Capitalization Rate Study
for Centrally Assessed Properties
as of January 1st, 2018
Louisiana Tax Commission
Public Service Section
1051 North 3rd
Street, 2nd
Floor
P. O. Box 66788
Baton Rouge, LA 70896-6788
(225) 219-0339
http://www.latax.state.la.us
Louisiana Tax Commission
Table of Contents Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
PAGE DESCRIPTION
1 - 3 Executive Summary
Exhibit A Electric Industry
Exhibit B Gas Distribution
Exhibit C Pipelines – Fluid (Form 6)
Exhibit D Pipelines – Gas (Form 2)
Exhibit E Railroads – Class 1
Exhibit F Telecommunications
Exhibit G Water Companies
Appendix A Moody’s Long-Term Corporate Bond Yield Averages
Appendix B Bloomberg Bond Yields
Appendix C Capital IQ Bond Yields
1
Louisiana Tax Commission
Executive Summary Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
The Income Approach to Value is based primarily on the principle of anticipation and involves
converting dollars of expected future income, or cash flow, into an estimate of present value.
Mathematical techniques used in the approach are tools for converting these data and
assumptions into an estimate of current market value. The accuracy of this approach is no greater
than the data and assumptions used to estimate the key variables, including the overall
capitalization rate.
Generally accepted appraisal procedures were used to estimate the key inputs needed to estimate
the overall rate. The long term debt cost is the cost for a particular risk class of debt on the lien
date. The equity rate reflects the rate of return or compensation that will satisfy the risk that a
prospective buyer would assume by investing in the property. The band of investment approach
was utilized to determine the overall capitalization rates in our studies.
This booklet contains a capitalization rate study for each of the seven state assessed industry
groups in Louisiana (see Table of Contents). Sources relied upon for this study included the
following: The Value Line Investment Survey (“Value Line”), Mergent Bond Record, Moody’s ,
Standard & Poor’s, Bloomberg, Yahoo Finance, Security and Exchange Commission documents
and certain calculations from other state studies
Guideline Companies
General guideline companies for each industry were selected based on Value Line Industry
segments. Companies reported in each industry were then further screened for selection based on
criteria such as primary line of business, published credit ratings, domestic or foreign based, etc.
Companies that were recently engaged in acquisition or merger discussions were not considered
for this study.
2
Capital Structure
A representative capital structure is developed for each industry based on the guideline
companies selected. Using Value Line as the source, the market value of equity was calculated
by multiplying the number of shares outstanding by the listed stock price. The book value of debt
was utilized as a proxy for market values unless market values were readily available. Preferred
stock amounts were considered, but were excluded in the calculations for all industry types due
to level of materiality.
The capital structure estimated for use in each industry study is considered to be representative
of the typical capital structure of an industry group of companies.
Cost of Debt
The cost of debt for each industry was calculated by analyzing the debt (credit) rating from
Moody’s and/or Standard & Poor’s for each guideline company, and the corresponding yield
information from Moody’s and Standard & Poor’s (from Bloomberg and from Standard &
Poor’s Capital IQ). Information concerning recent issuances was also considered, if appropriate.
Cost of Equity
Our studies utilized two common methods for estimating the cost of equity – the Discounted
Cash Flow (DCF) Method (also known as the Gordon Growth Model) and the Capital Asset
Pricing Model (CAPM).
The DCF Method requires an expected dividend yield and an estimated growth rate. To calculate
the expected dividend yield, next year’s estimated dividend as reported by Value Line for each
guideline company was divided by the year-end price for each company. Value Line’s estimated
growth rate for each guideline company was then added to each company’s expected dividend
yield to arrive at an estimated cost of equity via the DCF.
In the application of the Capital Asset Pricing Model (CAPM), estimates were required for the
risk-free rate, beta and the equity risk premium. Two versions of the CAPM were utilized – an
historical-based model and a forecasted-based model. The risk-free rate and the historical equity
risk premium were taken from Duff & Phelps Cost of Capital Navigator. The forecasted equity
risk premium was based on estimated returns on the market less the risk-free rate. The beta
utilized in each version was an average of the betas reported for each guideline company by
Value Line. If warranted, size premiums, as reported in the Cost of Capital Navigator, were
added to each version of the CAPM to arrive at estimates for the cost of equity.
Floatation Costs
As put forth by the California Board of Equalization, when new issues of both debt and equity
capital are sold to investors, the issuing company incurs transaction costs such as underwriting
fees, legal expenses and prospectus preparation costs. These are known as floatation costs. Much
like loan fees or points on a mortgage, floatation costs effectively reduce the net proceeds that a
firm will receive from issuing securities. The cost of capital is adjusted upward to reflect these
incurred costs. Since these costs are reflected in the WACC, they should not be allowed as
3
expenses in projecting cash flows to be capitalized. The cost of debt and the cost of equity
utilized in each industry’s study has been adjusted for floatation costs.
Utilization of Other Studies and Data
During development of this study, valuation staff reviewed data and capitalization rate studies
submitted by assessees and other states. The capitalization rates published within this study are
intended as guidelines to be applied in the valuation process for each company subject to state
assessment in Louisiana.
Exhibit A
Capital Percentage Rate Wt Rate
Equity 68.00% 9.10% 6.19%
Debt 32.00% 4.10% 1.31%
100.00% 7.50%
SAY 7.50%
Adjusted for Flotation Costs:
Capital Percentage Rate Wt Rate
Equity 68.00% 9.41% 6.40%
Debt 32.00% 4.15% 1.33%
100.00% 7.72%
SAY 7.70%
FC for Equity 3.25%
FC for Debt 1.10%
*Electrics: Base Rate 7.70%
SAY 9.40%
*If warranted, staff may adjust stated cap rates due to company specifics
Page A-1
ELECTRIC INDUSTRY
*Adjusted to give consideration to characteristics of a smaller Electric company
(based on additional consideration given to size premium)
SUMMARY
SUMMARY
ESTIMATED RATE FOR ELECTRIC CO-OP'S
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Weighted Average Cost of Capital (WACC) - Summary
Company NameOutstanding
Shares
12/29/2017
Close PriceEquity Preferred Long Term Debt Total % Equity % Pref % Debt
Allete, Inc. ALE 51,000,000 74.36 3,792,360,000 - 1,444,600,000 5,236,960,000 72.4% 0.0% 27.6%
Alliant Energy Corporation LNT 231,200,000 42.61 9,851,432,000 - 4,255,100,000 14,106,532,000 69.8% 0.0% 30.2%
American Electric Power Co., Inc. AEP 491,840,000 73.57 36,184,668,800 - 18,362,400,000 54,547,068,800 66.3% 0.0% 33.7%
Ameren Corporation AEE 242,600,000 58.99 14,310,974,000 - 6,922,000,000 21,232,974,000 67.4% 0.0% 32.6%
CMS Energy CMS 281,600,000 47.30 13,319,680,000 - 9,121,000,000 22,440,680,000 59.4% 0.0% 40.6%
CenterPoint Energy, Inc. CNP 431,030,000 28.36 12,224,010,800 - 7,531,000,000 19,755,010,800 61.9% 0.0% 38.1%
DTE Energy Company DTE 179,390,000 109.46 19,636,029,400 - 11,795,000,000 31,431,029,400 62.5% 0.0% 37.5%
Entergy Corporation ETR 179,630,000 81.39 14,620,085,700 - 14,000,300,000 28,620,385,700 51.1% 0.0% 48.9%
MGE Energy, Inc. MGEE 34,670,000 63.10 2,187,677,000 - 389,410,000 2,577,087,000 84.9% 0.0% 15.1%
OGE Energy Corporation OGE 199,710,000 32.91 6,572,456,100 - 2,749,500,000 9,321,956,100 70.5% 0.0% 29.5%
Vectren Corporation VVC 83,000,000 65.02 5,396,660,000 - 1,639,100,000 7,035,760,000 76.7% 0.0% 23.3%
WEC Energy Group WEC 315,580,000 66.43 20,963,979,400 - 8,785,800,000 29,749,779,400 70.5% 0.0% 29.5%
Average 13,255,001,100 67.8% 0.0% 32.2%
Median 12,771,845,400 68.6% 0.0% 31.4%
SAY 68.0% 0.0% 32.0%
*Source of Info:
ValueLine 12/29/2017
www.finance.yahoo.com
Page A-2
Exhibit AELECTRIC INDUSTRY
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Capital Structure
Exhibit A
Allete, Inc. ALE BBB+ 10 A3 9
Alliant Energy Corporation LNT A- 9 Baa1 10
American Electric Power Co., Inc. AEP BBB+ 10 Baa1 10
Ameren Corporation AEE A- 9 Baa1 10
CMS Energy CMS A- 9 Baa1 10
CenterPoint Energy, Inc. CNP BBB+ 10 Baa1 10
DTE Energy Company DTE BBB+ 10 Baa1 10
Entergy Corporation ETR BBB+ 10 Baa2 11
MGE Energy, Inc. MGEE AA- 6 A1 7
OGE Energy Corporation OGE A- 9 A3 9
Vectren Corporation VVC A- 9
WEC Energy Group WEC A- 9 A3 9
Average 9.16667 Average 9.54545
Median 9.0 Median 10.0
SAY 9.1 SAY 9.75
A- Baa1
Cost of Debt (Bloomberg) 3.75%
Cost of Debt (Capital IQ) 4.40%
Cost of Debt (Moody's) 4.14%
SAY 4.10%
(S & P avg. = 4.07%)
Page A-3
ELECTRIC INDUSTRY
Capitalization Rate Study
Company Name S & P Moody's
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Debt - Summary
ELECTRIC INDUSTRY Exhibit A
VL Beta
Allete, Inc. ALE 0.80
Alliant Energy Corporation LNT 0.70
American Electric Power Co., Inc. AEP 0.65
Ameren Corporation AEE 0.70
CMS Energy CMS 0.65
CenterPoint Energy, Inc. CNP 0.90
DTE Energy Company DTE 0.65
Entergy Corporation ETR 0.65
MGE Energy, Inc. MGEE 0.75
OGE Energy Corporation OGE 0.95
Vectren Corporation VVC 0.75
WEC Energy Group WEC 0.60
Average 0.73
Median 0.70
SAY 0.72
Betas from ValueLine
Page A-4
Company
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - Beta Summary
ELECTRIC INDUSTRY Exhibit A
Capital Asset Pricing Model (CAPM) formula:
INPUTS
Rf = Risk-free Rate: 2.58% Cost of Capital Navigator
ERP = Equity Risk Premium:
Ex Post (historical): 7.07% Cost of Capital Navigator
Km = Market Return 11.92% State Studies and Others
Rf = Risk-free Rate 2.58% Cost of Capital Navigator
Ex Ante (forward looking): 9.34%
β = beta: 0.72 ValueLine
sp = size premium: 0.56%
CAPM Estimates
Ex Post Ex Ante
Rf = 2.58% 2.58%
ERP = 7.07% 9.34%
β = 0.72 0.72
5.09% 6.72%
sp = 0.56% 0.56%
Cost of Equity (Ke) = 8.23% 9.86%
Page A-5
Cost of Capital Navigator - based on
Market Value of Equity =
$12,771,845,400
Ke = Rf + (Km - Rf) * β + sp
with (Km - Rf) = ERP(Ex Ante)
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - CAPM (Ex Post/Ex Ante)
Exhibit A
Company Dividend 1 PriceDividend
YieldGrowth Ke
Allete, Inc. ALE 2.22 74.36 2.99% 5.00% 7.99%
Alliant Energy Corporation LNT 1.26 42.61 2.96% 6.00% 8.96%
American Electric Power Co., Inc. AEP 2.51 73.57 3.41% 4.00% 7.41%
Ameren Corporation AEE 1.85 58.99 3.14% 6.00% 9.14%
CMS Energy CMS 1.42 47.30 3.00% 6.50% 9.50%
CenterPoint Energy, Inc. CNP 1.11 28.36 3.91% 6.00% 9.91%
DTE Energy Company DTE 3.59 109.46 3.28% 6.00% 9.28%
Entergy Corporation ETR 3.58 81.39 4.40% -2.50% NMF*
MGE Energy, Inc. MGEE 1.30 63.10 2.06% 6.50% 8.56%
OGE Energy Corporation OGE 1.40 32.91 4.25% 6.00% 10.25%
Vectren Corporation VVC 1.82 65.02 2.80% 6.50% 9.30%
WEC Energy Group WEC 2.21 66.43 3.33% 6.00% 9.33%
Average 9.06%
Median 9.28%
SAY 9.20%
*no meaningful figure
Source: Value Line Data
Page A-6
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - DCF
ELECTRIC INDUSTRY
ELECTRIC INDUSTRY Exhibit A
Summary of Estimates
CAPM Ex Post 8.23%
CAPM Ex Ante 9.86%
DCF 9.20%
Estimated Ke = 9.10%
Page A-7
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - Summary
Exhibit B
Capital Percentage Rate Wt Rate
Equity 69.00% 9.60% 6.62%
Debt 31.00% 4.10% 1.27%
100.00% 7.90%
SAY 7.90%
Adjusted for Flotation Costs:
Capital Percentage Rate Wt Rate
Equity 69.00% 9.92% 6.85%
Debt 31.00% 4.15% 1.29%
100.00% 8.13%
SAY 8.10%
FC for Equity 3.25%
FC for Debt 1.10%
*Gas Distribution: Base Rate 8.10%
SAY 9.40%
*If warranted, staff may adjust stated cap rates due to company specifics
Page B-1
*Adjusted to give consideration to characteristics of a smaller Gas Distribution
company (based on additional consideration given to size premium)
GAS DISTRIBUTION
SUMMARY
SUMMARY
ESTIMATED RATE FOR SMALL GAS DISTRIBUTION COMPANIES
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Weighted Average Cost of Capital (WACC) - Summary
Outstanding Shares12/29/2017 Close
PriceEquity Preferred Long Term Debt Total % Equity % Pref % Debt
Atmos Energy ATO 106,060,000 85.89 9,109,493,400 - 3,066,730,000 12,176,223,400 74.8% 0.0% 25.2%
New Jersey Resources NJR 86,470,000 40.20 3,476,094,000 - 897,700,000 4,373,794,000 79.5% 0.0% 20.5%
NiSource, Inc. NI 336,690,000 25.67 8,642,832,300 - 7,518,600,000 16,161,432,300 53.5% 0.0% 46.5%
Northwest Natural Gas NWN 28,710,000 59.65 1,712,551,500 - 757,430,000 2,469,981,500 69.3% 0.0% 30.7%
South Jersey Industries SJI 79,550,000 31.23 2,484,346,500 - 1,180,320,000 3,664,666,500 67.8% 0.0% 32.2%
Southwest Gas SWX 47,730,000 80.48 3,841,310,400 - 1,731,980,000 5,573,290,400 68.9% 0.0% 31.1%
Spire, Inc. SR 48,260,000 75.15 3,626,739,000 - 1,995,000,000 5,621,739,000 64.5% 0.0% 35.5%
Average 4,699,052,443 68.3% 0.0% 31.7%
Median 3,626,739,000 68.9% 0.0% 31.1%
SAY 69.0% 0.0% 31.0%
*Source of Info:
ValueLine 12/29/2017
www.finance.yahoo.com
Page B-2
Exhibit BGAS DISTRIBUTION
Company Name
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Capital Structure
Exhibit C
Buckeye Partners, LP BPL BBB- 12 Baa3 12
Enbridge Energy Part. EEP BBB 11 Baa3 12
Energy Transfer Part. ETP BBB- 12 Baa3 12
Holly Energy Partners, LP HEP BB+ 13 Ba3 15
MPLX, LP MPLX BBB 11 Baa3 12
Magellan Midstream MMP BBB+ 10 Baa1 10
NuStar Energy, LP NS BB 14 Ba1 13
Phillips 66 Partners PSXP BBB 11 Baa3 12
Plains All American Pipeline PAA BBB- 12 Ba1 13
Spectra Energy Part. SEP BBB+ 10 Baa2 11
Average 11.6 Average 12.2
Median 11.5 Median 12.0
SAY 11.6 SAY 12.1
BBB- Baa3
Cost of Debt (Bloomberg) 4.45%
Cost of Debt (Capital IQ) 5.20%
Cost of Debt (Moody's) 4.23%
SAY 4.60%
(S & P avg. = 4.07%)
Page C-3
PIPELINES - FLUID
Capitalization Rate Study
Company Name S & P Moody's
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Debt - Summary
Exhibit B
VL Beta
Atmos Energy ATO 0.70
New Jersey Resources NJR 0.80
NiSource, Inc. NI 0.60
Northwest Natural Gas NWN 0.70
South Jersey Industries SJI 0.85
Southwest Gas SWX 0.80
Spire, Inc. SR 0.70
Average 0.74
Median 0.70
SAY 0.72
Betas from ValueLine
Page B-4
Company
GAS DISTRIBUTION
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - Beta Summary
Exhibit B
Capital Asset Pricing Model (CAPM) formula:
INPUTS
Rf = Risk-free Rate: 2.58% Cost of Capital Navigator
ERP = Equity Risk Premium:
Ex Post (historical): 7.07% Cost of Capital Navigator
Km = Market Return 11.92% State Studies and Others
Rf = Risk-free Rate 2.58% Cost of Capital Navigator
Ex Ante (forward looking): 9.34%
β = beta: 0.72 ValueLine
sp = size premium: 1.38%
CAPM Estimates
Ex Post Ex Ante
Rf = 2.58% 2.58%
ERP = 7.07% 9.34%
β = 0.72 0.72
5.09% 6.72%
sp = 1.38% 1.38%
Cost of Equity (Ke) = 9.05% 10.68%
Page B-5
GAS DISTRIBUTION
Cost of Capital Navigator - based on
Market Value of Equity =
$3,626,739,000
Ke = Rf + (Km - Rf) * β + sp
with (Km - Rf) = ERP(Ex Ante)
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - CAPM (Ex Post/Ex Ante)
Exhibit B
Company Dividend 1 PriceDividend
YieldGrowth Ke
Atmos Energy ATO 1.96 85.89 2.28% 6.00% 8.28%
New Jersey Resources NJR 1.09 40.20 2.71% 2.00% 4.71%
NiSource, Inc. NI 0.70 25.67 2.73% 5.50% 8.23%
Northwest Natural Gas NWN 1.89 59.65 3.17% 7.00% 10.17%
South Jersey Industries SJI 1.13 31.23 3.62% 5.50% 9.12%
Southwest Gas SWX 2.05 80.48 2.55% 8.00% 10.55%
Spire, Inc. SR 2.25 75.15 2.99% 7.50% 10.49%
Average 8.79%
Median 9.12%
SAY 8.96%
Source: Value Line Data
Page B-6
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - DCF
GAS DISTRIBUTION
Exhibit B
Summary of Estimates
CAPM Ex Post 9.05%
CAPM Ex Ante 10.68%
DCF 8.96%
Estimated Ke = 9.60%
Page B-7
GAS DISTRIBUTION
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - Summary
Exhibit C
Capital Percentage Rate Wt Rate
Equity 61.00% 14.80% 9.03%
Debt 39.00% 4.60% 1.79%
100.00% 10.82%
SAY 10.80%
Adjusted for Flotation Costs:
Capital Percentage Rate Wt Rate
Equity 61.00% 15.30% 9.33%
Debt 39.00% 4.65% 1.81%
100.00% 11.15%
SAY 11.20%
FC for Equity 3.25%
FC for Debt 1.10%
*If warranted, staff may adjust stated cap rates due to company specifics
Page C-1
PIPELINES - FLUID
SUMMARY
SUMMARY
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Weighted Average Cost of Capital (WACC) - Summary
Outstanding Shares12/29/2017
Close PriceEquity Preferred Long Term Debt Total % Equity % Pref % Debt
Buckeye Partners, LP BPL 146,640,000 49.55 7,266,012,000 - 4,593,630,000 11,859,642,000 61.3% 0.0% 38.7%
Enbridge Energy Part. EEP 326,520,000 13.81 4,509,241,200 - 6,835,100,000 11,344,341,200 39.7% 0.0% 60.3%
Energy Transfer Part. ETP 1,155,500,000 17.92 20,706,560,000 - 33,630,000,000 54,336,560,000 38.1% 0.0% 61.9%
Holly Energy Partners, LP HEP 64,320,000 32.49 2,089,756,800 - 1,245,070,000 3,334,826,800 62.7% 0.0% 37.3%
MPLX, LP MPLX 415,000,000 35.47 14,720,050,000 - 6,848,000,000 21,568,050,000 68.2% 0.0% 31.8%
Magellan Midstream MMP 228,020,000 70.94 16,175,738,800 - 4,051,410,000 20,227,148,800 80.0% 0.0% 20.0%
NuStar Energy, LP NS 93,030,000 29.95 2,786,248,500 - 3,232,600,000 6,018,848,500 46.3% 0.0% 53.7%
Phillips 66 Partners PSXP 110,510,000 52.35 5,785,198,500 - 2,273,000,000 8,058,198,500 71.8% 0.0% 28.2%
Plains All American Pipeline PAA 725,190,000 20.64 14,967,921,600 - 10,489,000,000 25,456,921,600 58.8% 0.0% 41.2%
Spectra Energy Part. SEP 317,300,000 39.54 12,546,042,000 - 5,714,000,000 18,260,042,000 68.7% 0.0% 31.3%
Average 10,155,276,940 59.6% 0.0% 40.4%
Median 9,906,027,000 62.0% 0.0% 38.0%
SAY 61.0% 0.0% 39.0%
*Source of Info:
ValueLine 12/29/2017
www.finance.yahoo.com
Page C-2
Exhibit CPIPELINES - FLUID
Company Name
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Capital Structure
Exhibit C
Buckeye Partners, LP BPL BBB- 12 Baa3 12Enbridge Energy Part. EEP BBB 11 Baa3 12Energy Transfer Part. ETP BBB- 12 Baa3 12Holly Energy Partners, LP HEP BB+ 13 Ba3 15MPLX, LP MPLX BBB 11 Baa3 12Magellan Midstream MMP BBB+ 10 Baa1 10NuStar Energy, LP NS BB 14 Ba1 13Phillips 66 Partners PSXP BBB 11 Baa3 12Plains All American Pipeline PAA BBB- 12 Ba1 13Spectra Energy Part. SEP BBB+ 10 Baa2 11
Average 11.6 Average 12.2Median 11.5 Median 12.0
SAY 11.6 SAY 12.1BBB- Baa3
Cost of Debt (Bloomberg) 4.45%Cost of Debt (Capital IQ) 5.20%Cost of Debt (Moody's) 4.23%
SAY 4.60%(S & P avg. = 4.07% )
Page C-3
PIPELINES - FLUIDCapitalization Rate Study
Company Name S & P Moody's
For Ad Valorem TaxationAs of January 1st, 2018Cost of Debt - Summary
Exhibit C
VL Beta
Buckeye Partners, LP BPL 1.20
Enbridge Energy Part. EEP 1.30
Energy Transfer Part. ETP 1.55
Holly Energy Partners, LP HEP 1.00
MPLX, LP MPLX 1.40
Magellan Midstream MMP 1.20
NuStar Energy, LP NS 1.30
Phillips 66 Partners PSXP 1.15
Plains All American Pipeline PAA 1.50
Spectra Energy Part. SEP 0.90
Average 1.25
Median 1.25
SAY 1.25
Betas from ValueLine
Page C-4
Company
PIPELINES - FLUID
Capitalization rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - Beta Summary
Exhibit C
Capital Asset Pricing Model (CAPM) formula:
INPUTS
Rf = Risk-free Rate: 2.58% Cost of Capital Navigator
ERP = Equity Risk Premium:
Ex Post (historical): 7.07% Cost of Capital Navigator
Km = Market Return 11.92% State Studies and Others
Rf = Risk-free Rate 2.58% Cost of Capital Navigator
Ex Ante (forward looking): 9.34%
β = beta: 1.25 ValueLine
sp = size premium: 0.87%
CAPM Estimates
Ex Post Ex Ante
Rf = 2.58% 2.58%
ERP = 7.07% 9.34%
β = 1.25 1.25
8.84% 11.67%
sp = 0.87% 0.87%
Cost of Equity (Ke) = 12.29% 15.12%
Page C-5
PIPELINES - FLUID
Cost of Capital Navigator - based
on Market Value of Equity =
$9,906,027,000
Ke = Rf + (Km - Rf) * β + sp
with (Km - Rf) = ERP(Ex Ante)
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - CAPM (Ex Post/Ex Ante)
Exhibit C
Company Dividend 1 PriceDividend
YieldGrowth Ke
Buckeye Partners, LP BPL 5.05 49.55 10.19% 6.50% 16.69%
Enbridge Energy Part. EEP 1.40 13.81 10.14% 26.50% 36.64%
Energy Transfer Part. ETP 2.26 17.92 12.61% 8.50% 21.11%
Holly Energy Partners, LP HEP 0.00 32.49 0.00% 2.00% 2.00%
MPLX, LP MPLX 2.35 35.47 6.63% 12.00% 18.63%
Magellan Midstream MMP 3.80 70.94 5.36% 6.50% 11.86%
NuStar Energy, LP NS 0.00 29.95 0.00% 0.00% 0.00%
Phillips 66 Partners PSXP 2.58 52.35 4.93% 22.50% 27.43%
Plains All American Pipeline PAA 1.20 20.64 5.81% 13.00% 18.81%
Spectra Energy Part. SEP 2.91 39.54 7.36% 5.50% 12.86%
Average 16.60%
Median 17.66%
SAY 17.10%
Source: Value Line Data
Page C-6
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - DCF
PIPELINES - FLUID
Exhibit C
Summary of Estimates
CAPM Ex Post 12.29%
CAPM Ex Ante 15.12%
DCF 17.10%
Estimated Ke = 14.80%
Page C-7
PIPELINES - FLUID
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - Summary
Exhibit D
Capital Percentage Rate Wt Rate
Equity 60.00% 15.80% 9.48%
Debt 40.00% 4.70% 1.88%
100.00% 11.36%
SAY 11.40%
Adjusted for Flotation Costs:
Capital Percentage Rate Wt Rate
Equity 60.00% 16.33% 9.80%
Debt 40.00% 4.75% 1.90%
100.00% 11.70%
SAY 11.70%
FC for Equity 3.25%
FC for Debt 1.10%
*If warranted, staff may adjust stated cap rates due to company specifics
Page D-1
PIPELINES - GAS
SUMMARY
SUMMARY
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Weighted Average Cost of Capital (WACC) - Summary
Outstanding Shares12/29/2017
Close PriceEquity Preferred Long Term Debt Total % Equity % Pref % Debt
Boardwalk Pipeline BWP 250,300,000 12.91 3,231,372,962 - 3,585,700,000 6,817,072,962 47.4% 0.0% 52.6%
Energy Transfer Part. ETP 1,155,500,000 17.92 20,706,560,088 - 33,630,000,000 54,336,560,088 38.1% 0.0% 61.9%
Enterprise Products EPD 2,152,700,000 26.51 57,068,077,493 - 21,710,900,000 78,778,977,493 72.4% 0.0% 27.6%
Kinder Morgan, Inc. KMI 2,231,150,000 18.07 40,316,879,819 - 35,116,000,000 75,432,879,819 53.4% 0.0% 46.6%
ONEOK, Inc. OKE 381,290,000 53.45 20,379,950,791 - 8,092,000,000 28,471,950,791 71.6% 0.0% 28.4%
TC Pipelines, LP TCP 69,600,000 53.10 3,695,759,894 - 2,427,000,000 6,122,759,894 60.4% 0.0% 39.6%
Williams Partners, LP WPZ 973,820,000 38.78 37,764,738,411 - 16,000,000,000 53,764,738,411 70.2% 0.0% 29.8%
Average 26,166,191,351 59.1% 0.0% 40.9%
Median 20,706,560,088 60.4% 0.0% 39.6%
SAY 60.0% 0.0% 40.0%
*Source of Info:
ValueLine 12/29/2017
www.finance.yahoo.com
Page D-2
Exhibit DPIPELINES - GAS
Company Name
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Capital Structure
Exhibit D
Boardwalk Pipeline BWP BBB- 12 Baa3 12
Energy Transfer Part. ETP BBB- 12 Baa3 12
Enterprise Products EPD BBB+ 10 Baa3 12
Kinder Morgan, Inc. KMI BBB- 12 Baa3 12
ONEOK, Inc. OKE BBB 11 Baa3 12
TC Pipelines, LP TCP BBB- 12 Baa2 11
Williams Partners, LP WPZ BBB 11 Baa3 12
Average 11.4286 Average 11.8571
Median 12.0 Median 12.0
SAY 11.7 SAY 11.9
BBB- Baa3
Cost of Debt (Bloomberg) 4.45%
Cost of Debt (Capital IQ) 5.20%
Cost of Debt (Moody's) 4.23%
SAY 4.70%
(S & P avg. = 4.07%)
Page D-3
PIPELINES - GAS
Capitalization Rate Study
Company Name S & P Moody's
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Debt - Summary
Exhibit D
VL Beta
Boardwalk Pipeline BWP 1.00
Energy Transfer Part. ETP 1.55
Enterprise Products EPD 1.30
Kinder Morgan, Inc. KMI 1.45
ONEOK, Inc. OKE 1.55
TC Pipelines, LP TCP 1.15
Williams Partners, LP WPZ 1.55
Average 1.36
Median 1.45
SAY 1.41
Betas from ValueLine
Page D-4
Company
PIPELINES - GAS
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - Beta Summary
Exhibit D
Capital Asset Pricing Model (CAPM) formula:
INPUTS
Rf = Risk-free Rate: 2.58% Cost of Capital Navigator
ERP = Equity Risk Premium:
Ex Post (historical): 7.07% Cost of Capital Navigator
Km = Market Return 11.92% State Studies and Others
Rf = Risk-free Rate 2.58% Cost of Capital Navigator
Ex Ante (forward looking): 9.34%
β = beta: 1.41 ValueLine
sp = size premium: 0.56%
CAPM Estimates
Ex Post Ex Ante
Rf = 2.58% 2.58%
ERP = 7.07% 9.34%
β = 1.41 1.41
9.97% 13.16%
sp = 0.56% 0.56%
Cost of Equity (Ke) = 13.11% 16.30%
Page D-5
PIPELINES - GAS
Cost of Capital Navigator - based
on Market Value of Equity =
$20,706,560,088
Ke = Rf + (Km - Rf) * β + sp
with (Km - Rf) = ERP(Ex Ante)
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - CAPM (Ex Post/Ex Ante)
Exhibit D
Company Dividend 1 PriceDividend
YieldGrowth Ke
Boardwalk Pipeline BWP 0.40 12.91 3.10% 12.50% 15.60%
Energy Transfer Part. ETP 2.26 17.92 12.61% 8.50% 21.11%
Enterprise Products EPD 1.73 26.51 6.53% 12.50% 19.03%
Kinder Morgan, Inc. KMI 0.50 18.07 2.77% 24.00% 26.77%
ONEOK, Inc. OKE 2.98 53.45 5.58% 18.50% 24.08%
TC Pipelines, LP TCP 0.00 53.10 0.00% 6.00% 6.00%
Williams Partners, LP WPZ 2.40 38.78 6.19% 0.00% 6.19%
Average 16.97%
Median 19.03%
SAY 18.00%
Source: Value Line Data
Page D-6
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - DCF
PIPELINES - GAS
Exhibit D
Summary of Estimates
CAPM Ex Post 13.11%
CAPM Ex Ante 16.30%
DCF 18.00%
Estimated Ke = 15.80%
Page D-7
PIPELINES - GAS
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - Summary
RAILROADS Exhibit E
Capital Percentage Rate Wt Rate
Equity 82.00% 11.40% 9.35%
Debt 18.00% 4.10% 0.74%
100.00% 10.09%
SAY 10.10%
Adjusted for Flotation Costs:
Capital Percentage Rate Wt Rate
Equity 82.00% 11.78% 9.66%
Debt 18.00% 4.15% 0.75%
100.00% 10.41%
SAY 10.40%
FC for Equity 3.25%
FC for Debt 1.10%
*Class 1 Base Rate 10.40%
SAY 12.50%
*If warranted, staff may adjust stated cap rates due to company specifics
Page E-1
*Adjusted to give consideration to characteristics of a smaller, short-line Railroad
(based on additional consideration given to size premiums)
SUMMARY
SUMMARY
ESTIMATED RATE FOR SHORT-LINE RAILROADS
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Weighted Average Cost of Capital (WACC) - Summary
Company Name Outstanding Shares12/29/2017 Close
PriceEquity Preferred Long Term Debt Total % Equity % Pref % Debt
CSX Corporation CSX 893,720,000 55.01 49,163,537,200 - 11,788,000,000 60,951,537,200 80.7% 0.0% 19.3%
Norfolk Southern NSC 286,150,000 144.90 41,463,135,000 - 9,280,000,000 50,743,135,000 81.7% 0.0% 18.3%
Union Pacific UNP 789,840,000 134.10 105,917,544,000 - 15,930,000,000 121,847,544,000 86.9% 0.0% 13.1%
Average 65,514,738,733 83.1% 0.0% 16.9%
Median 49,163,537,200 81.7% 0.0% 18.3%
SAY 82.0% 0.0% 18.0%
*Source of Info:
ValueLine 12/29/2017
www.finance.yahoo.com
Page E-2
Capital Structure
Exhibit ERAILROADS
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
RAILROADS Exhibit E
CSX Corporation CSX BBB+ 10 Baa1 10
Norfolk Southern NSC BBB+ 10 Baa1 10
Union Pacific UNP A 8 A3 9
Average 9.33333 Average 9.66667
Median 10.0 Median 10.0
SAY 9.7 SAY 9.8
BBB+ Baa1
Cost of Debt (Bloomberg) 3.91%
Cost of Debt (Capital IQ) 4.08%
Cost of Debt (Moody's) 4.31%
SAY 4.10%
(S & P avg. = 4.07%)
Page E-3
Capitalization Rate Study
Company Name S & P Moody's
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Debt - Summary
RAILROADS Exhibit E
Company VL Beta
CSX Corporation CSX 1.20
Norfolk Southern NSC 1.15
Union Pacific UNP 1.05
Average 1.13
Median 1.15
SAY 1.14
Betas from ValueLine
Page E-4
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - Beta Summary
RAILROADS Exhibit E
Capital Asset Pricing Model (CAPM) formula:
INPUTS
Rf = Risk-free Rate: 2.58% Cost of Capital Navigator
ERP = Equity Risk Premium:
Ex Post (historical): 7.07% Cost of Capital Navigator
Km = Market Return 11.92% State Studies and Others
Rf = Risk-free Rate 2.58% Cost of Capital Navigator
Ex Ante (forward looking): 9.34%
β = beta: 1.14 ValueLine
sp = size premium: 0.00%
CAPM Estimates
Ex Post Ex Ante
Rf = 2.58% 2.58%
ERP = 7.07% 9.34%
β = 1.14 1.14
8.06% 10.64%
sp = 0.00% 0.00%
Cost of Equity (Ke) = 10.64% 13.22%
Page E-5
Cost of Capital Navigator - based on
Market Value of Equity =
$49,163,537,200
Ke = Rf + (Km - Rf) * β + sp
with (Km - Rf) = ERP(Ex Ante)
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - CAPM (Ex Post/Ex Ante)
RAILROADS Exhibit E
Company Dividend 1 PriceDividend
YieldGrowth Ke
CSX Corporation CSX 0.80 55.01 1.45% 11.50% 12.95%
Norfolk Southern NSC 2.44 144.90 1.68% 8.00% 9.68%
Union Pacific UNP 2.66 134.10 1.98% 8.00% 9.68%
Average 10.87%
Median 9.98%
SAY 10.40%
Source: Value Line Data
Page E-6
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - DCF
RAILROADS Exhibit E
Summary of Estimates
CAPM Ex Post 10.64%
CAPM Ex Ante 13.22%
DCF 10.40%
Estimated Ke = 11.40%
Page E-7
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - Summary
Exhibit F
Capital Percentage Rate Wt Rate
Equity 32.00% 14.30% 4.58%
Debt 68.00% 4.30% 2.92%
100.00% 7.50%
SAY 7.50%
Adjusted for Flotation Costs:
Capital Percentage Rate Wt Rate
Equity 32.00% 14.78% 4.73%
Debt 68.00% 4.35% 2.96%
100.00% 7.69%
SAY 7.70%
FC for Equity 3.25%
FC for Debt 1.10%
7.70%
SAY 13.80%
*If warranted, staff may adjust stated cap rates due to company specifics
Page F-1
*Adjusted to give consideration to characteristics of a smaller, local exchange
Telecom (based on additional consideration given to size premium)
ESTIMATED RATE FOR LOCAL EXCHANGE TELECOMS
*Telecoms: Interexchange Base Rate
TELECOMMUNICATIONS
SUMMARY
SUMMARY
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Weighted Average Cost of Capital (WACC) - Summary
Outstanding Shares12/29/2017
Close PriceEquity Preferred Long Term Debt Total % Equity % Pref % Debt
AT&T, Inc. T 6,139,330,000 38.88 238,697,150,400 - 154,728,000,000 393,425,150,400 60.7% 0.0% 39.3%
CenturyLink, Inc. CTL 549,650,000 16.68 9,168,162,000 - 24,854,000,000 34,022,162,000 26.9% 0.0% 73.1%
Consolidated Communications CNSL 70,840,000 12.19 863,539,600 - 2,311,250,000 3,174,789,600 27.2% 0.0% 72.8%
Frontier Communications FTR 78,460,000 6.76 530,389,600 - 17,604,000,000 18,134,389,600 2.9% 0.0% 97.1%
Verizon Communications VZ 4,079,440,000 52.93 215,924,759,200 - 115,317,000,000 331,241,759,200 65.2% 0.0% 34.8%
Windstream Holdings WIN 182,900,000 1.85 338,365,000 - 10,550,000,000 10,888,365,000 3.1% 0.0% 96.9%
Average 77,587,060,967 36.6% 0.0% 63.4%
Median 5,015,850,800 27.2% 0.0% 72.8%
SAY 32.0% 0.0% 68.0%
*Source of Info:
ValueLine 12/29/2017
www.finance.yahoo.com
Page F-2
Exhibit FTELECOMMUNICATIONS
Company Name
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Capital Structure
Exhibit F
AT&T, Inc. T BBB+ 10 Baa1 10
CenturyLink, Inc. CTL BBB+ 10 Ba3 15
Consolidated Communications CNSL B+ 16
Frontier Communications FTR B3 18
Verizon Communications VZ BBB+ 10 Baa1 10
Windstream Holdings WIN B2 17
Average 11.50 Average 14.00
Median 10.00 Median 15.00
SAY 10.75 SAY 14.50
BBB Ba3
Cost of Debt (Bloomberg) 4.06%
Cost of Debt (Capital IQ) 4.51%
Cost of Debt (Moody's) 4.23%
SAY 4.30%
(S & P avg. = 4.07%)
Page F-3
TELECOMMUNICATIONS
Capitalization Rate Study
Company Name S & P Moody's
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Debt - Summary
Exhibit F
VL Beta
AT&T, Inc. T 0.75
CenturyLink, Inc. CTL 1.00
Consolidated Communications CNSL 1.00
Frontier Communications FTR 1.15
Verizon Communications VZ 0.75
Windstream Holdings WIN 1.25
Average 0.98
Median 1.00
SAY 0.99
Betas from ValueLine
Page F-4
Company
TELECOMMUNICATIONS
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - Beta Summary
Exhibit F
Capital Asset Pricing Model (CAPM) formula:
INPUTS
Rf = Risk-free Rate: 2.58% Cost of Capital Navigator
ERP = Equity Risk Premium:
Ex Post (historical): 7.07% Cost of Capital Navigator
Km = Market Return 11.92% State Studies and Others
Rf = Risk-free Rate 2.58% Cost of Capital Navigator
Ex Ante (forward looking): 9.34%
β = beta: 0.99 ValueLine
sp = size premium: 0.90%
CAPM Estimates
Ex Post Ex Ante
Rf = 2.58% 2.58%
ERP = 7.07% 9.34%
β = 0.99 0.99
7.00% 9.24%
sp = 0.90% 0.90%
Cost of Equity (Ke) = 10.48% 12.72%
Page F-5
TELECOMMUNICATIONS
Cost of Capital Navigator - based
on Market Value of Equity =
$5,015,850,800
Ke = Rf + (Km - Rf) * β + sp
with (Km - Rf) = ERP(Ex Ante)
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - CAPM (Ex Post/Ex Ante)
Exhibit F
Company Dividend 1 PriceDividend
YieldGrowth Ke
AT&T, Inc. T 2.00 38.88 5.14% 5.50% 10.64%CenturyLink, Inc. CTL 2.16 16.68 12.95% -1.50% NMF*Consolidated Communications CNSL 1.55 12.19 12.72% 34.00% 46.72%Frontier Communications FTR 2.40 6.76 35.50% 43.00% 78.50%Verizon Communications VZ 2.36 52.93 4.46% 2.00% 6.46%Windstream Holdings WIN 0.00 1.85 0.00% 0.00% 0.00%
Average 28.46%Median 10.64%
*no meaningful figure SAY 19.60%Source: Value Line Data
Page F-6
Capitalization Rate StudyFor Ad Valorem TaxationAs of January 1st, 2018Cost of Equity - DCF
TELECOMMUNICATIONS
Exhibit F
Summary of Estimates
CAPM Ex Post 10.48%
CAPM Ex Ante 12.72%
DCF 19.60%
Estimated Ke = 14.30%
Page F-7
TELECOMMUNICATIONS
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - Summary
Exhibit G
Capital Percentage Rate Wt Rate
Equity 83.00% 10.40% 8.63%
Debt 17.00% 4.00% 0.68%
100.00% 9.31%
SAY 9.30%
Adjusted for Flotation Costs:
Capital Percentage Rate Wt Rate
Equity 83.00% 10.75% 8.92%
Debt 17.00% 4.04% 0.69%
100.00% 9.61%
SAY 9.60%
FC for Equity 3.25%
FC for Debt 1.10%
9.60%
SAY 11.10%
*If warranted, staff may adjust stated cap rates due to company specifics
Page G-1
ESTIMATED RATE FOR SMALL WATER COMPANIES
*Water Companies: Base Rate
*Adjusted to give consideration to characteristics of a smaller water company
(based on additional consideration given to size premium)
WATER COMPANIES
SUMMARY
SUMMARY
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Weighted Average Cost of Capital (WACC) - Summary
Outstanding Shares12/29/2017
Close PriceEquity Preferred Long Term Debt Total % Equity % Pref % Debt
American States Water AWR 36,680,000 57.91 2,124,138,794 - 320,950,000 2,445,088,794 86.9% 0.0% 13.1%
California Water CWT 48,010,000 45.35 2,177,253,427 - 519,700,000 2,696,953,427 80.7% 0.0% 19.3%
Middlesex Water WTR 16,340,000 39.91 652,129,400 - 135,810,000 787,939,400 82.8% 0.0% 17.2%
The York Water Company YORW 12,860,000 33.90 435,954,020 - 88,930,000 524,884,020 83.1% 0.0% 16.9%
Average 1,347,368,910 83.4% 0.0% 16.6%
Median 1,388,134,097 82.9% 0.0% 17.1%
SAY 83.0% 0.0% 17.0%
*Source of Info:
ValueLine 12/29/2017
www.finance.yahoo.com
Page G-2
Exhibit GWATER COMPANIES
Company Name
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Capital Structure
Exhibit G
American States Water AWR A+ 7 A3 9
California Water CWT A+ 7 A1 7
Middlesex Water WTR A 8
The York Water Company YORW A- 9
Average 7.75 Average 8.00
Median 7.50 Median 8.00
SAY 7.63 SAY 8.00
A A2
Cost of Debt (Bloomberg) 3.75%
Cost of Debt (Capital IQ) 4.37%
Cost of Debt (Moody's) 3.79%
SAY 4.00%
(S & P avg. = 4.07%)
Page G-3
WATER COMPANIES
Capitalization Rate Study
Company Name S & P Moody's
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Debt - Summary
Exhibit G
VL Beta
American States Water T 0.80
California Water CTL 0.80
Middlesex Water VZ 0.80
The York Water Company WIN 0.80
Average 0.80
Median 0.80
SAY 0.80
Betas from ValueLine
Page G-4
Company
WATER COMPANIES
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - Beta Summary
Exhibit G
Capital Asset Pricing Model (CAPM) formula:
INPUTS
Rf = Risk-free Rate: 2.58% Cost of Capital Navigator
ERP = Equity Risk Premium:
Ex Post (historical): 7.07% Cost of Capital Navigator
Km = Market Return 11.92% State Studies and Others
Rf = Risk-free Rate 2.58% Cost of Capital Navigator
Ex Ante (forward looking): 9.34%
β = beta: 0.80 ValueLine
sp = size premium: 1.58%
CAPM Estimates
Ex Post Ex Ante
Rf = 2.58% 2.58%
ERP = 7.07% 9.34%
β = 0.80 0.80
5.66% 7.47%
sp = 1.58% 1.58%
Cost of Equity (Ke) = 9.82% 11.63%
Page G-5
WATER COMPANIES
Cost of Capital Navigator - based on
Market Value of Equity =
$1,388,134,097
Ke = Rf + (Km - Rf) * β + sp
with (Km - Rf) = ERP(Ex Ante)
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - CAPM (Ex Post/Ex Ante)
Exhibit G
Company Dividend 1 PriceDividend
YieldGrowth Ke
American States Water T 1.03 57.91 1.78% 6.50% 8.28%
California Water CTL 0.72 45.35 1.59% 9.00% 10.59%
Middlesex Water VZ 0.90 39.91 2.26% 8.50% 10.76%
The York Water Company WIN 0.67 33.90 1.98% 7.00% 8.98%
Average 9.65%
Median 9.78%
SAY 9.70%
Source: Value Line Data
Page G-6
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - DCF
WATER COMPANIES
Exhibit G
Summary of Estimates
CAPM Ex Post 9.82%
CAPM Ex Ante 11.63%
DCF 9.70%
Estimated Ke = 10.40%
Page G-7
WATER COMPANIES
Capitalization Rate Study
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Equity - Summary
Public Utility Bonds Jan Feb March April May June July Aug Sept Oct Nov Dec
Aa 3.96 3.99 4.04 3.93 3.94 3.77 3.82 3.67 3.70 3.74 3.65 3.62
A 4.14 4.18 4.23 4.12 4.12 3.94 3.99 3.86 3.87 3.91 3.83 3.79
Baa 4.62 4.58 4.62 4.51 4.50 4.32 4.36 4.23 4.24 4.26 4.16 4.14
Industrial Bonds Jan Feb March April May June July Aug Sept Oct Nov Dec
Aaa 3.92 3.95 4.01 3.87 3.85 3.68 3.70 3.63 3.63 3.60 3.57 3.51
Aa 4.00 4.02 4.07 3.92 3.92 3.78 3.78 3.76 3.75 3.74 3.68 3.60
A 4.17 4.19 4.23 4.11 4.09 3.92 3.95 3.90 3.89 3.90 3.85 3.79
Baa 4.70 4.70 4.74 4.62 4.60 4.41 4.41 4.38 4.37 4.37 4.37 4.31
Corporate by Ratings Jan Feb March April May June July Aug Sept Oct Nov Dec
Aaa 3.92 3.95 4.01 3.87 3.85 3.68 3.70 3.63 3.63 3.60 3.57 3.51
Aa 3.98 4.01 4.06 3.93 3.93 3.78 3.80 3.72 3.73 3.75 3.67 3.61
A 4.16 4.18 4.23 4.12 4.11 3.93 3.98 3.88 3.88 3.91 3.84 3.79
Baa 4.66 4.64 4.68 4.57 4.55 4.37 4.39 4.31 4.30 4.32 4.27 4.22
Capitalization Rate Study Appendix A
4.44
As of December 2017
As of December 2017
As of December 2017
3.84
4.00
4.50
2017 Average
3.82
4.00
4.38
2017 Average
2017 Average
3.74
3.83
4.00
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Debt - Mergent Bond Yields
MOODY'S LONG-TERM CORPORATE BOND YIELD AVERAGES
3.74
As of 12/31/17 AAA AA A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B-
20 Year Maturity NA NA NA 3.753 3.753 NA 4.251 4.251 NA 6.405 6.405 NA 7.823 7.823
25 Year Maturity NA NA NA 3.749 3.749 NA 4.208 4.208 NA 6.330 6.330 NA 8.195 8.195
30 Year Maturity NA NA NA 3.715 3.715 NA 4.115 4.115 NA 6.332 6.332 NA 8.192 8.192
Average NA NA NA 3.739 3.739 NA 4.191 4.191 NA 6.356 6.356 NA 8.070 8.070
As of 12/31/17 AAA AA A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B-
20 Year Maturity NA NA NA 3.674 3.674 3.923 4.138 4.518 NA 6.073 6.073 NA 6.806 6.806
25 Year Maturity NA NA NA 3.677 3.677 3.904 4.043 4.496 NA 6.082 6.082 NA 6.876 6.876
30 Year Maturity NA NA NA 3.697 3.697 3.907 4.016 4.497 NA 6.078 6.078 NA 6.872 6.872
Average NA NA NA 3.683 3.683 3.911 4.066 4.504 NA 6.078 6.078 NA 6.851 6.851
As of 12/31/17 AAA AA A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B-
20 Year Maturity NA NA NA 3.747 3.747 3.949 4.111 4.399 NA 6.278 6.278 NA NA NA
25 Year Maturity NA NA NA 3.747 3.747 3.911 4.048 4.397 NA 6.283 6.283 NA NA NA
30 Year Maturity NA NA NA 3.753 3.753 3.891 4.021 4.397 NA 6.276 6.276 NA NA NA
Average NA NA NA 3.749 3.749 3.917 4.060 4.398 NA 6.279 6.279 NA NA NA
Appendix BCapitalization Rate Study
Corporates
Industrials
Utilities
BLOOMBERG (S & P) BOND YIELDS
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Debt - Bloomberg (S & P) Bond Yields
CAPITAL IQ - S & P Data
As of 12/31/17 AAA AA A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC
20-yr Mat 4.02% 4.19% NA 4.31% NA NA 4.60% NA NA 6.42% NA NA 9.61% NA NA 14.01%
25-yr Mat 4.11% 4.28% NA 4.40% NA NA 4.68% NA NA 6.54% NA NA 9.82% NA NA 13.91%
30-yr Mat 4.12% 4.29% NA 4.41% NA NA 4.69% NA NA 6.56% NA NA 9.86% NA NA 13.88%
Average 4.08% 4.25% NA 4.37% NA NA 4.66% NA NA 6.50% NA NA 9.76% NA NA 13.93%
As of 12/31/17 AAA AA A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC
20-yr Mat 3.92% 4.03% NA 4.19% NA NA 4.80% NA NA 7.39% NA NA 9.63% NA NA 14.82%
25-yr Mat 4.01% 4.12% NA 4.28% NA NA 4.89% NA NA 7.55% NA NA 9.85% NA NA 14.67%
30-yr Mat 4.02% 4.12% NA 4.29% NA NA 4.90% NA NA 7.57% NA NA 9.88% NA NA 14.62%
Average 3.98% 4.09% NA 4.25% NA NA 4.86% NA NA 7.50% NA NA 9.79% NA NA 14.70%
As of 12/31/17 AAA AA A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC
20-yr Mat 3.91% 4.29% NA 4.31% NA NA 4.39% NA NA 7.20% NA NA 9.44% NA NA 13.97%
25-yr Mat 4.00% 4.38% NA 4.39% NA NA 4.48% NA NA 7.35% NA NA 9.67% NA NA 13.87%
30-yr Mat 4.01% 4.38% NA 4.40% NA NA 4.49% NA NA 7.37% NA NA 9.71% NA NA 13.84%
Average 3.97% 4.35% NA 4.37% NA NA 4.45% NA NA 7.31% NA NA 9.60% NA NA 13.89%
As of 12/31/17 AAA AA A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC
20-yr Mat 3.77% 3.87% NA 3.89% NA NA 4.29% NA NA 6.23% NA NA 9.66% NA NA 13.91%
25-yr Mat 3.85% 3.96% NA 3.97% NA NA 4.37% NA NA 6.35% NA NA 9.88% NA NA 13.82%
30-yr Mat 3.86% 3.96% NA 3.98% NA NA 4.38% NA NA 6.36% NA NA 9.91% NA NA 13.79%
Average 3.83% 3.93% NA 3.95% NA NA 4.35% NA NA 6.31% NA NA 9.82% NA NA 13.84%
As of 12/31/17 AAA AA A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC
20-yr Mat 4.03% 4.20% NA 4.40% NA NA 4.45% NA NA 8.10% NA NA 11.70% NA NA 14.01%
25-yr Mat 4.12% 4.29% NA 4.49% NA NA 4.54% NA NA 8.28% NA NA 11.77% NA NA 13.91%
30-yr Mat 4.12% 4.29% NA 4.50% NA NA 4.55% NA NA 8.31% NA NA 11.77% NA NA 13.88%
Average 4.09% 4.26% NA 4.46% NA NA 4.51% NA NA 8.23% NA NA 11.74% NA NA 13.93%
Appendix CCapitalization Rate Study
Utilities
Industrials
Telecommunications
For Ad Valorem Taxation
As of January 1st, 2018
Cost of Debt - Capital IQ Bond Yields
All Corporates
Energy