ML17033B063

Supplemental Testimony of Herman G. Roseman

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 Regression Niagara 94-Company Inde endent Variables Mohawk Avera e Coefficients'0245287 X, Rate of Return on Common Equity, 1974 9.95% 10.50%

X~ Square of the Rate of Return on Common Equity, 1973 .000975397 57.76 127.79 X3 Square of Rate of Return on Common Equity, Value Line Estimate for 1975 .00133461 100.00 130.90 X Accounting Method: 1 0 if not Plowthrough if Plowthrough, .145028 0.44 X5 Oil as Percent of 'All Fuels Used in Generation, 1974 .000853993 23.00% 20. 144 X6 Ratio of Dividends to Cash Plow., 1974 .928124 0.46 0. 41 X7 AFDC as Percent of Net Income for Common, 1974 Multiplied by the Ratio of Dividends to Cash Plow, 1974 .00682379 17.74% 15.96%

1 p

.100847 + .0245287(Xy) + .000975397(X2) + .00133461(X3) .145028(Xq)

. 000853993 (X5) .+ . 928124 (X6) . 00682379 (X~)

e

DETAILS OF MULTIPLE REGRESSION EQUATION First Three Quarters 1975 Standard Regression Error of Stan'dard Variable Coefficient Regression t-Ratio Mean Deviation Constant Term .100847 .0623733 1.617 X) .0245287 .0064121 3.825 10.5035 1.94593 Xq .000975397 .000343164 2.842 127.793 41.3706

.00133461 .000334798 3.986 130.899 37.4298

.145028 .0208378 -6.960 .43617

. Xq .498568

.000853993 .000346044 -2.468

- 20.1383 28.7041 Xe - .928124 .142058 6.533 .408772 .128957

.00682379 .00112292 -6.077 15.9561 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 Niagara 95 Electric Month/Year Mohawk Utilities 2) 1973 January $ 16.88 $ 25.27 February 16.50 24.73 March 15.88 24.18 April 15.88 23.77 May 15.88 23.65 June 15.88 23.16 July 15.00 22.33 August 14.50 21.83 September 15.00 23.22 October 14.75 21.96 November 13.00 19.38 December 13.38 19.82 1974 January 14.25 20.59 February 13.88 20.56 March 13.50 19.58 April ll;00 17.18 May 9.63 15.95 June 8.50 14.89 July 9.25 14.99 August 8.75 13.77 September 8.38 13.39 October 8.75 14.47 November 8.13 14.16 December 8.00 13.57 1975 January 10.38 ~

16.66 February 10.63 16.61 March 10.50 16.21 April 10.25 15.94 May 10.25 16.97 June 11.88 18.67 July 11.63 17.66 August 11.50 17.24 September 11.25 16.98 October 12.50 18.16 Source: 1973 to May 1974: Standard 'a Poor's Corpora-tion, Securit Owner's Stock Guide, various issues.

June 1974 to October 1975: The Wall Street Journal, various issues.

fi~'Lt SC'"::-D UL:-

N:AGABA ~iOF <<4K POX:-2 COPPOBAT:ON YaONT'.1-:-~9D 9 RlC- -COK Aa,.D O-,V 1~=0 = R-,C- P, -.OS

)973 - 1975 P"ice-3ook Div'de. d->rsce

.~ton th/Yea r Rat o Ratio (2) 1.973 January l. 01 6.8%

February 0.99 6.9

.'waar ch 0.95 7.2 April 0.95 7.2

~Lay 0.95 7.2 June 0.95 7.2 July 0.90 7.6 Au/us t 0.87 7.9 September 0.90 7.6 October 0.88 7>> I Novembe 0.78 9.1 December O.8O 8.8 1974 January 0.86 8.3

ebruary 0.84 8.5 March 0.82 8.7 April 0.67 10.7 May 0.58 12.3 June 0.52 13.9 July 0.56 ).2. 8 August 0.53 13. 5 September 0.51 14. ).

Oc"ober 0.53 13. 5 Novembe 0.49 14.5 Oecember 0>>48 14.7 1975 January 0.63 11. 4 February 0.64 11. ).

March April 0.64 0.62 ll.

11.5 2

Nay 0.62 11.5 June 0.72 9.9 July 0.71 10.2 Au+us 0.70 10.8 September 0.68 11. 0 Octobe" 0.76 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. 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' Col. (2): 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 Pre ce ook Divicenc-P='ce Month/Year Rat' .Ratio (2) 1973 January 1.35 6,1%

2'ebruary 1.32 6.3 March 1.29 6.4 April 1.26 6.5 May '.25 6,5 June 1.23 6.6 July 1.19 7.0 August 1.16 7.1 Septembe" 1.23 6,7 October 1.16 7.1 November 1.02 8.0 Decembe" 1.05 7.9 1974 January 1.04 7.6 February 1. 04 7.6 March April 0 '9 0.87

&.0 9.0 May 0.81 9.9 June 0.76 '0.6 July 0.76 10. 8 August 0.70 11.7 Septembe 0.68 12.0 Octobe" 0.74 11.3 November 0.72 11.6 December 0.69 12.1 1975 January 0.83 9.7 February 0.83 9.7 March 0.81 9.9 April 0.79 10. 1 May 0.84 9.5 June 0.93 8.6 July 0.88 9.1 Au/us t 0.86 9.3 Septembe 0.84 9 4 October 0 '0 ~

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): 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.

Col. (2): 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 Yield 1973 January 7.54%

February 7.68 March 7.69 April 7.66 May 7.68 June 7.87 July 8.21 August 8.76 September 8.18 October 8.38 November 8.10 December 8.21 1974 January 8.50 February 8.49 March 8.81 April 9.40 May 9.81 June 9.95 July 11.05 August 10.75

'September 11.02 October 10.75 November 9.90 December 10.25 1975 January 9.71 February 9.42 March 10. 16 April 10.94 May 10.00 June 9.87 July 10.38 August 10.76 September 10.83 October 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. Allegheny Power Sys tern

2. American Electric Power

3. Arizona Public Service 4 ~ Atlantic City Electric

5. Baltimore Gas and Electric

6. Boston Edison

7. Carolina Power & Light

8. Central Hudson Gas & Electric

9. Central Illinois Light

10. Central Illinois Public Service

11. Central Louisiana Electric

12. Central Maine Power

13. , Central & South West Corp.

14. Cincinnati Gas & Electric

15. Cleveland Electric

16. Columbus & Southern Ohio Electric

17. Commonwealth Edison

18. Consolidated Edison

19. Consumers Power

20. Dayton Power & Light

21. Delmarva Power & Light

22. Detroit Edison .

23. Duke Power

24. Duquesne Light 25'. Eastern Utilities Associates

26. Empire District Electric

27. Florida Power Corp.

28. Florida Power & Light

29. General Public Utilities

30. Gulf States Utilities

31. Hawaiian Electric

32. Houston Light & Power

33. Idaho Power

34. Illinois Power

35. Indianapolis Power & Light

36. Interstate Power

37. Iowa-Illinois Gas & Electric

38. Zowa Power & Light

39. Iowa Public Service

40. Kansas City Power & Light

41. Kansas Gas & Electric

42. Kansas Power & Light

43. Kentucky Utilities

44. Long Island Lighting

45. Louisville Gas & Electric

46. Middle South Utilities ave,ria

Exhibit 49 SCHEDULE 5 Page 2 of 2 94 ELECTRIC UTILITIES INCLUDED IN STUDY

47. Minnesota Power & Light

48. Missouri Public Service

49. Montana-Dakota Utilities

50. Montana Power

51. Nevada Power

52. New England Electric System

53. New England Gas and Electric

54. New York State Electric & Gas

55. Niagara-Mohawk

56. Northeast Utilities

57. Northern Indiana Public Service

58. Northern States Power (Minn.)

59. Ohio Edison

60. Oklahoma Gas & Electric

61. Orange & Rockland Utilities

62. Pacific Gas & Electric

63. Pacific Power & Light

64. Pennsylvania Power & Light

65. Philadelphia Electric

66. Portland General Electric

67. Potomac Electric Power

68. Public Service Co.. of Colorado

69. Public Service Co. of Indiana

70. Public Service Co. of New Hampshire

71. Public Service Co. of New Mexico

72. Public Service Electric & Gas

73. Puget Sound Power & Light

74. Rochester Gas & Electric

75. St. Joseph Light & Power

76. San Diego Gas & Electric

77. Savannah Electric & Power

78. Sierra Pacific Power

79. South Carolina Electric & Gas

80. Southe'rn California Edison

81. . Southern Company

82. Southern Indiana Gas & Electric

83. Southwestern Public Service

84. Tampa Electric

85. Texas Utilities

~

86. Toledo Edison

87. Tucson Gas & Electric

88. Union Electric

89. United Illuminating

90. Utah Power & Light

91. Virginia Electric & Power

92. Washington Water Powe

93. Wisconsin Electric Power

94. 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 1975 to 1974 return on equity two quarters of

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 1 if flowthrough, if not 0

24. Type of Regulation:

otherwise 0 if original cost, if1

25. Holding Company:

otherwise 1 if hold'ing company, if0

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 Regression Niagara 94-Company Inde endent Variables Mohawk Avera e Coefficients'0255174 X, Rate of Return on Common Equity, 1974 9.954 10.50%

X~ Square of the Rate of Return on Common Equity, 1973 .000982554 57.76 127.79 X~ Square of Rate of Return on Common Equity, Value Line Estimate for 1975 .00132095 100.00 130. 90 X Accounting Method: 1 0 if not Flowthrough if Flowthrough, .134129 0.44 X~ Oil as Percent of All Fuels Used in Generation, 1974 .00086935 23.00% 20.144 X~ AFDC as Percent of Net Income for Common, 1974 .00268022 38.324 34.364 X~ Ratio of Dividends to Cash Flow, 1974 .554664 0.46 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 Standard Regression Error of Standard Variable Coefficient Re ression t-Ratio Mean Deviation Constant Term .222751 . 062754 3. 550 X) .0255174 -.00677084 3.769 10. 5035 1.94593

.000982554 .000363943 2.700 127.793 41.3706 Xg .00132095 .000354616 3.725 130.899 37.4298 X .134129 .021718 -6.176 .43617 .498568 Xg .00086935 .000368683 -2.358 20.1383 28.7041 X, .00268022 .000546012 -4.909 34.3554 24.501

.554664 .108838 5.096 .408772 .128957 R = .877357 R = .769755 Standard Error of Estimate = .0895894 d.f. = 86 8

0 Ezhibi" 49 SCHEDULE 9 Page 1 of 2 94 ELECTRIC UTZLZTZ S BAREBONES COST OF COMMON EQUiTY CAPiTAL First Three Quarters 1975 Barebones Comoan Cost of E uit

.1. Allegheny Power System 13.22$

2. American Electric Power 12.76 3 ~ Arizona Public Service 14.07 4 ~ Atlantic City Electric 13.61

5. Baltimore Gas and Electric 13.09

6. Boston Edison 13.77

7. Carolina Power & Light 13.45

8. Central Hudson Gas & Electric 14.87

9. Central Illinois Light 12.96

10. Central Illinois Public Service 12.09

11. Central Louisiana Electric 11.87 12 Central Maine Power 11.58

'3.

Central & South Nest Corp. 11.90

14. Cincinnati Gas & Electric 13.04

15. Cleveland Electr'c 13.40

16. Columbus & Southern Ohio Electric 13.47

17. Commonwealth Edison 12.32

18. Consolidated Edison 15,57

19. Consumers Power 12.80

20. Dayton Power & Light 12. 82

21. Delmarva Power & Light 13.99

22. Detroit Edison 12.59

23. Duke Power 13.72

24. Duquesne Light 13.10

25. Eastern Utilities Associates 13.18

26. Empire District Electric 11.31

27. Florida Power Corp. 14.74

28. Florida Power & Light 13.73

29. General Public Utilities 13.42

30. Gulf States Utilities 12.47

31. Hawaiian Electric 13.68

32. Houston Light & Power 12.34

33. Idaho Powe 12.63

34. Illinois Power 11.31

35. Indianapolis Power & Light 11.62

36. Znterstate Power 11.15

37. Zowa-Illinois Gas & Electric 12.26

38. Iowa Power & Light 12.25

39. Zowa Public Service 12.59

40. Kansas City Power & Light 11.95

,41. Kansas Gas & Electric 12,13

42. Kansas Power & Light 11.74

43. Kentucky Utilities 11.98 44 Long Island Lighting 14.12

'5.

Louisville Gas & Electric 11.55

46. Middle South Utilities 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 Barebones Com an Cost of Equity

47. Minnesota Power & Light 11.78%

48. Missouri Public Service 12.57

49. Montana-Dakota Utilities 12.36

50. Montana Power 11.19 51., Nevada Power 15.03 52 ~ New England Electric System 13.49

53. New England Gas and Electric 13.12

54. New York State Electric & Gas 13.37

55. Niagara-Mohawk 13.65 56., Northeast Utilities 13.96

57. Northern Indiana Public Service 12. 15

58. Northern S tates Power (Minn. ) 12.95

59. Ohio Edison 12.47

60. Oklahoma Gas & Electric 11.48

61. Orange & Rockland Utilities 13.13

62. Pac'f'c Gas & Electric 13.66

63. Pacific Power & Light 12.62

64. Pennsylvania Power & Light 14.07

65. Philadelphia Electric 12.11

66. Portland General Electric 11.48

67. Potomac Electric Power 13.25

68. Public Service Co. of Colorado 13.92

69. Publ'c Service Co. of Indiana 11.68

70. Public Service Co. of New Hampshire 14.16

71. Public Service Co. of New Mexico 12.21 72 Public Service Electric & Gas 14.41

'3.

Puget Sound Power & Light 13.92

74. Rochester Gas & Electr'c 13.47

75. St. Joseph Light & Power 12.60

76. San Diego Gas & Electric 14.03

77. Savannah Electric & Power 13.83

78. Sierra Pacific Power 14.14

79. South Carolina Electric & Gas 12.12

80. Southern California Edison 14.20

81. Southern Company 13.41

82. Southern Indiana Gas & Electric 12.14

83. Southwestern Public Service 11.33

84. Tampa Electric 12.88

85. Texas Utilities 12.19

86. Toledo Ed'son 12.38

87. Tucson Gas & Electr c 13.98

88. Union Electric 13.09

89. United illuminating 15.06

90. Utah Power & Light: 13.16

91. Virgin a Electzic & Power 14.36

92. Washington Water Power 12.38

93. Wisconsin Electric Power 11.90

94. Wisconsin Public Service 12.49 Average 12. 95'4 Standard Dev'ation 0.99 rl/e/r/a

0 0'