ML18230A820

Testimony and Exhibits of Dr. John K. Langum

ML18230A820
Person / Time
Site:	Harris   (NPF-063)
Issue date:	05/01/1976
From:	Langum J Carolina Power & Light Co
To:	Office of Nuclear Reactor Regulation, State of SC, Public Service Commission
References
18361, 18387
Download: ML18230A820 (194)

Text

{{#Wiki_filter:0"+60 9oct<64+ >7,1 r.o I>

South Carolina Public Service Commission Docket Nos. 18,361 and 18,387 CAROLINA POWER 4 LIGHT COMPANY TESTIMONY REGARDING FAIR RATE OF RETURN SOUTH CAROLINA PUBLIC SERVICE COMMISSION DR. JOHN K. LANGUM ECONOMIC CONSULTANT CHICAGO, ILLINOIS MAY 1, 1976

Willyou state your name, please? John K. Langum. Where do you live? I live at 477 Oakhill Road, Elgin, Illinois. What is your present occupation? I am an economic consultant, with my offices located at 209 South LaSalle Street in Chicago, Illinois. My work consists of advising and counseling with a wide range of business firms and financial institutions and public bodies on economic matters of concern to them. Much of my work lies in the field of appraising changes in business conditions and their impact on particular firms and industries and in the field of interest rates, the money market, and the capital mar-kets. My clients include some of the largest firms and most prominent trade associations in the fields of investments, banking, industry, transportation, and public utilities. In addition, I am President of Business Economics, Inc., an enterprise engaged in research and publications in the field of business and economics. Business Economics, Inc., provides a continuing service for financial institutions and business enterprises covering in depth the forces at work in the American economy and their significance for the credit and capital markets. What is your educational background?

In 1933, I received a B.A. degree from Colorado College. In

1936, the University of Minnesota awarded me an M.A.

In

1943, the University of Minnesota conferred on me the Ph. D.

degree. What academic positions have you held? From 1935 to 1940, I was on the faculty of the School of Business Administration at the University of Minnesota. In 1940 and 1941, I was lecturer in Economics at the University of California. In 1945 and 1946, I was part-time lecturer in the Department of Economics at the University of Chicago. In the summer of 1947, and again in the summer of 1951, I was visiting Professor of Economics at Northwestern University. From 1951 through 1962, I served as Professor of Business Administration, on a part-time basis, in the School of Business of Indiana University. What connections have you had with graduate schools sponsored by banking and financial associations? For the last twenty-six years, starting in 1951, I have been a member of the faculty of the Stonier Graduate School of Banking at Rutgers University in New Brunswick, New Jersey, sponsored by the American Bankers Association. Here in June of each year, I give lectures on the business outlook and the credit and capital markets for the bank officers enrolled in the Graduate School. Each year about 1, ZOO bank officers, from most of the fifty states and from several foreign countries, attend the Graduate School of Banking. In 1945, I was one of the founders of the Graduate School of Banking at the University of Wisconsin, located at Madison, Wisconsin, That school, with over one thousand bank officers from about thirty-five states, is sponsored by the Central States Conference of sixteen midwestern state banki'ng associations. For thirty-two consecutive years, since the beginning of the Graduate School, I have given basic lectures on the money mar-kets and the American economy. Since 1955, I have lectured on appraisal of the economic outlook, analysis of the individual company and industry in relation to changing business conditions, and the structure and workings of the capital markets at the School'of Banking of the South in Baton Rouge at Louisiana State University. This graduate school for bank officers is sponsored by fifteen southern state banking associations. In several years, I have also lectured at the Graduate Southwestern School of Banking held in Dallas, Texas, at I Southern Methodist University; at the National Trust School held in Evanston, Illinois, at Northwestern University; at the Pacific Coast School of Banking held in Seattle, Washington,

at the University of Washington; and at the Graduate School of Savings and Loan held in Bloomington, Indiana, at Indiana Univer s ity. In many years, starting in 1946, I have lectured at the Life Officers Investment Seminar, sponsored by the American Life Convention, and starting in 1957, at the Financial Analysts Seminar, conducted by the National Federation of Financial Analysts Societies in association with the University of Chicago. What business experience have you had? From 1941 until 1951, I was employed by the Federal Reserve ~ Bank of Chicago, and from 1944 to 1951, I was Vice President of the Bank. As officer in charge of the Research Department during that period, it was my responsibility to direct an extensive research program in monetary and fiscal problems, in the banking mechanism, in business conditions, in agri-cultural and business economics, and in business finance.

Also, at the bank I was in charge of its bank: and public relations activities.

In addition, for several years I was associate econo-mist of the Federal Open Market Committee of the Federal Reserve System. This is the body in the Federal Reserve

System, made up of the members of the Board of Governors

and Presidents of the Federal Reserve Banks, which determines the monetary and credit policies of the nation's central banking system. Since 1951, I have been engaged in private business as an economic consultant. Much of my work lies in the field of appraising changes in business conditions and their impact on particular firms and industries and in the field of interest rates, the money market, and the capital markets. My clients include some of the largest firms and most prominent trade associations in the fields of investments, banking, industry, transportation, and public utilities. Please describe your work in the field of investments. I have been a director of Selected American Shares, Inc. since 1952. I am a director of Selected Special Shares, Inc., and Selected Opportunity Fund, Inc. These Selected Funds are common stock investment funds with offices in Chicago, Illinois. I am Chairman and director of Founders Growth

Fund, Inc. and also Founders Special Fund, Inc., common stock investment funds with offices in Denver, Colorado.

I have been Chairman or President of Founders Growth Fund, Inc., since February 1, 1969 and I have been Chairman or President of Founders Special Fund, Inc., since December 2 1971. I am a director of First Federal Savings and Loan Association of Elgin, Illinois. For several years, until late in 1964 when the company was sold to Transamerica, I was a director of Bankers Mortgage Company of California, a mortgage banking firm with offices in San Francisco, California and in New York City. I'or the last twenty-five years, I have met regularly for consultation with the key policy-making officials of many major institutional investors in this country and in Canada. These pension funds, trust funds of commercial banks, mutual funds, and life insurance companies with whom I have worked have total funds under investment administration which comprise a major portion of total institutional investment holdings in the economy. Have you previously testified in rate cases? Yes. I have testified in a number of cases before public utility commissions and courts in twenty-eight states and the District of Columbia, including Illinois, Indiana,

Iowa, Michigan, Ohio, Wisconsin, Mas sachus etts, Pennsylvania,

Kansas, Missouri, Kentucky, Tennessee, West Virginia, Maryland, North Carolina, South Carolina, Louisiana, Alabama,

Arkansas, Mississippi, Florida, Montana, Utah, Texas, Arizona,

Oregon, Washington, and California.

I have testified before the 1 Interstate Commerce Commission, the Federal Maritime Com-

mission, and the Federal Power Commission.

In Canada, I have testified before the Board of Transport Commissioners, the Canadian Transport Commission, the Telecommunications Committee, Canadian Transport Commission, and the National Energy Board. Much of my work as consultant and as an expert witness on fair rate of return has been on behalf of utility companies. My work as consultant and as expert witness on fair rate of return, has,

however, by no means been on behalf of utility companies exclusively.

In 1970, I testified on behalf of the Attorney General of the State of Illinois in the Commonwealth Edison Case before the Illinois Commerce Commission. In 1971, in 1973, and again in 1975 I was an intervenor in the Commonwealth Edison Com-'any cases before the Illinois Commerce Commission. 1973, I testified before the Illinois Commerce Commission on \\ behalf of the City of Chicago regarding fair return for the Peoples Gas Light and Coke Company. In 1972 and 1973, I testified regarding fair rate of return for Illinois Bell before the Illinois Commerce Commission on behalf of the Department of General Services of the State of Illinois. In 1974 I testified before the Illinois Commerce Commission on behalf of the States Attorney, Cook County, Illinois regarding fair rate of return, rate base, and fair return for Illinois Bell. Again

I in 1975, I testified be fore the Illinois Commerce Commission on behalf of the Department of General. Services of the State of Illinois and the States Attorney, Cook County, Illinois regarding fair rate of return, rate base, and fair return for Illinois Bell. In 1971, I testified on behalf of the Arizona Consumers Council in the Tucson Gas and Electric Company case before 1 the Arizona Corporation Commission. In 197K, 1974, and again in II 1976, I testified regarding fair rate of return for Tucson Gas 4 Electric Company on behalf of the Arizona Corporation Com-mission. In 1971, in 1973, and again in 1975 I testified on behalf of the Arizona Corporation Commission in the Arizona Public Service Company cases. In 1972, in 1973, and again in 1975 I testified regarding fair rate of return for Mountain Bell on behalf of the Arizona Corporation Commission. In 1973 I testified regarding fair rate of return for Sun City Water Company, Mohave Electric Division, Mohave Water Division, Santa Cruz Electric Division, and Santa Cruz Gas Division of Citizens Utilities Company before and on b'ehalf of the Arizona Corporation Commission. In 1975 I testified regarding fair rate of return for Santa Cruz Gas Division of Citizens Utilities Com-pany before and on behalf of the Arizona Corporation Commission. In 1976 I testified regarding fair rate of return for Sun City Water

Company, and Sun City Sewer Company before and on behalf of

the. Arizona Corporation Commission. In 1974 I testified regarding fair rate of return for Sun City Water Company before the Superior Court in Phoenix and for Mohave Electric Division before the Superior Court in Tucson on behalf of the Arizona Corporation Commis sion. In 1973, I testified before and on behalf of the City of Corpus Christi, Texas, regarding fair return for Central Power and Light Company. In 1973, I testified on behalf of the City of Corpus Christi before the Texas Railroad Commission regarding the financial situation of Lo-Vaca Gathering Company and Coastal States Gas Corporation. In 1973, I testified regarding fair rate of return for Potomac Electric Power Company on behalf of the Peoples Counsel before the Public Service Commission of Maryland. In 1971, I testified on behalf of the Lake Michigan Federa-tion before the Lake Michigan Enforcement Conference. In

February, 1972, I testified on behalf of the Lake Michigan Federation before the Price Commission on guidelines for public utility rate increases.

Are you the author of any articles and books? During the last forty years, I have had many articles published in leading economic and business journals. For ten years, from 1941 until 1951, I edited "Business Conditions," a monthly review published by the Federal Reserve Bank of Chicago. For fifteen years, from 1946 through 1960, I wrote the articles on banking, including investment banking and commercial banking, on the Federal Reserve System and other financial subjects for the Enc clo edia Britannica. Book of the Year. I write the articles on savings banking and on savings and loan associations for the Enc clo edia Britannica. Over the years, several interviews with me on the business outlook and on investment policy have been published in Time, in U. S. News and World Re ort, in Business

Week, and in other publications.

Are you a member of and have you participated in professional societies and civic activities? Yes. I am a member of several professional societies and have been active in many of them, over several years. On many occasions I have been on the programs of the Conference of Business Economists, the National Association of Business Economists, the National Industrial Conference Board, the National Tax Association, the American Economic Association, and the Financial Analysts Societies. I am an active member of the Conference of Business Economists, with membership limited to fiftybusiness economists, including the top economists of the nation's largest business firms and financial institutions. In addition

to our own meetings, we meet regularly with the Board of Governors of the Federal Reserve System and with the Council of Economic Advisors. In June, 1957, I testified before the Joint Economic Com-mittee of Congress at their invitation on the bearing of the budget outlook and economic situation on growth and inflation in the American economy. In August, 1962, I again testified before the Joint Economic Committee on Corporate Profits, Cash Flow, and Rate of Return. In 1963, 1964 and 1969, I participated in the symposiums on economic growth and public policy in Washington, D. C., sponsored by the American Bankers Association. In 1962, I participated in the conference on fiscal and monetary policy sponsored by the President's Advisory Committee on Labor-Management Policy. In 1962, I participated in the White House Conference on national economic issues. Early in the post World War II period, I served on the research staff of the Committee fo'r Economic Development. For three years, from 1959 through1961, I served as Vice President of the Chicago Association of Commerce and Industry in charge of the work of the Association in business research and statistics. For six years, I served as a director of the As s o cia tion.

pb ~ From 1951 through 1953, I served on the Committee on Economic Policy of the Chamber of Commerce of the United States. In 1964, in my professional capacity, I prepared a study for the City of Chicago on "Implications of Technological Development for the Economy of Chicago." D For twenty years, I have served as Chairman of the Elgin Plan Commission in the city in which I live. For many years I have been a member of the American Society of Planning Officials. I am a affiliate member of the American Institute'of

Planners, and a supporting member of the Urban Land Institute.

I have served as First Vice-President and Director of the Lake Michigan Federation, President of the Fox Path Association, and Director of the Illinois Planning and Con-servation League. I am a life member of the Sierra Club, The wilderness

Society, and The'Nature Conservancy.

In 1958, I was made a fellow of the American Association for the Advancement of Science. SCOPE OF STUDIES AND TESTIMONY Dr. Langum, what is the scope of your studies and testimony in these proceedings? Carolina Power 4 Light Company requested me to make studies for the purpose of forming an opinion as to a fair and reasonable rate of return, applicable to a net original cost rate base, which it should be afforded the opportunity to earn in its retail electric and utilitybusiness in South Carolina. By a fair and reasonable rate of return, I mean a rate of return which will enable Carolina Power h Light Company to meet the standard of commensurate return, to attract new capital on fair and reasonable terms, and to assure confidence in its financial integrity and maintain its credit. Determination of such a fair rate of return involves first, determination of the cost of debt and'he cost of preferred stock; second, forming a judgment as to a fair and reasonable earnings rate on the common equity; and finally, the combination of such cost components for these segments of capital in an appropriate capital structure. It is my understanding that this Commission utilizes a net original cost rate base, includes construction work in progress in the rate base, and includes allowance for funds used during construction in return. The studies which I have made are contained in the exhibit which I have prepared, entitled, "Carolina Power 4 Light Com-pany, Studies Regarding Fair Rate of Return." Dr. Langum, I show you what has been marked Langum Exhibit No. 1 k for identification, consisting of a cover page, a table of contents, and 91 pages and ask if the Exhibit was prepared by you or under your supervision and direction? Yes, it was, except the pages which were taken from articles in Mood 's Bond Surve and Standard 4 Poor's The Fixed Income Investor which I selected for inclusion in the Exhibit. The Exhibit contains my studies leading to a judgment as to a fair rate of return. Are the figures and facts contained in the Exhibit true and correct to the best of your knowledge and belief? Yes, they are. CAPITALIZATIONAND CAPITALSTRUCTURE RATIOS ~ Now, Dr. Langum, turning to Page 1 of the Exhibit, willyou comment on the construction expenditures of Carolina Power Light Company and how they have been financed? Over the years Carolina Power h Light Company has made sub-stantial construction expenditures to expand and to improve its electric facilities. As shown on Page 1 of the Exhibit, gross property additions, including nuclear fuel additions, reached a record high of $422. 5 million in 1974. In the twelve months ended August 31, 1975, such construction expenditures totalled $384.4 million. By far the predominant source of funds used for construction expenditures has been external financing--sale of common stock, sale of first mortgage bonds and other long-term debt, sale of preferred stock, and net increase in short-term borrowings. As indicated on Page 2, during the last six

years, external financing has comprised from 84 percent to 103 percent of total funds used for construction, excluding amounts charged to utility plant representing the allowance for funds used during construction.

These are extremely high ratios of external financing to total funds used for construction. Are construction expenditures by Carolina Power 4 Light Com-pany expected to remain high during the years ahead? Yes, indeed they are. Meeting growing customer needs under conditions of major inflation, and with adequate concern for environmental considerations, necessitates high and rising con-struction expenditures. As indicated by the Company total construction expenditures are projected at $ 271 million for 1976 and subject to continuing review and adjustment, estimated at $ 826 mil)ion for 1976-1978, even after cutbacks in the construction program.

Willthese construction expenditures likely necessitate high and rising amounts of external financing? External financing willhave to be carried out in substantial amounts because of these large construction expenditures. As can be seen on Page 1 of the Exhibit, internal sources of funds comprise a relatively small portion of total funds used for construction expenditures. In particular, retained earnings from operations, net income less allowance for funds used during construction less dividends for the year, were a negative $ 39, 144, 000 during the twelve months ended August 31, 1975. What has happened to total capitalization of Carolina Power 4 Light Company as a result of the continued sale of securities in the credit and capital markets? The capitalization and capital structure ratios of Carolina Power Ec Light Company for 1962-1975, at year-ends, are shown on Page 3 of the Exhibit. In the twelve-year period total capitalization increased from $ 334. 0 million on December 31, 1972, to $2,213.6 million on December 31, 1975, an increase approaching two billion dollars in total capitalization over the period, a six fold increase. In the two year period from December 31, 1973 to December 31,

1975, total capitalization willhave increased by $ 550 million.

Still referring to Page 3 of the Exhibit, what comprises the capitalization of Carolina Power 4 Light Company? In terms of the balance sheet, some of the capital of Carolina Power 4 Light Company is debt, some is preferred stock and preference

stock, and some is common equity.

The Company long-term debt currently includes 22 issues of first mortgage bondsand six-year notes payable to a bank. Notes payable, including both bank loans and commercial paper, have been outstanding in substantial amount, but were of little size at the end of 1975. Details of these issues are shown on I Pages 4 and 5 of the Exhibit. Preferred stock includes eight issues of preferred stock and one issue of preference stock. Details of these issues are shown on Page. 13 of the Exhibit. Common equity consists, of'course, of common stock and retained earnings. Is it your opinion that measurements of capitalization and capital structure ratios should be on the basis of including short-term debt? It is indeed my very strong opinion that capital structure ratios J.. should be computed on the basis of including sh'ort-term debt, that is, notes payable, in the capitalization. Failure to include short-term debt in the capitalization and capital structure ratios for a utility would simply amount to failure to consider adequately the true degree of coverage of interest and preferred stock dividends and effect of interest charges on earnings for common equity. While certain notes payable are replaced by permanent financing, nevertheless frequently other notes payable before long take their place. The result has been that notes payable have come to constitute a continuing and signi-ficant part of the capitalization and financing of the Company. To assure adequacy of coverage and accuracy of comparison, all my later measurements and consideration of capitalization and capital structure ratios, for Carolina Power 4 Light Company and comparison companies alike, are in terms of total debt, in-cluding bank loans, commercial paper, and any long-term debt due within one year, and the corresponding definition of total capitalization. What have been the capital structure ratios of Carolina Power 4 Light Company during recent years? Page 4 of the Exhibit shows the capital structure ratios for 1962-1975, at year-ends, of Carolina Power 4 Light Company, based on the dollar amounts shown. On December 31, 1975, debt was 52.19 percent of total capitalization; preferred stock was 15.18.percent of total capitalization; and common equity was 32. 63 percent of total capitalization. During 1975, the capital structure ratios of Carolina Power h Light Company have shown major improvement, with a reduction in the debt ratio and a corresponding increase in the common, equity ratio. At the end of 1974, the common equity ratio for Carolina Power 4 Light Company was at about the.lowest level for any company in the electric utility industry. Page 5 of the Exhibit shows changes in capitalization resulting I from estimated financing of Carolina Power L Light Company during 1976. Under present estimates, some increase in short-term debt wi11

occur, The Company expects to sell Common stock in the amount of $ 65 million and may need to offer long-term debt.

Capitalization and capital structure ratios in terms of regulatory concepts for use by this Commission are shown on Page 6 of the Exhibit. On this basis, common equity includes accumulated deferred income taxes - accelerated amortization and deferred job development investment tax credit. Capital structure ratios for December 31, 1975 are debt,

51. 99 percent of total capitalization; preferred stock,

15. Ol percent of total capitalization; and common equity, 33.40 percent.

What capital structure patios have you used in your determination of a fair rate of return for Carolina Power k Light Company? The capital structure ratios which I have used in my study of fair rate of return for Carolina Power 4 Light Company are shown on Page 7 of my Exhibit. In my determination I have used debt,

51. 59 percent; preferred stock and preference stock,

15. 01 percent; and common equity, 33.40 pe'r'cent.

I have used these capital structure ratios for'everal reasons. First, they are realistic based on the present situation of the Company and under current plans for financing and operation of the Company. The capital structure ratios which I have used

are, in fact, the actual ratios which prevailed on December 31, 1

1975.

Second, they are appropriate, in my judgment, within a

range, for Carolina Power 8: Light Company in terms of the basic risks and uncertainties of its business.

Capital structure ratios are extremely important in a fair rate of return study for two basic reasons. First, they provide the weights to be applied to the cost rates for debt, preferred stock, and common equity in obtaining components of the overall fair rate of return.

Second, the cost rates on the various types of capital willvary to some extent with the capital structure ratios.

Cost rates on debt will r'ise to some extent with higher debt ratios. Beyond this, the indicated rate of return on common equity which is fair and reasonable willlikewise vary to a considerable extent with the common equity ratio. The lower the common equity ratio, the higher wi1l be the required rate of return on common equity. Rate of return on common equity and common equity ratio must be stated together and expressed side by side for meaningful measurement and interpretation of earnings experience on common equity. For these reasons, components of capital>> ization and the corresponding capital s'tructure ratios must be defined accurately and used'with care. COST OF DEBT Taking up the cost of debt, what was the imbedded cost of debt to Carolina Power 4 Light Company on December 31, 1975? As shown on Page 8 of the Exhibit, the imbedded cost of debt on December 31, 1975 was 7. 74 percent. This gives effect to total first mortgage bonds and the six-year notes payable to a bank included in long-term debt. Interest requirements and net amortization were $89,424, 878, and total long-term debt was $ 1, 155, 254, 061. Looking ahead to future debt costs for Carolina Power 4 Light

Company, please explain your studies shown on Pages 9 to ll of the Exhibit?

These pages show the yield levels in the credit and bond markets in which Carolina Power 4 Light Company has financed during recent years. First mortgage bonds of Carolina Power L Light Company are now rated Baa. by Moody's and A by Standard Er Poor's. Notes payable to banks are at the prime rate. A study of offering yields on all newly issued public utility bonds rated by Moody's during the last several years is shown on Pages 9 and 10 of the Exhibit. On Page 9 I have shown the averages by years from 1960 through 1975 and for January-March 1

1976, of Moody's averages, computed and published monthly, of yields on newly issued public utility bonds rated Aaa, Aa, A, and Baa and offered publicly.

The changing conditions in the bond market are reflected in the annual averages of offering yields on new debt issues. Average offering yields on newly issued public utility bonds were at the unprecedented average level of 9. 19 percent on A-rated issues in 1970. The average declined to

7. 93 percent in 1971 and to 7. 60 percent in 1972.

During 1973,

however, the average rose to 8. 05 percent and went up further to an average of 9. 75 percent for 1974.

The annual average for 1975 reached a new record at 10.22 percent. Page ll shows offering yields on newly issued public utility bonds rated Aaa, Aa, A, and Baa by months from May, 1970 through March, 1976. The offering yields on newly issued public utility bonds rated A reached a high monthly average of 9. 67 percent on such offerings in June, 1970. Subsequently, the yield dropped to a low monthly average of 7. 36 percent in January, 1972. A renewed rise brought average offering yields on A-rated public utilitybond offerings to 8. 50 percent in January, 1974. During 1975, interest rates on newly issued public utility bonds showed a further'unprece-dented rise with the average for A-rated public utility offerings reaching

11. 05 percent in August,

1974, as shown in the lower righthand corner on Page 10 of the Exhibit.

During 1975, average offering yields on A-rated public utility bonds ranged between

9. 42 percent and 10. 94 percent.

Recent A-rated public utility bond offerings have been at lower levels. The average offering yield for January-March 1976 was 9.13 percent. Any debt financing, even at this lower interest rate, would, of course, increase the imbedded cost of debt. Page ll of the Exhibit shows the highs and lows in the com-mercial bank prime loan rate from 1960 to date. The prime rate reached a high of 12 percent in 1974. Currently the predominant rate is 6-3/4 percent. VFhat is the cost of debt to Carolina Power 4 Light Company? In my judgment the cost of debt to Carolina Power 4 Light Company is 7. 74 percent, as shown on Page 12 of the Exhibit. This judgment is based on the imbedded cost of debt, at Decem-ber 31, 1975, as shown on Page 8 of the Exhibit. COST OF PREFERRED STOCK AND PREFERENCE STOCK What was the imbedded cost of preferred stock and preference stock to Carolina Power 6 Light Company on December 31, 1975? As shown on Page 13 of the Exhibit the imbedded cost of preferred stock and preference stock to Carolina Power 0 Light Company was 8. 01 percent on December 31, 1975. Dividend requirements were $26, 925, 795 and amount outstanding was $ 336, 018,400. Please explain Pages 14 and 15 of the Exhibit? Pages 14 and 15 show average offering yields on major non-convertible preferred stock issues by electric utilities, by years from 1966 through 1975 and for January-March

1976, on Page 14 and by months from January 1975, through March 1976, on Page 15.

Data are shown for all issues and for issues rated AA, A, and BBB by Standard 4 Poor's. The cost of average offering yields on preferred stock issues has generally paralleled that on new bond issues. As shown on Page 14, the average offering yield on all issues was 8. 98 percent in 1970; declined to 7. 55 percent in 1972 and 7. 70 percent in 1973. Again, there was a sharp rise to 10.27 percent during 1974 and to 10. 71 percent during 1975. For the period January-March 1976, the average has been 9. 08 percent.

E As in the case of debt, any preferred stock financing, even at this lower dividend yield, would, of course, increase the imbedded cost of preferred stock. What is the cost of preferred stock and preference stock to Carolina Power 4 Light Company? In my judgment, as shown on Page 16 of the Exhibit, the cost of preferred stock and preference stock to Carolina Power E: Light Company is 8. 01 percent. This is based on the imbedded

cost, as of June 30, 1976 estimated.

FAIR RATE OF RETURN ON COMMON EQUITY Turning now to the matter of fair and reasonable earnings on the common equity of Carolina Power 'k Light"< 'g " ompany,'ill you explain your approach to this determination? In my determination of fair rate of return, I:".ave assumed no basic change in present institutional arrangements for financing electric utilities. By this I mean that the ret'n after income taxes included in revenues paid to the compan'y customers supports the capital structure and attraction of new capital. The criteria for fair rate of return are return commensurate with the earning experience of co;nparison cc mparies'; maintenan -e of,credit and support of financial integrity; a::d attraction of canital-and on fair and reasonable terms. The studies which I have made in this connection are outlined on Page 17 of the Exhibit. These criteria have been stated in the leading decisions of the United States Supreme Court., The United States Supreme Court stated in the Blucfield Case (1923): "A utility is entitled to such rates as will'permit it to earn a return on the value of the property which it employs for the convenience of the public eaual to that generally being made at the same time and in the same gener 1 part of the cou.try on investmcnts n other business u".dcr-takings ivhicn are attended by corresponding risks and. uncc rtaintie s... " II Tl* '>> ':C '*~H*C (1943): ll... By that standard the return to the equity owner should be commensurate with thc returns on investments on other enterprises having corresponding risks. That return,

moreover, should be sufficient to assure confidence in the financial integrity of the enterprise, so as to maintain its credit and to attract capital, "

l My approach to determination of fair rate of return on common equity is a combination of commen'surate return and'ttraction of capital on fair and reasonable terms and maintenance of credit and support of financial integrity. It thus is based upon all the established tests of fair rate of return. 'In terms of commensurate return or comparable

earnings, selection of comparison companies has been in terms of basic concept, with.consideration given to business

f I characteristics, investment stature, similar approaches by regulatory commissions, and comparable accounting and rate-I making treatment. Reliance has been placed on the earnings experience on common equity of electric utilities in original cost jurisdictions without flow-through. By original cost jurisdictions, I mean those states which use book figures only in determination of rate base. By without flow-through I mean those companies and states in which the reduction in current income taxes from liberalized depreciation and invest-ment tax credit are offset by a charge for normalization or amortization in the income statement and do not increase reported operating income and net income for common by such reductions in current income taxes. Operating electric utilities in original cost jurisdictions without flow-through are the most comparable business undertakings and the closest alternative investment opportunities to Carolina Power 4 Light Company in its retail operations in South Carolina. Measurement of earnings experience on common equity has been in terms of rate of return on common equity and the corresponding common equity ratio. Common equity ratios, of course, have critical importance. Thc quality of reported earnings is.,ignificant too, with particulai'egard to i]cc role of allowance for funds used during construction. In terms of attraction of capital on fair and.reasonable terms and maintenance of credit and support of financial I integrity, emphasis has been placed upon studies of market price of common stock of electric utilities in relation to book

value, and upon studies of first mortgage bond offerings and preferred stock offerings of electric utilities with ratings of A and "a" by Moody's and A by Standard k Poor's, a minimum and reasonable goal for ratings on the first mortgage bonds and preferred stock for Carolina Power 5 Light Company.

In summary, a fair and reasonable allowance on the common equity of Carolina Power 4 Light Company should be determined in terms of the ratio of net income for common equity to the book value of common equity. It must meet the standard that the return on the common equity investment should be commensurate with the return on common equity investments in other enterprises having corresponding risks. It must thus measure up to, and meet,'he earnings experience on common equity in the closest alternative investment opportunities, taking into account any differences in risk and the common equity Jratio. It must provide for maintenance of credit and assure con-fidence in financial integrity. It'must provide for the attraction of capital - and on fair and reasonable terms. The American Econom and Cor orate Profitabilit Please discuss the broader matter of earnings experience of companies generally in the American economy, with varying conditions of real growth and inflation? The difficulties which many electric utilities are experiencing are related, of course, to developments in the American economy. The record of changing economic conditions, in the American

economy, for 1946 through 1975, is shown on pages'21-22 of the Exhibit in terms of real growth, inflation, and corporate profit-ability in the American economy.

Referring to page Zl of the Exhibit, the record of real . growth and inflation in the American economy is shown for the post World War II period, from 1946 through 1975 in terms of percentage changes year-to-year. Real growth is shown in terms of gross national product stated in constant dollars. Real growth over the years has been substantial. Recessions occurred in 1949,

1954, 1958,

1961, 1970, and again in 1974 and 1975.

Real output in calendar year 1974 was down l. 8 percent from calendar year 1973 and in calendar year 1975 was down 2. 0 percent from calendar year 1974. Similarly, referring to the last column at the right, on page 21 of the Exhibit, total real disposable personal income declined by l. 7 percent in 1974, the first year-to-year decline in a quarter of a century. In 1975 there was an increase of

l. 6 percent..

This reflected, in part, the ravages of inflation, as well as the effects of recession. The record of inflation is shown in the middle columns. Inflation has continued and accelerated. The price indexes for calendar year 1974 ended up at 10 percent and more over 1973 - a two digit degree of inflation. In 1975 the gross national product price index was up 8-.8 percent over 1974. On page 22 of the Exhibit is shown the general record of corporate profitability in the American economy for 1946 through )975. Rate of return on equity for all manufacturing firms reached a new high in 1974 - 14. 92 percent with about a 70 percent equity ratio, Profits of unregulated corporations were generally extremely high in 1974, largely as a result,

however, of inventory profits.

Operating profits were in a severe squeeze. Reported earnings were down substantially in 1975, largely due to collapse of inventory pro'fits. Operating profits, however, have been surprisingly strong. In 1976 there has been a record resurgence of corporate profits generally, with an increase in aggregate of 25 to 35 percent underway. With inflation has come the high interest rates and pre-ferred stock dividend yields shown on pages 9-11 and pages 14-15 of the Exhibit. The effects of inflation on operating expenses and on plant costs and on high interest rates and preferred stock dividend yields have been prime causes of the sharp deterioration in the earnings experience of electric utilities. Concurrently, the lower earnings experience on common equity has meant lower coverage ratios on bonds and preferred stock for electric utilities generally. Some electric utilities,have been very hard hit and so much so that the electric utility industry is, in effect, in deep depression. This poses a serious problem of analysis, which I shall deal with in my interpretation of the data on earnings <<x-perience on common equity. This is the r~eason for exclusion of certain companies from use as co'mparison companies in test of commensurate return, in which I use earnings data for 1971,

197Z, 1973,

1974, and 1975.

Investment Stature In connection with your test of commensurate return, Dr. Langum, willyou comment on the investment stature of Carolina Power k Light Company? Investment stature is an important criterion of comparability. Seven specific tests of investment stature in terms of ratings and characteristics of securities were used in my studies of this criterion. Page 20 of the Exhibit shows the results of the application of these seven tests to Carolina Power

a. Light Company.

The first test is Moody's bond ratings of senior debt. The first mortgage bonds of Carolina Power 4 Light Company are rated Baa by Moody's Investors Service, Inc., as shown on page I 20. The second test is Standard 4 Poor's bond quality rating on senior debt. The first mortgage bonds" of Carolina Power 8z Light Company are rated A by Standard

a. Poor's, The third test is Moody's rating of preferred stock.

The preferred stock of Carolina Power 4 Light Company is rated "baa" by Moody's. The fourth test is Standard L Poor's quality rating of pre-ferred stock. The'preferred stock of Carolina Power L Light Company is rated A by Standar'd L Poor's. Please discuss your fifth, sixth, and seventh tests which have to do, I believe, with common stock? These tests relate to common stock. The fifth test of investment stature is Moody's basic in-vestment quality ratings as stated in Mood 's Handbook of Common Stocks. These quality ratings run from High Grade or High Quality, to on down to Investment Grade, and then to Medium Grade, and to Speculative. The common stock of Carolina Power 4 Light Company is characterized by Moody's as "Medium Grade. " The sixth test is earnings and dividend rankings for common stocks by Standard Ec Poor's Corporation, Standard 4 Poor's rankings of common stocks are designed to

indicate, by use of symbols running from A+ to C, tlic relative stabilit:y and growth of'arnings and relative stabilit,y and growth of dividends.

These rankings are published in the Security Owner's Stock Guide. The common stock of Carolina Power 4 Light Company is ranked A-by Standard 4 Poor's Corporation, as shown on page 20. The seventh test of prime investment stature is that of dividend record. Carolina Power 4 Light Company'has paid a dividend on its common stock each year since 1937. The ability of a company to maintain, through good and bad times, an uninterrupted flow of dividend payments to stockholders is a clear indication of underlying strength and stability. Investment comparisons frequently list common stocks with a sustained dividend.record of 25 years or longer. 'Studies of the dividend record have been zrade on the basis of data fr rn oStandard 4 Poor's Corporation published in the ~Securit Owners's St ock Guide, and from Moody's Investors Service, Inc,, published in Mood ' Public Utilit Manual.

%'hat are the electric utilities listed at the left on pages 21>>23 of the Exhibits The 39 electric utilities listed at the left on pages 21-23 of the Exhibit, by jurisdictions, comprise all major electric utility companies in the United States, both those with publicly-held common stock and the operating subsidiaries of holding conipanics, in original cost jurisdictions without flow-through.

Investment stature of holding compani'es operating primarily in original cost jurisdictions is also shown. Dr, Langum, ~hat is the basis for your characteriz',ations of various state jurisdictions as original cost or Lair value jurisdictions 7 s) l am expressing an economic opinion, of course, and not a legal opinion, for I am not a lawyer. The type of rate base used in a given utilityjurisdiction is, however, an e.ssential I and commonplace part of financial analysis and investment decision. My judgment as to the regulatory approaches used in these states ha.s three bases'. first, the statutes, court 4 decisions, and commission orders in several of these states to which counsel for various companies and public bodies have directed my attention and special studies which I have ~ ~ made on the basis of these decisions and orders;

second, the analysis of methods of rate base determination generally applied given in the pamphlet, Federal and State Commission Jurisdiction and Be ulation of Electric, Gas, and Tele hone Utilities, 1973 prepared by the Federal Power Commission, in cooperation with the National Association of Regulatory Utility Commissioners; and third, the analysis of regulation by state public utility commissions and representative utility rate case decisions prepared by Moody's Investors Service, Inc., and published in Mood 's Public Uti)it Manual,

1967, pages a140-al41, al45-a151.

Will you now discuss the investment stature of the electric utilities listed at the left on pages 21-Z3 of the Exhibit? I These electric utilities, in original cost jurisdictions without flow-through, have investment stature, as shown on pages Zl-23. Their senior debt is typically rated Aa and A by Moody's and AA and A by Standard 4 Poor's. Their pre-ferred stock is typically rated "aa" and "a" by Moody's and AA and A by Standard 4 Poor's. Their common stocks have typical investment quality references from Moody's as High Grade or Investment Grade. Their common stocks have typical earnings and dividend rankings by Standard k Poor's or A, with some A+ and some A-. They typically have a long, sustained dividend record, usually of at least 25 years. These companies, on balance, have a degree of investment stature, closely comparable and even somewhat superior to that of Carolina Power L Light Company. They are very close alter-native investment opportunities to Carolina Power Ez Light Company. Earnin s Ex erience on Common E ui As Guide to Commensurate Return Why is the matter of earnings experience on common equity among close alternative investment opportunities so important for fair rate of return on common equity? Common stock investors are equity investors.'hey are not buying a bond or preferred stock with fixed interest or dividend and limited type of risk. Common stock investors are buying owners'hip in the business enterprise, with the risks and opportunities which that necessarily involves. This means that they expect earnings on their investment, and dividends from those earnings, and growth in dividends and earnings. In short, common stock investors require adequate earnings potential for the future as an inducement to make the investment, It follows that all the ultimate determinants of earning power. on common equity are the basic considerations involved in the cost of common stock capital.< The~

too, and crucial in importance, we must remember that all of these matters for one company arh necessarily appraised in terms of the corresponding considcra-tions in alternative investmcnt opportunitics.

Appraisal of equities in the capital markets=can only bc made.on the basis of comparison. Furthermore, it is the earnings on common equity ~ ' which provid~~ the support for meeting coverage ratios on bon'ds and on preferred stock. Adequate earnings experience on the common equity of Carolina Power 4 Light Company is required to support the attraction of capital, both debt and pre-ferred stock, as well as common stock, which lies ahead. Dr. Langum, in connection with your test of commensurate return, let us now go into the matter of earnings experience on common equity of the comparison companies. Willyou explain your studies in this respect? The earnings experience on common equity during recent years of electric utilities in original cost jurisdictions without flow-through is shown on pages 24-27. These are the electric utilities previously described. I shall make use of the earnings exper-ience of certain of these companies in determination of the fair rate of return on common equity of Carolina Power 8z Light Company. For each of the companies for each year 1971 through 1975, the rate of return on the book value of common equity is shown, with the corresponding common-equity, ratio shown just below. For example, the data in the upper right hand column of page 26 indicate that in 1975 Central Louisiana Electric Company earned a rate of return of 17. 57 percent on common equity, with a 33. 04 percent common equity ratio. Qualit of Re orted Earnin s Allowance for Funds Used Durin Construction Please explain pages 28<<29 of the Exhibit? Allowance for-funds used during construction'as percent of net income for common is shown on pages 28-29 for the 39 electric utilities in original cost jurisdictions without flow-through. Please comment on the record of earnings experience on common equity of the electric utilities during recent years? The record of earnings experience on common equity of the electric utilities during recent years in terms of averages on these broad groups is quite clear. From 1963 through 1966, earnings improved, with higher rate of return on common equity at about the same common equity ratio, and with little role of allowance for funds used during construction. From 1967 through 1970, earnings declined, with lower rate of return on common equity, at lower common equity ratio, and with increased role of allowance for funds used during construction. From 1971 through 1974, earnings deteriorated sharply, with much lower rate of return on common equity, at even lower common equity ratio, and with poor quality of earnings because of the major role of allowance for funds used during construction. In 1975, the earnings experience remained about'he same as in 1974. %'hat is the significance of this increased role of allowance for funds used during ao'nstruction7 The increased role of allowance for funds used during construction has great significance, in my opinion, at least in three re-spects. First, the inczeased role of allowance for funds used during construction has substantially lessened the quality of reported earnings for common equity. The allowance for funds used during construction is entirely proper but is essentially a bookkeeping adjustment. Earnings from allowance for funds used during construction have an important defect, namely, that there are no current cash

revenues corresponding to these earnings. The portion'f net income for common derived from return, that is, operating income, is far more meaningful and stable than that portion derived from allowance for funds used during construction. 'Second, the increased role of interest charged to construction has vital significance for use of data from comparison companies, particularly for electric utilities, in determination of fair rate of return. %e must consider net.income for common and rate of return on common equity in the light of treatment of allowance for funds used during construction. %e must remember, furthermore, that to some extent the denominator in the computation of the rate of return on common equity, average common equity, is greater than it would have been otherwise because of the cumulative increases in reinvested earnings from interest charged to construction. Third, the capita'lization of the company has to be supported by return and fair rate of return must be related to a corresponding rate base, including at least some con-struction woxk in progress. This essential, for construction work in pxogress can only be financed through capital. Willyou now describe your study of earnings experience on common equity of Carolina Powe'r k Light Company? Page 30 of the Exhibit shows for Carolina Power 4 Light"'ompany the rate of return on common equity, net income for common divided by average common equity; the common equity ratio, average common equity divided by average total capital; and allowance for funds used during construction as percent of net income for common. In 1975, Carolina Power 8: Light Company earned

11. 94 percent on common equity, with a common equity ratio of 30.14 percent.

Allowance for funds used during construction was 79.02 percent of net income for common. These data, of course, cannot be. used in any direct manner as a guide to a fair rate of return on common equity for Carolina Power 4 Light Company. That would involve clearcut circular reasoning. Can the data on earnings experience on common equity for the I various electric utilities in original cost jurisdictions which you have shown on pages 24-27in the Exhibit be used as they stand as a guide to fair rate of return for Carolina Power h Light Company? The data on earnings experience on common equity for the comparison companies are important. They represent but a starting point, however, as the basis of determination of fair rate of return on common equity for Carolina Power 4 Light Company. They must be given further analysis and proper interpretation in the light of additional considerations. For one thing, the common equity ratio has vital significance in appraisal of data concerning rate of return on common equity and adjustments for differences in common equity ratio between Carolina Power h Light Company and the com-parison companies. For another thing, only companies that are healthy and successful should be used as comparison com-panic s. Common E uit Ratio Will you explain the significance of the common equity ratio in appraisal of data concerning rate of return on common equity? The common equity ratio has vital significance in appraisal of data concerning rate of return on common equity. For any business enterprise, the earnings rate on common equity has three basic determinants. The first of these is the overall rate 'of return on total capital. The second is the cost of senior capital. The third is the common equity ratio, that is, the ratio of the common equity to total capital; Of these'three

factors, by far the most important is the

'rate of return on total capital. This is determined,. of course, by the relationship between sales and expenses and capital in the business undertaking. Necessarily, the overall earnings experienceof the business enterprise is the most important deterMinant of earnings experience on common equity. In turn, the inQuence of the overall rate of return on the rate of return on common equity is influenced and modified by the cost of senior capital and the common equity ratio. The higher the rate of return on total capital< the higher will be the rate of return on common equity, given the same common equity ratio and the same cost of senior capital. The lower the cost of senior capital, the higher will be the rate of return on common equity, given the same rate of return on total capital and the same common equity ratio. The lower the common equity ratio, the higher will be the pate of return on common equity, given the same rate of return on total capital and the same cost of senior capital, assuming as is usually the case that the c'ost of senior capital is below the rate of return on total capital. In these circumstances, the common equity ratio has great significance in appraisal of earnings experience. Both the com-mon equity ratio and corresponding degree of financial risk must

be considered side by side with the percent earned on common equity, that is, the ratio of earnings for common to common equity. The reason for this is that with a given rate of return on total capital, the lower the ratio of common equity to total capital, the higher necessarily should and willbe the ratio of earnings to book value of common equity. In turn, the reason for this is that more senior capital, that is more preferred stock and more debt, introduces more leverage for the common stock equity. Page 31 of the Exhibit presents an example of'this relationship. Comparison is made of six companies, each with the same rate of return on total capital, but with different common equity ratios. Suppose that the relationship between sales and expenses and capital in each of these business 'undertakings is such that on the total capital invested of $1,000, the total income earned is $100. 00, and the rate of return on total capital is10. 00 percent. In Company A, there is no debt and no preferred stock. In these circumstances, all of total capital invested is common equity. The common equity ratio is 100 percent. Allof income for capital goes to net income for common. The rate of return on common equity, net income for common divided by common equity, is 10.00 percent, the same as the rate of return on total capital. In Company B, with $400 borrowed funds, the owner has invested only $600 of his own common equity money. In this

case, with total capital of $ 1, 000 invested in the business, the common equity ratio is 60 percent.

'The senior capital is en-tirely debt. At a debt cost of 7.5 percent, the interest charges would be 7. 5 percent of$400or $ 30. 00. When this interest on debt is deducted from the $100. 00income for capital, $ 70. 00 would be left for the owner's equity of $600. That would be a rate of return on common equity, $ 70.00 divided by $600, or ll. 67 percent. In Company C, more is borrowed, say a total of $ 500, The owner would then have to put up only $ 500 of his own common equity capital. In this case, the common equity ratio, $ 500 divided by $1,000, is 50 percent. With the interest rate at 7. 5 percent, the interest on debt would be 7.5 percent of $ 500 or $37. 50. When this is deducted from the $100. 00 total income, $62. 50 would be left for the owner's common equity of $ 500. The rate of return on common equity, $62. 50 divided by $ 500, would be 12. 50 percent. In Company D, the common equity ratio is 4'0. 0 percent. The rate of return on common equity rises to 13. 75 percent. In Company E, still more is borrowed, say a total of $650. The owner would then have to invest only $ 350 of his own com-mon equity capital. In this case, the common equity ratio, $ 350 divided by $1000, is 35.0 percent. If the interest rate is

7. 5 percent, the interest on debt would be 7. 5 percent of $650 or $48, 75.

When this is deducted from the $100. 00 total income, $ 51. 25 would be left for the owner's common equity of $350. The rate of return en common equity, $ 51,25 divided by $350, would be 14. 64 percent. In Company F, the interest rate has gone up to 8. 0 percent as a result of the higher debt r'atio. Interest on debt is now $ 52. 00, and net income for common is $48. 00. At the common equity ratio of 35. 0 percent, the resultant rate of return on common equity would be 13; 71 percent. Thus, with the same overall rate of return on total

capital,

10. 00 percent, the rate of return on common equity would go up from 10. 00 percent to 14. 64 percent, as the common equity ratio went down from 100 percent to 35.0 percent.

An increase, in the rate of return on common equity to 13. 71 percent would come about even with the increase in debt costs which might be expected at a higher debt ratio.

But this, of,course, also means more risk for the common shareholder. The existence of more senior capital in the capital structure, and hence more leverage, creates an .opportunity for higher earnings on the common equity if there are favourable earnings for the Company overall. But it also accentuates the hazard of lower earnings for common equity with an unfavourable rate of return on total capital, for the interest on debt and dividends on preferred stock'must be met before there are any earnings for common equity. In our example, suppose that the total income in Company F were to drop 20 percent, from $100. 00 to $80. 00. The rate of return on total capital declines from 10. 00 percent to 8. 00 percent. But the income for the owner of the business, with a common equity ratio of 35. 0 percent and debt cost of 8. 0 percent would be cut from $48.00 to $28.00 or by 42 percent. The rate of return on common equity would drop from 13. 71 percent to

8. 00 percent.

And if the situation deteriorated further, when total income gets dovrn to $ 52. 00 or a rate of return on total capital of 5.20 percent, the earnings for the owner would be nil. Beyond that, total income would fall short of meeting the interest due and the owner wouM lose the business. Thus, the common equity ratio is of vital significance in appraising the earnings record on common equity of a given business undertaking and likewise in comparing rates of earnings on book value among various enterprises. The rates of return on common equity in two businesses of the same risk and un-certainty can be directly compared only if their common equity ratios are close or are the same. 'If their capital structures are different, the fact must be considered and proper adjustments I made in comparing the two rates of return on common equity. How can differences in common equity ratios be considered in comparing rates of return on common equity among various business enterprises with different common equity ratios? E Such differences in common equity ratios may be considered in various ways, depending on the degree of precision desired. First, a judgment adjustment in general terms may be made. In this connection, sometimes rate of return on total P capital is simply compared with rate of return on common equity. \\

Second, comparison may be made in terms of components for common equity--the product of rate of return on common equity and common equity ratio.

This procedure does not give effect to varying cost components for senior capital with varying capital structures.and is therefore incomplc tc. Comparison of conipon~nts for common equity does,, however, reflect thc conibination ot'ate

49 'of return on common. equity and common equity ratio. Third, proper adjustni'enl,s for differences in cotnnion <<qitity ratio noway bc nxade in precise ternis under specified assoil~>tions. Rate of return on common equity at a given. common equity ratio may be restated in terms of another corn'mon equity ratio. 'his is precisely analagous to restating a distance measured as 7 yards into the equivalent of 21 feet. Dr. Langum, you have made the statement that if the capital structure ratios are different among various business under-takings, that fact must be considered and proper adjustments made in comparing the rates of return on common equity. Will you explain how such an adjustment can be madel'he method of such an adjustment of rate of return on common equity for a different common equity ratio is shown on page 32 of the Exhibit. Please explain page 32? On page 32 the method of adjustment for different common equity ratio is shown as applied to the earnings experience in 1973 to Kansas Power L-. Light Company, one of the electric utilities in original cost jurisdictions without flow-through. Reference to page 25,of the Exhibit indicates that in 1973 Kansas Power 4 Light I earned

12. 50 percent on common equity, with a 45. 62 percent common equity ratio.

On'this basis, the component "for common equity in the average overall rate of return for this company in 1973 would be 12. 50 percent times.4562 or 5. 702 percent. At a 33. 4 percent common equity, the figure which I am using for Carolina Power 4 Light Company, there would be less common equity, and more debt, a change of.1222 percentage points. At an interest rate of 4. 90 percent--the actual imbedded. interest rate on average total debt for Kansas Power 4 Light in 1973-- this would mean, in terms of the components for overall rate of

return,

0. 599 percent more interest and less earnings for common equity.

The resultant component for common equity at a 33.40 percent common equity ratio would be 5.103 percent. The resultant rate of return on common equity at a common equity ratio of 33.40 percent would be 15.28 percent. Kansas Power 4 Light in 1973 earned

12. 50 percent on common equity at a common equity ratio of 45.62 percent.

Assuming for Kansas Power 5 Light the same rate of return on total capital and the same rate of interest on total debt, as it actually experienced, this was the equivalent of 15. 28 percent at a common equity ratio of 33.4 percent. Again, this is precisely analogous to restating a distance measured as 7 yards into the equivalent of 21 feet. A common equity ratio of 33. 4 percent is what I am using in my study of fair rate of return for Carolina Power L Light Company in analysis of earnings experience of comparison companies. In the example on page 32, I have adjusted the actual earnings experience of Kansas Power 8: Light to the equivalent at a 33. 40 percent common equity ratio. The in-dication from the earnings experience on common equity in 1973 for Kansas Power k Light is that Carolina Power 4 Light Company should be afforded the opportunity to earn about 15. 28 percent on common equity at its oommon equity ratio of 33. 40 percent. Earnings rates of the comparison companies must be stated in terms of that common equity ratio for accurate comparison and meaningful application to Carolina Power 4 Light Company. Please explain pages 33-34 of the Exhibit? On pages 33-34 of the Exhibit, the rate of return on common equity is shown, as adjusted to the 33.40 percent common equity ratio for Carolina Power 4 Light Company, for the operating electric utilities in original cost jurisdictions without flow-through. For example, the rate of return on common equity, adjusted to

33. 40 percent common equity ratio, for Kansas Power 4 Light-

15. 28 percent in 1973 - is shown at the lower right on page 33 of the Exhibit. Allof the data on rate of return on common equity shown on pages 24-through 27 have been. so adjusted to the 33. 40 percent common equity ratio 'for Carolina Power Ec Light Company' Earnin s Ex erience on Common E uit 0 eratin Electric Utilities Used as Com arison Com anies In Test of Commensurate Return Dr. Langum, to what factors other than differences in common equity ratios have you given consideration in application of the earnings data for electric utilities in original cost jurisdictions without flow-through in forming a judgment as to fair rate of return for Carolina Power 4 Light Company?

Consideration has been given as well to the general economic

health, so to speak, of the companies.

It is extremely important in using the earnings experience on common equity of other comparable utilities as a guide to fair rate of return for Carolina Power 4 Light Company that only companies that are healthy and successful be used as comparison companies.,Carolina Power 4 Light Company is entitled',to have its fair rate of return determined so as to be commensurate with the returns of other electric utilities, otherwise comparable, that are healthy and successful. Its fair rate of return should not be determined so as to be commensurate with the returns of other electric utilities that are sick and unsuccessfulor at the other extreme, that are earning excessive and unduly high returns. In this connection, please explain pages 35-39 of the Exhibit? Carolina Power 'k Light Company should be afforded the opportunity of earnings a rate of return commensurate with that earned by healthy, successful companies rather than financially sick and unsuccessful companies. Accordingly, I have excluded certain companies. from use as comparison companies in the test of commensurate rate of return. The companies so excluded from use as comparison companies and the reasons for my judgment are shown on pages 35-39 of the Exhibit. Exclusion has been for the four years 1971 through 1975 or for a single year alone or groups of years. Companies have been so excluded from use as comparison companies on the basis of definite criteria; if allowance for funds used during construction was 50 percent or more of net income for common, if investment stature is inadequate; if the company encountered serious difficultieis in financing because of inadequate coverage ratios; if rate of return on common equity is significantly below that permited by the company's regulatory authority. .At the other extreme, one company, Iowa Southern Utilities

Company, has had its rate of return adjusted downward to give effect retroactively to reduction of electric revenues with settle-ment of rate proceeding.

Another company, Southwestern

54 Electric Power Company, has been excluded because its earnings experience has been such as to raise a question of excessive and unreasonable rate of return. These data on individual companies, such as shown on pages 35-39 are very important, for they enable me to make sure that I was not relying upon what might be called problem companies which are not earning a fair return and are not being able to finance adequately or properly, as a guide to fair rate of return for Carolina Power L Light Company. Assurance in this respect is crucial for so many electric utility companies have been in such dire circumstances that it can truly be said that the industry has been in deep depression, in serious crisis, or even on the ropes. In the light of this analysis, please explain pages 40-'42 of the Exhibit? The earnings experience on common equity of electric utilities in original cost jurisdictions without flow-through during recent

years, that is,

1971, 1972,

1973, 1974, and 1975, is shown on these pages.

Rate of return on common equity has been adjusted to the 33. 40 percent common equity ratio which I am using in r forming my judgment as to fair rate of return for Carolina Power k Light Company. On each page, earnings experience on common equity is shown with the rate of return crossed out for companies ex-eluded from use as comparison companies in test of commen-surate rate of return. Averages for the companies used as comparison companies in test of commensurate return are shown on page 42 of the Exhibit. Rate of return on common equity adjusted to the 33.40 percent common equity ratio, for the electric utilities in original cost jurisdictions without flow-through used as comparison companies in test of commensurate return averaged

14. 44 percent in 1971,

14. 79 percent in 1972,

14. 39 percent in 1973,

14. 63 percent in

1974, and 13. 77 percent in 1975.

The average for allowance for funds used during construction as percent of net income for common is shown, as is the number of companies used. What conclusion do you draw from these averages shown on page 42 of the Exhibit? The averages shown on page 42 of the Exhibit point to a judgment as to fair rate of return on common equity from operations for Carolina Power 4 Light Company of 14. 50 percent, at a common equity ratio 'of 33. 40 percent. Have you compared this fair rate of return on common equity from operations for Carolina Power L Light Company with other data to check on its reasonableness?

Yes. I have. The fair rate of return on common equity, ex-cluding allowance for funds used during construction from return, being awarded electric utilities by regulatory com-missions in original cost jurisdictions is at least 12. 50 percent to 13. 00 percent, on average, or somewhat higher. Thus, these judgments including allowance for funds used during construction, support a fair rate of return on common equity of 14. 50 percent. Furthermore, this fair rate of return on common equity from operations is "in line" with historical re'lationships of earnings experience of electric utilities to that of unregulated companies. Earnin s Ex erience on Common E ui Industrial Com anies with Qualit Rankin of Hi h Grade b Mood 's In this connection, please explain the study of industrial companies you have shown on pages 43-47 of the Exhibit? Another study of earnings experience on common equity is shown on pages 43-47 of the Exhibit. Rate of return on common equity and common equity ratio is shown on pages 43-47 of the Exhibit for the 53 industrial companies with quality ranking of High Grade by Moody's. In terms of the averages, shown on page 47, the 10 oil companies on the list have been shown separately because of current attention to their marked step-up in earnings, in connection with the energy crisis.,The other 43 companies also experience a marked improvement in earning power in 1973 and 1974 as compared with 1972. These companies earned . 18. 29 percent on common equity in 1973, with a common equity ratio of 79.43 percent. Their rate of return on common equity averaged

16. 65 percent in 1974, with a common equity ratio of 78. 14 percent.

The general tendency for a corporate, profit squeexe from 1965 to 1972 had affected these companies. These companies,

also, have seen a change to a lower common equity ratio over recent years.

What are the reasons in particular, for studying unregulated companies, such as the industrial companies rated."High Grade" by Moody's? In my opinion, there are three basic reasons for, giving con-sideration as background information to the rate of return earned by comparable unregulated companies, such as the industrial companies rate "High Grade" by Moody's. Throughout, in this consideration, we must give adequate weight to the major differences in degree of risk, all factors considered, between even the most comparable unregulated companies and regulated utilities.

First, public utilities must compete in the capital markets not only against other regulated enterprises but against unregulated businesses as well. Hence, the return to capital in such nonregulated enterprises is particularly significant and relevant. The realities of competition by business firms in the capital markets and scope and variety of investor choice necessitate con-sideration of an equally wide range of alternative investment oppor-tunities. Accordingly, a fair rate of return for a given company under consideration must enable that company to compete for debt capital and common stock capital alike for fair and reasonable terms with the full scope of alternative investment opportunities. A second consideration has to do with the very reasons and inherent occasion for regulation. Regulation is the substitute for competition -- the combination of market forces and market power which would determined services and set rates in other circumstances -- for business undertakings in areas where they cannot be allowed to compete. Operating characteristics necessitate generally that utilities operate under franchises and they they do not engage in specific competition in regard to their services and are therefore regulated to assurate fair and reasonable rates for services of good qulity. It likewise follows that fair regulation will set rates for public utilities which will provide a return related<o.that+eing earned by other enterprises

. of comparable nature in respects other than that they are regulated in the price they charge. The third reason is the necessity of getting outside the circle of regulatory experience. An adequate test of comparable earnings must ncessarily involve consideration of nonregulated enterprises in addition to that of other utilities. As an approxi-mation and initial step in a test of comparable earnings in determination of fair rate of return for a given utility enterprise, we must look at the earnings exper~ceof other public utilities. These are among the closest of other comparable business undertakings. But ifwe look only at other regulated utilities in a test of comparable earnings, to some.extent we go around in a -circle. Under such procedure, the return to the subject utilitywould be guided by other regulatory experience rather than by the fundamental concept of regulation as the substitute for competition. Only by consideration of unregulated companies do we take the ultimate and final steps in a test of comparable earnings. Q Please explain your study shown on page 48 of the Exhibit? A On page 48 o.f the Exhibit, I have shown a study of earnings experience on common equity of the 39 operating electric utilities in original cost jurisdictions without flow-through used as com-parison companies in relation to that of the 43 industrial companies, excluding oil-companies, with quality ranking of

-60= High Grade by Moody's. Bate of return on common equity, common equity ratio, and the corresponding component for common equity for the 43 industrial companies has been shown in the middle on page 48. Rate of return on common equity and common equity ratio for the 39 operating electric utilities in original cost jurisdictions without flow-through on average is shown in the upper portion of page 48. These date for individual companies were shown pre-viously on pages 24-27 for 1971-1975. The component for common equity in rate of return on total capital has been computed by multiplying rate of return on common equity by common equity ratio. The record of earnings experience on common equity of the 39 electric utilities in original cost jurisdictions without flow-through during recent years in terms of averages for this broad group is quite clear. From 1963 through 1966, earnings improved, with higher rate of return on common equity at a somewhat higher common equity ratio, and with little role of allowance for funds used during construction. The component for common equity rose from

4. 848 percent in 1963 to 5. 332 percent in 1966.

From 1967 through 1970, earnings declined, with lower common equity ratio, and with increased role of allowance 'I for funds used during construction. The component for

common equity declined from 5.332 percent in 1966 to 4,588 percent in 1970. In 1971,

1972, 1973, and 1974 earnings deteriorated sharply, with much lower rate of return on common equity, at even lower common equity 'ratio, and with poor quality of earnings because of the major role of allowance for funds used during construction.

The component for common, equity declined from 4. 588 percent 'in 1970 to 3. 342 percent in 1974. Earnings experience on common equity for the 39 operating electrics in original cost jurisdictions without flow-through used as comparison companies is next related, on page 48, to earnings experience on common'quity of industrial companies with quality ranking of High Grade by Moody's. These are the same 43 industrial companies previously considered on pages 43-47 of the Exhibit, with averages shown on the bottom lines of page 47. For each group for each year, I have computed the component for common equity. The component for common equity is, of course, the product of rate of return on common equity and the corresponding common equity ratio. Thus the common equity component provides an overall measure of earnings experience on common equity. Then I have shown the component for common equity of the above 39 operating electric utilities in original cost jurisdictions without flow-through used as comparison companies as perce'nt of the component for common equity of the above 43 High Grade industrial companies. The data at the lower left on page '48 relate the earnings experience of the 39 operating electric utilities in original cost jurisdictions without flow-through to that of the 43 High Grade industrial companies. The component for common equity of the 38 comparison companies is shown as percent of component for common equity of the 43 High Grade industrials. The components have been in a fairly consistent relationship to each other. During the years 1967 through 1970, the component for common equity for the electric utilities as percent of the component for common equity for the industrials ranged from 31.51 percent to 33. 35 percent. During the years 1971 and 1972, the relationship was 33,. 55 percent and 35,40 percent. During the years 1973 and 1974, when industrial earnings rose to high levels, largely as a result of inventory profits, and earnings of many electric utilities collapsed, the relationship was 2764percent and.25. 74 percent. The indicated fair rate of return on common equity,

14. 50

percent, at the 33. 40 percent common equity ratio, which I am using for Carolina Power L Light Company, and the resulting component for common equity of 4. 84 percent to the components for common equity for the High Grade industrials.

The relation-ship of the components was 33. 31 percent in 1973, and 37, 20 percent in 1974, of the corresponding components for common equity in overall rate of return for the High Grade industrials. It is clear that the electric utility industry.has been able to operate successfully at a much lower rate of return on common equity and at a much lower common equity ratio and hence at a much lower component for common equity than the corresponding measurements for the High Grade industrial companies. The component for common equity has averaged about one-third of that for the High Grade industrial companies. This evidences a major excess of earnings power on common equity, and, pro-bable degree of risk for the High Grade industrial companies over that for the operating electric utilities. Vfhat other conclusions do you reach from the study on page 48? Other conclusions follow from the study shown on page 48 of the Exhibit. In forming a judgment as to fair rate of return for a subject company, we should give primary consideration to earnings experience of comparison companies during very recent years - 1971,

1972, 1973,1974, and1975.

The decline in .corporate profitability has been general and substantial, and the higher rates of return and coverage ratios of, say,

1965,

, 1966, and 1967 should not be utilized in 1976 as a guide to fair rate of return. At the. same time, we must not forget that many individual companies in the electric utility business are in nothing less than deep depression in terms of earnings experience on com-mon equity. We should avoid use of earnings experience of sick, problem, unsuccessful companies as a guide to fair rate of return for a subject company. Finally, we can confidently utilize appropriate rate of return data for electric utilities during recent years as a guide to fair rate of return, with no fear whatsoever of circular reasoning. Their earnings experience is, in general, very much "in line" with historical relationships with corporate profitability in the unregulated part of the American economy. The sharp drop in the ratio of the component for common equity for electric utilities to that of the High Grade industrial companies which occurred from 197? to 1973 and 1974, however, must remind us of the. low positon of the electric utility industry in current circumstances H 1 in the American economy. It is significant and meaningful, therefore, that the indicated fair rate of return on common equity for Carolina Power 4 Light Company - 14. 50 percent at a 33. 40 percent common equity ratio-is very much "in line" with historical relationships with corporate profitability of these closely comparable firms in the regulated part of the American economy. Indicated Fair Rate of Return on Basis of Test of Commensurate Return What conclusions do you draw, Dr. Langum, from your studies comprising the test of commensurate return? As shown on page 49 of the Exhibit, on the basis of the test of commensurate return, the indicated fair rate of return on common equity for Carolina Power 4 L'ight Company is 14, 50 percent for common equity at a common equity ratio of 33. 40 percent. This is on a basis including allowance for funds used during construction. STANDARDS OF MAINTENANCEOF CREDIT AND SUPPORT OF FINANCIALINTEGRITY AND ATTRACTIONOF CAPITALON FAIR AND REASONABLE TERMS Dr. Langum, referring back to page 17 where you show an outline of the basis of your determination of fair rate of return on book value of common equity, you refer to standards of main-tenance of credit and support of financial integrity and attraction of capital on fair and reasonable terms as well as the standard of commensurate return. Willyou comment on this basis of determination of fair rate of return on common equity'P The standa'rds of attraction of capital on fair and reasonable

terms, maintenance of credit, and support of financial integrity have vital bearing on the required earnings rate on common equity.

For

example, earnings for common should be sufficient, given the general stock market level, to support market price at or above book value and enable sale of common stock on terms which are fair and reasonable to existing common shareholders.

Furthermore, it is the earnings on common equity which provide the support for meet-ing adequate coverage ratios on bonds and on preferred stock. Adequate earnings experience on the common equity of Carolina Power 4 Light Company is required to support the attraction of capital, which lies ahead, both debt and preferred stock, as well as common stock. Market Price of Common Stock In Relation to Book Value and Common Stock Offerin s Will you go on now and explain your studies of required earnings rate on common equity for attraction. of,capital on fair and reasonable

terms, maintenance of credit, and support of financial integrity?

With respect to these standards of fair return as applicable to common stock, I have made the studies of market appraisal of common stock shown on pages 50-54 of the Exhibit. There has been an exceedingly sharp decline in market appraisal of electric utilities during recent years as shown in terms of price-earnings ratios, dividend yields, and market price as percent of book value. In part, the low market appraisal for the electric utilities was due to the dire situation of the industry. In part, however, it was due to the low level of the stock market generally. What has happened to the market price of Carolina Power 4 Light Company's common stock in the light of its earnings experience? The market price of common stock of Carolina Power E: Light Company has declined - - absolutely and relative to e arning s, dividends, and book value. How does market price now relate to book value? Market price, $20. 625, is now, at the close on April 19, 1976, still below book value per share, $ZZ. 1O on December 31, 1975. What is the significance of a situation in which market price is below book value per share? The significance of this relationship ia that Carolina Power 4 Light Company is not able to attract common stock capital on fair and reasonable terms. In a common stock offer in these circumstances, the new buyer of common stock will acquire a share of common stock at the offering price, necessarily closely related to the market price, for less than the book value per share of the common equity owned by the existing shareholders. Thus, there is dilution of the book value of common stock'and failure to support the financi'ai integrity of the Company. '.This is a most serious situation for the Company, for its shareholders and customers alike, and for this Commission. Vhy is this a most serious situation'? Carolina Power 4 Light Company must attract common stock capital,. not only to derive capital funds from sale of common stock, but also to support and make possible the attraction of capital funds from sale of first mortgage bonds and preferred stock. How does Carolina Power 4 Light Company compare in this respect with other electric utilities? Market price as percent of book value is shown on pages 50 and 51 of the Exhibit for the 89 major electric utilities with publicly-held common stock. Market price, at the close on October 22, 1975, is related to book value, on December 31, 1974. The median for the 89 electric utilities is 88. 34 percent. The ratio for Carolina Power Ec Light Company,

77. 96 percent, is shown in the upper portion on page 51.

Let us go on now, Dr. Langum, to consider the attraction of common stock capital on fair and reasonable terms. Please describe your study of common stock offerings of electric utilities shown on page 52 of the Exhibit? The study of common stock offerings of electric utilities during

1972, 1973,

1974, 1975, and 1976 thus far, shown on page 52 of the Exhibit points up the serious problem confronting most electric utilities of ability to sell common stock on fair and reasonable terms.

In 1972, 41 of 45 common stock offerings were with price to public at or above book value. In 1973, 34 of 47 common stock offerings were with price to public at or above book value, In 1974, only 8 of 54 common stock offerings were with price to public at or above book value. In 1975, only 12 of 94 common stock offerings were with I price to public at or above book value. In 1976 thus far, only 7 o'f 25 common stock offerings were with price to.,public at or above book value. What has been the record of common stock offerings of Carolina Power 4 Light Company? The record of common stock offerings and offering price in P relation to book value for Carolina Power h Light Company during 197?-1975 is shown on page 53 of the Exhibit. Price to public per share related to book value per share was 77. 68 percent in the offering on October 28, 1975. This ratio was 63. 50 percent in the offering on January 16, 1975. What do you conclude &rom the studies on common stock offerings of electric utilities? In present circumstances of market appraisal of common stocks of electric utilities, a rate of return on common equity of 14. 50 percent at a comzmn equity ratio of 33.40 percent offers reasonable hope but not assurance that a common stock offering by Carolina Power 4 Light Company can be made on fair and reasonable terms to existing investors. Such an earnings rate is necessary for the support of financial integrity of Carolina Power 4 Light Company. Dr. Langum, so far you have been discussing earnings experience on common equity and the difficulties Carolina Power 4 Light Company finds in attracting common stock capital. Does Carolina Power 4 Light Company face similar difficulties in attracting debt capital and preferred stock capital? Indeed Carolina Power 4 Light Company faces equally serious difficulties in attracting debt capital and preferred stock capital. Long-term interest rates and dividend yields costs are at'high levels. Beyond high interest rates and dividend yields, however, there is the drastic situation of decline in coverage ratios and possible outcome of downgrading in ratings of the first mortgage bonds and the preferred stock of Carolina Power 0 Light Company. Earnings for common equity must be increased or there will be failure to maintain the credit of the Company. What bearing does earnings for common equity have on ratings of first mortgage bonds and preferred stock and the maintenance of the credit of the Company? It's the earnings for common equity.that provide the coverage or the protection of payment of the interest charges and 'referred stock dividends of the Conpany. The present ratings situation on both the first mortgage bonds and of the pre-ferred stock of Carolina Power Ez Light Company is in serious shape because of the sharp drop in earnings experience on common equity in the face of the sharp rise in imbedded costs of debt and preferred stock. Covera e of Fixed Char es Please explain the general system of ratings of debt and preferred stock issues of public utility companies? Moody's Investors Service, Inc. and Standard 8: Poor's Corporation rate public utilitybonds and preferred stock. In terms of their standards and criteria, particularly coverage ratios, Moody's and Standard KzPoor's Corporation rate first mortgage bonds and preferred stock of Carolina Power & Light

Company, always when they are issued, but also on a basis of continuing surveillance of credit standing.

Explanation and key to Mood 's Cor orate Bond Ratin s is shown on page 54 of the Exhibit. Explanation and key to Standard 4 Poor's Ratin s on Cor orate Bonds is shown on page 55 of the Exhibit. In Moody's ratings, gradations of investment quality are indicated by rating symbols, each symbol representing a r group in which the quality c)aracteristics are broadly the same, ... from that used to designate least investment risk (i. e., highest investment quality) to that devoting greatest investment risk (i. e., lowest investment quality). The first mortgage bonds of Carolina Power L.. Light Company are rated Baa by Moody's and A by Standard 4 Poor's. On pages 56 and 61 are recent articles by Moody's on interest coverage and ratings. The role of allowance for funds used during construction is given major emphasis. On pages 57-60 is a recent article by Standard'0 Poor's Corporation entitled, "Fundamental I Approach to Public UtilityBond Ratings." Specific guidelines for pre-tax coverage in relation to ratings are stated in the lower right corner of page 56 and the upper left corner of page 58. Please explain pages 61-67 of the Exhibit? On page 61 is shown the comments by Moody's when they reduced the ratings on the Company's first mortgage bonds to Baa in March 1975. On pages 62-64 are shown the rating articles by Moody's on the $100 million first mortgage bond issue sold in April.1975. On page 65-67 are shown the rating articles by Standard 4 Poor's on that bond issue. The comments by Moody's, shown at the left, under Quality and Rating, on page 62, and by Standard 0 Poor's, shown at the upper left, in italics, on page 66, willbe noted. Please explain pages 68-71 of the Exhibit? The studies shown on pages 68-71 of the Exhibit present in summary form certain results of an exhaustive study. which I have made of every electric utility bond offered during 1975 and 1976 thus far. The study covers identification of the debt offering, quality ratings by Moody's and Standard 4 Poor's, the several fixed charge coverage ratios shown in the prospectuses and by the rating agencies, and the comments and characterizations made by Moody's and Standard 4 Poor's in their rating articles. The studies shown on pages 68 and 69 relate to coverage of fixed charges from 42 first mortgage bond offerings in 1975 and 1976 of electric utilities rated A by Moody's and Standard 4 Poor's. The various groups of companies may be compared in terms of the coverage of fixed charges after income taxes before construction credits for the last twelve months available at date of offering or rating change. The twenty-one companies with ratings maintained at A by Moody's and A by Standard 4 Poor's, shown on page 68, had such a coverage ratio of l. 98 times. The average coverage ratio was 2.10 times for the twelve issues excluding those where significant rate increases were not reflected. On page 69, the twenty-one companies with A ratings but described as "just barely maintained" or "in lower range" of the category, had such a coverage ratio of l. 69 times. The fourteen issues excluding those where significant rate increases are not fully reflected had an average coverage of l. 75 times. Referring to pages 70-72, the fifty-eight issues with ratings of better than A by Moody's and A by Standard 4 Poor's had an average coverage ratio of 2. 20 times. The thirty-six issues, excluding those where significant rate increases are not fully refle'cted, hah an average coverage ratio of 2.40 times.

Why is the maintenance of at least an A rating on first mortgage bonds so important? First mortgage bonds rated Baa or BBB have a much higher I interest cost. Moreover, in the troubled" capital markets of the last two years, it has been impossible much of the time to sell long-term Baa-and BBB-rated bonds of electric utilities. Until very recently, going back to June 1974, it has been virtually impossible to market long-term Baa-and BBB-"rated first mortgage bonds of electric utilities, in particular, and other utilities as well. This is shown on pages 73-75 of the Exhibit. The Baa-and BBB-rated'bonds which have been sold have been largely of short maturities of five to eight years, as shown on page 73 of the Exhibit. Furthermore, such bonds as have been sold, have been marketed, in general, only at yields at times averaging well above A-rated issues, shown on page 74. The few long-term Baa-and BBB-rated issues which could be sold are shown on page 75 of the Exhibit. The tests of the market in current circumstances demand that successful financing through first mortgage bonds by utilities be based upon at least an A rating by Moody's and Standard h Poor's. The institutional investors who are the major purchasers of utility bonds are simply not interested in Baa-and BBB-rated bonds of utilities. In turn, Aa-and AA-rated utility bonds have stron g advantages over A-rated bonds. Quality counts heavily in the s e troub led capital mar kets. What is the significance of the danger of being downgraded to Baa and BBB? Kn today's capital markets, the downgrading to Baa and BBB has significance far beyond higher interest costs on new issues. Downgrading to Baa and BBB raises the ultimate question of sheer ability to finance on any reasonable terms. Please explain the study shown on page 76 of the Exhibit? Coverage of fixed charges for Carolina Power 4 Light Company from 1968 through 1975 are shown in the study on page 76 of the Exhibit. Definitions for the three coverage ratios for fixed charges are given, as well as the underlying figures. These coverage ratios have dropped drastically. Times interest earned before taxes declined from 4. 46 times in 1969 to l. 96 times in 1974. Times interest earned after taxes declined from

2. 86 times in 1969 to l. 94 times in 1974 and 2.13 times in 1975.

Times interest earned after taxes before construction credits (with allowance for funds used during construction not included in earnings) declined from 2. 65 times in 1969 to 1,23 times in 1974 and 1.46 times in 1975. Please explain page 77 of the Exhibit? The study on page 77 of the Exhibit shows the coverage of fixed charges for Carolina Power h Light Company which would result from the fair rate of return of 14. 50 percent on common equity at the common equity ratio of 33; 40 percent, in combination with the imbedded cost of debt and the debt ratio and the imbedded cost of preferred and the preferred stock ratio. The resultant times interest earned after income taxes would be 2. 51 times. Bearing in mind the relatively heavy role of allowance for funds used during construction in net income for common for Carolina Power Light Company, the resultant times interest earned after income taxes before construction credits, that is, excluding allowance for funds used during construction, would significantly lower. Thus, the fair rate of return on common equity which I have determined would provide a coverage of fixed charges after income taxes before construction credits sufficient to support the A rating by Moody's and Standard L Poor's on the first mortgage bonds of Carolina Power Ez Light Company. I conclude that this standard supports the fair rate of return on common equity indicated by the test of commensurate return. Throughout this discussion of coverage of interest, I have stressed the requirements of the rating agencies for the A rating-a minimum standard for being able to sell the issue. The re-quirement for adequate coverage to permit the rating and the sa'le of the issue is higher and more stringent than the indenture requirement which merely permits the company to be able legally to sell the issue. In my judgment indenture coverage requirement is no indication of fair rate of return. Meeting the indenture coverage requirement alone does not permit attraction of capital on fair and reasonable terms. It does not support financial integrity. It does not provide for maintenance of credit. Furthermore, Carolina Power h Light Company could h certainly be entitled to achieve a higher rating than A; Covera e of Fixed Char es and Preferred Stock Dividends Taking up preferred stock, please explain Moody's and Standard 8 Poor's rating services on preferred stock? The preferred stock rating symbols used by Moody's and their definitions, and the factors considered in arriving at such ratings, are shown on pages 78 79, Corresponding facts about quality ratings on preferred stock by Standard 4 Poor's are shown on page 80. Please explain pages 81-83 of the Exhibit? These pages show the rating articles by Moody's and by Standard 4 Poor's regarding the preference stock offering in March 1975 by Carolina Power Ez Light Company. On page 81'is stated the reduction by.Moody's. to "baa" of ratings on the preferred stock of the Company. The preference stock was not rated by Moody's. On pages 82-83 is shown the rating of the prefer'- ence stock at BBB by Standard L Poor's. Please explain your studies shown on pages 84-86 of the Exhibit? Coverage of fixed charges and preferred dividends after income taxes before construction credits for preferred stock offerings of electric utilities rated A or better during 1975 and 1976 thus far, is shown on pages 84-86. The average for the 11 of the 22 issues with ratings maintained at "a" by Moody's and A by Stan- . dard 4 Poor's, where significant rate increases are fully reflected in coverage ratios, is l. 72 times, shown on page 85. The average for the 10 of the 15 issues with ratings better than "a" by Moody's and A by Standard Ez Poor's, where significant rate increases are fully reflected in coverage ratios, is 2, 02 times, shown on page 86. What has happened to coverage of fixed charges and preferred dividends for Carolina Power 4 Light during recent years? The study on page 87 of the Exhibit shows coverage of fixed charges and preferred dividends for Carolina Power 8z Light Company from 1968 through 1975. Coverage ratios for fixed charges and preferred dividends are given, as well as the underlying figures. These ratios have dropped drastically. Times interest and preferred dividends earned after income , taxes declined from 2. 36 times in 1968 to l. 54 times in 1974 and l. 66 times in 1975. Times interest and preferred dividends earned after taxes before construction credits declined from 2, 19 times in 1969 to 0. 97 times in 1974 and 1.14 times in 1975. Please explain the study on page 88 of the Exhibit? The study on page 88 of the Exhibit shows computation of times fixed charges and preferred stock dividends. earned after income taxes from fair rate of return on common equity of 14. 50 percent and common equity ratio of 33. 40 percent, in combination with imbedded cost rates on debt and preferred stock and their capital structure ratios. Times charges and preferred dividends earned after income taxes would be l. 93 times. The corresponding ratio before construction credits, that is, excluding allowance for funds used during construction, would be significantly lower. What conclusions do you draw from your studies of coverage and ratings of preferred stock? I conclude that the fair rate of return on common equity indicated by the test of commensurate return would serve to support the A rating on preferred stock of Carolina Power 4 Light Company by Standard 4 Poor's and the "a" rating by Moody's. Does this complete your discussion of attraction of capital on fair and reasonable terms and maintenance of credit and support of financial integrity? Yes, it does. I conclude that the indicated rate of return of 14. 50 percent on common equity, given the capital structure ratios and the cost of debt and preferred stock, willprovide the attraction of capital on fair and reasonable terms and for maintenance of credit and support of financial integrity. It will not be adequate, of course, after further increases in operating expenses which outrun revenues and after further increases in the cost of senior capital. Dr. Langum, have you formed a judgment as to fair rate of return on common equity for Carolina Power O'Light Company? Yes, I have. Please state that judgment? My judgment, shown on page 89 of the Exhibit, is that the fair rate of return on common equity which Carolina Power h Light Company should be afforded the opportunity of earning is 14. 50 percent at the common equity ratio of 33. 40 percent. This includes allowance for funds used during construction. I have formed this judgment on the basis of the standard of commensurate return and the standards of maintenance of credit and support of financial integrity and attraction of capital on fair and reasonable terms. The standard of commensurate return was based upon studies of earnings experience on common equity during 1971,

1972, 1973, 1974, and 1975, of those electric utilities in original cost jurisdictions without flow-through used as comparison companies.

I also gave consideration to recent rate orders by regulatory commissions concerning electric utilities and to earnings being "in line" with earnings experience on common equity of High Grade industrial companies. The standards of maintenance of credit and support of financial integrity and attraction of capital on fair and reasonable teims, were'based upon studies of common stock offerings of Carolina Power'h Light t Company during 1972,

1973, 1974, and 1975, and of price to public in common stock offerings of electric utilities in relation to.book value during 1972,

1973, 1974,

1975, and 1976 thus far, upon studies of first mortgage bond offerings of electric utilities during 1975 and 1976 thus far, and required fixed charge coverage ratios to support the A ratings on the first mortgage bonds of Carolina Power k Light Company and upon studies of preferred stock offerings of electric utilities during 1975 and 1976 thus far, and required fixed charge and preferred stock dividend coverage ratios to support the "a" and A rating on the preferred stock of Carolina Power Ez Light Company.

In my judgment, as shown on page 89 of the Exhibit, taking all of the above considerations and studies into account, the I fair rate of return on common equity for Carolina Power 4 Light Company is '14. 50 percent at 33. 40 percent common equity ratio. This includes allowance for funds used during construction. FAIR BATE OF RETURN Dr. Langum, have you formed a judgment as to the fair rate of return on total capital which Carolina Pow.er 4 Light Company should be afforded the opportunity of earning'? Yes, I have. Please state your judgment as to the fair rate of return on total capital? My judgment as to the fair rate of return on total capital which Carolina Power 4 Light Company should be afforded the oppor-tunity to earn is shown on page 90 of the Exhibit. The capital structure ratios are those developed on page 7 of the Exhibit. Cost of debt is shown at 7. 74 percent, from page 12, and cost of preferred stock and preference stock is shown at 8.01 percent, from page 10. For common equity, I have. utilized the fair rate of return on common equity, just developed on page 89 of the Exhibit, of 14. 50 percent at a common equity ratio of 33.40 percent. I have combined the cost rates for'ach segment of the capitalization with the capital structure ratios to obtain weighted component of the overall fair rate of return. For debt, the cost of 7. 74 percent combined with the capital structure ratio of 51. 59 percent gives a weighted component of 3. 99 percent. For preferred stock and preference

stock, the cost of 8. 01 percent and the capital structure ratio of

15. 01 percent gives a weighted component of 1.20 percent.

For the common equity, the combination of the fair and reasonable earnings rate of 14. 50 percent and the 33. 40 percent ratio of common equity in the capital structure gives a weighted com- , ponent of 4.84 percent. Addition of the weighted, components results in a total of 10. 00 percent. It is my judgment that the fair rate of return on total capital which Carolina Power 8z Light Company should be afforded the opportunity of earning is 10 percent. It is my judgment that this is the fair rate of return on total capital for Carolina Power 8: Light Company, which is necessary to enable the Company to support its capital structure, to attr'act needed new capital on fair and reasonable

terms, to provide a return on its common equity co'mmensurate with that earned by the most comparable business undertakings and the closest alternative investment opportunities to maintain its credit, and to assure confidence in its financial integrity.

Have you formed a judgment as to the fair rate of return on the net original cost rate base applicable to retail operations in South Carolina which Carolina Power 4 Light Company should be afforded the opportunity of earning? Yes, I have. Please state that judgment? In my judgment, the fair rate of return on the net original cost rate base applicable to retail operations in South Carolina which Carolina Power 4 Light Company should be afforded the opportunity of earning is l0 percent. This judgment, shown on page 9l of the Exhibit, is based on the fair return on total capital related to the net original cost rate base which approximates total invested capital.

South Carolina Public Service Commission 'ocket Nos ~ 18,361 and 18,387 I~gum Exhibit No. 1 CAROLINA POWER h LIGHT COMPANY STUDIES REGARDING FAIR RATE OF RETURN BEFORE SOUTH CAROLINA PUBLIC SERVICE COMMISSION DR. JOHN K. LANGUM ECONOMIC CONSULTANT CHICAGO, ILLINOIS MAY1, 1976

'CAROLINA POWER h LIGHT COMPANY .STUDIES REGARDING FAIR RATE OF RETURN Page Contents CAPITALIZATIONAND CAPITALSTRUCTURE RATIOS Carolina Power Ec Light Company Statement of Source and Use of Financial Resources 1970-1975 Carolina Power h Light Company External Financing in Relation to Total Funds Used for Construction 1970-1975 Carolina Power 4 Light Company Capitalization 1962-1975 Carolina Power h Light Company, Capital Structure Ratios 1962 <<1975 Carolina Power 8c Light Company Capitalization and Capital Structure Ratios December 31, 1975 and December 31, 1976 Estimated Carolina Power 4c Light Company Capitalization and Capital Structure Ratios In Terms of Regulatory Concepts December 31, 1975 and December 31, 1976 Estimated Carolina Power h Light. Company Capital Structure Ratios Used in Study of Fair Rate of Return COST OF DEBT Carolina Power h Light Company Imbedded Cost of Debt December 31, 1975 Moody's Averages of Yields On Newly-Issued Long-Term Public UtilityBonds Rated Aaa, Aa, A, and Baa 1960-1976, by Years 10 Moody's Averages of Yields On Newly-Issued Long>> Term Public UtilityBonds Rated Aaa, Aa, A, and Baa 1970-1976, by Months Commercial Bank Prime Loan Rate 1960-1976 Carolina Power & Light Company Cost of Debt

COST OF PREFERRED STOCK AND PREFERENCE STOCK 13 Carolina Power 5 Light Company Imbedded Cost of Preferred Stock and Preference Stock September 30, 1975 and Estimated December 31, 1976 15 16 Offering Yields on Major Nonconvertible 'Prefe'rred Stock Issues By Electric Utilities 1966-1975, by Years Offering Yields on Major Nonconvertible Preferred Stock Issues By Electric Utilities 1974-1975, by Months Carolina Power Ec Light Company Cost of Preferred Stock and Preference Stock FAIR RATE OF RETURN ON BOOK VALUEOF COMMON EQUITY 17 Carolina Power 8c Light Company Determination of Fair Rate of Return on Book Value of Common Equity STANDARD OF COMMENSURATE RETURN 18 The American Econom and Cor orate Profitabili 'I Real Growth and InQation in the American Economy Percentage Changes Year-to-Year 1946-1975 19 Corporate Profitability in the American Economy 1946-1975 Investment Stature 20 Investment Stature Carolina Power & Light Company March 1976 21-23 Investment Statur e Electric Utilities in Original Cost Jurisdictions Without Flow-Through March 1976 f Earnin s Experience on Common E uit As Guide to Commensurate Return 24-27 Rate of Return on Common Equity and Common Equity Ratio Operating Electric Utilities in Original Cost Jurisdictions Without Flow-Through 1971-1975 28-29 Allowance for Funds Used During Construction In Relation to Net Income for Common Operating Electric Utilities in Original Cost Jurisdictions Without Flow-Through 1971-1975

111 30 Carolina Power & Light Company Rate of Return on Common Equity and Common Equity Ratio Allowance for Funds Used During Construction ~ As Percent of Net Income for Common 1968-1975 Common E ui Ratio 31 Relationship Between Rate of Return on Common Equity and Common Equity Ratio 32 Method of Adjustment For Different Common, Equity Ratio 33-34 Bate of Return on Common Equity Adjusted to 33.40 Percent Common Equity Ratio Operating Electric Utilities in Original Cost Jurisdictions Without Flow-Through 1971-1975 Earnin s Ex erience on Common E ui 0 eratin Electric Utilities Used as Com arison Com anies In Test of Commensurate Return 35-39 Companies Excluded from Use as Comparison Companies In Test of Commensurate Return Operating Electric Utilities in Original Cost Jurisdictions Without Flow-Through 40-41 Rate of Return on Common Equity Adjusted to 33.40 Percent Common Equity Ratio Operating Electric Utilities in Original Cost Jurisdictions Without Flow-Through Used as Comparison Companies 1971-1975 Rate of Return on Common Equity 'Adjusted to 33.40 Percent Common Equity Ratio and Allowance for Funds Used During Construction As Percent of Net Income for Common Operating Electric Utilities in Original Cost Jurisdictions Without Flow-Through Used as Comparison Companies 1971<<1975 .Earnin s Ex erience of Unregulated Enter rises 43-47 Rate of Return on Common Equity and Common Equity Ratio Industrial Companies with Quality Ranking of High Grade by Moody's 196 3-1974 48 Earnings Experience on Common Equity of Operating Electrics in Original Cost Jurisdictions Without Flow-Through Used in Selection of Comparison Companies In Relation to Earnings Experience on Common Equity of Industrial Companies with Quality Ranking of High Grade by Moody's 1963-1974 49 Carolina Power & Light Company Test of Commensurate Return

50-51 MARKETAPPRAISAL AND COMMON STOCK OFFERINGS TO PUBLIC I Electric Utilities in Original Cost and Fair Value Jurisdictions With Publicly-Held Common Stock Market Price as Percent of Book Value~ 1975 Price to Public as Percent of Book Value In Common Stock Offerings Electric Utilities

• 1972-1975 53 Common Stock Offerings And Market Price In Relation to Book Value Carolina Power h Light Company 1972-1975 COVERAGE OF FIXED CHARGES 54 Explanation and Key to Moody's. Corporate Bond Ratings 55 56 57-60 61 62-64 65-67 Explanation and Key to Standard h Poor's Corporate Bond Ratings

'I "When Is Interest Coverage a Special Concern?" Mo'od 's Bond Surve January 5, 1976 Pag es 1781-1782 "Fundamental Approach to Public UtilityBond Ratings" The Fixed Inco.ne Investor January 3, 1976 Pages 987-990 Ratings Reduced Carolina Power h Light Company ood 's Bond Surve March 3, )975 Page 1557 Rating Articles by Moody's First Mortgage Bonds Q% Series due April 15, 1984 d 's Bond Surve April 7 and 28, 1975 Pages 14Q>>1412, 1340 Rating Articles by Standard h Poor's First Mortgage Bonds Q% Series due April 15, 1984 The Fixed Income Investor April 12 and 26, 1975 Pages 743-744, 715 Coverage of Fixed Charges First Mortgage Bond Offerings ofiiElectric Utilities By Rating Category 1975-1976

68 69 Ratings Maintained at A by Moody's and A by Standard & Poor's Ratings of A by Moody's or A by Standard & Poor's Just "Barely Maintained" or in Lower Range" of Category 70-72 Ratings Better than A by Moddy's and A by Standard & Poor's 73 Offering Yields on Newly-Issued,. lecreic UtilityBonds Rated Baa Debt With a Maturity of Ten Years or Less June 1974-February 1976 74 Offering Yields on Newly Issued Elecreic UtilityBonds Rated A Debt With A Maturity of Ten Years or Less June 1974-February 1976 Offering Yields on Newly-Issued Electric UtilityBonds Rated Baa Debt With a Maturity of More Than Ten Years June 1974-February 1976 76 Carolina Power & Light Company Coverage of Fixed Charges 1968-1975 77 Carolina Power & Light Company Computation of Times Interest Earned After Income Taxes From Cost Rates for Capital and Capital Structure Ratios 78-79 80 81 COVERAGE OF. FIXED CHARGES AND PREFERRED DIVIDENDS Moody's To Assign Ratings to Preferred Stocks Standard & Poor's Preferred St'ock Ratings Ratings Reduced Carolina Power & Light Company Rating Article by Moody's Cumulative Preference Stock, Series A Mood 's Bond Surve March 3, 1975 Page 1566 82-83 Carolina Power & Light Company Rating Articles by Standard & Poor's Cumulative Preference Stock, Series A The Fixed Income Investor, March 8 and 15, )975 Pages 846, 827 Coverage of Fixed Charges and Preferred Dividends Preferred Stock Offerings by Electric Utilities By Rating Category 1975 84-85 Ratings Maintained at "a" by Moody's and A by Standard & Poor's 86 Ratings Better than "a" by Moody's and A by Standard & Poor's

87 Carolina Power & Light Company Coverage of Fixed Charges and Preferred Dividends 1968-1975 88 Carolina Power & Light Company Computation of Times Fixed Charges and Preferred Stock Dividends Earned After Income Taxes From Cost Rates for Capital and Capital Structure Ratios FAIR RATE OF RETURN ON COMMON EQUITY 89 Carolina Power & Light Company Fair Rate of Return on Common Equity-FAIR RATE OF RETURN 90 Carolina Power & Light Company Fair Rate of Return on Total Capital Using Imbedded Cost of Long-Term Debt and Preferred Stock On December 31, )975 91 Carolina Power & Light Company Fair Rate of Return on Net Original Cost Rate Base

Page 1 CAROLINAPO'tWR & Ll(pIITCOMPANY STATEhtENT OF SOURCE ANDUSE OF FINA'hsCIAI.RESOI:RCES Twetoe hlonths Ended I)ecengber 31. 8970 897l 1972 8973 Auxust 31, 1974 197 S (Unaudited) Same ofFgnaacisl Resourcec Current resources provided from opera6onc Nct income Items not requirin Iproviding ) current rcsourca: Drprecudon d onlm 'llowance for funds used cunng consuucnon Noocurrent defcrrcdincomc taxes-nct lmrllnrott tulle dr I Total cunent tcsources from operations Other esoautecs provided: hddiuons m plant accounts representing capital-hatioo ofnet cost of funds used during consttuction ttocecds from assignment to lessor of mtcrnal com-bustion turbine gencmtors proceeds from sate and leaseback ofnudcar fud dtsccdaneous Det Total resoufa>> provided fmm operations and othcru Fsnancingr Saic oh Ftrst mortgage bonds Six year note Preferred stock Preference stock Common stock Increase (decrease) in shon term ootes payable less scarigwaty cash investments Total resources'provided from hnancings Terrak Usc ofFina ncia) Resources: ah Gross pfopeny adhnons excluding nudear fuel'udcar furl addiuons'ividends for the ) cat Hct inmate (de-ease) in working capital, <<xduding ahon term notes payable and temporaty cash in-vestments TetrxL Increase (Decrease) in IVorkieg Capital. Exduding Shon-term Notes Payab?e and TcfnporZty Cash Investments. by Com-ponent: al ~llllllsmd r pl'I os I pdo p IIIl 1)cfcrad fossil I'ucius;~ntofy costs 'ccounts rchxgvabte Accounts payable Current pormn ofdrferred mcofne taxes Taxes accrued )atercst and diddcnds payable Other-nct Nct bgcrease (decease) in working capital, ex-dulau Ilwrl Ier r psreah '19,96$ (10405) I31$ ( )305) 3445$ 28321 (14.708) 3,480 1377 5$~ 10305 14,70$ 37303 40,430 (24.759) (38))93) 5.912 7,430 1.756 2.94$ 80,701 24,759 7$,114 3$P93 45391 (54,609) II.l$ 8 (6341) 68)XO 51.846 (6).5611 2'94 I821) 9$,123 54,609 63361 132$ 45.791 109 44,45$ 47,593 3.995 '7393 9379 71,441 .106i, 123 116,916 218,652 219.456 89302 134351 29375 '4+$ 99311 50NO 49364 29,186 33,910 12$,039 199,75$ 150,919 148391 49,949 63,449 64331 4..744 3381 59309 2.914 150.977 $196.NC $ 167.741 3,722 23,712 12.483 2152SO $286.691 $239391 20332 30,492 (70.164) 25).556 $359.679 $318382 16.91$ 36,1$ 5 16356 329309 5446,425 $359A)$6 37,610 4S,708 10)301 3'21.$ 92 5540344 $)$2.602 39.939 5$.04$ ( I0.58) I 24-'.761 546-'~11 S)$ g368 75.495 64.748 1393 $196,NC (3324) $286.691 (12.4$ ) $359.619 4.0$ 1 5446.425 59.955 1$.106 $540.$ 44 S46 P317 $ 11.419 300 (4374) (3~) (S,426) 3319 "$ (9.107) 539$ ~ (2319) 6 932 (5.6$6) 82$ 5376 1.163 ($367) (3322) (5376) ( I 450) 105 2,900 3357 3,036 (5,1$ 3) (394) $ 6933$ 3$gl)g 19.$ 69 40,)10) 13.5781 (759)1 (6.071 ) 3381 $,914 342 ( I0.774) 11.720 ).)3$ (5.46I) (6 <III 7 sit S 1393 $ (3324) Sf 12.406) 4.051 S $9.9$ $ S 15.106 e S 24,82S $ 31,474 $ 60329 $ 6S,999 $ 72371 S $9,165 'adudes amounn char"ed lo udUrf plant reptescntieg !hc "agcwantu fer (the cost of) funds used during COn)tfttcttnn ~ Scc Notes to Ftnangtal Statctnentg. Source: Cc"olintL Fotter Sc Licht Company, Pro~cetus. 5,0:h0p000 Shares Co~It Stock, October 23p lty75, page 35. ~ ~

1 CAROLINA POWER At LIGHT COMPANY'XTERlQL FINANCING IN REIATION TO TOTAL FUlSS USED FOR CONSTRUCTION 1 0-1974 AND TWEWE HOltS ENDED AUGUST 31 1975 Page 2 1970 1971 1973 1974 TMelve ~baths ~ed nu~~t 31, 197g5 Gross property additions excluding nuclear fuel and excluding anounts charged to utilityplant representing the allowance for funds used during construction $157p236p000 $224p583p000 $293p623p000 $320p963p000 $327p993p000 $292 p 307 p 000 Total external financing 150p 977 p000 215p 250p 000 2 53 p 556 p000 329p 509 p000 32 1 p 892 f000 241gj76lp000 Total external financing as percent of total funds used for construction 86.35$ 102.66$ 98.14$ 83.73;p gourcti geroltaa poser g tggkt Osepeup,'~pro cetus 5,coo,000 gberes cosuou stackoc, tober 28, lpg5, page 35. \\

0 0 ( t 'I 00 Oeee>ber 31 ~ O>ee>>ber )ls ~l ~l Ores>eosr 31> 19GL CAPOLDtl ICA>at & LIQlI CXIQ%ÃT CAIITA LILLTI(O 1 '02-1 Os>~bar 34 bees>>ter 31> bees>>ter )l, bseezler 34 ISIS ~l ~55 la> Osew&er 34 ~l bee>oper 34 ~ll O>eeeber 31, ~l Dseeeber )4 ~I Oeee-aer )4, O>CMer )I~ ~, ~t Tong-teso gAL Itr>t eartgege bo>3'.e Otter Iong-taco gebb Total Iong terse gebt 3519,035,0>> 31390>>,CCO,9193.030.0>> 3533,0>sa>> 3>>9,030,tco sts>,030,0>> '303,to>>col ~sco cco. t 550 cco ~lo tat I tlo cco S)09>0300000 172j230> 000 17I3 590> 000 200> 950>000 200> 3 10>000 229> 030> 000 t69> 030>000 309> 0)0>CCO 309> 030> 000 j)l,1)2,633 58L,LLO,ttt SSL>282>92 5 nl 030 <<>> 3 331,033003 3 033,010,0CO ~0~33 ~I. P I 40)b > Cj5 0 273 4 15 5 >I1 >0 ~era AAt toter Terable San?s Otbor Total abort-tera gAt Total gebt 8, )CO>000 80)CO>ON 172>t)0>000 180,090,000 200>950>000 ll>000>000 ll 000 COO, LL>SLO 002 tll,310,000 tl),670>000 11>6L4867 15>L26>L)L 56>76T>095 280>6'71>867 32L>L)6>L)b )T)>797>C98 ll>6l00000 246L4857 15>L26>L3ls 37>l 0>COO ~I'OI04too. ~I'>9>> 82>163>288 )49990702 '515 315,921 595>139>9LL <<,0500>> 39>>a>>'tee '~8I It 0>> 30 355>>3 53>>C>> Oul 5>.ltl 912,538,72L 4155 752 )LO 4>5'3 0 Tref~ Stock total preferreg otoab 31,37f,900 3b,37f,900 3l,)7f,000 34375,900 )L>375>9CO 59,375>900 59,375,900 '9>3Tf,CCO 12L>375>900 173>800>900 223>800>900 3)6,018,L02 ~OIt Oooore eb>eb Setatssot aarestssge Cop Ital etoeb eepessee Sb>LSL,02i Sb>828>)LT 9b,605,780 lent)9,373 5 >615>9 T 3 >085>153 Lt>SQ>$Q 01090082 >6>>>929 13L,3S),330 55>)LT>6>A 16l 32) 588 62,502,253 Total~ eO>ttf 127,398,139 133,181,129 llf221 'Itf 196 ftl 525 17l>'702,9f7 18476L,011 189 933,016 226,80),SLl 227> 538>989 68> 153> 300 29f>692>289 352>775 >85) 90>673>379 L15 0 321 >0)5 110>816,532 LL)>LL9>2LO . 527>237> 558 Ll)072490L '@>6g>691 fLS>bgb>630 722>285>117 8))L,COL,))9 8)LT,SL7,029 8)Sb,fb5,727 Sb05,210,L25 SL)2>7bS>857 8573>755>))O 8654975>939 " '40)6>38b>110 54323,)9CLOSb 54553>977>198 52>C02>3)f>)b9 82>213>g)gsttl eee)lh>a ttseer 8 llgbl OsoOeef> 2>os>sat te)s>rt'919 > tegeo

oog eerrcopo>stts>S pegee fa prev$ eeo eels) reporte.

ao ~'3

1 ~ ~ CA00LlFA 2CIJBt 4 LIEF CCCVANT carltaL SZRVCBllc SAT100 1 1 Srgi L Dccwlcr 31$ 5cccAcr 31$ Deccclcr 31) SccccIcf 31j Occeetcr 34 0cccc0cr 31) ~1) ~1: ~l ~l ~l ~l ocher 31 gaccebcr 31'ccccecr 31c ~l ~10 ~ll ~ ~11 bcecatcr 31c ~1 Deecabc. 31c gee~bar 31'l ~IP fl>>S5 31.605 ~ 3r;165 f3.025 33>>'55 ~ 36>>f35 36.nj fr.f65 P.W 33.005 't.06 5 P 125 ~ ft>>lfj trcrcrrel NoA 10.19 T>>ff 11>>38 10,33 13>>tf It,ff 13.16 P>>lt P,co '.63 30,63 '00,005 100,005, 100,005 00 f3 ~ 33 TF I Q>>005 ~ 1001005 100.coj ' lco.005 late.~tt bcldce lacy-tare 6At~la etttta eec rear act aatca~ taaletet ta carrcat ll*tlltteahs telcaee Cheat eC acacaari r hetos Occyetcc troa 6ate a yaae 3! !~

CAROLIM PRJFB & BIGHT COViP/QIY CAPITALIZATIOHAND CAPITAL STRUCTURE RATIOS DECEl4BER 31> 1975 AND DECRIER 31, 1976 ESTINTED Debt December 31 1975 Cap a S ruc ure December 31, 1976 Estimated Cap a S ructurc Capitaliration Ratios Inn'-term debt Short-term debt Total debt $1,155, 254,06I 78,3SS lgl55g332p446 52.1+ gl, 155~ 469, 000 29,700 000 1, 185~ 169~ 000 50.63$ Preferred Stock 5 Preference Stock 336,018 400 15 18 336~ 018~ 000 14.36 Common Equity Common stock Retained earnings Total coamon equity 565,609,691 156 676 428 722,286>119 '.63 630~ 410'00 189 201 000 819~611~000

35. 01 Total Ca italization

@>2I3~636,965 100+~ @,340,798,000 100,~

L I N

1 CAROLINA POHER 5 LIGHT CONPANX CAPITAIIZATION AND CAPITAL STRUCTURE RATIOS Ijl VWt4S OF REGUIATORX CONCEPTS DECEHBER 3l, 1975 AND DECDIBER 31, 1976 ESTBNTED Page 6 December 31, 197$ December 31 1976 Estm ted'ebt p S ruc ure Capitalization Ratios Capitalization Cap a Struc ure Ratio's Long-term debt Short-term debt Totalde'l~ 155~ 254~ 061 78 385 1,155~332~446 51.56. $1,155; 469,0oo 29,700,000 1~185~169,000 49,68$ Preferred Stock 6c Preference Stock 336,018, 400 15.01 336,018~ 000 14 08 Connnon Equity Conxnon stock Retained earnings. / Accumulated Deferred Income Taxes-Accclerated Annrtization Deferred Job.Development. Investment Tax Credit Total conznon equity Total Capitalization 565, 609,691 156,676,428 6,761,4o6 18,787 931 747~ 835 p456 33 40 $ 2,239,186 '02 630~410~000 189,201,000 6~099~000 38,981 000 864,691,ooo @,385,878,ooo 36.24 C 100.00$

CAROLD1A POWER Ec LIGHT COEFlQH CAPITAL STRUCTURE RATIOS USED IN STUDY OF FAIR RATE OF RETURN Based on December 31, 1975 Total debt Preferred stock and preference stock

15. 01 Common equity 33.4O Total Capitalization (page 6) 100.~

Page 9 HOODY'S AYERAGFS OF YIELDS OH RNLY-ISSUED LONG-TERM PUBLIC UTILITYBONDS RATED Aaa, Aa, A, AllD Baa 1960-1976, BY YFJSS AVERAGES OF YIELD Cf DENLY-ISSUFD LONG-TERM WBLIC m'IL'.TY BONDS 1961 1962 1963 1965 1967 1968 1969 1972 1974 1975 4.76$ 4.5'5 5+ Nt 6.544 8.61$ 7.5W 7 34 7.85, . 9.110 8.56$ 4.76$ 4.5&f, 4,4Q 4.64/ 5.6Q 6.0+ 6.6yf, 7+% 8.63/ 7.4S 9 04$ 9.46(, 8.92/ 4.+Y~ 4.43$ 4.56$ 4.72$ 6.2$ '.95~p 8.22~ 9 19% 7.6'.0Y 9+7@ 10.22~ 5.364 5,08$ 4.66$ 6.05$ 6.33$ 7 1O$ 9.6+ 9.34>> 7.85$ 3 25$ january-lay, 1974 ~January-birch 23, 1976 Source; Rely's Investors Service, Inc., hoody's Public Utilityihaual, 19,p, pages a3 a5'oody's nona Survey, D camber,

1975, page

515, Decenber 29, 1975, Page, January 5, 1976, page 1790, February 9, 1976, page

1664, hlarch 8, 1976, page '570 nnd corrc"pending pages in previous issues.

MOODY'G AVERAGF~ OF YIELDS OH NBA ISSUED IDN TEAN FVBLIC UfILITY BON&u HATED Aaaj Aap AI AND Boa pagg ] p 1970-1976, BY N)tÃitS AVEHACFS OF YIFLDS OS mom-XSSUFD XeiC-TFHN PUBLIC urlLITYSomS Aa May tune July August September October 8.9', 8.96 8.53 8.?o 8.56 8.86 8.614 9,06fy 9.32 8.94 8.72 8.83 8.9o 8.63$ 9.34 9.67 9 11 9 35 ,9o32 9,40 9 1FJ'0.47$ 9 53 10,08 9 81. 9.82 9.64 Average 74Q 7,~'.93$ 8.34$ 1972 January ..... February . March April 7++ 7.26 7.39 7'+ 39 7.45 ~ 7 11$ 7 39 7.60 7.42 7.45 7.36$ 7 50 7.76$ , 7.48 7.S9 7-80 ~ 7.95 7.66 7.54 7.95 7e34 7.4g '.6', '7.85$ Average 7.81< 7.+'.25$ January ~ February ~ch April May June 'uly Augu& September October Ravember December Average 8.06g 8.07 8.33 8.86 8.85 9.30 9.65 9 97 10,05 10.06 9.52 8.3?i 8.13, &.61 9 08 9 20 9.46 10.75 10,05 D.~ 33 9 15 9.64 9.04$, . 8.~ 8.49 ., 8.81 9.4o 9.81 9.95 11 05 '0.75 11,02 .10,75 9 90 10,25 9.75$ 8.95$ 8.7o 9 07 9.53, 9.45 9o16$<< 19?5 January February March April May June July Scptcmber October llovceibcr December Ave)'Ngo 8.625';73 9 23 9.20 9,00 9.07 8.8o 9.68 9,40 9.375 9 35 9.114 9,~ 8.9o 9.52 9,94 9.23 9.63 9.6o 9 875 9.32 9.75 9o60 9.46$ 9.71K 9.42 lo.l6 10 94 lo.&o 9.87. 10,30

10,76

~m.&3 'o.46 'o,ll. 10,31 10,22>>~ l1 ~ 10.79 11.57 11 30 .xxo'f0 11 39'/ ~ ~ January ~February March 1-23 Average<<<< 8.6o>> 8.34 8.61 8 95>>>> 8.65 8,93 9 1OII 9 ll 9 20 9.13>> 9o 90>> 9.6o 9.77>> <<January-kfny 1974 <<<<January-March 23, A'

COMMEReuu, asm ~nZ MAN RATS 1960-1976 Page ll Period 1liph August 23, 1960 >> December 6, 1965 ?hrch 25, 1970 - September 21, 1970 hhrch ll, 1971 - May ll, 1971 July 7, 1971 - October 20, 1971 January 31, 1972 - March 23, 1972 September 14, 1973 - October 24, 1973 . March 4, 1974 - March 31, 1974 Nay 1, 1974 - September 30, 1974 October 7, 1974 -'pril 30, 1975 June 9, 1975 - Ju+ lg 1975 July 18, 1975 - October 27, 1975 February 2S, 1976-4-i/g 5 - 1/4 4 - 1/2 7 - 1/2 6 - 3/4 10 Source: Board bf Governors of the Federal. Reserve

System, Federal Reserve Bulletin February 1976> page A26~

Mall Street Journal issues during March 1974 >>

CAROLER HNER h LIQIE COHPANY COST OF DEBT Based on Zibedded Cost of Debt Deceiber 31, 1975 Carolina &ver 0 Mght Co any Cost of Debt 7.74$

• CAROLINA POSER & LIG1E COMPANY IMBEDDED COST OF HKFERHED STOCK AND PREFERENCE STOCK DECEMBER 31, 1975 Preferred Stock, without par value, cumulative:

$5 (authorized, 300,000 shares; outstanding, 237,259 shares) Amount Outstanding,. 24,375,900 Dividend Requirements 1,186,295 Cost Rate 9.10 Series 7.95 Series 7.72 Series 8.48 Series outstanding, outstanding, outstanding, outstanding, Serial (authorized, 10 000,000 1 4.20 Series (outstanding, 5.44 Series (outstanding, shares): 100,000 shores 250,000 shares 300,000 shares 350,000 shares) 500,000 shares 650,000 shares) 10,000,000 25,000,000 30,000> 000 35,000,000 49,425,000 64~317,500 42o,ooo 1,360~000 2,730,000 2,782,500 3~860,000 5~512,000 Preferred Stock A (authorized; 5,000,000 shares);. ~ $7.45 Series (outstanding, 500,000 shares) 3,725,000 Total preferred stock $ 288,118,400 '21'75> 795 ~7 4S Preference Stock! '2.675 Preference Stock, Series A, 2,000,000 sharesp sold in March 1+5 5,350,000 1l.17'otal Preferred Stock and Preference

Stock, December 31, 1975

$ 336,o18,4oo $ 26,925,795 8,01$ Source: Carolina Power & Light Company~ Annual Report, 1974; Financial Statements; pages 17, 19'rospectus 650,000 Shares' . w. i.~l-.:'. ' "i: -,-l-.'~mml. -' Series A, 2,000,000 Shares, Harch 1975> Interim Financial Statements, December 31, 1975.

Page 14 OFKRINtd YIELDS ON hRJOR NONCOlPERTIBLE PREFERRED STOCK ISSUES BY ELECTRIC UTILITIES 1966-19761 BY Y~S Issues Issues Issues A11 1eeaee 'ated AA Rated A Rated BBB 1967 1969 1970 1973 1974 1976~ 5.6g 5.9? 6.62 8.98 7.89 7.55 7+70 10,27 10e71+ 9 08 7.6g 7e3? 7e 3? 9.24 9 70 8.62 7.58 7.66 10,24 10 56 9 38 heat bee ~ 12.39 11 10 9 39 ~verage January-March 23, 1976 +Includes a fev issues rated BB and B. Source: Standard 5 Poor's Coxporationt The Axed Income Investor, December 27, 1975, page 96 and corresponding pages xn pre ous ssues. RAaodyds Investors Service, Znces hoody's Bond Survey, December 29, 1975, page 460, March 22,

1976, page 15 7 and corresponding pages in previous issues.

Wall Street Jou"nal; New York Times; The Commercial and Financial Chronicle; T e Money Y~nager; ~ Investment Dealers Digest. CBB BB ICB

OFFERING YIELDS ON YAJOR NONCO<iVERTZBIZ PREEKUED STOCK ISSUES BY ELECTRIC UTILITIES 1975-1976, BY F?ONTHS Page 15 1975 Issues Issues Issues All Issues listed AA Rated A Rated BBB January February AprG. August Septesber October November Dec caber ll;25$ 9.89 .10.66 10 19 11.27-10 21 10.35>> 11,47 J 10 99>> 10 47 10,43>> 9.45 10a70 9.75 9.44 9B52 -10a92 10.66 10 45 10.80 '0 58 10B34 10 41 ll 13$ 10,90 10052 11.375 12.37 10,92 10.88 9.92 Average 10,71$ 10 56$ I1,1+- ~ January February Yea'ch 1-23 9B+ 9BOO 9 22 8'57$ 8.68 9.52~a 9a25 9.~ e 9 00 9-75 9s 0&fy 8.62$ 9 3K '.3S >>>>Average January-Harch 23, 1976 >>Includes a fev issues rated BB and B. Source." Standard Ec poor's Corporation, Thc Fixed Income Investor, December 27, lg75B ~ 'age 96 and corresponding pages in previous issues. Yeody's Investors Service, Inc., Faody's Pond Sruvcy, Dece:bcr 29B 1975, page 460, Y~rch 22,

1976, page 1

an corrcspon< ng pages in previous issues. Wall Street Journal; Neo York Times; The Co...ercial and Financial Chronicle; Ane uncy .magcr; ~ ~ ~

Page 16 CAROLINA Hfr6R & LIGHT COMPANY COST OF PREFERRED STOCK AND HEFERENCE STOCK Based on Inhedded Cost of Preferred Stock and Preference Stock Sept ember~0~3.97$~ Estimated'ecember 31, 1976 Carolina Pcnrer 5 Light Company Cost of Preferred Stock and. Preference Stock

I:

CAROLINA PSKR 5 LIGIE COMPANY BPCRHHTNATlON OF FA fH HATH OF Hi".AHlH ON HOOK VA1,lF. OF CORDON KQIJTTY Page 17 On Basis of Standard of Connensurate Return Earnings experience on common equity of electric utilities in original cost Jurisdictions, without flow-through, used as comparison comIanies,

1971, 1972, 1fj'3, I'fff4 Ad)ustment for differences in coranon equity rntio..

Exclusion of certain carnpanlcc from u"c as compnr1son companies. "In line" with earnings experience on conmon equity of'igh Grade industrial companies. Recent rate orders by regulatory commissions. Standards of Maintenance of Credit and Support of Financial Integrity an rnc on o Cap a on 1'n r nn 1 ensonn c Terms Market price of'orrnon stock in relation to book value and common. stock offerings,- 1972 1973 1974 1975 ]976 First mortgage bond offerings of electric utilities with fixed. charge ratios to support A rating,

1975, 1976 Preferred stock offerings of electric utilities with fixed charge and preferred stock dividend caverage ratios to support "a" snd A rating,

1975, 1976

Real Growth REAL GRORTH AHD INFIATIOH W THE A~ICAN ECOiYQi& FERCBFNGZ CHARGES YrMi-TO-T+AR 1946-1975Inflat on 1946 1947 1948 1949 1950 .1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 I+1 1972 1973 if(4 1975 ~ir 19?2 Dollars - 1.6 4.1 0.6 8.7 S.l 3.8 39 le3 6.7 2el 1.8 0.2 6.0 23 2,5 5.8 4.0 5e3 59. 59 2e7 4,4 2.6 0.3 3e0 5e7 5e3 1.8 2,0 GHP Deflator 12.8 6.9 - 1.0 2,0 6.S 1.3 1.5 1,4 2.2 3.1 3,4 1.6 2.2 1.7 0;9 1.8 1.5 1.6 2 e2 3e3 2.9 4,5 5,0 e 5 1 4.1 5-9 97 8.8 Consumer Pr ce Index .8.5g 14.4 7.8 - 1.0 1.0 7.9 2.2 0,7 0.5 0.4 1.5 3.5 2.8 0.8 1.6 leO 1.1 1.2 1.3 1.7 2D9 2.9 4.2 5 'e 3 5-9 4,3 3e3 6.6 11,0 9.1 n t Labor Cost 4.4$ 1.6 - 1.1 6.4 4.1 2,0 0.6 - 1.7 6.1 3.4 1,0 2.2 0.3 - 0.3 0.3 1.1 0.7 2.9 3.6 4,3 70 3.4 1.9 4.9 12e3 707 Total Real Disposable Personal Income 0,4 8.1 2.4 3.0 4.6 6.6 4,2 2.1 0.9 4.5 2.2 3.1 4.7 3.8 7.0 6.6 5.5 4.1 4.5 2.9 39 4,5 6.7 -17 1.6

woo ao ~v ooaaa ~ ~ aa \\ ~ 1946-1975 Page 19 AI1 Mmufacturing Corporat ions gonfinancial Corporations-Domestic Operations '946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 Rate of Return on Equity lo.484 9.92 I2.55 12 28 10.95 8.58 lo.42 ~9.20 8.82 Equity Ratio Blo39'g 82.06 82.28 Bo.76 79-96 Bo.o7 80.43 Bo.o9 Per cen Operating Profits 16.95$ 19.37 '1.60 20.10 22.o8 21.74 19.06 17.41 16 59 IB.63 16,91 15.83 14 19 16.23 14.75 14.47 oi Gross Corporate Zmrentory Profits or Losses (-) 5.354 4.92 1 60 I 1.42 3 o29 0.60 - 0.54 0.51 0.15 0'.78 1.16 o.62 0 12 0.18 - 0 07 0.03 Yr uct Profits Before iaxaa 22 2Q 24.29 23.21 I,8.67 25.37 22.43 18;57 17.92 16.75

19. 41 18.o7 16.45 14.27 16.38 14.68 14.47

'962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975>>>> 9.78 10.25 11.60 l2.98 13.43 I3. ~ 71 12.05 11.47 9.32 9.67 10.61 I2.84 14.92 I3.;lO 79.67 79.53 79o57 78.54 76.42 74-35 72.97 71.4o 69.62 69.24 69.74 69.58 69.96 70.00 14.86 15.19 15.95 17 01" I6.82 15 11 .14.68 12.47 9,81

10. 50 11.28 10 ll 7.82 9 16

- 0 09 o.16 0.14 o.45 o.44 Oo25 0 70 1.01 0.92 o.88 1.14 2 23>> 5 02>> 1.84>>,'4.76 15.34 16.13 17.43 17.24 15.37 .15.41 13.48 10.73 11.39

12. 42 12.84 11.00

~ ~ >>Includes capital consump.ion allowances >>>>1975 I-II-III Source: Federal Trade Cot.mission, Quarterly Financial

Commcrce, Bureau of Econom c Ana sos, Vritcd Nevs, thrch 19, 1976.

Report for fhnufacturirg, . i ; .S. Dcpar mcn~oi States Department of Commcrce

INVESTMENT SX'ATURE CAROLINA FCMER 8s LYGIE COHPAFl MlNCH 1976 Yuody's P~ting Standard 5 &or's on Bond Quality Rating Senior Debt on Senior Debt Moody's Standard h Poor's Quality Rating on'ity Rating on Preferred Stock Preferred Stock lundy's Rating of Basic Investment uiU.ty Standard 8c Poor's Dividend Paid Earnings and Each Year DM.dend Ranking Since Ban I+~ e Medium GraXe 1937 Source: hoody's Investors Service, Inc., Moody's Bond Record, April 1976j Moody's Handbook of Gammon Stocks Mnter 1976 Edition; Standard Ec Poor's Corporation, Bon u e, pr; Security Orner s 'c u e, pr I

r f s h c 't ~ lHY)-.TR)tfF."TATQIH ELECIRIC UTIIITIES IH OBIOIHAL COOT JURISDICfI%3 KilllOUT FLOl-IlROlllH Preferred Hntock Ccrc.on Stock (Publicly-Held AIebhm ll nn n or Connnl ArtAllsas lss L Llsnt connnll Gtatelard 4 lcores Hoodycs Rating Rating Hoody's Rating "btta" Gtctntlrtttl 4 A)or' Rating. A-tt a lit o Dttslc Invcnttttcctk,

Quality, a

r s )nrnlngs and dividend RuQdngs r ere Each Tear Siroce Florida FF~rTda Paver Corporation>> Florida paver 4 Ught Coapanye Gulf Pover Coopaay+ Tanpa Electric Corprttnytt Georgia ~corgia Povcr CoxpenIFLL Hei>>it 7cavaiian Electric Coctpanyc Ino,>> lcnois llllnols Ltslst Cosnsnro Central Illinois Public Service Coepuqre Co~nvealth Edison Cnmponyct 'Illinois Povcr Coopeny+ Io'na ~nerstate povcr Capanye Iova Electric Light and povcr Cocpanye = Iova-Illinbie Ges and Electric Coapu~ Iova pr~er and Light Conpanye Iova Public Serricc Cocpanye Iova Southern Utilities Cocpsslye A A Aa Aa Aa ha Aaa Aa A Bea Aa ha A Aa A-A'A-AA-A AA AA M A. A AA hM. AA ~oa v ~sass "ba" Nasl vert sa ~saasl ~sass vaast 0asn ssav private BBB A AM h hh AA AA A A-A A A private ~ Hediute Crade Iiwestnent Grade High Grade Upper Hcditse Grade HL Imeetncnt Crade High Grade Inrestctent Grade Inrestnent Grade Nedhas Grade High Grade HL Investnent Grade HL B+ A A A AA-' A-A- b+ h- . A-A A 1937 1944 1900 1901'921 1947 1890 1947 194S 1950 .1942 1909 1991 Esnsas RKr~as Gas and Electric Conparqre Kansas Pover and Light~>> AA-M A h Inrestnent Grade High Grade A-19'- 191$ s ~ ~ e 'cs ~ ~ 'l t L ltd ~ l rs

VINRfTIIIHT"TATIIRP YIHTIIII:ill'llITIY'I III tain'IINI~ lac:T.Ill(l::IIIITIs'InlIllvlsefr YIIM.TINunlnl Standard 5 Ror's Re~Is R~atfn Bating Preferred ntoch , Standard A Poor'a Hoody's Bating Bating Cosnon Stoch (Publfel -Held M~yn irarTnl, ol ~ s ur uor o v u o Basic !nvestment Earnings and Each Tear

Kentucky, M~en uc Vt fifties Oorpanye Loulsvf lie 'faa alvl Electric excpanye Louisiana c,,:: pro

< ~ t u t ieasyey, ue. ~ Gulf States Utilities Covpanyu ~ Louisiana Povcr L Lftht Conpany Kev Orleans Public Service Inc. ~. Southvestern Electric Pcr~cr Cowpanys Hnsauchncctta 5o-on ellson cceqxmyu ltcv Qulford Gao nnl F~lloon Lfeht Cosfvtnye Eastern Yassachusctts Electric Coapanye Michigan ~ Fa er Oeyany Detroit Edison Oorpanye ha Aua A Aa A A ha Baa An Baa AA AA AM A AM BBB A BSB A BM ~ea v A A A AA A A AA DBB BDB Invcctncnt Grade Hlp1I Grade Investnent Grade High Grade Lover Medium Grade Hcdflao Grade hwer Hcdflos Grade A-A ~ A. A b B+ 1939 1923 1935 193S 1913 1909 ~ Minnesota ltwc 4 usht umpuw Mississippi jHi~ssHppf Paver Confeaye Hlsslssippf Pover 0 Light Coupanye f5ssour f ~~saollti Bl u Sapling+ A A 'rivate A A private ear ~eau Investloent Grade A-19ll3 Oklahona 5QnEaea Gas and Elcctrlc Colony>> Puhifc Servfce Oocpany oP OkllhooA~ AA ~ AA M AA fif+Orade A 1908 ~

DVESTYEHT STATURE ELECTRIC Ul'ILITIES IH ORIOIHAL COT JURISDlCTIONS WITHOUT FLCM-THROUOH elRCH Page 23 Standard b 1bor's ~s Rating Rating Preferred Stock Standard b tuor' Hoody's Rating Rating s a hg 0 Basic Imestnent sift ar r a Earnings a."4 Dividend. Rankf ngs Coceon Stock tpubllcl -Held v e ~ Each Tear Since South Carolina Yadfun Grade A-1946 Holding Coo nles e u illtfes, Inc. ~ Hcu England Gas an4 Electric Associations The Southern Cacguu~ Imsstnent Grade Hsdfun Orade Hodfm Orade A Bs A 1949 1941 1948 ~ ~ ~In orfgfruLI cost gurfsdfctfons without flov-through. Hole,-Dash fn preferred stock, )body's and 66mderd b Ivor' ratings, indicates prel'erred not yet rate4 by Sade's or holding ccctpanfes or operating conpenfes Wthout preferred stock. Dash in cmsen stock, fkody's end Standard b poor's ratings, and fn dividends pafd, indicates operating subsidiaries without publicly-held c~n stock. Sourcef fbody'e Imestors Servfcc, Inc., Hoody's Public Utilityffsnual 1975; bloody's fhndbook ol'Anuon Stocks Fall lgj Edftfoni 's Bon4 Survey, 1974 to date; s eco an eferred S gs c cr I andar4 b Poor' Oorporatfon, ~ r 1974 to &tel~ e er i ~ gag. ~ l9 pQA~ v <<w ~ ~<< t<< ~ ~ ~ ~

RATE OF REUJRN ON CONION ACUITY AND CONCON EQUITY RATIO OPERATING ELECTRIC UTILITIES IN ORIGINAL COST JURISDICTIONS WITIDUT FLOW-THROUGH 1971-1975 Page 24 Alabama K~aama Power Company+ Arkansas ~rcsnsas Power 8s Light Comps~ 1971 ll.373II 33 98 14.25 32.41 1972 . 10>>12$ 33.04 15.06 32.68 1973 13.8+ 31.87 13.72 33 22 1974 8.61$ 31.34 16,09 33.69 1975

11. 49~ptt 31.04 Florida FporTila Earner Corporation>>

Florida Power 5 Light Comp~ Tampa Electric Comp~ Georgia tteorgta Parer co>>pear>> geo>>it Ca>>>>iten Eleotrto Company" Illinois CenCrsl Illinoio Light Compeer>> Central Illinois Public Service Company+ e Commonwealth Edison ComItmqr+ Illinois Power Compmqr+ 13.66 35.37 14.15 38.69 12.98 33.45 9.39 30.04 8.52 32.56 llo49 29;43 13.80 33.67 14.76 35.35 12.36 31.61 13.31 35.09 13;78 33.89 13,46 38.46 12,67 34.13 14.08 30.22'0,59 32.11 11,73 30.01 13.09 33.67 12>>77

33. 18 13.14 32.58 12.20 35.80 12.23 31.74 13.26 38.71 11.28 34.21 13.36 30.37 9.86 31.56 11.74 33.16 10.26 31.43 10.88 31.90 12,06 34.06 12.66 35.65 8.38 29.98 11.07 35.51 3.58 33.36 11.09 29.10 8,16 30.63 11.75 32.13 9.76 27.47 11,13 30,76 10.69 33 Ol ll 26 34.37 13.42 30.31 13 32'33.41 13.72 29.59 11.49 31.28 8.82 25.76 13.11 30 90 11.07 32 91 13.23 35 95

RATE OF RHMQI ON COHN3N EQUITY AND COI+DN EQUITY RATIO OPERATING ELECTRIC UTILITIES IN ORIGIML COST JURISDICTIONS WITHOUT FMW-TRROUGN 1971-1975 1 Iowa ~in erstate Power Comps~ Iowa Electric Light and Power Coagm~ Iowa-Illinois Gas and Electric Company>> Iowa Power and Light Comps~ Iowa public Service Company+ Iowa Southern Utilities,Companys 5018as Ransas Gas and Electric Company>> Kansas Power g Light Company>> Kentucky 1~en uc qr Utilities Co'mpany>> Louisville Gas 4 Electric Companys '971 11.23$ 30.47 9.92 29.40 9.06 30.20 11.52 31.39 12.64 35.38 14.38 46.47 12.95 36.97 14.72 42.71 11.82 40.29 13.36 43.63 11,53$ 30.66 28.47 14.30 33,10 11.38 34.21',82 33.46 14.01 49.94 12.88 34.08 13.33 44.21 11.07 35.19 I2e22 40.79 1973 = xo.8+ 29.62 '0.06 26.97 10,38 37.98 .13.24 35.14 8.99 31,63 47.96 . 9.63 31.61 12.50 45.62 "11,28 36.81 llo39 38.84 1974 11.33$ 28.57 3.24 24.76

10. 91 36.75 12.03 34.05 10.37 29.78 13.51 43.56 9.40 29.62

'10,19 44.62 6.81 35.44 9.28 37.34 1975 11.39~ 29,61 11.93 36.34 14.33 34.25 12 75 31.87 13.47 42.12p 12.78 29.44

12. 11 40.91 12.42 34.39 12 57 36 i96

RATE OF RETURN ON COhRQN EQUITY AND COM%N EQUITY RATIO OPERATING ELECTRIC UTILITIES IN ORIGINAL COST JURISDICTIONS WITHOUZ FIAT-THROUGH 1971-1975 Louisiana FeenrBT icuieiene Electric Ccmyeny, &c.e Gulf States Utilities Company+ Louisiana I@ver 8 Light Conya~ Nev Orleans Public Service Inc.+ Southvestern Electric Paver Coerp~ hbssachusetts Nev Bedford Gas anl Mison Light Comp~ Western Massachusetts Electric Compazgr+ Michigan ~oneumere yceer Ccmyenye Detroit E5ison Cony~ Minnesota Rinnescita Paver e8 Light Comp~ 1971 14.8+ 33 57 12.11 33.85 13.43 32 95 7.24 35.27 15.51 40,70 12.00 28.83 9.86 41.63 36.05 10m 23 35.63 i4.53 31,52 1972 15.48$ 35.11 12.64 34.i3 14.41 33.28 5.80 35.01 17.01 40.00 12.3 28.9 8.59 38,19 9.87 34.32 9.87 34.24 10,44 33.51 14.43 29.47'973 15.2+ 35.57 12.96 33.02 14.65 33.47 10.70 35.22 17.29 42.05 3':R 6.87 41.60 ,8.96 33 59 8.73 32.36 9.36 33.15 11,89 28.35 1974 16.47$ 31.59 12.32 3le90 14.81 31.61 4.08 35.00 16.46 41.85 8.20 29.20 5.42 42.59 7 ~ 32.98 ~ 4.78 29.39 7.50 31.85 9.76 28.50 1975 17.57$ 33.04 13.99 40.m 28.27. 7.88 30.74 13m03 30.49

RATE OF RETURN ON CONN)N EQUITY AND COMYDN EQUITY RATIO OPERATING ELECZRIC UZILITIES IN ORIGINAL COST JURISDICTIONS WITHOUZ HAP-THROUGH ~ 1971-1975 Page 27 Missiesi pi ss se ppi Poser Company Mississippi Power 8 Light Company+ Missouri ~aeneas-Aiseouri Pover Company+ Oklahoma OEIHioma Gas and Electric Compenys Public Service Company of OlQahoma+ South Carolina 1971 12.90$ 34.08 15.47 32.41 10,80 ,28.18 15.80 36.02 14,15 40.29 11,05 29.92 13.48$ 34.67 17.08 32.53 12.48 27.36 15.39 37.77 14,95 39.46 11,40 31.31 . 1973 llo17$ 34.43 13.26 31 39 7.42 32.34 14.87 39.88 14.04 39.67 10,01 31.50 1974 10.24$ 32.62 13.58 31.41'.'39 38.67 13.45 40.45 13.18 38.98 8.56 30+ 10 1975 Preliminary Note.-Conan equity ratio is average total common equity as percent of average total capitalization, including debt due yithin one year. . Source: Computed from data in 1974 annual reports to stockholders; unif'orm statistical reports; and Moody's Investors Servicey Inc ~ y Moody's Pumic UtilityManual 1975 and Moody's public UtilityNeve R ort 1975 and corresponding sources in earlier years%

ALM'ytANCE FOR FIG)S USED DURING CONSTRUCTION IN REIATION TO NET INCOME FOR COt9'ION OPERATING ELECTRIC UTILITIES IN ORIGINAL COST JURISDICTIONS WITHOUT FLOH-THROUGH 1971-1975 page 28 Alabana XTB~nma Power Compan~ Arkansas rlalnsas poser g Light Compenye Florida yyorTda poser Corporations Florida Power Ee Light Company+ Gulf Power Company+ Tampa Electric Company>> georgia Georgia tearer Compsnye Hawaii ~ia'aitan Eleotrie Company, Ino.e Illinois. ~Cen rel Illinois Light Companye Central Illinois Public Service Company>> Commonwealth Edison Comp~ Illinois Power Company+ Iowa Interstate Power Company+ Iowa Electric Light and Power 'Company>'owa-Illinois Gas and Electric Company+ Iowa Power and Light Company Iowa Public Service Company>> Iowa Southern Utilities Company . Kansas MIsuisas Gas and Electric Company+ Kansas Power and Light Company+ Kentucky keen uc g Utilities Comp~ LouisviHe Gas and Electric Company+ 1971 26.7+ 28.33 24.46 23 33 11.37 12.48 46.82

9. 51

27. 59 22 55 39.07 11.77

.1.65 41.10 52 29 1.78 24.78 1.02 25.43 9.59 19.68 0.00 1972 36.7Q 42.73 37-25 34 52 28.81 17.59 49.18 15.62 ~ 22.58 25.85 34.44 20,69 2.78 58.78 29.68 2.08 23.45 2.74 42.33 0 81 21.73 0,00 1973 36.67$ 51.23 70.19 25.45 35 55 20,41 64.72 18.04 19.16 27.00 17.99

2. 01 138.12 10.8S

'5.99 8.16 11.14 29.66 0.99 33.57 0,00 1974 82.31$ 50.25 122,05 42.54 16.75 37 78 92,70 24.26 42.49 20.25 26.45 21.27 7.18 222.48 22.83 22.49 20.72 24.28 14e29 5.50

15. 13 0 00 1975 69.6+

57.0S 38.74 25.0S S.S5 62.93 30.91 29.32 15.07 21.38 26.85 20 17 28.54 32.74 34.22 12.49 0,00 00 m

AIMtlANCE FOR FUNDS USED DURING CONSTRUCTION IN REIATION To NET INCOG FOH CONON OPERATING ELECTRIC UTILITIES IN ORIGINAL COST JURISDICTIONS ftITHOUT FLOH-THROUGH 1971-1975 page 29 Louisiana CenaT lnnisinna Eleotrlo Company, lno.e Gulf States Utilities Company>> Louisiana Power I Light Company+ New Orleans Public Service Inc.+ Southwestern Electric Power Company Massachusetts New Redford Gas and Edison Light Companyjp Nestern Massachusetts Electric Companys 1971 12.41$ 19.75 16.90 2.66 -B.O6 62.66 8.95 35.62 1972 5.64$ 21.53 2o.26 . 2.83 3.53 73.12 7.58 46.88 1973. 15.46$ - 23,17 23.10 1.92 7.72 35.76 5.6o 42.06 1974 28.93$ 26.7o

32.02 6.11 8.43 57.7l 13.91 56e91 1975 15.64$ 14.65 Michigan Consumers Power Company>> Detroit Edison, Comp~ 33.8o 43.86 38.03 36,78 51.39 47 82 61.98 57.35 35.14 6o.37. Minnesota Tllnnesa,a Power g Light Companye Mississippi Miis" sass ppi lhwer Companye Mississippi Power 5 Light Companys 20.97 13.47 23.4o 42.23 27.59 12.36 31.26 24.63 36,38 5.84 2o.46 49.16 10.33 ~ e Missouri Trrsnsas-Mlssonri Power Cospany" 2.62 11.24 9.60 13.21 Oklahoma V'.cCaComa Gas and Electric Company+ Public Service Company of Oklahoma+ South Carolina 7.91 2,13 33.25 8.76 5.92 29.53 7.19 17 94 30;89 15.10 10,92 21;87 20.76'fi 24.59/ Average - above 39 companies in original 26.50$ 36.43$ cost Jurisdictions without flow-through+ Sources Computed from data in 1974 annual reports to stockholders; uniform statistical-reports; hhody's Investors Servicef Ines p Moody's Public UtilityManual, 1975 and Moody's public VtilityNews Report 1975 and corresponding sources in earlier. years. 00

1 CAROLINA PONKR I) LIGNT COMPANY RAIE OF REIVRN ON COP&ION EQUITY AND OXQDN EQJITT RATIO AILQQNCE FOR FUNDS II)ED DURIM CONSIRVCZION AS PIRCHK OF NET INCOME FOR COHEN 1968-1975 page 30 1969 1970 1971 1973 1974 Net incnse for coason .Average con)son equity "Rate of return on cocson equity 185)848) 514 210) 448) 509 245 ~ 559) 000 280) 003) 000 11.60$ 8.2', 10.36 373)730)500 499,453,278 10.82$ 539.881)093 9.56$ 635,375,315 11.94$ 4 23,046) 540 4 24,417,813 4 20) 126) 327 4 29,103,019 5

50) 917) 573 4

52) 991) 914 4

51) 598) 075 4

75) 870,000 Average counon equity Average total.capital Cocs)on equity ratio

$185,848,514 @10 448,508 +45,559,000 @80,003,000 373,730,500 489,453,278 f 539,881,093 f 635,375,315 547) 789) 564 619) 950) 724 742f 255) 506 929f 459) 367 lf178) 280) 554 1)491) 136) 282 lf834) 295) 312 2)107) 966) 157 33.93$ 33.95'S 33 085 30.16 31 74 32.82$ 29.43), '0)14$, Allovance for fmis used during construction Net Incone for cosign 2)927)162 f 4f397)118 f 10)504)936 23,046 540 24,417,823 20, 126 327 29,103,019

50) 917) 573

52) 991) 914

51) 598) 075

75) 870) 000

14) 707) 389 f

24) 758) 784 4

39)092) 921 4 54)609) 879 f 59)957) 000 Allovance for funds used during construction ae percent of net Income for cc)=un 12.7+ 18.01$ 50.54$ 48.63$ 71,90jf 105,84$ Source: Carolina Rfffer 6 Light Oonpanyf 1974 Annual R rt Interi)a Financial Statemente) Decenber

31) 1975.

REIATIGNSHIP BETHEEN RATE OF RETURN ON COHMON ~UITY AND CGtSON VglTI RATIO Pope 3l Ineceaa for capital capital IOy>> ccnan cq'il1y rotio no debt $100 00 gooo Chgr ny Il 5g coarsen equity ratio ~M 7.5$ debt east $100.00 Oneekutr C 40$ coeron ooulty rntlo and 7.5'g debt cost 4100,00 Goemanr o 35.0j c~ cOulty ratio and 7.56 debt cost 4100.00 $1000 ~i couxon equity ratio ~nd 7 54 debt cost glOO,OO 30.0>> exam e~lty ratio and 8.04 debt cost Pite of return oo total capital $00.00/$ 1000 lo.oof 4100.00//coo i 10.00$ goo,oo/giooo Io,~ +00,00/$ 1000 ~ 10,~ +00,00/eICOO i 10+00$ Blooooo/+000 ~ 10.~ Debt Cbmon equity oh'. <<spital Cocoon equity ratio o ~IOCO +000 +000/+000 i 100+0$ 5 foO COCO $00/$000 r 50,+ g 6oo P ke +000 goo/oooo - 40.og g 650 ~ ~350 +000 4350/41000 n 35.0S ~700 '1000 3 300 eo/'.ice - 30.oS Woo/oooo. 30.oC o Ikhedded cost of debt Interest on debt %et hmeee for coaeon 7.5S TsfS 7.5S 7.5$ B.og 7~5S x $500 ~ OTefo Toff x $00 ~ $5,00 T,flax $50 e +,75 7.5$ x f5+ ~ vs 50 B.Og x +00 a $56.00 445 00 455 oo Aoo 00 V4o75 P Q $5 $100.00 4g 50 ~ Prfo 000 oo $56 00 ~ Poco Rate of return on cceseon eTulty $00.00/$ 000 i i0.00$ gp,fo/~ i Io,ferf 55.00/040 ~ 13.75 0 551.af/550 Il.Q$ 8.50/B300 - 15.8$ dbms.oo/W S.6y

METHOD OF AMUSTMBN2 FOR DIFFERENT COITION EQJlTY RATIO Earnings experience 4 Ehnsas Br'er 5 Light Company Rate of return on common e)uity Comnon equity ratio (45.62~) 12,5+ x .4562 Component for common equity in overall rate of return 5.7O2 At 33.4O common e uity ratio less common equity,.more debt \\ . Rae interest (4.~ rate in 1973) ~ less earnings for common equity .4562 .334o =.IKf ~1222 x 4.~ ~599 Resultant conponent for cannon equity'.7O2 '599 5+103 Resultant rate of return on common eq y a conmon e ty ratio 5.103/.334 15,28$ 00 m

RATE OF REZUPH ON COIGN EQUITY AMUSTED TO 33.40 PMCENT COMMON EC'UITY RATIO OPERATING EIZCZRIC UZILITIES IN ORIGINAL COST JURISDICTIONS MITHOVZ FLOM-THROUGH page 33 Alabama XTal>arne Power Company>> Arkansas ~Ar ness poser n Light Companrs Florida Fioer da Power Corporation+ Florida Po~er II Light Company+ Gulf Power Company>> Tampa Electric Costpanys Georgia Georgia poser Compsnps Hawaii 1f-os iten Electric Companrs Illinois cencrat illinois Light Compsnps Central Illinois Public Service Company'olcsonwealth Edison Company+ Illinois Power Compa~ Iowa Interstate Power Company>> Iowa Electric Light end Power Company+ Iowa-Illinois Gas and Electric Company>> Iowa Power end Light Company'owa Public Sexvice Company+ Iowa Southern Utilities Company+ Kansas tnnsas Gas ang Electric Cosgcnrs Kansas Power and Light Companylt Kentucky l(~en ucoy Utilities Company~ Louisville Gas and Electric Compenys 1971 11.47$ 13.99 14.14 15.40 12 99 9.01 8.46, 10.84 13.86 15,31 11.99 13.73 10,69 9.39 8.75 llsl3 13s09 18.zo 13.70 17.44 13.09 .15.94 1972 10.08$ . 14.87 13.90 14.52 12.81 .13 32 10.43 lis18 13.15 12.73 12.95 12.68 11.00 11.60 14.23 11.54 9.83 18.72 13.01 16.06 lls35 13,76 1973 13.68 lls95 14.29 11.39 12.67 9.71 11.70 10.02 10.67 13.13 10.22 .9,60 10.96 13.68 8.83 17GOZ 9.45 15 28 llo77 1974 8.51$ 16.16 . 8.33 11.29 3.59 10.54 8.12 11.56 9.30 10.77 10.63 11.40 10.50 4.56 11.33 12.14 9.86 16.04 9-09 11.77 6.83 9.62 1975 11.24$ 12.84 13.32 11.22 8.37 12.65 Ilo00 13.76 10.76, 12 45 14.55 lz.44 15.27 12.06 13 49 12.58 13 22

HATE OF RETURN ON COHYiON EQUITY AMUSTED TO 33.40 PERCEN1 COKC)N EqUITY RATIO OPERATING ELECTRIC UZILITIES IN ORIGIltAL COST JURISDICTIONS WITHOUT FMM-THROUGH page 34 1971 1972 1973 1974 1975 Louisiana c~ccra Ioa1siana Electrtc Company, Inc.a Gulf States Utilities Company>> Loufsiena Power 8 Light Company>> New Orleans Public Service, Inc.>> Southwestern Electric Power Company>> Yaassachusetts ml New.'Bedford Gas and Edison Light Company>> western lhssachusetts Electric Company>> Michigan Consumers Power Company>> Detroit Edison Company>> Minnesota Mrnnesota Poner ye Eight Cospanye tiississippi Mms~mss ppi pacer Compenye Mississippi Power 5 Light Company>> Jfissouri Erreeneas-Missocri pacer Ccmpanys Oklahoma K~aioma Gas and Electric Company>> Public, Service Company of Oklahoma>> South Carolina Electric and Gas Company>> 14.94$, 12.19 13 33 7.43 17.64, 11.20 10e94 10.16 10.55 9.65 ~ 13.99 13.13 15.18 10.04 16.66 16.17 10.55 15 965 12.80 14.38 5.87 19 19 11,55 9a07 9.97 9 97 10.45 13.31 I6.yf 11.31 16,70 16.89 11,10 15a78$ 12.88 14.67 11.04 20.16 8.62 6,91 8.97 8.65 11.03 lla31 12.82 7.39 16.73 15.67 9.82 15 9V 12c05 14.37 4.00 19.l2 8.24 4.72 7.72 5.00 7.51 9.27. 10m13 13m16 4.08 14.90 14.40 8.40 17.46$ 15.57 8.99. 7.85. 11.88 oo m -* 4l

Cvelvu:irv riCIAJDI D hlCAa USE Ab Vv~tnslSON:COW'AAWh lN Tl'~r vn" vute&ASUlULTB BMllQI OPFJULTIIIC EIIZTRIC UZI ITIFS IN OPIGINAL COST JUBI DZCZIONS WITHOUT FMW-TllllOUGll Page 35 ~ ' o ~ ~ ~ hlabama Povcr Company ~ 1 Excluded in 1971, 1972, 1973, 1974 snd 1975. Difficulties in financing bccau" c of. inadequate coverage ratios. Rate of return corned vas substantially less than that alloved by JGabsma Public Service Commission. ~kansas 'h'rkcnses Pover & Light Company Excluded in 1972, 1973,'nd 1974, In 1973 and 1974, allovcnce for funds u"cd during con~ction ptas 'more t)mn half of net income for conxnon. 'ifficulties in financing becau"c of inadequate ccnrerage ratios. Inadequate investment stature. I Florida lturida Paver. Corporation Excluded in lcr72, 1973, 1974, and 1975. M 1973 allowance for funds used during construction vas 70.19 percent of net income for connnon and. in 1974 vas 122.05 percent. Inadequate imrestmcnt stature. plorida povcr 5 Light Con@any P Excluded in 1974. Rate of return earned in 1974 vas significantly less than that alloved ~ by Florida Public Sc~ce Ccmd.ssion. Gulf Pover Company Excluded in 1973 and 1974, , Rate of return enrncd in 1973 and 1974 vas substantially less than that alloved by Florida Public Service Connnission. tampa Electric Company 'xcluded in 1971 and. 1974. Nct income for connnon in 1972 vns 69.7 percent greater than in )971, as a result of rate increase effective January 1, 1972. Aa4c of return ecrnrd in 1971 and iu 1974 vus cubctentiaUg loss tluLn that allowed by Florida Public Scrvico Cor~isciou, ~ ~ I

COHPANIF EXC11lDED FHOH U..E A COIVARISON COKl'ARIES Ill TF~T OF CO~~SIIi.".UllATE AFTU".N OPERATING ELIXZAIC UI'ILITIFS IN ONIGIl!AL CO"T JUI I. DICTIONS MITlIOUT VIM-TNI'OLX'I[ Page 36 . Georgia Power Company Excluded in 1971, 1972, 1973'nd 1974. In 1971> 1972, and 1973, allowance for funds used during construction was about half of nct incase for common cnd in 1974 was..92.70 percent of nct income for common. During 1973 Georgia Power vas forced to cancel proposed public sales of first mortgage bonds and preferred stock by reason of inability to meet earnings coverage rcqu'rcments contained in its charter ard bond indenture. (Rocky's Investors Scrv'ce, Inc., Nmdy's Bond Survey, January 14'/74'ages 1434-1436; Standard 5 Poor's corporation, 'L'nc Fhrcd Incor" investor, January 12, 1974, pages 974-975). Inadequate investment stature. Ratings su~ended fo" several months. ~, Inability to finance because of inadc~ coverage ratios. Hawaiian Electric Company, Inc. Excluded in 1974 and 1975, Rate of return earned in 1974 aud in 1975 was substantially less than that allowed by Hawaii Public Utilities Commission. "ZQ1nois Central Illinois Light Company Central Illinois Public Service Company Cosmonwealth Edison Company ZQinois Pover Company Excluded in 1971,

1972, 1973> 1974, and 1975.

Illinois ms fair value 5urisdiction untV changed to original cost 'urisdiction during 1973. Rate of return earned in 1974 and. in 1975 (~ Illinois Power Company) was substantially less than that allowed by Illinois~ce Comsission. Interstate Pover Computer Excluded in 1971,

1972, 1973>

1974, and 1975.

h Earnings on ccarson equity in 1971, 1972, and 1973 reflect ua5or operating loss in bus operations. Rate of return earned in 1974 and in 1975 was significantly belov that alloved. by ~ Zova State Commcrce Commission. ~ ~ ~

COMAQtIKS FXC1IJDRD FROM U.",E A" CONt'MISOtt CONT'AllIl Ilt TEST OF C(NBA::ttgttttATS H~tttg OPHtATING ELKCTttIC UrILI".IFD ZN OttIGIrNL COST JttttIGDICI'lot:0 NIT.tOUI Hatt-nttto "..;l cont ucd Zova Electric Light snd Pover Company Excluded fn 1971, 1972, 1973, and 1974, Page 37 Zn lc??3 allovance for funds used during construction va" 138.12 percent of net income for common. In )974 allovancc for funds used during construction vas 222.48 percent of net income for common. Zn 1971 and Xc??2 allovancc for funds used during construction .vas about )talf of net incomo for common. Rate proceeding before the Iova State Coarncrcc Ccnmfssion, initiated fn 1971, vas brought to conclu fon by orders dated October 15, 1973 nnd February 15, 1974, rcsu'ting fn sub~tial increase fn.net income for ccxxson over 1971 lcvcl. Inadettuatc investment statured 'cosa-Illfnois Gas and Electric Company I ~ Exclude4 in 1971,

1973, and 1974.

'Net income for contin'%n 1972 vas 73.2 percent greater than fn 1971, as a result of rate increases, Rate of return earne4 fn 1971,

1973, and 1974 vas significantly less tttan that alloved by Iova and Illinois Cotanerce Commfcsfon.

ICAL pover h Xfttht Company Excluded fn 1971 and 1972. Rate of return earned fn 1971 and 1972 vas significantly belov that d ova State Coerce Cccnsfssion'. allctve by I Iowa public Service Compaqr Excluded in 1972, 1973, end 1974. Earnings per average share declined from g 13 in 1971 to g 88 fn 1972 and to $1.75 in 1973, a drop over the tvo years of 17.8 percent. Rate of return earned fn 1972,

1973, and 1974,.vas substantially less than tha alloved by Zova Co=erce ~ssion.

Iova Southern Utilities Comp~ Rate of return has been ad)usted dovnvsrd fn 1971,

1972, 1973, and 1974 to give effect to reduction fn electric revenues for 1975, under settlement of rate proceeding.

"The Zova State Ccc cree Commission's investigation of thc reasonableness of'ova Southern's se acc rates, fn tfgatcd in thc spring of 1972, edwin"<<tcd in the commission staff f'i'ing a formal rate proceeding on June 15, 1973. " "The Zova State Cacree Cession approved fn Dccc=bcr a settlemcnt of the rate proceeding izrcolvi" the co~y vhich it launched fn 1972. The scttlcmcnt provided for a $500,000 a.-aud rc"uctfon fn electric revenues starting J."ax. 1, 1st?5. Thc comxfssfon 's.a"f orfgitalIyrecommended a reduction of ~%,400,000 ( 97 ÃcLn"as Gas and ELcctric Comps~ deluded in 1972, 1973>

1974, and 1975,

. Rate of return enrred i.". 19t., lct73, 19?4, and 1975 ms substantially less than that allowed by Tiic State C"rp.ration Commission of thc State of Yanaas. glnsas povcr and Llpglt Company Fxcludcd in 1974. Rate of return earn<<4 in 1974 vao substantially less than that a1)ovcd by The State Corporatfon Ccmmfttuiott of tho State of i~ass,

COHPAJJIFQ FXCJ1JDED IRON U."E AS COPS'/BISON CANJOJlll IIJ TF".T 07 CC!"C...l. UWLBF. BPVJVl'mmT JJJO ELECTJJIC VJn ITlJ." IJJ OR>gliIAL CCZ m:XSJJ1cnOJ-.VLTJ J',",tir Am-TJmpi!CJJ cont uuc Kentuelar Kentucky Utilitiec Company Excluded in 1972, 1973, and 1974 Rate of return earned Sn 1972,

1973, and lp?4 +as significantly less than that aU.cnrcd by Public Service Commission of Kcntudgr.

ennui'svilla Cas and Electric Company Excluded in 1974. Rate of return in 1974 waa significantly less than that alloved by Public Service Cccxair sion of Kentucky. Page 38 Louisiana Gulf States Qtilities Company ~ Excluded in 1974. Rate of return earned in 1974 @as sub~~ially less than ~ allcnred by Louisiana Public Service Commission. Rer Orleans Public Service Inc. Excluded in 1971, 1972, 1973, and l,974. Set income for c~n in 1973 was 86.2 percent greater than in, 1972, as result of electric and gas rate increase placed in effect January 25, 1973. Net operating loss from transit operations amounted to more then half of nct &come for ccaaen in 1973. Rate of return earned in 1971, 1972, 1973, and 1974 uas sf~ficantly ~ less then that abhorred by the City of Nev Orleans. Southwestern Electric Povcr Company Excluded in 1971,

1972, 1973, le@4, and 1975.

Earnings experience is derived in significan part from Texasp loath fair value rate base and limited degree of regulation. .Massachusetts Boston Edison Ccclpsny Excluded in 1971, 1972, 1973, and 1974. Inadequate investment stature. IJifficulties in financing because of inadequate ccnrerage ratios. Ncv Bedford Gas and Edison Iight Compact Excluded in 1971, 1972, 1973, cLnd 1974. Xnadcquatc invcstmcnt stature. Vestcrn hhs~chusctta Electric Company Excluded in 1971, 1972, 1973, and 1974. Xn 1970,

1971, 1972, 1973, and 1974 cL11ownncc for flcnds used during construction uns about half of not incaac for comnon~

XncLdcquatc invcstmcnL stature.

COHPAAZi UCISSD FPOH U>>>>. AS CONNNJAOS CNl'Anil.~>> lii 1tar Vr ~. i--.~>>-. ~. Ii.":"7 H ormavnio m.rn~lic UTILITIF".'zu onzolf-~L co".T JUtil.",>>zcrzoss Mrrsovi FLO~-ritno:ntt Blah!gun Consumers Ibver Company CoAL Auc Page 39 Excluded in 1971, 1972, 1973, and 1974 Xn 1974 RDovancc for funda used durinS construction.vaa 61.90 percent. of act income for common. Inadequate invcntmcnt stature. Difficulties in finnncinS because of inadequate covcraSC ratios. Detroit FAison Company Excluded in 1971, 1972, 1973, and 1974. Xn 1971, 1972, 1973,. And 1974 allowance for funda uned durinS, construction @on about half of nct income for coneon. 'ntldcquatc invcatmcnt statl1ree . Hfnnesota Minnesota power & Light Company Excluded in 1972,

1973, 1974, and 19?5.

Earned far belav accepted rate of return on conmou equity. l~Kssfani Xtsnistippi Paver Company 'Excluded in 1973 and 1974. Rate of return earned in 1973 and 1974 was substantially less than that allowed by the Supreme Court of Mississippi. Miasictippi Paver & LiSht Cccgglny udcd in 1973 and 1974 ~ Rate of return earned in 1973 and 1974 vas substantially less than that alhwcd by Supreme Court of Mississippi. sour1 Arkansas-)Knsouri Pcrser Company Excluded in 1971, 1972, 1973, and 1974. In 1974 the Con@any filed for ma)or increase in'lectric cnd Sas rates and received interim increases. Earned far bclov'rate of return on common equity found fair and reasonable for electric utilitics by Public Service Commicsion of State of Mssouri.. Inadequate invc~nt stature. South Carolinn South Carolina FJ.cctrlc & Gas Company Excluded in 1971, 1972, 1973, Rnd 1974. Difficulties in finnneiAC because of inadequate covcrASC ratios. Inadequate iuvustmcnt atatul'co Rate of return earned vaa aillificantly lens thnn that allcntcd by'outh Carolina 1'ublfc Srrvicc Corcafnnion,

J ~ ~ 1 s RATE OP RETURN ON COlODH EQUITI AMUSTED TO 33.40 PERCENT CONHON EQUITY RATIO OKRATI% EIZCTRIC UTILITIES IN ORIGINAL COST JURISDICTIONS WITHOUZ FL%-THROUGH Page 40 Alabama kaama Power Company>> Arkansas Jrsanses lover & L1ght creepany>> 1971 13.99, .1972 '973 1975 ~2+ Florida F]~or da Power Corporation>> Florida Power 5 Light Compazqr>> Gulf Power Company>> Tampa Electric Company>> Georgia Georgia Paver Co>>Easy>> Hawaii ~availan Electr1c Coepany>> Illinois cenCral 1111nois Light Cong>>aye Central Illinois Publio Service Company>> Commonwealth Edison Company>> Dlinois Pover Company>> Iowa Tnn;erstate Power Company>> Iowa Electric Light and Power Company>> Iova-Illinois Gas and Electric Company>> Iowa Pover and Light Company>> Iowa Public Service Company>> Iowa Southern Utilities Company>> Kansas ~scene Gas ang Electric Conpany>> Kansas Paver and Light Company>> Kentu8qr K~tacgy Ctilities Conpany>> Louisville Gas and Electric Company>> h ~ 14.14 15,40 12 99 . 10,84 )AHiP. - 3439 '.' 13,09 18,20 13,70 17,44 13,09 , 15,94 14.52 12.81 '3,32 11,18 ~3'~ ~ . ~ ~ 14.23 18.72 16.06 13.76 14,29 11,70 - 13.68 17.02 15.28 12;34 ~3 ~154 ~6. ~~3 12.14 ~A6-16.04 ~Mr 13c32 12,96 4~0 13,76 12.45 14.55 12.44 15.27 ~ - 13.49 I2.58 13.22

r~ e J t e RATE OF RETURN ON CONAN EQUITY AMUSTED TO 33.40 PERCENT CORSN EQUITY RATIO OPERATING ELECTRIC UrrLITIES IN ORIGIIWL COST JURISDICTIONS WITNom FLEAM-TNRomN Page 41 Louislena ~>>ntra Loeisieoa Eleotrle Coop>>ay, Ino.>> Gulf States Utilities Company>> Louisiana Poser C Light Company>> ~ . Neo'rleans Public Service, Inc.>> South"estern Electric Potger Company>> ~ Massachusetts Ne~r Redford Gas en% Etiison Light Company+ Nestern Massachusetts Electric Companty>> 1971 14.94$ 12.19 13 35 1972 15.96$ l2.80 14.38 ~9 1973 15.78$ I2.88 14.67 . +3446 15.94$ ~5 14.37 Q.OO-1975 17.46$ igehigan cease..ers po>>vr chap>>ay>> Detroit'giison Company> Minnesota ~Erne".ota paver L Light Co>>Enny>> Mississippi Ensslssnppt pover Coop>>or>> Mississippi Power 5 Light Company>> kaissouri ~rsnsas-Missouri Bwer Company>> 13.99 13.13 15,18 ~$" ~l ~we ~ay OQehc=a O.~irma Gas anti Electric Company>> Public Service Company of Oklahoma+ South Carolina . 16.66 '6nl7 16.7O 16,89 ~ 16.73 15.67 lh.g ou Electric anti Gas Coetpany>> p45f

Page 4.'. RATE OF RETURN Oll COfRON EQUITX ADJUSTED TO 33o40 PERCEllT COHION E"!UITY RATIO OPERATING ELECTRIC UTILITIES IN ORIGINAL COST JURISDICTIONS MITllOUZ FL%-THROUGH USED AS CAPARISON COMPANIES IN TEST OF CQRENSURATE RETURN 1971-1975 1971 1973 1975 Operating Electric Utilities in Original Cost Jurisdictions. l t out Flow-oug Used as Compar son Compan es In Tes of Conmensura e Re urn Rate of return on common equity ad)usted to 33.40 percent comon equity ratio

14. 44$

14.7Pfi

14. 39$

14o 63/ 13o77$ Alla@ance for funds used during construction as percent of net income for common 15 ~ 50$ 15o 46'$14 o 07(i 22 o2+ 20 o7Pgi Number of companies used 19 15

/~ ~ ~, ~ I i~ ? I I ~e 43 BATE OF RETURN ON CQSOV FQUITI AND CO?OS.t 8>UITI RATIO INDUSTRIAL COKPANIES NITH QUALITIRAN?CING OF HIGH GRADE BI FlDODI'S 1963r1974 h"-ericen Eoae Product! Corporation 1963 27,63$ 93.84 1964 27.49$ 95'2 1965 1966 26.824 25.55/, 88.84 89.94 '967 25.35K 1968 1969 25.06$ 26,39i 90.62 91,31 1970 26.75i 92.30 26.63f, 93.22 ~ rq

6.63i 9-.51 a.SSi Beatrice tuoda Cooped 11.31 90 79 13.16 88.31 15.65

'6.76 87,91 80.09 17.54 83.Sv 16.38 83.4o 15.38 76.45 15 73 71.20

15. 92 71.99 6.CT 7

16 og ",S.cs vu.os Borden, Zne.. Lietol +ere Coapety'0.92 77.41

22. 95 90,80 ll.50 78,47 23.94 93 32.

11.00 81.88 24.85 97.29 10.'79 VS.V3 26.25 95.16 9.45 74.53 21 16 75.93 8.21 4.85 72.09 73.30 19.88 20.80 72.38 74.12 . 8.33 74.74 20.15 69.81 8 cg 72ogz 18.23 65.99 9 71 y3 1'?.VS 6g.go 9.67 73+07 19.53 75.17 Ceog 7,al 20 ~ 5'I 78.93 Canpb all Soup CoepaaF 13.04 '3+26 ~ 100.00 100.00 13,37 '3.11 99.28 90.41 D.48 96.3S 12.89 95.72 , 11.17 96.77 13.0? 94,83 13.23 gl sg 11.20 89.70 14.CT ' 15 lb.13 $7.29 Caraatioa Cccrpeny Caterpillar Tractor 10.9S 81.88 18.89 73.81

12. 04 81,23 26 05 76.93 13.82 79 29 1'4.13

'9.VT 27 15 21,69 So.23 81.54 14.48 70.62 14.'Iz 73.99 14.6o v2.69 15 20 66,62 14.66 75.40 16.48 65.42 15.14 74.76 15.30 65.45 15.'6 3,5. LL 74.50 . 74.95 12.78.. 13.84 66'.28 - 71.'76 15.2T 75.45 16.74 72.~3 16 67.1T Coatineatal Oil Conpenp Xkl pont (E I ) De Henoure~ Dm t Bradetreet ~, I 17.8o

96. 29 10.77 71.47 1S.48 87.25 1g. 18 100,00 17.4o 99.75 20.03 92.73 11.17 69.9$

20.42 80.04 17.37 100,00 21,25 100,00

21. IIO

.94 14 10.10 69+19 ~ 21,02 80.08

20. 56 100.00 25,65 100.00 23.06 95,01 10,93 70.10 18.81 87.63 zza 10 100,00 2S.88 I00,00 23.66 95.56 23.36 '3.16 95 03 94,06 11.84 71.33 lb.3o 87.09 lo.66 71.13 16,18 86.84

10. 69 67.os 1'4 ~ 59 86.77 22.80 99.47 21.67 97 28 20,81 95.67 22+53

~,20.64 21.29 99 SS 99.26 ~ 99.29 23.74 94.45 10.53 64.02 12.75 86.52 99.4 19 02 , 95.89 7,12 63.93 10.64 64.63 13.75 86 05 18,08 g6.18 24 ~ Sg 9.66

21. 14.

96 41 24.14 24.22 95.33 95.76 14.02 64.65 18.03 66.93 21.93 95,26 22.26 go.83 95.os -'8>>93 63.39 ) 1.16 75.84 20.68 97,64 19.24 ~ "97.IS

Paje 44 BATE 0F IlETvnN ox coRenl EQvITY Axn coRQN EQUITY BATI0 INDVSIRIALCOlG%NIES MITIIQUALITY RANKING OF HIGII GODS BY l4)ODY'S 1963>>1974 Exxon Corporation 1963 1964 13ollS 12'04 82.13 82.15 1965 1966 1967 11.4+ 12.02$ 12.61$ 82.30 81.51 ~ 78,53 13.28$ 75.10 l~/i9 10.51$ 73.44 1970 12.45~~ 72.49 12.97)12. ~4 72 31 oe ~ e>> ~e'>>7 74.91 2~ >>e$ 7-"-2. Inleorhridge Nie'tel Mince, ltd, firestone Tir~ S Rubber~ Ibrd Mtor Congas 9.88 lb.26 16.00 96.66 90.09 99.11 9.59 ll 23 ~ 11.47 83.16, 79+86 79.20 13,69 13.08 16.54 89.82 89.69 BV 72 15.41 99.21 12.47 77.62 13.45 94.35 11.60 74.92 13.39 1 79 . 85.70 77.52 17.81 89.07 13.19

69. 58 13.14 72.21 llo25 65,51 10.75 79e21 8.54 65.16 9.65 84.2s 19.60 16.18 92,69 93,61 10, 5'4.?9 D.92 81,05 li.l?

64.' 15.12 79.5o 5.a .(15.re?) 81.15 <2,32 2>>07 lb.5b 7"".29 7+3>> 4a.99 O,Po 63.g5 5>>71 General Eleetrie Conquer ~ 15."1 12.81 17.84 16.07 V9.68 . 75.97 16.35 70.65 lf.l8 69.15 11.44 13.19 69.57 . 68.13 17.62 66.vl 18.01 67.54 18.12 67.83 17 19 66.63 Oeneral Rode Corporation General )btora Corporation 17.70 16.99 17,13 91+ 50

90. 56 89,4S 24.11 24.55 28.17 91.79 92.98 93.57 16.73 00.15 22.11 93.68 16.59 R, 15 18.86 93.45 19.90 n.61 18.94 93.82

~ 13.8f 74 03 l'5.52 69.6v 17.75 6.19 94.24 94.29 8.38 67.v3 3 63.22 19.35 . <<'9.85 93,14 91.65 20 37 91 72 RQI 67 ~e 7.63 91>>72 .Gillette~ Golf Oil Canada, Ltd 35 36 30.36 100,00 100.00 32.24 91,07 34.45 89.96 6.79 7.04 6.91 '.25 81.83 01,67 82.82 85.08 33.32 v8.16 6.93 87,03 30.65 70.71 V-49 85.88 28.03 71.80 7,00 82.37 25-32 72+17 ~ S:Bv 78.30 21. 3 70.55 7.13 77,04 23'5 6v.09 8.91 78.39 23.? 3 64.23 13 09 79 64 2 23 60.66 19,'26 O~ Oil Co~ration Sanna Honing Corpotation axial OQ, Led lli21 . 07.08 10.29 100,00 9.77 90,9l 11.29 87.86 10.82 100,00 10>>47 91,72 11.53 86.92 11.66 84,95 11,00 .92.67 12.77 03.6V 11.98 76.21 11,35 93.41 13.61 81.18 12.48 .78.85 11 24

13. 67 77 33 12.4S 01 10 11,27 86.07 12.4S 73,84 12.40

'3.98 10.22 82,13 10.66 vlo99 12.96 86.89 llo03 81.40 7.43 13,54 82.23 1.4 00 82.64 h 10,39 3.60 69+92 69,22 14.57 Vl.A 7.47 50 B.CS 83.80 17,$0 7520l 7 3f 86.35 21,39 83,0l 'o l tn'

Pc"e 45 RATS 0F RETilRN 0N colooK EZvIIY AND coLPAN KcvITY RAT:0 INDUSTRIAL COHIANIES NIIliQlALIIYRANKQIG OF HIGH CRAIK BY )INBY'S 1963 1974 International Bueineee Naehinee

Corp, 1963

19. 54S 7?.?6 Jeune - Manville Corporation 9.47 99.36 International IfiAelCo. of Canada'tdc 16.?9 100.00 zo.f6S 01.34 19.05 100.00 10.60 99.47 1965 19.V45 65.62 19.3?

100.00 10.00 99.57 1967 14.96 100. 00 ll.50 99.01 16.94 100.00 9.47 100.00 17.83S ~ 16.21S 66.61 65.01 1966 20.75S 85.9o 16.12 90.91 11.13 100.00 969 18.9? S '6.63 12, 50 83, L6 10 99 100,00 1970 loe13S 66.40 Zo.ev 00.70 6.36 100.00 17 ~ c.c EV.?I 8.y.'0.97 c 9'-.9? t ~ >> ~ rS 0' ~ A >> ere ee c'9.c'-S 90.2< 19--3 o>> 1 ~~ ~ oa c s2-H i<aS>> 75.'0 J'obneon 4 Johneon 10.50 100.00 23 79 92.53 11.95 100.00 13.71 90.69 23e94 92.3?

14. 57 9?.64 23.36 91.13

~ 14.91 90.05 22.44 92.12 15.71 96.44 21.34 92.97 16.10 90.65 20.06 92.06 16 cf 96.Z7 20.$1 91 ~ 17.6'7 s>> 2l.e 91.96 7 ~ 97.22 ~7$ CZ e3 lo.53 Zli '3 91.53 lv.ge c1.55 9>.03 l?afteo Corporation 10.92 81.16 12.20 83.41 12.65 05.41 12.60 85.95 12.53 85.04 12.0S 85.64 11.74 85.19 12.29 65.39 12.69 11.7? ~ 2 69 c4 IdilF (Eii) d~ Mo Intro Mince Ltd, 13.51 9?.77 5.24 99 96 lf.97 9?.03 5.68 100.00 19m 52 96,69 7o00 99.86 19.86 96.0o 7.87 99.70 20.56 95,42 6.o6 99.74 23.00 95,26 22.62 96.29 5 46 585 99+89 86,41 22.17 90.24 4.23 74,47 (.2.40) 66.26 (c.'.30) 63.65 20.39 '1.59 84.01. 66.5'3.07 $ 0.54 19.40 63.W c2.65 67-29 vt3>> 67.cO Nerelr. 4 OonpanF, Inc>> Knneeota Hining and flannfanturing Oo, 17.00 95.33 21.04 97+03 8.88 69.51 zo.86 95.94 zo.6o 9?.'ZZ 9.06 87.72 Zf.53 96.46 Zle13 95 39 29.17 96.00 22.21 94.01 9.9? 88.29 20.9? 95elf 20>>73 95.06 10,26 87.94 25.76 94.77 Zo.o4 95,44 lo.84 85.59 Zf.38 94.9o 19.5o 94.22 25.46 93,62 16.21 91,40 10,34 10.91 64,10 62.35 25.85 89.05 55 87.73 11 ~ 5c 80.21 26.05 66,49 c6.13 11 ~ 51 eo,?3 27 58 66 19 20.66 E5.'-7 15,64 77.'78 2?.8jl 69.7'-'0 >>>> s 79.99 ~A 91 74.63 Xabieeoe hut>> lvcl4 8441 17~34 85,21 17,16 85i98 17,29 90>>70 , 16.99 '4.00 15.8S 78.64 11,42 74.20 14 96 72+55 16.15 69.22 L'.79 6o.79 60.79. OO tb c ~ Vl

Pnpn 46 RATE OF RETURN ON COPHYl FRUITY AND ColSN EQUITI RATIO lÃMP~VDIADCleWNll": WTN ymI,lrY DANRlnl: nr llrnll rDADE DY I."NDY'S lg&3 1974 RIIIIpe Petroleun Congeal Prentice-Eall, Inc. lc63 8.85$ 83.77. Ro.v0 79.72 1964 9.27$ 82.92 23.37 87,81 1965 10.07< Bo.So 31.06 100.00 11,01$ 67.95 33 35 100.00 1967 ll.47$ 62.63

31. 09 100.00 1968 8.04(,

67.12 '30. 00 100.00 1969 7.85$ 66.vS 29.11 100.00 1970 6.6o'5.92 25.36 100.00 ov 7 6 66.vk 23.7$ 1GO.CD 6v.33 ~ e 'I'Ao>>V 2o p 2 i C ~ }GDioo ~ e ~ ~ 72-73 ~ 'i aft IGO.CC Procter 1 Ceeble Cocyany Quaker Cate ConRenF ReynoISa (R.f+) Induaerlee> Ino Rlcberdeon .Farrell > Ino.

Scare, Roebuelc anl Co, SalthKLIne CorRoratfon 15.31 OCi,o6 12.27 Vvo50 21.07 5t,, 10

.14 75 looooo 13.32 69.99 33.06 100.00 15.G3 06.95 11.52

00. 53 19.24 69.74 14.15 100,00 14 Sl 66.36 33.12 100,00 lb.74 07.liv ll,og Oo.94

20. 14 70.60 14.84 looooo 14.14 62.63 32.66 100,00 lli,o3 O'I.II3 11,31 79.19

~ 20. 07 Qi.73 15,89 94.23 13.51 6o.45 29.80 100.00 17.01 80 11.99 79.24 20.62 66.40 15 09 80.10 13.10 59 92 28,05 100.00 10.11 00, lil 12.13 00.33 19.06 70.li7 13.07 04.25 13.96 59.93 16.51 80.32 13.17 81.73 12.79 60.51 14,69 82.05 13,44 60.30 25.94 23.62 90,08 95.6'4

17. 40

. 80.69 13 99

72. 31 18,43 64.4g 15.30 78.79 13,10 60.40 23.71 93.76 lvev>>

Bg.m D.03 64.47 18.85 6.0 l=e30 75.7'- lb.24 60.64 22.72 89.21 ".c3 67 91 ~-0 ct,gv <<7 F 82 co <<+err 76.A~ L4.32. '. 60.33 'l.go 6>> $5 >> ~ co.oc 6".. 5 1$.15 KD.A ll..23 5 &e<<0 2>>70 1't ~ 5 ' 'in'5 r ~ 6:-. co 1495 63.-5 9.99 57,22 21.75 70 71 +ulbb Cogeratlon Stan&art 011~ of California Stenaara Om~ (Inaana) 9.28 93.07 7.36 86.60 9.07 93.71 7.61 06.94 g.lB 92,54 8.21 87.xo

10. 47 9l 31 05.26 12.75 81+39 lo>>57 00,46 9.8o 83.62 10.74

'9.74 ll.o4 06.06 10.27 80.6o 10.5L BS.Oo 10.12 7$.86 10.02 BS'.02 g.46 74.37 l2.82 13.79 75.2o 68.77 15.46

68. 19 10.69 81.59 9.83

75. 54 15.%7 67,7 o

'io 79 Vgeoo 16.25 6V.VO 15.30 81 10.20 lz 90 VE.ZS 76.+a 15.26 6,.71 15.63 87.$ 3 20.93 VC 16 fLg4xg Ino<< 39.87 100,00 38.56 95.22 4o.v6 95.49 39 Iio 9$.6$. 39.23 95.95 37.76 99,08 36 78 95.99 39 51 9$,83 40.81 9$.90 39eob 56-39 35.72 '6.76 3$ <<18 RIexeeoe Incorporate@ 16 14 89,11 15.69 88.08 16.10 er.53 ]6.58 8$.38 16.03 81,33 16.12 79.16 13.45 13.50 79.73 80.7$ 13.88 Bo.Ro IR.VV 77>>9T 17 04 77 7$ ~ x8.67 78 00'

pggo 47 ~ RATE OF REG/llll 08 COROÃ EqUITI ARD COHNtl KqUITY RATIO aaeSXalAI, COrrmZS VITH quAEITZ RArX+0 OF HICR CRARE 87 iXO87~8 1963-1974 I ~.t'oion Carbide Corporation'%3 70.27 1964 16.v3$ vo,45 1965 1V.45$ 69.26 196o 1967 16.30$ '0.43$ 69.87 64.79'9~3 9.33$ 61.30 1969 10.74$ 61.38 8.61$ 6o.o9 8.53$ 59,66 $ A ~+a V ~ 4 ~ 61 't2 23o Y$ 6-.i6 15.74 99+33 16.62 99,20

19. 34 99,00 17.40 98.8o 13.64 99.46 13.69 95.16 14.43 94.ZV 13.<<5 90.70 13.-7 3.22 2.25 00~64 05 7~0

~ VQ2ar (Qrae) oooderhaa ts Vorte, ltd; I 12.00 98.82 12.47 97.89 12,81 96.53 13.24 95.50 13.30 95.58 13.64 13+72 94,54 ~ 90,94 12.84 86.07 11.59 79.43 12.53 10,% 3,~ e0.99 13+07 Vv.63. Qcigley (Ne.) Jr. Cocpenr 12.69 100.00 13,49 100,00 14.69 100,00 15.76 100,00 15.5O 15.24 14.68 100,00 100.00 100.00 13.64 98.02 14,63 92.17 ~ ~tL 64 90.31 '4.97 13.C2 95,06 Average above 10 oil conpeniea Average abave 43 conpeniee excleQng oL1 coapeniee P0.22$ 85.63 17.05$ 90.34 10.35$ 85.27 17,92$ 9oo98 10.40$ 84.96 19 21$ 9o.47 18.96$ 89.27 17.48$ 87:12 11.17$ 11,44$ 83,20 '1,35 11.27$ 10.32$ 79 40 77 ll 17.61$ 16,68$ 85.68 84.92

10. 10$

10.44$ 75.66 74.93 ~0 35$ i>.CB 16.54$ 83.lv 16.08$ '. '5.48$ 79.41 v9.1 15.20$ 75.71 18.29$ 79i43 Voe 79 16.65$ 4 Average ~ above 53 coeyeniu 15.73$ 16.46$ 89.43 89.88 17 51$ 89.41 17.48$ 66.10 16.34$ 16.41$ 86.o3 84.5o 83.44 81.VS 15.02$ 14,52$ 78.58 78.40

1) 71$

7 +73 77 S. Sourcet Co~ed on baeie of data in anneal reporte and etatieticel aeeariee of ~teed Nag'e Xnveetore service, Inn 'a Zndnetrial You'll 1974 and prevtooa edktione, a

EARNINGS FXPERIENCE ON CO)RON EQJITY OF OPERATING ELECTRICS IN ORIGINAL COST JURISDICTIONS WITflOUT FLOW-THROUGH USED IN SELECTION OF COMPARISON COMPANIES IN REIATION TO EARNBlGS EXPERIENCE ON CONN)N EQUITY OF INDUSTRIAL COMPANIES WITH QUALITY RANKIN OF HIGH GRADE BY MOODY'S 1963-1974 page 4 ate of return on common equity 'oamon equity ratio jomponent for ccnmon equity (rate of return on cosmon equity x common equity ratio) 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 4 39 Companies in Original Cost Jurisdictions Without Flow-Through Used. in Selection of Comparisori Companies 12.42'2.95~< 13.2/$ 13,57+p 13.33~~ 12.86~~ 13.02~@ 13.004 12 ~ 34 jp 12.6'1.62$ 9 ~ 39.03 39.65 39.92 39.29 38.01 36.97 36.07 35.29 34.72 34.44 34.56 33.52 4.848 5,135 5 305 5,332 5 ~ 067 4,754 4 696 4 588 4 284 4 339 4 016 3.349 ate of return: on cannon equity kmunon equity ratio hnyonent for caanon equity 43 Industrial Companies with Quality Ranking of High th'ade by Moody's Excluding Oil Companies 17+05$ 17 92$ 19 21'$18 98$ 17 48$ 17 61$ 16 68$ 16 54$ 16 08$ 15rgg 18i2+ 16e65$ 90.34 90.98 90,47 89,27 87 12 85.68 84.92 83,17 79,41 79,17 79.43 78,14 15 403 16 304 17 379. 16 943, 15 229 15 088 14 165 13 +756 12 e 769 I2 @256 14@ 528 13 e010 Component for Common Equity of Above Electric Utilities Used in Selection of Comparison Companies as Percent of ent for Canaon uit of above 43 High Grade Industrials. 31.47$ 31,5+ 30.53$ 31,47$ 33.27$ 31 5'3, 15$ 33,35$

33. 55$

35.~ 27,64$ 25~74$

CAROLINA POMKR 8c LIG1K CONPiQlY TEST OF COMMENSURATE RETURN Page 49 Indicated Fair Hate of Return on Conraon Equity on Basis of Test of Ccmaensurate Return 14.~ at 33.4g Comnon Equity Ratio Includes A11ownnce for Funds Used During Construction

RIED)lIC UTILIT)):S Ill i~lJGIINJ> COST AND PA'ill VA)ktr. JUHISDICT)ONS lFITH IVUtiJCl.Y-)lt)LDCOYJ&tl STOCK. SL)lQT HJICE AG PLZCIZJT OP DCOK VAME~ Page 50 1975 '130 ~ and over ~.00 "')29-95 0,00 - 119.99$ 100.00 - 109.~ 99 998 Southvcstcrn Public Service Oklahoma Gas and Electric Public Service Indiana El Paso Electric Central and South Rest Central Louisiana Electric Texas Utilities Illinois Pover Tampa Electric Northern States Pover )hntana Paver Misconsin Electric Power. .Indianapolis Po<rer F< Light. Cleveland. Electric Illuminating Central Illinois Public Service ~ Ohio Edison Cocrrmonvealth Edison Idaho ~er

• Pacific Power g< Light Toledo Edison American Electri.c Paver Florida Power

&, Light Southern Indiana Grrs and Electric Interstate Pover Gulf States UtQ.itics , Havaiisn Electric Inuisville Gas and Electric South Carolina Electric and Cas lFisconsin Public Service Cincinnati Gas F. Electric Tucson Cas g< Electric )Fashington ltater Pcrvcr Northern Indiana Public Service Qayton Power and Light Atlantic City Electric Zova'outhern Utilitics Zcrva Illinois Gas and Electric, Allegheny Power 'System Iowa Power r<nd Light Union Electric lou'kct Price as Percent of )took Vn)a< i 153.W 142.95 142.70 141 10 135.80 134.59 130 57 128.58 124,91 u.8.99 113.33 1)2.46 109.49 106 70 105,88 105.59 105,38 102 29 102.00 101 82 101 16 100,59 100,45 100.17 99.39 99.37 N.13 98.38 97.55 97.21 96.82 96.71 95.72 95.58 93.25 92.89 91.76 90.93 90.14 80.00 - 89,99' ~ ~ Hinncsota

Paver, 8< Light Public Scrvicc Ncv )~co Jtuqucsnc Light Col<m<bus an<i Southern Ohio Public Service Color<<do

)luke Po<ror Misconsin )'over and J,ig)rt Soutlrcrn FlorMa Power Krursas )<over F; Light Lonp Tel<<<<<i Jeip'llting Otter'ail Power CcnLra) I))lnois ) ii)rt ))Mr)le Soul,'h Util)tiec Jfourton Jlr,hLIn. Fc lv<rr<rr Zovr< l'ub)lc Srrvlrc )'<'rrrrry)v<<<0<<)'ower fi )>lr;l<L UL<<lr )'uvn Fc l,il;l<L Xnnra<s fa<s <<rr<l E)rcl.rlc )ra)Llr<rorc 0;<n ural Rl c<'Lrlc Co<<<<<urrity )'<rb).lc Sc rvlcc< Kentucky ill.illties Flectric 89.98 89,90 89,)9 88.39 88,3>r 00,10 87.37 86 75 06.12 06.)o 85.0<9 85 ~ lr3 05.)G 05,01

03. <r5

03. <itr 03.t<G 03,)G Gl

)>'0,05 00.47. 00.19

Page 5i. EDCTRIC U1ILITIES JN OIIIGINAL CAT AND FAIR VALUF. JURISDICTIONS ZITI[ PUIII>ICLY-IELDCO(NON STOCK 'NtLRQZ 1%ICY. AG PEACEN'1'F BOOK VALUE 1975 ~ 60,00 - 69.99~ Detroit Edison Southern California Edison San Diego Gas and Electric Consumers Power 50.00.- 59.~ Savannah Electric b Power 40.00 - 49.99>>< 'onsolidated Edison 70.00 - 79.~ 'New Et~land Electric Kansas City Power and Light Carolina Power 5, Light United Illuminating Pacific Gas and Electric Northeast Utilitics Dclmarva Power h Light ~ .Hew England Gas and Electric Virginia Electric und Po~er Ari.zona.Public Service Iliagara Mohawk Power Iowa Electric Light and Power Madison Gas and Electric Philadelphia Electric PotomaC Electric Power New York State Electric and Gas Central Hudson Gas arA Electric Public Service Electric and Gas General Public Utilities Boston Edison Rochester Gas and Electric Market Price as Percent of Book Value+ 79.84$ 79.33 77.96 76.57 76.30 '5-76 ~ 75.60 ~ 75 05 74.83 73.27 72.95 72.37 71.86 71.82 71 59 71.57 71 16 70.90

70. 30 70 23 70.08 67.05 66.27 65.48 63,01 40.62 88.34>>

market price at the close on October 22, 1975 related to book value per December 31, 1974. share on Source: Ikc>dy's Investors Scrvicc, Inc., I>~dy's Publ/c Utility News Rcl>orts, 1975 ~ ~ ~

PRICE TO PUBLIC AS PERCENl'F BOOK VALUE IN CO¹tON STOCK OFFERINGS ELECTRIC UTILITIES 1972-1976 Average Price to Public as Percent'of Book Value per Share gures w Faren esca are um er o 0 er gs 1972 1973 1974 1976 All Offerings 128.4'45) 12O.64$ (47) 76.49$ (54) 83.3'94) 94.~ (25) All Offerings vith Price to Public below Book Value 9O.74 { 4) 85.32 (13) 7O.78 (46) 78.27 (82) 88.54 (18) All Offerings with Price to Public, . at or above Book Value 132,07 {41) 132.14 (34) lO9.36 ( 8) 117.62 (12) 1O9.49 ( 7) Settee; Cetrttell ttet ~oseeettt fet tach effet,

COPAON STOCK OFFKRIliGS ANrr NARrET PRICS IN RSIATION TO rrOOK vAurg CAROLINA PONS & LIGHT CONPArrX 1972-1975 Idge 53 Rate of prospectus 1972 January 19, 1972 November 1, 1972 1973 November 8; 1973 1974 1975 No co~n stock january 16, 1975 October 28, 1975 offerings N7nnber of shares Total price to public Price to public per share Book value per share Ratio of price to public'per share Po book value per share 2,000,000 f 54,750,000 27.375 19.20 (II/30/71) 142.58$ 29 500,000 ) 71,875,000 28.75 4 20.77 ( 7/31/72)- 138.42(, 35 000,000 $ 63,750,000 21,25 23.22 ( 8/31/73) 91 52$ 4,000,000 $ 59,000,000 14.75 23.23 52 0009 000 $ 89,3752000 170875 23 Ol ( 8/31/75) 77.68.5 eLast reported market price and ratio of lest reported market price to book value per share. Sourcee Carolina Bwer & Light Companyp Prospcctusp 35000,000 Shares Con7777117'Stocks November 8. I'r732 pages 1, 232 27 and corresponding pages in previous prospcctuscs; Prospectus, 4,000,000 Shares Conlnon Stock, January 165 19752 peace 1, 7,'29; Ira:arear:, 5,000,000 shares geeeae ssaeIIeesaaer 28, 19I5, pagan 1, 7.

Page 54 I EXPLICATION AND KEY TO KIODYIQ CORPITE .30llD RATXNGS MOODM DOSID RgCOStD Usa pieasttesa sad Key te Corporate bwl Itstlaga, Inc)sad {For Rating Key anal gsaotsastleoos Mosey' asas Ferewosatg Moody's Bond Ttecord covers over 10.000 Iwste aad sltuatlons of which approx)mately C.COO.conmrlslsag tho first section. aro treated ln esasu affording the u>>cr sa ~ g)ance tbe cs>>eaual facts fclauag to matkct ooa)tlon ao4 ~tatut)ca) asckgfoaaod, Title ss Oases I{sane of corporation. together <<lah coupon and slate or ~ .Cate>> of ms\\utuy are given. (where title is printed Io bold race typo such company nss convertible debt lccurlalrs outstanding. Lutcd usucs are oreceded by identifying symbol. In ths case of domestic municipal>>. rst anga are sppucablc to OU general obllgauon bonds o! the ualt named am)ass oaasgwiae speci! Ied. lot>>feat Dale>>g Interest dates and date of tho month of matuttty glean. Va(saharan lussr ac>>sears sas st>>sf sac>>sf s/ s>>ssvssss. RrglsUvrd osndas Bonds Vsucd only Ln fully regtstered Corm ato Lnd)i catee <<lah the letter lr). Dessutug 1n cases o! interest or pfmc)pal default. the da4 togethar <<1th appropriate symbol ls uauauy shown ln laterest co)uaaa. cell pHcer The csn price ss o! the date o! th)s pubucaUoa v gtrca tn aU cases poulble. and avlU be ad)usted to the correct eall price when such chance becomes effcctlve. Symbol {a) after call price Ind)ca4s price ls sub)ect ao change. Mosey'stlngg bloody's Itaung V giren to aa Issues In this pubucatkm where sufficient data are avsuablc. A diacuulon and esgp)anat)oa oc afoody's ratings wul be found oa page L Quelauesaas QuotaUons shown are as fouo<<s: Csssnf Isa>>ass Quoasuons for lultd issues represen'I actus) sale prices u near as posaus)e lo ths cnd of the month preceding dale O! pub llcstlon. where no recent traaascuon ls topotae4. tho Latest bl4 ~nd asked prices aso given. f)siisss( C>>sp>>ssu in>>su Quotauon>> shown rcptcscnts lhe approx)mate ~pfes4 between bid s>>g asked prices for )steat svauab)c dsae pre- ~ ceding date o! pubucaUcn. Whero Iisg gs{srs rs)r are available, the average of such bldg ia given. Where ssisg yrirss easy ate avalJab4; the avetsge o! Ihcm V given. Ssrisf )as>>ass Where escb maturity V not quoted separate)y, the quo-tation shown V uauaay for the averace maturlry. Csssiia>> Iuvrss Issues psyab)e only In Canadian funds and so quoted are indicated with an asterisk {>>) ln tbe "Current Price" column. C}uotauons 'are obtained from sources which we beusvs rcuable but they are not guaranteed. In the case of un)i>>ted issues. quotations do not purport to be ~ record of firm blau or ocfets nor do they necessaruy 'represent actual transactions. fffc price Itangsa The high and Ioar sale for a)l lhl>>S Issues fs given ns near as posslb)c to the end o! the month. The range for unbated a>>ause represents high and Iow bid prices, baae4 oa rausb) ~ quo\\auoa records Itlt-Tl tHea Iten!el The high aad low sale prfce for all Sssvd Issues aava bosn Uken !rosa records for. that pcrsosL In tbe ca>> o! unbated bonds the high snd )ow bid prices are used. For boaaU Issued since )MC, the range covers on)y ihs period ~inca Usuance Yfstd te Maturllya The yield to maturity ls shown am ab bonds payLng regular LntarcrL Where sale price ls not available, the yield ls oogapulsd on ths bid price for valuauon purposes. )sag cea>>veHaaaae Issues, ~ aad industrial Revenaso bonds liclpal Desae rstasgassse Table ~I con4OU) + ~ ~ ~ ~ ~ ~ ~ ~ Cenersl.tngermstlsa>> asad Rsnasstaa! ha tnsny faauca. notably foreign gov ~gnmental bonds. Istcs1 developments are nolcd In )lsu oc ~latlaucal usu Iasflllsbed oaa cotporaae IUsns "MCCOY'5 Elolto RAT)sacg pasrpeseg Tbe syslcaa of l'susag eccuflucs was originated by Jobs Rood: In )00S. ~ T)ae purpose o! Moody ~ Itsttngs Is to provide the American lnvesto; with s ~imp)a systesa oc ggadaUoa by <<bleb Lhe rc)sure lave>>uasat quW Ues of bonds so ay be aolcd. Itatlng Symbol>>a CrodsUons'f lnvr>>tmcnt quaUty are Indlratc4 b) rsung symbvu. each symbol rcpre>>eating ~ group ln <<bach the qusuta chataclcrlaUCS ate broadly tho same. Theta ags ntn>> symbol ~ as shows below, from that used Io designate least Invvatsrtnt ruk U.e.. hlfrss Investgncnt quauty) to that deaoung greatest Invcatmsat ruk {Le., )oases lavestmcat quaulyL'as Aa 4 baa ba b Coo Ca C For exp)anaUon o! mun)clpsl rating symbols, Iap~ the A 1 ant baa I gmups sce pago 0). Absence of Rsungt Occaalonsay no tstlng ls assigned or a rst)nc ls wttb drawn or canceued. 'Th)s msy occur If new ctscusnsasnccs aru>>, tne el t>>cti oc which ate not sstutactoraLT analyzablc. I! infra U no logger avslubl ~ reuonsbly up to esto eats to pegggut ~ Judgment to be formac). )f ~ boos caued Ior redemption. or for olhcr res>>one. where no raung bu been ualgned or <<acro ~ rat.'nf hu been ccnccbs4 that fact a)one must not In any wsy be taken as a rcf)ecuon on toa qusuty ol a bond. Where no raung has been assigned to ~ bond Lhs ressoa cou)d be oae o the foUowlng. .i. The boad bc)stags to a group of secuHUcs wh)ch aw aot rstcd as s matter o! poucy, vtz.. rcs) 'csta4 bonds, obugsuons of Iavcauntaa tguga ~ad banks. Oad currcauy, beads payable la cufrcmsso other maa Valae. $4tao dollars.

t. Where rattngs bere beta requested for privately placed bead Issuer such rat)ngs wu) not be pubUshed.

)so ratings are ass!wed or msy b maintained where pubbc lnttrcst la aay usus ls mmarral. cf lo sny ~Iaus. tion where It would be du!lcull to msan4)a conaUnt acr>>at)oy o! Uae laau becaaue of lack of csseoual 4ats or because of rcd'aced sile aae Um)aea aftcr-msrkeaabUlty. J. Bonds are not rated In the absence oC ds4 deemed lo be as>>caus) foa 4 sound )udggn>>nt oo the investment quauty of tae ulu>>s. Changes ln Rsuntg Tbe quaaty of most bonds U not fixed snd stead: over ~ period of tune. bul leads lo undergo chsnrs. For this rruo: chssagu lsa rstlsags occur so as lo reflect thus rag&usa ~ lga ua ~ Intrinsic posluon o! Individual honda. A change in raung msy thus occur at any c)ms Ln the case ol rm L>>C rldus) issue. Such rating chance shou)4 serve notice Cast 'ocey' absent some sllcraUon ln the tnveaunent risks oc the bond or tact lbe pfevlsu rating did not fuuy rct)rct the qusuty of th>> bend as now scen. VV'. because o! their very nature, changes are to be exp>>tied moro ftcqusnt'mong bonds of lower raungg than unong bonds of hlcbcs roun l. never thalass lhe user of bond ratings should keep c)oao ~..4 ccnstcnt claorr os ~U rsung~th high snd low ratingsthereby to be able to aou prompuy asay algae oc change la mvoatment smtus which may occur. 0CRT TC) htOODY>>p CO)V>>ORATU RATI)ICS Aaa Sends <<hlch are rated Aas're Judged lo be ef the best quality. Tiaey ,csrg tbe smauest degrco of lnveatsncnt gtsk and are generally rclcircd to as gut edge. Cnlcrcst payments crc prolccu>>I by a )srgc or by an axcepaoaauy stable margins sad print)pal is secure. '17bI)c the vartfsaas prolectlvsa elements ass like)y to change. suc:a changes as csn be vuuauged aro uaost luaukcly to Impair tho famdamcatauy strong pcoltloa 0! such lssaam As S nd which uo rs44 As sre fudged to be o! high quabty by aU stand-uda. Together wlua tJa ~ Asa group aber comprise what ue gcnerauy kno<<n u high grade bonds. Tsacy are talcd lower than the best bonds because gnsfgsns oc protection msy not be as )arcs as ln Aaa secur)urs or I)uctusuon of prolrctave c)rmcnU msy be of greeter asnpuaude os'here may be ot)arr ~laments pre>>cat w)uch make uae )ong terra risks appear some<<hat larger than tsa Aaa a>>cur)usa.* Bonds whlrh are rated A possess many favorable Invest>>neat attrtbutee and ate to be considered as upprr medium grade obllrstlona. Factors glvln! security to principal snd lnacrcal ase cosa>>lessee adequate but ~lcmenU may be present whv)a suggest a eaaaccpubauty to uapaument ~onaeume In tbe futuro. ass Bonds which are rated Oas are considered as ancdlum grade obU-gaunns. L.e., lacy are neither has;hly prot>>Naca) nor poasfty occur>>e. Interest psynacnU snd principal sccuraay aasrru adequate fnr tbc pscacsaa but cvrasasa pros>>cure ~)rsaaenU n>>y be lsckasag of snay bi characavrl>>alcsuy unreuabl ~ over any great )cngln u! Usnc. Such bonds lack nuutssadang In re>>anent chasactsflsalce and In fact have spaculaUve cbafacacruucs u welL bo Bonds <<hlch are rated bs are fudged to have epecu)st)re elemes their future csnnct be considered as well assured. Often the tasotecucaa tntcresl and principal psymenU mly be very macerate and thereby: +eu ssfegussded durmr both good and b>>d 1"ncs over the Isla. Vncefta)nay oc posluon cnaracterlaes bones In this c)aas. 0 Bonds which srs rated b generaby )sck chsrscttrUucx o! Ihe des!fat Isaveausacnt. Aasasfasace 0! Lsalercaa and pflncapat pa)sgnenas or of be sma)L lenance of other tetms oc the contract over any )rag pegged of tuos m Cas Bonds which are rated caa are of poor standing, Such fssucs may be dc!au)1 or there may be present ~laments oc dancer with respect ao prs capal of Intcfcat, Cs SonaU which are rated Ca repreaenl obus stlona wh!Ch age ala>>cadets In ~ high degree. Such taaues ara olacn isa us!su)t or have other mask shortcomings. C Bonds <<hlch are rated C aro the )sweat rated clue o! bonds f~d uau so rated can be regarded as having extreme)y I>>sor psospecU ot ev ~tasaanang any real lnve ament standing. s r ~W's Investors Service, Tnc.s >Body's Bonl Record, October 1974, pages 1 an4 2-s a

e'... ?t Page 55 EXPLQtATION AND KEY TO STANDARD E POOR'S CORPORATE BOND RATl1'.GS STANDARD IyA POOR'S BOND RATINGS CORPORATE BONDS BANK OUALfTY BONDS-unCH pre(en( convurctsf bsns (Spv(s(<<na bends (sad IA Iho iop Iow cr ~ Tee>>l tnnn. An. A. Spb or v>><<etvlro(eAU ptn<<ahy Ht Itpl(CI4 al ~i(Debit ll(bank vieu(nffeiL AAA A Sends r>lrd AAAsrt hithell prldt odipsUOAS.Thry Dalteu (ht vid (eelff Clpet ~ cl p(<<tel>>A u lo 0(Accept( ~ eed velf(SIL Hsewrfft veep aero trip in(troll rll~ I. snd htnce D(ee(ce tht ass(au>> ~I(tifoh ail cavnlL SOACI nitd AA slee tueie(y u hlph p(141 edep<<cons. Ond ia Iho AA a.,teelf Dr ielblhcel deco( i(cni AAA elwfs 4A(f 4 Hea<<dtp(w. t(HS ~ Toae P(iCtl AIDrt'V.rh Iho ICAP It<<a (i(De>>f as(IOL A trends re(IC A are ( ~ TI(414 ss vooft (Atda(et drl41. Thof hset cen(lctredt incor(r~ AI I<<tap(n'lel HD ral sabre(y Irw g(ea ~ Oda(u tptCII el Cht'itl In ~ C4htaiC Hi4 'U~ 1 ~ Csn(hleDAL <<elteell tnd fvinciosi ~rt I~ I(dtd u ~Ii~, They 0(tcwhentnvf rtaecl aae>>y tilts In lhs<< lae(SSI bthtriH bvi ID steat tll~(iL ~IID 1co(eD(eeec co(id(leo(et, Bgtr Ths sss. or aednrtei eeet cl'JPO(f ll bdcehino I>>lrtfee dlbnhtif ~ovhc odeclbsnr ons (not ~ rhtts mr soecvis(ffo ~ Ieeeetnl bepinl 11 D(tdt+(At(t Thtu A4t alee Sdttvllf ~IltlC4ef(tg ~ Wl Atra>>hy ~ (1 D(4(tC(td Iey Il(l(IC(C(r ~I(nin I, Tn ~<<Si(ICSDI(H'ierf lo Chanpvip CDAdeVDAI, DthicWIC( ID CtD(fueleff Atl~llelli~I Csh<<lnl IIICAIAC, Iltettlrir~ Vff bends ~et most telode lnv lo cs<<ntl ~ Hec Us41 candeieerff shia lo aitetll ~slee. Tivs peevp u v>> lore<<vrrch avllehal Iar coen(nates( btoa tn>>aaeAL QB sends p(ven s ss ubnp are Itps(de4 ss f(nw( ae4iva p(sdo. Thty hart Dn(y (hat( Inetsleffn( cat(scitretacs, lh Uee cue Dl vlelnees, bill(oili~ ~I(AIO Ceasel;teehf DSI py AH(lr Ill<<pens, Iei bit Cts ~ Ol Dvffrtrptl H eb<<pe(s. che(ctt Irt Irenf4 ae Irtuc ~ by ~ I~I( awpah bv( ln geon po<<44t 4 SPCK Opere(cent S( ~ PC<<(bit. g bends tllt4 Sl ltr ~I U ~et loeCVit(lrt per>>eh( Dt In(tres( CtAAOI 01 allured I'(et( delLced( ~ co(eo(hec coheeUSAL CCCACC Stadt ( ~(td CCC ond CC a(o wvlpht Ipocvlsdoeff, relh Iht Itrtr It((rip 41(it(i(id Iht Ih(ro sotcwlieee, lal<<etl io 01(d, DV( CLUIAVSUSA el DVelUoeiablt <> beds Hid Vio psyasnl vfff bt so>>U, C Tho IN'ap er c is tuff(ed tor fncoao (ends oh vh(ch no (hie(os( ls btind POUL DDVPI ft Ail bonds (14'0(T, co oA4 D He in dtiw(Lalvldhe (Iliad ~ (ncecsvap v>> telo<<ev ulropo vtivL U(W<<D( gffID(L caned(AD oa(VHta bfeidt Ho ulad Hi veo seat Cesi ~ ~I An>>((coh u(DD(s(~ iswos. Tno uhnpl reesrwt vet lava<<4 vtlvo ol Lno boner. Dvi Ltey Do nol isu <<ho ~ CCDVAI ~ IC(ffnpt Oad avett vncahHAUSL MUNICIPALBONDS Siahdl(4 S pott' duhic(yll Soap tie<<Apl cert( eb(id>leans el ~ U ILeit~ or Sv(r(nretitnt IA ~ C leon 14 font( ~I adlteie4(ff, IIUAPS ae ~ tlllCh14 Il Dtnll ~srtbit Iei rhor ~ ~I eli gtl(l 1(De(i spec(ai ltetAvtl, AAAeP(lect Tall~ ~ ( ~ Oalifthteff Ol Vi~ h(Chsll CVI(((y. Tl ty hove Let reroll P(Oelbbnr 41 Ctu,L ln ~ Dthad el OCH>>aes SVISI V ~ 41, ~ (S rdl <<. Ir U ~ ~a<<asi cec(beet t (tetr>> ond irk( 04 tt~Il wlc~ " I~ 14 l (tat>>tet etc(rat. Vto( bvrc ~ ei il all the(evil(lit hiph. neet(we Iirvclva If ~ ~ (~ odtoul( ~ lo ~>>SI IWV(1 Otofei ll(~.(>>edL Ovti<<y 4( asntclsffn( <<tend noi ~ Di>>V lo' adlhdt( (tpsyehtn; 01 ghnclaai HI4 IhitrtlL Ahf<<th Ottu TI~ Inrtlvnonl CA<<III<<elUCS ot bonds in IIIIcravD He 4nly liCavy al ~ IAH\\VJ iln rh1lt Oi Ir>> Drenff De(a<<y IIIVOLScads Illtd AA hset Ve ltceeid 14roll I'sll ((elf ol ColsvIL Acgatd tg(ed S((Agejtl end (n(Htti en batps ln (VI~ c ~It try teo rtl<<do4 u u' . Tt.s rl:v 0 cuc(ibts 0>> lh<<d lorlllsra)Is(le(r ot eertvh. II deetrl I(c i vlt tr4 Iecttt (I(eats bfcovst ao( ~ II I<<At rtles ~II, ~ Un ~ e ln vo leCS( tether(et btl~, lei des( DWdtn. In Vi~ 0 ~ I~ eiCt t<<e un (OrtAVII leis uotei4<<v(t ~ ~( ih cvrie,r 41 atnsptn>>AL Vhdtr cthleei Dc(tet ~ c<<tv(el Inctl ~ eef ~ e>> Ivcle vttin~ I~ (evphl heeds<<4o abbe(y ~ I ibt (Ill~ ( 14 liettl 4 ~ 11 Osaplilan ~ ~I lorn( i,i,(~ dale, pplhg(rdera O(tfr TVI~ tr Ihe IOrttlinto(lath( freCI I~ CV(iry rtrvep. UnCtr cthtih ~ et(11 cc'cnl. ~tu<<si Dt Iho above IIIIHS col(s ccn<<esvl ~ lo ~ h(CIH dt:l(U p(OT(Tele(r Tht dec1(taft Otic>>tn

• ln'I Sbb rsvn)l es vill V' Ichor thort at(1 Cion tat tvndlatnlsl rllintll.AI>>(~ I ~

L'I~ IHa~ ( ~(ers only ont ctlcetacy I icnp 4t (Sero(I coeffidtffd, VLLertra(Screen C( ~ I~ Sends in lail 0(tva hlet Ior>> l>>tl(atnl Ch<<sci ~ (~ iri(CS, bvl V>>f AD I'I tr D(edHAIAHL TH Vet (soli pah (hei (~ienp lheeC ~itl ~ ~Dtcvll<<rr, no(erne ~Ivren( p(odt abiepsUoel ~ LOV Orlde lne ~lietrk Chtraclfrlt<<CS He Vthutpf hnn>>till~ eil Hid Ct(IVII Cwld bt Ia(alntAL TLT>>(wilwinltrtt(Irdlar 0((hcipat in effoHL INVESTMENT SECURITIES REGULATIONS tptcva SeDL TT. spy. v ~ et>>DUD<<tr.et iha Cweehcy illvtd4 t toIIDA(np. ItpviaUDIs ~ DDI(enp ID 'I ~ pwchlle lo( hl Drn ~ ccovnl ~I eeietll(IIAI Iocv((Uw by ~ ASUH>>i bthh o( a SLI(o ala(Der bsnh ot lho ftao(H title(eo Sfsloa. Dptt(itt(pnp. TT>> it(AI Ueevtveeonl Itcvrilrr atlas ~ a<<toledo 1biiplvan ia vff fora 4 bond, (eoa et dabthlwo vh(ch il co>>at@IT (eptrofd os on taros(aan( B sfcv(UU ii 4ttl rill bi 'i(do gnevsasan(s VA(ch 1(f p(04tniie>>eepf urcwlpvo 4 aslveo, Tht le(re pvbli ~Icwiiy Incbrdes ODUOIUOAI 0( Iht udltd Sltlts ~nd peh<<st 4depsvoeff ol ~ (ef Sis(o W Ihe Cgellied SI<<es er 0( 4(ef faiebcli Ivboerlteoa Tht I<<VI 041(1 Cli Ivbdeffdbh Ot aeef Slsll. Ue(gvdtt ~ Ctvnlf Ci(y, IDrn ~ <<ower Dev(dclpel Corps(eve(L ~ pe(UVA ovveerhf. Ond vena(H(y any Dvbnuy e r I Standard. Bc Poorts Corporation, Bonl CuMO, October 1974p page 6.

""""'""Pa e 56 ANNUALREVIEW AND INVESTMENTL1STS January 5, 197G ~ hfoorly's Bonrl Sttrvcy ~ 1781 When Is Interest Coverage a Special Concern? 4 Lower or declining coverage of interest charges is, natur a))y, ahvays a maner of concern to bloody's. And, it is of very special concern when ft could precipitate desperate and possibly imprudent zneasures. This could happen svhen bond indenture restrictions coine into play. Indenture discip)ines, including covcragc tests. were de-signed to protect the bdndho)der under adverse conditions. ~Wc must assume that the bond investor put hh money on the line assurnlng that this indenture coverage restriction was a secure last linc of defense. Clrcumvenuon of bond ln-dcnture original cove>>ants is a matter of great concern. When a company cannot sell bonds because it is not gener. ating enough earnings to cover its hitcrcsc requfreincnts by two times, it must get rate relief or sell stock, zegardlcss of the difficulties involved. Is ft not contrary to the spirit of thc bond contract co zesort heavQy'to altcrnativc forms of debt financing? Such znlght iriclude )cases involving gc>>crating cquipmcnt; high )cvels of more or.)ess pcrznanent )ayers of shorter tenn credit; and shifts to,debenture financing where co>>straints niay be more inoderate. Wc cannot ovctlook such steps, ivhlch arc for thc most part symptomatic of dccp and unrcso)vcd prob-lans. The fncuzzcncc of fixed ob))gatfons of this type, re. gard)css of whether or not they arc subordi>>ated to the mortgage bonds, docs not improve chc q>>a)icy of senior debt. Po))ut)on co>>tzo) fhia>>cing, no matter how noble its pur-pose or hoiv cconolllic hs usc, co>>hi become ail increasing threat to t)ic quality of other debt u>>dcr certain circum. stances. Ifpayincnts made to satisfy terms of thc i>>sir>>ment arc not rcf)ected in i>>demure tests pertaining to covcrarc, for cxamplc, how much closer is thc company to that nvo. times coverage )fm)tatfon? Or how much has ic gone bc)ow ft? Can pollution control financing be consfdcred aside froin the normal )cvcl of debt? Vge do not thi>>k so. We bc)ievc ft ls worth mentioning that most indcnturcs aze si)enc svith regard to thc inclusion of allowance for funds used durl>>g construction in earnings as defined therein. ))owe<<or, this once insignificant accounting item has become subnanual i>> size, and fn most instances, is in-cluded as an earnings credit for indcnturc coverage pur-poses. There arc many who question thc quality of such caznings crcdfts, and their acceptance has allowed some companies to finance via bonds whcrc othcrivfsc they wou)d not have been pcrmincd to do so. Thc diffcrcncc>>atura)ly vaaies from coinpany to company, but, for thc industry in general. thcsc credits now account for over lo~c of lntcrcst comragc. This, ln our opi>>ion, makes so ca)lcd circumvc>>tive ffnanci>>g all the morc qucstionablc. lt concerns us great)y that bc)ii>>d thc satisfactio>> cf thc mortgage fncurrcncc test of nvo.times prctax earnings cov. erage of intcrc. t charges thcrc lies a )argi accou>>ting rrcdit. and that, outside of thc co>>irol oi')iat test, there niay bc large a>>iounts of other forms of debt. Any such siiuat!on wou)d bc a sure sign of wcakncss a>>d would reflect upon d company's financial integrity. ~ ~ ~ r Moody's Investors Servfce, Inc., Mood 'r Bond Survey, January 5, 1976, page s 1781-1782,

~ I stns aga resuN of a 20% gals ly increase to the teachers. This raise parallels thc rcccnt risc of the state minimum teacher's salary, maintsininp Mes. qlJIC ISD'S Pay SCSIC at S800 abOrC Ihe StaIC minimum. ThC a JOPIiOn of Ibis incrcascd salary capcnsc was made posublc by thc new state funding allocation which increased s'tate aid to Ihc dictrict. Increased debt acmee costs ofS4Q( tee in this yes I'4 bvdpet are s leo important. Tax collecgons on Ihe current )cry have averaged 96.28% for thc bsl five years. Thc diaiiet Iax cate has incrcaccd lrom 12.9 milliin 1970 to 14.4 miqb currently, and oAiciab expect it Io remain at this )erd for at bast thrcc morc years. Bonded debt is retired slowty. with 125% retired withinfiveyears", snd 296% within ten. Socioeconomic data for the City of Mesquite compares favoraMy Texas: Pee Ceieie Isreeuee aereec laewae Aeeiere Ieeeeeaeal Iul Meesee I<<eeeee44 hat e~ elol \\et Ieeeee44eeeeeees Sllsuuwoeie aeee4 salle ver cevil tseeeec $4ee Sicease ceo<< Saeteaee. Iets eseeeet orget Mvxeee ~ $ 4.1st ISSVI I4sse xs 44.4 $ $S41 $leee er Trace $ 4.III IOSII. ISJ44 I$4 $ 1l $ Sage According Io thc 1970 Census. Ihe mcdbn home value for th>> oty (SIS 000) is higher than that of thc statc 1$ 12 000). hfrsqidrr iSD hnr rxldhiird good em<<vh rhororrrnirirg ond hnr rico<<aged Agfino<<rrr <<rfh line rvrr,drbr is hrary ond Ihr rrrirrnirnr gchrdedr ts slow. IVC urr ro<<rbeuing ovr "e4" Cvod Crude roring on Sdegqutlr fSD. FUNDAMENTAL APPROACH TO PUBLIC UTILITY BOND RATINGS Our Public UtilitySection has prepared the followingdetailed review setting out our approach and the major analytical considerations involved in rating utility bonds. Hopefully, this survey wi7i cnligh Icn our readerp as to our methods and analysis in (his

• widdyfollowed area and thereby allow them fofollowour individual issue rating re-views in besser pcrspccslve.

~ ~ ~ I n evaluating utility credit risks, our staning point is an andysis of thc varying operating and financial risks that may be being the

dectric, gas and telephone i<<durrrirs in the years ahead under dilfcring cconomi>> scenario. For the electri utilityindustry, this in.

volvcs thccfcvctopment ofsales and Ansncisl state ment forecasts for a five-year period using best guess estimates and realistic cconornic assumptions, and the derivatio of s eomprchentivc sct ofoperating and Snaneial parameters <<high are used to make comparisons. Working <<ith this model, <<c investigate industry tolcranecs to worst-casc conditions, such as the potential impacts ofos-going double<<fig!I inaation, oflscL of access to Ihe capital markets. ofrcccssion-induced kwh sales declines and fast paced load gro<<ch, and of seriousl adverse dcvclopments in such areas as fud supply, enrironmcntd re-quirements snd nuclear po<<er. Wc feel this type of anal)wis (done morc loosely for the gas snd Ielcphonc indunries) provides us with a Arm bseLdrop for evaluating long.term general industry risk and draws attention to subindustry sectors with psrticubr vulnerabiqities. ln Ibis context ~ wc src able meaningfully to compare the rdatire operating and linsneial positbns ofindividual utilitics.Thc next step in Ihe riskdeterminstion process involves comparisons of individud utilitics. the rdativc opcratinp advantages and disadrantagec of each, particular sources of instability or uncertainty, and debt safety parameters that should prevail in future years. gircn a realistic ap-praisal of economic and regulatory Climates. While thc einphasis of ovr analytical worL is on projecting Ihe future. when thc debt is to be Outgtanding. StrOng eOnSidCratiOn mulct Still bC givCn the track rCeard ofIhc psst scvrml yean, in that it rcAects management'4 rcbtivc suc. cess in tocctinp goals and dealing <<ith problcnt areas. Furthcrmorc. bitegrsl inputs into our anal)sic arc most current capita) structure positions, stated eapitatiration goab and their rcaeonahicnrss, and, in Ihc rrgubtory area, Ihc constraints of state laws, FSC policies and prcccdrnts and indicated luture directions. At Standard Ik I'ovr'4 <<e hare come Io tbc condusion tlist one of thc strongest fumes nf protection of interest paymentg and tinidy rc. paymrnt of principal ii a rdisIJC stream of heauhy earnings, bacLCJ up by cash Aows that ate satiibctury on their own and not Jiipropor-lionatc Io capital and debt service Iequircnients. We look for dcprc. ciation tates to be at resiatie levds. based on engineering ond eco-nomic gauges. Although wc have lntle interest in becoming emb roiled in the thcorctical argument of whcthcr or not present customers should pay for needs of future cunomers. <<e recognise that the practical erect of inAationsry conditions is that Ihe rate-making procedures of flow.through accounting and accrual of AFDC (aAowsncc for funds used during conuruetion) exacerbate a'lrcady scriovs cash Ao>>'roblems for growing. capital intensiie companies, resulting in deterioration indebt safety paramctcrs and credit ratings. Coverage As An Analytical Tool Tbc primary earnings adequacy tests remain those centering on Axed charge coicrsge, not<<ithnanding the fact thm diffcrcnees in. coverage Icvds have narro<<cd significantly in thc psit decade, as actual corcrsgcs have deteriorated. Xercrtheless, these tests, if evaluated in the proper framework, siill provide the niota Jircci in dication of a company's ability to carry its present debt load as <<ell as to take on additional debt. Mp presenay uses foe coicmgc tests of rorof fixed chatges. thc most iinponsnt of <<hieh filirsiinp purposes are the pictax and plctsx excluding AIIDCfor the more capital inten. sire dcct ric and gas utilities. A Acr tac coverage st ill merits serio uc at ~ tention rdstirc to long tcrni hictorical Iaatiuics <<hrn Jiacrcnccs in Iax rates were much less meaningful nnd. Io sonic extent, for tdcphone utilities. as measures of rdatiic aAcrtax carninpa po<<er anil captat accvllllllallvnpvtclltlalrlfless capital lntclleilCCiluiPanice that face potentially brl.er csposuice IO eeononiir Jiclvcaiionc und lvnp. term comprtitnC threats. Our computatioiis uic vll ien rviol fixed charges, inasmuch as all charges have Io bc mrt tv prevent Jcfault. ~nd we give very little attention Io pro foroia cvrcragc. preferring, hlslead projectrJ ccercragc haled on a full set of ccvnoioic and rate case assumietivns, ~ Looking at prrtax coverage shine, and Jicrvssinp rating puidelines in Ihc Ivvadcst of terms. <<r Ciod it csteenlrly Jittiiult Iv nisi<<tain a AA long tcroi credit rating oo nmit drct lie ulduies lfCoverage ii suhstanJaiJ and docs not shiiw rraconal4y liim piviprcti fvi improvement to Ihe oii<<(<<iv<>phon>> and gas uiiiitics. Correspondingly, fur a medium quality "A" credit rating, on an 4>>ctric utility, we would have Io hc aware of seriously comp>>lling reasons to maintain Ihe rating within thai category i( coverage could nol be cxpccied Io improve to or (rarr the 2S0-2.TS Ilm>>s level in a rcasohaM>> time frame. Ifpfeiax covcrag>> is only 2.0 limes or I>>ss on both an actual and a projected basis, wc have found that wc mutt seriously question wheiher thc lower medium grade "BBB" investmcnt category is appropriat for ihat issuer's debt Issues, or whcihcr debt safety cushions are so inadequate thai only a rdxtivdy s pecu)a tive grade "BB"rating can bc assigned to Iong.term Issue It should also bc recognized that the above.mentioned minimum >>overage.)eve)s matc allowances (or an clcctric utility indusiry cxperi>>n4ng an unfavorable>>yelc o( serious camings erosion and .6nancial stress. Thus, the long term character of our bond rating system would require that wc look (or higher minimum coverage I>>ve)s shouM it bccomc evident that thc industry or individual corn panies arc entering favorable phases, but of limited duration. In ad-IBtion, a company'I attainment of strong coverage levds for a higher rating category is only onc precondition (or considering a rathtg upgrading on its debt issues. While such cov>>rage guidelines are a potentially important analytical tool, they could lead to seriously misleading conclusions if used in a vacuum and irithout a comprehensive appraisat of (unda-tncntal op>>rating and 6nancial risks, of sources of votati1it2 and stab11ity. of asset and cash 6ow proicetion, and of regulatory and management prerogatives. Ahhough <<c 6nd it exceedingly di(6>>ult to shade the above minimum coverage guidelines lower, even when most other indicators point in favorable directions, we quite often dctcr-minc that wc must require modciatdy to significantly higher covcragc Ievds in individual casa where particular problems, disadvantages or un>>ehainties exist. r Furthermore, there are many instances where differing types of coverage ratios arc morc suitable in measuring long term camings aod cash Gow ptotection. and ai least as many cases <<%>>rc 6xed charge eovcragc tests must be given only modesi <<eight in thc credit evaluation process. The (ormer ease is typified by natural gas utilities <<itb serious supply problems, where incrcascd auention muu be given debt scnicc coveragcs. A prime example of thc biter situation is a fast gro<<ing elcctrie uiilii>'hichexpects Io tripl or quadtuple its >>apitalixaiion In Ihe next five >cars. Thc projected corresponding growth of the debt burden and the earnings rcquircmcnts makes risk appraisal all the ninrc dependent on vYiibi1ityof regulatory eliinatc, financial 0>>xiNity, and ability to carry risk in plant under construc-tion. Finally. as a tool measuring earnings protection, fixed charge coverage analysis musi be supplemented by cash Qow analysis and safety margin anal> sis so as adequately to take into consideration vul. ncrability to sales declines and cost cscalations and potential volatiliiy factors. PRIMARY ANALYTICALCONSIDERATIONS )ust as the credit rating priicess cannot evaluate fuiute comings protection in a vacuum, it assuredly cannot limit its analytical scope to caminfs protection atone. The morc important analytical con-siderations entering into utBity ratings are the following: I. Coniponyslrr oad rypr ofopi rorimis. The potential benefits and viublity of a large sired eiimpiny can rw more he i>>noted than ihc 'ossiMe exposures of small utilitics icning limited aicas. The case is far froni >>lear cut ~ hu<<>>ier, ns evhlcn>>ed by Con I dison's ltrN prob lems and thc excellent rei<<irdi chxlL>>d up by ninny niuderatc s'ucd utgitics. AI<<ive, we nientiooed ttiai we hioL (or higher covernxcs on most gas and telephone uiiliiics. For eonibinaiiun uiiliiics or diversified eunipaoics, wc try, In Ihe cxicnt poisildc, Iu investigate the creditworthiness ofcarh business, and ilien liwL(ur thc advantages or disadvantages o( thc combined company as an issu>>r. NTiilc com-panies under thc B>>B System umbrdla clearly benefit in ninny wa>s from Ibcir association <<ith thc parent. I9)4 dcn<<initiated thai in a 6nancial pinch individual debt.issuiog suhiidiaries can also be disud. vantaged by ihc problems vlf>>>>ting ihc parent holding conipxny. A) Tbc mix ofa company's revenues, comings, and asset earning invcsimcnts.and related growth factors provide basis n:easure-mcnts by which onc can gauge rdativc cxposurc Io norivro( operating. economic and financial ris'ks. Industria sales versus oeridential and commercial, higher priority gas sales vvrsur lo<<er priority usage, toll versus local phone revenues, <<holrsalc rdatlve to tetail busmess, jurisdictiona earnings, and invest meni and earn. ings breakdowns by r>>gulatory jurisdictions are most funda mcniah ~ B) Tbc service area a uiiliiyis responsible for provides ihe un-derlying 6nancixi support (or utility operations, Rerognixing Ihat customer or demand growth is now more oftrn a burden than a

positive attribute, <<e >>iaiuate Ihe varying Iyp>>s of gro<>ations of geographical locxiion. such as su~xi and urban character. eni'ironmcntal considerations, climat>> and (uel source proximity on utility operating cost and cllidency I>>i>>is. Iv'ot io bc cx4uded are political and soci~onomic attitudes towards growth and private industr.

C) The quality of se nice provided and the adequacy ofcustomer and puMic relations are keys to aseertaining ho<<'cll a uti1ity is meeting its (ran>>his>> obligations. Inadequacies in these areas (most p>>itin>>at for telephone companies) potentially threaten achievable 'arnings Icvcls!rom boih an economic and a regulator> standpoint. Rdiabgity of fuel and po<<er supply. exposure io eni'ircnmental problems, operating e(qcicncies, level of plant modernirarion, gas ~ystem safety'and the adcquaey of maintenance praccecs arc checked Ior potential problems and shortcomings. For thc cleeiri>> and gas uiilities, fuel supply position mxy still bc regarded as favorable or unfavorable in terms of cost and availaHiity. How>>vcr, ihc long term tread to nation<<ide energy poli>>> scning and end us>> allocations and th>> now icry h~ out. look regarding most fuels make it dilficultIo satisfscioril> evaluate risk in ihis arcs. I>) Tbe overriding intro indkrsri> cconomi>> risks arc, ai we see them. i)deterioratin <<ellhcad gas supply and an uncertaLn supple. mentary supply outlook for the gas utilitiev,ii)the Iung term threat of comp>>tition in thc mote jiro(itaM>> areas of the telephone in. dustry: and iTi) the risl. of not b>>ing aM>> Io earn a return or recoup Ihe (ullinvest ment in a major unused, unfinishcd. or unusa Hc pbni.

2. fvrduorkm of rhr ronipony'x fivryrnr ronrrrurrion progrom.

Thc larger Ihc sire of Ihr program relaiivc Iu cupitatixation, ihc morc important aie favorable operating and financial parameims and good v)sitxlity.Our greaiest >>nncerns are <<hcther the hxsii of the program rests on high or low esiimaies of demand gro<<th. <<heihrr there is sullicicnl Iicxibihiyto adjust ih>> program up<<'aidi or do<<nwards in future years wiihout endangerin the service obligxriion. and <<briber rcasonaMc cost escalation (actors arc emplo>cd. UicaLdo<<n of the prograni into return.jusiiiiable projects and non ieienuc I inducing outlays is revealing. <<bile adjuitnicnis are rnadc for puisihli omitted projects ur contingent eipenditures. Thc track reroid ul adequacy. quality and short(alii o( past ptanniog is sctutinircd for indvrations of potentul Iuluie problems. L A'rgrdaruc rlimu(n lm'lading pnxrrihrd rorr oiolihr ond or. ronnrrng rrnvrmnvr. The ah'hiy of a utility sxlnbctorily Io fund iis construction program and io in>>et current and fiiiuicsen<<'e icituirc nients 6 intimately drpendeni on Ilia comings and >>xiii thi<< l>>vels allowed, (although nui guaranteed) by Itic juriidichwnal reauiatory Pago 98$ Standard h Poor'.". Corporation, TI>c Fixed FIXLI) INCOME IN'VISTOR InCOrni~'nVC=tnr, January 3, 1976, ',>aurvC 9ii8.

A .l y ~ Page 5 k body. In addAion to being familiar with the basic Iegi)lative statutes snd mandated court interpretation) which )pell out thc (round rules under which a regulatory agency must operate. we follow most ofihc Important general rstr case dc>>i)ion) for guidance as to commie)ion poli>>les and precedent). In recent years a wcs! rh of in(ormation has become available in this arcs. shhough. un(or)unatdy there is a sparsity of up.)Mate court ruling) regarding the rcasonablene)) o' commi)sion deci)ion) under current inAstionary conditions. Com-bining mansgcmcnt a))cs)ments o( their companici'sic incr>>a)e ne>>ds and strategic), as well as information and philosophy gleaned fmm past eommi))ion action), wc dree)op a considered judgement as to future rate ca)c outcome) and timing. This evaluation is funda-mental to our own projections of b tv re debt safety margins. 4c must bc cxpccted, evaluation of regulatory climate is o(tcn thc mos) dihicult a)pcct of the bond rating process, particularly so since Important changes in commis)ion membership occur with regs>arity, and (undamental changes in the governing legi)lative statute) src being made <<ith in>>rca)ing frcqucncy. Accordingly, <<c try to becom>> acquainted <<ith political and consumer auitude) toward utilitics, privat entcipri)c and government in thc juri)dictional area to which a uppity bdong). AI)o, wc try to a))cis the degree of eomprtcnce. so. phiiticatios and general adequacy of the commis)ion staff. In addition to being th>> e'orkhorsc of regulation. thc sta(f ii aao able )o provide Isdcpendcnt judgement that oacn )>>hect) a long.ierm understanding ofparticular uti1ity problems snd hdp) a))ure continuity of policy. We do our best not to prejudge the outcome of rotc cases, roeog-alriog that such quasi judicial proceedings ineoivr a dynqmic cdu>>a. tionsl process for all panic). In numerovi in))ance) <<c are in contact eriS commission members snd )heir staffs to ob)ain additional insight brio thc philosophies snd implication) o( rcgulaton'ctions, snd wc welcome eommi))ion)'nquiries ai to our rating philo)ophy as <<vlI as Its application to particular eompanie). Wc're)pemfull> emphasize to commi)sion), uti)i)ir)and isve))or) thai our only concern is (or our rating) to bc as sceuratc sn appraisal ofrisk si I) humanly possible. We do not ie)lilyin rate cases. ho<<vier. ina)much as we believe that any partiYipaiion is a case could )eriouily in:pair our objectivity in rating decisions. In evaluating aie cases <<iihin a particular juri)die. tios, <<c look poiiindy on eon)i)tent, <<>>II reasoned policy dec Yiion) Sat addi>>)) )hem)r>vcs to utility pr>>M>>ms. Standard dc Poor's usually refrains from taking positions on vs riou) comroi ersial regula. lory issues. but does rccognitc that both commit)ion) asd utilit>'orn. ponies wAI have to consider innoistivr regulaiory and Anancing ap. proache) i( rcspcrtaMe earnings and cash Ao<<protceiion arc to br maintained. Sy seers) ity,<<c are concerned with: I) findings on rates o( return and rate bx)e. adjusted to )ime frames and equity bs)>> in the >>apl)alias)ion; R) extent of rrfulatory lag. which might con))rain companies from camlng the return nBowed. m) accouniinf and rate maLing procedures prescribed, which significsn)ly ishucnee thr "quali:y" of earning) and resultant cs)h Aowprotection. Iv) the avai1abihty, or lack thrrrof. of intrrim and/or emergency rsie rr>icf, and prerondAI<<nns (or approval. v) suitudc) eeidenrrd toward) company arguments ha)cd on in- )areal coverage requirements anJ the need io mainain credit standing. vi) thc prcsenre or absence o(short term uii1ity protection against vobiilcfurl and put>>ha)iJ po<<rr Au>>)us)ion). ei) say particular utility repulsion problems wiih respect tn thr adequacy ofcomnuinicaiiuni, n<<iperatnenc)s and credibility. service rcquircment). Company Ananelng plans and management'5 cajital structure objectives. hive) important tr u) arc the percentage ofcash rcquiremcnte thai may bc financed from ini!mal sources, and thc implications oftbe program for eoniinw'ng curn)sf) protection fa) mea)ared by debt to capital)ration, and debt io nct )lani asset ratio)I, The latter is regarded as less imporisni on its o<<n t> in it is in relation to its e(feet on probsM>> snd potential earning> pre:>>etio>> under the con)traint) of regulaiury policy. Thus. certain rum>en)armg br)or) ~ such as excellent vi)ibility regardinf a high rctuin on rituity. might allow some utiliiic) to In c <<ith a hi(her debt ratio than other<<i)e would bc thc case. Thc credit standingi of surh miliiics would, howcvcr, tend to be mote vulneraMc to un>>spec)sd thon ierm ad-versities unless they <<erc able to maintain bvoraUc financing Acxi. bility.

5. Ffnonrfog Rrxibi((iy. The industry's cxperirn)es in )974 clearly demonstrated what many ob)>>)vers hsd always )caper)ed. that thc capital mark>>is src not nece))anly open for most ef the peqple mo))

of th>> lime, and thai )h>> public utiTity industrie), <<ith their huge capital demands, can bc seriou)ly impsard when Ss door) are elo)ed for some of thc people some o(ihe iimc. Parti>>vis)i>'n an uncertain inhsiionary environment. it i) becoming incrcaiici'.y irsportam that utditics have good financing Acxibiliiyi(they are to retain medium and higher. grade ercdit rating) on ihrir debt issues axd me)tt favorable consideration <<iih regard to commercial paper a::egs. Our ana)ysi) in this area involve) an evaluation of f) present and potential bank credit availsblr and back.up on commercial paper issues: ii) Rexibility to issue funded and un)rcurcd debt and preferred stock under thc various re)trictiie >>ovens:i. Cnmpanie) are at a particular diadvsn)age if ihry contin.)ll> bump again)t restrictio) which src regarded a) reason)Mc in their o<<n right. )1i) vulnerabiTity to)hurt.re)mope)sting andre>>nomic risk): iv) s<<ingi in short )erm deb) u)age and (u:ere i<<>~kg in thi) regard. Higher a<<eragc u)e of )hort.ierm "rbi briwecn per. manest Ananeing) ii tceognizcd a) little morc ihsn main-tcnancc ofpermanent debi in the capital )trerture: v) an ability to finance through prc(errcd )to L. preference stock. or common equity. thc lacer at rea)ona~.'r marL)t vain>> to booL value ratio). ri) relative u)e ofolf balance sheet financing ard hcxibgiiy to Icasr or se>I the morc liquid company a)sets in rr..rigcncim. v)1) AexibAitytc redure the con))rur)ius and m)is)>>nance program without scriousl>'ndangering seniee or tc have other ponies contribute to (uturc ca pi)at require ments, vru) )<<e).year forward analysis of projected -lsigcly unde(crrablc" cxtemsl espial re'quiicmenis ss related io capita)isation sire and>>oniingcn tlyavailable ca pial source). Ix) poliYies and practice as io sale of long.term srruritim, in. eluding the degree of cons>>res)i)nt cvidrr.:rd in preparin for upcoming rcfundingi. x) wars)ware coniingency plans, including run)id>>ration of how msnsgrmcnt views As prerogatives and priorities under such condition),

d. Fvo(voriun of nruooxrmrnrr This i) withnet a doubt thc n<<>)t diAicult area in <<hieh to maLC sn obirrin>> anal>)ii )hat ha) validiiy as s nira)urcmcni of future it>>bi safety. Yrt. )erogniring the im.

portancc of thi) varia)J>>, <<c ilo maLt judgnirats and eva)us)ion) hami upon

4. Finunrbg Rcqv(nrnirnrr, ('o(i(ra'i:>>ruin und Assn Pr irrrrbvr.

>laving translated )lie parameters o( regulatory Mimsrc in terms nf probsblc bture earning) snd cash iiuw pitrntivl, <<c proceed to cvslustc their adequacy rrbtiic io the Construe)iiin program, debt i) thc Iong term i)set rrriird. hn>> sucrcii(ul management has bren in nirciing sliarehnldcr ubjrv)ivce. and <<brihrr such euc. ceases or biliwcican be sttrihvirJ io nrsnsgenirnt or tu inhrr consideration); Page 959 Ja)) t)ary 3, 1976 Standard E: Poor': Cnrpr>ratinn, The Fixed Incnme Invc Atr>rrJanuary 3, lej".6, "a;e 989.

I) cridencc of sophisticated and well.reasoacd planning for thc fvlurc and thc hcritulity that msnsgcmcai builds inlo major policy decisions; gi) dcmonurstioa of conscrvstc'sm in both operations snd plan-nhcg, snd aggressiveness snd leadership in tackling or taking posiYions in industry problem areas: h>) msnsgemcat's views towards balancing of public snd privat priorities. and its awareness o( tbc importance of the debtor-crcditor rdationship and responsibilities Iowsrds meeting con-tractual obligations on time. <<) a dcmonstratcd record of credibility snd successful rdstions <<dth thc bnancisl community, the public, the media, snd of course, the rcg vlato ry agcncics, upon all ofwhom thc company tpvst rely. AtStandard ee poor's, wc fully recognize that thc success or failure ofour rating decisions can hinge on thc correct evaluation of mansge-tncnt. Yet ovr evaluation must aao be sdf limiting, since vcr( poor management as<<ally is replaced. Abo, we recognize that many managements bsvc and arc continuing to learn from past hcdvstcy mistakes, particularly in the (cnancisI area.

y. Issuing Dotumtnrr. These documents.

snd, particularly, the trust Indcnturc (which spells out the contract between issuer and bondholder), are the bedrock ol'hc public capital markets, and arc csamiaed as to both the covenants agreed to snd thc remcdiec ,apeeiticd for lack o( complisnec. Thc standard prov>>i>ns are, cf course. looked for, and dilferentistions made, whece morc nc le s pro-Iection is a(lorded Ihe bondholder, or <<herc unduly rennctive prvvu sions hamper operations snd hesihitity. Liberal>rations ia thc e-dcnture sre questioned <<ith psrticu(sr scriuusncii ss to Ivitilitstits and rrasonablcness sad whether they msy lead tv increased crcds risk. Attempts by companies to circumient restrictive covensn>a which src not unreasonable in their o<<n right, most often do entLI higher risks for bondholdcrs. Tbc total sum o(our analysis. updated (or each utihit! regutsrI!. serves as thc basis on which wc compare snd evaluate ietstiic snd absolute credit ris'ks for over 250 utilny issuert. Onc as~I <<e sre particularly conte'ious of, is msintsininr the most proper shgnment s( credit ratings (or utility lssucrs <<ithin each regutstocy jurisdietio.. Actually. tbe rating decision making process is quite s dinsmi ore. coatinuously requeuioning snd redeicrr..ining the icn basic issues i:~ valved in credit risk and its evaluation-not onli for util>:ces, but fsr all issucrs, Ultimatdy. our el(orts src guided b!'s desire to be ss fi:r as pcvssible to the issuer, <<hile providing thc most e bjecto c and a>> curate appraisal of risk as iipossible to thc investor. SEASONAL LULL CONTlNUEO Llgh(,profi(-(aking and year-cnd portfoliopositioning was in evidence last weel'. nol surpn'sing %et the strong December rally in which yields declined half as much as dun'ng (he whole second half. The advanccin yields las( week was minor co'mpqred <<7'(h lhe dccreasein (he previous lwo weeks or so. There iieet no ncw open'ngs. Thc January calendar willbe decidedly ligh(er shan lhe teccn( monthly average ard well below halfoflast January, a principal cxplana(ion being compara(ivcly good cor-pora(e liquidity. A slower rate ofinJla(ion should encourage buyer in(tres(. which would bc enhanced were equi(ies (o conlinue (o recover and become less compelilive on a yield basis. The Fed's morc accommodalive policy since midfoll is ann(her in-duccmen(, (oge(her with lhe rcalizalion that it ac(ed lo help preclude record ra(es in l97S in (hc face ofsomc $80 billionoffcdcral deb( financin. Thus. lhe markcl should bc rcla(iveiy slcady in the near-(erm, and rcsrmrp(ion ofselec(ive purchases is war- 'ranted. Corporate Anatyses and Briefs NEW ENGLAND TELEPHONE g: TELECRAPH COMPANY Maintain "AA-"Ra(ing c recently completed a lull rating review of Ihe New England Telephone

h. Telegraph

Company, appraising thc funds.

mental situation in light of thc Octohec 27, 197S. Mniisehusetts rate derisio and other changes in Ihc outlook. Thc company hsd last been rericwrd on hlsy 24. 197$ (scc page b)9 of thc I'.1.1.1, when, in con. section with Ihc sale of SITS cnillion of debentures, wc changed thc denOIStiOa On eahting Sad aew deheature iiauCS IO "AA-."frOm "AA"previously. Kited char(c eovecsges are in Ihc process of hot toniing oul. sided by thc in(i>sic>n v(SITS nccllion o(eonmion ccluity Inst April,rate rclief now heing ecclleettd, and a reduction in eonitruclicin ei pcndituce rc-quircmrnu>> I uitherriocc. cicoderste icnpruvcnlent in clct>t pcoteclhin parameters is a reasonable near tcrni espcctstic>n aad we note Ilist the company is diligently pursuing rate rriie(to ameliorate a serious regulatory lsg problem and is maintaining a tight ran on Loth cs(c:sI spending snd operating

eapenscs, Considrrng rhc pa>mr>'al bt lmproitmtnr (n borh in)trna( tach Strtrarion cad furfuru>t tocnryr ro mort tlostly apprc>ath rht rtcwns af(o>>td. >>t t>t prtsttdu nicn>>raining rht

>I>I "rc>ring on all outstanding Dtbt>>cures ofAtw &gland Tc(tphont dc Tt(tgraph Con:,"any.

1NDJANAPOL)S KVATER CO@i PANY Selling Firrl Mnr(gogt Ronds i et a mid Ssnuscy, Indisnspvlis Water will ih'cr Slg.(sth.r>r>>I First Mnrtgsgc ltondi clue Ivg>b through sn undec>>citiay cyiidiestr ted by Ouhlmsn, Sachs g: Co. The iiiut<

c picitrcrecl s(sinit lu>>ec. bcterest toit rc(undin(. for five >cari I'rc>ceca fcum IIt isle <

co principii amount ii(it c t:m. puny's I'irst Moctgs(c lhmdi, 2sc'S clue 197t>. <<nh Ihc hslunie o(the net pic<<Ws Io be adds tv Ilia eumpsn!'s general fundi, In FIXED INCOMLi INVLSTOR Page990 Standard gt Poor's Corporation, The Fixttd Income Inve "tor, January 3, 19(."'...a.;e 9f.. >f >a ~ '4 ~ ' March 3, 1975 ~ ~ I' ~ I Page 61 Mocf1JI 8 Bond Snyvcfj ~ 15 Public Utilities Comment Electric UtilityBond.Ratings Moody'c rcduccd thc bond ratings of 28 clcctric utility companies In 1574 and scvcn thus far in 1975. Only two comps(des had bond ratings raised during this, time. 1-vcstors should not conclude that this unusually large num bcr of downgradings indicates that wc lack confidence in thc long-term financial viability of the electric utility in-dustry. To Ihc contrary, and recognizing that thc(C may be fur(her rating rcducdons, it rou)d ivcll bc that thc worst may soon be over fcr most of thc companies in this in-dustry. Readers of Bofao Sunvgy should bc aware that each downward zat)ng adjustmcnt rcflcctcd a specific and idcnd-Sable problem related to the company in question. Wh00 each company is different in its stronger and weaker elcmcnts, there has been a common problem among those ivhose debt bas been do<s7)graded. )n a broad

sense, many of the things thai could have gone wrong for the industry did just that in 1974..5kyrockcdng oil prices, zun.

aivay inflation, disasferous bond and stock markets, ncnz. acro sales growth due )arg'e)y to conservation, unpredictable faults in nuclear power units and slow regu)a(ory responses in a political year had a thumping advcrsc cffcct. Com-panies that went into )974 in a stzaincd financial posidon were further weakened. And, their problems have been complicated ivhcre in(crnal cash gcncradon has been mbi- )ma) in relation to capital needs. This has zcally been the basic problem of ihc industzy. Reladvcly low cash flow, a function, u)tlmate)y, of inadequate rate structuzcs, neces-sitates too much reliance on capital markets, particularly for debt cap)(a). lf this cond)don exists ivhen intcrcst coverage Is already under prcssure, ive foci ob)igaicd to take a morc conservative stance with regard Io rating, pending satisfaciory zesnluiion of intcrmediatc tenn prob. )e)ns. On the other hand, even ivherc there is a current low )cvcl of inierest

coverage, we are inclined to a znorc positive approach if tbe company'c financing rcquircmcnts arc of a zeasonable s)ze, all cise being equal. This is particularly'rue

)f Ihc compsn) rcccndy zcccivcd reasonable rate re)icf. We tv)Q also take a pending ra(c increase npp)icnrion Into consideration, ascmnlng that thc decision ivi)l bc made reasonably soon a)id that thc regulators have a record indicating they ivill be alczt nnd rcsponslve to thc com-pany's needs. So, as wc have for many years stated, hfoody's concern is,not always ihc absolute level of debt protection measure-mcnts at a given thnc, but rather thc probable trend of (hose mcnsnrrmcnts. WRUc (herc

are, ccrtahily, other factors that hifl>>rncc debt qnnlity, cspitnl riqnircuicnts and rcgn)ation hnv<<bren predominant in rccrnt yf nrr. nnd w)ll rcmaln cn. C<ans(n)<(inn budgets hnvc b<icn trhumcd concidrrnbly by m.ill)'niiip/ll)irs,aiul (herc nrc r))cnurngh)g cigns froni conic rcguln<ory st>m>>)ice!one.

'I'h>> hnrrc)>d>>us problems of )97) nrc nut likely 0> <lictppcnr. )Ri( their ningnitndc shonlai mn<l<r.ttc. ')')<0 c)cr(r)c uiility ind<<airy ~ctill hnc n ivny tn gn lx fore it T<<gnins part of wl>ni It hns los( Ju fiii,'I'llciillIaa>!(ursa, )<<It fur llo'iv (herr nrc conic hi-di ft)ui<s cnirrglng thnt suggest nt lcnst n dcgivc uf stnbili. ( /nllnn nn tlic hori/Dn. Ratings Rc(juccgf Carolina l'ower f Light Conipany I)<'optic $(I).5 )nil)ion nf rnic )v)icf (hat wna in (i'f<rt for part of 1974, c<>vcrngc of fiard cl)nrgcs nml preferred divl. dcnds hns dcc)i)><n) io uncn(icfi<c(c)Y levels. hicnniviii)c, thc compaiiy's cnnstruciinn progrnui, cvcn after Tubstiuitinl cut. backs, is call:n' for spcndiiig uf $).) lail)ion over tlic 1975-1977 pcr)od. '1'his is n hcavy program rclniivc tu internal cash gcncrntion nnd outshlc fi)):u)ci))gs arc capccicd to con-tinue to prcssure thc overall financial pnsnirc ui'hc com-pany. ln view uf (hc above. Muddy"s has rcduccd thc ratings on thc company's first mortgage bond~ to fzna. Owa Electric Light S< Power Company Rhtq rc)lcf plnccd in effect hi 157) has proiicd )nisi(Efc)cnt to hnh dilution in intcrcst coverage rttios. htcn))yf<I)e, addi. tional accumulation of debt without Injec(IOJ<c of equity capital hns rcsulicd in a zclntivcly high debt<~a(in. In view of this, Moody's is )oiiiering thc ratings on thc company's first rnortgagc bonds to San from A and on its pollution control rcvcnuc bonds to f)a froin Sna. New issues Central llhnois Light Company First Mtge. (J)/4s, 3/1/2005 Amount CaN 01!e ring Yleldo-Rating (hing) Price Poise Current hia<uriiy Aa S25.0 G)110.00 100.75 9.18% 9.18%o G)Nonrcfundablc prior io s/I/O. with debt at an interest cost o( less than 9.tsv, annually; otherwise eo)iaiile as a whole or in part ai any lime On SO day) nO<iee ~ < IIO.<a> ihraugh t/ZO/ra) ai IOO.CS Ihrcugh tltt/77, prei>><urn deerea>ing Ie><he< S)/IOO o< SS/IOOI an-nually Ihcreaf<c< (los.s on s/I/ssl io )00 on 0/I/."00<. special Te-de<npilon at 1007S fo< Ihe first nine years. Ioo cr the/a*fico. Do/ono> Offcrcd on February 25 at 100.75 to yield 9.18% ~ Winning bid, 95.G7/I cover pcr bond, S10.20; cost to corn. pany 9.28%. O(her detal)s in BotrD SURVEY February 17, 1975, page 1619. opinion> These ldgh.grade bonds are satisfactorily priced against (he secondary market. Citizens Utilities Company First Mtge. S Coll. Tr. 8.30s, 3/1/85 Amouni Con Off ring Yle!ds Rating (hilu.) Pnee Price Current hlaiurity An $17.5 8)) 00 100 8.30% 8.30%o RlnedeemabIU only beginning sfl/st and ~t 100 Io,>naiurfiy. SPeeiai Tcdr<nulion a< 100. Dalolfs> Offered on February 27 at 100 to yield 8.30%. Price to company, 55.25: cost to cnnipsny 8.41%. Other de-tails in Borin Sunvn, Fcb)t)nry 10, 1575, page 1GG). opia!on> These bmids offer no special concession; sce opinion unflcr RV>>s, bc)nw. Citizens Utilities Company First Mtge. S Coll. Tr. 8y/ss, 3/1/2005 ha<aunt Cali 011< Ting Yields )la(lug (hIIII.) price p/Ice curre>ii h)Uny An 820.0 $ 108.G3 55.75> 8.50% 8.50% (i<Runt< Iunalabla u<inr lu 0/I/co. willa <li lii ai an In<a<os( rosi aif l<ts Ihau n>>si', ann>>.ill)". n<iiolwisa a,ili,ihh as a at>xiii~ aar in iaa/I. ai any <i<a<a' aal;4< ~I/i>'a IIIIIII'P,III I<a< /1 ll~Iau>;la S/ro/74: al I<tsSS <ha<au<.h 0,'."a<7>>,'ia ~'IIIIIIIIIa<a'I'Ia'<a<<a<i <a<<ha T ya; IUU <ar so/Iata< an. Iaalhli)'lia Ta'afh'I'><17 Is I Il S/I >a<i lai IU<a ~ iaa 0/li'ol, >'Iaa'eaaal oe ~II'uai>lian< (Iul~I Ia ~ I Ihl'a<ill<i<a/al *I>aalu<'a<<a<i) III Ioo Dolali>i Offturil uii I/clarunry 27 n( 55.75 In yicbl II.!10%. 1'rliae tn C<I<n)>;<I<y. '.)11.117!I; C<ITI I<> Cn>i<i<hi)y G.!III~. (1)hrr dCtnllc lii )I<>NI~ StinV):V, I/Cbrunry IV. 1!17!>, pngu )(i.>). Opfaioai h)I lii.liiiryi<')<) wit)i iin at<<'cii<l npprail, I'Ia<<'< I III fn>>n <1)c)x>a)i)u)I I<f c< fin)0 )uu) inty cn)i l>c iia >d lu Ic<ic 'Ili Ihcsn )x>nds nt )VV. Moody's Investors Service 1nc. s MooR 's BonR S)zrvc

o. March 3, 1975o Pago 1557.

I / hpz)) 7, 1975 'age 2 1>foodJ>s Bond SI(rvnf ~ 1411 Public Utilities New Offerings Portland General Electric Compc.ly First MtI;e. 10s, 4/1/82 Ameuat Coll Of(chug Yie)d 2<sting (hint.) ps>ee ps>ca Current hfs<uhly Baa $40.0 (9110.00 100 10.00%a 10.00% (9>(onrefvndebie pries Io </I/CO, wi<h deh'I at <<>> in<crest east 0! )ess Ihsn I<.cvts annually: v<herw>se eswab>e s<s s who/e or In par<. si sny lim< v>> 0 days'oiiee. si 110.00 <hsvurh /Jiflc: ei >vs.eo ihtevch 2/2>/IT: @vn> de<<tee>i>>g 200/1<o0 anuus(ly, theres(ice te 100 0<> C/I/CV. !sa Sinking IVS>4. pe>ai)<e Offered on April 3 at 100 to yield 10.0%a. Price to company 98.70; cost to company 10.2?%. O(hcr dctaUs in Bore(> Svavgy, hfarch 24, 1975, page 1466. Opinie>>> 'yhe OffCring yiC)d appCarc SultablC in the preSent market considering quality and maturity of the bonds. Gulf States Utilities Company First Mtt,e. 10s, 4/1/2005 Amount Call Of(eh>>g Y(e)d MUng (h(III.) Ps>ca Phee Current 1(eiuhiy Aa S40.0 (9II0.0 100 10.00% 10.00% gNo>>refu>>dsbl ~ print to </I/20. w(ih debt at an In<Ores< east of )ess than >000,> ssi>>vsi>)-, o<heswwe es>>able es ~ who>e et I>> peti ~I e>>y Umt or. 20 oeys no>>ee ei >10.00 ihsovch 2/2>flc: s< >opxcc ihtauch 0/21/TI. premium deere>>s>>>c iei<her 2</>00 or 21/100> an >>us>ly iheiesnet (:Of,.zc on cfl/ce> <0 i00 oo c/I/200c. spec<<>I te-dempiio>> isud for ihe opuo>>si sink>s<g fund) at 100. De>ans Offered on hprU 3, at 100 to yield 10.00%. AVtn-ning b, 99.26; cover pcr bond, SI.GG; cost to company 10.08 o. Other detaQC In Bot:D Svavgr, htarch 17, 1975, pag 1502. piaie>>< In the en>rent market, these high.grade bonds p olde a satisfactory zetuzn for longer.tenu investors. Proposed New'ssues Carolina Power@ LightCompany... ... has Cilcd an S-7 registration statcmcnt covering S100 mQHon of first mortgage bonds dwc hprQ 15, 2005, to be cold on or about AprU 23 In a ncgothted oEfcring by a syndlca(c headed by MerrillLynch, Piercc, Fc>>ncr I's Smith; IQddcr Peabody Es Co.; and Salomon Brothers. c)vall<y 4 Ra>(np> htcdhiiu grade; p>v>vts)o>>al Bnn. Although pzojccted construction o>>(lays have been irimmcd, future fina>lci>>g rcqilirc>>>en'te zcn>:il>l hcavy. In 'viciv of tl'its, coll tinued pressure on debt protection mcasuzcmcnts tvnu)d ~ppear )ikely tn thc abscncc oE further and substantial rate relief. cat>a ef aan>b I>)c>v bo>>ds ivU) le registered bonds. Intcrcst wt)l bc paynblc sc>>ii nim>>RUy April )5 and Oc(cher 15. Pi>>pose< ) rnccc<)c fro>>i talc of l>o>><ls >vill be used Cor gvn. cra) c'nr)ey>>Ir purposes h>cl>><'li>>g rv<h>cttu>> of c'nwstn>ciin>>

loans, Ivhlch

>vcr< abou( $ )11,7)5>.000 ow Fvhninry 26.

1975, 0>><) whi<<h arc cx)>0<ivi'I to bc ulx>ut $75 1>>iUio>> at tlmn of ro)r nf the wviv boiwls.

cans<ress>on

• liaaa<h>0< Constr>>('(inn )>rojrcts arc b>><)I(c(rd at about Sl.()2.7 millio>> <Iwri>>g ()ih ycnr/ 1975, )97(( pwil 19?7, a i<<hi<<(in>> of ntewt $798>>>))liow frn>>> origi>>>>l pla>>s.

About 6:t):i w>il)io>> is <ill<i<aim) tn )975, n rn)uctio>> of >>l>o>>t $ 19) willlim>fr<>>>i (lic prior es(lmaic. 'Il>c-rev)>><xw) piorru>>i nf vxpv>><li(wfvs ts thn m'w)( nf rcvth<XI I'>><'rr)'w<n'acts aiw) (hc )<<eh nr capt(al o>> ICR><o>>. MOOdy'S InVeSterS SerVices InC. I Ivfc>nd ab)c terms. These reductions cUminaicd five gcncra(lng units tha( would have pr<>pl<lcd 4.800.>>00 kiv. of capacity and ctrctchcd nwt thc I>> s ervice dates l>y about two years for ttnlts i<<hich iviU have I,t)20,000 kw. of cat><>>'I (y. ln addition to calcs uf le>><ls a>>d pfcfcrr<<<l h(ock dwri>>g

1974, tl>c company raised

$92 mi/lion fri>wi thc sale ai:d leaseback of nuclear Curl an<) eleven twihinc genera(>>ig units. I'finr to the proposed

offering, I<9 5 fina>>cinr, iw.

cludcd $22.4 million of bn>>ds at a private saic and public calcs of co>>mian stock Cisr $50 million anil prcfcrcncv stock for $4S million. Later iw 1975, an a<ldiiiowwl saic of sccu. rtt)es is plow>>cd to raise n>>oihcr SSO miliio>>. To issue additional prrfcrzcd stock, gross income after depreciation and taxes chaU bc equal to 1.5 tbncs thc sum oE annual intcrcst charges a>>d pro Corm>> preferred dividend zequizcmcntc. Such ratio at I'cbruary 26, 1975, was ).48 and at h'lore h 20, 1975, it was 1.51. As of I'cbrwary '2S. 1975, about S)40 n>Ulion oC lends could be issue<i on thc basis of propch)'dditions, bui only $291 mnliow on thc basis of

earnings, wh)ch reflect $22 million of dcf<<rrcd fuel costs and about

$554 miUlozt of rcvcnues coUcc'tcd subject to 'ossib)e zcfund. Interest pre>es<(aas Annual In(erect ZCq>>irCmentc On Sl ~ 159,23),000 of Iong term debt to be outs(andi>>g on corn. pIet/on of current financing arc est)ma(cd at SSS,?.9,000 ivtth the ncv: bonds at an assumed rate oE 10;< and long term notes at 9>)<2%. Zan>ln I ba)anccs consist of opcraiing I>>con:c to which have been added aU Fcdcra) (and State) taxes (charged and deferred) relating to income, aUoiva>>cc for construction

funds, and thc net of other income and deductions. Yo adjustment was made for rc>>tais, iihich, thc company states, aze not matezial in amount.

)STS 1014 )012 12>2 1911 1910 TImes es>>>ed XIII (.CS IM I.zr 0.20 O.CI %he<us) eave.ece 3>W$ 1.$ 2 22( 2.00 240 2.2$ tf)7>>ve)ve mo>>thf e>>ded rebrusry A. Ths oui)(>>ed I>> (he pto. epee>us: fot:he tA<<as. essrl>>cs evnsisi of >>e> inter>e p><>>c< me taxes end fixed charges: fixe<< charges ec>>sic< of i>><eras< chere> Imp>>>rd in<etre< f<>e<vr por>ien ot tc>>ie>s, 9.Cemva>>p esi>ms<Os pro forms a< I.Tc ih>>es, ass>>>>u>>c eh hiiesesi rite 0< Io>) on ihe he<<bo>>ds. ceif re>><use< )4onrefundable at Io>vcr intcrcst cost prior to hpri! )5. 7985; o(hcrNCsc caUabtc at prices to bc suppDcd by amend>>>cnt. se<vsi>y<?iciv bonds and OU those outstanding or to bc issued wQI be secured by a first mohragc lien o>> aU prop-erties noiv oiv>>cd or horcaficr acquirc<), cubi<et to minor cxccptin>>s. Additional bow<)h may )x gcncrahy issued ors (hc basis nf> (a) 70% of nct property ailditions; (b) retircmc>>t of bonds or prior )icn bonds; (c) deposit of cash. N'tth cer-tain exceptions i>> thc case of (li), earnings, before income !axes, mutt c<jual tivo t)mcs pro forma inicrcst rharrrs, or equal 10% or aU lends an<) prior Ucns tu lxioutstanding.. I>><proves>>ea< Ived> Ae (O each outs(>dllig scftcs Of bn>lds, pay>>>rut is required ot' of )% of Il>c greatest amnw>>t of bo>>ilc outs(an

>g prior to pay>>>v>>t dain, payab)c in

cash, le>><is or )>ropvrty nil<)i(in>is at 70 'a ()00% in Illc case OE 19!I'/ a>ih<<'I>>v>>t scrive b<>>i<le). Ucquircwivn(<<

may br nnticipairil. )t<<>iiiiivwiept n>> le>><lx issue<1 prior tn fhc )Pi>7 hei)ch 'lx I ', ' ll>c Iw< s(I:;inc'lin)'><'w>v<1<I<<', 'I'<<)ill~ ow( cows<<>>t uf Ihv )997 n>>>) hw)>s<qw<>>i l>mwllm)<lets. to rli>>ii>>w(c tl>c i>>q>>uv<>>wc<it Cw>wl rvquis>>>wviits. 'I'h<'ii~ Jvwwirv alhn w>'<kr/ )>>isvislo>l for a wioi>>io>>ance a>><l y<~ place>>icn( f>>>>d. ovsiaaiw I'.hvcirtr s< rv)n> i>> prov)<l<<il iw pnvtioiis of No<1)< Car<>)i>>a n>id Souili Ca>u)ii><>. h( I'c)>r>>ary 26, I!>75, cl<<c'Isle Bond Snrve s, April 7, 1975, page )4)1. I t <<m'4 ~i ~ ~ S ~+'~ ldll ~ MoodJis Bond Stir)>cy Page 63 hpril 7, 1975 he>us) <000) $111,745 1,009,030 50W1 Pro Farms I000) Short-tcr>h debt.. 5,2 Bonds 47.2 $ 1,109,030 51.0 )50thcr )ony.tcr>>>. '2.4 50v)01 2.3 Tots) debt...... $1,170,97G 54.8 S1,159,231 53.3 Prcfcrrcd ctock.. 288,118 13.5 2S8,118 '134 Preference ctock. 47,900 2.2 5)Common tc surplus 621,475 29.0 62),475 28.6 Def. tax. Cc Inv, cv. 57,258 2.7 ~ 57,298 2.0 Total capital.. $2,) 37,8G7 100.0 $2e174,022 100.0 0)>ne>uhcs SSOPOOP<O bank loan duc V/S>/TI. )50u<staodlne at st~zpcz shares ol i< > par value con>>noh stock. Lono Star Gas Company... ... has filed an $.7 registration statcmtmt eoverh> $GO million shikiog food debentures <loc April 15, 2000, to bc cold In n negoiiaiec) off< ring April 21 ihrowgh a syndlcalc head<'d hy Shin>low> Bniih<>s, a>>il Go)dw>a>> Sachs Ec Co. {ccc page 14)G for prnposeil prcfcrrcd sinck offering). t>val>>y A au<>nsi Upper >or<)io>>i gr.olc; prvvisimial A. No>>- utility <'hroiogs have expo>>cled ihaiply over ihc past Ccw years Ilil<l >low il<<oo>>t 'Col'i i'llhstolliial )lorlloll of co>i col)<lated i>>co>>>e. hl<'a>>while. Ihr nw > i>)) fi>>a>>eh>I pns)iion of t)ic eo>opa>>y Jinx bcm> reaco>>al>ly stab)c o>>d ile)it )iro-tccilnn >wrac>>re>>irwla are at sa>ixfaciory )reels. pe<ca< ))r)<ro>o>vx >vll) l>r dc livrrr<lio folly >vgisteced fvrw>, h> clenomh>allows nf $ 1,000 a>><) wo>tip)cc thereof. )>>tercet service was being furnished to 643,520 gcncral bush>esc customers and to'54 rcsalc customers. During ihc 12 months cndcd February 28, )975, 34.7% of operating rcvcnucs, ex-e)ud)ng non tcni>or)a)

sales, was derived from rcsidcndal calcs; 29.9% from Industrial sales; 15.G% from comincrcia) sales; and )5.8% fram other sources.

Approximately 84% was derived Jn North Carolina, and 16.a in South Carolina. Genera>)ng facilitics have 'a sum>>>cr capability of 4; 058,000 kw., of >vhich G65.000 kw. is>>uc)car, 2,Gii5,000 kw. uses only coal as a Cue), and thc remaining 728,000 kw. can usc

coal, o0, or gas intcrchangcably.

Two 821,000-kw. roiclcar units, under construcdon at a comb)>>cd cost of about 5758 million, arc expccicd to be comp)ctcd In 1975 and )976. Jn )578, thc company expects to complete a 720,000 kw. Cossl) fueled p)ant. As to thc projected 3; 600,000k>v. nuclear p)ant to go onsiream in thc 1980s at an esihnatcd cost of more than S2.1 billion, thc NRC has asked for additional information on thc financial qua)ICIca. tions of thc company as well as a need for the p)ant. Cur. rently thc company esdmates that 73.3% of )975 power tdD be generated using coal as a fue), 22.5% wQl bc s>uC) ea, 2.6% hydro, and 1.6% Number 2 foci oil. The company Is regulated by the PUCs of North and South

Carolina, the NRC, ihe

FPC, and environmental agenctes.

During 1971 and

1972, rate incrcascs were granted for a total of SG0.9 million. )Iigher rates collected

'on an interhn basis <vere made pcrrnanent during January 1975, adding about $81.5 mQ)Jon to revcnucs ann>>a))y. Opcradng income for twelve months ended Fcbruazy 28, 1975, was equal to 4.07% of periodend net plant, work Jn progress, and net nuclear fuel. cep><onso>>o<o As of February 28, 1975. and pro fonna as-curning repayment of short. term debt from the March sale oC preference rtoek and the proposed Issue of bonds, but without adjustment for cap)ta)ISJng any pordon of actual rentals paidi w bc pay~I>)c semi.anno~))y on April 15 a>>d October 15 Jn c:ich 'year. Applicadon will I>c >i'I:><in fvr a NYSI'istiog. pvrpo>ei Procccds from Ihc saic of dcbe>>to<<.s a>>d $ )0 >nil)ion of preferred -.tock (400,000 sha>cs) >vill l>e used to repay bank )oans maturing in 1575 and 157G a>>d to reduce commercial paper dci>t. IVhcn proceeds arc rcccivcd, it Is esihnated diat corn>>>crcial )i:q>cr ooistamli>>g wi)) amount to $3G,000.000, ba>>k loans $25,000,000, aod current ma-tur)ties of long.term debt $40,423,474. Interest pro<ac>ion> Assumiog thc sa>nc Inicrcst rate of 9'%s used In the prospectus for thc ncw debentures, and using 7K% for )oans duc In 1579, total annual interest requirements.on S445,757,000 of long-tenn debt to bc out-standing on completion of current financing (sec Copitalira-tlon) are esdmatcd at 532.088,000. Pre.i>>come>ax gross 'arning balances include allo>vaocc for construciton C>>nds with no adjustoicnt for any rentals >vhich, for cxamp)e; amounted to $2,482,752 In 1974. Discount on reacquired debt was cxc)udcd Crom earnings. tati Scabs 1011 1011 Iltd T>mes earned S.SS 2.>S >.S> I.SS >.>>0 G>he<us> coverace KS.09 S.CC S.C> C,>1 <AS G)hs oui>inch In the prospectus: earn>OCS balances are >he same ~ s slated above and Include rcnia>> as dcimcd under hxcd eharc<wd fixed charccs include m<crcsi. ao>or<Isa>>on oi deb> hi<roon> an<) expcncc, and the poc>ion oi rcniais rcpccscoia>ivc.oi ihc in>eras> factor. Lpro fornia would bes 01 with new bonds ~ tv>~%. cuit pec<<use> Nonrcfundablc at a lo>ver Interest cost pr)or to April 15, 1980; otherivise callable at prices to be supplied by amendment. ,slaiciay rvad< Sufficient to rctirc $2,250,000 principal amount annually corn>ncncing Aprd 15, 1980, calculated to retire 75% oC the debentures prior to maiurity. Company may make payments in advance but not Jw an amount cx-cceding thc annual requirement. Such advances may bc used as credits In subccqucnt years. Unused advances may not accumulate. Paymcots may be made Jn cash or ncw dcbcn. tures. secvriiyi The dcbcniures will bc unsecured obligadons of the company protected by a >>egad<+pledge clau>r, dividend, and other rcstrictio>>s. On a pro forma basis, toial long term debt wtO be equal tn 55.8% of net plant, work in.progress, and Investmcnt as of 1)e<cmbcr 31, 197). The Jndcnturc contains prov)sio>>s rcstricdng company or subsidiaries from increasing funded indebtedness, a>>cl thc co>npany from certain transactions i>> cubi.ldlary siock, fund-ed debt, or property. avs>sess< Lo>>c Star Gas Coiwpmiy Js an Jntcgraicd natural s transmission aod disiribu>inn company. )I oivnc and pcraics trans>hiss)on and gatlirriog lines, storage mscrvolrs, distr)l>utiun syctco>s, aod rc)ate<) foe)lit)ca. Natural gas Is scrvcd to about 1,050,000 custuwiers I>> )>oriioos of Texas an<I Oklahoma. 'Ihroogh ivhn))y nwwe<l cuhs)<)lnrics, thc eo>>>p:w>y is cn. gaged in: (1) cxplvriiig. ilcvi.lo>>iwg. h>wl >>>aiL< do>i oil anil natural gas; (2) traits>>>isci of >in>or:wai>u. f:icllliu:>>>>corke>i>>I,'lc frrii)ix<'r. Oiwi )<lax>i< )<II<r; (4) pmvidi>>g oil no<I gas firM s<'rvir<e: (5>) pmvhli>>g broil>>g an<1 roo)hii: srrvi<>o io largo r>)<)eaux as univ< rat<i<ca d>>d n>cdi<ihl fx >>iera. Udlity giic p>c>vi<)<x) Gi).5% of re>i>soli<)i>I<iog rev. cwue for )i)7). prin<)<uww c aph>rwtinw ooil iir<uii>riio>>')5.3% che>niealr'aod elo mien) pr<xloc ts )2>.4%, odirr x.<)<<x I 4%. 'I')>r<w>>.)> ii >ill>xi<)iary. en>>>)ia>>y.ow>>r<) pnu)o< lion >vox 55,05>7 w>oi< f.ror:i)>oiit )53)U of ihr i>05.5> 12>>o>><;f. acihl Iw 1574. 1'urehascw fmm other )>ro<)ufvrs w>>inuiiiv<l <n 4)2,378 l I I I l I F Moody's Investors Services Inc., Moo6 's Don<1 S>trvc April 7, 1975, paj;c 1412. I Aa l> 'Page 64..'. INO ~ hfoody's'Bo)I(I Survey hP(il 28, 1975 Atlantic City Electric Company First Mtgc. 9)/4s, 5/1/83 h<nount Coll Offering Yield RauOg (Nil>.) pr>eo p>cee Cut>col 5(atur(ty As $35.0 G)109.25 100 9~%5 9.25% ClNoncefundable p>lo< to 5/I/$0 wilh debt at an Interest~I of )eas chan 9499>$ snaua>>yl o>herwf>e eaualne as n whole or ln pa<i. ac sny c>>ne oii So <lays'o<lee, ac I<///15 through 4/so/I c! ac Io..zl through 4/50/)7: pum deerea>>ne ihvr Isc/I.aoo o< 155/I.oco) annual<y che<evfcvr (101.5$ on SII/co> Io >(n cm 5/I/Sl. I(o sinking fund. spec>nt redu<n><>ion at Icc>. Na<aii>> Offered on hprQ 22 at 100 to yield 9.25%. Price to co>npany, 99.175; cost to conipany 9.40%. Other dctaQS In BoNn Svnvcy, March 31, 1975, page 1558. Opb Isai The bonds are zeasonabiy priced for hold.t maturity income Investznent. > ~ rolina Power g Light Company First tttge. 11s, 4/15/84 h<nouot Call Offering Yield RaunC (Zd>U.) price price cc<rrent status(cy f)as $ 100.0 G)110.75 99.75 11.03% 11.04% 0)Nonrefundable pr(or co 4/IS/SZ. wi(h debt s( an in>crest cost of )ecs chan Itdczcc~ >in<>u'>Uy; ocher<>>ue esl)sbie ln whole or ln pare. sc any ci>ne on 50 days'o>ice, ac 0)$ through 4>lcl>c; ac Ics.zs through 4/14/11: prcnuum deereasir.(eicher Is)/lr>>0 or 1$4/1000) annually chefeaher co 100 from 4/IS>vz co macurtcy. special reciemp-tlon at 100. Dafa(I>o Offcrcd on hptQ 24 at 99.75 to yield 11.04% ~ Price to company, 98.65; cost to company 11.2)%. Other details in BoND SURvEY, hprQ 7, 1975. page 1411. opia>an> Tbc yicM provided on these bonds is xcaUsdc dez present conditions. Cleveland Electric illuminating Company ~ First Mtge. 8>85s, 5/1/83 hmouut Cau Offer(ng Yield Raunc (hint,) pries price cunenc >facurlty As $50.0 G)100 100 8.85%a 8.85% EAedeemablo on)y beginning 5/I/$0 at 100 to maturity. No sink tag fund. Ds>a>fn Offered on hprQ 24 at 100 to yield 8.85%. Price to company, 99.25; cost to company 8.98%. Other details in BoNO SORv EY, hiazch 24, 1975, page 1469. Opinion> This shorter dated Issue is appropriately pziced. Cleveiand Electric Illuminating Company First tttge. 9.85s, 5/1/2010

• ><Is<i<I't Call Offering Yield Rating (s)in.)

pries price current Natu<Icy As $ 100.0 G)109.85 100 9.85% 9.85ra (<INonreiundsble p<inr lo 5/I/$$. ul>h debt at an Int< cast rost of lv>5 chan 9.>/I>- annuany: ochenv<ie rsl>a> <e as s v>><a>a or In ns<c. ac sny Ihllv on so <ca>'> no<<ce, ac >Cs.ss i>itigh 4/1<l>ia; ac ca>.$ 0 ch<al<gll 4>50/zt: p<<union< der< ~ a<inc >a>cher ss>>ao ur 5>/><a<) an nual>y chc <eafcrr (loi.ci un 5/I/ss) lo Ioo Ir<><n 5/I/zeoc ln macurlty. No sinking (coul. Oa>aun Offcrccl on hprii 24 at 100 tn yield 0.85%. Pfiec to Company, fP0.125; cost to company 9.9)%. Oilier Jctaiis in I!ow> Suiivrv, ht.crch 2), 1!>'/5, pave 1169. Opinion> 'I'4!9 Iss>ce pmvic)cs an In linc yield in lhc pres-ent lnazkct for iong tern> bonds. Lone Star Gas Company S,F. Debenture 105/ss, 4/15/2000 hmnun'I Call - Offering Ylet<t~ Rating (SI>U.) pries )'rlec current Slee >rtcy A $60.0 G)110.626 - 100 10.626%> 10.615% p!Nanrefundah>e prior co 4/15/s9. wllh debt sc sn is<a<a>c e>cat o( less chan Io/Iz)o an<iua>ly! a<hrrwi<e ea:!s>de as a <<I. >4 0< In pa<>. ac any ci<ne a<<50 da>s' ic>ee. ac::0.$ 05 in<a<<gh I>)> 0> sc!:4,>s through 4/le tl: p<<imilui der<ca>;ne ceichv< 4> I<v> a< cc'lc>:> an nusny ihcceafcer (Ii>54>I on 4>>s:>I >w <>n 4.!$>yh hc!iw Ic. che slnkmc fund beginning hvcil t), 19"> snd nr<iuslly the<ca(crr. oa>o(is> Offcrcct on April 23 at 100 to yte!:. Cher dctaiis in Bosn Svkvrv, April 7, 1975, page 14)2. opinion> Pricing docs not offer ary conccssicn In tbe cur. rent n>azkct for A ra(cd gas v:!U(y co:npalucs( hocvcvsr, lt provides atl adccuatc return >or Investors seeking ic:)ger tezm invcstmcnt. P iladelphia Electric Company First g Refunding Mtge. 1ls Ss, 4/15/2000 Amount Call Offer>ng Yield Rating (RUU.) Pries Pr:ce Cu<rc,c rdcturity A 565.0 6)1 12.70 101 11.51% 11.30% I)Can<a(undab)e or(sr CO 4<(S/5:. W(tai debt ai an!Rierec\\ cist Of less char. Ihzon annually; o:herw.'>e escsb:e as a u.'.sle Cr '... pa>> ac any c>tme on 50 dsys'o>lee ~I '.1~..) I!rovch 4:(> ~I: ac:Iz.lo chrough 4/14/1). premium ceeces>',,".c:e!c~er s.'IG) or (<</I(:~ sn. nually c:crea(cec 010.00 on 4>lent'>> cc )ci on 4/::,)).Zo 5:wu<c fund. Ds>sfls> Offered on hpril 23 az 101 to v ctd 1 1.30%. KYtnning b!d, 99.35; cover pcr bond, 511.55; cost to corn pany, 11.71%. Other details in Bosn SURvEY> Aprg 7, !975, ,page 1414. .Opinion> This ISSue prorldeS a Suit ble yiel" ir. tbe Cur. nt market. Transck Pipe Line Company First Mtge. Pipe Line 9s, 1 1/1/80 hmount Call Offcrdng Y!eld Raung (Zdln.) price p>tee Current 5)su>city A $ 12.0 E109.00 1 0 9 00;0 9.00%5 G.Nonrefundable prior to 5/I/$0. wick cebl at an!ntcrest rsc cs less than 9%<< annuany: o<herw>>c es."!ab'.e as a w!sie er:.. pari at any time on $0 days'o<ice ac IG).:I>:krouzh 4 >c>tc: ai '.012: through 4/50/z.. p<eniium ceeres>!nc .$v.".oo anr/ ally chc:>sf le: to IG9 on I ill/>S. No sinking fund. Da>of>iu Offcrcd on hprH 22 at 100 to yield 9.Ca%5. iYln-ning bid, 99.056; cover per bond, 27c; cost to company 9.22%. Other details in Boxw SvRvEY, April 7, 1975, page 1413. opinlani Tt>c Issue, nonzefc:ndablc prior to maturity and vr!th no s(nk)ng fcmd applies'ic, affords a's cisfaetofy ze-turn for Investors In(ctes(cd in shoncr tern> ta>nds. Proposed Now Issues Chesapeake ttc Potomac Telcphonc Co. of Y(est Virginia... ... has filed an S9 tevis!rn(it>i StatCmCm Covcrin; 5~') miiiion of dcbcntntes Juc hisy 16, 20(ni, to tc sold.co pctilivc bidding on May 13. o<>silty d Ra>ins< I'rinlc q<>al!:y: atm! ional rsti>>g Aaa, lorn< of Oaken>assi f)>c nc<<'cl>c<>l>:cvs v/Ut be Ic "<><' on 7 as rcgiclcrcd dehentc<r<c/s. in cirocu>.>>lstinns and muili;les of $ 1 000, inter('>'I 'v'iil i>c )5'c)' Jc ~'>ni "<nn>>a>i'i <>n 3!sy 15 a>ui t(i<vc>sixr )5 lo Imidcrs re);lc(iu.~l on h; cil 30.<r O~ tobcr 3( prior to <laic of pnynient. hpptieation cvUI bc nine'.0 to i!st thc debecctufev on tbo tv'YSF.. Moody's Investors Service> Inc< > Mood 's Bond Surve, April -8, 1975> page 1340. a) ~ v'aa..x.~~ Jaaa>< '<'d. Page 65 price tangc, and many olde< bun<ex along the ttrc<lionl sic Valued in cxcess o(560,000. City financial operations since ineepth>n hare been guod. During 1574, on total icvcnuc>> vf $ 2.397.0GG, ihc city shvvaI a su<tent yea< surplus nf 5 I I l.60). At thc clu>>c of ihc fiacal yea<, ca>>h and inrcn. ments Iotalcd $96),322, <<bile cut<en< lish)i<les an>nun<ed tv only $225354. I'iopcrty taxes werc ihc largest single revenue source, sc. e<rsnting for appivxims<cly onc thi<d of tntal icvcnucs: state icrcnue <hating was another 19% of icaenues: and revenues from s cl>srge assessed against Vacant lo<holdcis lu< mowing and maintenance contiibutcd another 10%. On <hc cxpcnsc side, more than 20>> of all moneys werc cxpendcd on capital items and impioremcnts, piiniaiily for st rect anJ city hall p<ujeets. Dcln seniee on thc city's short Ictm <>ates was only 7.6'2 ofco pcndi<urea. A'llhvu(h muCh ofCape Canal <en<sins vnilcrclnpcd anJ OAC Cvr. poiatiun still l>as o>>ubatuitisl impsa I >>n <hc city, <<awuuniing lui I of p<opcrty tax <eeeip<a Jireetly anJ about g') indi<ectly Ihivugh 1>>>y ments proVideJ by OAC Ie>>>>ec>>. Ibc aiiy ha>> vpna<ed in a mute <I in satisfaetv<y (a>>hiun io Ibis point. I>>>~efnpn>cnt Iia>> l<<<<n ex<en>>i> c in unc psst of thc city. and with iega<d 0> homes in thc 5 <0.0<<0 class liat bccn ol bc<<sr <hvn ave<age ch>>iacici. II'hilrprr>g>aa<<d <<surr,in>( srwrr rairs arr Inch. a id thus Chgirut<< n Inrrrair /ant>rr. ihi bund) should br a< IruiI 5<i~ srlfsuppurihig Initially and ha a>>n>r nw><<su as growth rani(nuri. I am sn, ihr iaa'air <<<tl rrmoin a>udrra<r. <I'rarr <hrrrfurr assigning nur -Itllg" mrdium grade raiing iu ihr grnrrut obligation bonds ufCapr Curat, Ifurida. HAS u, r~It-W LEVEL E EEm eEWCHED> Fol/o<<7ng several weeks ofslrady price erosion, prie'cs in the corporate bond sector lurnrd modrratdy highrr last wrek. Shor( covering by (radcrs'and thr suc'crssfiil saic ofseveral attra(tii ely priced nrivissues aided tlicndvancr. Thr i<<eels mnjor ogcrings btcludrd o dual oj7cring ofS7S,000.000 l>io(rs and Debcnturcs by 31'amer Lnmbrn Co., priced lo Jicld 6.90% in tcn years anrl 6.99% in t<acn(y five yrars. resprc(ivclJ. Botli issues ofthis AAA company were well rcceivcd. as wrrc'he $7S,O¹000 ofAsian De-vclopmen(Bank fivr)rorno(es, whic'h < rrepriccd to Jicid67S%. Af(er increasing at a record pare. yields appear to havr rrachrd a level i<<herc pur-chasers are willing to conunit soinr long-(crm funds to thr mar!'el. Undcrwritcrt. sonic of whom i<ave sustalnrd large losses on both new issue and srrondaryissucs. nrc (aking a somr <<%a( niorr eau(lout approach, nnd a nciv <<)irkinglrveli<as been attained. Howevrr, the market is still ex(rented concrrntd about (hc lcvrl of corporate anrl govermncn(fmanciirg and fear ofa rcsurgrncr ofiiif?ationonce thc rconon<ic recovery r(s underway. Tlicrcforr. investors are advisrd to maintoin a cautious approach toard ncw co))rntitmrnts. Corporate Analyses and Briefs CAROLINA POLVLR h LIGIITCOMPANY OP'ering First hiortgagr Bonds n April 23 aa under<<ri Jng syndiaate headed by Menill L>>>eh, Piercc, Fcnnci g: Smith, Kidder, Peabody A Co. and Salomon Bio<hers <<ill olfct $ 100.000.(60 Carolina Po<<ci tk Light Company Pi<st hfottgsge Ib>nd<, due Apnl IS, 2005. 1 bc nlfe<ing rill stfo<d proteation against In>>ci.in<ries< cast <cfunding until l9$5. Pioeccds fiom <he olfe<log <<ill bc used for gcnrial cusp<<<sic purl>uses including thc <<duction nf shut< ieim lani<O>>in(S ineuiied p<imsiily for Ihc cons<suction of nc>> facilitiei.Such shnit term bn<in<<ings In<sled ap-p<n>>ims<et> $ l I 1,74k.0<0 at I'cbius<y 2r, I975, and are eapec<af io app<aaalmato $75.0i>0.000 imn<edia < sly prior <<<<he deli>>cry o( the new bol>di, Cnnnivcti<<n ealw>>ditu<es aic expected tn app<naima<c $ 142.(40; 000 in l975 and Sc<K<,l<O,IKO in <hr peiind l9)G 77. In his<ah and Junc l974, the eaan>pony's eon<4<>>Oui<<n pii>(<am was <educed. in. eluding tedua<ia>n> n( appi<<>>imatcly Sg<5.<KK<.<KK< h>t la)74 and oppi<<>>in<ately 5 lg I,<00.<K % < (5>< )975. On I>rcnn br< 5, l97 I. Ihe ra>n>. psn>'s cvnaiiuaihan pia>gran> <<<<a (us<bet inlureal i > <ha< the ag.<r. gate tralue<iun ii a<5< ~<a>>>in>ately $7<nhtKK<JKK< f<S..<<>> l975 77. These inluetians <<ne cau>aal I >'n<aaxl n>r<ry (a><ea>>>><a a>>al thc laeL of e))4<xi on <essa>noble trina>>. 'I he>r <a<<Inc<i<<na inaluda'he elimi-naii>n i>f fiac I <a>I>aa>>eai ne>> rene<a>g in>i<s <<hia'b wnuhl Imre piu. rid<J an aaMi<ia>nal 4,K>)t<<KK< Lw <<f gn>craiinr eapvei<y: the Jefc<ial of each of tlc lii i.I of <le 4 p< >1>>>>cd 900.<KKI L nu )ra< f cled 0 5 .55 A 5 55. I'>a>a< ('aa>ii C>>an >ri An. <>v.la>>a a><. r>>va>. i >. <>5<<. aa>> laa> ~, a<)555 ~ 55>>>>rv<>s I<<a>>>>i 's, ~ Via>v>55<>4 0;ara<v> )i <r))> <r<< iri) <a<) <r<< )<Is) 1>n'ii )ilsl n>i ii )aav< s)on )ia>5 ))i< ini) i,rs iai ),<s ) ~ 'a ) ii <DS <S) <.Vr i sv i I) )ov ini ).)s ) Oi ) >4 A'SSI(r I'ltnl'I'II'lW: PrO f>i<i<<a lnnr trim <Iebi nl 5 I ~ I ><5,42<5.. 654 is all (ii>>t inv<igvgc airl>< c>>ecpt for $ >>t<,2<K<I)7$ uf ni>tes p I)able. ll units of thc She)ion Hat<is Nuclear Po<<vr Plant by app<oximstel> l55 ycais and the fovtth unit by two yeats and thc two year de(cital o( thc720000Lw coal fired koxbvio Unit No.4. In January l975 thc company Issued $22.)Ã,(XOo(liist mortgage bonds piirstely and sold puMicly4,000,000 )lasses of common nnrk fvr $56000 000, and in hIa <eh l975 Ihe corn(>><ny sulJ publicly 2000.. 000 shares of piclc<enee stocl; fo< $47.900,(00. Thc con>psny picsently estimates thai it will nccd addith>nally app<n>>ima<dy $50<< 000.000 of tl>e fund>> <equi<cd (oi thc l975 cons<rue<ion pi>>gism finni long teem suuices and <<ill issue see<<silica laic< in l975, thc <ype. amount and tin<in(, of <<hich willdcpcnd <<pain nia<Lct e>>ndi<h>ns snd Ihe needs nf Ihe cnn>pony. I'nr fnr<hrr infuimnih>n n>narrnh>g il>r uprraih>ns i>fCundina Pu>><<r >1 I.istu Ci>n>pan); Inrhadnig rrrrnirnir tnrrrn<r apphra<h>n>. plr<>>>r r<msnt< ihr IS>rd Inn>n>r Inan<ur da<rd h(arch a. (Prs, April 12, I97$ Piige 71.1 Standard 4 Poorts Corporation, The Pixcd Income Investor, April IZ, 1975, page 7vI3. ra ~ ~ V, e ~ e e Page 66 hier)go(>> debt is secor>>J by ~ (erst lien on all cifthc ps>>cecil prupcrties of the cocnpsny. suhjccl io certain rxcctctivns. 'I'his issue <<ill a)sce bc entitled 'tv lmpriivcment and hgaintcnocccc oml Rcpbccmcnt Funds. ln sJJitiun, i(, dudng any 12 invn(h pcsiccc), property ic ciicpvsrd of by order o( vr <>A thcrcfvr. thc ccencpsn> mud apply such price>>cd) lo the rctircmcnt uf bonA, Pso forms mortgage debt will equo'I 54,6% and total Jcbi 56.9% nf nct plant. Total debt will equal S4.7% of capita)isation. Dared on shr s<<ibisi:aii in offired rhosge o>>J pending ruse relief, we hair mnc>>seri>>ed o<<r -vt"sari>>g a>> the fiess hfossg<<ge ho>>ds ofCarulina Po cere d Dghx PHII.ADEI.PIIIAKI.ECTRIC COMPANY Obeying $65 MillionBonds ~ ~ n April 2). )97S, Phibdd phis FJ>>ctric Company pbns io olfcr at compcditivc bidding $65,000.000 of First S; Refunding htvrtgsge Bonds, duc April 15, 2000. Also, on os about April 22. 197S, th>> company plans io sell 4.010.000 shares of common stock Iapproximatdy $4$,000.000) through underwrit>>rs heado) by Dsexel Burahsm Zc Co. and Thc First Boston Cosporsii>>n. Thc sales of thc nrw bonds and odditionsl common stock arc scpsratc transactions, and neither is coniing>>nt upon thc other. The new bonds will be protected against low>>r interest~st refunding prior to April 15, 19fO. Thc nct proceeds (rom boih sales will bc applied to ihe partial psymcot ol'hor t term debt incurred for interim financing ofthe comp-anyy's conor>>dion program. Such sbon term deb( wss 5) Ol mB)ion on Mascb 21, 1975. Capital rcquircmcnts for 1975 arc estimated st $502 million. of which $4)0 million Is fos construction cxpcnditvrcs and $92 million for. bond maturitics and sinking (unds. Of thcsc requirements. about $ )45 million is expected to be supplied from internal sources and ihe remainder (rom ih>> sale o( debt and equity securities and the usc of short. term debt. Total capital rcquircmcnts for th>> years 1975-1$ arr cstimaicd si abovt $ 2.3 billion, consisting o( about $2.1 bB)ion fos construction snd $231 million for sinking fund payments and bond maturities. Thc company estimates that approximately $550 million, or 36% o( these capital requirements. <<ill be obtained (tom internal sources and that approximotdy Sf.S billion,or 64%, <<ill be obtained through the sale of debt and equity securities. subject. howcvcr, to certain earnings lest rcstricdons in thc cocnpsny's mostgsg>> bond in dcntur>> and other considerations. PhBsddphis Electric provides clrctric. gss snd stcam service in southeastern Penn)>lvsnis, snd subsidiaries provide>>le<<tric service in two eovnties in northeastern hlar>)mid. The total airs scrvcd by th>> company and subsidiaries covers 2.415 square miles. Approximately 9S% of this arcs is in the suburbs around Phibdclphis snd $% within the city limits. The pop<<brian o(thc arcs is about 3,900.000. induding ),950,000 in tbc City o( PhibJc! pl b. Electric )civic>> psv idcd &92% ofoperating income fos thc year 1914, snd gas ond steam provided the balance. During

1974, duc tv the national energy criYir, thc company cxpccicnccd some cur tailmcnis in iis ciintrsctcd (vcl Jdivcries from suppliers ond sul>itsntbl increases in thc prices of ail fnsul (uris. The company is continuing to supply its cvetvmcrs'ull electric scqvirc.

ments st ps>>erect hvi ie eumble tv prn)c 't what imp>>d I'vel shortages and price increases nmy have nn iic f<<tuse operations. Sul>jcct to ihc avaliabiliiy of the various types of fuels snd tn other cvndngeiicies be. yond thc company's c>>cntev). tbc company's clcctric nut put (ns 1975 is expected iv le>>obtain>>el (ivm the folio<<ing sources: 21.c fcvm nil fired yeneradon, 19% (inm scsvie>>: arcs e>>ec) fir>>J gcncraiinn. 15% from mine.mouth generation;1$ % fsum nvcbss capacity, 4% from hydro parity, 1% riven intcrnd coin)Netnm ond 22% frliiliilie I ainsll voi 'cw Jrrscy hlor>land bicrcnnnccthin(I'Jhtl lhcc>>cccclcsny is un>>)4>> lv predict the el(crt thai furlpinldcms iifothrr mein)vers of ih>> PJhl nmy have vn ihc sv>>ds)cc)ity nf Pvrchae>>J clcdric energy (ioni thol svvrrc. I'rvvidcd tlist prevent I'IiAnllvcativn pvlic>>ee arc nnl materially chan(cd, ihc c>>cnepsny expects thai its vi'I Jclivcrics through thc rennin der v(197S willmcct its projcctcd sec)uircnecnts. hc coinpony hsd a cvsl inventory nn hand at the cml of January 1975 nf apprvxinistcly 6)tt,000 ivnc, w)sich represents opprvxincotc)y a 9gday supply (vr thc Philaddpicis service arcs units currently burning coal. In addition to shortages of ncw gac supp)ice, th>> com-pany is cxpericncing curtslimcnt o(clclivcrics under existing contracts (rota its pipeline suppliers. Thc current lcvcb vfpipdinccustoihncnts, >>vmbincd with rcdvord ddivcrirs of psopsnc, scsubcd in thc cui-tagmcnt of firm contract gas to fvnr nmjor inJustrisl customers be-ginning carly in January 197S. Dclivcrics to intciruptib'Ic gss cus. lomers werc disc>>entinucd on Srpiembcr 3. 1974. A I'UC order presently in effect ProviJes that no public utilityvarlet itsjurisdiction may accept sny additional gas soles conuniimcnts unless il csn be shown that ib gas supplies src svtlk>>cnt to mcct the future rcquirc. ments of its exiding customers. Breed on present and anticipated I>>cd)sofcurtaileddclivcsiesfroni suppliers,thceompsnycanmakcno commitments of ad Jitionol gas to any mieing customers nor accept any new customers. The company docs not expect svpplirs to improve appreciably in tbc immediate (uture, nor cs there any assur>>sec thol dclivcries ioit moy not bc further curtailed. The company is regula)cd by the Pennsylvania PUC and thc FPC. On Janbary 3), 1974, ihe company (J>>J with the PVC for a $ 136 million inetcase in electric rates for all dssses of customers to bc-comc dfcctivc in three parts. The PUC permitted thc first port. which incr>>a)cd annual revenues by approxinistcly $24 million. to go into clf>>ct on AprilI, 1914. Subject io possible refund <<ith intercity The re-mainder of ihe requested Sl)6 mi)lion tate increase was xucpendcd for thc maximum statutory period. until December 31, 1974, On January I. 1915, the $ 112 million suspended rate incrcssc became clfectivc by operation o( bw, subject to possclelr refund with i>>iciest upon it)uanc>> of thc fino) order. On hlarch 25. 1975, the PUC announced its Bnsl d>>>>is)on approving o rate increase of $ 105 milli>>.The corn. pony estimates that excess revenue co))ected from January I, 1915, through hlasch )l, 1915, <<ill amount to SSJI million, which <<ill bc rcfundcd to customers with iaterest. Over. aceeecccc tMa. S) heel. tecwec tMl.5) )lice) Csecsc Ceeceeln hfc lececec 1 eeec Sci. Ceeccc. Ce. ~cL )eceuu Tecce Tree Eecte40eceeetcc)i IV)l tv)l t))) t))t ie)0 )pits) )ssxa ss)sie cot.l) socsT'ceJ>> ltl.ss Iss.)s " Iso.sr r)sJ) 1.)e ~ Lis I.)< rgl 1st )a) L'vo Ls) )sss t.cs L4) ASSET PROT)!CTION: Thcsc new bonds will bc secured eqvs)ly and ratably wit)c $ ),473.500,0sO other (isst mortgage bonds now outstanding by s dircd first rnortgsfc lien on substantially all vf the company's property. l'herc is also $) IS.2)2 000 other Iong term debt outstanding. Folio<<ing this dual financing, cnvrtgsgc Jest wi)l cclual 45.2% of net utility pbnh whi)c total lnng term Jcht <<ill rrprcccnt S4.4%. Thc long terni Jcbi tv capiialisatinn ratio <<ill bc 53.5%. 7he ec>inpung's ficeJ el<<iege coverage h<<c Ji c'Iuii'd so o s<<his>>>> Jeer J In8 f<<r ihe pre)em)y ocsicurcf rai<<ig euiegvry. Ilccccrvee. seer<<ill grec>>srJ euie reliefshun!el Iei<vrme>>sin/i>>one<<J pnrcemesees I>> she fuse ee. et esus Jc'>>gle. ~ r uc e prese>>sII mcu>>suc>>ing mir".4" sciis>>g are I'hJ<<delphhs Ayre'srie's hfsss u>>il Itgf<<wli>>g h(assguge Irc<<cJc cmd hnve susnf shfs b)<<e "d." Page 744 Standard h poorss Corporation, FIXED INCOME INVESTOR.. I The Fixed Income It)yester, Aprillks 1975, page '744. s 9 t ~ ~ ~ Page 67 'Silt Deal At>>eeet Dair Iieueg Mlhg ~/IS

• AA 200.0 4/IS AAA 100.0 4/15 BOB'00.0 4/l5 Ah ILS 4/IS AA 0.0 4/1$

888 5(LO -.4/ii AA SO.O 4/IT 8BB 500 4/IT AAA 604( 4/17 A l(XLO 4/17 A )004 4/IT AA SOSI 4/17 A $ LO 4P) AA IS 4 4P) 888 40AI 4/22

• A 120 4/22 A

SS 0 4/2$ AA 'OOS) 4PS 8 750 4P3 A 454 4P4 AA )004( 4P4 AA 5(LO 4/24 A )007) 24 8 3(LO 4P4 A IS>>) 4/25 A 40> 4/15 A 40.0 4P5 A 4(LO RECENT C )stot So>>lb C tet(at ntn TI(tub>>et Co Iiibteiermi/I/lulu Sot tb I;to (ial (ttII1 t(trit>>etCo k(ett<< 4/I/ Isa ) Wi(barns I'oelpieitt Nein. 4/I/tsx) Oak\\a)tlat A OllARaaear Vttmp.Tieu g-)/i..ilIlie)6-90 Sot(atra i>>die>>a Cee A k)tttrkCe ViiitMar(eeet, 4/I/Itg) Tbt Lrerfi C ~, Netet 9.7/a. 4/1$/I'9$$ Neub (ahois Cas Co. ViiuMigc 4/I/itg) Uaitrd'Itttrommeeicereies loc. Utbtetern. 4/IS/1000 Satiric ~( ~ tie>>alt its L)trsews de Itffix>>cab Ceai aat tv i Nein. 4/1$ /1940 Ueati Airrratrcorp. S,V. Drbteterts 9.7/1,4/l5/1000 UoittdA(ttrattCoil. P(otte9, 4/15/IsaS OL(t)iooa Cai A f)rciricCa. Pt*S(oct(St(Oper) Barite Corp. S.f. Dibteieiti9-7/4, 4/I/2000 Her(et) 4r )Vest(ra Reit>>a)Co. f>>rttp. Trait '9, S/ I/I9)6-90 Apse(acb(ta Po tr Co. Vira hkgt. ) I I/4.4/)/)9$$ Traeiox I'iprther Co. First blitt. Pipe )Ser, 11/I/I'940 AU>>aiie Cay BicirieCo. )kithtigc 5/I/l)$$ le)rite(i Read lec. Notre I-S/4, 5/I/1955 Occi4ieia I'tire(tem Cerp. Cws. Ptd. St(. 0 iuar. ie Pur. Cata. Pbtadttpatt k)tcidc Co. fiiixCr Rcl. hligt. 1(.5/g. 4/15/1000 QnrittiBtrri(rit(em(earing C>>. fbsihlitt 5/I/20lo cine(sad Istrtrtc tttemiasuag Ca. )list hltgt 5/I/l9$$ Ca(sties I'teer 4'ira( Ce. W)ist hi(St 4/IS/)9SS )loeuoa OR di hibwrala Cotp. Ceat. Sea. Dtbtare res 3II5/199S Cetera) Tel tracer Co. ~Itbt ht btetii Cem. Pt(.S(erL (ao ptr) LaerS(sr Cti Vo. S.f. Utbiniecri, 4/IS/2000 Loot Siar Csi Ce. Cew. I'ti.S(L.(>>oper) Sooiatsit nieiaiee Corp. Noire, 4/15/l 963 NC42; )00 104 tA ttd)5 )00 9.944 NC4I; 100 BS NRCIi100 NREM( to%50 t)P ~ M25 9 ts NRM(IOLSga 997$ t3 NCW: )00 100 tAS NR40; 99.75 t 90 NR45; to(412 NC 7~M NXL65 ILO )00 t1 100 MS NR~; )0(P7 NR40; NR40; IOUS NCW; 250 (Sl par) 101 )LO NCOO; )IS HR40; tAS NR40; HC40; NR45; 100 99.75 11.0( 100 , 100 NR40; NR40; hOR)l ORI'OltATE OF&eER 1N(N Orig. Ytttd Catt Act Pt>>L )00 'l NC40; )00 100 SS NGOO( IOIAT 200 )425 NC4I(100 7'-t. 14 Nc C/N PrMag N Adtqaett N He Cocttt(ee 'H C H N Sadi(a(tory Adtqea(t C Adtqea(t H At(ra(de t N Serb(actor) N Sedilactery N Soda(acta(7 N Soda4ctary C Adtqaet t C Ho Coot(ca'w ~ N Sadilsctory N 10th N Adtqastr .H Adtqeatt N Anrscdic N SaU(teetery N Adtqeatt N Aursct)tt C Sade(ac(ory N Hs Co>>castles N Aieqastt H Rnitiitd Oe I'egt 779 762 ~ 761 031 $71 74$ $41 734 764 744 gcncrst rate rciic<. These in(erin( inc(cases are ncedcd io meet ihu in. tcrcst coverage rcquircnients of thc company's dcbcntuto indcnturc. During l974 and Ihc toter patt of 1973. Ssn Diego f34:E experienced In<<er fust oil requircmcnis than sniicipoicd as a rcsua of increased availobiiiiy nf lower cost hydroelcekic po<<cr from the Pacifi Nor(i(<<cst. custonicr enetgy curtailment and warm <<gather. Thcteforc, some of thc undelivered fuel oil already contracted fur was in cxccss in current needs snd storage capacity. This nil wss sold at a profit, Ibus avoiding ihe nerd to i>>Lc the nil under taLc.or pay eonttaeis ond reject less expensive natural gas and us(plus h)drockctric po<<ur. Wo such soles have occur(cd during 1975, and none sre eurtrntl) cxpcmcd. Ttueec>>t nett>>ter ) I 't)C ltl) till it)I ills Orti. nnieeii(l(AS) ltt.'la )ll.li te)S() ill.ia IS) tc ore<,Inst(XQ ll )a.at t).0) )t.)) ))so )lA) Intd eau(i eeetitrt Ari.Ier. liwi 10) ).ic 1)i )S) )SO att. C'eeui. C'i.. Lii )SO ).I) ~ ).)S 2.)) el.,'I l.ll i 75 !at I>> l. ASSI;Illnl'IIC.I'ION:ll'infur<<is iuar. (crui debt (51.4% iifestd. tati(stion) sill consist iif$ 1(i),3lq (XX)lira( nisi(gape lmnds, $3/ XBT; 000'unLing fund dclirn(utes snd $3 0$6.(xX) other hing term ilrht. Mortgage debt constiiuics 4 valid firstlien upon all property and fran. ehises n<<ned by the company, subject to permitted exceptions. These 540,000,000 bonds <<ia slio he cntitlcd to ~ mainicnsnec fund. Pro forms morigofe debt <<(71 equal 51.3% snd toto) debt 55.27>> of nct plant. /(asrd on thr /rvr/ing ojfoffiredrharge rnivragr ar a satisfar-rory /rvr/. <<v arr niahi(sining our "vf"raring on rhrfirst ntor(gvgr bonds ofSan f)irgo Ctar d l7rr(rir Coiiipany. SYDRON CORisORATlON Tra-Year Nrsfes Ogrred E o early Msy, Sybron Corporation plans to offer 535.000,000 in Nuics due April I. )9$$. Thc notes sic'roiectril sgsinil la<<cr in. telex(mist refunding ptiur to hpril I, 1955. The emnpony intends Iu uic npproxiinsirly SIS,(XO.(XXI of (he nci proceeds from ibc sole iif Ihc notes to repay (be outstanding. imlciuucix under thr tvvnlvnig credit ogirrnient. Tbe rent>>indcr uf Ihc nci piuicnis <<ill lw uxnl fur ycneial eiirpurstr ftirleiiex,iaxqudinp <<xuhing c'spital rrquiicmcnts. S)'lift<<l nlollu(sr(Utes anil sell+ uii s <<nrtdwute luiis. a iliiei siiied linc nf cquipmrnt snd suiqdies <<hiai fail into four prini'ip.ilprie(net ~ ress: he>>a(i products fiu i4:niists, physi(i>>ns, iiustqt>>lt, snd bien>>. (uric); inskumcnt>>iiun syiimns and cuuipnicnt; process anil <<.itcr/ wa~te equip(urn(: snd xpcii>>lilyebeniiea la, 1'he ennipsny is ulgs surd Aprd 20, 1975 Page 7IS Standard,h Poor's Corporation, The Fixed Income Investor, April 26s lct7.)e page 715. i'

c. ~ ~

~ i ~ COVERAGE OF FIX D CHARGES FIRST MORTGAGE BOIID OFFERII.'GS OF ELECTRIC UTILITIES BY RATIIIG CATEGORY 1975-1976 PeGe 69 Date of Offering of Rating Change 1975 Ca lhpOhg Moody's Rating Ratings Paintained at A by Moody's and A by Standard & Poor's Standard & Poor's Rating Covere33e of Fixed Cha.ges After L".co=e Taxes Before Construction C:edits Last twelve months axmDable at date of offering or rating change 1/14 2/ll 3/IS 3/26 6/19 7/ 2 7/10 8/19 8/2o 9/25 9/23 9/24 10/ 8 10/15 11/ 6 ll/19 1976 Delmarva Power & Light Company washington Vater Power Company Rarregansett Electric Company Metrop. litan Edison Company l~anongohcla Power Company Delnarva Power & Light Company South Carolina Electric & Gas Company Dayton Power & Light Company MInnesota Power & Light Company Metropolitan Edison Company Mt3ssachusctts Electric Company Potonac Edison Company Toledo Edison Company Pennsylvania Power Company Florida Power & Light Company Utch Po~er & Light Company A( A( .A( A( A A A A A A A ll/18/74, 1/27/75, '2/24/75, 3/lo/75, 6/ 9/75, 6/16/75, 6/30/75, 8/II/75, 7/14/75, 9/ 8/75, 9/ 8/75, 9/ 8/753 9/29/75. 9/29/75 8/25/75, ll/10/75, 2o5) 1696) 15tI9) 1531) 1155 1I26 1074 932) 1017-1018) 844) 643) 845) 895; 729) 628) A( A I A( A( ~ A( A( A( A I A ( A( A{ 11/16/74, 2/ 1/75, 3/ 8/75, 3/15/75, 6/ 7/75, 6/21/75, 6/28/75, 8/ 9/75 7/19/75, 9/13/753 9/13/75, 9/13/75, lo/ 4/75, 10/ 4/75, 8/ 9/75, 11/ 8/75, 262-264) 925) 642-843) 822-623) 598-599) 558-559 54o) 437) 356 I 357 356-359) 307-308) 3o8) 436; 256) 217-218) 1.69x>> ~ 1.92 2.13 1.66>> 2.21 1.89>>. 1.61 2,C9 2.06 2.25 2.78 1.89>> 1.47>> 1.85 1,62>> 2 22 2/ 4 2/17 2/18 3/ 2 3/11 South Carolina Electric & Gas Company Mississippi Power Company Utah Po~er & light Company Virginia Electric & power Company Metropolitan Edison Company /2/ 9/76, 1662) 2/ 2/76, 1685-1666) 2/16/76, 1641-1642) 2/23/76, 1618) A A A A A 1 19/76, 1727-1728) A A A A A 1/31/76, 92S) 2/ 7/76, 914) 1/31/76, 927-928) 2/21/76, 887) 3/ 6/76, 86o-661) 1.S7x>> 1.84 2.24>> 1.62>>' 02 Average - above 21 issues Average - above 12 issues excluding those where significant rate increases are not fullyreflected $.98x 2 lox >>Significant rate increases are not fuily rei'lected Source: Moody's Investors Service, Inc., Moody's Bond Surv and Standard & Poor's Corporation, The Fixed Income Ihvestor3 in issues at pages noted. COVFRAOE OF FIXED Cl ARGES FIRST MORTGAGE BOiJD OFFEBItiGS OF ELECTRIC UTILITIES DY RATIRO CATEGORY lo75-1976 Page 69 1975 Ratings of A by Moody)s or A by Standard & Poor's Just "barely maintained" or in "lower range" of category 1/22 2/ 4 2/11 3/19 4/23 5/14 6/12 v/16 8/ 6 9/23 9/10 . 9/ll '/26 9/18 10/29 ll/ 5 ll/12 ll/13 12/17 Hississippi Power Company Connecticut Light & Po~er Company Duke Po>>cr Company Union Electric Company Philadelphia Electric Company Floridc, Power & Light Company Long Island Lightirg Company Arkansas Power & Light Company Philadelphia Electric Company Alabama Power Company Louisiana Power & Light Company Connecticut Light & Power Company klississippi Power & Light Company Long Island Lighting Company Tucson Gas & Electric Company Central Hudson Gas & Electric Corporation Arkansas Power & Light Company Virginia Electric & Power Company'labama Power Company A A A A A A A A A A A 1/13/75) 1/20/75) 1/27/75, 3/ 3/75 4/ 7/vs, 4/20/vs, s/26/vs, 7/ 7/7> 8/11/75, 9/ 0/75 9/ I/75, 9/ 1/75) 8/18/Vs, 9/ 1/vs, 10/13/75) 10/20/75, A (10/27/75) A (12/ 0/75, 1719 1696) 13)3I '210 1042 931) 040) 075) 910 I 873) 731 )~I 683) 500-510) A( AA( A-I A A-A A A A-A- A-A- AA-1/ll/75, 975) I/25/75) 939-9"0) 2/ I/75, 925-926) 3/15/75, 824-825) 4/12/Vs, 744) 4/26/75, 712-713} 5/31/75, 622-623) 6/21/75) 562-563) 7/26/75, 471) 9/13/75, 357.-358) 8/30/75, 39o-391) 8/30/75, 394-395) 0/16/75, 420-421) 9/ 6/75 373-374) 10/10/75, 274-275) ll/ 1/75, 242-243 11/ 1/75, 230) ll/ 1/75, 244-245} 12/13/75) 120-l21) 1.92x 2.00 1.35>> 1.60 1.48>> 1.70>> 1.66 1.61>> l.47>> 1.85 2.09 1.93. 1.85 1.72>>

1. t9 l,Qx 1976 2/25 3/24 Philadelphia Electric Company Alabama Power Company A ( 2/ 9/76, 1663-1665)

A ( 3/ 8/769 1564-1566) A-( 2/14/76, 900-901) A-( 3/13/76, 836) 1.53x 1 40 Average - above 21 issues Average - above 14 issues excluding those where significant rate increases are not fully reflected 1 69x',75x >>Significant rate increases are not fully reflected. in issues at pages noted. COVERAGE OF FIXED CHARGES FIRST KSTGAGE BOND OFFERII(GS OF FLFCTRIC VZILITIZS BY RATING CATFGORY 1975-1976 Page 70 Date of'ffering of Rating Change Company Rating Standard C Poor's Rating Coverage of Fixed Charges After Ircome Taxes Before Cons = ction C.e"i s 1975 1/14 2/ 6 2/18 2/19 2/24 2/25 2/25 2/26 2/27 2/27 3/ 6 3/12 3/32 3/zo 3/25 4/9 4/15 4/22 4/24 4/29 5/ 6 5/6 5/2o 5/21 6/lo 6/12 6/2s 6/26 7/ 8 7/1V 7/23 7/29 Oklahoma Gas Ik Electric Company Kansas Power 5 Light Company Coamanwealth FAison Company Southwestern Public Service Company Houston Lighting 0 Power Company Louisville Gas h Electric Company Central Illinois Light Company Dallas Power E Light Company New York State Electric h Gas Corporation Citi-ens lltilities Company "Southern California Edison Company Public Service Company of New Hexico Duquesne Light Company llew England Power Company Texas Power Cc Light Company Central Illinois Public Service Company Southern Indiana Gas 5 Electric Company Atlantic City Electric Company Cleveland Electric Illuminating Company Gulf States Utilities Company Cincinnati Gas 5 Electric Company Iowa Public Service Company Pennsylvania Power 5 Light Company Northern States Power Company Texas Electric Service Company Public Service Company of Oklahoma Iowa-Illinoi's Gas Cc Flectric Company Kansas Gas 5 Electric Company Hantana Power Company Iowa Southern Utilities Company Northern Indians Public Service Company Baltimore Gas ds Electric Company Aa ( Aa ( Aaa Aa Aa Aaa Aa Aaa Aa Aa Aa Aa Aa As Aaa Aa Aa Aa Aa Aa Ae, A Aa Aa AAA Aa Aa As Aa Aa Aa Aa 32/23/74, 1/20/75, 2/lo/75, 2/lo/75, 2/lo/75, 2/10/75, 2/lv/vsse 2/10/75, 2/iv/75, 2/lo/75, 2/lV/Vs, 3/ 3/75, 3/ 3/75, 3/ 3/vs, 3/lo/75, 3/24/75, 3/31/vs, 3/ 3/75, 3/24/v5, 3/17/75 5/ll~/75, 5/14/vs, 3/lv/vs, 5/ 5/vs, 5/26/vS. 5/26/75, 6/16/Zs, 6/ 9/75, 6/23/vs, 6/30/75, 7/7/75', v/14/vs, V7-70) 1720-1721) 1652) 36vv) 3656-1657) 1675 1619 1654 1622-1623) 1651) 1623-1624) 1562 1560 1559 1532) 1470-1471) 1430) 3.556) 1469-1470) 1502) 1313) 1222) '221). ll'29-1130) 1153) 1106) 1073-1074) lo46) 1018-1019) Ratings Better then A.by Moody's and A by Standard 5 Poor's AA (12/21/74, AA ( 1/25/75, A ( 2/15/75, AAA( 2/22/75, A ( 2/15/75, 2/ 8/75, 3/ 1/vs. 3/ 0/75, 3/ 6/75, 3/15/75, 3/22/75, 3/29/75> 4/ 5/v5, 3/ 6/75, 3/29/vs'/22/75, 4/19/Vs, 4/19/vs'/22/VS, 5/17/vs'/24/vs, 6/ 7/75, 6/21/Vs, 6/21/75, 6/26.75, 6/21/75, 7/12/75, v/19/vs, AA AA AA A AAA AA AA A AA AA AA A+ AA AAA AA AA AA AA'A-AA 2/15/75, AA 2/ 0/75, AA 2/15/75, AA 2/15/75, 195-196) 936-939) 094-695) 695-Gc6) 891) 875-876) 6~4-897) 911) 862-863 043-644 64o-841 623-824 Gco-Gol 78o-761) 762-763 841-842 779-780 799-Boo) 730-731 729-730 797) 657) 621) 561) Last twelve ronths cvailaMe -at date cf offe ing or rate chan e

2. 57x 3.11

2. C2+

3. Cl 2e27 2.20 1-ssi 2.71

2. C6+

4.02 2.79 2.07+ 1.66>> 2.69 1.93" 2.95 1.8o>> 2.CO 1.93 2.05 2.02 2.02 1.83>> 3.co 2.67 2;14+ 1.79>> 2.35 2.24 1.74+ 1.82 COY let/LCI'. t>Y Ylxgl>.t:llhltllVG FIRST NNTGAGF. BOND OFFERlttGS OF EliCMIC VZTJ>ITIES BY RATIRG CATEGORY 1975-1976 P.'Cc 71 .Date of Offering of Rating Change Company Hoody>s llntfn> Standard C Poor>s Rating C"veregc of Fixed Charges Af er L-.co= .<<x s Befo. c Construction Credits 1975 (co'nnnnued) Ratings Better than A by Axe's and A by Qtnndnrd g Poor's Last tt>elve months available at date of offerirg or rate chan e 8/ 4 8/ 7 8/ 8 8/12 8/13 9/11 9/30 10/ 1 10/22 ll/13 11/17 ll/18 11/18 la/ 4 12/ 3. Ia/10 1976 1/7 1/13 1/20 1/28 a/as 3/2 3/3 3/4 3/17 3/24 Commonwenlth Fdison Company Public Service Company of Indiana Indianapolis Power A Light Compnny Southwestern Electric Power Company Hisconsin Electric Power Company Indianapolis Power l> Light Company Commonwealth Edison Company Pacific Ges 6 Electric Company Public Service Company of Colorado lhdison Gns 6 Electric Company Commonwealth Edison Company Pennsylvania Power h Light Company El Paso Electric Company Hew Bedford Ges h Edison Light Ccmtpany Iova Public Service Company Heptane Ptnter Company Rew York State Electric 5 Ges Corporation Oklahoma Gns Cc Electric Company Texas Power O'Light Company Gulf States Utilities Company love Power C Light. Company Texas Electric Service Company Southvestern Public Service Compnny Public Service Electric E Gns Company Southern California Edison Company Iowa-Illinois Ges g> Electric Company Ae Aa Aea Aa Aa Aaa Aa Aa Aa Aa ia/22/75, 12/15/75 1/12/76, 1/12/76, 2/16/76, a/16/76, 2/23/76, 2/23/76, 3/ 1/76, 3/ %6 Aea( 7/20/75, An ( 0/ 4/75, ha { 9/ 1/75, Ae 7/20/75, Aa 0/ 4/75, Ae 9/ 1/75, Aae 7/FA/75 Ae 9/22/75> Aa {10/ 6/75 Aa (10/27/75 'ea(ll/10/75> Aa (11/ 3/75, A 11/10/75 ~ Aa ll/17/75, A 11/17/75> Aa 11/a4/75, tg')lt) 950-951) 072-OI3) 97 ll/15/75, ll/ 0/75, ll/15/75, ll/22/75> 11/22/75, 12/ 6/75, 12/20/75, 12/27/75, 1/17/76, 1/17/76, 2/14/76, 2/21/76, 2/28/76, . 2/28/76, 3/i3/76, 3/13/76, 470-471) ~ 455) 395) 407-488) 434-435). 395) 470-471) 322-323) 290-291) 243-244) ice) 216-217) 199-200) i77) 176-177) 138-139) 108-109) 94 95) 960-961) 961-963 965) 901-902 885-087 873) 872-873) 830<31) 833) 1 9>x+ 2.18+ 1-77>> 3 31 2.54 1.77>> 1 98 1,$ 0 2.20 1.76 2.04+ 1.82 1.84 1.50>> 2 23 2.13 2.02xs 2.21t> 2.14 1.77" 2,50 2.48 2.54 1 84>> 2.27-2 Q22 A COVERAGE OF FIXED CHARGES FIRST HORTGAGE BOND OFFERINGS OF ELECTRIC UTILITIES BY RATING CATEGORY 1%5-1976 &te of Offering of Rating Change Coi~ny YBody s Rating Standard 5 Poor's Rating Coverage of Fixed Chmges After mco"e Taxes Bef'ore Con"truction Credits Ratings Better than A by cbody's and A by Standard ds poor's Last twelve nonths available at date of offer ing. or rate change Average - above 58 issues 2.20x Average - abave 36 issues excluding those Were significant rate increases are not fbllyreflected <<Significant rate increases are not flatly reflected. Sources fkody's Investors Service~ Inc.~ Redy's Bond Surve and Standard 5 Poor's Corporation, The Fixed Income Investor, in issues at pages noted, Offerirg Date 197r4 Amount in )!Illions OFFERING YIFLDS OH <V<FJti Y-ISSUED EleCI'AIC Ul'ILITYEollDS RATED Daa DEDT WITH A NATU!tITX OF TEll YEARS OA LESS JUIE 1%it! - F-"MUARY 1976 Corpony ~ Q ] Page 73 0'<g J rt 15 c!: e>>) tr Q Cc="ber 17 Cc="-ber 29 GctoJer 30 hove-be 7 F!ove ber 19 I've"ber QO $ 60,0 IM.G 50.0 25.0 30.0 2).0 30.0 125.0 40.0 I!oat.nrt l.ttr.s, n Co,,otry Du'.<n !3;.!:cr t:ore! ny Dctro'Hison Corzpt!try Public Service Co. ol'cv Hampshire Ohio Poi"er Compar.y Jersey Central Power & Light Company Pugct Sounrl !'or:er 'ight Compary Florida Porter & Lignt Company Portland General Electric Corpany ":/-')/r9

./ I/7

lc~/IS/"1 11/ '/79 il/ 1/.-3 ~ 11/15/ol 11/ 1/GO C ~ 2 ~ 'Je /J < ) 10.70 10,50 1975 Average for 1974 - 9 issues ll.BPg r t Jt>> <<y 7 Jan a~' Janu=y 9 Ja->>my 9 ~ Februwy 19 5"ch 5 22. . A>rQ. 24 May 5 ,May 19. Ju e 5 ~ t>>e 10 Ju"e 18 July 1 July'9 August 7 Auo~ast 14 Auomst 21 Sci:tc=bcr 10 October 2 October 16 October 29 December 2 Dncnmber ll $100.0 50.0 10.0 10.0 100.0

35. 0 4o.o 40.0

. 100.0 4oto 50.0 75.0 Go.o 27.0 50.0 75.0 35 0 75.0 45.o 30.0 = Go.o 20.0 15.0 25.0 6o.o 75 0 i ~ Philn!lclphia El!.ctric Company Detroit Edison Company orange & Rockland Ul,iiitic", Inc western V~iss. Elec'ric Company Arizona Public Service Company Jersey Central Poi'er 8! I.ight Con@any Portlnrd General El<:ctrl c Car!pard AI>polachion I'over Coripany Carolina Poircr & Light Company San Diego Gas & Electric Company Appalachian Pouter Cot'any I Arizona Public Sert icc Company Iong Idion!I Lighting Company Portlrnd Gcreral Flcctric Company Colmbu & Scuthern Ohio Electrio Company 'onsuracra Porter Company Jersey Central Poitcx & Light Company Ohio Electric Corpany Pennsylvania Electric Company Puget Sound Porter & Light Company 3rd <at!a & ".*c'.ilo"n.".Icctric Company Brockton 911son Cottony Public Service Company of Nett lfampshire Ohio Porter Company Appalachian Porter Corrryarry Indiana and Michigan Porter Company Average for 1975 7/lc/F 1 lliS/-;2 I/i5//2 1/ I/82 2/')/82 3/ 1/--=- t./ I/o2-4/ I/=3 4/15/84 5/ 1/82-5/ 1/82 6/ 1/Go 6/ 1/83 6/ 1/85 6/ 1/82 7/ 1/Bo . 7/ 1/85 8/ 1/03 8/ I/Brt 8/15/85 a/r IF!3 6/I/85 lo/15/85 ': ll/ 1/83 5/ 1/84 26 idslled r /0 ~ />> )<~ </ 10 /Ji \\ J ~ Q'P ~ ~ - ' L..Q'0 70 11.00 9 '/ '9.4i5 c J' 30 9.75 "10.25 10 75 10.75 10 45 ll 00 11.73 10 75 10.20 .10'0 10.70 10.74%

OFFERING YIEU6 ON NE'fLY-ISSUED ELECTRIC UTILITY BONDS BATED A DEDZ llITH A MATURITY OF TEN YEARS OiN LF...S Jffir '1974 - FRSBUABY197'age 74 Offer Ing Date June 18 July 16 July 24 August 7 August 20 August 21 October 8 October 17 October 23 October 30 November 13 Narenber 20 December 5 December 10 ~ December 12 Amaun in Millions 70.0 35 0 25.0 30.0 50.0 50.0 50.0 50.0 70.0 50.0 60.0 25.0 20,0 50.0 10.0 Conpany Indiana h Michigan Electric Company South Carolina Electric lf; Gas Company Narragansett Electric Company Rochester Gas Cc Electric Corporation ,Potomac Electrfc Power Company Consumers Paw r Company Niagara Mohawk Power Corporation Philadelphia Electric Company Pacific Power f Light Company Louisiana Power 5 Light Company Arkansas Power g Light Company Kansas City &war 5 Light Company Nevada Power Company Sen Diego Gas g Electric Company Pennsylvania Po~er Company Y~turity 6/ I/1992 7/ I/79 8/ 1/GO 8/ 1/83 8/15/Gl 9/ 1/82 10/ 1/Gl 10/15/GO 10/ 1/83 11/ 1/Gl 11/ 1/81 ll/15/81 12/ 1/84 12/15/79 12/ 1/81 Average for 1974 << 15 issues Offer<~ Y 9.26$ 10.50 10.35 10.75 10.75 11.15 12.60 U.. 00 9 C2 9,30 9.00 8.875 10.875 9.30 o.43 10.21+< January 14 January 22 January 22 January 23 February 4 March 18 March 26 Hay 14 June 12 June 18 July 7 August 14 August 20 August 26 September 10 September 11 September 18 September 23 September 25 October 15 November 13 30,0 30.0 14.0 20.0 85.0 15.0 50.0 100,0 80.0 50.0 25.0 45.0 20.0 -50,0 50,0 50.0 90.0 40.0 45.0 25.0 60.0 Dclmarva Power 8 Light Company Columbus lf; Southern Ohio Electric Company Mississippi Power Company Hartford Electric Light Company Connecticut Light 5 Po~er Company Narrngansett Rlectric Company Metropolitan Edison Canpany Florida Power t Light Company Lang Island Lfghtfng Company Columbus ltd Southern Ohio Electric Company South Carolina Electric S: Gas Company Pennsylvania Flcctric Company Central Heine Power Company Nfegnrn Mohawk B>wer Corporation Louisiana Power t Light Company Connecticut Light gi Power Campany Long Island Lighting Company Massachusetts Electric Company Metropolitan Edison Company Pennsylvania Power Company Columbus g Southern Ohio Electric Company 1/ 1/83 1/ I/83 1/15/82 1/ 1/82 2/ 1/82 3/ 1/82 4/ 1/83 5/ 1/84 6/ 1/83 6/ 1/82 7/ 1/84 9/ 1/84 8/15/84 9/ 1/85 9/ 1/83 9/ 1/Bl 9/ 1/84 10/ 1/82 10/ 1/85 ll/ 1/4 11.00 9-35 10.75 B.c5 9.25 9-50 8.96 9-25 9.27 9-375 10.75 10.65 10.625 9 875 10.M 9.875 9.65 9,65 9'5g Average f'r 1975 - 21 issues 9 Q5

Page 75 Offering Date OFFERING YIELDS ON NEMIY-ISSUED ELECTRIC VILITY BONDS RATED Baa DEBT ARITH A HATURITY OF MORE TRAN TEN YEARS JUNE 1974 - FEBRUARY 1 6 Amount in Millions Hatur i.ty Offering Yield May 1 July 1 'July 23 August 21 November 20 November 24 December 10 December ll g 60.0 75.0 100.0 30.0 75*0 100.0 50.0 50.0 Pacific Power )): Light Company. Consumers Power Company Georgia Power Company Puget Sound Power )) Light Company Arizona Public Service Company Georgia Power Company Detroit Edison Company Portland General Electric Company 5/ I/1990 7/ 1/2000 8/ I/2000 8/ 1/2005 12/ 1/2000 12/ 1/2005 12/15/2000 12/ 1/2005 10.7'1.50 11.625 10.45 10.70 11.75 U..685 Average for 1975 - 8 issues ll 3Q 1976 January 21 February 18 75.0 60,0 pacific po~er 5 Light Company Jersey Central Power ))c Light Company 1/ 1/2006 2/ 1/2006 9.%f 9.60 Average for January-February 1976 ~ 9 75~ Source: )body's Investors Service, Inc., ))oody's Bond Survey, March 1, 1976, page 1586 snd corresponding pages in previous issues. m ooO

CAROLI?lA PGllER g> LIGlK COMPANY CG7ERAGE or FIXSD CIIARGSS 1968-1975 rage 76 Znecne available for fixed charges be.ore taxes Less: Inec=e taxes B 19(4 5 62,532>000 22>513>000 I&i9 I9,0 10,920,000 0,289,009 $ 64,731>000 $ 57>071>000 1'j71 y" 83,401,000 14,320,000 26,378,000 10>791>000 879>000 $128,620,000 $133,444,000 +49,686 000 1%5 @17s 013> 000 25,436,000 incone available for fixed charges after taxes C Allovs"ce.or funds used during corstruction D 40,019,000 2,927,000 45,011,000 4> 397,000 40,712,000. 10>505>000 69> 073 >000 14,700,000 102,242,900 24,759,000 12 ->f'53>ro ~ 148>807>000 38>oo3>OOO 54>609sooo 191'77> 000 59>957>000 Income available for fixed charges afte'r taxes before construction erediti 37,092,000 41>414>000 ~ 38>277 000 54 365>000 = 77>483>000 04>560>coo 94>198>000 131>620>000 Total inta=est charges 14,0C6,000 18>427>000 23>957>000 31>599>000 41>713>000 56>654>oco 76>536> 89s955>000 TL.es in:crest earned before taxes ~ (A s 7) I s ) T~s interest earned after taxes (C a F) Tines interest earned after taxes be ore construction crediti (B v r) 4.46x 2.86x 2.65x 3,51x 2.49x 2e25x 2.30x 2.04x 1,6o 2.64x 2.19x 1+72x 2.45x 1.86x 2.36x 2.16x 1.49x 1,96x 1,94x 1,23x 2.41x 2,13x 1.46x Source: Computed from data in Carolina Poxer 8 Light Company> Annual R rt 1974 page 26; Standard 8> poor'e Corporation, The Fixed Income Investor, April>12, 1975,'page 743; In er F nanc a tatemente> September.30, 1975) December 31, 19754

CAROLIIV. F7':ER 5 LIOIIT COIIPAIK COlIHJTATIGI OF TIIZS BACKREST EABIIFD AFTER IllCOIE TIGRS mQI COST RATES FOR CAPITAL AIID CAPITAL STRUCTURE RATIOS Cost Rate Capital Structure Ratio Component Common equity Preferred stock Connon equity and preferred stock

14. 5Q 0.01 33.4W 15.01 4.84(,

1.20 6.04 Debt Total capital Fair rate of return on total capital 7.74

51. 59 3.99 10,$ 7]

Times interest earned after income taxes 1 Cormoncnt for cocoon equity and preferred stock plus c onent for debt mponen or e Rate of'eturn on total ca ital mponen or e a 10.OFT

\\ page Q October ).')7'I+ Sl 8 ~ MoodJls Bond Survey Federal Agencies Noorlyts To Assign . Ratings To Profer red Stocks Moody's Rndng Policy'tcvlcw Tlnatd has decided ln t tend its radng service's to Inrlmlc qilalilv dcclgnantnlt> r... prcfcrrcd ctocks as of Octn&r

1. )97't. Thc drtlit >n to rate preferred stocks, <<hich hiondy'c had t)one prior li t>t35>,

wac prontptcd by cvtdcnrc of Investor interest. hiorxlv'c lx lievcs that its rating of pmfrrrcd rttxks ls cspcclaOy appl~ priate in view of thc ever.incrraiing amount of the ~ cc. curlties outstanding. and the fact that rondnutng tl>litttun and its ramifications have rcsultcd grncrally in thc dilution of come of the protccUon afforded them as lrcll ac other fixed.lneolne cccurides. Because of thc fundamental differcnccs bctwccn prc-fcrzed stocks and bonds, a variation OE our familiar bond rating cymbols <<iO be used In the qual)ty ranking of pt>'crzcd stocks. The nclr symbols, presented bclovr, arc dt signed to avoid compariso with bond quality in absolute terms. It chould always bc borne in rrdnd that thc pre-ferred stock occupies a junior posldon to the bond. Preferred stock rating symbols and their defin)donv are as fo))orts l Flnanclng Pace Rom alns Hcavy Ivhdc thcrc has been n slowing in ncw corporate and tax. exempt offerlngl. and Ulc Treasury has not had to burden tbc market frcqucndy, Fcdcral agcncics have been consis-tently heavy borrowcrc. In, fact, the volume oE agency fin-ancingg has been on tbc Increase in rcccnt months. In tbo first four months of tbc year, agency market borrowing was running at a $2.G bdlion monthly rate. But cince hiay the znonthly volume has risen to $3.6 bOlion. The main causes of thc profusion of f)nanc)ng aze the money needs of the housing industry and thc agricultural cotntnuntty. Attracdve market interest rates are causing net outf)ows from thc cavings institutions, which aze thc primo support of thc zn'or)gage market. In August, for cxalnp)e, the net outflow from cavings and loan associationslvas estimated to be $ 1.2 bOOon. To provide advances to SfxL's, the FHLB's have bccrowed heavily, and FNhEA frequently has bccn in the market to raise funds for its lnOrtgagc-sup-porting operadons. The clzuadon has led tbc FHLB's and HqMA to abandon thc)r regular pattern oE quarterly financ-Ing. Instead, these agencies have reccndy bccn tapping the market on nearly a month)y basis. The FHLB's have been thc most active, lcsuing $6.5 biOion of debt in thc last ftvo months, uf which $5.65 bO)ion was new money. FNMA has borro"-.J $3.7 bO)ion over the carne period, zalslny, $1.75 bOOcn 'l new funds. The housing industry ls, of course, a pollticaOy~nsitlvo azca and any sign of znortgagc money drying up produces outczlcs frozn officials. Housing starts were down in August and new permits also declined amid reports that mortgagcs were becondng difflcu)t to obtain. This cuggests that Feder-a) agency support may have to Increase further. Thus, the Federal Home Loan Bank Board has. announced a plan whereby mern'ber S&L's can borrow $2.5 bOiion for futuze mortgage comm)tmcnts, and GNhIA lriO reinstate the "tan-dem plan" <<herein it <<dl be cnab)cd to buy $3 bO)ion of private)yxlwncd FHA incured rnortgagec. This activity strong-ly indicates that borrowing by the agenc)cs to he)p the hous-ing Industry <<iO remain heavy. Borzoidng by the FICB's, Banks for Cooperatives, and Federal Land Banks to aid agriculture ls also gro<<&g. Since tbe Government is acdve)y tzying to boost crop production, it Ic Qkc)y that thc agcncics vrO) be called upon to increase their financial cupport. This month. in addldon to the usual FICD and Coop offerings, the Land Banks have maturiUes to ref)nance, and further borrotrlng by tbc FHLB's and FNMA would not be surprising. Also, thc Student Loan hiarkcting Association (SaOI hiae) announced plans to make their first appearance in thc market On Tuesday, they expect to offer $100 mOllon of cix.month notes. (For a discuss)on of this agency, scc Botm Suave:v, August 6, 1973, page G72). ~tssatt An issue which i~ rated "aaa" Is considered to bc a topqua)Ity preferred ctock. This radng indicates good asset protection and the least zick of dlvldcnd Impairment vdthin tbe universe of pzcfcrzcd stocks. ~tsatt An lscue wh)ch is zated "aa" Is cons)dered a hlgh-grade preferred ctoc) This rating indicates that there is zeasonab)e assurance that carzdngs and asset protecdon will zemain zc)adve)y wc)i ma)n-tained in the forecccable future. ~ta'tt , An issue which ls rated "a" is considered to be an upper.medium grade preferred stock. VtthOC . risks aze judged to bc comcwhat greater than in the "aaa" and "aa" elacslffcadons, carzdngc a>>a asset protection are. ncverthe)ess, expected to be mainudned at adequate )eve)s. An issue which Is rated "bas Ic concidezed to ne )otter.mcd)um grade, neither highly protected n>>> poor)y secured. Earnings and steer protccdon ap pear, adequate for the present but may bc quecuon. able over any great length of Ume. rib art An issue which I~ rated "ba" is concldered to have specu)advo elements and its future cannot be con. a)dered wc)i assured. Earnings snd asset pzotccUon may bc very moderate and not well safeguarded during adverse periods. Unccrtatnty of position charactczlzcs preferred stocks in this class. Federa) Agency Finattcingu >>>ll otoes Hrl Hew htonthtr trow Zt>suet Averoco atoner $3.91 CL37 1.85 .63 28.78 A%20 1449 IG.64 1.85 Srlg ~r>d redernt tsar>or>oort>d Ztut>)tetr stbtt An issue which ls rated "b" generally character)sdcs of a dcclrablc Investment. Accur-ance of dividend payrucnts and maintenance of other terms of the issuo over any long period of tenno may bo ama)L r

Survey, October 1, 1973, page 51$.

Scptcmltcr 1973 ~ ~ ~ e ~ ~ ~ Scptcrn)u'l 1972 ~ ~ ~ ~ ~ ~ ~ gcn I>>'I>> )973 ~ ~ ~ ~ ~ ~ ~ Jan 'bcpt > 1972 ~ ~ ~ ~ ~ ~ ~ ~Ineludte tnoel r>>derti Acrnez ~ttered ntw Wute. Hoodyts Investors Service, Inc.r hbodyt8 Bond ~ ~ ~ ~ ~ ~ ~ ~ > ~ ~ ~ r.

October I, l0?3 Page 79 MoodJls Bond Stin)r)/ ~ 519 ~ ~ s'cases An issue which I~ rated "caa" ls Qkely to bc ln n gears on dividend payments. Thl ~ raUng designs. tlon docs not purport to Ind)cate thc future ~tatus of payments. Al) factors which bare, and can bc expcclcd lo have, a meaningful influence on the dcgtcc of support nffordcd the prcfcrrcd stock wll) be concldcrcd. Among these factors are tbc nature of thc lccucr's buclnccc; compcUtion; quality and trend of eotnlncc: In)crest and ptcfcrzcd dividend cover-age; csp)ta)izOUon ctructure; ofi'balance sheet financing; cash fioiv; finonclng needs and purposes; managcmcnt and itc fmnncla) policlcs; rcgulaUon; accounting practices; rank-ing of the issue wit)dn the prcfetzcd ctock structure; and legal ptovlllons rc)sting to the issuance of addIUonal debt and preferred ttock. lcsuers may submit to hioody'0 an appllcaUon for rat-ings on aQ of their outstanding prcfctzed ctock Iccues at any time, whcthcr or not they have Immcd)atc financing p)ans. Ncw)y rated issues of preferred stock m)Q be reviewed in hiondy'0 So)en Suxrxr and listed in the appropz)ato Moody'0 Manuals. PUblic Utilities F Now fssuos 'Northern States Power Company (Wi~) Rfst Mtge. 7g/ds 10/1/2003 Amount Cali Recent Yfe)d Rattng fsu)).) Phee pc)ca Cutzcnt Maluhty Aa $30.0 Q)108.00 100)/s-100V< 7.70% 7.69% 0)Nomtefundab)e )1tfor Io IO/I/Tl. vvffh debt at an Interest cost of less chan '7..9>> annus))r) oshetwlsr tenable as a w)1nle ot In hah. al ~ny I)me nn is s)ays'nf )re. hc )0>>00 through 0/Sn/Tf: at l07,72 Ihtouch 9/sofl), neon)urn s)tet>>as)he Iclfhet 27/)oolhs or 29/)coshs) ~nnus))y Iheteaffet flncci nn )0/I ')Itl Io less on )0/Iflnoa /1I )00& lat Ihe annus) ~Inhlng lund beglnn)ng c/)/7$ and )ower theteaf lot. nosouu Offered on 6eptember 2G at 100~ to ylc)d 7.73% Winning bid, 90.549; cover per bond, $1.10; cost to com-Ylofdg Down Sharp)y Y)e)d )eve)s znoved down cbazply last

meek, as it be-

', came more apparent that tbe Fcdera) Reserve mas not in- ) c))ned to rec)ct )outer interest rates. Tbe pzice improve-ment lvas, of course, zeflectcd in the nelv iccue market. For examp)e, h.rated Genera) Te)cphone Company of tbc South-west vtas zeaffcred at 7.84%, compared with a zcruzn of 8.35% on the compazab)y ra)cd Haivailan E)cctzic bonds marketed )ust last week. We th)nk that the upward pzice thrust may be extended, though at a more moderate

pace, pending a bul)dup in new-Issue supp)y.

ln this wec)"0 ordy scheduled uU)lty sale, Southmestczn Be)I Telephone plans a $300 mQ)ion offering. In the most zecent BcQ System offering, Nclv Jczccy Bell sold $150 nUl- )Ion of debentures to yield 7.85%. AEter an In)rial poor recep-tion, these bonds are now trading at a premlutn, tO yield about 7.73%. Thus far. 5636 million of utQ)ry bonds have been regloczcd for sale during October. This amount could be supp)emcnted by addlUonal zeglctzadcms duz)ng tbo next several weeks. pony, 7.79%. Other (1ctal)s on pnge 501 ~ . oolnl~ I These high grade bonds teprcocnt a oof)afortntl Incon)e Invcstmcnt. Union Light, Heat and Power Company First Mtge. 8s, 10/1/2003 Amount Call Offetfng Yle)d v Rating IMRL) Phca Pr)er Cutten) Ma)uhty AAn $ 10.0 Q)I)0.00 102 7.84% 7.83% le)Ion tefnndab)e )1hor Io )0/)/7n, sv)th debt at an Infctesf cost of )ess Ihsn 7.02>>>> annual)y; ou1etvv)se ea))ab)e as a a hnle nt In nstl1 ~I any I)me on 20 onvs'once, as ))000 Ihtouth 9/sn/II: al Inlos thtourh 0/20/IS. ntrm)um uertrnvlnc tel)her Ss/)coins nt 2$/Imlhs} annus)ly Iheteafier f)oa2$ on )0/)/)9) In )00 on )0/It)nn). SI+e) ~I tcdemhllon )Inc)udlnc Ihe onunnsl ~Inning fund beclnnlng In )9)$ ) ~t )0200 Ihtough 9/20flc, ~I )02.0C through 9/20/)$, )eeet Iheteaflet. besot)>> Offered on Scpetmber 25 ot 102 to yle)d 7.83%. .Wirudng bid, 100.87G) cover per bond, $ 1.70; cost Io corn-pany 7.92%. Other detaflc on page 563. onfn)ont Thlc Icsue ls reasonably priced, but after market-abQity mQI be )ixIU)cd. General Telephone Co)npany of the Southwest First . Mtge. 7+ds, 10/1/2003 Anloins't Call Offetfng Ytcld-Rat)ng IMIIL) Ptfee Ptfso Current Matutfty $30.0 f5106.75 99 7.83%a 7.84% faNon-tefundab)e phot Io )0/I/72. vsffh debt ~I an Infctect cost of )eas than 7.9)>> annual)y: olherulse c: ~)Iab)e as a who)e ot In natl. ~I any time on 20 days'once, at )0$.7$ through 9/20/lf; a) )06.$ 2 thtough 0/20/7$. ntem)um deeteailnc Iellhet 22/)00)hs ot zs/Ioochs) annual)r, thctearlar f)0249 on )0/)fl)) Io )00 on )0/)/2202. No a)n)s-Ing lund. onto)I>> OEEered on September 27 at 99 to yleM 7.84%. Winning bid, 98.144; cover pcr bond, $5.06; coat to com-pany, 7.91%. Other detaQs on page 562. opl~t These bondc are appzopz)ate)y pr)ced for income. Proposed New'ssue Consolidated Edison Company of New York, Inc.... ... has EQed an S-7 zcglstzatlon statement covering $ 150 mQ)lon of first and refunding znortgage bonds; Series NN, due October 15, 2003, to be cold ln a negotIated offezing on or about October 10, by a syndicate headed by hterzIQ Lynch. First Boston, and IQdder Peabody. O~I)ty

• aonngs Vppcr medium gZadC) prOVICIOI)a)'.

+These'bonds rank )om in the A rating category. ConUnuatlou of the present quaQty rating mill depend on tbe company's abQlty to maintain its coverage of intcrerct charges at least. at current )cve)c. Vi'hQC recent rate action cbou)d enable tbe. cg))2)pany to ctay free of financing conctralnts Imposed by tbe earnings test provlclon contained in its bond indenture over the period immecQatcly

ahead, but additional ze))cf mQI be rcqu)ted in Ume. Thc company'0 abQ)ty to raise the cubstanUa) funds needed to finance its ongoing expan.

sion lvnl clcpcnd ln large part upon the tbning and amount of subsequent rate acuon~ Permanent electric, gns, and steam tate incrcaces, totaQng approximately S)50.5 )el)lion, have now been approved. Th)s total tupcracded Silo million of tclnpotnry Inctcasca which were put )nto effect on January 10, 1973. In addluon, the company EQed in Septemlscr ond August, 1973 for addi-tional lncrcascs In gals atld a)cato gates of appcloxllnatc)y $27.6 mQllon and $17dl mQQon, reopccUve)y, Ebony'8 Znvest)ors Services

Znc, hk)o '"-Bord Surve October Zs 19739 Z)fzfte 5Z9

~, ~ ~ ~ ~ 0 ~ ~ 0 ~ ~ ~ v ~ ~ u P ~ ~ ~ ~

AAA Pri)nr .4A l(igh Grodr A tound HRR lfrdiunrGer BB LmvrrGrade B Sprcu(nrirr C ~ Sub.gf org(no( I actors conodercd in arriring sl a prcfcrred stock raling arc ev~cntially ihc mme ax thnic reviewed in ihc ease of a corporst>> bond. Thc mott important o( tkac arc: (I) Proriiions oi Articles of Ineor- , pnrsiion. f)i hsxet Prole.tion. U) Financial Raourca, (4) Future bsiningx Protection, and (5) Msnsgemen(. hv in bond analyst. one of Ihr iinporisnt statistical mcssurcs used io deicrminc ihc srcuriii of preferred dividend payments is Ihe eal. culsiion of thc number nf times earnings cover fixed charges and preferred dividend rcquiremcnti. In ihe psst. due Io Ihc fact thai preferred diridend psymcas were nondeductible (or tax purposes and that ihc elfccuvc income isx rates of most ixiuers (mainly public utilnv xnmpsnieil fell witkin ~ narrow range. Standard r poor's csl. culsied ihr coverage ratio solclr on an aber.iax basis. boih induding snd cxeludine the sllowan:c for funds used during construction. in recent vesa. hovrver. this tsx situation hss changed dra-matkaiiv and ihc elfceiire ineoinc iax rata of utilitycompsniex now vsiv ivteiv In ihst ihe ps) ment of incornc tsxa doa in fact provide ~me>>rtdnwin41 prntecrire cushinn for the prefcrrcd stoekholdcr. Ihe shnpunnnl s ratio rneaiunng cosers(c of fixed charges snd prcfetxcd dividendx on a prc tsx baib is conudcrcd appropriate. The rstin now uird by Standard

• Poor'x Ior this purpose is quite

~imal ~ r to ihsi recently adnpred br thc SEC. The mechardes ofthecal culsimn are deveribed hehrw. The numerator consists of earnings i )artuary 5, 1974 storage (sciiities. Srnice b provided in Ihe central and northern Por. lions of Ihc I nwct Pcniniuls and ihc central and caitcrn sections o( Ihe Upper )'rninvul~. his)or citici vers cd include Grand Itsridx, Muw he(on, Ann Arbor snd thc Detroit mcimrnliisn ares (this last se. counts (nr rx+ nf operating rnenurx) Th>> company also owns a number o(stnragc acids>>hieh permit summer storage for delivery in <<inter mnnihi, as s revolt. (rester amounts of gas arc available for firm cuisomerx. Addiiionsl icvcnuex aic slio provided by slating gas (or other companies. During the twelve mt ths ended March 31, 197), operating revenues were derived as follnws: space heating,62%; firm Industria, 17%: intciruphXe industrial, 15%; commercial, 2%; and redden)isl. 13%. Natural gsi H purchased principally (rom thc hiichigsn Wisconsin Pipdine Company, aim wholly owned by American Xaiural Gax. Michigan Wiiconiinsurt4ia spproximsicly g4%of thccompany's rc. quiiemcnts. <<iih Panhandle Eastern Pipeline supplying 10% and Great Latex Transmission Services (50% owned by American Xsturs) roviding 4%. Co rsctx with Michigan Wisconsin Pipdincextend lo August 31, I . The company ix cntnled to purchase I,)37455 mcf pcr day in PR EF ERR ED STOCK RATlNGS / duality ratings on preferred stocks src expressed by the ssine ~ symbols ai those used in rating bonds. They are independent of Standard gt Poor's bond ratings in the sonic that they arc not neeaxsray graduated dnwnward froin the ranting aceordcd thc issuing company's debt. In a msjotiiy of cases, however. the rsring asrigned a pre(cried stock <<illbe equal to or lower than that accorded anisiuci's lowcxi rsn'king debt obligation. Prcfcrrcd stock ratingi rcpreicni s considered judgment of Ihe relative securiiy oi diridcei. $ 12 0fg). ~ 000 (or xtorsg>> field expansion snd development ~ Sll.txr)text (or natural gas production (seilitierei snd ihc ternsining $42,5iy).INtl fnr min and service renewals. extensions. and rourine construction. Michigan Consolidated is regulated by the hlichigsn Pubhc Service Commission. In addiiion io an increase in rates on November I. 1972. to olfictcoil increasei (rom inicrststc suppliers. thc Commivuon su. l thorixcd a general rate incrcsic o( $7.000.000 annually, clfecuvc )anuary I, 1973. Operating rcvenucs for Ihc twdve months ended Sept her.30. 1973. v ere $401.16gsg0. an increase of 9.2% from thc $)67.. g.24g for Ibe comparable Iv:riod in 1972. Xct income for the ssm>> iod wax $26.940,0$ ). compared with $2).67).474 4 year earlier. A arsilsMc (or Axed chsrga snd prcfcrrcd diiidcndi snd ihc denomi-nator is comprised o( fixed charges snd pit(errcd dividends Farningi ~ arailablc for fixed char(a and prcfcrrcd dividends is dehncd s~ nct in. come before income tsxcx. deferred income Isxa. invaiment tsx crc. dia. snd (ised charges. Fixed chsrga consist of sli inicreii <<hargcs and smortixstion of premium. discount. snd expense on debt. Pre-ferred dividends represent preferred dividends muhiplied by Ihe ratio .ofpre Ixxincome ionct income. LEASED HOUS1NG CORPORATIONS Cri(griaforRating he Housing and Urban Development Acl ol'1965 authorised a new approach for meeting the housing needs of to>> income (amlriex. IIis incorporated in Scaion 23 of Ihc Umicd States Housing Act of 1937, ax amended. snd is known as Seaion 23 Leased Housing, It wss the intent of Congress that ihe program work as a supplement to the low rent houting program administered b) Ihe Housing Assistance Adminittrstion, with ihc program operating Ihrough the. local housing authoriiy simlisrly to the public housing program. Under Ibe provision> of Section 23 Ibc Dcpattmcnt of Housing snd Urban Devdopment (HVD)enters into coniraas with local housing authoritiex auihorixing ihe authorities io lease (rom private owners dwdiings already in existence or to be constructed snd sublease indi. vidual dwdling units to low income (amilia st low monthly rentals. At the icquat of ihc loed housing authority, the supervning re. gional o5ee of HUD will matc a survey of the local rental housing market and, iffound appropriate. it <<ill authorize Ihc local housing authority to lease a specific number of housing units ai specified rcntais. HUD then caters into an annual contributions contract with 'hc loca) authority under which ii contracts to matc individual annual cont rhut iona for each unit to bc leased. Under thc Housing Act of 1937. as amended. such annual eoniribu. lions payments src guaranteed over a hxed number of years by ihc Uaited States Auihorny. an agency and instrumentality of thc United Ststa, whose functions. powers and dutra arc vested in snd cxercircd by thc Scctctsry of Hnuiing snd Urban Derclopmcnt. Said Aa fur. ibcr provides that The faith of the United States is solemnly pledged to the payment of all annual eonlributions coniraaed for... and I ~ Page 9III Standard 8 Poorts Co~oration, The Fixed Zricome Investor, January 5, 1974s page 983. ~ w ea~e ~

Page 81 ~ 0 15GG ~ Mov<ls/s Bo)(d S((~g hlarci) 3, 1975 Do<a(b> Offcscil on February 27 at 100 to yirld l0%. Prlcc tn <iuiniaiiy >98.00; co>>t to coiup;iuy ]0.20)%. Other dc(ail I>i I)<>N>> Sv>iver, Fcl><nary 17, pa)tc 1624. OP<a)un< Iiiia >ippcr i>>C<liuiiigf:Idc IS'ai>C IS a'ttr'\\Ctlr<'i>r corp ra(c I<>vcatu>a a)thou('h, duc to thc an>RU she o tho Ia. c, after.inarkctabifity may le )United. Ratings Reduced Carolina Po>ver 6 Light Company Thc ratings on Carolina Po>vcr h Light Co.'s pubUc]y held prefer<cd stock issues have been rcduccd to ~'baa'I fro>n "a". For further cosnmcnt, scc below and page 1557. Ncw issues Carolina Poyrer 8 Light Company... ~.. has fi)cd an S.7 registration statement covering 2 mfilion sl>arcs (Ivlthout par value) of cumulative preEcr-encc stock scrics A to bc sold in a negoua(ed offering through hferziU Lynch, Pierce, Fcnncr h Smith, Inc. on hiarch 13. Ovu)i>y Jt Ra>in@i NO 1'atlng appl)CatiOn Zeee)Vah PvrPa>>oi.proceeds from the ncw prelcrencc stock will be used for gcncral corporate purposes including thc zeducnoa oE short. term borrowings incurred pzimarQy for construe. Qon. Short-term borro>vings totaled $ 131.7 m]U]on at De-cember 31, 1974 and are expected to be at $ 128 miWon Immediately prior to the delivery of the nc>v preferred stock. Capital cxpcnditures for thc 1975 through 1977 period are currently est)ma<cd at required $ 1,142.7 adlUon fnc]u@ng S342.G mlfiion ln 1975. After the sale of the neve pieference stock, thc company esthnates that it ariU need $ 150 mifiion of funds from ]on" term sources. The company b presently unablc to issue additional preferred stock under the eazn-fags test in its char(cr.. Aust or)su><a as Thc company is authorhcd to issue 2 mQUon shares of serial prefezn:d stock. It Idll have 2 mfilion shares outstanding upon issuance of the new s(ocL It ]s a]so au-thorized to issue 300,000 shares nf (hc preferred stock (237; ~ 259 shares outstanding), 5,000,000 shares of prcfcrrcd stock A (500,000 shares outs(an<Ung), and ]0 >nQ]ion shares of sezfa] prcferzcd stock (2,150,000 shazes outstanding). The authorized amount of prcEcrencc stock may bo increased upon (hc consent of the holders of a majority of the total nuznbcr of outstanding prcfcrence shares. rosa)ng>> Tests NOne. Dab> Ro>>>r)I>(onss NOne. T)xad Chusaa>> uad Pra(oned a)vtdaad>> Pre<ac>(ans )fN ~ l$71 tnt zt70 (QAe>uat eovrraze -.. K(W 1SS 225 ).A )AZ (QAa ou>>>lard in Ihv prosper>>: rara>nn Srhre>>esa( het laeome p>III >neo>air <axe>> and <isa>>i e>a>>vcr>>: <Ixrd cia>>sar>> trhrmrni in le<a>>I rlaarÃr>> >>hi>> One.>>i>>a> u< anuual San<a>>>: and pre<a Srrd d<V> dead>> sans<. au> i><airs>a>>i dwiairuli seqa>are>la n>>> mu>I>h>led bv Iho Sa>>a i>mi iueuuae he/are iun>uiu Ia>>n Wa<< iu hr< iurume. >I)p<0 ta"in>a I"IVa rude, nai>uiird iu clue r<<<r< iu >lie iaauanee 0( the hear >are<essa>>>>>>wa ni an aauumqi die<dalai saic 0< szs0. Ihe January >St>S>>ala I>< I Ill>>>>an>>hara>> 0< eau>urn. Ihr h>aimed>>a>0 o<'S>00 iu>i<lull (I>v< un>all.'a haul>l<,'I< a>1 aaallflla'li sa<r 0( 0>s,i >II I>au >>a~ala> uu.aria'r u< Ia<s. null Ihe aui>llrauuu 0( Ihu psocea<a >herc fsuw. I>> a>>i>>ua>ed.by >lie cehiuany 1M o)v(duad<> ])o)<lcm of (hc pmfcr< nce stock are cnti()cd to zcrcivc ci<niulativc divii'leo> payable quarterly on July 1, Octol>cr 1, J~>>nary 1, and April 1. Tiic ro>>>p:>>>y'a char(cr aml thc mnr(gage indenture con. tain prov)sinus )imitiug paya>cuts of caali <liviilcnds on l cuinn>on stork unilcr cert;iin circumst>uiccs. At Dcccmbcr ~(ion are maintained. rise siaiuii 'll>ls is a "nciv nioncy" prcfcscnrc cntltfing cor. poratc holders to thc 85% divhlcnds zcecivcd crc<H(. Catt Tau>usus Not rcfundablc prior to April 1, 1980 at a ]o>vcr Interest or preferred dividend cost; other>vise ca]t-able at prices to bc supp)icd by amcndmcnt. av>>(na>>>>> Thc coi>>pany provides electric service In an area oE approahnatcly 30,000 square nulcs h> North an<1 South Carolina having an caUma(cd population in cxccss of 2 800,000. Flcctricity is furnished at retail hi 200 commu. nIQes, and wholesale service ls supplicad tn 21 municipalities. During thc 12 n>onths cn'dcd Dcccmbcr 3], ]97), operating zevcnucs amou>>(cd",to'$.)GE'>>i)]Uon. Revenues as of tl>at date Iverc derived 34% fro:n res)den(la) ~,29% from indus. (dsl, 19% from commercial, and 18% from other sources. Approximate)y 84% oE revenues Ircrc derived from North Carolina and 1G% Erom South Carolina. Of the total Qistaficd genera(lng capability of 5,926 m>r., 55.4% fs coal fue)cd. )).8<<e nuclear. 9.5% coal/residual oQ, 19.7% No. 2 oQ, and 3.6% uses I>>ter power. For 197K, the company anticipates that l(s genera(ion wfil be produced as follmvai 73.3<<e from coal, 22.5% from nu-clear, R.G~c from Ivater, and 1.0% from No. 2, fud oiL In January 1975. (hc company 'II'as p'anted e~> 5 ' "liun ln zetafi rate zeUcf. Also in January thc company was 0]. lowed to put into effect a $20.3 mU]ion wholesale rote in-crease subject to refund and a fossil fuel adjustment clause appUcablc to all Irholcrale sa'es amounting to approxbnately $20 (nQUon. cop(su(iso>ion> As of Decem)~r 31, 19<4; pro fonna zefiects tbe proposed sal of preference 'stock and the sale in Jan-uary 1975 of 4 mU]ion shares of common'stock and $2?; 350,000 of first mortgage; 11Vs% Sczics due 1994, and sub. sequent shozt tenn borro>ving; Aeiua) (Ã0) $ 131,657 966,680 (000) 6.4 $78,000 3 7 47&1,009,030 474 Short~nn debt Mortgage bonds Other ]ong-term debt........ 50,234 2aq 50,234 2'3 Total debt.....: $1,168,571 56.7 $ 1,137,2G4 Preferred stock.. 288,118 14.0 288,118 Pzefcrcncc stock

,50,000 SCommon h surplus..... " 548,465 26.6 604,465 282 Def. tax. h inv. cr. 54,296 2.7 54,296 2.G Total capital.. $2,059,450 100.0 $2>,) 34,) 43 100.0 $&~,434+( ho-pas vatuu>>hase>> ouu<aad<ad'.cdplt >>h>> pco Co>ma. 53.3 13.5 R3 Niagara Ltohatvk Pa~<or Corporation... ... has file<) a regis(rat)nn s(a>cmcnt revering d 0,000 shares of $ )topaz-vai<<r <iiihulativc pscfarscd a<oak to bo sold In a>>rgu()a(aw) offering nn or a)a>I>( a)arch

11. Tho syndicate >vill lic lcd by Sahih>on )trot)icss anil MerrillLys>ch, 1'icrcc, Fcnnrr h Sml(h lm:. A(q>]ication >vill l>c niade to )lst thc s>cw prcfa sr<ad un tlua NYS)'vogty c

Ru>>l>0> bin)i>un gmdc; pmv)siunat "baa' lt)glair tariffs granted last >vcck should <<ld in kccplng 31, 197), $2l,035>,087 was so restricted u>>lier thc cl>atter 'rovisions, Ivhich rest<)ct)0>> Iras rcn>u>~) in J;>>>>>azy 1075 upon tbc sale nf tbc cuninion st L. Thc char(cr also contains p<orialu>>s limiting tl>c amoimt of divide>nla Iriiich can bc niailc on its juiiior s(ock unless certain ratios of'ommon stock and surplus (o total capitafi. ))oo(ty>0 Investors Service, Xnc'., Moodys(t ))o(><~ S~cy> hhzjch 3> >9?5> &Sc >~

~ 1 Page,82.. Folio<<ing this fsnsnesnr. pro (nims ca pi(a)i<x((vn ~ll be mortgage bonds, 50.7>>: pos ation control noici, 2.1>>: ptcfct red slocL. I).79<: common equi(y, 3)du>>. Long.rrrm drb( pius psr/rr<rd (Inck <<DI rquv(45.9>> o/n<<pi<<(. Covrrugr o//irrd rhvsgr( vnd psr/rrrrd dsav'drnd( Icmom( ndrquu(c for mnirs(rssossrr o/ a "DDD-sv<irsg, There/rssr. <<v hmc ro(rsf (his '(suco/A'ivgorv Jlohowt'(prr/riled(rork "DDD." I a s Aa r.. ~ ~ ~ ~s ~ /- Ysss fsaast Ossa<<ass )I tii( tii) <<i) (<i( tt)o ax<<( (it $( . I)i.i( )<I3) $)))0 t)a() n)I ~ t)t(a . ))r) )i.it Cva<ss(s ~<Ysr Cs( ~ a ra( I)t Sll )a) 4.c) )9) tr'i (.I) l,)i Is( 1.st ~.. 's"s t.)( )s) in )xc ' 'ontinue Io bc un)1>lc lo mccl lhc carvings test tcquircJ to i(suc addi. lional ptcfcrrcd stock. ln October 197), Ihc coinpany fslcsl <<itb Ihe North Carolina UlliilicsCommission (NCUC) anJ thc Svu(I<Ca<<alia<a I'ul4ie 'hera(co Con<mission (hCI'!<C) appliea<ioni (ur av(lmiiiy in inc<case i(s lac(. tnanrnt retail (ales in provide an apptvaimatc 21~>> inc<eric iii (evc-nues frnni retail sales. On January G. I975. the NCUC, by order, gian(eal Ihc cnnspany (hc (equi<teil annual rale incicasc cslssal to ap tsroxiss<ale(y $ 5(.900.000 in<cd on 19)4 le<el vfL<<h aatcs. On J.imia<y 15, 1975, thc SCI'SC iiivcd in oidct granting the company an ap-proxima(c Ig.2'g annual incrcaac equal to appioxima<cly 59.G(ypp00, based on Ihc 1914(earl of k<<is sales. Thc o(dcr required thc tcfunJ of approxima(cly $$ 40.(<00 billrd in 1974 in cxccss uf ihc approved <ates. Thc 'NCUC laos issued an oolcr liiniiing(lic applicativn of thc com-pany's fossi1 foci adj ustment chusc fot rcsidcnissl cvsivniers io 75<>> of thc fossli fud costs incur<cd for a peiiod not (v exceed GO days ap. plicawc lo bills tcndcted on an J aftet lich<vary I, 1915. lie)tin( s have bccn sehcdvlcd wiih rcspcct io ihc application of thc fossil fuel adjust. ment clause. In hlarch 1971, ihc Notth Carolina General Assembly passed a ba11 au(ho((ring thc NCUC to permit utiliiies in raie cases to 'tilirr,a (or<Card len peri(,d. Thc company picscnily plans io file for . an additional tctaA ratcincrcasc so 1915. Pagc84G ~ ~ CAROLINh POKYER s<;. LIGHT CO<<iIPhNY ~'j7cring Cui((ulo(is'c /srrfcrcncc Sfoci: n hlarch I) an underwriting syndicate headed by hlcni11 Lynch, Piercc, Fcnncr I Smith is scheduled to o((cr 2,000,0(yp shares Carolina I'o<<et Ic Ligh( Company Ptcfrrcvec Stock ~ Series A, Cu ma(alive (<<i(hoot par ialuc). Thc shares <<iA be protected against lower.inicics( cost refunding until April I, 1930. Thercaf(er they may bc tcdcemed at thc option of thc company at vatious prices. Proceeds from Ihia -ncw money" o((e<ing <<ill be used!nr general corpotaie purposes including ihe rrduciion of short term borrowings incv(rcd ptimarily for thc cons(run(on of new fariliiirs.These short term bor-ro<<inrs totaled app<oxinia(ely SI31,G57,000 at Dccembet 31, 1974, and arc cxpcctrd (o app<oxima(c 512$.000,000 at thc (irncof thc sale ofihcsc shares. Constrvclion expendiiures aic presently est(nil(cd at $342,400.000 for 1975 and S I,I42.700.030 for the )ears 1975 ihrovgh 1917. During 1974 Ihc company reduced i<s p(armed 1975-1977 expenditures by a ~ total of apptoximatcly $7$ $,(h)0.0aO. These testa<a<ious indudcd thc e(imina(ion of five p<npJ(rd nc>> gencra<inr units <<4<ieh would I<ave . provided an addition)) 4.S90000 Lw o( ycnc rating CaPacity. Aho in-eluded <<;as (lac dr(cital e f caeh of(bc fir<( Ihrce nf ihc four proposed 9(0000 kw nuclear (ac)(J. oui(a of thc Sheainn))sr(is Nuelcar Power 'lan( b>'ppiosimairly one and nnr hal(>ea(s and Ihc fourth unit by t<<xs years and Ihc (san >car <lcfctral ol the 720030 k<<'coal fired I'ox-boto )in. 4 Unib Thc company nvav estimates thai one of tlie )lani< I'lani units <<ill I'c calnipltiral rich yra( (rvm 1951 tv 19$ 4. 11ic cntirc project is now csun<at( 0 Iv c.>>i a)spina(mately $),I00000.000. of <<bich 5543,74).(OO'is included in thc '1975-1977 casus(<action program. (n a<lJi(ivn liar funds rcariv(J from Ihr sale of thc ne<<'reference slnrL and Ihc sile in January 1975 vf rnnimnn stsacL and first rnnitgarc I<<ands, thc ci>>npany cs(in<a(es that i( <<ill ocral ap-proximately $ 150.pa<(s.(hh) aaf (la( finial< icquircil fv< Ilse 19)5 rs nstrue. linn program finn< liar inn< saavrcrs. Thc company p<racn(ly 14:ma IO taisc sa IlaC second <P<.astra of 1975 a(a(a<saaisasa<rly SI<((<pvah)POO ~ Ih<vugh Ihc lavtsli'ale nf (iist nicu trirc I<<indi. Adali<i mal are<<<i<(ra <<>11 Isc isiurJ Later in 1915, ihe I> pe anal am<aunt of <<li<<h will IicJr. lcinibirdal lbal time. Tlic ra<<sat<any iipre am(ly uual4c ni (a<air a<Lliibanal pirfcririlstork umlrr Ihe c.irni<<ra irst in i(s rlmitcf I)ac laauasia'c. aa( pir(rioia>> alvcL', Isn<<ever, is oil nil)ccl tn an rJsnissgs (eal. In Ihe cvcul Ih( Co<i<puny (J<1( lo receive ailealualc asia( limrl)'otc (else(, il niay i ~ 0<ass. )<ssssaasss (MI.I) Ors s. (sasvsaas (S(l. S) Ss J. Cats. Cvs. ~( is ca ru. (<'sate

a. I

~ s ~s.c .s. ~sI.s Ysss>>at<It<ass<a tvs ) I '))t )s)) ii() ())I I'i)o J(ors $((D( ))).< ~ )SSJJ )ossS I)J) ))Ja )sx)) )os) )sso (S) I.)$ IJS '.)$ t.)0 (hs) L)i 1st Isa ~ Iw Isc La) 'sa )ro iso ASSEF PltOTFCTION: Carolina Po<<er (k Light <<ill have a pro forma capitalitanon of 52.9% long tctm debt. )4A% prcferrcd stock, 2.5% prcfcrcncc stock and 30.2o>> common equity. I.ong term debt plus picferrcd and prcfcrrncc nocL <<i11 equal 70.3% of nct plan>. Thcac pic(crence aha(ca asc subordina(cd in dividend rights tn (hc ptefctrcd stock but senior'o Ibc company's common sharc(. Il'hiic con'roger ron(inurd (o sirriiucin I9)I, thr cosnpuny oi (hu( Iim( hud nor reer Aud IhrfullI<mr/s(Ifrom I<r rcrrn( ru<r inrrrs<(r. Covcrn cr In ip)J should, brgin to crhibi( o nmdrst up(rrrd. Dv(rd on (hir Improsess<cs<I, <<chan'rs(cd (Ii( Irruru/prc/rrrncc slsurrs DIID. CROiVN ZELLERBACIlCORI'ORhTION OJ/i ring Siniing Funri Dcbcn(urcg n hlaieh Ig an underwriiing ayndieaic hcadcd by Lchman 1 1roihet a Ineoiporaicsl ldassa in nA'rr $75.(O00:0 C<o<<+ %ellcr-badi Cntporaiinn sinLinr I<and l>cbentu<es slue hlarch 15, )005. Tlaesc dc)a(at<<<et <<in aAa>>J )los<ection afamai lv<<es inlcicsl cost tefvnding unii1 19$ 5. A ~inLinr (anil cvmnirnrsnr in 19$ 4 <<in retire $2 250P(<0 vf ihc s((tea<<asses annually. 1'bc uAC<iar wiA Isc v<isccvsrd but ptoicc(rJ by a acr aio'r pledge clause. I' vs'ccsls (<urn Ihc wife<inr will bc adair J io ihc comp. ny's (curial funda ansi v.rJ fair <<hnl.inr caps<al anil a(lier cmpvsiic pvipassa, in(lvalinr imp<assess<rat of cxiatinr farl(i<les. Purr(arses of aaldiikanil vatvqimcni avd acqviYi<isan nf aataliibmal (is<<1<<<lass<la. ('Jpital caprmhivsrs fvr 1975 asa'a<isssa<cJ at $ )25,(X<(<I)00. Abc< tia in I laic (Jh casa'crsfcs f as (lac )i'Jt rssslrd l>cecmlsc< )l, 1974, <<mc S.g<) times and g.21 (baca, tcsprctivrly. I(sass'd rm Ihr imp<ass'vsssrn< iss (hc Irvo( n/liars( chmgv rssvrsssrc uavr Ihr psi(I Jrsvr Ji J <siss. Ihr su(viva<<us( rsnh Jiuai vsul (hv ruuspsusy'I sign(/spun< psui<hsu ass<hi>> Ihr/ssroa( priv(sos'I ~ is<dna<<). sai'huav rss(oi this Iuuc o/ imtivg fvsssl rlrlwnnrsrr "rt. I'ssr /vs((srr I<<isa<Hid(uui roarer n(ng Iiirsrrrsui usa v/ (hr s ~srssiuusr. piruar crvs<<si( (hc lour n/ Ihc I)ical Iucssmc Invr(<sss slv<rd I(ca'rusiarr ), IVII. ~ca BXI(I> INCOMI( I)JYIL(TOR Standard h Poor's Corporation','he Fixe / (I TnCOme TnVantnr Maroan A, lc)75< pa(.O .".PO. a a' '

.eA ~a Page 83 RECENT CORl'ORATF. OFFERlNCB Sale De<a 3/4 3/5 3/5 Sit 3/6 3/6 3/6 3/6 3/ll 3/II 3/II 3/I) 3/Il 3/II 3/11 3/)1 3/)1 3/13 S/IS 3/13 3 13 3/13 S/L) 3/13 C}ad. Anoon< Re<inc hit. 5 AAA IS.O AAA 300.0 SSS 350 AAA 754) A SLO AA tSO.O AA ILO A SO.D

• AA 100.0 AAA 100.0 A

15.0 SBB o $04< SOB 40.0 A*A 154< A* 2$.0 A 10.0 AA $<LO A 15)) A 780 AAA SO.D AA

I)5.0 BBS 50.0 A 115.0 Iidh '35 ALA Soj) lasso Un<is Paentc OaaiooeC'o. <p. 1'iv(ta. 11/I/)9)$-99 P<e<<r< A Ca<ah<i I'. t<<h<(av<n a.t/4,3/I/)OOS Iv<(<) t'ia<<it I'sari A lheh< Ca, Vi<<< h)<ce. <n.l/4. i/I/<vn) Ceh(< Nit<one<i enl t<icolnln(avesta(m Can<an<<<(t t:i<iieet p<o<eae-I/s<,3/IS/)940 B<eehsa)'te(< I 0 Inr Nein,3/I/1')aS Sooth<is Ca<i<nial ~ )Bi(oa C o. Yiiit4< Rit. $ 1<ce. n 9/s<(1000 Neil(tk s. LY<uiia I< a<<as) Kav(p. Tea<<,S, I/I/<9)6 '90 Osis Uni<o< Co. D<hen<v<ia 9,3/I/2000 Nis Yo<L 1'i<ethane Co. ha<eat.3/)$ /<9$3 Ne Yo<LTe!<phoaeco, D Are<sin a-)IS. 3/ IS/101$ We<sat<one) I I a<(eater C<e(ta Corp. hNn, 3/I/Ios I hlace<ahloh<vk Pear< Corp. Fui< hi<ac., 1/I/lOOS 10ata<a (htl(hanL I one< C sip. can, )'llLs< ~ <L 15<os pif) A<<hboa, ToHLa A Siai ~ Pe Raiaey Co, Kqeip)T<vu LI)/15/le)$-69 Psst<csin<re Co.ot He~ alia)co F<<<t hl<ti 3/15/100$ Ps)tie S <<< lee Co. ~ ( hew hleiico Co~ PI4.$<o<htitnopsi) Does<<n< Ush< Co. First 31<e<.9 tfl,S/IflDDS -Alfie()0(er<ic<t Corp. Dian>>i<<i 9.4/I/)DDD Acies Chiiaical Corp. Not e< $4/L4/ I/)9t1 Es<a$ (aa ha<<<. 3/IS/1981 Upioha Co. hate<,3/1$ /tetS Cere)iai Pe~re 6 U."ht Co. Co<a. P<<t. S<o<L <ao oe< L$)A9$ F)a<isa Pone< A Uth< Ca. nii<thl<si. ID I/4,3/I/)DDS He<a<on Corp. Con. Ceai. PILS<oe'L <$1 pa < l. 5 IAO The/i)as t)c i<opia<a< l<inL Ct4. ho<is) I/1<,3/)5/1910 9950 DAS NR4S<IOL15 10010 TAS hC40;100 L94 100 9.15 hC40; 10<k96 NC41; 100 )N )ILIAD hR45; IOLS) 100 IL60 NR4$; IDO $.11$ NR40) 100 )0.11 NR40; N<<L291 DA1 hR40; 9935 94)) 99.1$ SAS ~ NR4$; NR4$; )00 B.D NC4)I IDO 100 L)2$ 2$. IL1 IOL663 NC41; NR40: NR40; 35 OAO 9925 L69 NC CeR Piet. NC 99.us Lu 'R4$ ;104.43 ID)3$ )00 NR40; IDSD? 945 )CC 100 S 15 NC43:IDO LDS NR40; C C C Sech)a<<o<y As<<ac<he Auric<he Atenoate Aue9ve<e Sett<l ee<a<9 No Ceaeessea C N N H C N N C N H ~ H C H, N A4<9oa<e AdeNste Anise<' Satb)a<tory No Cases<<<oa A<)e9va<a Rkh So<blat<sty As<sos<a An<st<he No Coocesdoa he Coats<<h>>< No Conte<a)ao Asr9e ate h(sano<a< ea CJN Pi/ring C Sash)ee<o<y 561 S$1i plying thc ncw coi'I ofenergy sdj us)ment clause for meter readings on nnd after hlsrcb I. Vndct a contract si<h'hc Ncbra)La Public Pa<vcr Dist)let (NPPD}. In(va Peace snd Light is cntitlcd to one half of tbe output un<0< 7004 ofCon,"tt Nuclear Station at Stow>>elle. Nebraska. A fuil-poscr 40 icat lice.sc lo c wtatc the station bss bee>>issued to NPPD by thc Nuclear Legu)s<oq Coma<i<sion snd tbe facility is currently operating sl 764,(N L<<. nt 98.2 "v of its cipccicd capacity. The nct e)et<tie fcnctatirg caps)3ity of Ious Pose< g: Light, nct of the aeakabli<} of pnoct f<iits thc Cnnpc< Station, is 731.000 Ls unde< a<in<et con4itions)nd 7$4MOhs(unde< summer conditions. and 372% common equity. Long tctm debt plus prcictred stoeL'ill cqua) 51.4% of nct plant. Iphi/r muin<aining ahurr.uerragi fined chargr ro<uragr oirr thr past smerai!rars, ihr rnmpan) <<us not protrr<rd against fine<un<fans in thr prier ofpurrhasrd poser. Thr Cooprr Nuclear Station ofshirh thr rampan< Is rnti<ird to puirha<r onr halfuf<hr poser grnrra:rd. sus put Inni srrrirr in IP/4 uea'as urhirerd rxrrflrntoprruting rr)H<s tiidatr. In ad(/i<i in. ai nfAfu<rh I <hr compon) is prn<rrtrd against /)urluu<iuas in thr price iifpur. chased pa<ver through ihr rrrrg! ad/>><<mr>>< rluuir. shirh Iia! hrrn instituted undk'r A<inJ, suhjr('t to rrfi>>J, I)usn/ on <hr ahu<r sr burr rated <hi< Dsu< iifpirfrirrd it>>el "A" and burr ruiird ti<r outstanding ru<iags nn ail Iona pusur d /.Ight prrfrrr<sis<orl i(iurs f~< "/tag-t>>-A." Y<~(n((vnt 0<<a(ok< ) < H)t H)P te)) tt)< H)o t)su} < I<>) Koa) 9).N I).<o ttsa <)I(: 1)JO <s.)s t)3< <.au )ss ss) op>>. nn<nv<tits.s'<<v< huo(n<(a<AS<. I ~I Cari. Ce( et <a< 6 rs) P )a An. <ones<tain ~<t.cia(u.ci.,. a(L Sa(((e(< ) a(<a. EMERSON El.ECTRiC CO. le< 1 a< LH )s<s 1st s<<7.ia <.es 14o )3) 33) Sat arri<)/; 590 hfi'li<<<)¹<Irt I n >>lid tu late his<eh 1.<>>et a((n I lee<tie C'ii. 14s>>i I<~ scil $$<).<<<'E<,t<'I is<tea due jap<i) I, 19$!. Ci dd>><3>>, Nsclii t<<C<<. sill I e )rvd u>>deisiitcri. 1'hc aiitci <<itl ln: nu)9ee< t(i rrdinqni(>> st an} >ic ~ (n ni aner April I. P/Q, st lhc i( <u<nnf thee'iiu< n;'Their soll 1st n>> iinL>>igfund. ASRLT I'IIOTPCTION: loss Poser gi I.ifht vill heir s pro go<ms csp<<slits<;:n or 4I.N, i>> itBey c dcl t, 3.<r de)c>><a<ca.4.1%. gustsntceauf pilot<ann>><t<ul <cicnue In>><<I<, 142'A Piefctird sRicL p ps ) Pn};c 527 March 15t 1975e p<lgc iZ7 h4<ch Ic, l57L , 'Standard h Poorts Corporation, Thc FiSlcd 1ncnmc 1nvcstor, '0 ~ ~ (a ~ ~ i ~ ( ~ ~ ~ ~ ( ~v ~i ~ ( ~ l I I

Date of Offering of Rating Change Caataay COVERAGE OF FIXED C)ONGES AND PREFERRED DIVIDENDS PREFERRED STOCK OFFERINGS BY ELECTRIC UTILITIES BY RATING CATFGORY 1975-1976 Hoody's Raatatt Standard 4 Paarts Rating --ge S'overage af Hx>>d Charges and P."cferred D'.v'de=a A.ter Inc=.e Tax s 3efare Constr'tio.-. Cred' Ratings Haintained at "a" by cbody's nnd A by Standard )t Poor's Last twe've mar ths available at date of offe irg or rate char-e I/ 9 1/21 '/22 2/19 2/27 3/12 3/20 4/10 5/8 5/13 9/3 9/11 9/23 10/ 1 10/ 8 10/20 11/25 ll/15 12/16 Public Service Electric Cc Gas Company Ohio Edison Costpcny Pennsylvania'ower Company Kansas Cl.ty Gas 5: Electric Company Toledo Edison Company Public Service Company of New Hcxico Iowa Power tc Light Company Potomac Electric Pawcr Company Iowa Public Service Company Vtnh Power C Light Company New Fzgland Power Company Connecticut Light 8 Power Company Kentuclqr Utilities Company Central Illinois Light Company 'ochester Gas dt Electric Corporation Interstate Power Company Gulf Paver Campany El Paso Electric Company Public Service Electric 5 Gas Company 12/23/74, i/13/75, i/i3/75, 2/ 3/75, 2/17/75, 3/ 3/75, 3/iO/75, 3/2>>/75 >>/14/75, 4/20/75, 0/10/75, 9/ I/75t 9/ 0/75, 9/15/75, 9/22/75, 10/ 6/75, II II ( Ilail { II It It II It It II II ttatt ( natl ( II/17/75, HR "e," (12/ 1/75, 04-05) 1754-l755) 1753-1754), 1670) 1624-1625) 1560) 1534-1535) i473) 1307-1388) 1346-1347) 912-913) 877-078) 047-040 825-826 003-604 755-756 603-604) 538-539) 12/28/74, 1/ll/75, '1/11/75, 2/ 0/75,'/22/75, 3/ 8/75, 3/15/75, 3/29/75,'/19/75, 5/ 3/75, 8/23/75, A( A( A ( 8/30/75, A ( 9/13/75t A 9/20/75, A 9/27/75, A iO/ 4/75, A+(ll/15/75t A (Il/15/75' (12/ 6/75, 162-183) 9I6-977) 977) 911-912) 877) 843-844) 826-827) 702) 729-730) 694-695) 406-407, 411) 395) 359-360) 339-340 324-325 '10) 201-202) 200) 139-140) 1.40x>> 1.51 ia35+ ia>>9+ 1 a15tt 1.72 1.81 1,74 1.59 1.60 1.35" ~ 1.60 la51>> 1.25>> la98 1,69 1.68 1.75 1.47+ 1976 3/9 3/23 3/3i Duquesne Light Company Iowa-Illinois Gas 5 Electric Company Pacific Gas dt Electric Company 3/ I/76'607-1608) A 3/..0/76, 1582) A+ 3/22/76, i525-1526) 3/ 6/76, 662-663) 3/13/76, 834) -3/20/76, 815-816) 1.54x< 1 79>> ~ 1,47t)' ~ aa.aaw,a, 4tytt fa aQ'aattt

COVERAGE OF FIXED QfABGES ABD INFERRED DIVIDENDS EBEFERRED STOCii OFPiBIKGS BY ELECTRIC Ui'ILITIES BY RATIEG CATEGORY 1975-1976 P3ge 85 Date of Offering of Bating Change Caanany lady's Rating Standard 5 Poor's Rating Coverage of Fixed Coarges end Preferred Dividends After Income Taxes Before Construction C edits Ratin s Haintained at "a" b Hoo 's and A Standard 5 Poor's Last twelve months available at date of offering or rate change Average - above 22 issues 1.57x Average - above ll issues excluding those where significant rate increases are not fu~ reflected 1,72x +Significant rate increases are not fully reflected in coverage ratios. Source! Hoody's Investors Service, Inc., Redy's Bond Survey and Standard dg Poor's Corporation, The Fixed Income Investor/ in issues at pages noted.

COVERAGE OF FIXED ClNRGFca ARD PREFFBRED DIVIDE!!DS PREVERR)PD ~ME!< OFFER fl!Ggp OF Ehl:.CTRJC lEILITIEGI BY RATIRG CATEGORY 1975-1976 ~~e 86 Date of Offering of Rating Change Company Fk>>ody I e. Rattat Standard & Paar'e Rating Coverage af :txed C arg s and Fa eferred Dividends. After Pnca=e Taxes Before Construction Credits 1975 Ratings Better than ffaff b Hoody's'and A by Stnndard &Poor's'ast twelve months am~ble at date of offer~~ or rate change 3/as 4/17 5/az 6/ 5 6/10 6/11 7/9 10/24 11/ 6 Tcxtts Power & Light Company Oklahoma Gas & Electric Company Indianapolis Power & Light Company Kansas City Power & Light Company Texas Flectric Service Company Southern California Edison Company Public Service Company of Indiana Houston Lighting & Power Company Pacific Gas & Electric Company aa ffa ff( tla II( Itsf ffaaff( II II tl II ttaaff lta II 3/10/75 3/31/75 5/la/vs, 5/19/75, 5/26/75, 5/26/75, 6/30/75, 9/>>/75, 10/27/75>> 1537) 1203 1254-1255) 1>>3-1>>4) 1>>5) 1076-1077) 802-803) 606<87) AA I 5/31/75, AA 6/28/75, AA-9/27/751 A (11/ 1/751 AA ( 3/22/75, AA ( 4/ 5/vs, .A+ ( 5/1V/Vs, AA ( 5/31/75, 5/24/75, 801) 763-764) 659) 625) 640) 624 539-540) 325-3a6) 247)

2. 13x 2.24 1.5' 1,72 2.25 2.02 2.23 1,72 1,52<<

1976 1/8 1/20 2/ 4 3/3 3/18 3/25 Cincinnati Gas & Electric Company Texas Patter & Light Company tenses Power

• Light Company Southwestern Public Service Company Illinois Power Company Houston Lighting & Power Company ffaaff ff ff Itaatl ttaaff It II ffaa ff 12/ia/75, 498-499) 1/12/761 1770) 1/19/76>>

1738-1739) 2/23/76, 1629) 3/ 8/V6, 1582) 3/'/76, 1581 ( AA I 12/27/75>> 95-97) 1/17/76, 960-961) 1/24/76, 943) 2/28/76, 873-874 3/ 6/76, 85~0 3/13/76, 83~36 a.1.52X<< 1.91<< 2.28<< 2.10 2.00 l>>75 a Average - above 15 issues 1,93x Average - abave 10 issues excluding those where significant rate increases are not fullyreflected 2,02x <<Significant rate increases arc not fully reflected in coverage ratios. Source: Moody'e Investors Service, Inca>> Hoody'e Bond Survey and Standard & Endor's Corporation, The Fixed Income Investor, in issues at pages noted,

CAROLINA POKR 8> LIGRF COMPANY COVERAGE OF FDZD CNARGES AND PREFERRED DIVIDENDS 1968-1@75 Page 87. e meow ava! !able fcr fi-ed c?a:Ses before taxes i Less: Zncone taxes 1968 $ 62,532>ooo 22 > 513.000 lc69 f 64,731 000 1A,920.000 1970 vv57>071>000 A,280.00n 1974 +49> 686 >000 14,1~A,nnn 26,370.000 10>711,non; A79,000 1071 83>401>000 4120>620>000 ~3>444>000 1975 @17,013> 000 25,436,000 Inc available for flied ch~ des after taxes 40,019,000 45,011,000 48,7',noO C9>073>000 102,242,000 122,653>~ 148,807,000 191,577,000 JUlowance for funds used dcrir~ construction 2,927>000 4,397,000 10,505,000 14,700,000 24,759,000 38>093>ox) 54,609,Ooo 59>957>000 -- Incoce available for fixed charges after taxes before construction credits 37,092,000 41,41'4,ooo 30,277,000 54>365>000 77,403,000 04,5 o,coo '4,198,000 131 620,000 To.al interest char.cs Preferreh hivi<l>naia 14 >006,000 2,>)t'li,nno 10,4.7,ooo n >j(g> 000 3 '.vj7>0~ . 4,i:~,n,hl 31>'j!rj>000 fl,i(1,nnn 41>7) 3>000 n,r.l ~,O'>0 56.6)4,'> jj 13 Ol. ~.v l 76> 53G,OOO ."0,672,000 89,955s000 25,752,000 Total >nearest char;,cs and preferred divi4enhs 16,972 >000 ~ 21 >393> 000. 20,6/,ooo 39,0'(0> OCO 51 3"5 000 69,671 A% 97,208,000-115,707,000 Total interest charges an4 preferred dividends on pre<ax basis I 19>552,420 23>439,5'0,206,C70 43,150,980 55,554,28o 73>836>440 P7,414>720 122s 145,000 Tixes interes aM preferred d'IMerds earned before taxes (A s I) TL.es interest ar4 preferre4 divide=ds earned after taxes (C a l-:) 3 >20x 2.36x 2e76x 2.14x 1.09x 1,70x i.93x 1.7+ 2> 32x 1,98x l.8lx 1.75x 1.54x 1,54x lo78x 1.66x Tixes interest and preferred dividends eerre4 after taxes before construction credits (F. w a) 2,19x 1,94x 1.34x 1.36x 1.5lx 1.21x 0.97z 1.14x Source: Cecputed from data in Carolina Power 8 Light.Company, Annual Report 1973, page 22) Standard 8> Poor's Corporation, The Fixed Income Investor, February 16, 1974, page 904; er m nnnc a Statements> December 31, 1975. Ol

CAROLINA P$63 Cc LIGRT COHPAIlY COHHEATION OF TllRS FIXED CIDNGES AND PREFERRED STOCK DIVIDE'DS EARNED AFTER INCOlG TAXES FROM COST RATES FOR CAPITAL AND CAPITAL STRUCTURE RATIOS Peg 8S Common equity Cost Rate 14,5+ Capital Structure Ratio ~aaanent 4.84$ Preferred stock Preferred stock and debt . 8.01 15,01 51.59 1.20 3-99 5.19 Total capital Fair rate of return on total capital Thee fiied charges and preferred dividends earned after income taxes ~ Component for common equity plus co onent for debt and eferred stock mponen or e an pre crre s oc ~ Rate of return on total ca ital mponen or c an pre erre oc

CAROLDlA MAR Cc LIG!Z COl&lHY FAIR RATE OF RETURN ON COMHON EQUITY Page 89 On Basis of Standard of Comnensurate Return Earnings experience on canon equity of electric utilities in original cost Jurisdictions, used as comparison canpanies 1971 f 1972'+3'974~ 1975 Recent rate orders by regulatory coumissions "In line" ~ith earnings cxpcricncc on common equity of high grade industrial companies Standards of lMntenance of Credit and Support of Financial Integrity rac on o Cap on an easona e fcms Market price of conunan stock in relation to book value and caanon stock offerings, 1972~

1973, 1974~ 1975'976 First mortgage bond offerings of electric utilities with fixed charge ratios to support A rating,

1975, 1976 preferred stock offerings oi'lectric utilities vith fixed charge and preferred stock dividend coverage ratios to support "a" and A rating,

1975, 1976 Carolina Power 5 Light Caapany Fair Rate of Return on Coupon Equity 14.5+ at 33.4'onmon Equity Ratio Includes Alliance'for Funds Used During Construction C

CAROLfilA PO'tER 6 LIGHT COlip/iNY FAIR RATE OF RETURN ON TOTAL CAP1TAL USIttG IttSEDDED COST OF LOttG-TERYi DEBT AND HtEFHSED STOCK Ott DECElRER 31, 1975 Page 90 Cost Rate Capital Structure Ratio >leighted Component Total Debt (page 12) 7.74$ 51.59+p 3 99~ Preferred Stock and Preference Stock (page 16) 8.01 15.01 1.20 Conn'quity (page 89) 14.50+ 33.40 4.84 Total Capitalization 100.ÃFf 10.03$ Carolina Power k Light Company Fa r Ra e o e urn on To a Capital +Includes allcwsnce for funds used during construction

Page 91 CAROLINA P0%2 4 LIG1FZ COMPANY FAIR RATE OF RETUMt OH HEl ORIGINAL COST RATE BASE Carolina Po~~er 5 Light Company Fair Rate of Return. on Total Ce ital page Car'cling Pover 5 Light Company Pair Rate of Return on Net Original Cost Rate Base <<Includes allomnce for funds used. during construction}}