ML18230A824
| ML18230A824 | |
| Person / Time | |
|---|---|
| Site: | Harris  |
| Issue date: | 12/01/1976 |
| From: | Langum J Carolina Power & Light Co |
| To: | Office of Nuclear Reactor Regulation |
| References | |
| Download: ML18230A824 (366) | |
Text
CAROLINA POWER Ez LIGHT COMPANY TESTIMONY REGARDING FAIR RATE OF RETURN a/03-gockot<>gate Control" f gocntnent REgggogg DQQKG PIL<DR.JOHN K.LANGUM ECONOMIC CONSULTANT CHICAGO, ILLINOIS DECEMBER 1, 1976
.I.I 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 10 No.1 for identification, consisting of a cover page:andGB-:
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 14 15.identification, consisting of a cover page, a table of contents, and 93 pages and ask if the exhibit was prepared by you or under 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.20 Langum Exhibit No.2 contains my studies leading to a judgment 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 10 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 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 20 21 siderations.
Determination of such a fair rate of return involves first, determination of the cost of debt and the cost of preferred stock;second, recognition of the interest-free portion of capital;third, forming of a judgment as to a fair l l 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 10 A.comment on the construction expenditures of Carolina Power h.Light Company and how they have been financed?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, gross property additions reached record highs of$359.0 12 13 14 16 17 million in 1973 and$382, 6 million in 1974.Gross property additions declined to$305.5 million in 1975 and$252.2 million in the twelve months ended June 30, 1976.By far the pre-dominant source of funds used for construction expenditures has been external financing--sale of common stock, sale of first mortgage bonds and other long-term debt, sale of preferred stock, and at times net increase in short-term borrowings.
As 18 indicated on Page 1, in the upper portion of the page, during the 20 21 last five years, in total, external financing has comprised 83.5 percent or more to'otal funds used for construction.
The per-centage of external financing rose as high as 91.9 percent in 5 1 I 5 g i 1 I 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 10 12 13 15 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 fuel additions less allowance for funds used during construction are presently estimated at$287.2 million for 1976 and$290.9 million in 1977, with a marked rise in 1978, 1979, and 1980.Subject to continuing review and adjustment, the total of such construction expenditures are estimated at just under$2 billion 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 20 21 because of these record construction expenditures.
External financing is estimated to comprise a much smaller portion of 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.CAPITALIZATION AND CAPITAL STRUCTURE RATIO~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 14 15 16 years is shown on Page 3 of the exhibit.In the ten-year period total capitalization increased from$405.5 million on December 31, 1965, to$2, 213..6 million on December 31, 1975 This represents 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?20 21 S l 1 A.In terms of the balance sheet,.mome of the.,capital of Carolina 10 12 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 on rate of return on common equity, but also in terms of the degree of coverage of interest and preferred stock dividends.
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 17 18 20 21 over the years are shown on Page 4 of the exhibit.Over the years there has been a major decline, after years of stability 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 debt ratio, and the preferred stock ratio in particular, mesc 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 10 12 13 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 t'une 30, 1976 pro forma the sale of common stock in October 1976 the capital structure ratios are: total debt, 49.23 percent;preferred stock and preference stock, 14.96 percent;and.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 17 18 20 21 Light Company are shown on Page 6 as of June 30, 1976 pro forma sale of common stock in October 1976, with the components stated in terms of appropriate regulatory concepts.Long-term debt is shown, with short-term debt retired.In accordance.
with the usual practices of this Commission, as I understand them, interest-free capital has been included in total capitalization.
This includes accumulated deferred income taxes and the deferred 10 12 13 14 15 17 18 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, on June 30, 1976 pro forma the sale of common stock in October 1976, the ratio of long-term debt to total capitalization was 46.39 percent;the preferred stock ratio and preference stock was 14.10 percent, and the ratio of interest-free capital ot total capitalization was 4.55 percent.The common equity r atio was 34.96 pe rce nt.Capitalization per fair value rate base for North Carolina retail operations is shown later on Page 91.The common equity 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?
I I 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 10 13 15 16 17 18 terms of regulatory concepts-long-term debt, 46.39 percent, 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 reasons.First they are realistic, being based on the actual situation of the company on June 30, 1976 pro forma sale of common stock in October 1976, and under current plans for financing and operation of the company, Second, they are appropriate in my judgment within a range for Carolina Power Ez Light Company in terms of the basic risks and uncertainties of its business.20 21 Capital structure ratios are extremely important in a fair rate of return study for two basic reasons.First they provide the
weights to be applied to the cost rates for debt, preferred stock, 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 13 14 15 16 17 and the common equity ratio must be stated together and ex-pressed side by side for meaningful measurement and inter-pretation of earnings experience on common equity.For these reasons, components of capitalization and the correspond-ing capital structure ratios must be defined accurately and use d with care.18 20 21 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 14 16.in which Carolina Power Ez Light Company has financed during recent years.First mortgage bonds of CP4L are rated Baa by Moody's and A by Standard 4 Poor's.'17 18 A study of offering yields on all newly issued public utility bonds rated by Moody's during the last several years is shown 20 21 on Page 9 of the exhibit.On Page 10 I have shown the averages by years from 1960 through 1975 and for January through October 1976, of Moody's Averages, computed and published monthly, l l~i~~f~i~~
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, 10 in 1974 went up further to 9.75 percent, and in 1975 went up to a new record average of 10.22 percent, During Zanuary-12 13 14 October 1976 the average was lower, 9, 05 percent.The averages for yields on Baa-rated newly issued long-term public utility bonds shown for 1974 on Page 9 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 18 20.january-December 1974.During the months of t'une 1974 through Zune 1975 no long-term Baa-rated bonds could be marketed by any electric utility because of troubled conditions in the capital 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 20 imbedded cost of preferred and preference stock to Carolina Power 8: Light Company on June 30, 1976 pro forma sale 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 20 earnings rate on the common equity for Carolina Power 4 Light 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): 12 13 14 15 16"A utility is entitled to such rates as will permit it to earn a return on the value of the property which it employs for the convenience of the public equal to that generally being made at the same time and in the same general part of the country on investments in other business under-takings which are attended by corresponding risks and 17 uncertainties...
" 18 (1943): 20 21"...By that standard the return to the equity owner should be commensurate with the returns on investments on other-16
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:
10 12 13 14"Fix such rate of return on the fair value of the property as will enable the public utility by sound management to produce a fair profit for its stockholders, considering changing economic conditions and other factors, as they then exist, to maintain its facilities and services in accordance with the reasonable requirements of its 15 16 17 customers in the territory covered by its franchise, and to compete in the market for capital funds on terms which are reasonable and which are fair to its customers 18 and to its existing investors.
" 20 21 My approach to determination of fair rate of return on common equity is a combination of commensurate return and attraction of capital on fair and reasonable terms and maintenance
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10 12 13 14 15 17 18 20 21 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, with consideration given to business characteristics, investment stature, similar approaches by regulatory commissions, and com-parable accounting and ratemaking treatment.
Emphasis has been placed on the earnings experience on common equity of electric utilities in fair value jurisdictions, used as comparison companies.
The reason 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 for application to the rate base of Carolina Power h Light, which is on a fair value basis.Consideration has been given to recent rate orders by regulatory commissions.
Consideration has been give'-to.thpnzxajbr:
upswing in rate of return on common equity which has been experienced N 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
10 12 13 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 earnings is significant too, with particular regard to the role of allowance for funds used during construction.
The determination of a fair and reasonable earnings rate on the common equity-the cost of common stock capital-is 14 15 much more complex than that of the cost of debt capital or preferred stock.There are fundamental differences between these types of 16 capital and the determination of their costs.Common stock 17 18 20 21 investors are equity investors.
They are not buying a bond or preferred stock with fixed interest or dividend and limited risk.Common stock investors are buying ownership in the business enterprise, with the risks and opportunities which that necessarily involves.This means that they expect earnings on their rN, 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 on common equity are the basic considerations involved in the cost of common stock capital.j5 10 12 13 15 17 18 20 21 Then, too, crucial in importance, we must remember that all'of these matters for one company are~ace'~$'ly~shred'hx terms of the'corresponding considerations in alternative investment opportunities.
Appraisal of equitims in the capital markets can only be made on the basis of comparison.
In terms of attraction of capital on fair and reasonable terms and maintenance of credit and support of financial integrity, emphasis has been placed upon studies of market appraisal of common stocks and common stock offering@=of:eleethicunMiMap, and upon studies of first mortgage bond offersagg.
to support ratings 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" by Moody's and A by Standard 4 Poor's, a minimum and 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 10 12 13 14 15 common equity investments in other enterprises having corresponding risks.It must thus measure up to, and meet, the earnings experience on common equity in the closest alternative investment opportunities, taking into account any differences in risk and the common equity ratio.It must provide for maintenance of credit and assure confidence in financial integrity.
It must provide for the attraction of 16 17 18 capital-and on fair and reasonable terms.The fair and reasonable earnings rate of~'ommon equity for Carolina Power 4 Light must be stated and 20 21 determined ultimately as a fair and reasonable rate of return on the fair value of common equity to be used in the determination of 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 10 12 13 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.The common equity ratio for Carolina Power 8z Light was 29.43 percent in 1974.The common equity ratio is average common equity divided by average total capital.In the twelve months ended June 30, 1976, the common equity ratio was 31, 18 14 per cent.15 16 17 18 20 21 Allowance for funds used during construction, now a part of.other income and which enters into the determination of net income for common, was 105.84 percent of net income for common in 1974.This ratio bears on the quality of reported earnings for common equity.The ratio had declined to 62.89 percent in the twelve months ended June 30, 1976, 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.
10 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 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 16 17 Seven specific tests of inmstment stature in terms of ratings and characteristics of securities were used in my studies of this criterion.
18 Page 16 of the Exhibit shows the results of th'e application 20 21 of these seven tests to Carolina&ower 4 Light Company.The first test is Moody's bond rating of senior debt or 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.10 12 13 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" by Moody's.The fourth test is Standard L Poor's quality rating of preferred stock, The preferred stock of.Carolina Power 4.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 20 21 These quality ratings run from High Grade or High Quality, go on down to Investment Grade, and then to Medium Grade, and to Speculative.
The common stock of Carolina Power k Light is characterized by Moody's as"Medium Grade."
10 12 13 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 dividend record.Carolina Power Ez Light has paid a dividend on its common stock each year since 1937.The ability of a company to maintain, through good and bad times, an unm-terrupted flow of dividend payments to stockholders is a clear 14 indication of underlying strength and stability.
Investment 15 16 17 18 comparisons frequently list common stocks with a sustained dividend record of 25 years or longer.Studies of the dividend record have been made on the basis of data from Standard 4 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.21
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 10 12 13 14 15 16 17 18 20 21 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 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 Federal Power Commission used is on page 20.The average rate of return on common equity derived from operating income excluding allowance for funds used during con-struction, allowed utilities by state regulatory commissions in original cost jurisdictions and the Federal Power Commission has averaged 13.50 percent during 1975 and 1976.In making this study, I have given due care to the exclusion of allowance for funds used during construction from net income for common.The commissions relied upon relate fair return, determined by combination of fair rate of return and rate base, only to operating income.
10 12 13 14 15 16 17 18 20 21 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 reasonable rate of return on common equity of 13.60 percent, at a common equity ratio of 44.13 percent.The Kansas Com-mission, in Docket No.102,640-U decided July 14, 1975, found for Kansas Gas and Electric Company a fair rate of return of 14.85 percent on common equity with a common equity ratio of 30.4 percent, making a component for common equity of 4.51 percent.The State of New York Public Service Commission in Opinion No.76-8, regarding Rochester Gas and Electric Corpor-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, forming a weighted component of common equity of 5.13 percent, and, in addition, the Commission approved an additional return<<2 7
10 13 14 15 16 17 18 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 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.ratio of 29.45 percent, including deferred income taxes and customers deposits at 8.27 percent of total capital.The Public Utility Commissioner of Oregon in Case UF3150, Order No.75-704, dated August 13, 1975, awarded Pacific Power and Light Company.a reasonable rate of return on common equity of 13.50 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 I I I I I I than that which I have utilized for Carolina Power L-.Light Company making for a component for common equity close 10 12 13 14 15 16 17 18 20 , 21 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 comparison, the fair rate of return on common equity from operations for Carolina Power 8z Light Company which I have found of 14.25 percent at a 34.96 percent common equity ratio.makes for a component for common equity of 4.98 percent.Recent orders by the Federal Power Commission are listed on page 20.It is well established, of course, that the Federal Power Commission measures return only in terms of operating income without inclusion of allowance for funds used during construction.
For example, in Docket Nos.E-8586 and E-8587 issued November 10, 1976, the Federal Power Commission found for Public Service Company of Indiana a fair and reasonable 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 10 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 percent.The administrative law judges in recent initial decisions 12 13 have similarly followed the course of the Commission's recent I.decisions on rate of return.For example, the initial decision 14 15 16 17 18 ZO in Docket No.E-8911, dated October 18, 1976, regarding Gulf Power Company, found a fair rate of return on common equity of 13.00 percent at a common equity ratio of 34.11 percent, making a component of 4.43 percent.The initial decision of the administrative law judge in Docket No.E-8851, dated October 22, 1976, regarding Alabama Power Company finds an allowance for common equity of 12.935 percent at a common equity ratio of 21 31.0 percent, forming a component of 4.01 percent.
10 12 13 14 15 16 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 a matter of fact, the average rate of return on book value of common equity earned by the 39 electric utilities in fair value jurisdictions, shown on the top line of page 28 of Langum Ex-hibit No.2, averaged l.65 percent excess over that earned by 81 major electric utilities in original cost jurisdictions, through the period 1963 through 1975.The averages of common equity ratios for the groups of companies involved support these con-17 clus ions.18 20 21 Information on fair rate of return allowed by regulatory commissions in fair value jurisdictions is shown on pages 2'I and 2la of Langum Exhibit No.2.These data, from major Orders 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.<<32>>
Il Ii~ll ii li!I.LI LI t Li LI Li Ll d etermination has been that the return on the common equity 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 these the electric utilities listed at the left on Pages 22 and 23?A.Yes, they are.The electric utilities which I have studied are 10 13 16 17 18 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 of the exhibit, by jurisdictions, comprise all major electric utility companies in the United States, both those with publicly-held common stock and the operating subsidiaries of holding.companies, in fair value jurisdictions during 1974 and 1975.Of these 35 operating electric utilities in fair value jurisdictions, 20 are without flow-through, as indicated by the asterisk.Of the 38 companies, 29 are in states other than Texas, and 10 are in Texas.The four holding companies which own operating companies in fair value jurisdictions are also listed on Page 23.Q.Dr.Langum, you have stated that you have studied the earnings 20 21 experience of electric utilities in fair value jurisdictions as a guide to commensurate return on the common equity of-33-1 Q.Dr.Langum, you have stated that an additional basis of your 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 10 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 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 14 15 16 companies and public bodies have directed my attention and special studies which I have made on the basis of these decisions I and orders;second, the analysis of methods of rate base deter-mination generally applied given in the pamphlet, Federal and 17 State Commission Jurisdiction and Re ulation of Electric Gas, 18 ZO Zl and Tele hone Utilities, 1973, prepared by the Federal Power Commission, in cooperation with the National Association of Regulatory Utility Commissioners; and third, analyses of 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.10 12 13 15 16 17 18 I shall use their earnings experience on common equity in application of the standard of commensurate return in deter-mination of fair rate of return on common equity for Carolina Power 4 Light Company.The fair earnings rate of common equity for Caielina Power 4 Light must be stated and determined in terms of the earnings experience on common equity of other electric utilities in fair value jurisdictions, for the reason that Carolina Power Sz Light in its retail business in North Carolina, is regulated on the basis of a fair value rate base.Then, too, use is made only of companies with adequate investment stature.20 Will you now discuss the investment stature of the electric 21
utilities listed at the left on Pages 22-23 of'the Exhibit?2 A.These are the electric utilities in fair value jurisdictions, 10 12 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 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.Their common stocks have typical investment quality references 13 from Moody's as High Grade or Investment Grade.Their 14 16 17 18 20 21 common stocks have typical earnings and dividend rankings by Standard 4 Poor's of A, with some A+and some A-.They typically have a long, sustained dividend record, usually of at least 25 years.Some companies have been downgraded, however, to less than investment stature, with Baa and BBB ratings on first mortgage bonds and'!baa" and BBB ratings on preferred"-stock.
The companies with investment stature, however, are closely 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 10 13 14 15 16 17 18 20 Zl 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 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.common equity of Carolina Power Ec Light.For each of the 39 companies for each year 1963 through 1975, the rate of return on book value of common equity is shown, with the corresponding common equity ratio shown just below,.For example, the data in the lower right hand corner of Page 26 indicated that in 1975 West Penn Power Company earned a rate of return of 13.34 percent on common equity, with a 33.39 percent common equity ratio.Averages for these companies:
are shown on Page 28.Thus, in 1975 the 39 electric utilities in fair value jurisdictions, l l I 10 12 13 14 15 16 17 18 20 21 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-ment tax credit are offset by a charge for normalization or amortization in the income statement and hence do not increase reported operating income and net income for common by such reductions in current income taxes.Carolina Power 0 Light Company normalizes tax deferrals from accelerated depreciation and amortizes the investment tax credit to income over the service life of the property.Accordingly, CP8zL is in the"without flow-through" category.In effect, the capitalization of those companies without low-through is on an entirely different basis than those companies with flow-through.
Deferred credits for accumulated
10 12 13 14 15 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 in tests of commensurate rate of return.I shall give more weight to their earnings experience on common equity than to that of electric utilities on a flow-through basis.By the same token, in my judgment, the accumulated credits for deferred income taxes and unamortized investment tax credit, except 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
10 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 during construction 12 13 15 16 17 18 The increased role of allowance for funds used during construction has great significance, in my opinion, at least in two respects.First, the increased role of allowance for funds used during construction has substantially lessened the quality of reported earnings for common equity.The allowance for funds used during construction is entirely proper but is essentially a bookkeeping adjustment.
Earnings from allowance for funds used during construction have an important defect, namely, that there are no current cash revenues corresponding 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 9 Q.light of treatment of allowance for funds used during construction.
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 16 17 18 fair rate of return on common equity for Carolina Pcnxcer.".8zcLight, They must be given further analysis and proper interpretation in the light of additional considerations.
For one thing, the earnings experience of the comparison companies must be related to the breader matter of earnings experience of 20 21 companies generally in the American economy, with varying conditions of real growth and inflation.
In addition, the 2 common equity ratio has vital significance in appraisal of 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 10 companies generally in the American economy, with varying 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 15 16 17 18 With major inflation, in particular, have come the high interest rates shown on Pages 9 and 10 of the Exhibit.The effects of inflation on operating expenses and on plant costs and on high interest rates and preferred stock dividend yields.have been prime causes of the sharp deterioration in the earnings experience of electric utilitie s.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 10 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 overall rate of return on total capital.The second is the cost 13 of senior capital.The third is the common equity ratio, that is, the ratio of the common equity to t>tal capital.Of these three factors, by far the most important is the 14 15 16 17 rate of return on total capital.This is determined, of course, by the relationship between sales and expenses and capital in the business undertaking.
Necessarily, the overall earnings 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 14 15 16 17 18'0 21 same cost of senior capital, assuming as is usually the case that the cost of senior'apital is below the rate of return on total capital.In these circumstances, the common equity ratio has great significance in appraisal of earnings experience.
Both the common equity ratio and corresponding degree of financial risk must be considered side by side with the percent earned on common equity, that is, the ratio of earnings for common to common equity.The reason for this is that with a given 1 I'I 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-10 12 13 ship.Comparison is=made of five companies, each with the same rate of return on total capital, but with different common equity ratios.Suppose that the relationship between sales and expenses and capital in each of these business undertaking,s is such that on the total capital invested of$1000, the total inconic earned is\4*$100.00, and,the rate of return on total capital is 10.00 percent.16 17 18 In Company A, there is no debt and no preferred stock.In these circumstances, all of total apital invested is common equity.The common equity ratio is 100 percent.All of income for capital goes to net income for common.20 21 The rate of return on common equity, net income for common divided by common equity, is 10.00 percent, the same as the rate of return on total capital..'=47-4 In Company B, with$400 borrowed funds, the owner has invested only:."-$600 of his own common equity money.In this case, with total capital of$1,000 invested in the business, the common equity ratio is 60 percent.The senior capital is entirely debt.At a debt cost of 7.5 percent, the interest 10 12 13 14 15 16 17 18 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, or 11.67 percent<In Company C, more is borrowed, say, a total of$600.The owner would then have to put up$400 of his own equity.capital.In this case, the common equity ratio,$400 divided by$1,000 is 40 percent.With the interest at 7.5 percent, the interest on debt would be 7.5 percent of$600 or$45.00.When this is deducted from the$100.00 total income,$55.00 woul'd be left for the owner's common equity of$400.The rate of return on common equity,$55.00 divided'by
$400, would be 13.75 percent.20 21 In Company D, still more is borrowed, say, a total of$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 10 12 13 14 15 16 18$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 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 return on common equity would be 14.67 percent.Thus, with the same overall rate of return on total capital, 10.00 percent, the rate of return on common equity would go up from 10.00 percent to 15.83 percent, as the common 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 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 12 14 return on total capital declines from 10.00 percent to 8.00 percent.But the income for the owner of the business, with a common equity ratio of 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 return on common equity would drop from 14.67 percent to 15 16 8.00 percent.And if the situation deteriorated further, when total income gets down to$44.00 or a rate of return on total 17 18 capital of 4.40 percent, the earnings for the owner would be 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 10 in comparing rates of return on common equity among various business enterprises with different common equity ratioS?A Such differences in common equity ratios may be considered 12 13 14 15 16 18 20 21 in various ways, depending on the degree of precision desired.First, a judgment adjustment in general terms may be made.In this connection, sometimes rate of return on total capital is simply compared with rate of return on common equity.Second, comparison may be made in terms of components for common equity--the product of rate of return on common equity and common equity ratio.This procedure does not give effect to varying cost components for senior capital with varying capital structures and is therefore incomplete.
Comparison of components 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 is precisely analagous to restating a distance measured as 7 yards into the equivalent of 21 feet.Q.Dr.Langum, you have made the statement that if the capital 10 structure ratios are different among various business under-takings, that fact must be considered and proper adjustments made in comparing the rates of return on common equity.Will you explain how such an adjustment can be made?A..The method of such an adjustment of rate of return on common 14 15 equity for a different common equity ratio is shown on page 3Z 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 Z0 under specified assumptions, is shown on page 32 of the Exhibit.I 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 12 13 14 15 16 17 18 points.At an interest rate of 5.90 percent--the actual imbedded interest rate on average total debt for'Public Service Indiana.in 1974--this would mean, in terms of the components for overall rate of return, 0.119 percent more interest and less earnings for common equity.The.resultant component for common equity at a 35.81 percent common equity ratio would'be 5.335 percent.The resultant rate of return on common equity at a common equity 20 21 ratio of 35.81 percent would be 14.90 percent.Public Service Indiana in 1974 earned 14.42 percent 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 12 13 14 15 16 17 companies, as was shown on page 7 of the Exhibit.In the example on page 32, I have adjusted the actual earnings experience of Public Service Indiana to the equivalent at a.35.81percent common equity ratio.The indication from the earnings experience on common equity in 1974, Public Service Indiana, is that Carolina Power 4 Light Company should be afforded the opportunity to earn about 14.90 percent on common equity at its common equity ratio of 35.81 percent.Earnings 18 rates of the comparison companies must be stated in terms 20 21 of that common equity ratio for accurate comparison and meaningful application to Carolina Power 4 Light Company.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 10 equity ratios have you given consideration in application of the 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 16 17 18 20 21, for Carolina Power.Ez Light, c'ousiderati'on.has been>given as~~Rl to the general economic health, so to speak, of the companies.
It is extremely important in using the earnings experience on common equity of other comparable utilities as a guide to fair rate of return for Car&jza:Power Ez Light that only:e~pames that are healthy and successful be used as comparison.
companies.
Carolina Power 8z.Light is entitled to have'its-fair.rate of return 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, 10 12 13 14 15 16 successful companies rather than financially sick and unsuccessful companies.
Accordingly, I have excluded certain companies from use as co'mparison companies in the test of commensurate rate of return.The companies so excluded from use as comparison companies and the reasons for my judgment are shown on Pages 35-38 of the Exhibit.Exclusion has been for 1971 alone, 1972 alone, 1973 alone,'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 20 Zl of definite criteria;if allowance for funds used during construction was 50 percent or more of net income for common;if the company has inadequate investment stature, that is, less than A ratings 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 10 12 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 return, or companies which are not being able to finance adequately or properly, as a guide to fair rate of return for 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 16 17 18 20 21 electric utilities in fair value jurisdictions during recent years, that is, 1971, 1972, 1973, 1974, and 1975, is shown on Pages 39-40, as on Pages 33 and 34.Rate of return on common equity has been adjusted to the 35.8)percent common equity ratio which I am using in forming my judgment as to fair rate of return for Carolina Power Ez Light.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.10 12 13 14 16 17 18 20 21 Averages for the companies used as comparison companies in test of commensurate return are shown on the bottom line on Page 40 of the Exhibit.Separate averages are shown for comparison companies in Texas and for comparison companies in jurisdictions other than Texas because there is no state commission regulation of electric utilities in Texas.In Texas, there is a strong fair value Supreme Court decision--the Alvin case--and varying degrees of regulation by the major cities.Rate of return on common equity, adjusted to the 35.81 percent common equity ratio, for the electric utilities in all fair value jurisdictions as comparison companies in test of commensurate t return averaged 14.87 percent in 1971, 15.30 percent in 1972, 15.23 percent in 1973, 15.24.percent in 1974;and 14.78 percent 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 12 13 14 15 16 17 construction as percent of net income for common is shown on Page 41 of the Exhibit for the operating electric utilities in fair value jurisdictions used as comparison companies in test of commensurate return.As shown on Page 50, this study indicates a fair rate of return on common equity of 14.25 percent at 35.81 percent common equity ratio, or at 34.96 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 l ti I I 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.10 lZ 13 14 15 17 18 20.Zl 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.Real growth is shown in terms of gross national product stated in constant dollars.Real growth over the years has been substantial.
Recessions occurred in 1949, 1954, 1958, 1961, 1970, and more N recently in 1974 and 1975.Real output in calendar year 1974 was down l.7 percent from calendar year 1973 and in 1975 was down l.8 percent from 1974.In recovery and expansion, however, real output rose at an annual rate of 4.5 percent the second quarter of 1976.Similarly, referring to the last column at the right, on Page 42 of the Exhibit, total real disposable personal income declined in 1974, the first year-to-year decline in a quarter 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 13 previous post World War II year.The rate of return on common equity earned by industrial companies with quality rating of 14.15 16 17 High Grade by Moody's was 16.90 percent at a common equity ratio of 77.66 percent in 1975.Their earnings rate rose to about 20 percent on common equity in the second quarter of 1976 at a common equity ration of 78 per'cent.18 20 21 I l 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 12 13 14 also experienced a marked improvement in earning power in 1973 and 1974 as compared with 1972.These companies earned 18.29 percent on common equity in 1973, with a common equity ratio of 79.43 percent.Their rate of return on common equity 15 averaged)6.65 percent in 1974, with a common equity ratio 16 17 18 of 78.14 percent.The general tendency for a corporate profit squeeze from 1965 to 1972 had affected these companies.
These companies, also, have seen a change to a lower common equity ratio over recent years.ZO 21 Rate of return on common.equity was down somewhat in 1975, 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.
I l ig I~~4 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 10 consideration, we must give adequate weight to the major differences in degree of risk, all factors considered, between even the most comparable unregulated companies and regulated utilitie s.First, public utilities must compete in thc capital markets 13 14 not only against other regulated enterprises but against unregulated busincsscs as well.Hence, thc return to capital in such nonregulatcd 15 16 17 enterprises is particularly significant and rclcvant.The realities of competition by business firms in the capital 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 13 14 15 16 17 18 20 21 cannot be allowed to compete.Operating characteristics necessitate generally that utilities operate under franchises and that they do not engage in specific competition in regard to their services and are therefore regulated to assure fair and reasonable rates for services of good quality.It likewise follows that fair regulation will set rates for public utilities which will provide a return related to that being earned by other enterprises of comparable nature in respects other than that they are regulated in the price they charge.The third reason is the necessity of getting outside the circle-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 10 12 13 14 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.Under such procedure, the return to the subject utility would be guided by other regulatory experience rather than by the funda-mental concept of regulation as the substitute for competition.
Only by consideration of unregulated companies do we take the 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 18 experience on common equity of the 39 Operating electric utilities in fair value jurisdictions used as comparison companies in 20 21 relation to that of the 41 industrial companies, excluding oil companies, with quality ranking of XRgh Grade by Moody's.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 12.13 14 15 16 17 18 Z0 21 The record of earnings experience on common equity of the 39 electric utilities in fair value jur'isdictions during recent years in terms of averages for this broad group is quite clear.From 1963 through 1966, earnings improved, with higher rate of return on common equity at a somewhat higher common equity ratio,.and with little role of allowance for funds used during construction.
The component for common equity-rose from 5, ZN-percent in 1963 to 5.750 percent in 1966.From 1967 through 1970, earnings declined, with lower rate of return on common equity, at lower common equity ratio, and with increased role of allowance for funds used during construction.
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 10 13 14 15 16 17 18 20 21 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 in 1975.Earnings experience on common equity of the 39 operating electrics in fair value jurisdictions used as comparison com-~panies is next related, on page 49, to earnings expexience on common equity of industrial companies with quality ranking of High Grade by Moody's.There are the same 41 industrial com-panies previously considered on pages 44-48 of the Exhibit, with averages shown on the bottom lines'f page 48.For each group for each year, I have computed the component for common equity.The component for common equity is, of course, the product of rate of return on common equity and the corresponding common equity ratio.Thus the
common equity component provides an overall measure of earnings experience on common equity.Then I have shown the component for common equity of the above 39 operating electric utilities in 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 10 12 jurisdictions to that of the 41 High Grade industrial companies.
The component for common equity of the 39;comparison companies is shown as percent of component for common equity of the 41t 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 16 common equity for the electric utilities as percent of the component for common equity for the industrials ranged from 37 90 percent 17 to 35.69 percent.During the years 1971, and 1972;the relationship 18 s~was 36.24 percent and 33.49 percent.During the years 1973 20 Zl and 1974, when industrial earnings rose to high.levels, largely as a result of inventory profits, and earnings of many electric utilities collapsed, the relationship was 31.98 percent and 28.74 5 1 10 12 13 14 15 16 17 18 20 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 corresponding components for common equity in overall rate of return for the High Grade industrials.
It is clear that the electric utility industry has been able to operate succ'essfully at a much lower rate of return on common equity and at a much lower common equity ratio and hence at a much lower component for common equity than the corresponding measurements for the High Grade industrial companies.
The component for common equity has averaged about one-third to two-fifths of that for the High Grade industrial companies.
This evidences a major excess of earning power on common equity, 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 14 16 17 18 20 21 than deep depression in terms of earnings experience on com-mon equity.We should amid use of earnings experience of sick, problem, unsuccessful companies as a guide to fair rate of return for a subject company.Finally, we can confidently utilize appropriate rate of return data for electric utilities during recent years as'a guide to fair rate of return, with no fear whatsoever, of circular reasoning.
Their earnings experience is, in general, very much"in line" with historical relationships with 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.10 13 14 16 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 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 particularly true when it is remembered that the data on page 49 for the 39 electric utilities include allowance for funds used during construction, the data for the 41 industrial companies 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 10 12 13 outline of the basis of your determination of fair rate of return on book value of common equity, you refer to standards of maintenanceof credit and support of financial integrity and attraction of capital on fair and reasonable terms as well as the standard of commensurate return.Will you comment on this basis of determination of fair rate of return on common 14 equity?The standards of attraction of capital ozr fair and reasonable 17 terms, maintenance of credit, and support of financial integrity have vital bearing on the required earnings rate on common equity.For example, earnings for common should be 20 21 sufficient, given the general stock market level, to support market price at or above book balue and enable sale of common 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 6 Light Company is required to support the attraction of capital, 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 13 applicable to common stock, please explain your studies shown on pages 51-54 of the Exhibit?14 A.The common stocks of electric utilities generally have declined 15 16 17 sharply and over several years in the esteem placed on them in the market for common stocks.This is evidenced by their lower price-earnings ratios, higher dividend yields, and lower 18 market price to book value ratios.20 21 The relationship of market price as of December 31, 1975 to book value on December 31, 1975 for electric utilities is shown on pages 52-53.Of the 108 electric utilities listed, comprising
<<73<<
I 3.all major companies with publicly-held common stock, only 30 had market price at or above book value.The median ratio for 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 13 14 15 16 of electric utilities during 1972, 1973, 1974, 1975, and 1976 to date.is shown on page 53.In 1972, the average ratio was 128.40 percent in 45 offerings, with 41 at or above book value.In 1973, the average ratio was 120.64 percent in 47 offerings, with 34 at or above book value.In 1974, the average ratio was 76.49 percent 17 18 in 54 offerings, with only eight at or above book value.In 1975, the average ratio was 83.30 percent in 94 offerings, with only 12 20 at or above book value.In 1976, thus far, the average ratio was 94.94 percent in 65 offerings, with 20 at or above book value.21>>74-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 10 12 13 14 closely related to the market price, for less than the book value per share of the common equity owned by the existing shareholders.
Thus, there is dilution of the book value of common stock and failure to support the financial integrity of the company.This is a most serious situation for the 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 18 20 21 electric utility must attract common stock capital not only to derive capital funds, but also to-support and make possible the attraction of capital funds from sale of first mortgage bonds and preferred stock and short-term borrowing.
In other 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 Q, What has been the record during recent years of common stock offerings by Carolina Power Ez Light Company'7 A.The record of Carolina Power 4 Light in terms of common 10 13 14 15 stock offerings and relationship of price to public to book value for 1972 through 1976 is shown on page 54 of the Exhibit.During these years, Carolina Power 8: Light has made five offers of common stock.In the most recent issue, on October 13, 1976, Carolina'ower 4 Light sold 3, 000, 000 shares of common stock to the I public at total price of$66, 750, 000.The price to public,$22.25, was 98.71 percent of book value,$22.54.16 Q.What do you conclude from the studies of market appraisal C of common stocks of electric utilities and Carolina Power 4 17 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 10 ratings of first mortgage bonds and preferred stock and the maintenance of the credit of the company?A.Earnings for common equity have direct bearing on ratings of 12 13 14 15 first mortgage bonds and preferred stock and the maintenance of the credit of the Company.It is the earnings for common equity that provide the coverage for the protection of payment of the interest charges and preferred stock dividends of the 16 17 Company.Without timely and adequate rate increases as needed, the first mortgage bond and preferred stock of Carolina Power 4 18 Light could not even be sold because of the sharp drop in 20 earnings experience on common equity in those;circumstances l.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 8 10 12 13 14 16 of capital on fair and reasonable terms, maintenance of credit, and support of financial integrity with respect to first m'ortgage bonds of Carolina Power 4 Light are shown on pages 55 through 75 of Langum Exhibit No.2.In particular, I determine what fixed charge coverage ratio is necessary to assure the upgrading of the rating from Baa to A by Moody's and the continued maintenance of the A rating by Standard 4 Poor's on the first mortgage bonds of.Carolina Power Ez Light.I thus 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 standing 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 t A.Moody 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 10 1Z 13 14 15 16 17 18 investment quality are indicated by rating symbols, each symbol representing a group in which the quality characteristics are broadly the same,~..from that used to designate least invest-ment risk (i.e., highest investment quality)to that denoting greatest investment risk (i.e., lowest investment quality).The first mortgage bo6ds of Carolina Power 4 Light are rated Baa by Moody's and as A by Standard 4 Poor's.Moody's states, as shown on page 55: "Bonds which are rated Baa are considered as medium grade obligations...
Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.19 Q.Please explain pages 57-65 of the exhibit?ZO A..Moody s and Standard k Poor's rate public utility bonds and l 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, 10 12 13 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, 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 with the offering on April 24, 1975,$100, 000, 000 First Mortgage~Bonds, 11%Series due April 15, 1984.On pages 69-71 of the Exhibit 14 15 16 17 18 20 21 are reproduced the pages from Standard Ez Poor's Corporation, The Fixed Income Investor, April lZ, 1975, pages 69-70 and The Fixed Income Investor, April 26, 1975, page 71, the rating articles in which Standard 4 Poor's maintained the rating of the first mortgage bonds of Carolina Power 4 Light at A.These.articles contain description and analysis of the Company's financial situation and'the ratings on the new and existing issues of first 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 10 12 13 14 15 16 17 18 20 construction program, even after substantial cutbacks, is calling for spending of$1.1 billion over the 1975-1977 period.This is a heavy program relative to internal cash generation and outside financings are expected to continue to pressure the overall financial posture of the company.In view of the above, Moody's has reduced the ratings on the company's first mortgage bonds to Baa." Moody's further stated in connection with the April 1975 first mortgage bond issue, as shown on page 66;"Although pro-jected construction outlays have been trimmed, future financing requirements remain heavy.In view of.this, continued pressure on debt protection measurements would appear likely in the absence.of further and substantial rate relief." Standard k Poor's stated, 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 10 12 13 14 17 18 20 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 over these years, and especially in 1973 and 1974.These coverage ratios for the years 1971 through 1974, were shown in the Standard 4 Poor's articles on page 69.Times'interest earned before taxes was 2.92 times in 1972'.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.Times interest earned after taxes before construction credits (with allowance for funds used during construction not included in earnings)was l.86 times in 1972;1.49 times in 1973, 1.23 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 10 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-struction credits, that is, excluding allowance for funds used during construction, would be 2.71 times.Q.'ow do these ratios compare with the corresponding ratios for 12 13~first mortgage bonds of electric utilities by rating categories?
14 A.On page 75 are shown summary.results of a detailed study in 16 17 18 terms of coverage ratios which I have made of the 20 issues of first mortgage bonds offered by electric utilities during 1975 and 1976 thus far.C'conclude that the coverage of fixed charges after income 20 21 taxes, excluding allowance.
for funds used during construction, for Carolina Power 8z Light Company under proposed rates would 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 12 13 14 15 16 17 Ez Poor's in connection with the offering on March 13, 1975 of 2, 000, 000 shares of$2.675 cumulative preference stock, Series A by Carolina Power 4 Light.Moody's Investors Service, Inc.did not rate the new issue of preference stock.Moody's did, however, reduce the rating on Carolina Power 4 Light Company's publicly-held preferred stock issues to"baa" from."a", as shown on page.Z9 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 10 13 14 15 16 17 18 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 years 1970 through 1974 were shown in the Standard Ez Poor's article on Page 80.Coverage of fixed charges and preferred stock dividends.before income taxes was 2.24 times in 1972, 1.86 times in 1973, l.54 times in 1974, and l.78 times in 1975.Coverage of fixed charges and preferred stock dividends after income taxes was l.99 times in 1972, l.76 times in1973, l.53 times in1974, and 1.66 times in 1975.Coverage of fixed charges and preferred sto'ck dividends 20 after income taxes before construction credits (with allowance 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 Standard 8: Poor'?14'.The summary results of a detailed study which I have made of 15 16 17 18 20 coverage ratios and ratings on the 91 issues of preferred stock offered by electric utilities during 1975 and 1976 thus far is shown.on Page 85.The coverage ratio attained for Carolina Power 8z Light Company under the proposed rate increase would be required, in my opinion, to assure an upgrading to"a" rating 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 10 12 13 14 15 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 appraisal of the common stock of Carolina Power h Light at a market price somewhat above book value.In my judgment, it will support the A rating by Moody's and the A rating by Standard 4 Poor's on the first mortgage bonds of Carolina Power h Light.In my judgment, it will support the"a" rating by 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 10 13 14 15 16 17 18 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 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 equity of electric utilities without flow-through in original cost jurisdictions used as comparison companies.
The standards of maintenance of credit and:.support of financial integrity and attraction of capital on fair and reasonable terms, were based upon studies of common stock offerings of Carolina Power 4 Light during 1972, 1973, 1974, 1975, and 1976'to date, and of price to public in common stock offerings of electric 20 21 utilities in relation to book value during 1972, 1973, 1974, 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" 10 12 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 equity for Carolina Power 4 Light is 14 25 percentw&%Li96.percent common equity ratio, in terms of regulatory concepts.This excludes allowance for funds used during construction.
13 14 15 FAIR RATE OF RETURN ON NORTH CAROLINA RETAIL OPERATIONS ORIGINAL COST RATE BASE 16 Q.Dr.Langum, have you formed a judgment as to the fair rate of 17 18 return on total capital invested in North Carolina retail operations.
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 13 of 14 25 percent at a common equity ratio of 34.96 percent.Interest free capital has a capital structure ratio of 4..65 15 16 17 18 20 percent.I have combined the cost rates for each segment of the capitalization with the capital structure ratios to obtain weighted component of the overall fair rate of return.For debt, the cost of Y..7'2 percent combined with the capital structure ratio of 46.'39percent gives a weighted component of 3.58'percent.For preferred stock, the cost of 8.01 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 12 13 14 15 17 18 fair rate of return on original cost rate base for Carolina Power L Light, in which total capital has been invested for'its North.Carolina retail electric utility operations, which is necessary to enable the Company to support its capital structure, to attract needed new capital on fair and reasonable terms, to provide a return on its common equity commensurate with that earned by the most comparable business unde'rtakings and the closest 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 10 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 equity at book value.ll Q.What then is your judgment as to fair rate of return on the fair 12 13 value of common equity for Carolina Power 4 Light Company 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 19 commensurate return in terms of fair value, shown on page 90 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 10 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 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 16 17 18 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, This is the fair rate of return, so applied, which in my judgment will meet the standards of fair and reasonable return set forth by the statute of North Carolina regarding the fling of public utility rate s.20 21
LANGUM EXHIBIT NO.1 0 UA LIFICA TIONS DR.JOHN K.LANGUM ECONOMIC CONS ULTANT CHICAGO, ILLINOIS DECEMBER 1, 1976 1
QUA LIFI CA 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.A.What is your educational backgr'ound?
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 Q.A.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.
What connections have you had with graduate schools sponsored by banking and financial associations?
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 p pension funds, trust fund" of commci cial banl.s, mutua)fu>>d", 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 and business journals.For ten years, from I 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.In 1963, 1964 and 1969, I participated in the symposiums I 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..
I'.have served as First Vice-President and Director of 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 CAPITALIZATION AND 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 Commoon nEtneui 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 MAINTENANCE OF 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 56 57 Explanation and Key to Moody's Corporate Bond Ratings Wglanation and Key to Standard&Poor's Corporate Bond Ratings"When Is Interest Coverage a Special Concern7" Mood's Bond Surve January 5, 1976 Pages)781-1782 58-61 62-64"Fundamental Approach to Public Utility Bond Ratings" The Fixed Income Investor January 3, 1976 Pages 987-990"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 69-71 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 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 74 Carolina Power&Light Company Computation of Times Interest Earned After Income Taxes From Cost Rates For Capital and Capital Structure Ratios 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 78 Moody's To Assign Ratings to Preferred Stocks 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 I I Page l CAROLINA POWER&LIGHT COMPANY SThTEMENT OF SOURCE AND USE OF FINANCIAL RESOURCES 1971 Trrctre Months Ended December 31.1972 1973 1974 Thousands of Dollars Juae 30, 1975 1976 (Unaud!ted)Source of Financial Resources:
Current resources provided from o perationL Net income ltcms not re(tuiriag (providing) current resourceL Gepreciadon and amotdmdon.
AD nuance for funda used du dna corn numine Noncerrent deicned income taxes-net levcstm eat tax mcd(t ed justmenn-net Total cunent resources from operations Other resources provided:.Additions to plam accounts representiag capital-Iration of net cost of funds used during const tucuon Proceeds from assignment to lessor of internal com-bustion turbine generators Proceeds from sale and leaseback of nuclear fuel"Miscellaneous-net Total resources provided from operations and other'8327 (14,708)3,480 IG77 55,850 37403 (24,759)S,972 1.756 80.701 40,430 (38,093)7,430 2.94$78,714 45391 (54,609)11,188 (6G4()68,MD 57442 (59,957)24/73 14G74 137,754 69,861 (53,031)25,756 22044 (76.082 14,708 24,759 38,093 S4,609 59,957 53,031 883 663'09 44,4SS 47,593 3.995 7.096 12.151 71,441 106,123 1(6,916'18,652 204,807 24IG64$37,474$60,S29$6S,999$~71$101,622$111452 jm;l Fiat mongage bonds.13405(Six-year note Preferred stock.34,506 Preference stock Common stock.33,910 99317 50,000 49,364 199,755 49,949 63,449 125,039 12.483 215050 S286.691 16G56 329.509 5446 425.(70.164)253.556$359.679$318.382 16,918 36.785$359,056 37,610 45,708$239.291 20432 30,492 (3324)S286.691 (12,4061$359,679 4.051 S446,425$(9,107)$5476$105 5,898 (2419)2,900 3457 1.163 (8467)6,932 (5,656)828 3,036 (5,153)(394)(3.222)(5,876)(1.480)5 (3.324)$(12.4D6)3 4.051 Financings:
Sale oQ Increase (decrease)
In shon-tenn notes payable less temporary cash investments.
To:al resources provid<<d from fiaancings TOTAL Use of Financial Resourcea Grum pre pcny ad did em cede ding audear (uel'uclear fuel addiuons'ividends for the year Prepayment of six-year note Net increase (decrease) in working capital, excluding shon-term notes payable and temporary cash ia-vmtmeu TOTAL Increase (Decrease) in Working Capital.Excluding Shon-term Notes Payable and Temporary Cash Investments, by Com-ponentL'aterials and supplies (principally I'uel)Defened foci costs.Accounts receivable Accounts payable Cunent ponion of deferred income taxes Taxes accrued.Intmest end dividrn de payable Other-net Net increase (decrease l in working capital, ex-cluding shon.term notes payable 150,979 120,743 3P8I 47.744 14S,618 90,057 103.301 321.892$540.544 (145.075)169.030$373.837 58.418 148.475$389.739$382,602 39,939 58,048$305,553$252259 17,515 21.389 71,925 78259 50,000 59.955$540.544$69335 35,028 19,869 (40,310)(13478)(7,693)(6,077)3281$(19576)(20.650)(14,135)30,701 10392 1,896 (7,980)(1.7D4)$11,092 (14,832)1,8S7 (3336)7,718 (14,576)(2.028)1.937 5 59.955 8{2 1.156)S(12.168)(21.156)(12.168)$373,837$389.739 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 1 I' CAROMS HSER dJ LIG1IZ CRfPJQEX HEERlQLL FII1AHCB/0 IN BCIATIOH TO CONSXRUCTION EXPENDITURES ACXUAL 1970-1975 AND ESTIlATED 1976-1980 (Dollar amunta in nillions)Gross property additions and nuclear fuel additions less allowance for funda used during construction Total external financing Total external financing as percent of'ross property additions and nuclear fuel additions lees allowance for funds used during construction 1971+44.8 07.+1972$310.5@53.6 81.7$1973$358.6 91 6 Actual 1974$367.9$321,9 07.5$1975 fa63.1+69.0 64.2$83.5$Gross property additions and nuclear fuel additions less allowance for funds used during construction Total external financing Total external financing as percent of gross property additions and nuclear fuel additions less allowance for funds used during construction 1976@87.2 26.6$1977 090.9$82.5 28.4$1978$347.7$119,9 34.5$Esthnated 1979@52.0 1900@21,0 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.
R I l cojoLlLL 106>Loo 0 LltttT ccoOeÃC 4rl4LSCLTlojo S'/?Ie 9 7>Ce 3 Ac>rior Sl, Accceor Sl, Occc>OI>r 31, O,caber 31, ceca@or 31, Coco>ter 31~Ace~r 31~loco='er Slo~Aeececr 31, 1970 Acre>L>r Sl;Ac~or 31,~22~III Ace&et 31,~1 Ace=let 31, I Mc oet 3~I ag-o-'o t I:69.0."..Ico eao.eooca aIaolo,ao 919,0!o,cal atao>Ia>>>6>ea,ca Iaaetaae.tk 22 I I cce~leo I aa ao QO70 CSO>COO 6399>030>000 6 f3100300CCO 8&SLOOP OCOC 112 I~122 t 6 I~ceo 83L>0329000
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~~812109,CS>COO ol WA et0 Col\ill 2>0>CCO 171>$50 CCO 200'950 000 2CO>310 000 229 030 OCO 269>030>000 309 030 000 309,030 000 399>1&L>322 531>1$2 633 65ll>1LO>2L2 SSL>282>$25 1>03>OC5 f>2 73 1 olf Se le 0" r e'el eo t 1~)It>St"al oo'a 8,500,CCO LL,CCO,OCO LL06620>COO 11,6L1,847 lf>L26>LSL ST,LSO,COS
'I'l Cc&82500>000 ll>CCO COO.SL>&LO>000 1 1>611 847 1 f L24>LSL 66>lol>OSS 375>797>OSS I 172,2 O,CCO 180,0/,COO 200 9+000 215,310,000 213,670,COO 280 671,867 STL L56 LSL 69,680,691 L&S,SLS,OSS 82,163,288 21>5590702 250355>'>>9 616>315>P1 456>139>9LL 912063$>TTL 231, Efl, 0'di 2,15$S'8 L20097,CCO 3\olljoCOO
$06320020 1108720000
$0>gf>COO T>>022 ,30 M',33 5>332,041>ecol StcfetteC cocci SL,375,$C4 SL,37$,9CO SL,37$,002 34375,9CO SL,STS,SCO
$9,375,5CO 59,37$,5CO$9,375,000.89,375,500 32L>37$>902 1730800>900 223,800,9CO 2%, S>LOO 3310018>LO) lo~$~>C el..'2)8'o,l LOC2L So,>3>SLT~M: 1.~ISILI", 92>60$>750 SL>&Sf>$L7 12)>L390373 32,05$>153 131,889,389 22,8)3,568 133>109>Ojl L8,6$\>929 13L>3$>330$52517>495 1&L,351,558 42>$220253 1932 SLS>917&1,M.'l>802 227>$38>559 48,1$3>320 3520~0.5I5'41 92,&>3,379 L16,~21,C96 Llcoe 1095'O 12'7>BOTi&
Cla C4%02 e(>117 127,3$S,L3$133>181>129 11922212727 1 See>52L>524 17L>TCO>957 181>7&L>011 189>9330016 226>803>QX 25f>993>719 29$,652>289 LLS,LL9,2LO 527>137>548~,265,'9 co'o tooloe 233L>OOL>339 53LTI<>029 636>>SL&>727 SCOS>210>L26 SC52>TLS>8$
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Clh" ZN~i 4 110)Z CCVANT CAIIIA1 SIRcClcIcK NAIl04 1 1 8eccobcr 31, Cecaber)te Deccnber)le 8eceskcr)la Deecnber)le Decenber 31e Deccaber 31, Ceceber)le Deca)or 31, lvceobcr 31.Cecenber)I>>15@~13~l~lSS>~1~l1~l l5'9~lo 19Tl a 12 I Deco ber)ta 1973 Dace=bar)le Decenber 3li RÃ~RS Cebt 51.57$fl 80$fl"6$54 89$f3 84$'3 79$56.55$56.77$floffS 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 CAPITALIZATION AND CAPITAL STRUCTURE RATIOS JUNE 30 1976 AND JUllE 303 1976 PHO FOHhA SALE OF Col4%H STOCK IN OCTOBER 1976 Page 5 June 30 1976 June 30, 1976 Pro Forma Sale of Common Stock in October 1976 Debt Long-term debt Short-term debt Total debt Ca italixation g.310533613294 51,010,961 flg 15633723255 p S ruc ure Ratios+3 10533613294
+,105,361,294 p a ruc ure Ratios 49.23$Preferred Stock&Preference Stock Preferred stock Preference stock Total preferred stock&preference stock 280,u0,4oo 47 900 000 33630183400 15,06 200,u0,4oo 47 900 000 336,O18,4OO 14,96 Coraaon Equity Conan stock Retained earnings Total common equity 567,505,701 1713630,129 73931353910 33.12 6323 4553781 171 630 129 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 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 Page 6 Debt lang-tenn debt Ca italization
$1~105,361~294 p a ruc ure Ratios Prefcrrcd Stock and Preference Stock 336~018~400 14,10 Con>non Equity Comnon stock Retained earnings Deferred gob development investnent tax credit Total cosmon equity 632>455q781 171>630,129 28 890,031 832,975,941 34.96 Interest Free Ca ital Deferred taxes lo8,282,642 4,55 Total Ca italization
@,382~638,277 Source!Carolina Barer ts Light Compeny, Prospectus, 3,000,000 Shares oomaon Stock,.October 13, 1976, pages 7y 33$
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 ,PreferreC Stock an4 preference stock Common equity Interest free capital Total Capitaliration 46.39$.14,10 34.96
CAROLIIA PSIER Ec LIG1E Colm'MBEDDED COST OF DEBT JmtE 34 1 6 pRO Faua 8AIz or ceceH GTocx IR ocloaER lyr6 Long-term debt First mortgage bonds 3 I/0$Series, due 1979 3 I/4$Series, due 1979 2 7/0$Series, due 1901 3 I/2$Scrics, due 1902 4 I/0$Series, due 1906 4 7/0$Scrfes, due 1990 4 I/24 Series, due 1991 4 I/2$Series, due 1994 ll, I/6$Gcrfcs, due 1994 5 I/0$Series, due 1996 6 3/0$Series, due 1997 6 7/0$Series, due 1990 8 3/4'~~Series, due 2000 8 3/4$Series, due 2000 7 3/0$Series, due 2001 7 3/4$Series, due 2001 7 3/4$Series, due 2002 7 3/4$Series, due 2003 8 I/0$Series, due 2003 9 3/4$Gcrfcs,'duo 2004 11 I/0$Gcrfcs, due 1994 11$Series, due 1964 Total first sartgage bonds off scellancous promf ssory notes Principal amounts Less>Unaanrtixcd discount and premium-net Net amortization of debt discount, expense and premium Amouht outstanding f ZO, IOO,OOO 43,930~000 l5~000,000 20,000,000 20,000,000 25,000,000 25,000,000 30,000,000 27,650,000 30,000~000 4o,ooo,ooo 4o,ooo,ooo 4o,ooo,ooo 50,000,000 65,ooo,ooo 70,000,000 100,000,000 100,000,000 loon Ooos 000 125, 000, 000 22~350~000 100,000>000 1~109,030~000 192,064 1>109i222~664 (3,061,570)
Interest Requirements 620,125 1,427,725 43l~250 700 000 025,ooo 1,218,750 1~125,000 1,350,000 3,076,062 1 537 500 2,550,000 2~750,000 3~500,000 4,375,000 4,793,750 5,425,000 7~750,000 7~750,000 8 125,000 12,187,500 2~406,430 11,000,000 05 012 100 7,835 05~019 935 3>9 87T Cost Rate 7.67$Total long-tcna debt g.~105~361,294
$05,339,012 7076
page 9 HOODY'S AVHIAGES OF YLELIS 0ÃltEMLY-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 1961 1963 1964 1965 1966 1967 1968 1575 5oVRe 6.54$7,Rrj'.61$
7.54 7-3CPJl 7.81$9,02$9 11%8.47$4.76$-4.4Q 4.64>>>>6.~6.6Q 7e 9'.63$7.6&f, 7.45%8.71$4.43/5-77%6.$p 6 95~<8.2P>>9.19>7.93>>>>7.6'+05>>>>9.75~>>10.22+>>9 05%5.3@4.95%6.05$6.33/?10$8.6~9.6@-.85/, 39~>>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 tune August Septanber October Average 8 91%8.96 8.53 S.vo 8.56 8.86 8.61$9.06%9.32 8.94 8.72 8.83 8.9o 8.63~p 9.3K 9.67 9+11 9i35 9+32 9,40 9.1%10,47~9.53 10,08 9.81 9.82 7m 5+7.68$7.93 j 8.34$1972 January~ruby.March'pril ve~70 26 7.39 7 39 7.45 7+34 7.11%7.49 7.39 7.6o 7.42 7.45 7.4S 7.36$7.50 7.48 7.so 7.66 7.54 7 76$7.89 7.95 7.95 7.85$Average 7.814 S.og 8.25$1974 1975 January Eabruary March April Nay June July August Septenber October Rnreaiber Dec enber January February March April Bqr June July August September October Noveiber December Average S.c6$8.07 8.33 8.86 8.85 9 30 9.65 9.Pl 10 05 10 06 9.52 9+0Pf 8.62@, 8;73 9 23 9.20 9eoo 9oOV B.&o 9.68 9.4o 9.375 9.35 9 11%8.37$8.13 8.61 9 08 9i20 9.46 10,75 10.45 11.33 9.15 9.64 9.ooS.9o 9.52 9 94 9.v4 9 23 9.63 9.6o 9 875 9.32 9.75 9.68 9.46$8.5+8.49 8.81 9.40 9 81 9 95 11.05 10.75 11 02 10-75 9.90 10 25 9.7S 9.71$9.42, 10 16 10,94 10.80 9.8v 10.38 10,76 10.B3 10.46 10,31.loo31 8,95$8,7o 9.07 9.53 9.45 9.16++Xl.~10.79 11 57 11,30 11,78 lli3%January February Harch Ayri1 tune July August ScpCeaber October 8.6+8,34 8.61 B.'29 B.VS 8.25 e.'oo&.26 8.9S 8.65 8.'83 8.73 9.05 9 oo B.Vo&.43 8.41 9~1+9 ll 9.15'8,91 9.30 9.34 9.56 8.94&.68 8.59 9.K~9+60 9.50 9,61 10.00 9.92 10 10 9.45 9,00 Average~+January-Nay 1974 8.4+S.Vlg 9 05%++January-October 1976 9.72%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 Outstanding Dividend RslsU1tetltlltl Cost Rate Preferred Stock, without par value>cumulativel
$5 (authorised, 300,000 shares'utstanding, 237,259 shares)$24,375,-900 151865295 4.20 Scricn 5.44 Series 9.10 Series.95 Series.72 Series.48 Serica outstanding, outstanding, outstanding, outstanding, olltntNlding5 outstanding, Serial (authorised5 105000,000 shares): 100,000 shares 250,000 shares 300,000'shares 350,000 shares 500,000 shares 650,000 shares 10,000,000 25,000,000 30,000,000 3550005000 49,425,000 64,317,500 420,000 1,360,000 25730,000 2,782,500 3,860,000 555125000 Preferred Stock A (authorised, 5,000,000 shares)f7,45 Series (outstanding, 500,000 shares)Total preferred stock 50 000 MO+08,118,400.
~3555 000 4 2155755795 7,49$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
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 Iage 15 1969 1970 1971 1973 1975 Waive Ihnths Ended tune 30 1976 let incone for cormon ,verage c~n equity.'ate of return oa coenlon equity 11.60$0.20$10+39$23>046>540
$24>417>813 4 20>126>327 0 29tl03>019 105>048>514 210>440>500 245>559>000 200>003>000 50>917>573 4 52>901>914 4 51>598>075 373>730>500 409 453>270 529 Nl>093 13.62$10,02$9.56$75,0ZO,OOO 635>375>315 Il 94$04,326,ooo 677>613,000 I2.44$,verage coc=on equity ,verage total capital otron equity ratio+05>048>51 4+10>448>500+4 5>559>000+00>003>000 f 373>730>500$409>453>278$539>N 1>093 547>7N>564 619>950>724 742>255>506 929>459>367 1>178>200>554 1>491>136>202 l>034>295>312 33 93$33.95$93oo0$30>13$31 72$32.02$29 43$635,375>315 2>107>905>674 3o.14$g 677,613,000 2>172>9>3,000 31.10$Ilats.ee for funds used during construction et incone for coax>on 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 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 53,031,000 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 Senior Debt Standard Ec Poor's Hoody's Standard 8 Poor's lbody's Rating of Standard 5 Poor's Dividend Paid Bond Quality Rating Quality Rating on Quality Rating on Basic Investmcnt Earnings erd Each Year on Senior Debt Preferred Stock Preferred Stock polity Dividend Ranking Sb:ce nbaan Medium Grade 1937 Source: khody's Investors Service, Inc., Body's Public Utility Hanuai, 1976;Moody's Handbook of Common Stocks, Surrmer 1976 Edition;Moody's Bard Survey, 1974 to date;lh y s Bon Heep an Preferred S oc Ra gs, rovem er;andard 5 Poor's Corporation, F Incone Investor, 1974 to date, Bo G e,<oven cr (;S oc e, (oven er 1976.
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 Com~n Equity Allowed State Public Utili y Cois'ssions 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 13,00-13,24 12 75-12.99 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 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 Decision Ho+84902'eptember 16'975 State of Connecticut Pu'olic Utilities Control Agency nxtecL~tilt 1ng'Lpany Docket No.760305, July 9, 1976 Public Service Comission of the District of Colunbia Potomac ectr c Power Comps'rder No.5831>Fornal Case No.651, October 20, 1976 Florida Public Scree Comission G Power Co~Order No.6650>Nay 7, 1975 Tanpa Electric Cos=any Order No.6681, 4y 21, 1975 Florida Power Corporation Order No.6794, July 22, 1975 Iowa State Comerce Connission wa ols Gas anQ, ec ric COB@any Docket No.U-483, April 30, 1976 and June 21, 1976 Idaho Public Utilities Co~ssion Case No.U-1006 100'-1006-101, Order No.12307>January 14~1976 Utah Power Ec light Corn~any 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 Kansas Gas J Q.ectric Cazpany Docket No.102,64O-U, July 14, 1975 Public Service Coraission of Kentucky Inux~m e Gas anc-'carte Co~any Case No.6220, Noveober 26, 1975 Kentucky Power Company Case No.6542, Oc.ober 19, 1976 State of Itaine Public Uti1ities Commission en7r i~e rower C"".pany F.C.42072, April 2, 1975 Public Service Company of New IIMspshire F C./2214, Parch 1, 1976 Weland Rhlic Se.rice Comission atxrwrc Gas c'c:.~cccrxc t.o~eny 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 DPU 18340, February 27, 1976 Fair Bate of Return on Book Value of~n&pity Allowed 12,0 12.45 14.25 14.75 14.60 32.5 13.75 14.50 13.6 14.85 13r 0 12,0 12,50 14.0 12 50 12.50 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~ission sst.ssz.ppz we 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 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 Public Service Cazzzissian of Nevada e ver~~Docket Ho.549, April 12, 1976 Public Utilities CaMssian of Hev Emshire xc ervz.ce~any az Nev s re 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 Docket Ha.759-859, Nay 24, 1976 State of Hev York Public Se~ce Cemission o ester Gas~ill ecsr1c Carrarasxan 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 Cause No, 25346~Oz'der Ha.U2286, April 15, 1975 Ok1shctca~and Electric Can@any Cause No.25567, Ordez Na.321513, Ray 20'976 Public Utility Camissianer af Oregon cs'c wer bc onT pc+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 Co~6630-zZI 1, August 5, 1976 14.50 14.00 14.00 13.50.14.34 13 0 12 0 13,50
FAIR RAM OF RETURN ON BOOK VAXUE OF CR9SÃBgZTY 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 Opinion No.761, AprQ.28, 1976 Nevada Pover Comoany Opinion No, 768, July 7, 1976 Gulf Pover Company Initia1 Decision of Administrative Law Judge Docket No~&8911, October 18, 1976 Alabama Povex Cospany Initial Decision of Adminismative Lav Judge ,Docket No.E-8851, October 22, 1976~12.25 14.OO 12.935 n fO O Page 21 FAIR RATE OF RETURN ArsnWm BY REGIATORY CONQSSIOlIS IN FAIR VALUE JURISDICTIONS 1975-1976 Arizona Corporation Commission Fair Hate of Return on Book Value of Conznon Equity Overall Fair Rate of'eturn Overall Fair Rate of Return on Net Original Cost on Fair Value Rate Base Arizona Public Service Company Decision No.465l2, October 30, 1975 Tucson Gas 6 Electric Company Decision No.46930-A, Opinion and Order on Rehearing, June 28, i+f6"Pro forming the above finding in thc test year...results in a rate of return on year-end connnon equity of approximately 17.3$, including allovance for funds used during construction.""Such a rate of'eturn contemplates a return on common equity of'5.25$uhich represents a fair and reasonable return thereon." lo.80$10 60 7.802$8.66 Puiblic Service Conxnission of Indiana Public Service Company of Indiana Cause Lo, 33932, October 6, 1975 Indianapolis Power 5 Light Company Cause 1to.33735~April 1>1975."The Petitioner'e cost of capital ie not lees than 9.36"Not l.ess than 7 14"Not lees than" 6.9g Ncf t~exico Public Service Conrnission Public Scrvicc Company of New mexico Case No.1131, October 10, 1974 Case Ro, 1196~April 22;1975 14.00(, 14,00 9 32 7.824
FAlR BATE OF RETURN ALLCMED BY REGUIATORY CONQSSI011S IN FAIR VALUE JURISDICTION 1975-1976 page 2la Public Vtilitics Commission of Ohio Cleveland Electric Illuminating Company Case No.74-571-Y, August 25, 1976 Ohio Paver Company Case Bo.74-404-Y, September 15, 1976 Ohio Edison Company Case Bo.751 131-EL-AIR, September 29, 1976 Fair Rate of Return on Book Value of Common Equity"...The Commission notes that the evidence in this case shows that thc recommended increase uould result in an actual return on co+non equity in thc range oi'4-15~~." Overall Fair Bate of Return on Bet Original Cost Overall Fair Bate of Return on Fair Val.uc Rate Base 9,02$9.42 8.96 Pennsylvania Public Utility Commission pennsylvania Electric Company F.I.D.172 and 173, Junc 2, 1976 14.8+9.534 8.2O
liar ESTIEIIT STATURE ELECTRIC UTILITIES Ill FAIR VAIlJE JURISDICTIONS
)0 Page 22 Bonds Preferred Stock Common Stock (Publicly-Iield) an ar Moody B Cc Poor s Rating Rating lady'Rating tan ar 5 Poorts Rating lao s a ngo Sanar coors Dv en spa Basic Investment.
Earnings and Each Year Quality Dividend Rankings Since Arizona Xrrcona public Rcrvice Company Tucson Gas 8: Electric Company Dclarlare Daaiarva Povcr h Light Company Iebaatt Medium Grade Medium Grade Investment Grade B+A-1920 1918 1921 Indiana banana I liicbigen Electric Companye Indianapolis Porrer 8: Light Company>>Northern Indiana Public Service Companyrr Public Service Coarpany of Indiana, Inc.>>Southern Indiana Gas and Electric Companyrr Baa ha Aa Aa Aa Itbsaff tlaaff Naaff Naaff BBB A+AA AA A Investmcnt Grade High Grade lligh Grade Nf A A A A 1934 1944 1941 1944 lbnwna lllor.ana tower Conpanye Iles Hexico~pu c nervice company of llew iiexico Aa ttaff lligh Grade Invcstmcnt Grade , 1935 1946 Ilorth Carolina Dup.c Iurrcr Company A A llbaatl Itbaaff Medium Grade Investmcnt Credo 1937 1926 Ohio CTncinnati Gas 8 Electric Company Cleveland Electric Illuminating Company Coluribus and Southern Ohio Electric Company Dayton Power and Light Corrrpany.
Ohio Edison Company Ohio Poorer Company Toledo Edison Company Aa Aa A A A Baa Baa AA tlaaff plait BBB+"a" A Italt A"baaff BBB A Nbaaff A A BBB BBB A-BBB A-Investmcnt Grade Investmcnt Grade Medium Grade Medium Grade Investment Grade Investment Grade A A A-A-A-18H 1901 1927 1919 1930 1922 IIIVESTIKIIT STATURE EIZCXRIC UTILITIES III FAIR VALUE JURISDICTI(SS t(OVEMBER Fuge 23 Bonds~8 an ar Moody's&Poor's Rating Rnting Preferred Stock r Ibodyts.&Poor's Rating llnting Common Stock (Publicly-Held) s a ngo Sana Poor s Basic Investment Earnings and Ouality.Dividend Rankings v ens Each Year Since Pennrylvania Duqucsre I ight Company Metropolitan Edison Conrpany Pennsylvania Electric Company Pennsylvania Power&Light Company Ihiladclphia Electric Company Hest Penn Power Company Aa A A Aa A Aa AA A BBB A+A-AA Ita I beati It II II II AA BBB DBB A BBB AA Investmcnt Grade Investment Grade Medium Grade A B+1913 1946 1902 Texas Central Power and Light Companyrr Community Public Service Company Dallas Power&Light Company" El Paso Electric Company>>Ibuston Lighting&Power Companyrr Southwestern Electric Power Company Southwestern Public Scrvicc Corrpany Texas Electric Scrvicc Company Texas Power&ItigIrt Company" Hest Texas Utilitics Company>Aa A Aaa A Aa Aa Aa Aaa Aaa Aa AA A AAA AA-AA AA AA AAA AAA AA II II private Ita all~taall llaall ll all Itaatt ttaall M private M A AA AA AA AA AA AA NL High Grade High Grade High Grade 1936 1928 1922 1942 Holding Companies cgrcny I'orrcr Systcmf Irlc.American Electric Power Companyt'nc, Central and South Hest Corporation+
Texas Utili ics Company>Medium Grade Medium Grade High Grade High Grade A-A A+1935 1909 1o47 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.
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 Page 24 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 35.30 12.49$35.56 11.32$35,06 12,02$34.16 11 93$33.99 13.62$34,27 12 13$34.32 ll, jf~p 10.1~13.p 0.6 ll./PE 3.03~7.4~03 rixona~Ar zona Public Service Company 10.32 32,10 10.23 31.57 8.93 31.50 9.45 32,15-9.67 32.39 9.00 31.13 10.00 29-95 10.12 29-59 9 9?29,05 11.42 30.63 11.82 31.72 10.94 3l,lg 13.52 3l.o4 Tucson Gas dc Electric Company 10.21 41.83 10.90 41.20 11.16 30.24 11,09 11.82 36.70 36.05 10.99 36.52 12 60 35.05 14.36 34.68 12.56 13.52 33.09 29.9?14.QS 26.04 12.48 25.02 14.45 29.52 claware l)e&arva Power g Light Compel~13.09 34.95 14.30 15.13 15.20 13.03 13.71 14.40 11.79 13.19 12.19 33.63 33.05 35.97 36.77 34.43 34.15 32.91 30 07 32.05 11.99 11.32 9,74 32.26 32.05 33.99 llinois~Cen;raal Illinois Light Company 11.19 12.27 12.07 36.11 40 34 40.90 Commonwealth Blison Company>>13,57 13.09 14.34 39,78 41,44 42.QQ Illinois Power Compan~16.10 35.28 16,0S 17,13 35,01'6,09 Central Illinois Public Service Company>>15.69 16.24 16.32 35.06 34.72 33.60 12.87 39.42 16.31 33.73 14.80 42.09 17,25 36.80 12.50 37.72 16.32 33.96 14,91 41 70 17 61 36-55 11.70 36.76 14.07 34.33 14.36 40 12 16.86 35-23-14.05 34.57 13.02 3?.63 17.45 34.47 14.41 35.00 13.16 34.36 17.24 34.99 11.97 13-75 36.05.34.65 13.00 33.67 14.76 35.35 12.36 31,61 13-31 35.09 13.09 33.67 12.77 33.10 13.14 32.5S 12.20 35.80 P-43.47.72 1.90 W-76.65.37.95 I I I I I I I 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 Indianapolis Power and Light Compan~14.67$31.63 14.62 4o.5o 17.13$30.96 14.39 40.62.17,lip 30.03 15o41 40 79 10.96$30.99 16.91 39.79 17o6+31 59 16.35 36.04 16.76$31.39 15.22 33.14 17-95$30,43 15 55 31o59 17.00$30.25 13.07 31.22 13.57$29.09 14,13 32,70 15 05$29,03 17.07 33.25 15.26$29.38 14.30 33o30 7o19~29.17 9 96 31.63 lo.68'20.39 12.49 29.02 Northern Indiena Public Service Companyjr 14.15 34.7o 14.56 35.51 15.66 36.55 16.06 37o90 16.20 30.47 15.45 30.o6 15.20 37o90 16.34 38.24 15.15 37.83 15.22 35o50 lb.64 3rrolo 11.33~32,51 11.'95 31.32 Public Service Company of Indiana, Inc.+11.21 39.25 Southern Indiana Ces and Electric Company+12.22 40.10 12, 53.40.07 13.21 41.4o 13.69 41.07 14.50 42.19 14,96,-15.65 41 49 39.95 14.o4 43.24 14.91 39.00 13.62 42.75 14.72 30.84 13.96 4o,30 14.07 38.o9 14.36 38.26 15 37 36.31 12.07 36.49 14,92 35.99 13.65 36.07 15.60 36.oG lrr o52 39.14 15.00 37.64 14.42 37.02 13'23 36.71 13.19 36.66 13.10 40,43 Ynntana tbnG<na Power Compa~13oll 13o30 13o60 14olo 12o93 llo70 13o24 13o61 50,14 51,44 51 90 51 42 50,07 47,30 46,16 47.33 I3.18 13.46 48.65'0.o9 13.00 12 70 13.32 45,57 42 71 41.11 lrew Kexico~Hc bervice Company of llew lrexico llorth Carolina 12.46 38.21 12.37 12 95 13.61 14,09 12.99 12.44 12 73 39.76 40.40 39.00 30.04 35.33 33,97 34.57 12 47 lrr,l4 36.26 37.97 14.09 9.73.11.40 30c13 35.46 33.05 Duke Power Company 11.80 38.23 10.91 43.47 12.76 13.31 13.07 12.45 I2.40 30.57 30o71 30.61 36o50 33.93 11.69.12.49 12a10 12,40 12,23 43,15 42.79 42,07 39,23 35.49 llo60 0.20 10.39 13.62 10.62 33.95 33.00 30.13 31.72 32.02 12 56 9o 48 10.70 9,09 9.59 31 17 27,01 27o92 29.09 29,07 9.56 11.94 29,43 30.14 8.03 9.59 29.07 29,60 I I I I HATE OF RETURN Oll CQDDII EQUITY AllD CRCSN EQUITY HATIO-OPERATIIKI ElkCIRIC UTILITIES IN FAIH VALUE JURISDICTIONS COHPAllIFS MITII PUBLICLY-IIELD CNIIION STOCK AND SUIKIIDIAHIES OF HOLDINO COMPANIES 1963-1975 hio Kncinnati Cai Aq Electric Company Cleveland Electric Illuminating Company 1963 13.74$, 37.02'1.04 50,71 1964 15.01$37 95 12.41 53.44 1965 16.07$30.06 13.36 54'2 1966 16.~40,32 14.30 54.70 1967 17.03$40.50 14.66 55.07 1968 15.61$40,20 14.65 53,06 1%9 16e03$30.40 14.70~47,54 1970 15.Igf 35.40 14.53 43.42 1971 13.43$34.12 lb.21 41.20 1972 14.76$33.48 14.32 37.33 1973 13.07$13.02 34.OO 1974 10.73$33.31 15.04 31,29 1975 zo.v6$32.16 13.06 30.92 Columbus and Southern Ohio Electric Company 12.01 35 99 12,96 37.73 13>>79 39.67 13 13 40.52 13.26 40 41 12.36 37.91 12.35 35.19 11.15 32.21 9.45 30 32 11.62 30, 51 12.43 31.63 0.17 29 05 15,65 29,29 Dayton Power and Light Company 12.66 40.16 13.34 41.66 13.89 42,38 14.63 41,92 15 50 40.40 15.09 37.67 14.73 33.99 12.40 33 39 12400 33.56 11,69 34.42 10.08 34.V9 10.14 33.02 12,45 34.40 Ohio Edison Company 13.57 30.97 14.32 39.04 15.22 41.12 15 32 42.30 15.79 43.50 14.5 43.~4 14,90 42.03 13.10 13.83 36.45 33.26 14.71 32'3 lle25 31.00 13 03 29.vo Ohio 1bver Company 1V.47 33.91 lv.4v 34.60 19.26 34,01 20.10 30,66 19.00 31.63 17 94 33.15 16.25 30.95 15.6v 29.92 15,96 29.44 15.60 29427 15,45 11.76 20 76.20.23 14.26 20.00 Toledo Edison Company Pennsylvania
~queeee e qht Ceuqeue l<ctropolltan Edison Con@any 14.22 33.02 15.35 35.21 12,51 39.62 14.6v 34,40 15.76 36.13 12.07 39.26 15e 17 35-97 16.20 36,47 12.99 38.05 15.06 37.49 16.50 35.01 12.03 36.02 15.65 35 78 16 71 33.37 12.20 34.60 15 20 33497 15,90 32,29 10,69 34.55 15 57 34,48 14,98 30.68 9.04 34.22 15.19 33.74 13.56 31,00 7.48 39,46 14.62 31431 13.27 32.66 9 93 45.04 15.46 30,56 12.IQ 33.09 10 00 43.73 14.92 30.44 11 45 34.15 10.03 39.40, 12.19 29.84 11 39 33.96 11.45 39.46 14.35 30.67 12 97 32.46 10.27 39-92 Pennsylvania Electric Company Pennsylvania Pouer Ec Light Company 13.29 34 24 13,02 33.15 12.v6 35.14 12.40 36.56 13.17 13,44 33.22 33.09 12.62 35,01 13.67 32.12 12.02 33.39 13.13 30.76 12,09 34.14 13.04 29,70 12.24 20.96 9-98 20.57 12.20 10.54 34 09.34.91 12.10 34.69 11.37 20.79 10.26 34,49 11.37 29.64 12.36 35.62 11.28 30.31 11.48 34.73 13.53 29,80 12.45 32,20 12.72 29,24 Philadelphia Electric Company Vest Penn Bwer Company 11.51 30.02 14.v5 33e05 11.69 30.07 15.10 33.75 12.18 30.07 15.73 34.44 12,70 37.76 16.14 34.97 12.23 37.68 16.00 33.75 ll 92 36.07 14.44 10 30 35.77 15.42 30.43 9.43 34.51 15.25 32.00 10,00 34.02 15.29 31.55 10.29 34.10 14.45 31.66 9.75 34.63 13.51 32.72 0.93 33.20 11.10 33.22 9.38 32.47 13.34 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?f 15.20$15.47$15.9?$41,20 42,43 43,73 45,10 17.63$'6'.45$45.42 44.11 17.9?$42.01 l6,03$16,25$42.52'1.35 15.90$39.98 15.22$, 40 21 13.71$30.67 39 17 CoarLunity Public Service Company DaUss Power 5 Light Company>>El Paso Electric Company>>Houston Lighting g Power Company>>13.63 15,43 14,13 12,62 37 04 35+79 34o??32 30 12,54 12.31 12,20 12,23 39,24 39,90 40,21 40,01 16,80 16,77 17,71 17 34 3?ob?'9o07 40.32 bi+22 15.08 16.09 17.24 15.96 44,98 47 15 49 40 49,02 11.32 30.07 12.50 30.66 16.63 41,06 14,67 45.21 11.30 29.44 13.00 37.09 17,05 39,06 14.11 42.15 13.09 29+97 13.64 36.95 17+10'7.88 14.49 41.20 14.11 31.70 13il7 37.26 17 03 30.24 15.14 40.72 14.40 32.39 12,76.36.26 17 07 37.54 15.46 39.67 16 06 32.75 I2.69 35.00 17.10 37.15 15,49 3S.21 15.67 32.01 12.50 36.41 15-75 37.42 13.93 39,44 11.81 32+10 11.31 36.59 15,02 32.61 11.74 36.96 10.79 30.63 ll;56 35 50 15.11 30,27 10;00 36.39 Southwestern Public Service Company Texas Electric Service Company>>16,24 16e69 33.04 32.75 17.65 16.00 37.40 38.0?16.25 15+31 31.03 31.30 16.09 16,35 30.60 30.33 14,71 30,91 16.36 30.52 15.43 30.62 16.23 30.39 15.76 30 90 16,00 30.24 16.02 31ilb 17.33 37+37 17.96 320 55 1 70 3.22 16.08 16.43 36,94 36.42 16,15 33o95 15.57 36.31 10.12 32.09 15.09 36.40 16.28 31.93 13.07 34.60 Texas Power Ec Light Company>>Nest Texas Utilities C'ompany>>17,0S 17,93 10.60 17,64 40.25 39.56 30.17 30.82 15,61 15,9?15.56 15 67 40.23 41.46 42.27 42.52 17.62 30.92 15.33 43.30 15.04 30.06 14,91 43.62 16,62 37'45 l5o57 43.30 16 79 36.87 16.48 43.90 16.31 37.34 15.06 45.36 16.71 37.04 15.47 46.87 15.34 30.17 16.90 46.yr ib.bo 39 17 16.27 47.49 11 39 36.00 1.6.45 4S.86 I I I I I I RATE OF RE1UIUt OH CG~IIDH EQVI1Y AHD COUGH EQUITY RATIO 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 Page 28 1972 1973 1974 1975 Average-above 39 companies in fair value Jurisdictions 13o76fi 14o24$14o66$14 62$14 65$14 06$14 26$13e73$13e48$30.03 30 63 30 95 30,60 30 15 36,92 35,66 35 37 3lf,9lf 13e60$.13e3+lle74$, 12e50$34.72 34 50 33.53'3.19 Average-above 20 companies in fair value Jurisdictions with flow-through Average-above 19 companies in fair value Jurisdictions without flow-through'3e 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 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 14o 34/14 o 6+15o 27/15o 42$15o 19)ii 14 6Q 15 00(i 14 o 02/14 o 15$14o 40$13 90$1 le 97)12 e 46/38.04 39.63-40 17 40,20 39,57 30,39 37 60 37 25 36.62 36e38 36 41 35.20 34,63 Average-above 30 companies excluding Texas Average-above 9 companies in Texas 13o10$13,73$14.20$14.63$14 49$13,80(i 13 03'$13 09$12 7Q 13.06$12,03$37o72 38e3ff 30o66 38e48 37e83 36o55 35o33 34o6'5 34ell 33 83 33e56 15e7+15o92fi 15o93$15.45$15~14,92$15.77'g 15e08$15.79$15e74$15 23$39o07 39,58 39,92 39 86 39,21 38.14 37,66 37 76 37 71 37 70 37 97 11,02$12.27$32.43 32.27 14e 16/13.26$37.21 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 Utility Hews Report 1976 and corresponding sources in earlier years, l~I ALMRANCE FOR FUNDS lJSED DURING CON"TRUCTION IN RElATION TO NET INCOME FOR CGlCRN OPERATINQ ELECXRIC UTILlTIES IN FAIR VALUE JURISDICTIONS COHNNIES'MITil HSLICLY-liELD CON%N STOCK AND SUDSIDIARIES OF)iOLDINQ CQ95liIES 1963-1975 Alabana)~a>as+Power Companyii 1963 7.65$1964 7.03$1965 7+54 1966 1967 9.8gf 9.23$1960 7.06$1969 1@70 10,97$ll.~1971 1972 1973 1975 Arizona rttttta itttlic sttvice cottttttt Tucson Gas&Electric Company 20;54 1, la 6.41 3.02.1,07 15 00 0.04 4,10 14.46 10.7a 0.34 12.60 12.65 3.06 7.99 9 50 10.95 17.43 37.57 22.47 55.91 30.72 7o.02 35.14 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 Dll noi s Central Illinois Ltttitt Campanist>>
Central Illinois Public Service Company+Commonwealth Edison Compenyii Illinois Power Company>l.o4 a.6o'2.60 5.93 1.70 9 91 3.97 6.ao 3,01 16,09 4.o3 o,06 7,lA 13.02 2,15 1,99 4.55 6.30 1.49 2.51 10,20 1.93 10.29 6.64 4.61 2.67 17,60 15,51 11.67 10.10 27.16 15.a6 27.59 aalu 55 39-07 11.77 22.58 25.05 34.44 20,69++0~2~5 3Dr9Z yg.oo g645~l~27+l~Indiana~n~Hana&Michigan Electric Companyii Indianapolis Power&Light Companyi'orthern Indiana Public Service Company+Public Service Company of Indiana, Inc.+Southern Indiana Gas and Electric Companyii 15,20 1.24 3.25 0.35 o.Bo 9 57 2,19 3.50 0.90 0.70 o.63 5.36 3.36 2,09 3.95 1,07',53 12,61 11,62 3 t75 7t32 4.20 5.05 9e66 0,74 12.41 16.66 0.32 0.10 2.59 25ill 22.46 5.45 12 06 11.72 li6,59 0.21 6.99 15.44 14.31 7o.68 14.43 7.78 13.75 1.4.74 82,16 21 33 16,15 11.01 29.07 00.6o 20.32 30 97 14,19 20,05 217.66 23 39 37 97 27.60 3.43 lolta6 41,39 39.98 24.70 3 10 lantana~n;ana Power Companys Ncw llexico~Pu Hc fcrvice Company of New Mexico liorth Carolina M Duke Power Company 0,52 1.03 5e20 9.76 o.44 1.40 6,29 7.32 o.00 1.43 B.oo 5,0o o 95 3.74 2,07 9,30[.ti)12.6 it~1 9o95 7.34 a.3a 0.50 15.76 15.34 6.76 12,70 10,01 52.19 21,09 33,11 60.05 1,13 B.o3 5o.54 67.07 2.52 ao,63.40.63 07.55 5.52 22,96 02.~i6 16.02 12.24 lo5.84 01,19 23.02 21,60 79.02 50.36 Ohio iVncinnati Gas&Electric Company Clcvcland Electric Illuminating Company Columbus and Southern Ohio Electric Company Dayton Power and Light Company Ohio FW.son Company Ohio Power Company Toledo Blison Company 1,09 1 97 o.48 o.70 2,13 2.3)3 15 o.60 0.77 1.03 1,96 1.74 o.a6 2 79 o 99 0.99 1.10 1.01 6.78 0,61 2,62 4.7li 1,50 3.6li 1.65 5,59 a.66 5.66 2.60 0.11 16+55 11,13 1.70 6.93 9.25 10.02 11,10 12,31 1865 0,91 15.27 17 41 17.45 10.30 6.35 25.94 5.34 ao.ob 3o.56 23.11 10+51 33 22 7077 22.37 14.21 33 17 16.51 19,92 32r 5 19.04 19.3)10.23 21+70 37.23 27,12 22.20 23.ti0 25.00 23.53 31+14 5o.24 52+31 30,60 31 70 50.72 31 32 61.6o 75.79 00,70~i9 99 4o.4a a7.18 73.93 u 27.49 co 72,43 ia ALMtlAlfCF, FOH HttfDS USED MNIttQ COttSTHUCTIOlf Ilf HFIATION TO lET IltCOlfg RN COftttOtf OPEttATIHQ ELECIHIO UTILIT~Ilf FAIH VALUE JIILIDICTIOtfS COHAUfIES MITll M)LICLY-tELD COf RKttf STOCK AltD SUttSIDIAHIES OF IfOLDPtQ COttN11IES 1963-1975 Page 30 Penneyliania
~<queanc lehO Caeyeey ffetropolitan Edison Company Pennsylvania Electric Company Pennsylvania Power&Light Company Philadelphia Electric Company Most Penn Power Company lel7$l,tfff I.tt6 1.70 3.30 0.66 1.00 2.07 3.9o 2.64 1.16 2.90$3.26 3,21 7.41 2,90 1.97 1963 1964 1965 1966 6.01$4.70 7,04 7.40 6.01 4.51 0.43$7.56 0.24 15.17 0.16 7.20 1960 9.364 9.76 13.69 19.56 6.59 17.99 1%9 24.0g 30,94 22.95 20,69 13,64 20 71 1970 39.03$67.74 7.40 34 10 30.90 17.63 1971 27el0$44.66 14.57 43.60 40.47 20.26 1972 3lf 55.56 27el5 33.75 49.12 25.99 30 991 7tf e30 30.28 30.10 61.66 16.91 43.60$61 16 35.74 3o 57 74.25 14.64 43.Oaf 47.35 30.17 50e12 61.90 7-76 1973 1974 1975 Texas~Cen ral Power and I.ight Companys Cormunity Public Service Company Dallas Dower&l,ight Company>>El Paso Electric Company>llouston Lighting&1bwer Companys Southwestern Public Service Company Texas Electric Service Company>>Texas Power&Light Company>Hest Texas Utilities Company>>2,96.1.56 0,00 5.15 2.02 47 1.97 le09.Oo00 3 03 1 93 Oo00 4 e27 1.76 3.24 5.06 3.00 0.00 0.00 0.00 0,00 0,34 4,05 4,75 2.98 2.35 1.68 3.75 6.lB 9.91 7,31 2 17 4,43 0,91 2 69 4,66 2 19 2.78 5.01 2.87 6.20 2.26 4.35 4.05 1.47 6.72 1.29 4,57 11.00 6.66 0.23 5.56 5.46 3.65 6.67 0.71 1.30 0.90 9.77 12 59 0.53 4.96 5.10 9,62 1,69 5.40 4.30 6,57 9.66 10.85 3.25 2e72 9.z0 1.44 14 53 7,2~f 9,02 l2,19 14.28 4.06 7e73 1,45 14.50 0.74 10.44-233 10.99 10,41 1.26 12.42 2.01 17.76 1.67 12.00 0.29 14.46 lle17 5.67 14.55 2 73 13.41 14.65 12.94 11.75.13.19 20e99 5.19 15.83 2.42 19.32 25.09 13.30 17.35 23.54 26.05 1.31 Avcragc-above 39 companies in fair value)urisdictions Average-above 20 companiee in fair value Jurisdictions with flow-through Average-above 19 companies in fair value Jurisdictions without flow-through>>
Average-above 9 companiee in Texas Average-above 30 companies excluding Texas 3 e 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 3o 63/2 e71$3 e7+5e 02/7e3+ll e77$16e 6+22e76$25e 36/30e 06$35e 07/43 e 66/37e 60/3el5$3e41$4e02$4e67$5.31$7,02$10 3Q 14e55$19e49$Zle95$22,62$37 92$34,02$, Ze25$Ze5+3e47$3el3$3e52$5e~5e59$6o96$Ge~7o55$9e50fi I2el6$16ellg 3e74$3el9$4o04$5e36$7e18$11 00$15e91$22e3+26 50$'2ezlg 35e36$49 47$41 Source: Computed from data in 1975 annual reports to stockholders; uniform statistical reports)and-lhody~s Investors Service, Inctfoody's Public Utility khnuai-1975 and Yuody's Public Utility Hews Re rt 1976 and corresponding sources in earlier years.
~'5~t 5 SELILTIOBSNIP SETMEOf ShTE OF NEIN ON CCMlN EQVITI AND CXRIII EQJITI SATIO a)ge 31 100S coezon equity ratio no debt Co any B 60S ccceen equity ratio an4 7,5S debt cost eny C 40S cocoon cqulty ratio and 7.5S debt cost 30S coccon equity ratio an4 7,5S debt cost 30S coaron equity ratio an4 8.0$debt cost Incore for capital Total capital Sate of return on total capital$100 Oo+00.00/$1000-<<10.00S
$1000$100+00/$1000<<IO,OOS$100,00$1000 flooe00/$1000<<loooojL$100,00 tlooo Oooioo/$1000<<10,00S)too.ao$1000 000.00/$1000-IO.OOS Debt Cceznn equity Total capital Cosncn equity ratio o~1000$1000$1000/Q.ooo
<<lco,oS 4 too~600+000 fAN/$1000<<60,GS$60o~too$1000 fAoo/)looo
$voo~300 41000$300/+000 30.oS~300$1000$300/+000<<30,0g Irbedded cost of debt Intercat on debt Nct incone for coceon 7.5S 7.5S x goo go.oo$00,00$30ooo<<(/oooo v.5S 7+5S 7.5S x goo$45.00 7.55 x fT00 45z.50 AOOIOO t"5~00<<85~00$10400-$5450" 67~50 8.0S 8.oS x froo$56.oo 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/$300 lt.67S I
METlfOD OP ADJUSTHEtC 19R DIDXRBIT C08%N ERUITT RATIO Earnings e erien6e public Service Indiana".1974 Rate of return on common equity Caamon equity ratio (37,82$)Coeyonent for common equity in overall rate of return 14.42$x.3782 5.454 At 35.81$conmon equity ratio Lass comnon equity, aore debt i@re interest (5.90)rate in 1974)less earnings for cosmon equity Resultant cecrponent for co+non equity.3782~2'0201 X 5,~0.119 5.454-0.119 5.335 Resultant rate of return on commn e at 35.81$common equity ratio 5.335/.3581 14+90$
BATE OF RETURN ON COMMON ACUITY AMUSTED TO 35.81 PEHCENT COMMON EQUITX RATIO OPERATINO ELECTRIC UTILITIES IN FAIR VALUE JURISDICTIONS 1971-1975 Page 33 1971 1972 1974 Arizona~nr rona Public Service Company Tucson Gas 5 Electric Company Delaware Deemnrva Power and Light Company Illinois Central Illinois Light Company+Central Illinois Public Service Company+Conmonwealth Edison Company+Illinois Power Company~Indiana~ln ana anl tlichigan Electric Company>>Indianapolis Power and Light Company+Northern Indiana Public Service Company+Public Service Company of Indiana, Inc.+Southern Indiana Gaa and ElectH,o Con@any+Montana~Non ana power Companya New Mexico En North Carolina!Duke Power Company 9,11 12.04 12.13 13.33 14.64 ll.55 13,14 12.66 13.37 15.70 32a20 Z4.97 16.02 12.56 9.76 9.60 10.57 12'1 11.54 12.66 12.26 12.45 12.20 13.37 16,26 15.14 13,89 16.3O 14.61 12.88 8.48 11.21 12.56 11.44 9.75 10.37 11.75 12.63 13.85 13m71 14.22 15,36 16.29 15.95 15.44 loa51 8.96 lo.47 11,04 10,89 9.16 10.49 10.33 11,06 7.47 9.54 10,92 14,90 13.84 13.98 9 70 9.17 8.55 12.80 13.11 9.61 8.27 12 26 1O.67 12.75 10.04 11.53 11.37 13.35 14o13 14.37 11.14 11,28 9.26 t0 OQ Q lA tmp 4~~~~a-~~~~~~f RATE OF RETURN ON COhÃON EQUITY AMUSTED TO 35e81 PERCENT COITION ACUITY RATIO OPERATING ELECTRIC UTILITIES IN FAIR VAIIJE JURISDICTIONS 1971-1975 Page 34 Ohio CTncinnati Gas and Electric Company Cleveland.
Electric Illuminating Company Columbus and Southern Ohio Electric Company Dayton Power and Light Company Ohio Edison Company Ohio Power Company Toledo Edison Company Pennsylvania Duquesne Light Company lfetropolitan Edison Company Pennsylvania Electric Company Pennsylvania Power and.Light Company Philadelphia Electric Company West Penn Power Company?ex 6 e Central poner ang Light Coegan?>>Community Public Service Company Dallas Power 8c Light Company+El Paso Electric Company+Houston Lightihg 8c Power Compan~Southwestern Public Service Company Texas Electric Service Compa~Texas Power 5 Light Company+West Texas Utilities Company+1971 13.06$15.33 8.95 11.59 13.32 14.20 13.44 12.58 11,25 ll 98 10.24 10.54 14.18 17.89 13.64 12.86 17.63 16.57 16.73 16.42 16.77 18.91 1972 14.16$14.66 10.79 11.46 13.25 13.87 13.95 12.06 11.02 10.10 10.42 10,09 13.50 17.22 15.24 12,70 17.53 16,17 15.21 16.62 17.32 18,91 1973 13.45$12.71 11.75 9 96 13.85 13.76 13.58 11.20 10,43 12.33 10.52 9.63 I2.88 16.46 14.91 12.61 16,20 14.80 15.58 15.71 15 95 20,70 1974 10.41$14.08 7,98 9 96 10.58 11.09 11.30 11.14 11.90 11.33 12.40 8.80 10.84 14.28 11.40 11.42 14.24 12.22 17.07 15.25 15.12 19.63 1975 10.35%12.27 14.16 12.24 12.02 12.96 13.26 12,36 10.62 11.87 11.68 9.21 12.80 13.59 10.32 11.53 13.85 10.93 15.16 13.62 11.72 20.34
~I COhtPANDZ EXCLUDED W(R4 USE AS COiPARISOH COhP~Ztt TEST OF C(NEI!SURATE BET%0lOMRTZFi~rCTRIC COhPANIiS ZN FAIR VALUE JURZSDZCT101$
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 ZZjinois TLgh Cocoanut+Centraj 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~that aDcwed by XLLinois Comerce Cocked.ssicn.
~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.
~1~~fl~~j I Page 36 COHSLHZES EXCLUDED FRCM USE AS CONEARISOH COMPANIES IÃTEST 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 19?5.'ate of return eazned vaa substantially less than~t 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~OF COM&tSURATE RETURN Page 37 OPERATING ELECTRIC COlEOfDZ ZH FAIR VALU.JlEZSDICTZOHS Cohubus and, Southern Chio Kectric Company luded in 1971, 1972, 1973, ma 1974.During 1974, aI3s'nance for funds used during construction
@ac 50.72 percent of net inccne for c~i 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.~1973, 1974, and 1975, aI1cvance for~s used du~~construction vsa~respectively, 52 31 pement, 80,70 percent~and 72,43 percent of net inco e for~n.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.
l ll l 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
~'l~
~r'!8%.-l≺%~ho;'%HI'E~r~'lrll'4' ref ArVU"".T':D TO 35.81 I-'r T!CF"!T COi:2~Jrt"i~JITY HATIO O~!ATL'IG L'Lr"CTHIC DTXLXT3ZO III I'AXB VADE JUHXSDICT 0~'3 1".71-1975 I~r.e 39, eeI>971 1972 1973 9 ,".!i"-'"a~~blic Service Cor>]any Tucson Gas&Electric Corrpany gc3W za-.Ba s!=l;:>sa Power and Light Company 1~+.g:8X Tll I<<i~~~~CcsC"c..'lli!lois Li: hb Coo.~any+Centra I" linois Nolic Scr~~ice Corpany+Co;:.'.or!we:-'1th I:dison Ccripany+Il" I.!rois Power Co...oanyi.
13-33 14.64 13.14<r-6 3,2.c5~l.~12rRO-9 P>,~Ko+4a7-1Mo.1~or'rvN Tn ll ella n:.:-Llla;:nd I'.ichigan
)'lcc ric Cozp*ry'.<
l'll ar.: Joli.s F"ver erdi I.ir+t CcrrrT)eny'~
io:" l" rn India;-.a E'liblic service Co+)any:
'r"3.ic Se.rice Co@on-.y of ndiana, Inc.+S-irthcr..
Indiana Ga" and Electric Company+13~37 15.70 12.20 14.<7~3 18.26 15.14 13.09 15.96 I-'Di r-14.22 l.g Jo)O 16.29..WAN 14.oo 13.64 m-.e~r W~!13 35.14.13 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.in:i~arolina,-p'n.er
~o.Licht Co~Mzy+Dn'::e Po;;-er Cou,~any.~M.4;48 l~&8>S-
~.":.I-..¹i 8%L:;.'~,":-4=;-,ties-Qiih 0..D)U.")T"'9 TO 35.Ul H'<.C~'ii"'C:ill-".i<
l"'~v'Zl<('TIO OPE~T1:iQ LS;(."IT(C Lr<'ILITI!
8 BI I".f'IB VALVE WBISMCTIOHS 1971-1975 lnf<IV 1971 1972"<f!73 1974 0 i c<ni<<.i ('i r~ii li$ccty j c C~L!pi<ny 0".-":;'."..d:.".le
..f;ri.Ill".'."i".;;~ting Comp.~y;).'.<C..!~"r Qr a!iu f L"f'1 CO<(DGnp',":fio
?.dis n Co".<pany h~To<ado T'"i"or;Core<any.3~f);I)1)~3J.W)3~~2 lif.20 13.44 14.16 3 4.6;, l~~ii i~6)rCQ g P71 1-'.95 3.3-"55 3~>rX o~o 13.o5 1~6" l~g8~1~i~l lf.OQ ri (1u'f ,9-W~8 lhr8g les~(f 1()mr.'.~~f)<<;i<(~)1e 3 4.[el;Co<;<<sapor r<1<~':<r'V.=".1ia E!CCtriC CO;<.!<nV.<l d-.<<..h-r.<',loci,!1 c golf'pc nor vov+4ii i oi<A vD!<'J f~;<i lg 1<],18 3.N5 10 ba 3,'3&9 13.50 1325'o Q3 3'0~=9 a$/~12.GB U a.'-r l~n 13~~3 1~0 Q,.GO 3.o QW~':-'~j f'1+ni'-" c.'8 il"t (roL!'-n D'".<<.:.'" ll~j PJ l)3 ic S<er vie G ('GLT')Qn) 7:.\'P.-o'eci:<." Com".n$'~'f-.!-.to<.
-,<,~!.t'-,.)L'" fr-!('omra<!!'u<v.'tc', ff'~lie Seri'e Cofllpany Te::a.","1lc;:".ic"e'vice Co-...~.in>-~
<'<~4+<as t<1'4 3 it 1 Qs (Q<(l<)ri lv'i 1'f.C9 12 8(17.6:.)lo-57 16.73 16.42 16.77 18,91 17.22 r<)4 3."-.(0 17 16.17 15.21 16.62 17.32 18.91 llew 91 3.2.6'.6.'0 l.'...80 15.5v"'5.73.15-95 20.70 l4.28 14.2'~&c 17.07 15.25 15.12 19.63 Average-All companies used as comparison companies (includes 24 in 1971, 21 in 1972, 18 in 1973, 10 in 1974, and.8 in 1975)Average-Companies other than in Texas (includes 15 in 1971, 12 in 1972, 9 in 1973, 4 in 1974, and 5 in 1975)14.87$13.96$15.30$14.53$i5.23$14.57$15.24$14.20$14.78$, 13.78$Average-Companies in Texas (includes 9 in 19fl, 9 in 1972, 9 in 19f3, 6 in 1974, and 3 in 1975)16.38$16.32$15.88$-15.93$16.4g,
~~~4~~I 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 Page 41 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 Allowance for funds used Curing construction as percent of net income for common 13 964.15.60 14.53$20 16 14.57$20 78 14.2+19,89 13 78$19 98 crating Elrctric Utilities in Texas Rate of return on conraon equity ad)usted to 35.81 percent common equity ratio Allowance for funds used during construction as percent of'et income for common 16.38 8.82 16.32 7.15 15.88 9,40 15+93 16.45 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 Allowance for funds used during construction as percent of net lncocte for coxcen 14.87 15 30 14.50 15,23 15+09 15,24 15.20 14.78 17.99
Page 42 RELZ9 GROWTH AND IHFIATZON XN THE AMERZCLN ECONOHY PERCENTAGE CHANGES YEAR~-YEAR 1946-1976 Real Growth GNP GNP 1979 Dollars-Deflator Inflation Consumer Price Index Uni,t Labor Cost Total Real Disposable Personal Income 1946)Ilaa7 1948 II 1949 1950 1952 L953/1954 1955 fg'956 (jg 1957 , 1958 1959 1960 1961 1962 1963 1964 1965 1966 L967 1968 1969 1970-16 4 1 0 6 8 7 8 1 3 8 3 9 1 3 6,7 2 L 1,8-02 6o0 23 2 5 5.8 4.0 5,3 5 9 5.9 2 7 4 2o6 0 3 12 8 6 9 1 0 2 0 6 8 1 3 1 5 1,4 22 3 1 3,4 1 6 2 2 1,7 0 9 L 8 1 5 1 6 2 2 3 3 2 9 4.5 5~0 5 4 8 5%14 4 7,8-10 1,0 7 9 22 0,7 0 5 0,4 1 5 3 5 2 8 0 8 1 6 1 0 1 1 1 2 1 3 1,7 2 9 2,9 4 2 5 3 5 9 4,4S-16>>11 6 4 4 1 2,0 0r6-1,7 6 1 3 4~1.0 2 2 0 3 0 3 0,3 1.1 0,7 2.9 3.6 4 3 7 0 4,6.1.2%-4.0 5 4 0 4 8 1.24 3 0 4 6 6 6 4 2'2 1 0.9 4 5 2 2 3 L 4,7 3,8 7.0 6 6 5 5 4 1 4.5 2 9 4 1]I 1971 1972 3.0 5 7 5,5 5 1 4 1 5 8 4,3 3 3 6,6 3,4 1 9 4 9 3 9 4.5 6,7 e.1974 L975-17<<1.8 10,0 9,3 11.0 9 1 12.3 7;7-1 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.
RATE OF RETURN ON EQUITY AND EQUZTY RATIO ALL MMJFACZURING CORPORATIONS 1947-1976 Page 43 AXE Hanufacturfng Co~oratf ons 1947'1948 Rate of Return on Equfty 15.6+16.00 tufty Rnt 10 1950 195l 1952 1953 1955 1956 1957 15.40 12 lo ion 30 10.48 12.55 12.28 loi95 81.3+82.06 82.28 Bo.76 79.96 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 lgTX 1972 1973 1976-I 10 42 9 20 8.82 9.78 10+25 11.60 12.98 13.43 11.71 12 05 u..47 9.32 9.67 10,61 12.84 14.9o 11.57 13.30 15.70 80.43 Boi09 79.8o 79.67 79i53 79.57 78.54 76.42 74.35 72.97 71.40 69.62 69.24 69.74 69.58 69.96 70,00 7o.'34 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 American Hone products Corporation 1%3 27.63$93.84 1964 27.4+95 52 1965 26.82$SS.84 1966 25 5S 89,94 1967 25.35$90 49 196S z5.06$9o.6a 1969 26.3+9lo 31 1970 26.75'2,30 1971 26,68$93.22 1972 27 W 93.69 lPB 1974 26.63$29.0Q 94.51.95.19 1975 a9.444 95.93 Atlantic Richf ield Company 7.41 70.92 7.65 V2.61 10.60 78,91 7.'46 80.78 8.34 9.78 77,12 66,01 9,69 67.73 6.oS 71.84 5.65 Vo.26 5.4o 71.2$7.70 72,05 13.45 71 21 8.88 65.9a Beatrice Foods Ccepany Borden, Inc Bristol ayers Company 11.31 90 V9 lo+92 77.41 22.95 9o.Go 13.16 68.31 11.50 VB-47 23'94 93.32 11,00 61.88 24.85 PF.29 10,'79 78.73 26.25 95.16 15 65~16,76 87,91 80,09 lv.54 83.57 9,45 74.53 21,16 75.93 16.38 83.4o 8.21 72,09 19.88 72.38 15.38 76.45 4.85 73 30 zo.So 74.12 15.73 71,20 8.33 74.74 zool5 69.81 8.89 Tzi92 18.23 65.99 9,18 71,98 17.78 69.9o 15,92 16,07 71.99 74.45 16,09 76.05 9.67 73.07 19.5S V5.17 16.25 74.81 10.59 71,21 20,57 78.98 14.79 74.59 11,06 Vo.14 21 40 81.63 Burroughs Corporation Campbell Soup Company'arnation Company.Caterpillar Tractor Coorpany Coca-Cola Company 6.46 51 95 13,04 100,00 10,98 81.88 18.89 73.81 17.8o 96 29 7 ol 54.52 13.26 looe00 12.04 81,23 26.05 76.93 20,03 92.73 12,46 53.oS 13.37 99.aS 13.02 79 29 zve15 So.23 21.40 94,14 lv,lo 54,51 13'l 98.41 14.13 69.77 21,69 81.54 23,06 95,01 15,63 55.33 11 48 96.38 14.48 Vo.6a 14.12 73.99 23.66 95.56 g:g 12+89 95.72 14.6o Vz.69 15+20 66.62 23.36 95.03 15.67 46.12 11.17 96 77 14.66 75.4o 16.48 65.42 23,16 94+06 13eza 47.35 13.0f 94.83 15 14 74.76 15+30 65.45 23.74 94.45 llo63 5o.76 13.23 91.59 15.16 74.5o 12+78 66.28 a4.14 95.33 12.29 57,20 11.20 89.7o 7~.95 18.84 71,76 24.22 95.76 13 2T 67.65 14.cq 94 15 15.27 75.46 a4.17 96.8o 13.48 72 06 14.18 97.29 16.74 72.43 16.43 6T.17 19.92 95.85 68.61 13.4T 96,25 16.55 71.38 24.73 64.24 zo.34 96, 18 Continental oil Company 10,77 71.47 llolv 10elo 69.96 69.19 10,93 70,10 11,8'4 71.33 lo.66 vlel3 10.69 67.o5 10.53 64.oa 7,12 63.98 lo.64 64.68 14.02 64.85 16,93.16,38 63 39 61 29 Dow Chemical Company Du Pont (E.I.)De Wemaurs Canjany 11.34 V9.23 1S.48 ST.a5 12.60 74.o9 ao.4a 88.04 13.69 65.58 21,02 68.oB 14.54 6o.o9 18.81 87,63 14,59 57+%14,30 ST.o9 13,98 53+15 16.18 86.84 14.23 49+02 14.59 66.77 12+12 46.68 12,75 86.52 13.43 45.55 12.42 86.46 14.96 46.66 13 75 86.05 18.97 49,10 18.o3 86.98 33.54 5z.v6 11,46 75-84 27,84 55.37 g 7.36 o 68.99 g I
55 iIIII Qi8'0'~'%8'BANTY AND CONeFf EQUITY ETIO~~OF RETURtI OR CM+ER]Q OF RICH QRADE BYŽ~~QGXISTRIAL COHPAHIEQ WITH QNLITY RANK 1963-197 Oun and Bradstreet 1963 X9,18$xvi 37$20.56fy Xooaoo XooooO 100+00 1966 22 1+100 00 xg67 aai53$99.56 xg68 20.6~tg 99.26 1%9 21+2+99.29 1970 21.63$99, 16 1971 1972.1973 21 59$21.934 g4.66 95.26 1974 20.66$97.64 1975 20, X9$98.44 Exxon Corporation Firestone Tire 5 Rubber Company Ford Hotor Coipany 17,40 99.75 13,11 82.13 9.59 83.x6 13.69 89.8a 21 25 100.00 12.80 82.15 xxoa3 79.66 13,06 89.69 25.65 100,00 xxibs 62.3o 11.47 79+20 x6.54 87,72 26.88 100,00 12,02 Bx,51 xa.47 77.62 13.39 85.7o 22.80 99.47.12.61-78.53 xx+60 74.ga 1.V9 771 52 al.67 97,28 13.28 75.10.13 19 69.5S 13,14 72+21 20 61 95.67 xoo51 73.44 11,25 65.51 10 75 79.2I.19.02 95.89 12.45 72.49 8.5'4 65.x6 9.65 84.25 18.0$96,18 xa-gf 72+33 10.51 64.79 xxoga Bx,o5 ax.14 96,41 x2.84 73.34 xx+17 64.4o 15,12 vy.6S aa.a6 g6.83 18,8D Vb;gl 12.64 64.75 xb.66 78,29 lg,24 97 18 ax 35 74.92 los 96 63.96 5.71 72 35 xv.a4 97+32 15.33 74.44 9 01 62.14 5 13 70,03 Qeneral Electric Ccerpany 15.41 88.36 12,81 Gg.5x x7.84 79.68 16,07 75.97 16.35 15.18 70,65 69.15 ll 44 69.57 13,19 68.13 17.62 66.71 18.01 67.54 18.12 67.83 17 19 66.63 x4.94 67.85 General.Foode Corporation Ceneral stol b Corporation 17,70 yxe5D 24.11 91 79 16,99 90 50 24,55 92,98 17013 89.48 aB.xV 93.57 16.73 86.15 22,11 93.68 16.59 82,15 16.66 19.90 VV.61 18.94 93.8a 13.65 74.o3 15.52 69.67 17,7 6ixy 94,2 94,29 8.38 67.73 93.1)x3.66 68,22 19,85 slo65 14.04 67.84 20,37 91,72 11.2D 66.86 7.6S 91,72 15 95 Vxogo 9.90 go.36 Qetty oil Company Culf Oil Canada, Ltd~OuLf Oil Corporation Hanna Mining Corporation P 9.16 4v.as 6.vs Gx.83 11,21 Bv.o$-xooay 100,00 9 45 51.95 V.o4 81.67 lls29 87,86 10.82 100,00 9 9$55.96 6,91 82.82 11,53 86.ga 11,66 84.95 a3.6o 6a.ao.Vi25-85.08 12.77 83.67 11,9$76.21 Ix.34 68.42 6.93 BV.o3 13.61 Bx.xB 12.48 78.85 8.68 71+18 v.49 85,GS 13.67 77 0 33 12.48 81 10 10,08 72.85 7+00 82.37 12.48 73.64 xa.bo 83.9$8.81 74.95 5.87 76.30 10 66 vx+99 xaeg6 66.89 9.66 77+52 7.13 77.04 10,39 69+92 x3.63 88.4x 5.63 79 29 B.yx 78,39 3.6o 69,22 g.bo 76.65 y9.6%x4.57 Vx Q 56 V.43 V.4V 89.8x'8.5o x6.63 79.8o 19.26 82.3o 17.90 75.01 7135.66.35 xb.ba 76.27 18.30 66.48 11,16'6.59 f 16.56 BV.bo.*
BATE OF BEGJRN OH COloSN EQUITI ARD CONNN EQUITT RATIO IllOVSTBIAL COMPANIES Mrnf qvhr ITI BAIKIllO OF lllat CRADE sr MODE'8 1963-1975 Dayerial oil Lt4.International Bueineee Hachinee Corp.International Bickel Co, ot Canada~Ltd, Johneon&Johnson Rraftco Corporation Lilly (Eli)S Congas Herck 5 CaapenF, Ino.Hinneeota Hining de Manufacturing Coi 1963 9.77$-90 91 19.54 77-76 16.7g 100,00 10 50 looooo 23.79 92 53 10~92 81,16 13051 97eV7 17.80 95 33 21,04 97 o3 lg64 10.47$91.72 20.56 81.34 19,85 100,00 11,95 100 00 24.6 92,1 12.20 83.41 15.97 9l.03 ao.86 95-94 ao.60 97 22 1965 11,00$ga.67 19,74 85.62 19.37 100,00 13 71 96,69 23.94 92.37 12.65 85.41 19.52 g6.89 25 53 96.48 alo13 95.39 lg66 H'35K 93.41 17.83 86.61 14,96 looaoo 14.57 97.6'4 23 36 glg13 12.68 85.95 19.86 g6,8o 29.17 g6.o6 22.21 94&01 1967 11.24$gli46 18,21 85.ol 16.94 100,00 14+91 96+05 22.44 92, 12 12.53 85.84 zo.56 95.42 28.97 95 15 20+7 95.lg68 11.27$86.o7 20+75 85.90 16 12 90,91 15.71 96.44 21.34 92.97 12 06 85.64 23~00 95.a6 ao.o4 95,44 1969 10.22$82.13 18+97 86.83 12~50 83.46 16,10 98.65 ao,86 ga.86 11,74 85.19 22,82 96.29 25.38 94,90 lglo ll,03$81.40 18.13 88.4o ao.87 Bo.7o 16.85 96,27 20.91 91,06 Ia,ag 85 39 22.17 go.a4 aS.46 93.62 18.21 gle 40 1971 13 544 82.23 17.14 87.71 8.96 Vows 17 61 97.34 21+52 91,96 12,89 83,4o.20,39 84.ol a5.85 Bg.o5 18.55 87.73 lgla 14 00$82.64 18.ol 86.56 10,28 66.42 17.61 97 22 21,79 92 33 11'77 Bo.66 21,99 86.51.26 05 86.49 19,21 86.13 1973 i8.454 83.8o 19,42 90,20 19.63 Voa30 18.53 g4.42 21.43 91+53 13.12 76.21 23,07 go.54 27.58 88.19 ao.66 86.47 1974 21.39$83 01 19.42 92 93 23.22 Vo.74 17 31 93.34 21 55 90 03 ll 42 69.54 22.65 Bl.ag 27.89 Bge71 18.81 79.99 AU 16.61$Bl.al 18.49'95,20 12089 67.78 17+10 93+66 ajar 39 84.36 15.61 70.33 20I07 82.66 26el5 Bo.o3 14.87 75.20 lhbil Oil CompanF llabieco, Inc.8.86 89,51 17+14 84.41 9,08 87.72 17.34 85.21 9,4o 88.o4 17,16 85.9S 9.97 88.ag 17eag goo70 16 99 84.00 15.86 78.64 10,26~10.84 87.94 85.59 10034 84.1o 11.42 74.ao loogl 14.96 Vae55 11.54 80.21 16.15 6g.aa 11,51 80,73 15.64 V7.7S 16.49 ll'79 65.51'0.79 12+91 74.8S 11+95 52,07 12+20 72.95 14.91 53.05 EhDlipe Petroleul Coap~Prentice-Hall Inc.8.85 83.77 aoyVB Vgo72 9 27 82.92 23 i 37 87.81 loo07 So.5o 31,06 100+00 Dool 67.95 lla47 62,63 33.35 31oog 100,00 ,100,00 8.04 67.12 30.00 looooo J,7$29+11 looeoo 6.6o 65.92 25.36 23.75 100+00 looeoo 8.32 67.33 18i69 100,00 12.18 68.51 18 98 14.58 Vao73 73o9 23I27 Zl+72 aors 34 100,00 100,00 100,00
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 Procter 5 Gamble Compaay Reynolds{R,J.)Induatriea, Inc, 1963 15 31$86.06 21.07 54.1o 1964 15.63$06.95 Ig.z4 69.74 1965 14.74$87.47 zo.14 70.60 1966 16.03$87.83 20,07 66.73 1967 17,81$88.5o Zo.62 66.48 1960 19+lip 80,41 lga 06 Vo.47 1969 16,51$80.32 12.79 60.51 1970 IV.~80.69 10.43 64.49 1971 17.78/S9.46 10.85 66.06 1972 18.63$87.91 17.82 67.5o 1973 IS.I0$86.06 18.13 67.58 if(4 17.16$86.20 19.26 60.56 1%5 16.40$81 31 19 Ol 72.34 Richardson, Herrell, Inc, 14.75 100 00 14.15 100,00 14.84 100,00 15,89 94+23 15.09 88.1o 13.07 84.25 14.69 Sz.oy 15,30 78.79 13.30 75.v4 14,99 76.5o ly 16 S0.08 14 95 13.16 83.05 77.13 Schering-Plough Corporation Scare, Roebuck and Comp1mg Shell Oil Compitgr Smith, KLine Corporation Squibb Corporation Standard Oil Co.of California Iyelg 85.64 13 32 69.99 Ize37 83.79 33+06 100,00 9.20 93.87 16.76 glo32 14.51 66.36 12+72 85.07 33+12 loo woo 9.07 93.71 18.52 96,72 14.14 62.63 13+92 83.oo 32.66 100,00 9,10 g2.54 20,32 960 72 13,51 6o.45 13 99 78.85 29,80 IOO,OO 10,47 91,31 21,32 96.25 13.18 59.92 14.3V 75 59 20.oy 100.00 12.75 81,39 10.57 80.46 22.54 94.56 13,96 59.93 13.55 76.22 25 94 g0.o0 10,74 Vg.V4 ll 04 86.06 23.60 93.40 13.44 60,30 11,19 70.42 23.62 95.64 IZ.BZ 75..20 lo+51 85.0o 22.45 95,81 13+10 6o,4o 0,77 77+23 23,71 93,76 13.79 60,77 10+02 05.02 22 73 94,30 14.24 6o.64 8.70 76.35 22 72 89+21 15.46 68.19 10.69 81,59 25.26 93.35 14.32 6o.38 9,06 75.31 21,90 84.55 15 ogV 67.70 10,79 79.00 20.31 94.00 14.23 59.50 11.05 74.41 21.70 70.82 16.25 67.7o 1'5.30 81.96 27 13 95+08 9 99 57 22 18.65 76.35 21+75 70.71 16.26 67.7I 15.83 07.53 25.33 95.39 10.40 55.16 13,70 76.73 21 30 65.84 16,23 67.68 12.32 82.82 Standard Oil Co..{Indiana)7.36 06,6o 7.61 86.g4 B.zl Svolo 9.36 85.26 9.8o 83,62 10,27 So.6o 10.12 75.86 9.80 75.54 10.20 12,90 76.75 76.31 20 90 14 71 76.16 75.02 Texaco p Inc~16.14 89,11 15.69 80,00 16,10 07.53 16.58 By.38 16.03 81.33 16.12 79.16 13.45 79.73 13.50 80.75 13.88 So.zo-IzevV 77.97 17 04 77'+75 18.67 70.oo 9.73 V5.64 Union Carbid~Corporation Qp5ohn Company 14,60 voo27 15~74 99.33 18.73 70.5 16.82 99,20 17 45 69.26 19,34 99,00 17+40 90.8o lo.43 64.79 9.33 61.3o 13.64 13.89 98.46 95.16 10,74 61.30 14.43 94+77 8.81 6oiog 13.85 90,70 13oSV 80.54 10.06 61i72 Iyozz Vv.ly 14.41 62,72 20+2 2(.00 IS.06 76.37 14.54 64,15 67'.5II'
RATE OF REIURH OH CQQK81 EQUITY AHD C010DH EQVITT RATIO L COHPAHIES HITE C5lALITI RANKING OF 11ICH GRADE DI MOODT'H BSUSTRIAL C 1963-1975 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 19?5 Halker (Hiram)Goodorbam h Morta Ltde ffarner-laabar t Company Wrigley (Rle)Jre Company 12.(Ofy 98.82 23.41 76.66 I2.89 100,00 12.47$97.89 25,02 78.63 13e49 100e00 I2.81$13.24$96.53 95.50 26,19 26e34 79.76 78 54 14,69 15,76 100,00 100,00 13 72$90.94 22e53 73o57 19.30 78.27 19e 1 85.0 15,50 100o00 15.24 14.68 100,00 100e00 13.64$95o58 94,54 I2.84$Il.g$86,07 79 3 15ol4 15e14 79,91 86,23 13o64 14e63 98e02 92e17 12.58(, 78.42 15.66 86.65 14.64 90 31 13.48$80.99 16.08 85.56 1497 13,07$77.63 16.30 82.22 13,02 95o06 9-45%72.94 15.60 78.65 18.65 95.02 hverige above 13 oil conyaniea 9e 9(i e92$9o51$13e86f 17e92$13 72$10.08$10.o5$10.65)12.06$
11.4og 11.13'f.38$o.p o.Blo41 Blo72 82e12 Blo06 79e59 77e50 76el6 75e 3 7 e92~hveragi-above 41 ccmpaniei excluding oil caepaniee 1 o43p 16 4'6e26$16 27$16e7+17o$9$17eZPg 16e90fi 16.51$17e07g lBe~18e8+17e37$17o 3 87.86 88.66 88.22 86.90 84.90 83.44 82.80 Average ibove 54 companiee 1 o01 14 65(i 14e74$15o04'g 16o98$17e44$16 14$86 27 86e96 86o73 85e46 83o62 Bze01 Ble20 79o 7~14.93$15e~16o94$17ezlf 15e94$15 91$15o01$iee~a Inveatora Servicep Inoe~Sources Computed on basia,of a a ann , f d t in ual reports and itatiatica1 euamariea of compan e 1 Moody Mo'a Induatrial Manual 1976 and previoue editionao
CAROLINA IORKR R LIGHT CQ4ÃNI 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 3 ratin Electric Utilities ln Fair Talus Jurisdictions 1974 1975 tude 49 Estival el 19.6 1966 19l3 Second";aster Indicated Fair Rate of Fetura on tbcnoa Equity of 14.251 Couson I uit Ratio of 35.81;ate of return on cocuuoa equity.'+mac eqsity ratio 13.76$14 24$lb.66$38.03 38.63 38,95 I'4.82$lb.65$lb.O6$38,80 38,15 36+92 14 28$13i73$13M)$35+86 35.37 3494 13.68$13.39$llo74$34.72 34.58 33.53 12,50$33.19 14.25e$35.81;oaFoaent for coaen equity (rate of return on comon 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 4,630 3,936 4.149 5.103 41 Industrial Oo anics uith+nitty RanU of High Grade b's Excludi Oil les:.ate of re.urn on coarsen equity czo equity ratio 16.51$17 Ol$87,86 88.66 18.99$18 89$68.22 66.90 17.37$17.43$84.90 83.44 16.49$16.26$82.80 61.40 16o27$16o79$79.87 79.72 17,9l$17e29$16+90$80.58 79.20 77.66 18.69$86.90 17.9l$60.58 20.00$78 00:~rent for cue@en equity (rate of return on cocoon eTafty x cocnoa equity ratio)14o506 15+134 16,753 16,415 14,747 14,5'44 13,654 13e236 l2o995 13o 385 14+480 13.694 13.125 16.415 14.460 15,AO 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 on Basis of Test of Coxmensurate Return 14.25$at 34 96'4 Conmon Equity Ratio" 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?5 120,00 129,+110,00 I19+100,00 109i9Pfp 90.00-99 A So 00 89 9+Js Southvestern Public Service Citisens Utilities okIshana Gas and Electric Public Service of Indiana Central Hudson Gas and Electric El Paso ELectric Illinois Pover Utah Paver 5 Light Central and.South Meet Central Louisiana Electric Tsnpa ELectric Texas Utilities Harthern States Paver'Miscansin Electric Paver Tucson Gas 8a Electric Caamanvealth Elias Montana Pover Toledo Edison Ohio Edison Pacific Paver 5 Light CineLnnati Gas 5 Electric RxQtanaPolis Paver 5 Light Rochester Gas and ELectric Louisville Gas and ELectric Miscaasin Public Service Cleveland Electric Illusdnating Duke Paver American Electric Paver Horthern Indiana Public Service Interstate Paver Florida Pave 8 Light Central ZIlinais Public SeMce Empire District Electric Plarlda Pover Corporation Dayton Paver and Light Vasldngtan Mater Paver Zova Paver and Light Wisconsin Pave.-azure Light Gulf States Utilities Southern Indiana Gas and Electric Duqaesne Light Caluabus and Southern Chio Electr5.c Zova Public Service Idaho Paver A11egheny Paver Systea Bangor Hydro Electric Havaiian ELectric Lang Island Lighting Public Service of Colorado C~uL Pover Ic Light lava Illinois Light and Paver Black~~s Paver Ea Light PartIand General Electric Public Service of Hev Mexico Iowa Southern Utilities Union ELectric Houston Lighting Orange h, RaclQand Utilities Green Mauntain Paver Athmtic Ci y Electric Cement Zllin is Light Market Price as Percent af Book Value 165.64%159.36 148.42 140+17 136.47 132.69 131 96 128.73 126.86 124.12 122+15 115+22 113 06 XI2 87 lo9.64 lo9.28 lo8.8?108.84 lo8.26 106.34 1C6 12 104.90 x03~06 103 04 102.44 101,67 101 30 98+77 98+23 97 9?9?.91 97.8o 97 76 9?e27 96.87 96+77.96.43 96>Co 9461 94.47 93.88 93.86 92i56 92 35 92i22 90.54 9o.45 9o.14 90~06.89.59 89.54 89 53 89.42 89.34 88.84 88.59 87.59 Page 52 ZEADXEG ZrZCmrc UTXLXTZES WZra XQBLXCLZ-mS COme STOCK NRXEL'RXCE AS PERCUSS OF BOOK VALUE SPENSER 31, 1975 80.oo-89.99/, (continued) 70.00-79.9%'o.oo
-69.99$50.00-59 Sf 40,00-49+Delnarva Rarer h Lfght Southern Caapuqr Xansas Paver h Light)addle South Qtili fes Barthvestern Public Service Central Maine Paver Sev England Electric pennsylvania Pover 5 Light Public Service of Nev Hampshire Eknsas Gas aod Electric Xentuchy Qtilf.ties BLLtfsore Ges anf Electric otter Tail Paver General Pub XLc QtilitiesÃev Tork State Electric and, Gas Qpper peninsula Paver Xsnsas Cfty Paver and Light Qufted~mfnatfng Potomac Electric Paver Cosxsunity Publf c Servf ce Eastern Qtflftf es Associates Sev EnghLnd Can and Electric'innesota Paver 5 Light Arf sana Public Service BadLson Gas and Electric Philadelphia Electric Sfagara Nohavk Paver Eortheast Utilities Xava ELectric Light and Paver Vfrgfnfa Electrfc and Paver St~Joseph Light 5 Paver Pacific Gas and E1ectric Puget Sound Paver h Light Lake Superior District Paver Sierra Pacific Paver Boston Edison Public Service Electric and Gas Detroit Edf son San Diego Gas and, E1ectric South Carolina Electric and Gas Consumers Paver California Pacific Utilities Adage Public Service N.ssouri Public Service Southern California Edison Central V~Public S~ce Savannah Electric h Power nevada Ante Market Price as Percent of Book Value 87.42 87.33 87.01 86.62'6 23 86.1o 86.04 85.13 84+91 8473 84.56 83.62 82.66 8)69 81 64 81,07 81.01 8o.92 80.81 80.8o 80.47 80,20 79 96 78.83 78.8o 7S 74 78.55 78 19" 76.66 76,43 75.86 74.88 74.68 74.52 73.69 72.30 72iol 69.23 68.03 67 86.67.66 67.0O 66.34 63.81 62,58 59 99 54.27 52.40~43.13 NeKsn abave 108 companf es 89-56%Source: Book value on December 31, 1975 ccaputed fraa data fn annual reports of caegenfest market price an December 31, 1975 from The Wall Street JaltCIII1 J4!l~2~19 t6, I I I PRICE TO HSLIC AS PKRCBfl OF BOOK VALUE IH COHHON STOCK OFEEBDIOS ELECZRIC UTILITIES 1972 1976 Page 53 Average Price to Public as Percent of Book Value per Share gul c n en csee are er o er ngs 1972 1973 1974 1976+All Offerings 12B.4'4g)I2O.64$, (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 1972'973 19?5 19?6 Jangggy 192 1972 Noyc333bcr I>19?2 Noyc3sber 82 1973 Jan~16, 19?5 october 28, 19?5 October 13, 1976 Neer of shares Total price to public Price to public per share Boot value per share Ratio of price to public per share Po book value per aha?e 23 0002000 f 54,750,000 4 27.375 19,20 (11/3%1)142.58$2,500,000 g 71,0?5,000 4 28.75 20,77 (7/31/72).138.424.320002000$63>7502000 21.25 23.22 (B/31/?3}91,52(i 4,000,000$59,000,000 14.75 23.23 63.54 520003000 f 89,375,000 17,875 23 Ol (8/31/75)77.68.2 3,000,000 f 66,750,000 22.25 22.54<6/30/75)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 I~,~Ce~~e zxpucexzom mm mr To no~'"~~asot)froid
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I' Page 56~.'.~Tea h~~l EXPIA2tATZON JQID~TO STA?GIRD E POORTS CORPORATE BOND RATDlGS STANDARD&POOR'S BOND RATlNGS', CORtOTTATt SOTTTTS IANTs's OUAUTY aOTTTTaNNCN Ntwsc fohwwscsw assw setotsssoae aoace Nstc lo ow Nt Itrs cwfcvwt IAAl.AA.A Na v we oowosoao cosvwf No ltcNEOC u sstww IN'ONN wwuh>>AL A A A ONSCt INOC AlA Ife Nfltll~SIW Owsf NWW, Tlltf tttwu OW OHL suf cltsw cl Ntstfswh H w thhcstss the ahfsssa vvsosrsw Nof~ow<<sos lawtu It>>L ooc Itsw tstssct ow sarsrw Io>>st oh oa coshsL~ohcl sosoc AA~>>0 eouof u Nca f>>tt ooatlswaL NN la 44 sow<<sf N ssL'thill EJPN sslw*Al slWtt oasf 4 NINI alosos ffvas T0L Oswft west r'1 Iat Ilhf IN>>State SVWl A Coats Itssc A vo ssfvcsc I~eotw shwwhs tsocL Tswf aow cersNNIN~rwstsftss N>>ITN ahl No 4N osvtsf lstt Iww~ocsvw ecocsl N cash tl s1 ttoatssc tho Itic~cwsooaL Istical Ihl~ssacww vo tlffsftc II CNL Tswf VIEN<<aohtt Itttcs aohof INot 4 sw svuc tusssv osl so If<<0 eossha Nw ocwwww toaorwoL BBTT Tae ccL N stot<>aucwaw atshooe cowluf V what owll'hl lh~fatso rhNO Nt Ioossssssa tsusoN oooo>>%Wco<<EAINL Tafw Ilacl sllw wtsww twol usos4lo NN<<N<<wf tssocsot Ef ua.ssllstsf IN<<tTL Tfle wslttatossf w cauwhw cwosoal.OVIIWINII V Cttstll IEL Isllsts>>wl Coo>>HI rlsulwc, VNINhstL~Nwo tw sve sllttt<<w so ct wstll sot voto cvNslww 4th la saslslw~NEL Tw Cswo w st wasstrawa otwshs Iv INesosfsN Esao llswwsehL at<<Is Cloth 1 Ca IIWI Nt IOTVCOO al Ie<<tf SWWS 4noo.Tost atw tssf fsnfi wwllswhl cavsuthsala.
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~otwaf.IT oooo afl Csurae~ooaaoas ca>>a No oseeosssaeeaf otwwwsw'1 aur>>, Tao w teoac oocrw>>awawot eoafwww OI ow i>>aoc oas>>t oac~fowof ewcoauw ol 0hf Oltlt 4f 40 lkswc Cswsa of oc ahf f thacos orw swwe Owseel, Tsw stoa roooofsl acsssa>>w ef wf close".IhuhHe~cestst.4 e.Itws~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 tUf Acuhks lnvol vvcL 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 lt?Can poUutitm conuol Quaking be considered aside from tbe normal level of debt?lre do not think so.%'e bcUcve lt ls>>orth mentioning that most lndcntures aze sQcnt with regard to tbe inclusion of aaowancc for funds ascd during amstzuctlon in camlngs as defined tberchL, Ilowenr, this once insignlAeant accounting item bas become substantial ln she.and in most Instances k in-cluded as an earnings credit, for indenture coverage pur.poses There aze many who question the quality of such 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 gcneraL these credits now account for over lotv ol interest coverage.This, ln our opinion, makes s~aacd circumvcntive Qnanciug aU the morc questionable.
lt concerns us grcady that behind thc saosfaction of the mortgage incurrence test of two thncs prctax earnings cov eragc: of interest charges Ihcrc lies a large aceoundng c relic,~nd that, outside o(thc control of that test, thcrc may be krge anuxtnts of other forms of debt.Any such situation would bc a sure sign of>>cakncss aud wouhl reQcct upon i company's financial integrity.
~~~Mooch~s investors Service, Inc., Mood's Bond Sttrvc, Janttary 5, 1976, page s 1781-178?~~~t r 1 e~I I I I Pag scudt of o~ss4ty kcrcsse to thc LcacLtf$.TlN$tahe psrstkk the recent risc of Ibc stuc euinienvm teacher'$$$4iy.Suuab'hes hsa pic tSD's psy scsk st 55(O sho c 0>>ustt nunimum, Tbc sdo(etmn of Ibis'scrcsssd sskty apcnsc wss nisde poieibtc by the ntw stuc fundkg 0ecsteioo which incnsicd ustc sil Io Ihc 4sutia.Incrcaicd 4Cbt Sauire COSCS Of 5SSSStniS Ibis year'S budget are S4O hnteettant.
Taa OQekctknn m Ihc cuncat kvy have averaged%42'%or thc 4$t gve yeats.The diet rkt tss rate hss increased from (19 mdts in Ig(0 Io ides mw4 cuncnuy.Sn4 OSc44 aspen h to rcensin st Lhu fcvd for at ksss thnc morc years.goaded debt is rcdrtd SIowiy, whh QSIye ttrired widue f re years, sn4 2U%wnbia$$$4 Sod cooaoosec dsts for tbe Chy ot hteuiuhc aun pares 4votsbly~hhTessu gseiset trees ms?$ISO)IJ 5 5Sse Curst Noseees 5 CJQ UTIL SISSS uo 5 asst Sw Ceeeee ISenov Seeies uevees neeeerv eeeeeseer IN Seenov leeeeeeSS au'acr I eeweesse eeeeor wee csee LLIIO nsr leeeeseueeeewee SISSenee neee geest Seue see Ceeeee tsevevaguo eeseweee Neseeeen leis ssveul hctordisg Io tbc Ipyo ccnsut, tbc mofisa home value lor tbc city (g(5sgrsiis Ligbcr than that ot Ibc NNc (5(?ADQL Ssrseuirr (SD liu tslebirref Seen(Seoeerb t(>>eorrrvfrrers
<<ss(kyar~ooeetvef lu tuereerrs uv((.I(ourvrr.drgt u iran oeeef rlt rn(rrverrur sclnfu(r u s(ow.IVC ort toeneeuing our"A" (ueoe((ence(r nusse oo Ran(col c lgft FUNDAMENTAL APPROACH TO PUBLlC UTILITY BOND RATlNGS Oat Public fj(ffi(y Section 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'~U>>vstyiog opsrsung ss4 5aaocid riits shat msy be facing Ihe dsctric, gss aa4 Lckpbone wriorrta ia U>>yars shc$4 mida ddfcriag cconomIC Sctssriot.
For Ihc dcttric uuTity isdusuy, this in.~sdets 0>>derek@ment Of Sala SS4 ihianeiSl Statement fOICCSSLS for a fivwycar pstio4 wiing bat guess csumstcs snd rcstisuc ccononuc msumprions, snit 0>>dtri Nion of s compttticns(vc Sct of opcrstkg as4 Saaacid parameters which sre used Io matc Compsrisont.
%'oriringvehh this mcdcL wcinvagatc kduttry Iokrsnccs Io worst esse~Suds at the totcnrid Impscts o(oa-(ok g doubicvbgit hdkfJ04y OC4ct Of aaaa Io Ihc ca peISI mal tSIL of ttctsQoh.endured chub saks dcdiues and fsu pscsd Iosd growth.snd of seriousl adverse dsvekpsscnts i~such areas as fud supply, cnrireomcntsl rc.Ipdism vts ssd oud tat poser.Wc fcd this type of N>>iysit (done mars loosdy for 0>>gss snd Ictcpbooc udust rial pnniidcs us with a~'Srm bsctdrop for teniususg 4nrtam general indusny ritt snd dmus attention So subiaduit Iy SCaors whh ps nicu4r vulscrsbgitks.
In Lbi!Contest we sre sb4 maedngfutly LO campsre thc rdative opcrsring snd f>>aocQI poehiins OfhuiivIdust utilhICI,Thc nest SICp III Lbe thtuktcrne'esarios pro cts 4vdva comparisons of inibvutusl utli6a.Lhc Idadee opcrstinf.
sdvsntsga and disadvantages o(each, psnku4$Souetns of inSISMity or uaccrtsenty, and debt safety peramttta that sboutd petvsd in future yeats, given s rcsihtic sp-prshst of~ss4 ittu4IOry dieistcs.Wage thc emphasis of oet asstyricst wort is ou pnw'tcring thc (utun when Ihc debt is to be~utussdeng, Steuoa unatikistion inset Itin bc Civtn Ihe I rect rctor 4 Of thc PSII SCVtrsd yea r$e ul Shot II rrgtt1$OISelsgtneent
$rt4IIVe Suc cess in mrcdug goats sad drsiing<<hh probtcnI arras.Fvnbennocc.
brltgrd kputs kto ouf SIISI)sll srt Inost curfcnl cspiml structurt pcuhkns.usted csphsti euiui gaals sud Ihtit rcseonsHcnrss, snd, in U>>Itgdstory arts.Lbc tonetrsiats oC state Iswt, pbC pui>>ks snd precedents sn44efecsttd 4ture diiccteoss.
ht, gtsudsrd a ruor's wt bsee come Io thc<<nndssion Ihst one of Lbc st ron(CSL forms u(proration of interest psy ments seed lundy rt psymrnt o(~4 s trestle sntsni o(healthy csrninrv.hsctcd up by cs*Oous Uest sic satutsctory on thur nwn snd not dupropoi.Lioastc Lo tspitst an4 debt Icmcc rtepeirtmtats.
Wc IooL for dspis.dstioa rua Io bc st retinue kvds.based oe engineerin ond cco.-oomk gauges.hitbough we have IiIUc 4tcrcst in becoming cmbroilcd 4 tbc Lhcorcricd argument of whethsr or so$present aiuomcn sbodd psy fof needs OC f'stare cuuomcn, ue rccogaitc that Lbc prscricsi cffsa of inASUonsry condhkns is Shat the rett.matkg
'roccdurcs of Ikwubrougb accoueti.g sad accrual of AFDC (allowance (or (umk usc4 during constn>>rionI csscnhuc a'ready<<crious cash dow prob(cms for grow>>(.csphsldntcnriec compsnks, rcsulusg in dctcriorsuos ia debt ss(ay parameters snd etcdh rsrings.Covecage As An Andy(ical Tool Tbc primsry csrnhigs sdntuscy tests Lande those ctntering on gscd charge coverage, notwltbstsnding Ibc 4cI Lbst dltfcfcnccs is coverage Icvds have nsnovtd Signif>>SCUy ia Lhe past decade.$$sand cevcrsgss have dcttriorstcd..p(cvcnhdcss.
thac tats.iV'evshstcd in Ibc proper (rsmcwort, Stiit pnwidc Ihc nunt dintt in.dkuisn of a company s sbliity Io carry its pccscnt debt Iosd ss<<di is to tate on sddhionsi debt.SS: p prcstntiy vsts Ciic tuitrsgt tests of reucf 0$cd charges.Ibt meet ienponsnt of wbkh for ruing purpsics aic 0>>pines and prnss csciuding hFDC for thc mote apitsidnlcn rive rett no snd$$$utlliIICS hacr Ia I toetrs(C I lilt IIICOIS Strloiis SI Isation rdstiec Io Iong term hietoricd Itstistks<<bcn du(ntncts in lss rsIcs werc Inuch Icss encasing(ut snd.Lo Ion>>cstcnt.(or Idcphonc uuih>>$, ss mcasuia of rdstnc santa s ca ruin(I pm>>r snd Cavil st sccumu4Iuin putculkt 0(Icss cstvlSI<nt tneirc compsnlCS Ihsl (etc teucnt4(ly 4r(er csposurcs IO oNsomk diviietatiuis sad loog.term coeupcthiec threats, Our computstiens see$0 i>>rursf Cistd charges, kssmucb as SII tbsigvs hsvt Io bc inct tu prevent dcfsuiu snd wt give vtey Lit tk attention Io pro (ernie Sovtrstt, prrfcrnng instead projvatd coverage based on a foll Sct o(aunonuc ssd rate case ossenitu kelt 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$197SS Pave 9".7.p Pfkj), 59 4,~~~v.~co]<<td,.'Stssoeh we utuuay look Cor htthcf cofcrtgt at>>s os tttphhene aa4 gss uuWics Cbcmsluvuhsgty, for 4 ised>>svqvsysy A cmdtt oa sa ckcusc utility<<c vovkl have lo be sv am of Seriously if Iompttttag
~ei muaasta Ac rsring whhis Asl category'o<<Sage cevht aes he ccpictid to tepmie Io Iu ueir Ihc X50.2.75 times ttftt ia a scnssnahk ulsc frsisc, lf pfttaa coverage%0447 LO~Ifmcs or kss oo boch 40 Octad asd 4 pfojtacd basis.wc haft found that wc must~sic<<Sly qvcsuos<<hnhcr U>>tower Incdwm gadc gttttt hi>>atmo<<~k soprepriue (or thai itsucr's debt)scoff, sf wbcAcf dcta asltty cuAions sa so iaadcqustc that oaly a~tsufcty specutaure gfsda"sa" 1sltag cia hc 4$ugnad 40 Ioartcf<<bees 14 shlehg abc 44~thai Ae above s>>sUoacd miaimum tsetrsge keck stake sttowanca for sn dcatic suTuy industry cst>>ricncmg m afaferaMC cyde of scrioes csrsiags cn>>ioa snd heoc4l stress.'Ausa.ILc k>>g tenn cbsraacr of our boa4 atiag~syntm wottd esquire that<<0 look for lvghcr mvdmum cofcrsgc)ads Ihoul4 ia hecelat aidcat that tht isd<<447 et IA&idust corri.peaits arc taaagsg Csfoabk phucs, b<<of limited 4uauoa.fa ad.46oa, a cstspeey's sttsisnitat of strong Ceftfs gt tfvds Cor 4 higher tstcgscy k esty esc prtcosdiuoa for comtdtriag 4 tsuag upgtsdkg im as debt usw.coverage gvktcV>>a ars 4 Cottnttdty impotutat sastyttcs) toed, ILoy cevtd tcsd to scrio<<ty mhtcadihg coed<<>>as if used ia a~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 Cetat Ptefegattuts.
AlthOtgh wt ttad it CICCCdiagly dttt>>utt IO~Lade Ac shove met>>em cofttsgt td'C44tscs lo<<cf, cftn vbta tnos most otLct kui>>am>>a point h fsforsbtc dtrcatoas.
we qdtc oftcs dacr.mh>>Ihst warn>>Is rtqvirt modastdy to I'gatf>>sady bightf coverage)acts m iohidad cases<<bae psntcutsr pmblcms.dissdf sstsga of usctt Is(nuts tsfst r Fanbctatsic.
Aae srt casey kstsnccs<<bat Ibtfcriag types ef corctsge tsriee are more svitsbk is mcssuriag toag>>cfm csnuhgt asd csA ttww~snd st Icstl ss msay cstts shalt tb>>d charge cofcrsCsscsts must be gtffn oaly n>>dat wright is tht crcdu cfstesttea pfecee.The Constr erne is Iy(J(>>4 by ssiursl gss utikka<<tth saiees swtqdy pmhtf ms.<<hrrc iacfcascd sncsuea must bc given dckc serf>>a c>>icagm.h prie>>cssmptc o(Ihc tatter Situation k 4 Cast~chctric utghy which ctpcas to triptc or qvsdmptc its cspiuJisstieo i>>thc otst lift)csn.Thc pmjcacd corrapooding gunn 4 of Ibc debt hunks arid Ihc csrlllags rtqwrcrncnts InsLcs fnk Inure I appraisal PPfshal aa Ihe meit dtpavtcm os~city 0(rtgvlstory CLIOI t 44asnriat~, sa4 stJttty Io carry risk ia IJsat under cosstn>>iioa.Fmstty, ns 4 soot s>>ssvrieg csrsbigs ptettaios, litcd charge Coftfagt Swwiyvtf Ol est bc uippkmcotcd by csA ttow ssslytk snd so ss sdfqustdy Io I she Into cvstld crstlon f vl~Ifs 7 an Qit assaks dcdinCS Ssd a>>i catstt'om and pottnttst vIJuiluy y Iasrgin I)Iso st (SCIOIS.PRlMARY ANALYTlCAL CONS)DE1LLTIONS Jest sa che ensht rstiag prortsa CansOI evaluate fvturc csrmsgt ptetcaka m~vacuum, it snurntly caasot timtt its saalyticsl scope io csrotaga Oetcctten shoe.Thc mote lepvns<<sastyticst coa-stdcratieescsseiing h>>o vttTsy ausgs are Ibc fotlowioo J~a(wood tfpr 0/vtwnvther.
Thc portntisl bcscgu and'l<<f aggr>>trnt cvwtiihy cse ne mnic I>>itooicd than Ihc~ciyeevics'Tbc tate is Peatiblc ciyeevICS uf Imstt<<John Icrfiht tin<<ted SICSI.fsr Cmm cknrwvt, hvscftr, at cridcoad by Cvn tMiua(I 4974 pIOL.lans and Ih>>csccttcst Iavids ChstLtd up ay mssy mvdcrstc sited auTktca.Abc.<<c mrnthvwd Ihst<<c 4>>k for htshcr arfcaccs oe n>>tl gei eel Irtctt>>oc wtu>>I, tior cemtnost>>a vuluics er 44tru(icdcwspahia,<<C Ity, In Ihc cstcni phiul Jc, to tanuticstt Ihc cndh orUJ>>ccs sf cath tuuiacss, sad uics tvuk le r U>>sdrsst acta et 1'sgo Stta Sta>>tia~itt Poortc Corporation, The Fixctl 4444fastsgcs of the coinhh>>d cone>>sy as aa navar.94'huts cosa penes cr voder 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.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 opcratisg.
economic aad gasaciat risks.industrial saks venus tcshtthust snd cesimcici44 tughct priority gss saks rrnvf to<<cr priauty etage.Iott fcn<<tocst phoae revenues,<<hotcsak fttsUvt io tctait tn>>that.jv~csfsisgs, ssd infmtmcai shd csra-isgs htcskdoem by fcgstuoty lsriuV>>ikms stt moil Cusdss>>0444
)4)Tlit strrice sita a<<ittty ls tapootihle for pnridcs U>>00.dtrlyiag ftatacist SOPPort fOr uti4ty opcrsuos.ttctogstriag that tunes>>r or dcmsvd gnn th is aow n>>re aftra s benlcs thea~yoUYnc sttributt.
<<Ctistuatt thc fstyihg tyPII of grovtb scd Atir bnpbcsuost.
tat tinsitat1 7 imPonsat sfe Cuuemcn'btkty 444<<ill iagnas Io psy, dc grec of ctosonuc 4n cttity of I bc arcs.Sad Ac 4 m-ptttathms of gtegaptvcst locsuoa.Svch ss rural os4 erbsa charaacr, tnrirssmuust coashkrstioasctimstt snd Cud soetce pn>>lesly os utility oprfsting cost,sad cty>>kacy facts.'i'o bc 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 eectiag iu (rsachitc ohtigstioss.
tasdrqvsritt ia I sac arcts (mott pcnthcat fer trirphoht Cempaaittt pottiiuslt)
UircstC4 Scricrabk tcfds from boA ah ccosomic s04 s ftgutstoc Its<poiau actisb2tt of fvd s04 power suppty, ctpoturc to cnr<<os>>ca ecatsl 7 pretdtmt, operating t&icscics, Iad OC ptsat modcmit&o.gss syacm Isfcty aad At sdtquscy ef neietcasact pratuccs are checked fot pottaust pmbtcms asd Ihoncemtagt.
For the dtcuic aad gss uQiYtct.Cud supply potit ion mty stilt bc rtgsrd05 ss fsfeahtt or unfavorable ia terms Of cost 404 sfaitsHtty.
Ho~a.U>>tong>>crm tread to astioavidc energy pot>>7>>nthig 444 tnd<<nc sttocstteas 44d thc nov scly hsty out tock rr Carding ovmi fvctt maLC'n dtfcutI to saihfsaordy aslustc risk ia Ibis ares.fy)The crridtag km<<>>r(vtriy cconomtc ritks sft.SI<<0 scc of u c.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 0ISHc t.Ihe Cvytlhftst InCSI ui 4 Illstor uavta4 04tuiuhcd, of 041nsHc a Efdveiiss o/Isr comtviy'r Pf<<yiwr fverrivrr>>e piegieha.Tl>>lsrgCf thc Ike 0(AC pIOgrasa ICbtkc IocstJIStttstioa.
Iht Inort ieponsat aic kforsblcopcatisg ssd fioasctst psamcttts shd good vtdtvTtty.
Our greatest cenccrnt aic<<hahcr Ihc basis of Ihc program tats 04 high at low cuuastcs of 4cmsad growth.<<hctha thcrc is Su icics tf I ttcutvhty to adjust th'c progam upwards or dove<<srdt io SoJ<<htthCt fvtuit Casts<<ttho<<csdssgrrisg thc sctvkt obagsuos.SoJ v fcfsosst Jt coll mcslstsis fsaois afc tmNoytd.ttrcskdu<<n of Ihc pmgam toto fnvro9I<<uhsbtc piojcas aad aoe-Icvcnvc piwlvc>>g.evtt ii revest iag.<<LJC adjestmmts sre msdc fvr potuhti omktcd pier<<Is or Ceumgcat ttfemhtvits.
Tbe tack rcror4 IqvSC7.llys ef sd qvstuy 444 Aonfstt~0(patt fcsss>>g ia ICIeuouel for indi'srioas oC Cvttvtut fvivrel Iobtfmi.J.arfv(srvrf rliinutr.Corfwlvtg twrffri'>4
<<n w>>glef<<uf or rvvnr>>f lrrarlvroi, llc sai447 o(4 vil447 stint<<ntinty I.i Cvnd nt fenstm'lies tv<<gram sh4 to ovra cviitht Shd futvitstrvu<<
farvirt.nifsts u tvlimstcty drtwodcnt os Ac taro>>fs and csA d<<w tcfcts otto<<<<4 fstthevsb aot gusrsstoutt by thc jviiutinwnat nsvlstory AXED lNCOMC)NL FETOR heemo lnoe.-.tet, January 3r 14)76r't~arJC 4IS.*wv 4~a~~tsi O I~I I I I I I Page 60'i body, la sddbioa to bti>>g fsevy¹r<<i(h (hc bnsic ttgiterive stc(u(ts Sad mssds(cd cours b(crpmsu'ons whkh s(aft out ihc ground ruks~ader<<Lkh s rcg<<4(nry scoK7 n(uu Opc(Ae<<e fs((0<<mssl of thc bapo(test gene(st rsic cave dcciisas fot g<<vlnacc ss to comniision poLYIcs snd p cccdca(L la rcccni years s wcskh of i(forms(ioa hss bcoiw svsibbk 4 this sicL s((hough.Ivdonuns(dy (Lcm o~spaiu(y of upcodsm cosh rubsgs rcgsnnaa the rcsu¹sb(cncss of commis(ion dtcb'uuo seder cetrcs(btkuooery cond(ua>>L Con<<bbusg rasasgtmcnt ssscssmcs(s of their caps>>ics'ais
¹crcssc<<scds ss4 stis(cgia, as wc(l cs istornIS(ioo s>>4 phi(oiophy g(essed trots psst come<<iuoa scuons.<<c dcvtkp 0 ccuoldcrcd jdgcmlcs(cs lo tsturc rs(c csee os(cones sad urn(>>g.Tbo cvs(us(e¹0 fl¹ds.(ncstst to our own projccuoas of fuisrs 4cbt safety msrguuL 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 i>>ports>>I cbshgcsis cornruiuoli else(be(SLIpoccef wuh fcgshn(yv asd fusdsmc>>41 chsagts¹thc gowrmng kgok(bc sistu(cs are bcsig made<<ih incressicg trcq<<eKy.Ihccon(¹gly, we try to become~cqusk(cd<<I(b po(ides(ssd cmoumet aiiiudcs tows(d Iegitia, is eaictpric ssd govcmmcn(in thc jsrbdictmsst arcs to<<Lich s~tgity bctosgL IttuL<<c t(7 10 ssscss tbc dcgrcc of coelpclcscc.
so.phbucs(ton Ssd gmersl adequacy of ihc co¹miuoo s(s(t, la Odd(use 10 bciag ibC<<Orthsna Of tcguhusn, tbC Stc(f O S(SO able 10 Provide bdcpcadcst judgcmcst the(of(ca re{kata 0 los r(crm undcrstsndiag
~f psnicekt utitiy prot(cms 004hc{ps cise(e coausui(y of policy.service rsq<<rcmcs(L compsey f¹SSCtsg P40S ssd msssgcmcnt's Capi(st S(ruc(ure Objcc(ivCL Ltutt impuhuat 10 es SIC the prehtage of cash rcq<<remen(s that>>LIy bc liasaccd from¹(tres{Sources.0>>4 thc imt{KS(ions ol ibc prag rara for coauavvag csrsI-.gs prwccuon{as msssorcd by debt io csreshrsuua.
snd dcb(te oct gisnt asset rn((osh%be 4NCS O ICgcrdCd SS kis imsnr(SS(O>>i(S owe lass i IS¹(C4uOa 10 its c(tee(on probubk snd pwcnust cshusgI pic(Stuns ceder thc cons(rais(s of regula(017 Po(Ky.TbuL ccr(s¹comscsss(¹g 4ct0(L such as cscctkn(voibility regs(4ing s lugh return Oo cq<<(y, (nigh(s((ow same uulcics to tive wnh s highct deb(raus ihss 0(hci<<bc<<ou(4 bc uK cssC.Tbc crccht s(s¹hngs ot sirk eubYIm wouht LOWCver, 404 (O be mo(C 0(acrabk (O uncspct(vd Shartqertn S4.vehhbs uakss th(7<<ere sbk to msia(sk fsvorstk 6asaci>>g ((csi.Laity.$.Fiscnckg flrmbi7lty.
Tbc todm(ry's cspcritaccs tn tyN c)carly=dcnuuo(rs(cd
<<hs(msay observers hsd slwcys stop(tied, that thc csp'nsl markets S(C aO(OCCC(tsnly opce for most ct thc pcopk most Ot thC umph C>>d ths(the Pub(K u(dey NduS(roi.<<iih thCir hegC cs(u'isl demssds.csn bc scrieo(y impacted<<hce 1's 400(S Src Closed lot some ol uK ptoplc some of the time.pshi+1(ly i>>ss once((sin us(4uoasry cnviroemcat.
it o becoming incresiinl'.7 im(o(tsa(ihst et(7(ties hsvc good fins>>cisg AcubiTit7 if (hey etc to main medium snd highcrgrsdc cr<<lii rsiiags oa their debt issues c=d meri tsvorsbdc coasidcrsuoa vri(h regs(d 10 commcrcul pspcr rsmgL Osr saslysis ia this arcs involves an erst as(ios ot Wc do oet bmt aot io phj<<tfe the outcon(e Of rats Cases.(ccog obteg that such qussij¹L'ttst p~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 is(0 thc pb'dosophm ss4 impi'csuoaa ot rcgulston aetio>>L csd<<0<<ckomc commbsions'q¹nts ss to our tsiiel philosoplrf ss wca as its sppGcsiiea io psr(ice{sr comf snkL (('c'rcsfcc(tully cmphssicc io comeuasuKO, utilIYICS C>>4 fnvcs(0(S that oor Only ConCCrn iS for Our ts(tngs to bc ss secure(s sa spy(sist Of rik as is humsoly potsiMc.%ado oot testify in ts(e casa.however.ms(much cs uc bdbve thai~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 tioa, 0>>loot poshivcty oa conducnt.Oc(brcssoacd polKy dccbess 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~rcgulsmrv s>>4 bssncu(g sp-tuOSCLCS if SSPCC(atlc Csmiags Snd CSSL (4<<PIO(CC(iOa SIC (O OC eisis(sioL By aeccsshy, ue are~wi((e 1)4>>dtigs on rates sf mern ss4 rsic bssL sdjus(ed to time trs nun swl cquhy lose¹inc ca(vts(ks(u¹;
6)a(ca(of trgukiory hg.<<bkb might constrain coa(psnics from cs~g ihc mots s((owoL.¹)ccououng snd rsis mstbg gv'<<csdu(cs prcscrile4>>hkb
'bosn(ty is((ucocc (bc qnslcy" of ca(sings ssd ress((sa(cash t(0<<prwtcusa, It)'ibc sv<<lsbgi(7 or 4ct thereof of tn(crim sad/or ecftcscy ts(c vctbf, snd plcccvuh(LI>>s foc 0 pprolsL 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 vi)tLe prescore or sivcwcs of s(vsroccrm uifdiy pro(cctien agsbo(vohu(0 fur{ssd psrrhssrd fowcv I(oct u(iions.vu)ssy tsrucvkr eigi(y rtgu(s(orv 1 Ion(rno wnh mtwct 10 tbc~dcqusty ol commusbsuunL Cnipetsi>>CSCSS Snd crhh'(uhi7.
4.Rc>>>>r>>se Rrqurrrvutwrr, C'a(w'so'KOI(>>e 004 Assrr PIIurr(i¹.
ltsvbIg ((sask(n((hc psrs¹htrs Of VVC<<4(017 Chvus(e¹tv(ms Ot prsbsblc future fstnIsgs sad cash duw pwca(ill.uc procccd 10 evstuste (lair sdrqsscy rctsuvc (0 the coasuucuua proc(urn, dtbl 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 st a psrticutsrdbsdvsatsgc if ibry coaue ally bump sgsimi rcstricuoas which srs regarded as'ressossblc 4 (heir owe ngbt.R)ndacrsbihiy io short term oretc(ing snd henomtr ibtL b)suings ia shoh.icrrn debt iosgc snd fuicrc poSy in this regent Hither average esc of shor(term dtbi bhwcce pcr.mesc>>(thsncisgs i recognised ss litic morc (hsn mais-tcasacc ol'pc(ms>>ra(debt i>>the ca(utst sir qwr.v)sa sbiliy 10 Sasscc ibrough prcfttrcd s(IKi.prcftrcnce suet.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.
~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 sad coniingcnily svsi4h(c cspiisl sources.h)potidcs snd par(ice as to ssk of Iohg it(el so:NriYICL bw c(odmg ihc dtgrtc Id coaicrvsiini cvtdrLicd ul'pfcpsrulg for upco¹I>>g rcfundingt.
s)<<ors(Kssc cea(i(testy plsnL ioctuding CIuvddcrsuon of bov msnsgvmcn(vien is prcrogsiircs s>>d pnoriYics under sudI coNQiseL 4.Ev>>iumioe Of>>IO>>OCVI>>rnrr ebb b wbhsct 0 doubt tho evsst 45cu(t ares ie~Lich io instc sa ohiehwc snshii, ihsi hss vs(ich'17 ss s rscnsutcmcst st future dc(n ssfhy, Yct Iccogrnr¹g ihc Iel pohsare ol iho vsrisQc, wv 40 mete judgmhus snd evaluations based upoa the tear(crm track Icr<<rdi how swccsdat Insnsgcmcn(Lst 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 csnsikrsuoaL jsnusty 3,)976 Randard 6(Pi(or(n Cnrrit(raticn, The Fjxcd Incr(tne)'egc fg9 InventnrIJanuary 3, 19.6I~a!e 989.
Pa 61~A I)crid<nce ol<nphisricstcd snd<<riL<c<aoned pbaaisg for Ac feriuc ssd thc Ocsibgity Ast<asssgc<ncat b<a<ds ia<o sujot poGcy 4<chio<m 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.c<c<Qot<cts6<e<hip and<c<paau<arirics to<<ants<ncc<<ng cos ttsctesl o%gsrioss aa ria<c.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<past t<ly>At Stands<4 R P<oA.<<a My<cog<ntc thst th'esecccss or fsae<e of oar ts6ng dcririons csn Liege on Ac co<<cc<cvslesrioa ef<nsasge.a<<at.Yct oer crsls<6so<nns<sbo be s<IWi<n<6ag.
since ac<y poor a<snags<ass<
a<ectly is ac<dec<ah Also,<<e recognise<hst<nsay a<snags<a<a<a herc sad a<e conria<dng
<o lcs<<<f<o<n psst h<dest<y a<hts Les.psrricetsriy ie thefiosnrisl a<ca.7, its<any Dot<an<at<.
TLcsc docs<nests, and, pa<6c<dsrly, Ae Ol<t h<4<a<e<e (<<hcb sp<as oo<<hc contract b<<<<ssa hsacc snd.hosAotht), s<e tbe bed<ash of the pab<ic capital<neth<<<~sad s<s csssabn<d ss<o both Ae eaeensa<s agreed<o aad Ae<a<<<nina ,stccig<d for 4ch of conpVisncc.
Thc s<sadsrd p<oririeas o<e.cl coo<ac, Isohat for.sad<L<fccnrisrions
<nsdc,<<here<no<a n<has p<o.to<tine is a<to<dad Ac boadhn<dcr.
or<<herc aadely<c<<nairc p<on.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 j~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<<h<ch a<c ao<w<cs<oasb<c ia Arit oaa<ith<<.nest of<<<<do as<st Qghst rich lsr bondh<ddc<<.
TLc total seta of oer saslyrit, epee<cd for each a<airy rtgetsdy.serves es Ac basis oa<<haA<<c co<art<a aa4 cesies<c<c<s<n~a<d abeohne c<ado ris)s for oner 250 eri<ay issec<<.One a<<cc<<<e sw psnicnls<<y conscious of.i<n<sb<<sinh<g
<hc mast prot<<r st<go<neo<:f c<cdi<<srisgs fo<a<ili<y hsec<<<<i%in cs 0<cfats<o<y jsri<dinio
'c<asI<y, tLc rs6ag d<cisios-<nsbiag process is ddsc s dlasn<<C Oss.coa<b<ooedy
<c<<sc<<iosing snd<cdc<s<<sbung Ihc aery hs<<: i<secs a~so<red ia c<<<L<<i<h ssd hs crates<<os not coil for e<gr~b<a fsr sa insects.UI6<ns<riy.
oet cfe<<s s<c t<ritcd by a dc<i<a<o be ss fur ss possible to thc a<wr.<<Lgc p<aridisg Ac<no<<objet<no aad 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 half of fat 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 l jyFSin 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 COMPANY hfaintafn"Avf-" Jf otfng c<<ccariy cen<ptcscd a M<sting<eri<<of<he Itc<<re<gland Tc<<phone R Tc<<graph Company.sp<sf<t'ag,<he fends.<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, I py$(<cc page 429 ot<hc p,l.l.h<<bca.ia con.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 by Ac h<fnrinn of 5<25<nh<ioa of ra<a<ann en<<i<y 4<<<<<nil,<a<c<rii<f~o<<Icing cn<<tc<nt.snd a<<dec<ion n<con<<<<<nkn<
csee<au<a<a
<c qdde<n<n<<.
I'enb<<san<a.
<and<<a<a ln<p<nac<ncn<
in dc<a pro<et<inn pe<sou<etc i<n s<<nadke arsr4c<as capes<a<i<<a snd<<c nn<c<hs<Ae co<npsay<<dditnnty pe<so<<g rs<c<<h<f<0 a<eel<ate<a a scnoes r<gsts<o<y lsg prob<<<a sn4<<<nsn<<snnng s uth<<aa oa both cs<<ot apse<bag sn4 ops<sung esp<a<ca Cnnsutrnae
<kr yv<rn<nlt,or 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~<a'aha<kr AA ra<<aeon a<ton<<<<<<<bag Drkrn<vrrr of ac<<&t4nn<t Wrpkonr 4 Mrgn<pk Conrnsay.~LfDIANAPOLIS WATER COMPAA'Y Scffing Pirgf hfortgage Bontfc a<nhl 5~<y, I~>>Ws<c<m v<fc<Sig.t<O,<rn res<L<nntssc<<nnda r<nc lpga<Lrnnth sn wa<c<<<nunc
<Indscs<c<<4 Sy C'wMaL<a.Sachs*Cn.Thc hwc ad<,<c et<<<<et nt zrim<tnac<is<etc<<xi<<<<
cfnndtng fnr five>cats I'<ncccda t<n<n<sc+dc act be~s<4<o<<<uc a<<as<a<ay SIL,75le<p<ianra a<anna<at<le cern.psay's I'n(hto<<tace<<<<ad<.2s<>dae Ip)n, ahh<bc I dance<<i<he a<<p<<<n<cds<o be sdL<<<I<o Ac c<<a<peal's gene<at fvn<h: la FIXED II4COMG t'IVCSVOR Page%0 Rat<dard fc Poor's Corporation>
Tha Fbc<td It<cott<o It<<ra tor Jan<<ary 3<l97;<<.a;e 99.
l Page fNOVSTIIIAL COND YIELDS s i~~~'og wv I I IO LAC'scots c44tssssctss'S IO Ia st ILO sst FltCAal'+~~saraarco ScaaC s~s4~'sss sos%although outsUc purchases are niadc.from time to time, to mcct tem-porary shorta a.Other than its steel operations, which account for approximately 9SPo ol'ntional's total revenue thc company partnSpatcs in a joint venture<<ifh Southvdrc Company (a~~xlmately 205 owned by i ta-'ional)to operate an aluminuin rcduaion phnt on the Ohio Rivet in Hancock County, I'cntucky,<<hich has a rated annual aipacity of~l80,000 nct tons of primary aluminum.It reeeivcs$0%of thc primary aluminum produced, which it processes in a plant it o<<m adjacent to thc smdter.The company also operates six alum'mum fabricating plants,<<hi manufacture foil for electronic components and packagin'iding, dov nspouts, gutters and other buililing products: guard'For bridges and highways: and cxtrusions fora<<idc variety of YationaJ is a partna (40~>>interest)in a venture to dcvclup a com-mercial process for the refining of alumina from hrgc reserves of alunite held by the partnership in Utah.lt also lias an approxiniatc 6S%interest in a magnesium phnt in Snyder, Texas,<<hich produces magnesium from undergruund brine deposits.The phnt bccume fully operational in f976.Over thc years, National Sted has been amon thc most sucemful of the domcsuc steel producers; since its incorporatinn in l929.it is the onl)one ainong thc major companies to show proFits in every year.its products and markets are essentially oriented to consumer goods Industries.
which normally<<re less cyclical than acti Iy in the apital goods industries.
In I97S, however.demand Ior fight Il-rolled steel products was particularly curtailed, because the eco mic (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 of utility financial 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 utility issues.4~t S k, P our priinary objcctivc is to provide investors with the most accurate and timely appraixafs ol'redit risks as is possible.To hdp Ineet that objective, it is impcraiiie that we bc as fair as possible to thc debt issuer by maintaining an~ing dialogue through which<<c can cxckangc hifortnation and viewpoints.
In this spirit, I<<'ould like to update yvu<<ith our present thinking regarding utility industry trends, where thc cniphasls is moving in bond satin" decisions, and s'ome ways in which you might hdp us do a better job in rating your companies'onds.
Today.<<c can all look back on tbc Gnanaally strained months of 1974-7$<<ith a good deal of xausfnetion.
The utility industries weathers their mua traumatic pericrI in the~twar era, and all thing>considered, they hnic emerged stronger than when they hud entered it.Regulators, Ity nnd la~<<ithituod tremendous pressures, but ultimately, inost ol'hem did not shiit from their responsibilities.
Financial management swallowed haril, hut soltl cunimun stuck at heartbreakingly low prices Io support equity ratios.Utility operating managanent
<<as fsireeil to draw up alf fiirnis of cisiiungency planning, which fur Innately.did nut have tii be impicmentsxl.
Looking ahead tu the cnd of the decaaJc, it is quite~hie to view a inure comforting scenarin of industry prospects.
Wc can envision companies raising capital<<ith Iefativcly less strain.and at the same umestrcngthcning their cash flows, their finanaal flexibility, and thar.equity cushions.For example, our own projections for the cleric utility industry, indicate that pretax cnvciagc ol'otal fixed charges, a kcy indicator in bond analysi>>s rose to about 2.7$times in l97$, from AS thc year be.I'ure, should approximate 3.0 times in l976 and could fluctuate in the"3.0-3.IS range until f980 or l98l.Capital outlays could bc financed about 40%from internal each sources, versus 2$o.30.o in recent years.Gaierating Iescrvc margins would coast down tu a more normal 20%or fess, from the 34'~high ofhst year.Safes growth plus moderate general rate increases<<ould allow the industry to vriunlly vvrn l2%I3%returns un equity on slightly morc healthy equity bases.Similarly, the telcphnne companies could he projected to impro~e internal ca"h generation to tf0%or morc froin 6$%or sii today, to reduce deht ratios and earn inereasal Ieturni nn equity as regulatory lag is alleviated.
The gas inJuxtry could well benefit from a partial and inferniediatc term Staliiliriitiun uf the gas supply situation.
July 24, l976 Standard 5 Poor ts Corporation, The Fixed Page S'il Xncome Investor, July 24, 1976, page$21.
I I I I I I
~~i Although changes are (aisfy good thuL the next several years will unfold along Iheic lines.it is also not iroprvbabfc tv psviect a number of adicssc devefvpoients that could qui Lly and seriously upcct tliis outlook.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 industry.')Iit.h inAativn ratcc entast e caPital sequisnncnts of utilitics at thc same Lime that they substantially incscase Ihe cost of capital.Iligh inAatinn also accentuates thc need for sate relief fur<<hat is a strictly'rice nd profit.regulated induitry.hnally.high inAation IeacLc tv saluced access to thc ca pital markctc and raises quc<<ivns rc.gardin tiic viability of thc industry's psivatew<<nership structure.
%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 Postwar cra inAationis only expected tv bottom out in the 6%area.T he second calegory of posciblc adverse dcvelopmcnts recognizes that thc efcctrii gac, and telephone utgities face major risLs peculiar to their own industries, any of which could cacil>upcct the delicately baiani&outlook Cor the>cars ahead.Electric utilities, for example,~~~might be forcal to endure another Cinancing crunch should another oil embargo or multiple increase in,f'uel oil Pri~occur.This could initiate a new cycle of'o<<cr kilo<<att-hvur sales, heavier<<or'Ling capital requirements and limitaL access to thc market.The telephone industs>fakes cicry distinct thrcaLc Crom compctitiun and from a rapid sate of tcchnvlogiad chang:.These could play havoc with existing communications markets.<<ith the remaining useful lives oCtclccom-munications equipment.
<<ith priang patterns for telephone services, and with anticipated attrition in earnings Icvcfs.As for the gas in~dustsy, long-term supply is the psecniincnt risk;if supply worsens ma-terially, it<<ovid not bc rcgected as much in thc earnings trends as iu a growing inability to obtain Iong-term financing.
Our third area ofconcern is that if utility developments do work out favorably in thc next fe>>'ears, to what extent>>cwld it lead to com-placency by both managements and reguhtors?
For it is evident to us that thc positive factors in the utilitics'pcsating environment during the next fire years are not likely.to bc rep<<ated during the 1980's.Vnless this is generally recognized and p!armed fvr.utility regulators might view thar ra ponsibilitics morc casually.>>hile u!iHiy manage.ments might lapse back into less cunservatiic financing goals and policics, rather than prepare for thc much mose challenging environ-ment that lies ahaiiL Basically, these cvnccins confirm our cautious and conservative rating approach that must judge how compania would fare under thc worst conditions, not under thc best.Personally, 1 have hopes that<<e<<ill bc able to raice mori vfynur companies'at-ings in the next five year than<<e<<ill have to do<<ngradc.
For us tliat would be a pleasant contrast to the 1970-7c ecpcsience>>hcn we could only maLe 27 upgradings.
and v crc rcquircd to put through 94 utility downgradinis; g0 of those rating cuts were fvr electric uti!ities.
So far in 1976, utifitics haie turnal the corner and arc on the right track a>>wc have made three upgrai'ings and only t<<v dvv ngradin c.Pnhaps morc significant is the trend in dcnntatiuo changes under vur plus and 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.Turning to Ihc bond rating props and how we at Standard Sc Poor's iiew it with ra ard to utilities.
I woold first like to cmphacise what has nvt changal.Basically.
our rating syitem simains wlmt it al-ways has been,<<ith the letter ratings structured for long.tesoi mean-ingfulness and fvr consistency, so that an"A" ratmg inilicatcs the sanie level of ncdit sisL<<hcther appliai Iv the debt of a utility.banL holding comp.ioy, municipality or (oreign govesonicnt.
Ihc ratings thenisdvrs are relative nivasuses vf csnlit sicL<<ithin a (same<<orL vf abcolutv sic'k.Uvnd~salvil"UUIV'se thc lowest invectment grade rated securities which unsuspecting invcstvss should bc able Iv buy Page 63 and expect to gct interact aml principal paid on lime;Credil quality i>>graduated do<<n<<ar J Io the sf<<cmlative lioods ratal"IIU" and Ivwef, and works up to nicdivm grad-inicstment ereditc, rated A Iogh-quality csrfitc.sated"AA," and Ihc best credits available outcidc of V'S.gvvcrnmcnt securities.
sated"AAA." Our rating pvlicics rontinoe as they hare heen in that wc still sate bonds hy comniit Ice.Wc dv not finalize ratings unlit Iho company is notiCicd of thc decision and the seasons for it, and wc dv vur hat to provide companies<<ith every reasonable oppvitunity to defend thar case and provide ux<<ith additiunal relevant information.
Our op.ra.tions arc completely segreuatccf from Stzf's stock research depart-ment and we arc subject to Ihc S LiC's insider rules.Now what has changed at Standard Ik Poor's?Weil aside frvm thc , departure of vnc o>>pectcd cralit rater, not all that much.We have expanded further to.a corporate rating<<alf ol'3 analysts.of which (our work full.time on utilitics and fifteen gcncrulicts
<<ho devote past of their time Io utilitiia.
I am ah!e Io tell yuu that we asc doing morc professional and niosc thorough rating analyses than ccer before, not only because<<c have the stalf, but alco because our plus and minus system requires that we linc.Lunc our ratings more shar ply than in thc past.In terms of how our rating process perceives utilitics, I have given you a broad overview towards general industry ricL.Now whaL about individual utilitics?
Well<<c arc phcing a lot mote emphasis on analyzing five-year constructivn bud;ets, their details and,their un-derlying assusuptivns.
hlorc than any other financial schcdulc, the capital budget cxp'hins<<hat a company~ants to dv or has Iv do, and all other financial and rate.case planning has to bc built around it.But wc have learned thc hard way that capital budgets can either be quite 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.We arc spending a eood deal more effort and energy in evaluating regulatory climate.When we visit<<ith commissions and tticir staffs wc try to ascertain not only where their current philusophics and di~rections lead them, but abo to assess the structure of reguhtion-whether it is oriented tv an understanding of utility psohlems and whether it is in harmony or in contlict with the underlying political.
economic and social forces in the state.Wc arc interested in hvw com-missions view the job that utilitics arc doing.and what thur attitudes are to>>ards sisL and retura.O(major importance to utility bond rat~iogs in the future are thc (vllvwing three issues over which com-missions have responsibility: (I)The issue of CWIP, allo~ing a cash return on cvnstructivn work in progress.v iII become extremely im-portant tv the electric utditics'inancial Iiea!Lh as they move into the tsemcndous building programs of thc 1980s.(2)Thc adequacy of dc-prcciativn rates.while impvstant (vr trlcphvnc and clcctric utilitics is a csuch I issue for the gas industry, (3)llcguhtvry la, which wcdcline as thc inability oi'company to curn Lhc return allowal bevuusr of constraints in the rate-making process, is important to all utilities, but is a central concern I'or thc tdcphvne industry.In measuring financial protection for tlic homlhoidcr wc continue to emphasize earnings protection rather than aciet protection.
since healthy utifiiics should he nicctiog debt sesviie obligationc with adc.quate earningc, or<<ith Iiing.tnm Cinaniinl.
hasal on adequate earn.ings.Cash Avw protection ic hang emphasiral tv an incrcaiiog extent,<<'erc cash'earnings differs nieaningfuily (svm iepvrtal earning>>.In termc of fixicf charge covcraf:e,<<c nre paying muse attention tv prctax coverage excluifint allo<<anecc
(<ir fumii ural during construc-tion in eaces<<herc allowanccc m-Lc up miirc than 10~of psctax covesage.Oor analysic here ic ioifucniM hy nn evaluation of Ihe relia.bility and iiiihility of sil~ul,itvsy climate wiiich maLes an important difference in evaluating the true sisL in CWII': Page j22 FlXED li4COME IfcIVL(TOR I I I I I I Page 64'n the area of finandal Acsihility and capitalization gnabwc are plcasal tv see a rn<iJ ninny companies operate and plan m<scc con--rvativdy than in thc past.tVc view such eifocts as helping t<ssoppvrt ad ratings.There arc a number of companies.
hvwcvcr.that ace bc-)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~~~" BA"-catal electrics, uf v hich there acc now about 25, (versus only t 0 halfdoran fii e years ago)aic nvt making better p~iccss in covirg their credit pvsiiiiin.
For any dcctric utility with hcavy capital requirements, it scetus tn mc there arc vccy cvmpc%ng cost~~-ings and qualitatise advantage to bc gainedby<<'vcking t<s is<prove credit position above the UIIU lesly.I 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 rsc management cannot dv it all alone: it needs rs~tocy appre.ation that the goal is worthwhile, bcckcd vp through tale actions as rcquiraL But whai we da sce thc t<<u working ia tandem to protect~bondholder, through con<:rete regulatory actions and a ccalistic nancial plan, v c arc convinced that morc protection is bciiig pro-the bondholder than any ev luation of the numbers casa ccvasL B efore dosing.I<<ould liLc to Icavc you with some thoughts as to~~ow you can facB!tate our<<ork, and vthecwisc ensure that thc SE'P ating assignal to your bonds is thc most aocucate appian csf credit risk wc can make.;~Irst, although thc quality of the information and thc projections
<<w 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.If any of you have any questions regarding<<hat we cc<snld liLc sce, or ho>>we calculate our rauos, please fcd free to contact mc.nc thing<<w<<ouIJ like to see more of froin dcetric utBitscs is the construction budget eitcnding tv I985, recognizing of coucsc its very tentative nature, but also its niajor importance.
d,<<hcn you do come in to meet vdtb us.please give us as much 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'Nashioa.Thicd, should vou fcd it ould be orthwhBc for us to vi, it with you a)uur horne ground and tour some of your operations.
do not 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, o ucth, when we meet keep us currently informed not only as to thc test dcvdvpmcna, but also"s to your corporate goals assd objcc'ves, and ho>>.yvuc p!ans will allo>>yuu tu meet them.If year com-pany has particular advant>>gadv nvt fail tv heing them toner atten-d~~'.We wvuM liLe to think we know everything there is to kc<vw.hut ct's face it, nobody Lnows your business better than ynu<La.As tv vur problems, it i>>generally bet ter us explain ihcni to us, r~t9<er than for us to tinduut vuccdvcs.If ynu neglect tu tdl us about theat.we are unccrned that you do noi knvu'ow serious they aic or tbas y<w do ot have a sati>>fsctucy plan tv solve ti<cni.I"<nally.I bdicve thac is room for and, actually, a nccd for further communications
<<iih many of yuu.'I'his despite the fact that wc vcrsgc over 300 niani<tien<cnt mretings with u'.ditics in tl<c cuersc uf a year, and many nioce phune c<<nsccsat<uns.
Yct I ain sure i)est many"-"utility c>>nipsny nisnatcnlents Jv nvt ical)y Lnow huw S~ac<l A I'vuc's views thdc csiit<ng ccalit catiuiic at thc present Iiinc.And it is nut because<<c are reluctant tu tell you, hut rather he:ause a<any>>l'yuu d<s mit ask.Sn I<<uuld like to cstciwl an open invitation M you tv I July 24, l976 ar, rd.5 poorcs Corporation, The Fixed income contact us not only bcfvcc financinfs.
but whenever yuu fcd<I<<ould be dccirablc.
I ean assure you that<<hen<<c fed it is ncccscaiy to ,contact yvu about a rating pcuhlcm, we will nut hesitate tv Jo sv.Only by that time, it may bc tuo late for yuu tu taLc remedial action.rln$<4 P paniphlrc chuc dicruacrs ln a fuirii)borough/i><hi>>>><<ur analrciral approach cu racing uliliiu drhc is availu)>lc Iu su.'v<'rib<vs.
Thr pa>><phlcc is a r<print nf on accirlr)hue upp ra cd in rhc Pis<4 ln-conic'nvrscur
<>f Januar)3, l976.$>>hsrrih<rs inirsrci<vl in i>l iuining a complin>rncur)'c>pr may<<rii<'o hfs.l lur<ni r Flynn.Sca>>J<sr J<f.Puur's Curpuruiion.
34$lludsun Sire'I'(,<Vv<<)'or)', iver<<'uri', NOI<f.(h'acinnalScrrf...
Canc'd.from Pg.DZl J recession was magnifial by the coincident liquidatinn of presmusiy ac-cumulated customer inventories.
The conscqucnt maiecial raluction in thc company's vpcratinns, couplal with 0 price/cast squeeze 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 thc automobile and container industrics.
Gut thc cvrtinuing squeeze on operating margins kept earnings at cvmparativdy low levels in thc 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 both areas, demand continues to be strong.c)9N Iic<Scic<c.IML 5)IL4 Is<c>csc'times Fc<cc<h S<C<cc lcc.Yc<cs~~C acr<>>c I><c.Yec<244 t)>>cc moc<ss ao hlc<cs Sl.-Year<a<4<<t Dcccmsc<5I----cl975 19is 19)4 I9T)l995 I9)I 40IJ 5~cl J Lc~c 4 c la)J IS<402 I<?I Z).9 5LO l)SS%.)7l J 4!.9 s.cn 295 L45 5.ls 4.00 7JO Lla l5 45 SAO 4J)4.IO Page S~R Investor, July 24, 1976 page 523 Longer ranp:.sales prospects are favored by the company's very strong position in its ectablished major markets.und by its increasing strength in other areas.Current and I'uturc plant expansions promise that increases in iis volume of output<<ill at least match thc gains cs-peetal in total dvn>cstic steel production.
!mpcvvcments tv already modern stedmaking facilitics, and thc a<Ivantsgcs of an unusually strung position in raw materia!s.
should inakc appreciable cvntcibu-tions to thc company's ability to control costa, and cnhancc its profit margins in the ya>cs ahead.ASSET I'RQT ECTION<'.These first mortgace bonds arc scoured r4tably and alually with thc$256.OW,000 first mortgage bonds outstandinc on Murch 3I, l976 by a iirst lien on virtually all vf the corporstiun's stvd plants.certain occ'prvpcrtis~
and rdutcd mining facility.thc capitd sto'Ls of majur suhiidiacics.
and its stock ownership in and cuntracis with Iron Qcc Cvmpany v(Can da.At htarch 3I, l976, Ihc corporation's othec lung.teria indchialncss tu-talal 5332,46t),97$
.including 5!I!c,932.653 capiializal lease ubligaiinns and$9,4g<),0>>0 cunvcrtihlc suhucdinatcd dcl>en)ares.
Atljusic J to in.elude thc ncw bonds.total long.term debt on hlacch 3l.I')76<<ovid have been 3g.l<ul'apital>cation.
Average cash)low in the years l973)975 would have tace equal io appcvsimuicly 32~<<of ud)uctal total 4<ng-term ilchi.I'co fuima.at hlacch.il.IM76.total lo<<g term 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 debt, and nct auoi hi><aI ass<;is 261.6%, c'e:~,)<1 I'4."'4;I I I ,'1.'I c~c I 11~'>>~~~~
I I I ge 65 March 3, 3975~a,re~~~r~r e I"f..ee J"-'f=.;it'."'Mootfg's Bend SI)rt/c'I~I Public Utilities Comment'cgtric Ubtity Gantt Ratings Mood~seduced thc bond ratings of 28 electric utility companies Ju 1974 and scvcn thus far ln 1975.Only two comps)dcs had bond radngs raised during this time.1 vesuus staenald Dot conclude that this unusually large num bcr of doecngzadings Lndkatcs that we tack confidence Ln tbo kaaeoczm financial viability of the electric udLLIZ in.duttty f+tbe contzazye snd rccogzdzing.that there may be fui)hcs teeing redact)ons, it could WCLL be that tho worst zaay sooca be over for most af d)e cotnpanies in thh in-dustry.Reenters of Bown Staving should bc aware that each downwasd gating adjustment reflected a speeifk and idcnd.Sable problem related to the company Ln qucsdon.While each company Ls different Ln Lts stronger and vecaker efcauents, there has been a common problem among those rrbohe debt has been dorcngradcIL ln a broad scnsc, Inany og cbe things tbit co)dd have gone wrong for tho industry did lust that Ln 1974.Skyrockedng oil prices, zun away LDAacfoo, disasterous bond and stock markets, near-zczu sales gstywth due Largely to eonservadon, unpredictable faults ln auocfcar power units and stow regulatory tcsponses ln a atlt5)cal year hsd a thumping adverse effect.Com-panies that trent into 1974 Ln a strained financial poddon v/cze feather weakened.And, their problems hare been compticaaad vcbete Lntczz)al cash gcnetadon bas been ndn-Lmat ln zetation to espltal needs.Tlds has really been tho bask ptobteua af the industry.ttctadvely low cash flow, a funcdon.ultimately, of inadeep)ate tate structurese neces.altates Ioo zauch reliance on capital markczs, partiadarty for debt capitaL lf this condidon cx)sts)Chen intcrcst corerage ls aheady under pressure, vee feel obHgated to take a menu etaI!Czvadvc stance with regard to radng, pending aasisfamory zesotuzkct of Lnczznediaato term pmb-Lams.On tbc oclacs hand, eren where)bete is a cunent Low level at interest ooveragc, wc aze hlclined Io a n)o)e positive apptco/.'h Sf the company'0 Anancing requirements are of a zcceoaalele size.all else being cquaL'This La particularly true Lf tbo caxmpany rcccndy rcccind reasonable rate relief.We ICLB also taLe a pending rate lnCZeaae applieariOD intO consldcxusicm, aasmzdng that Ibe dcc!Sion will bu Suade zcasonaQy soon and that tbe regulatces have a zecotvt Lad!ra)inc they will bc alert and responsive Io die cocn-pasly 0 neheds, So, as wo hare for many years stated, Moodz's concern Ls not abusers!LIC absolute Let&of deb)pmtccdon mcasu)e.ments at a giren time.but rather Ihc ptobablc trout of tboee zncuuurernents.
Wldle thcrc arc, ecrtainlZ, other factccs tbst iufl>>ence debt cpiallty.capital IIv)ulrcmcnts and Ivgulaaion have been predominant ln)event ye 0th and wilt zczuain sea C'Iu)at)uetion budgets have bavm IrtuimCd considerably by DISIIZ comps/drs.
Ond there are CIIcournging Signa frame SO)lie IC'gula)eery CCNIIIldaaionc Tile horrc'lu)eeua ptobkma of LS74 atu nut Likely Iu disap)war, but their mam)itueae shouLL n)tulrram.
Tl/c clcvirk u)ili)Z ln/h/a)ey stLLL has n veaz ue sa befeere it rvcuLI)s part of)Chat it hns LoN Lu Gnaneiat puaII/Ir.Lait Cue Iioiv Ibne aec sonee in-di Iiuas cenrrc)II@
that ai)gtust at least i dcg)VC uf smbili..I)ou ea the hocicee.Raf))sgs Pctfvccd Caroli!sa Power 4 Upht Company Kupue Sdl~OI!L)knt rf rate Ivlief that waa in I ffrrt for owa Gectric Light 4 power Company ftk)q relkf Placed Ln effect ln 1074 has Pmved ho~fflcient to halt d)lu!Lon in Ln)crest coverage ratios.ktcangdh, addi donal accumulation of debt without Lntec<oyc of equity capital has zesuhed in a rctadvely high dcbtWth, In v)ew af dds, Letoody'0 is loivertng the ratings on tbe company's fi)st mortgage bo)uts to 8aa from A and ori Lts polludon control revenue bonds to 8a from Saa.Ncw lsst)cf~Central ttGnois t.ight Company First Mtge.9I/ds.3/I/2005 Anuwmt Call Of)enag~Y)a)ds aauag I)II!1)pnce pnn cures t ata)uc)tr Aa$25AI LBLL0.00 100.75 9.18>>938%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 al any lime on so dare'oiece ai I!e.w In/ouch ters/Ic: ai Iie).ca 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 demauOn aI Ioa)S IOC the Iuai aine yea/a.)Ore/Ihe/WIICC.
~du Offered on February 25 at 100.75 to yield 9.18ee.Winning bid.00.677;cover per bond, SIONBI cost Io corn.pany SM~r.Other details ln Bo)ID Suavgy, February 17, 1975, page 1619.oo/e)eo/These high.grade bands aze satisfactorily priced against the secondary market.~~~Ci'tizens Utilities Company First Mtge.&Coif.Tr.8,30s, 3/I/85 jLmeemt Ca)I Otf ere ng Yle)de na Nag Il)II@)pncu pr)ee current a)atuntr Aa Slyly LOL00 100 L20%L20%II)nedeemahle Only Celahiag Sn/SZ and at)00 le.Oeacu/I)re soec/a)redeeaue)on aI)ce.oe/eur Offc)ed on February 27 at 100 to yield 840%.PrkC IO CO/I)pony, 99.25;COSI IO COmpany 8 41,4.Other de-tails in Bo)IO Suavav, February 10, 1975, pago 1051.oo/aru These bonds offer no special concession; sce opinion utukr 8tes.bolo)r.Citizens Utilitics Company First Mtgc.4 Coll.Tr.it I/as, 3/I/2005/e eeeeeent Cen OI!eecng Y)eid~I)sung Is)DLI price prier cueeeal auelutl)y An$20.0 01108.02 90.75 SAlcrv a90%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.ai cele lienee eeee aee chere neeeeee, al)lee ca ue/euc)l 0/ze/)I: al Iecxa 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 deeeuelien Iaeu leer lhe'ieceeeeeeel eeeehleeu uemII ai w, 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)~Orhuov hii ln liar.ykcbl widi nn a)nvial a)e)erat, L'navvets fnun el)clenol))eui eef IVrm)II pruPC/Iy can leu Iaaf Iu Ice)cv m IL)ctu!bo/uls ut 100.part of 1974, c/Ivcrage of flxcd charges and p)efcrzcd dtvl.dcnds has dccthicIL Io unsatiafac!Oty Leave)4 k)canwidlc, tho ccunpany'0 construction prograut.coen after subatanthd cut.backs, Ls call:n" for spend)/ig uf Sl.l bLLLLOIh ovcr tL>>1975.1977 period.'llils ls a hcavy ptucram relative m internal cash generation and outa!dc AIIaiicli)gs ate expected to con.dnuo to ptvssure thc overall fbmucial posturo of thu com-pany.ln view of thc above.Lifuody'0 has reduced the ratings oz)thc con)piny'0 Atst mottgagc bonds to Lgoa.Mccoy'a Iztvo)ttoz 8 Scrvicc Inc., Morwtv)9 Bontt SI)zvcv.hfazch 3, l975e pago.1557.
e I I I Page 6 f 4~hpzjl 7, 1575 f~~~.I'foo(b/s Bond S(frt><<TJ o 1411 Public Utilities Q>foe O<lsrlngs PoNan(j General Hectric Compo.)y First t<)tge.10s, 4/I/82 A>count Can O//cffng~Y)OM~i(anne (a>>L)pf>co p>>co cuffed(s(a<us>>y Baa$40.0 I5110.00 100 10.00%10.00~i 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<~1 any cwfm an 0 va>u'o<>cc, a>)>0.>o<h>ouch 1 c>/>c'c tosoo Ch>ouch 0/)>/n>pfchuu>e Vcr/gas>ae
)00/>u<O unouauy,>hcfoa(<cf lo)00 on I/>/10)Co s>e>>>ac feud.Oeteas>Oftczcd on A p(5)3 at 100 to yle)d 10.0~i.Price Lo company 58.70;cos(to company 10.27%.O(hcr dcta01 in Bo>cn Suhvgr, 8)arch 24, 1975, page 1468.op(a(de<Tbo offer)ng y)c)d appears suitabJc Jn the present matkct cons)dcz)ng quality and maturhy of Lhe bonds.Gvif S)ates Utifi)ies Company First M)J;e.10s, 4/I/2005 Amoun>Can Of>a>>he Vfc)d no>>ac (atn>.)pf>co p>>co current htacufwy Aa$40A)(5110.0 100 10.00%)0.00%!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 huawy>hs<cawtf (:Oaas on c'1"0>>0 (00 on c/>.00>.Spec>at fc domo>>on (aud fog chc op>>dna(au/>c lund>ac>00.oc>ovs Offered on AprA 3, at 100 (o yield 10.00%.lV)n ning b, 99-"8;co<wz pcr bond,$1.08;con to company 10.08~.O(hcz dc(ass Jn Qohm Suaa~>h)a)eh 17>1975, peg 15M.p>afozen(market, these high-grade bonds p o>%de a saU)factory return for longer term)nvcstors.
Proposed Nots/fsstfos Carolina Power 8<U0ht Company...
...bas filed an S 7 zcg)stra()on statement cover)ng S)00 m0))on of first moztgagc l>onds duc April)5, 2005, to be sold on or nbout April 23 h)a nero(lated offering by a s)T>d)ca(c headed by aicfrill).ync)>.Piercc.Pcnncr&Sm)th;~)Gddcr Peabody&Co.: and SaJomon 0fot)>crs.ouof><y*ao>>nf>>)>)cd)uw>grade;p>ov)s)owa)
Ban.Althourh pro)en(cd con>In>c>iow outlays l>ave bccn trinm>cd, fu(urc fina>>cloy Tcqw)fcn>ants re>>lain hcavy 1st'ric'>v of U>ls, coll tinued pres>>>fe on dcb(Pfo>ccUon mcasuzemc>>ts
>vould appear likely in thc ahab>co of funhcr and sub)(a>>Un) rate zc))ef.lone ol eoe/n Hc>r bonds>vill be regis(c>cd bonds.Jntcfc st Tcl)l bc payhbic semi annually April)5 awd Oc(uhcr)5.po<poso<)'focwm)s ffu>>>sale of bow<la will bc used fnr rcn.cn).co<poco>V Pwn>oscs lwclw<ling Tc<h>c()uw of c<e>s>cuc>JO>>)oaws, trl>ich>vcfc about$))1,7)f>,L>00 uw Ychcuafy 28, 1575, nwd wbirh hrc chi>cc(cd (o bu about$75 million at Un>c of sn)o of (h'r how<is,<<ons>tuf>>o
- fn e<>ec>('ows(f>>ctinn
)>roice(s are hu<)>ytnl at hlaau(SI,I I>7 milliu>1<luring tlu>years In'/5>.)0VG nwd 1077s a 1<<iu>(>o>>of hhnw(SVrdi w>i)liow ffon>ocici>>ai Pl:w>s.Abo>>f 5:I)!I>w>)linn h<><)he'n>f<)
In If)73, a><eh>c()o>>
uf nhou($)0)w>iiiinw fnuw (hc p>iof es>(w>atc.
H>c re<ill<XI) l>fu>>;><>ll
<>f cx(w>><lit>>res ic Ihe result of)ov)s<v)ceuvgy fnneos(s awd (hv Jack uf c.q>i(nl<<>>rcas<e>~ab)o (em>s.71>csc reductions CJ)m)na(cd five gencmt)nf>
t>nits U>at would have pfnv)ckd IS&!>00 kw.of capacl(y 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 1974, U>c company ra)sad$52 million f>uw>U>e sa)d aud)eascbaek of nuc)car fuel aud eleven turl>ine gcncratlng 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 sales of cow>>>>on stock for$56 million and prcfcrcncc stock for$48 miaion.Lucr In 1575, an add)(iuwa) sale of seeu-z)Ues ls plan>>cd to raise another SSD million.To issue addhlonal prefer)ed stock, gross)>>come after dcpzec)at)on and taxes shall bo equal to I~e times tho sum of annual ln(cr<<)t chars>>and pro fonna prcf<<fred d)vldcnd requirements.
Such ratio at Fcbzuary 26.1575, was 1/48 and at 5)arch 20, 1975, lt was 1.51.As of February 28.1975.about$54D AU))on of bonds could bc i)sncd on the basis of pmpctty hdd)()ons, but only'291 million on tho basis of eandngs, vchich tcf lect S22 million of defamed fuel cos(i and about$554 mQ))on of revenues collected subjcc(to'osa)MO refund.Io>ofo 1 (pc 0>cc>Ion>Antn>al ln(CZCSt Tequi(<<manta On 6 I~159,23),000 ot long(czm debt to be ou(s>ending on corn.pleUon of<<urzent financing azc csdmated at SSS,<.9,000, ah(h thc nc>v bonds at an assumed rate of 10%and long.lI term nf tcs a(5>/1%.Earl>>~balan<<ca consist of operating)>>come to which have been added all Fed<<ra)(and Sta(e)taxes (charged and deferred)Tc)aU>>g to income.allo>vanto foz constn><<Uon funds, and thc nc(of other income and dcducUons.
>>o adjustment 11'as made for rentals,>vhlch, the company states, aze wot ma(crlal)n amount.)TTS)0)t ITIS)TTZ)STI I)TO STO>cs csfhcd 3:LA))AS Lao)DT OSS OA)(gAc<ua)covcfacc.xLsz)M aa(iso aae zas 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 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 coll foo>u/c>Nonzefundab)c at lower interest cost prior to Apri))5,)985;others>4sc callablc a)prices to bc supplied by a>wend>nant.
scn>>>y>Nc>v bonds and all (bute outs(and)ng or to bc issued>rill bc scen(cd by a Arst>no>>gage J)cm on a)l prop-cnics now o>>T>cd or hcrcafccr hcquirccl, subjcc(to minor cxccp<h ws.Addhlonal bonds may)>>generally issued on tho basis nf>(a}70/~f of wct pfopcfty addi(iona;(b)rctifcmcnt of bow<is or prior)icn bone)st (c)depos)t of cash.L'5'JU>cer.tain cxccp(iona iw U>c case of (h), c.am)nrs, before Jncome taxes, nu>sc equal taro th>>CS prO fonna inccfcs(Charges, or.-equal)0%of<<ll l>on<1>>ancl)niur liens tuba o>>>standing..
hepfovomoef f>uu/>As to each outs(an<ling scrics of bonds, paymrwt ls nv)w)ccd nf>/.of)%oi'hc gfca(<<st amount of)e>wda ou>s(n>>cii>>g pfiof to pn)mcn(cln(c, payable in cash.I>on<is or Pn>pefty addhlu>>s a(Zo.a ()co~a ln thc case of 10'>V nw<l awhile(wcw(sef)cs lu>w<lu).)Lcciu)cc>>>cn(s
>way hc a>>>I<<i)>a>cd.)hp(win>>><d>t n>>l>owdd)ague<)priwr (o Ihc)007 sc>)a>>is)~u.'3l>c w>u<(ndfc>why bo n>wcndcd,>v)(h.uu(n>wsuwt of (hc)557 nn<)awbs<v(wrwt J>nn<)hnh)cfs, Lo cliw>iwa(c Ihc lwq>>uw>>>cw(fww<)n quire>>>ow(a, Thr in dcw(>fu nl<wl.l<>>)>uv>hu>fur a>>1ahlw<w'1>>cc a>wl To plhc<'>>lent I w>>'0, 0 s>eo>~>I'.Ifr<cl; s<fvi<n If, Pfnvi<lfsl In pnfcln>>s nf)4<>>Th Ca>u)ina n>wl Suu(h Caru)I>>a.'AL l>cbfuazy'<<I~)075, clvctftc Moociy's Izn/cstars S rvicc>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 bc<us)(000)Sf<off-term debt..$111,745 54 Bonds.~.......1,009,030 47'1,109,030 Sl.o (SO(hcf loapdcf>7>.
50401 2A 50.201 2.3 Total debt.....$1,170476 54 Jl$1.159M1 53.3 Preferred stock..268,118 13.5 288,118 1L3 Preference stock, 47.900 22 0)Common fc surplus 621,475 29.0 621,475 28.0 Iu<l.3.0 I 4..27202 2.7 37202 2.G Tnli I iln..12,13 IIG7 100.0 2" 174,022 100.0 Ifnnthulcs 5AA<OAco bank loan duc tys>Ifs.(sou<stand<ox ac 2>Accxca s>iotas o(¹e pat value 007<227¹c2 s>ock.Pro roctna (000)Lone Star Gas Company...
~~~has A)cd an 5 7 rcglstmtlon staten>cnt covwII>SCIO rnllUon slnLlng Cond cicbfn(utes duc April 15, 2000, to be sold ln a nero>(a(c<1 uffecinr Apr!I 2)through a symllcatc hcadcd hy Solomon I)ni(hera, and Anhhnnn Sachs fc Co.(scc page 14)G fc r)In>(ipse<i prcfccrelna).
ave<Icy<t an<cotp)wt a>c<llu
nra<lc.pcuvishinal A.N<ill.utlli(y earnings have ch(i<lcd
>ho<ply uvcr Ihd past feW ycafs c>ld no'>v Qcixhl>>c fof a sulni(al>(l,'>I t¹2<c>ul>uf coll solkla>rd income.Slcamvhilc.(hn uvc r all Anancial (3<~((ion of thc conaia>>y l>as burin reasonably s(a)ilc ancasucn>iciua acc at sa(isfac<o<y lc>vis.leiini I)lien(un s will be<ICII>vccil ln fully regis(etc>d Ill>Itin)ca Ihrrcuf.luce>ca!servlco was bcdng Curn!shed to 043MO gcn<<tal business customers and to 54 resale custoaicrs.
During thc 12 monU>s cndcd February 28, 1975, 34.7%of opcraUng revenues, cx.eluding non territorial sales, was dcrlvuvl from rcs!dcnUal sales;20.9%frcun industrial sales;19.6fv from commcrcdal sales;and 15.8%0 from other sources.Approxicnatcly 84%was dcr(vcd ln North Carolina, ancl IG%In South Carolina.Cencratiag Cecil!Ucs have a sumn>cr capability ol 4;058,000 kw., ol which GGS.OOO kw.Is nuclear, 2.6r4).000 kw.t>scs only coal as a fuel, and thc remaining 728,000 kvt.can aso coal, oU, or gas Intcrehaageably.
Two 821,000.kw.
leuc)car units, under consrn>cUon a!a oomblncd cost of about$708 million, am expeeccd to bc comp)0(cd ln IS75 and 1976.In 1078, the compaay cxpccts to eomplcto a 720,000kw.
Cossllfudcd plant.As to tbe projected 3;GOO,GOO kw.nuclear plant to go onstream la U<c 1980s at aa cstlmatcd cost of more than$2.1 billion, thc Nl!C has asked for additional information on the financial qualillca-Uons of thc company as well as a need for the phnt.Cur rcmdy the company esUmstes that 734%of 1S75 po>vcr wIII bc genera(cd using coal as a fuel,~%w!II bo aucicar02.G%
hydro, and)46%Number 2 fuel oiL Thc company ls regulated by thc PUCs ol North and South Ca(ol)na.the NRC, (he FPC, and cn>4tonmcntal agencies.During 1971 and 1972, rate In<<teasel wet<<granted for a total of$600)million.Iilgher rates collected'on an Interim basis were made permanent duf(ng January 1975, adding about$61.5 mIII!on to revcnucs annually.Operating income for twelve mon(hs ended February 28, 197$, vfas equal to 4.07%of PMod~d nct plant, work la progress, and nct nucicar fucL Cop><ofaeaen<
As ol February 28, 1975, cnd pro fonaa as taming rcpaymcnt of shor(tenn dcb!Crom thc March sale of preference steeL and the proposed issue of bonds, but wI(bout ad)us(meat for cap)talisiag any portion of ac(ual rentals paid>w Il,bc payaI>lc scml.annually oa April 15 ons<h>for a NYSIt I)sdng.~oc I'rocccds from (lie saic of deb<(utes and$40 million of ptcfcncd nock (400,000 shares)>vill bc used to n~ay bank loans n>aturing in 14375 and 1076 a
- nmercial paper debt.)Vhcn pmcccds orc rcccivcd.It is csthaatcd that co<no>etclal paper nu(a(an<Uag
>xiii amoun!to$3G,000,000, bank loans$25,000.000, and currcac ma turltics of long (c(m debt$)0,423,474.(ntctest pfecec<(enc Assuming the samo Interest rate of 942%as used la thc ptospcctus for thc nc>v dcbcnturcs, aad using 74%for loans duc ln 1079, total annual Interest rcqulrcmcnts on$445,757,000 ol long.t<<cm debt to bc out-s(ending on completion ol cunent Ananclng (scc Capitaliza-Uon)afe esUmauxl at 532.088.000.
P(c-Inca>nodax gross'erning balances Include allo>vance for construction funds with no adjusta>cnt lor any rentals which, for cxamplo, amounted to$2.482,792 In 1574.Dlscoun!on reacquired dcb!was excluded from ca!nb>gs.)t(4 stra it!2 it!))tro%727cs caniad.2As 2.>2 IA2 (Ar,)AC QlAewa>covctaca (gsA2 2As sAC 4lt'AL (SA<ouu>ncd In Ihe pnupcc<us>
catnlncs bs4nccs ate the sac<70~2 a<a<cd above and Inc>ude con<a>s as dc(<ned u¹drt Axed chatccs'xed chatccs Include in>ctcs<.a<no<<Isa<ion of dsb<u<icounc a¹d cxpcnsc<and Ihc potunn of tcn<nls tcofcsci><auvc of<hc Iu>ctcsc lac<oc.L<pto Iot¹ia would be sAI wiui¹0>>beads ac s(0~n.ccf(feocvfcc Non(<<fundable at a lo>ver Interest cos!Prior to hp>fl 15.1980;o(he!wise callablc at prices to bc supplied by amendment.
Stoa!nt lend<Sufficient to rcUrc$2.250,000 principal amount annually commencing hprII 15, 1980, calculated to lctlte 75%0 of the dcbcmuces pdor to maturity.Cu>npaay may make pay>nents ln advance but not ln an amounc ex-cccdlng the am>ual requlrcmcnt.
Such advances may be used as credits In subsequent years.Unused advances>nay not accumulate.
Paymcms may bo made la cash or nc>v deben-tures soceiayc Tho dcbcntutcs wIII'bc unsecured obligations o!the company pco(e<<tcd by a negative pledge ciau>c, dividend, and cuber restrictions.
Oa 0 pro Cocma basis, to>el long (crm debt will bc equal to 55.8%of nct plan,>vork.inqirOgr<<SS, and invcsnncnt as ol I)cccmbcr 31, 1974.Thc indenture contains provislcu>s restricting con>pony or sub>Id)at(cs from incccasing funded Indchtcdnoss, cad thc 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 cra(cs Irons<a(42)on ancl ra(hc ring l(acs.0(otae: n:scrvolrs, distribution systems, oncd foc!)Ulcc.
Natural ras is scnM Io about 1,090,000 cus(u<1>urs in)iorUo<>s ol Texas aml Okiahoi>>a.
'll>tough>vtuilly ownc>, thc compm>y Is cn.gored In: (1)cxplucinr<lcv<
lupi<>g, mid u>atkc(ing oil nml n.'a>it'll gas'2)tta<uull¹cl<71>
uf II,'>c>lfal
('.as;(3)n>>'lu fac>ucc aml n>atLi:Iiug uf fer(Uif<r, a
- vi<llng ciil au<)ras fichl sofv(e<na>
(5)ptnvhliua hco(inr.anI!acrvi<i Iu lucre v<7¹>)i)race aa unlnni>ics and n>0<II<v<i I'<'Iil<'fc, U(ili(y rac limfi<ln)GG.S>>uf r<37<s<l)(ii<2(<vi
<7(>>fa>i<>r.
tcv.cnuc fcf I!Iy I, pc(t<deuin ca(du<a<i<in un<i)ifculi<c'Il
')!).3%chem!cols and chnuicoi)7<<¹l<<<(s I'04%, u<hrr au)in).4%.I)lc<ulrl<
a Ililnhli<1f)',<vill>)iall)"<¹vln<i Sf<el<<I'(!<In
>vua 09,057 n>im'f.uf 11)niu(IS.(i'>>iil l)u!i05ni IO>¹u¹;f.Ini)<I (n 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 Af fanffc Ciiy Electric Company First hilge.9)/ds, 5/1/83 hsnount Cs4 C)tres<ng Y)cht Rauag Isolu r'nce price current staiuttty Aa$3%0 6)109M 100 SM7'4 0~%tg)<onsclundabtc pKOC Io I/I/te<KIh debt al an In<esca<~I ot ICSS lhan Sa)ltrs annuanyl O<herWI<O Canak<C a>>a Wnu<O Ot Us Pa<<al anr umc on so dsrs'once.
41 Ito 0 In<ouch CIA<I)St~I lshtl Ihsoucb</m/)rl plcnuum dccstai<nc Iv<<hcc I)Ill.cus or lmt.0%1 aunuauy lhclcslu 5 1101 I on I/Ilsv<Io 1<a<<1 Sli/sl.5<o smko<c tun<4 apcc<CI scdv<nnuwl 41 I00.Nou': illU Issue was pus<puacd C<o<a cvT<oustr schcdWC4 dale ot Sta<ch IL Dolnflss Offered on hpIQ RL at 100 to yield 0.25rs.Price io company, 00.175;cote to company 9.40%.Olbcz dctaQs ln lfono Soarer, March 31, 1975, page 1658.oPUIoo<The bonds aro reasonably pticed for holds maiurfty fncotno invcsunent.
0 hprft s8, 19'F5 Lone Star Gas Company S.F.Debcnfuro 10%s, 4/15/2000 hmnuat Call Ortcring~Y)cu~Rating lstitu price)vice cusysnl stamn A 560.0 tal 10825 100 10 QMri 10.f12540 I<!)Ionscfundatde odor Io I/I$%, rlih dept at as Ia<cccst c<OI OC toss lhao 10.<est)annually;o<hclnnc caus<no as 4 ws.a<r os la psn.41 any<imc on p<ds)4'Ucc.41::e.t 0<nnwrl\I<I<lrc si;:cdtz through sl)l.tn plw>><mn dec<ca<;au
<ciihil 4<Ice or is'Ii)<an Wally\hC<ca<<er<Inc<11 On~<Iato Iu lld<S S.t)"5).hl N Ist Iht~<aking lund bccinn<ng hp<ll Il Is<)aac aaauau)osc<csl<cr Do<On<<Offered on hPtit 25 at IC0 to yic!4 10.625!$.Price lo comPany, 09.125;cost to comPany Irnyars.Gtheg dciaus In Bor<o St<hvar, hptfl 7, I&75, page 1412.opa two Pricing docs not offer ar.y ccncccsicn in tbe cuz rent market for A ralcd gas ulQitl'cmpanicsl hosrover, ft pr<N&cs an adequate return for Insvstors saekh)g Icngcg icon Inrcstznenta Oa P iladelphia Eiegtric Company First 4 Refunding'Mfge.'11s/ss, 4/15/2000 hmounl csu ottcs<ng YICM Raung<son J plica pact cut<cat st<mror A 565ao t0112.70 101 1141$'l 1.50!c 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'ari si any Iunc on)0 dsrs no:<cc 4: ilk.)<Crouch~:I ll<sl'!.5.50 lhr<u,h</IC/tl P<cnuu<u CCC<CS<:ag I/4<,.il 5"50)Or'aith Saa nuauy kncleaiisr ulaco Oa II)S I)<10 SC'a C/u.)L SCO S~g 5uad DOICV<<Offered on,hptQ 23 at 101 to yfcfd 11.1!W.ning bfd, 99M: corer per bc..d, 51185;colt to Rnn-y, 11.71%~Oibcz dctaQC in Bo)CD 5'LRVTY<hprQ 7>975<1414.pin)on<Tbfs issue provides a suitable yfc'n thc cuz I market.rolina Porter 4 Light Company First h<fge lls, 4/15/84 h<noual Csu Or<snag Yield Rathsg Potu P<sco)nce current sta<unty 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~I sny U<nc on se dsrs'once.
sl a'I)<a<ouch~l l<llc;~I Iss.t)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 uoa al)00 ransek Pipe Line Cotnpany First Mlge.Pipe Line 9s, 11/1/80 hmoual Csn Of<snag Yield Rauag I)to<.)price pn~currc t a!su<city A 512 0'EI09.00 160 9.00:4$.00ic KÃoarstundabt
~priss Io I/I/50.<<Iih.deb<at sn!atsrcsi el<I e.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<slough<<spit:, pscmwm die<ca<inc
'!00~saowifr Ih<:<st<i lo)00 on II/I/t).No su<king lund.Do<on<<Offctcd on hptQ 22 at 100 to yield 9.CCrc.CYfn ning bid, 99.056;cover pcr bond.2.c;cost to<<otnpany 0M~.Other dclaus fn Boa>Suhvrr, hprQ 7, 1975, page 1413 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.Cievciand Electric iiiuminating Company First Mtge.G.G5s, 5/I/83 hmoual Call et<snag~YI~ld Rauag INilu~price plies cusrcal 054u<rnr An 5504!0100 100 L85%8.85CS Iancdscmsblo only began)ag I/lisp al!00 io mah<KIy.)Io so<a lag Iua4 Do<el/s<Ottctcd on hpzQ 24 at 100 to yield 8.85<%.Price to company, 90.25;cost lo company 8 98%.Other dctaus in Bos<D Suhvxv, Match 24, 1975, pago 1469.oplohn<s Tbfs shorter dated issue Is apptoprfatdy priced.Cfevelnnd Electric flluminafing Cotnpany First ihfge.9,85s, 5/1/2010 Proposod Mcv/fssvcs Chesapeake 4 Potomac Telephone Co.of Y(cst Virginia.~....has fncd on S.o tcrlrdriilcis ymlc<ncnt cov.rig'2 la!!linn of dcbcnlutcs
<Iuc Msy 16.OIS, lo bc aM=: coc: pell<ivc hi<id!no on shly 13.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 ns registered dcbeniunv<.
In<Icno<f In)lh<n'I and Inuhi<tcs clt Sl,ek).IUICICSI irin)W'ayibie Sruti annuaf!y n<l 5&y 15 and CC<<re<aber
)5 lo holders tut;Is(<<rs!
on hpril 30.<r Orr Iobcr Sl prior In dale of p;Iyn<cnl.
hppliualio:I Iviii bc clads lo fist lhe debentures on lhu ibySE.hmount Call Cllcslng Yield Rau4g Isntu price rheo cullen<sts<urlir An$100.0 6)109$$100 9.83%9JQrs[~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<<.~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 nuaur nwrvsocr I<0<as>>w<s/I<So)<u lso I<wn)ll/)00<In n<s<u<nr,)<o sink<ad lund.ooloun Offered an hpru 24 ot 100 tn yield n.ns<rs.Price to Can<pany, ns.)2il ca I lo cpnln'u'Iy 9.94~~Other details hl I!onn Sunvrr, M.<srh SI,)075, pago I l69.op)alon<'this Issue provides an hl linc yichl ln the ptcs.cnl)nalkci for long tenn bonds.oo<oass Offered on hptQ 24 at 09.75 to yirld 11.04<a.1YIn Price to company, 98.65;cost to company 11N4r~.Other dctaus fn Bown Soarer, hprQ 7, 1075.page 1411.apUUa<Thc yfcfd provided on these bonds fs zeallstfc der ptescnt conditions.
T 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 csccssof SMLQOL City knseds)upas(leos since faccp(ksn hsue baca gooaL)7uring (974, oa W(sl fcfcsecr ol$2J97 J)4(s, ihc city sbu<<cd a au(fun(yes(sufphfs of Sl I VOJ.hi (be duse of ihc fwat yes(, cash and bsfcsi.aacais (o(s)ed$9fs)J2'hi(c cuties(Iasbli(ics emu<<a(cd io oa(y$225J$4.Pf opcf iy (sacs<<cfe the tsfgcs(skag(e feaa>>ue soeicc.sc.caus(bag fof s ppfusinis(dy one ihifd of io(al fcfcnucs: s(sic tea(sue sbsring wss aso(hct (9>>n of tcac<<ucs;snd fefceues lfom s eh<<age assess(d sgsiai(rsesat lo(holdcfs fuf me<<tug snd msbi(cue(ace coa(iibuicd aao(bcf (0>>~On tbc cspcnsc side.mute (han 20>>of sn moneys wae capcndcd oa ca pi(sl Bema snd lsnpfofcmea(s, pfimsiity fof sitcct and ci(y hs()projects.f)cb(ac(rice oa (he diz's ihof(tcffn wasoaly 7ab>>ofcspcndiiufcs.
hiiboegb umda of Cape 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>>>>of pfopcfiy iss fcaeap(sahfccily ssnd sbuu(g9 andi(ectly ihfuugh psy mca(s pfofidcd IS nshC tcsaccathe ciiy has upas(aa)in s mote (t m ss(isfsc(usy fsahiasa (u ihs~puint.I)awdupmcn(hss Isucn es(ensile ia oac ps((ofiheciiy,and
<<ub ffgsfd ioiwmcsiaiheS(0!)Ndssshss bica of bcucf (hsn sac(sic cbsfsacf.II'klyc fsfnpfaafff s ufrr onsf srascr re(re efr 4'ck.usaf(fkui fligiswft io ksrfcmc/uffkff, fkr tasnafr)koahf br uf Jess(I 5(P>>sftf f uepuf fine ini finny and bar(sr(r nsassr su af gfowfk cur(seers.
Bffn so.(kr (ec fufr<<ayf ffmea'n rsusfrfwfc.
Ii'r ufr tkfsfffsfrr rsfscnsng onr BDD sssfafsnna gfudr raus'ne tu fkc Sfnfrfd obfifrfion bonds of Crpr Cnfuf, Pyuffdfa, 1 s r HaS W riICm LEVEL SEF.N REr CHEDV P'allowing several weeks of steadJ price erosion, price's in lhr corporate bond sector turned modrratrly highrr last wrcf:.Short earring by trad(rs and lhr su('rrssfifl sale of several 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 lrvcl has bren of tainrd.llowcvri, tht'arhrl is still istic(t(riJ concrrnrd about Iht lcvrl of corporal('nd
~governmrnff(nanciffg and fear of a risurgrncc ofifijfation nncr 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 Ojlrring First jiiongngc Bonds 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 Fit(i hioi (gage Bonds.duc APfll lb.'N5.7'bc o(lcfiuf m(l s(fofd pfo(cdiun sgsini(taa<<efdn(crea(essa(fdundbsg un(i((97$.Pfuccads fiona (hc o(fcfing<<Jl be uifd tof genes el coi(>>mic Puf poses indw(ing (bc tcduc(soa of s)wf(icfm)awfu<<isags incutifd priinsii(y fuf ibc cons(iud ion ol ac<<fscOI((cs.
Suass ihni (lani homo<<ings (n(skat ap.Pfuaieia(CIP Sll)a))$tsy)Si Febfua(y 2C, I'915, m<<l Sfeea(ace(ad io sic$750tOSXN imnacdis(dy Pf iuf iu (hc dc(ifcfy ot i he ncw bonds.Coas(fasc(ton capfaadi(offs sic esp(ried (n sppr naims(c$)C2/OOr 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 sptuoaims(f(y
$)gl.(J,(Xsaa tau (915.L)n l(cccm(wf.'I, Iu)s, (becalm.psn)'s Ca>>affmeisan psaS.(S<<a wSS tufihcf ffainara)<<a i(mi ibc strfc fr(C ((due(wn ia sr(afusfans(C(y
$)XS,(CX)(XX(fof ((sc)essa)9lb 17, lbcac ifduf (iles<<aces<<ass(tly seas<<J fsacfrr to(casa(asm(ihf Isck ol cspi(sl on (cssaans(CC icfma.7 hfss'aalw in>>a inf(naif ihc clanai.ns(NI a I roc ral Pa acd ilc<<ra<<cfsaang allis(i<<blah<<will Iasa'c I i l'id(s)sn a Ja(if(a>>st o>nf (sas)Lw of ta<<cfr(sns csprad(y-.(hc Jf(cf ial nl csah of ihc f(a.'I ul ibc e pass(<<<<a)uixk(xs(Lw nua(cra (sac(cd Cans.u<<seen(sal.(1 (asns (>>>>as(ass ii i sasu El>>f sr sans(a safa.nr.'I sass uaf Saf.inn~a)>>sa>>aaassaaaaf (S<<a>>f ia.-r~~)(~-isi)a sais if(i saf)iiii)((S)asoaa)ii\iul ii)(a a(s)io ifsa isis iui)aos)I.aa isi),is)aa)N tss (s)i aa i a>>i i()(as lac L)s)iu)sf hsnll I'I(()yl (;I'ION: I'iaa I un>>Inn(~(final(f(u nf$(,IS(sf(2(s,.
LQ ss sil (isa(nwiirsrc Jf(a(caarp(list 5((s>>(XL9)X uf allies rs)s(s(c.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 the720000Lwcost filed Rusbofo Vni(No.e.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..000 slates ul pfcfcrcncc siucL fnf$(7,5N,OOO.
Tbc company pic(en((y caiims(cs ihsi ii~i(l nfcd addi(iona((y slapfounas(dy
$50n 000 ON Of ihc funda (ca(ui fcd!of ibe (915 Cnsaii f alC(nial P fair fails ff alai loag (cfm sawiccs snJ<<iii issue iccmiiies 4(a ia 1975.(hc (ype.susoun(snd (in(inn ul<<(sich nil aicpald<<pain mssLc(elands(taws snd tbf needs nl ihe company.For fuakff in/slrsnnsissn nsnsrrnine fkr rpfnsfklnislf(usssnnr Pss<<rf sC ISSkf t<>sntsrnp;inrtndine frrf<<f fuff ksrrrear astra(are (kans.Nrfcsr cfsnssslf fkr Rafa(lnrannr Jnarsfur sfofrst klrfrk g, f915.Porc 7)$hptil l2, la)75 Standard ic Poor's Corporatioii, Th(s Fi):cd Inco(r(c Investor, hpri117., 1(j75, Page 743.~a~'s t cP j Page 70 ,~i~~~e~hlortg gc debt is secured by a first lien on aB f the pfcecnt prupcrtks of thc company, subject ui certain exceptions.
This ieuyc<<ia dsu bc entitled Io lmpruycmcat snd Maintenance snd kclqsccnirat I'vndi.la sddiuua, d,*ring say I).ynvytth pcriinl, propcriy is yGytnyycJ of by oHkr of ur funny go'ycrnuicntsl authnrity, fmvlting iil thc fccdpt of$10 C00 000 or mute as prvcccde there(uf, the curn puny must apply such proceeds Io thc rctbcmcnt uf boeJs, Pro (orms n<<wifsge debt 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 rhurgf iuwf prattling ruir frlirf, iw herr ar uiar yaard oar et" rsiar 5 oa ihc First hfongagr hondi o/Corydinc Power 4 fdghc.PHILA DEIL IIA ELECTRIC COMPANY Ogrping S(jS hlillion Bonfig 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 22.1975, thc company plass to sdl 4JC0.000 stares of common stock (spprodmstdy
$45,IXO000) through under<<ritcfs hcsdrd by Drcxd Berabem B, Co.sn4 Thc First Boston Corporsiiua.
Thc axles o(the~ew bonds snd sddyYIonsl coiilnioa stock src scpsrsic tfsnssctloIS, aad ncithct is coniisgcat upon the other.Thc acw bonds wgl bc protected against lo<<cf>>ytcrctucost rcfendisg prior to April l5, (950.Tbe act proceeds (fom boih sxlrs wgl bc applied to tbc psfrisl Payment o(short tenn dtbt incurrrd for interim financing of the eom.psay's coat tructioa program.Such short term dcb(wss SIBI mgthw oo htarch 2l, l975.Cs(dtsl fcqvifcmfnts fof l97S stc cstllnstcd st$502 mgiioyu of$4IO mQIioo k for conttructkn cxpefditures snd 592 milGon foc bond mstetiYia snd sie4ng (undt.Of these rcqvircmcntx.
sbwt 5 I 45 mglion is cxprctcd to bc sepplkd (rom internal aw rccs snd thc rcmdndcr from thc sale o(debt snd equity sceuritirs snd the vsc o(short term debt.Total capital rcqvircmcntsfor thc)csrs l97S 7$src csrimstcd st shoat$23 billion.contiitiag o(about 5'billion for coastfuctbw sad 52)l miDisa for sinking fund psymccts snd bond msturiticx.
Tbe company csumsics that spproximstdy S$50 misioa, or)6%of these apitsl rcqvircmcnti.
will be obtsinof from intcraxl 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 den flite and other con sikf st ions.Phgsddpbis B)fctrie proridcs clfctric.gxx snd stcam scfyke in sovthcsst crll Penes)'lesnis, snd seblilkflcs pfayiJc cl tet tie set eke ln~I<<o cywaCies in northeastern htxrylsyid.
Thc total arcs screed by the compsay snd subidisrics coycrs e 415 square miles.Approximstdy 9$%of Sis arcs is in the suburbs around Philsddphis snd 5%withia thc city liinit s.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 balance.Dvrbig\914, dvc tu thc astiivysi energy criA, the cuinpsay cxpcrifnccd some curtsilmcnts by iis cuntrsrxcd fvd ddircricx from suppliers syd sut>>txatisl incrcsics in thc prices o(sll fus<<7 fuds.Thc cvmpsay Is eoatinukg to supply its customers'uti rkctrk rcqvirc.inrats st picscnt bat is unable to prfdict<<hst iinpmo fud slwrtsgcs sad price increases umy haec nn its futuro operations.
Bvldcct to thc sfsgsbgity of ihc esyiaus ryprsuf fuds snJ to oilier cuntinfcndcs bc.yimd tbe company's cnntrol.thc cuwpsny's dcctric nvtpvt tiir l915 is cxpcctcd la lit ONsinryl (ruw ihc fi4tu<<ing sources: 2 I~e (ruai nil liicd'generation, Ieaa from scythe arcs e<<A fiml gcncrstnm.
'IS>>from mouth gcncrsiiun, Iga>>(rom nurlcsr capacity, 4~(rvm hydro itysdty, 1%fruni internal cumlayMiyn swl 2e~frow the Pcuasyl r'cw)rrycy h1sf)bnd latcrciyanrctiun (I')ML'I hc cxwupsny is v<<yIJC tu prrdict theat(est thfa furl prr44cms ufo ther member s uf the P)hl insy hsye vn the sfaitstetity yd purchased ckd tie cncr gy from that suurce.I'refiled that prcycnt I lih sttucstiun puhcicx src not ays~ly chango!.Ihc company expects that its vil ddiycries thiuvgb the remainder u(I 975<<JI meet us projected rotuircmcnts.
The company it rcguktcd by the Pcnnxylfsak PUC snd the FPC.Oa)snesry)I.!974, tbe company fikil with tbc PUC for 1 Sl)6 million incrcssc in ckctric rates for atl dxssrs of cvnomcrs to bc.coins dfccriyc in three parts.The PUC pertained tbc first pert.<<hick ncrcsscd anneal icecrwcs by spproxiustdy
$24 million.Io go lato dfcct oa April I, l 974, subject to possible refund with intcrcsu Tbc ro.msindcr o(thc rcqecstol SI)6 million fete ioeresse wss suypcndcd (or flic maximum statutory period, unul Dcccmbcr)I, 1974.Oa)snusry le l91S, tbc 5 I I 2 mglion suspcndcd tate (ncrcstc brcsme cfcctirc by operation of lsw, subject to possible refund<<ith interest upon issuance of thc Gnsl order.Oa hlsrch 2S.I975, thc PUC snnoaece4 its final dcciiion sppfoying s rsic increase of$105 mglion.The corn psny estimates that excess rcycnuc cosccttd (rom)snusry I, (91S, through hlsrch)I, l915, will amount to$54 million, which will be rcfundcd to customers withintcrcst.
Oyer.ayeeeeey (Ml, tt neea teieae tMS.n.Vii>>Csyyre Ceca Sic nn.yeeeae'teiei M.Ceeiu.Cr.Sye teee<<e Yeeii Year teee4 eery<<iyy Si rfM tfrs tslt trit we tfitr Js sysss ytset sfe.tt toxxr trfxs ttxts tts.ts tlorf lfsJS sxu xss L7f wt S.is Lys tdt txi tft txs 1st 1st xse 1st ASSGT PROTI'.CTIOII:
These acw bonds wiD bc steered cannily snd tstsbly<<itli$(,47)DIN.000 nihct first mortgage bonds nor iwtttsndiag by s direct first mortgage lien on sul>>tsntisDy sll vf the colntlsny's pf o petty.Thcrc is st to 5)ISQI2)gN u ther hmg term debt ovtyisndieg.
Fulhi<<mg this dud finsncinge invrtgsfe Jcht<<Jl equal 45.2a o(nct vt Jity plsnt.<<bile total umg term Jcbt<<ill rcprcernt 54.4%.Tbc long;tciw debt iu cspitsliration rsiiu<<ill bc 5).5aa.Thr ry>>ypaay'f
/irrd rleyrcr rurrrarf har dry'liard io a fiihiiaada>>l Irfr(fiir ihr prrfrnirr ayiicard rnryac rarrcvry, I(i>eurrr, rrrradr Cry>>rrd fair rrlef shyyuhl lewd iu yaayr miprayvyarwria fiaearial payuayrrnf fa ihr fwwr.Arr<<diarlr,<<vair prrfrarlp ayyaaryaaiaX uiir 8 faring ua phdedrlph>>
I Iry rrlr'f Fin<aad I(rayed>>g h(urrxuga (fy>>ds nad herc raird this uiar-d." company hsd s coal inycntory un hsnJ st thc cnd of)snvsry I'915 of spproxinmidy Gtg.000 tvnx.<<hidr rcpfcicnts appruxiwstdy 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 grains carly in)snusry l975.Ddiyciks to intcrrvpuble gss cus.Iomcrs were discuatinerd oa Sfptcmbcf), I974.A I'UC order presently in c((crt proyidcs that uo pvbtk utility under its jeriidiction msy accept any additionsl gss sales cominitmcuts unless D csn bc 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 4cliycri~c from suppliers, thc company cxa make uo commitmcnts of slhlirionsl gss to arly cskting cestolllCrs aor ncccPt any aew customers.
The company docs not expect supplies to impforc appreciably in thc immcyGste future.nor is there sny assurance that, ddiycrics to k msy not bc further caf tsikyL 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 Ssk llaw 4IIS 4/IS 4/15 4/15 4/15 4/15'4/14 4/11 4/IT On4 Ave<<as Roaiae a(L 5 All)OLO AAA u 100.0 RRR IOLO AA ROR 4/11 A laLO 4/11 A)004 4/IT AA SLO 4/11*SLO 4fl)AA ILO 4 fl)N(R 400 4 fl)AA)LO 4fl)A SLO 4fl)AA 1000 4/)3 R 4fl)A 4LO 4fl4 AA)000 4fl4 AA SLO 4 flC*l)LO R'fl4 A)LO 4 fl)4 CLO 4/ls A 404 4fl5 A oaa RECTA'Sores Creat a)nen Trtnaeoe Cn 1k Seasan<<4 I (/Bi (u sor(a 4 noiil nin 1 eteyavae Ce.teeans cl (/Iaa)Wiuven I'easoaere 4/(/(ss)Caevenae*Qav Rsilrar)kv'h Trav a4/4,)/Ills)4 so Sesaaera Ikvaa Cai 4 Oeniic Cos virat Msei(cse,,/
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Noise<<Cary.
S.F Oeaeenrn C.TIL 4/I l)000 Nark(a 0 Wnana Reurae(e.Tr<<ut.5/Il)S)a ys A yea(stake r~~Co.Viiir Mite.I I I/L 4/I/)TO Trai<<oa late Ihv Ce.nnr a(ica.I'(ye list.I I/I/it)a Auesik City Denise C'n ilia(Mice Sl1/Isa)Iacnaen Rasa lac hetesa)l4.$/II(y)5 Oec(Snot)I'eire(iev Ceih Cea, Ftl.5(L l 1rar.(e rer.Cen.haa4(sais Oicuk C'n))n(4 RiL Mni.114/L4/15fleco C(nr(er 4 Oenik (tars'v san 5 Co Bnthnff 5/I/)010 Cine(ak Lknak Rirvvawg Ca.)liat)(iee5/I/IS))
Carabao I'om*Lirar Co~1n(M(sr Cl($!tsM I keuoo Oa 4 S I irri i(a Coty Cori.4l.Oronnrn)I I)/IOSS Carnal Ti(ilaeae C'e.ot tao a(keen CeaL pl 4 Saor L (lv sar))oae 5 i at Cea C'e.S.r.it~name/)sflON LoeeS(ar Cai Co.Can.ITLSiL(asset)
~nn~c~Noise, 4/1$/Its)NC451 IN NC4)1100 NR41)100 NR4$1)OLSO NC 100 SSA)5 SAN)N LS.100 1)4 100~SASS SLS 985 SL)5 04 100 SAS tt45 TSOJ545 10(LOS I ao IN 94 IN WS tLT Lg NR451 104555 NC411100 NR40;NR451 1045O NC NR4(k)0(sr NR40i NR40110L)5 NC4L NC40;NR40;NL40;NC40(hR45;hR4$1 N R40(Vcr SLO ILO ($1 par)I)I I)4 100 945 100 L)5 SLT5 I Lac ICO 45$IN IRSO 100 IL4)5 100 ILS)100)LO ORPORATE 01'FRy!i iCS Tk(4 Can rdn NC~i leo 100 RX NC40(IO)AT)N)055 NC411100 745440 1(C lc N C N N C N N N C C C N N N C N N N)t N N N Coesrv<<ten rtkieg Acrqsaie Ne aetna(au Aceqe ate Aniacdie Sadil eatery Aceaesae Aurstdie Rei(e<<id On I'oce 1)S 151 5)I 745 Ta 541 744 Orn.aevvn tats.st Ore<<(sessr(aia 1(Tevre4S one<<On I(~ttsa trtl ffy)ffi((tao)ff as aaaya fftet (ts.ts (Stoa IJA(eyes)es)))oo)tdt r~ea~e~in JA tsr,1 asn)SI).(a a)a)SI aaa ncc'~.ca.Ltt)ao)o~)st asy.'i V L V 1>>AMI!T I'110flh pl()N: Pin furs(a lorn retina)cb(ISI 45 of cuir.(asia(ion) sill consist id SUI), 1(7(eat (ir at ii<<it (narc hiai)i.5 3 I EST, NO aiaL)ng fund dC(stn(u(C(aWI$3,SSS.O(XI u(hCr Ierg (rrni ikh(.gcncta)rs(c rcbcf.These interim inc(ca(cs are nccdcd to mcct (hc ia-terat cm>>tsge tcquhemca(a of thc company'I dcbenturc indcnturc.
Durmg)974 sad the Is(er pan of)9)3.Saa Diego Giha cspctienrcd ha<<ct fur)oi)requite(ace(1 than sn(icipmed as a rc m)(of batten(cd aesdabi)i(y of In<<et cost h)dree(re(tie po<<er from thc pseifae Not(h<<csL cua(on(et energy cut(siioicnt aad worm<<ea(hct.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 coa(rsc(s and reject lets capcninc aa(ural gaa and autp)us h)dtockcttic po<<ct.No auth sa)cs hate occurred dming 1915, aad nor>>etc euttrn(1)ca pcc(cil.hlongage deb(contti(u(ca a valid Sra(lien upon s)l proper(y srd fran.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 forms mongsge debt<<itl equal 5)3%aad (o(sl dch($$2nv of act p)aaL lloard nn thr Irrriar e ngoffacrd rhorgr raaurogr or o soily for tory Irrrl,<<r ore aioiarolang our"r)rmo g on rhr first mongogr hoods of Son Dlrgo Goa il hyrrrrir Corn/tony.
SYDRON CORPORhTlON Tcn.)'c ar/Vafrs Ogrrrd E n rsr)y May, Sybton Corporation plans (o o(fer$35.(O),000 in Nutso doe A(ual I.1955.The no(es atc pru(anni against Io<<er is-(creat>>ual tcfumliny prior to April I, 195$.Th(cnmpany ia(ends to uic opprotimstrl)'IS.(yJOAXÃ)
of tbc act pra>>cc Ja from the sale nf 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 ycncta)curporate fsirt iaca, ina)uitinr inir Lisp eapiw(ant<<irenics(s.
Syhrlva manufacture\
olul ac)la, uii a<<air)i)<<<<le)alai(.
a diictailicd hnc nf rq<<ipmrnt and au(quire<<)i)a*IJ)l in(u four prinnpJI pri<<luc(alcJa;heal(la rivi)ua(a fnf~Icn(ii(a, lshysiaienL I<<a(pl(ala, sall)a)sat<<Iotira;ina((un(en(J(raa ays(en(a aad cuuipnicn(:
ptaweta ai<<l<<Jtcr/was(C rqvipnirn(:
aai(apciia(il1 cliciliical s.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 CC>Iaecg Or rZan CHagcgg 1965-1975 gage 72 196$846>691, 000 1966 649,816,oco 19l 5 8217>012>934 lo67 8$3>252>000 19GS 661>683>000 1969 853>306>coo 1973 8133,444,eM
~1 8121>954>000 1971 879>869>000 1970 854,362,000 1974+49,68$,490 ac=a arailsble for fixed charges before taxes 4 8 16>853>000 17>140 CCO 17>592>000 21>664>000 17>495>Coo Lees: Shame taxcc 879,ooo 2$.436,000 10,796,000 19,712,000 10>791>000 5>580,000 45,811,000
~~a=a arailable for fixed ctmgcs af:er taxes 0 All=-ace for fonda ase4 dart~coastraction D 29 S38 000 32 676>000 3$660 000 40 019 000 1>628>000 2>1$3>000 2>803>OCO 2>927>000 69>073>000 102>242>000 122>653 000 148>8C6>0 191>57>9 14,7OS,OCO 24,759,000 38.093,000 54,608 879 59.955 830 4S,782,000 4>397,000 10, 505,000 lrr-xc axsilsble for fixed charges before'teres-a exc" sg~llooancc for fends asc4 daring corstrac ion 45>C63>000 4f>663>000 50>449>000 s>cs~avails ie for fixed charges after acs~ai cxclaiis alienates for fhds a>cd 37,092,000 41,414,000 28>210>000 30>523>000 32>8$7>000 54 36f 000 77>483>000 84>560>~31>599>OO 41>713>OCO 56>654>000
>76>'535>934 69>955>2o3 0.7,881,ooo 9,425,0oo 10,642,000 38>277>ooo 14,OC6,NO 18,427,000 otal irtcrest charges 23>957>NN 58,756,000 58>909>000 43,8$7>CCO 6$,161,000 97,195>000 95>351>OCO 9$frf6>7'-ss i arrest car;.cd before taxes (1 t 0)5>92x$,29x 5,00x 4.4oc 3.44x 2.27x 2.53x 2.36x 1,56x>2>blx 2'-cs irteres cerned before texas an4 exclcding ail~a-.~for>ada used during const>uctioa
(=.!c)5,C6 3.20 1 83 2 C6 2.33 1AS 1.24 1.75 A%5 In'teresa e&ncd after texas (c.o)3.79 3.47 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 (F+C)3,58 3.24 3 09 2.65 2>25 1.6o 1>72 1,86 1 49 1>23 1,46 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 COHHJTATIGf OF TilZS Ibi'EREST EAHDED JQTER 11COEE TAXES FHK!COST HATES FOH CAPITAL le)CAPITAL STRUCTURE RATIOS FuSe 73 Cost Rate Capital Structure Ratio~Ca@nant Ccemon equity Preferred stock Common equity and preferred stock 0,01 34.96$14 10 1.13 6.11 Debt Interest free capital Total capital 7.72 0,00 3.58 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 Present Rates Under Proposed Rates Ret operating income for return$99,315,367
~l,ll9,500 Interest on long-tena debt Total fixed charges 48,445 747 48,445,747 48,445,747 48,445,747 Times interest earned after taxes before construction credits E F 2.05x 2 7lx Source: Rule Rl-17~Xtaa (b)(9)~Exhibit I, pages 1~6.Iangum ExMbit Ro 2, page 8.
I I I
+lWl>>th'Mf twI$b~~~J 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 Ratings of Aa by Hoody's and/or AA by Standard 5 Poor's Ratings lhintained at A by Hoody's and A by Standard h Poor's All Issues E.2Ox (8a)1.94 (43)Issues>!here Significant Bate Increases Arc Reflected 2.39x ('i9)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 Ratings of Baa by Fhody's an%r BBB by Standard 5 Poor's 1.68 (S3)1.66 (72)1.8O (11)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 8)0~cfood ji's Bond StttvcJJ~~I c October I.')7'I..~'Noody's'To Assign Ratings 7'o Profor red Stocfcs Moody's ItnUnx POQcy ttcvtcw ttdtscd hns decided co c.tend its rsUng aerv)crs Co inrlvdlc qvnlicv dcstcnsctnIIS r~preferred stacks n1 of October I, 197'L The dral n<<c to rate preferred stocks.which htoodr's hnd alone prior cn I'13 I.wns prompted by evtdlrnre of investor interest.hiondtv's bo Ilcvcs that lcs raang of prctt ncd sudrks ls espccL1ny nprrm prince ln view of che carr tnccrnatng amount of tht.~sc.CuttUCS OVCStnndtng, and Chc faCt that renunutns boflattvn and its rsmiAcsdons have resvhcd cencrnQy in the dQudon of acne of thc procccUon atfocdcd theta as wcQ as ocher fixed4ncome secvxtdcs.
Because of the fundamental differences between pro-f<<rred stocks and bonds.a varfsuon of our fsminsr bond zaUng symbols 1riU bc used ln the qvaUry ranking of ptn fcxred stocks.The near symbols, presented below, arc da cdgncd to avoid comparison with bond quaUry in absolves terms.It should always bc home in mind UIat tbe pro.fcrrcd stock occupies a fun!or post uon to the boncL Preferred stock zasng symbols and their dcAateons azo as foll owe c~dao oat ha issue which is rated saa is considered to be a copquallty yrcfecred stock.This rssng indicates good asset pzocectioa and che least risk of dividend Impairment wf thea tha uaivczse of preferred~tocks.Federal Agencies Financing Paco Rcrnalns Heavy Ivhtle there hss been a slowing ln new corpocabc nnd tax cxcsnpt otfcrlnga, nnd UIC Treasury has not hsd to burden tbs macket tceqvcnUy, Fcdcr J agencies have been consh.cently hcavy borrowcrs.
In tact, tbc volume of agency A-nanclng has boon on tbc increase la recent months.In the Arst four xnonths of the year, agency mnxkcc borrowing was rvnntns st a 52.6 bUQon monthly rate.But siaes Nay the xnonthly volume has risen to$3.6 bQQoa.Tbo main causes of thc profusion ot Ananctng aze the money needs ot the housing Industry and tbe agricultural community.
AttracUvc market interest recco aze causing nct ovtAO>>s from tbc savings insstutionz,>>bleb are the primo aupporl ot thc rn'ortgsge market.Ia August.for cxacnplcd tbe nct outflow trom savings and loan assoctaUons was estimated to be SIN bQUon.To provide advances co StIL's, tbe FHLIVs have bcxzoatcd hesvQy, and FttMA frequently has been in tbc market to raise funds for ics xaoctgagc sup-potUng opersUons.
The sttusUoa bss led the FHLB'and XytMA to cbandoa their regular paaem of quaztcrly finano.ing.Instead, these agencies have recently been tapping the market on nearly a monthly basis.Tbc FHLB's have boca tbe most scUve, Issuhg 56 ed'bUQoa of debt la the last five months,~which 55.65 bUUoa vtas neet money.FytMA bas bocxun.J S3.7 bQQoa over the same period, raising SL75 bQlloa'n new funds.T'c housing Industry Iso of course a, poilUcaQy<cnctdvo azca cnd aay alga of mortgage money drying up produces outaies from cfffctsfs.
Housing starts were down in Augva and new pcxndts aho decQncd amid reports that mortgagcs vtcre becoming difAcult:o obtain.This suggests that Fedec al agency support may have to increase further.Thus, the Federal llomc Loan Sank Board hsc announced a pisa vrhcrcby member$1IL's can borrow 52.5 blUloa for fumze mortf gc commitments, and GNhth 1cQI reinstate tbo"tan-dem plan"<<herein it wlU be enabled to buy 53 bUUoa of pxivatelyoowncd FHA insured morcgagcs.
TMS acUvtcy sczong-)y indicates that boczowtng by tbc agencies to help the hous-ing industry wiU remain hcavy.BorzoaaMg by the FICD's, Banks fo.Cooperatlvcs, and Federal Land Banks to aid agrtcuhuce is also growing.Since Haatt ha Issue<<hlch ls rated"aa Is considered a blgb-grade preferred stock, This zadng Indicates that there is reasonable assurance that czzxdxcgc aad asset procecdon wtQ remain zeissvcly wsQ main.tained in the foreseeable future.clot~, ha issue>>hlch ls rated a it considered to bo aa upper-mrdlucn grade preferred stock.WhQC.risks are fudged oo be somewhat greater than ln the"aaa and"4a" clssslAcsdons, caccungs nddo asset pcocccdon are, nevertheless, expected co be maintained at adequate Icvcis.Jnn.~dept.o 1972~~~~~~~16.64 IAS S I+~tnecvate moat tecetat*sencr ondt tt4etactrwsontotedt yvatcctt~ccatedc new caaute.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.sldcred well assured.Earnings and asset protcetion Federal Agency Finsncingo
~'ny bc very moderate nnd noc nell ssfcgvsrdcd lido I dod d I dod.o lol lo I Iooldoo 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.ance of dividend psymcms snd maintcnsnec ot other terms ot thc lssuo over any long ported of 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 Ocfobcr I, 1573~IesaW hn issue which I~rated"<<sa ls Ilkeiy lo bc In ar.roars on dividend payments.Thl~raUng'esigns Uan docs not pucpoct to lnIUcatc the future status of paym<<ncs.hlI factors whkh hare, end<<an bc expected to have, a meaningful Influence on thc dcgrcc of support afforded tbe preferred atcck will be<<onside)cd.
Among these Cactors aco the nan)re of the issuer's bua)ness)corn pcUUont quaUty and trend ol earnings;interest and preferred dividend<<ov<<r.age)caPltaUcatlon structure; offbalan<<e sheet flnandng, cash Acsw)financing needs and purposes;mansg<<m<<nt and 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 and pr<<fc)red stock.Issucts msy submit to htoody'0 an appil<<aUon Cor rat-Ings on aQ ol U)elr outstanding preferred stock Issues at any Umc, whether or not they have Immediate flnandng plans.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.Pubiic Utilities/YiolCh bown Sharply Yield levels moved down sharpIy last week, as lt bs 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 example.A rated CencrsI Tcicphone Company of tho South-wcs!was rinoffcrcd at 7.84%, compared wtth a return of L35%on thc<<omparably rated Hairauan EI<<<<crt<<bonds ma-acted duct last>>seek.We think thee the upward price thrust msy bc extended,!hough aC a a)ore mod<<rate paces p<<ndlng a buUdup Innew.)ssue supply.In this week's only scheduled utIUty sale, Southwest<<IT)
Bail Telephone plans a 6300 InQUon olCerlng.In the mos!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.tlon.these bonds are now trading at a prem)um.to yield~bout 7.73%.Thus lar.S636 mQUon of uUUty bonds have been Te<<tst<<rcd for sale during October.This amount<<ould bc supplemented by addiuonal rcglscrauons during tha n<<zt several weeks.New fssuos Norihern States Power Company (M~)Rrst Mme.75/4 s, 10/1/2003 hsn>>unt Call)Icccnt~Y)a)d~))sunk Isu)4)pea>>a race cd)rant sca)u)I)y As 530.0!9108.00 100t/>>.Icons<
7,70%7.80%FJÃ~sundab)c psi>>t Ir 10/I/Il.<<Ith debt at sn Inlrsral rest et)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 Ihseuch 0/)I4T).Isscsaium dccsaaslnc Ic))hat s)l)csihs or ta/Iscihsi
~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.
ne+I)w Off<<T<<d on September 20 at 100%to yi<<Id 7.73%'Wh)ning bid, 90M9)cover pcr bond.SL10;coat to corn.s~~t~~~W~~~~MOOd)JS Bend Stirte')f~515~'any, 7,70~~.Other details on page uOL~on)a)ans Thea<<high grsde bonds represent a asl)afsttnt)
In<<c~n Inr<<stment, Union LiSht, Heat and Power Company First MI8<<.85, 10/1/2003 hm>>unt Can OI)cstne Y)sM.-.nst)n<<)su)4) pwc>>s't)cc cuivent s)atua)ty As 5IOA)m110.00 102 7A)4%7.83%ID))sn tc/undablc pi)or ta)0/I/Ta.<<Iih debt st an In)steal>>est et 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 Ihseuch 0/10I)S, nlsmium dcctcaNnr Iciihct Siliccihs rl 51/Iacihs)
~nnuaiiy Ihclcs)icl 1104 1.on 10/I/1st Is 100 on)0/I/)aa).
5pcaa)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, ONePss Off<<T<<d on S<<P<<m)ber M at 102 to yt<<id 7.83%..Winning bid, 100.870;cover per bond, S1.70)cost to com-pany 7.92ys.Other detaQS on page 563.op)s)aal This issue ls reasonably priced, but aft<<@market~
~blUty wQI be Elm)ted.General Tel<<phone Company of tho Southwest Rrst.tdISe.75/ks, 10/1/2003 Amount Cat)OI)cstn<<')s)d stsune tsu)4)pwca priss Cu/rent Sts)u/Ity A S30.0 0)I OL75 09 7A)3%7A)4%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)
~nnuauy In>>la>>liat I)0450 Dn 50/)/)I)le 100 en)0/I/)/y/4)IO a)nha the)shad 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.pany, 7A)1%, Other detaQO on pago 562.oy)alan)These bo'nds arc appropriately pti<<cd fof In<<on)es Proposod New'ssue Consoiidaied Edison Company of New York, Inc.......has fQ<<d an S-7 regtctrauon stat<<rn<<n!
<<ovc)ing 6150 mQUon of fits!and refunding mortgage bonds, Series NN, due O<<tobcr 15, 2003, to be sold ln a negotiated offering on or about O<<tob<<r 10.by a syndicate headed by ht<<cr)Q Lynch, Fleet Bosum, and YJdder Peabody.'vanly a asi)aki Upper mediu)n grade)piovtdonal'.
~These'bonds rank Iow in the A raung<<at<<coty.Conunuadon 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 company to stay tree of Qnandng constraints Imposed by tho cern)ngs test pcovtc)on contained in its bond Indcncu)e over thc period immcdlaicly ahead, but additional reUcf wtQ be r<<quired ln time.Thc company'0 abU)ty to ra)se tbe substanttaI funds needed to finance its ongoing cxpan-alon w)Q d<<pend ln large pa)c upon the tbntng a)ui amount ol subsequent rate a<<con~Pennancnt<<I<<<<trt<<.gas, and et<<km rate inc)esses.
cotaUng appmxlmotcly 5100~mUUon.have now been app)or<<d.Thl~total eup<<raeded
$110 mlluon of temporary Increases ivhlch were put into cffe<<t on January 10, 1973.In sddlUon, th<<<<ompany fUcd ln Sept<<miser and August.1073 Cor edd).Uonol lncrcsaec ln gss end a)can)mick of appmximaicly 527.0 mUUon and 517A)mUUon.)esp<<<<uvely.
I jjr~~I~~~~~~~~~~Ek)od3('Ig Investors Service, Ic)chk)od'" Bond Survey October 1)1973, I)aife 5l9>>t r i~s)
Page 78~~~~i~~tu~o~Slattge faeiQk>Sertke k p>avided ih ihC Cthi ISI ahd nafihtth Por.lions of Ibc I<<<<ct Pehi>nvls ahd Ihc cth>rsl snd ca>>c>h staioas o(Ihr Upper Pr<<<<nels.his!>r ci>>t>vcr>rd>hclvdc Grrhd Itsrh(4 Mu<<kcfoa.Ahh A>I<<>t snd ihc Dc>rn>>mc>rnrnh>sh ates (>hi>Isti sc.)coehis (nr tAe o(npctsi>>g t~hut>I Thc company siva a<<ns s~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 fina Ousia>hi>4 Ad>fi>iohd
>tvthecs arc also provided by staring gss for other ca>hpshics.
Dvnhg lkc I<<rive~hs cndcd March)I, l97), aptts rihg>cvcnucs<<ere denvcd si (alla<<@space hcs>ihg, 62%;fitm b>duurisL l7%: b>>et>upi>bk ind uurisL IS%I commctcisL 2%:~nd rcudca>iaL I J%.Haietsi 9 sv ii pvrchsMd ptincipslly (tom ibc Mkhigsn lVhcohs)n Pipefihe Ca><<ashy, si>a<<holly owed br American Ns>utai Gsa , Mkh>gsn Wncoh>in supp>>>s spprotims>eiy g4%of>bc company's ro.q>n>emcee, wbh Pshhsnd>c Ss>>cra Pipdinc supplying)0%and Grcsl La'ka Tish>>nk>k>o Scnkca (50%owned by Amcricaa 9(slitsl>m>(>>g4%,.C taCIS wkh Mkb(g>h 7>rnton>)h Piadb>>>ealend IO huge>I)I.I Tbe company is a>>bled lo purchase I J)7/)5 mcf pet dsy b>PREFERRED STOCK RATlNGS~ash>y fsiihgi oh prtfe>red slacks~tc cap>cited by Ihc seine~~symbo)s as those mcd la rating bonds.They are ihdcpcndcnt of Sic<<dard ik Poor's bond ts>(h(s In Ihe sense Ihsl>bey arc nol aCCCSSStily gradVS>Cd dtwnwatd f>Om IhC tankihg SCCOrded thC i>su)sg company'S dtbi.In a msjari>y of cs>cs.ho~i.Ihc rsiihg assigned s p>e(ertcd s>ack<<il)bc equal lo or lower Ihsn lhsl accorded~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 aabdhy Of Ibe S>OCk.Tbe ratings are as fOIIOwt: de 2ower Graft Sprru(s rive C$>k g(a>gina(, AAA Pntur AA f(ig1 Grs!(r A qnvad JtWI 4(rreuhsG>ar(r lac>are co>n>dered ia snirieg si a prcfcntd nock rs>)ng arc ci>>h>islly Ihc vs mc as theic tevk<<cd in lhc case of a corpots ic band.Tht most imponshi of It~stt: (I)Pro>>idions of Ankles of Incor..phrs>ion.(2>As>a Pri>>taion, ())Fihshcisl Itcsaurca.
(4)Future bar>vhgs Pro>cc>iaa.
sad I))M sas Zema>>.hi in hood shel(>a.ohc Of ihc impo>>sai s>s>is>ICSI mes>utes used Io dactmihc>he stcv>i>)of prc(teed divh>end psymeaii is Ihe cs4 cvkrian of the number a(times cstmhgs cover fitcd chsrga shd p>elened dindend>equi>tmcn>>.
In ihc psst.dvc Io ihe fsa Ihsl prc(tried dividend psymcns were nar<<dtdue>iblc for iss purposes sad Ihsi ihc elfin>vc ihCOmt isa nits Of mO>i i>>vers (msihiy pubhc ei>fi>~snmrshicv) lt)l vrii!in s nsftow tinge.Standard 4;Poor'I cali cukitd>h<<thvenge ratiO SOlcly on an sile>>as basis.boihineluding ahd ciclihhvc ihe silo<<an:c fot (vhds v>cd durin con>ltuaion.
ln>ecch>vtan.ho ever, i!us Iss situation hss changed dts>ha>salk shd ihc ct(cane ihco>hc I st N>cs o(utility comps nice no<<vsn vvkn lh>hi>>hers!mc>>>
afincomclsscsdaes in(set provide~nmt a&4><<>>A pto>eclivt c>nhkhh for>hc prcfctred s>ockhoMct, Ihc sdnr>ion'n(s ts>io mtssunhg eo>etsfc of fied charges snd prsfcirtd ad>oh a Prcasc bass is con<<dc>cd s p prop>itic.
Thc rsi>>how u>>d by S>ands>d gs POOVS for Ibk purpose k quite Wh<<>at>O that rrceaily sdrsiid b!>he MC.The>hCehshiCS Of>bees>euk>ihn art dc>cribcd h>W<<.Thc numctstor c>m>is>s a(earning>est>sin vrin>ct>hen>hi shd kiitt a>noesis ia a>her thonihsot ihcycst.ThC firn>Snhuil Ca>situ>Chl ii)9).l><<>>ihh CUbiC (etl, A&W~A rvv hsi bccn cah>tseitd
<<bh hlichigsh Nnchnw'h lo inc>cave>Sr v<<rt.Io I J74&v I Mc(sad 40&J b>>4os cuhk Iici.tcspcc>ivcly.
brr>>h>>g Sn>>ember I,)97).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, 000 far storage fidd esp>a>ion shd dcvtlopmen>, 5l I,lyr>.>su>
for as>em)gss pradvc>ioh Dcihfcu shd Ihc rcmsinihg$4~v)g>>I (hr msia and icrvkc tens<<sls, as>canons.
Cad routine cons>run>oh.
Michigan Cohsolidusd is regulated by Ihe h)khigsa Pub(ic Service Comm(>s(o>4 Ia addition io so ihcrcssc ih tace on November I, l972.Io oif>ci CO>t ihCtCS>cS from in>crusic suppiict>.
Ihc Commkdaa su ihotittd~gehetsl rotc iacrcssc of$7.000))00 ashes>ly, dfcaive)aheaty lv)97L 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 for Ibc compsrsblc fcr(od ih)912.Ha income for Ihc same wss$2M>40 0$), compared<b$)X&7),474 s year car lkc svsgsblc for fiscd charges snd pre(cried dividends snd ihc dchomi.asia>b comp>ised of littd charges shd p>cirncd 6'mdcnd>Karhihgi~vsilsblc for fised chsrfes shd p>e(crrcd dividends isdcfinid sana I come bctoreiacomc tata.deferred iheomc lssa.bwaimeal Isa crc.diu, ahd littd charges.Fitcd chsrga cons)s>of sll inicrcit charges snd amanits>b>a of premium.discovai.snd aspen>c oh dibl.Ptc-(cntd dmdcnds tep>csea>prefctrcd d)vidchds tnu(>iplkd by Ihc ratio of Pte Isaihcooie Io ncl income.LEASED HOUSlNC CORPORATlO'iS Crl(erla for Ra(fng T..: 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 i 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.li wss Ihc b>>eh>of Cohgtas Ihn thc program wotk as a surpicmchi ta the lear tchi hae>v>g program sdmiasie>ed by ihc Housing Ass(>>shee Admini>irnion.
<<iih the program operating lb>ough Ihc.local housing set horiiy s(mgstly lo Ihc public housing prOgrsm.Voder thc pioviYbhsel Sca>oh 2)ibc Dcpsnmchi Of Ho s(ng shd Urban Dcvrio pmch>IHUD)cn>crs in>o con>rsas wi>h local houung suihori>ics suihoriuhg Ihe se>honiks io les>a from privs>e owacn d<<ei>ihgs already in e>i>>ence or io bc coh>irected snd sub>esse ihd4 vidual d<<e>ling vh>>s>o Iow income (smilies ai la<<mon>My renisls.AI the request af thC lOCal bOO>ing SmhOriiy.Ihe Supt>vbing ro gioasl olce of HUD vnll make s survey of Ihe loss)tennl housing market snd.If faund appropriate.
ii<<ill su>horite thc lord bou>ing~aeihoriiy to Icssc a Speci(>>number a(housing enbs si ipcciiicd tth>six HUD thea cnicn into sn annual coainbu>ions eon>rect w'>>h Ihc local au>ho>i>y undct which>I con>teat io make mdiv(desi ahausl coniribuiions for csea unit lo bc kaicd.Vndcr the Hou>ing Act of l9)7.as smthdtd.such annual caa>ribu.lion>psymenis src gusrsaircd over s fied number of years by thc V niied Slates Auihor>>y.an ega>>y and inn remen>siiiy of>hc Uni>cd S>sia who>c funain>s.powers snd du>>es stc va>ed in snd est>cited by ihc Stcrasry of Houiing snd Vrbsn Dcvelopmch4 Ssk(Acl fut.>her I iovida>hei The (siih ol ihe United Stsics i>solemnly plcdtrd to Ihc psyrhcai of s>l annual cahlribmiohi conitsacd (at...shd~~I: I I v l r I~<<(r I~~I I t I 4 t v v.I)anuary 5.1974 Stau>Sar>1 h Poor ts CorporetS,ons Page 92)\The Fme>S ZI)co(r>c Zzrvestor>
Jf>)u>r)r 5>1974>page 983.<<~v~~~'r 0>>!rs l
Page.79~~'GGG~h1oofl Jig Bond S(fyveff Docoffcf Offcfccl on February 27 at Ioo(o ylc lcl 10%.Price to cc>iiipniiy 98.00;cost io cnnifiociy 10.2ot~w.0(hcr dctafi In Uvvn Svnvyr, February 17, pago Ifi24a opbdoni I'his viipcfuucdlu(II-grade lcsuc Lt anrictl for cofp rate Ifivc~(ufs al(hnuf;b, dvc to (lie rfuaU sixo tho Ic c, after (no(Le(abUI(y may bo Umltc(L s Ratings Aodugod Carolina Porfer 5 Ughl Company The ra!lugs on Cafofina Pe(vcr af LIght Co.'s pubUcly held pfcferred stock Issues have been xcduced to"baa" from"a".For further comment, scc bcjotv and page ISST.Now lssuos~Carolina Poiver S Ught Company...
...has filed an S7 registration statement covering 2 mfifion fharcs (Ivi(hoot par value)of cumulative prefer.ence stock sex les h to bo sold in a ncgofiated offering through hferxIU Lynch, Pierce, Fcnnar ac Smith,.inc.
on hlarch 13a auofffy a aoffn(fc NO rating applleatlOn XCCCIVCCL puopocoi.PXOCCedx from the nCIV pfefefenCO StOCk tVUI be used for'general cofporate purposes including thc reduction of short.term borroicings lncuxzed pximarfiy for construc-Uon.Short.term bofxo(vings totaled$131.T mlfilon at DO-canbcr 31, 1974 and afc cxpcctcd to be a!$12S mlfiion immediately prior to the de0vczy o!the nciv prcfcxzcd stock.Capital cxpcnditures for the 1975 through 1977 period are cvrrcntly cs(imaicd at zcqulrcd 51,142.7 mUUon Including$342.G mlfiion ln 1975.After the sale o!the neiv preference stock, the company wtlmates that I!>Cifi need$150 mifilon oC funds from)on term soutees.Thc'company Is presently~unable to Issue additional preferred s(ock under the eaxn-ings test in its chatter..(whoofcoffonf The cofnpany Is au(herb(cd to Issue'2 nififioii shares oC scxlal preferred stock.It ttiU have 2 mUUon shares outstanding vpon issuance of the nciv s(ock.It Is also au-thorized(o Issue 300.000 shares of thc prcfefreil stock (237,~259 shares outaandlng), 5,000,000 shares o!prcCeacd stock A (500.000 shares ou(s(ending), and 10 nifillon shares o!serial pfcfcfxcd s(ock (2,150,000 shares outs(ending).
The authorised aniount o!prefcrcnce s(ock may be increased upon the con!en!of the holdcxs of a majoxtty of the to(ai number of oui!tending pfcfcrence shares.focnfnec rrcii None.Doaf Rccfrfcffoncf None.nnod Chorprc ond Proforfocf Dfvfdrodc yrofocffonf 1St!txfa 1t(X x!f1 tzfp ra s I~rsas sas ass Ias sas Infer ouivnrd In ihc prcuprcuac:
rofnlncc ycprclcni nct Incotnc phai Inrnanc inrrr One Iarraf riwreCri farra(CnrCCCr Crntcrrni in~creat rcarccrr nlui onr.ivied uf onaauf(ra nioic: nnai pcc fs eccl(aiivia orna(0 cstars~ni iscrarfcali aicvaalwasi frnuacvnavnar naulianIIrn by Ino folua Iiaoi InrnMc hri<<cc innvnn corer wrcv.Io ncaa inroMc.Icpco fsvann raaverncr oniucicli Io cava cficci io cise laasarncc of Ihc Ilcav 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~rconsi aiuvcia'r uf 10(v.nasa(Ihc npisllcaiwn of Ihv pcocccvic Ihcrc (rWn.Ir auiacaulcar(by uac Conapnny (&Dfvfafvndci
'llolclcts of the Preference stock aro cntltlcd to xc~ivc ccimula(lvc dlvbhncic payablc qua((cay on July).OctolIcr I, 1 lnuary I, aud April 1.CIIC I'Oil(Daily S ella!(CC a(nil (lic nlnt(gage IIICICfltufe Con ta(n pfnvlsinns limiiin,, paymc(I(s o!each cllvhlcnds on l ccnnuiun s(o'k unaicr crrtahi cirnimstanccs.
Al Dcccnibcr Maycjt 3, 1075 Ac(uct pro yorfno (000)gs (000)$131,657 L4 578,000 3.7 SSG,680'47s9 1,009,030 474 Short tean debt ahiortxage bonds Other long tean dCbt.I~~~~~~SOM4 2.4 50~4 23 Total debt......$1,168.571 56.7$1,137~4 5'referred stock..R$,118 14.0'288,11S I%5 Preference s!ock:--50,000 (9Common ac surplus...~.548,465 26.6 604,465 28D D I.!av 0 I~as.Iaras 3.7 I.ua 3.0 Tvsa asasssl..I-",O'f0050 1000 I" IOI,II3 3000 n:a.ass((nc p f-vo(w shores ou(c(roe(na xf.eaa44 Oho.Dfo foccnc.Niagara tdohatvk Porfer Corporaliori...
...'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 snid ln a nccu(ta(ccl nffcfinnn or alnicit ax(arch 11.Tho synilicaic ici(l ise Icd by 6 ilucnnii I(foih etc anal fdcffifi Lynch, I'icfcc, Fcnnrr fcc Smi(h Ine.Application ICUI Ini made to list (lie 11civ pic!a'fcccl uii flic NYSL cvuiiiy"a assi(upi xlulliam grade;prmlslnnal"baa r Ifighdx tati!is granted last week shoulcl ahl hi keeping 31, 197 l.$21.0:U 087 iras so fcsfrlctccl Imcicr!lie charter provisions, lvhich Ics((le(lon ives fcnivtnxi ln January 1975)vpoi(thc hale nf!lie cunmion stock, Tlie Clio((Cr viral CO((fat(if, P(OCIAIOIIS lliiil(liig thC aiiiniint o!divklcfidr cchi li can Iic niaiic on its junior stock u(doss certain ruins oC coivmon stock and surplus to (oui caphafi sation arc mal((tainccL you Sfofwc This Is a nciv uIOnCy" pfefefenre entltfing cox porate holders to the 63%dividends received credit.CaN foofvrof NO(rCfundable PriOr tO AP(il I, IMO at a In(vcr In(crest or Pfcfrrrc I (Uvidcnd cost;DOhcxtffso calh able at prices to bc svppficd by anfcndmcnt.
~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, 800,000.Ficctrlcfty Is fvxulshed at xctafi ln 200 coinmu nldcs, and vcholcsalc service is svppficd to 24 miuilcipafitlcs.
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.tzial, 1059!rom commercial, and IS%from other sources.Approximately 84%o!revenues ircrc derived from North Carolina and IGIw from South Carofina.C(f the total instaficd gcncradng caPabUI(y o!5,026 mivso 55.440 ls coal fueled, 11.8fa nucjcar, OSfr coal/residual oU.10.7fsr No.2 ofi, and 3.6fgv uses crater poivcc.For~1975;the company an(ICIpa(es that Its generation still be produced as fofiuovoi 733er txom coal, 225cw from nu-clear, 2.0%from cva(cr, and 1.6cv fznm No.2 tuel oiL In January 1975, the COmpany irax grm(cu Cni.s~tWa in xetail rate relic!.Also in January the company xvas al.loived to pu!Imo effect a 5204 mfilion<<holcsale zate in-crease subject to refvnd and a foisil fuel sdjus(ment clauso appUcable to aU<<hoicsale sales amovn(ing to approximately
$20 mIUIon.copfcofffoffonf As o!Deccmiavr 31, lvi4;pxo forms zeficcts the proposed sale of pfcfcrence stock and the sale In Jan-*~, uaxy 1975 of 4 mUUon shares of common stock and$22: 350,000 of fifst mortgage: llbifr Series due 1994, and sub.sequent sboxtqexm bozxocvtngs.
I 0 0 ss t'ty'I'~.(.~~a I I!Is'I)+ody(o Investors S~iccf Znco I I4oo()Y'9 lkxn<Giurvcv, Hf(hach 3, 1975, Pni.c 1 66.
l I I Page 80 a i~~~~~I/<<<<<<<<<<<<t<<o<<o~<<<<~<<<<a~~Sacer~(~<~an(o>)l~iai)i~>)a a'>oe.k>oeooo (>CI.I)~(as(t St()4~S)r>(A,A,I~(wl,s)IN)S,())ta O(SO.S(S)c i>(wry.cec<<aru.~
h(a>e (oc.l oooo~Llt IS(Iu(C~CL Slt S~S S>s tat.'o(eee Sec 7>en~L>((SS StŽ~~a M~L>r LN SS>t conlinuc lo f>c un side to mcct (be cata isgs lest re>p>I(cd to fssuc adt'u (Ionsl ptcfcntd s(OA.la October I'N), the company f(CJ wi(h tbe 74or(h Cs>a>line Vtagi(ICS Commis))sn f I)CV I:7 ssd (l>c Suu(h Cs iul>ns Puldic Scrricc Con<<nation f(ICI"A:>s pp(na(h>ns fw su(bu>hy to iacicsac hs per.Dasncn((C(eil (sacs (0 p>no(dc sn sppiusieiislc 2 I<<>sc(case iea rcae t>ucs f(o>n retail ss)c>.Os January 6, l91$, ihc ICCVC, by order.g(an(cd tbc cooipsay tiae>(>(urs(t>I snnusi rsie inc>rase r>ius)to sp.FOI)o<<ing (his fuasncisfp>o foe>os cspi(sli>stum wi(I bc mo>(fuge'eads,$0.7<<: pons(ios cosiiol noitt 1.(<<sip>c(ct(td nocL, I)7%'on>mon ope>ty)LS s,~Loe>g-(rrm drb(p(ut pee/rnid)>ark
<<CI n(u>dd)9%4/nrr piss(Corrrsgr of/>std rksegr(ssd per/rerrd d>a<<(rods rrseo4 s odrq soir for n>o4(rsssrr of o Ogd eo>>sg, ykrrrfser, efr Aorr rotrd (ll('tsucofAiogorob(oka<<k'>per/reerdstock"BM,")~~~\~<<~I.a a" CAROLINA POLYER*LIGHT COMPANY Oper(ng Cumulof Ae Prr/crcncc S(ock O.u Lfstcb I)sa uadciw(iihg syadecs(c headed by hler>iH lynch>Pm>ec, Penner I 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 bc rcdcttncd sl thc oas(han of thc comPsny el rations Piiccs.Proceeds f(om (hfs"acw aionry" c(feting w)ll bc used fo(general co(pots(e panposcs including".ve>educ(L>n of thon term bo>rowb>gs 4ciarcd p>imsrgy for (hc coi>st>era)on of scar fs ili(ics.These shot(actin bor to<<fags toislc4 sppiodmstdy Sl)I,(>$7.000 sl Dcccn)bct)I, IN4,~nd arc cspcc(id (o sppiosimmc SI)S.N0,000 s(the (imc o(the ss)e of (Lese shares.Con(tree(ion cxprn(BO>es stc pic(en(ly cs(lmsied st 5)4).SN.000 for l915 snd SI, l4)7N.C&(or (he>us>s l975 (hrough l917.Dating 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 f ciic(s(>ng cspstl(y.A(so in.'dudtd wss the difrnsl i I rsrh of ihc f>is(tiara (f thc four proposed 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 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(<<(Jch 5$4),74IJ)00 is Lath>d(J in thc I97$.(N7 runniunioa program'a addlh<<>thr funds rrrt(f(J Dom tbr ss)r of (lac uc<<preference slotL nnd thc ss)r in Jsnusry l97$id cumnaon s(ufL anal fats(~mo>(gsgr i<<and(, thr taampsny cs>ims(rs ihsl it<<itl nrrJ sp-p>nsinas(f)y St)OP(S>,KL)
>af (LC funds tra(ui>cd (o(thr (915 rosa(>uc.Ib>>p>ones>n f>nn>long>nm>awrrrs.>br cnmpsny penrn(ly (4ans lo tahe 4 (Le irrosJ>(us>tr>uf INS sp(a>naia<<a(f(y 5((>()(WVO(s)
~tL>oufh thr)wig>>)sir of fi>at ma>tr vcr lwmh.Aal liihwsl sfa)>>e>ifs
<<'ll Ie i)surd Is(rt in I')S, (hc ()pe anJ ana>wn(of<<L<<'h will le air lnmha(dal ties(thnr.
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 Sli>CL, bo<<rrrra is not>ul>r(((n nn rmnmga (ea(.In (Lc rom((Lr~tnmpsay 4llt lo tie(he sa(f.(ustc snd (imtly rs(c (cl>t(, i(nisy ptosbna(dy SSI 9000(O based on I9744fcl ul L<<h sales.On January IS, IN), lhc SCI'SC issued nn ot Jcr grsntiug the company an sp proaiina(C Ik?<<Snnilal inCtCSSC ee(u>)(0 Spp>OSI>naacly 59 f>00,000>bused on tlac l974 Icfcl of k<<h ss(es Ties oiilcr rte)ui>cd thc icfund 0(approslmstdy SS40 000 li1)rd in l 974>a csccss uf thc a pprorcd ta(c(.Tbc HCUC be)i>surd sn order buaidng the sppiics(L>n of thc corn.psny's fossil (ud sdjus(meal dsusc for rcsidca(isl cunumers io 75%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 ps()cd~bgl su(ho>i>ing thc>ICVC to p(tmit u(pi(ics ba rs(c cases (o'>(Siss a got wsr4 (cst pc>ice(.The company p>esca(ly phot to fife (or.aa addiyonsl tc(s>l sate incrcssc ia 1915.e~'T>oooo(ot Oe>eeaaee>t~'()t (rt)ts))ts)(ts)o ore>,neo<<so>(stat)~
c(ost>(to(>st.li>ssoa>oass C>toe.So>ales(S(CS)
)(JS l>SS>an SL)>>)so F>C.CSS>.C>.at)>LS>t>LS<<C II I.I ul<<UI all I<<~ae.I\III Ial III lal<<E I'I I el ul'o I<<III ASSET PROTP>CTI0'.ll Cs(olios Power Ib Ught<<)ll bare a pro forms esp((s)its(ioo of 5)V%long ieim dcb(, l4 4D>prefcncd stoA, 2S%prCfttCIICC S)oct Si>d)02uu Cummaa C4ui(y.LOng.tetm 4cbt plus picfcrrcd snd pie(crrncc s(och<<)ll e>(ud 70.)eb of nct plant.Thcsc picfeienec shstcs s>c soho>dine(cd in dirfdrnd righ(s tn thc ptcfc((cd nock bu(senior to thc company's common sbs>es.(l'hdr nnrrcgrs ros>isurd m drr(4F 4 Ipyi,>hr rompnsy cr (hu(iimr hud no(rrrr(rrd>hrf>JI brrrfns feosi itr rrrrn((sir Is.rro(r.Coawn rr 4 (915 should,brgis to cshibii o n>ndrsr up>fred.Cv>rd on rhis lmprorru>rn(, wrhair eo>rd rkfs I>euro/prrf>rrsrr rhorrs"VVV.CROWN ZELLHIDACII CORPORATION Ogrying S>'aking Fi>nd Dc j>cn(@yes 0~n his>eh lg an undcrw>iYmg s><<>L'ea(e lacsdcd hy Lchman I I 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.These dries(u>cs
<<i(l atf>iJ pna(fninn srainai La<iutcicsi cosl tcfunding<<sail IN'a.A)4Ling lund ca>san>rnri>an ia (984<<)ll ir(irc$2.2>O,RQ of thi akbcn(sees su>wally.1'hr ufl'r>inr<<Sl le<<narc<<>ed lant pin(cnrd ley s n(gn(nr I irJ(:c danae.I'i of mls leon>ihc aa(fr>L>g<<)ll Lc aLI(J tn iLc compsny's grnnsl fun>la anal u v J (ot<<aa>LL>g ra(dial asd o(larr no>poco>r pu>paar), is>I>>Jmg Inip>nermrnl of eshtisg fsritiYes, purr)mars o(sah(i>L>>as(fa)ulpnarnt asd sn(uiYiaim of s>L(i(hmsl (iasleibnal<<('v(>>(sl ta(at<<ala(u>rs for INS n>>'n(hns(rd n(SI>$,0(C(JL)0.
hear ls'a seal teer'tsa rua'riufra f w the>>sr rnalnl l>rccisler)I, (974.<<nr>sc (inert snd s.27 (hnri at>pre(nuly.
y<<>>rd e>s tkr i>up>varuers>
is ihr In<<(s/f>aed fhsegr reaereugr nrrr ihr pse(enrevi)a n,>lr suha>ss>i>d real Ital<<us I>hr ms>to>sr'S Sign>/>run>
ps>i>has<kh~>hr Ilaeni Ia>eoi>s i~ludo>>ey.e)'hoar(nerd (hie Ie>ur>II e>slang/usd dries>u>rr f(.I'e>r/ueehrr (silas en>us>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 I'(>ge 846~'.i.:I)>R(>INC;Ohifi INYf'-%'Oft Standard 8(Poor(0 CoiI>oration, Thc Pi>(cd Incoync In)ec.".tor March Ri I975>papa.",yv5.n<<I:, v e,>'a>a'c'a ia r o'r r f e 1 y f'I 1 a a a s e ,e e ,a
~t~~
I I CAROLIFtA FOIER AND LIOIIE CMPAIIT'QVHVICE OF FIEFD CIIARCEE ADD IREI'ARED DIVIDNDQ 1965 1975 1965 19'969 1971 1972 1973 1974 197S o>wl interee c?targus rrefe..ed stool dividends Total irte:est charges and preferred stool dividends g6,654,000 fr6,535,934 4 89,955,263 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 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 20,672,000 25,752,000 97>207>934 115>707>263 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 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 (1 v I)4.36x 4.08x 3.44x-3.17x 2,72x 1,83x 1.88 2.24x 1.66x 1.S4x 1 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~<<s~~<<res>c 51fF<