Generic Determination of Rate of Return on Common Equity for Public Utilities October 14,1988

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BILLING CODE 6750-01-M DEPARTMENT OF ENERGY Federal Energy Regulatory Commission 18 CFR Part 37 [Docket No. RM87-35-000] Generic Determination of Rate of Return on Common Equity for Public Utilities October 14,1988.

a g e n c y : Federal Energy Regulatory Commission, DOE.

ACTION: Notice of benchmark rate of return on common equity for public utilities.

SUMMARY: In accordance with § 37.5 of its regulations, the Federal Energy Regulatory Commission, by its designee, the Director of the Office of Economic Policy, issues the update to the "advisory” benchmark rate of return on common equity applicable to rate filings made during the period November 1988 through January 1989. This benchmark rate is set at 12.44 percent. EFFECTIVE DATE: November T, 1988. FOR FURTHER INFORMATION CONTACT: Marvin Rosenberg, Office of Economic Policy, Federal Energy Regulatory Commission, 825 North Capitol Street, NE., Washington, DC, 20428, (202) 357- 8283.

SUPPLEMENTARY INFORMATION: Benchmark Rate of Return on Common Equity for Public Utilities Issued October 14,1988. On January 27,1988, the Federal Energy Regulatory Commission (Commission) issued a final rule which readopted the quarterly indexing procedure for establishing and updating the benchmark rate of return on common equity applicable to electric 8 This statement of policy is intended only to provide general guidance and information. When time, circumstances, or the public interest require, this statement may be amended or superseded by subsequent Commission action without prior notice. This statement is not a rule or regulation. It does not modify the scope or coverage of any provision of the Federal Trade Commission Act or the Commission’s Rules of Practice.

rate filings.1 Based on this procedure, the Commission, by its designee, the Director of the Office of Economic Policy, determines that the benchmark rate of return on common equity applicable to rate filings made during the period November 1,1988 through January 31,1989, is 12.44 percent. Section 37.9 of the Commission’s regulations 2 requires that the quarterly benchmark rate of return be set equal to the average cost of common equity for the jurisdictional operations of public utilities. This average cost is based on the average of the median dividend yields for the two most recent calendar quarters for a sample of 99 utilities.3 The average yield is used in the following formula with fixed adjustment factors (determined in the most recent annual proceeding) to determine the cost rate; kt=1.02 Yt + 4.36 where kt is the average cost of common equity and Yt is the average dividend yield.

The attached appendix provides the supporting data for this update. The median dividend yields for the 99company sample of utilities for the second an third quarters of 1988 are 7.91 and 7.92 percent, respectively. The average yield for those two quarters is 7.92 percent. Use of the average dividend yield in the above formula produces an average cost of common equity of 12.44 percent. This notice supplements the generic rate of return rule announced in Order No. 489, issued January 29,1988 and effective on February 1,1988. List of Subjects in 18 CFR Part 37 Electric power rates, Electric utilities, Reporting and recordkeeping requirements.

In consideration of the foregoing, the Commission amends Part 37, Chapter I, Title 18 of the Code o f F ederal Regulations, as set forth below, effective November 1,1988.

Bernard W. Tenenbaum, Acting Director, Office o f Economic Policy. 1 Generic Determination of Rate of Return on Common Equity for Public Utilities, Order No. 489, 53 FR 3342 (February 5,1988), III FERC Stats, and Regs. 30,795 (January 29,1988). 2 18 CFR 37.9 (1987).

8 As a result of the acquisition of Savannah Electric and Power Company by the Southern Company, the Commission has reduced the number of companies in the sample for the most recent quarter to 99. It has made this change in accordance with the criteria for inclusion in the sample specified in 18 CFR 37.9(c) (1987).

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40870 federal Register / Vol. 53, No. 202 / W ednesday, October 19, 1988 / Rules and Regulations P A R T 37— G EN ER IC D ETER M IN ATIO N O F R A TE O F R E TU R N ON COM M ON E Q U ITY FO R PU BLIC U TILITIE S 1. The authority citation for Part 37 continues to read as follows: Authority: Federal Power Act, 16 U.S.C. 791a-825r (1982); Department of Energy Organization Act, 42 U.S.C. 7101-7352 (1982). 2. In § 37.9, paragraph (d) is revised to read as follows:

§ 37.9 Quarterly indexing procedure * * * * * (d) Table o f Quarterly Benchm ark R ates o f Return.

The following table presents the quarterly benchmark rates of return on common equity:

Benchmark applicability period Dividend increase adjustment factor Expected growth adjustment factor Current dividend yield Cost of common equity Benchmark rate of return (a) (b) (Yt) (k.) 1.02 4.54 9.03 13.75 13.75 1.02 4.54 8.37 13.08 13.25 1.02 4.54 7.49 12.18 12.75 1.02 4.54 6.75 11.43 12.25 1.02 4.63 6.44 11.20 11.20 1.02 4.63 6.54 11.30 11.30 1.02 4.63 6.97 11.74 11.74 1.02 4.63 7.49 12.27 12.27 1.02 4.36 12.42 12.42 1.02 4.36 7.99 12.51 12.51 1.02 4.36 7.84 12.36 12.36 1.02 4.36 7.92 12.44 12.44 (t) 2/1/86-4/30/86____ 5/1/86-7/31/86...

8/1/86-10/31/86.....

11/1/86-1/31/87.

2/1/87-4/30/87.......

5/1/87-7/31/87.......

8/1/87-10/31/87.....

11/1/87-1/31/88.....

2/1/88-4/30/88...

5/1/88-7/31/88.......

8/1/88-10/31/88.

11/1/88-1/31/89.

Note: The appendix will not be published in Code of Federal Regulations Appendix Exhibit No.

Title 1......................

Initial samóle of utilities. 2......................

Utilities excluded from the sample for the indicated quarter due to either zero dividends or a cut in dividends for this quarter or the prior three quarters.

Annualized dividend vields for the 3......................

indicated quarter for utilities tained in the sample.

re- Source of data: Standard and Poor’s Compustat Services, Inc., Utility COMPUSTAT II Quarterly Data Base.

BILLING CODE 6717-01-M

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Federal Register / Vol. 53, No. 202 / Wednesday, October 19, 1988 / Rules and Regulations

40871

Exhibit 1

utility

ALLEGHENY POWER SYSTEM AMERICAN ELECTRIC POWER ATLANTIC EWERGY IWC BALTIMORE GAS & ELECTRIC BLACK HILLS CORP

BOSTON EDISON CO CAROLINA POWER & LIGHT CENTERIOR ENERGY CORP CENTRAL & SOUTH WEST CORP CENTRAL HUDSON GAS & ELEC CENTRAL ILL PUBLIC SERVIC CENTRAL LOUISIAWA ELECTRI CENTRAL MAINE POWER CO CENTRAL VERMONT PUB SERV CILCORP INC

CINCINNATI GAS & ELECTRIC CMS ENERGY CORP COMMONWEALTH EDISON COMMONWEALTH ENERGY SYSTE CONSOLIDATED EDISON OF KY DELMARVA POWER & LIGHT DETROIT EDISON CO DOMINION RESOURCES INC-VA OPL INC

OUKE POWER CO

DUQUESWNE LIGHT CO EASTERN UTILITIES ASSOC EMPIRE DISTRICT ELECTRIC FITCHBURG GAS & ELEC LIGH FLORIDA PROGRESS CORP

FPL GROUP INC

GENERAL PUBLIC UTILITIES GREEN MOUNTAIN POWER CORP GULF STATES UTILITIES CO HAWAIIAN ELECTRIC INOS HOUSTON INDUSTRIES INC

1 E INDUSTRIES INC

IDAHO POWER CO

ILLINOIS POWER CO INTERSTATE POWER CO

IOWA RESOURCES INC IOWA-ILLINOIS GAS & ELEC IPALCO ENTERPRISES INC KANSAS CITY POWER & LIGHT KANSAS GAS & ELECTRIC KANSAS POWER & LIGHT KENTUCKY UTILITIES CO LONG ISLAND LIGHTING LOUISVILLE GAS & ELECTRIC MAINE PUBLIC SERVICE

N= 9

Ticker Symbol

AYP AEP ATE BGE BKH BSE CPL cx CSR CNH cIP CNL crip cv CER CIN CMs CWE ces ED DEW OTE DPL DUK bau EUA EDE FGE FPC FPL

Sample of Utilities

Industry Code

Utility

MIDDLE SOUTH UTILITIES MIDWEST ENERGY CO MINNESOTA POWER & LIGHT MONTANA POWER CO

NECO ENTERPRISES INC NEVADA POWER CO

WEW ENGLAND ELECTRIC SYST WEW YORK STATE ELEC & GAS NIAGARA MOHAWK POWER NIPSCO INDUSTRIES INC WORTHEAST UTILITIES WORTHERN STATES POWER-MN OKIO EDISON CO

OKLAHOMA GAS & ELECTRIC ORANGE & ROCKLAND UTILITI PACIFIC GAS & ELECTRIC PACIFICORP

PENNSYLVANIA POWER & LIGH PHILADELPHIA ELECTRIC CO PINNACLE WEST CAPITAL COR PORTLAND GENERAL CORP POTOMAC ELECTRIC POWER PSI HOLDINGS IWC

PUBLIC SERVICE CO OF COLO PUBLIC SERVICE CO OF WH PUBLIC SERVICE CO OF NW ME PUBLIC SERVICE ENTERPRISE PUGET SOUND POWER & LIGHT ROCHESTER GAS & ELECTRIC SAN DIEGO GAS & ELECTRIC SCANA CORP

SCECORP

SIERRA PACIFIC RESOURCES SOUTHERN CO

SOUTHERN INDIANA GAS & EL ST JOSEPH LIGHT & POWER TECO ENERGY INC

TEXAS UTILITIES CO

TWP ENTERPRISES INC TUCSON ELECTRIC POWER CO UNION ELECTRIC CO

UNITED ILLUMINATING CO UNITIL CORP

UTAH POWER & LIGHT UTILICORP UNITED INC WASHINGTON WATER POWER WISCONSIN ENERGY CORP WISCONSIN PUBLIC SERVICE WPL HOLDINGS IWC

Ticker

Symbol

MSU MWE MPL MIP NPT NvP NES NGE WMK NI NU NSP OEC OGE ORU PCG PPW PPL PE PNW PGN POM PIN PSR PNH PNM PEG PSD RGS soo SCG SCE SRP so SIG SAJ TE TXU TNP TEP UEP VIL UTL UTP ucu WwP WEC WPS WH

Industry Code

493)

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40872 Federal Register / Vol. 53, No. 202 / W ednesday, October 19, 1988 / Rules and Regulations Exhibit 2 U tilitie s Excluded from the Sample for the Indicated Quarter Due to Either Zero Dividends or a Cut in the Dividends for This Quarter or the Prior Three Quarters - Year * 88 Quarter » 3 Ticker U tility Symbol Reason for Exclusion cx CENTER IOR ENERGY CORP Dividend rate was CNN CENTRAL HUDSON GAS & ELEC Dividend rate was CMS CMS ENERGY CORP Dividend rate was G SU GULF STATES UTILITIES CO Dividend rate was LIL LONG ISLAND LIGHTING Dividend rate was MSU MIDDLE SOUTH UTILITIES Dividend rate was NGE NEW YORK STATE ELEC ft GAS Dividend rate was PCG PACIFIC GAS ft ELECTRIC Dividend rate was PIN PSI HOLDINGS INC Dividend rate was PNH PUBLIC SERVICE CO OF N H Dividend rate was PNN PUBLIC SERVICE CO OF N ME Dividend rate was reduced for the quarter CALENDAR 68Q2 reduced for the quarter CALENDAR 88Q1 zero for quarter CALENDAR 88Q3 zero for quarter CALENDAR 88Q3 zero for quarter CALENDAR 88Q3 zero for quarter CALENDAR 8803 reduced for the quarter CALENDAR 88Q1 reduced for the quarter CALENDAR 88Q3 zero for quarter CALENDAR 88Q3 zero for quarter CALENDAR 8803 reduced for the quarter CALENDAR 88Q2 N * 11

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Federal Register / Vol. 53, No. 202 / Wednesday, October 19, 1988 / Rules and Regulations 40873

Exhibit 3 Annualized Dividend Yields for the Indicated Quarter for Utilities Retained in the Sample

Year = 88 Quarter = 3

Ticker Price,ist. Price,Ist Price,2nd Price,2nd Price,3rd Price,3rd Average Dividends Annualized Symbot Month of Month of Month of Month of Month of Month of Price Dividend Qtr-High Qtr-Low Qtr-High Otr-Low Qtr-High Qtr-Low Yield

AEP 29.000 27.000 28.875 26.125 28.125 26.625 27.625 8.579 33.625 32.375 33.500 31.875 33.625 32.000 32.833 8.406 37.875 36.500 38.250 36.625 38.375 37.125 37.458 8.009 32.750 30.375 32.375 30.000 32.125 30.250 31.312 6.387 28.125 27.000 27.875 26.500 28.250 26.750 27.417 5.106 15.250 14.500 15.000 14.000 16.125 14.250 14.854 12.252 34.250 31.625 32.875 31.000 32.875 31.125 32.292 7.432 31.000 29.375 30.500 29.250 33.000 29.500 30.437 9.199 28.000 26.250 26.750 25.375 26.875 26.000 26.542 8.440 21.875 21.125 21.750 20.250 21.875 20.750 21.271 8.274 33.125 31.000 32.375 31.250 32.875 32.000 32.104 7.226 34.500 32.500 34.250 32.625 35.875 33.875 33.937 8.133 32.125 30.500 31.750 29.875 31.750 30.000 7.871 18.000 17.000 18.125 16.875 18.375 17.250 8.407 25.500 23.625 25.250 23.625 25.250 30.125 26.750 30.125 28.125 31.125 43.750 41.375 43.000 41.375 43.875 18.625 17.000 17.625 16.875 17.500 26.750 25.500 26.750 24.500 26.500 15.500 14.875 15.500 15.000 15.875 14.625 13.000 15.125 14.000 15.500 46.250 44.250 46.000 42.625 45.750 44.375 43.000 45.125 42.125 44.875 30.375 29.125 29.500 28.875 29.375 26.125 24.250 26.000 24.500 29.000 27.875 26.250 26.250 25.500 26.375 35.125 35.000 34.000 34.875 30.750 30.625 29.125 31.375 24.500 24.500 23.000 25.375 35.625 35.250 32.750 35.500 30.625 28.875 28.000 29.250 31.875 32.125 28.625 29.875 22.500 22.125 20.250 22.625 23.375 23.875 22.500 24.375 17.250 16.875 15.750 18.000 19.500 19.000 18.000 20.375- 23.375 23.875 22.375 23.250 21.875 21.875 20.375 22.250 37.750 36.875 35.250 38.875 25.125 24.625 23.250 23.875 19.750 20.125 18.125 20.125 29.500 30.000 28.625 30.250 19.125 18.500 17.500 18.500 34.500 32.625 31.125 35.000

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Page 18

40874 Federal Register / Vol. 53, No. 202 / W ednesday, October 19, 1988 / Rules and Regulations Exhibit 3 (continued) Annualized Dividend Yields for the Indicated Quarter for U tilitie s Retained in the Sample --------------------------------------------------------------------------------Year * 88 Quarter ■ 3 ------------------------------------------- Ticker Price,1st Price,1st Price,2nd Price,2nd Price,3rd Price,3rd Average Dividends Annualized Symbol Month of Month of Month of Month of Month of Month of Price Annual Dividend Qtr-High Qtr-Low Qtr-High Qtr-Low Qtr-High Qtr-Low Rate Yield MAP 31.375 30.625 37.250 30.875 37.125 35.375 33.771 2.600 7.699 MPL 25.000 23.375 25.000 23.750 24.875 23.875 24.312 1.720 7.075 MTP 34.750 33.250 34.750 33.875 36.500 34.375 34.583 2.680 7.749 HUE 19.500 18.250 19.375 17.875 19.625 19.000 18.937 1.560 8.238 NES 23.875 22.250 24.000 22.625 24.000 22.500 23.208 2.040 8.790 NI 11.875 10.500 11.500 10.875 12.125 11.125 11.333 0.600 5.294 NMK 15.375 13.250 13.750 12.875 14.125 13.500 13.812 1.200 8.688 NPT 19.250 18.625 18.500 17.875 18.125 17.750 18.354 1.500 8.173 NSP 31.375 30.000 31.750 30.125 32.875 31.000 31.187 2.120 6.798 NU 20.000 18.625 19.625 18.250 20.625 18.625 19.292 1.760 9.123 NVP 21.250 19.500 20.875 19.000 20.875 19.500 20.167 1.520 7.537 OEC 19.000 17.750 18.875 17.875 18.750 17.875 18.354 1.960 10.679 OGE 32.250 29.875 31.500 29.875 32.875 31.000 31.229 2.280 7.301 ORU 31.250 29.250 30.125 28.500 30.625 29.500 29.875 2.260 7.565 PE 19.000 18.000 19.000 17.125 19.000 17.625 18.292 2.200 12.027 PEG 24.750 22.375 24.000 22.375 24.625 22.000 23.354 2.000 8.564 PGN 23.125 21.000 21.750 20.250 21.625 20.250 21.333 1.960 9.187 PNU 25.750 23.375 23.875 21.000 23.125 22.125 23.208 2.800 12.065 POM 22.875 20.375 21.000 20.000 21.000 20.000 20.875 1.380 6.611 PPL 36.375 34.000 35.625 33.750 35.875 34.625 35.042 2.760 7.876 PPU 36.625 33.500 35.250 34.000 35.875 34.625 34.979 2.640 7.547 PSD 19.625 18.375 19.125 18.000 19.500 18.500 18.854 1.760 9.335 PSR 22.375 21.375 22.000 19.500 22.000 20.875 21.354 2.000 9.366 RGS 18.250 17.500 18.000 16.375 17.875 17.125 17.521 1.500 8.561 SAJ 22.250 21.250 22.750 21.000 22.750 21.000 21.833 1.400 6.412 SCE 32.875 30.750 32.750 31.250 33.625 31.500 32.125 2.480 7.720 SCG 32.625 30.250 31.375 29.750 31.125 29.750 30.812 2.400 7.789 SDO 34.500 32.750 35.500 33.500 36.000 33.500 34.292 2.600 7.582 SIG 30.125 28.500 29.250 26.500 27.625 26.500 28.083 1.700 6.053 SO 23.500 21.875 22.750 21.375 21.875 20.375 21.958 2.140 9.746 SRP 23.500 21.625 22.125 20.875 22.500 21.125 21.958 1.760 8.015 TE 23.875 22.125 23.375 21.750 23.875 22.875 22.979 1.420 6.180 TEP 55.875 52.125 53.000 50.000 54.500 51.500 52.833 3.900 7.382 TNP 20.500 19.500 20.000 18.500 19.875 19.000 19.562 1.470 7.514 TXU 28.500 26.125 29.125 27.750 28.625 27.625 27.958 2.880 10.301 UCU 18.750 17.500 18.875 17.500 19.375 18.500 18.417 1.120 6.081 UEP 23.375 22.500 23.250 21.500 23.875 22.375 22.812 1.920 8.416 UIL 23.750 22.625 23.875 21.875 24.250 21.750 23.021 2.320 10.078 UTL 28.500 27.750 28.000 27.500 29.625 28.000 28.229 2.040 7.227 UTP 30.125 28.500 30.625 28.750 31.125 29.625 29.792 2.320 7.787 UEC 27.125 25.375 26.750 25.250 27.000 25.625 26.187 1.540 5.881 UPH 23.500 22.000 23.125 21.437 23.625 22.125 22.635 1.620 7.157 WPS 22.500 21.125 22.250 21.000 21.500 21.000 21.562 1.580 7.328 UUP 28.000 26.500 27.750 25.750 27.750 26.125 26.979 2.480 9.192 N = [FR Doc. 88-24177 Filed 10-18-88; 8:45 am]