ML18230A824

Carolina Power & Light Company - Testimony Regarding Fair Rate Return, Dr. John K. Langum, Economic Consultant, Chicago, Illinois

ML18230A824
Person / Time
Site:	Harris
Issue date:	12/01/1976
From:	Langum J Carolina Power & Light Co
To:	Office of Nuclear Reactor Regulation
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Download: ML18230A824 (366)

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CAROLINA POWER Ez LIGHT COMPANY TESTIMONY REGARDING FAIR RATE OF RETURN a/ 03-gockot<>

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DR. JOHN K. LANGUM ECONOMIC CONSULTANT CHICAGO, ILLINOIS DECEMBER 1, 1976

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CAROLINA POWER L LIGHT COMPANY TESTIMONY REGARDING FAIR RATE OF RETURN 1 Q. Will you state your name please?

A. Zohn K. Langum Q. Where do you live?

A. I live at 477 Oakhill Road, Elgin, Illinois.

Q. What is your occupation?

A. I am an economic consultant with my offices located at 209 South LaSalle Street, Chicago, Illinois.

Q. Dr. Langum, I show you what has been marked Langum Exhibit No. 1 for identification, consisting of a cover page:andGB-:

10 pages and ask if the exhibit was prepared by you.

A. Yes, it was. Exhibit No. 1 is a statement of my qualifications.

Q. I show you what has been marked Langum Exhibit No. 2 for .

13 . identification, consisting of a cover page, a table of contents, 14 and 93 pages and ask if the exhibit was prepared by you or under 15 your super vision and dir ection?

A. Yes, it was, except the pages which were taken from articles in 17 Mood 's Bond Surve, and Standard 4 Poor's The Fixed Income 18 Investor. I selected these articles for inclusion in the exhibit.

Langum Exhibit No. 2 contains my studies leading to a judgment 20 as to a fair rate of return.

I Q. Are the figures and facts contained in these exhibits true and correct to the best of your knowledge and belief?

A. Yes, they are.

Q. Dr. Langum, what is the scope of your studies and testimony in these proceedings?

A..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 its fair value rate base which it should be afforded the opportunity to earn in its retail electric 10 utility business in North Carolina. In this connection I have also formed an opinion as to a fair and reasonable rate of return applicable to the corresponding depreciated original cost rate base.

13 By a fair and reasonable rate of return I mean a rate of return which will enable Carolina Power 4 Light Company to attract new capital on fair and reasonable terms, to assure confidence in its financial integrity, to maintain its credit, and to.meet the 17 standard of commensurate return in'erms of fair value con-18 siderations. Determination of such a fair rate of return involves first, determination of the cost of debt and the cost 20 of preferred stock; second, recognition of the interest-free 21 portion of capital; third, forming of fair a judgment as to a l

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and reasonable earnings rate on the common equity; and finally, the combination of such costs for these components of capital in an appropriate capital structure.

Q. Now, Dr. Langum, turning to Page 1 of Exhibit 2, will you comment on the construction expenditures of Carolina Power h

. Light Company and how they have been financed?

A. Over the years Carolina Power 4 Light Company has made substantial construction expenditures to expand and to improve

'ts electric facilities. As shown on Page 1 of Exhibit No. 2, 10 gross property additions reached record highs of $ 359. 0 million in 1973 and $ 382, 6 million in 1974. Gross property 12 additions declined to $ 305. 5 million in 1975 and $ 252. 2 million 13 in the twelve months ended June 30, 1976. By far the pre-14 dominant source of funds used for construction expenditures has been external financing--sale of common stock, sale of 16 first mortgage bonds and other long-term debt, sale of preferred 17 stock, and at times net increase in short-term borrowings. As 18 indicated on Page 1, in the upper portion of the page, during the last five years, in total, external financing has comprised 83. 5 20 percent or more to'otal funds used for construction. The per-21 centage of external financing rose as high as 91. 9 percent in

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1973. This is an extremely high ratio of external financing to total funds used for construction.

Q. Are construction expenditures by Carolina Power Ez Light Company expected to remain high during the years ahead?

5 A. Yes, indeed they are. Meeting growing customer needs under conditions of major inflation, and with adequate concern for environmental considerations, necessitates high construction expenditures. Even after major reductions in the Company's construction program, gross property additions and nuclear 10 fuel additions less allowance for funds used during construction are presently estimated at $ 287. 2 million for 1976 and $ 290. 9 12 million in 1977, with a marked rise in 1978, 1979, and 1980.

13 Subject to continuing review and adjustment, the total of such construction expenditures are estimated at just under $2 billion 15 for the five-year period 1976-1980.

16 Q. Will these construction expenditures likely necessitate high and 17 rising amounts of external financing?

18 A. External financing will have to be carried out in substantial amounts because of these record construction expenditures. External 20 financing is estimated to comprise a much smaller portion of 21 total funds used for construction expenditures during 1976-1978

than during 1971-1975. During these years, however, the foundation must be laid in terms of earnings experience and coverage ratios for the even greater financing demands later in this decade.

CAPITALIZATIONAND CAPITAL STRUCTURE RATIO

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9 Q. What has happened to total capitalization of Carolina Power L 10 .Light Company as a result of the continued sale of securities in the credit markets?

A. The capitalization of Carolina Power 4 Light Company over the 13 years is shown on Page 3 of the exhibit. In the ten-year period 14 total capitalization increased from $ 405.5 million on December 31, 15 1965, to $ 2, 213..6 million on December 31, 1975 This represents 16 more than a five-fold increase in total capitalization over the decade.

]7 Q. Referring to Page 3 of the exhibit, what comprises the capitalization 18 of Carolina Power 8z Light Company?

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1 A. In terms of the balance sheet,.mome of the.,capital of Carolina Power 0 Light Company is debt, some is preferred and.preference stock capital and some is common;equity. Totatde@tdjzcludes long-term debt, first mortgage bonds and other long-term debt, and short-term debt, notes payable to banks, commercial paper, and other short-term debt. Short-term debt has been included in the capitalization data on pages 3 through 5, so as to assure adequacy of coverage and accuracy of comparison, not only with respect to the bearing of the degree of leverage 10 on rate of return on common equity, but also in terms of the degree of coverage of interest and preferred stock dividends.

12 Common equity includes common stock and retained earnings.

13 Q.. What has happened to Carolina Power L Light Company's capital 14 structure ratios as the common equity ratio has declined'.

The capital structure ratios of Carolina Power 8z Light Company 16 over the years are shown on Page 4 of the exhibit. Over the 17 years there has been a major decline, after years of stability 18 in the common equity ratio, from 38. 80 percent on December 31, 1964, to a low ratio of 27. 39 percent on December 31, 1974. - The 20 debt ratio, and the preferred stock ratio in particular, mesc 21 coarse sponcUngiy.. Going the last three years, however,- the

h common equity ratio has risen from the'very low point it had reached.

3 Q Please explain Page 5 of the Exhibit?

4 A. Capitalization and capital structure ratios for Carolina Power 8z Light Company are shown on Page 5 for June 30, 1976, and for June 30, 1976 pro forma the sale of common stock in October 1976.

On June 30, 1976 the capital structure ratios of the Company were: total debt, 51, 82 percent; preferred stock and preference stock, 15. 06 percent; and common equity 33.12 percent. On 10 t'une 30, 1976 pro forma the sale of common stock in October 1976 the capital structure ratios are: total debt, 49. 23 percent; 12 preferred stock and preference stock, 14. 96 percent; and 13 . common equity ratio, 35. 81 percent.

14 Q Please explain Page 6 of the Exhibit?

15 A Capitalization and capital structure ratios for Carolina Power K..

16 Light Company are shown on Page 6 as of June 30, 1976 pro 17 forma sale of common stock in October 1976, with the components 18 stated in terms of appropriate regulatory concepts. Long-term debt is shown, with short-term debt retired. In accordance. with 20 the usual practices of this Commission, as I understand them, 21 interest-free capital has been included in total capitalization.

This includes accumulated deferred income taxes and the deferred investment tax credit. The deferred job development investment tax credit has been included in common equity. This was the procedure followed by this Commission in the last two Orders regarding Carolina Power Ez Light Company, It is my opinion that it was the clear intent of the Congressional Conference Committee in enactment of the job development credit that it be included in common equity.

In terms of capitalization per books for total Company, 10 on June 30, 1976 pro forma the sale of common stock in October 1976, the ratio of long-term debt to total capitalization 12 was 46. 39 percent; the preferred stock ratio and preference 13 stock was 14.10 percent, and the ratio of interest-free capital 14 ot total capitalization was 4. 55 percent. The common equity 15 r atio was 34. 96 pe rce nt.

Capitalization per fair value rate base for North Carolina 17 retail operations is shown later on Page 91. The common equity 18 increment in fair value rate base is included in common equity:

The common equity ratio rises to 43. 38 percent on this basis.

20 Q What capital structure ratios have you used in your determination 6f 21 a fair rate of return for Carolina Power Ez Light Company?

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A. The capital structure ratios which I have used in my study are shown on Page 6 of Langum Exhibit No. 2.

For adjustment of earnings experience of comparison com-panies as guide to test of commensurate return for Carolina Power Er. Light Company, I have used a common equity ratio of

35. 81 percent, as developed on Page 5 of the Exhibit.

In my determination '6f fair rate of return on original cost rate base, I have used the capital structure ratios in terms of regulatory concepts - long-term debt, 46. 39 percent, 10 preferred stock, 14.10 percent; interest-free capital, 4. 55.

percent; and common equity, 34. 96 percent.

I have used these capital structure ratios for several 13 reasons. First they are realistic, being based on the actual situation of the company on June 30, 1976 pro forma sale of 15 common stock in October 1976, and under current plans for 16 financing and operation of the company, Second, they are 17 appropriate in my judgment within a range for Carolina Power Ez 18 Light Company in terms of the basic risks and uncertainties of its business.

20 Capital structure ratios are extremely important in a fair 21 rate of return study for two basic reasons. First they provide the

weights to be applied to the cost rates for debt, preferred stock, intere st-free capital, and common equity in obtaining components of the overall cost of capital fair rate of return. Second, the cost rates on the various types of capital will vary to some extent with the capital structure ratios. Cost rates on debt will rise to some extent with higher debt ratios, Beyond this, the indicated rate of return on common equity which is fair and reasonable will likewise vary to a considerable extent with the common equity ratio. The lower the common 10 equity ratio, the higher will be the required rate of return on common equity. Rate of return on common equity 12 and the common equity ratio must be stated together and ex-13 pressed side by side for meaningful measurement and inter-14 pretation of earnings experience on common equity. For 15 these reasons, components of capitalization and the correspond-16 ing capital structure ratios must be defined accurately and use d 17 with care.

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I COST OF DEBT Q. Referring to Page 8 of the exhibit, what was the imbedded cost of debt to CarolinaPower h Light Company on June 30, 1976 pro forma sale of common stock in October 1976?

A. On June 30, 1976 pro forma the sale of common stock in October 1976, the imbedded cost of total debt to Carolina Power Ez Light Company was 7. 72 percent. This is the ratio of total interest requirements and net amortizati~ $ 85, 339, 812, to total 10 debt outstanding, net, $ 1, 105, 361, 570.

Q Please explain Page 9 of Langum Exhibit No. 2?

A. Page 9 shows the yield levels in the credit and bond markets 13 .in which Carolina Power Ez Light Company has financed during 14 recent years.

First mortgage bonds of CP4L are rated Baa by Moody's 16 and A by Standard 4 Poor's.

'17 A study of offering yields on all newly issued public utility 18 bonds rated by Moody's during the last several years is shown on Page 9 of the exhibit. On Page 10 I have shown the averages by 20 years from 1960 through 1975 and for January through October 21 1976, of Moody's Averages, computed and published monthly, l

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of yields on newly issued long-term public utility bonds rated Aaa, Aa, A, and Baa and offered publicly. The changing conditions 4

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, in 1974 went up further to 9. 75 percent, and in 1975 went up to 10 a new record average of 10. 22 percent, During Zanuary-October 1976 the average was lower, 9, 05 percent.

12 The averages for yields on Baa-rated newly issued long-13 term public utility bonds shown for 1974 on Page 9 14 correct but may be somewhat misleading. The 1974 average for Baa-rated bonds, 9. 16 percent, is only for January-May 16 1974 and the average for A-rated bonds, 9. 75 percent, is for 17 .january-December 1974. During the months of t'une 1974 through 18 Zune 1975 no long-term Baa-rated bonds could be marketed by any electric utility because of troubled conditions in the capital 20 markets, and if they could have been sold, the interest rate would have been at least 2 percentage points higher than on the A-rated bonds.

The tests of the market in current circumstances demand that successful financing through first mortgage bonds by utilities demand that they receive at least an A rating by Moody's and Standard 4 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 strong advantages over A-rated bonds. Quality counts heavily in these troubled capital markets.

10 Q What is the cost of long-term debt. for Carolina Power h Light Company?

12 A. The cost of long-term debt for Carolina Power Ez Light Company 13 is 7. 72 percent as shown on Page 11.

15 COST OF PREFERRED AND PREFERENCE STOCK 16 17 Q, Going on to preferred and preference stock, what was the 18 imbedded cost of preferred and preference stock to Carolina Power 8: Light Company on June 30, 1976 pro forma sale 20 of common stock in October 1976?

21 1 A. As shown on Page 12 of Langum Exhibit No, 2, the imbedded cost of preferred and preference to CPhL on June 30, 1976 pro forma sale of common stock in October 1976, was 8. Ol percent. This is the ratio of dividend requirements, $ 26, 925, 874, to the amount outstanding of preferred and preference stock,

$ 336, 018, 400 on that date.

Q. What is the cost of preferred stock and preference stock for Carolina Power 8z Light Company?

9 A. As shown on Page 13 of the exhibit, the cost of preferred stock 10 for Carolina Power 8c Light Company is 8. 01 percent.

12 FAIR RATE OF RETURN ON BOOK VALUE OF COMMON EQUITY 13 14 15 Q. Now, Dr. Langum, taking up the matter of fair and reasonable 16 earnings .rate-. on the common equity of Carolina Power L Light 17 Company, will you explain your approach to this determination?

18 A. My approach in the determination of a fair and reasonable earnings rate on the common equity for Carolina Power 4 Light 20 21

Company is presented in summary outline form on Page 14 of the Exhibit.

The criteria for fair rate of return are return commensurate with the earnings experience of comparison companies; main-tenance of credit and support of financial integrity; and attrac>>

tion of capital - and on fair and reasonable terms.

These criteria have been stated in the leading decisions of the United States Supreme Court.

The United States Supreme Court stated in the Bluefield 10 Case (1923):

"A utility is entitled to such rates as will permit it to 12 earn a return on the value of the property which it employs 13 for the convenience of the public equal to that generally 14 being made at the same time and in the same general 15 part of the country on investments in other business under-16 takings which are attended by corresponding risks and 17 uncertainties... "

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20 "... By that standard the return to the equity owner should 21 be commensurate with the returns on investments on other

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enterprises having corresponding risk's. 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."

Counsel for the Company has brought to my attention the following statement in the North Carolina statute, that in fixing rates for a public utility, the Commission shall, among other requirements:

"Fix such rate of return on the fair value of the property 10 as will enable the public utility by sound management to produce a fair profit for its stockholders, considering 12 changing economic conditions and other factors, as they 13 then exist, to maintain its facilities and services in 14 accordance with the reasonable requirements of its 15 customers in the territory covered by its franchise, 16 and to compete in the market for capital funds on terms 17 which are reasonable and which are fair to its customers 18 and to its existing investors. "

My approach to determination of fair rate of return on 20 common equity is a combination of commensurate return and 21 attraction of capital on fair and reasonable terms and maintenance

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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, to start with, a study has been made of the fair rate of return on common equity allowed electric utilities by State Regulatory Commissions and by the Federal Power Commission in rate proceedings during 1975 and 1976 to date.

In terms of study of actual earnings experience on common equity, selection of comparison companies has been in terms of basic concept, 10 with consideration given to business characteristics, investment stature, similar approaches by regulatory commissions, and com-12 parable accounting and ratemaking treatment. Emphasis has been 13 placed on the earnings experience on common equity of electric utilities 14 in fair value jurisdictions, used as comparison companies. The reason 15 for, this is that the fair and reasonable rate of return on book value of common equity is to be used in the determination of a fair rate of return 17 for application to the rate base of Carolina Power h Light, which is on a 18 fair value basis. Consideration has been given to recent rate orders by regulatory commissions. Consideration has been give'-to.thpnzxajbr:

20 upswing in rate of return on common equity which has been experienced N

21 by unregulated enterprises in the American economy. Background information has'been provided for all nonfinancial corporations with qua'lity ranking of High Grade by Moody's I

By fair value jurisdictions, l mean those states which give significant recognition to current prices in determination of rate base. Opexating electric utilities in fair value jurisdictions are the most comparable business undertakings and the closest alternative investment opportunities to Carolina Power'-Ez'ight.

Measurement of earnings experience on common equity has been in termsof rate of return on common equity and the I

corresponding common equity ratio. Common equity ratios, of course, have critical importance. The quality of reported 10 earnings is significant too, with particular regard to the role of allowance for funds used during construction.

12 The determination of a fair and reasonable earnings rate 13 on the common equity - the cost of common stock capital - is 14 much more complex than that of the cost of debt capital or preferred 15 stock. There are fundamental differences between these types of 16 capital and the determination of their costs. Common stock 17 investors are equity investors. They are not buying a bond or 18 preferred stock with fixed interest or dividend and limited risk.

Common stock investors are buying ownership in the business 20 enterprise, with the risks and opportunities which that necessarily 21 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 earnings power rN, on common equity are the basic considerations involved in the cost of common stock capital.

Then, too, crucial in importance, we must remember that all 'of these matters for one company are ~ace'~$ 'ly ~shred'hx j5 10 terms of the'corresponding considerations in alternative investment opportunities. Appraisal of equitims in the capital markets can 12 only be made on the basis of comparison.

13 In terms of attraction of capital on fair and reasonable terms and maintenance of credit and support of financial integrity, 15 emphasis has been placed upon studies of market appraisal of common stocks and common stock offering@=of:eleethicunMiMap, 17 and upon studies of first mortgage bond offersagg. to support ratings 18 of A by Moody's and A. by Standard 8z Poor's, and upon studies of preferred stock offerings of electric utilities to support ratings oi "a" 20 by Moody's and A by Standard 4 Poor's, a minimum and 21 reasonable goal for ratings on the first mortgage bonds and preferred stock for Carolina Power 8: Light Company.

In summary, a fair and reasonable allowance on the common equity of Carolina Power h Light should be deter-mined in terms of the ratio of net income for common equity to the value of common equity. I have measured the value of common equity in terms of both book value and fair value.

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 10 corresponding risks. It must thus measure up to, and meet, the earnings experience on common equity in the closest 12 alternative investment opportunities, taking into account any 13 differences in risk and the common equity ratio. It must 14 provide for maintenance of credit and assure confidence in 15 financial integrity. It must provide for the attraction of 16 capital - and on fair and reasonable terms.

17 The fair and reasonable earnings rate of

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'ommon determined ultimately as a fair and reasonable rate of return on 20 the fair value of common equity to be used in the determination of 21 a fair rate of return for application to the fair value rate base of Carolina Power 4 Light Company.

Q. Dr. Langum, will you now describe your study of earnings experience 'on common equity of Carolina Power 4 Light Company?

3 A The earnings experience on common equity of Carolina Power Ez Light during the last decade is shown on Page 15 of the exhibit.

Rate of return on common equity, that is, net income for common divided by average common equity, is shown first.

In 1974 the rate of return on common equity reached a low of

9. 56 percent. By the twelve months ended June 30, 1976, the earnings rate on common had risen to 12. 44 percent.

10 The common equity ratio for Carolina Power 8z Light was 29. 43 percent in 1974. The common equity ratio is average 12 common equity divided by average total capital. In the twelve 13 months ended June 30, 1976, the common equity ratio was 31, 18 14 per cent.

15 Allowance for funds used during construction, now a part 16 of .other income and which enters into the determination of net 17 income for common, was 105. 84 percent of net income for 18 common in 1974. This ratio bears on the quality of reported earnings for common equity. The ratio had declined to 62. 89 20 percent in the twelve months ended June 30, 1976, 21 These data on past earnings experience on common equity

of Carolina Power Ec Light Company, of course, cannot be used in any direct manner as a guide to a fair rate of return on common equity for the Company. That would involve clearcut circular reasoning.

During the last three years, due in considerable part to the understanding by this Commission of the hard realities of the electric utility business and to the granting of rate increases, the financial position of Carolina Power L Light Company has improved greatly over the low point in 1974. But much remains 10 to be done to restore fully the financial strength of Carolina Power Ez Light Company.

12 Q.. In this connection, Dr. Langum, will you comment on the invest-13 ment stature of Carolina Pow'er 0 Light Company?

A. Investment stature is an important criterion of comparability.

15 Seven specific tests of inmstment stature in terms of ratings 16 and characteristics of securities were used in my studies of 17 this criterion.

18 Page 16 of the Exhibit shows the results of th'e application of these seven tests to Carolina&ower 4 Light Company.

20 The first test is Moody's bond rating of senior debt or 21 I

equivalent standing in terms of debt ratio iS a company is privately-held. The first mortgage bonds of Carolina Power 8z Light have been downgraded to Baa by Moody's Investors Service.

The second test is Standard k Poor's bond quality rating on senior debt. The first mortgage bonds of Carolina Power 4 Light has been maintained at A by Standard 4 Poor's.

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

The preferred stock of Carolina Power L Light is rated "baa" 10 by Moody's.

The fourth test is Standard L Poor's quality rating of 12 preferred stock, The preferred stock of.Carolina Power 4 13 . Light is rated A by Standard 4 Poor's.

Q. Please discuss your fifths sixth, and seventh tests which have t'o do, I believe, with common stock?

A. The fifth test of investment stature is Moody's basic investment 17 quality ratings as stated in Mood 's Handbook of Common Stocks.

18 These quality ratings run from High Grade or High Quality, go on down to Investment Grade, and then to Medium Grade, and to 20 Speculative. The common stock of Carolina Power k Light is 21 characterized by Moody's as "Medium Grade."

The sixth test is earnings and dividend rankings for common stocks by Standard 8: Poor's Corporation. Standard h Poor's rankings of common stocks are designed to indicate, by the use of symbols running from A+ to C, the relative s

stability and growth of earnings and relative stability and growth of dividends. These rankings are published in the Securit Owner's Stock Guide, The common stock of Carolina Power Er Light is ranked A by Standard 4 Poor's Corporation.

The seventh test of prime investment stature is that of 10 dividend record. Carolina Power Ez Light has paid a dividend on its common stock each year since 1937. The ability of a 12 company to maintain, through good and bad times, an unm-13 terrupted flow of dividend payments to stockholders is a clear 14 indication of underlying strength and stability. Investment 15 comparisons frequently list common stocks with a sustained 16 dividend record of 25 years or longer. Studies of the dividend 17 record have been made on the basis of data from Standard 4 18 Poor's Corporation published in the Securit Owner's Stock Guide, end from Moody's Investors Service, Inc., published in 20'ood 's Public Utilit Manual.

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Q. Please explain your study of the fair rate of return on book value of common equity allowed by regulatory commissions?

3 A. On page 17 of Langum Exhibit No. 2, is a chart showing the fair rate of return on book value of common equity allowed in 39 major electric utility rate orders in original cost juris-dictions by state public utility commissions and by the Federal Power Commission during 1975 and 1976 thus far. As indicated in the footnote, all 39 Orders define return as operating income and exclude allowance for funds used during construction from 10 return. A listing of the 34 Orders by state utility commissions included is on pages 18 and 19. A listing of the 5 Orders by the 12 Federal Power Commission used is on page 20.

13 The average rate of return on common equity derived from 14 operating income excluding allowance for funds used during con-15 struction, allowed utilities by state regulatory commissions in 16 original cost jurisdictions and the Federal Power Commission has 17 averaged 13. 50 percent during 1975 and 1976. In making this study, 18 I have given due care to the exclusion of allowance for funds used during construction from net income for common. The commissions 20 relied upon relate fair return, determined by combination of fair 21 rate of return and rate base, only to operating income.

For example, as shown on page 19. the Public Service Commission of Utah, Case No. 7167, decided March 4, 1976, awarded Utah Power and Light Company a fair rate of return on common equity of 16 percent, at a 37 percent common equity ratio, with a rate of return on total capital of 10. 71 percent, with allowance for funds used during construction not included in return. The State Corporation Commission of Kansas in Docket No. 102, 560-U, d ecid ed February 26, 1975, found for the Kansas Power and Light Company a fair and 10 reasonable rate of return on common equity of 13. 60 percent, at a common equity ratio of 44.13 percent. The Kansas Com-12 mission, in Docket No. 102,640-U decided July 14, 1975, found 13 for Kansas Gas and Electric Company a fair rate of return of 14 14. 85 percent on common equity with a common equity ratio of 15 30. 4 percent, making a component for common equity of 4. 51 16 percent. The State of New York Public Service Commission in 17 Opinion No. 76-8, regarding Rochester Gas and Electric Corpor-18 ation, issued April 8, 1976, adopted a rate of return on common equity of 13. 5 percent, with a common equity ratio of 38. 0 percent, 20 forming a weighted component of common equity of 5. 13 percent, 21 and, in addition, the Commission approved an additional return

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allowance of 0. 32 percent for. attrition, making the fair rate of return on common equity of 14. 34 percent. The Public Service Commission of Wisconsin in Docket No. 6630-ER-1, decided August 5, 1976, allowed Wisconsin Electric Power Company a fair rate of return on common equity of 13. 00 percent at a common equity ratio of 38. 7 percent, making a weighted component for common equity of 5. 03 percent, and, in addition, awarded an attrition allowance which brought the allowance on common equity to 14 percent. The Florida Public 10 Service Commission in Order No. 6681, decided May 21, 1975, awarded Tampa Electric Company a fair and reasonable rate of return on common equity of 14. 75 percent at a common equity 13 . ratio of 29.45 percent, including deferred income taxes and 14 customers deposits at 8. 27 percent of total capital. The Public 15 Utility Commissioner of Oregon in Case UF3150, Order No.

16 75-704, dated August 13, 1975, awarded Pacific Power and Light 17 Company.a reasonable rate of return on common equity of 13. 50 18 percent at a common equity ratio of 34. 9 percent, making a component for common equity of 4. 71 percent.

20 Even where the rate of return has been lower than 13.. 50 percent, 21 frequently this has been at a much higher common equity ratio I

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than that which I have utilized for Carolina Power L-. Light Company making for a component for common equity close to what I have used for Carolina Power 4 Light Company.

For example, the Public Utilities Commission of the State of California in Decision 8492, issued September 16, 1975, found for Pacific Gas and Electric Company a minimum reasonable rate on equity of 12 percent at a common equity ratio of 37. 74 percent, making a component for common equity in rate of return in total capital of 4. 53 percent. By 10 comparison, the fair rate of return on common equity from operations for Carolina Power 8z Light Company which I have 12 found of 14.25 percent at a 34. 96 percent common equity ratio 13 . makes for a component for common equity of 4. 98 percent.

14 Recent orders by the Federal Power Commission are listed 15 on page 20. It is well established, of course, that the Federal 16 Power Commission measures return only in terms of operating 17 income without inclusion of allowance for funds used during 18 construction. For example, in Docket Nos. E-8586 and E-8587 issued November 10, 1976, the Federal Power Commission found 20 for Public Service Company of Indiana a fair and reasonable 21 allowance on common equity of 13. 00 percent, at a common equity ratio of 36. 56 percent, which results when multiplied times each other, in a weighted component for common equity of

4. 75 percent. In Opinion No. 761, dated April 28, 1976, the Federal Power Commission found an allowance on common equity for Connecticut Light and Power Company of 12,25 percent on a common equity ratio of 35.40 percent. In Opinion No. 768, dated July 7, 1976, the Federal Power Com-mission found an allowance for common equity for Nevada Power Company of 14. 00 percent at a common equity ratio of 29. 98 10 percent.

The administrative law judges in recent initial decisions 12 have similarly followed the course of the Commission's recent I

13 . decisions on rate of return. For example, the initial decision 14 in Docket No. E-8911, dated October 18, 1976, regarding Gulf 15 Power Company, found a fair rate of return on common equity 16 of 13. 00 percent at a common equity ratio of 34.11 percent, 17 making a component of 4.43 percent. The initial decision of the 18 administrative law judge in Docket No. E-8851, dated October 22, 1976, regarding Alabama Power Company finds an allowance for ZO common equity of 12. 935 percent at a common equity ratio of 21 31.0 percent, forming a component of 4.01 percent.

As shown at the bottom of page 17, for the 39 Orders in original cost jurisdictions, the median is 13. 50 percent and the average is 13.47 percent. With an excess of fair rate of return on book value earned by electric utilities in fair value jurisdictions even at only 0. 75 percent over than earned by electric utilities in original cost jurisdictions, the record of recent Orders in original cost jurisdictions support my judg-ment of 14. 25 percent as the fair rate of return on book value of common equity for Carolina Power Ez Light Company. As 10 a matter of fact, the average rate of return on book value of common equity earned by the 39 electric utilities in fair value 12 jurisdictions, shown on the top line of page 28 of Langum Ex-13 hibit No. 2, averaged l. 65 percent excess over that earned by 14 81 major electric utilities in original cost jurisdictions, through 15 the period 1963 through 1975. The averages of common equity 16 ratios for the groups of companies involved support these con-17 clus ions.

18 Information on fair rate of return allowed by regulatory commissions in fair value jurisdictions is shown on pages 2'I and 20 2la of Langum Exhibit No. 2. These data, from major Orders 21 during 1975 and 1976 by regulatory commissions in Arizona, Indiana, New Mexico, Ohio, and Pennsylvania, strongly support the judgment which I make that 14.25 percent is the fair rate of return on book value of common equity which Carolina Power 0 Light Company should be afforded the opportunity to earn.

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Il 1 Q. Dr. Langum, you have stated that an additional basis of your d etermination has been that the return on the common equity Ii of Carolina Power 4 Light should be commensurate with the earnings experience of comparison companies drawn from the major electric utilities in fair value jurisdictions. Are

~ll these the electric utilities listed at the left on Pages 22 and 23?

ii A. Yes, they are. The electric utilities which I have studied are listed at the left on Pages 22 and 23 of the exhibit. The 35 operating electric utilities listed at the left on pages 22 and 23 li 10 of the exhibit, by jurisdictions, comprise all major electric utility companies in the United States, both those with publicly-

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held common stock and the operating subsidiaries of holding 13 .companies, in fair value jurisdictions during 1974 and 1975.

Of these 35 operating electric utilities in fair value jurisdictions, LI 20 are without flow-through, as indicated by the asterisk. Of the LI 16 38 companies, 29 are in states other than Texas, and 10 are in Texas.

t 17 18 The four holding companies which own operating companies in value jurisdictions are also listed on Page 23.

fair Li Q. Dr. Langum, you have stated that you have studied the earnings 20 experience of electric utilities in fair value jurisdictions as LI 21 a guide to commensurate return on the common equity of Li Ll

1 Carolina Power 4 Light. What is the basis for your character-ization of various state jurisdictions as fair value or original cost jurisdictrons?

4 A. In my characterization of various state jurisdictions as fair value or original cost jurisdictions, I 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 utility jurisdiction is, however, an essential and commonplace part of financial analysis and investment decision. My judgment as 10 to the regulatory approaches used in these states has three bases: first, the statutes, court decisions, and commission 12 orders in several of these states to which counsel for various 13 companies and public bodies have directed my attention and 14 special studies which I have made on the basis of these decisions I

15 and orders; second, the analysis of methods of rate base deter-16 mination generally applied given in the pamphlet, Federal and 17 State Commission Jurisdiction and Re ulation of Electric Gas, 18 and Tele hone Utilities, 1973, prepared by the Federal Power Commission, in cooperation with the National Association of ZO Regulatory Utility Commissioners; and third, analyses of Zl regulation by state public utility commissions and representative

utility rate case decisions such as those prepared by Moody's Investors Service, Inc., and published in Mood 's Public Utilit Manual, 1967, pages a140-al41, al45-al51.

The electric utilities, including combination utilities, in fair balue jurisdictions and with investment stature are the most comparable business undertakings and present the closest alternative investment opportunities to Carolina Power Ez Light.

I shall use their earnings experience on common equity in application of the standard of commensurate return in deter-10 mination of fair rate of return on common equity for Carolina Power 4 Light Company.

12 The fair earnings rate of common equity for Caielina 13 Power 4 Light must be stated and determined in terms of the earnings experience on common equity of other electric utilities 15 in fair value jurisdictions, for the reason that Carolina Power Sz 16 Light in its retail business in North Carolina, is regulated on 17 the basis of a fair value rate base. Then, too, use is made only 18 of companies with adequate investment stature.

Will you now discuss the investment stature of the electric 20 21

utilities listed at the left on Pages 22-23 of'the Exhibit?

2 A. These are the electric utilities in fair value jurisdictions, both those with publicly-held common stock and the operating subsidiaries of holding companies, including the Illinois companies. The holding companies of the operating sub-sidiaries are shown at the bottom on page 23. These electric utilities in fair value jurisdictions generally have investment stature, as shown on pages 22 and 23;. Their senior debt is typically rated Aa and A by Moody's and AA and 10 A by Standard 4 Poor's. Their preferred stock is typically rated "aa" and "a" by Moody's and AA and A by Standard L Poor's.

12 Their common stocks have typical investment quality references 13 from Moody's as High Grade or Investment Grade. Their 14 common stocks have typical earnings and dividend rankings by Standard 4 Poor's of A, with some A+ and some A-. They typically 16 have a long, sustained dividend record, usually of at least 25 17 years. Some companies have been downgraded, however, to 18 less than investment stature, with Baa and BBB ratings on first mortgage bonds and '!baa" and BBB ratings on preferred"-stock.

20 The companies with investment stature, however, are closely 21 comparable, even if on balance now definitely somewhat super'ior R

in investment stature to that of .Carolina Power 4 Light Company. They are very close alternative investment opportunities to Carolina Power 8z Light.

The earnings experience on common equity of these closely comparable business undertakings and close alter-native investment opportunities is important for fair rate of return on common equity. Investment stature is of direct relevance to comparability because gradations of investment quality designate degree of investment risk.

10 12 13'5 16 17 18 20 21 I

Q. Dr. Langum, let us now go into the matter of earnings experience on common equity of the comparison companies. Will you explain your studies in this respect?

4 A. The earnings experierice on common equity during the years of electric utilities in fair value jurisdictions is shown on Pages 24-28. These are the 34 electric utilities previous described, with the addition of five companies from Alabama and Illinois, which are no longer fair value jurisdictions. I have crossed out the figures for those companies, although the figures are used 10 in the averages.

I shall make use of the earnings experience of certain of these companies in determination of the fair rate of return on 13 .common equity of Carolina Power Ec Light. For each of the 39 14 companies for each year 1963 through 1975, the rate of return on 15 book value of common equity is shown, with the corresponding 16 common equity ratio shown just below,. For example, the data 17 in the lower right hand corner of Page 26 indicated that in 1975 18 West Penn Power Company earned a rate of return of 13. 34 percent on common equity, with a 33. 39 percent common equity ratio.

20 Averages for these companies: are shown on Page 28.

Zl Thus, in 1975 the 39 electric utilities in fair value jurisdictions, l

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including the companies in Alabama and in Illinois, earned an average of 12. 50 percent on common equity, with a 33. 19 percent common equity ratio. In )966 these 39 electric utilities had earned 14. 82 percent on common equity, with a 38. 80 percent common equity ratio.

The companies in fair value jurisdictions without flow-through are designed by the asterisk. By without flow-through I mean those companies and states in which the reductions in current income taxes from liberalized depreciation and invest-10 ment tax credit are offset by a charge for normalization or amortization in the income statement and hence do not increase 12 reported operating income and net income for common by such 13 reductions in current income taxes.

14 Carolina Power 0 Light Company normalizes tax 15 deferrals from accelerated depreciation and amortizes 16 the investment tax credit to income over the service life 17 of the property. Accordingly, CP8zL is in the "without 18 flow-through" category.

In effect, the capitalization of those companies without 20 low-through is on an entirely different basis than those 21 companies with flow-through. Deferred credits for accumulated

income taxes for companies without flow-through are signi=

ficantly higher in relation to common equity, of course, in contrast to the situation for those companies with flow-through.

. In fact, utility companies without flow-through earn somewhat more on common equity as ordinarily measured than do utility companies with flow-through.

Electric utilities which normalize both liberalized depreciation and investment tax credit, and are without flow-through, are particularly relevant as comparison companies 10 in tests of commensurate rate of return. I shall give more weight to their earnings experience on common equity than to 12 that of electric utilities on a flow-through basis. By the same 13 token, in my judgment, the accumulated credits for deferred 14 income taxes and unamortized investment tax credit, except 15 for the job development tax credit, should be considered as interest-free capital in determining the rate base for Carolina 17 Power 4 Light Comp'any.

18 Q, Will you comment on the significance of the increased role of allowance for funds used during construction?

20 A. 'llowance for funds used during construction in relation to net income for common for the electric utilities in fair value

jurisdictions is shown on Pages 29-30 of the Exhibit. For example, the data in the lower right corner on page 29 indicate that for Toledo Edison Company in 1975 allowance for funds used during construction was 72. 43 percent of net income for common, As shown at the lower part of Page 35, at the right, in 1975, on average, allowance for funds used during construction was 35. 90 percent of net income for common for the 39 companies in fair value jurisdictions, Allowance for funds used during construction was formerly called interest 10 during construction The increased role of allowance for funds used during 12 construction has great significance, in my opinion, at least in 13 two respects. First, the increased role of allowance for funds used during construction has substantially lessened the 15 quality of reported earnings for common equity. The allowance 16 for funds used during construction is entirely proper but is 17 essentially a bookkeeping adjustment. Earnings from allowance 18 for funds used during construction have an important defect, namely, that there are no current cash revenues corresponding 20 to these earnings. The portion of net income for common 21 derimd from return, that is, operating income, is far more 41

1 meaningful and stable than that portion derived from allowance for funds used during construction.

Second, the increased role of allowance for funds used during construction has vital significance for use of data from comparison companies, particularly for electric utilities in determination of fair rate of return. We 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.

9 Q. How will you use the data on earnings experience on common 10 equity for the comparison companies in determination of fair

.rate of return on common equity for Carolina Power & Light?

12 A. The data on earnings experience on common equity for the 13 comparison companies are important. They represent but 14 a starting point, however, as the basis of determination of 15 fair rate of return on common equity for Carolina Pcnxcer.".8zcLight, 16 They must be given further analysis and proper interpretation 17 in the light of additional considerations. For one thing, the 18 earnings experience of the comparison companies must be related to the breader matter of earnings experience of 20 companies generally in the American economy, with varying 21 conditions of real growth and inflation. In addition, the common equity ratio has vital significance in appraisal of 2 data concerning rate of return on common equity and adjust-ments for differences in common equity ratio between Carolina Power 0 Light and the comparison companies. Another con-sideration which is very important is that only companies that are healthy and successful should be used as comparison com-7 panic s.

Q. Please discuss the broader matter'of earnings experience of 9 companies generally in the American economy, with varying 10 conditions of real growth and inflation?

A.. The difficulties which many electric utilities are experiencing

'2 are related, of course, to developments in the American economy.

14 With major inflation, in particular, have come the high interest 15 rates shown on Pages 9 and 10 of the Exhibit. The effects of inflation 16 on operating expenses and on plant costs and on high interest rates 17 and preferred stock dividend yields. have been prime causes of 18 the sharp deterioration in the earnings experience of electric utilities. Concurrently, the lower earnings experience on 20 common equity has meant lower coverage ratios on bonds and 21 preferred stock for electric utilties 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 experience on common equity. This is the reason for exclusion of certain companies from.use as comparison companies in test of commensurate return, in which I use earnings data for 1971, 1972, 1973, 1974, and 1975.

10 12 13 14 16 17 18 20 21

l 1 Q. Will you explain the significance of the common equity ratio in appraisal of data concerning rate of return on common equity?

4 A. The common equity ratio has vital significance in appraisal of data concerning, rate of return on common equity. Data concerning rate of return on common equity can be appraised meaningfully only in terms of the corresponding common equity ratio.

For any business enterprise, the earnings rate on common equity has three basic determinants. The first of these is the 10 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 t>tal capital.

13 Of these three factors, by far the most important is the 14 rate of return on total capital. This is determined, of course, 15 by the relationship between sales and expenses and capital in 16 the business undertaking. Necessarily, the overall earnings 17 experience of the business enterprise is the most important 18 20 21 determinant of earnings experience on common equity. In turn, the influence 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 10 and the same common equity ratio. The lower the common equity ratio', the higher will be th'e rate of return on common 12 equity, given the same rate of return on total capital and the 13 same cost of senior capital, assuming as is usually the case 14 that the cost of senior'apital is below the rate of return on 15 total capital.

16 In these circumstances, the common equity ratio has great 17 significance in appraisal of earnings experience. Both the common equity ratio and corresponding degree of financial 18'0 risk must be considered side by side with the percent earned on common equity, that is, the ratio of earnings for common 21 to common equity. The reason for this is that with a given 1

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rate of return on total capital, the lower the ratio of common equity to total capital, the higher necessarily should and will be 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 3l of the Exhibit presents an example of this relation-ship. Comparison is=made of five companies, each with the same rate of return on total capital, but with different common equity 10 ratios. Suppose that the relationship between sales and expenses and capital in each of these business undertaking,s is such that on 12 the total capital invested of $ 1000, the total inconic earned is

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4 13 $ 100. 00, and,the rate of return on total capital is 10. 00 percent.

In Company A, there is no debt and no preferred stock.

16 In these circumstances, all of total apital invested is 17 common equity. The common equity ratio is 100 percent.

18 All of income for capital goes to net income for common.

The rate of return on common equity, net income for common 20 divided by common equity, is 10.00 percent, the same as the 21 rate of return on total capital..

'=47-

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, 4 the common equity ratio is 60 percent. The senior capital is entirely debt. At a debt cost of 7. 5 percent, the interest charges would be 7. 5 percent of $ 400 or $ 30. 00. When this interest on debt is deducted from the $ 100. 00 income 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, 10 or 11.67 percent<

In Company C, more is borrowed, say, a total of $ 600.

12 The owner would then have to put up $ 400 of his own equity 13 . capital. In this case, the common equity ratio, $ 400 divided 14 by $ 1,000 is 40 percent. With the interest at 7. 5 percent, 15 the interest on debt would be 7. 5 percent of $ 600 or $ 45.00.

16 When this is deducted from the $ 100. 00 total income, $ 55. 00 17 woul'd be left for the owner's common equity of $ 400. The 18 rate of return on common equity, $ 55. 00 divided'by $ 400, would be 13. 75 percent.

20 In Company D, still more is borrowed, say, a total of 21 $ 700. The owner would then have to invest only $ 300 of his

own<.common equity capital. In this case, the common equity ratio, $ 300 divided by $ 1,000, is 30.0 percent. If the interest rate is still 7. 5 percent, the interest on debt would be 7. 50 percent of,$ 700 or $ 52. 50. When this is deducted from the

$ 100. 00 total income, $ 47. 50 would be left for the owner's common equity of $ 300. The rate of return on common equity,

$ 47. 50 divided by $ 300, would be 15.83 percent.

In Company E, the interest rate has gone up to 8. 0 percent as a result of the higher debt ratio. Interest on debt 10 is now $ 56. 00, and net income for common is $ 44. 00. At the common equity ratio of 30. 0 percent, the resultant rate of 12 return on common equity would be 14. 67 percent.

13 Thus, with the same overall rate of return on total 14 capital, 10. 00 percent, the rate of return on common equity 15 would go up from 10. 00 percent to 15. 83 percent, as the common 16 equity ratio went down from 100 percent to 30.0 percent. An increase in the rate of return on common equity to 14. 67 percent 18 would come about even with the increase in debt costs which might be exPected at a higher debt ratio.

20 But this, of course, also means more risk for the common 21 shareholder. The existence of more senior capital in the 49

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 jt also 4 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 E were to drop 20 percent, from $ 100. 00 to $ 80. 00. The rate of 10 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 12 equity ratio of 30. 0 percent and debt cost of 8. 0 percent would be cut from $ 44 00 to $ 24'00 or be 45 percent. The rate of 14 return on common equity would drop from 14.67 percent to 15 8. 00 percent. And if the situation deteriorated further, when 16 total income gets down to $ 44. 00 or a rate of return on total 17 capital of 4.40 percent, the earnings for the owner would be 18 nil. Beyond that, total income would fall short of meeting the interest due and the owner would lose the business.

20 Thus, the common equity ratio is of vital significance in 21 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 mad'e in comparing the two rates of return on common equity.

8 Q. How can differences in common equity ratios be considered in comparing rates of return on common equity among various 10 business enterprises with different common equity ratioS?

A Such differences in common equity ratios may be considered 12 in various ways, depending on the degree of precision desired.

13 First, a judgment adjustment in general terms may be 14 made. In this connection, sometimes rate of return on total 15 capital is simply compared with rate of return on common equity.

16 Second, comparison may be made in terms of components for common equity--the product of rate of return on common equity 18 and common equity ratio. This procedure does not give effect to varying cost components for senior capital with varying capital 20 structures and is therefore incomplete. Comparison of components 21 for common equity does, however, reflect the combination of rate

of return on common equity and common equity ratio.

Third, proper adjustments for differences in common equity ratio n>ay be made in precise terms under specified assumptions.

Rate of return on common equity at

• given common-equity ratio may be restated in terms of another corn'mon equity ratio.

7'his 7 is precisely analagous to restating yards into the equivalent of 21 feet.

a distance measured as Q. Dr. Langum, you have made the statement that if the capital structure ratios are different among various business under-10 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 made?

A.. The method of such an adjustment of rate of return on common 14 equity for a different common equity ratio is shown on page 3Z 15 of the Exhibit.

Q. Please explain page 32?

A. The method of such an adjustment o'f rate of return on common 18 equity for a different common equity ratio, in precise terms under specified assumptions, is shown on page 32 of the Exhibit.

I Z0 On page 32 the method of adjustment for different common equity ratio is shown as applied to the earnings experience in 1974 of Public Service Indiana, one of the electric utilities in fair value jurisdictions. Reference to page 25 of the Exhibit indicates that in 1974 Public Service Indiana earned

14. 42 percent on common equity, with a 37. 82 percent com-mon equity ratio. On this basis, the component for common equity in"the average overall rate of return for this company in 1974 would be 14. 42 percent times . 3782 or 5.454 percent.

At a 35. 81percent common equity, the, figure which I am using for Carolina Power E: Light, there would be less com-10 mon equity, and more debt, a change of .0>01 percentage points. At an interest rate of 5. 90 percent--the actual imbedded 12 interest rate on average total debt for 'Public Service Indiana 13 .in 1974-- this would mean, in terms of the components for 14 overall rate of return, 0.119 percent more interest and less 15 earnings for common equity.

16 The. resultant component for common equity at a 35. 81 17 percent common equity ratio would 'be 5. 335 percent. The 18 resultant rate of return on common equity at a common equity ratio of 35. 81 percent would be 14. 90 percent.

20 Public Service Indiana in 1974 earned 14. 42 percent 21 on common equity at a common equity ratib of 37. 82 percent.

Assuming for Public Service Indiana 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 14. 90 percent at a common equity ratio of 35. 81percent. Again, this is precisely analagous to restating a distance measured as 7 yards into the equivalent of 21. feet.

A common equity ratio of 35. 8lpercent is what I am using in my study of fair rate of return for Caaolina Power 4 Light, analysis of earnings experience of comparison 10 companies, as was shown on page 7 of the Exhibit. In the example on page 32, I have adjusted the actual earnings 12 experience of Public Service Indiana to the equivalent at a 13 . 35. 81percent common equity ratio. The indication from the 14 earnings experience on common equity in 1974, Public Service 15 Indiana, is that Carolina Power 4 Light Company should be 16 afforded the opportunity to earn about 14. 90 percent on common 17 equity at its common equity ratio of 35.81 percent. Earnings 18 rates of the comparison companies must be stated in terms of that common equity ratio for accurate comparison and 20 meaningful application to Carolina Power 4 Light Company.

21 On pages 33-34 of the Exhibit, the rate of return on

c'ommon equity is shown, as adjusted to the 35.81 percent common equity ratio for Carolina Power 4 Light for the operating electric utilities in fair value jurisdictions. For example, the rate of return on common equity, adjusted to 35B1 percent common equity ratio, for Public Service Indiana-r

14. 90 percent in 1974 - is shown at the right on page 33 of the Exhibit. All of the data on rate of return on common equity Q. Dr. Langum, to what factors other than differences in common equity ratios have you given consideration in application of the 10 earnings data for electric utilities in fair value jurisdictions in forming a judgment as to fair rate of return for Carolina Power L Light?

12 In application of earnings data for electric utilities in fair value 13 jurisdictions in forming a judgment as to fair rate of return 14 for Carolina Power .Ez Light, c'ousiderati'on.has been> given as~~Rl to the general economic health, so to speak, of the companies.

16 It is extremely important in using the earnings experience on 17 common equity of other comparable utilities as a guide to fair 18 rate of return for Car&jza:Power Ez Light that only:e~pames that are healthy and successful be used as comparison. companies.

20 Carolina Power 8z. Light is entitled to have'its -fair.rate of return 21, determined so as to be commensurate with the returns of other

l electric utilities, otherwise comparable, that are healthy and successful. Its f"ir rate of return should not be determined so as to be commensurate with the returns of other electric utilities that are sick and unsuccessful, or at the other extreme, that are earning excessive and unduly high returns.

6 Q. In this connection, please explain Pages 35-38 of the Exhibit?

7 A. Carolina Power 4 Light should be afforded the opportunity of 8 earning a rate of return commensurate with that earned by healthy, successful companies rather than financially sick and unsuccessful 10 companies. Accordingly, I have excluded certain companies from use as co'mparison companies in the test of commensurate rate of 12 return. The companies so excluded from use as comparison 13 companies and the reasons for my judgment are shown on 14 Pages 35-38 of the Exhibit.

15 Exclusion has been for 1971 alone, 1972 alone, 1973 alone, 16 '1974 alone, 1975 alone or the five years 1971 through 1975. Companies have 17 been so excluded from use as comparison companies on the basis 18 of definite criteria; if allowance for funds used during construction was 50 percent or more of net income for common; if the company 20 has inadequate investment stature, that is, less than A ratings Zl on first mortgage bonds and preferred stock; if the company

encountered serious difficulties in financing because of inadequate coverage ratios; and if rate of return on common equity is significantly below that permitted by the company's regulatory authority. Carolina Power 4 Light is excluded, of course, hs the subject company in this proceeding.

These data on individual companies, such as shown on Pages 35-38 are very important, for they enabled me to make sure that I was not relying upon what might be called problem companies, or companies which are clearly not earning a fair 10 return, or companies which are not being able to finance adequately or properly, as a guide to fair rate of return for 12 Carolina Power 4 Light Company, 13 Q . Please explain Pages 39-40 of the Exhibit?

14 A. The earnings experience on common equity of certain of the electric utilities in fair value jurisdictions during recent years, 16 that is, 1971, 1972, 1973, 1974, and 1975, is shown on Pages 39-40, 17 as on Pages 33 and 34. Rate of return on common equity has been 18 adjusted to the 35. 8) percent common equity ratio which I am using in forming my judgment as to fair rate of return for 20 Carolina Power Ez Light.

21 On pages 39 and 40, however, the data on rate of return on

common equity have been crossed out for the companies in fair value jurisdictions excluded from use as comparison companies in test of commensurate rate of return. Earnings experience on common equity is shown at the right on Pages 39-40 for the companies in fair value jurisdictions used as comparison companies, not crossed out, in test of commensurate return.

Averages for the companies used as comparison companies in test of commensurate return are shown on the bottom line 10 on Page 40 of the Exhibit. Separate averages are shown for comparison companies in Texas and for comparison companies 12 in jurisdictions other than Texas because there is no state 13 commission regulation of electric utilities in Texas. In Texas, 14 there is a strong fair value Supreme Court decision--the Alvin case--and varying degrees of regulation by the major cities.

16 Rate of return on common equity, adjusted to the 35. 81 percent 17 common equity ratio, for the electric utilities in all fair value 18 jurisdictions as comparison companies in test of commensurate t

return averaged 14. 87 percent in 1971, 15. 30 percent in 1972, 20 15. 23 percent in 1973, 15. 24.percent in 1974; and 14. 78 percent 21 in 1975.

I These figures have been computed from net income for common which includes allowance for funds used during con-struction. Consideration must be given to the exclusion of allowance for funds used during construction in determination P

and computation of rate of return on common equity from 6 operations.

7 Q What is the indicated fair rate of return on common equity on the basis of the test of commensurate return?

A. Rate of return on common equity adjusted to 35. 81 percent 10 common equity ratio, and allowance for funds used during construction as percent of net income for common is shown 12 on Page 41 of the Exhibit for the operating electric utilities in 13 fair value jurisdictions used as comparison companies in test 14 of commensurate return. As shown on Page 50, this study 15 indicates a fair rate of return on common equity of 14. 25 16 percent at 35. 81 percent common equity ratio, or at 34. 96 17 percent common equity ratio, using the regulatory definitions 18 of capitalization, giving consideration to the exclusion of allowance for funds used during construction.

20 Q Will you now comment on your study of developments in the 21 American economy and the recent upswing in the earnings I

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rate on common equity for unregulated companies 7 A. The record of changing economic conditions in the American economy, for 1946 through 1975 and the first half of 1976, is shown on Page 42 of the Exhibit in terms of real growth and inflation in the American economy.

The record of real growth and inflation in the American economy is shown for the post World War II period, from 1946 through 1975 and the first half of 1976 in terms of percentage changes ye ar - to- year.

10 Real growth is shown in terms of gross national product stated in constant dollars. Real growth over the years has been substantial.

lZ Recessions occurred in 1949, 1954, 1958, 1961, 1970, and more N

13 recently in 1974 and 1975. Real output in calendar year 1974 14 was down l. 7 percent from calendar year 1973 and in 1975 was 15 down l. 8 percent from 1974. In recovery and expansion, however, real output rose at an annual rate of 4. 5 percent the 17 second quarter of 1976.

18 Similarly, referring to the last column at the right, on Page 42 of the Exhibit, total real disposable personal income 20.

declined in 1974, the first year-to-year decline in a quarter Zl of a century. It rose in 1975 and in 1976.

I 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. Since then, inflation has continued but at a lower rate.

Unregulated companies have experienced a major upswing in rate of return on common equity, since the current recovery began in the first quarter of 1975, as shown on, Page 43. For all manufacturing companies, the rate of return on equity in 10 the second quarter of 1976 of 15. 70 percent, at an equity ratio of 70, 50 percent, exceeded the rate of return on equity in any previous post World War II year. The rate of return on common 13 equity earned by industrial companies with quality rating of 14 .

High Grade by Moody's was 16. 90 percent at a common equity ratio 15 of 77. 66 percent in 1975. Their earnings rate rose to about 16 20 percent on common equity in the second quarter of 1976 17 at a common equity ration of 78 per'cent.

18 20 21

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Q. Please explain the study of industrial companies you have shown on pages 44<<48 of the Exhibit?

3 A. Another study of earnings experience on common equity is shown on pages 44~48 of the Exhibit. Rate of return on common equity and common equity ratio is shown on pages 44-48 of the Exhibit for the 54 industrial companies with quality ranking of High Grade by Moody's. In terms of the averages, shown on page 48 the 13 oil companies on the list have been shown separately because of current attention to their marked step-up in earnings, 10 in connection with the energy crisis. The other 41 companies also experienced a marked improvement in earning power in 12 1973 and 1974 as compared with 1972. These companies earned 13 18. 29 percent on common equity in 1973, with a common equity 14 ratio of 79.43 percent. Their rate of return on common equity 15 averaged )6. 65 percent in 1974, with a common equity ratio 16 of 78.14 percent. The general tendency for a corporate profit 17 squeeze from 1965 to 1972 had affected these companies. These 18 companies, also, have seen a change to a lower common equity ratio over recent years.

ZO Rate of return on common. equity was down somewhat in 1975, 21 but with much better quality of earnings. The average rate of return on common equity is estimated at 20 percent in the second quarter of 1976.

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1 Q. What are the reasons in particular, for studying unregulated companies, such as the industrial companies rated "High Grade" by Moody's?

4 A. In my opinion, there are three basic reasons for giving con-sideration as background information to the rate of return earned 6 by comparable unregulated companies, such as the industrial companies rated "High Grade!'y Moody's.. Throughout, in this consideration, we must give adequate weight to the major differences in degree of risk, all factors considered, between 10 even the most comparable unregulated companies and regulated utilities.

First, public utilities must compete in thc capital markets 13 not only against other regulated enterprises but against unregulated 14 busincsscs as well. Hence, thc return to capital in such nonregulatcd 15 enterprises is particularly significant and rclcvant.

16 The realities of competition by business firms in the capital 17 18

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 on fair and reasonable terms with the full scope. of alterna:ivc investment opportunities.

A second consideration has to do with the very reason and inherent occasion for regulation. Regulation is the substitute for competition -- the combination of market forces and market 10 power which would determine services and set rates in other circumstances -- for business undertakings in areas where they 12 cannot be allowed to compete. Operating characteristics 13 necessitate generally that utilities operate under franchises and 14 that they do not engage in specific competition in regard to their 15 services and are therefore regulated to assure fair and reasonable 16 rates for services of good quality. It likewise follows that fair 17 regulation will set rates for public utilities which will provide a 18 return related to that being earned by other enterprises of comparable nature in respects other than that they are regulated 20 in the price they charge.

21 The third reason is the necessity of getting outside the circle

-64

~

l

~

~

1

of regulatory experience. An adequate test of comparable earnings must necessarily involve consideration of nonregulated enterprises in addition to that of other utilities'. As an approximation and initial step in a test of comparable earnings in determination of f'air rate of return for a given utility enterprise, we must look at the earnings experience of other public utilities. These are among the closest of other comparable business undertakings.

But if we look only at other regulated utilities in a test of com-parable earnings, to some extent, we go around in a circle.

10 Under such procedure, the return to the subject utility would be guided by other regulatory experience rather than by the funda-12 mental concept of regulation as the substitute for competition.

13 Only by consideration of unregulated companies do we take the 14 ultimate and final sWps in a test of comparable earnings, Q. Please explain your study shown on page 49 of the Exhibits A. On page 4P of the ~ibit, I have shown a study of earnings 17 experience on common equity of the 39 Operating electric utilities 18 in fair value jurisdictions used as comparison companies in relation to that of the 41 industrial companies, excluding oil 20 companies, with quality ranking of XRgh Grade by Moody's.

21 Rate of return on common equity, common equity ratio, and

the corresponding component for common equity for the 41 industrial companies has been shown in the middle on page 49.

Rate of return on common equity and common equity ratio for the 39 operating electric utilities in fair value jurisdictions on average is shown at the upper left on page 49'hese data were shown previously on page 28, 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.

10 The record of earnings experience on common equity of the 39 electric utilities in fair value jur'isdictions 12 .

during recent years in terms of averages for this broad 13 From group is quite clear. 1963 through 1966, earnings 14 improved, with higher rate of return on common equity 15 at a somewhat higher common equity ratio, .and with 16 little role of allowance for funds used during construction.

17 The component for common equity-rose from 5, ZN-percent 18 in 1963 to 5. 750 percent in 1966. From 1967 through 1970, earnings declined, with lower rate of return on common equity, Z0 at lower common equity ratio, and with increased role of 21 allowance for funds used during construction. The component l

for common equity declined from '5. 750 percent in 1966 to

4. 8', 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. 856 percent in 1970 to 3, 936 percent in 1974.

Rate of return improved in 1975. The component for common equity rose from 3. 936 percent in 1974 to 4. 149 percent 10 in 1975.

Earnings experience on common equity of the 39 operating electrics in fair value jurisdictions used as comparison com-13 ~

panies is next related, on page 49, to earnings expexience on 14 common equity of industrial companies with quality ranking of 15 High Grade by Moody's. There are the same 41 industrial com-16 panies previously considered on pages 44-48 of the Exhibit, with 17 averages shown on the bottom lines'f page 48.

18 For each group for each year, I have computed the component for common equity. The component for common on common equity is, of course, the product of rate of return 20 Thus the equity and the corresponding common equity ratio.

21

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 fair value jurisdictions used as comparison companies as percent of the component for common equity of the above 41 High Grade industrial companies.

The data in the lower part of page 49 relate the earnings experience of the 39 operating electric utilities in fair value jurisdictions to that of the 41 High Grade industrial companies.

10 The component for common equity of the 39; comparison companies is shown as percent of component for common equity of the 41t 12 High Grade industrials. The components have been in a fairly 13 consistent relationship to each other.

14 During the years 1967 through 1970, the component for 15 common equity for the electric utilities as percent of the component 16 for common equity for the industrials ranged from 37 90 percent 17 to 35. 69 percent. During the years 1971, and 1972; the relationship s ~

18 was 36. 24 percent and 33. 49 percent. During the years 1973 and 1974, when industrial earnings rose to high. levels, largely 20 as a result of inventory profits, and earnings of many electric Zl utilities collapsed, the relationship was 31. 98 percent and 28. 74 5

1

percent. The ratio was 31. 61 percent in 1975.

The study next relates the indicated fair rate of return on common equity, 14. 25 percent, at the 35. 81 percent common equity ratio, which I am using for Carolina Power 8: Light, and the resulting component for common equity of 5.103 percent to the components for common equity for the High Grade industrials.

This is shown at the right on page 49 of the Exhibit. The relation-ship of the components was '31. 09 percent in 1966, 35.24 percent in 1973, 32. 71 percent in the second quarter of 1976, of the 10 corresponding components for common equity in overall rate of return for the High Grade industrials.

12 It is clear that the electric utility industry has been able 13 to operate succ'essfully at a much lower rate of return on common 14 equity and at a much lower common equity ratio and hence at a 15 much lower component for common equity than the corresponding 16 measurements for the High Grade industrial companies. The 17 component for common equity has averaged about one-third to 18 two-fifths of that for the High Grade industrial companies. This evidences a major excess of earning power on common equity, 20 and, probable deg,ree of risk for the High Grade industrial 21 companies over that for the operatinp electric utilities.

1 1 Q. What other conclusions do you reach from the. study on page 497 A. Other conclusions follow from the study shown on page 49 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, and'1975. 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 10 rate of retur'n.

At the same time, we must not forget that many individual 12 companies in, the electric utility business are in nothing less 13 than deep depression in terms of earnings experience on com-14 mon equity. We should amid use of earnings experience of sick, problem, unsuccessful companies as a guide to fair rate 16 of return for a subject company.

17 Finally, we can confidently utilize appropriate rate of return 18 data for electric utilities during recent years as'a guide to fair rate of return, with no fear whatsoever, of circular reasoning.

20 Their earnings experience is, in general, very much "in line" 21 with historical relationships with corparate 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 1972 to 1973 and 1974, however, must remind us of the low position of the electric utility industry in curr'ent circumstances 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 - 14. 25 percent at a 35. 81 percent common equity 10 ratio - is very much "in line" with historical relationships with corporate profitability of these closely comparable firms in the unregulated part of the American economy. This is 13 particularly true when it is remembered that the data on page 49 14 for the 39 electric utilities include allowance for funds used during construction, the data for the 41 industrial companies 16 include inventory profits, and that the indicated fair rate of 17 return for Carolina Power 4 Light includes neither.

18 Q. What conclusions do you draw, Dr. Langum, from your studies comprising the test of commensurate rate of return'?

20 A. The conclusions which I draw from my studies comprising the 21 test of commensurate return are shown on page 50 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 Light Company is 14.25 percent at a common equity ratio of 35. 81 percent.

The corresponding common equity ratio per regulatory definitions is 34. 96 percent. The rate of return on common equity excludes allowance for funds used during construction.

7 Q. Dr. Langum, referring back to page 14 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 10 of maintenanceof credit and support of financial integrity and attraction of capital on fair and reasonable terms as well as 12 the standard of commensurate return. Will you comment on 13 this basis of determination of fair rate of return on common 14 equity?

The standards of attraction of capital ozr fair and reasonable terms, maintenance of credit, and support of financial integrity 17 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 20 market price at or above book balue and enable sale of common 21 stock on terms w3xich are fair and reasonable to existing

~ % 72t<

common shareholder's. Furthermore, it is the earnings on common equity which provide the support for meeting adequate coverage ratios on bonds and on preferred stock. Adequate earnings experience on the common equity of Carolina Power Ec Light Company is required to support the attraction of capital, 6

both debt and preferred stock, by Carolina Power Sc Light as well as common stock, which lies ahead, I~

~

MARKET APPRAISAL OF COMMON STOCKS OF ELECTRIC UTILITIES COMMON STOCK OFFERINGS TO PUBLIC 10 Q. Dr. Langum, with respect to these standards of fair return as applicable to common stock, please explain your studies 13 shown on pages 51-54 of the Exhibit?

14 A. The common stocks of electric utilities generally have declined 15 sharply and over several years in the esteem placed on them in 16 the market for common stocks. This is evidenced by their 17 lower price-earnings ratios, higher dividend yields, and lower 18 market price to book value ratios.

The relationship of market price as of December 31, 1975 20 to book value on December 31, 1975 for electric utilities is shown 21 on pages 52-53. Of the 108 electric utilities listed, comprising

<<73 <<

I all major companies with publicly-held common stock, only 30 had market price at or above book value. The median ratio for

3. the 108 electric utilities was 89. 56 percent. Carolina Power L Light Company is shown on page 51, at 90. 54 percent, slightly above the median.

In large part, the low relationship of market price to book value for the electric utilities has been due to the dire situation of the industry. In part, of course, it has been due to the low level of the stock market generally.

Q. Please go on now and explain page 53 of your Exhibit?

A. Price to public as percent of book value in common stock offerings 12 of electric utilities during 1972, 1973, 1974, 1975, and 1976 to date 13 . is shown on page 53. In 1972, the average ratio was 128.40 14 percent in 45 offerings, with 41 at or above book value. In 1973, 15 the average ratio was 120. 64 percent in 47 offerings, with 34 at 16 or above book value. In 1974, the average ratio was 76.49 percent 17 in 54 offerings, with only eight at or above book value. In 1975, 18 the average ratio was 83. 30 percent in 94 offerings, with only 12 at or above book value. In 1976, thus far, the average ratio was 20 94. 94 percent in 65 offerings, with 20 at or above book value.

21

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l Q.  %'hat is the significance of the fact that market price is below book value per share for so many electric utilities?

The significance of the fact that market price and therefore price to public, is'elow book value per share is that an electric utility in such a situation 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 10 value per share of the common equity owned by the existing shareholders. Thus, there is dilution of the book value of 12 common stock and failure to support the financial integrity 13 of the company. This is a most serious situation for the 14 Company, and for its shareholders and customers alike.

iS Q. Why is this a most serious situation?

16 A, The reason for this being a most serious situation is that an 17 electric utility must attract common stock capital not only to 18 derive capital funds, but also to-support and make possible the attraction of capital funds from sale of first mortgage 20 bonds and preferred stock and short-term borrowing. In other 21 words, an electric utility must attract common stock equity

capital not only as a source of funds in itself, but also as essential support for the sale of <irst mortgage bonds and preferred stock and short-term borrowing as a source of funds 4 for financing construction.

5 What has been the record during recent years of common Q,

stock offerings by Carolina Power Ez Light Company' 7

A. The record of Carolina Power 4 Light in terms of common stock offerings and relationship of price to public to book value for 1972 through 1976 is shown on page 54 of the Exhibit.

10 During these years, Carolina Power 8: Light has made five offers of common stock.

In the most recent issue, on October 13, 1976, Carolina 13

'ower 4 Light sold 3, 000, 000 shares of common stock to the I

14 public at total price of $ 66, 750, 000. The price to public, $ 22. 25, 15 was 98. 71 percent of book value, $ 22. 54.

16 Q. What do you conclude from the studies of market appraisal C

17 of common stocks of electric utilities and Carolina Power 4 18 Light in particular?

)9 A. In these circumstances of market appraisal of common stocks

.20 of electric utilities in relation to book value, a rate of return I

on common equity of 14. 25 percent at a common equity ratio of

34. 96 percent, in terms of regulatory definitions, excluding allowance for funds used during construction, for Carolina Power h Light offers support for common stock offerings by Carolina Power 4 Light on fair and reasonable terms to existing investors. Such an earnings is necessary for the support of financial integrity of Carolina Power 8: Light Company.

8 Q. What bearing does earnings for common equity have on ratings of first mortgage bonds and preferred stock and the 10 maintenance of the credit of the company?

A. Earnings for common equity have direct bearing on ratings of 12 first mortgage bonds and preferred stock and the maintenance 13 of the credit of the Company. It is the earnings for common 14 equity that provide the coverage for the protection of payment 15 of the interest charges and preferred stock dividends of the 16 Company. Without timely and adequate rate increases as needed, 17 the first mortgage bond and preferred stock of Carolina Power 4 18 Light could not even be sold because of the sharp drop in earnings experience on common equity in those;circumstances l

20 . in the face of the sharp rise in imbedded costs of debt and 21 preferred stock.

W 77&

1 Q. Will you go on now to examine the indicated fair rate of return on common equity of 14. 25 percent at the common equity ratio of 34. 96 percent from the standpoint of the first mortgage bonds of the company?

A. My studies of required earnings on common equity for attraction of capital on fair and reasonable terms, maintenance of credit, and support of financial integrity with respect to first m'ortgage 8 bonds of Carolina Power 4 Light are shown on pages 55 through 75 of Langum Exhibit No. 2. In particular, I determine what fixed 10 charge coverage ratio is necessary to assure the upgrading of the rating from Baa to A by Moody's and the continued maintenance 12 of the A rating by Standard 4 Poor's on the first mortgage bonds of 13 .Carolina Power Ez Light. I thus examine the indicated fair rate 14 of return on common equity of 14. 25 percent at the common equity ratio of 34. 96 percent from the standpoint of the standing 16 of the first mortgage bonds of the Company.

17 Q.. Please explain the general system of ratings of debt and preferred 18 stock issues of public utility companies?

)9 A. Moody t s Investors Service, Inc., and Standard h Poor's Corpor-20 ation rate public utility bonds and preferred stock. In terms of their 21 standards and criteria, particularly coverage ratios, Moody's and Standard Ez Poor's rate first mortgage bonds and preferred stock of Carolina Power 8: Light, always when they are issued, but also on a basis of continuing surveillance of credit standing.

Explanation and key to Moody's Corporate Bond Ratings is shown on page 55 of the Exhibit. Explanation and key to Standard 4 Poor's ratings on Corporate Bonds is shown on page 56 of the Exhibit. In Moody's ratings, "gradations of investment quality are indicated by rating symbols, each symbol representing a group in which the quality characteristics are 10 broadly the same, ~ .. from that used to designate least invest-ment risk (i. e., highest investment quality) to that denoting 1Z greatest investment risk (i. e., lowest investment quality).

13 The first mortgage bo6ds of Carolina Power 4 Light 14 are rated Baa by Moody's and as A by Standard 4 Poor's. Moody's 15 states, as shown on page 55: "Bonds which are rated Baa 16 are considered as medium grade obligations... Such bonds 17 lack outstanding investment characteristics and in fact have 18 speculative characteristics as well.

19 Q. Please explain pages 57-65 of the exhibit?

ZO A.. Moody ls and Standard k Poor's rate public utility bonds and preferred stock in terms of their standards and criteria.

Coverage ratios are particularly important in this respect.

I On pages 57 and 65 are articles by Moody's on their rating standards. On pages 58-61 and pages 62-64 are articles by Standard L.. Poor's on their rating standards.

Q. Please explain pages 65-71?

5 A. On page 65 of the Exhibit is reproduced from Moody's Investors Service, Inc., Mood 's Bond Surve, March 3, 1975, page 1557, the rating article in which Moody's reduced the rating on the first mortgage bonds of Carolina Power 4 Light from A to Baa. On pages 66-68 of the Exhibit is reproduced from Mood 's Bond Surve, 10 April 7, 1975, pages 66-67 and April 28, 1975, page 68, the rating article in which Moody's continued the rating of Baa in connection 12 with the offering on April 24, 1975, $ 100, 000, 000 First Mortgage 13 ~

Bonds, 11% Series due April 15, 1984. On pages 69-71 of the Exhibit 14 are reproduced the pages from Standard Ez Poor's Corporation, The 15 Fixed Income Investor, April lZ, 1975, pages 69-70 and The 16 Fixed Income Investor, April 26, 1975, page 71, the rating 17 articles in which Standard 4 Poor's maintained the rating of the 18 first mortgage bonds of Carolina Power 4 Light at A. These

.articles contain description and analysis of the Company's financial 20 situation and 'the ratings on the new and existing issues of first 21 mortgage bonds.

It should be noted that both Moody's and Standard 4 Poor's place particular importance on the effect of timing and adequacy of rate relief in maintaining adequate fixed charge coverage ratios.

Moody's stated, as the reason for downgrading to Baa, as shown on page 65: "Despite $ 61. 5 million of rate relief that was in effect for part of 1974, coverage of fixed charges and preferred dividends has declined to unsatisfactory levels. Meanwhile, the company's construction program, even after substantial cutbacks, is calling for spending of $ 1.1 billion over the 1975-1977 period. This is a 10 heavy program relative to internal cash generation and outside financings are expected to continue to pressure the overall 12 financial posture of the company. In view of the above, Moody's 13 has reduced the ratings on the company's first mortgage bonds to 14 Baa. " Moody's further stated in connection with the April 1975 15 first mortgage bond issue, as shown on page 66; "Although pro-16 jected construction outlays have been trimmed, future financing 17 requirements remain heavy. In view of. this, continued pressure on 18 debt protection measurements would appear likely in the absence

.of further and substantial rate relief." Standard k Poor's stated, 20 in connection with the April 1975 first mortgage bond issue, as shown at the upper left, in italics, on page 79: "Based on the

stabilization of fixed charge and pending rate relief, we have maintained our "A" rating on the First Mortgage bonds of Carolina Power 4 Light."

4 Q. What has happened to coverage of fixed charges for Carolina Power L Light Company during recent years?

'A. The study on page 7Z relates to coverage of fixed charges for Carolina Power h Light from 1968 through 1975. Definitions for the',three coverage ratios of fixed charges are given, as well as the underlying figures. These coverage ratios have dropped 10 over these years, and especially in 1973 and 1974. These coverage ratios for the years 1971 through 1974, were shown in the Standard 4 12 Poor's articles on page 69.

13 Times 'interest earned before taxes was 2. 92 times in 1972'.

14 36 times in 1973, 1. 96 times in 1974, and 2. 41 times in 1975.

Times interest earned after taxes was 2.45 times in 1972, 2,16 times in 1973, l. 94 times in 1974, and 2.13 times in 1975.

17 Times interest earned after taxes before construction credits 18 (with allowance for funds used during construction not included in earnings) was l. 86 times in 1972; 1.49 times in 1973, 1. 23 20 times in 1974, and 1.46 times in 1975. This ratio is directly related 21 to rate of return on total capital and components.

1 Q. What coverage ratios for Carolina Power 8z Light Company would result from the proposed rates?

A. As shown on page 73 of the Exhibit, in terms of components of the overall rate of return, and the coverage of fixed charges after income taxes before construction is 2. 71 times. As shown on page 74, in terms of relationship of net operating income for return and interest on long-term debt in North Carolina retail operations, in the test year under proposed rates, the coverage of fixed charges after taxes before con-10 struction credits, that is, excluding allowance for funds used during construction, would be 2. 71 times.

12 Q.'ow do these ratios compare with the corresponding ratios for 13 ~ first mortgage bonds of electric utilities by rating categories?

14 A. On page 75 are shown summary. results of a detailed study in terms of coverage ratios which I have made of the 20 issues 16 of first mortgage bonds offered by electric utilities during 1975 17 and 1976 thus C'

far.

18 conclude that the coverage of fixed charges after income taxes, excluding allowance. for funds used during construction, 20 for Carolina Power 8z Light Company under proposed rates would 21 provide a basis for the upgrading to the A rating on first mortgage bonds by Moody's and continued rating of A by Standard 4 Poor's.

li 1 Q. Taking up preferred stock, please explain Moody's and Standard 4 Poor's rating services on preferred stockV 3 A. The preferred stock rating symbols used by Moody's, their definitions, and the factors considered in arriving at such ratings, are shown on pages 76 77. Corresponding facts about quality ratings on preferred stock by Standard 4 Poor's are shown on page 78, 8 Q. Please explain pages 79-41 of the Exhibit?

9 A. These pages show rating comments by Moody's and Standard 10 Ez Poor's in connection with the offering on March 13, 1975 of 2, 000, 000 shares of $ 2. 675 cumulative preference stock, 12 Series A by Carolina Power 4 Light.

13 Moody's Investors Service, Inc. did not rate the 14 new issue of preference stock. Moody's did, however, reduce the 15 rating on Carolina Power 4 Light Company's publicly-held preferred 16 stock issues to "baa" from."a", as shown on page .Z9 17 As shown on. pages 80 and 81, Standard 4 Poor's-Cor-18 poration rated the new issue of preference stock of Carolina Power Ez Light as "BBB". The preferred stock of Carolina 20 Power L. Light continues to have an A rating from Standard 4 Poor's.

1 Q. What has happened to coverage of fixed charges and preferred dividends for Carolina Power 4 Light during recent years?

3 A. The study on Page 82 of the Exhibit shows coverage of fixed charges and preferred dividends for Carolina Power 4 Light from 1968 through 1975. Definitions of the four coverage ratios for fixed charges and preferred dividends are given, as well as. the underlying figures, These coverage ratios have dropped during recent years and especially in 1973 and )974, with some increase in 1975. These coverage ratios for the 10 years 1970 through 1974 were shown in the Standard Ez Poor's article on Page 80.

Coverage of fixed charges and preferred stock dividends 13 . before income taxes was 2. 24 times in 1972, 1. 86 times in 1973, 14 l. 54 times in 1974, and l. 78 times in 1975. Coverage of fixed 15 charges and preferred stock dividends after income taxes was 16 l. 99 times in 1972, l. 76 times in1973, l. 53 times in1974, and 17 1. 66 times in 1975.

18 Coverage of fixed charges and preferred sto'ck dividends after income taxes before construction credits (with allowance 20 for funds used during construction not included in earnings) was

l. 51 time s in 1972, 1. 21 time s in 1973, 0. 97 time s in 1974, and and 1. 14 times in 1975. This coverage ratio is directly related to rate of return on total capital and components. The coverage fo fixed charges and preferred stock dividends after income taxes before construction credits of 0. 97 times in 1974 indicates a situation in which total fixed charges and preferred stock dividends were not covered by earnings from operations after income taxes.

Q Please explain Pages 83 and 84 of the Exhibit?

A. inixed charges and preferred stock dividends earned after 10 income taxes, excluding allowance for funds used during con-struction, would be about 2. 06 times under the proposed increase.

Q. How does this compare with rating requirements by Moody's and 13 14 '. Standard 8: Poor'?

The summary results of a detailed study which I have made of 15 coverage ratios and ratings on the 91 issues of preferred stock 16 offered by electric utilities during 1975 and 1976 thus far is shown.

17 on Page 85. The coverage ratio attained for Carolina Power 8z 18 Light Company under the proposed rate increase would be required, in my opinion, to assure an upgrading to "a" rating 20 by Moody's and continued rating of A by Standard h Poor's.

Zl

Q. What conclusions to you draw from your studies of attraction of capital on fair and reasonable terms and maintenance of credit and support of financial integrity?

4 A. I;.conclude that the indicated rate of return of 14. 25 percent on 5 common equity, given the capital structur'e riPxos and cost 6 of debt and preferred stock, will provide for attraction of capital on fair and reasonable terms and for maintenance og credit and support of financial integrity. In my judgment, at the current stock market level, it will support a market 10 appraisal of the common stock of Carolina Power h Light at a market price somewhat above book value. In my judgment, 12 it will support the A rating by Moody's and the A rating by 13 Standard 4 Poor's on the first mortgage bonds of Carolina Power 14 h Light. In my judgment, it will support the "a" rating by 15 Moody's and the A rating by Standard 8: Poor's on the preferred stock of Carolina Power 4 Light.

17 Q. Dr. Langum, have you formed a judgment as to fair rate of 18 return on book value of common equity for Carolina Power h Light?

19 A. Yes, I have.

20 Q. Please state that judgment.

A. As shown on page 86 of the Exhibit, my judgment as to fair I

I I

rate of return on common equity for Carolina Power 5 Light has been made 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 1o75 of tho'se e'lect&c~iilit es in fair value jurisdictions. I also game consideration to recent rate orders by regulatory commissions concerning electric 10 utilities and to earnings being "in line" with earnings experience on common equity of High Gr'ade industrial companies. and to earnings being "in line" with earnings experience on common 13 equity of electric utilities without flow-through in original cost 14 jurisdictions used as comparison companies. The standards of 15 maintenance of credit and:.support of financial integrity and 16 attraction of capital on fair and reasonable terms, were based 17 upon studies of common stock offerings of Carolina Power 4 18 Light during 1972, 1973, 1974, 1975, and 1976'to date, and of price to public in common stock offerings of electric 20 utilities in relation to book value during 1972, 1973, 1974, 21 1975 and 1976 to d'ass, upon'tudtds of first mortgage bond

offerings of electric utilities during 1975 an'd'1976 t'o date ~d required fixed chazge coverage ratios to support the A ratings on the first mortgage bonds of Carolina Power 4 Light and upon studies of preferred stock offerings of electric utilities g 1975 and 1976 t6 date and require'd-fixed"charge:and preferred stock dividend coverage ratios to support the "a" and A rating on the preferred stock of Carolina Power 4 Light.

In my judgment, taking all of the above considerations and studies into account, the fair rate of return on common 10 equity for Carolina Power 4 Light is 14 25 percentw&%Li96

.percent common equity ratio, in terms of regulatory concepts.

12 This excludes allowance for funds used during construction.

13 14 FAIR RATE OF RETURN ON NORTH CAROLINA RETAIL OPERATIONS ORIGINAL COST RATE BASE 15 16 Q. Dr. Langum, have you formed a judgment as to the fair rate of 17 return on total capital invested in North Carolina retail operations.

18 original cost rate base?

l9 A. Yes, I have. My determination is shown on page 87" of the Exhibit.

20 Q. Please state your judgment as to the fair and reasonable rate Zl of return on total capital?

1 A. My judgment as to the fair rate of return on total capital invested in North Carolina retail operations original cost rate base which Carolina Power E: Light Company should be afforded the opportunity to earn is shown on page 87 '. of the Exhibit.

. The capital structure ratios are those developed on page Tof the Exhibit. Cost of long-term debt is shown at 7, 72 'ercent, from pagell, and cost of preferred ank pr'eference stock is shown at '8.'01 percent, from page 13. For common equity, 10 I have utilized the fair rate of return on the book value of common equity, just developed on page 86 of the Exhibit, 12 of 14 25 percent at a common equity ratio of 34. 96 percent.

13 Interest free capital has a capital structure ratio of 4..65 percent. I have combined the cost rates for each segment of 15 the capitalization with the capital structure ratios to obtain 16 weighted component of the overall fair rate of return. For 17 debt, the cost of Y.. 7'2 percent combined with the capital 18 structure ratio of 46.'39percent gives a weighted component of 3. 58 'percent. For preferred stock, the cost of 8. 01 20 percent and the capital structure ratio of 14. 10 percent gives 21 a weighted component of 1.13 'percent. For the common equity, the combination of the fair and reasonable earnings rate of

14. 25 percent and the 34'. 96'ercent ratio of common equity in the capital structure gives a weighted component of '4. 98 percent. The cost rate and the weighted component for interest free capital are, of course, rero. Addition of the weighted com-ponent results in a total of 9 69 percent.

It is my judgment that the fair rate of return on original cost rate base which Carolina Power k Light should be afforded the opportunity of earning in its North Carolina retail electric 10 operations is 9. 69 percent. It is my judgment that this is the fair rate of return on original cost rate base for Carolina Power 12 L Light, in which total capital has been invested for'its North 13 .Carolina retail electric utility operations, which is necessary 14 to enable the Company to support its capital structure, to attract 15 needed new capital on fair and reasonable terms, to provide a return on its common equity commensurate with that earned by 17 the most comparable business unde'rtakings and the closest 18 alternative investment opportunities, to maintain its credit, and to assure confidence in its financial integrity.

20 Zl Q Going on now, Dr. Langum, to the matter of fair rate of return on fair value, will you explain page 88 of Langum Exhibit No. 2?

3 A. The degree of fair value of common equity as of June 30, 1976 in the fair value rate base testified to by a Carolina Power Kz Light witness is shown on page 88. In the North Carolina retail original cost rate base, total common equity at book value is

$ 472, 897,137. In the corresponding North Carolina retail fair r

value rate base, total common equity at fair, value is $ 673, 996, 996, The common equity at fair value is 142. 52 percent of the common 10 equity at book value.

ll Q. What then is your judgment as to fair rate of return on the fair 12 value of common equity for Carolina Power 4 Light Company 13 in North Carolina retail operations?

14 A.. As shown on page 89, in my judgment the fair rate of return on 15 common equity at fair value 142. 52 percent of book value with 16 common equity ratio, in regulatory concepts per fair value of 17 43. 38 percent i.s 10. 00 percent. This is based on the data on 18 commensurate return in terms of fair value, shown on page 90 19 and on capital structure ratios, at fair value, shown on page 91.

20 21 Q. Please discuss page,2?

4 A. On page 92 of the Exhibit I have developed the fair rate of return on North Carolina retail operations fair value rate base using imbedded cost of debt and preferred stock on t'une 30, 1976 pro forma sale of common stock in October 1976. The analysis on page 92 parallels that on page 87 of the Exhibit which I used in developing the fair rate of return on North Carolina retail 10 operations original cost rate base.

Q . Finally then, Dr. Langum, in your judgment, what is the 12 fair rate of return on fair value rate base?

A.. Given the fair value rate base advanced by the Company, in my 14 judgment the fair rate of return for application to that rate base is

8. 44 percent, as shown on page 93 of Langum Exhibit No. 2, 16 This is the fair rate of return, so applied, which in my judgment 17 will meet the standards of fair and reasonable return set forth 18 by the statute of North Carolina regarding the fling of public utility rate s.

20 21

LANGUM EXHIBIT NO. 1 0 UA LIFICATIONS DR. JOHN K. LANGUM ECONOMIC CONS ULTANT CHICAGO, ILLINOIS DECEMBER 1, 1976

1 QUALIFICA TIONS DR. JOHN K. LANG UM Will you 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 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 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.

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 businss enterprises covering indepth the forces at work in the American economy and their significance for the credit and capital markets.

4 Q. What is your educational backgr'ound?

A. 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?

-A. 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 196?, I served as Professor of Business Administration, on a part-time basis, in the School of Business of Indiana University.

Q. What connections have you had with graduate schools sponsored by banking and financial associations?

A. For the last twenty-five 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 1

by the American Bankers Association. Here in June of each year, I give lectures on the business outlook and the credit and capital

markets fo'r the bank officers enrolled in the Graduate School.

Each year about 1,500 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 1, 500 bank officers from about thirty-five states, is sponsored by the Central States Conference of sixteen midwestern state banking associations.

For thirty- one consecutive years, since the beginning of the Graduate School, I have given basic lectures on the money markets 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 t

Bouge 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 South-

I, western School of Banking held in Dallas, Texas, at Southern Methodist University; at the National Trust School held in Evanston,

4 Dlinois, 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 University.

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 agricultural and business economics, and in business finance. Also, at the bank I was in charg'e of its bank and public relations activities. In addition, for seven years I was associate economist of the Federal Open Market Committee of the Federal I

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. I am a director of Selected American Shares, Inc., Selected Special Shares, Inc., and Selected Opportunity Fund, Inc., common stock investment funds with offices in Chicago, Illinois. I am a director of Founders Growth Fund, Inc. and Founders Special Fund, Inc., common stock in-vestment funds with offices in Denver, Colorado. Since February 1, 1969, I have been President of Founders Growth Fund, Inc., and since December 2, 1971, I have also been President of Founders Special Fund, Inc. 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.

For the last twenty-five years, I have mct rcgu)arly for consu)tation'with thc kcy policy-making official.: of many>>major

.institutional investors in this country and. in Ca>>ac)a. T)icsc pension funds, trust fund" of commci cial banl.s, mutua) fu>>d",

p and life insurance companies with whom I have worl'cd )iavc total fund under invc"tmcn( administration w)iic)> co>>a)>ri.<<;c a major portion of total institutiona) invc slmc>>t ho)di>>g. in the economy.

I Have you previously testified i'n 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, Massachusetts, Pennsylvania, Kansas, Missouri, Kentucky, Tennessee, West Virginia, Maryland, Louisiana, Alabama, Arkansas, Mississippi, Florida, Montana, Utah, Texas, Arizona, Oregon, Washington, California, North Carolina, an" South Carolina. I have testified before the Interstate Commerce Commission, the Federal Maritime Commission, and the Federal Power Commission. In Canada, I have testified before the Board of Transport Commissioners, the Canadian Transport Com-mission, and the Telecommunications Committee, Canadian Transport Commission, and my studies have been presented to the National Energy Board.

Most of my work as consultant and as an expert witness on fair rate of return > as been on belialf of utility companies, My work as consultant a>>d as expert, wit>>css o>> fair rate of return, has, however, by no means bec>> on behalf of utility companies cxc]usivcly.

In 1970, I testified on behalf of the A'ttorney General of the State of Illinois in the Commonwealth Edison Case before the Illinois Commerce Commission. In 1971 in 1973~ and again in 1975 was an intervenor in the Commonwealth Edison Company cases before the Illinois Commerce Commission. In 1972 and 1973, I testified regarding fair rate of return for Illinois Bell before the Qlinois Commerce Commission on behalf of the Department of General Services of the State of Illinois. In 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 1974 I tcs(ificd bcforc ihc Illinois Con>merce Commission nn behalf of thc States ht tor>><<y, Cook County, J)linois, r<<garding fai> ra(c of return, raIc.base, a>>d fair return foe ll)inois Bc)l.

ln 1975 1 testified bc(orc the. illinois Cninnocrcc Commission on bcha)f of (hc Depart])lc)'lt of (general Scrvie e s of thc i~ta'l c of )llinois and thc States Atto) ncy, Cook County, l)lin< is.

In 1971, I testified on behalf of the Arizona Consumers Council in the Tucson Gas and Electric Company case before the Arizona Corporation Commission. In 1972, and again in 1974, I tcstificd regarding fair rate of rctu) n for Tucson Gas p,, Electric Co, on behalf of the Arizona Corporation Commission. In 1971,'973, and in

)97 5, I testified on behalf of the Arizona Corporation Commission

in the Arizona Public Service Company cases. In 197$ 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 3'Fater Company, Mohave Electric Division, Mohave Vlater Division, Santa Cruz" Electric Division, and Santa Cruz Gas Division of Citizens Utilities'Compa>>y on behalf of 0)c Arizona Corporation Commission.'n 1974 I testifieR regarding fair rat:e of return for Sun City AVater Company bcfo).c thc Superior Court in Phoenix and for Mohave Electric Division bcfo).c tl)e Superior Court in Tucson on behalf of thc Arizona Co) J)o).at)ion Co)r)mi 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 )97?, I testified on behalf of the Lake Michigan Federation before the Price Commission on guidelines for public utility rate increases.

I

~

Are you the author'of any articles and books?

During the last thirty-one years, .I have had many articles published in leading economic I 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 clopedia Britannica Book of the Year.

l write the articles on savings banking and on savings and loan assocations for the Enc clooedia 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 VTeek, 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 Con-ference 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.

In June 1957, I testified before the Joint Economic Committee of Congress at their invitation on the bearing of the budget outlook and economic situation on growth and in-flation in the American economy. In August 1962, I again testified before the Joint Economic Committee on Corporate Profits, Cash Flow, .and Rate of Return.

I 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 Assocation. In 1962, I participated in the conference on fiscal and'mon'etary 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 postwar period, I served on the. research staff of the Committee for Economic Development.

For three years, from 1959 through 1961, 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 A s s oc iation.

.From l95l 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."

For twen'ty. years, I served as Chairman of the Elgin Pla'n Commission in the city in which I live . I am a member of the American Society of Planning Officials, an affiliate member of the American Institute of Planners, and a supportizg member of the Urban Land Institute..

have served as First Vice-President and Director of I'.

the Lake lvlichigan Federation, President of thq Fox Path Association, and Director of thc Illinois Planning and Con-servation League. I am a life member of thc Sicr1.a Club, The Wildcrncss Society, and Thc Nature Conservancy.

Jn 1958, I was made a fellow of t2)c American Association for the AQiancement of Science.

l LANGUM EXHIBIT NO. 2 CAROLINA POWER h LIGHT COMPANY STUDIES REGARDING FAIR RATE OF RETURN BEFORE'ORTH CAROLINA UTILITL=S COMMISSION DR. JOHN K. LANGUM ECONOMIC CONSULTANT CHICAGO, ILLINOIS DECEMBER 1, 1976

CAROLINA POPOVER &. LIGHT COMPANY STUDIES REGARDING FAIR RATE OF RETURN

~ Contents CAPITALIZATIONAND CAPITAL STRUCTURE RATIOS Carolina Power & Light Company Statement of Source and Use of Financial Resources 1971-1975 and Twelve Months Ended June 30, 1976 Carolina Power & Light Company External Financing in Relation to Construction Expenditures Actual 1970-1975 and Estimated 1976-1980 Carolina Power & Light Company Capitalir ation 1962 1975 Carolina Power & Light Company Capital Structure Ratios 1962-1975 Carolina Power & Light Company Capitali" ation and Capital Structure Ratios June 30, 1976 and June 30, 1976 Pro Forma Sale of Common Stock in October 1976 Carolina Po~er & Light Company Capitalisation and Capital Structure Ratios In Terms of Regulatory Concepts June 30, 1976 Pro Forma Sale of Common Stock in October 1976 Carolina Power & Light Company Capital Structure Ratios Used in Study of Fair Rate of Return COST OF DEBT Carolina Power & Light Company imbedded Cost of Debt June 30, 1976 Pro Forma Sale of Common Stock in October 1976 Moody's Averages of Yields On Newly-Issued Long- Term Public Utility Bonds Rated Aaa, Aa, A, and Baa 1960-1976, by Years Moody's Averages of Yields On Newly-Issued Long-Term Public Utility Bonds.

Rated Aaa, Aa, A, and Baa 1970-1976, by Months Carolina Power & Light Company Cost of Debt

COST OF PREFERRED STOCK AND PREFERENCE STOCK 12 Carolina Power & Light Company Imbedded Cost of Preferred Stock an'd Preference Stock June 30, 1976 Pro Forma Sale of Common Stock in October 1976 Carolina Power & Light Company Cost of Preferred Stock and Preference Stock FAIR RATE OF RETURN ON BOOK VALUE OF COMMON EQUITY 14 Carolina Power & Light Company Determination of Fair Rate of Return on Book Value of Common Equity 15 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 and Twelve Months Ended June 30, 1976 16 Investment Stature Carolina Power &-Light Company December 1976 STANDARD OF COMMENSURATE RETURN Recent Rate Orders bv Regulator Commissions 17-20 Fair Rate of'Return on Book Value of Common Equity Allowed In Major Electric Utility Rate Orders In Original Cost Jurisdictions State Public Utility Commissions And Federal Power Commission 1975-1976 21 2la Fair Rate of Return Allowed By Regulatory Commissions In Fair Value Jurisdictions 1975 1976 Earnines Experience on Common. E uitv 0 eratins Electric Utilitics in Fair Value Jurisdictions 22~23 Investment Statur e Electric Utilities in Fair Value Jurisdictions November 1976 24-28 Rate of Return on Common Equity and Common Equity Ratio Operating Electric Utilities in Fair Value Jurisdictions 1963<<1975 29 30 Allowance for Funds Used During Construction In R'elation to Net income for Common Operating Electric Utilities in Fair Value Jurisdictions 1963-1975 31 Relationship Between Rate of Return on Common Equity and Common Equity Ratio 32 Method of Adjustment For Different Common Equity Ratio 33-34 Rate of Return on Common Equity Adjusted to 35.81 Percent Common Equity Ratio Operating Electric Utilities in Fair Value Jurisdictions

35-38 Companies Excluded from Use as Comparison Companies In Test of Commensurate Return Operating Electric Utilities in Fair Value Jurisdictions 39 40 Rate oE Return on Common Equity Adjusted to 35. 81 Percent Common Equity Ratio Operating Electric Utilitics in Fair. Value Jurisdictions Used as Comparison Companies 1971-1975 41 Rate of Return on Common. Equity Adjusted to 35. 81 Percent Common Equity Ratio and Allowance Eor Eunds Used During Construction As Percent of Net Income for Common Operating Electric Utilities in Fair Value Jurisdictions Used as Comparison Companies In Test of Commensurate Return 1971-1975 Recent U twin in Rate oi Retnrn on CommoonnEtneui Earned b Unre ulated Enterorises in the American Econom Real Growth and Inflation in the American Economy Percentage Changes Year to-Year 1946 1976 Rate of Return on Equity and Equity Ratio All Manufacturing Corporations 1947 1976 44-48 Rate oE Return on Common Equity and Common Equity Ratio Industrial Companies with Quahty Ranking of High Grade by Moody's

)963-1975 Earnings Experience on Common Equity of Operating Electrics in Fair Value Jurisdictions Used in Selection of Comparison Companies In Relation to Earnings Experience on Common Equity of Industrial Companies with Quality Ranking of High Grade of Moody's 1963-1976 50 Carolina Power h Light Company Test of Commensurate Return STANDARDS OF ATTRACTION OF CAPITAL ON FAIR AND REASONABLE TERMS MAINTENANCEOF CREDIT AND SUPPORT OF FINANCIAL INTEGRITY Market Appraisal and Common Stock Offerincs to Public 51-52 Leading Electric Utilities AVith Publicly-Held Common Stock Market Price as Percent oE Book Value December 31, 1975 53 Price to Public as Percent of Book Value In Common'Stock OEferings Electric Utilities 1972-1976 Common Stock Offerings And Market Price In Relation to Book Value Carolina Power h Light Company 1972-1976

Covera e Of Fixed Char's 55 Explanation and Key to Moody's Corporate Bond Ratings 56 Wglanation and Key to Standard & Poor's Corporate Bond Ratings 57 "When Is Interest Coverage a Special Concern7" Mood 's Bond Surve January 5, 1976 Pages )781- 1782 58-61 "Fundamental Approach to Public Utility Bond Ratings" The Fixed Income Investor January 3, 1976 Pages 987-990 62-64 "Changes in tin Utility Bond Rating Process" The Fixed Income Investor July 24, 1976 Pages 521-523 65 "Comment, Electric Utility Bond Ratings" Ratings Reduced Carolina Power & Light Company Mood 's Bond Surve March 3, 1975 Page 1557 66-68 Rating Articles by Moody's First Mortgage Bonds 1l'fo Series due April )5, 1984 Mood 's Bond Survey April 7 and 28, 1975 Pages 1411-1412, 1340 69-71 Rating Articles by Standard & Poor's First Mortgage Bonds II9o Series due April 15, 1984 The Fixed Income Investor April 12 and 26, 1975 Pages 743-744, 715 Carolina Power and Light Company Coverage of Fixed Charges 1965-1975 73 Carolina Power & Light Company Computation of Times Interest Earned After Income Taxes From Cost Rates For Capital and Capital Structure Ratios 74 Carolian Power & Light Company Coverage of F~ed Charges After income Taxes Before Construction Credits North Carolina 'Retail Operations Under Present Rates and Under Proposed Rates Test Year Ended June 30, 1976 r 75 Coverage of Fixed Charges First Mortgage Bonds of Electric Utilities By Rating Category 1975-1976 to Date

Covera e of Fixed Char es and Preferred Dividends 76-77 Moody's To Assign Ratings to Preferred Stocks 78 Standard 6c Poor's Preferred Stock Ratings 79 Ratings Reduced Carolina Power h Light Company Rating Article by Moody's Cumulative Preference Stock, Series A Mood 's Bond Surve March 3, 1975 Page 1566 80-81 Carolina Power 4 Light Company Rating Articles by Standard h Poor's Cumulative Preference Stock, Series A The Fixed income Investor, March 8 and 15, 1975 Pages 846, 827 Carolina Power Cc Light Company Coverage of Fixed Charges and Preferred Dividends 1965>>1975 Carolina Power 4 Light Company Computation of Times Fixed Charges and Preferred Stock Dividends Earned After Income Taxes From Cost Rates for Capital and Capital Structure Ratios 84 Carolina Power h I ight Company Coverage of Fixed Charges and Preferred Dividends After Income Taxes Before Construction Credits North Carolina Retail Operations Test Year Ended June 30, 1976 85 Coverage of Fixed Charges and Preferred Dividends Preferred Stock Offerings by Electric Utilities By Rating Category 1975-1976 to Date FAIR RATE OF RETURN ON COMMON EQUITY FAIR RATE OF RETURN ON TOTAL CAPITAL 86 Carolina Power k Light Company Fair Rate of Return on Common Equity 87 Carolina Power 5 Light Company Fair Rate of Return on North Carolina Retail Operations Original Cost Rate Base Using Imbedded Cost of Long-Term Debt and Preferred Stock On June 30, 1976 Pro Forma Sale of Common Stock in October 1976

FAIR RATE OF RETURN ON FAIR VALUE COMMON EQUITY FAIR RATE OF R ETURN ON FAIR VALUE RATE BASE 88 Carolina Power 0 Light Campany Degree of Fair Value of Common Equity June 30, 1976 89 Carolina Power 4 Light Company Fair Rate of Return on Common Equity at Fair Value 142,52 Percent of Book Value 90 Rate of Return on Common Equity at Fair Value 142, 52 Percent of Book Value From Operations Adjusted to 43.38 Percent Fair Value Common Equity Ratio Operating Electric Utilities in Fair Value Jurisdictions Used as Comparison Companies in Test of Commensurate Return 1971-1975 91 Carolina Power h Light Company North Caro)ina Fair Value Net Investment and Fair Value Capital Structure Ratios June 30, 1976 Pra Forma Sale of Common Stock in October )976 Carolina Power 4c Light Company Fair Rate of Return on North Carolina Retail Operations Fair Value Rate Base Using Imbedded Cast of Long-Term Debt And Preferred Stack On June 30, 1976 Pro Forma Sale of Common Stock in October )976 Carolina Power h Light Company Fair Rate of Return an North Carolina Retail Operations Fair Value Rate Base June 30, 1976 Pro Forma Sale af Common Stock in October 1976

I I

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Page l CAROLINA POWER & LIGHT COMPANY SThTEMENT OF SOURCE AND USE OF FINANCIALRESOURCES Trrctre Months Ended December 31.

Juae 30, 1971 1972 1973 1974 1975 1976 (Unaud! ted )

Thousands of Dollars Source of Financial Resources:

Current resources provided from o perationL Net income $ 37,474 $ 60,S29 $ 6S,999 $ ~71 $ 101,622 $ 111452 ltcms not re(tuiriag (providing) current resourceL Gepreciadon and amotdmdon. 37403 40,430 45391 57442 69,861 AD nuance for funda used du dna corn numine (14,708) (24,759) (38,093) (54,609) (59,957) (53,031)

Noncerrent deicned income taxes-net 3,480 S,972 7,430 11,188 24/73 25,756 levcstm eat tax mcd(t ed justmenn-net IG77 1.756 2.94$ (6G4() 14G74 22044 Total cunent resources from operations 55,850 80.701 78,714 68,MD 137,754 (76.082 Other resources provided:

. Additions to plam accounts other'8327 representiag capital-Iration of net cost of funds used during const tucuon Proceeds from assignment to lessor of internal com-bustion turbine generators 14,708 24,759 38,093 S4,609 44,4SS 59,957 53,031 Proceeds from sale and leaseback of nuclear fuel "Miscellaneous-net 883 663 '09 47,593 3.995 7.096 12.151 Total resources provided from operations and 71,441 106,123 1(6,916 '18,652 204,807 24IG64 Financings:

Sale oQ Fiat mongage bonds. 13405( 99317 199,755 150,979 120,743 Six-year note 50,000 Preferred stock . 34,506 49,364 49,949 Preference stock 47.744 Common stock. 33,910 125,039 63,449 3P8I 14S,618 90,057 Increase (decrease) In shon-tenn notes payable less temporary cash investments. 12.483 (70.164) 16G56 103.301 ( 145.075 ) 58.418 To:al resources provid<<d from fiaancings 215050 253.556 329.509 321.892 169.030 148.475 TOTAL S286.691 $ 359.679 5446 425.$ 540.544 $ 373.837 $ 389.739 Use of Financial Resourcea Grum pre pcny ad did em cede ding audear $ 239.291 $ 318.382 $ 359,056 $ 382,602 $ 305,553 $ 252259 fuel (uel'uclear 20432 16,918 37,610 39,939 17,515 21.389 for the year addiuons'ividends 30,492 36.785 45,708 58,048 71,925 78259 Prepayment of six-year note 50,000 jm Net increase (decrease) in working capital, excluding shon-term notes payable and temporary cash ia-vmtmeu (3324) (12,4061 4.051 59.955 (21.156) (12.168)

l TOTAL Increase (Decrease) in Working Capital. Excluding Shon-term Notes Payable and Temporary Cash Investments, by Com-S286.691 $ 359,679 S446,425 $ 540.544 $ 373,837 $ 389.739 ponentL'aterials and supplies (principally I'uel) $ (9,107) $ 5476 $ 105 $ 69335 $ (19576) $ 11,092 Defened foci costs. 35,028 (20.650) (14,832)

Accounts receivable 5,898 1.163 2,900 19,869 (14,135) 1,8S7 Accounts payable (2419) (8467) 3457 (40,310) 30,701 (3336)

Cunent ponion of deferred income taxes ( 13478) 10392 7,718 Taxes accrued. 6,932 (3.222) 3,036 (7,693) 1,896 (14,576)

Intmest end dividrn de payable (5,656) (5,876) (5,153) (6,077) (7,980) (2.028)

Other-net 828 ( 1.480) (394) 3281 (1.7D4) 1.937 Net increase (decrease l in working capital, ex-cluding shon.term notes payable 5 (3.324) $ (12.4D6) 3 4.051 5 59.955 8{2 1.156) S( 12.168) r Includes amounts charged to utility plant representing thc "allowance for (the cost of) funds used during construction".

Scc Notes to Financial Statements.

35 Source: Carolina, Power Ec Light Company, Prosvoectus, 3,000,000 Shares Comaton Stock, October 13, 1976, page 35.

C l

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CAROMS HSER dJ LIG1IZ CRfPJQEX HEERlQLL FII1AHCB/0 IN BCIATIOH TO CONSXRUCTION EXPENDITURES ACXUAL 1970-1975 AND ESTIlATED 1976-1980 (Dollar amunta in nillions)

Actual 1971 1972 1973 1974 1975 Gross property additions +44.8 $310. 5 $ 358.6 $ 367.9 fa63.1 and nuclear fuel additions less allowance for funda used during construction Total external financing @53.6 $ 321,9 +69.0 Total external financing as percent of property additions 'ross 07.+ 81.7$ 91 6 07.5$ 64.2$ 83. 5$

and nuclear fuel additions lees allowance for funds used during construction Esthnated 1976 1977 1978 1979 1900 Gross property additions @87.2 090.9 $ 347.7 @52.0 @21,0 and nuclear fuel additions less allowance for funds used during construction Total external financing $ 82.5 $ 119,9 Total external financing as percent of 26.6$ 28.4$ 34.5$

gross property additions and nuclear fuel additions less allowance for funds used during construction Source: Carolina Power 86 Light C'ostpanys Prospectus, 3,000,000 Shares Cannon Stock, October 13, 1976, pages 4~ 35J fnfornetton for Security inoiyeteeaovan er 3, 1976.

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59.L7 6 I

5).C0$ lb.86$ 51 19$

trefarre4 Sade 10.29 9.89 8.b8 7.59 ~ 11.38 )0o)5 8.97 10 98 )2 00 )3.23 13.tf lb.39 15.18 Gamw +atty 3 eR 3 .63 38.59 . )b.83 3).10 )i.z6 )$ .77 )1,69 P 6) to~ Capttaltsa\lon 100 00$ 100 00$ 100 00$ 100.00$ . 300.OO$

. 100,C0$ 100,00$ . 100,00$ 100.00$ 100.00$ 100.00$ 100.00$ 100.00$ 100.00$

emote. brett lncln.'ee lor4-tera 4ebt payable vllbtn one tear anl notee parab)o tncluce4 ln cnrrent llabtlttlee ln balaace elect of eoapang~

Soercee Ooapate4 Iron Cata on )age 3~

4 CAHOLNA PGllEH & LIClE CohlNNY Page 5 CAPITALIZATIONAND CAPITAL STRUCTURE RATIOS JUNE 30 1976 AND JUllE 303 1976 PHO FOHhA SALE OF Col4%H STOCK IN OCTOBER 1976 June 30, 1976 Pro Forma Sale of Common Stock June 30 1976 in October 1976 p S ruc ure p a ruc ure Ca italixation Ratios Ratios Debt Long-term debt g.310533613294 +3 10533613294 Short-term debt 51,010,961 Total debt flg 15633723255 +,105,361,294 49.23$

Preferred Stock & Preference Stock Preferred stock 280,u0,4oo 200,u0,4oo Preference stock 47 900 000 47 900 000 Total preferred stock & preference stock 33630183400 15,06 336,O18,4OO 14,96 Coraaon Equity Conan stock 567,505,701 6323 4553781 Retained earnings 1713630,129 171 630 129 Total common equity 73931353910 33.12 80430053910 35.01 Total Capitalisation @,231,526,565 fa,245,465,6o4 100,00 Sourcai Carolina sorer 0 Ltggt Cnganr, ~Pro cetus 3,M0,000 Stares Coccus Stoat, natator 13, 1316r Sages 7r 33.

~

~

~

(g

~

CAROLIltA PNER 5 LIGlE COEINlff Page 6 CAPITALI?ATION AND CAPITAL STRUCIUHE RATIOS IN TENS OF REGVIATOM CONCEPN Jtne 30 1976 mo Fata sALE or co%mr< sTOCK IN ocxoDER 1976 June 30, 1976 Pro cabana Sale of Coamon Stock in October 1976 p a ruc ure Ca italization Ratios Debt lang-tenn debt $ 1~105,361~294 Prefcrrcd Stock and Preference Stock 336~018~400 14,10 Con>non Equity Comnon stock 632>455q781 Retained earnings 171>630,129 Deferred gob development investnent tax credit 28 890,031 Total cosmon equity 832,975,941 34.96 Interest Free Ca ital Deferred taxes lo8,282,642 4,55 Total Ca italization @,382~638,277 Source! Carolina Barer ts Light Compeny, Prospectus, 3,000,000 Shares oomaon Stock,. October 13, 1976, pages 7y 33$

Page 7 CAROLINA HNER & LIGHT COMPANY CAPITAL STRUCTURE RATIOS USED IN STUDY OF FAIR RATE OF RETURN In Test of Commensurate Return Common equity ratio In Determination of Fair Rate of Return In Terms of Regulatory Concep s Debt 46.39$

,PreferreC Stock an4 preference stock . 14,10 Common equity 34.96 Interest free capital Total Capitaliration

CAROLIIA PSIER Ec LIG1E COST OF DEBT Colm'MBEDDED JmtE 34 1 6 pRO Faua 8AIz or ceceH GTocx IR ocloaER lyr6 Amouht Interest Cost outstanding Requirements Rate Long-term debt First mortgage bonds 3

3 I/0$ Series, I/4$ Series, due due 1979 1979 f ZO, IOO,OOO 43,930~000 620,125 Series, 1,427,725 2 7/0$ due 1901 l5~000,000 43l~250 3 I/2$ Scrics, due 1902 20,000,000 700 000 4 I/0$ Series, due 1906 20,000,000 025,ooo 4 7/0$ Scrfes, due 1990 25,000,000 1,218,750 4 I/24 Series, due 1991 25,000,000 1~125,000 4 I/2$ Series, due 1994 30,000,000 1,350,000 ll, I/6$ Gcrfcs, due 1994 27,650,000 3,076,062 5 I/0$ Series, due 1996 30,000~000 1 537 500 6 3/0$ Series, due 1997 4o,ooo,ooo 2,550,000 6 7/0$ Series, due 1990 4o,ooo,ooo 2~750,000 8 3/4'~~ Series, due 2000 4o,ooo,ooo 3~500,000 8 3/4$ Series, due 2000 50,000,000 4,375,000 7 3/0$ Series, due 2001 65,ooo,ooo 4,793,750 7 3/4$ Series, due 2001 70,000,000 5,425,000 7 3/4$ Series, due 2002 100,000,000 7~750,000 7 3/4$ Series, due 2003 100,000,000 7~750,000 8 I/0$ Series, due 2003 loon Ooos 000 8 125,000 9 3/4$ Gcrfcs,'duo 2004 125, 000, 000 12,187,500 11 I/0$ Gcrfcs, due 1994 22~350~000 2~406,430 11$ Series, due 1964 100,000>000 11,000,000 Total first sartgage bonds 1~ 109,030~ 000 05 012 100 7.67$

off scellancous promf ssory notes 192,064 7,835 Principal amounts 1>109i222~664 05~019 935 Less> Unaanrtixcd discount and premium - net ( 3,061,570)

Net amortization of debt discount, expense and premium 3>9 87T Total long-tcna debt g.~105~361,294 $ 05,339,012 7076

page 9 HOODY'S AVHIAGES OF YLELIS 0Ã ltEMLY-ISStJED LONG-TERH RJOLIC UTILITY BONDS BATED Aaa, Aap A, AIJD Baa 1960-1976, BY YPJSS AVEIVLGES OF YIELDS 0:I NEMLY-ISSUFD LONG-TERM BJBLIC VAIL:.TY 30HJS

,1960 -

4.76$ 5.3@

1961 4.43/

1963 1964 4.4Q 1965 4.64>>>> 4.95%

1966 5-77% 6.05$

1967 5oVRe 6.~ 6.$p 6.33/

1968 6.54$ 6.6Q 6 95~<  ? 10$

7e 8.2P>> 8.6~

7,Rrj'.61$

9'.63$

9.19> 9.6@

7.54 7.6&f, 7.93>>>>

7-3CPJl 7.45% 7.6'+

-.85/,

7.81$ 05>>>>

9,02$ 9.75~>>

1575 9 11% 10.22+>> 39~>>

8.47$ 8.71$ 9 05% 9 7BC

+J~-Hag, 1974 eelanuary-Octobe." 1@76 Source: Hoody's Investors Service, Inc., Moody's Public IJtili.y Manual, 1976, pages a4-a5; cbody's Bond Survey, tiavexber a, 1975, page 76 and corresponding pages pr aus issues~

DDT'S AVENGES OF YMIR Cf NEVLj ISSUED QrIQ TERR RSLEC QZILXTY BEDS RATED Aaaq Aag A, AK) Baa 19?0 1 6 BY MO!CHS 'Page 10 Aa 1970 Bqr 8 91% 9.06% 9.3K tune 8.96 9.32 9.67 10,47~

8.53 8.94 9+11 9.53 August S.vo 8.72 9i35 10,08 Septanber 8.56 8.83 9+32 9.81 October 8.86 8.9o 9,40 9.82 Average 8.61$ 8.63~p 9.1%

7m 5+ 7.68$ 7.93 j 8.34$

1972 January ve~ 7.11% 7.36$

~ruby

.March 70 26 7.49 7.50 7 76$

7.39 7.48 7.89

'pril 7.39 7.6o 7.so 7.95 7 39 7.42 7.66 7.45 7.45 7.54 7.95 7+34 7.4S 7.85$

Average 7.814 S.og 8.25$

1974 January S.c6$ 8.37$ 8.5+

Eabruary 8.07 8,95$

8.13 8.49 8,7o March 8.33 8.61 8.81 April 8.86 9.07 9 08 9.40 9.53 Nay 8.85 9i20 June 9 81 9.45 9 30 9.46 9 95 July 9.65 11.05 August 9.Pl 10,75 10.75 Septenber 10 05 10.45 11 02 October 10 06 11.33 10-75 Rnreaiber 9.15 Dec enber 9.90 9.52 9.64 10 25 9+0Pf 9.7S 9.16++

1975 January 8.62@, 9.oo 9.71$

February 8;73 S.9o 9.42, March 9 23 9.52 10 16 April 9.20 9 94 10,94 Xl.~

Bqr 9eoo 9.v4 10.80 June 10.79 9oOV 9 23 9.8v July B.&o 9.63 10.38 11 57 August 9.6o 10,76 September 9.68 9 875 10.B3 October 9.4o 9.32 10.46 Noveiber 9.375 9.75 10,31. 11,30 December 9.35 9.68 loo31 11,78 Average 9 11% 9.46$ lli3%

January 8.6+ 8.9S 9~1+ 9.K~

February Harch 8,34 8.61 8.65 8.'83 9 ll 9+60 9.15 9.50 Ayri1 B.'29 8.73 '8,91 9,61 9.05 9.30 10.00 tune B.VS 9 oo 9.34 July 9.92 B.Vo 9.56 10 10 August 8.25 8.94 ScpCeaber e.'oo &.43 &.68 October 9.45

&.26 8.41 8.59 9,00 Average~ 8.4+ S.Vlg 9 05% 9.72%

+January-Nay 1974 ++January-October 1976 O

Page 11 CNOLIHA HNEH Ee LIOlE COI95lC COST OF IEHT Based on Znbbedded Cost of Debt June 30, 1+6 Pro Forna Sale of Connun Stock in October 1976 Carolina Ebvcr 5 Light Co any Cost or Dbt 7.ng

I CAHOLIRL PSKR & LIGIR COHORT IISEDDED COST OF NEFERRED STOCK AND PREFEREIICE STOCK JUICE 30 1976 PRO FORVA SALE OF CONSII STOCK ZR OCXODEH 1976 Amount Dividend Cost Outstanding RslsU1tetltlltl Rate Preferred Stock, without par value> cumulativel

$5 (authorised, 300,000 shares'utstanding, 237,259 shares) $ 24,375,-900 151865295 Serial (authorised5 105000,000 shares):

4.20 Scricn outstanding, 100,000 shares 10,000,000 420,000 5.44 Series outstanding, 250,000 shares 25,000,000 1,360,000 9.10 Series outstanding, 300,000'shares 30,000,000 25730,000

.95 Series outstanding, 350,000 shares 3550005000 2,782,500

.72 Series olltntNlding5 500,000 shares 49,425,000 3,860,000

.48 Serica outstanding, 650,000 shares 64,317,500 555125000 Preferred Stock A (authorised, 5,000,000 shares) f7,45 Series (outstanding, 500,000 shares) 50 000 MO ~3555 000 Total preferred stock +08,118,400. 4 2155755795 7,49$

Preference Stock!

P.675 Preference Stock, Scrien A, 2,000,000 shares, sold in Ihrch 1975 553505079 11.17 Total Preferred Stock and Preference Stock, June 30, 1976 $ 336,0185"00 $ 26,925 874 8.01$

Sourcel Carolina Power & Light Company, Annual Rc ort, 1975) Financial Statements, pages 19-20; Pron cetus, 650,000 Shares, Serial Preferred Stock, go48 Scr cs, u ive, February 4, lpf4, page 7I Prospectus . eference Stock, Series A, 2,000,000 Shares, Harch 1975I Interim Financial Statements June 3~5//,

Page 13 CAROLINA AMER & LIGNT COHNNI COST OF PREFERRED STOCK AND PREFERENCE STOCK Roscd on Imbedded Cost of Preferred Stock and Preference Stock June 30, 1976 Pro Ibrma Sale of Common Stock in October 1976 Carolina Power & Light Co any Cost of Preferred Stock and Preference Stock 8,01'fi

Fuge 14 CAROLIllA HNER 5 LIGllT COMPAHY DETERMlllATION OF FAIR RATE OF RETURN OH BOOK VALUE OF COHHOH ERUITT On Basis of Standard of Commensurate Return Study of the Fair Rate of Return on Comaon Equity Allowed Electric Utilitice by State Regulatory Commissions and by the Federal Power Comaission .

in Rate Proceedings 1975-1976 Study of Actual Earnings Experience on Conmon Equity of Operating Electric Utilities in F>>ir Value Jurisdictions Used as Comparison Companies 1971-1975 Consideration of the Ha)or Upswing in Rate of Return on Conmon Equity Mhich lies Been Experienced by Unregulated Enterprises in the American Economy 1974-1976 I Standards of Haintenancc of Credit and Support of Financial Integrity a rac on o Cap a on Fa an easona e erms

}hrket price of common stock in relation to book value and comnon stock offerings, Iyg 1975, 1976 to date First mortgage bond offerings of electric utilities with fixed charge ratios to support h rating, 1975-1976 to date h

Preferred stock offerings of electric utilities with fixed charge and preferred stock dividend coverage ratios to support e and A rating, 1975-1976 to date

Iage 15 CAROLIJOL HSER f> LICllf COHNHT RATE OF REIURH OH COIQDH XXNITX Allo Col%SR EQUXff RATIO ALQRAHCE IQR IVES USED EURIllo COtlSTRVC1'IOH AS FERCEHE OF HET IlloolS FAR CON%5 1960 1975 AllD IllELVE HOnllCl ERDED JVHE 30 1976 Waive Ihnths Ended 1969 1970 1971 1973 1975 tune 30 1976 let incone for cormon 23>046>540 $ 24>417>813 4 20>126>327 0 29tl03>019 50>917>573 4 52>901>914 4 51>598>075 75,0ZO,OOO 04,326,ooo

,verage c~n equity 105>048>514 210>440>500 245>559>000 200>003>000 373>730>500 409 453>270 529 Nl>093 635>375>315 677> 613,000

.'ate of return oa coenlon equity 11.60$ 0.20$ 10+39$ 13.62$ 10,02$ 9.56$ Il 94$ I2.44$

,verage coc=on equity +05> 048> 51 4 + 10> 448> 500 +4 5 > 559> 000 +00>003> 000 f 373 >730> 500 $ 409> 453 >278 $ 539> N 1 >093 635,375> 315 g 677,613,000

,verage total capital 547>7N>564 619>950>724 742>255>506 929>459>367 1>178>200>554 1>491>136>202 l>034>295>312 2>107>905>674 2>172>9 >3,000 otron equity ratio 33 93$ 33.95$ 93oo0$ 30>13$ 31 72$ 32.02$ 29 43$ 3o.14$ 31.10$

Ilats.ee for funds used during construction 2>927>162 f 4>397>110 f 10>504>936 $ 14>707>309 f 24>750>704 $ 30>092>921 f 54>600>879 f 59>957>000 53,031,000 et incone for coax>on 23>046>540 24>> 1'7>023 20>126>327 29>103>019 50>917>573 52>901>914 . 51>590>075 '5>870>000 84,326,000 llmwnce for funds used during construction as percent of net incone for eomon 12>70$ 18,01$ 52ol9$ 50.54$ 48.63$ 105.04$ 79,02$ 62.09$

uree: Carolina It>ver g Light Orqv>ny> 1975 Annual R rt laterite Financial Statcuentst tune 30> 1976,

I Page 16 INVEST)KrlT STATURE ChHOM(A Pal 5 LXCIR COMPAllT

~rs Ratin on Standard Ec Poor's Bond Quality Rating Hoody's Quality Rating on Standard 8 Poor's Quality Rating on lbody's Rating of Basic Investmcnt Standard 5 Poor's Earnings erd Dividend Paid Each Year Senior Debt on Senior Debt Preferred Stock Preferred Stock polity Dividend Ranking Sb:ce nbaan Medium Grade 1937 Source:

Moody's Bard Survey, 1974 to date; lh y s Bon Heep F Incone Investor, 1974 to date, Bo G an Preferred S oc Ra e, <oven cr ( ; S oc gs, rovem er; khody's Investors Service, Inc., Body's Public Utility Hanuai, 1976; Moody's Handbook of Common Stocks, Surrmer 1976 Edition; e, (oven er 1976.

andard 5 Poor's Corporation,

FAZE RATE OF RETURN ON DOCK VALUE OF COCA)N S5GTf Page 17 ALMOND ZN YAJOR ELECTRIC UZILITY RAT OPJ)ERS EI OHZGli~AL CKi JURISDICTIONS STATE PUBLIC UZZLIXY COLNZSSZONS iQiD PM~L PO~m CGi~~IQf

'o75-1976 Bdr Hate of Return on Book Value of State Public Utili y Cois 'ssions Com~n Equity Allowed and. Federal Power Connission Co&ined 16.00 - 16.24$

15 75 - 15.99 15.50 - 15 74 15.25 - 15.49 15.00 - 15.24 14 75 14.99 //

14.50 - 14.74 ///

14.25 - 14.49 ///

14 00 - 14+24 ////

13.75 - 13.99 //

13,50 13+74 ////

13 25 - 13+49 13,00 12 75

- 13,24

- 12.99

~

//

///

12.50 - 12.74 ////

12e25 - 12.49 //

12 00 - l2~24 ///

Total of Orders 39 13,50+p

'verage 13.47~~

Note.- All 39 Orders define return as oPerating ~mense ard exclude allowance for funds u cd du"ing construction f~n return,

FAIR RATE OF IETUiiN OH BOOK VALUE OF CChZMIi EQUERRY ALTAXKD IN VAJOR EL;CTRIC UTVuTI RATE ORD K Zl ORIGZIQLJi COST JiEKDICTZONS STATE HJBLIC UTILITY CONGSSZOiQ AItD "EDHSL P$ 1Gt COHCSSION 1975-1976 Page 18 Fair Bate of Return of

~n &pity on Book Value Allowed Ar)ansas Public Service Co~ssion Arkansas Power k I Sn- C~ny Docket No. U-2649, April 21, 1976 Public Utilities Conoission of the State of California ci. xc Lias anQ ec>> ~c ripany 12,0 Decision Ho+ 84902'eptember 16'975 State of Connecticut Pu'olic Utilities Control Agency nxtecL ~tilt 1ng 'Lpany 12.45 Docket No. 760305, July 9, 1976 Public Service Comission of the District of Colunbia Potomac ectr c Power No. 5831> Fornal Case No. 651, October 20, 1976 Comps'rder Florida Public Scree Comission G Power Co~

Order No. 6650> Nay 7, 1975 14.25 Tanpa Electric Cos=any 14.75 Order No. 6681, 4y 21, 1975 Florida Power Corporation 14.60 Order No. 6794, July 22, 1975 Iowa State Comerce Connission wa ols Gas anQ, ec ric COB@any 32. 5 Docket No. U-483, April 30, 1976 and June 21, 1976 Idaho Public Utilities Co~ssion 13.75 Case No. U-1006 100'-1006-101, Order No. 12307>

January 14~ 1976 Utah Power Ec light Corn~any 14.50 Case No. U-1009-73, Order No. 12467, April 28, 1976 Illinois Conferee Comission Conoonwe - ~son C"mpany No. 59359 and 54485 Cons, August 27, 1975 State Corporation ~ission of the State of Kansas Tne m~ mwer anu i ger, G"=~any Docket No, 102,+O-U, February 26, 1975 13.6 Kansas Gas J Q.ectric Cazpany 14.85 Docket No. 102,64O-U, July 14, 1975 Public Service Coraission of Kentucky Inux~m e Gas anc -'carte Co~any 13r 0 Case No. 6220, Noveober 26, 1975 Kentucky Power Company 12,0 Case No. 6542, Oc.ober 19, 1976 State of Itaine Public Uti1ities Commission en7r i~e rower C"".pany 12,50 F.C. 42072, April 2, 1975 Public Service Company of New IIMspshire 14.0 F C. /2214, Parch 1, 1976 Weland Rhlic Se. rice Comission atxrwrc Gas c'c:.~cccrxc t.o~eny 12 50 Case No. 6851, 0"de" Uo. 61572, Dcce=ker 16, 1975 Co=onwcalth of !'.essachusetts Deoar.nent of Public U-ili ics rocscon rwi "on ~o~any 12. 50 DPU 18340, February 27, 1976

FAIR RATE OF RTURH OH BOOK VAZUE QF CO!ASH EQGTf ALIJSiED IH lQJGR EL CTRIC UTILITY RATE ORDERS ZN ORIGL'AL COST JURISDICTIONS p~g~ yg STATE HJBLIC UTILITY CQ~SZSSZOIIS AIG) FEDERAL PCS CORIZSSZOH 1975-1976

~ Rate of Return on Baak Value of Carson Equity Allowed Nississippi flic Service sst.ssz.ppz we

~ission Docket Na. U-2783, A~ust 12, 1974 The Chancery Court of the First Judicial.District, Hinds, IU,ssissippi, October 14, 1975 I4ississippi paver 5 IdSht ~any 14.50 State of Idssauri Public Se~ce Ca~ission ms Cary Paver x Company Case Iio. 18,433, 18,463, 18,494, 18,495 AprQ. 23, 1976, lipid 4, 1976 e

Docket Ho. 549,

~~April Public Service Cazzzissian of Nevada ver 12, 1976 14.00 Public Utilities CaMssian of Hev Emshire xc ervz.ce ~any az Nev s re 14.00 D-R6081, Decezzber 31, 1974 Nev Jersey Board af Public Utility Ca~ssioners o erv ce Mec-rxc anu as Camany Docket Ho. 761, Octobez 14, 1976 Jersey Cent".sl Paver 8 Light Company 13.50 Docket Ha. 759-859, Nay 24, 1976 State of Hev York Public Se~ce Cemission o ester Gas ~ill ecsr1c Carrarasxan . 14.34 Case 26848, 26849> Opinion Na. 76-8, April 8, 1976 Nev York State D.ectric Ec Gas Corporation Case,26763, 26764, Opinion Ho. 75-24, October 3, 1975 Corporation Ca .ission af the State af Oklahana c crace many ox Omzzzana 13 0 Cause No, 25346~ Oz'der Ha. U2286, April 15, 1975 Ok1shctca ~ and Electric Can@any Cause No. 25567, Ordez Na. 321513, Ray 20'976 12 0 Public Utility Camissianer af Oregon cs 'c wer bc onT pc+ 13,50 UF 3150, Order No.75-704, Augu& 13, 1975 Public Se. rice Cession of Utah U Paver dc Lx z. Company Caie Ho. 7167, hhxch 4, 1976 Public Service Camissian af Wisconsin

'e Super@or D s-racy raver Camany 3020 W 1, June 8, 1976 Wisconsin Electric Paver 6630-zZI 1, August 5, 1976 Co~

FAIR RAM OF RETURN ON BOOK VAXUE OF CR9SÃ BgZTY ALIGNED XH MJDH EL-CTRIC UTILITY RATE ORDRAW ZN ORIGO'OST JURISDICTIONS ~+8~

STATE HJBLZC UTILITY CQiMSSZONS le) FEDERAL P5~ COMGSSZCN 1975-1976

~ Rate of Return on Book Value of Common Equity A11oved Federal Pover Commission Puo c em,ce C-"mpany of Indiana Docket No. ~586> E-8587, ~~ion Ho. 783i November 10, 1976 Connecticut Light and paver Company ~ 12.25 Opinion No. 761, AprQ. 28, 1976 Nevada Pover Comoany 14.OO Opinion No, 768, July 7, 1976 Gulf Pover Company Initia1 Decision of Administrative Law Judge Docket No ~ &8911, October 18, 1976 Alabama Povex Cospany 12.935 Initial Decision of Adminismative Lav Judge

,Docket No. E-8851, October 22, 1976 n

fO O

Page 21 FAIR RATE OF RETURN ArsnWm BY REGIATORY CONQSSIOlIS IN FAIR VALUE JURISDICTIONS 1975-1976 Fair Hate of Return on Book Value Overall Fair Rate of'eturn Overall Fair Rate of Return of Conznon Equity on Net Original Cost on Fair Value Rate Base Arizona Corporation Commission Arizona Public Service Company "Pro forming the above finding in thc test lo.80$ 7.802$

Decision No. 465l2, year...results in a rate of return on October 30, 1975 year-end connnon equity of approximately 17.3$ , including allovance for funds used during construction."

Tucson Gas 6 Electric Company "Such a rate of'eturn contemplates a 10 60 8.66 Decision No. 46930-A, Opinion return on common equity of'5.25$ uhich and Order on Rehearing, represents a fair and reasonable return June 28, i+f6 thereon."

Puiblic Service Conxnission of Indiana Public Service Company of Indiana "The Petitioner'e cost of "Not l.ess than 7 14 Cause Lo, 33932, capital ie not lees than October 6, 1975 Indianapolis Power 5 Light Company 9.36 "Not lees than" 6.9g Cause 1to. 33735~

April 1> 1975 .

Ncf t~exico Public Service Conrnission Public Scrvicc Company of New mexico Case No. 1131, 14.00(, 9 32 7.824 October 10, 1974 Case Ro, 1196~ 14,00 April 22; 1975

page 2la FAlR BATE OF RETURN ALLCMED BY REGUIATORY CONQSSI011S IN FAIR VALUE JURISDICTION 1975-1976 Fair Rate of Return on Book Value Overall Fair Bate of Return Overall Fair Bate of Return of Common Equity on Bet Original Cost on Fair Val.uc Rate Base Public Vtilitics Commission of Ohio Cleveland Electric Illuminating Company 9,02$

Case No. 74-571-Y, August 25, 1976 Ohio Paver Company "...The Commission notes that the evidence in 9.42 Case Bo. 74-404-Y, this case shows that thc recommended increase September 15, 1976 uould result in an actual return on co+non equity in thc range oi'4-15~~."

Ohio Edison Company 8.96 Case Bo. 751 131-EL-AIR, September 29, 1976 Pennsylvania Public Utility Commission pennsylvania Electric Company 14.8+ 9.534 8.2O F.I.D. 172 and 173, Junc 2, 1976

liar ESTIEIIT STATURE Page 22 ELECTRIC UTILITIES Ill FAIR VAIlJE JURISDICTIONS

)0 Bonds Preferred Stock Common Stock (Publicly-Iield) an ar tan ar lao s a ngo Sanar coors Dv en spa Moody B Cc Poor s lady' 5 Poorts Basic Investment. Earnings and Each Year Rating Rating Rating Rating Quality Dividend Rankings Since Arizona Xrrcona public Rcrvice Company Iebaatt Medium Grade B+ 1920 Tucson Gas 8: Electric Company Medium Grade A- 1918 Dclarlare Daaiarva Povcr h Light Company Investment Grade 1921 Indiana banana I liicbigen Electric Companye Baa Itbsaff BBB Indianapolis Porrer 8: Light Company>> ha tlaaff A+ Investmcnt Grade A 1934 Northern Indiana Public Service Companyrr Aa Naaff AA High Grade A 1944 Public Service Coarpany of Indiana, Inc.>> Aa Naaff AA lligh Grade A 1941 Southern Indiana Gas and Electric Companyrr Aa A Nf A 1944 lbnwna lllor. ana tower Conpanye Aa lligh Grade , 1935 Iles Hexico

~pu c nervice company of llew iiexico ttaff Invcstmcnt Grade 1946 Ilorth Carolina A llbaatl Medium Grade 1937 Dup.c Iurrcr Company A Itbaaff Investmcnt Credo 1926 Ohio CTncinnati Gas 8 Electric Company Aa AA tlaaff A Investmcnt Grade A 18H Cleveland Electric Illuminating Company Aa plait A Investmcnt Grade A 1901 Coluribus and Southern Ohio Electric Company A BBB+ "a" BBB Medium Grade A- 1927 Dayton Power and Light Corrrpany. A A Italt BBB Medium Grade A- 1919 Ohio Edison Company A A "baaff A- Investment Grade A- 1930 Ohio Poorer Company Baa BBB BBB Toledo Edison Company Baa A Nbaaff A- Investment Grade 1922

IIIVESTIKIITSTATURE Fuge 23 EIZCXRIC UTILITIES III FAIR VALUE JURISDICTI(SS t(OVEMBER Bonds Preferred Stock Common Stock (Publicly-Held)

~ 8 an ar r s a ngo Sana Poor s v ens Moody's & Poor's Ibodyts . & Poor's Basic Investment Earnings and Each Year Rating Rnting Rating llnting Ouality . Dividend Rankings Since Pennrylvania Duqucsre I ight Company Aa AA Ita AA Investmcnt Grade 1913 Metropolitan Edison Conrpany A A BBB Pennsylvania Electric Company A BBB I beati DBB Pennsylvania Power & Light Company It II Aa A+ A Investment Grade A 1946 Ihiladclphia Electric Company A A- II II BBB Medium Grade B+ 1902 Hest Penn Power Company Aa AA AA Texas Central Power and Light Companyrr Aa AA II II M

Community Public Service Company A A private private NL 1936 Dallas Power & Light Company" Aaa AAA Ita all M El Paso Electric Company>> A AA- A High Grade 1928 Ibuston Lighting & Power Companyrr Aa AA ~ taall AA High Grade 1922 Southwestern Electric Power Company Aa AA llaall AA Southwestern Public Scrvicc Corrpany Aa AA ll all AA High Grade 1942 Texas Electric Scrvicc Company Aaa AAA Itaatt AA Texas Power & ItigIrt Company" Aaa AAA ttaall AA Hest Texas Utilitics Company> Aa AA AA Holding Companies cgrcny I'orrcr Systcmf Irlc. Medium Grade A- 1935 American Electric Power Companyt'nc, Medium Grade 1909 Central and South Hest Corporation+ High Grade A 1o47 Texas Utili ics Company> High Grade A+ 1917

<<Electric utilities in fair value Jurisdictions without flow-through.

Rote.-Dash in preferred stock, Ibody's and Standard & Poor's ratings, indicates preferred not yet rated by Moody's or holding companies or operating companies without preferred stock. Dash in cannen stock, I&cd@'s and Standard & Poor's ratings, and in dividends paid>

indicates operating subsidiaries without publicly-held common stock.

Source: Ibody's Investors Service, Inc., Moody's Public Utility Ienualt 1976; Ibody's Handbook of Corrcron Stocks, Summer 1976 Editioni Ibodyts Bond Survey, 1974 to date; bor s n Secor on Preferred S oc la ngs, ovem er  ; ndard & Poor's Corporation, F xc cane ves or, 1974 to date, n u e, vcm er i ; ~ oc r u c, ovcm er 1976.

Page 24 RATE OF RETURN ON COM%II EQUITY AND COIIIION EQUITY RATIO OII TINO FLECXHIC UTILITIES IN FAIR VALUE JURISDICTIONS COMPANIES WITII PUDLICLY-NELD COIMON STOCK AND SUBSIDIARIES OF IIOLDINO COHNNIES 1963-1975 1963 1964 1965 1966 1967 1968 1969 1970 19?l 19?2 19?3 19?4 1975 labara

~sama Power Company+ 12.56$ 12.93'5 12.49$ 11.32$ 12,02$ 11 93$ 13.62$ 12 13$ ll,jf~p 10.1 ~ 13. p 0.6 ll./PE 35.30 35.56 35,06 34.16 33.99 34,27 34.32 3.03 ~ 7 . 4 ~03 rixona

~Ar zona Public Service Company 10.32 10.23 8.93 9.45 -9.67 9.00 10.00 10.12 9 9? 11.42 11.82 10.94 13.52 32,10 31.57 31.50 32,15 32.39 31.13 29-95 29-59 29,05 30.63 31.72 3l,lg 3l.o4 Tucson Gas dc Electric Company 10.21 10.90 11.16 11,09 11.82 10.99 12 60 14.36 12.56 13.52 14.QS 12.48 14.45 41.83 41.20 30.24 36.70 36.05 36.52 35.05 34.68 33.09 29.9? 26.04 25.02 29.52 claware l)e&arva Power g Light Compel~ 13.09 14.30 15.13 15.20 13.03 13.71 14.40 11.79 13.19 12.19 11.99 11.32 9,74 34.95 33.63 33.05 35.97 36.77 34.43 34.15 32.91 30 07 32.05 32.26 32.05 33.99 llinois

~Cen;raal Illinois Light Company 11.19 12.27 12.07 12.87 12. 50 11.70 11.97 13-75 13.00 13.09 36.11 40 34 40.90 39.42 37.72 36.76 36.05 . 34.65 33.67 33.67 P -43 .47 .72 Central Illinois Public Service Company>> 15.69 16.24 16.32 16.31 16.32 14.07 14.05 14.41 14.76 12.77 35.06 34.72 33.60 33.73 33.96 34.33 34.57 35.00 35.35 33.10 1.90 W -76 Commonwealth Blison Company>> 13,57 13.09 14.34 14.80 14,91 14.36 13.02 13.16 12.36 13.14 39,78 41,44 42.QQ 42.09 41 70 40 12 3?.63 34.36 31,61 32.5S Illinois Power Compan~ 16.10 16,0S 17,13 17,25 17 61 16.86 17.45 17.24 13-31 12.20 35.28 35,01 '6,09 36.80 36-55 35 34.47 34.99 35.09 35.80 .65 .37 .95

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RATE oF RETURN olr corrrrolr WUITI AND CoreoN zqUITr RATIo OPERATIlro ELECIRIC UTILlTIES IN FAIR VALUE JURISDIGTIolrS COHNlrlES MITrr PUBLICLY-rELD CQr:!311 STOCK AND SUBSIDIARIES OF lrOLDINO COHFANIES 1963 1975 1963 1964 1965 1966 1967 1960 1969 1970 1971 1972 1973 1974 1975 Indiana

~an ana h Hlchtaan Elcccclc ccaaanyc 14.67$ 17. 13$ 17,lip 10.96$ 17o6+ 16.76$ 17-95$ 17.00$ 13.57$ 15 05$ 15.26$ 7o19~ lo.68' 31.63 30.96 30.03 30.99 31 59 31.39 30,43 30.25 29.09 29,03 29.38 29. 17 20.39 Indianapolis Power and Light Compan~ 14.62 14.39 15o41 16.91 16.35 15.22 15 55 13.07 14,13 17.07 14.30 9 96 12. 49 4o.5o 40.62 . 40 79 39.79 36.04 33.14 31o59 31.22 32,70 33.25 33o30 31.63 29.02 Northern Indiena Public Service Companyjr 14.15 14. 56 15.66 16.06 16.20 15.45 15.20 16.34 15.15 15.22 lb.64 11.33 11.'95 34.7o 35. 51 36.55 37o90 30.47 30.o6 37o90 38.24 37.83 35o50 3rrolo ~

32,51 31.32 Public Service Company of Indiana, Inc.+ 11.21 12, 53 13.69 14. 50 14.o4 13.62 13.96 14.36 12.07 13.65 lrr o52 14.42 13.19 39.25 . 40.07 41.07 42.19 43.24 42.75 4o,30 38.26 36.49 36.07 39.14 37.02 36.66 Southern Indiana Ces and Electric Company+ 12.22 13.21 14,96, -

15.65 14.91 14.72 14.07 15 37 14,92 15.60 15. 00 13'23 13.10 40.10 41.4o 41 49 39.95 39.00 30.84 38.o9 36.31 35.99 36.oG 37.64 36.71 40,43 Ynntana tbnG<na Power Compa~ 13oll 13o30 13o60 14olo 12o93 llo70 13o24 13o61 I3.18 13.46 13.00 12 70 13.32 50,14 51,44 51 90 51 42 50,07 47,30 46,16 47.33 48.65 '0.o9 45,57 42 71 41.11 Kexico

~Hc lrew bervice Company of llew lrexico 12.46 38.21 12.37 39.76 12 95 40.40 13.61 39.00 14,09 30.04 12.99 35.33 12.44 33,97 12 73 34.57 12 47 36.26 lrr,l4 37.97 14.09 30c13 9.73 35.46

. 11.40 33.05 llorth Carolina 11.80 12.76 13.31 13.07 12.45 I2.40 llo60 0.20 10.39 13.62 10.62 9.56 11.94 38.23 30.57 30o71 30.61 36o50 33.93 33.95 33.00 30.13 31.72 32.02 29,43 30.14 Duke Power Company 10.91 11.69 . 12.49 12a10 12,40 12,23 12 56 9o 48 10.70 9,09 9. 59 8.03 9.59

43. 47 43,15 42.79 42,07 39,23 35.49 31 17 27,01 27o92 29.09 29,07 29.07 29,60

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HATE OF RETURN Oll CQDDII EQUITY AllD CRCSN EQUITY HATIO

-OPERATIIKI ElkCIRIC UTILITIES IN FAIH VALUE JURISDICTIONS COHPAllIFS MITII PUBLICLY-IIELDCNIIION STOCK AND SUIKIIDIAHIES OF HOLDINO COMPANIES 1963-1975 1963 1964 1965 1966 1967 1968 1%9 1970 1971 1972 1973 1974 1975 hio Kncinnati Cai Aq Electric Company 13.74$ , 15.01$ 16.07$ 16.~ 17.03$ 15.61$ 16e03$ 15. Igf 13.43$ 14.76$ 13.07$ 10.73$ zo.v6$

37.02 37 95 30.06 40,32 40.50 40,20 30.40 35.40 34.12 33.48 33.31 32.16 Cleveland Electric Illuminating Company

'1.04 12.41 13.36 14.30 14.66 14.65 14.70 14.53 lb.21 14.32 13.02 15.04 13.06 50,71 53.44 54 '2 54.70 55.07 53,06 ~

47,54 43.42 41.20 37.33 34.OO 31,29 30.92 Columbus and Southern Ohio Electric Company 12.01 12,96 13>>79 13 13 13.26 12.36 12.35 11.15 9.45 11.62 12.43 0.17 15,65 35 99 37.73 39.67 40.52 40 41 37.91 35.19 32.21 30 32 30, 51 31.63 29 05 29,29 Dayton Power and Light Company 12.66 13.34 13.89 14.63 15 50 15.09 14.73 12.40 12400 11,69 10.08 10.14 12,45 40.16 41.66 42,38 41,92 40.40 37.67 33.99 33 39 33.56 34.42 34.V9 33.02 34.40 Ohio Edison Company 13.57 14.32 15.22 15 32 15.79 14. 5 14,90 13.10 13.83 14.71 lle25 13 03 30.97 39.04 41.12 42.30 43.50 43.~4 42.03 36.45 33.26 32 '3 31.00 29.vo Ohio 1bver Company 1V.47 lv.4v 19.26 20.10 19.00 17 94 16.25 15.6v 15,96 15.60 15,45 11.76 14.26 33.91 34.60 34,01 30,66 31.63 33.15 30.95 29.92 29.44 29427 20 76 . 20.23 20.00 Toledo Edison Company 14.22 14.6v 15e 17 15.06 15.65 15 20 15 57 15.19 14.62 15.46 14.92 12.19 14.35 33.02 34,40 35-97 37.49 35 78 33497 34,48 33.74 31431 30,56 30.44 29.84 30.67 Pennsylvania

~queeee e qht Ceuqeue 15.35 15.76 16.20 16.50 16 71 15,90 14,98 13.56 13.27 12. IQ 11 45 11 39 12 97 35.21 36.13 36,47 35.01 33.37 32,29 30.68 31,00 32.66 33.09 34.15 33.96 32.46 l<ctropolltan Edison Con@any 12,51 12.07 12.99 12.03 12.20 10,69 9.04 7.48 9 93 10 00 10.03 11.45 10.27 39.62 39.26 38.05 36.02 34.60 34.55 34.22 39,46 45.04 43.73 39.40, 39.46 39-92 Pennsylvania Electric Company 13.29 12.v6 12.40 12.62 12.02 12,09 12.20 10.54 12.10 10.26 12.36 11.48 12.45 34 24 35.14 36.56 35,01 33.39 34.14 34 09 . 34.91 34.69 34,49 35.62 34.73 32,20 Pennsylvania Pouer Ec Light Company 13,02 13.17 13,44 13.67 13.13 13.04 12.24 9-98 11.37 11.37 11.28 13.53 12.72 33.15 33.22 33.09 32.12 30.76 29,70 20.96 20.57 20.79 29.64 30.31 29,80 29,24 Philadelphia Electric Company 11.51 30.02 11.69 30.07

12. 18 30.07 12,70 37.76 12.23 37.68 ll 92 36.07 10 30 35.77 9.43 34.51 10,00 34.02 10.29 34.10 9.75 34.63 0.93 33.20 9.38 32.47 Vest Penn Bwer Company 14.v5 15.10 15.73 16.14 16.00 14.44 15.42 15.25 15.29 14.45 13.51 11.10 13.34 33e05 33.75 34.44 34.97 33.75 30.43 32.00 31.55 31.66 32.72 33.22 33.39

RATE OF REDJllN ON COl%0H EQUITX AND COl'RON EC5JITX RATIO OPERATIN0 ELECIRIC uriLITIES IN FAIR VAUJE amiSDICTIONS COHHWIES MITS HJBLICLX-NELD CQQRN STOCK AND SUBSIDIARIES OF llOLDINO COHNHIE3 1963-19?5 1963 1964 1965 1966 1967 1960 1969 19?0 1971 19?2 1973 19?4 19?5 Texas

~cn ral Power and Light Company 14.9?

41,20 f 15.20$

42,43 15.47$

43,73 15.9?$

45,10 17.63$

45.42

'6'.45$

44.11 17.9?$

42.01 l6,03$

42.52 16,25$

'1.35 15.90$

39.98 15.22$

40 21

, 13.71$

30.67 39 17 CoarLunity Public Service Company 13.63 15,43 14,13 12,62 11.32 11.30 13.09 14.11 14.40 16 06 15.67 11.81 10.79 37 04 35+79 34o?? 32 30 30.07 29.44 29+97 31.70 32.39 32.75 32.01 32+10 30.63 DaUss Power 5 Light Company>> 12,54 12.31 12,20 12,23 12.50 13.00 13.64 13il7 12,76 I2.69 12. 50 11.31 ll;56 39,24 39,90 40,21 40,01 30.66 37.09 36.95 37.26 . 36.26 35.00 36.41 36.59 35 50 El Paso Electric Company>> 16,80 16,77 17,71 17 34 16.63 17,05 17+10 17 03 17 07 17.10 15-75 15,02 15.11 3?ob? '9o07 40.32 bi+22 41,06 39,06 '7.88 30.24 37.54 37.15 37.42 32.61 30,27 Houston Lighting g Power Company>> 15.08 16.09 17.24 15.96 14,67 14.11 14.49 15.14 15.46 15,49 13.93 11.74 10;00 44,98 47 15 49 40 49,02 45.21 42.15 41.20 40.72 39.67 3S.21 39,44 36.96 36.39 Southwestern Public Service Company 16,24 16e69 16.25 15+31 14,71 15.43 15.76 16.02 17.96 1 70 16,15 10.12 16.28 33.04 32.75 31.03 31.30 30,91 30.62 30 90 31ilb 320 55 3 .22 33o95 32.09 31.93 Texas Electric Service Company>> 17.65 16.00 16.09 16,35 16.36 16.23 16,00 17.33 16.08 16.43 15.57 15.09 13.07 37.40 38.0? 30.60 30.33 30.52 30.39 30.24 37+ 37 36,94 36.42 36.31 36.40 34.60 Texas Power Ec Light Company>> 17,0S 17,93 10.60 17,64 17.62 15.04 16,62 16 79 16.31 16.71 15.34 ib.bo 11 39 40.25 39.56 30.17 30.82 30.92 30.06 37'45 36.87 37.34 37.04 30.17 39 17 36.00 Nest Texas Utilities C'ompany>> 15,61 15,9? 15.56 15 67 15.33 14,91 l5o57 16.48 15.06 15.47 16.90 16.27 1.6.45 40.23 41.46 42.27 42.52 43.30 43.62 43.30 43.90 45.36 46.87 46.yr 47.49 4S.86

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RATE OF RE1UIUt OH CG~IIDH EQVI1Y AHD COUGH EQUITY RATIO Page 28 OPZRATIHO ELECTRIC IILITIES IH FAIR VAME JURIODICZIOIIS COMNllIES MITII HJBLICLY-IELD COIOQIf STOCK AND SUBSIDIARIES OF HOLDIIIO CHNHIES 1963-1975 1963 1964 1965 1966 1967 1960 1969 1970 1971 1972 1973 1974 1975 Average above 39 companies 13o76fi 14o24$ 14o66$ 14 62$ 14 65$ 14 06$ 14 26$ 13e73$ 13e48$ 13e60$ . 13e3+ lle74$, 12e50$

in fair value Jurisdictions 30.03 30 63 30 95 30,60 30 15 36,92 35,66 35 37 3lf,9lf 34.72 34 50 33.53'3.19 Average - above 20 companies 22/ 13 o70/lt 14 00$ 14 e 26/ 14 14$ 13 o 55$ 13 e 52$ 12e7+ 12e 05(i 12e 91/ 12 89$ 1 1 o 52$ 12e 53(i in fair value Jurisdictions 37,27 37,67 37,79 37,46 36 00 35,52 3lf,22 33,57 33,3ff 33el6 32,0ff 31,95 31,01 with flow-through

- above 6+ 6Q 12 e 46/

Average flow-through'3e 19 companies in fair value Jurisdictions without 14o 34/

38.04 14 o 39.63 15o 27/

-40 17 15o 42$

40,20 15o 19)ii 39,57 14 30,39 15 00(i 37 60 14 o 02/

37 25 14 o 15$

36.62 14o 40$

36e38 13 90$

36 41 1 le 97) 35.20 34,63 Average - above 30 companies 13o10$ 13,73$ 14.20$ 14.63$ 14 49$ 13,80(i 13 03'$13 09$ 12 7Q 13.06$ 12,03$ 11,02$ 12.27$

excluding Texas 37o72 38e3ff 30o66 38e48 37e83 36o55 35o33 34o6'5 34ell 33 83 33e56 32.43 32.27 Average above 9 companies in Texas 15e7+

39o07 15o92fi 39,58 15o93$

39,92 15.45$

39 86 15 ~

39,21 14,92$

38.14 15.77'g 37,66 15e08$

37 76 15.79$

37 71 15e74$

37 70 15 23$

37 97 14e 37.21 16/ 13.26$

36.26 Hotee-Common equity ratio is average total conmon equity as percent of average total capitalixation, including debt due within one year.

Source: Computed from date in 1975 annual reports to stochhoMersl unifona statistical reports) and Hoody's Investors Servicef Inc f Hoody's PuMic Utility Manual 1975 and ifoody's Public UtilityHews Report 1976 and corresponding sources in earlier years,

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ALMRANCE FOR FUNDS lJSED DURING CON"TRUCTION IN RElATION TO NET INCOME FOR CGlCRN OPERATINQ ELECXRIC UTILlTIES IN FAIR VALUE JURISDICTIONS COHNNIES 'MITil HSLICLY-liELDCON%N STOCK AND SUDSIDIARIES OF )iOLDINQ CQ95liIES 1963-1975 1963 1964 1965 1966 1967 1960 1969 1@70 1971 1972 1973 1975 Alabana

)~a>as+ Power Companyii 7.65$ 7.03$ 7+54 9.8gf 9.23$ 7.06$ 10,97$ ll.~

Arizona rttttta itttlic sttvice cottttttt 20;54 6.41 1,07 0.04 4,10 10.7a 12.60 3.06 9 50 17.43 22.47 30.72 35.14 Tucson Gas & Electric Company 1, la 3.02. 15 00 14.46 0.34 12.65 7.99 10.95 37.57 55.91 7o.02 22,06 Delaware

~Dc anrva Ibwcr & Light Company o.46 1,6ii 5.00 4.07 2.42 0.57 15.ao 25.34 43.o4 45.H li2.10 33,19 32.71 Dllnoi s Central Illinois Ltttitt Campanist>> l.o4 1.70 3,01 7,lA 13.02 10,20 4.61 11.67 27.59 22.58 Central Illinois Public Service Company+ a.6o 9 91 16,09 2,15 1,99 1.93 2.67 10. 10 aalu 55 25.05 ++0 ~2~5 3Dr9Z Commonwealth Edison Compenyii '2.60 3.97 4.o3 4.55 6.30 10.29 17,60 27.16 g645 Illinois Power Company> 5.93 6.ao o,06 1.49 2.51 6.64 15,51 15.a6 39-07 11.77 34.44 20,69 yg.oo

~l ~27 +l~

Indiana

~n~Hana & Michigan Electric Companyii Indianapolis Power & Light 15,20 9 57 o.63 1,07 ',53 12.41 25ill li6,59 7o.68 82,16 00.6o 217.66 lolta6 1.24 2,19 5.36 12,61 11,62 16.66 22.46 0.21 14.43 21 33 20.32 23 39 41,39 Indiana Public Service Company+

Companyi'orthern 3.25 3.50 3.36 3 t75 7t32 0.32 5.45 6.99 7.78 16,15 30 97 37 97 39.98 Public Service Company of Indiana, Inc.+ 0.35 0.90 2,09 4.20 5.05 0.10 12 06 15.44 13.75 11.01 14,19 27.60 24.70 Southern Indiana Gas and Electric Companyii o.Bo 0.70 3.95 9e66 0,74 2.59 11.72 14.31 1.4.74 29.07 20,05 3.43 3 10 lantana

~n;ana Power Companys 0,52 o.44 o.00 o 95 3.74 7.34 a.3a 0.50 1,13 2.52 5.52 16.02 23.02 Ncw llexico

~Pu Hc fcrvice Company of New Mexico 1.03 1.40 1.43 2,07 9,30 15.76 15.34 6.76 B.o3 ao,63 . 22,96 12.24 21,60 liorth Carolina M 5e20 6,29 B.oo

[. 1ti) 12. 6 it 12,70 10,01 52.19 5o.54 40.63 lo5.84 79.02 Duke Power Company 9.76 7.32 5,0o ~ 9o95 21,09 33,11 60.05 67.07 07.55 02.~i6 01,19 50.36 Ohio iVncinnati Gas & Electric Company 1,09 3 15 2 79 2,62 4.7li 9.25 15.27 22.37 22.20 30,60 Clcvcland Electric Illuminating Company 1 97 o.60 o 99 1,50 3.6li 10.02 17 41 ao.ob 14.21 19.3) 23. ti0 31 70 ~i9 99 Columbus and Southern Ohio Electric Company o.48 0.77 0.99 1.65 5,59 11,10 17.45 3o.56 33 17 25.00 50.72 4o.4a Dayton Power and Light Company o.70 1.03 1.10 a.66 5.66 12,31 10.30 23.11 16.51 10.23 23.53 31 32 a7.18 Ohio FW.son Company 2,13 1,96 1.01 2.60 0.11 6.35 10+51 19,92 21+70 31+14 61.6o 73.93 u Ohio Power Company 2. 3) 1.74 6.78 16+55 11,13 1865 25.94 33 22 32r 5 37.23 5o.24 75.79 27.49 co Toledo Blison Company o.a6 0,61 1.70 6.93 0,91 5.34 7077 19.04 27,12 52+31 00,70 72,43 ia

ALMtlAlfCF, FOH HttfDS USED MNIttQ COttSTHUCTIOlf Ilf HFIATION TO lET IltCOlfg RN COftttOtf Page 30 OPEttATIHQ ELECIHIO UTILIT~ Ilf FAIH VALUE JIILIDICTIOtfS COHAUfIES MITll M)LICLY-tELDCOf RKttf STOCK AltD SUttSIDIAHIES OF IfOLDPtQ COttN11IES 1963-1975 1963 1964 1965 1966 1960 1%9 1970 1971 1972 1973 1974 1975 Penneyliania

~<queanc lehO Caeyeey lel7$ 2.90$ 6.01$ 0. 43$ 9.364 24.0g 39.03$ 27el0$ 3lf 30 991 43.60$ 43.Oaf ffetropolitan Edison Company l,tfff 1.00 3.26 4.70 7.56 9.76 30,94 67.74 44.66 55.56 7tf e30 61 16 47.35 Pennsylvania Electric Company I.tt6 2.07 3,21 7,04 0.24 13.69 22.95 7.40 14.57 27el5 30.28 35.74 30.17 Pennsylvania Power & Light Company 1.70 3.9o 7.41 7.40 15. 17 19.56 20,69 34 10 43.60 33.75 30.10 3o 57 50e12 Philadelphia Electric Company 3.30 2.64 2,90 6.01 0.16 6.59 13,64 30.90 40.47 49.12 61.66 74.25 61.90 Most Penn Power Company 0.66 1.16 1.97 4.51 7.20 17.99 20 71 17.63 20.26 25.99 16.91 14.64 7-76 Texas

~Cen ral Power and I.ight Companys 2,96 . 3 03 1 93 Oo00 4 e27 6.72 6.67 0.71 9.z0 7e73 12.42 14.55 15.83 Cormunity Public Service Company 1.56 1.76 3.24 5.06 3.00 1.29 1.30 0.90 1.44 1,45 2.01 2 73 2.42 Dallas Dower & l,ight Company>> 0,00 0.00 0.00 0.00 0,00 4,57 9.77 12 59 14 53 14.50 17.76 13.41 19.32 El Paso Electric Company> 5.15 0,34 4,05 4,75 2.98 11.00 0.53 4.96 0.74 1.67 14.65 25.09 llouston Lighting & 1bwer Companys 2.02 2.35 1.68 3.75 6.lB 6.66 5.10 9,62 7,2~f 10.44 12.00 12.94 13.30 Southwestern Public Service Company 47 9.91 7,31 2 17 4,43 0.23 1,69 5.40 9,02 -

233 0.29 11.75 . 17.35 Texas Electric Service Company>> 1.97 0,91 2 69 4,66 2 19 5.56 4.30 6,57 l2,19 10.99 14.46 13.19 23.54 Texas Power & Light Company> le09 2.78 5.01 2.87 6.20 5.46 9.66 10.85 14.28 10,41 lle17 20e99 26.05 Hest Texas Utilities Company>> . Oo00 2.26 4.35 4.05 1.47 3.65 3.25 2e72 4.06 1.26 5.67 5.19 1.31 Avcragc - above 39 companies 3e 4+ 3e 05/ 3 e 91/ 4e 05/ 6e 33) 9o 05mte 13 e 53/ 18e76$ 22e 50$ Z6 o 52 fr 29e Ills 40e 06/ 35e 9fyfe in fair value )urisdictions Average - above 20 companiee in fair value Jurisdictions 3o 63/ 2 e71$ 3 e7+ 5e 02/ 7e3+ lle77$ 16e 6+ 22e76$ 25e 36/ 30e 06$ 35e 07/ 43 e 66/ 37e 60/

with flow-through Average - above 19 companies 3el5$ 3e41$ 4e02$ 4e67$ 5.31$ 7,02$ 10 3Q 14e55$ 19e49$ Zle95$ 22,62$ 37 92$ 34,02$ ,

in fair value Jurisdictions without flow-through>>

Average above 9 companiee in Texas Ze25$ Ze5+ 3e47$ 3el3$ 3e52$ 5e~ 5e59$ 6o96$ Ge~ 7o55$ 9e50fi I2el6$ 16ellg Average - above 30 companies 3e74$ 3el9$ 4o04$ 5e36$ 7e18$ 11 00$ 15e91$ 22e3+ 26 50$ '2ezlg 35e36$ 49 47$ 41 excluding Texas Source: Computed from data in 1975 annual reports to stockholders; uniform statistical reports) and-lhody~s Investors Service, Inc tfoody's Public Utility khnuai- 1975 and Yuody's Public UtilityHews Re rt 1976 and corresponding sources in earlier years.

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SELILTIOBSNIP SETMEOf ShTE OF NEIN ON CCMlN EQVITI a)ge 31 AND CXRIII EQJITI SATIO Co any B eny C 100S coezon equity ratio 60S ccceen equity ratio 40S cocoon cqulty ratio 30S coccon equity ratio 30S coaron equity ratio no debt an4 7,5S debt cost and 7.5S debt cost an4 7,5S debt cost an4 8.0$ debt cost Incore for capital $ 100 Oo $ 100,00 $ 100,00 )too.ao Total capital $ 1000 $ 1000 tlooo $ 1000 Sate of return on total capital +00.00/$ 1000-<<10.00S $ 100+00/$ 1000 << IO,OOS flooe00/$ 1000 << loooojL Oooioo/$ 1000 <<10,00S 000.00/$ 1000 - IO.OOS Debt o 4 too $ 60o $ voo Cceznn equity ~1000 ~600 ~too ~300 ~300 Total capital $ 1000 +000 $ 1000 41000 $ 1000 Cosncn equity ratio $ 1000/Q.ooo << lco,oS fAN/$1000 <<60,GS fAoo/)looo $ 300/+000 30.oS <<30,0g

$ 300/+000 Irbedded cost of debt 7.5S v.5S 7+5S 8.0S Intercat on debt 7.5S x goo go.oo 7.5S x goo $ 45.00 7.55 x fT00 45z.50 8.oS x froo $ 56.oo Nct incone for coceon $ 00,00 $ 30ooo << (/oooo AOOIOO t"5~00 <<85~00 $ 10400 - $ 5450 " 67~50 floo.oo - g6.00 $ 44.00 Rate of return on comon equity $ 00,00/$ 1000 <<10,00S /0100/~ <<11.67S $ 55.00/~ <<13o75S gt7.50/$ 300 <<15,83S hatt.oo/$ 300 lt.67S

I METlfOD OP ADJUSTHEtC 19R DIDXRBIT C08%N ERUITT RATIO Earnings e erien6e public Service Indiana ".

1974 Rate of return on common equity 14.42$

Caamon equity ratio (37,82$ ) x .3782 Coeyonent for common equity in overall rate of return 5.454 At 35.81$ conmon equity ratio equity, aore debt .3782

~2' Lass comnon i@re interest (5.90)rate in 1974) 0201 X 5,~

less earnings for cosmon equity 0.119 Resultant cecrponent for co+non equity 5.454 - 0.119 5.335 Resultant rate of return on 5.335/.3581 commn e at 35.81$ common equity ratio 14+90$

Page 33 BATE OF RETURN ON COMMON ACUITY AMUSTED TO 35.81 PEHCENT COMMON EQUITX RATIO OPERATINO ELECTRIC UTILITIES IN FAIR VALUE JURISDICTIONS 1971-1975 1971 1972 1974 Arizona

~nr rona Public Service Company 9,11 10. 57 11.21 lo.47 12.80 Tucson Gas 5 Electric Company 12.04 12 '1 12.56 11,04 13.11 Delaware Deemnrva Power and Light Company 12.13 11.54 11.44 10,89 9.61 Illinois Central Illinois Light Company+ 13.33 12.66 9.75 9.16 8.27 Central Illinois Public Service Company+ 14.64 12.26 10.37 10.49 12 26 Conmonwealth Edison Company+ ll.55 12.45 11.75 10.33 1O.67 Illinois Power Company~ 13,14 12.20 12.63 11,06 12.75 Indiana

~ln ana anl tlichigan Electric Company>> 12.66 13.37 13.85 7.47 10. 04 Indianapolis Power and Light Company+ 13.37 16,26 13m71 9.54 11.53 Northern Indiana Public Service Company+ 15.70 15.14 14.22 10,92 11.37 Public Service Company of Indiana, Inc.+ 32a20 13,89 15,36 14,90 13.35 Southern Indiana Gaa and ElectH,o Con@any+ Z4.97 16.29 13.84 14o13 Montana

~Non ana power Companya 16.02 16.3O 15.95 13.98 14.37 New Mexico En 12.56 14.61 15.44 9 70 11.14 t0 OQ Q

North Carolina lA

! 9.76 12.88 loa51 9. 17 11,28 tmp Duke Power Company 9.60 8.48 8.96 8.55 9.26

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Page 34 RATE OF RETURN ON COhÃON EQUITY AMUSTED TO 35e81 PERCENT COITION ACUITY RATIO OPERATING ELECTRIC UTILITIES IN FAIR VAIIJE JURISDICTIONS 1971-1975 1971 1972 1973 1974 1975 Ohio CTncinnati Gas and Electric Company 13.06$ 14.16$ 13.45$ 10.41$ 10.35%

Cleveland. Electric Illuminating Company 15.33 14.66 12.71 14.08 12.27 Columbus and Southern Ohio Electric Company 8.95 10.79 11.75 7,98 14.16 Dayton Power and Light Company 11.59 11.46 9 96 9 96 12.24 Ohio Edison Company 13.32 13.25 13.85 10.58 12.02 Ohio Power Company 14.20 13.87 13.76 11.09 12.96 Toledo Edison Company 13.44 13.95 13.58 11.30 13.26 Pennsylvania Duquesne Light Company 12.58 12.06 11.20 11.14 12,36 lfetropolitan Edison Company 11,25 11. 02 10,43 11.90 10.62 Pennsylvania Electric Company Pennsylvania Power and. Light Company ll 98 10.24 10.10 10.42 12.33 10.52 11.33 12.40 11.87 11.68 Philadelphia Electric Company 10.54 10,09 9.63 8.80 9.21 West Penn Power Company 14.18 13.50 I2.88 10.84 12.80

? ex 6 e Central poner ang Light Coegan?>> 17.89 17.22 16.46 14.28 13.59 Community Public Service Company 13.64 15.24 14.91 11.40 10. 32 Dallas Power 8c Light Company+ 12.86 12,70 12.61 11.42 11.53 El Paso Electric Company+ 17.63 17.53 16,20 14.24 13.85 Houston Lightihg 8c Power Compan~ 16.57 16,17 14.80 12.22 10.93 Southwestern Public Service Company 16.73 15.21 15. 58 17.07 15.16 Texas Electric Service Compa~ 16.42 16.62 15.71 15.25 13.62 Texas Power 5 Light Company+ 16.77 17.32 15 95 15.12 11.72 West Texas Utilities Company+ 18.91 18,91 20,70 19.63 20.34

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COhtPANDZ EXCLUDED W(R4 USE AS COiPARISOH COhP~ Ztt TEST OF C(NEI!SURATE BET%0l OMRTZFi ~rCTRIC COhPANIiS ZN FAIR VALUE JURZSDZCT101$ Page 35 ill'ORIL Arizona Public Service Coz!Pany Excluded in 1971, jp?2, 1973, 1974, and 19?5, Rate of return earned van substantiajjy less than that allowed by Arizona Corporation Co!nsission.

Inadequate Znvestnent statureo Tucson Gas 5 ELectric Conpany Excluded in 1971 f 1972 j 1973, 1974, and 1975, Rate of return earned. was substantiajjy less thea that allowed by Arizona Cozporation Commission.

Excluded in jp?j, 1972, 1973, 1974, and, 1975.

Rate of return earned vas substantiaLly less than that ajj!need by Deja!rare Public Service ~sion.

Zjjino~ s

~ntraj Centraj ZZjinois TLgh Cocoanut+

Zjjinois Public Service Company+

Conmomteajth Edison ~any+

XLjinois Poser Co~

Excluded in 1973, 1974, and 1975.

XLjinois becane original cost Jurisdiction, ef ective in 1973.

Corno!nreajth Edison Co!soa!qr+

Excluded in 1971 and 1972, Bate of return @as sub~~hQZg less XLLinois Comerce Cocked.ssicn.

~ that aDcwed by

~aj XLlinois Public Service Coup!!ny Bc@luded in 1972.

Rate of return was substantia~~ less Mum tha avowed by Illinois Connerce Comf.ssion.

Excluded in 1972~

Bate of retu~ was substantiajjy less Jam tha. ajjoved by Illinois Coanerce Co!osission.

Excluded in 1971, 1972, 19?3, 1974, and 1975.

19?jf 1972 j 1973 f 1974$ and 1975 f ajjowance for funds used during const~ion vas, respec vejy, 70 68 percent, 82 16 percen, 80.60 percent, 217.66 percent, and 101.26 percent, of net,incme for ccamn.

Inadequate investnent stature.

Difficulties in financing because of inadequate coverage ratios.

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Page 36 COHSLHZES EXCLUDED FRCM USE AS CONEARISOH COMPANIES IÃ TEST OF COY~'ZESURATE RETURN Op"-RATlliG ELZ5tIC CSPAIGES ZH FAIR VALUE JURISDICTIONS Zndianapolis Pover gi Light Cocpcaqr+

. Excluded in 19?4 and. 19?5.

Rate of return earned vas substantially less than that aiXcnred by Public Se~ce ~ssion of Indiana.

Northern Izziiana Public Service ~anyz Excluded in 1974 snd 1975, Rate of return earned vas subs~tially less Jan tha allcnred by Public Service Cocnission of Indiszm, ~

NeM'exico Public Service Czzspany of Ner Mexico Excluded in 1974 and

~t 19?5.'ate of return eazned vaa substantially less than aXXcnred by Ner Mexico Public Service Cozzzission.

ExcInded in 1971 1972, 1973, 1974, and 1975 During 19?li 1972> 19?3> 1974, and 1975, allowance for funds used during constnzction @as, respectively, 50,54 percent, 48.63 pezcent, 71.90 percent, 105.84 pe"cent, and 79.02 percent, of net incone for cozszun.

Xuadequate investnent stature.

Zdfficulties ~m facing because of inadequate coverage ratios.

Subject conpsny, Duke Pent cr CozsxLzzy luded QL 1971~ 1972~ 1973, 1974~ snd 1975, 19?1~ 1972'973~ 1974, end 1975, alloMance for ands used during construction was, respectively, 67.87 percent, 87 55 percent, 82.46 pe"cent, 81.19 percent, and 58.36 percent of net incoue for cairn.

Inadequate izzvestnent stature.

Difficulties in financing because of inadequate coverage ratios.

Cincinnati Gas .O'Electric Conpazzy Excluded in 1974 and 19?5.

Rate of return earned vas substas?till'J'ess than that allotted by State of Ohio Public Utilities Cozzzission.

Cleveland Electric ZLhuzinating Conpany Secluded in 1973 and 1975.

Rate of return eawed wa substanti~ )ess than that allowed by State of Ohio Public Utilities ~ssion.

a

COHEA?KzS ZXCIIlDH) PRM USE AS CO<~iPARZSOH COEPAIfDS ZH ~

OPERATING ELECTRIC COlEOfDZ ZH FAIR VALU. JlEZSDICTZOHS OF COM&tSURATE RETURN Page 37 Cohubus and, Southern Chio Kectric Company luded in 1971, 1972, 1973, ma 1974.

During 1974, aI3s'nance for funds used during construction of net inccne for c~i @ac 50.72 percent Inadequate inve~t stature

~iculties in financing because of inadequate coverage ratios.

Dayton Pover h, Light Ccnpany Excluded in 1971, 1972, 1973, 1974, snd 1975.

ZnadecynLte inveshmnt stature.

Ohio Edison Con,pany Excluded in 1974 and 1975.

During 1974 and 1975, aXlocrance for funds used during construe.ion ma,

, respectiveZy, 62 60 percaut and 73.93 percent of net incoae for coxoon.

Rate of return earned was substantially less than that avowed by State of Ohio Public Ut~ties Co~ssion.

Excluded in 1972, 1973, 1974, aud 1975.

During 1973, a2Jm~ce for unds used during concoction @as 50.24 percent of net income for aaam.

Znadaiuate investnent stature.

Excluded in 1973, 1974, and 1975.

vsa~

~respectively, 1973, 1974, and 1975, aI1cvance for ~s used du ~~ construction of net inco e for ~n.

52 31 pement, 80,70 percent~ and 72,43 percent Dllguesne Light Conpany Excluded in 1971, 1972, 1973, 1974, and 19?5.

Rate of ret~ earned ms subs antiaZZy Less han that aDaved by Pennsylvania Public Utility Cocnission.

Excluded in 197L, 1972, 1973, 1974, and 1975.

During 1972, 1973, and 1974, aZiawuice for ~s used durir~ const~ion

>as, respectively, 55.56 ye~en, 74,30 percent, and 61.16 percent of net incone for c~n Inadequate invest ent statu.e Pennsylvania Electric Co~any uded in 19?L, 1972, 1973, 1974, and 1975.

Inadequate investment stature.

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CRKQGES EXCZODH) ER(M USE AS COhPARZSOIt CONBlHKS ZH TEST OF COHHBKURAM O~TZIQ ELECTRZC COlPA?~S ZH FAZR VALUE JURZSDZCQZONS <+g+

Excluded ia 19?l, 1972, 1973, 1974, and 1975 Rate of retura earned vas substaatiaXZy less thea dmt sIloved by Pennsylvania Public Utilities Coesissioa.

Hd1adelphia Mectric Co~Lay Exclzzded ia 1971, 1972, 1973, 1974, sad 1975, Dtzring 1972r 1573r 1974r and 1975r azlovance for ftznds used during construction vas, respectively, 49.12 pe cen, 61.66 p~ent, 74.25 percent> aad 61.98 percent of net incoxe for cccaton.

Zaadeqcate iavestaent suture.

Vest Pean Paver Coapaay Excluded in 1974.

Rate of return earaed vas mbstantis31y less thaa that alloved by Pennsylvania PLzblic Utilities Cozzaission.

Ceatral Pcnrer and Light Cccpaap+

Excluded in 1974 and 19?5.

Rate of return earned vas substantially less than that aUznred by naze.cipalities vhich regulate the company.

Commazity Public Servi,ce Company Excludei in 1974 sad 1975.

Rate of return earned vas substantially less than dmt alloved by aanicipalities vhich regulate the cozzpaay.

Dallas Reer Ee Light Company+

Excluded in 1974 and 1975.

Rate of return earned vas substantially less than that allowed by City Council of Dallas.

H'ouston Lighting Ec Pover Comuu~

Excluded in 1974 end 1975.

Rate of return earaed vas substantially less thea that aUznred by City Council of Houston.

Texas V.ectric Service Coapany Excluded in 1975.

Rate of retur.". earned vas substaatialZy less Jma that aZlcnred by aunicipalities vhich regulate the company.

Texas Pcnre h, Light Coapany Excluded ia 1975.

Rate of return caned vas substaz. iaLy less than that alloved by xnzaicipalities vhich regulate the coapany

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~ r'!8%.- l≺%~ho;'%HI'E~r~'lrll'4' ArVU"".T':D TO 35.81 I-'r T!CF"!T COi:2~Jrt "i~ JITY HATIO ref I~r.e 39, eeI O~!ATL'IG L'Lr"CTHIC DTXLXT3ZO III I'AXB VADE JUHXSDICT 0~'3 1".71-1975

>971 1972 1973 9

,".! i"-'"a ~~blic Service Cor>]any gc3W za-.Ba Tucson Gas & Electric Corrpany s!=l;:> sa Power and Light Company 1~+. g:8X Tll I <<i ~ ~

~~

CcsC"c..'lli!lois Li: hb Coo.~any+ 13-33 < r-6 -9 P> ,~Ko +4a7-Centra I" linois Nolic Scr~~ice Corpany+ 14.64 3,2. c5 1Mo Co;:.'.or!we:-'1th I:dison Ccripany+ ~l.~ .1~or' rvN Il" I.!rois Power Co...oanyi. 13.14 12rRO Tn llella n:.:-Llla;:nd I'.ichigan )'lcc ric Cozp*ry'.< ~326 -'Di r-I

..WAN m-.e~r l'll ar .: Joli.s F"ver erdi I.ir+t CcrrrT)eny'~ 13~ 37 18.

io:" l" rn India;-.a E'liblic service Co+)any: 15.70 15.14 14.22 W~!

'r "3.ic Se. rice Co@on-. y of ndiana, Inc.+ 12.20 13.09 l.gJo )O 14.oo 13 35 S-irthcr.. Indiana Ga" and Electric Company+ 14.<7 15.96 16.29 13.64 . 14.13 Igni.a i~ orl'na Fo-'rer Corrrgany~ 16.G2 16.30 15.95 13.98 lQ+ 37

>>e r r'-" co Public '-'":.vice Co..-beany ox Ic:lr I~rexico 12 ~ 56 14.61 15.44 b rv'n Ca "0

~arolina,-p'n.er

.in:i Dn'::e Po;;-er Cou,~any

~o. Licht Co~Mzy+ .~M

.4;48 l~ & 8>S-

~ .":.I-..

..D)U.")T"'9 TO

¹i 8%L:;.'~,":-4=;-,ties- Qiih 35.Ul H'<.C~'ii"'C:ill-".i< l"'~v'Zl<('TIO 0

lnf < IV OPE~T1:iQ LS;(."IT(C Lr<'ILITI!8 BI I".f'IB VALVE WBISMCTIOHS 1971-1975 1971 1972 "<

f!73 1974 0 i c ni<<. <

i ('i r ii li $ ccty j c C ~L!pi<ny

~

3 ~ f); I) 14. 16 3.3-"55 ~1~i~ 1() mr.'.

0". -":; '."..d:.".le .. f;ri. Ill".'."i".;;~ting Comp. ~y 1) 3J

~ 3 4.6;, 3~>rX l lf.OQ l~~ii ri

.W) 'f (1u C.. !~"r Qr a!iu f L"f'1 i~6 o~o ,9-W

) .'. <

?.dis n Co".<pany CO<(DGnp',":fio 3~ ~2 )rCQ 13.o5 1~6"

~8 h ~

lif.20 g P71 1-'. 95 l~g8 lhr8g les~(f To<ado T'"i"or; Core<any. 13.44

~ ~

f) <<; i<( ~)1e 3 4 .

[el; Co<;<<sapor 3.N5 1325'o U a.'-r llew Q3 l~n r<1 <~':<r'V.=".1ia E! CCtriC CO; <.!<nV 13 ~~3 f~; <i 10 ba

/

3'0~=

1~0

.< l d -.< <.. h- r. <',loci,! c golf'pc nor 1 lg 3,'3&9 9 a$

~

Q,.GO vov +4ii i oi < A vD!< 'J 1 <],18 13.50 12.GB 3.o QW

~ ':-'~j f'1 +ni'-" c.'8 il "t (roL! '- n D' 1'f . C9 17.22 l4.28

".<< .:.'" ll~j PJ l) 3 ic S<er vie G ('GLT')Qn) r<)4 91 12 8( 3."-. (0 3.2.6'.6.'0 7:. \'P. -o ' eci:<. " Com ".n$ 17.6:.) 17

-, <,~!.t '-,.) L '" fr-! '~'f-.!-.to<.

('omra<!! ' lo-57 16.17 l.'...80 14.2'~&c u< v. 'tc', ff '~lie Seri'e Cofllpany 16.73 15.21 15. 17.07 ic "e'vice 15.25 5v"'5.73.

Te::a.", "1lc;:". Co-...~.in>-~ 16.42 16.62 16.77 17.32 15-95 15.12

<'<~ 4 +<

as t<1'4 3 it 1 Qs ( Q<(l<)ri lv 'i 18,91 18.91 20.70 19.63 Average All companies used as comparison 14.87$ 15.30$ i5.23$ 15.24$ 14.78$ ,

companies (includes 24 in 1971, 21 in 1972, 18 in 1973, 10 in 1974, and. 8 in 1975)

Average Companies other than in Texas 13.96$ 14.53$ 14.57$ 14.20$ 13.78$

(includes 15 in 1971, 12 in 1972, 9 in 1973, 4 in 1974, and 5 in 1975)

Average Companies in Texas (includes 9 in 16.38$ 16.32$ 15.88$ -

15.93$ 16.4g, 19fl, 9 in 1972, 9 in 19f3, 6 in 1974, and 3 in 1975)

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Page 41 BATE OF RETURN ON CQQRN EOUITY AMUSTED TO 35.8l PERCENT COtNOH EQUITY RATIO AND AIL%llNCE FOR FUlSS USED DURING CONSTRUCTION AS PERCENT OF NET INCOPS OPEBATItiG EIZCTRIC UZILITIES IH FAIR VADJE JURISDICTIONS USED AS COHMlISOH COHPANIES IN TEST OF OSSEHSUBATE RETURN 1971-1975 1971 1973 1974 . 1975 crating Electric Utilitiei in Fair Value Jurisdictions Other Than Texas Rate of return on common equity ad)usted to 35.81 percent conan equity ratio 13 964. 14.53$ 14.57$ 14.2+ 13 78$

Allowance for funds used Curing construction as percent of net income for common 15.60 20 16 20 78 19,89 19 98 crating Elrctric Utilities in Texas Rate of return on conraon equity ad)usted to 35.81 percent common equity ratio 16.38 16.32 15.88 15+93 16.45 Allowance for funds used during construction as percent of'et income for common 8.82 7.15 9,40 14.58 crating Electric Utilities .in All Fair Value Jurisdictions Rate of'eturn on comaon equity ad)usted to 35.81 percent conan equity ratio 14.87 15 30 15,23 15,24 14.78 Allowance for funds used during construction as percent of net lncocte for coxcen 14.50 15+09 15.20 17.99

Page 42 RELZ9 GROWTH AND IHFIATZON XN THE AMERZCLN ECONOHY PERCENTAGE CHANGES YEAR~-YEAR 1946-1976 Real Growth Inflation Total Real GNP GNP Consumer Price Uni,t Disposable 1979 Dollars - Deflator Index Labor Cost Personal Income 1946 8 5% .1.2%

)Ilaa7 -16 12 8 14 4 - 4.0 1948 4 1 6 9 7,8 4,4S 5 4 II1949 0 6 1 0 -10 -16 0 4 1950 8 7 2 0 1,0 >>11 8 1 8 1 6 8 7 9 6 4 .24 1952 3 8 1 3 22 4 1 3 0 L953 3 9 1 5 0,7 2,0 4 6

/

1954 1 3 1,4 0 5 0r6 1955 6,7 22 0,4 - 1,7 6 6 fg'956 2 L 3 1 1 5 6 1 4 2

'2 1 (jg 1957 1,8 3,4 3 5 3 4 1958 -02 1 6 2 8 0.9 1959 6o0 2 2 0 8 ~

1.0 4 5 1960 23 1,7 1 6 2 2 2 2 1961 2 5 0 9 1 0 0 3 3 L 1962 5.8 L 8 1 1 0 3 4,7 1963 4.0 1 5 1 2 0,3 3,8 1964 5,3 1 6 1 3 1.1 7.0 1965 5 9 2 2 1,7 0,7 6 6 1966 5.9 3 3 2 9 2.9 5 5 L967 2 7 2 9 2,9 3.6 4 1 1968 4 4.5 4 2 4 3 4.5 1969 2o6 5~0 5 3 7 0 2 9 1970 0 3 5 4 5 9 4,6 4 1

]I 1971 1972 3.0 5 7 5 1 4 1 4,3 3 3 3,4 1 9 3 9 4.5 5,5 5 8 6,6 4 9 6,7 e

.1974 -17 10,0 11. 0 12.3 -1 7 L975 1.8 9,3 9 1 7;7 1 6 1976-ZI (annual rate, seas.Adj. ) 4.5 5 2 6 1 4,5 SOURCE: Computed from data in United States Depa~ent of Commerce, Bureau of. Economic Analysis, Survey of Current Business, January l976, Part ZI, National Income Issue, pages 24-25, July 1976, page 30< News Release, Second Quarter 1976 Corporate Profits, September 20, 1976; and Releases on Consumer Price Zndex and Labor Productivity from Bureau of Labor Statistics, United States Dept.

of Labor.

Page 43 RATE OF RETURN ON EQUITY AND EQUZTY RATIO ALL MMJFACZURING CORPORATIONS 1947-1976 AXE Hanufacturfng Co~oratf ons Rate of Return tufty on Equfty Rnt 10 1947 15.6+

'1948 16.00 1950 15.40 195l 12 lo 1952 ion 30 1953 10.48 81.3+

82.06 1955 12.55 82.28 1956 12.28 Bo.76 1957 loi95 79.96 1959 10 42 80.43 1960 9 20 Boi09 1961 8.82 79.8o 1962 9.78 79.67 1963 10+25 79i53 1964 11.60 79.57 1965 12.98 78.54 1966 13.43 76.42 1967 11.71 74.35 1968 12 05 72.97 1969 u..47 71.40 9.32 69.62 lgTX 9.67 69.24 1972 10,61 69.74 1973 12.84 69.58 14.9o 69. 96 11.57 70,00 1976-I 13. 30 7o.'34 15.70 70.50 I

Source: Federal Trade Comnfssion, Quarter)y Vlnnnclnl Rrpnrt for KLaaufnrnnntnn, Illninn nnn iVnn i'nnn. ".ntl i."..."nnnnn

@u<i~cr .n7(ti, jii~'.c" ~Lo, ~g-~(~Rc.uiv~iic h< ~v>r t of thc Prcstdent, Joy<wry 1976, page 2

1 RATE OF REIURH OH Co@em EQUITI ARD COWeH EQUITI RATIO lllDUSTRIAL COHPANIES WITH QUAl ITI RAllKIRO OF HIGH GRADE BI HKDI'S 1963<<1975 1%3 1964 1965 1966 1967 196S 1969 1970 1971 1972 lPB 1974 1975 American Hone products Corporation 27.63$

93.84 27.4+ 26.82$

SS.84 25 5S 25.35$ z5.06$ 26.3+ 26.75'2,30 26,68$ 27 W 26.63$ 29.0Q a9.444 95 52 89,94 90 49 9o.6a 9lo 31 93.22 93.69 94.51 . 95.19 95.93 Atlantic Richfield Company 7.41 7.65 10.60 7.'46 8.34 9.78 9,69 6.oS 5.65 5.4o 7.70 13.45 8.88 70.92 V2.61 78,91 80.78 77,12 66,01 67.73 71.84 Vo.26 71.2$ 72,05 71 21 65.9a Beatrice Foods Ccepany 11.31 13.16 15 65 ~ 16,76 lv.54 16.38 15.38 15.73 15,92 16,07 16,09 16.25 14.79 90 V9 68.31 87,91 80,09 83.57 83.4o 76.45 71,20 71.99 74.45 76.05 74.81 74.59 Borden, Inc lo+92 11.50 11,00 10,'79 9,45 8.21 4.85 8.33 8.89 9,18 9.67 10.59 11,06 77.41 VB-47 61.88 78.73 74.53 72,09 73 30 74.74 Tzi92 71,98 73.07 71,21 Vo.14 Bristol ayers Company 22.95 23'94 24.85 26.25 21,16 19.88 zo.So zool5 18.23 17.78 19.5S 20,57 21 40 9o.Go 93.32 PF.29 95.16 75.93 72.38 74.12 69.81 65.99 69.9o V5.17 78.98 81.63 Burroughs Corporation 6.46 7 ol 12,46 lv,lo 15,63 15.67 13eza llo63 12.29 13 2T 13.48 51 95 54.52 53.oS 54,51 55.33 g:g 46.12 47.35 5o.76 57,20 67.65 72 06 68.61 Campbell Soup Company 13,04 13.26 13.37 13'l 11 48 12+89 11.17 13.0f 13.23 11.20 14.cq 14.18 13.4T 100,00 looe00 99.aS 98.41 96.38 95.72 96 77 94.83 91.59 89.7o 94 15 97.29 96,25

'arnation Company. 10,98 12.04 13.02 14.13 14.48 14.6o 14.66 15 14 15.16 15.27 16.74 16.55 81.88 81,23 79 29 69.77 Vo.6a Vz.69 75.4o 74.76 74.5o 7~.95 75.46 72.43 71.38 Caterpillar Tractor Coorpany 18.89 26.05 zve15 21,69 14.12 15+20 16.48 15+30 12+78 18.84 16.43 24.73 73.81 76.93 So.23 81.54 73.99 66.62 65.42 65.45 66.28 71,76 6T.17 64.24 Coca-Cola Company 17.8o 20,03 21.40 23,06 23.66 23.36 23,16 23.74 a4.14 24.22 a4.17 19.92 zo.34 96 29 92.73 94,14 95,01 95.56 95.03 94+06 94.45 95.33 95.76 96.8o 95.85 96, 18 Continental oil Company 10,77 llolv 10elo 10,93 11,8'4 lo.66 10.69 10.53 7,12 lo.64 14.02 16,93 . 16,38 71.47 69.96 69.19 70,10 71.33 vlel3 67.o5 64.oa 63.98 64.68 64.85 63 39 61 29 Dow Chemical Company 11.34 12.60 13.69 14.54 14,59 13,98 14.23 12+12 13.43 14.96 18.97 33.54 27,84 V9.23 74.o9 65.58 6o.o9 57+% 53+15 49+02 46.68 45.55 46.66 49,10 5z.v6 55.37 Du Pont (E.I.) De Wemaurs Canjany 1S.48 ao.4a 21,02 18.81 14,30 16.18 14.59 12,75 12.42 13 75 18.o3 11,46 7.36 o g

ST.a5 88.04 68.oB 87,63 ST.o9 86.84 66.77 86.52 86.46 86.05 86.98 75-84 68.99 g

I 55 iIIII Qi8'0' ~ '% 8 '

~~ OF RETURtI OR CM+ BANTY AND CONeFf EQUITY ETIO

'~~

QGXISTRIAL COHPAHIEQ WITH QNLITY RANK ER]Q OF RICH QRADE BY 1963-197 1963 1966 xg67 xg68 1%9 1970 1971 1972. 1973 1974 1975 Oun and Bradstreet X9,18$ xvi 37$ 20.56fy 22 1+ aai53$ 20.6~tg 21+2+ 21.63$ 21 59$ 21.934 20.66$ 20, X9$

Xooaoo XooooO 100+ 00 100 00 99.56 99.26 99.29 99, 16 g4.66 95.26 97.64 98.44 17,40 21 25 25.65 26.88 22.80 al.67 20 61 19.02 18.0$ ax.14 aa.a6 lg,24 xv.a4 99.75 100.00 100,00 100,00 99.47. 97,28 95.67 95.89 96,18 96,41 g6.83 97 18 97+32 Exxon Corporation 13,11 12.80 xxibs 12,02 12.61- 13.28 xoo51 12.45 xa-gf x2.84 18,8D ax 35 15.33 82.13 82.15 62.3o Bx,51 78.53 75.10 73.44 72.49 72+33 73.34 Vb;gl 74.92 74.44 Firestone Tire 5 Rubber Company 9.59 xxoa3 11.47 xa.47 xx+60 .13 19 11,25 8.5'4 10.51 xx+17 12.64 los 96 9 01 83.x6 79.66 79+20 77.62 74.ga 69.5S 65.51 65.x6 64.79 64.4o 64.75 63.96 62.14 Ford Hotor Coipany 13.69 13,06 x6.54 13.39 1.V9 13,14 10 75 9.65 xxoga 15,12 xb.66 5.71 5 13 89.8a 89.69 87,72 85.7o 771 52 72+21 79.2I. 84.25 Bx,o5 vy.6S 78,29 72 35 70,03 Qeneral Electric Ccerpany 15.41 88.36 12,81 Gg.5x x7.84 79.68 16,07 75.97 16.35 70,65 15.18 69.15 ll 44 69.57 13,19 68.13 17.62 66.71 18.01 67.54 18.12 67.83 17 19 66.63 x4.94 67.85 General. Foode Corporation 17,70 16,99 17013 16.73 16.59 19.90 13.65 15.52 8.38 x3.66 14.04 11.2D 15 95 yxe5D 90 50 89.48 86.15 82,15 VV.61 74.o3 69.67 67.73 68,22 67.84 66.86 Vxogo Ceneral stol b Corporation 24.11 24,55 aB.xV 22,11 16.66 18.94 17,7 6ixy 19,85 20,37 7.6S 9.90 91 79 92,98 93.57 93.68 93.8a 94,2 94,29 93.1) slo65 91,72 91,72 go.36 Qetty oil Company 9.16 9 45 9 9$ a3.6o Ix.34 8.68 10,08 8.81 9.66 5.63 g.bo x6.63 xb.ba 4v.as 51.95 55.96 6a.ao 68.42 71+18 72.85 74.95 77+ 52 79 29 76.65 79.8o 76.27 Culf Oil Canada, Ltd ~ 6.vs V.o4 6,91 .Vi25 6.93 v.49 7+00 5.87 7.13 B.yx 19.26 18.30 Gx.83 81.67 82.82 - 85.08 BV.o3 85,GS 82.37 76.30 77.04 78,39 y9.6% 82.3o 66.48 OuLf Oil Corporation 11,21 lls29 11,53 12.77 13.61 13.67 12.48 10 66 10,39 3.6o x4.57 17.90 11,16'6.59 Bv.o$ 87,86 86.ga 83.67 Bx.xB 77 0 33 73.64 vx+99 69+92 69,22 VxQ 56 75.01 f

Hanna Mining Corporation -xooay 10.82 11,66 11,9$ 12.48 12.48 xa.bo xaeg6 x3.63 V.43 V.4V 7135 16.56 100,00 100,00 84.95 76.21 78.85 81 10 83.9$ 66.89 88.4x 89.8x '8.5o . 66.35 BV.bo.*

P

BATE OF BEGJRN OH COloSN EQUITI ARD CONNN EQUITT RATIO IllOVSTBIALCOMPANIES Mrnf qvhr ITI BAIKIllOOF lllat CRADE sr MODE'8 1963-1975 1963 lg64 1965 lg66 1967 lg68 1969 lglo 1971 lgla 1973 1974 AU Dayerial oil Lt4. 9.77$ 10.47$ 11,00$ H'35K 11.24$ 11.27$ 10.22$ ll,03$ 13 544 14 00$ i8.454 21.39$ 16.61$

-90 91 91.72 ga.67 93.41 gli46 86.o7 82.13 81.40 82.23 82.64 83.8o 83 01 Bl.al International Bueineee Hachinee Corp. 19.54 20.56 19,74 17.83 18,21 20+75 18+97 18.13 17.14 18.ol 19,42 19.42 18.49 77-76 81.34 85.62 86.61 85.ol 85.90 86.83 88.4o 87.71 86.56 90,20 92 93 '95,20 International Bickel Co, ot Canada~ Ltd, 16.7g 19,85 19.37 14,96 16.94 16 12 12~50 ao.87 8.96 10,28 19.63 23.22 12089 100,00 100,00 100,00 looaoo 100,00 90,91 83.46 Bo.7o Vows 66.42 Voa30 Vo.74 67.78 Johneon & Johnson 10 50 11,95 13 71 14.57 14+ 91 15.71 16,10 16.85 17 61 17.61 18.53 17 31 17+10 looooo 100 00 96,69 97.6'4 96+05 96.44 98.65 96,27 97.34 97 22 g4.42 93.34 93+66 23.79 24.6 23.94 23 36 22.44 21.34 ao,86 20.91 21+52 21,79 21.43 21 55 ajar 39 92 53 92,1 92.37 glg13 92, 12 92.97 ga.86 91,06 91,96 92 33 91+53 90 03 84.36 Rraftco Corporation 10~92 81,16 12.20 83.41 12.65 85.41 12.68 12.53 85.84 12 06 85.64 11,74 85.19 Ia,ag 12,89 83,4o 11'77 Bo.66 13.12 76.21 ll 42 69.54 15.61 70.33 85.95 85 39 Lilly (Eli) S Congas 13051 15.97 19.52 19.86 zo.56 23~00 22,82 22. 17 .20,39 21,99 23,07 22.65 20I07 97eV7 9l.03 g6.89 g6,8o 95.42 95.a6 96.29 go.a4 84.ol 86.51. go.54 Bl.ag 82.66 Herck 5 CaapenF, Ino. 17.80 ao.86 25 53 29.17 28.97 25.38 aS.46 a5.85 26 05 27.58 27.89 26el5 95 33 95-94 96.48 g6.o6 95 15 94,90 93.62 Bg.o5 86.49 88.19 Bge71 Bo.o3 Hinneeota Hining de Manufacturing Coi 21,04 ao.60 alo13 22.21 20+7 ao.o4 18.21 18.55 19,21 ao.66 18.81 14.87 97 o3 97 22 95.39 94&01 95. 95,44 gle 40 87.73 86.13 86.47 79.99 75.20 lhbil Oil CompanF 8.86 9,08 9,4o 9.97 10,26 ~ 10.84 10034 loogl 11.54 11,51 15.64 12+91 12+20 89,51 87.72 88.o4 88.ag 87.94 85.59 84.1o 80.21 80,73 V7.7S 74.8S 72.95 llabieco, Inc. 17+14 84.41 17.34 85.21 17,16 85.9S 17eag goo70 16 99 84.00 15.86 78.64 11.42 74.ao 14.96 Vae55 16.15 6g.aa 16.49 65.51 ll

'0.79

'79 11+95 52,07 14.91 53.05 EhDlipe Petroleul Coap~ 8.85 9 27 loo07 Dool lla47 8.04 6.6o 8.32 12.18 18 98 14.58 83.77 82.92 So.5o 67.95 62,63 67.12 J,7$ 65.92 67.33 68.51 Vao73 73o9 Prentice-Hall Inc. aoyVB 23 i37 31,06 33.35 31oog 30.00 29+11 25.36 23.75 18i69 23I27 Zl+72 aors 34 Vgo72 87.81 100+00 100,00 ,100,00 looooo looeoo 100+00 looeoo 100,00 100,00 100,00 100,00

4 RATE OF RETURN OH COQ%S EQUITI NQ COPEN EQlJITI RATIO ImUSTRIAL COHFAHIES MITE QNI ITI RAHKIlQ OF HIGH GRADE BI NOODISS 1963"1975 1963 1964 1965 1966 1967 1960 1969 1970 1971 1972 1973 if(4 1%5 Procter 5 Gamble Compaay 15 31$ 15.63$ 14.74$ 16.03$ 17,81$ 19+lip 16,51$ IV.~ 17.78/ 18.63$ IS.I0$ 17.16$

86.20 16.40$

86.06 06.95 87.47 87.83 88.5o 80,41 80.32 80.69 S9.46 87.91 86.06 81 31 Reynolds {R,J.) Induatriea, Inc, 21.07 Ig.z4 zo.14 20,07 Zo.62 lga 06 12.79 10.43 10.85 17.82 18.13 19.26 19 Ol 54.1o 69.74 70.60 66.73 66.48 Vo.47 60.51 64.49 66.06 67.5o 67.58 60.56 72.34 Richardson, Herrell, Inc, 14.75 14.15 14.84 15,89 15.09 13.07 14.69 15,30 13.30 14,99 ly 16 14 95 13.16 100 00 100,00 100,00 94+23 88.1o 84.25 Sz.oy 78.79 75.v4 76.5o S0.08 83.05 77.13 Schering-Plough Corporation Iyelg 16.76 18.52 20,32 21,32 22.54 23.60 22.45 22 73 25.26 20.31 27 13 25.33 85.64 glo32 96,72 960 72 96.25 94.56 93.40 95,81 94,30 93.35 94.00 95+08 95.39 Scare, Roebuck and Comp1mg 13 32 14.51 14.14 13,51 13.18 13,96 13.44 13+10 14.24 14.32 14.23 9 99 10.40 69.99 66.36 62.63 6o.45 59.92 59.93 60,30 6o,4o 6o.64 6o.38 59.50 57 22 55.16 Shell Oil Compitgr Ize37 12+72 13+92 13 99 14.3V 13.55 11,19 0,77 8.70 9,06 11.05 18.65 13,70 83.79 85.07 83.oo 78.85 75 59 76.22 70.42 77+23 76.35 75.31 74.41 76.35 76.73 Smith, KLine Corporation 33+06 33+12 32.66 29,80 20.oy 25 94 23.62 23,71 22 72 21,90 21.70 21+75 21 30 100,00 loo woo 100,00 IOO,OO 100.00 g0.o0 95.64 93,76 89+21 84.55 70.82 70.71 65.84 Squibb Corporation 12.75 10,74 IZ.BZ 13.79 15.46 15 ogV 16.25 16.26 16,23 81,39 Vg.V4 75..20 60,77 68.19 67.70 67.7o 67.7I 67.68 Standard Oil Co. of California 9.20 93.87 9.07 93.71 9,10 g2.54 10,47 91,31 10.57 80.46 ll 04 86.06 lo+51 85.0o 10+02 05.02 10.69 81,59 10,79 79.00 1'5.30 81.96 15.83 07.53 12.32 82.82 Standard Oil Co.. {Indiana) 7.36 7.61 B.zl 9.36 9.8o 10,27 10.12 9.80 10.20 12,90 20 90 14 71 06,6o 86.g4 Svolo 85.26 83,62 So.6o 75.86 75.54 76.75 76.31 76.16 75.02 Texaco p Inc ~ 16.14 15.69 16,10 16.58 16.03 16.12 13.45 13.50 13.88 IzevV 17 04 18.67 9.73 89,11 80,00 07.53 By.38 81.33 79.16 79.73 80.75 So.zo- 77.97 77'+75 70.oo V5.64 Union Carbid ~ Corporation 14,60 18.73 17 45 lo.43 9.33 10,74 8.81 10.06 14.41 2(.00 14.54 voo27 70. 5 69.26 64.79 61.3o 61.30 6oiog 61i72 62,72 64,15 Qp5ohn Company 15~74 16.82 19,34 17+40 13.64 13.89 14.43 13.85 13oSV Iyozz 20+2 IS.06 '

99.33 99,20 99,00 90.8o 98.46 95.16 94+77 90,70 80.54 Vv.ly 76.37 67'.5II

RATE OF REIURH OH CQQK81 EQUITY AHD C010DH EQVITT RATIO BSUSTRIAL L COHPAHIES C HITE C5lALITI RANKING OF 11ICH GRADE DI MOODT'H 1963-1975 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 19?5 Halker (Hiram) Goodorbam h Morta Ltde 12. (Ofy 12.47$ I2.81$ 13.24$ 13.64$ 13 72$ I2.84$ Il. g$ 12.58(, 13.48$ 13,07$ 9-45%

98.82 97.89 96.53 95.50 95o58 94,54 90.94 86,07 79 3 78.42 80.99 77.63 72.94 ffarner-laabar t Company 23.41 25,02 26,19 26e34 22e53 19.30 19e 1 15ol4 15e14 15.66 16.08 16.30 15.60 76.66 78.63 79.76 78 54 73o57 78.27 85. 0 79,91 86,23 86.65 85.56 82.22 78.65 Wrigley (Rle) Jre Company I2.89 13e49 14,69 15,76 15,50 15.24 14.68 13o64 14e63 14.64 1497 13,02 18.65 100,00 100e00 100,00 100,00 100o00 100,00 100e00 98e02 92e17 90 31 95o06 95.02 hverige above 13 oil conyaniea 10.08$ 10.o5$ 10.65)12.06$ 11.4og 11.13'f .38$ o.p 9e 9(i o.e92$ 9o51$ 13e86f 17e92$ 13 72$

Blo41 Blo72 82e12 Blo06 79e59 77e50 76el6 75e 3 7 e92 ~

hveragi - above 41 ccmpaniei 16.51$ 17e07g lBe~ 18e8+ 17e37$ 1 o43p 17o 3 16 4'6e26$ 16 27$ 16e7+ 17o$ 9$ 17eZPg 16e90fi excluding oil caepaniee 87.86 88.66 88.22 86.90 84.90 83.44 82.80 Average ibove 54 companiee 14.93$ 15e~ 16o94$ 17ezlf 15e94$ 15 91$ 15o01$

1 o01 14 65(i 14e74$ 15o04'g 16o98$ 17e44$ 16 14$

86 27 86e96 86o73 85e46 83o62 Bze01 Ble20 79o 7 ~

Sources Computed on basia,of

, f d a t a in ann ual reports and itatiatica1 euamariea

'a Induatrial Manual 1976 and previoue editionao of compan iee e 1 Moody ~a Inveatora Servicep Inoe ~

Mo

CAROLINA IORKR R LIGHT CQ4ÃNI tude 49 EARNINGS EIFBtIKNCE CH CQ+ON EqOITT OF OIKRATINO ELECIRIC UTILITIES Ill FAIR VAUJE JURISDICTIONS IN RKIATION TO EARNINGS EXEKRIKNCE Ql CQOON EQVITT OF INDOSIRIAL CQURNIEB WITH QItLITT RANKING OF HIGH GRADE DI HKDI~B 1 3-1 6 Estival el 19.6 1974 1975 1966 19l3 Second ";aster Indicated Fair Rate of Fetura on tbcnoa Equity of 14.251 3 ratin Electric Utilities ln Fair Talus Jurisdictions Couson I uit Ratio of 35.81; ate of return on cocuuoa equity 13.76$ 14 24$ lb.66$ I'4.82$ lb.65$ lb.O6$ 14 28$ 13i73$ 13M)$ 13.68$ 13.39$ llo74$ 12,50$ 14.25e$

.'+mac eqsity ratio 38.03 38.63 38,95 38,80 38,15 36+92 35+86 35.37 3494 34.72 34.58 33.53 33.19 35.81

oaFoaent for coaen equity (rate of return on comon 4,630 4.149 5.103 e 7 ity x coma equity ratio) 5.232 5+501 5+710 5.750 5+589 5el91 5e 121 4.856 4+710 4+750 3,936 41 Industrial Oo anics uith +nitty RanU of High Grade b 's Excludi Oil les 17.37$ 17.43$ 16.49$ 16.26$ 16o27$ 16o79$ 17,9l $ 17e29$ 16+90$ 18.69$ 17.9l$ 20.00$

.ate of re.urn on coarsen equity 16.51$ 17 Ol$ 18.99$ 18 89$

61.40 79.72 80.58 79.20 77.66 86.90 60.58 78 00 czo equity ratio 87,86 88.66 68.22 66.90 84.90 83.44 82.80 79.87

~rent for cue@en equity (rate of return on cocoon 14+480 13.694 13.125 16.415 14.460 15,AO eTafty x cocnoa equity ratio) 14o506 15+134 16,753 16,415 14,747 14,5'44 13,654 13e236 l2o995 13o 385 Oosqonent for Oxason Equity of OperatlnE Eieetrio Utilities in Fair Value Jurisdictions as Fercent of neat for Cosnon I of Abave 41 Industrial Custcsv:rs vith lt RanMn of Nish Grade 36.07$ 36.35$ 34.08$ 35.03$ 37.90$ 35.69$ 37.51$ 36 69$ 36.24$ 35 49$ 3498$ 28+74$ 31.61$ 31.09$ 35. 24$ 32 71$

~ Excludes allovance for funds used dur lad coastruotion,

I Fuge 50 CAROLINA POHHl & LICE COHNNY TEST OF COMKHSKULTE RETURN On Basis of Study of the Fair Rate of Return on Coxmon Equity Allotted Electric Vtilities by State Regulatory Coamissions and by the Federal Ebver Conmission in Rate Proceedings During 1975 and 1976 Study of Actual Earnings Experience on Common Equity of Operating Electric Utilities in Fair Value Jurisdictions Vsed as Comparison Companies During 1971-1975 Consideration of the Ma)or Upspring in Rate of Return on Ooamon Equity Earned by Unregulated Enterprises in the American Econonqr During 1974-1976 Carolina Bwer & Light Co any Indicated Fair Bate of Return on Conmon Equity 14.25$ at 34 96'4 Conmon Equity Ratio" on Basis of Test of Coxmensurate Return Excludes alliance for funds used during construction eCoamon equity ratio of 35.81 percent, excluding deferred Job development investment tax credit and interest free capital,

Page 51 LZADIHQ ELECTRIC UTZLITZES VITE PUBLICLY-HELD CHRON STOCK MARKET HLICE AS PERCElC OF BOOK VALUE DECmxa 31, 19?5 Market Price as Percent af Book Value Southvestern Public Service 165.64%

Citisens Utilities 159.36 okIshana Gas and Electric 148.42 Public Service of Indiana 140+17 Central Hudson Gas and Electric 136.47 El Paso ELectric Illinois Pover 132.69 Utah Paver 5 Light 131 96 120,00 129,+ Central and. South Meet 128.73 Central Louisiana Electric 126.86 Tsnpa ELectric 124.12 Texas Utilities 122+15 110,00 I19 + Harthern States Paver

'Miscansin Electric Paver 115+22 113 06 Tucson Gas 8a Electric XI2 87 100,00 109i9Pfp Caamanvealth Elias lo9.64 Montana Pover lo9.28 Toledo Edison lo8.8?

Ohio Edison 108.84 Pacific Paver 5 Light lo8.26 CineLnnati Gas 5 Electric 106.34 RxQtanaPolis Paver 5 Light 1C6 12 Rochester Gas and ELectric 104.90 Louisville Gas and ELectric x03~06 Miscaasin Public Service 103 04 Cleveland Electric Illusdnating 102.44 Duke Paver 101,67 American Electric Paver 101 30 Horthern Indiana Public Service Interstate Paver 90.00 - 99 A Florida Pave 8 Light Central ZIlinais Public SeMce 98+77 98+23 Empire District Electric 97 9?

Plarlda Pover Corporation 9?.91 Dayton Paver and Light 97.8o Vasldngtan Mater Paver 97 76 Zova Paver and Light 9?e27 Wisconsin Pave.- azure Light 96.87 Gulf States Utilities 96+77.

Southern Indiana Gas and Electric 96.43 Duqaesne Light 96>Co Caluabus and Southern Chio Electr5.c 9461 Zova Public Service 94.47 Idaho Paver 93.88 A11egheny Paver Systea 93.86 Bangor Hydro Electric 92i56 Havaiian ELectric Lang Island Lighting 92 35 Public Service of Colorado 92i22 C~uL Pover Ic Light 90.54 lava Illinois Light and Paver 9o.45 Black ~~s Paver Ea Light 9o.14 PartIand General Electric 90~06 So 00 89 9+Js Public Service of Hev Mexico .89.59 Iowa Southern Utilities 89.54 Union ELectric 89 53 Houston Lighting 89.42 Orange h, RaclQand Utilities 89.34 Green Mauntain Paver 88.84 Athmtic Ci y Electric 88.59 Cement Zllin is Light 87.59

Page 52 ZEADXEG ZrZCmrc UTXLXTZES WZra XQBLXCLZ-mS COme STOCK NRXEL'RXCE AS PERCUSS OF BOOK VALUE SPENSER 31, 1975 Market Price as Percent of Book Value 80.oo - 89.99/, Delnarva Rarer h Lfght 87.42 (continued) Southern Caapuqr 87.33 Xansas Paver h Light 87.01

)addle South Qtili fes 86.62 '6 Barthvestern Public Service 23 Central Maine Paver 86.1o Sev England Electric 86.04 pennsylvania Pover 5 Light 85.13 Public Service of Nev Hampshire 84+91 Eknsas Gas aod Electric 8473 Xentuchy Qtilf.ties 84.56 BLLtfsore Ges anf Electric 83.62 otter Tail Paver 82.66 General Pub XLc Qtilities 8) 69

Ãev Tork State Electric and, Gas 81 64 Qpper peninsula Paver 81,07 Xsnsas Cfty Paver and Light 81.01 Qufted ~mfnatfng 8o.92 Potomac Electric Paver 80.81 Cosxsunity Publf c Servf ce 80.8o Eastern Qtflftfes Associates 80.47 Sev EnghLnd Can and 80,20 Electric'innesota 70.00 Paver 5 Light 79 96 Arfsana Public Service 78.83 BadLson Gas and Electric 78.8o Philadelphia Electric 7S 74 Sfagara Nohavk Paver 78.55 Eortheast Utilities 78 19 "

Xava ELectric Light and Paver 76.66 Vfrgfnfa Electrfc and Paver 79.9%'o.oo 76,43 St~ Joseph Light 5 Paver 75.86 Pacific Gas and E1ectric 74.88 Puget Sound Paver h Light 74.68 Lake Superior District Paver 74.52 Sierra Pacific Paver 73.69 Boston Edison 72.30 Public Service Electric and Gas 72iol

- 69.99$ Detroit Edf son 69.23 San Diego Gas and, E1ectric 68.03 South Carolina Electric and Gas 67 86 Consumers Paver .67.66 California Pacific Utilities 67.0O Adage Public Service 66.34 N.ssouri Public Service 63.81 Southern California Edison 62,58 50.00 - 59 Sf Central Savannah V~Electric Public h Power S~ce 59 99 54.27 nevada Ante 52.40 40,00 - 49 + ~

43.13 NeKsn abave 108 companf es 89-56%

Source: Book value on December 31, 1975 ccaputed fraa data fn annual reports of caegenfest market price an December 31, 1975 from The Wall Street JaltCIII1 J4!l~ 2 ~ 19 t6,

I I

I

Page 53 PRICE TO HSLIC AS PKRCBfl OF BOOK VALUE IH COHHON STOCK OFEEBDIOS ELECZRIC UTILITIES 1972 1976 Average Price to Public as Percent of Book Value per Share gul c n en csee are er o er ngs 1972 1973 1974 1976+

All Offerings 12B.4'4g) I2O.64$, (47) 76.4'54) B3.3+ (94) 94.94$ (6>)

All Offerings with Price to Public below Book Value 9o.74 ( 4) By.32 (13) 7O.76 (46) 78.27 (B2) B7.O6 (4g)

All Offerings with Price to Public at or above Book Value 132,07 (41) 132,14 (34) 109,36 ( B) 117,62 (12) 112o67 (20)

+Jsnunry 1 - October 14, 1976 Soureel Oosrutee reo~puros actus for sects offer.

I COt9$ 1$ STOCK OFFIH109 AND MARKET FRICE IN REIATION TO BOOK VADJE CAROLIIS PCMER 5 LICIT CS&h1K 1972-1976 lhte of prospectlLS Jangggy 192 1972 1972 Noyc333bcr

'973 I> 19?2 Noyc3sber 82 1973 Jan~ 16, 19?5 19?5 october 28, 19?5 19?6 October 13, 1976 Neer of shares 23 0002000 2,500,000 . 320002000 4,000,000 520003000 3,000,000 Total price to public f 54,750,000 g 71,0?5,000 $ 63>7502000 $ 59,000,000 f 89,375,000 f 66,750,000 Price to public per share 4 27.375 4 28.75 21.25 14.75 17,875 22.25 Boot value per share 19,20 20,77 23.22 23.23 23 Ol 22.54 (11/3%1) ( 7/31/72) .

( B/31/?3} ( 8/31/75) < 6/30/75)

Ratio of price to public per share Po book value per aha?e 142.58$ 138.424 91,52(i 63.54 77.68.2 98.71%

clast reported s3arket price and ratio of last reported starket price to book value per share.

gouraee carolina lhver 2 Ltght gonyanye ~osaeatue, 3,000,000 Shares goennn'gtnak, govenher g. luyge Pages 1, 23, 27 and corresponding pages in previous prospectuses) Prospcctuag 4,000,000 Shares Co333non Stocky Janua~ 162 19752 pages 1, 7, 29; F-.o".~cctusp 5,000,000 Shares Cotton SSocJc,october 282 19?5p pa@ca 1, 7I Prospectuep 320002000 "heres Coeaon ggouo ager 13, 1976, pages 1, 6-7,

ge zxpucexzom mm mr To no~'" ~~

I

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tace ste Spsucsblc lo eii gtnetsl oh ~ <<ilh ~ sunsi ~ eysteta ol crkdauoa lrr <<LLLC)L lha cclsuro suvesuasal pukka lalsrest Dsiesl Inleresl dales snd 4sle ef lbe CLLOLLIA ot utalurllr gl veu are indicslsd bt C)stfvtkasl )SIuv Svsvtsf Iss LLSCL svsIS vf <<vetoed, taunt srmsL LL. Sech ermusl repfvscaILAC a group La <<Aich Lhe 4 ftecksksved Uoeesl sends Issued 04)r hl rglslce4 Iotas aco )44) cbtr Scfeftsucs ue bfsaair UI~ ssme There nfe n .~

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)ekust Lnvecllrthf Lsd Ll.e>> hlsam'owesI CLefseftsl )A cases ef Inkerett er yttadock dcfsLL!I, ihs dais fogelbcr CteaLSSC IAVOSImaat CLSLL CLkv I <<fch sypmpcmkosrfabol is utuskkr She<<4 ln Lsisrssl tukuuuk Iavssuacal quLULFU rite a>> ef ibe dale et Chic yubucsL)en ir giveu Aaa Aa A hks So Cas Ca a UL ILQ esses possible, SA4 'vl bs ror CCP)SASUOA OC AWULLICCyal tl4)ag Srtababb Ch y ftlcu)at Ihe AS5 auC Skwl gceuyc sce psge

't

. Sush chance bvccuaes slcscure 874LSOL is) aller caLL ytlca Ld)SSLSS )44)Saws p CLSO Cte le sahl scc 10 casks+

Meed~ ltslisgl hfsedr'4 lishng It given Co 4)I ltruss kn Chic pub))tauon <<hlcnuc Aei ssu fs~"Iy ~rg MR U inrfe Li Ao lone r avsussi

<<hers PLLIIUIS41 dslk srs svsLLSALC A discusslea and SLIPUASUOA 0C scaodr's tsLULck wul be f4444 44 ysc ~ Za teassnsair up Ls dsts osis Io pcrmIL a )udccsvnc Io pe garment lf 4 ~K

)4 rsusd for rcecmpusn, or ler omrr tesrens.

L)eosI C)ueUUens shove It> ss fsyeeIt; Wnvre no taunc bu sees sfticnvd or <<here ~ ts c u gAuc fuvtu Ctusuusns for iisied Lrturs reprerenl actual ec)e pseee chat fscl slane mwl uol IA anr <<sr be ck)LSA u ~ raflrclUn on unrsr as POLLIp)~ le Lhs end ol iss msnlb yfrccd)nc dale o pus UcsUOIL, Wnvre ho rccrnk Ltsasscuoa ls tepotiwu cbe lslesl le

~ 44 stasd prlees afo clvcn.

5)sgsvc CLIsvsII fuvru C)usUusns s)Iowa teynsfn ls ihe~ spptosfnmcs Ity I be where ao rauag bks been ~~i ~kh,~sea~be

~ Pfea4 hei<<ten bid svt used Oritn fer,lslcm OV ~

ceding 4414 of yusucsusn. 'Sfhvro ~ ic SAILI vsiy are avs)USLC, ino tastier o) p4ycr, vCS teak'KULO 1410 bends, oaugsuork ef Lhvcsuncal ULQ1

~ vecsce ef such hiss U rivets where ause FIivw taly aro svkis)LLCL ~ Ad bsn)Ls, aad pacrculir, psr tbe svefsco Dl 'ihcnL U givcl4 SUIm deilklp ger)S) )Svvu 'Lrnefe SSCA mslutf17 IS net CLIOIed Separaks)rq iba qeee 7 pfhtte tsuncr have been requcrkcd cer esl ~ Ir placed bea Cslsut shown ls Luusikr fer lne aversce maltuitr. ~ such rsunke vill nol be published )Ce tsiiacs ste cssicpsd er msr b" ve )I~u Istucs ysysbis snlr in Csnsaksn tunds an so suo when oupUe intr trsl IA sar itsue Ls rurus 'sainlslned IA4ickird VILA 44 uLCCLSLL fv) UI lhe CulreAf Pt\CC ee)uuuu bceswe of lscLL of esseausl dsU, or because OC I snlccd, In Lho cate 41 Lm)IIISC Ictus', aus1$ QDAI 44 tLOI red'h bscn of dais deer vd 10 be eseeulls) Csl ceptessnt acIusl Ltksucusnl. ~ soun4 ) ILdgtsssl aa lhs Iclvcscsseat qukutr at lhs Lktsea.

kss tl 'Z)LS high snd )01r sale for SII Ltcrd Issues cnsagve ln ltsUOCI Tho qusU)r of ALCIC bonds Ir nol ffvvd an4 rtssd) c)veIL Sr Assr as siblec 10 Lh ~ end of lhe numlh. 'The tsnce for unlitlsd

~ 4 POILI seer ~ pehe4 of ume. bui lends lo undrtgo cm144 rer Lhir fruet

'ILsuss tsptcssnU hLCIL cltances ln tsunst occur so ot individual honda u Io teasel lasso vcr+usaf lb lbs IAUCALb

'uluen I)sadg pries Usncet The high aad )ow cs)a price far atk )CLIfd Itsu<< ch4scs ln rsunc Iusr thut otcltr s save been Lshen Item fvtercs fof, lhkl pellsc In 'Lhe cs1 ~ ~ c uniute4 visual fssw. guck tsung chance snoul4 rene heads lhe blgb and lev bid prices a[s Luec4 ror beads lssu a) Ic UoA Ih IA'v une Aouce'osie fsung did Ael fuur reflrcI lne Ausulr of tnr pe Iho tango coven 44ir Lhs pst)44 stnce llsusscs, ~use Of Lncu vtrr ASLm. Asntn m 10 bted SO~C T)sfd te Meter)tyi 'The is)4 le mstutLN Is shown oh 4)I beads paring wnonc b044s of lcv r fsiulcr lhsn among bondsnof ~LCCACI .c ts Uncs. AVVm sctu)sf Inksrrtt. where ss)c ptite is nec arsuspk4 che rlsi4 ls cacao

~ 4 the bld yclso Csr vaiusuea putpessa. ~U reunc~UL h)ch and Ls<<rsunt~ctssr Ls he ~ ~

yeetayQr aar SLCLLs ot chasse IA lhvacuseai scalds <<)Ukh cusr eecur.

IC)CT TO Ssooo~ Co)LPCLAATIC )CAT))CCU Asa ffoods erhlcb ore tslsd Aso'sro Iudcvd le be ef ibo bstl nusiilr. 'Cher yo Carr) Ise smsuseL decree ef Invcvunenl nru awl are renvrsklr tetsrre4 Ca Sends <<hICU are tated Ue <<<<)edted CO bavr CPSCulsifVe e)emsf, gLLC ecru In'Iftrll psrcnfaU are prsirc~ b7 4 )srge Dt CIr 44 their future Cane I be conII4srsd ks vcfk auufca. C)f ten lae Praise" Cn interest and ynnttpa) pkymenU mcr vctr mtctrsi ~ and UIsnpr I RLcepcouaur 44414 martin sad principsl is srcute. IV)LUC Lhc est1ous <<SU ssfecusr4sd durulg both coed be I-uet ever chs IalLI yreleeuve ~ lervenU ue Uaelr lo CASACL Suth cnsncee ss csn be vuusluea UseercsIntr OC yesiusn cascutctktss Oenas IAbsd SILd are cnesc Iiklucal7 10 Itsyskt'h4 cuudscacnU)kr ~ ItptLC pcoiQ44 of cucA Uus ckksa.

a Seeds <<hlch ars tsied CC ~ere)kr )sdt chsrscitrisucs of the dnlrsl lave unent. Assursncc el IAUresL knd princtpsk ssrinvncs or ol CU Ieneece ef oibst Lsnas ot tak concfscl over anr )tag ycrisd of CLcss m lo be eC h)gh dukUrr br 4Q stand be smku, Tesetncr <<LLA UI~ Ass greup 7 Lh Ihe bc11 wIAOS songs <<hich are tsicd cks are oc poor stsn4)nc gush Issues ntsr be OSCSILSO nuuCIns PfoirCuen msr ILSI be u dcmlul ef Isrfe msr be prsssaL ~ ISIOSAU ec 44Acct wich ctspscl Ia yrI C)ueuISL)en ef PrOIvCLIVS CIVmenls msr be 4 ~ ~ Rpsk ar lnwcsl

<<Lkr be OLhrr ~ Iements prevent viudI ms)Le hawk>> <<h)th aro rsisd Ca

~ Outs<<Ass Urget Inan Ln Aks securtuoI. Ia 4 turn dtcrss gush Issues teoresenl "A ~ aefceemkng4 uo allen ebycsuont which sre soecLdskI la usfsuLL ec have olhct mant AIanr favorable )nvvsnnen\ altrlbelvs r taedium grade oblicsusaa rscfom nruirf 4 ~usLC bel SImds <<bldL are rslr4 C are L)LS )ovcsl tsisd c)su of bonds and IItu se rated csn be reckrdr4 ss hsvlnc eslfvtnsll'vor prospceU ok ev 0)emesis msr be ptrfrnRL <<)LLSA sCgu ~ QALALA4aar teak utvesIOIeal skkndisc.

ssfeeumo lu lhe Iuuuw are ceufdrfed u Inedhua grade ebu gauens. Io incr sre nvunvf nfrnir proICCLvd n

~ r Il+ cnsr I ftlucs IQ 14CLL wILLUsduIc In unftusbie sv>> snr creel Lrnctn ef tune aeauccn Lena tune.

vcvuucAL caefeclsfisucs SOLL UL ckcl bsro ~

Ra~IS tmrCStata SerrfCCS XnC.S Bmdyta Banl RCCC)r4, OCtObCI 1974s yaaCS 1 ac% 2.

I' Page 56

~ .'.~ Tea h~ ~

l EXPIA2tATZON JQID ~ TO STA?GIRD E POORTS CORPORATE BOND RATDlGS STANDARD & POOR'S BOND RATlNGS ',

CORtOTTATt SOTTTTS PPD D s Aa ao<<ct sotto oocL Tfo NN 0 Ne wwssao ew INossw oossteo otsrL it oscsCL sttwsosa INEao IANTs's OUAUTY aOTTTTaNNCN Ntwsc fohwwscsw assw setotsssoae aoace Oausw CSNIC, Nstc lo ow Nt Itrs cwfcvwt IAAl. AA. A Na u

No ltcNEOC sstww IN 'ONN wwuh>>AL v we oowosoao cosvwf ctaosw oweoww aoaco aw sasto oa 40 teat oowt ao Asawfua ENCNON

~ wtl, Tat IN<<os Mlww w Neshlw swt N so OOACL arc owf 40 ON A A A ONSCt INOC AlAIfe Nfltll~ SIW Owsf NWW, Tlltf tttwu OW OHL Iww Nw occwal ulavlff W tsw tatwstsaetL suf cltsw cl Ntstfswh H w thhcstss the ahfsssa vvsosrsw Nof QUNCTTIAL aoTTQa

~ ow <<sos lawtu It>>L ooc Itsw tstssct ow sarsrw Io>>st oh oa coshsL CINNVC A Oefl'I NONNIN Coho alsshfl eesN Oaaclswhl ef I~ Nstl Of

~ ohcl sosoc AA ~ >>0 eouof u Nca f>>tt ooatlswaL NN la 44 wowsswwos sa Icl:ath w fthHN 0L'scswhs Ilsacl ast owscswe v tNNI sow<<sf N ssL'thill EJPN sslw *Al slWtt oasf 4 NINI alosos aww>> 4 \40>> os sA tillIww IlouN sosttrtl ffvas T0L Oswft west r '1 Iat Ilhf IN>> State SVWl TIWIO No OWf NSNW N W Atfaou f1owl'ttf AOW Clt St<<ON A Coats Itssc A vo ssfvcsc I ~ eotw shwwhs tsocL Tswf aow cersNNIN ~ rwstsftss N>>ITN ahl No 4N osvtsf lstt Iww NIOILAIIN cts .L Ih ~ twsoo tl tcwtwc wtl~ ~ ~ low>>1 <<4 uhlclw CI4llhtt sh shff w NN ssel ae>>IN Wsul III~ lo ~ 'lath>>I>> tHIIII~

sfv 40

~ ocsvw ecocsl N cash tl s1 ttoatssc tho Itic~ cwsooaL Istical Ihl osol Ooscsh I~ swl twstwussf AIEL fwwaso Iwfasse Ifltl>> oowsue I ~

~ ssacww vo tlffsftc II CNL Tswf VIEN<<aohtt Itttcs aohof INot 4 sw lo>>>> osoohcww aoooL os>>all N swocstwa <<ehc INI Iutv Io svuc tusssv osl so If<<0 eossha Nw ocwwww toaorwoL N stot<> aucwaw atshooe cowluf

<<>>WC V sftv<<thl N Cfstfww tu INNtll Aawssfa cssoas<<fho vfowsww cllofocsta>>wo of ENNE lh f<<I fw<<t w oasf BBTT V whatccL Tae owll'hl lh ~ fatso rhNO Nt Ioossssssa tsusoN oooo>> Il T.'wf >>so slwtt fslh stl ~ N sl oaaw Nsuef slseos aohcl lllta Al aose

% Wco<<EAINL Tafw Ilacl sllw wtsww twol usos4lo NN <<N<<wf tssocsot Ef ua.ssllstsf IN<<tTL Tfle wslttatossf w cauwhw cwosoal. Ow I ttohc Neoll I fll lsalt ol CwtfsL ACtw csol~swcstu IAO aat>>N oss aescl 44 Tsl ~ Eolofwf oso OVIIWINII V Cttstll IEL Isllsts>>wl Coo>>HI rlsulwc, VNINhstL

~ Nwo tw sve sllttt<<w so ct wstll sot voto cvNslww 4th la saslslw ll Nolsttc ufo, Tsw sllwf Clsuwot 40 ssso>>ttw Vefllsrf V osslhw II sos>> af s I ~ lho scots swats otcww sow II Ilaw <<tsshtw. Ossos la Ehe

~ NEL Tw Cswo w st wasstrawa otwshs Iv INesosfsN Esao llswwsehL >>EN scfhN<<f till. Ih wls tow' lae auvco cN<<tta stsoshot ulc at<<Is Cloth 1 Ca IIWI Nt IOTVCOO al Ie<<tf SWWS 4noo. Tost atw tssf fsnfi wwllswhl cavsuthsala. Ih so cast N rsah>>L

~ loww>>stt v rs c Ill:fof lhwoowwoL UINN Essssw otsNI ~ user<>httL rsf Nw stoa <<osotoss s<<pl swarf 40'ossssf N w>>LOI w stw Cole blasuc st ON<<w EN>>w'shel esl of auwr svwsL l1 Nt cits tl osv Isttt ~ Iacuftal Ol CIS ~ f<<u ~ Ctw, ~

N ONSCNL CONTI ~ No ~ SASOO Oh IWS444 ET ~ INS OWE<<I 'lel la toN OOSWCC ocLwahs Ossa Tssst II so so<<ow fhwswwhl fsoft Hcwwf swtc. IJACN

~ oauc Otuo<<WI No toll No wnsw sf>>su Cl IAWIIL Stsww N 40 IWW IIVVI Cossf uaSIWIS ~ lo ~

Losel sssoo 44 Nw ~ I ~ vt Ioocscw>>L Otl<<NK af lsslswl cwral asfhos ct;lsll Iseflases, Tsw csfhsohw otshooa A lh4 O ~ 4 ~ Nwfl il IIEN o'0 Q oo clfrwc Ehctf tslfrc CEettssl wacsswrL Isssw wtht stw ow tho Ithoohwhsu rtssss>>L raNWI fst INtsv tal<<t CCC CC os lsw w<<N srshc osawwf rw eh>> Nw cltcwsof ~ Itf 40 slcwo cte<<lt>>c calo<<ts voters cs ~ Iffcthco IA INI cssw also lww sshwshwsw cautuos ot>>WN Sa ONL aht CLEOAOWth Sl CfsWOOENO ill ttSWI ~ al Htf I/44 ~ fsacL WI slf at IIIIII Noc<<WWL ftf fw sEll Ovl 4>> IIWO ewwolw 4

~ oacastaL la fst CNO ts cC slaafl 40 aoaao <<>> ao oe ah lactea 44<<0 WICOI4asf, as<<wstlftsfa Cswt OWCIS>>s

~ ac 0N flfewa Nst oo lsw Tlw stoat N C II ltswesc fw IAON00 Coaca ea <<NNI ao Ih>>stol wtr csoawlawllaoac cavocsssusca Ne wfuvf aaaw<<NW aac cwoscc Ctrw 11 s<<wawa fa ICNO ONL v caot>>uwsasstoc tact fslacsosc la aswesa lNVESYMENT SECU RlTlES REGULATlONS toocow cota TL ftcL ow ct<<aewsv.of oss cwwaff lssfoc so fworrsc ~ otwaf. IT oooo afl Csurae ~ ooaaoas ca>>a No oseeosssaeeaf otwwwsw wwsleost otwswc so I ~ ewcallo IN ssl 0<<a tccwas ol shwssstN loahsaw aur>>, '1

~ f ~ awoaw wlo es ~ C>>so sssow 14AE N 44 foow4I aowwe cfssool, Tao w teoac oocrw>> awawot eoafwww OI ow i>>aoc oas>>t oac Dt6nlaoac. ~ fowof ewcoauw Owseel, f

ol 0hf Oltlt 4f 40 lkswc Cswsa of oc ahf thacos orw swwe Taa wwa shwwaoal steehlf ewwo ~ awttsto>> EN>>stoa le 40 INN Tsw stoa roooofsl acsssa>>w ef wf close". IhuhHe ~ cestst. 4 e. Itws oc 4 400L ww v eoooaswe <<asoa Il awvswwf socwcoc 4 ~ oa sseswwa V ONV Soewtttw Wftwtawa ~ O<<VW COSAVSSfs laa ONWWf ehf OONSCSf

~

~ ~

~ ~

~ ~ ~

Standard k poorfs Corporation, Bond Guide, October l974o page 6

Page 57 h?flfugr. Erne ANQ I?tvmgTMENT Ltszs January G, 157G v hfoody'g Bond Snruey ~ '178l Whee ig Ztferegf Coverage a Special Cotteern?

. Icwcr oe dccUning coverage of interest charges k, natur.

a?ay always a matter of concern to IOoody's. And, lt is of special concern when lt cotdd pteciphate dcspcrate and poasfMy iznpzudcnt measures. This could happen>>hcn bond Indenture zostricdons come into play.

hxkntuzo dhcipancs, Including coverage tests, were de.

signed to protect tbe bondholder under admire conditions.

%e must assume that the bond investor put his money on tbe Ihse assutzdng that this indenture coverage restriction was a sccszze hst linc of defense. Clrcumvendon of bond ln.

dcstrure odgiaal covcttants is a mancr of great concern.

%bee a conzpsny cannot seU bonds because lt is not gener.

athtg enough camlngs to cover its hncrest requirements by two times lt must get rate zelkf or scU stock, zegardkss of the tUfAcuhks lnvolvvcL is ft not contrary to the spirit of tbe bond contract to zesoct beavdy to alternative forms of debt Qnancing? Such might hicfude leases involving generating cquipmcntt high kvtds of tzutreoAcss permanent layers of shoner term credit; and shifts so*bentuze financing where eonstralms may be tutee modcmte. XVc cannot overlook such steps, which are for tbc most past symptomatic of deep and unresolved prob.

kznL '1he lneuzrcncc of Qxcd obagadons of this type, re.

gazdkas of vrhcthcr or not they are subordinated to the mmtgage beads, does not hnprovc the quaaty of senior debt.

Potlutkua cnntml Anancing, no mancr how noble its puz

'pose or bow economic its use, could become an increasing threat to tbo quality of other debt uwlcr certain clrcutn.

stanrea. If payments made to satisfy terms of thc instrument are nsc zeQocted ln indenture tests pertaining to coverage, for cxamplc. how much cheer ls the company to that t>>o.

thnca coverage Umitadon? Or how much has lt gone bck>>v gcneraL these credits now account for over lotv ol interest lt? Can poUutitm conuol Quaking be considered aside from coverage. This, ln our opinion, makes s~aacd circumvcntive tbe normal level of debt? lre do not think so. Qnanciug aU the morc questionable.

%'e bcUcve lt ls>>orth mentioning that most lndcntures aze sQcnt with regard to tbe inclusion of aaowancc for lt concerns us grcady that behind thc saosfaction of the mortgage incurrence test of two thncs prctax earnings cov funds ascd during amstzuctlon in camlngs as defined eragc: of interest charges Ihcrc lies a large aceoundng c relic, tberchL, Ilowenr, this once insignlAeant accounting item ~ nd that, outside o( thc control of that test, thcrc may be bas become substantial ln she. and in most Instances k in- krge anuxtnts of other forms of debt. Any such situation cluded as an earnings credit, for indenture coverage pur.

poses There aze many who question the quality of such would bc a sure sign of >>cakncss aud wouhl reQcct upon company's financial integrity.

i earnings czecUts, and their acceptance bas aUowed some companies to Qnancc via bonds where other>>iso they would ~ ~ ~

not have beets petmlttcd to do so. The difference uatursay vafka fzocn company to cocnpany, but, for tbe huiustzy ln Mooch~s investors Service, Inc., Mood 's Bond Sttrvc, Janttary 5, 1976, page s 1781-178?

1

~ ~

tr

~

e ~

I

I I

I

Pag scudt of o ~ss4ty kcrcsse to thc LcacLtf$. TlN$ tahe psrstkk the Curst gseiset Noseees trees recent risc of Ibc stuc euinienvm teacher'$ $$ 4iy. Suuab'hes hsa 5 CJQ Sw Ceeeee ISenov Seeies uevees pic tSD's psy scsk st 55(O sho c 0>> ustt nunimum, Tbc sdo(etmn neeeerv eeeeeseer IN UTIL ms?$

of Ibis 'scrcsssd sskty apcnsc wss nisde poieibtc by the ntw stuc Seenov leeeeeeSS au SISSS fundkg 0ecsteioo which incnsicd ustc sil Io Ihc 4sutia. Incrcaicd 'acr I eeweesse eeeeor wee csee LLIIO ISO 4Cbt Sauire COSCS Of 5SSSStniS Ibis year'S budget are S4O hnteettant.

nsr leeeeseueeeewee SISSenee neee uo )IJ geest Seue see Ceeeee 5 asst 5 5Sse tsevevaguo eeseweee Neseeeen leis ssveul Taa OQekctknn m Ihc cuncat kvy have averaged %42'%or thc 4$ t gve yeats. The diet rkt tss rate hss increased from (19 mdts in hctordisg Io tbc Ipyo ccnsut, tbc mofisa home value lor tbc city Ig(0 Io ides mw4 cuncnuy. Sn4 OSc44 aspen h to rcensin st Lhu (g(5sgrsiis Ligbcr than that ot Ibc NNc (5(?ADQL fcvd for at ksss thnc morc years. goaded debt is rcdrtd SIowiy, whh QSIye ttrired widue fre years, sn4 2U% wnbia $ $ $ 4 Ssrseuirr (SD liu tslebirref Seen( Seoeerb t(>>eorrrvfrrers <<ss(kyar

~ ooeetvef lu tuereerrs uv((. I(ourvrr. drgt u iran oeeef rlt rn(rrverrur Sod cooaoosec dsts for tbe Chy ot hteuiuhc aun pares 4votsbly sclnfu(r u s(ow. IVC ort toeneeuing our "A"(ueoe( (ence(r nusse oo

~ hhTessu Ran(col c lgft FUNDAMENTAL APPROACH TO PUBLlC UTILITY BOND RATlNGS Oat Public fj(ffi(ySection has prepared (he following de(a(lcd review selling ouf our approach and (he ntafor analytical conslCera(fons involved in ra(ing u(ility bonds.

Hopefully. ibis survey will enlighten our readers at (o our methods and analysis in this Su(rid@follower( arta and (hereby allo~ (hem fo follow our ind(vidud issue rating re-in be((er perspec(ive.

0 ~ ~

~ CVSI anting OLKI7 CICdit ristse OV r usnk5 point 4 all Saaiyda Of dstioa rua Io bc st retinue kvds. based oe engineerin ond cco.

U>> vstyiog opsrsung ss4 5aaocid riits shat msy be facing Ihe

~

oomk gauges. hitbough we have IiIUc4tcrcst in becoming cmbroilcd dsctric, gss aa4 Lckpbone wriorrta ia U>> yars shc$ 4 mida 4 tbc Lhcorcricd argument of whethsr or so$ present aiuomcn ddfcriag cconomIC Sctssriot. For Ihc dcttric uuTity isdusuy, this in. sbodd psy fof needs OC f'stare cuuomcn, ue rccogaitc that Lbc

~ sdets 0>> derek@ment Of Sala SS4 ihianeiSl Statement fOICCSSLS for a prscricsi cffsa of inASUonsry condhkns is Shat the rett.matkg fivwycar pstio4 wiing bat guess csumstcs snd rcstisuc ccononuc of Ikwubrougb accoueti.g sad accrual of AFDC

~

'roccdurcs msumprions, snit 0>> dtri Nion of s compttticns(vc Sct of opcrstkg (allowance (or (umk usc4 during constn>>rionI csscnhuc a'ready as4 Saaacid parameters which sre used Io matc Compsrisont. <<crious cash dow prob(cms for grow>>(. csphsldntcnriec compsnks,

%'oriringvehh this mcdcL wcinvagatc kduttry Iokrsnccs Io worst rcsulusg in dctcriorsuos ia debt ss(ay parameters snd etcdh rsrings.

esse Suds at the totcnrid Impscts o(oa-(ok g doubicvbgit hdkfJ04y OC4ct Of aaaa Io Ihc ca peISI mal tSIL of ttctsQoh.endured Covecage As An Andy(ical Tool chub saks dcdiues and fsu pscsd Iosd growth. snd of seriousl adverse dsvekpsscnts i~ such areas as fud supply, cnrireomcntsl rc. Tbc primsry csrnhigs sdntuscy tests Lande those ctntering on Ipdism vts ssd oud tat poser. Wc fcd this type of N>>iysit (done gscd charge coverage, notwltbstsnding Ibc 4cI Lbst dltfcfcnccs is mars loosdy for 0>> gss snd Ictcpbooc udust rial pnniidcs us with a coverage Icvds have nsnovtd Signif>>SCUy ia Lhe past decade. $ $

~ 'Srm bsctdrop for teniususg 4nrtam general indusny ritt snd sand cevcrsgss have dcttriorstcd..p(cvcnhdcss. thac tats. iV dmus attention So subiaduit Iy SCaors whh ps nicu4r vulscrsbgitks. 'evshstcd in Ibc proper (rsmcwort, Stiit pnwidc Ihc nunt dintt in.

In Lbi! Contest we sre sb4 maedngfutly LO campsre thc rdative dkuisn of a company s sbliity Io carry its pccscnt debt Iosd ss <<di is opcrsring snd f>>aocQI poehiins OfhuiivIdust utilhICI,Thc nest SICp III to tate on sddhionsi debt. SS: p prcstntiy vsts Ciic tuitrsgt tests of Lbe thtuktcrne'esarios pro cts 4vdva comparisons of inibvutusl reucf 0$ cd charges. Ibt meet ienponsnt of wbkh for ruing purpsics

~

utli6a. Lhc Idadee opcrstinf. sdvsntsga and disadvantages o( each, aic 0>> pines and prnss csciuding hFDC for thc mote apitsidnlcn psnku4$ Souetns of inSISMity or uaccrtsenty, and debt safety rive rett no snd $ $ $ utlliIICS hacr Ia I toetrs(C I lilt IIICOIS Strloiis SI peramttta that sboutd petvsd in future yeats, given s rcsihtic sp- Isation rdstiec Io Iong term hietoricd Itstistks <<bcn du(ntncts in prshst of ss4 ittu4IOry dieistcs. Wage thc emphasis of lss rsIcs werc Inuch Icss encasing(ut snd. Lo Ion>> cstcnt. (or oet asstyricst wort is ou pnw'tcring thc (utun when Ihc debt is to be Idcphonc uuih>>$ , ss mcasuia of rdstnc santa s ca ruin(I pm>>r snd

~ utussdeng, Steuoa unatikistion inset Itin bc Civtn Ihe I rect rctor 4 Cavil st sccumu4Iuin putculkt 0( Icss cstvlSI<nt tneirc compsnlCS Ihsl Of thc PSII SCVtrsd yea r$ e ul Shot II rrgtt1$ OISelsgtneent $ rt4IIVe Suc (etc teucnt4(ly 4r(er csposurcs IO oNsomk diviietatiuis sad loog.

cess in mrcdug goats sad drsiing <<hh probtcnI arras. Fvnbennocc. term coeupcthiec threats, Our computstiens see $ 0 i>> rursf Cistd brltgrd kputs kto ouf SIISI)sll srt Inost curfcnl cspiml structurt charges, kssmucb as SII tbsigvs hsvt Io bc inct tu prevent dcfsuiu pcuhkns. usted csphsti euiui gaals sud Ihtit rcseonsHcnrss, snd, in snd wt give vtey Littk attention Io pro (ernie Sovtrstt, prrfcrnng U>> Itgdstory arts. Lbc tonetrsiats oC state Iswt, pbC pui>>ks snd instead projvatd coverage based on a foll Sct o( aunonuc ssd rate precedents sn44efecsttd 4ture diiccteoss. case ossenitu kelt Lbc st ron(CSL psymrnt o( ~

ht, gtsudsrd a ruor's wt bsee come Io thc <<nndssion Ihst one of forms u( proration of interest psy ments seed lundy rt 4 s trestle sntsni o(healthy csrninrv. hsctcd up by cs* Oous Uest sic satutsctory on thur nwn snd not dupropoi.

Lioastc Lo tspitst an4 debt Icmcc rtepeirtmtats. Wc IooL for dspis.

Lootks st pittsa coetrsrc alone. suit distuiskg rating guiddiaes in Ihc beu<<IIN o( terms, wv (end it csncmrly ihtln vtl Iu ensintain s

<<hh hens Itren Credit rsung on moet rubric utdiiersdcwetmcc it Suteitsndsed ssd does oet show erseeensHy Cerm pevepras Imtuovsensut to Ihc eeu'nieuuue 10 IS Iieuts kvcL For varying January S, 19T4. Wage 9gy Standard gt Foor'0 CorPoration, Thc Fixed Incottsc lnvc-.tor,Janttary 3$ 197SS Pave 9".7.

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Stssoeh we utuuay look Cor htthcf cofcrtgt at>>s os tttphhene aa4 4444fastsgcs of the coinhh>>d cone>>sy as aa navar. 94'huts cosa Iompttttag ~

gss uuWics Cbcmsluvuhsgty, for 4 ised>>svqvsysy A cmdtt oa sa ckcusc utility <<c vovkl have lo be sv am of Seriously ei muaasta Ac rsring whhis Asl category if cevht aes he ccpictid to tepmie Io Iu ueir Ihc X50.2.75 lf times ttftt ia a scnssnahk ulsc frsisc, pfttaa coverage % 0447 LO

'o<<Sage penes voder cr Ac Sett hlntm vmbrdts clearly brocut m rtuey wtya mm U>>ir <<IOCist>>S wnh Iha Psit<<4 4974 dtfnvsstraled last ia a ttnsscist pu>>h iadiridust debt<<'Iaw'og tutntdtsria caa alto bc duad.

Vsntagtd hy Ac probtans ad<<ting Ae psrtat bohhsg cempaay.

~

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Ifmcs or kss oo boch 40 Octad asd 4 pfojtacd basis. wc haft found that wc must ~ sic<<Sly qvcsuos <<hnhcr U>> tower Incdwm gadc gttttt hi>>atmo<< k soprepriue (or thai itsucr's debt A) Thc sua a(a company'4 rcvtaucs. cstoiogt, sad unct>>srsing

>>vest>>cats ssd fisted grevtb (scton profile hsNI ecmurf<<

Incats by <<htch oac csa gsegt Idstifc tstu>>ut ~ Io neriutf

~

)scoff, sf wbcAcf dcta asltty cuAions sa so iaadcqustc that oaly a opcratisg. economic aad gasaciat risks. industrial saks venus

~ tsufcty specutaure gfsda "sa" 1sltag cia hc 4$ ugnad 40 Ioartcf<< tcshtthust snd cesimcici44 tughct priority gss saks rrnvf to<<cr bees 14 shlehg abc 44 thai Ae above s>>sUoacd miaimum tsetrsge keck stake sttowanca for sn dcatic suTuy industry io tctait tn>>that. jv~

priauty etage. Iott fcn<< tocst phoae revenues, <<hotcsak fttsUvt csfsisgs, ssd infmtmcai shd csra-isgs htcskdoem by fcgstuoty lsriuV>>ikms stt moil Cusdss>>0444 cst>>ricncmg m afaferaMC cyde of scrioes csrsiags cn>>ioa snd )4) Tlit strrice sita a <<ittty ls tapootihle for pnridcs U>> 00.

heoc4l stress. 'Ausa. ILc k>>g tenn cbsraacr of our boa4 atiag dtrlyiag ftatacist SOPPort fOr uti4ty opcrsuos. ttctogstriag that

~ syntm wottd esquire that <<0 look for lvghcr mvdmum cofcrsgc tunes>>r or dcmsvd gnn th is aow n>>re aftra s benlcs thea ~

)ads Ihoul4 ia hecelat aidcat that tht isd<<447 et IA&idust corri. yoUYnc sttributt. <<Ctistuatt thc fstyihg tyPII of grovtb scd Atir peaits arc taaagsg Csfoabk phucs, b<<of limited 4uauoa. fa ad. bnpbcsuost. tat tinsitat1 7 imPonsat sfe Cuuemcn'btkty 444 <<ill 46oa, a cstspeey's sttsisnitat of strong Ceftfs gt tfvds Cor 4 higher iagnas Io psy, dc grec of ctosonuc 4n cttity of Ibc arcs. Sad Ac m- 4 tstcgscy k esty esc prtcosdiuoa for comtdtriag 4 tsuag ptttathms of gtegaptvcst locsuoa. Svch ss rural os4 erbsa upgtsdkg im as debt usw. charaacr, tnrirssmuust coashkrstioasctimstt snd Cud soetce

'i'o used ia a ~ coverage gvktcV>>a ars 4 Cottnttdty impotutat toed, ILoy cevtd tcsd to scrio<<ty mhtcadihg coed<<>>as if sastyttcs) warn>>Is asd without a comprtacntiie sppaissl oC funda.

mcstal opasting ss4 hasoeist ritkt. o( sovtta oC votsti447 asd statvTtty, of ass<<asd caA gew pfetcctioa, snd ef rtgulmory aod pn>>lesly os utility oprfsting cost,sad cty>>kacy facts.

Csttudef are peliYiCSl aad Sotk<<tceaemtt SniiudCS te<<ardt gte<<A 40d pnf ate mdmtfye C) Tht qut lay of Icrrica prof'dc4 ssd thc adequacy o(catomcr QKI public fctsuoai srt ktys 'lo atctf tarn>>g how udt 4 atiTsf is bc Cetat Ptefegattuts. AlthOtgh wt ttad it CICCCdiagly dttt>>utt IO eectiag iu (rsachitc ohtigstioss. tasdrqvsritt ia Isac arcts (mott

~ Lade Ac shove met>>em cofttsgt td'C44tscs lo<<cf, cftn vbta tnos most pcnthcat fer trirphoht Cempaaittt pottiiuslt) UircstC4 Scricrabk otLct kui>>am>>a point h fsforsbtc dtrcatoas. we qdtc oftcs dacr.

tcfds from boA ah ccosomic s04 s ftgutstoc Its<poiau mh>> Ihst rtqvirt modastdy to I'gatf>>sady bightf coverage actisb2tt 7 of fvd s04 power suppty, ctpoturc to cnr<<os>>ca ecatsl

)acts m iohidad cases <<bae psntcutsr pmblcms. dissdf sstsga of pretdtmt, operating t&icscics, Iad OC ptsat modcmit &o. gss

~

usctt Is(nuts tsfst r syacm Isfcty aad At sdtquscy ef neietcasact pratuccs are Fanbctatsic. Aae srt casey kstsnccs <<bat Ibtfcriag types ef checked fot pottaust pmbtcms asd Ihoncemtagt.

corctsge tsriee are more svitsbk is mcssuriag toag>>cfm csnuhgt asd csA ttww snd st Icstl ss msay cstts shalt tb>>d For the dtcuic aad gss uQiYtct. Cud supply potit ion mty stilt bc charge cofcrsCsscsts must be gtffn oaly n>>dat wright is tht crcdu rtgsrd05 ss fsfeahtt or unfavorable ia terms Of cost 404 cfstesttea pfecee. The Constr erne is Iy(J(>>4 by ssiursl gss utikka sfaitsHtty. Ho~a. U>> tong>>crm tread to astioavidc energy

<<tth saiees swtqdy pmhtf ms. <<hrrc iacfcascd sncsuea must bc given pot>>7>>nthig 444 tnd<<nc sttocstteas 44d thc nov scly hsty out dckc serf>>a c>>icagm. h prie>> cssmptc o( Ihc tatter Situation k 4 tock rr Carding ovmi fvctt maLC'n dtfcutI to saihfsaordy aslustc Cast~ chctric utghy which ctpcas to triptc or qvsdmptc its risk ia Ibis ares.

cspiuJisstieo i>> thc otst lift )csn. Thc pmjcacd corrapooding fy) The ofcrridtag km<<>>r(vtriy cconomtc ritks sft. SI <<0 scc appraisal 44asnriat iioa.

~,

gunn 4 of Ibc debt hunks arid Ihc csrlllags rtqwrcrncnts InsLcs fnk PPfshal aa Ihe meit Inure dtpavtcm os ~city 0( rtgvlstory CLIOII sa4 stJttty Io carry risk ia IJsat under cosstn>>

t them. i) dCtrriOratihg vttthtad gII Supply and Sn Vattnae Suppl mentary svpfty oudook fet Ihc gas utiliua; 4) Actvsg>>ere Ihftst of coepcutioa h Ihc merc Piegtabtc areas of thc tdryhonc is-dastrt- sad h) thc ris of not bc>>g sbtc to csrn 4 Inurn or rccov p u c.

Fmstty, ns 4 soot s>>ssvrieg csrsbigs ptettaios, litcd charge Ihe Cvytlhftst InCSI ui 4 Illstor uavta4 04tuiuhcd, of 041nsHc 0ISHc t.

Coftfagt Swwiyvtf Olest bc uippkmcotcd by csA ttow ssslytk snd I)Iso ss sdfqustdy Io I she Into cvstld crstlon fvl so st a Efdveiiss o/ Isr comtviy'r Pf<<yiwr fverrivrr>>e piegieha.

y Iasrgin Tl>> lsrgCf thc Ike 0(AC pIOgrasa ICbtkc IocstJIStttstioa. Iht Inort

~ IfsQit7 an assaks dcdinCS Ssd a>>i catstt'om and pottnttst vIJuiluy ieponsat aic kforsblcopcatisg ssd fioasctst psamcttts shd good (SCIOIS.

vtdtvTtty. Our greatest cenccrnt aic <<hahcr Ihc basis of Ihc program PRlMARY ANALYTlCALCONS)DE1LLTIONS tats 04 high at low cuuastcs of 4cmsad growth. <<hctha thcrc is Jest sa che ensht rstiag prortsa CansOI evaluate fvturc csrmsgt Su tficics I ttcutvhty to adjust th'c progam upwards or dove<<srdt io ptetcaka m ~ vacuum, it snurntly caasot timtt its saalyticsl scope fvtuitCasts <<ttho<<csdssgrrisg thc sctvkt obagsuos. SoJ v<<htthCt io csrotaga Oetcctten shoe. Thc mote lepvns<<sastyticst coa- fcfsosst Jt coll mcslstsis fsaois afc tmNoytd. ttrcskdu<<n of Ihc stdcratieescsseiing h>>o vttTsy ausgs are Ibc fotlowioo pmgam toto fnvro9I<<uhsbtc piojcas aad aoe-Icvcnvc piwlvc>>g.

'l~a(wood J tfpr 0/vtwnvther. Thc portntisl bcscgu and

<<f aggr>>trnt cvwtiihy cse ne '

mnic I>> itooicd than Ihc ciyeevics uf Imstt <<John Icrfiht tin<<ted SICSI. Tbc tate is Peatiblc~ ciyeevICS evtt llys ii revest iag. <<LJC adjestmmts sre msdc fvr potuhti omktcd pier<<Is or Ceumgcat ttfemhtvits. Tbe tack rcror4 ef sd IqvSC7.

qvstuy 444 Aonfstt ~ 0( patt fcsss>>g ia ICIeuouel for indi'srioas oC Cvttvtut fvivrel Iobtfmi.

fsr Cmm cknrwvt, hvscftr, at cridcoad by Cvn tMiua(I 4974 pIOL.

lans and Ih>>csccttcst Iavids ChstLtd up ay mssy mvdcrstc sited J. arfv(srvrf rliinutr. Corfwlvtg twrffri'>4 <<n w>>glef <<uf or auTktca. Abc. <<c mrnthvwd Ihst <<c 4>>k for htshcr arfcaccs oe rvvnr>>f lrrarlvroi, llc sai447 o( 4 vil447 stint<<ntinty I.i Cvnd nt n>>tl gei eel Irtctt>>oc wtu>>I, tior cemtnost>>a vuluics er fenstm'lies tv<<gram sh4 to ovra cviitht Shd futvitstrvu<< farvirt.

44tru(icdcwspahia, <<C Ity, In Ihc cstcni phiul Jc, to tanuticstt Ihc nifsts u tvlimstcty drtwodcnt os Ac taro>>fs and csA d<<w tcfcts cndh orUJ>>ccs sf cath tuuiacss, sad uics tvuk le r U>> sdrsst acta et otto<<<<4 fstthevsb aot gusrsstoutt by thc jviiutinwnat nsvlstory 1'sgo Stta AXED lNCOMC )NL FETOR Sta>>tia~ itt Poortc Corporation, The Fixctl heemo lnoe.-.tet, January 3r 14)76r 't~arJC 4IS.

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Page 60

'i body, la sddbioa to bti>>g fsevy¹r <<i(h (hc bnsic ttgiterive stc(u(ts service rsq<<rcmcs(L compsey f¹SSCtsg P40S ssd msssgcmcnt's Sad mssds(cd cours b(crpmsu'ons whkh s(aft out ihc ground ruks Capi(st S(ruc(ure Objcc(ivCL Ltutt impuhuat 10 es SIC the prehtage

~ ader <<Lkh s rcg<<4(nry scoK7 n(uu Opc(Ae <<e fs((0<< mssl of thc of cash rcq<<remen(s that >>LIy bc liasaccd from ¹(tres{ Sources. 0>>4 bapo(test gene(st rsic cave dcciisas fot g<<vlnacc ss to comniision thc imt{KS(ions ol ibc prag rara for coauavvag csrsI-.gs prwccuon {as poLYIcs snd p cccdca(L la rcccni years s wcskh of i(forms(ioa hss msssorcd by debt io csreshrsuua. snd dcb( te oct gisnt asset rn((osh bcoiw svsibbk 4 this sicL s((hough. Ivdonuns(dy (Lcm o ~

spaiu(y of upcodsm cosh rubsgs rcgsnnaa the rcsu¹sb(cncss of

%be 4NCS O ICgcrdCd SS kis imsnr(SS( O>>i(S owe lass IS (C4uOai¹ 10 its c(tee( on probubk snd pwcnust cshusgI pic(Stuns ceder thc commis(ion dtcb'uuo seder cetrcs( btkuooery cond(ua>>L Con<< cons(rais(s of regula(017 Po(Ky. TbuL ccr(s¹ comscsss(¹g 4ct0(L bbusg rasasgtmcnt ssscssmcs(s of their caps>>ics'ais ¹crcssc such as cscctkn( voibility regs(4ing s lugh return Oo cq<<(y, (nigh(

<<scds ss4 stis(cgia, as wc(l cs istornIS(ioo s>>4 phi(oiophy g(essed s((ow same uulcics to tive wnh s highct deb( raus ihss 0(hci<<bc trots psst come<<iuoa scuons. <<c dcvtkp 0 ccuoldcrcd jdgcmlcs( cs <<ou(4 bc uK cssC. Tbc crccht s(s¹hngs ot sirk eubYIm wouht lo tsturc rs(c csee os(cones sad urn(>>g. Tbo cvs(us(e¹ 0 fl¹ds. LOWCver, 404 (O be mo(C 0(acrabk (O uncspct(vd Shartqertn S4.

(ncstst to our own projccuoas of fuisrs 4cbt safety msrguuL vehhbs uakss th(7 <<ere sbk to msia(sk fsvorstk 6asaci>>g ((csi.

Laity.

vts nest bc ccpcctsd. Cvskstin of refutatory chmstc b ot(tn tLe most ddfcutt SSPcet ot ibc bond rs({ng pIOCess. Psrutuh(ty so state $ . Fiscnckg flrmbi7lty. Tbc todm(ry's cspcritaccs tn tyN c)carly i>>ports>>I cbshgcsis cornruiuoli else(be(SLIpoccef wuh fcgshn(yv dcnuuo(rs(cd <<hs( msay observers hsd slwcys stop(tied, that thc

¹

=

asd fusdsmc>>41 chsagts thc gowrmng kgok(bc sistu(cs are csp'nsl markets S(C aO( OCCC(tsnly opce for most ct thc pcopk most bcsig made <<ih incressicg trcq<<eKy. Ihccon(¹gly, we try to become Ot thC umph C>>d ths( the Pub(K u(dey NduS(roi. <<iih thCir hegC

~ cqusk(cd <<I(b po(ides( ssd cmoumet aiiiudcs tows(d Iegitia, cs(u'isl demssds. csn bc scrieo(y impacted <<hce 1's 400(S Src Closed is eaictpric ssd govcmmcn( in thc jsrbdictmsst arcs to <<Lich s lot some ol uK ptoplc some of the time. pshi+1(ly i>> ss once((sin

~ tgity bctosgL IttuL <<c t(7 10 ssscss tbc dcgrcc of coelpclcscc. so. us(4uoasry cnviroemcat. it o becoming incresiinl'.7 im(o(tsa( ihst phbucs(ton Ssd gmersl adequacy of ihc co¹miuoo s(s(t, la Odd(use et(7(ties hsvc good fins>>cisg AcubiTit7 if(hey etc to main medium snd 10 bciag ibC <<Orthsna Of tcguhusn, tbC Stc(f O S(SO able 10 Provide highcrgrsdc cr<<lii rsiiags oa their debt issues c=d meri tsvorsbdc bdcpcadcst judgcmcst the( of(ca re{kata 0 los r(crm undcrstsndiag coasidcrsuoa vri(h regs(d 10 commcrcul pspcr rsmgL Osr saslysis f

~ psnicekt utitiy prot(cms 004hc{ps cise(e coausui(y of policy. ia this arcs involves an erst as(ios ot obteg that such qussij¹L'ttst p~

Wc do oet bmt aot io phj<<tfe the outcon(e Of rats Cases. (ccog bnobc s dynseuc C4ucs-tknsl process for s(( ps(tbL la numerous sns(aa:cs wc stein con(sc(

<<iib commisuoo members snd their sts>>S to Oh(sin Sthbtionct iniighi 1)

~

phscnt sad po(cn(oi bsnk ciob( cvmlsbtc csd bsctcqi oa comme(cist ps pcr bsucL u) AcxiQuy to issue fu>>dcd snd uatccurel dtb( snd preferred suck under thc vsrious res(ric(ivc covcnccts. {:Ompsnks sre is(0 thc pb'dosophm ss4 impi'csuoaa ot rcgulston aetio>>L csd <<0 st a psrticutsrdbsdvsatsgc if ibry coaue ally bump sgsimi

<<ckomc commbsions'q¹nts ss to our tsiiel philosoplrf ss wca as rcstricuoas which srs regarded as'ressossblc 4 (heir owe its sppGcsiiea io psr(ice{sr comf snkL (('c'rcsfcc(tully cmphssicc io ngbt.

comeuasuKO, utilIYICS C>>4 fnvcs(0(S that oor Only ConCCrn iS for Our R) ndacrsbihiy io short term oretc(ing snd henomtr ibtL ts(tngs to bc ss secure(s sa spy(sist Of rik as is humsoly potsiMc. b) suings ia shoh.icrrn debt iosgc snd fuicrc poSy in this

%ado oot testify in ts(e casa. however.ms(much cs uc bdbve thai regent Hither average esc of shor( term dtbi bhwcce pcr.

~ ny psnicipstbe is s ccic cou(4 scrionrly im;sir our objcctivi(y 4 ts(kg dccbsAL 10 cvs(ustbg (sic csics <<{(tus s pet(K04( jurisdk mesc>>( thsncisgs i recognised ss litic morc (hsn mais-tcasacc ol'pc(ms>>ra( debt i>> the ca(utst sir qwr.

tioa, 0>> loot poshivcty oa conducnt. Oc(brcssoacd polKy dccbess v) sa sbiliy 10 Sasscc ibrough prcfttrcd s(IKi. prcftrcnce suet.

tuOSCLCS

~~

that address thcnoctvcs to u(ilny pest(cmL Su>>dc(4 4 Poor'1 usw((y 1 cfr( is (ron( (sting posi(iuo on vsnoss conirovcrusl rcvvds tory bsucs, b(1 docs Iccof sitc (hst boih co(nmirions s>>4 uuli(v corn.

plans w(lt hsve io coroubr if SSPCC(atlc Csmiags eisis(sioL By aeccsshy, ue are rcgulsmrv s>>4 bssncu(g sp-Snd CSSL (4<<

wi((e PIO(CC(iOa SIC (O OC Or COmmOa equi(y. (Lc 4(ter Si (CSSOSL{C mcrth vctW (O boot value ratios.

vi) rch(ive uic of 0(t bslsnce steel f(asac{ng sA f(cttY~to kssc er sc(l (Lc mote liqui4 compsay ssic(s in crwrgcncbL vu) deca>>lit to reduce tbcooas(tunk>> snd Iniuoees>>ca program sr>>owly cIN4ngcrhlg sc(vlcc or tC't'I'e ctbcf pshbs coatribu(c to {werc cspiisl rcquircmcnis.

1) 4>>dtigs on rates sf mern ss4 rsic bssL sdjus(ed to time

¹ trs nun swl cquhy lose inc ca(vts(ks(u¹;

~ v~s two yes( fonvsrd snslyiir of prorvhrd'lsrgdy undcfcrvsh(c et(cruel espial rc'q(drcmcn( ~ 01 Ids(04 (0 cspI(s({tauon sire

6) a(ca( of trgukiory hg. <<bkb might constrain coa(psnics sad coniingcnily svsi4h(c cspiisl sources.

from cs~g ihc mots s((owoL. h) potidcs snd par(ice as to ssk of Iohg it(el so:NriYICL bw

¹) ccououng snd rsis mstbg gv'<<csdu(cs prcscrile4>>hkb c(odmg ihc dtgrtc Id coaicrvsiini cvtdrLicd ul 'pfcpsrulg for

'bosn(ty is((ucocc (bc qnslcy" of ca(sings ssd ress((sa( upco¹I>>g rcfundingt.

cash t(0<< prwtcusa, s) <<ors(Kssc cea(i(testy plsnL ioctuding CIuvddcrsuon of bov It) 'ibc sv<<lsbgi(7 or 4ct thereof of tn(crim sad/or ecftcscy msnsgvmcn( vien is prcrogsiircs s>>d pnoriYics under sudI ts(c vctbf, snd plcccvuh(LI>>s foc 0 pprolsL coNQiseL v) st(inks cviksrvd iowsnb co<<IPsny erg<<meats based on ia.

tcicst covcssge rcq<<'rein(sic sot tLc ac04 io Inch(sin crcdb "

Stsad¹g 4. Ev>>iumioe Of >>IO>>OCVI>>rnrr ebb b wbhsct 0 doubt tho evsst vi) tLe prescore or sivcwcs of s(vsroccrm uifdiypro(cctien agsbo( 45cu(t ares ie ~Lich io instc sa ohiehwc snshii, ihsi hss vs(ich'17 vohu(0 fur{ssd psrrhssrd fowcv I(oct u(iions. ss s rscnsutcmcst st future dc(n ssfhy, Yct Iccogrnr¹g ihc Iel pohsare ol iho vsrisQc, wv 40 mete judgmhus snd evaluations vu) ssy tsrucvkr eigi(y rtgu(s(orv 1 Ion(rno wnh mtwct 10 tbc based upoa

~ dcqusty ol commusbsuunL Cnipetsi>>CSCSS Snd crhh'(uhi7.

4. Rc>>>>r>>se Rrqurrrvutwrr, C'a(w'so'KOI(>>e 004 Assrr PIIurr(i¹. the tear(crm track Icr<<rdi how swccsdat Insnsgcmcn( Lst ltsvbIg ((sask(n( (hc psrs¹htrs Of VVC<<4(017 Chvus(e ¹ tv(ms Ot been In elec(lag Shs fcho(dcf ~1IvCL Svd <<bh acr sIKL suet (casts or t<<luhs csa bc s((ribwnl io msnsgcmto( or 10 whet prsbsblc future fstnIsgs sad cash duw pwca(ill. uc procccd 10 evstuste (lair sdrqsscy rctsuvc (0 the coasuucuua proc(urn, dtbl csnsikrsuoaL jsnusty 3, )976 )'egc fg9 Randard 6( Pi(or(n Cnrrit(raticn, The Fjxcd Incr(tne InventnrIJanuary 3, 19.6I ~a!e 989.

Pa 61

~ A I) crid<nce ol <nphisricstcd snd <<riL<c<aoned pbaaisg for Ac csssabn<d ss <o both Ae eaeensa<s agreed <o aad Ae <a<<<nina feriuc ssd thc Ocsibgity Ast <asssgc<ncat b<a<ds ia<o sujot ,stccig<d for 4ch of conpVisncc. Thc s<sadsrd p<oririeas o<e. cl poGcy 4<chio<m coo<ac, Isohat for. sad <L<fccnrisrions <nsdc, <<here <no<a n< has p<o.

SI) dc<noa<t<s6na of ensccvva<~ ia boA opcrsriow aad pisa.

ab<g. aad stg srins<en< aad ods<<bn<>> tsch6ag or <shb<g

~

psshinas fefades< ry p<ob<c<a srcsu l<) a<seats<scars uw<<<ds hssacing of pebbc sa4 pri<e<o priorirics, ssd hs swomaess ol <hc i<nto<<ance ot the debtor.

Since LS<np<t Ops<Sunna Snd t<CS<<a<nr. Libs<thtcunnt W Ae C den<etc s<c ec<66not <<<<h ps<<u<da<<cnaasaasa as to aad <ca<oath<casts aad <<b<<acr <hcy <nay Iced <o bat<<a<ed c<cds cist. A<<cs<p<s by co<<panisc to circe<<ncs<<c<tricriae covcaseo j~

to<tine is a<to<dad Ac boadhn<dcr. or <<herc aadely <c<<nairc p<on.

c<c<Qot <cts6<e<hip and <c<paau<arirics to<<ants <ncc<<ng cos <<h<ch a<c ao< w<cs<oasb<c ia Arit oaa <ith<<. nest of<<<<do as<st ttsctesl o%gsrioss aa ria<c. Qghst rich lsr bondh<ddc<<.

e) a des<nest<a<<d <ccard of c<cdibghy snd seoc<asf<i <etariont

~ fth Ae gasorist coouawhy, Ae peb4c, tbo <ac<he. as4 of cae<<c. Ihc t<gris<o<y at<acies. apoa stl of<<be<a Ae co<npsay TLc total seta of oer saslyrit, epee<cd for each a<airy rtgetsdy.

<past t<ly>

serves es Ac basis oa <<haA <<c co<art<a aa4 cesies<c <c<s<n ~ a<d At Stands<4 R P<oA. <<a My <cog<ntc thst th'esecccss or fsae<e abeohne c<ado ris)s for oner 250 eri<ay issec<<. One a<<cc< <<e sw ofoar ts6ng dcririons csn Liege on Ac co <<cc< cvslesrioa ef <nsasge. psnicnls<<y conscious of. i< n<sb<<sinh<g <hc mast prot<<r st<go<neo<:f a<<at. Yct oer crsls<6so <nns< sbo be s<IWi<n<6ag. since ac<y poor 0 c<cdi<< srisgs fo< a<ili<y hsec<< <<i%in cs <cfats<o<y jsri<dinio a<snags<ass< a<ectly is ac<dec<ah Also, <<e recognise <hst <nsay tLc rs6ag d<cisios-<nsbiag process is ddsc s dlasn<<C Oss. 'c<asI<y, a<snags<a<a<a herc sad a<e conria<dng <o lcs<<< f<o<n psst h<dest<y coa<b<ooedy <c<<sc<<iosing snd <cdc<s<<sbung Ihc aery hs<<: i<secs a ~

a<hts Les. psrricetsriy ie thefiosnrisl a<ca. so<red ia c<<<L<< i<h ssd hs crates<<os not coil for e<gr~ b<a fsr 7, its<any Dot<an<at<. TLcsc docs<nests, and, pa<6c<dsrly, Ae sa insects. UI6<ns<riy. oet cfe<<s s<c t<ritcd by a dc<i<a <o be ss fur Ol<t h<4<a<e<e (<<hcb sp<as oo<< hc contract b<<<<ssa hsacc snd ss possible to thc a<wr. <<Lgc p<aridisg Ac <no<< objet<no aad s:

. hosAotht), s<e tbe bed<ash of the pab<ic capital <neth<<< ~ sad s<s cess<a spp<risst of ric ss is possible to Ac lore<<or.

SEASONAL LULL CONTlNUED Qglg pm'.faUng and yea~ portfolio positioning wat fn cvidcnec fat t wccf:, not gt<tprfti<<g %cr the strong December raiiy.in>>hich yirfds dmlincd haff at much at duet'rrgghc whofcsecondhaif. The advonccin yiefds lass <<cef'at minor co'mpored uith fj<cderretttein the previous I wo wecfts or so. There werc no ncw offeringg.

37m January calendar wfff bc decidedly fighter than thc rcecnt monthfy avrroge and weffbefow halfoffat t January, a prfncipof crpfonation bring comparatively good t'or porafc ff<fuidiyy. A slower rotc of inffotion should encourage buyer intcrcgt,'hich woufdbeenhonced werc equiticy to contfnuc to reco<crondbceomefegs compttitivcon.

a yicfd batit. ZT<c FeA, morc accommodative poiicy gfncc mid foll if onothcr fn dcets<cnf, together with lhe reaff:ation that it acted to hefp preclude record rates in ljyFSin fhcfocc ofsome SSO bffffon offcdrrof debt financin. Thus, the market should bc refatfvefy steady &< thc near.term. an<f resumption of ccfccffvc purchases it <<t<r t<<ttotf Corporate Analyses and Briefs NElV ENGLAND TELEPHONE <ft TELEGRAPH r<gsts<o<y lsg prob<<<a sn4 <<<nsn<<snnng s uth<< aa oa both cs<<ot COMPANY apse<bag sn4 ops<sung esp<a<ca Cnnsutrnae <kr yv<rn<nlt,or hfaintafn "Avf Jf otfng hap<oar<<<ra< ta ln<k ia<rrnnf r<nk grw ra<inn on<t/or/s:alv rnrnrno to a<err rfo<<ty epprnerh <kr rr<vn<<otto~. av sNr pwrrr<fv c <<ccariy cen<ptcscd a M <sting <eri<<of <he Itc<<re<gland ~<a'aha <kr AA ra<<aeon a<ton<<<<<<<bag Drkrn<vrrr ofac<<

Tc<<phone R Tc<<graph Company. sp<sf<t'ag, <he fends. &t4nn<t Wrpkonr 4 Mrgn<pk Conrnsay.

<a<a<el 6<as<ion b< r~ nf Ac 0<tobe< 27, Ig15, Ltsssschnsc<<s ts<c 4<<i<ion and a<hat chances w Ac oa<<ooL." The co<atony hsd Iss< bc<a

<cric<<<d en gisy 24, Ipy$ (<cc page 429 ot <hc p,l.l.h <<bca. ia con. ~ LfDIANAPOLISWATER COMPAA'Y accrioa <<i<L <bc sale of Styl <ng<ion of dcbaate<cs. <<c changed ths 4<ao<s<h<s oa can<<<Lg snd ac<<debts<a<a hsecs <o AA-, (<on<

AA"p<crioe<ly.

pic<a ebs<go canc<ages are in <bc p<ncc<s af bo<<onang on<, sktcd a <nhl 5~<y, L<nntssc <<nnda I~>>

Scffing Pirgf hfortgage Bontfc r<nc Ws<c< m v<fc< Sig.t<O,<rn res<

lpga <Lrnnth sn wa<c<<<nunc <Indscs<c <<4 by Ac h<fnrinn of 5<25 <nh<ioa of ra<a<ann en<<i<y 4<< <<<nil, <a< c <rii<f Sy C'wMaL<a. Sachs

• Cn. Thc hwc ad<, <c et<<<<et nt zrim< tnac<

~ o<< Icing cn<< tc<nt. snd a <<dec<ion n< con<<<<<nkn< csee<au<a<a <c is<etc<<xi<<<< cfnndtng fnr five >cats I'<ncccda t<n<n <sc +dc act be qdde<n<n<<. I'enb<<san<a. <and<<a<a ln<p<nac<ncn< in dc<a pro<et<inn ~ s<4 <o <<<uc a<<as<a<ay SIL,75le< p<ianra a<anna< at <le cern.

pe<sou<etc i< n s<<nadke arsr4c<as capes<a<i<<a snd <<c nn<c <hs< psay's I'n( hto<<tace <<<<ad<. 2s<>dae Ip)n, ahh <bc I dance<<i<he Ae co<npsay << dditnnty pe<so<<g rs<c <<h<f <0 a<eel<ate<a a scnoes a<< p<<<n<cds <o be sdL<<<I <o Ac c<<a<peal's gene<at fvn<h: la Page %0 FIXED II4COMG t'IVCSVOR Rat<dard fc Poor's Corporation> Tha Fbc<td It<cott<o It<<ra tor Jan<<ary 3< l97;<<.a;e 99 .

l Page fNOVSTIIIALCOND YIELDS s

i ~ ~ ~ 'og wv I I LAC 'scots c44tssssctss'S IO IO st ILO sst FltCAal'

+ ~~ saraarco ScaaC Ia s ~ s4 ~ 'sss sos%

although outsUc purchases are niadc. from time to time, to mcct tem- YationaJ is a partna (40~>> interest) in a venture to dcvclup a com-porary shorta a. mercial process for the refining of alumina from hrgc reserves of Other than its steel operations, which account for approximately alunite held by the partnership in Utah. lt also lias an approxiniatc 9SPo ol'ntional's total revenue thc company partnSpatcs in a joint 6S% interest in a magnesium phnt in Snyder, Texas, <<hich produces venture <<ifh Southvdrc Company (a~~xlmately 205 owned by i ta- magnesium from undergruund brine deposits. The phnt bccume fully to operate an aluminuin rcduaion phnt on the Ohio Rivet in 'ional) operational in f976.

Hancock County, I'cntucky, <<hich has a rated annual aipacity of ~ Over thc years, National Sted has been amon thc most sucemful l80,000 nct tons of primary aluminum. It reeeivcs $ 0% of thc primary of the domcsuc steel producers; since its incorporatinn in l929. it is aluminum produced, which it processes in a plant it o<<m adjacent to the onl) one ainong thc major companies to show proFits in every thc smdter. The company also operates six alum'mum fabricating year. its products and markets are essentially oriented to consumer plants, <<hi manufacture foil for electronic components and goods Industries. which normally <<re less cyclical than acti Iy in the packagin 'iding, dov nspouts, gutters and other buililing products: apital goods industries. In I97S, however. demand Ior fight Il -rolled guard For bridges and highways: and cxtrusions fora <<idc variety steel products was particularly curtailed, because the eco mic of (Conthrurd en Page5v Jl CHAI'<<GES tN THE U, rLlTY BGMD Rt TING PROCESS On Junc 10. 1976, Thomas G. Fendriel.. Associate iffanager of Public Utility Rat-ings, presented a speech to a group ofutilityfinancial et'ecuti vcs at a senfinar held by a nfajor ufvcstntcnt banling f'trna lt is in substance reproduced here to give our sub-scribers further ufsight irto thc bond rating process and our present vicxs on various utilityissues.

4 ~

t S k, P our priinary objcctivc is to provide investors with the inure comforting scenarin of industry prospects. Wc can envision most accurate and timely appraixafs ol'redit risks as is companies raising capital <<ith Iefativcly less strain. and at the same possible. To hdp Ineet that objective, it is impcraiiie that we bc as fair umestrcngthcning their cash flows, their finanaal flexibility,and thar.

as possible to thc debt issuer by maintaining an ~ing dialogue equity cushions.

through which <<c can cxckangc hifortnation and viewpoints. In this For example, our own projections for the cleric utility industry, spirit, I <<'ould like to update yvu <<ith our present thinking regarding indicate that pretax cnvciagc ol'otal fixed charges, a kcy indicator in utility industry trends, where thc cniphasls is moving in bond satin" bond analysi>>s rose to about 2.7$ times in l97$ , from AS thc year be.

decisions, and s'ome ways in which you might hdp us do a better job in I'ure, should approximate 3.0 times in l976 and could fluctuate in the rating your companies'onds. "3.0-3.IS range until f980 or l98l. Capital outlays could bc financed Today. <<c can all look back on tbc Gnanaally strained months of about 40% from internal each sources, versus 2$ o.30.o in recent 1974-7$ <<ith a good deal of xausfnetion. The utility industries years. Gaierating Iescrvc margins would coast down tu a more weathers their mua traumatic pericrI in the ~twar era, and all normal 20% or fess, from the 34'~ high ofhst year. Safes growth plus thing> considered, they hnic emerged stronger than when they hud moderate general rate increases <<ould allow the industry to vriunlly entered it. Regulators, Ity nnd la~ <<ithituod tremendous pressures, vvrn l2% I3% returns un equity on slightly morc healthy equity but ultimately, inost ol'hem did not shiit from their responsibilities. bases.

Financial management swallowed haril, hut soltl cunimun stuck at Similarly, the telcphnne companies could he projected to impro~e heartbreakingly low prices Io support equity ratios. Utilityoperating internal ca"h generation to tf0% or morc froin 6$ % or sii today, to managanent <<as fsireeil to draw up alf fiirnis of cisiiungency planning, reduce deht ratios and earn inereasal Ieturni nn equity as regulatory which fur Innately. did nut have tii be impicmentsxl.

lag is alleviated. The gas inJuxtry could well benefit from a partial and Looking ahead tu the cnd of the decaaJc, it is quite ~hie to view a inferniediatc term Staliiliriitiunuf the gas supply situation.

July 24, l976 Page S'il Standard 5 Poor ts Corporation, The Fixed Xncome Investor, July 24, 1976, page $ 21.

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Page 63 i

Although changes are (aisfy good thuL the next several years will and expect to gct interact aml principal paid on lime; Credil quality i>>

unfold along Iheic lines. it is also not iroprvbabfc tv psviect a number graduated do<<n<<ar J Io the sf<<cmlative lioods ratal "IIU"and Ivwef, of adicssc devefvpoients that could qui Lly and seriously upcct tliis and works up to nicdivm grad- inicstment ereditc, rated A Iogh-outlook. quality csrfitc. sated "AA,"and Ihc best credits available outcidc of V 'S. gvvcrnmcnt securities. sated "AAA."

First and (orcmost is Ihc quc<<ivn of inflation, which has a morc in sicfious iiopact on the capital-intcncive utilities than on most any other Our rating pvlicics rontinoe as they hare heen in that wc still sate industry.')Iit.h inAativn ratcc entast e caPital sequisnncnts of utilitics bonds hy comniit Ice. Wc dv not finalize ratings unlit Iho company is at thc same Lime that they substantially incscase Ihe cost of capital. notiCicd of thc decision and the seasons for it, and wc dv vur hat to Iligh inAatinn also accentuates thc need for sate relief fur <<hat is a provide companies <<ith every reasonable oppvitunity to defend thar strictly'rice nd profit.regulated induitry. hnally. high inAation case and provide ux <<ith additiunal relevant information. Our op.ra.

IeacLc tv saluced access to thc ca pital markctc and raises quc<<ivns rc. tions arc completely segreuatccf from Stzf's stock research depart-gardin tiic viability of thc industry's psivatew<<nership structure. ment and we arc subject to Ihc S LiC's insider rules.

%hi!e I dun'I think any of us really l.no>> v:herc inAatinn is heading longer term. it uva, concern mc that after the steepest session in thc Now what has changed at Standard Ik Poor's? Weil aside frvm thc Postwar cra inAationis only expected tv bottom out in the 6%area. , departure of vnc o>>pectcd cralit rater, not all that much. We have expanded further to.a corporate rating <<alf ol'3 analysts. of The second calegory of posciblc adverse dcvelopmcnts recognizes which (our work full.time on utilitics and fifteen gcncrulicts <<ho that thc efcctrii gac, and telephone utgities face major risLs peculiar devote past of their time Io utilitiia. I am ah!e Io tell yuu that we asc to their own industries, any of which could cacil> upcct the delicately doing morc professional and niosc thorough rating analyses than ccer baiani& outlook Cor the >cars ahead. Electric utilities,~ for example, before, not only because <<c have the stalf, but alco because our plus might be forcal to endure another Cinancing crunch should another oil and minus system requires that we linc.Lunc our ratings more shar ply embargo or multiple increase in,f'uel oil Pri~ occur. This could

~

than in thc past.

initiate a new cycle of'o<<cr kilo<<att-hvur sales, heavier <<or'Ling

~

capital requirements and limitaL access to thc market. The telephone In terms of how our rating process perceives utilitics, I have given industs> fakes cicry distinct thrcaLc Crom compctitiun and from a rapid you a broad overview towards general industry ricL. Now whaL about sate of tcchnvlogiad chang:. These could play havoc with existing individual utilitics? Well <<c arc phcing a lot mote emphasis on communications markets. <<ith the remaining useful lives oCtclccom- analyzing five-year constructivn bud;ets, their details and,their un-munications equipment. <<ith priang patterns for telephone services, derlying assusuptivns. hlorc than any other financial schcdulc, the and with anticipated attrition in earnings Icvcfs. As for the gas in ~ capital budget cxp'hins <<hat a company ~ants to dv or has Iv do, and dustsy, long-term supply is the psecniincnt risk; ifsupply worsens ma- all other financial and rate.case planning has to bc built around it. But terially, it <<ovid not bc rcgected as much in thc earnings trends as iu a wc have learned thc hard way that capital budgets can either be quite growing inability to obtain Iong-term financing. Avid or quite rigid, and understanding Ihe parameters of Ihc budget and how management views it, is basic to evaluating thc financial phn and total credit risk.

Our third area ofconcern is that five ifutilitydevelopments do work out favorably in thc next fe>>'ears, to what extent >>cwld it lead to com- We arc spending a eood deal more effort and energy in evaluating placency by both managements and reguhtors? For it is evident to us regulatory climate. When we visit <<ith commissions and tticir staffs that thc positive factors in the utilitics'pcsating environment during wc try to ascertain not only where their current philusophics and di ~

the next fire years are not likely.to bc rep<<ated during the 1980's. rections lead them, but abo to assess the structure of reguhtion-Vnless this is generally recognized and p!armed fvr. utility regulators whether it is oriented tv an understanding of utility psohlems and might view thar ra ponsibilitics morc casually. >>hile u!iHiy manage. whether it is in harmony or in contlict with the underlying political.

ments might lapse back into less cunservatiic financing goals and economic and social forces in the state. Wc arc interested in hvw com-policics, rather than prepare for thc much mose challenging environ- missions view the job that utilitics arc doing. and what thur attitudes ment that lies ahaiiL Basically, these cvnccins confirm our cautious are to>>ards sisL and retura. O(major importance to utility bond rat ~

and conservative rating approach that must judge how compania iogs in the future are thc (vllvwing three issues over which com-would fare under thc worst conditions, not under thc best. Personally, missions have responsibility: (I) The issue of CWIP, allo~ing a cash 1 have hopes that <<e<<ill bc able to raice mori vfynur companies'at-return on cvnstructivn work in progress. v iII become extremely im-ings in the next year than <<e <<ill have to do<<ngradc. For us tliat portant tv the electric utditics'inancial Iiea! Lh as they move into the would be a pleasant contrast to the 1970-7c ecpcsience>>hcn we could tsemcndous building programs of thc 1980s. (2) Thc adequacy of dc-only maLe 27 upgradings. and v crc rcquircd to put through 94 utility prcciativn rates. while impvstant (vr trlcphvnc and clcctric utilitics is downgradinis; g0 of those rating cuts were fvr electric uti!ities. So far a csuch I issue for the gas industry, (3) llcguhtvry la, which wcdcline in 1976, utifitics haie turnal the corner and arc on the right track a>> as thc inability oi' company to curn Lhc return allowal bevuusr of wc have made three upgrai'ings and only t<<v dvv ngradin c. Pnhaps constraints in the rate-making process, is important to all utilities, but morc significant is the trend in dcnntatiuo changes under vur plus and is a central concern I'or thc tdcphvne industry.

sninus system. <<'hich <<'c do not tally as rating category changes. These number eight on thc plus side and only three an thc minus side.

In measuring financial protection for tlic homlhoidcr wc continue to emphasize earnings protection rather than aciet protection. since Turning to Ihc bond rating props and how we at Standard Sc healthy utifiiics should he nicctiog debt sesviie obligationc with adc.

Poor's iiew it with ra ard to utilities. I woold first like to cmphacise quate earningc, or <<ith Iiing.tnm Cinaniinl. hasal on adequate earn.

what has nvt changal. Basically. our rating syitem simains wlmt it al- ings. Cash Avw protection ic hang emphasiral tv an incrcaiiog extent, ways has been, <<ith the letter ratings structured for long.tesoi mean- <<'erc cash'earnings differs nieaningfuily (svm iepvrtal earning>>. In ingfulness and fvr consistency, so that an "A" ratmg inilicatcs the termc of fixicf charge covcraf:e, <<c nre paying muse attention tv sanie level of ncdit sisL <<hcther appliai Iv the debt of a utility. banL prctax coverage excluifint allo<<anecc (<ir fumii ural during construc-holding comp.ioy, municipality or (oreign govesonicnt. Ihc ratings tion in eaces <<herc allowanccc m-Lc up miirc than 10~ of psctax thenisdvrs are relative nivasuses vf csnlit sicL <<ithin a (same<<orL vf covesage. Oor analysic here ic ioifucniM hy nn evaluation of Ihe relia.

abcolutv sic'k. Uvnd~ salvil "UUIV'se thc lowest invectment grade bility and iiiihilityof sil~ul,itvsy climate wiiich maLes an important rated securities which unsuspecting invcstvss should bc able Iv buy difference in evaluating the true sisL in CWII':

Page j22 FlXED li4COME IfcIVL(TOR

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Page 64'n the area of finandal Acsihility and capitalization gnabwc are contact us not only bcfvcc financinfs. but whenever yuu fcd <I <<ould plcasal tv see a rn<iJ ninny companies operate and plan m<scc con- be dccirablc. I ean assure you that <<hen <<c fed it is ncccscaiy to

-rvativdy than in thc past. tVc view such eifocts as helping t<ssoppvrt ,contact yvu about a rating pcuhlcm, we will nut hesitate tv Jo sv. Only ad ratings. There arc a number of companies. hvwcvcr. that ace bc- by that time, it may bc tuo late for yuu tu taLc remedial action.

)bc lima in this iq',aid, and du nut secni <<illing tv fu~wep tv thc

~

challcrgcs of the l<)ki)s. I am ai<n r:n>>iwhat surpiisal that thc rln $ <4 P paniphlrc chuc dicruacrs ln a fuirii )borough /i><hi>>>> <<ur

~

" BA"-catal electrics, uf v hich there acc now about 25, (versus only analrciral approach cu racing uliliiudrhc is availu)>lc Iu su.'v<'rib<vs.

t 0 halfdoran fiie years ago) aic nvt making better p~iccss in Thr pa>><phlcc is a r< print nf on accirlr )hue upp ra cd in rhc Pis<4 ln-covirg their credit pvsiiiiin. For any dcctric utility with hcavy conic'nvrscur <>fJanuar) 3, l976. $>>hsrrih< rs inirsrci<vl in i>l iuining

~

capital requirements, it scetus tn mc there arc vccy cvmpc%ng cost l a complin>rncur)'c>pr may <<rii<'o hfs. lur< ni r Flynn. Sca>>J<sr J <f.

Puur's Curpuruiion. 34$ lludsun Sire'I'(, <Vv<<)'or)', iver<<' uri',

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- ings and qualitatise advantage to bc gainedby <<'vcking t<s is<prove NOI<f.

I ~ credit position above the UIIU lesly.

Finally. I think you should bc a<<ace of how conscious <<e are of the

, importance of cegulatory and management prerogatives in rsting de-

~ ns. A management team that understands thc imp<sctancc of iaintain!ng a sound credit and is con)mitted to dv so duccng periods of economic stress can go a lung way towards assuring th" bond-lder that long. term credit quality acttuOy will be mainLHncd. Qf (h'acinnalScrrf... Canc'd. from Pg. DZlJ rsc management cannot dv it all alone: it needs rs~tocy appre.

ation that the goal is worthwhile, bcckcd vp through tale actions as recession was magnifial by the coincident liquidatinn of presmusiy ac-rcquiraL But whai we da sce thc t<<u working ia tandem to protect cumulated customer inventories. The conscqucnt maiecial raluction bondholder, through con<:rete regulatory actions and a ccalistic in thc company's vpcratinns, couplal with 0 price/cast squeeze

~ nancial plan, v c arc convinced that morc protection is bciiig pro-the bondholder than any ev luation of the numbers casa ccvasL Before dosing. I <<ould liLc to Icavc you with some thoughts as to amplified by thc then rdaiivcly lvw prices fvr'light Aat rolled products, caused an unusually sharp drop in Nationa!'s earnings, compared to thc pcaL lords in l974. Starting carly in l976, vvluine has rccovcred strongly. principally in response to ricing demands frvin ow you can facB!tate our <<ork,~ and vthecwisc ensure that thc SE'P thc automobile and container industrics. Gut thc cvrtinuing squeeze ating assignal to your bonds is thc most aocucate appian csf credit

~

on operating margins kept earnings at cvmparativdy low levels in thc c'e

~

risk wc can make. 5rst thccc nionths of this year. There <<crc price increases in tin mill ,) <

products in the first quarter, and on sheet a>ill products in Juns", in

~Irst, although thc quality of the information and thc projections <<w both areas, demand continues to be strong.

Icc rccciving from most uiilitics has impr<>vcd significantly et recent years, l must say that a nuniber of companies are sti! I ddidcot in this respect. Ifany of you have any questions regarding <<hat we cc<snld liLc Year<a<4<<t Dcccmsc< 5I ----I9)I sce, or ho>> we calculate our rauos, please fcd free to contact mc. c)9N cl975 19is 19)4 I9T) l995 nc thing <<w <<ouIJ like to see more of froin dcetric utBitscs is the Iic< Scic< I ht L 51 444.1 40IJ 5 ~cl J Lc~c 4 c la) J IS<402 I <? I Nct t><c. IML5) IL4 Z).9 5LO l)SS  %.) 7l J 4!.9 1 construction budget eitcnding tv I985, recognizing of coucsc its very Is<c>csc 'times Fc<cc<h tentative nature, but also its niajor importance. S<C<cc lcc. Yc<cs ~~C s.cn 295 L45 5.ls 4.00 I

acr<>>c I><c. Yec< 244 7JO Lla l5 45 SAO 4J) 4.IO d, <<hcn you do come in to meet vdtb us. please give us as much t)>>cc moc<ss ao hlc<cs Sl. '4.

tice as possib!c. Our time is ve y mu% governed by rating deadlines. thc publish or pccich syndrome aud travel commitments.

>~ad it hdps immcnsciy to bc able to p!an our time in ass orderly Longer ranp:. sales prospects are favored by the company's very

'Nashioa. strong position in its ectablished major markets. und by its increasing " '

strength in other areas. Current and I'uturc plant expansions promise 4;I Thicd, should vou fcd it ould be orthwhBc for us to vi, it with you I that increases in iis volume of output <<ill at least match thc gains cs-a )uur horne ground and tour some of your operations. do not I peetal in total dvn>cstic steel production. !mpcvvcments tv already csitate to Ict us know. iVe have allocated an increased amount nf

'mc to travel, and l am sure you <<ill Iind ui quite cager tu IeaccL, modern stedmaking facilitics, and thc a<Ivantsgcs of an unusually ,'1 .'

strung position in raw materia!s. should inakc appreciable cvntcibu-o ucth, when we meet keep us currently informed not only as to thc tions to thc company's ability to control costa, and cnhancc its profit test dcvdvpmcna, but also "s to your corporate goals assd objcc margins in the ya>cs ahead.

'ves, and ho>>. yvuc p!ans will allo>> yuu tu meet them. If year com-ASSET I'RQT ECTION<'. These first mortgace bonds arc scoured pany has particular advant>>gadv nvt fail tv heing them toner atten-ct'sd We wvuM liLe to think we know everything there is to kc<vw.~ hut face it,~ nobody Lnows your business better than ynu <La. As tv r4tably and alually with thc $ 256.OW,000 first mortgage bonds outstandinc on Murch 3I, l976 by a iirst lien on virtually all vf the corporstiun's stvd plants. certain occ'prvpcrtis~ and rdutcd mining vur problems, it i>> generally bet ter us explain ihcni to us, r~t9<er than facility. thc capitd sto'Ls of majur suhiidiacics. and its stock for us to tinduut vuccdvcs. Ifynu neglect tu tdl us about theat. we are ownership in and cuntracis with Iron Qcc Cvmpany v( Can da. At unccrned that you do noi knvu'ow serious they aic or tbas y<w do htarch 3I, l976, Ihc corporation's othec lung.teria indchialncss tu-ot have a sati>>fsctucy plan tv solve ti<cni. talal 5332,46t),97$ . including 5!I!c,932.653 capiializal lease ubligaiinns I"<nally. I bdicve thac is room for and, actually, a nccd for further and $ 9,4g<),0>>0 cunvcrtihlc suhucdinatcd dcl>en)ares. AtljusicJ to in. I c

elude thc ncw bonds. total long.term debt on hlacch 3l. I')76 <<ovid

~

communications <<iih many of yuu. 'I'his despite the fact that wc c I vcrsgc over 300 niani<tien<cnt mretings with u'.ditics in tl<c cuersc uf a have been 3g.l < ul'apital>cation. Average cash )low in the years 11 year, and many nioce phune c<<nsccsat<uns. Yct I ain sure i)est many l973 )975 would have tace equal io appcvsimuicly 32~<< of ud)uctal

"-"utility c>>nipsny nisnatcnlents Jv nvt ical)y Lnow huw S~ac<l A total 4<ng-term ilchi. I'co fuima. at hlacch .il. IM76. total lo<<g term ~ '

I'vuc's views thdc csiit<ng ccalit catiuiic at thc present Iiinc. And it is dcht <<uuld hase huvn 44,5~< of net plant I40.3 c including invest. >>~

i>1<;nisi: wvcLm; aipilal <<ould have I>ca) 37.5 ~ vf lvtal loll)! Icclll

~

nut because <<c are reluctant tu tell you, hut rather he:ause M

a<any>>l'yuu d<s mit ask. Sn I <<uuld like to cstciwl an open invitation you tv debt, and nct auoi hi><aI ass<;is 261.6%,

ar, I July 24, l976 rd. 5 poorcs Corporation, The Fixed income Investor, July 24, Page S~R 1976 page 523 ~ ~

~

I I

I

ge 65

~ a,re I -'f=.;it "f.. ~ r '."'

e J"

~ ~ ~ r ee March 3, 3975 Mootfg's Bend SI)rt/c'I ~ I part of 1974, c/Ivcrage of flxcd charges and p)efcrzcd dtvl.

Public Utilities dcnds has dccthicIL Io unsatiafac!Oty Leave)4 k)canwidlc, tho ccunpany'0 construction prograut. coen after subatanthd cut.

Comment'cgtric backs, Ls call:n" for spend)/ig uf Sl.l bLLLLOIhovcr tL>> 1975.

Ubtity Gantt Ratings 1977 period. 'llils ls a hcavy ptucram relative m internal Mood~ seduced thc bond ratings of 28 electric utility cash generation and outa!dc AIIaiicli)gs ate expected to con.

companies Ju 1974 and scvcn thus far ln 1975. Only two dnuo to ptvssure thc overall fbmucial posturo of thu com-comps)dcs had bond radngs raised during this time. 1 pany. ln view of thc above. Lifuody'0 has reduced the ratings vesuus staenald Dot conclude that this unusually large num oz) thc con)piny'0 Atst mottgagc bonds to Lgoa.

bcr of doecngzadings Lndkatcs that we tack confidence Ln tbo kaaeoczm financial viability of the electric udLLIZ in. owa Gectric Light 4 power Company duttty f+ tbe contzazye snd rccogzdzing.that there may be fui)hcs teeing redact)ons, it could WCLL be that tho worst ftk)q relkf Placed Ln effect ln 1074 has Pmved ho~fflcient zaay sooca be over for most af d)e cotnpanies in thh in- to halt d)lu!Lon in Ln)crest coverage ratios. ktcangdh, addi dustry. Reenters of Bown Staving should bc aware that each donal accumulation of debt without Lntec<oyc of equity downwasd gating adjustment reflected a speeifk and idcnd. capital has zesuhed in a rctadvely high dcbtWth, In v)ew Sable problem related to the company Ln qucsdon. af dds, Letoody'0 is loivertng the ratings on tbe company's While each company Ls different Ln Lts stronger and fi)st mortgage bo)uts to 8aa from A and ori Lts polludon vecaker efcauents, there has been a common problem among control revenue bonds to 8a from Saa.

those rrbohe debt has been dorcngradcIL ln a broad scnsc, Inany og cbe things tbit co)dd have gone wrong for tho Ncw lsst)cf ~ ~ ~ ~

industry did lust that Ln 1974. Skyrockedng oil prices, zun away LDAacfoo, disasterous bond and stock markets, near- Central ttGnois t.ight Company zczu sales gstywth due Largely to eonservadon, unpredictable First Mtge. 9I/ds. 3/I/2005 faults ln auocfcar power units and stow regulatory tcsponses aauag Anuwmt I)II!1)

Call pnce Of)enag pnn

~Y)a)ds cures t ata)uc)tr ln a atlt5)cal year hsd a thumping adverse effect. Com-panies that trent into 1974 Ln a strained financial poddon Aa $ 25AI LBLL0.00 100.75 9.18>> 938%

v/cze feather weakened. And, their problems hare been QLIoneefundab) ~ proc Io se)/zz. rtth debt at an Interact coat or

)cca Ihan t Io annuany) oiherrue ea!icicle as a <<hole or In oact compticaaad vcbete Lntczz)al cash gcnetadon bas been ndn- al any lime on so dare'oiece ai I!e.w In/ouch ters/Ic: ai Iie).ca Lmat ln zetation to espltal needs. Tlds has really been tho ultelech I/zs/tz, Ieec/Ileum eeceecclhc Icelhee SI;)00 o/ s) )00) ael hWI)y Ihereaf lee llaa)i On I/I/a)I IO loa On I/I/ eel. apeaa) eee bask ptobteua af the industry. ttctadvely low cash flow, a demauOn aI Ioa)S IOC the Iuai aine yea/a. )Ore/ Ihe/WIICC.

funcdon. ultimately, of inadeep)ate tate structurese neces. ~du Offered on February 25 at 100.75 to yield 9.18ee.

altates Ioo zauch reliance on capital markczs, partiadarty Winning bid. 00.677; cover per bond, SIONBI cost Io corn.

for debt capitaL lf this condidon cx)sts )Chen intcrcst pany SM~r. Other details ln Bo)ID Suavgy, February 17, corerage ls aheady under pressure, vee feel obHgated to 1975, page 1619.

take a menu etaI!Czvadvc stance with regard to radng, oo/e)eo/ These high.grade bands aze satisfactorily priced pending aasisfamory zesotuzkct of Lnczznediaato term pmb- against the secondary market.

Lams.

On tbc oclacs hand, eren where )bete is a cunent Low level Ci'tizens Utilities Company at interest ooveragc, wc aze hlclined Io a n)o)e positive apptco/.'h Sf the company'0 Anancing requirements are of First Mtge. & Coif. Tr. 8,30s, 3/I/85 a zcceoaalele size. all else being cquaL 'This La particularly jLmeemt Ca)I Otfere ng Yle)de na Nag Il)II@) pncu pr)ee current a)atuntr true Lf tbo caxmpany rcccndy rcccind reasonable rate relief. Aa Slyly LOL00 100 L20% L20%

We ICLB also taLe a pending rate lnCZeaae applieariOD intO II)nedeemahle Only Celahiag Sn/SZ and at )00 le .Oeacu/I)re consldcxusicm, aasmzdng that Ibe dcc!Sion will bu Suade soec/a) redeeaue)on aI )ce.

zcasonaQy soon and that tbe regulatces have a zecotvt Lad!ra)inc they will bc alert and responsive Io die cocn- oe/eur Offc)ed on February 27 at 100 to yield 840%.

pasly 0 neheds, PrkC IO CO/I)pony, 99.25; COSI IO COmpany 8 41,4. Other de-So, as wo hare for many years stated, Moodz's concern tails in Bo)IO Suavav, February 10, 1975, pago 1051.

Ls not abusers !LIC absolute Let& of deb) pmtccdon mcasu)e. oo/aru These bonds offer no special concession; sce ments at a giren time. but rather Ihc ptobablc trout of opinion utukr 8tes. bolo)r.

tboee zncuuurernents. Wldle thcrc arc, ecrtainlZ, other factccs tbst iufl>>ence debt cpiallty. capital IIv)ulrcmcnts Citizens Utilitics Company and Ivgulaaion have been predominant ln )event ye 0th and First Mtgc. 4 Coll. Tr. it I/as, 3/I/2005 wilt zczuain sea C'Iu)at)uetion budgets have bavm IrtuimCd I)sung

/e eeeeeent Is)DLI Cen price OI!eecng prier cueeeal Y)eid~auelutl)y considerably by DISIIZ comps/drs. Ond there are CIIcournging Signa frame SO)lie IC'gula)eery CCNIIIldaaionc Tile horrc'lu)eeua An $ 20.0 01108.02 90.75 SAlcrv a90%

ptobkma of LS74 atu nut Likely Iu disap)war, but their ie!)/ence/eeeedah!e Iee)oe Ie S/I/aa, r)lh drlel al an lee)creel eeet ot

)eeee lleaee a:ale: ameeaellf) olhecrlv eellaiele aa 4 <<heue ee In Iec/I.

mam)itueae shouLL n)tulrram. Tl/c clcvirk u)ili)Z ln/h/a)ey ai cele lienee eeee aee chere neeeeee, al )lee ca ue/euc)l 0/ze/)I: al Iecxa stLLL has n veaz ue sa befeere it rvcuLI)s part of )Chat it hns we/mech s,a'Izi ueeeee>ence <<Ieee~inr. Ieeileee I/ler eee ze/leul an neeaile IIreee/Ice ~ Ie/,II <<ee S.l'erl lie llr eeee aeI/ ee), S/eeeeeei te LoN Lu Gnaneiat puaII/Ir. Lait Cue Iioiv Ibne aec sonee in- deeeuelien Iaeu leer lhe'ieceeeeeeel eeeehleeu uemII ai w,

. I)ou ea the hocicee.

i di Iiuas cenrrc)II@ that ai)gtust at least dcg)VC uf smbili. oe/4//0 Offcllvl n/l Veletuury 27 a) 9/L75 to yhbl 8 <Io~w Pr)cu lo e//nips)IZ, !IIIAe4) <<veot.)n ruuuen>>y Se))le>>. C))leer de)alla Lu l)ehv/e S)enrhr, Fcl/eunry lo, I!) >5, pare )Ln) ~

Raf))sgs Pctfvccd Orhuov hii ln liar. ykcbl widi nn a)nvial a)e)erat, L'navvets Caroli!sa Power 4 Upht Company fnun el)clenol))eui eef IVrm)II pruPC/Iy can leu Iaaf Iu Ice)cv m Kupue Sdl~ OI! L)knt rf rate Ivlief that waa in I ffrrt for IL)ctu! bo/uls ut 100.

Mccoy'a Iztvo)ttoz 8 Scrvicc Inc., Morwtv)9 Bontt SI)zvcv . hfazch 3, l975e pago.1557.

e

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Page 6 f4 ~

f ~ ~ ~

.I hpzjl 7, 1575 Bond S(frt><<TJ o 1411 'foo(b/s ab)o (em>s. 71>csc reductions CJ)m)na(cd five gencmt)nf>

Public Utilities t>nits U>at would have pfnv)ckd IS&!>00 kw. of capacl(y Q >foe O<lsrlngs and stfccchcd nwt thc )w~ rvlcc dates by about t<ro years for unl(S crhiCh ><4)) haVC )G '0000 k>V. Of Capo<i(y.

ln addhlon to sa)cs uf how<)s a>wl pfcfccrcd stock durh>g PoNan(j General Hectric Compo.)y 1974, U>c company ra)sad $52 million f>uw> U>e sa)d aud First t<) tge. 10s, 4/I/82 )eascbaek of nuc)car fuel aud eleven turl>ine gcncratlng i(anne A>count (a>>L)

Can pf>co O//cffng p>>co

~Y)OM~

cuffed( s(a<us>>y units. Pfinr to the p>of>nscd offering, 1575 fina>><<)ng in-cluded $22.4 m)U)on of bn>>ds a( a priva)c sale and pub))c Baa $ 40.0 I5110.00 100 10.00% 10.00~i sales of cow>>>>on stock for $ 56 million and prcfcrcncc stock gYcmfcfuhdabtc Of(of >o c/>/10. wcch dchc at an >n>cfcst coat of I<as W>sh >C.og(1 aheua>>y> ousCCW>S ~ Ca>>ah><'s a whe>c of >h Oaf<

for $48 miaion. Lucr In 1575, an add)(iuwa) sale of seeu-

~ 1 any cwfm an 0 va>u'o<>cc, a> )>0.>o <h>ouch 1 c>/>c'c tosoo z)Ues ls plan>>cd to raise another SSD million.

Ch>ouch 0/)>/n> pfchuu>e Vcr/gas>ae )00/>u<O unouauy, >hcfoa(<cf To issue addhlonal prefer)ed stock, gross )>>come after lo )00 on I/>/10 )Co s>e>>>ac feud.

dcpzec)at)on and taxes shall bo equal to I~e times tho sum Oeteas> Oftczcd on Ap(5) 3 at 100 to yle)d 10.0~i. Price Lo of annual ln(cr<<)t chars>> and pro fonna prcf<<fred d)vldcnd company 58.70; cos( to company 10.27%. O(hcr dcta01 in requirements. Such ratio at Fcbzuary 26. 1575, was 1/48 Bo>cn Suhvgr, 8)arch 24, 1975, page 1468. and at 5)arch 20, 1975, lt was 1.51. As of February 28. 1975.

op(a(de< Tbo offer)ng y)c)d appears suitabJc Jn the present about $ 54D AU))on of bonds could bc i)sncd on the basis of matkct cons)dcz)ng quality and maturhy of Lhe bonds. pmpctty hdd)()ons, but only'291 million on tho basis of eandngs, vchich tcflect S22 million of defamed fuel cos(i Gvif S)ates Utifi)ies Company and about $ 554 mQ))on of revenues collected subjcc( to First M )J;e. 10s, 4/I/2005 refund. 'osa)MO Amoun> Can Io >ofo (

1 pc 0 > cc >Ion> Antn>al ln( CZCSt Tequi(<<manta On 6 I ~

Of>a>>he Vfc)d no>>ac (atn>.) pf>co p>>co current htacufwy 159,23),000 ot long(czm debt to be ou(s>ending on corn.

Aa $ 40A) (5110.0 100 10.00% )0.00% pleUon of <<urzent financing azc csdmated at SSS,<.9,000, ah(h thc nc>v bonds at an assumed rate of 10% and long.

term nf tcs a( 5>/1%. Earl>>~ balan<<ca consist of operating lI

!DBonfcfundab> ~ of>of >o c/>/10, w(>h debt at ah In<crea> cost of

)css <hsh Ono. ~ ahhuau>'; owlct><'uc ca>>so> ~ as a who>c of u> flat<

~ 1 any 1>mc or. )0 days'< wcc a> >i0.00 >htoufh 1/1>/>(: ~ 1 Ic)A(

eh>ough 0/1)/>f. Ofceuum dec>c>>s>nc ccwhcf 0</>oo or )>/>o>> aa )>>come to which have been added all Fed<<ra) (and Sta(e) huawy >hs<cawtf (:Oaas on c'1 "0>> 0 (00 on c/>. 00>. Spec>at fc domo>>on (aud fog chc op>>dna( au< u>/>c lund> ac >00.

taxes (charged and deferred) Tc)aU>>g to income. allo>vanto foz constn><<Uon funds, and thc nc( of other income and oc>ovs Offered on AprA 3, at 100 (o yield 10.00%. lV)n dcducUons. >>o adjustment 11'as made for rentals, >vhlch, the ning b, 99-"8; co<wz pcr bond, $ 1.08; con to company company states, aze wot ma(crlal)n amount.

10.08 ~ . O(hcz dc(ass Jn Qohm Suaa~> h)a)eh 17> 1975, peg 15M.

)TTS )0)t ITIS )TTZ )STI I)TO p>afozen( market, these high-grade bonds STO>cs csfhcd 3:LA) )AS Lao )DT OSS OA)

(gAc<ua) covcfacc . xLsz )M aa( iso aae zas p o>%de a saU)factory return for longer term )nvcstors. 8)ywciro months chdcd I'cbcwfy n. y;/>s oun>hcd In the pro spcclu<>>'ot cho fan<%, caff.ines Conc>s> 0( hc( >hcoh> ~ hh'1 >:1c, >>1 ~

ca><fs ahd I>>'cd chsffcs> c>bcd chafucs cons>sc uf >n>cfc>< cha.rcs Proposed Nots/ fsstfos p>us an f>huu>cd !n<cffsc (ac<of no<<cod of f<n<a>s. tacan>hang csun>airs 'pto Cof>ha a> ) TC w>ecs~ a>su<suds ah IN<cfog( fa<o 0( >0/a on >hc hell'ondh Carolina Power 8< U0ht Company...

... bas filed an S 7 zcg)stra()on statement cover)ng S)00 m0))on of first moztgagc l>onds duc April )5, 2005, to be coll foo>u/c> Nonzefundab)c at lower interest cost prior to Apri) )5, )985; others>4sc callablc a) prices to bc supplied sold on or nbout April 23 h) a nero(lated offering by a by a>wend>nant.

s)T>d)ca(c headed by aicfrill ).ync)>. Piercc. Pcnncr & Sm)th; scn>>>y> Nc>v bonds and all (bute outs(and)ng or to bc

~ )Gddcr Peabody & Co.: and SaJomon 0fot )>crs. issued >rill bc scen(cd by a Arst >no>>gage J)cm on a)l prop-ouof><y *ao>>nf>> )>)cd)uw> grade; p>ov)s)owa) Ban. Althourh cnics now o>>T>cd or hcrcafccr hcquirccl, subjcc( to minor pro)en(cd con>In>c>iow outlays l>ave bccn trinm>cd, fu(urc cxccp<h ws. Addhlonal bonds may )>> generally issued on tho fina>>cloy Tcqw)fcn>ants re>>lain hcavy 1st 'ric'>v of U>ls, coll basis nf> (a} 70/~f of wct pfopcfty addi(iona; (b) rctifcmcnt tinued pres>>>fe on dcb( Pfo>ccUon mcasuzemc>>ts >vould of bow<is or prior )icn bone)st (c) depos)t of cash. L'5'JU> cer.

appear likely in thc ahab>co of funhcr and sub)(a>>Un) tain cxccp(iona iw U>c case of (h), c.am)nrs, before Jncome rate zc))ef. taxes, nu>sc equal taro th>>CS prO fonna inccfcs( Charges, or lone ol eoe/n Hc>r bonds >vill be regis(c>cd bonds. Jntcfc st . -equal ) 0% of <<ll l>on<1>> ancl )niur liens tuba o>>>standing..

Tcl)l bc payhbic semi annually April )5 awd Oc(uhcr )5. hepfovomoef f>uu/> As to each outs(an<ling scrics of bonds, po<poso< )'focwm)s ffu>>> sale of bow<la will bc used fnr rcn. paymrwt ls nv)w)ccd nf >/. of )% oi'hc gfca(<<st amount cn).co<poco>V Pwn>oscs lwclw<ling Tc<h>c()uw of c<e>s>cuc>JO>> of )e>wda ou>s(n>>cii>>g pfiof to pn)mcn( cln(c, payable in

)oaws, trl>ich >vcfc about $ ))1,7)f>,L>00 uw Ychcuafy 28, cash. I>on<is or Pn>pefty addhlu>>s a( Zo.a ()co~a ln thc 1575, nwd wbirh hrc chi>cc(cd (o bu about $ 75 million at case of 10'>V nw<l awhile(wcw( sef)cs lu>w<lu). )Lcciu)cc>>>cn(s Un>c of sn)o of (h'r how<is, >way hc a>>>I<<i)>a>cd. )hp(win>>><d>t n>> l>owdd )ague<) priwr (o

<<ons>tuf>>o

• fn e<>ec> ('ows(f>>ctinn )>roice(s are hu<)>ytnl Ihc )007 sc>)a>> is ) ~u. '3l>c w>u<(ndfc >why bo n>wcndcd, >v)(h.

at hlaau( SI,I I > 7 milliu>1 <luring tlu> years In'/5>. )0VG nwd uu( n>wsuwt of (hc )557 nn<) awbs<v(wrwt J>nn<)hnh)cfs, Lo 1077s a 1<< iu> (>o>> of hhnw( SVrdi w>i)liow ffon> ocici>>ai Pl:w>s. cliw>iwa(c Ihc lwq>>uw>>>cw( fww<) n quire>>>ow(a, Thr in Abo>>f 5:I)!I >w>)linn h< ><)he'n>f<) In If)73, a ><eh>c()o>> uf nhou( dcw( >fu nl < wl.l <>> ) >uv> hu> fur a >>1ahlw<w'1>>cc a>wl To

$ )0) w>iiiinw fnuw (hc p>iof es>(w>atc. plhc<'>>lent I w>>'0, H>c re<ill<XI) l>fu>>;><>ll <>f cx(w>><lit>>res ic Ihe result of 0 s>eo> ~ > I'.Ifr<cl; s< fvi<n If, Pfnvi<lfsl In pnfcln>>s nf )4<>>Th

)ov)s<v) ceuvgy fnneos(s awd (hv Jack uf c.q>i(nl <<>> rcas<e> ~ Ca>u)ina n>wl Suu(h Caru)I>>a.'AL l>cbfuazy '< Inc., Mf>c>f)o>c Rc>nc) Sc>rs/c >, April 7, 1975, pal>c idII.

I I

ge 67

~ ~ 401 ~ ~~ ~

1412 e hfood J~s Bond Survey hpril 7, 1975 servlco was bcdng Curn!shed to 043MO gcn<<tal business w Il,bc payaI>lc scml.annually oa April 15 ons each year. AppllcaUon will lic u>s<h> for a NYSIt I)sdng.

cndcd February 28, 1975, 34.7% of opcraUng revenues, cx. ~oc I'rocccds from (lie saic of deb<(utes and $40 million of ptcfcncd nock (400,000 shares) >vill bc used to eluding non territorial sales, was dcrlvuvl from rcs!dcnUal sales; 20.9% frcun industrial sales; 19.6fv from commcrcdal n~ay bank loans n>aturing in 14375 and 1076 a

nmercial paper debt. )Vhcn pmcccds orc rcccivcd. It is was dcr(vcd ln North Carolina, ancl IG% In South Carolina. csthaatcd that co<no>etclal paper nu(a(an<Uag >xiii amoun! Cencratiag Cecil!Ucs have a sumn>cr capability ol 4; to $ 3G,000,000, bank loans $ 25,000.000, and currcac ma 058,000 kw., ol which GGS.OOO kw. Is nuclear, 2.6r4).000 kw. turltics of long (c(m debt $ )0,423,474. t>scs only coal as a fuel, and thc remaining 728,000 kvt. can (ntctest pfecec<(enc Assuming the samo Interest rate of aso coal, oU, or gas Intcrehaageably. Two 821,000.kw. 942% as used la thc ptospcctus for thc nc>v dcbcnturcs, aad leuc)car units, under consrn>cUon a! a oomblncd cost of using 74% for loans duc ln 1079, total annual Interest about $ 708 million, am expeeccd to bc comp)0(cd ln IS75 rcqulrcmcnts on $ 445,757,000 ol long.t<<cm debt to bc out-and 1976. In 1078, the compaay cxpccts to eomplcto a s(ending on completion ol cunent Ananclng (scc Capitaliza-720,000kw. Cossllfudcd plant. As to tbe projected 3; Uon) afe esUmauxl at 532.088.000. P(c-Inca>nodax gross GOO,GOO kw. nuclear plant to go onstream la U<c 1980s at balances Include allo>vance for construction funds 'erning aa cstlmatcd cost of more than $ 2.1 billion, thc Nl!C has with no adjusta>cnt lor any rentals which, for cxamplo, asked for additional information on the financial qualillca- amounted to $ 2.482,792 In 1574. Dlscoun! on reacquired Uons of thc company as well as a need for the phnt. Cur dcb! was excluded from ca!nb>gs. rcmdy the company esUmstes that 734% of 1S75 po>vcr )t(4 stra it!2 it!) )tro wIII bc genera(cd using coal as a fuel, ~% w!II bo caniad . 2As 2.>2 IA2 (Ar,'AL )AC aucicar02.G% hydro, and )46% Number 2 fuel oiL %727cs QlAewa> covctaca (gsA2 2As sAC 4lt Thc company ls regulated by thc PUCs ol North and (SA< ouu>ncd In Ihe pnupcc<us> catnlncs bs4nccs ate the sac<70 South Ca(ol)na. the NRC, (he FPC, and cn>4tonmcntal ~ 2 a<a<cd above and Inc>ude con<a>s as dc(<ned u¹drt Axed chatccs Include in>ctcs<. a<no<<Isa<ion of dsb< u<icounc a¹d chatccs'xed agencies. During 1971 and 1972, rate In<<teasel wet<< cxpcnsc< and Ihc potunn of tcn<nls tcofcsci><auvc of <hc Iu>ctcsc granted for a total of $ 600) million. Iilgher rates collected lac<oc. L< pto Iot¹ia would be sAI wiui ¹0>> beads ac s(0~n. 'on an Interim basis were made permanent duf(ng January 1975, adding about $ 61.5 mIII!on to revcnucs annually. ccf( feocvfcc Non(<<fundable at a lo>ver Interest cos! Prior Operating income for twelve mon(hs ended February to hp>fl 15. 1980; o(he!wise callablc at prices to bc supplied 28, 197$ , vfas equal to 4.07% of PMod~d nct plant, work by amendment. la progress, and nct nucicar fucL Stoa!nt lend< Sufficient to rcUrc $ 2.250,000 principal Cop><ofaeaen< As ol February 28, 1975, cnd pro fonaa as amount annually commencing hprII 15, 1980, calculated to taming rcpaymcnt of shor( tenn dcb! Crom thc March sale lctlte 75%0 of the dcbcmuces pdor to maturity. Cu>npaay of preference steeL and the proposed issue of bonds, but may make pay>nents ln advance but not ln an amounc ex-wI(bout ad)us(meat for cap)talisiag any portion of ac(ual cccdlng the am>ual requlrcmcnt. Such advances may be used rentals paid > as credits In subsequent years. Unused advances >nay not accumulate. Paymcms may bo made la cash or nc>v deben-bc<us) Pro roctna tures (000) (000) soceiayc Tho dcbcntutcs wIII'bc unsecured obligations o! Sf<off-term debt .. $ 111,745 54 the company pco(e<<tcd by a negative pledge ciau>c, dividend, Bonds . ~....... 1,009,030 47'1,109,030 Sl.o and cuber restrictions. Oa 0 pro Cocma basis, to>el long (crm (SO(hcf loapdcf>7>. 50401 2A 50.201 2.3 debt will bc equal to 55.8% of nct plan, >vork.inqirOgr<<SS, Total debt ..... $ 1,170476 54 Jl $ 1.159M1 53.3 and invcsnncnt as ol I)cccmbcr 31, 1974. Thc indenture contains provislcu>s restricting con>pony or Preferred stock .. 268,118 13.5 288,118 1L3 Preference stock, 47.900 22 sub>Id)at(cs from incccasing funded Indchtcdnoss, cad thc Iu< l. 3. 0 I 4 .. 0)Common fc surplus 621,475 27202 29.0 2.7 Tnli I iln .. 12,13 IIG7 100.0 2" 174,022 100.0 621,475 37202 28.0 2.G company from certain transactions in subsidiary stock, fund. cd dcb(, or property. Seifncss< LOno Star Caa CO>npany IS an IntCgratCd natural s transmission m>d dls(f!buun>> Cmnpany. It oivna Cnd Ifnnthulcs 5AA<OAco bank loan duc tys>Ifs. (sou<stand<ox ac cra(cs Irons<a(42)on ancl ra(hc ring l(acs. 0(otae: n:scrvolrs, 2>Accxca s>iotas o( ¹e pat value 007<227¹c2 s>ock. distribution systems, oncd foc!)Ulcc. Natural ras is scnM Io about 1,090,000 cus(u<1>urs in )iorUo<>s ol Texas Lone Star Gas Company... aml Okiahoi>>a. ~ ~ ~ has A)cd an 5 7 rcglstmtlon staten>cnt covwII> SCIO 'll>tough >vtuilly ownc>, thc compm>y Is cn. rnllUon slnLlng Cond cicbfn(utes duc April 15, 2000, to be gored In: (1) cxplucinr<lcv< lupi<>g, mid u>atkc(ing oil nml sold ln a nero>(a(c<1 uffecinr Apr!I 2) through a symllcatc n.'a>it'll gas'2) tta<uull¹cl<71> uf II,'>c>lfal ('.as; (3) n>>'lu hcadcd hy Solomon I)ni(hera, and Anhhnnn Sachs fc Co. fac>ucc aml n>atLi:Iiug uf fer(Uif<r, a
(ipse<i prcfccrelna). pn>vi<llng ciil au<) ras fichl sofv(e<na> (5) ptnvhliua hco(inr. ave<Icy <t an<cot< U>p)wt a>c<llu nra<lc. pcuvishinal A. N<ill. anI! acrvi<i Iu lucre v<7¹>)i)race aa unlnni>ics and utlli(y earnings have ch(i<lcd >ho<ply uvcr Ihd past feW n>0<II<v<i I'<'Iil<'fc, ycafs c>ld no'>v Qcixhl>>c fof a sulni(al>(l,'>I t¹2<c>ul> uf coll U(ili(y rac limfi<ln) GG.S>> uf r<37<s<l)(ii<2(<vi <7(>>fa>i<>r. tcv. solkla>rd income. Slcamvhilc. (hn uvc r all Anancial (3<~((ion cnuc fcf I!IyI, pc(t<deuin ca(du<a<i<in un<i )ifculi<c'Il ')!).3% of thc conaia>>y l>as burin reasonably s(a)ilc an<i dch( pro- chem!cols and chnuicoi )7<<¹l<<<(s I'04%, u<hrr au)in ).4%. tection u>casucn>iciua acc at sa(isfac<o<y lc>vis. I)lc<ulrl< a Ililnhli<1f)', <vill>)iall)"<¹vln<i Sf<el<<I'(!<In >vua leiini I) lien(un s will be <ICII>vccil ln fully regis(etcim'f.uf 11)niu( IS.(i'>> iil l)u !i05ni IO >¹u¹;f. Ini)>d Ill>Itin)ca Ihrrcuf. luce>ca! 1074. I'ucchuu<'s ft<illl <1(lief )<f0<k<cela a>110u<1(<'ll I<1 4 (2,370 Moody's Investors Scrvicc, Inci I Mood I s Do'nd Sar vo hpril 7,- 1)750 page> 1412. ~ ~ 4 w< ~ I I I, '4 ~ ~ Pa 68 a two a a ~ 1340 ~ . hfoocffs'Don<i Suroe JI hprft s8, 19'F5 Affanffc Ciiy Electric Company Lone Star Gas Company First hilge. 9)/ds, 5/1/83 S.F. Debcnfuro 10%s, 4/15/2000 Rauag hsnount Isolu Cs4 r'nce C)tres< ng price current Y)cht staiuttty Rating hmnuat lstitu Call price Ortcring )vice ~Y)cu~ cusysnl stamn Aa $ 3%0 6)109M 100 SM7'4 0~% A 560.0 tal 10825 100 10 QMri 10.f12540 tg)<onsclundabtc pKOC Io I/I/te <KIh debt al an In<esca<~I ot I<!)Ionscfundatde odor Io I/I$%, rlih dept at as Ia<cccst c<OI OC ICSS lhan Sa)ltrs annuanyl O<herWI<O Canak<C a>> a Wnu<O Ot Us Pa<< toss lhao 10.<est) annually; o<hclnnc caus<no as 4 ws.a<r os la psn. al anr umc on so dsrs'once. 41 Ito 0 In<ouch CIA<I)St ~ I lshtl 41 any <imc on p< ds) 4'Ucc. 41::e.t 0 <nnwrl\ I<I< lrc si;:cdtz Ihsoucb </m/)rl plcnuum dccstai<nc Iv<<hcc I)Ill.cus or lmt.0%1 through sl)l.tn plw>><mn dec<ca<;au <ciihil 4< Ice or is'Ii)< an aunuauy lhclcslu 5 1101 I on I/Ilsv< Io 1<a <<1 Sli/sl. 5<o smko<c tun<4 apcc<CI scdv<nnuwl 41 I00. Nou': illU Issue was pus<puacd Wally \hC<ca<<er <Inc <11 On ~ <Iato Iu lld <S S.t)"5). hl ~ <aking lund bccinn<ng hp<ll Il Is<) aac aaauau) osc<csl<cr N Ist Iht C<o<a cvT<oustr schcdWC4 dale ot Sta<ch IL Do<On<<Offered on hPtit 25 at IC0 to yic!4 10.625!$ . Dolnflss Offered on hpIQ RL at 100 to yield 0.25rs. Price Price lo comPany, 09.125; cost to comPany Irnyars. Gtheg io company, 00.175; cote to company 9.40%. Olbcz dctaQs dciaus In Bor<o St<hvar, hptfl 7, I &75, page 1412. ln lfono Soarer, March 31, 1975, page 1658. opa two Pricing docs not offer ar.y ccncccsicn in tbe cuz oPUIoo< The bonds aro reasonably pticed for holds rent market for A ralcd gas ulQitl'cmpanicsl hosrover, ft maiurfty fncotno invcsunent. pr<N&cs an adequate return for Insvstors saekh)g Icngcg 0 icon Inrcstznenta rolina Porter 4 Light Company P iladelphia Eiegtric Company First h<fge lls, 4/15/84 First 4 Refunding'Mfge.'11s/ss, 4/15/2000 hmounl csu ottcs<ng YICM Oa h<noual Csu Or<snag Yield Raung <son J plica pact cut<cat st< mror Rathsg Potu P<sco ) nce current sta<unty A 565ao t0112.70 101 1141$ 'l 1.50!c flat< 5100A) 6!110.75 99.75 11.03~<v 11.04 ~s 0Non<etundsbte ester Io c/Iz/cz. with debt al sn In<crest coal or ICSS inca ltd<)<ea annucuyl O<herWUC Calksslc In WhOIO OS In Para si any Iunc on )0 dsrs no:<cc 4: ilk.) <Crouch ~:I ll< sl '!.5.50 'ari felons<<tundsbl0 prior lo I/I)Is:. with 4 sbt al aa la<etc<I cnt ot la<a lhaa Il.ter< anruaur: OltssWf<C 0:,'.US;0 SS a W,'.0: ~ Cr ~ I sny U<nc on se dsrs'once. sl a'I) <a<ouch ~ l l<llc; ~ I Iss.t) lhr<u,h </IC/tl P<cnuu<u CCC<CS<:ag I/4<,.il 5 "50) Or 'aith Saa us<ouch client'scniim 4ccccss<rc lclihcs I)all<40 or Ist<1000) aanwnr Ihcscaimc <0 Io) trom <Is)<i) Io masuts<r. spccss) ssdc<ap nuauy kncleaiisr ulaco Oa II)S I)< 10 SC'a C/u.)L SCO 5uad S~g uoa al )00 DOICV<< Offered on,hptQ 23 at 101 to yfcfd 11.1!W. oo<oass Offered on hptQ 24 at 09.75 to yirld 11.04<a. 1YInning bfd, 99M: corer per bc..d, 51185; colt to Rnn-Price to company, 98.65; cost to company 11N4r~ . Other y, 11.71% ~ Oibcz dctaQC in Bo)CD 5'LRVTY< hprQ 7> 975< dctaus fn Bown Soarer, hprQ 7, 1075. page 1411. 1414. apUUa< Thc yfcfd provided on these bonds fs zeallstfc pin)on< Tbfs issue provides a suitable yfc'n thc cuz der ptescnt conditions. I market. Transek Pipe Line Cotnpany First Mlge. Pipe Line 9s, 11/1/80 Cievciand Electric iiiuminating Company First Mtge. G.G5s, 5/I/83 hmoual Csn Of<snag Yield Rauag I)to<.) price pn ~ currc t a!su<city Rauag hmoual INilu ~ Call price et<snag plies ~YI cusrcal ~ ld 054u<rnr A 512 0 'EI09.00 160 9.00:4 KÃoarstundabt ~ priss Io I/I/50. <<Iih.deb< at sn!atsrcsi el<I e. $ .00ic An 5504 !0100 100 L85% 8.85CS lcsi lass SA~r< annually: omc<ns<< c .'"c.c as 4 w..s<s ir pss. at Snr Ome On 00 Cay<'OUCC Sl 10).~O '-stuurh I 0<IC: al ISI Iancdscmsblo only began)ag I/lisp al !00 io mah<KIy. )Io so<a lag Iua4 <slough <<spit:, pscmwm die<ca<inc '!00 lo )00 on II/I/t).No su<king lund. ~ saowifr Ih<:<st<i Do<on<<Offctcd on hptQ 22 at 100 to yield 9.CCrc. CYfn Do<el/s< Ottctcd on hpzQ 24 at 100 to yield 8.85<%. Price ning bid, 99.056; cover pcr bond. 2.c; cost to <<otnpany to company, 90.25; cost lo company 8 98%. Other dctaus 0M~. Other dclaus fn Boa> Suhvrr, hprQ 7, 1975, page in Bos<D Suhvxv, Match 24, 1975, pago 1469. 1413 oplohn<s Tbfs shorter dated issue Is apptoprfatdy priced. op<alon< 'lhc issue, nontcf<<ildaUc prior to mardtfty and svfth no sinking f<md applicabic, affords a s tfsfactog re-turn for hlvcstuts inlczcslcd fn shiner term bonds. Cfevelnnd Electric flluminafing Cotnpany First ihfge. 9,85s, 5/1/2010 Proposod Mcv/ fssvcs hmount Call Cllcslng Yield Rau4g Isntu price rheo cullen< sts<urlir Chesapeake 4 Potomac Telephone Co. of Y(cst An $ 100.0 6)109$ $ 100 9.83% 9JQrs Virginia . ~ . [~INOnro<undab<C Pliny IO S/I/aa Wi<h dnhl 41 an In<rrrn <OSI Ot )os Ihan 0'sits san<<Cur: o<ncswiac caus< is as 4 wha<r ns In nl<<. ... has fncd on S.o tcrlrdriilcis ymlc<ncnt cov.rig' la!!linn of dcbcnlutcs <Iuc Msy 16. OIS, lo bc aM =: coc: 2 ~ I Nly orna nn sc uas ~ no<<<v ~ I Is)as <as<a<eh il)c'lcl 4<< as.s) In<Ouch <oolttl p< n<mn< d~radnc < <hrc as <40 <n 0</no) an ~ ~ ~ ~ pell< ivc hi<id!no on shly 13. nuaur nwrvsocr I<0<as>> w< s/I<So) <u lso I<wn )ll/)00< In n<s<u<nr, )<o sink<ad lund. ow<vly 4 so<lap< I'rond qual!Is'; pros fainna! talus 4 Aaa. Io<m ol ooasn<ws< Thc nc<v dcbenl<:tsm Ivili bu l<s<<ed< onf y ooloun Offered an hpru 24 ot 100 tn yield n.ns<rs. Price ns registered dcbeniunv<. In <Icno<f In)lh<n'I and Inuhi< tcs clt to Can<pany, ns.)2il ca I lo cpnln'u'Iy 9.94 ~ ~ Other details Sl,ek). IUICICSI irin )W'ayibie Sruti annuaf!y n<l 5&y 15 hl I!onn Sunvrr, M.<srh SI, )075, pago I l69. and CC<<re<aber )5 lo holders tut;Is(<<rs! on hpril 30 .<r Orr op)alon< 'this Issue provides an hl linc yichl ln the ptcs. Iobcr Sl prior In dale of p;Iyn<cnl. hppliualio:I Iviii bc clads cnl )nalkci for long tenn bonds. lo fist lhe debentures on lhu ibySE. Moody's Inventors Services Inca s Moody'6 Bond Survo s, APril 8, 1<f75< Page 1340. 1'>> I ~ ) ~ ge 69 ~ ~s ~, price )sage. sad inaay iddct buancs a)oag (be risaffon( sfe ratucd ia fof sitcct and ci(y hs() projects. f)cb( ac(rice oa (he diz's ihof( tcffn csccssof SMLQOL wasoaly 7ab>>ofcspcndiiufcs. hiiboegb umda ofCape Cufsl tens<<in s usadefdupcd and flhC Cot pots(iasn s(IB bss a suba(sn(is( ina(asa( on (bc ciiy, scswasfa(fng fuf I2>>>> City knseds) upas(leos since faccp(ksn hsue baca gooaL )7uring of pfopcfiy iss fcaeap(sahfccily ssnd sbuu(g9 andi(ectly ihfuugh psy (974, oa W(sl fcfcsecr ol $ 2J97 J)4(s, ihc city sbu<<cd a au(fun( yes( mca(s pfofidcd IS nshC tcsacca the ciiy has upas(aa) in s mote (t m sufphfs of Sl I VOJ. hi (be duse of ihc fwat yes(, cash and bsfcsi. ss(isfsc(usy fsahiasa (u ihs ~ puint. I)awdupmcn( hss Isucn es(ensile ia aacais (o(s)ed $ 9fs)J2'hi(c cuties( Iasbli(ics emu<<a(cd io oa(y oac ps((ofiheciiy,and <<ub ffgsfd ioiwmcsiaiheS(0!)Ndssshss $ 225J$ 4. Pf opcf iy (sacs <<cfe the tsfgcs( skag(e feaa>>ue soeicc. sc. bica of bcucf (hsn sac(sic cbsfsacf. II'klyc fsfnpfaafff s ufrr onsf caus(bag fof s ppfusinis(dy one ihifd of io(al fcfcnucs: s(sic tea(sue srascr re(re efr 4'ck. usaf( fkui fligiswft io ksrfcmc/uffkff, fkr tasnafr sbsring wss aso(hct (9>>n of tcac<<ucs; snd fefceues lfom s eh<<age )koahf br uf Jess( I 5(P>> sftf fuepuf fine ini finny and bar(sr( r nsassr su af assess(d sgsiai( rsesat lo(holdcfs fuf me<<tug snd msbi(cue(ace gfowfk cur(seers. Bffnso. (kr (ec fufr <<ayf ffmea'n rsusfrfwfc. Ii'rufr coa(iibuicd aao(bcf (0>>~ On tbc cspcnsc side. mute (han 20>> of sn tkfsfffsfrr rsfscnsng onr BDD sssfafsnna gfudr raus'ne tu fkc Sfnfrfd moneys wae capcndcd oa ca pi(sl Bema snd lsnpfofcmea(s, pfimsiity obfifrfionbonds ofCrpr Cnfuf, Pyuffdfa, 1 s r HaS W riICm LEVEL SEF.N REr CHEDV P'allowing several weeks ofsteadJ price erosion, price's in lhr corporate bond sector turned modrratrly highrr last wrcf:. Short earring by trad( rs and lhr su('rrssfifl sale ofseveral anractii rly priced ncaa issurs yfidrd lhc advance. 77ir (farci"s nutjor offering included o dual offering of$ 7$ ,000000 lalotts and Drbenluris Ly ff'orner Lambrrf Co., priced ta Jdcld $ .30% in Iin years and 8.93% in twenty five yrars. respectively. Both issues of this rfrfrf company (arri well re( rircd, as were (lir $ 7SD00000 of r)sian De-vdopm('nt Bank five > rar notes. which werc pricrd lo >gild 8 7S%. After Ltcrcasing ot a record pare, yichls appear lo hnvr rrachrd a lcvrl <<%( re pur chasers arc <<8ling lo comma some long t(rm fffnds lo lhr mvrhet. Underwriters, some of wl(ont have sustainrd largt'osses on both niw issue af(d secondary issues. are lahing a son(ra%at niorc cautious approach. and o nr<<<<r)rhing lrvclhas bren of tainrd. llowcvri, tht'arhrl is still istic(t(riJ concrrnrd about Iht lcvrl of corporal('nd ~ governmrnff(nanciffg and fear ofa risurgrncc ofifijfationnncr thc'conomir rrcovcry cls undrrway. Thrr(fore, investors are advisrd to maintain a cautious approach laward new comminnrnts. Corporai(5 Analyses and Briefs ChROLliafA POPOVER JO LICHT COhlPhNY uai(s of (bc Shee(on lisfris Nuclear Powct P(sn( by sppfosfms(cly I jgyesfs and ihc tout(h unh by two yes( s and ihc two yes( dcfcffsl of Ojlrring First jiiongngc Bonds the720000Lwcost filed Rusbofo Vni( No.e. 0 a hpfl D.sa eadefmismg syaaics(e hanffd by hie(fill Lynch. Pic(ca. Fcnncf S; Smith, Iaiddcf. Peabody Sa Co. and Sslonaoa Bfo(has <<OI otfcf $ (00.000000 Ca(dine Po<<ef a Lith( Company ln Jsnusfy l915 ihe company issued $22J50.000 ol fsf (i rnongsge -bonds piicsidy snd sold public(y e.000.0N ihsfes of comnlon stock fuf $ 5(sS)N.ON. snd hi h(sich l515 thc cosnpassy >>JJ publicly 2.000.. Fit(i hioi (gage Bonds. duc APfll lb. 'N5. 7'bc o(lcfiuf m(l s(fofd 000 slates ul pfcfcrcncc siucL fnf $(7,5N,OOO. Tbc company pfo(cdiun sgsini( taa<<efdn(crea( essa( fdundbsg un(i( (97$ . Pfuccads pic(en((y caiims(cs ihsi ii ~ i(l nfcd addi(iona((y slapfounas(dy $ 50n fiona (hc o(fcfing <<Jl be uifd tof genes el coi(>>mic Puf poses indw(ing 000 ON Of ihc funda ( ca(ui fcd !of ibe (915 Cnsaii falC(nial P fair fails ff alai (bc tcduc(soa of s)wf( icfm )awfu<<isags incutifd priinsii(y fuf ibc loag (cfm sawiccs snJ <<iii issue iccmiiies 4(a ia 1975. (hc (ype. cons(iud ion ol ac<< fscOI((cs. Suass ihni ( lani homo<<ings (n(skat ap. susoun( snd (in(inn ul <<(sich nil aicpald <<pain mssLc( elands(taws snd Pfuaieia(CIP Sll)a))$ tsy) Si Febfua(y 2C, I'915, m<<l Sfeea(ace(ad io tbf needs nl ihe company. For fuakff in/slrsnnsissn nsnsrrnine fkr sic $ 750tOSXN imnacdis(dy Pf iuf iu (hc dc(ifcfy ot ihe ncw rpfnsfklnislf(usssnnr Pss<<rf sC ISSkf t <>sntsrnp;inrtndine frrf<<ffuff bonds. ksrrrear astra(are (kans. Nrfcsr cfsnssslf fkr Rafa( lnrannr Jnarsfur sfofrst Coas(fasc(ton capfaadi(offs sic esp(ried (n sppr naims(c $ )C2/OOr klrfrkg, f915. ON in 1915 and ha(X).l(s0(a(C bs ibf Pc(bad Iu)("77. Ia his(eh snJ Junc l9)d, ibs compuny's funsifw ilaan pfaS.(essa wss ffs(uccaL in. dud'eg fcduaei>>a nl sprsaasims(riy )sfasxx(,(xx( tof (9)s snd isi)a -r~~)(ii sais if(i )ii saf) ~- iiii Cans. u<<seen(sal.(1 )((S) asoaa \ iul )(a a( sptuoaims(f(y $ )gl.( J,(Xsaa tau (915. L)n l(cccm(wf .'I, Iu)s, (becalm. (asns (>>>>as(ass ii s) io ifsa isis iui) aos) psn)'s Ca>>affmeisan psaS.(S<<a wSS tufihcf ffainara) <<a i(mi ibc strfc i sasu El>>fsr sans(a fr(C ((due(wn ia sr(afusfans(C(y $ )XS,(CX)(XX( fof ((sc )essa )9lb 17, safa. nr. 'I sass I.aa isi ),is )aa )N lbcac ifduf(iles <<aces<<ass( tly seas<<J fsacfrr to(casa(asm( ihf Isck tss (s) i aa i a>> i i( uaf Saf.inn ) (as lac L)s ) iu ) sf ol cspi(sl on (cssaans(CC icfma. 7 hfss'aalw in>>a inf(naif ihc clanai. ~ a)>>sa>>aaassaaaaf (S<<a>>f ia. ns(NI a I roc ral Pa acd ilc<<ra<<cfsaang allis(i <<blah <<will Iasa'c I i sn a Ja(if(a>>st o>nf (sas) Lw of ta<<cfr(sns csprad(y-. (hc Jf(cf ial l'id(s) hsnll I'I(()yl(;I'ION: I'iaa I un>>Inn( (final(f(u nf $ (,IS(sf(2(s,. ~ nl csah of ihc f(a .'I ul ibc e pass(<<<<a) uixk(xs( Lw nua(cra (sac(cd LQ ss sil (isa( nwiirsrc Jf(a( caarp( list 5((s>>(XL9)X uf allies rs)s(s(c. hptil l2, la)75 Porc 7)$ Standard ic Poor's Corporatioii, Th(s Fi):cd Inco(r(c Investor, hpri117., 1(j75, Page 743. s t cP ~a ~ j Page 70 , ~ i ~ ~ ~ e ~ hlortg gc debt is secured by a first lien on aB f the pfcecnt prupcrtks itysdty, 1% fruni internal cumlayMiyn swl 2e~ frow the Pcuasyl of thc company, subject ui certain exceptions. This ieuyc <<ia dsu bc r 'cw )rrycy h1sf)bnd latcrciyanrctiun (I')ML'I hc cxwupsny is entitled Io lmpruycmcat snd Maintenance snd kclqsccnirat I'vndi. v<<yIJC tu prrdict theat(est thfa furl prr44cms ufo ther member s uf the la sddiuua, d, *ring say I).ynvytth pcriinl, propcriy is yGytnyycJ of P) hl insy hsye vn the sfaitstetity yd purchased ckd tie cncr gy from by oHkr of ur funny go'ycrnuicntsl authnrity, fmvlting iil thc fccdpt that suurce. I'refiled that prcycnt I lih sttucstiun puhcicx src not of$ 10 C00 000 or mute as prvcccde there(uf, the curn puny must apply ays~ly chango!. Ihc company expects that its vil ddiycries such proceeds Io thc rctbcmcnt uf boeJs, Pro (orms n<<wifsge debt thiuvgb the remainder u( I 975 <<JI meet us projected rotuircmcnts. wy7( equal $ 46% snd totd *bt 56.9% of ort plant. Tvtxt ikbt <<JI equal 54.7% of cspitslixstioa. Baird ua ihf siahducrh>> of j(xrd company hsd s coal inycntory un hsnJ st thc cnd of )snvsry rhurgf iuwfprattling ruir frlirf, iw herr ar uiar yaard oar et " rsiar 5 oa I'915 of spproxinmidy Gtg.000 tvnx. <<hidr rcpfcicnts appruxiwstdy ihc First hfongagr hondi o/Corydinc Power 4 fdghc. a 9Wsy supply fur thc I'hilsddphis ycryice sfcs units currently burning coal. In syhGtiw to shortages uf ncw gst svpplia, thc com-pony is cxpcficncirg curtsgmcut uf Jdiyciks onJcr cxistiay suatrscts (rom Its pipcGOC supplkfs. Thc current kyds of pipdinc cartsilmcnts, combined with rcdue& JCGycrics of propane. resulted ia tbc cur Isgmcat of Brm eunusct gss to four msjaf intusuisl customers bo PHILA DEIL IIA ELECTRIC COMPANY grains carly in )snusry l975. Ddiyciks to intcrrvpuble gss cus. Iomcrs were discuatinerd oa Sfptcmbcf ), I974. A I'UC order Ogrping S(jS hlillion Bonfig proyidcs that uo pvbtk utility under its jeriidiction presently in c((crt 4cliycric msy accept any additionsl gss sales cominitmcuts unless D csn bc 0 a AprQ '2), l975, Pbgsdd phis F) cctfie Com pxny plans to OI(cr at compctitire bidd'mg . $ 65,000.000 of First 2 Rcfundby5 Mortgsge Bonds, dsc April l5, 2000. Also, on or about April 22. sbo<<a that its 1 ss supplies are sutGeirat to meet thc (aturc rcquire-aycnts of its existing customcfL Dered on present snd sntidpstcd krds of cunsilol from suppliers, thc company cxa make uo 1975, thc company plass to sdl 4JC0.000 stares of common stock commitmcnts of slhlirionsl gss to arly cskting cestolllCrs aor ncccPt (spprodmstdy $ 45,IXO000) through under<<ritcfs hcsdrd by Drcxd any aew customers. The company docs not expect supplies to impforc Berabem B, Co. sn4 Thc First Boston Corporsiiua. Thc axles o( the appreciably in thc immcyGste future. nor is there sny assurance that, ~ ew bonds snd sddyYIonsl coiilnioa stock src scpsrsic tfsnssctloIS, ddiycrics to k msy not bc further caf tsikyL aad ncithct is coniisgcat upon the other. Thc acw bonds wgl bc protected against lo<<cf>>ytcrctucost rcfendisg prior to April l5, The company it rcguktcd by the Pcnnxylfsak PUC snd the FPC. (950. Tbe act proceeds (fom boih sxlrs wgl bc applied to tbc psfrisl Oa )snesry )I. !974, tbe company fikil with tbc PUC for 1 Sl)6 Payment o(short tenn dtbt incurrrd for interim financing of the eom. million incrcssc in ckctric rates for atl dxssrs of cvnomcrs to bc. psay's coat tructioa program. Such short term dcb( wss SIBI mgthw coins dfccriyc in three parts. The PUC pertained tbc first pert. <<hick oo htarch 2l, l975. ncrcsscd anneal icecrwcs by spproxiustdy $24 million. Io go lato Cs(dtsl fcqvifcmfnts fof l97S stc cstllnstcd st $ 502 mgiioyu of dfcct oa April I, l 974, subject to possible refund with intcrcsu Tbc ro. $ 4IO mQIioo k for conttructkn cxpefditures snd 592 milGon msindcr o( thc rcqecstol SI)6 million fete ioeresse wss suypcndcd (or foc bond mstetiYia snd sie4ng (undt. Of these rcqvircmcntx. sbwt flic maximum statutory period, unul Dcccmbcr ) I, 1974. Oa )snusry 5 I 45 mglion is cxprctcd to bc sepplkd (rom internal aw rccs snd thc le l91S, tbc 5 I I 2 mglion suspcndcd tate (ncrcstc brcsme cfcctirc by rcmdndcr from thc sale o( debt snd equity sceuritirs snd the vsc o( operation of lsw, subject to possible refund <<ith interest upon short term debt. Total capital rcqvircmcntsfor thc)csrs l97S 7$ src issuance of thc Gnsl order. Oa hlsrch 2S. I975, thc PUC snnoaece4 csrimstcd st shoat $ 23 billion. contiitiag o( about 5' billion for its final dcciiion sppfoying s rsic increase of $ 105 mglion. The corn coastfuctbw sad 52)l miDisa for sinking fund psymccts snd bond psny estimates that excess rcycnuc cosccttd (rom )snusry I, (91S, msturiticx. Tbe company csumsics that spproximstdy S$ 50 misioa, through hlsrch ) I, l915, will amount to $ 54 million, which will be or )6% of these apitsl rcqvircmcnti. will be obtsinof from intcraxl rcfundcd to customers withintcrcst. soerccs snd tlat spproxiinmdy Sld billion, or 64aa. <<ill be obtsine4 throegb thc ssk of debt snd equity sccuriuicx, subject, ho<<eyer, to certain csfnkg'i tert rcstllcuons in the conipsny s iiiorrgsgc build la Year teee4 eery<<iyy Si den flite and other con sikf st ions. rfM tfrs tslt trit we Phgsddpbis B)fctrie proridcs clfctric. gxx snd stcam scfyke in Oyer. ayeeeeey (Ml,tt tfitrJs sysss ytset sfe.tt toxxr sovthcsst crll Penes)'lesnis, snd seblilkflcs pfayiJc cl tet tie set eke ln neea teieae tMS. n. trfxs ttxts tts.ts tlorf lfsJS Vii>>Csyyre Ceca Sic ~ I<<o cywaCies in northeastern htxrylsyid. Thc total arcs screed by the nn. yeeeae 'teiei sxu xss L7f wt S.is compsay snd subidisrics coycrs e 415 square miles. Approximstdy M. Ceeiu. Cr. Lys tdt txi tft txs 9$ % of Sis arcs is in the suburbs around Philsddphis snd 5% withia Sye teee<<e Yeeii 1st 1st xse 1st thc city liinits. The pe puky iua of thc srcx is shout ) 900 000, indwGng I,950,IXX) in the City of Phitaklphis. I)cctrie scnicc proedol g929y ofopctstuiginCoinC for the year l914 sa4gsssnd stcxnlPfoyiJCd the ASSGT PROTI'.CTIOII: These acw bonds wiD bc steered cannily balance. snd tstsbly <<itli $ (,47)DIN.000 nihct first mortgage bonds nor Dvrbig \914, dvc tu thc astiivysi energy criA, the cuinpsay iwtttsndiag by s direct first mortgage lien on sul>>tsntisDy sll vf the cxpcrifnccd some curtsilmcnts by iis cuntrsrxcd fvd ddircricx from colntlsny's pf o petty. Thcrc is st to 5) ISQI2)gN u ther hmg term debt suppliers syd sut>>txatisl incrcsics in thc prices o( sll fus<<7 fuds. Thc ovtyisndieg. Fulhi<<mg this dud finsncinge invrtgsfe Jcht <<Jl equal cvmpsay Is eoatinukg to supply its customers'uti rkctrk rcqvirc. 45.2a o( nct vt Jity plsnt. <<bile total umg term Jcbt <<ill rcprcernt inrats st picscnt bat is unable to prfdict <<hst iinpmo fud slwrtsgcs 54.4%. Tbc long; tciw debt iu cspitsliration rsiiu <<ill bc 5).5aa. Thr sad price increases umy haec nn its futuro operations. Bvldcct to thc ry>>ypaay'f /irrd rleyrcr rurrrarf har dry'liard io a fiihiiaada>>l Irfr( sfsgsbgity of ihc esyiaus ryprsuf fuds snJ to oilier cuntinfcndcs bc. fiirihr prrfrnirr ayiicard rnryac rarrcvry, I(i>eurrr, rrrradr Cry>>rrd yimd tbe company's cnntrol. thc cuwpsny's dcctric nvtpvt tiir l915 is fair rrlefshyyuhl lewd iu yaayr miprayvyarwria fiaearial payuayrrnf fa cxpcctcd la litONsinryl (ruw ihc fi4tu<<ing sources: 2 I ~e (ruai nil liicd ihr fwwr. Arr<<diarlr, <<vair prrfrarlp ayyaaryaaiaX uiir 8 faring 'generation, Ieaa from scythe arcs e<<A fiml gcncrstnm. 'IS>> from ua phdedrlph>> I Iry rrlr'f Fin< aad I(rayed>>g h(urrxuga (fy>>ds nad mouth gcncrsiiun, Iga>> (rom nurlcsr capacity, 4 ~ (rvm hydro herc raird this uiar-d." Page 744 FIXED (HCOh(R I(4VL'STOR Standard gt Poorts Corporation, Thc Fixctl Income Ittvcstor, hpril lh, 1975, page 744. 'e Page 71 ~ r ~
• sl' ~
I RECTA' ORPORATE 01'FRy!i iCS Ssk On4 Ave<<as Tk(4 Can Coesrv<<ten Rei(e<<id llaw Roaiae a(L 5 rdn rtkieg On I'oce 4IIS All )OLO Sores Creat a) nen Trtnaeoe 1k Seasan<<4 I (/Bi(u Cn NC~i leo Acrqsaie 1)S 4/IS AAA u 100.0 sor(a 4 noiil nin 1 eteyavae Ce. 100 RX NC40( IO)AT lc Ne aetna(au teeans cl (/Iaa) 4/15 RRR IOLO Wiuven I'easoaere )N )055 NC411100 N 4/ (/(ss) 4/15 Caevenae*Qav Rsilrar 745440 1(C C )kv'h Trav a4/4,)/Ills)4 so 4/15 Sesaaera Ikvaa Cai 4 Oeniic Cos 100 NC451 IN N virat Msei(cse,,/ II/Iss 4/15 The I'Joteee'e. SSA)5 SAN NC4)1100 N Netne 7/a.4/15/lea) '4/14 AA )carta )Sevv cn ca )N LS. NR41) 100 C Nnt 51(ca 4/I/Ies) 4/11 ROR Uearc Te(novnvrksrvaa lac. 100 1)4 NR4$ 1)OLSO N 151 )e(retrrnsc/I)flOSO 4/IT Seek( e '(eai saak on Chnaka 4e 100 ~ SASS NC N Iir Frsaasaa C<<aimiee4 hates. 4/)5/lyN 4/11 A laLO Ua(aeo a kna(t 1;Ory. SLS 985 NR451 104555 N S.Y. )staeenrn y-TIL 4/)$ floeo 4/11 A )004 Ualar4 liinek Coiy SL)5 04 NC411100 5) I I(oint<all)l(SS) 4/IT AA SLO OI(saeva Cia 4 f)enrkCa. 100 SAS NR40; 745 )745(etal51(Oper) 4/11
• SLO Noise<<Cary.
S.F Oeaeenrn C.TIL4/I l)000 tt45 NR451 1045O 4fl) AA ILO Nark(a 0 Wnana Reurae(e. TSOJ545 NC C Tr<<ut.5/Il)S)a ys 4 fl) N(R 400 A yea(stake r~ ~ Co. ViiirMite. I I I/L4/I/)TO 10(LOS I ao NR4(k )0(sr C 4 fl) AA )LO Trai<<oa late Ihv Ce. IN 94 NR40i C Ta nnr a(ica. I'(ye list. I I/I/it)a 4fl) A SLO Auesik City Denise C'n IN WS NR40110L)5 N 541 ilia( Mice Sl1/Isa)sar) 4fl) AA 1000 Iacnaen Rasa lac tLT Lg NC4L N hetesa )l4.$/II(y)5 4/)3 4fl) A R 4LO l Oec(Snot) I'eire(iev Ceih Cea, Ftl. 5(L 1rar. (e rer. Cen. ($ 1 par) haa4(sais Oicuk C'n SLO I)I ILO I)4 NC40; NR40; N C ))n( 4 RiL Mni. 114/L4/15fleco 4fl4 AA )000 C(nr( er 4 Oenik (tars'v san 5 Co 100 945 NL40; N Bnthnff 5/I/)010 4fl4 AA SLO Cine(ak Lknak Rirvvawg Ca. 100 L)5 NC40( N )liat )(iee5/I/IS)) 4 flC
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~1n(M(sr Cl($ ! tsM Carabao I'om Lirar Co SLT5 I Lac hR45; N I keuoo Oa 4 S I irrii(a Coty ICO 45$ )t Aceqe ate Cori. 4l. Oronnrn ) I I )/IOSS IN R'fl4 A )LO Carnal Ti(ilaeae C'e. ot tao a(keen IRSO hR4$ 1 N Aniacdie CeaL pl 4 Saor L (lv 4 fl) 4 CLO )oae 5 i at Cea C'e. 100 IL4)5 N Sadil eatery 744 S.r. it~name/)sflON 4/ls A 404 LoeeS(ar Cai Co. 100 ILS) N R40( Aceaesae 4fl5 A oaa ~nn~c~ Can. ITLSiL(asset) Noise, 4/1$ /Its) 100 )LO Vcr N Aurstdie requite(ace(1 gcncta) rs(c rcbcf. These interim inc(ca(cs are nccdcd to mcct (hc ia- hlongage deb( contti(u(ca a valid Sra( lien upon s)l proper(y srd fran. terat cm>>tsge tcquhemca(a of thc company'I dcbenturc indcnturc. chiacy o<<ned by (hc corn pony, wbjcct IO pct mitted cscep(ionL These $ 40.000.000 bonds <<ill also he cntidcd to a main(cnanee fund. Pro Durmg )974 sad the Is(er pan of )9)3. Saa Diego Giha forms mongsge debt <<itl equal 5)3% aad (o(sl dch( $ $ 2nv of act cspctienrcd ha<<ct fur) oi) than sn(icipmed as a rc m)( of p)aaL lloard nn thr Irrriare ngoffacrd rhorgr raaurogr or o soilyfor batten(cd aesdabi)i(y of In<<et cost h)dree(re(tie po<<er from thc tory Irrrl, <<r ore aioiarolang our "r) rmo g on rhr first mongogr pseifae Not(h<<csL cua(on(et energy cut(siioicnt aad worm <<ea(hct. hoods ofSon Dlrgo Goa il hyrrrrir Corn/tony. Therefore, some of tbc unde)net cd fuc) ui) already con(ractcd for wa 1 )s caccts ia eutnnt needs aad storage capaci(y. This nil <<wa sold at a prof t, thus s oh)ing thc need (o (sLc the oi) under taLc ot pay SYDRON CORPORhTlON coa(rsc(s and reject lets capcninc aa(ural gaa and autp)us Tcn.)'c ar /Vafrs Ogrrrd h)dtockcttic po<<ct. No auth sa)cs hate occurred dming 1915, aad nor>> etc euttrn(1) ca pcc(cil. n rsr)y May, Sybton Corporation plans (o o(fer $ 35.(O),000 in Tevre4S one<<On I( ~ E Nutso doe A(ual I. 1955. The no(es atc pru(anni against Io<<er is-ttsa trtl ffy) ffi( (tao (creat>>ual tcfumliny prior to April I, 195$ . Th( cnmpany ia(ends to Orn. aevvn tats.st )ffas aaaya fftet (ts.ts (Stoa uic opprotimstrl)'IS.(yJOAXÃ) of tbc act pra>>cc Ja from the sale nf Ore<<(sessr(aia 1( IJA( eyes )es) ))oo )tdt Ihe no(es Iu trpa) tlie nu(itsadinr iri(elniicia under (Iir area)nag ctrdil sl.'rn nirnL The tcniaindcr iif tbc nct 1<<a<<en)a <<ill Ir'sed fnr r~ea~e~in ycncta) curporate fsirt iaca, ina)uitinr inirLisp eapiw( ant<<irenics(s. JA tsr,1 asn )SI ).(a a)a )SI aaa ncc'~.ca. Ltt )ao )o )st asy Syhrlva manufacture\ olul ac)la, uii a <<air)i)<<<<le)alai(. a diictailicd V V ~ .'i L 1>> hnc nf rq<<ipmrnt and au(quire <<)i)a* IJ)l in(u four prinnpJI pri<<luc( AMI!TI'110flh pl()N: Pin furs(a lorn retina)cb(ISI 45 of cuir. alcJa; heal(la rivi)ua(a fnf ~ Icn(ii(a, lshysiaienL I<<a(pl(ala, sall )a)sat<< (asia(ion) sill consist id SUI), 1(7(eat (irat ii<<it(narc hiai) i. 5 3 I EST, Iotira; ina((un(en(J(raa ays(en(a aad cuuipnicn(: ptaweta ai<<l <<Jtcr/ NO aiaL)ng fund dC(stn(u(C( aWI $ 3,SSS.O(XI u(hCr Ierg (rrni ikh(. was(C rqvipnirn(: aai( apciia(il1 cliciliicals. 1 bc can(pony is ur fAnurd hpri1 26, )97S Pnge7)S Standard h Poor( s Corporation, Tb>> Fixe(1 J(ILom'o Investor, hpril 26, 1975, pago 715. ~ ~ ~ J I I GlROLDQ fo>~i AR7 LZClf CoiRVif gage 72 CC>Iaecg Or rZan CHagcgg 1965-1975 196$ 1966 lo67 19GS 1969 ac=a arailsble for fixed charges before taxes 4 846 > 691, 000 649,816,oco 1970 1971 ~1 1973 1974 19l 5 8$ 3>252>000 661 >683 >000 853 >306>coo Lees: Shame taxcc 8 854,362,000 879> 869> 000 8121>954>000 8133,444,eM +49,68$ ,490 8217>012>934 16>853>000 17>140 CCO 17>592>000 21>664>000 17>495 >Coo ~~a=a arailable for fixed ctmgcs af:er taxes 0 29 S38 000 32 676>000 3$ 660 000 5>580,000 10,796,000 19,712,000 10>791>000 879,ooo 2$ .436,000 40 019 000 45,811,000 All=-ace for fonda ase4 dart~ coastraction D 1 >628>000 4S,782,000 69>073>000 102>242>000 122>653 000 148>8C6> 0 191>57 >9 2> 1 $ 3>000 2>803>OCO 2>927>000 4>397,000 lrr-xc axsilsble for fixed charges before'teres- 10, 505,000 14,7OS,OCO 24,759,000 38.093,000 54,608 879 59.955 830 a exc " sg ~ llooancc for fends asc4 daring corstrac ion 45>C63>000 4f>663>000 50>449>000 58,756,000 58>909>000 s>cs~ avails ie for fixed charges after acs 43,8$ 7>CCO 6$ ,161,000 97,195>000 95>351>OCO 9$ frf6> ~ ai cxclaiis alienates for fhds a>cd 28>210>000 30>523>000 32>8$ 7>000 37,092,000 41,414,000 otal irtcrest charges 0 . 7,881,ooo 38>277>ooo 54 36f 000 77>483>000 84>560>~ 9,425,0oo 10,642,000 14,OC6,NO 18,427,000 23>957>NN 31>599>OO 41>713>OCO 56>654>000 > 76>'535>934 69>955>2o3 7'-ss i arrest car;.cd before taxes 5 >92x $ ,29x 5,00x (1 t 0) 4.4oc 3.44x 2.27x 2. 53x 2>blx 2.36x 1,56x > 2'-cs irteres cerned before texas an4 exclcding ail~a-. ~ for >ada used during const>uctioa 5,C6 (=.! c) 3.20 1 83 2 C6 2.33 1AS 1.24 1.75 A%5 In'teresa e& ncd after texas 3.79 3.47 (c . o) 3.3f 2.86 2.49 2,19 2.45 1 54 2,13 ='cs i-.:.crest carrcd a.tcr taxes vA cxcladlog a~;a=ac for fc.-ds-osed daring constrootioa 3,58 3.24 (F+ C) 3 09 2.65 2>25 1,46 1.6o 1,86 1 49 1>23 1>72 gear ~s Ar=:~l?>cert of Coyany, 1975 ~ 7ages 28, 29, an4 coni>arable gages ia ywioas reports, I I CAROLIlUL MAR 5 LIQfZ COHPAHY FuSe 73 COHHJTATIGf OF TilZS Ibi'EREST EAHDED JQTER 11COEE TAXES FHK! COST HATES FOH CAPITAL le) CAPITAL STRUCTURE RATIOS Cost Capital Rate Structure Ratio ~Ca @nant Ccemon equity 34.96$ Preferred stock 0,01 14 10 1.13 Common equity and preferred stock 6.11 Debt 7.72 3.58 Interest free capital 0,00 Total capital 9. 69X Fair rate of return on total capital 9.69K Times interest earned after income taxes ~ Component for common equity and referred stock plus component for debt Componcn or e ~ Rate of return on total capital Componcn 'or c 2.71x 3.58 lA CLROLHflL BNER 5 LICE CONK COVERAGE OF FIXED CHARGES AFTER IRCOHE TAXES BEFORE COBSTBUCTIM CREDITS NORm CAROLINA RENIL OPEBATIOBS VINE HESEIC RATES JQlD USER IMPOSED RATES TEST YEAR ENDED JUllE 30~ 1976 Under Under Present Rates Proposed Rates Ret operating income for return $ 99,315,367 ~l,ll9,500 Interest on long-tena debt 48,445 747 48,445,747 Total fixed charges 48,445,747 48,445,747 Times interest earned after taxes before construction credits E F 2.05x 2 7lx Source: Rule Rl-17~ Xtaa (b) (9) ~ Exhibit I, pages 1~ 6. Iangum ExMbit Ro 2, page 8. I I I +lWl>>th' Mf twI ~J $ b ~ ~ Page 75 COVEBACE OF FIXED CHMGES FIRST MRTGACE BOND OFFEBINCS OF EIZCTRIC lEILITIES BI RATINO CATEOORX 1975-1976 TO DATE NJMBER OF SV S) Coverage of Fixed Charges After Income Taxes and Excluding Allowance for Funds Used During Construction Issues >!here Significant Bate Increases All Issues Arc Reflected Ratings of Aa by Hoody's and/or AA by Standard 5 Poor's E.2Ox (8a) 2.39x ('i9) Ratings lhintained at A by Hoody's and A by Standard h Poor's 1.94 (43) S.O9 (S5) Ratings of A Ey Moody's and A by Standard A Poor's "Just Barely fhintained" or in "Lower Range" of Category 1.68 (S3) 1.8O (11) Ratings of Baa by Fhody's an%r BBB by Standard 5 Poor's 1.66 (72) 1.83 (3a) Ratings Considered as "Strong" Ratings of Aa by khody's an%r AA by Standard EL Poor's 74x (23) Source: Rhody's Investori Service, Inc., embody.'s Bond Survey, 1975-1976 to dutch' Standard L Poor's Corporation, %he e come vestor 1975-1976 to date. Pag 76 ~ ~ I c

8) 0 ~ cfood ji's Bond StttvcJJ October I .')7'I .. ~

Noody's 'To Assign Ratings 7'o Profor red Federal Agencies Stocfcs Financing Paco Rcrnalns Heavy Moody's ItnUnx POQcy ttcvtcw ttdtscd hns decided co c. tend its rsUng aerv)crs Co inrlvdlc qvnlicv dcstcnsctnIIS r ~ Ivhtle there hss been a slowing ln new corpocabc nnd tax preferred stacks n1 of October I, 197'L The dral n<<c to cxcsnpt otfcrlnga, nnd UIC Treasury has not hsd to burden rate preferred stocks. which htoodr's hnd alone prior cn I'13 I. J tbs macket tceqvcnUy, Fcdcr agencies have been consh. wns prompted by evtdlrnre of investor interest. hiondtv's bo cently hcavy borrowcrs. In tact, tbc volume of agency A- Ilcvcs that lcs raang of prctt ncd sudrks ls espccL1ny nprrm nanclng has boon on tbc increase la recent months. In the prince ln view of che carr tnccrnatng amount of tht. sc. ~ Arst four xnonths of the year, agency mnxkcc borrowing was CuttUCS OVCStnndtng, and Chc faCt that renunutns boflattvn rvnntns st a 52.6 bUQon monthly rate. But siaes Nay the and its rsmiAcsdons have resvhcd cencrnQy in the dQudon xnonthly volume has risen to $ 3.6 bQQoa. of acne of thc procccUon atfocdcd theta as wcQ as ocher Tbo main causes of thc profusion ot Ananctng aze the fixed4ncome secvxtdcs. money needs ot the housing Industry and tbe agricultural Because of the fundamental differences between pro-community. AttracUvc market interest recco aze causing nct f<<rred stocks and bonds. a varfsuon of our fsminsr bond ovtAO>>s from tbc savings insstutionz, >>bleb are the primo zaUng symbols 1riU bc used ln the qvaUry ranking of ptn aupporl ot thc rn'ortgsge market. Ia August. for cxacnplcd fcxred stocks. The near symbols, presented below, arc da tbe nct outflow trom savings and loan assoctaUons was cdgncd to avoid comparison with bond quaUry in absolves estimated to be SIN bQUon. To provide advances co StIL's, terms. It should always bc home in mind UIat tbe pro. tbe FHLIVs have bcxzoatcd hesvQy, and FttMA frequently fcrrcd stock occupies a fun!or post uon to the boncL has been in tbc market to raise funds for ics xaoctgagc sup- Preferred stock zasng symbols and their dcAateons azo potUng opersUons. The sttusUoa bss led the FHLB' and as followe c XytMA to cbandoa their regular paaem of quaztcrly finano. ~ dao oat ing. Instead, these agencies have recently been tapping the market on nearly a monthly basis. Tbc FHLB's have boca ha issue which is rated saa is considered to be a tbe most scUve, Issuhg 56 ed'bUQoa of debt la the last five copquallty yrcfecred stock. This rssng indicates months, ~ which 55.65 bUUoa vtas neet money. FytMA bas good asset pzocectioa and che least risk of dividend bocxun.J S3.7 bQQoa over the same period, raising SL75 Impairment wfthea tha uaivczse of preferred bQlloa 'n new funds. ~ tocks. T 'c housing Industry Iso of course a, poilUcaQy<cnctdvo Haatt azca cnd aay alga of mortgage money drying up produces outaies from cfffctsfs. Housing starts were down in Augva ha Issue <<hlch ls rated "aa Is considered a blgb-and new pcxndts aho decQncd amid reports that mortgagcs grade preferred stock, This zadng Indicates that vtcre becoming difAcult:o obtain. This suggests that Fedec there is reasonable assurance that czzxdxcgc aad al agency support may have to increase further. Thus, the asset procecdon wtQ remain zeissvcly wsQ main. Federal llomc Loan Sank Board hsc announced a pisa tained in the foreseeable future. vrhcrcby member $ 1IL's can borrow 52.5 blUloa for fumze clot ~ mortf gc commitments, and GNhth 1cQI reinstate tbo "tan-dem plan" <<herein it wlU be enabled to buy 53 bUUoa of , ha issue>>hlch ls rated a it considered to bo pxivatelyoowncd FHA insured morcgagcs. TMS acUvtcy sczong- aa upper-mrdlucn grade preferred stock. WhQC )y indicates that boczowtng by tbc agencies to help the hous- .risks are fudged oo be somewhat greater than ln ing industry wiU remain hcavy. the "aaa and "4a" clssslAcsdons, caccungs nddo BorzoaaMg by the FICD's, Banks fo. Cooperatlvcs, and asset pcocccdon are, nevertheless, expected co be Federal Land Banks to aid agrtcuhuce is also growing. Since maintained at adequate Icvcis. the COVCrnment ix SCUIoely trying tO bOCet Crep preduCUOa tdboott it is likely that the agencies vtQI be caQcd upon to Iacxessa ha issue which ts raced bsa ls considered co oe This monch. ia sddluon to the vsusi FlCD and Coop lower.medium grade, neither highly protected n td offerings, Udc Land Banks have mscuxities to refinance, nnd poorly secured. Earnings and asset yrotccUnn sp further borroavmg by the FIIIJVS and FtCMA would noc be pear adequate tor the yrcsenc but may bc quosuon. sucyrtstnc. Alto, the Student Loan hiackcUng AssoclaUon ~ bla over any. greac length ct tbne. (SCUy Mac) announced plans to make their first appearance tdbatf in tbc mnrkrc On Tuesday, they cxyecc to offer $ 1oa mUUoa of six month notes. (For a discussion ot this.agcacy, see . An issue whleh ls rated ba ls considered to have Bottn Svavsv. August G, 1973I page 672). 'ycculsUve elements nnd ics future cannot be con. Federal Agency Finsncingo ~ 'ny sldcred well assured. Earnings and asset protcetion I bc very moderate nnd noc nell ssfcgvsrdcd dod d I dod. o lol lo I Iooldoo lido o o cbsractcxtzcs preferred stocks ln Ucs class. Sconchtt New Xtoves *vetoes Stonct An issue <<bleb is rated b senrraQy bcks che Jan <.r ln73 ..-.... 96.76 guO Iqo39 chnractyitsUcs ot a.desirable tnvescmcnt. Assur. Jnn.~dept.o 1972 ~ ~ ~ ~ ~ ~ ~ ~ tnecvate moat tecetat 16.64 IAS S
• sencr ondt tt4etactrwsontotedt yvatcctt I+ ance of dividend psymcms snd maintcnsnec ot other terms ot thc lssuo over any long ported of
~ ccatedc new caaute. Umo xany bo smalL hksody'6 Investors Scrvfce, Xnc.t hhody'6 Bon6 Survey, October 1, 1973t page 510. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~ I I I I I O Page 77 ~ s ~ ~ ~ W ~ ~ t ~ ~ ~ I j Ocfobcr I, 1573 MOOd)JS Bend Stirte')f ~ 515 ~ IesaW 7,70~~. Other details on page uOL 'any, ~ on)a)ans Thea<<high grsde bonds represent a asl)afsttnt) hn issue which I ~ rated "<<sa ls Ilkeiy lo bc In ar. ~ roars on dividend payments. Thl ~ raUng'esigns In<<c~n Inr<<stment, Uan docs not pucpoct to lnIUcatc the future status of paym<<ncs. Union LiSht, Heat and Power Company First MI8<<. 85, 10/1/2003 j hlI factors whkh hare, end <<an bc expected to have, a nst)n<<)su)4) hm>>unt Can pwc>> OI)cstne s't)cc cuivent Y)sM. . s)atua) ty meaningful Influence on thc dcgrcc of support afforded tbe preferred atcck will be <<onside)cd. Among these Cactors aco As 5IOA) m110.00 102 7A)4% 7.83% the nan)re of the issuer's bua)ness) corn pcUUont quaUty and ID))sn tc/undablc pi)or ta )0/I/Ta. <<Iih debt st an In)steal >>est et trend ol earnings; interest and preferred dividend <<ov<<r. ICSS than T.T)~r Snnuauy; >>inst<<IS>> sana>>la ~ S ~ <<hair Or In raSI si any iimb on 50 carsnsiicc. ai 110 00 ihseuch 0/)0/II; ~ I Ios cs age) caPltaUcatlon structure; offbalan<<e sheet flnandng, Ihseuch 0/10I)S, nlsmium dcctcaNnr Iciihct Siliccihs rl ~ nnuaiiy Ihclcs)icl 1104 1. on 10/I/1st Is 100 on )0/I/)aa). 5pcaa) 51/Iacihs) cash Acsw) financing needs and purposes; mansg<<m<<nt and tsdrmniian unciudlnc iha epunna) ainhinc land brcsnninr In I'l)1) ~ I IOCAd us)Ouch 0/)0/N, s1 Iozoo usleush 0/so/)5, )e<<ct Ihcscaclec, fts C)nandal poU<<lcs) regu)auon; a<<<<oimdng prscd<<cs; rank Ing of the Issue within tbe preferred sto<<k saucture) and legal p)out)tonk rdaung to Ihc Issuance of addlUonal debt ONePss Off<<T<<d on S<<P<<m)ber M at 102 to yt<<id 7.83%. and pr<<fc)red stock. .Winning bid, 100.870; cover per bond, S1.70) cost to com-Issucts msy submit to htoody'0 an appil<<aUon Cor rat- pany 7.92ys. Other detaQS on page 563. Ings on aQ ol U)elr outstanding preferred stock Issues at any op)s)aal This issue ls reasonably priced, but aft<<@market~ Umc, whether or not they have Immediate flnandng plans. ~ blUty wQI be Elm)ted. Iqewiy.rated issues of preferred stock w)Q be reviewed tn htoody'0 Bo)ln Suav<<Y and Usted In the appcoprlate hfoody's hfanuais. General Tel<<phone Company of tho Southwest Rrst . tdISe. 75/ks, 10/1/2003 stsune Amount tsu)4) Cat) pwca OI)cstn<< priss ')s)d Cu/rent Sts)u/Ity A S30.0 0)I OL75 09 7A)3% 7A)4% Pubiic Utilities YiolCh bown Sharply / C)Nssnsvtundsblr pt)et ts )0/)/)4 with debt ~ I sn Inictcct cost >>C )CSS than T.S)~ ann>>Sary eihsl<<ISC Cauabi ~ aa a <<ho)a Or In Pat4 ai any urn>> rn 00 dsya'rucc. si )04)5 Intnuch t/50/)II si )oak) Ihs>>uch 0/)oi)s, ptcmlum dcclcasinc I ~ Inset <<A/)00)hs or )I/)Ooiha) r ~ nnuauy In>>la>>liat I)0450 Dn 50/)/)I) le 100 en )0/I/)/y/4 )IO a)nha Yield levels moved down sharpIy last week, as lt bs the )shad came mo)e apparent that the Federal Res<<rve was noc In g dined to resist lower in)crest ratec. The pttce Imprctre-mcnt Icas, oC course, r".Qeetcd ln thc new4asue )narket. For Ds)r)lss Offered on Septa)nber 27 aC 09 to yield 7A)48>> ~ Whmlng bid, 08.144; cover pcr bmd, S5.06) <<ost to corn. example. A rated CencrsI Tcicphone Company of tho South- pany, 7A)1%, Other detaQO on pago 562. wcs! was rinoffcrcd at 7.84%, compared wtth a return of oy)alan) These bo'nds arc appropriately pti<<cd fof In<<on)es L35% on thc <<omparably rated Hairauan EI<<<<crt<< bonds ma-acted duct last >>seek. We think thee the upward price Proposod New'ssue thrust msy bc extended, !hough aC a a)ore mod<<rate paces p<<ndlng a buUdup Innew.)ssue supply. Consoiidaied Edison Company of New York, Inc.... In this week's only scheduled utIUty sale, Southwest<<IT) Bail Telephone plans a 6300 InQUon olCerlng. In the mos! ... has fQ<<d an S-7 regtctrauon stat<<rn<<n! <<ovc)ing 6150 mQUon of fits! and refunding mortgage bonds, Series NN, recent QcQ System offering. Ã<<w /<<rsey B<<Q cold SISO mQ-Qon of debentures Io yield 7.85%. Atter an In)UOI poor recep. due O<<tobcr 15, 2003, to be sold ln a negotiated offering on tlon. these bonds are now trading at a prem)um. to yield or about O<<tob<<r 10. by a syndicate headed by ht<<cr)Q Lynch, ~ bout 7.73%. Thus lar. S636 mQUon of uUUty bonds have Fleet Bosum, and YJdder Peabody. been Te<<tst<<rcd for sale during October. This amount <<ould a asi)aki Upper mediu)n grade) piovtdonal'. 'vanly bc supplemented by addiuonal rcglscrauons during tha n<<zt ~These'bonds rank Iow in the A raung <<at<<coty. Conunuadon several weeks. of the present quaQty rating wIQ depend on the company'0 ~~ abUlty to maintain lcs coverage of lntccercc charges at least at curt<<nt lcvds. '6'hOO recent rate action cbould enable the New fssuos company to stay tree of Qnandng constraints Imposed by 100t/>>.Icons< tho cern)ngs test pcovtc)on contained in its bond Indcncu)e Norihern States Power Company (M~) Rrst Mme. over thc period immcdlaicly ahead, but additional reUcf 75/4 s, 10/1/2003 wtQ be r<<quired ln time. Thc company'0 abU)ty to ra)se hsn>>unt ))sunk Isu)4) Call pea>>a )Icccnt race ~Y)a)d~ cd)rant sca)u)I)y tbe substanttaI funds needed to finance its ongoing cxpan-alon w)Q d<<pend ln large pa)c upon the tbntng a)ui amount As 530.0 !9108.00 7,70% 7.80% ol subsequent rate a<<con~ FJÃ~sundab)c psi>>t Ir 10/I/Il. <<Ith debt at sn Inlrsral rest et Pennancnt <<I<<<<trt<<. gas, and et<<km rate inc)esses. cotaUng )tsa Ihsn Tl)s~r annual)y) >>inst<<isr a>>sabir as a <<Iuur or In pass. ai ~ ny umc an sc slats'allsc, ai Iaa 00 Inseuch sl)0/I II ~ I 10)as appmxlmotcly 5100~ mUUon. have now been app)or<<d. Ihseuch 0/)I4T). Isscsaium dccsaaslnc Ic))hat s)l)csihs or ta/Iscihsi Thl ~ total eup<<raeded $ 110 mlluon of temporary Increases ~ nnualiy Ihrtca))rr I)sacs la )0/I.)al in Ins en 10/I/nasa lsi I>>0& 1st Ihc annus) sinhine Iund bcainnine 0/I/TS snd 1>><<ac )hales)iac. ivhlch were put into cffe<<t on January 10, 1973. In sddlUon, th<<<<ompany fUcd ln Sept<<miser and August. 1073 Cor edd). ne+I)w Off<<T<<d on September 20 at 100% to yi<<Id 7.73% Uonol lncrcsaec ln gss end a)can) mick of appmximaicly 'Wh)ning bid, 90M9) cover pcr bond. SL10; coat to corn. 527.0 mUUon and 517A) mUUon. )esp<<<<uvely. Ek)od3('Ig Investors Service, Ic)c hk)od '" Bond Survey October 1) 1973, I)aife 5l9>> t r I ~ ~ ~ i ~ ~ ~ ~ ~ ~ ~ ~ s ) Page 78 ~ ~ ~ ~ i ~ ~ tu ~o ~ I: Slattge faeiQk> Sertke k p>avided ih ihC Cthi ISI ahd nafihtth Por. est>sin vrin>ct >hen>hi shd kiitt a>noesis ia a>her thonihsot ihcycst. ~ lions of Ibc I <<<<ct Pehi>nvls ahd Ihc cth>rsl snd ca>>c>h staioas o( ThC firn> Snhuil Ca>situ>Chl ii )9).l ><<>>ihh CUbiC (etl, A&W~Arvv ~ I Ihr Upper Pr<<<<nels. his!>r ci>>t> vcr>rd >hclvdc Grrhd Itsrh(4 Mu<< hsi bccn cah>tseitd <<bh hlichigsh Nnchnw'h lo inc>cave >Sr v<I<<>t snd ihc Dc>rn>> mc>rnrnh>sh ates (>hi> Isti sc. Io I J74&v I Mc( sad 40&J b>>4os cuhk Iici. tcspcc>ivcly. brr>>h>>g coehis (nr tAe o( npctsi>>g t~hut>I Thc company siva a<<ns s Sn>>ember I, )97). ) ~ vmbtr a(>>Orate gilds <<hicb pcrmi> summet s>arsgc (ot delivery >h whutr >hah>hi. Ci a reve>>. gttsitt smovai ~ of gss stc svadsbk fat cs>v>s) nmkys ih l91) werc e>>)ms>td sl spproiimsiiiy 5'9l 0>>rL 0t>0. Of Ihii Io>SL $ 2SJ00000(s far Iten>mnuoh (sc>b>kv. Sl)PO, fina Ousia>hi>4 Ad>fi>iohd >tvthecs arc also provided by staring gss 000 far storage fidd esp>a>ion shd dcvtlopmen>, 5l I,lyr>.>su> for for other ca>hpshics. Dvnhg lkc I<<rive ~hs cndcd March )I, as>em) gss pradvc>ioh Dcihfcu shd Ihc rcmsinihg $ 4~v)g>>I (hr l97), aptts rihg >cvcnucs <<ere denvcd si (alla<<@ space hcs>ihg, 62%; msia and icrvkc tens<<sls, as>canons. Cad routine cons>run>oh. I fitm b>duurisL l7%: b>>et>upi>bk ind uurisL IS%I commctcisL 2%: v Michigan Cohsolidusd is regulated by Ihe h)khigsa Pub(ic Service ~ nd rcudca>iaL I J%. Comm(>s(o>4 Ia addition io so ihcrcssc ih tace on November I, l972. l Haietsi 9 sv ii pvrchsMd ptincipslly (tom ibc Mkhigsn lVhcohs)n Io oif>ci CO>t ihCtCS>cS from in>crusic suppiict>. Ihc Commkdaa su rI Pipefihe Ca><<ashy, si>a <<holly owed br American Ns>utai Gsa ihotittd ~ gehetsl rotc iacrcssc of $ 7.000))00 ashes>ly, dfcaive ~ , Mkh>gsn Wncoh>in supp>>>s spprotims>eiy g4% of >bc company's ro. )aheaty lv )97L q>n>emcee, wbh Pshhsnd>c Ss>>cra Pipdinc supplying )0% and Grcsl La'ka Tish>>nk>k>o Scnkca (50% owned by Amcricaa Opera>1>g reve'nets lor Ihc'wdve >noh>he ended Scp> r. S(L )97). <<Crc $ 40).ldg.9$ 0. Ca inc>case of 92% (rive ihc S)dlg Jcg << 9(slitsl >m>(>>g4%, . for Ibc compsrsblc fcr(od ih )912. Ha income for Ihc same C taCIS wkh Mkb(g>h 7>rnton>)h Piadb>>>ealend IO huge>I )I. wss $ 2M>40 0$ ), compared <b $ )X&7),474 s year car lkc I Tbe company is a>>bled lo purchase IJ)7/)5 mcf pet dsy b> PREFERRED STOCK RATlNGS svsgsblc for fiscd charges snd pre(cried dividends snd ihc dchomi. asia> b comp>ised of littd charges shd p>cirncd 6'mdcnd> Karhihgi ~ash>y fsiihgi oh prtfe>red slacks ~ tc cap>cited by Ihc seine ~ ~ vsilsblc for fised chsrfes shd p>e(crrcd dividends isdcfinid sana I ~ symbo)s as those mcd la rating bonds. They are ihdcpcndcnt of come bctoreiacomc tata. deferred iheomc lssa. bwaimeal Isa crc. Sic<<dard ik Poor's bond ts>(h(s In Ihe sense Ihsl >bey arc nol diu, ahd littd charges. Fitcd chsrga cons)s> of sll inicrcit charges aCCCSSStily gradVS>Cd dtwnwatd f>Om IhC tankihg SCCOrded thC snd amanits>b>a of premium. discovai. snd aspen>c oh dibl. Ptc-i>su)sg company'S dtbi. In a msjari>y of cs>cs. ho~i. Ihc rsiihg (cntd dmdcnds tep>csea> prefctrcd d)vidchds tnu(>iplkd by Ihc ratio assigned s p>e(ertcd s>ack <<il) bc equal lo or lower Ihsn lhsl accorded ofPte Isaihcooie Io ncl income. ~ absuet's lowest tshkiag debt obrgsiioa. Ptsfentd 5>ock tsilhg> tCprc>Cht a Cah>lit>ad Judgmenl of tha ~my af d~cads sa I ihus implkd ptosptcinc yidd LEASED HOUSlNC CORPORATlO'iS aabdhy Of Ibe S>OCk. Tbe ratings are as fOIIOwt: Crl(erla for Ra(fng bar>vhgs AAA Pntur AA f(ig1 Grs!(r A JtWI qnvad 4(rreuhsG>ar(r de C 2ower Graft Sprru(s rive $ >k g(a>gina(, T..:i bc Hau>b>g snd Vtbsn Dcvclopmtni Aci of l96S suihorircd a new Spp>OSCh (01 >htC>ihg 'IbC hau>lhg needs Of low ihCO>hC fsmiiia. II incorporated ih Section 2) of Ihc Uni>cd States Housing Aa of )9)7, ss amends>L snd s kno<<n ss Staion 2) Les>ed Hau>ihg. lac>are co>n>dered ia snirieg si a prcfcntd nock rs>)ng arc li wss Ihc b>>eh> of Cohgtas Ihn thc program wotk as a surpicmchi ci>>h>islly Ihc vs mc as theic tevk<<cd in lhc case of a corpots ic band. ta the lear tchi hae>v>g program sdmiasie>ed by ihc Housing Tht most imponshi of It~ stt: (I) Pro>>idions of Ankles of Incor. Ass(>>shee Admini>irnion. <<iih the program operating lb>ough Ihc . . phrs>ion. (2> As>a Pri>>taion, ()) Fihshcisl Itcsaurca. (4) Future local housing set horiiy s(mgstly lo Ihc public housing prOgrsm. Pro>cc>iaa. sad I) ) M sas Zema>>. Voder thc pioviYbhsel Sca>oh 2) ibc Dcpsnmchi Of Ho s(ng shd hi in hood shel(>a. ohc Of ihc impo>>sai s>s>is>ICSI mes>utes used Urban Dcvrio pmch> IHUD) cn>crs in>o con>rsas wi>h local houung Io dactmihc >he stcv>i>) of prc(teed divh>end psymeaii is Ihe cs4 suihori>ics suihoriuhg Ihe se>honiks io les>a from privs>e owacn cvkrian of the number a( times cstmhgs cover fitcd chsrga shd d<<ei>ihgs already in e>i>>ence or io bc coh>irected snd sub>esse ihd4 p>elened dindend >equi>tmcn>>. In ihc psst. dvc Io ihe fsa Ihsl vidual d<<e>ling vh>>s >o Iow income (smilies ai la<<mon>My renisls. prc(tried dividend psymcns were nar<<dtdue>iblc for iss purposes sad AI the request af thC lOCal bOO>ing SmhOriiy. Ihe Supt>vbing ro Ihsi ihc elfin>vc ihCOmt isa nits Of mO>i i>>vers (msihiy pubhc (r~ gioasl olce of HUD vnll make s survey of Ihe loss) tennl housing I ei>fi> ~ snmrshicv) lt)l vrii!in s nsftow tinge. Standard 4; Poor'I cali I market snd. If faund appropriate. ii <<ill su>horite thc lord bou>ing ~ ~ cukitd >h<< thvenge ratiO SOlcly on an sile> >as basis.boihineluding aeihoriiy to Icssc a Speci(>> number a( housing enbs si ipcciiicd ahd ciclihhvc ihe silo<<an:c fot (vhds v>cd durin con>ltuaion. tth>six HUD thea cnicn into sn annual coainbu>ions eon>rect w'>>h ln >ecch> vtan. ho ever, i!us Iss situation hss changed dts Ihc local au>ho>i>y undct which >I con>teat io make mdiv(desi ahausl I >ha>salk shd ihc ct(cane ihco>hc I st N>cs o( utility comps nice no<< coniribuiions for csea unit lo bc kaicd. vsn vvkn lh>hi>>hers!mc>>> afincomclsscsdaes in(set provide t Vndcr the Hou>ing Act of l9)7. as smthdtd. such annual caa> ribu. I 4 ~nmt a&4><<>>A pto>eclivt c>nhkhh for >hc prcfctred s>ockhoMct, Ihc lion> psymenis src gusrsaircd over s fied number of years by thc sdnr>ion'n(s ts>io mtssunhg eo>etsfc of fied charges snd prsfcirtd Vniied Slates Auihor>>y. an ega>>y and inn remen> siiiy of >hc Uni>cd ad>oh a Prcasc bass is con<<dc>cd s p prop>itic. S>sia who>c funain>s. powers snd du>>es stc va>ed in snd est>cited Thc rsi>> how u>>d by S>ands>d gs POOVS for Ibk purpose k quite by ihc Stcrasry of Houiing snd Vrbsn Dcvelopmch4 Ssk( Acl fut. Wh<<>at >O that rrceaily sdrsiid b! >he MC. The >hCehshiCS Of >bees> >her I iovida >hei The (siih ol ihe United Stsics i> solemnly plcdtrd t euk>ihn art dc>cribcd h>W<<. Thc numctstor c>m>is>s a( earning> to Ihc psyrhcai of s>l annual cahlribmiohi conitsacd (at ... shd v v. I )anuary 5. 1974 Page 92) \ Stau>Sar>1 h Poor ts CorporetS,ons The Fme>S ZI)co(r>c Zzrvestor> Jf>)u>r)r 5> 1974> page 983. << ~v ~ ~ ~ 0>>  ! rs 'r l Page. 79 ~ ~ I 'GGG ~ h1ooflJig Bond S(fyveff Maycjt 3, 1075 0 0 Docoffcf Offcfccl on February 27 at Ioo(o ylc lcl 10%. Price 31, 197 l. $ 21.0:U 087 iras so fcsfrlctccl Imcicr !lie charter to cc>iiipniiy 98.00; cost io cnnifiociy 10.2ot~w. 0(hcr dctafi provisions, lvhich Ics((le(lon ives fcnivtnxi ln January 1975 In Uvvn Svnvyr, February 17, pago Ifi24a opbdoni I'his viipcfuucdlu(II-grade lcsuc Lt anrictl for vpoi( thc hale nf !lie cunmion stock, Tlie Clio((Cr viral CO((fat(if, P(OCIAIOIIS lliiil(liigthC aiiiniint ) cofp rate Ifivc~(ufs al(hnuf;b, dvc to (lie rfuaU sixo tho o! divklcfidr cchi li can Iic niaiic on its junior stock u(doss Ic c, after (no(Le(abUI(y may bo Umltc(L certain ruins oC coivmon stock and surplus to (oui caphafi s sation arc mal((tainccL Ratings Aodugod you Sfofwc This Is a nciv uIOnCy" pfefefenre entltfing cox porate holders to the 63% dividends received credit. Carolina Porfer 5 Ughl Company CaN foofvrof NO( rCfundable PriOr tO AP(il I, IMO at a In(vcr In(crest or Pfcfrrrc I (Uvidcnd cost; DOhcxtffso calh The ra!lugs on Cafofina Pe(vcr af LIght Co.'s pubUcly held able at prices to bc svppficd by anfcndmcnt. pfcferred stock Issues have been xcduced to "baa" from "a". For further comment, scc bcjotv and page ISST. ~ ucfnocv Tbe c(nnpsny provides elcetxle so(vice in an area of approxlfnatcly 30.000 square mfics ln North avd South Carolina having an csUma(cd population in cxccss,o! 2, Now lssuos 800,000. Ficctrlcfty Is fvxulshed at xctafi ln 200 coinmu ~ Carolina Poiver S Ught Company... nldcs, and vcholcsalc service is svppficd to 24 miuilcipafitlcs. ... has filed an S7 registration statement covering 2 mfifion fharcs (Ivi(hoot par value) of cumulative prefer. During the 12 momhs ended Dcccmbcr 31, 1974, operating revenues amounted to $461. miUlon. Itcc~ucs as o! that date ivcrc dc(I(M 34% from resident(ai, 29% from indus. ence stock sex les h to bo sold in a ncgofiated offering tzial, 1059 !rom commercial, and IS% from other sources. through hferxIU Lynch, Pierce, Fcnnar ac Smith,.inc. on Approximately 84% o! revenues ircrc derived from North hlarch 13a Carolina and IGIw from South Carofina. auofffy a aoffn(fc NO rating applleatlOn XCCCIVCCL C(f the total instaficd gcncradng caPabUI(y o! 5,026 mivso puopocoi.PXOCCedx from the nCIV pfefefenCO StOCk tVUI be 55.440 ls coal fueled, 11.8fa nucjcar, OSfr coal/residual used for'general cofporate purposes including thc reduction oU. 10.7fsr No. 2 ofi, and 3.6fgv uses crater poivcc. For ~ of short. term borroicings lncuxzed pximarfiy for construc- 1975; the company an(ICIpa(es that Its generation still be Uon. Short.term bofxo(vings totaled $ 131.T mlfilon at DO- produced as fofiuovoi 733er txom coal, 225cw from nu-canbcr 31, 1974 and afc cxpcctcd to be a! $ 12S mlfiion clear, 2.0% from cva(cr, and 1.6cv fznm No. 2 tuel oiL immediately prior to the de0vczy o! the nciv prcfcxzcd stock. In January 1975, the COmpany irax grm(cu Cni.s ~tWa Capital cxpcnditures for the 1975 through 1977 period are in xetail rate relic!. Also in January the company xvas al. ss cvrrcntly cs(imaicd at zcqulrcd 51,142.7 mUUon Including loived to pu! Imo effect a 5204 mfilion <<holcsale zate in- $ 342.G mlfiion ln 1975. After the sale o! the neiv preference crease subject to refvnd and a foisil fuel sdjus(ment clauso stock, the company wtlmates that I! >Cifi need $ 150 mifilon appUcable to aU <<hoicsale sales amovn(ing to approximately oC funds from )on term soutees. Thc'company Is presently $ 20 mIUIon. ~ unable to Issue additional preferred s(ock under the eaxn- copfcofffoffonf As o! Deccmiavr 31, lvi4; pxo forms zeficcts ings test in its chatter.. the proposed sale of pfcfcrence stock and the sale In Jan-
• t'
~, (whoofcoffonf The cofnpany Is au(herb(cd to Issue '2 nififioii uaxy 1975 of 4 mUUon shares of common stock and $ 22: shares oC scxlal preferred stock. It ttiU have 2 mUUon shares outstanding vpon issuance of the nciv s(ock. It Is also au-350,000 of fifst mortgage: llbifr Series due 1994, and sub. ty sequent sboxtqexm bozxocvtngs. thorized(o Issue 300.000 shares of thc prcfefreil stock (237, ~ 259 shares outaandlng), 5,000,000 shares o! prcCeacd stock Ac(uct pro yorfno A (500.000 shares ou(s(ending), and 10 nifillon shares o! (000) gs (000) serial pfcfcfxcd s(ock (2,150,000 shares outs(ending). The Short tean debt $ 131,657 L4 578,000 3.7 authorised aniount o! prefcrcnce s(ock may be increased ahiortxage bonds SSG,680 '47s9 1,009,030 474 upon the con!en! of the holdcxs of a majoxtty of the to(ai Other long tean number of oui!tending pfcfcrence shares. dCbt . I ~ ~ ~ ~ ~ ~ SOM4 2.4 50~4 23 focnfnec rrcii None. Doaf Rccfrfcffoncf None. Total debt ...... $ 1,168.571 56.7 $ 1,137~4 I' stock .. R$ ,118 14.0 '288,11S I%5 ~ 5'referred nnod Chorprc ond Proforfocf Dfvfdrodc yrofocffonf Preference s! ock: .( 50,000 (9Common ac 1St! txfa 1t(X x!f1 tzfp surplus ...~ . 548,465 ra I 26.6 604,465 28D s ~ rsas sas ass Ias sas D I. !av 0 I ~ as. Iaras 3.7 I.ua 3.0 Infer ouivnrd In ihc prcuprcuac: rofnlncc phai Inrnanc inrrr One Iarraf riwreCri farra( ycprclcni nct Incotnc CnrCCCr Crntcrrni in Tvsa asasssl .. I-",O'f0050 1000 I" IOI,II3 3000 ~ creat rcarccrr nlui onr.ivied uf onaauf( ra nioic: nnai pcc fs eccl( aiivia orna(0 cstars~ ni iscrarfcali aicvaalwasi frnuacvnavnar naulianIIrn by Ino n:a.ass(( nc p f-vo(w shores ou(c(roe(na xf.eaa44 folua Iiaoi InrnMc hri<<cc innvnn corer wrcv. Io ncaa inroMc. Icpco foccnc. Oho. Dfo fsvann raaverncr oniucicli Io cava cficci io cise laasarncc of Ihc Ilcav l Iacfrccsll ~ Iasru ni on oaaaaiavvc auth(anal f'lic of 5 A, I(le zonulry 0 1 rnir vf c nuiiiosa ~ Iuacan of ravwauan. Ihr pilaanrai cri>>'f 5100 Iauiuon fia ~ I Ma I ccacr Ivvvlc ni on nacunaavl cvac of sat~>> In liw Niagara tdohatvk Porfer Corporaliori... ~ rconsi aiuvcia'r uf 10(v. nasa( Ihc npisllcaiwn of Ihv pcocccvic Ihcrc (rWn. Ir auiacaulcar( by uac Conapnny (& ...'has fUccl a fcc(c(ra(inn s(aicment covering 4 .000 abates of SIV(htiar.unhi<<cicfniila(ive pfcfrffCcl s(o(k to bo Dfvfafvndci 'llolclcts of the Preference stock aro cntltlcd to snid ln a nccu(ta(ccl nffcfinnn or alnicit ax(arch 11. Tho xc~ivc ccimula(lvc dlvbhncic payablc qua((cay on July ). synilicaic ici(l ise Icd by 6 ilucnnii I(foihetc anal fdcffifiLynch, OctolIcr I, 1 lnuary I, aud April 1. I'icfcc, Fcnnrr fcc Smi(h Ine. Application ICUI Ini made to list r CIIC I'Oil(DailyS ella!(CC a(nil (lic nlnt(gage IIICICfltufe Con (lie 11civ pic!a'fcccl uii flic NYSL ta(n pfnvlsinns limiiin,, paymc(I(s o! each cllvhlcnds on cvuiiiy "a assi(upi xlulliam grade; prmlslnnal "baa . ~ ~ a ccnnuiun s(o'k unaicr crrtahi cirnimstanccs. Al Dcccnibcr Ifighdx tati!is granted last week shoulcl ahl hi keeping I I! Is 'I )+ody(o Investors S~iccf Znco I I4oo()Y'9 lkxn< Giurvcv, Hf(hach 3, 1975, Pni.c 1 66. l I I Page 80 a i ~ ~ ~ ~ ~ I /<<<<<<<<<<<<t <<o<<o ~~ <<<< ~ <<<<a Sacer~( ~< ~an(o>)l~ conlinuc lo f>c un side to mcct (be cata isgs lest re>p>I(cd to fssuc adt'u ~ ~ ~ iai) i~ >) (Ionsl ptcfcntd s(OA. a a'>oe. k>oeooo (>CI. I) (as(t St( )4 ~ S)r>( A,A,I ~(wl,s) IN)S,())ta O(SO . S(S) la October I'N), the company f(CJ wi(h tbe 74or(h Cs>a>line c i>( wry.cec<<aru.~ Vtagi(ICS Commis))sn f I)CVI:7 ssd (l>c Suu(h Cs iul>ns Puldic Scrricc h(a>e (oc.l oooo Llt IS( L>r Con<<nation f(ICI"A:>s pp(na(h>ns fw su(bu>hy to iacicsac hs per. Iu( C~CL 'o(eee Sec ~ ~ a 7>en~ Slt L>( S ~ (SS S St' S>s tat . LN SS>t Dasncn( (C(eil (sacs (0 p>no(dc sn sppiusieiislc 2 I <<>sc(case iea rcae t>ucs f(o>n retail ss)c>. Os January 6, l91$ , ihc ICCVC, by order. M ~ g(an(cd tbc cooipsay tiae >(>(urs(t>I snnusi rsie inc>rase r>ius) to sp. ptosbna(dy SSI 9000(O based on I9744fcl ul L<<h sales. On January FOI)o<<ing (his fuasncisfp>o foe>os cspi(sli>stum wi(I bc mo>(fuge IS, IN), lhc SCI'SC issued nn ot Jcr grsntiug the company an sp 'eads, $ 0.7<<: pons(ios cosiiol noitt 1.(<<sip>c(ct(td nocL, I) proaiina(C Ik? <<Snnilal inCtCSSC ee(u>) (0 Spp>OSI>naacly 59 f>00,000> )LS s, 7%'on>mon ope>ty bused on tlac l974 Icfcl of k<<h ss(es Ties oiilcr rte)ui>cd thc icfund 0( ~ Loe>g-(rrm drb(p(ut pee/rnid)>ark <<CI n(u>dd) 9%4/nrr piss( approslmstdy SS40 000 li1)rd in l974 >a csccss uf thc a pprorcd ta(c(. Corrrsgr of/>std rksegr( ssd per/rerrd d>a<<(rods rrseo4 s odrq soir Tbc HCUC be)i>surd sn order buaidng the sppiics(L>n of thc corn. for n>o4(rsssrr of o Ogd eo>>sg, ykrrrfser, efr Aorr rotrd (ll( psny's fossil (ud sdjus(meal dsusc for rcsidca(isl cunumers io 75% 'tsucofAiogorob(oka<<k'>per/reerdstock "BM," of the fossil fud cosis incr>red for a pr>IOJ not tu esrccd CO days sp f>i>ca(de la Ql s (cade(td on senl sf(cr I>eh(u sty I ~ l 975. I ice ting) herc ~ ~ ~\ << ~ been schcduicd wi(h re(pen io (hc s pptirs(ion of the fossil (ud adjust. ) ~ mcn( douse. Ia hi arch IN4, (bc )(orth Cstohna General Assembly I . a ps()cd ~ bgl su(ho>i>ing thc >ICVC to p(tmit u(pi(ics ba rs(c cases (o a '>(Siss a got wsr4 (cst pc>ice(. The company p>esca(ly phot to fife (or " CAROLINA POLYER
• LIGHT COMPANY
. aa addiyonsl tc(s>l sate incrcssc ia 1915. e ~ ~ '()t T>oooo(ot (rt) Oe>eeaaee ts)) >t ts)( ts)o n<< Oper(ng Cumulof Ae Prr/crcncc S(ock ore>,neo<<so>(stat)~ c(ost >(to( >st.li >ssoa >oass O. u Lfstcb I) sa uadciw(iihg syadecs(c I headed by hler>iH lynch> C>toe. So>ales(S(CS) F>C.CSS>.C> .I .at )>LS>t>LS<<C )(JS ul l>SS <<UI >an SL)> >)so I<< ~ Pm>ec, Penner Sniith ls sch(dul(4 to offct ).N0.000 (hates Cs>olios Po<<ut ga IJSht Comp)ay I'rcfrrcncc S(ocb Seiics A, Cm snub(ire (<<i(bout psr rsluc)Thc shoes wall bc ptotcc(cd sgsh>st lawn-b>(eras( cost tcfundiag uatg April I ~ 1910. Tbe>cshcr they >nay II ~ I ae <<E I 'I .I Iel \ III ul 'o Ial all III I<< lal III I:, ASSET PROTP>CTI0'.ll Cs(olios Power Ib Ught <<)ll bare a pro bc rcdcttncd sl thc oas(han of thc comPsny el rations Piiccs. Proceeds forms esp((s)its(ioo of 5)V% long ieim dcb(, l4 4D> prefcncd stoA, f(om (hfs "acw aionry" c(feting w)ll bc used fo( general co(pots(e 2S% prCfttCIICC S)oct Si>d )02uu Cummaa C4ui(y. LOng.tetm 4cbt panposcs including ".ve >educ(L>n of thon term bo>rowb>gs 4ciarcd v plus picfcrrcd snd pie(crrncc s(och <<)ll e>(ud 70.)eb of nct plant. p>imsrgy for (hc coi>st>era)on of scar fs ili(ics. These shot( actin bor Thcsc picfeienec shstcs s>c soho>dine(cd in dirfdrnd righ(s tn thc to<<fags toislc4 sppiodmstdy Sl)I,(>$7.000 sl Dcccn)bct )I, IN4, ptcfc((cd nock bu( senior to thc company's common sbs>es. (l'hdr ~ nd arc cspcc(id (o sppiosimmc SI)S.N0,000 s( the (imc o( the ss)e nnrrcgrs ros>isurd m drr(4F 4 Ipyi, >hr rompnsy cr (hu( iimr hud of (Lese shares. no( rrrr(rrd >hrf>JI brrrfns feosi itr rrrrn( (sir Is. rro(r. Coawn rr Con(tree(ion cxprn(BO>es stc pic(en(ly cs(lmsied st 5)4).SN.000 4 (915 should,brgis to cshibii o n>ndrsr up>fred. Cv>rd on rhis for l915 snd SI, l4) 7N.C& (or (he >us>s l975 (hrough l917. Dating lmprorru>rn(, wrhair eo>rd rkfs I>euro/prrf>rrsrr rhorrs "VVV. 1974 (bc company (rdurrd iis phoned l91)- l9 >7 cspcndi(utes by a ~ (otal of spp>osimsicly $ 7$ 'S,N0,000. These trdumions iodudrd thc climias(loa of fere penta>5(d>>cw Seacrs(ing units which would bare ,pioridcd so sdda(4nsl 4290,(>00 Lw of fciic(s(>ng cspstl(y. A(so in. ' dudtd wss the difrnsl i I rsrh of ihc f>is( tiara ( f thc four proposed CROWN ZELLHIDACIICORPORATION 9NNOhwnucl(st furled,unit>of (hcSbcsion list(is Hu(lcs( I'ower 'lsa( bysppioaims(riyonc snJ nnr hs)f>cs>s snd (he (outthunit by Ogrying S>'aking Fi>nd Dc j>cn(@yes e, lwoycsis and t! c t n ycsr dcftiisiol thc 720.0>)0 L mal fied I:os. boio No. 4 Vni(. Thc rnmpssy now rstimsias (hst onc ol thc liar>it tbn( unii> will bc com(ee(t 4 rath year Dom IOS I to )9S.(. The rniirc project 4 now's>imstrJ io coi( sppioabns(clg $ 7.(0>.000.000, o( 0~ n his>eh lg an undcrw>iYmg s><<>L'ea(e lacsdcd hy Lchman II io(Leis I acuipsinir 4 I Js as tun(fee $ 75,NO (FA> C>n<<w pal(na bsdi Co>porn>ion S4Lisg I>urn( Drbcn(u>ts Juc h(arch lb. 2(OS. <<(Jch 5$ 4),74IJ)00 is Lath>d(J in thc I97$ .(N7 runniunioa These dries(u>cs <<i(l atf>iJ pna(fninn srainai La< iutcicsi cosl program tcfunding <<sail IN'a. A )4Ling lund ca>san>rnri>an ia (984 <<)ll ir(irc 'a addlh<<> thr funds rrrt(f(J Dom tbr ss)r of (lac uc<<preference $2.2>O,RQ of thi akbcn(sees su>wally. 1'hr ufl'r>inr <<Sl le <<narc<<>ed lant pin(cnrd ley s n(gn(nr I irJ(:c danae. I'i of mls leon> ihc aa(fr>L>g a >a slotL nnd thc ss)r in Jsnusry l97$ id cumnaon s(ufL anal fats( <<)ll Lc aLI(J tn iLc compsny's grnnsl fun>la anal u v J (ot <<aa>LL>g 'c mo>(gsgr i<<and(, thr taampsny cs>ims(rs ihsl it <<itl nrrJ sp- 'a 1 ra(dial asd o(larr no>poco>r pu>paar), is>I>>Jmg Inip>nermrnl of ~ p>nsinas(f)y St)OP(S>,KL) >af (LC funds tra(ui>cd (o( thr (915 rosa(>uc. eshtisg fsritiYes, purr)mars o( sah(i>L>>as( fa)ulpnarnt asd sn(uiYiaim ia Ib>> p>ones>n f>nn> long >nm >awrrrs. >br cnmpsny penrn(ly (4ans of s>L(i(hmsl (iasleibnal<<('v(>>(sl ta(at<<ala(u>rs for INS n>>'n(hns(rd lo tahe 4 (Le irrosJ >(us>tr> uf INS sp(a>naia<<a(f(y 5((>()(WVO(s) n( SI>$ ,0(C(JL)0. hear ls'a seal teer'tsa rua'riufra f w the>> sr rnalnl r a ~ tL>oufh thr )wig>> )sir of fi>at ma> tr vcr lwmh. Aal liihwsl sfa)>>e>ifs l>rccisler )I, (974. <<nr >sc (inert snd s.27 (hnri at>pre(nuly. <<'ll Ie i)surd Is(rt in I')S, (hc () pe anJ ana>wn( of <<L<<'h will le air y<<>>rd e>s tkr i>up>varuers> is ihr In<<( s/ f>aed fhsegr reaereugr nrrr lnmha(dal ties(thnr. ihr pse( enrevi )a n, I >lr suha>ss>i>d real Ital<< us >hr ms>to>sr'S a Sign>/>run> ps>i>has <kh ~ >hr Ilaeni Ia>eoi>s i ~ ludo>>ey. e )'hoar(nerd o' Thcrnmpsnyh pin(n>lyuns(4r tnia>ur ~ >Lli>kmsl pitfrtirals(nrL undn (lie ro>n(sg> (rst 4 its a'hsi((r. 'I(ac iaauo>ifr >af pir(nruce (hie Ie>ur >II e>slang /usd dries>u>rr f(. I'e>r /ueehrr (silas en>us> Sli>CL, bo<<rrrra is not >ul>r(( (n nn rmnmga (ea(. In (Lc rom( (Lr rusrre sing Sir >pres>i esa e/ >br caen>p >sr ple)>ar reason(( ihr low'af (hr I yard Iur>es>r Is>reise Jv>rd l>r;rs>ler 1, I>IIA r ~ tnmpsay 4llt lo tie(he sa(f.(ustc snd (imtly rs(c (cl>t(, i( nisy rf a I'(>ge 846 ~ '. i. ' ' ':I)>R(> INC;Ohifi INYf'-%'Oft e 1 s Standard 8( Poor(0 CoiI>oration, Thc Pi>(cd Incoync In)ec.".tor March Ri I975> papa .",yv5. e ,e y f' e ,a I ~ t ~ ~ I I CAROLIFtA FOIER AND LIOIIE CMPAIIT 'QVHVICE OF FIEFD CIIARCEE ADD IREI'ARED DIVIDNDQ 1965 19'969 1965 1975 1971 1972 1973 1974 197S o>wl interee c?targus 0 $7 GG1 000 8 9,425 000 QO 642>000 +4,006>000 $8 427 000 (23 957 QQO $ 31 599 000 QI 713 000 g6,654,000 fr6,535,934 4 89,955,263 rrefe..ed stool dividends II 1,606 000 1,606,000 2> 835 > 000 2 > 966> 000 2> 966> 000 4> 699 > 000 8> 371> QQQ 9> 612 > QQQ 13,017,000 20,672,000 25,752,000 Total irte:est charges and preferred stool dividends I 92487>000 ll>031>000 13>477>000 16>972>000 21>393>000 28>656>000 39>970>000 51>325>000 69>671>QQQ 97>207>934 115>707>263 Total In:erect c?urges ard

recense". stash dividers cn 2 c 't&x teals J 10>720>408 12>214>622 15>470>005 19>442>678 23>288>274 29>713>27S 42>380>848 54>458>512 71>805>788 '7>455>998 IRR>145>263 2"es Interest clerg!s ani preferred divMe.-ks esrred before taxes 4.36x 4.08x 3.44x -3.17x 2,72x 1,83x 1.88 2.24x 1.66x 1.S4x 1 (1 v I) 75'!=os i...crest charges and tref!rred d.'Iidertds ierr!d 'before tax 1 ard excluding all"ucnc<< for

(. -::> f tds used during construction 4,20 3290 3.26 3 02 1,48 1>54 1.78 1 33 0,98 1229 tali ~ <<s ~ ~ <<res> c 51fF<99 1.76 1.53 1.66 (c e i) 7='!s in erect charges mR ea...!-! a"ter taxes arA excludirg "us=co .or furas used during construction 2.97 2 277 2.19 1.94 1.34 1251 1,21 0.97 1.14 2; .'.". << t C ~tt 2255 P 2 22 22 <<2 ttt<<222 I 2 2 2<<t 22 >t<<to I 22 t l I I l I I Page 83 CAROLINA HBER dc LION COMPANY COMHJIATION OF TIHES FIXED CNAROES AND HEFERRED STOCK DIVIDENDS EA1UlED AFTER INCO!R TAXES FROH COST RATES FOR CAPITAL AND CAPITAL STRUCTURE RATIOS Oost Capital Rate Structure Ratio Component Common equity 4,pe Preferred stock 14,10 1,13 Debt 7 072 46.39 B cferrcd and preference stock and debt 4.VX Interest free capital 0,00 4.m 0,00 Total capital 9 69X Fair rate of return on total capital 9.69X, Times fixed charges and preferred dividends earned after income taxes Component for conmon e uity lus co nent for debt and referred stock Componen or e an pre erre an re crence s oc ~ Rate of return on total capital mponen or e an pre erre pre erence s oc ~ 9.69 2.06x page 84 CAROLIIGL P66R Ss LIGjE COMPAKf COVERAGE OF FIXED QSRGES lQG) HKFKRRED DIVIDERS AFXER IlfCRK TAXES DEHRE ClÃSTRUCZIGN CREDITS 1lORTH CAROLINA RETAIL OE%RILTIONS TEST TEAR ENDED JUNE 30, 1976 Uhder Under Present Rates Pro sed Rates Net operating income for return $ 99,315,367 $ 131,119,500 Total fixed charges 48, lA5,747 48i445i747 Preferred stock and preference stock dividends xs a86,264 15,286,284 Total fixed charges and preferred dividends 63,732,031 63,732,031 Times fixed charges and preferred dividends earned after income taxes before construction credits E fH 1.56x 2,06x l COVERAOE OF FIXED CltARGES AfiD PREPARED DZVIDERDS Inge 85 PREFERRED STOCK OH%RINGS BY ELECTRIC UTILITIES BY RATIHO CATEGORY 1975-1976 TO DATE OF SS ES Coverage of Fixed Charges and Preferred Dividends After Income Taxes and Excluding Allovance for Funds Used During Construction Issues hhcre Significant Rate Increases All Issues Arc Reflected Ratings of "aa" by Hoody's and/or AA by Standard 4 Poor's 1.93x (SO) S.O9 ( 9) Ratings fhintained at "a" by cooly's and A by Standard 4 Poor s 1.56x (35) 1.73x (10) Ratings of "baa" by Moody's and/or 'BBB by Standard 4 Poor's 1.42x (36) Ratings Considered as "Strong" Ratings of Aa by Hoody's and/or AA by Standard 4 Poor's 2 llx (10) Source: Moody's Investors Service, Inci, Hoody's Bond Survey 1975-1976 to datei Standard 4 Poor's Corporation, The Fixed Income Investor> 1975-1 o a e. .CAROLIlUL HSER & LIQiT COMPANY Page 86 FAIR RATE OF MXURN ON BOOK VALUE OF COMMON UITX On Basis of Standard of Commensurate Return Study of thc Fair Rate of Return on Common Equity Allowed Electric Utilitics by State Regulatory Commissions and by the Federal Power Ccmmission in Rate Proceedings 1975-1976 Study of Actual Earnings Experience on Cosmon Equity of'perating Electric Utilities in Fair Value Jurisdictions Used as Comparison Companies 1971-1975 Consideration of the VaJor Upswing in Rate of Return on Comnon Equity Which Nas Been Experienced by Unregulated Enterprises in the American Economy 1974-1976 Standards of lhintcnancc of Credit and Support of Financial Integrity an rac on o Cap a on Fa an casona e Terms Market price of comnon stock in relation to book value and common stock offerings, 1972-1975, 1976 to date First mortgage bond offerings of electric utilities with fixed charge ratios to support A rating, 1975-1976 to date Preferred stock offerings of electric utilities with fixed charge and preferred stock dividend coverage ratios to support "a" and A rating, 1975-1976 to date. Carolina Power & Light Company Fair Rate of Return on Book Value of Common E uity 14.25$ at Common Equity Ratio of 34.96$ >> Excludes allowance for funds used during construction <<Conaon equity ratio of 35.81 percent, excluding deferred Job development investment tax credit and interest free capital. CAROLINA PCMER 5 LIGHr COMNNY Page 87 FAIR RATE OF RETURN ON NORTH CAROLrrQL RETAIL OPERATIONS ORIGDiAL COST RATE BASE vslrhS IHBEDDED COST OF LONG-TERN DEBT Arm INFERRED STOCK ON JUlK 30 1976 PR0 FGRHIL sArz 0F cobra 8TocK IN oczOBER 1976 Cost Capital Weighted Rate Structure Ratio Component Long-Term Debt (page ll) 7 72'6.3g 3.58$ Preferred and Preference Stock 8.01 14,10 1,13 (page 13) Common Equity 14 25+ 34.96 4.98 (r g<<) Interest Ace Capital 0,00 4.55 0,00 Total Capitalization 100,00@ 9.69'air Rate of Return on North Carolina Retail Operations Original Cost Rate Base 9.69X <<Excludes allowance for funds used during construction oo l t ~ I I CAROLIlllL P%jZR 5 LIG1E CRINNX IEGREE OF FAIR VAIIJE OF CORK6 EQUITY anZ 30, 1976 Total Conan Equity at Book Value in North Carolina Retail Original Cost Rate Base 4 472~897i 137 Total Coarsen Equity at Fair Value in North Carolina Retail Fair Value Rate Base g 673,996,996 Total Common Equity at Fair Value in North Carolina Retail Fair Value Rate Base as Percent of Total Con+on Equity at Book Value in North Carolina Retail Original Cost Rate Base @73~996~996 finis KpP37 14@.g2$ Sourcet Rule Rl-17, Item (b) (9), pages 2 ant.5. I I l l ) CAROLINA PQ6R 5 LICIT COHPANY FAIR RATE OF REIURN ON COHN)N 8@ITS AT FAIR VALlE 142.52 PERCENT OF BOOK VAIIJE Carolina Power 8 Light Company Fair Rate of Return'on Fair Value Comon uity 10.00) at fair value common equity ratio of 43,36$ at Iuir Value 142.52 Percent of Book Value Excludes allowance for funds used during construction Note.- 14,25@i.4252 10.~ I l I I I RATE OF REXURN ON CO%ON EQUITY AT FAIR VALUE 142 ~ 52 PERCK2PZ OF BOOK VALUE PROM OPERATIONS ADJUSTED TO 43,38 PERCBIT FAIR VALUE COY1%N EQUITY RATIO OPERATIIQ ELECZRIC Ul'ILlTIES IN FAIR VALUE JURISDICTIONS USED AS COHNRISON COMPANIES IN TEST OF COMMENSURATE RETURN 1971-1975 1971 1972 1973 1974 1975 crating Electric Utilities in Fair Value Jurisdictions Other Than Texas Rate of return on coinnon equity at fair value ad)usted to 43.38 percent comnon equity ratio 9,8Q 10.2+ 10,22$ 9,96$ 9.67/ Allowance for funds used during construction as percent of net income for common 15.60 20.16 20,78 19,89 19 98 crating Electric UW.lities in Texas Rate of return on common equity at fair value ad)usted to 43.38 percent common equity ratio 11.49$ 13,45$ 11,14$ 11.18$ H. ~ 54/ Allowance for funds used during construction as percent of net income for common 7il5 9,40 12,52 11~.58 Operating Electric Utilities in All Fair Value Jurisdictions Rate of return on common equity fair value ad)usted to 43.38 percent common equity ratio 10,43$ 10,74$ 10 6Q 10.6+ 10.37$ Allowance for funds used during construction as percent of net income for common 14,50 15,09 15,20 17 99 l I I l I I Page 91 CAROLlllA PNKR Ec LIOtlF CRE%HY HORTH CAROLIHA FAIR VAIIE )ET IlPESTlEHT AllD FAIR VALUE CAPITAL STRUCTURE RATIOS JUhE 30, lg76 PRO H)RYA SALE OF CQSDH STOCK IH OCTOBER 1976 Fair Value Capital Hct Investment Structure Ratios Long-Term Debt 627,535,584 4O.39$ PrcferreC en4 Preference Stock 19O,768,545 12.28 Conzaon Equity 673,996i996 43.38 Interest Ree Capital 61i479,333 3.95 $ 1,553,78O,458 Sources Rule R1-17, Item (b) (9), page 2. I l CAHOLIM POfiER 5 LIGlff COMPANY Page 92 FAIR RATE OF REXUlml ON NORTlf CAROLIIfA RETAIL OPEHATIOIJS FAIR VALUE HATE HASE USIllG IMBEDDED COST OF LONG-TEH!l DFPZ AND PREFERRED STOCK JUliE 30, 1976 PRO FORMA SALE OF C(RhlON STOCK IN OCTOBER 1976 ~ I. Cost Capital 'fleightcd Rate Structure Ratio Component ee Inng-Term Debt 7.n4 40.36 (page ll) Preferred an'd Preference Stock 8 01 u.H8 0.90 (page 13) Comas Equity l0~00 43.38 4.34 (page 89) Interest Free Capital 0,00 3.95 0.00 Total Capitalisation 100,00$ 8.44$ ) i L I 1 I I CAROLIIIA HNER 5 LICIT COlQIUlY "V ~ 'age FAIR RATE OF RETURN ON NORTH CNOLXllA RETAIL OPERATIOllS FAIR VALUE RATE BASE JUNE 30 1976 PRO FORYA SALE OF COlRSN STOCK IN OCTOBER 1976 93 Carolina Iver 5 Light Covyany Fair 'Rate of Return on North Carolina Retail Ouerations Fair Value Rate Base 8.44$ June 30, 1976 Ro Fora Sale of Coamen Stock in October 1976 1 II a l l