PENNSYLVANIA PUBLIC UTILITY COMMISSION BUREAU OF FIXED UTILITY SERVICES REPORT ON THE QUARTERLY EARNINGS OF JURISDICTIONAL UTILITIES

Transcription

1 PENNSYLVANIA PUBLIC UTILITY COMMISSION Public Meeting held March 17,2011 Docket Number: - M BUREAU OF FIXED UTILITY SERVICES REPORT ON THE QUARTERLY EARNINGS OF JURISDICTIONAL UTILITIES FOR THE PERIOD ENDED September 30, 2010

2 D*I*S*C*L*A*I*M*E*R This report does not represent the views of the Pennsylvania Public Utility Commission or of any individual Commissioner or Commissioners. Selection of the information contained in this report was based solely upon the judgment made by staff of the Bureau of Fixed Utility Services. The calculation of market-derived returns on equity and the presentation of utility earnings data and related adjustments represent only the Bureau s interpretation of available data, and the Bureau makes no recommendation with regard to the use of the data.

3 TABLE OF CONTENTS Page No. Introduction... 4 PPL Electric Utilities Corporation, Columbia Gas of Pennsylvania, Inc., PECO Energy -Gas, PECO Energy - Electric, T.W. Phillips Gas and Oil Company, York Water Company, Duquesne Light Company and Peoples Natural Gas had pending rate filings during the 3rd Quarter of 2010 at Docket Nos. R , R , R , R , R , R , R , R and Docket R , respectively, and filed letters with the Secretary in place of reports in accordance with 52 Pa. Code Attachment A Summary of Equity Returns 5 Attachment B Summary of Returns... 9 This chart depicts the overall and equity returns (actual and adjusted) for the filing utilities for the current quarter. The last authorized equity return and the year authorized is also shown. Attachment C Allowed Rates of Return on Common Equity This is a historical chart that shows the most recent fully litigated rate cases for select companies in electric, gas, and water. A docket number followed by their final return on equity and year is also given. Attachment D Market Based Returns on Equity Electric The market indicated common equity cost rate range consists of data used from the electric barometer groups and is based on a series of calculations to average the DCF and CAPM methods. This attachment also includes the Smart Meter Barometer Group Return. Attachment D Common Equity Ratios of Electric Barometer Companies 15 The Common Equity Ratios of Electric Utility Barometer Companies table depicts each company s common equity ratio. The range of reasonable equity ratios consists of the lowest and highest common equity ratio in the quarter for the barometer group companies. Attachment D Capital Structure and Cost of Debt and Preferred Stock 16 The Capital Structure and Cost of Debt and Preferred Stock table is taken from the Schedule E and Schedule F of each Pennsylvania electric company s quarterly earnings report. Attachment D Market Based Returns on Equity Gas The market indicated common equity cost rate range consists of data used from the gas barometer groups and is based on a series of calculations to average the DCF and CAPM methods. Attachment D Market Based Returns on Equity Water The market indicated common equity cost rate range consists of data used from the water barometer groups and is based on a series of calculations to average the DCF and CAPM methods. Also indicates Distribution System Improvement Charge Return. Attachment E Water Barometer Group Calculation of a Current and 52 Week Average Dividend Yield Barometer water companies are used to calculate a current DCF in the first chart. The second chart demonstrates the companies 52 week average DCF. A final average of the two calculations is also shown at the bottom. Attachment F Development of a Representative Dividend Growth Rate Multiple sources of the Barometer water companies projected 5 year Earnings Per Share are used to calculate the Group Average Dividend Growth Estimate. 3

4 Attachment G Water Company Barometer Group Capital Asset Pricing Model The Capital Asset Pricing Model takes into account the selected water company barometer group to measure its market risk. The 3 factors used to calculate this risk are the industry beta average, expected average return and the expected return on a risk-free asset (T-Bills and T-Notes). 4

5 Introduction: On September 20, 1991, the Commission initiated a rulemaking at L pertaining to earnings disclosures by the public utilities subject to its jurisdiction. At that docket, the Commission stated that the submission of accurate, reliable and complete earnings disclosure reports, at regular intervals, is essential to the fulfillment of the broad regulatory oversight responsibilities entrusted to the Commission by the Legislature in the Public Utility Code. The earnings disclosure regulations promulgated by the Commission were adopted October 1, 1992, and published January 23, 1993 at, 23 Pa.B 463. Based upon those regulations, codified at 52 Pa. Code, Chapter 71, a reporting format was developed and distributed to the jurisdictional fixed utilities of Pennsylvania. All fixed utilities having jurisdictional revenues of $1,000,000 or more, for a calendar year, are required to file the report by March 31 of each year. Such reports are to be based upon the results of operations for the 12-month period ending December 31 of the prior year. Utilities having more than $10,000,000 in jurisdictional revenues are also required to file reports for the 12 months ending on March 31, June 30, and September 30 of each year. On November 30, 2004, however, the Pennsylvania General Assembly signed into law Act 183 concerning alternative telecommunications regulation and broadband deployment. As a result of Act 183, the reporting requirements for the PUC jurisdictional telecommunications companies of Pennsylvania have been streamlined at 3015 (e) of the Public Utility Code. A quarterly earnings report is not listed among those reports now required of PUC jurisdictional telecommunications utilities in Pennsylvania and, therefore, this report does not address telephone company earnings. The reports have been filed for the period ended September 30, The Finance/Tariff Staff of the Bureau of Fixed Utility Services has reviewed the reports and has prepared this summary report for public release. This Report sets forth the achieved return on equity for each company, the last allowed return for that utility, a market return as determined through the analysis of the barometer group data and the most recent returns allowed, per industry, by the Pennsylvania Public Utility Commission and by other regulatory bodies. Where a utility has not filed a report, the reasons for not filing are indicated. Questions pertaining to the preparation and contents of this Report should be directed to Mr. Dale Kirkwood, Manager - Finance and Tariffs, Bureau of Fixed Utility Services, at (717) PPL Electric Utilities Corporation, Columbia Gas of Pennsylvania, Inc., PECO Energy -Gas, PECO Energy - Electric, T.W. Phillips Gas and Oil Company, York Water Company, Duquesne Light Company and Peoples Natural Gas had pending rate filings during the 3rd Quarter of 2010 at Docket Nos. R , R , R , R , R , R , R , R and Docket R , respectively, and filed letters with the Secretary in place of reports in accordance with 52 Pa. Code

6 Attachment A The equity return summaries that follow in Attachment A are, for each quarter; ACTUAL 1. Based on actual results of operations and ADJUSTED 2. Based on company proposed pro forma and ratemaking adjustments 6

7 Attachment A ELECTRIC UTILITIES - EIGHT MAJORS EQUITY RETURNS BY QUARTER QTR END Peco PPL Duq W Penn PaPwr UGI Penelec MetEd ACT ADJ ACT ADJ ACT ADJ ACT ADJ ACT ADJ ACT ADJ ACT ADJ ACT ADJ

8 Attachment A GAS UTILITIES EIGHT MAJORS EQUITY RETURNS BY QUARTER QTR Columbia Peoples PECO UGI Equitable NFG UGI Penn TW Phillips END ACT ADJ ACT ADJ ACT ADJ ACT ADJ ACT ADJ ACT ADJ ACT ADJ ACT ADJ

9 WATER UTILITIES FOUR MAJORS EQUITY RETURNS BY QUARTER Attachment A QTR PAWC AQUA United York END ACT ADJ ACT ADJ ACT ADJ ACT ADJ

10 Attachment B Attachment B includes: A. Overall Returns on rate base 1. Actual 2. Company proposed pro forma and ratemaking adjustments and B. Equity Returns 1. Actual 2. Company proposed pro forma and ratemaking adjustments 10

11 ELECTRIC Summary of Returns for the Year Ended September 30, 2010 OVERALL RETURN EQUITY RETURN ROE YEAR COMPANY NAME ACTUAL ADJSTE ACTUAL ADJSTED AUTHIZD ATHIZD $10,000,000 Revenues PECO Energy * PPL Electric Utilities Corp.* Duquesne Light Company* Settled 2007 West Penn Power Company Pennsylvania Power Company ** UGI Utilities, Inc Pennsylvania Electric Company Metropolitan Edison Company Attachment B 1 of 2 GAS $10,000,000 Revenues Columbia Gas of Penna. Inc.* Settled 2008 Peoples Natl Gas Co. (Dominion)* Settled 1995 PECO Energy* Settled 1988 UGI Utilities, Inc.** ** Settled 1995 Equitable Gas Company Settled 1991 National Fuel Gas Distribution Co ** Settled 2006 UGI Penn Natural Gas, Inc Settled 2007 T.W. Phillips Gas & Oil Company* Settled 2006 UGI Central Penn Gas WATER 10,000,000 Revenues Penna American Water Company Settled 2008 AQUA Pennsylvania York Water Company* Settled 2008 United Water Penna. Inc Settled 2009 * PPL Electric Utilities Corporation, Columbia Gas of Pennsylvania, Inc., PECO Energy -Gas, PECO Energy - Electric, T.W. Phillips Gas and Oil Company, York Water Company, Duquesne Light Company and Peoples Natural Gas had pending rate filings during the 3rd Quarter of 2010 at Docket Nos. R , R , R , R , R , R , R , R and Docket R , respectively, and filed letters with the Secretary in place of reports in accordance with 52 Pa. Code **at September 30, 2010, Pennsylvania Power Company s actual equity return of 12.19% was adjusted by the company to 10.23%. UGI Utilities Inc. s actual return of 14.84% was adjusted by the company to 11.79%. National Fuel Gas Distribution Company s actual return of 18.19% was adjusted by the company to 10.99%. These adjustment details are shown on page 2 of 2 of Attachment B. 11

12 Pennsylvania Power Company Attachment B 2 of 2 UGI Utilities Inc. - Gas National Fuel Gas Distribution Corporation Return of equity adjusted from 12.19% to 10.23% based on a $5,322,000 company adjustment to pension expense. Return on equity adjusted from 14.84% to 11.79% based on the following company adjustments to actual results of operations. 1. ($16,600,000) Sales Annualization 2. $499,000 Payroll Annualization Return on equity adjusted from 18.19% to 10.99% based on the following company adjustments to actual results of operations 1. $4,360,000 Operating Revenue for Weather Normalization 2. $10,563,000 Operating and Maintenance Expense for Weather Normalization 12

13 Attachment C ALLOWED RATES OF RETURN ON COMMON EQUITY This is a historical chart that shows the most recent fully litigated rate cases for select companies in electric, gas, and water. A docket number followed by their final return on equity and year is also given. ELECTRIC Docket Number ROE (%) Year Recent PA PUC Allowed PPL Electric Utilities Corp. - R PECO Energy Company - R West Penn Power Company - R UGI - Electric - R Pennsylvania Electric Company - R Metropolitan Edison Company - R GAS Current Market Indicated ROE as calculated by the Bureau of Fixed Utility Services. Recent PA PUC Allowed Columbia Gas of Pa. - R Settled 2008 UGI Utilities, Inc. Gas - R Settled 1995 Dominion Peoples - R Settled 1995 UGI Central Penn Gas - R PECO Energy - R Settled 2008 WATER Current Market Indicated ROE as calculated by the Bureau of Fixed Utility Services. Recent PA PUC Allowed Aqua Pennsylvania -R Penna American Water Co. -R Settled 2008 Current Market Indicated ROE as calculated by the Bureau of Fixed Utility Services. 13

14 Attachment D The market indicated common equity cost rate range consists of data used from the barometer groups and is based on a series of calculations to average the DCF and CAPM methods. Market Based Returns on Common Equity (1) December 21, 2010 Electric Company Barometer Group (1) Current DCF 9.20 (2) 52-Week Average DCF 9.53 (3) Overall DCF (1) + (2) / (4) CAPM (T-Bills) 5.88 (5) CAPM (T-Notes) 6.22 (6) Overall CAPM (4) + (5) / (7) Overall Cost Rate (3) + (6) / (8) Market Indicated Common Equity Cost Rate Range 3/4th standard deviation around the mean.* (9) Smart Meter Barometer Group Return 9.50 % Barometer Group Companies Central Vt. Public Service Consolidated Edison Northeast Utilities NSTAR Pepco Holdings CH Energy UIL Holdings (1) As calculated by the Bureau of Fixed Utility Services *Standard Deviation of 28 DCF and CAPM observations 14

15 Attachment D The Common Equity Ratios of Electric Utility Barometer Companies table depicts each company s quarterly common equity ratio. The range of Reasonable Equity Ratios consists of the lowest and highest common equity ratio for the barometer group companies. Common Equity Ratios of Electric Utility Barometer Companies (2) Company 2010 Common Equity Ratio (1) 1 CH Energy Group 51.00% 2 Central Vt. Public Service 58.00% 3 Consolidated Edison 51.50% 4 Northeast Utilities 43.00% 5 NSTAR 51.50% 6 PEPCO Holdings, Inc % 7 UIL Holdings 40.00% 8 Average 50.14% 9 Range of Reasonable Equity Ratios (40.00% %) Notes: 1. Source: Value Line Investment Survey, Dec. 21, The common equity ratios reported by Value Line exclude short-term debt and current maturities of long-term debt. 15

16 Attachment D The Capital Structure and Cost of Debt and Preferred Stock table shows the Schedule E and Schedule F of each company s quarterly earnings report. Capital Structure and Cost of Debt and Preferred Stock for Pennsylvania Electrics - Twelve months ended September 30, ) PPL Electric* Duquesne Light* UGI Utilities West Penn PECO Electric* Metropolitan Edison PA Electric PA Power Company Inc. Power Co. Company Company Company Schedule E Total Debt 51.72% 25.32% 48.35% 46.31% 45.71% 40.07% 53.57% 31.62% Total Preferred & Preference Stock 10.01% 6.70% 0.00% 0.00% 1.64% 0.00% 0.00% 0.00% Total Common Equity 38.27% 67.97% 51.65% 53.69% 52.65% 59.93% 46.43% 68.38% Schedule F Cost of Debt 6.34% 7.29% 2.98% 6.20% 5.82% 5.97% 5.69% 6.49% Cost of Preferred Stock 6.23% 5.89% 0.00% 0.00% 4.74% 0.00% 0.00% 0.00% *Q figures due to pending rate filing during Q ) Source: Company supplied quarterly earnings report, Schedules E & F 16

17 Attachment D The market indicated common equity cost rate range consists of data used from the barometer groups and is based on a series of calculations to average the DCF and CAPM methods. Market Based Returns on Common Equity (1) December 21, 2010 Gas Distribution Company Barometer Group (1) Current DCF 9.47 (2) 52-Week Average DCF 9.63 (3) Overall DCF (1) + (2) / (4) CAPM (T-Bills) 5.81 (5) CAPM (T-Notes) 6.29 (6) Overall CAPM (4) + (5) / (7) Overall Cost Rate (3) + (6) / (8) Market Indicated Common Equity Cost Rate Range % Barometer Group Companies AGL Resources, Inc. New Jersey Resources Northwest Natural Gas Company Piedmont Natural Gas Company South Jersey Industries WGL Holdings (1) As calculated by the Bureau of Fixed Utility Services 17

18 Attachment D The market indicated common equity cost rate range consists of data used from the barometer groups and is based on a series of calculations to average the DCF and CAPM methods Market Based Returns on Common Equity ¹ December 21, 2010 Water Company Barometer Group Cost Rates (1) Current DCF 9.43 (2) 52-Week Average DCF 9.53 (3) Average DCF 9.48 (4) CAPM (T-Bills) 5.88 (5) CAPM (T-Notes) 6.22 (6) Average CAPM (4) + (5) / (7) Average Common Equity Cost Rate (3) + (6) / (8) Market Indicated Common Equity Cost Rate Range 3/4th standard deviation around the mean.* (9) Distribution System Improvement Charge Return 9.50 Barometer Group Companies American States Water Co Aqua America, Inc. Artesian Resources California Water Service Group Middlesex Water Company The York Water Company ¹ As calculated by the Bureau of Fixed Utility Services *Standard Deviation of 28 DCF and CAPM observations Any questions concerning the DSIC should be directed to Andrew Herster of the Bureau of Fixed Utility Services at (717) % 18

19 Attachment E Barometer water companies are used to calculate a current DCF in the first chart. The second chart demonstrates the companies 52 week average DCF. A final average of the two calculations is also shown at the bottom. Water Company Barometer Group Calculation of a Current Dividend Yield Closing Latest Ind. Div. Market Indicated Plus 1/2 Current Price (Po) Dividend Growth Dividend 12/21/2010 Do Rate (D1) Yield(D1/Po) Growth DCF ($) ($) ($) (%) (%) (%) American States Water Company Artesian Resources Middlesex Water Company California Water Service Group The York Water Company Aqua America, Inc Group Average D1/Po Group Average G 6.00 DCF week Average Dividend Yield Calculation Latest Average Indicated Dividend High Low Average (Pa) Dividend (Do) Yield (Do/Pa) Growth DCF ($) ($) ($) ($) (%) (%) (%) American States Water Company Artesian Resources Middlesex Water Company California Water Service Group The York Water Company Aqua America, Inc Group Average Do / Pa Group Average G 6.00 DCF 9.53 Average of Current and 52-Week

20 Attachment F Multiple sources of the Barometer companies projected 5 year Earnings Per Share are used to calculate the Group Average Dividend Growth Estimate. Development of a Representative Dividend Growth Rate for the Barometer Group of Water Companies 5 Yr Forecast 1 Avg Dividends Value Line Value Line Zack's Morningstar Reuters and Earnings Dividend Growth DPS EPS EPS EPS EPS Growth Estimate (%) (%) (%) (%) (%) (%) (%) American States Water Company Artesian Resources Middlesex Water Company California Water Service Group The York Water Company Aqua America, Inc Group Average USE 6.00 Sources: Reuters, December 21, 2010 ( Value Line Investment Survey, December 21, 2010 Yahoo, December 21, 2010 ( Zacks, December 21, 2010 ( 20

21 Attachment G Water Company Barometer Group Capital Asset Pricing Model (CAPM ) Development of a Risk Free Rate Actual Yields 3 Month 5 Year Quarter Year T-Bills T-Notes (%) (%) Average Risk Premium T_Bill T-Note Water Indivdl Individl BETA Companies Company Company 0.80 American St AWR Artesian Res. ARTNA Middlesex MSEX California WC CWT Aqua America WTR York Water YORW AVERAGE Forecasted Yields (%) (%) 3 Month 5 Year Quarter Year T-Bills T-Notes Average Overall Avg K Rf B ( Km-Rf )* * SBBI Yearbook, 2010 Blue Chip Fin Forecast, January 2011 Value Line Investment Survey 21