ML19347D289
| ML19347D289 | |
| Person / Time | |
|---|---|
| Site: | San Onofre  |
| Issue date: | 07/31/1980 |
| From: | Williams P SAN DIEGO GAS & ELECTRIC CO. |
| To: | |
| Shared Package | |
| ML13302A498 | List: |
| References | |
| NUDOCS 8103110748 | |
| Download: ML19347D289 (27) | |
Text
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b.
APPLICATION NO.
EXHIBIT NO. (SDG& E - 1)
San DiegoGas & Electric 1981 TEST YEAR COST OF CAPITAL AND RATE OF RETURN INCLUDING PREPARED TESTIMONY l
l l BrFOR. TH'i PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA e
JULY 1980 l
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l 1
1 EXHIBIT (SDG&E-1) 2 COST OF CAPITAL AND RATE OF RETURN PREFARED DIRECT TESTIMONY OF PAUL A. WILLIAMS II 3 1. Q. Mr. Williams, what is the purpose of your testi- l 4
mony in this proceeding?
5 A.
The purpose of my testimony in this proceeding is 6
to demonstrate the increased cost of capital in 7
1981 and to substantiate the need for an increase 8
in the authorized rate of return from the level 9
adopted in the Company's last General Rate Case 10 Decision 90405 of June 5, 1979.
11 2. Q. Please explain how the cost of capital for Test 12 Year 1981 was calculated.
13 A. The cost of capital for Test Year 1981 was calcu-14 lated using the same methodology as adopted in 15 Decision 90405. For this filing, the cost of 16 long-term debt and preferred stock was updated; 17 bankers' acceptances were included in the capital 18 structure; and, the return on common equity was kept 19 frozen at 14.5 percent.
20 3. Q. Why are you leaving the return on equity at the 21 same level as authorized in Decision 90405?
l 22 A.
( An increase in the return on equity is not being l 23 requested in this proceeding in keeping with the 24 expedited nature of this case. An increase in the 25 return on equity will certainly be requested in 26 1982 Test Year case.
27 SDG&E is fully aware of the sacrifice it is 28 making in this case regarding the_ return on common
3 equity. An increase is definitely in order in 2 light of the 13.9 percent return on common equity I 1
3 authorized for PGandE for 1980 and the continued 1 4 erosion of earnings due to persistently high 5 inflation. However, the Company believes that 6 expeditious treatment of its request is tantamount 7 to the financial well-being of SDG&E. Substantial 8 rate relief must be received by January 1, 1981, 9 in order to reverse the steep decline in financial 10 condition projected for the latter half of 1980, 11 and calendar year 1981.
12 4. Q. Would you please elaborate on the projected de-13 cline in financial condition for 1980 and 1981.
14 A. Yes. Financial results for the calendar year 1980 15 ,
are projected to tail-off after the full impact 16 of the 1979 General Rate Case is realized in mid-g7 year.
The rate of return (shown on Table E) is 18 estimated to be only 8.03 percent, which is over 19 250 basis points lower than authorized in mid-20 1979. The return on equity is projected to be l 21 only 5.32 percent compared to the 14.5 percent i 22 authorized in Decision 90405. Interest coverage, i
23- using the matrix method, is expected to decline to .
2t 1.59 times, well below the 2.7 times authorized 25 for the 1979 Test Year. Internal generation of 26 cash is projected to be only 3 percent compared to 27 the BBB rated mean of 22 percent. Consequently, 28 SDG&E must receive significant rate relief by
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l 1 January 1, 1981, to stem the projected decline in 2 its financial condition.
3 As far as 1981 is concerned, financial results, 4 without rate relief, would be a disaster. The rate 5 of return would decline to 3.46 percent, and the 6l return on equity would disintegrate to a negative 7 9.18 percent. Interest coverage would decline 8 to 0.65 times, using the matrix method, and 9 internal generation of cash would be a negative 10 29 percent. Clearly, it is essential that 11 substantial rate relief be received by January 1, 12 1961, to avert the projected financial decline.
13 5. Q. Mr. Williams, will you please provide a general 14 explanation of this exhibit?
15 A. Yes. Table A, 1981 Test Year Rate Request Summary, 16 Presents key ratemaking results assuming receipt l , of the requested $144.8 million in additional 17 l
l 18 revenues (line 1). Realization of this requested 19 rate relief in an expedited manner is an essential 20 first step toward attainment of the company's 12 1 Primary financial objective of regaining its 22 Single A bond rating.
23 The following tables set forth the cost of 24 capital for SDG&E for the 1981 Test Year. Infor-25 mation is provided on the capital structure and 26 the costs of the capital elements as recorded in l
27 1979 and projected for 1980 as expected and 1981 28 Test Year.
I 1
Historical data on the costs of capital are 2 provided as background information for cost esti- p 3 mates through 1981. In addition, comparisons with 4 the utility industry by credit rating groups are 5 included to substantiate the need for continued 6 improvement in the company's financial condition.
7 A composite cost of capital is established in the 8 exhibit.
9 6. Q. What must SDG&E do to regain its Single A bond 10 rating?
11 A. The primary goal of achieving a Single A bond 12 rating must be earned through a history of finan-13 cial improvement, combined with the valid prospect 14 of continued financial well-being. Prospective 15 energy sources, regulatory climate and management 16 are all considered; but, the key elements are 17 financial results and whether the rating agencies 18 feel that the company's interest and principal 19 payment obligations will be met.
20 There are three primary financial objectives 21 which are necessary to achieve this goal. They 22 are to: '
23 (1). Improve interest coverage to a level of 24 3.0 times; 25 (2) Increase internal generation of cash 26 to greater than 40 percent; and 27 (3) Limit cash construction expenditures to 28 10 percent or less of capitalization.
1 The magnitude of the difficulties in achieving 2 these objectives is demonstrated clearly in Tables B 3 through J.
4 7. O. Would authorization of the requested rate relief 5 in this proceeding raise your bond rating to 6 SiD918 ^?
7 A. No. The financial results produced by the 8 requested rate relief in this proceeding are 9 only a first step in the process of regaining 10 SDG&E's Single A bond rating. However, it is 31 important to realize that this first step is 12 absolutely critical. If substantial and timely 13 rate relief is granted in both the 1981 and 1982 14 Test Year, SDG&E should be well on its way to 15 achieving its goal.
16 8. Q. Would you explain how you determined the embedded 17 cost of preferred stock?
18 A. Yes. Table B lists the costs of preferred stock i
19 ,
f r recorded 1979 and projected 1980 and 1981.
1 20 The embedded cost of preferred stock for 1979 was 21 8.20 percent, as shown on line 15, column E. This t
22 is very close to the 8.21 percent adopted in 23 Decision 90405. No preferred stock is planned to 24 be issued in 1980. In 1981 the company tenta- ~
25 tively plans to issue $25 million of 12.625 26 percent Series preference stock. The issuance of 27 this series raises the projected embedded cost of 28 preferred capital stock from the 1979 and 1980
- level at u.20 percent to 8.E/ percent (line 19, 2 column E). There is no change in methodology in )
3 these calculations from previous General Rate 4 Cases.
5 9. Q. Mr. Williams, would you please explain how you 6 arrived at the embedded ,
cost of long-term debt?
7 A. Table C lists the embedded cost of long-term debt 8 recorded for December 31, 1979. There is no 9 change in methodology in these calculations from 10 Previous General Rate Cases. The embedded cost of gg long-term debt for 1979 was 8.49 percent, as shown 12 on line 29, column E. This is substantially above 13 the 8.10 percent cost adopted in Decision 90405.
14 The primary reason for the increase was the 15 14.85 percent rate incurred on the foreign term 16 loans which were issued in 1979.
17 As far as the projected embedded cost of 18 long-term debt for 1980 is concerned (Table D),
19 SDG&E sold $50 million of first mortgage bonds in 20 March at 16 percent and the financing plan has 21 assumed issuance in 1980 of Series T in the amount 22 of $50 million. The cost of the second issue is 23 assumed to be 13.5 percent. The embedded cost of 24 long-term debt projected for year-end 1980 is 9.27 25 Percent, as shown on line 12, column E.
26 In 1981, assuming receipt of the rate increase 27 requested, SDG&E anticipates one $75 million sale 28 of bonds. The rate of this Series U is assumed to
\
I be 12.125 percent. The projected embedded cost of 2 debt for year-end 1981 is projected to be 9.55 3 percent (line 20, column E). This represents an 4 increase of over 100 basis points from the recorded 5 1979 1*V81-6 10. Q. How does the actual rate of return for 1979 compare 7 to what was authorized in Decision 90405?
8 A. As shown on Table E, the authorized rate of return 9 in Decision 90405 was 10.59 percent (line 5, 10 column C). Actual 1979 results reveal a shortfall 11 of over one whole percent, 105 basis points, to 12 9.54 percent. Without rate relief in 1980, attri-13 tion will take the earned rate of return down 14 another 151 basis points to 8.03 percent (line 15, 15 column C).
16 Of_particular concern is the downward pres-i 17 sure on the common equity capitalization ratio.
18 Despite the fact that all sales of common stock 19 have been below book value in the last five years, 20 SDG&E must continue to issue substantial amounts i 21 of common equity. These issues are necessary to 22 finance the Company's ongoing construction program 23 which is comprised of essentially four elements:
24 (1) San Onofre Units 2 and 3; 25 (2) connection of new gas and electric 26 customers;
- 27 (3) improvements in system reliability; and l-28 (4) the transmission line to the East.
I l
l l
l l
1 New issues must occur in spite of the dilution of 2 book value that SDG&E's current shareholders suffer, '
3 which effectively constitutes confiscation of their 4 capital. The Company must, at the same time, however, 5 continue to expand its system to provide service to 6 its customers regardless of theet circumstances.
7 In 1979 the Company sold 3 million shares of 8 common stock to the public. In 1980 another 4.5 9 million shares are planned to be sold. And, in 10 1981 SDG&E plans to sell publicly 3 million shares of 11 common stock. These sales represent a 38 percent 12 dilution of the total shares outstanding as of 13 year-end 1978. Dividend increases will, of course, 14 have to continue to support this tremendous level
~
15 of dilution, as well as offset, at least in part, 16 the ravages of inflation.
17 The common equity ratio for 1979 recorded, shown 18 in Table E, is 37.20 percent (line 6, column A),
19 compared to the 38.09 percent adopted in Decision L 20 90405 (line 1, column A). The major reason for i 21 this shortfall is the fact that the final decision l 22 came in the middle of 1979, causing a significant I
23 loss in the retained earnings component of common 24 equity for that year. Furthermore, the full impact 25 of the increase in rates authorized will not be 26 experienced until mid-1980.
27 Substantial increases in the cost of money and 28 .the cost of fuel oil and suppressed sales due to l
3 warm weather and price elasticity have eroded, and 2 are projected to even further erode this ratio.
3 consequently, the common equity ratio calculated 4 for the 1981 Test Year is actually below that adopted 5 for 1979 (see Table F, line 6, column A). The Com-6 pany's objective is to raise its common equity l 7 ratio to more than 40 percent, inclusive of leases.
I
! 8 11. Q. Mr. Williams, will you please explain how you 9 derived the capitalization ratios for preferred 10 stock, long-term debt, and bankers' acceptances.
11 A. Yes. The ratio of preferred stock in the capital 12 structure is projected to decline through 1981.
13 SDG&E believes that the ratio of preferred stock 14 should be in the 10 to 15 percent range and is, 15 therefore, managing to that level. The major reason 16 f r this policy is to reduce the amount of risk 37 inherent in the capital structure. SDG&E will, 18 though, avail itself of preferred stock as eco-l 19 nomically justified in the near-term.
20 As Table E demonstrates, at line 8, column A, 21 the ratio of long-term debt for 1979 recorded was 22 44.00 percent. This is compared to the 44.99 23 percent level adopted in Decision 90405 (line 3 ).
24 The major reason for the decline is the-fact that 25 $150 million in debt projected to be sold was cut
-26 back to $65 million due to insufficient debenture 27 ., indenture coverage in the latter' half of _1979. By 28 the end of 1981 the debt ratio is projected to be g
44.07 percent, as shown on Table F, line 8, column 2 A. As in the case of common equity, this ratio is ,
3 lower than adopted in Decision 90405 because of 4 the tremendous increase in the proportion of 5 bankers' acceptances in the capital structure.
6 In Decision 90405, the Commission adopted a 7 10 percent cost of bankers' acceptances and a 2.76 8 percent proportion in the capital structure (Table g E, line 4, columns A and B). The impact of higher 10 than anticipated costs of fuel not on'ly caoses 11 cash flow problems, but also skews the cost of 12 capital and the rate of return. Therefore, the 13 percentage of bankers' acceptances in the 1981 14 capital structure is 6.18 percent (Table F, 15 line 9, column A) and the cost of those accep-16 tances is assumed to be 12.50 percent (Table F, 17 line 9, column B). The resulting weighted cost is 18 nearly three times greater than the level adopted 19 in Decision 90405, barely one year ago.
20 12. Q. Mr. Williams, what will be the impact of the 21 ,
requested rate increase?
22 A. The primary financial objective of SDG&E is to 23 regain its Single A bond rating. In order to do 24 so, certain criteria must be met as espoused by 25 both Moody's and Standard & Poors, the two most 26 ' prominent bond rating agencies. Two major cri-27 '
teria are to maintain interest coverage at a level 28 of 3.0 times and to generate more than 40 percent
3 of cash requirements internally. The other, as I 2 mentioned, is to limit construction expenditures.
3 SDG&E is very aware that a bond upgrading 4 must be accomplished in stages. The Company views 5 the Commission's action in this case as a major 6 step in this process. Table G shows before tax 7 interest coverages on a historical and projected g basis for Moody's, the First Mortgage Indenture, 9 and the Debenture Indenture. The trend of Moody's-10 before tax coverage (column A) has declined since 11 1976 (lines 2 through 5). This critical indicator 12 will continue to decline in 1980 and 1981, as 13 - shown on lines 6 and 7, unless substantial rate 14 relief is granted in an expedited manner in this 15 case. Moody's before tax coverage at proposed 16 rates on line 8 is projected to be 2.65 times, and 17 the after tax coverage is estimated at 2.24 times, 18 which is below the 2.7 times coverage found reason-19 able in Decision 90405.
20 13. Q. Mr. Williams, how does SDG&E compare with other 21 utilities as far as interest coverage is con-22 cerned?
23 A. Table H shows pretax interest coverages classi-24 fied by bond rating groups as of December 31, 25 1979. The median of the " Straight A/A" companies 26 on line 9 was 2.7 times. This is very close to 27 SDG&E's proposed rate level of 2.65 times. Once 28 again, the requested level of rate relief must be
3 granted by January 1, 1981, in order to achieve 2 this result.
)
3 14. Q. Will you also elaborate on internal generation of 4 cash which you also sentioned as important in 5 obtaining a Single A rating?
6 A. Yes. Internal generation of cash is a parameter 7 that the rating agencies consider crucial. The 8 more cash generated internally, the less pressure 9 there is on outside financing. Lower outside 10 .
financing requirements, in turn, lessen the need 11 for constant rate increases to compensate for the 12 increased cost of capital.
13 Table I shows historical and projected capi-S.
14 tal expenditures and external and internal sources 15 of funds. Since 1975 SDG&E has averaged only a 16 little more than 15 percent internal generation.
l 17 This distinct lack of cash flow has placed consi-18 derable pressure on financing the company's cash 19 construction program shown in column c. Without 20 the requested rate relief, internal generation for 21 the 1981 Test Year (line 8, column F) is projected 22 to be a negative 29 percent. At proposed rates, 23 the requested rate increase is expected to provide 24 internal generation of cash of 27 percent as shown ,
25 on line 9, column F.
l 26 Table J lists internal generation of cash by 27 bond ratin, groups for calendar 1979. The mean 28 for the Single A companies on line 2 is over i
1 40 percent, compared to SDG&E's projection for the 2 Test Year at proposed rates of 27 percent.
3 This amount is obviously insufficient in 4 terms of the 40 percent internal generation accepted 5 as the benchmark for Single A rated companies.
6 This is again indicative of not only the need to 7 expedite this proceeding, but also of the need to 8 maintain the return on common equity at the g minimum level of 14.5 percent.
10 Again, timely authorization of the rate 11 increase requested would go a long way toward 12 achieving the Company's objective and positioning 13 SDG&E fo'r a bond upgrading in the future.
14 15. Q. Mr. Williams, would you comment further on the 15 need for maintaining the return on equity at 14.5 16 percent?
17 A. Yes. As I have discussed previously, the Company 18 won't be able to achieve its financial goals even 19 with the rate relief requested for 1981. Further, 20 the Company won't even be able to maintain the 21 financial results adopted in Decision 90405 for 22 1979. The Company actually should have a return-23 on equity higher than 14.5 percent due to the 24 increased costs of preferred stock and long-term 25 debt.
26 of course, there is an even more critical 27 aspect to this question. SDG&E is a higher risk 28 to investors compared to the larger utilities
l 3 because of its current financial condition and 2'
because it is growing at a faster rate. For
- 3 SDG&E, capital expenditures for distribution, 4 transmission and production facilities are greater 5 ,
in proportion to its capital structure compared to 6 the other larger, California utilities. Thus, it l
l 7 would be quite justified for SDG&E to be autho-g, rized a return on equity higher than other Cali-g fornia utilities, such as the 13.9 percent allo red l 10 for PGandE in its 1980 Test Year rate case. At a 11 minimum,' SDG&E's return should be set in this 12 case at the previously authorized level of l
13 14.5 percent.
i 14 16. Q. Mr. Williams, does that conclude your Prepared 15 Direct Testimony on this exhibit?
16 A. Yes.
17 18
! 19 l
l 20 21 1 22 23 1
24 25 26 28-
(
l COST OF CAPITAL AND RATE OF RETURN INTRODUCTIOt!
i The following tables set forth the cost of capital for San Diego Gas & Electric for the 1981 Test Year. In-formation is provided on the capital structure and the costs of the capital elements as recorded in 1979 and pro-
! jected for 1980 As Expected and 1981 Test Year.
Historical data on the costs of capital are provided as background information for the cost estimates through 1981. In addition, comparisons with the utility industry by credit rating groups are included to substantiate the need for continued improvement in the Company's financial condition.
A composite cost of capital is established in the exhibit. Realization of the requested rate relief of $144.81 million in an expedited manner is essential to attainment l of the Company's primary financial objective of regaining its Single A bond rating.
6 TA6LE OF CONTENTS
)
TABLE TITLE i~
A 1981 Test Year Rate Request Summary B Embedded Cost of Preferred Capital Stock Recorded 1979 and Projected 1980-1981 C Embedded Cost of Long-Term Debt Recorded December 31, 1979 D .
Projected Embedded Cost of Long-Term -
Debt 1980 and 1981 E
1979 Authorized Rate of Return vs. 1979 Recorded and 1980 As Expected F Rates of Return - 1981 Test Year G Historical and Projected Isterest Coverage Ratios H Electric Utility Interest Coverage Ratios Classified by Bond Rating Groups Twelve Months Ended December 31, 1979 I Capital Expenditures & Sources of Funds 1975-1979 Historical & 1980-1981 Projected J Electric Utility Internal Generation of Cash Classified by Bond Rating Groups Twelve Montds Ended December 31, 1979
TABLE A Sheet 1 of 1 TABLE A 1981 TEST YEAR RATE REQUEST
SUMMARY
(Millions of Dollars)
LINE NO. TITLE
- 1. Total Increase $ 144.81
- 2. Electric $ 126.63
- 3. Gas $ 18.18
~
- 4. Composite Rate of Return 11.447.
- 5. Return on Equity 14.507.
- 6. Weighted Average Rate Base $ 1,287.4
- 7. Electric $ 1,129.3
- 8. Gas $ 158.1 EMBEDDED COSTS
- 9. Long-Term Debt 9.557.
j 10. Preferred Stock 8.677.
CAPITALIZATION RATIOS
- 11. Common Equity 36.877.
- 12. Preferred Stock 12.88%
- 13. Long-Term Debt 44.07%
- 14. Bankers' Acceptances 6.187.
- 15. Total 100.007.
A
TABLE B EMBEDDED COST OF PREFERRED CAPITAL STOCK RECORDED 1979 AND PROJECTED 1980-1981 (Thousands of Dollars)
(A) (5) (C)
LINE (D) (E)
No. TITLE NET COST PROCEEDS OF ANNUAL AHQMgt OF ISSUE EFFECTIVE SALE DIVIDEND COST (%)
Cumulative Preferred Stock (Cols. A-5) (Cols. D/C)
- 1. 5.00% Series
-2. 4.50% Series $ 7,500.0 6,000.0
$( 196.2) $ 7,696.2 $ 375.0 4.8 71
- 3. 4.40% Series -
6,000.0 270.0
- 4. 4.60% Series 6,500.0 ( 103.5) 6,603.5 4.50
- 5. 7 500.0 53.3 286.0 4.33 Total Preferred Stock -77i35675 7.446.7 345.0 4.63
( 246.4) - 27.746.4 1.276.0 ITEG~
Preference Stock (Cumulative)
- 6. $9.84 Series
- 7. 16,000.0 314.6
$7.80 Series 20,000.0 15,685.4 1,574.4 10.04 up 8. $7.20 Series 321.7 19,678.3 1.560.0 7.93
- 9. 15,000.0 222.6 14,777.4
$7.325 Series 30,000.0 1,080.0 7.31
- 10. $8.25 Series 116.6 29,883.4 2,197.5 7.35
- 11. 25,000.0 100.6
$2.68 Series 25,000.0 24,899.4 2,062.5 8.28
- 12. $9.125 Series (1,215.9) 26,215.9 2,680.0 10.22
- 13. 30,000.0 191.7
' $2.475 Series 25 000.0 29.808.3 2,737.5 9.18
- 14. Total Prefereace Stock J 1 359.2) 26 359.2 2.475.0 9.39
]BMG G (DOD) 7BDDT1 16.366.9 ~874~
- 15. Total 12/31/79 213,500.0 (1,553.7)
- 215.053.7 17,642.9 8.20 PROJECTED CHANGES 1%RlLIQ_L9)Q-19jl:Il)
- 16. No lasues in 1980
- 17. Projected 12/31/80 213,500.0 (1,553.7) 215.053.7
- 18. 17.642.9 8.20
$12.625 Series 25,000.0 187.5 24.812.5 3.156.3 12.72
- 19. Projected 12/31/81
}238.500.0 }{l.366.2) j239.866.2 $20.799.2 l _8.67%
u2 >1 i ar 35 o os t
(1) Projected changes are issues of preference stock (cumulative), a, r
en-l w tn o
m W
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l
1
- TABLE C Sheet 1 of 1 TABLE C EMBEDDED COST OF LONG-TERM DEBT RECORDED DECEMBER 31, 1979 (Thousands of Dollars)
ANNUAL AMORT. OF TOTAL
( LINE PRINCIPAL INTEREST PREM., DISC. ANNUAL l NO. TITLE EFFECTIVE AMOUNT PAYMENT & EXPENSE EXPENSE (A) (B) COST (%)
(C) (D) (E)
FIRST HORTGAGE BONDS (Cols. D &E) (Cols. FA (F) (G)
! 1. 3k% Series "D", Due 4/1/82 $ 12,000.0
- 2. $ 390.0 $ (2.8) S 387.2 3.23%
2-7/8% Series "E", Due 4/1/84 17,000. ) 488.8
- 3. 34% Series "F", Due 10/1/85 11.7 500.5 2.94 18,00 .'O 585.0 B.1 593.1
- 4. 4-7/8% Series "G", Due 10/1/87 12,000.0 3.30
- 5. .,585.0 3.5 588.5 4.90 4-5/8% Series "H", Due 10/1/90 30,000.0 1,387.5
- 6. 5 % Series "I", Due 3/1/97 10.1 1,397.6 4.66 25,000.0 1,375.0 (4.5) 1,370.5 5,48
- 7. 7% Series "J", Due 12/1/98 35,000.0 2,450.0 12.0 2,462.9 7.04
- 8. 8-3/4% Series "K", Due 2/1/00 40,000.0
- 9. 8% Series "L", Due 9/1/01 3,500.0 5.0 3,505.0 8.76 45,000.0 3,600.0 12.6 i 10, 8-3/8% Series "M", Due 1/1/04 75,000.0 3,612.6 8.03 6,281.2 30.0 l
- 11. 10. 7% Series "0", Due 5/1/82 40,000,0 6,312.1 8.42 4,280.0 85.1 4,365.1 10.91 i 12. 10% Series "P", Due 7/15/06 45,000.0 13.
4,500.0 20.1 4,520.1 10.04 8-3/4% Series "Q", Due 3/15/07 50,000.0 4,375.0 38.1 9-3/4% Series "R", Due 5/1/08 4,413.1 8.83
( 50,000.0 4,875.0 21.0 4.896.0 9.79 Total First Mortgage Bonds 494,000.0 38,672.5 250.0 38,922.5 7.88 ENKING FUND DEBENTURES
- 16. 4-5/8%, Due 1/15/84 9,000.0
- 17. 4h%, Due 9/1/94 416.3 5.8 422.1 4.69 15,600.0 702.0 7.1
- 18. Total Sinking Fund Debentures 709.1 4.55 24,600.0 1,118.3 12.9 1,131.2 4.60 OTHER LONG-TERM DEBT l 19. Foreign Term Loans (Variable) 65,000.0 20.
9,644.8 8.5 9,653.3 14.85 Pollution Control Bonds (6-3/8%) 9,575.0 610.4 11.0 621.4 6.49
- 21. Pollution Control Bonds (7.2%) 5,700.0
- 22. 410.4 8.3 418.7 7.35 Term Loan (8-3/4%) 40,000.0 3,500.0 16.0 3,516.0
- 23. Sundesert Properties (7.85%) 8.79 4,876.9 382.6 -
382.6 7.85
- 24. N. M. Rothchild & Sons, Ltd.,
l Promissory Notes (5.5%) 3,142.3 290.5(g)
- 25. 11.3 301.8 9.60 26.
General Electric (h of Prime) 152.0 11.6 -
11.6 7.63 7.49%) 239.1 17.9
- 27. W.
OtherD.(7.72%)(
Cannon (2) -
17.9 7.50 145.1 11.2 -
10.7 7.37
- 28. Total Other Long-Term Debt 128,830.4 14,879.4 55.1 14,934.5 11.59
- 29. TOTAL LONG-TERM DEBT $647,430.4 $54,670.2 $318.0 $54,988.2 8.49%
outstanding amount in pounds x 5.5% x Dec. 31,1979 exchange rate (2.232).
Various amounts at various interest rates and maturities.
C
TABLE D PROJECTED EMBEDDED COST OF LONG-TERM DEBT 1980 and 1981 (Thousands of Dollars)
(A) (B) (C)
LINE- (D) (E)
No. PRINCIPAL ANNUAL INTEREST AMORT. OF PREM.,
TITLE AHOUNT TOTAL ANNUAL EFFECTIVE PAYMENT DISC. & EXPENSE EXPENSE
. COST (1)
(Cols. B+C) (Cols.D/AT
- 1. EFFECTIVE DECEMBER 31, 1979 $647,430.4 $54,670.2 $318.0 $54,988.2 8.49%
~~ PROJECTED CNANCES DURINC 1980:
First Ertgage Bonds: .
- 2. 16% Series "S", Due 3/10 50,000.0
- 3. 13 1/21 Series "T", Due 8/10 8,000.0 22.3 8,022.3 50,000.0 6.750.0 16.05 Sinking Fend Debentures: 24.0 6,774.0 13.55 4 4 5/ M Retired ( 375.0)
- 5. 4 1/2% Retired ( 17.3) (0.2) ( 17.5) (4.67)
( 400.0) ( 18.0) (0.2) ( 18.2) (4.55) 0*her Long-Tens Debt:
- 6. Sundesert Properties
- 7. (1,206.5) ( 92.5) -
( 92.5) ( 7. 6 7) t3 8. N.H. Bothch11<1 Foreign Tern Loan& Sons. Ltd. ,({'[om. Notes (Variable) ( 812.4) ( 72.6) -
( 72.6) (8.94)
- 9. General Electric (544.7) -
(544.7)
- 10. W.D. Cannon ( 152.0) ( 11.6) -
( 11.6)
(7.63)
- 11. Other ( 63.8) ( 4.8) ( 4.8)
_{ 48 5) ( 3.9)
(7.52)
- 12. Projected December 31, 1980
( 3.9) (8.04) 744,372.2 68.654.8 363.9 69.018.1 _2.21 PROJECTED CNANCES DURINC 1981:
~ Tirst Mortgage BonJs:
- 13. 12 1/8% Series "U", Due 10/11 75,000.0 9.093.8 36.0 Sinking Fund Debentures: 9.129.8 12.17 14 4 5/8% Retired
- 15. 4 1/21 Retired ( 375.0) ( 17.3) (0.2) ( 17.5) (4. 6 7)
( 400.0) ( 18.0) (0.2) ( 18.2) (4.55)
Other Long-Term Debt:
- 16. Sundesert Properties
- 17. N.H. Rothchild & Sons. Ltd., Prom. Notes (1.206.5) ( 92.5) -
( 92.5) ( 7. 6 7) 18 W.D. Cannon ( 786.8) ( 72.6) -
( 72.6) (9.23)
- 19. Other ( 63.8) ( 4.8) ( 4.8)
( 48.5) ( 3.9)
(7.52) 20 Projected December 31, 1981 -
( 3.9) (8.04)
$816,491.6 $77.539.5 $312.1 S77;919.0
__9.15%
(1) Adjustment intended to reflect a projected decrease in the foreign term loan's variable interest rate from 14.838 to 14.0 percent.
$ :t-O D3 O r" rv til
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TABLE E Sheet 1 of 1 TABLE E 1979 AUTHORIZED RATE OF RETURN VS. 1979 RECORDED AND 1980 AS EXPECTED (A) (B) (C)
LINE CAPITAL COST WEIGHTED NO. TITLE RATIOS FACTORS COST q 1979 AUTHORIZED (1)
- 1. Common Equity 38.097. 14.507. 5.527,
- 2. Preferred Stock 14.16 8.21 1.16
- 3. Long-Term Debt 44.99 8.10 3.64
- 4. Bankers' Acceptar.ces 2.76 10.00 0.27
- 5. Total 100.00% 10.59%
1979 RECORDED
- 6. Connon Equity 37.207. 10.97% 4.087.
- 7. Preferred Stock 14.68 8.20 1.21
- 8. Long-Term Debt 44.00 8.49 3.74 l 9. Bankers' Acceptances 4.12 12.45 0.51
- 10. Total 100.007. 9.547.
1980 AS EXPECTED
- 11. Common Equity 35.897. 5.32% 1.9 17.
- 12. Preferred Stock 12.90 8.20 1.06
- 13. Long-Term Debt 44.98 9.27 4.17
- 14. Bankers' Acceptances 6.23 14.25 0.89
- 15. Total 100.00% B U37.'
(1) Per Decision 90405.
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\ IMAGE EVALUATION '%
TEST TARGET (MT-3)
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V ' IMAGE EVALUATION
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TABLE F Sheet 1 of 1 TABLE F '
~.
RAl'ES OF RETURN - 1981 TEST YEAR (A) (B) (C)
LINE CAPITAL COST WEIGHTED NO. TITLE RATIOS FACTORS COST 1981 TEST YEAR AT PRESENT RATES
- 1. Conunon Equity 32.917. (9.187.) (3. 027.)
! 2. Preferred Stock 13.68 8.67 1.19
- 3. Long-Term Debt 46.84 9.55 4.47
- 4. Bankers' Acceptances 6.57 12.50 0.82 l 5. TOTAL 100.007, 3.467.
l 1981 TEST YEAR AT PROPOSED RATES
- 6. Conanon Equity 36.877. 14.507. 5.347.
- 7. Preferred Stock 12.88 8.67 1.12
- 8. Long-Term Debt 44.07 9.35 4.21
- 9. Bankers' Acceptances 6.18 12.50 0.77
- 10. TOTAL 100.007. 11.447.
e F
TABLE C Sheet 1 of I TABLE (;
HISTORICAL AND PROJECTED INTEREST COVERAGE RATIOS (A) (B) (C) (D)
MOODY *S TIMES INTEREST EARNED CONTRACTUAL REQUIREMENT
' LINE BEFORE AFTER IST MORT. DESENTURE NO. RECORDED TAX TAX IliDENTURE INDENTURE (2.5 Min) (2.0 Mir
- 1. 1975 1.66X 1.76X 2.33X 1.66X
- 2. 1976 2.38X 2.25X 2.98X 2.53X
- 3. 1977 2.20X 2.22X 2.83X 2.20X
- 4. 1978 2.25X 2.17X 3.79X 2.42X
- 5. 1979 2.18X 2.11X 4.66X 2.37X PROJECTED PERIOD WITHOUT RATE RELIEF 1980(1) 1.66X 1.66X 3.43X 1.84X
- 7. 1981(2) 1.11X 1.llX 2.17X 0.98X TEST YEAR AT PROPOSED RATES
- 8. 1981 2.65X 2.24X 4.83X 3.01X
- 9. Rating Agency Guideline 3.00X - - -
l (1) As Expected.
(2) Test Year at Present Rates.
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'T
. TABLE H Sheet 1 of 1 TABLE H ELECTRIC UTILITY INTEREST COVERAGr. RATIOS '
CLASSIFIED BY B0h'D RATING GROUPS TWELVE MONTHS ENDED DECEMBER 31. 1979 LINE -
NO. TITLE
- 1. Straight Aa/AA High 5.6
- 2. Low 2.5
- 3. Median 3.4
- 4. Split Aa/A or AA/A High 3.8
- 5. Low 2.4
- 6. Median 2.8
- 7. Straight A/A High 4.4
- 8. Low 1.9
- 9. Median 2.7
- 10. Split A/BBB or A/Baa High 2.9
- 11. Low 1.9
- 12. Median 2.4
- 13. Straight BBB/F,aa High 3.6
- 14. Low 1.7
- 15. Median 2.2 S_AN DIEGO GAS & ELECTRIC (12/31)
- 16. Actuel 1979 2.2
- 17. As Expected 1980 1.7
- 18. Test Year at Present Rates 1981 1.1
- 19. Test Year at P.roposed Rates 1981 2.7 i
i (1) Pre-tax Times Interest Charges for 12 months ended.
Total AFDC Included in Calculations.
Source: Salcmon Brothers Stock Research Dept.
l H
TABLE I CAPITAL EXPENDITURES & SOURCES OF FUNDS 1975-1979 EISTORICAL & 1980-1981. PROJECTED (A) (B) (C) (D) (E) (F)
CAPITAL EXPENDITURES SOURCES OF FUNDS LINE NO. M (Millions of Dollars)
CONSTRUCTIdN(1) PERCENT RECORDED PERIOD REFUNDINGS PERCENT EXPENDITURES TOTAL EXTERNAL
- 1. INTERNAL 1975 1 128
- 2. 1976 129 89 11 1 170 171
- 3. 1977 2 79 21
- 4. 199 201 83' 17 1978 13 207
- 5. 1979 220 84 16 53 205 258 87 13 g 6. Average 14 182 196 84 16 PROJECTED AT PRESENT RATES
- 7. 1980 As Expected 3
- 8. 174 177 97 1981 Test Year 3 203 206 3
129 (29)
TEST YEAR AT PROPOSED RATES
- 9. ' 1981 3 203 206 73 27
- 10. Ratitig Agency Guideline - Single A ED 60 40 a, y
-s j (1) Exclusive of AFDC.
l S l -
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TABLE J Sheet 1 of 1 TABLE J ELECTRIC UIILITY I m RNAL GENERATION OF CASH II) '
CLASSIFIED BY BOND RATING GROUPS -
TWELVE MONT11S ENDED DECEMBER 31, 1979 LINE -
NO. TITLE
- 1. Straight A/A Low 37,
- 2. Mean 43
- 3. High 109
- 4. Split BBB/A or Baa/A 2
- 5. Mean 36
- 6. High 107
- 7. Straight BBB or Baa Lw (5)
- 8. Mean 22
- 9. High 48 SAN DIEGO GAS & ELECTRIC
- 10. 1980 As Expected 3
- 11. 1981 Test Year at Present Rates (29)
- 12. 1981 Test Year at Proposad Rates l 27 (1)
Based on analysts method which ignores changes in Regu-lacory Balancing Accounts and changes in working capital.
Source: Standard & Poor's Compustat Services, Inc., Utility Compustat II.
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