Surrebuttal Exhibits of Shannon D. Todd, Surrebuttal Exhibit SDT-1. Sun-ebuttal Testimony of Don Malone, at 6. The final rate base amount in the Stipulation and Settlement Agreement in Docket No U included $9,143,477 of adjustments, bringing the total rate base to $374,183,579. See Docket No U, Stipulation and Settlement Agreement, at 6, and Agreement Attachment No. 1. Page 25 of 40

26 1 will be unable to take natural gas service." 45 Consequently, the total capitalization 2 includes not only the funds required to finance the Big River Steel capital additions, but 3 also the $5 million deposit currently held by SGA. On the other hand, the rate base 4 excludes capital additions related to the Big River Steel project. That surplus would 5 increase the "overcapitalization" amount and, therefore, Mr. Marcus' adjustment, even 6 though he has not suggested that it is assignable to Goodwill. 7 8 Fungible Nature of Capital and Liabilities 9 Q. Please briefly summarize Mr. Marcus' position regarding the fungible nature of 10 capital, and how it weighs in his "overcapitalization" adjustment. 11 A. Mr. Marcus states that "[w]hile the Commission has in the past stated that all capital is 12 fungible in financing the company, goodwill is an exception."' Mr. Marcus goes on to 13 observe that the acquisition of AWG by SourceGas LLC was funded by a combination of 14 debt and equity, although (as noted earlier) he cannot not tell us in what proportions. 15 Q. Have you reviewed prior Commission orders regarding the fungible nature of 16 capital? 17 A. Yes, I have. I began with the Commission's Order in Docket No U. Regarding 18 the issue of fungibility, the Commission noted that the issue at hand was whether "certain 19 liabilities can be specifically identified and associated with certain assets." 47 In assessing Rebuttal Testimony of Stephen L. Rocheleau, at 12. Public Direct Testimony of William Perea Marcus, at 20. Arkansas Public Service Commission, Docket No U, Order No. 7, at 12. Page 26 of 40

27 1 that issue, the Commission noted the testimony of Staff witness Dr. Berry, who stated 2 that: 3 You either think fungibility is appropriate, or you don't. You don't draw 4 the line and say, 'Well, certain liabilities are fungible, but certain other 5 liabilities are not.' It's either all or nothing with fungibility The Commission went on to note that: 7 Dr. Berry is correct. This Commission has repeatedly held that fungibility 8 is appropriate with regard to double leverage, and consistency mandates 9 its application elsewhere. There is no doubt in the minds of this 10 Commission that the Staffs proposed treatment of liabilities (i.e., 11 including in cost of capital at actual cost, with no recognition given to 12 "utility", or "non-utility") is reasonable and proper As noted earlier, Goodwill balances have existed during prior cases heard by the 14 Commission and in many of those cases, total capital exceeded the rate base. But the 15 fungible nature of liabilities suggests that all capital is applied to all assets, including 16 Goodwill. 17 Q. Has Mr. Marcus also recognized the Commission's position regarding the MBSA 18 and the fungible nature of capital? 19 A. Yes, he has. In his testimony in Docket No U, Mr. Marcus observed that: 20 The MBSA includes all assets and liabilities under the theory that all of 21 the capital used to finance the company is fungible. The Arkansas PSC has 22 followed the MBSA for a number of years There, Mr. Marcus observed that under the MBSA, capital used to "finance the company" 24 is fungible. Mr. Marcus also referred to "all assets"; he did not qualify that statement by Ibid., at 13. Ibid., at 13. Docket No U, Prepared Testimony of William B. Marcus, at 15. Page 27 of 40

28 1 reference to rate base, net utility plant, Goodwill, or any other subgroup of assets, as he 2 has in this proceeding. 3 Q. Did the Commission's Order in that docket address the issue of fungibility? 4 A. Yes, it did. In discussing the MBSA, the Commission stated that: 5 The MBSA recognizes three basic facts: (1) a utility has investments in 6 assets other than plant which are necessary to provide utility service, and 7 on which a return should be allowed; (2) a utility has sources of funds, 8 other than equity and long-term debt, which should be included in the 9 capital structure; and (3) all liabilities are fungible sources of funds that 10 are used to fund each and every asset of the utility. A corollary of this 11 third point is that zero-cost liabilities should be placed in the capital 12 structure in calculating the utility's cost of capita Although the Commission referred to "assets other than plant which are necessary to 14 provide utility service", the Order also clearly states that "all liabilities are fungible 15 sources of funds that are used to fund each and every asset of the utility." [emphasis 16 added] As with its Order in Docket No U, the Commission did not draw 17 distinctions regarding specific assets and whether or not the fimgibility of capital and 18 liabilities applied to those assets. 19 As noted earlier, there have been multiple cases heard by the Commission in 20 which (1) capital exceeded rate base; and (2) a Goodwill balance existed on the subject 21 company's balance sheet. But if the principle of fungibility applies, no 22 "overcapitalization" adjustment need be made. That was the outcome in those cases; no 23 adjustment was made. 5] Arkansas Public Service Commission, Docket No U, Order No. 16, at 4. Page 28 of 40

29 1 Q. Do you have any additional thoughts on this issue? 2 A. Yes, I do. Mr. Marcus makes clear that were it not for the MBSA, there would be no 3 "overcapitalization" adjustment, "because the excess financial capital would be pro-rated 4 down to the revised lower rate base." 52 Putting aside the questionable nature of Mr. 5 Marcus' assumption that any dollar of capital in excess of rate base is directly assignable 6 to Goodwill, and forgetting for the moment his view that tangibility does not apply in this 7 case, Mr. Marcus' adjustment would penalize the simply because the 8 Commission has chosen to establish rates based on the MBSA. 9 Under Mr. Marcus' construct, two companies identical in all respects but for the 10 fact that one has rates set pursuant to the MBSA while the other does not, would be 11 authorized disparate revenues. In that case there is no difference in risk, growth 12 prospects, costs, or any other determinant of the revenue requirement between the two 13 companies. Because Mr. Marcus' "overcapitalization" adjustment would reduce the 14 authorized revenue for the company operating under the MBSA, it is likely that capital 15 would flow from that company to the other. Capital attraction is an important standard in 16 setting authorized returns (and rates); Mr. Marcus' proposal would run counter to that 17 standard. 52 Public Direct Testimony of William Perea Marcus, at 20. Page 29 of 40

30 1 Disincentives and Other Adverse Effects 2 Q. Based on your experience raising capital for a publicly traded gas utility, are there 3 potential disincentives associated with Mr. Marcus' "overcapitalization" 4 adjustment? 5 A. Yes, I believe so. As noted in Exhibit WPM-4, page 12 to his Direct Testimony, Mr. 6 Marcus first recommended that the "overcapitalization" adjustment be made based on the 7 difference between (1) debt, equity, and ADIT on one hand; and (2) net utility plant. If 8 that were the method of calculation, 53 any time capital is added without a corresponding 9 addition to utility plant, the adjustment would increase. That dynamic may create a 10 disincentive to pursue low-cost financing opportunities. 11 For example, in my experience issuing capital for a natural gas utility, long-term 12 debt sometimes is raised through a process referred to as "reverse inquiry". In those 13 circumstances, potential investors (lenders) have capital to invest, and contact potential 14 issuers to gauge their interest in selling securities. Because reverse inquiry issuances are 15 demand-driven, the commercial terms, including the interest rate, may be quite attractive. 16 Even if there were no immediate capital needs, it may be in the best interests of rate 17 payers to "pre-fund" capital investments by issuing low-cost debt and holding cash 18 (assuming there is no short-term debt to be paid down) until funding requirements arise. 19 In those cases, capital would increase, but net utility plant would not. The consequence 20 would be a surplus of capital subject to Mr. Marcus' "overcapitalization" adjustment. 53 As noted earlier, Mr. Marcus did not explain why he moved to a different method, other than the resulting adjustment was smaller under the new approach. Page 30 of 40

31 1 That is, the adjustment would provide a disincentive to pursue low-cost financing 2 opportunities. 3 Q. Do you have any other concerns regarding Mr. Marcus' proposal? 4 A. Yes, I do. A commonly referenced measure of financial integrity is the "Fixed Charge 5 Coverage Ratio". Typically filed as Exhibit 12 to Securities Exchange Commission 6 Form 10-K, the Fixed Charge Coverage Ratio generally measures the ability to meet 7 fixed financial obligations, such as interest, with pre-tax earnings. Although Exhibit 12 8 calculations include fixed charges beyond interest expense (for example, capitalized 9 leases may be included), it is possible to calculate the ratio assuming interest expenses 10 are the sole fixed obligation, and to compare those ratios across companies. 11 An additional means of gaining perspective on Mr. Marcus' proposed adjustment, 12 therefore, is to calculate the 's pro forma coverage ratio assuming that 13 adjustment, and to compare pro forma ratio to those of the proxy companies. Focusing 14 only on pre-tax earnings and interest expense, I was able to calculate (for 2014) the ratio 15 of Earnings Before Interest and Taxes ("EBIT") to Interest (that is, "EBIT/Interest"). As 16 Rebuttal Exhibit RBH-10 demonstrates, the mean and median ratios were 4.84 and 4.57, 17 respectively. Based on the 's filed position in Docket No U, the pro 18 forma EMT/Interest ratio is 4.34, somewhat below the median (see Rebuttal Exhibit 19 RBH-2). Mr. Marcus' complete recommendation, including his proposed cost rates and 20 "overcapitalization" adjustment produces a pro forma EBIT/Interest ratio of 3.47, which 21 falls in the bottom 20 th percentile of the proxy companies. Taken from that perspective, 22 Mr. Marcus' recommendation would serve to diminish the 's financial integrity Page 31 of 40

32 1 relative to its peers, create additional risk, and frustrate its ability to raise capital at 2 reasonable rates, to the benefit of rate payers, when and as needed. 3 III. BASIS OF RETURN ON EQUITY RECOMMENDATION 4 Q. Please briefly summarize Mr. Marcus' testimony as it relates to your ROE 5 recommendation in Docket No U. 6 A. Mr. Marcus states that "[t]he testimony of SGA's rate of return witness in Docket No U specifically referred to the credit rating of SourceGas LLC, which is below 8 investment grade with one rating agency, as a rationale for higher rates of retum." 54 Mr. 9 Marcus goes on to state that doing so violates the terms of the Stipulation and Settlement 10 Agreement approved by the Commission in Docket No, U. Moreover, Mr. 11 Marcus argues that the "violation" was "flagrant" since I did not change my position, 12 notwithstanding his Direct Testimony in Docket No U. 13 Q. What is your general response to Mr. Marcus regarding this issue? 14 A. Mr. Marcus's concern appears to be focused on paragraph 4B of the Settlement 15 Agreement. That paragraph reads: 16 SourceGas and AWG agree that the cost of capital as currently reflected in 17 AWG's rates shall not be adversely affected as a result of the acquisition 18 and that in any rate case filed subsequent to the closing, the cost of capital 19 for AWG should be set commensurate with the risks attendant to the 20 regulated operations of AWG and should not be adversely affected by the 21 acquisition. Applicants further agree they will not oppose, in either a 22 regulatory proceeding or an appeal of a decision by the Commission, the 23 application of the principle that the determination of the cost of capital 54 Public Direct Testimony of William Perea Marcus, at 22. Please note that I was the 's Return on Equity witness in that proceeding. A "split rating" is the situation in which two (or more) rating agencies rate a given security or company two (or more) different ratings. Page 32 of 40

33 1 should be based on the risks attendant to the regulated operations of 2 AWG. 3 Mr. Marcus is correct that I referred to SGA's parent's credit profile in my Direct 4 Testimony in Docket No U; as noted in my Direct Testimony in that proceeding, 5 SGA does not have its own credit rating. 55 The parent company rating, which reflects 6 the operating characteristics of its subsidiary companies, is the only rating available for 7 review. 8 In my view, the relevant issue is whether the parent company credit rating 9 reflects, at least in part, the operating characteristics of SGA and if so, whether that rating 10 can or should be reflected in the cost of capital. As explained below, although I did 11 review SourceGas LLC's credit rating, I did not increase my ROE recommendation as a 12 result of that review. Nor, in my view, is the 3.97 percent Cost of Long-Term debt 13 reflected in the 5.41 percent cost of capital (the overall rate of return) stated in the 14 Stipulation and Settlement Agreement in Docket No U adversely affected by the 15 purchase of SGA (then AWG) by SourceGas LLC. 16 Q. To your last point, are you able to assess the 3.97 percent Cost of Long-Term Debt 17 relative to other benchmarks? 18 A. Yes. As noted in my Direct Testimony in Docket No, U, SourceGas 19 LLC's current credit rating from Moody's is Baa2. Because Moody's "letter grade" 20 rankings reflect three "notches" (B aa3, Baa2, Baal), SourceGas LLC's 13aa2 rating falls 21 within the middle of the Baa grade. We are able to view the daily yield on an index of 22 Moody's Baa-rated utility debt, which shows the return required by investors for that debt 55 Docket No U, Direct Testimony of Robert B. Hevert, at 45. Page 33 of 40

34 1 in the Moody's Baa Utility Bond Index. As shown in Chart 2 (below), the 3.97 percent 2 cost of Long-Term Debt falls below the Moody's Baa Utility Index yield since at least 3 January In fact, but for a few months in late 2014 and early 2015, it also falls 4 below the yield on the Moody's A-rated utility bond index. That data indicates that the 5 cost of long-term debt included in the 5.41 percent overall rate of return is not adversely 6 influenced by SourceGas LLC's split credit rating. 7 Chart 2: Moody's A and Baa-Utility Bond Index Yield AV S. SC 10,0. 4 ti 'III a o vilikkddqt SO of two $ t prof a.ce =4" rstr.rj Ln r1.--2 n' a-1 c 11a 11.J' LL 4, Qi a `", LL Tut GODUA index Moc uaa 8 Sett' ertient Cot of Long-Term Debt 9 Q. Do you have any other thoughts regarding Mr. Marcus' position that you 10 recommended a higher rate of return because of SourceGas LLC's split credit 11 rating? 12 A. Yes. In Exhibit WBM-4, page 29, Mr. Marcus cites only a portion of my testimony on 13 this topic. As noted on page 47 of my Direct Testimony in Docket No U, "[I]n 14 light of SourceGas's current credit profile relative to the proxy group it would be Page 34 of 40

35 Rebuttal Testimony of Robert 13. Hevert 1 inappropriate to rely on mean DCF [Discounted Cash Flow] results as reasonable 2 approximations for SGA's Cost of Equity." 56 That is, the reference was to the mean 3 results of one method used to estimate the Cost of Equity, not to my overall 4 recommendation. I note that in the Stipulation and Settlement Agreement in Docket No U, the is set at 9.40 percent, 15 basis points below the overall 6 mean DCF results provided in my Direct Testimony in that docket. 7 Second, although Mr. Marcus asserts that I referred to the parent company credit 8 rating "as a rationale for higher rates of return", he fails to note that I did not increase my 9 ("ROE") recommendation in light of that review. At page 48 of my 10 Direct Testimony, I stated that if I had reflected the parent company's split credit rating, 11 my ROE recommendation would have been higher. But I did not increase my 12 recommendation; I did not seek a "higher return" on account of the split rating at the 13 parent company level, as Mr. Marcus suggests. 14 Third, Mr. Marcus has not reviewed the 's prospective risk relative to its 15 peers; he appears to assume that there is no difference between the two. As noted above, 16 however, Mr. Marcus' "overcapitalization" adjustment would have the effect of 17 decreasing the 's pro forma EBIT/Interest coverage ratio to the point that it 18 would fall in the bottom 21 percentile of the proxy companies. As also discussed 19 earlier, Mr. Marcus asks the Commission to depart from its long-held position regarding 20 the fungibility of capital, and proposes an adjustment that has changed in terms of its 21 method of calculation and result during the pendency of Docket No U, Those 56 [clarification added] Page 35 of 40

36 1 factors, the dilution of fixed charge coverage ratios, the recommended change in 2 regulatory policy, and the uncertain nature of his proposed adjustment are elements of 3 incremental risk that should be considered in setting returns. Mr. Marcus has not done 4 so. 5 Lastly, even if Mr. Marcus is of the view that my ROE recommendation reflected 6 the parent company's credit rating, the 9.40 percent return contained in the Stipulation 7 and Settlement Agreement in Docket No U is below the ROE range that I 8 recommended in that proceeding. Consequently, the parent company's credit rating is 9 not reflected in the stipulated return, and Mr. Marcus' assertion that I violated the 10 Stipulation and Settlement Agreement in Docket No U is not relevant to the 11 outcome in Docket No U. 12 Q. To be clear, do you agree that the 's rates should be set on a stand-alone 13 basis? 14 A. Yes, I do. As noted above, if I thought otherwise, I would have increased my 15 recommended ROE. But, I did not. 16 IV. MR. MARCUS' RECOMMENDED CONDITIONS 17 Q. Please briefly summarize Mr. Marcus' recommended conditions regarding 18 Goodwill, "overcapitalization", and the parent company's credit profile. 19 A. Regarding the issue of Goodwill and "overcapitalization", Mr. Marcus recommends that 20 in Docket No U, the should be prohibited from including the Goodwill 21 "on SGA's books"; and that in any future rate proceeding, the successor company to Page 36 of 40

37 1 SGA should not be allowed to include Goodwill on SGA's books "when developing its 2 capital structure or for any other purpose". 57 More specifically, Mr. Marcus recommends 3 that if, in any future rate proceeding capitalization exceeds rate base, the debt and equity 4 portion of the 's capital structure should be reduced proportionately, such that 5 total capital equals the rate base As to the cost of capital in future rate proceedings, Mr. Marcus recommends that 7 the Commission retain "a prohibition" against the use of the holding company's financial 8 position and credit rating, and SGA's parent company's financial position and credit 9 rating, as support for recommended returns on either debt or equity Q. Turning first to the conditions surrounding Goodwill and the "overcapitalization" 11 adjustment, what is your response to Mr. Marcus? 12 A. For the reasons discussed throughout my Rebuttal Testimony, I disagree with the premise 13 of his condition, i.e., that any surplus of capital over rate base can and should be assigned 14 to Goodwill. As noted earlier in my Rebuttal Testimony, if Mr. Marcus would reduce the 15 's debt and equity balances when capital exceeds rate base, he should show how 16 each of the dollars that give rise to his adjustment support Goodwill. His 17 recommendation does not contain that requirement. 18 As to the requirement that the cost of capital in future proceedings should reflect 19 the risks attendant to SGA's utility operations, I do not disagree with that principle. I do 20 disagree, though, that future proceedings should never consider the parent company's Direct Testimony of William Perca Marcus, at 23. Ibid., at 23. Ibid., at 23. Page 37 of 40

38 1 credit rating: To the extent that rating reflects the risks associated with the 's 2 utility operations, it may be a relevant data point. Q. Does this conclude your Rebuttal Testimony? 4 A. Yes, it does. Page 38 of 40

39 ATTESTATION I do hereby swear and affirm that the foregoing is my Rebuttal Testimony in Arkansas Public Service Commission. Robert B. Hevert Dated: December 2, 2015 Page 39 of 40

40 CERTIFICATE OF SERVICE I, Matthew A. Greene do hereby certify that I have caused to be served a copy of the foregoing Rebuttal Testimony upon all parties of record in this docket, via electronic mail, this 2nd day of December, 2015, /s/ Matthew A. Greene Matthew A. Greene Page 40 of 40

41 ATTACHMENT A Robert B. Hevert, CFA Managing Partner Sussex Economic Advisors, LLC Mr. Hevert is an economic and financial consultant with broad experience in regulated industries. He has an extensive background in the areas of corporate finance, corporate strategic planning, energy market assessment, mergers, and acquisitions, asset-based transactions, feasibility and due diligence analyses, and providing expert testimony in litigated proceedings. Mr. Hevert has significant management experience with both operating and professional services companies. REPRESENTATIVE PROJECT EXPERIENCE Litigation Support and Expert Testimony Provided expert testimony and support of litigation in various regulatory proceedings on a variety of energy and economic issues including: cost of capital for ratemaking purposes; the proposed transfer of power purchase agreements; procurement of residual service electric supply; the legal separation of generation assets; merger-related synergies; assessment of economic damages; and specific financing transactions. Services provided include collaborating with counsel, business and technical staff to develop litigation strategies, preparing and reviewing discovery and briefing materials, preparing presentation materials and participating in technical sessions with regulators and intervenors. Financial and Economic Advisory Services Retained by numerous leading energy companies and financial institutions throughout North America to provide services relating to the strategic evaluation, acquisition, sale or development of a variety of regulated and non-regulated enterprises. Specific services have included: developing strategic and financial analyses and managing multi-faceted due diligence reviews of proposed corporate M&A counter-parties; developing, screening and recommending potential M&A transactions and facilitating discussions between senior utility executives regarding transaction strategy and structure; performing valuation analyses and financial due diligence reviews of electric generation projects, retail marketing companies, and wholesale trading entities in support of significant M&A transactions. Specific divestiture-related services have included advising both buy and sell-side clients in transactions for physical and contractual electric generation resources. Sell-side services have included: development and implementation of key aspects of asset divestiture programs such as marketing, offering memorandum development, development of transaction terms and conditions, bid process management, bid evaluation, negations, and regulatory approval process. Buy-side services have included comprehensive asset screening, selection, valuation and due diligence reviews. Both buy and sell-side services have included the use of sophisticated asset valuation techniques, and the development and delivery of fairness opinions. Specific corporate finance experience while a Vice President with Bay State Gas included: negotiation, placement and closing of both private and public long-term debt, preferred and common equity; structured and project financing; corporate cash management; financial analysis, planning and forecasting; and various aspects of investor relations. Regulatory Analysis and Ratemaking On behalf of electric, natural gas and combination utilities throughout North America, provided services relating to energy industry restructuring including merchant function exit, residual energy supply obligations, and stranded cost assessment and recovery. Specific services provided include: performing strategic review and development of merchant function exit strategies including analysis of provider of last SUSSEX ECONOMIC ADVISORS, LLC PAGE 1

42 ATTACHMENT A resort obligations in both electric and gas markets; and developing value optimizing strategies for physical generation assets. Energy Market Assessment Retained by numerous leading energy companies and financial institutions nationwide to manage or provide assessments of regional energy markets throughout the U.S. and Canada. Such assessments have included development of electric and natural gas price forecasts, analysis of generation project entry and exit scenarios, assessment of natural gas and electric transmission infrastructure, market structure and regulatory situation analysis, and assessment of competitive position. Market assessment engagements typically have been used as integral elements of business unit or asset-specific strategic plans or valuation analyses. Resource Procurement, Contracting and Analysis Assisted various clients in evaluating alternatives for acquiring fuel and power supplies, including the development and negotiation of energy contracts and tolling agreements. Assignments also have included developing generation resource optimization strategies. Provided advice and analyses of transition service power supply contracts in the context of both physical and contractual generation resource divestiture transactions. Business Strategy and Operations Retained by numerous leading North American energy companies and financial institutions nationwide to provide services relating to the development of strategic plans and planning processes for both regulated and non-regulated enterprises. Specific services provided include: developing and implementing electric generation strategies and business process redesign initiatives; developing market entry strategies for retail and wholesale businesses including assessment of asset-based marketing and trading strategies; and facilitating executive level strategic planning retreats. As Vice President, of Bay State was responsible for the company's strategic planning and business development processes, played an integral role in developing the company's non-regulated marketing affiliate, EnergyUSA, and managed the company's non-regulated investments, partnerships and strategic alliances. PROFESSIONAL HISTORY Sussex Economic Advisors, LLC (2012 Present) Managing Partner Concentric Energy Advisors, Inc. ( ) President Navigant Consulting, Inc. ( ) Managing Director ( ) Director ( ) Vice President, REED Consulting Group ( ) Bay State Gas (now Columbia Gas of Massachusetts) ( ) Vice President and Assistant Treasurer Boston College ( ) Financial Analyst General Telephone of the South ( ) Revenue Requirements Analyst SUSSEX ECONOMIC ADVISORS, LLC PAGE 2

43 ATTACHMENT A EDUCATION M.B.A., University of Massachusetts at Amherst, 1984 B.S., University of Delaware, 1982 DESIGNATIONS AND PROFESSIONAL AFFILIATIONS Chartered Financial Analyst, 1991 Association for Investment Management and Research Boston Security Analyst Society PUBLICATIONS/PRESENTATIONS Has made numerous presentations throughout the United States and Canada on several topics, including: Generation Asset Valuation and the Use of Real Options Retail and Wholesale Market Entry Strategies The Use Strategic Alliances in Restructured Energy Markets Gas Supply and Pipeline Infrastructure in the Northeast Energy Markets Nuclear Asset Valuation and the Divestiture Process AVAILABLE UPON REQUEST Extensive client and project listings, and specific references. SUSSEX ECONOMIC ADVISORS, LLC PAGE 3

44 Rebuttal Testimony of Robert B. 'Eleven ATTACHMENT A SPONSOR I DATE I CASE/APPLICANT 1 DOCKET No. I SUBJECT Regulatory Commission of Alaska ENSTAR Natural Gas 08/14 ENSTAR Natural Gas Matter No. TA Arizona Corporation Commission Southwest Gas Corporation 11/10 Southwest Gas Corporation Docket No. G-01551A Arkansas Public Service Commission SourceGas Arkansas, Inc. 12/15 SourceGas Arkansas, Inc. Merger Approval CenterPoint Energy Resources Corp. d/b/a CenterPoint Energy Arkansas Gas 11/15 CenterPoint Energy Resources Corp. d/b/a CenterPoint Energy Arkansas Gas Docket No U SourceGas Arkansas, Inc. 03/15 SourceGas Arkansas, Inc. Docket No U CenterPoint Energy Resources Corp. d/b/a CenterPoint Energy Arkansas Gas California Public Utilities Commission 01/07 CenterPoint Energy Resources Corp. d/b/a CenterPoint Energy Arkansas Gas Docket No U Southwest Gas Corporation 12/12 Southwest Gas Corporation Docket No. A Colorado Public Utilities Commission Xcel Energy, Inc. 03/15 Public Service of Colorado Xcel Energy, Inc. 06/14 Public Service of Colorado Xcel Energy, Inc. 12/12 Public Service of Colorado Xcel Energy, Inc. 11/11 Public Service of Colorado Xcel Energy, Inc. 12/10 Public Service of Colorado Docket No. 15AL-0135G Docket No. 14AL-0660E Docket No. 12AL-1268G Docket No. 11AL-947E Docket No. 10AL-963G (gas) (gas) SUSSEX ECONOMIC ADVISORS, LLC. PAGE 4

45 ATTACHMENT A SPONSOR DATE CASE/APPLICANT DOCKET No. I SUBJECT Atmos Energy Corporation 07/09 Atmos Energy Colorado-Kansas Docket No. 09AL-507G Division (gas) Xcel Energy, Inc. 12/06 Public Service of Docket No. 06S-656G Colorado (gas) Xcel Energy, Inc. 04/06 Public Service of Docket No. 06S-234EG Colorado Xcel Energy, Inc. 08/05 Public Service of Docket No. 05S-369ST Colorado (steam) Xcel Energy, Inc. 05/05 Public Service of Docket No. 05S-246G Colorado (gas) Connecticut Public Utilities Regulatory Authority Connecticut Light and Power 06/14 Connecticut Light and Power Docket No Southern Connecticut Gas Southern Connecticut Gas Docket No Southern Connecticut Gas 12/07 Southern Connecticut Gas Docket No PH02 Connecticut Natural Gas 12/07 Connecticut Natural Gas Docket No Corporation Corporation 04PH02 Delaware Public Service Commission Delmarva Power & Light 03/13 Delmarva Power & Light Case No Delmarva Power & Light 12/12 Delmarva Power & Light Case No Delmarva Power & Light 03/12 Delmarva Power & Light Case No District of Columbia Public Service Commission Potomac Electric Power 03/13 Potomac Electric Power Formal Case No. FC E SUSSEX ECONOMIC ADVISORS, LLC. PAGE 5

46 Source Gas Arkansas Inc. ATTACHMENT A SPONSOR DATE CASE/APPLICANT DOCKET NO. SUBJECT Potomac Electric Power 07/11 Potomac Electric Power Formal Case No. FC1087 Federal Energy Regulatory Commission Sabine Pipeline, LLC Sabine Pipeline, LLC Docket No. RP Nextera Energy Transmission West, LLC Maritimes & Northeast Pipeline, LLC Public Service of New Mexico Public Service of New Mexico Portland Natural Gas Transmission System Florida Gas Transmission, LLC Maritimes and Northeast Pipeline, LLC Nextera Energy Transmission West, LLC 05/15 Maritimes & Northeast Pipeline, LLC 12/12 Public Service of New Mexico 10/10 Public Service of New Mexico 05/10 Portland Natural Gas Transmission System 10/09 Florida Gas Transmission, LLC 07/09 Maritimes and Northeast Pipeline, LLC Docket No. ER Docket No. RP Docket No. ER Docket No. ER Docket No. RP Docket No. RP Docket No. RP Spectra Energy 02/08 Saltville Gas Storage Docket No. RP Panhandle Energy Pipelines Panhandle Energy Pipelines Docket No. PL Response to draft policy statement regarding inclusion of MLPs in proxy groups for determination of gas pipeline ROEs Southwest Gas Storage 08/07 Southwest Gas Storage Docket No. RP Southwest Gas Storage 06/07 Southwest Gas Storage Docket No. RP SUSSEX ECONOMIC ADVISORS, LLC. PAGE 6

47 ATTACHMENT A I SPONSOR j DATE CASE/APPLICANT DOCKET No. SUBJECT I Sea Robin Pipeline LLC 06/07 Sea Robin Pipeline LLC Docket No. RP Transwestern Pipeline 09/06 Transwestern Pipeline Docket No. RP GPU International and Aquila 11/00 GPU International Docket No. EC Market Power Study Florida Public Service Commission Tampa Electric 04/13 Tampa Electric Docket No El Georgia Public Service Commission Atlanta Gas Light 05/10 Atlanta Gas Light Docket No U Hawaii Public Utilities Commission Maui Electric, Limited 12/14 Maui Electric, Limited Docket No Hawaiian Electric 06/14 Hawaiian Electric Light Docket No Hawaii Electric Light 08/12 Hawaiian Electric Light Docket No Illinois Commerce Commission Ameren Illinois d/b/a Ameren Illinois Liberty Utilities (Midstates Natural Gas) Corp. d/b/a Liberty Utilities Ameren Illinois d/b/a Ameren Illinois Ameren Illinois d/b/a Ameren Illinois Ameren Illinois d/b/a Ameren Illinois Indiana Utility Regulatory Commission 01/15 Ameren Illinois d/b/a Ameren Illinois 03/14 Liberty Utilities (Midstates Natural Gas) Corp. d/b/a Liberty Utilities 01/13 Ameren Illinois d/b/a Ameren Illinois 02/11 Ameren Illinois d/b/a Ameren Illinois 02/11 Ameren Illinois d/b/a Ameren Illinois Docket No Docket No Docket No Docket No Docket No (gas) Duke Energy Indiana, Inc.. 12/14 Duke Energy Indiana, Inc. Cause No SUSSEX ECONOMIC ADVISORS, LLC. PAGE 7

48 ATTACHMENT A SPONSOR I DATE CASE/APPLICANT I DOCKET NO. SUBJECT Northern Indiana Public Service Kansas Corporation Commission Kansas City Power & Light Maine Public Utilities Commission 05/09 Northern Indiana Public Service 01/15 Kansas City Power & Light Cause No Docket No. 15-KCPE- 116-RTS Assessment of Valuation Approaches Maine Public Utilities Commission 02/14 Maine Public Utilities Commission Review of Natural Gas Capacity Options Central Maine Power 06/11 Central Maine Power Docket No Response to Bench Analysis provided by Commission Staff relating to the 's credit and collections processes Maryland Public Service Commission Potomac Electric Power 12/13 Potomac Electric Power Case No Delmarva Power & Light 03/13 Delmarva Power & Light Case No Potomac Electric Power 11/12 Potomac Electric Power Case No Potomac Electric Power 12/11 Potomac Electric Power Case No Delmarva Power & Light 12/11 Delmarva Power & Light Delmarva Power & Light 12/10 Delmarva Power & Light Massachusetts Department of Public Utilities National Grid 11/15 Massachusetts Electric and Nantucket Electric d/b/a National Grid Case No Case No DPU SUSSEX ECONOMIC ADVISORS, LLC. PAGE 8

49 ATTACHMENT A SPONSOR DATE CASE/APPLICANT DOCKET No. SUBJECT Fitchburg Gas and Electric Light d/b/a Unitil 06/15 Fitchburg Gas and Electric Light d/b/a Unitil DPU NSTAR Gas 12/14 NSTAR Gas DPU Fitchburg Gas and Electric Light d/b/a Unitil Bay State Gas d/b/a Columbia Gas of Massachusetts 07/13 Fitchburg Gas and Electric Light d/b/a Unitil 04/12 Bay State Gas d/b/a Columbia Gas of Massachusetts National Grid 08/09 Massachusetts Electric d/b/a National Grid National Grid 08/09 Massachusetts Electric and Nantucket Electric d/b/a National Grid DPU DPU DPU DPU Capital Cost Recovery Revenue Decoupling and Solar Generation Bay State Gas 04/09 Bay State Gas DPU NSTAR Electric 09/04 NSTAR Electric DIE Divestiture of Power Purchase Agreement NSTAR Electric NSTAR Electric DTE Divestiture of Power Purchase Agreement NSTAR Electric 07/04 NSTAR Electric DTE Divestiture of Power Purchase Agreement NSTAR Electric 07/04 NSTAR Electric DIE Divestiture of Power Purchase Agreement NSTAR Electric 06/04 NSTAR Electric DTE Divestiture of Power Purchase Agreement Unitil Corporation 01/04 Fitchburg Gas and Electric DTE Integrated Resource Plan; Gas Demand Forecast Bay State Gas 01/93 Bay State Gas DPU Shelf Registration Bay State Gas 01/91 Bay State Gas DPU Shelf Registration Minnesota Public Utilities Commission SUSSEX ECONOMIC ADVISORS, LLC. PAGE 9

50 ATTACHMENT A I SPONSOR I DATE CASE/APPLICANT DOCKET NO. I SUBJECT Minnesota Energy Resources Corporation CenterPoint Energy Resources Corp. d/b/a CenterPoint Energy Minnesota Gas 09/15 Minnesota Energy Resources Corporation 08/15 CenterPoint Energy Resources Corp. d/b/a CenterPoint Energy Minnesota Gas Docket No. G-011/GR Docket No. G-008/GR Xcel Energy, Inc. 11/13 Northern States Power Docket No. E002/GR CenterPoint Energy Resources Corp. d/b/a CenterPoint Energy Minnesota Gas 08/13 CenterPoint Energy Resources Corp. d/b/a CenterPoint Energy Minnesota Gas Docket No. G-008/GR Xcel Energy, Inc. 11/12 Northern States Power Docket No. E002/GR Otter Tail Power Corporation 04/10 Otter Tail Power Docket No. E-017/GR Minnesota Power a division of ALLETE, Inc. CenterPoint Energy Resources Corp. d/b/a CenterPoint Energy Minnesota Gas 11/09 Minnesota Power Docket No. E-015/GR /08 CenterPoint Energy Minnesota Gas Docket No. G-008/GR Otter Tail Power Corporation 10/07 Otter Tail Power Docket No. E-017/GR Xcel Energy, Inc. 11/05 Northern States Power -Minnesota Xcel Energy, Inc. 09/04 Northern States Power - Minnesota Docket No. E-0021GR Docket No. G-002/GR (gas) SUSSEX ECONOMIC ADVISORS, LLC. PAGE 10

51 ATTACHMENT A SPONSOR [ DATE I CASE/APPLICANT I DOCKET No. I SUBJECT Mississippi Public Service Commission CenterPoint Energy Resources, Corp. d/b/a CenterPoint Energy Entex and CenterPoint Energy Mississippi Gas Missouri Public Service Commission Kansas City Power & Light Union Electric d/b/a Ameren Missouri Union Electric d/b/a Ameren Missouri Liberty Utilities (Midstates Natural Gas) Corp. d/b/a Liberty Utilities 07/09 CenterPoint Energy Mississippi Gas 10/14 Kansas City Power & Light Union Electric d/b/a Ameren Missouri 06/14 Union Electric d/b/a Ameren Missouri 02/14 Liberty Utilities (Midstates Natural Gas) Corp. d/b/a Liberty Utilities Docket No. 09-UN-334 Case No. ER Case No. ER Case No. EC Case No. GR Laclede Gas 12/12 Laclede Gas Case No. GR Union Electric d/b/a Ameren Missouri Union Electric d/b/a AmerenUE Union Electric d/b/a AmerenUE Montana Public Service Commission 02/12 Union Electric d/b/a Ameren Missouri 09/10 Union Electric d/b/a AmerenUE 06/10 Union Electric d/b/a AnnerenUE Northwestern Corporation 09/12 Northwestern Corporation d/b/a Northwestern Energy Nevada Public Utilities Commission Case No. ER Case No. ER Case No. GR Docket No. D (gas) (gas) Southwest Gas Corporation 04/12 Southwest Gas Corporation Docket No (gas) Nevada Power 06/11 Nevada Power Docket No SUSSEX ECONOMIC ADVISORS, LLC. PAGE 11

52 ATTACHMENT A SPONSOR 1 DATE I CASE/APPLICANT I DOCKET NO. I SUBJECT. New Hampshire Public Utilities Commission Liberty Utilities d/b/a EnergyNorth Natural Gas Liberty Utilities d/b/a Granite State Electric EnergyNorth Natural Gas d/b/a National Grid NH Unitil Energy Systems, Inc. ("Unitil"), EnergyNorth Natural Gas, Inc. d/b/a National Grid NH, Granite State Electric d/b/a National Grid, and Northern Utilities, Inc. New Hampshire Division New Jersey Board of Public Utilities 08/14 Liberty Utilities d/b/a EnergyNorth Natural Gas 03/13 Liberty Utilities d/b/a Granite State Electric 02/10 EnergyNorth Natural Gas d/b/a National Grid NH 08/08 Unitil Energy Systems, Inc. ("Unitil"), EnergyNorth Natural Gas, Inc. d/b/a National Grid NH, Granite State Electric d/b/a National Grid, and Northern Utilities, Inc. New Hampshire Division Docket No. DG Docket No. DE Docket No. DG Docket No. DG Carrying Charge Rate on Cash Working Capital Pepco Holdings, Inc. 04/14 Atlantic City Electric Docket No. ER Orange and Rockland Utilities 11/13 Rockland Electric Docket No. ER Atlantic City Electric 12/12 Atlantic City Electric Docket No. ER Atlantic City Electric 08/11 Atlantic City Electric Docket No. ER Pepco Holdings, Inc. 09/06 Atlantic City Electric Docket No. EM Divestiture and Valuation of Electric Generating Assets Pepco Holdings, Inc. 12/05 Atlantic City Electric Docket No. EM Market Value of Electric Generation Assets; Auction Conectiv 06/03 Atlantic City Electric Docket No. E Market Value of Electric Generation Assets; Auction Process New Mexico Public Regulation Commission SUSSEX ECONOMIC ADVISORS, LLC. PAGE 12

53 ATTACHMENT A SPONSOR DATE CASE/APPLICANT DOCKET NO. SUBJECT Public Service of New Mexico Public Service of New Mexico Public Service of New Mexico Southwestern Public Service Public Service of New Mexico Public Service of New Mexico Public Service of New Mexico 12/14 Public Service of New Mexico 12/14 Public Service of New Mexico 02/11 Southwestern Public Service 06/10 Public Service of New Mexico 09/08 Public Service of New Mexico Xcel Energy, Inc. 07/07 Southwestern Public Service New York State Public Service Commission Consolidated Edison of New York, Inc. 01/15 Consolidated Edison of New York, Inc. Case No UT Case No UT Case No UT Case No UT Case No UT Case No UT Case No UT Case No. 15-E-0050 Cost of Capital and Financial Integrity Orange and Rockland Utilities, Inc. 11/14 Orange and Rockland Utilities, Inc. Case Nos. 14-E-0493 and 14-G-0494 (electric and gas) Consolidated Edison of New York, Inc. 01/13 Consolidated Edison of New York, Inc. Case No. 13-E-0030 Niagara Mohawk Corporation d/b/a National Grid for Electric Service Niagara Mohawk Corporation d/b/a National Grid for Gas Service 04/12 Niagara Mohawk Corporation d/b/a National Grid for Electric Service 04/12 Niagara Mohawk Corporation d/b/a National Grid for Gas Service Orange and Rockland Utilities, Inc. 07/11 Orange and Rockland Utilities, Inc. Case No. 12-E-0201 Case No. 12-G-0202 Case No. 11-E-0408 (gas) SUSSEX ECONOMIC ADVISORS, LLC. PAGE 13

54 ATTACHMENT A SPONSOR DATE CASE/APPLICANT I DOCKET No. SUBJECT Orange and Rockland Utilities, Inc. 07/10 Orange and Rockland Utilities, Inc. Consolidated Edison of New York, Inc. Consolidated Edison of New York, Inc. Niagara Mohawk Power Corporation North Carolina Utilities Commission 11/09 Consolidated Edison of New York, Inc. 11/09 Consolidated Edison of New York, Inc. 07/01 Niagara Mohawk Power Corporation Case No. 10-E-0362 Case No. 09-G-0795 Case No. 09-S-0794 Case No. 01-E-1046 Duke Energy Carolinas, LLC 02/13 Duke Energy Carolinas, LLC Docket No. E-7, Sub 1026 Carolina Power & Light d/b/a Progress Energy Carolinas, Inc. Virginia Electric and Power d/b/a Dominion North Carolina Power 10/12 Carolina Power & Light d/b/a Progress Energy Carolinas, Inc. 03/12 Virginia Electric and Power d/b/a Dominion North Carolina Power Docket No. E-2, Sub 1023 Docket No. E-22, Sub 479 (gas) (steam) Power Purchase and Sale Agreement; Standard Offer Service Agreement Duke Energy Carolinas, LLC 07/11 Duke Energy Carolinas, LLC Docket No. E-7, Sub 989 North Dakota Public Service Commission Otter Tail Power 11/08 Offer Tail Power Docket No Oklahoma Corporation Commission Public Service of Oklahoma 07/15 Public Service of Oklahoma Cause No. PUD SUSSEX ECONOMIC ADVISORS, LLC. PAGE 14

55 , ATTACHMENT A SPONSOR I DATE I CASE/APPLICANT DOCKET No. SUBJECT Oklahoma Gas & Electric CenterPoint Energy Resources Corp., d/b/a CenterPoint Energy Oklahoma Gas Pennsylvania Public Utility Commission Pike County Light & Power Veolia Energy Philadelphia, Inc. Rhode Island Public Utilities Commission The Narragansett Electric d/b/a National Grid 07/11 Oklahoma Gas & Electric 03/09 CenterPoint Energy Oklahoma Gas Pike County Light & Power Cause No. PUD Cause No. PUD Docket No. R /13 Veolia Energy Philadelphia, Inc. Docket No. R /12 The Narragansett Electric d/b/a National Grid Docket No (electric & gas) (steam) (electric & gas) National Grid RI Gas 08/08 National Grid RI Gas Docket No Revenue Decoupling and South Carolina Public Service Commission Duke Energy Carolinas, LLC 03/13 Duke Energy Carolinas, LLC Docket No E South Carolina Electric & Gas 06/12 South Carolina Electric & Gas Docket No E Duke Energy Carolinas, LLC 08/11 Duke Energy Carolinas, LLC Docket No E South Carolina Electric & Gas 03/10 South Carolina Electric & Gas Docket No E South Dakota Public Utilities Commission Otter Tail Power 08/10 Otter Tail Power Docket No. EL Northern States Power 06/09 South Dakota Division of Northern States Power Docket No. EL Otter Tail Power 10/08 Otter Tail Power Docket No. EL SUSSEX ECONOMIC ADVISORS, LLC. PAGE 15