SDElectRateCaseHevertDirectSchedules

SDElectRateCaseHevertDirectSchedules - Direct Testimony and...

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Direct Testimony and Schedules Robert B. Hevert Before the South Dakota Public Utilities Commission State of South Dakota In the Matter of the Application of Northern States Power Company, a Minnesota corporation for Authority to Increase Rates for Electric Service in South Dakota Docket No. EL09-___ Exhibit___(RBH-1) Rate of Return and Return on Equity June 30, 2009
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TABLE OF CONTENTS I. INTRODUCTION AND QUALIFICATIONS ..................................................... 1 II. PURPOSE AND OVERVIEW OF TESTIMONY ............................................... 3 III. REGULATORY GUIDELINES AND FINANCIAL CONSIDERATIONS 5 IV. CURRENT CAPITAL MARKET ENVIRONMENT .......................................... 8 V. PROXY GROUP SELECTION ............................................................................... 20 VI. DETERMINATION OF THE APPROPRIATE COST OF EQUITY .......... 25 A. Cost of Equity under the DCF Approach .......................................................... 26 B. Dividend Yield for the DCF Model ..................................................................... 28 C. Growth Rates for the DCF Model ....................................................................... 29 D. CAPM Analysis ........................................................................................................ 32 E. Bond Yield plus Risk Premium Analysis ............................................................. 37 F. Flotation Cost Recovery ......................................................................................... 40 VII. BUSINESS AND ECONOMIC RISKS .................................................................. 42 A. Business Risks .......................................................................................................... 43 B. Small Size Effect ...................................................................................................... 47 VIII. CAPITAL STRUCTURE AND COST OF DEBT ............................................... 50 A. Capital Structure ...................................................................................................... 50 B. Cost of Long-Term Debt ....................................................................................... 53 IX. SUMMARY AND CONCLUSIONS ....................................................................... 53 i Docket No. EL09-____ Hevert Direct Testimony
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Schedules Description Schedule Listing Resume of Robert B. Hevert Schedule 1 Testimony Listing of Robert B. Hevert Schedule 2 DCF Analysis Schedule 3 CAPM Analysis Schedule 4 Risk Premium Analysis Schedule 5 Capital Expenditure Comparison Schedule 6 Size Premium Results Schedule 7 Comparison of the Company’s Proposed Capital Structure Schedule 8 Relative to the Proxy Group Long-Term Debt Cost Schedule 9 ii Hevert Direct
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1 Docket No. EL09-____ 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 I. INTRODUCTION AND QUALIFICATIONS Q . P LEASE STATE YOUR NAME AND BUSINESS ADDRESS . A. My name is Robert B. Hevert. My business address is 293 Boston Post Road West, Suite 500, Marlborough, Massachusetts 01752. Q. B Y WHOM ARE YOU EMPLOYED AND IN WHAT POSITION ? A. I am employed by Concentric Energy Advisors (“Concentric”) as its President. Q. O N WHOSE BEHALF ARE YOU SUBMITTING THIS TESTIMONY ? A. I am submitting this testimony on behalf of the South Dakota division of Northern States Power Company, a Minnesota corporation operating in South Dakota (“Xcel Energy” or the “Company”). Q. A RE YOU SPONSORING ANY REQUIRED FILING STATEMENTS ? A. Yes. I am sponsoring Exhibit No.___ (NSP-1), Statement G, in Volume 1. Q. P LEASE BRIEFLY OUTLINE YOUR RESPONSIBILITIES AS PRESIDENT OF CONCENTRIC . A. In addition to providing consulting services, my responsibilities at Concentric include the day-to-day management of the firm and, along with other senior officers, the development of the firm’s resources and capabilities, the development of new business and clients, and assuring the quality of services delivered to our firm’s clients. Hevert Direct Testimony
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2 Docket No. EL09-____ 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Q. P LEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND .
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