ML17033B063
| ML17033B063 | |
| Person / Time | |
|---|---|
| Site: | Nine Mile Point  |
| Issue date: | 02/02/2017 |
| From: | Niagara Mohawk Power Corp |
| To: | Office of Nuclear Reactor Regulation |
| References | |
| Download: ML17033B063 (36) | |
Text
SUPPLEMENTAL TESTIMONY OF HERMAN G.
ROSEMAN 5'.
Are you the same Herman G.
Roseman whose testimony 6
was previously submitted in this proceeding?
7 A.
Yes.
Q.
What is the purpose of your present testimony?
A.
The purpose of my present testimony is to revise 1Q an aspect of my previous testimony.
11 Q.
Please describe this revision.
12, A.
In reviewing Staff rebuttal testimony to me in the 13 LILCO proceeding, I found that the Staff witness had un-14 covered an important fact which merited incorporation in 15 my statistical model.
What he found was that there was'n
"'interaction effect" between two of the variables in my regression equation.
More specifically, the effect of 18 AFDC on the price of a utility's stock depends on how high 19 is the ratio of dividends to cash flow, and vice versa.
2p 'his fact can be reflected in my statistical model by 2l including as a new variahle the product of the AFDC vari-22 able and the dividends/cash-flow variable.
I have accord-23 ingly recalculated my regression equation to include this 24 new variable and to exclude the former AFDC variable which 25
.becomes statistically insignificant.
Technical details 26 are shown on my revised Schedules 7A and 8A of my exhibit.
k 0
Q.
What is the effect on your results of this revision 2
in the statistical model?
3 A.
The revised model indicates that, in order to 4
bring Niagara Mohawk's market price =into equality with 5
book value, the required return on equity would be 13.54 6
- percent, rather than 13.65 percent.
Also, to bring the 7
market price 20 percent above book value would require a
8 'eturn of 15.7 percent, instead of 15.8 percent.
- Finally, 9
the model indicates that if AFDC were only 15 percent, of 10 net income, Niagara Mohawk's cost of.equity would be ll reduced by 0.9 percentage points.
12.
13 14 15 16 17 1S 19 20'1 22-23 24 25 26
0
MULTXPLE REGRESSION COEFFXCXENTS AND VALUES OF INDEPENDENT VARXABLES First Three=Quarters 1975 Values of Xnde endent Variables Inde endent Variables X,
Rate of Return on Common Equity, 1974 X~
Square of the Rate of Return on Common
- Equity, 1973 X3 Square of Rate of Return on Common Equity, Value Line Estimate for 1975 X
Accounting Method:
1 if Plowthrough, 0 if not Plowthrough X5 Oil as Percent of 'All Fuels Used in Generation, 1974 X6 Ratio of Dividends to Cash Plow.,
1974 X7 AFDC as Percent of Net Income for
- Common, 1974 Multiplied by the Ratio of Dividends to Cash Plow, 1974 Regression Coefficients'0245287
.000975397
.00133461
.145028
.000853993
.928124
.00682379 Niagara Mohawk 9.95%
57.76 100.00 23.00%
0.46 17.74%
94-Company Avera e 10.50%
127.79 130.90 0.44
- 20. 144
- 0. 41 15.96%
1 p
.100847
+.0245287(Xy)
+.000975397(X2)
+.00133461(X3)
.145028(Xq) e
. 000853993 (X5).+
. 928124 (X6)
. 00682379 (X~)
DETAILS OF MULTIPLE REGRESSION EQUATION First Three Quarters 1975 Variable Regression Coefficient Standard Error of Regression t-Ratio Mean Stan'dard Deviation Constant Term X)
Xq
. Xq Xe
.100847
.0245287
.000975397
.00133461
.145028
.000853993
-.928124
.00682379
.0623733
.0064121
.000343164
.000334798 1.617 3.825 2.842 3.986
.0208378
-6.960 6.533
.00112292
-6.077
.000346044
- -2.468
.142058 10.5035 127.793 130.899
.43617 20.1383
.408772 15.9561 1.94593 41.3706 37.4298
.498568 28.7041
.128957 15.4478 R
=.890949 R
=.793790 Standard Error of Estimate
=.0847844 d.f.
= 86
0
.ibi4 49 iVEAGARA MOHAWK POWER CORPORATION STUDY OF COST OF CAPITAL AND O'BKR DATA USED IN DE~~TZON OF FAIR RATE OF RETURN
i 0
r.xnabzc SCHEDULE 1
NIAGARA MOHAWK POWER CORPORATION AVERAGE OF 95 ELECTRIC UTILITIES MONTH-END CLOSING PRICES 1973 - 1975 Month-End Closin Price Month/Year 1973 January February March April May June July August September October November December 1974 January February March April May June July August September October November December 1975 January February March April May June July August September October Niagara Mohawk
$ 16.88 16.50 15.88 15.88 15.88 15.88 15.00 14.50 15.00 14.75 13.00 13.38 14.25 13.88 13.50 ll;00 9.63 8.50 9.25 8.75 8.38 8.75 8.13 8.00 10.38 10.63 10.50 10.25 10.25 11.88 11.63 11.50 11.25 12.50 95 Electric Utilities 2)
$ 25.27 24.73 24.18 23.77 23.65 23.16 22.33 21.83 23.22 21.96 19.38 19.82 20.59 20.56 19.58 17.18 15.95 14.89 14.99 13.77 13.39 14.47 14.16 13.57
~ 16.66 16.61 16.21 15.94 16.97 18.67 17.66 17.24 16.98 18.16 Source:
The 1973 to May 1974:
Standard
'a Poor's Corpora-tion, Securit Owner's Stock Guide, various issues.
June 1974 to October 1975:
Wall Street
- Journal, various issues.
N:AGABA ~iOF <<4K POX:-2 COPPOBAT:ON YaONT'.1-:-~9D 9 RlC- -COK Aa,.D O-,V 1~=0
= R-,C-P, -.OS fi~ Lt SC'"::-DUL:-
)973 - 1975
.~ton th/Yea r 1.973 January February
.'waar ch April
~Lay June July Au/us t September October Novembe December 1974 January
- ebruary March April May June July August September Oc"ober Novembe Oecember P"ice-3ook Rat o
- l. 01 0.99 0.95 0.95 0.95 0.95 0.90 0.87 0.90 0.88 0.78 O.8O 0.86 0.84 0.82 0.67 0.58 0.52 0.56 0.53 0.51 0.53 0.49 0>>48 Div'de. d->rsce Ratio (2) 6.8%
6.9 7.2 7.2 7.2 7.2 7.6 7.9 7.6 7>> I 9.1 8.8 8.3 8.5 8.7 10.7 12.3 13.9
).2. 8
- 13. 5
- 14. ).
- 13. 5 14.5 14.7 1975 January February March April Nay June July Au+us September Octobe" 0.63 0.64 0.64 0.62 0.62 0.72 0.71 0.70 0.68 0.76
- 11. 4
- 11. ).
ll.2 11.5 11.5 9.9 10.2 10.8
- 11. 0 9.9 Prices used in caLculations a
e month-end closing prices.
Price-book ratios
=or 1973, 1974 and 1975 use
- 1972, 1973 and 1974 book va).ue per share, respectively.
Source:
Col.
Col.
(2):
Derived 'm data in Standard 5 Poor's Corporation, Secur'v Owner's Stock Gu ce, var'us 'sues; The 'lalue 'ne
- nves--..ent Sll vev, Mat-'c I 9
Ia7 lu 974 a-c
!Iav 9, l979; Value 'ine
.=Gunne Da-a Sass; and The Nail Street Journal, var ous issues' annarn 'cc='s Gcrpcrat'cn, Sec-r' Dvner's stack
- Guine, var cus
>>sue>>;
anc The Na3.1 Street Journal, various 'ssues, n)'err.'a
0
AV"RAG:-
Oa 9
".L:-CT~ZC U:L
. ~:-S MONT'-:"ND ?P.:C:--BOOK
~MD D3.VlD:-ND-PP.:C= ~T QS 1973 1975 Month/Year 1973 January 2'ebruary March April May June July August Septembe" October November Decembe" Pre ce ook Rat' 1.35 1.32 1.29 1.26
'.25 1.23 1.19 1.16 1.23 1.16 1.02 1.05 Divicenc-P='ce
.Ratio (2) 6,1%
6.3 6.4 6.5 6,5 6.6 7.0 7.1 6,7 7.1 8.0 7.9 1974 January February March April May June July August Septembe Octobe" November December 1.04
- 1. 04 0 '9 0.87 0.81 0.76 0.76 0.70 0.68 0.74 0.72 0.69 7.6 7.6
&.0 9.0 9.9
'0.6
- 10. 8 11.7 12.0 11.3 11.6 12.1 1975 January February March April May June July Au/us t Septembe October 0.83 0.83 0.81 0.79 0.84 0.93 0.88 0.86 0.84 0 '0 9.7 9.7 9.9
- 10. 1 9.5 8.6 9.1 9.3 9
~ 4 8.9 P 'ces used 'n calculations are month-end closinc orices.
Price-book at'os or 1973, 1974 and 1975 use
- 1972,
'973 and '974 book va'e per share9 respectively.
Source:
Col.
(1):
Col.
(2):
Der'vec rom data in Standard
~ Poor's Corporation, Secur'v Owne 's Stock Guice, var'ous
'ssues; The Value Line Znves"=..ent
- 3eeeev,
=cia'ea 3,
.'Iay '0, 397(9 aae
'<ay 9, J9i9; Valee 'pe:IYD'C Da a a-ae; anc The val'treet Journal, var'ous issues.
Standard a Poors Corpora ion, Securi tv Owner' Stock Guide,. var'ous iss 'es; and The Mall Street Journal, vaous 'ssues.
Exhibit 49 SCHEDULE 4
MONTHLY YIELDS ON NEWLY ISSUED A-RATED PUBLIC UTILITY BONDS 1973-1975 Month/Year 1973 January February March April May June July August September October November December 1974 January February March April May June July August
'September October November December 1975 January February March April May June July August September October Yield 7.54%
7.68 7.69 7.66 7.68 7.87 8.21 8.76 8.18 8.38 8.10 8.21 8.50 8.49 8.81 9.40 9.81 9.95 11.05 10.75 11.02 10.75 9.90 10.25 9.71 9.42
- 10. 16 10.94 10.00 9.87 10.38 10.76 10.83 10.46 Source:
Moody's Investors
- Service,
~Mood 's
e
xn~ox~
49 SCHEDULE 5
Page 1 of 2
94-ELECTRIC UTILITIES INCLUDED IN STUDY l.
2.
3.
4
~
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25'.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
Allegheny Power Sys tern American Electric Power Arizona Public Service Atlantic City Electric Baltimore Gas and Electric Boston Edison Carolina Power
& Light Central Hudson Gas
& Electric Central Illinois Light Central Illinois Public Service Central Louisiana Electric Central Maine Power
, Central
& South West Corp.
Cincinnati Gas
& Electric Cleveland Electric Columbus
& Southern Ohio Electric Commonwealth Edison Consolidated Edison Consumers Power Dayton Power
& Light Delmarva Power
& Light Detroit Edison Duke Power Duquesne Light Eastern Utilities Associates Empire District Electric Florida Power Corp.
Florida Power
& Light General Public Utilities Gulf States Utilities Hawaiian Electric Houston Light
& Power Idaho Power Illinois Power Indianapolis Power
& Light Interstate Power Iowa-Illinois Gas
& Electric Zowa Power
& Light Iowa Public Service Kansas City Power
& Light Kansas Gas
& Electric Kansas Power
& Light Kentucky Utilities Long Island Lighting Louisville Gas
& Electric Middle South Utilities ave,ria
Exhibit 49 SCHEDULE 5
Page 2 of 2
94 ELECTRIC UTILITIES INCLUDED IN STUDY 47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
81.
82.
83.
84.
85.
~ 86.
87.
88.
89.
90.
91.
92.
93.
94.
Minnesota Power
& Light Missouri Public Service Montana-Dakota Utilities Montana Power Nevada Power New England Electric System New England Gas and Electric New York State Electric
& Gas Niagara-Mohawk Northeast Utilities Northern Indiana Public Service Northern States Power (Minn.)
& Electric Orange
& Rockland Utilities Pacific Gas
& Electric Pacific Power
& Light Pennsylvania Power
& Light Philadelphia Electric Portland General Electric Potomac Electric Power Public Service Co.. of Colorado Public Service Co. of Indiana Public Service Co. of New Hampshire Public Service Co. of New Mexico Public Service Electric
& Gas Puget Sound Power
& Light Rochester Gas
& Electric St.
Joseph Light
& Power San Diego Gas
& Electric Savannah Electric
& Power Sierra Pacific Power South Carolina Electric
& Gas Southe'rn California Edison
. Southern Company Southern Indiana Gas
& Electric Southwestern Public Service Tampa Electric Texas Utilities Toledo Edison Tucson Gas
& Electric Union Electric United Illuminating Utah Power
& Light Virginia Electric
& Power Washington Water Powe Wisconsin Electric Power Wisconsin Public Service
Exhibit 49 SCHEDULE 6
Page 1 of 3
INDEPENDENT VARIABLES CONSIDERED IN
&MULTIPLE REGRESSION ANALYSIS l.
Rate of Return on Common Equity Capital, 1973 2.
Rate of Return on Common Equity Capital, 1974 3.
Rate of Return on Common Equity Capital:
earn-ings in last two quarters of 1974 and first two quarters of 1975 divided by year-end 1974 book value per share 4.. Rate of Return on Common Equity Capital:
four times quarterly average of six quarters of earnings (four quarters of 1974 and first two quarters of 1975) divided by year-end 1974 book value per share 5.
Rate of Return on Common Equity Capital:
esti-mate for 1975 derived by applying percentage change in earnings per share between first two quarters of 1974 and first two quarters of 1975 to 1974 return on equity 6.
Rate of Return on Common Equity Capital, Value Line estimate for 1975 7.
No.
1, squared 8.
No.
2, squared 9.
No.
3, squared 10.
No.
4, squared ll.
No.
5, squared 12.
No.
6, squared 13.
Log of No.
1 14.
Log of No.
2 15.
Log of No.
3 16.
Log of No.
4 17.
Log of No.
5
ifinlDl
SCHEDULE 6
Page 2 of 3
INDEPENDENT VARIABLES CONSIDERED IiV MULTIPLE REGRESSION ANALYSIS 18.
Log of No.
6 19.
Common Equity as Percent of Total Capital, 1974 20.
No.
19, squared 21.
Log of No.
19 22.
Log of Total Revenue, 1974 23.
Accounting Method:
flowthrough 24.
Type of Regulation:
otherwise 1 if flowthrough, 0 if not 0 if original cost, 1 if 25.
Holding Company:
1 if hold'ing company, 0 if otherwise 26.
Electric Revenue as Percent of Total Revenue, 1974 27.
Variability in Earnings Per Share, 1959-1974 28.
Variability in Market Price, 1959-1974 29.
Oil as Percent of All Fuels Used in Generation, 1974 30.
Projected Growth Rate in Per Share Revenues from 1972-1974 to 1977-1979, per Value Line 31.
Projected Growth Rate in Per Share Cash -Flow from 1972-1974 to 1977-1979, per Value Line 32.
Projected Growth Rate in Per Share Earnings from 1972-1974 to 1977-1979, per Value Line 33.
Projected Growth Rate in Per Share Book Value from 1972-1974 to 1977-1979, per Value Line 34.
Average of Vos.
30, 31, 32, and 33 35.
Average Annual Growth Rate in Number of Common
- Shares, 1969-1974
r.xnaax~
SCHEDULE 6
Page 3 of 3
INDEPENDENT VARIABLES CONSIDERED ZN MULTIPLE REGRESSION ANALYSIS 36.
Projected Annual Growth Rate in Number of Common
- Shares, 1974-1978, pe Value Line 37.
Average Annual Growth Rate in Net Plant, 1969-1974 38.
Projected Annual Growth Rate in Net Plant, 1974-1978, per Value Line 39.
No.
38, squared 40.
Projected Growth Rate in Capital Spending Per
- Share, 1974-1978, per Value Line 41.
Deferred Taxes
-'Revenues, 1974 42.
Deferred Taxes
-'. Net Income, 1974 43.
AFDC as Percent of Net Income, 1974 44.
Ratio of Dividends to Cash Earnings, 1974 45.
Ratio of Dividends to Cash Flow, 1974 46.
Projected 1975 Capital Spending
. Net Plant Year-end 1974
MULTIPLE REGRESSION COEFFICIENTS AND VALUES OF INDEPENDENT VARIABLES First Three Quarters 1975 Values of Inde endent Variables Inde endent Variables X,
Rate of Return on Common Equity, 1974 X~
Square of the Rate of Return on Common
- Equity, 1973 X~
Square of Rate of Return on Common Equity, Value Line Estimate for 1975 X
Accounting Method:
1 if Flowthrough, 0 if not Flowthrough X~
Oil as Percent of All Fuels Used in Generation, 1974 X~
AFDC as Percent of Net Income for
- Common, 1974 X~
Ratio of Dividends to Cash Flow, 1974 Regression Coefficients'0255174
.000982554
.00132095
.134129
.00086935
.00268022
.554664 Niagara Mohawk 9.954 57.76 100.00 23.00%
38.324 0.46 94-Company Avera e 10.50%
127.79 130. 90 0.44 20.144 34.364
- 0. 41 p
222751
+
0255174 (Xg )
+
000982554 (Xp )
+
00132095 (X3 )
134 129 (XI) )
.00086935(Xg)
.00268022(Xg)
+.554664 (Xq)
0 0
DETAILS OF MULTIPLE REGRESSION EQUATION First Three Quarters 1975 Variable Regression Coefficient Standard Error of Re ression t-Ratio Mean Standard Deviation Constant Term X)
Xg X
Xg X,
.222751
.0255174
.000982554
.00132095
.134129
.00086935
.00268022
.554664
. 062754
-.00677084
.000363943
.000354616
.021718
.000368683
.000546012
.108838
- 3. 550 3.769 2.700 3.725
-6.176
-2.358
-4.909 5.096
- 10. 5035 127.793 130.899
.43617 20.1383 34.3554
.408772 1.94593 41.3706 37.4298
.498568 28.7041 24.501
.128957 8
R
=.877357 R
=.769755 Standard Error of Estimate
=.0895894 d.f.
= 86
0
Ezhibi" 49 SCHEDULE 9
Page 1 of 2
94 ELECTRIC UTZLZTZ S BAREBONES COST OF COMMON EQUiTY CAPiTAL First Three Quarters 1975
.1.
2.
3
~
4
~
5.
6.
7.
8.
9.
10.
11.
12
'3.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
,41.
42.
43.
44
'5.
46.
Comoan Allegheny Power System American Electric Power Arizona Public Service Atlantic City Electric Baltimore Gas and Electric Boston Edison Carolina Power
& Light Central Hudson Gas
& Electric Central Illinois Light Central Illinois Public Service Central Louisiana Electric Central Maine Power Central
& South Nest Corp.
Cincinnati Gas
& Electric Cleveland Electr'c Columbus
& Southern Ohio Electric Commonwealth Edison Consolidated Edison Consumers Power Dayton Power
& Light Delmarva Power
& Light Detroit Edison Duke Power Duquesne Light Eastern Utilities Associates Empire District Electric Florida Power Corp.
Florida Power
& Light General Public Utilities Gulf States Utilities Hawaiian Electric Houston Light
& Power Idaho Powe Illinois Power Indianapolis Power
& Light Znterstate Power Zowa-Illinois Gas
& Electric Iowa Power
& Light Zowa Public Service Kansas City Power
& Light Kansas Gas
& Electric Kansas Power
& Light Kentucky Utilities Long Island Lighting Louisville Gas
& Electric Middle South Utilities Barebones Cost of E uit 13.22$
12.76 14.07 13.61 13.09 13.77 13.45 14.87 12.96 12.09 11.87 11.58 11.90 13.04 13.40 13.47 12.32 15,57 12.80
- 12. 82 13.99 12.59 13.72 13.10 13.18 11.31 14.74 13.73 13.42 12.47 13.68 12.34 12.63 11.31 11.62 11.15 12.26 12.25 12.59 11.95 12,13 11.74 11.98 14.12 11.55 13.31 n/e/ria
Eznibii 49 SCHEDULE 9
Page 2 oz 2
/
94 ELECTRIC UTILITIES BAREBONES COST OF COMMON EQUiTY CAPITAL First Three Quazters 1975 47.
48.
49.
Com an Minnesota Power
& Light Missouri Public Service Montana-Dakota Utilities 50.
Montana Power 51.,
Nevada Power 52
~
53.
54.
55.
New England Electric System New England Gas and Electric New York State Electric
& Gas Niagara-Mohawk 58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72
'3.
74.
75.
76.
77.
78.
79.
80.
81.
82.
83.
84.
85.
86.
87.
88.
89.
90.
91.
92.
93.
94.
Northern S tates Power (Minn. )
& Electric Orange
& Rockland Utilities Pac'f'c Gas
& Electric Pacific Power
& Light Pennsylvania Power
& Light Philadelphia Electric Portland General Electric Potomac Electric Power Public Service Co. of Colorado Publ'c Service Co. of Indiana Public Service Co. of New Hampshire Public Service Co. of New Mexico Public Service Electric
& Gas Puget Sound Power
& Light Rochester Gas
& Electr'c St.
Joseph Light
& Power San Diego Gas
& Electric Savannah Electric
& Power Sierra Pacific Power South Carolina Electric
& Gas Southern California Edison Southern Company Southern Indiana Gas
& Electric Southwestern Public Service Tampa Electric Texas Utilities Toledo Ed'son Tucson Gas
& Electr c Union Electric United illuminating Utah Power
& Light:
Virgin a Electzic
& Power Washington Water Power Wisconsin Electric Power Wisconsin Public Service Average Standard Dev'ation 56.,
Northeast Utilities 57.
Northern Indiana Public Service Barebones Cost of Equity 11.78%
12.57 12.36 11.19 15.03 13.49 13.12 13.37 13.65 13.96
- 12. 15 12.95 12.47 11.48 13.13 13.66 12.62 14.07 12.11 11.48 13.25 13.92 11.68 14.16 12.21 14.41 13.92 13.47 12.60 14.03 13.83 14.14 12.12 14.20 13.41 12.14 11.33 12.88 12.19 12.38 13.98 13.09 15.06 13.16 14.36 12.38 11.90 12.49
- 12. 95'4 0.99 rl/e/r/a
0 0'