Capitaliza on Rate Study - ok.gov 2018 Capitalization Rate Study .pdfEarnings Price Ratios ... Valuation staff has consideredand where appropriate utilizeddata and capitalization studies

Capitaliza on Rate Study

January 2018

Oklahoma Tax Commission

Ad Valorem Division

Public Service Sec on

Post Office Box 269060

Oklahoma City, OK 73126‐9060

405‐319‐8200 DRAFT

EXECUTIVE SUMMARY

DRAFT

Executive Summary The income approach to value converts projected future income or cash flow into an estimate of present value. The accuracy of this approach is no greater than the validity of the assumptions used to estimate the key variables, particularly the capitalization rate variable. The mathematical techniques used in the approach convert those assumptions into an estimate of current market value. This booklet contains a study of each of the eight state assessed industry groups in Oklahoma. Industry data was gathered by group as identified by Value Line Investment Survey published from the period of November 2017 through January 2018. Generally accepted appraisal procedures were used to estimate the cost of capital for debt and equity. 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 purchaser would assume by investing in the property. Authority for Valuation The Oklahoma Tax Commission, Ad Valorem Division, is charged with the responsibility for the valuation of Railroad, Air Carrier, and Public Service Corporation property in accordance with Title 68, Oklahoma Statutes, Section 2808. The term “public service” includes electric companies, fluid or product pipeline companies, gas distribution and transmission companies, telecommunication companies, and water companies. Band of Investment, Capital Structure A representative capital structure is developed for each industry using the market value of equity and the book value of long term debt. Using Value Line Investment Survey the market value of equity can be calculated by multiplying the number of shares outstanding by the listed stock price, or by utilizing the given market capitalization number already calculated. The debt components are book amounts unless market amounts are readily available and predetermined to be significantly different. Preferred stock was excluded in the calculations for all industry types. The rates of debt and equity capital are weighted by the respective amounts of such capital deemed most likely to be employed by a prospective buyer. The result is a representative or typical capital structure of an industry group of companies, not that of the present owner. Cost of Debt Cost of debt was calculated as the twelve month bond yield average from Mergent Bond Record for public utility and industrial bonds utilizing that bond rating perceived as typical for each industry. DRAFT

Executive Summary Cost of Capital Equity rate calculations were derived upon review of Discounted Cash Flow, Capital Asset Pricing Model (CAPM), and Earnings Price Ratio. Discounted Cash Flow (Gordon Growth Model) allows for the calculation of two rates within its model utilizing the dividend yield, dividend growth rate estimates, and earnings growth rate estimates as listed in Value Line Investment Survey. Cost of capital being calculated for dividends by adding the dividend yield and the dividend estimate. Similarly the cost of capital for earnings is calculated by adding the dividend yield and the earnings estimate. No calculation is utilized where the resulting yield or growth estimate equity rate is below the chosen cost of debt for each respective industry.

Capital Asset Pricing Model (CAPM) in the application of the CAPM, the most sensitive component affecting the outcome is the estimate of the beta statistic. A choice of time frames and frequencies of measurement in the calculation of the beta can produce significantly different results. Another factor in the use of beta is the choice of whether to use an unadjusted beta or a beta adjusted to reflect the fact that betas revert to the mean over time. For this study the company levered betas as developed and presented in The Value Line Investment Survey for the selected industry groups are used.

Earnings Price Ratios (E/P Ratio) utilizing Value Line Investment Survey for the selected industry groups, the E/P Ratio was calculated with the projected earnings divided by the recent price. Flotation Costs Flotation costs are those costs associated with the issuance of new securities and include both the underwriting spread and the costs incurred by the issuing company from the offering. Financial theory suggests and evidence supports that firms do not typically issue new common equity as a matter of common practice. Therefore in determining a capitalization rate, no adjustment will be made in the capitalization rate or the income stream for hypothetical flotation costs. Flotation costs actually incurred may be accounted for in the income stream. Utilization of Other Studies and Data Valuation staff has considered and where appropriate utilized data and capitalization studies submitted by assessed and interested parties in the development of the derived rates. The capitalization rates published in this study are intended to be applied to the unitary operations of those companies subject to central valuation and assessment by the Oklahoma State Board of Equalization. DRAFT

Industry Capitalization Rate Summary

Mergents 2017 Twelve Month Bond Yield Averages

Equity Debt Market Long Term CapitalizationIndustry Rate Rate Capitalization Debt Rate

AirlineCargo 13.35% 4.50% 85.04% 14.96% 12.03%

Passenger 13.80% 4.50% 74.36% 25.64% 11.41%

Electric 10.00% 4.38% 65.90% 34.10% 8.08%

Fluid Pipeline (Petroleum Integrated) 12.70% 4.50% 84.48% 15.52% 11.43%

Gas Distribution (Natural Gas Utility) 9.90% 4.38% 66.95% 33.05% 8.08%

Gas Transmission (Natural Gas Diversified) 12.95% 4.50% 73.92% 26.08% 10.75%

Oil/Gas Distribution 15.00% 4.50% 57.41% 42.59% 10.53%

Pipeline MLPs 14.25% 4.50% 61.04% 38.96% 10.45%

Railroad 13.30% 4.50% 84.66% 15.34% 11.95%

Telecommunications Services 12.45% 4.50% 61.29% 38.71% 9.37%

Telecommunications Utility 13.80% 4.38% 23.32% 76.68% 6.58%

Water 10.00% 4.38% 71.86% 28.14% 8.42%

DRAFT

Airline

Industry

DRAFT

2018 Capitalization Rate Study Airline Industry Notes

• Recognizing the different operational services as provided by this industry group, it was broken out into two segments, cargo and passenger service. • From the passenger service segment, Bristow Group, Inc. was excluded as their core business involves helicopter transportation of personnel from

onshore bases to offshore drilling rigs, platforms, and other installations. WestJet Airlines Ltd. was excluded due to Value Line information listed in Canadian dollars.

• Staff considered capitalization studies submitted by:

No Submissions

• Staff relied upon the results of the following models and appraisal judgment in the development of equity rates:

1. Discounted Cash Flow 2. Capital Asset Pricing Model, Ex-Post and Ex Ante 3. Earnings/Price Ratio

DRAFT

Industry Capitalization Rate


Equity Market Long Term CapitalizationIndustry Rate Capitalization Debt Rate

AirlineCargo 13.35% 85.04% 14.96% 12.03%

Passenger 13.80% 74.36% 25.64% 11.41%

DRAFT

Industry Equity Rate Summary

AirlineCargo

CapM Ex Post Equity Rate 10.24%

CapM Ex Ante Equity Rate 14.42%

DCF (Dividend) Equity Rate 16.20%

DCF (Earnings) Equity Rate 16.47%

Earnings Price Ratio 9.93%

Passenger






DRAFT

CapM Equity Rates

b* Risk Free Rate (2.58%) plus Risk Premium Rate (7.07%)c* Risk Free Rate (2.58%) plus Risk Premium Rate (10.93%)Value Line Investment Survey, November 2017 through January 2018, U.S. Department of Treasury

Ex Post Ex Ante Value Line Ex Post Ex AnteRisk Premium Risk Premium Beta CAPM Equity Rate CAPM Equity Rate

Industry b* c* d (((b-2.58%)*d)+2.58%) (((c-2.58%)*d)+2.58%)

AirlineCargo 9.65% 13.51% 1.08 10.24% 14.42%

Passenger 9.65% 13.51% 1.28 11.61% 16.54%

DRAFT

Discounted Cash Flow (Gordon Growth)

Value Line Investment Survey, November 2017 through January 2018

Value Market Dividend Equity Rate Equity RateLine Capitalization Yield Dividends Earnings Dividend Earnings

Industry Company Strength d e f g (e+f) (e+g)

AirlineCargo

Atlas Air Wordwide Holdings B+ 1,300,000,000 0.00% 0.00% 23.00% 23.00%FedEx Corp. A++ 59,000,000,000 0.90% 21.00% 12.50% 21.90% 13.40%United Parcel Service, Inc. A 98,000,000,000 3.00% 7.50% 10.00% 10.50% 13.00%

Median 59,000,000,000 16.20% 13.40%Arithmetic Mean 52,766,666,667 16.20% 16.47%

Passenger Alaska Air Group , Inc. B 7,600,000,000 1.90% 14.00% 10.00% 15.90% 11.90%Allegiant Travel Company B++ 2,100,000,000 2.20% 17.00% 2.00% 19.20% American Airlines Group B+ 22,000,000,000 0.90% 24.00% 1.50% 24.90% Copa Holdings, S.A. B++ 5,200,000,000 2.40% 0.50% 22.50% 24.90%Delta Air Lines, Inc. B+ 34,900,000,000 2.50% 17.50% 10.50% 20.00% 13.00%Hawaiian Holdings, Inc. B 1,900,000,000 1.30% 0.00% 11.50% 12.80%JetBlue Airways Corp. B+ 6,300,000,000 0.00% 0.00% 7.00% 7.00%SkyWest, Inc. B+ 2,500,000,000 0.70% 17.00% 17.50% 17.70% 18.20%Southwest Airlines A 32,100,000,000 1.10% 20.00% 12.00% 21.10% 13.10%Spirit Airlines, Inc. B++ 2,500,000,000 0.00% 0.00% 7.50% 7.50%United Continental Holdings, Inc. B 16,900,000,000 0.00% 0.00% 4.50% 4.50%


Growth Estimate

DRAFT

E/P Ratio


Value Market Recent Projected E/PLine Capitalization Price Earnings Ratio

Industry Company Strength c d e (e/d)

AirlineCargo

Atlas Air Wordwide Holdings B+ 1,300,000,000 52.75 7.10 13.46%FedEx Corp. A++ 59,000,000,000 219.94 18.00 8.18%United Parcel Service, Inc. A 98,000,000,000 114.07 9.30 8.15%

Median 59,000,000,000 8.18%Arithmetic Mean 52,766,666,667 9.93%

PassengerAlaska Air Group , Inc. B 7,600,000,000 61.68 8.40 13.62%Allegiant Travel Company B++ 2,100,000,000 129.55 11.45 8.84%American Airlines Group B+ 22,000,000,000 45.81 7.00 15.28%Copa Holdings, S.A. B++ 5,200,000,000 123.56 12.25 9.91%Delta Air Lines, Inc. B+ 34,900,000,000 48.90 8.00 16.36%Hawaiian Holdings, Inc. B 1,900,000,000 36.50 4.75 13.01%JetBlue Airways Corp. B+ 6,300,000,000 19.63 2.30 11.72%SkyWest, Inc. B+ 2,500,000,000 47.65 4.50 9.44%Southwest Airlines A 32,100,000,000 53.75 5.20 9.67%Spirit Airlines, Inc. B++ 2,500,000,000 36.26 4.50 12.41%United Continental Holdings, Inc. B 16,900,000,000 57.20 9.00 15.73%


DRAFT

Capital Structure


Value Market Long Term Debt/Equity Percentage PercentageLine Capitalization Debt Ratio Equity Debt

Industry Company Strength c d (d/c) (c/(c+d)) (d/(c+d))Airline

CargoAtlas Air Wordwide Holdings B+ 1,300,000,000 1,908,800,000 1.47 40.51% 59.49%FedEx Corp. A++ 59,000,000,000 15,137,000,000 0.26 79.58% 20.42%United Parcel Service, Inc. A 98,000,000,000 14,355,000,000 0.15 87.22% 12.78%

Median 59,000,000,000 14,355,000,000 0.26 79.58% 20.42%Arithmetic Mean 52,766,666,667 10,466,933,333 0.62 69.11% 30.89%Weighted Average 82,670,183,196 14,544,247,884 85.04% 14.96%

PassengerAlaska Air Group , Inc. B 7,600,000,000 2,367,000,000 0.31 76.25% 23.75%Allegiant Travel Company B++ 2,100,000,000 845,700,000 0.40 71.29% 28.71%American Airlines Group B+ 22,000,000,000 22,217,000,000 1.01 49.75% 50.25%Copa Holdings, S.A. B++ 5,200,000,000 918,600,000 0.18 84.99% 15.01%Delta Air Lines, Inc. B+ 34,900,000,000 7,584,000,000 0.22 82.15% 17.85%Hawaiian Holdings, Inc. B 1,900,000,000 447,500,000 0.24 80.94% 19.06%JetBlue Airways Corp. B+ 6,300,000,000 1,031,000,000 0.16 85.94% 14.06%SkyWest, Inc. B+ 2,500,000,000 2,380,800,000 0.95 51.22% 48.78%Southwest Airlines A 32,100,000,000 2,763,000,000 0.09 92.07% 7.93%Spirit Airlines, Inc. B++ 2,500,000,000 1,214,100,000 0.49 67.31% 32.69%United Continental Holdings, Inc. B 16,900,000,000 12,302,000,000 0.73 57.87% 42.13%


DRAFT

Beta


Value LineIndustry Company Levered Beta

Airline, Selected ComparablesCargo

Atlas Air Wordwide Holdings 1.30FedEx Corp. 1.10United Parcel Service, Inc. 0.85

Median 1.10Arithmetic Mean 1.08

PassengerAlaska Air Group , Inc. 1.20Allegiant Travel Company 0.90American Airlines Group 1.30Copa Holdings, S.A. 1.35Delta Air Lines, Inc. 1.30Hawaiian Holdings, Inc. 1.25JetBlue Airways Corp. 1.20SkyWest, Inc. 1.55Southwest Airlines 1.20Spirit Airlines, Inc. 1.45United Continental Holdings, Inc. 1.35


DRAFT

Beta



Airline, Value LineAlaska Air Group , Inc. 1.20Allegiant Travel Company 0.90American Airlines Group 1.30Atlas Air Wordwide Holdings, Inc. 1.30Bristow Group Inc. 1.70Copa Holdings, S.A. 1.35Delta Air Lines, Inc. 1.30FedEx Corp. 1.10Hawaiian Holdings, Inc. 1.25JetBlue Airways Corp. 1.20SkyWest, Inc. 1.55Southwest Airlines 1.20Spirit Airlines, Inc. 1.45United Continental Holdings, Inc. 1.35United Parcel Service, Inc. 0.85WestJet Airlines Ltd. 0.80


DRAFT

Mergents 2017 Corporate Bond Yield Averages

Month Public Utility Industrial Aa A Baa Aaa Aa A Baa

January 4.24% 4.20% 3.96% 4.14% 4.62% 3.92% 4.00% 4.17% 4.70%

February 4.25% 4.21% 3.99% 4.18% 4.58% 3.95% 4.02% 4.19% 4.70%

March 4.30% 4.27% 4.04% 4.23% 4.62% 4.01% 4.07% 4.23% 4.74%

April 4.19% 4.13% 3.93% 4.12% 4.51% 3.87% 3.92% 4.11% 4.62%

May 4.19% 4.12% 3.94% 4.12% 4.50% 3.85% 3.92% 4.09% 4.60%

June 4.01% 3.95% 3.77% 3.94% 4.32% 3.68% 3.78% 3.92% 4.41%

July 4.06% 3.96% 3.82% 3.99% 4.36% 3.70% 3.78% 3.95% 4.41%

August 3.92% 3.92% 3.67% 3.86% 4.23% 3.63% 3.76% 3.90% 4.38%

September 3.93% 3.91% 3.70% 3.87% 4.24% 3.63% 3.75% 3.89% 4.37%

October 3.97% 3.90% 3.74% 3.91% 4.26% 3.60% 3.74% 3.90% 4.37%

November 3.88% 3.87% 3.65% 3.83% 4.16% 3.57% 3.68% 3.85% 4.37%

December 3.85% 3.80% 3.62% 3.79% 4.14% 3.51% 3.60% 3.79% 4.31%

4.07% 4.02% 3.82% 4.00% 4.38% 3.74% 3.84% 4.00% 4.50%

Corporate by Groups Public Utility Bonds Industrial Bonds

DRAFT

Electric Industry

DRAFT

2018 Capitalization Rate Study Electric Industry Notes

• From the Electric Industry segment, Fortis, Inc. was excluded due to Value Line information listed in Canadian dollars.


No Submissions


1. Discounted Cash Flows 2. Capital Asset Pricing Model, Ex-Post and Ex-Ante 3. Earnings/Price Ratio

DRAFT




Electric 10.00% 65.90% 34.10% 8.08%

DRAFT

Industry Equity Rate SummaryElectric






DRAFT

CapM Equity Rates




Electric 9.65% 13.51% 0.74 7.81% 10.67%

DRAFT





Growth Estimate

ElectricAllete, Inc. A 4,000,000,000 2.80% 4.50% 5.00% 7.30% 7.80%Alliant Energy Corp. A 10,300,000,000 3.00% 4.50% 6.00% 7.50% 9.00%Ameren Corporation A 15,000,000,000 3.00% 4.50% 6.00% 7.50% 9.00%American Electric Power Company, Inc. A+ 38,000,000,000 3.30% 5.00% 4.00% 8.30% 7.30%CenterPoint Energy, Inc. B+ 12,000,000,000 3.80% 3.50% 6.00% 7.30% 9.80%CMS Energy Corporation B++ 14,000,000,000 2.90% 6.50% 6.50% 9.40% 9.40%DTE Energy Company B++ 21,000,000,000 3.10% 7.00% 6.00% 10.10% 9.10%Entergy Corporation B++ 15,000,000,000 4.30% 2.00% -2.50% 6.30% Great Plains Energy Incorporated B+ 7,300,000,000 3.50% 5.00% 4.50% 8.50% 8.00%MGE Energy Inc. A 2,200,000,000 2.00% 4.50% 6.50% 6.50% 8.50%OGE Energy Corp. A 6,800,000,000 4.10% 9.00% 6.00% 13.10% 10.10%Otter Tail Corporation A 1,800,000,000 2.80% 2.00% 7.00% 4.80% 9.80%Vectren Corp. A 5,700,000,000 2.70% 5.50% 6.50% 8.20% 9.20%WEC Energy Group, Inc. A+ 22,000,000,000 3.20% 6.50% 6.00% 9.70% 9.20%Westar Energy, Inc. A 8,000,000,000 2.80% 5.00% 6.00% 7.80% 8.80%


DRAFT

E/P Ratio




ElectricAllete, Inc. A 4,000,000,000 78.65 4.25 5.40%Alliant Energy Corp. A 10,300,000,000 44.34 2.40 5.41%Ameren Corporation A 15,000,000,000 62.48 3.50 5.60%American Electric Power Company, Inc. A+ 38,000,000,000 76.27 4.75 6.23%CenterPoint Energy, Inc. B+ 12,000,000,000 28.91 1.65 5.71%CMS Energy Corporation B++ 14,000,000,000 49.31 2.75 5.58%DTE Energy Company B++ 21,000,000,000 114.35 6.75 5.90%Entergy Corporation B++ 15,000,000,000 83.13 5.25 6.32%Great Plains Energy Incorporated B+ 7,300,000,000 33.89 2.00 5.90%MGE Energy Inc. A 2,200,000,000 64.20 3.20 4.98%OGE Energy Corp. A 6,800,000,000 34.27 2.50 7.30%Otter Tail Corporation A 1,800,000,000 46.75 2.35 5.03%Vectren Corp. A 5,700,000,000 68.28 3.35 4.91%WEC Energy Group, Inc. A+ 22,000,000,000 68.24 3.75 5.50%Westar Energy, Inc. A 8,000,000,000 56.39 3.25 5.76%


DRAFT

Capital Structure



Industry Company Strength c d (d/c) (c/(c+d)) (d/(c+d))

ElectricAllete, Inc. A 4,000,000,000 1,444,600,000 0.36 73.47% 26.53%Alliant Energy Corp. A 10,300,000,000 4,255,100,000 0.41 70.77% 29.23%Ameren Corporation A 15,000,000,000 6,922,000,000 0.46 68.42% 31.58%American Electric Power Company, Inc. A+ 38,000,000,000 18,362,000,000 0.48 67.42% 32.58%CenterPoint Energy, Inc. B+ 12,000,000,000 7,531,000,000 0.63 61.44% 38.56%CMS Energy Corporation B++ 14,000,000,000 9,121,000,000 0.65 60.55% 39.45%DTE Energy Company B++ 21,000,000,000 11,795,000,000 0.56 64.03% 35.97%Entergy Corporation B++ 15,000,000,000 14,000,000,000 0.93 51.72% 48.28%Great Plains Energy Incorporated B+ 7,300,000,000 3,312,000,000 0.45 68.79% 31.21%MGE Energy Inc. A 2,200,000,000 389,400,000 0.18 84.96% 15.04%OGE Energy Corp. A 6,800,000,000 2,749,500,000 0.40 71.21% 28.79%Otter Tail Corporation A 1,800,000,000 490,400,000 0.27 78.59% 21.41%Vectren Corp. A 5,700,000,000 1,639,100,000 0.29 77.67% 22.33%WEC Energy Group, Inc. A+ 22,000,000,000 8,785,800,000 0.40 71.46% 28.54%Westar Energy, Inc. A 8,000,000,000 3,686,900,000 0.46 68.45% 31.55%


DRAFT

Beta



Electric, Selected ComparablesAllete, Inc. 0.80Alliant Energy Corp. 0.70Ameren Corporation 0.70American Electric Power Company, Inc. 0.65CenterPoint Energy, Inc. 0.90CMS Energy Corporation 0.65DTE Energy Company 0.65Entergy Corporation 0.65Great Plains Energy Incorporated 0.75MGE Energy Inc. 0.75OGE Energy Corp. 0.95Otter Tail Corporation 0.90Vectren Corp. 0.75WEC Energy Group, Inc. 0.60Westar Energy, Inc. 0.70


DRAFT

Beta



Electric, Value LineAllete, Inc. 0.80Alliant Energy Corp. 0.70Ameren Corporation 0.70American Electric Power Company, Inc. 0.65CenterPoint Energy, Inc. 0.90CMS Energy Corporation 0.65DTE Energy Company 0.65Entergy Corporation 0.65Fortis Inc. 0.70Great Plains Energy Incorporated 0.75MGE Energy Inc. 0.75OGE Energy Corp. 0.95Otter Tail Corporation 0.90Vectren Corp. 0.75WEC Energy Group, Inc. 0.60Westar Energy, Inc. 0.70


DRAFT



January 4.24% 4.20% 3.96% 4.14% 4.62% 3.92% 4.00% 4.17% 4.70%

February 4.25% 4.21% 3.99% 4.18% 4.58% 3.95% 4.02% 4.19% 4.70%

March 4.30% 4.27% 4.04% 4.23% 4.62% 4.01% 4.07% 4.23% 4.74%

April 4.19% 4.13% 3.93% 4.12% 4.51% 3.87% 3.92% 4.11% 4.62%

May 4.19% 4.12% 3.94% 4.12% 4.50% 3.85% 3.92% 4.09% 4.60%

June 4.01% 3.95% 3.77% 3.94% 4.32% 3.68% 3.78% 3.92% 4.41%

July 4.06% 3.96% 3.82% 3.99% 4.36% 3.70% 3.78% 3.95% 4.41%

August 3.92% 3.92% 3.67% 3.86% 4.23% 3.63% 3.76% 3.90% 4.38%

September 3.93% 3.91% 3.70% 3.87% 4.24% 3.63% 3.75% 3.89% 4.37%

October 3.97% 3.90% 3.74% 3.91% 4.26% 3.60% 3.74% 3.90% 4.37%

November 3.88% 3.87% 3.65% 3.83% 4.16% 3.57% 3.68% 3.85% 4.37%

December 3.85% 3.80% 3.62% 3.79% 4.14% 3.51% 3.60% 3.79% 4.31%

4.07% 4.02% 3.82% 4.00% 4.38% 3.74% 3.84% 4.00% 4.50%


DRAFT

Fluid

Pipeline

DRAFT

2018 Capitalization Rate Study Fluid Pipeline (Petroleum Integrated) Industry Notes

• From the Fluid Pipeline (Petroleum Integrated) Industry segment, Petroleo Brasileiro S.A. was excluded. While publicly traded, the

Brazilian Government is a majority holder of the common stock. Cenovus Energy Inc., Husky Energy Inc., and Suncor Energy, Inc. were excluded due to Value Line information listed in Canadian dollars.


Enterprise Products Partners, L.P.



DRAFT




Fluid Pipeline (Petroleum Integrated) 12.70% 84.48% 15.52% 11.43%

DRAFT

Industry Equity Rate SummaryFluid Pipeline (Petroleum Integrated)






DRAFT

CapM Equity Rates




Fluid Pipeline (Petroleum Integrated) 9.65% 13.51% 1.27 11.57% 16.47%

DRAFT





Growth Estimate

Fluid Pipeline (Petroleum Integrated)Andeavor B+ 14,200,000,000 2.20% 9.00% 6.50% 11.20% 8.70%BP p.l.c. B 129,000,000,000 6.20% 2.50% 32.50% 8.70% 38.70%CVR Energy, Inc. B 2,700,000,000 6.40% -2.50% 6.00% 12.40%CVR Refining, LP B+ 1,800,000,000 10.40% 2.00% 2.50% 12.40% 12.90%Chevron Corp. A++ 218,000,000,000 3.80% 2.50% 15.00% 6.30% 18.80%Delek US Holdings, Inc. B+ 2,400,000,000 2.00% 0.00% 29.50% 31.50%Exxon Mobil Corp. A++ 349,000,000,000 3.90% 3.50% 10.50% 7.40% 14.40%Hess Corporation B 13,800,000,000 2.30% 0.00% 0.00% HollyFrontier Corporation B++ 7,900,000,000 3.00% 4.50% 9.00% 7.50% 12.00%Imperial Oil Ltd. A 25,800,000,000 1.70% 3.50% 12.00% 5.20% 13.70%Marathon Petroleum Corp. A 30,300,000,000 2.70% 12.50% 6.50% 15.20% 9.20%Murphy Oil Corp. B 4,800,000,000 3.60% 2.50% 0.00% 6.10% Occidental Petroleum A 51,900,000,000 4.60% 3.50% 25.00% 8.10% 29.60%PBF Energy, Inc. B+ 3,600,000,000 3.70% 2.50% 26.00% 6.20% 29.70%Par Pacific Holdings, Inc. B+ 925,000,000 0.00% 0.00% 0.00% Phillips 66 A+ 46,900,000,000 3.20% 9.50% 5.00% 12.70% 8.20%Royal Dutch Shell plc A+ 264,000,000,000 5.90% 2.00% 23.00% 7.90% 28.90%Total S.A. A++ 137,000,000,000 5.40% 2.50% 10.50% 7.90% 15.90%Valero Energy Corp. A+ 35,900,000,000 3.50% 12.00% 5.00% 15.50% 8.50%


DRAFT

E/P Ratio




Fluid Pipeline (Petroleum Integrated)Andeavor B+ 14,200,000,000 105.11 12.20 11.61%BP p.l.c. B 129,000,000,000 39.00 5.00 12.82%CVR Energy, Inc. B 2,700,000,000 31.36 2.00 6.38%CVR Refining, LP B+ 1,800,000,000 12.05 1.75 14.52%Chevron Corp. A++ 218,000,000,000 114.72 9.50 8.28%Delek US Holdings, Inc. B+ 2,400,000,000 29.99 3.00 10.00%Exxon Mobil Corp. A++ 349,000,000,000 80.55 8.15 10.12%Hess Corporation B 13,800,000,000 43.56 1.75 4.02%HollyFrontier Corporation B++ 7,900,000,000 44.30 4.40 9.93%Imperial Oil Ltd. A 25,800,000,000 30.79 3.35 10.88%Marathon Petroleum Corp. A 30,300,000,000 61.94 5.80 9.36%Murphy Oil Corp. B 4,800,000,000 27.89 4.50 16.13%Occidental Petroleum A 51,900,000,000 67.81 5.00 7.37%PBF Energy, Inc. B+ 3,600,000,000 32.82 3.85 11.73%Par Pacific Holdings, Inc. B+ 925,000,000 20.06 2.50 12.46%Phillips 66 A+ 46,900,000,000 92.62 8.00 8.64%Royal Dutch Shell plc A+ 264,000,000,000 63.74 7.50 11.77%Total S.A. A++ 137,000,000,000 54.67 6.25 11.43%Valero Energy Corp. A+ 35,900,000,000 82.09 8.75 10.66%


DRAFT

Capital Structure




Fluid Pipeline (Petroleum Integrated)Andeavor B+ 14,200,000,000 7,633,000,000 0.54 65.04% 34.96%BP p.l.c. B 129,000,000,000 56,900,000,000 0.44 69.39% 30.61%CVR Energy, Inc. B 2,700,000,000 1,164,000,000 0.43 69.88% 30.12%CVR Refining, LP B+ 1,800,000,000 538,900,000 0.30 76.96% 23.04%Chevron Corp. A++ 218,000,000,000 33,983,000,000 0.16 86.51% 13.49%Delek US Holdings, Inc. B+ 2,400,000,000 1,077,000,000 0.45 69.03% 30.97%Exxon Mobil Corp. A++ 349,000,000,000 24,869,000,000 0.07 93.35% 6.65%Hess Corporation B 13,800,000,000 6,592,000,000 0.48 67.67% 32.33%HollyFrontier Corporation B++ 7,900,000,000 2,236,500,000 0.28 77.94% 22.06%Imperial Oil Ltd. A 25,800,000,000 4,020,000,000 0.16 86.52% 13.48%Marathon Petroleum Corp. A 30,300,000,000 12,753,000,000 0.42 70.38% 29.62%Murphy Oil Corp. B 4,800,000,000 2,908,300,000 0.61 62.27% 37.73%Occidental Petroleum A 51,900,000,000 9,326,000,000 0.18 84.77% 15.23%PBF Energy, Inc. B+ 3,600,000,000 2,158,000,000 0.60 62.52% 37.48%Par Pacific Holdings, Inc. B+ 925,000,000 304,200,000 0.33 75.25% 24.75%Phillips 66 A+ 46,900,000,000 9,495,000,000 0.20 83.16% 16.84%Royal Dutch Shell plc A+ 264,000,000,000 79,700,000,000 0.30 76.81% 23.19%Total S.A. A++ 137,000,000,000 40,200,000,000 0.29 77.31% 22.69%Valero Energy Corp. A+ 35,900,000,000 8,364,000,000 0.23 81.10% 18.90%


DRAFT

Beta



Fluid Pipeline (Petroleum Integrated), Selected ComparablesAndeavor 1.20BP p.l.c. 1.20CVR Energy, Inc. 1.50CVR Refining, LP 1.15Chevron Corp. 1.20Delek US Holdings, Inc. 1.55Exxon Mobil Corp. 0.95Hess Corporation 1.65HollyFrontier Corporation 1.15Imperial Oil Ltd. 1.20Marathon Petroleum Corp. 1.40Murphy Oil Corp. 1.60Occidental Petroleum 1.15PBF Energy, Inc. 1.40Par Pacific Holdings, Inc. 0.90Phillips 66 1.25Royal Dutch Shell plc 1.25Total S.A. 1.25Valero Energy Corp. 1.20


DRAFT

Beta



Fluid Pipeline (Petroleum Integrated), Value LineAndeavor 1.20BP p.l.c. 1.20CVR Energy, Inc. 1.50CVR Refining, LP 1.15Cenovus Energy, Inc. 1.10Chevron Corp. 1.20Delek US Holdings, Inc. 1.55Exxon Mobil Corp. 0.95Hess Corporation 1.65HollyFrontier Corporation 1.15Husky Energy Inc. 1.10Imperial Oil Ltd. 1.20Marathon Petroleum Corp. 1.40Murphy Oil Corp. 1.60Occidental Petroleum 1.15PBF Energy, Inc. 1.40Par Pacific Holdings, Inc. 0.90Petroleo Brasileiro S.A. (Petrobas) 1.95Phillips 66 1.25Royal Dutch Shell plc 1.25Suncor Energy Inc. 1.10Total S.A. 1.25Valero Energy Corp. 1.20


DRAFT



January 4.24% 4.20% 3.96% 4.14% 4.62% 3.92% 4.00% 4.17% 4.70%

February 4.25% 4.21% 3.99% 4.18% 4.58% 3.95% 4.02% 4.19% 4.70%

March 4.30% 4.27% 4.04% 4.23% 4.62% 4.01% 4.07% 4.23% 4.74%

April 4.19% 4.13% 3.93% 4.12% 4.51% 3.87% 3.92% 4.11% 4.62%

May 4.19% 4.12% 3.94% 4.12% 4.50% 3.85% 3.92% 4.09% 4.60%

June 4.01% 3.95% 3.77% 3.94% 4.32% 3.68% 3.78% 3.92% 4.41%

July 4.06% 3.96% 3.82% 3.99% 4.36% 3.70% 3.78% 3.95% 4.41%

August 3.92% 3.92% 3.67% 3.86% 4.23% 3.63% 3.76% 3.90% 4.38%

September 3.93% 3.91% 3.70% 3.87% 4.24% 3.63% 3.75% 3.89% 4.37%

October 3.97% 3.90% 3.74% 3.91% 4.26% 3.60% 3.74% 3.90% 4.37%

November 3.88% 3.87% 3.65% 3.83% 4.16% 3.57% 3.68% 3.85% 4.37%

December 3.85% 3.80% 3.62% 3.79% 4.14% 3.51% 3.60% 3.79% 4.31%

4.07% 4.02% 3.82% 4.00% 4.38% 3.74% 3.84% 4.00% 4.50%


DRAFT

Gas

Distribution

DRAFT

2018 Capitalization Rate Study Gas Distribution (Natural Gas Utility) Industry Notes

• From the Natural Gas Utility Industry segment, UGI Corp. was excluded as they presented to be primarily engaged in the marketing and

delivery of propane gas.


Northern Natural Gas Company – Tegarden & Associates Interstate Natural Gas Pipeline Industry Southern State Central Gas Pipeline, Inc. – K.E. Andrews & CO.



DRAFT




Gas Distribution (Natural Gas Utility) 9.90% 66.95% 33.05% 8.08%

DRAFT

Industry Equity Rate SummaryGas Distribution (Natural Gas Utility)






DRAFT

CapM Equity Rates




Gas Distribution (Natural Gas Utility) 9.65% 13.51% 0.74 7.78% 10.61%

DRAFT





Growth Estimate

Gas Distribution (Natural Gas Utility)Atmos Energy Corporation A+ 9,500,000,000 2.20% 6.50% 6.00% 8.70% 8.20%Chesapeake Utilities Corporation B++ 1,300,000,000 1.60% 5.50% 8.00% 7.10% 9.60%New Jersey Resources Corp. A+ 3,800,000,000 2.50% 3.50% 2.00% 6.00% 4.50%NiSource Inc. B+ 9,100,000,000 2.60% 6.50% 5.50% 9.10% 8.10%Northwest Natural Gas Co. A 1,900,000,000 2.90% 1.00% 7.00% 9.90%ONE Gas, Inc. B++ 4,000,000,000 2.40% 13.50% 9.50% 15.90% 11.90%South Jersey Industries, Inc. A 2,600,000,000 3.50% 4.00% 5.50% 7.50% 9.00%Southwest Gas Holdings, Inc. B++ 3,900,000,000 2.50% 7.50% 8.00% 10.00% 10.50%Spire Inc. B++ 3,800,000,000 2.90% 5.00% 8.00% 7.90% 10.90%WGL Holdings, Inc. A 4,300,000,000 2.40% 3.00% 2.00% 5.40% 4.40%


DRAFT

E/P Ratio




Gas Distribution (Natural Gas Utility)Atmos Energy Corporation A+ 9,500,000,000 89.11 4.50 5.05%Chesapeake Utilities Corporation B++ 1,300,000,000 81.80 4.20 5.13%New Jersey Resources Corp. A+ 3,800,000,000 44.30 2.05 4.63%NiSource Inc. B+ 9,100,000,000 27.09 1.50 5.54%Northwest Natural Gas Co. A 1,900,000,000 66.15 3.15 4.76%ONE Gas, Inc. B++ 4,000,000,000 76.95 4.00 5.20%South Jersey Industries, Inc. A 2,600,000,000 32.39 2.00 6.17%Southwest Gas Holdings, Inc. B++ 3,900,000,000 82.13 4.80 5.84%Spire Inc. B++ 3,800,000,000 78.20 4.65 5.95%WGL Holdings, Inc. A 4,300,000,000 84.30 3.45 4.09%


DRAFT

Capital Structure




Gas Distribution (Natural Gas Utility)Atmos Energy Corporation A+ 9,500,000,000 3,066,700,000 0.32 75.60% 24.40%Chesapeake Utilities Corporation B++ 1,300,000,000 201,200,000 0.15 86.60% 13.40%New Jersey Resources Corp. A+ 3,800,000,000 897,700,000 0.24 80.89% 19.11%NiSource Inc. B+ 9,100,000,000 7,518,600,000 0.83 54.76% 45.24%Northwest Natural Gas Co. A 1,900,000,000 757,400,000 0.40 71.50% 28.50%ONE Gas, Inc. B++ 4,000,000,000 1,193,100,000 0.30 77.03% 22.97%South Jersey Industries, Inc. A 2,600,000,000 1,180,300,000 0.45 68.78% 31.22%Southwest Gas Holdings, Inc. B++ 3,900,000,000 1,732,000,000 0.44 69.25% 30.75%Spire Inc. B++ 3,800,000,000 1,995,000,000 0.53 65.57% 34.43%WGL Holdings, Inc. A 4,300,000,000 1,235,600,000 0.29 77.68% 22.32%


DRAFT

Beta



Gas Distribution (Natural Gas Utility), Selected ComparablesAtmos Energy Corporation 0.70Chesapeake Utilities Corporation 0.70New Jersey Resources Corp. 0.80NiSource Inc. 0.60Northwest Natural Gas Co. 0.70ONE Gas, Inc. 0.70South Jersey Industries, Inc. 0.85Southwest Gas Holdings, Inc. 0.80Spire Inc. 0.70WGL Holdings, Inc. 0.80


Gas Distribution (Natural Gas Utility), Value LineAtmos Energy Corporation 0.70Chesapeake Utilities Corporation 0.70New Jersey Resources Corp. 0.80NiSource Inc. 0.60Northwest Natural Gas Co. 0.70ONE Gas, Inc. 0.70South Jersey Industries, Inc. 0.85Southwest Gas Holdings, Inc. 0.80Spire Inc. 0.70UGI Corp. 0.90WGL Holdings, Inc. 0.80


DRAFT



January 4.24% 4.20% 3.96% 4.14% 4.62% 3.92% 4.00% 4.17% 4.70%

February 4.25% 4.21% 3.99% 4.18% 4.58% 3.95% 4.02% 4.19% 4.70%

March 4.30% 4.27% 4.04% 4.23% 4.62% 4.01% 4.07% 4.23% 4.74%

April 4.19% 4.13% 3.93% 4.12% 4.51% 3.87% 3.92% 4.11% 4.62%

May 4.19% 4.12% 3.94% 4.12% 4.50% 3.85% 3.92% 4.09% 4.60%

June 4.01% 3.95% 3.77% 3.94% 4.32% 3.68% 3.78% 3.92% 4.41%

July 4.06% 3.96% 3.82% 3.99% 4.36% 3.70% 3.78% 3.95% 4.41%

August 3.92% 3.92% 3.67% 3.86% 4.23% 3.63% 3.76% 3.90% 4.38%

September 3.93% 3.91% 3.70% 3.87% 4.24% 3.63% 3.75% 3.89% 4.37%

October 3.97% 3.90% 3.74% 3.91% 4.26% 3.60% 3.74% 3.90% 4.37%

November 3.88% 3.87% 3.65% 3.83% 4.16% 3.57% 3.68% 3.85% 4.37%

December 3.85% 3.80% 3.62% 3.79% 4.14% 3.51% 3.60% 3.79% 4.31%

4.07% 4.02% 3.82% 4.00% 4.38% 3.74% 3.84% 4.00% 4.50%


DRAFT

Gas

Transmission

DRAFT

2018 Capitalization Rate Study Gas Transmission (Natural Gas Diversified) Industry Notes

• From the Gas Transmission Industry segment, Antero Resources Corporation, Cabot Oil & Gas, Callon Petroleum Co., Chesapeake Energy,

Cimarex Energy Co., Concho Resources, Inc., Devon Energy Corp., Encana Corporation, Energen Corporation, Enerplus Corporation, EOG Resources, Inc., Newfield Exploration Company, PDC Energy, Inc., QEP Resources, Southwestern Energy Company, and WPX Energy, Inc. were excluded as they presented to be primarily engaged in the exploration and production of oil and natural gas.

• Staff considered capitalization studies submitted by: Northern Natural Gas Company – Tegarden & Associates Interstate Natural Gas Pipeline Industry Southern Star Central Gas Pipeline, Inc. – K.E. Andrews & Co.



DRAFT




Gas Transmission (Natural Gas Diversified) 12.95% 73.92% 26.08% 10.75%

DRAFT

Industry Equity Rate SummaryGas Transmission (Natural Gas Diversified)






DRAFT

CapM Equity Rates




Gas Transmission (Natural Gas Diversified) 9.65% 13.51% 1.29 11.68% 16.65%

DRAFT





Growth Estimate

Gas Transmission (Natural Gas Diversified)EQT Corporation, Inc. B++ 10,300,000,000 0.20% 5.00% 20.50% 5.20% 20.70%MDU Resources Group, Inc. A 5,200,000,000 3.00% 2.50% 11.50% 5.50% 14.50%National Fuel Gas Company B+ 4,900,000,000 2.90% 4.00% 0.00% 6.90% Targa Resources B+ 9,200,000,000 8.50% 4.50% 28.00% 13.00% 36.50%


DRAFT

E/P Ratio




Gas Transmission (Natural Gas Diversified)EQT Corporation, Inc. B++ 10,300,000,000 59.33 4.15 6.99%MDU Resources Group, Inc. A 5,200,000,000 26.65 2.20 8.26%National Fuel Gas Company B+ 4,900,000,000 57.57 4.85 8.42%Targa Resources B+ 9,200,000,000 42.60 2.50 5.87%


DRAFT

Capital Structure




Gas Transmission (Natural Gas Diversified)EQT Corporation, Inc. B++ 10,300,000,000 2,586,000,000 0.25 79.93% 20.07%MDU Resources Group, Inc. A 5,200,000,000 1,592,100,000 0.31 76.56% 23.44%National Fuel Gas Company B+ 4,900,000,000 2,083,700,000 0.43 70.16% 29.84%Targa Resources B+ 9,200,000,000 4,368,600,000 0.47 67.80% 32.20%


DRAFT

Beta



Gas Transmission (Natural Gas Diversified), Selected ComparablesEQT Corporation, Inc. 1.00MDU Resources Group, Inc. 1.15National Fuel Gas Company 1.05Targa Resources 1.95


Gas Transmission (Natural Gas Diversified), Value LineAntero Resources Corporation 1.30Cabot Oil & Gas 1.05Callon Petroleum Co. 2.15Chesapeake Energy 2.15Cimarex Energy Co. 1.40Concho Resources, Inc. 1.60Devon Energy Corp. 1.80Encana Corporation 1.70Energen Corporation 1.70Enerplus Corporation 2.15EOG Resources, Inc. 1.45EQT Corporation, Inc. 1.00Extraction Oil & Gas, IncMDU Resources Group, Inc. 1.15National Fuel Gas Company 1.05Newfield Exploration Company 1.90PDC Energy, Inc. 1.60QEP Resources 1.75Southwestern Energy Company 1.35Targa Resources 1.95WPX Energy, Inc. 2.10

Median 1.65Arithmetic Mean 1.62DRAFT



January 4.24% 4.20% 3.96% 4.14% 4.62% 3.92% 4.00% 4.17% 4.70%

February 4.25% 4.21% 3.99% 4.18% 4.58% 3.95% 4.02% 4.19% 4.70%

March 4.30% 4.27% 4.04% 4.23% 4.62% 4.01% 4.07% 4.23% 4.74%

April 4.19% 4.13% 3.93% 4.12% 4.51% 3.87% 3.92% 4.11% 4.62%

May 4.19% 4.12% 3.94% 4.12% 4.50% 3.85% 3.92% 4.09% 4.60%

June 4.01% 3.95% 3.77% 3.94% 4.32% 3.68% 3.78% 3.92% 4.41%

July 4.06% 3.96% 3.82% 3.99% 4.36% 3.70% 3.78% 3.95% 4.41%

August 3.92% 3.92% 3.67% 3.86% 4.23% 3.63% 3.76% 3.90% 4.38%

September 3.93% 3.91% 3.70% 3.87% 4.24% 3.63% 3.75% 3.89% 4.37%

October 3.97% 3.90% 3.74% 3.91% 4.26% 3.60% 3.74% 3.90% 4.37%

November 3.88% 3.87% 3.65% 3.83% 4.16% 3.57% 3.68% 3.85% 4.37%

December 3.85% 3.80% 3.62% 3.79% 4.14% 3.51% 3.60% 3.79% 4.31%

4.07% 4.02% 3.82% 4.00% 4.38% 3.74% 3.84% 4.00% 4.50%


DRAFT

Oil/Gas

Distribution

DRAFT

2018 Capitalization Rate Study Oil/Gas Distribution Industry Notes

• From the Oil/Gas Distribution Industry, Clean Energy Fuels Corp was excluded as they develop and operate fueling stations and

presented to be a provider of natural gas for vehicle fleets. Enbridge Inc. and Pembina Pipeline Corp. were excluded due to Value Line information listed in Canadian dollars. World Fuel Services Corp. was excluded as they presented to be primarily engaged in the marketing and sale of fuel and related products.

• Staff considered capitalization studies submitted by: Northern Natural Gas Company – Tegarden & Associates Interstate Natural Gas Pipeline Industry Southern Star Central Gas Pipeline, Inc. – K.E. Andrews & Co.



DRAFT




Oil/Gas Distribution 15.00% 57.41% 42.59% 10.53%

DRAFT

Industry Equity Rate SummaryOil/Gas Distribution






DRAFT

CapM Equity Rates




Oil/Gas Distribution 9.65% 13.51% 1.50 13.19% 18.98%

DRAFT





Growth Estimate

Oil/Gas DistributionCheniere Energy, Inc. B 11,400,000,000 0.00% 0.00% 0.00% Kinder Morgan, Inc. B 38,100,000,000 2.90% 1.50% 24.00% 26.90%ONEOK, Inc. B+ 19,500,000,000 5.90% 8.00% 18.50% 13.90% 24.40%TransCanada Corp. B++ 43,400,000,000 5.00% 11.00% 55.00% 16.00% 60.00%The Williams Companies, Inc. B+ 22,600,000,000 4.40% -2.50% 18.50% 22.90%


DRAFT

E/P Ratio




Oil/Gas DistributionCheniere Energy, Inc. B 11,400,000,000 48.02 2.50 5.21%Kinder Morgan, Inc. B 38,100,000,000 17.06 1.50 8.79%ONEOK, Inc. B+ 19,500,000,000 50.83 4.00 7.87%TransCanada Corp. B++ 43,400,000,000 49.62 4.50 9.07%The Williams Companies, Inc. B+ 22,600,000,000 27.32 1.80 6.59%


DRAFT

Capital Structure




Oil/Gas DistributionCheniere Energy, Inc. B 11,400,000,000 24,900,000,000 2.18 31.40% 68.60%Kinder Morgan, Inc. B 38,100,000,000 34,000,000,000 0.89 52.84% 47.16%ONEOK, Inc. B+ 19,500,000,000 8,092,000,000 0.41 70.67% 29.33%TransCanada Corp. B++ 43,400,000,000 23,722,900,000 0.55 64.66% 35.34%The Williams Companies, Inc. B+ 22,600,000,000 20,567,000,000 0.91 52.35% 47.65%


DRAFT

Beta



Oil/Gas Distribution, Selected ComparablesCheniere Energy, Inc. 1.55Kinder Morgan, Inc. 1.45ONEOK, Inc. 1.55TransCanada Corp. 1.10The Williams Companies, Inc. 1.85


Oil/Gas Distribution, Value LineCheniere Energy, Inc. 1.55Clean Energy Fuels Corp. 1.95Enbridge Inc. 1.00Kinder Morgan, Inc. 1.45ONEOK, Inc. 1.55Pembina Pipeline Corp. 1.10TransCanada Corp. 1.10The Williams Companies, Inc. 1.85World Fuel Services Corp. 1.15


DRAFT



January 4.24% 4.20% 3.96% 4.14% 4.62% 3.92% 4.00% 4.17% 4.70%

February 4.25% 4.21% 3.99% 4.18% 4.58% 3.95% 4.02% 4.19% 4.70%

March 4.30% 4.27% 4.04% 4.23% 4.62% 4.01% 4.07% 4.23% 4.74%

April 4.19% 4.13% 3.93% 4.12% 4.51% 3.87% 3.92% 4.11% 4.62%

May 4.19% 4.12% 3.94% 4.12% 4.50% 3.85% 3.92% 4.09% 4.60%

June 4.01% 3.95% 3.77% 3.94% 4.32% 3.68% 3.78% 3.92% 4.41%

July 4.06% 3.96% 3.82% 3.99% 4.36% 3.70% 3.78% 3.95% 4.41%

August 3.92% 3.92% 3.67% 3.86% 4.23% 3.63% 3.76% 3.90% 4.38%

September 3.93% 3.91% 3.70% 3.87% 4.24% 3.63% 3.75% 3.89% 4.37%

October 3.97% 3.90% 3.74% 3.91% 4.26% 3.60% 3.74% 3.90% 4.37%

November 3.88% 3.87% 3.65% 3.83% 4.16% 3.57% 3.68% 3.85% 4.37%

December 3.85% 3.80% 3.62% 3.79% 4.14% 3.51% 3.60% 3.79% 4.31%

4.07% 4.02% 3.82% 4.00% 4.38% 3.74% 3.84% 4.00% 4.50%


DRAFT

Pipeline

MLPs Industry

DRAFT

2018 Capitalization Rate Study Pipeline MLPs Industry Notes

• From the Pipeline MLPs Industry segment, AmeriGas Partners L.P. and Suburban Propane Partners, L.P. were excluded due to being

primarily involved in the marketing and distribution of propane gas.

• Staff considered capitalization studies submitted by: Enterprise Products Partners, L.P. Northern Natural Gas Company – Tegarden & Associates Interstate Natural Gas Pipeline Industry Southern Star Central Gas Pipeline, Inc. – K.E. Andrews & Co.



DRAFT




Pipeline MLPs 14.25% 61.04% 38.96% 10.45%

DRAFT

Industry Equity Rate SummaryPipeline MLPs






DRAFT

CapM Equity Rates




Pipeline MLPs 9.65% 13.51% 1.36 12.22% 17.48%

DRAFT





Growth Estimate

Pipeline MLPsAndeavor Logistics LP B+ 9,700,000,000 8.80% 11.50% 15.00% 20.30% 23.80%Antero Midstream Partners, LP B+ 5,000,000,000 5.60% 0.00% 0.00% 5.60% 5.60%Boardwalk Pipeline Partners, L.P. C++ 3,600,000,000 2.80% 16.50% 12.50% 19.30% 15.30%Buckeye Partners, L.P. B+ 7,000,000,000 10.70% 4.00% 7.50% 14.70% 18.20%DCP Midstream LP B+ 4,900,000,000 9.10% 1.50% 5.50% 10.60% 14.60%EQT Midstream Partners, LP B++ 5,500,000,000 6.40% 15.50% 11.00% 21.90% 17.40%Enable Midstream Partners, LP B 6,500,000,000 8.40% 8.50% 13.00% 16.90% 21.40%Enbridge Energy Partners, LP B 4,300,000,000 10.60% -8.00% 27.00% 37.60%Energy Transfer Equity, LP B+ 17,500,000,000 7.30% 7.00% 12.50% 14.30% 19.80%Energy Transfer Partners, L.P. B+ 19,300,000,000 13.50% 5.50% 8.50% 19.00% 22.00%Enlink Midstream Partners L.P. B 5,200,000,000 10.40% 1.50% 0.00% 11.90% 10.40%Enterprise Products Partners, LP B+ 52,900,000,000 7.00% 10.00% 12.50% 17.00% 19.50%MPLX, LP B+ 14,300,000,000 6.70% 6.50% 11.50% 13.20% 18.20%Magellan Midstream Partners, L.P. B++ 14,800,000,000 5.80% 10.50% 6.50% 16.30% 12.30%Phillips 66 Partners LP B++ 5,200,000,000 5.50% 23.50% 22.50% 29.00% 28.00%Plains All American Pipeline, L.P. B+ 14,600,000,000 6.00% -1.00% 13.00% 5.00% 19.00%Spectra Energy Partners, L.P. B++ 12,600,000,000 7.20% 6.50% 5.50% 13.70% 12.70%Western Gas Partners, LP B+ 7,100,000,000 8.20% 7.00% 13.50% 15.20% 21.70%Williams Partners L.P. B 33,900,000,000 6.80% -4.50% 0.00% 6.80%


DRAFT

E/P Ratio




Pipeline MLPsAndeavor Logistics LP B+ 9,700,000,000 44.75 4.00 8.94%Antero Midstream Partners, LP B+ 5,000,000,000 26.72 3.25 12.16%Boardwalk Pipeline Partners, L.P. C++ 3,600,000,000 14.30 2.00 13.99%Buckeye Partners, L.P. B+ 7,000,000,000 47.41 5.00 10.55%DCP Midstream LP B+ 4,900,000,000 34.21 2.50 7.31%EQT Midstream Partners, LP B++ 5,500,000,000 68.26 8.00 11.72%Enable Midstream Partners, LP B 6,500,000,000 15.06 2.00 13.28%Enbridge Energy Partners, LP B 4,300,000,000 13.27 1.00 7.54%Energy Transfer Equity, LP B+ 17,500,000,000 16.18 1.75 10.82%Energy Transfer Partners, L.P. B+ 19,300,000,000 16.71 1.05 6.28%Enlink Midstream Partners L.P. B 5,200,000,000 14.99 0.75 5.00%Enterprise Products Partners, LP B+ 52,900,000,000 24.56 2.65 10.79%MPLX, LP B+ 14,300,000,000 35.01 1.80 5.14%Magellan Midstream Partners, L.P. B++ 14,800,000,000 64.98 5.25 8.08%Phillips 66 Partners LP B++ 5,200,000,000 47.20 6.45 13.67%Plains All American Pipeline, L.P. B+ 14,600,000,000 20.09 2.50 12.44%Spectra Energy Partners, L.P. B++ 12,600,000,000 40.65 4.20 10.33%Western Gas Partners, LP B+ 7,100,000,000 46.20 4.00 8.66%Williams Partners L.P. B 33,900,000,000 35.47 2.60 7.33%


DRAFT

Capital Structure




Pipeline MLPsAndeavor Logistics LP B+ 9,700,000,000 3,765,000,000 0.39 72.04% 27.96%Antero Midstream Partners, LP B+ 5,000,000,000 1,067,700,000 0.21 82.40% 17.60%Boardwalk Pipeline Partners, L.P. C++ 3,600,000,000 3,585,700,000 1.00 50.10% 49.90%Buckeye Partners, L.P. B+ 7,000,000,000 4,593,600,000 0.66 60.38% 39.62%DCP Midstream LP B+ 4,900,000,000 4,711,000,000 0.96 50.98% 49.02%EQT Midstream Partners, LP B++ 5,500,000,000 986,900,000 0.18 84.79% 15.21%Enable Midstream Partners, LP B 6,500,000,000 2,669,000,000 0.41 70.89% 29.11%Enbridge Energy Partners, LP B 4,300,000,000 6,835,000,000 1.59 38.62% 61.38%Energy Transfer Equity, LP B+ 17,500,000,000 44,495,000,000 2.54 28.23% 71.77%Energy Transfer Partners, L.P. B+ 19,300,000,000 33,600,000,000 1.74 36.48% 63.52%Enlink Midstream Partners L.P. B 5,200,000,000 3,467,000,000 0.67 60.00% 40.00%Enterprise Products Partners, LP B+ 52,900,000,000 21,709,900,000 0.41 70.90% 29.10%MPLX, LP B+ 14,300,000,000 6,848,000,000 0.48 67.62% 32.38%Magellan Midstream Partners, L.P. B++ 14,800,000,000 4,051,400,000 0.27 78.51% 21.49%Phillips 66 Partners LP B++ 5,200,000,000 2,273,000,000 0.44 69.58% 30.42%Plains All American Pipeline, L.P. B+ 14,600,000,000 10,489,000,000 0.72 58.19% 41.81%Spectra Energy Partners, L.P. B++ 12,600,000,000 5,714,000,000 0.45 68.80% 31.20%Western Gas Partners, LP B+ 7,100,000,000 3,343,900,000 0.47 67.98% 32.02%Williams Partners L.P. B 33,900,000,000 16,000,000,000 0.47 67.94% 32.06%


DRAFT

Beta



Pipeline MLPs, Selected ComparablesAndeavor Logistics LP 1.35Antero Midstream Partners, LP 1.15Boardwalk Pipeline Partners, L.P. 1.00Buckeye Partners, L.P. 1.20DCP Midstream LP 1.60EQT Midstream Partners, LP 1.25Enable Midstream Partners, LP 1.30Enbridge Energy Partners, LP 1.30Energy Transfer Equity, LP 2.05Energy Transfer Partners, L.P. 1.55Enlink Midstream Partners L.P. 1.75Enterprise Products Partners, LP 1.30MPLX, LP 1.40Magellan Midstream Partners, L.P. 1.20Phillips 66 Partners LP 1.15Plains All American Pipeline, L.P. 1.50Spectra Energy Partners, L.P. 0.90Western Gas Partners, LP 1.40Williams Partners L.P. 1.55


DRAFT

Beta



Pipeline MLPs, Value LineAmeriGas Partners L.P. 0.80Andeavor Logistics LP 1.35Antero Midstream Partners, LP 1.15Boardwalk Pipeline Partners, L.P. 1.00Buckeye Partners, L.P. 1.20DCP Midstream LP 1.60EQT Midstream Partners, LP 1.25Enable Midstream Partners, LP 1.30Enbridge Energy Partners, LP 1.30Energy Transfer Equity, LP 2.05Energy Transfer Partners, L.P. 1.55Enlink Midstream Partners L.P. 1.75Enterprise Products Partners, LP 1.30MPLX, LP 1.40Magellan Midstream Partners, L.P. 1.20Phillips 66 Partners LP 1.15Plains All American Pipeline, L.P. 1.50Spectra Energy Partners,L.P. 0.90Suburban Propane Partners, L.P. 1.05Western Gas Partners, LP 1.40Williams Partners L.P. 1.55


DRAFT



January 4.24% 4.20% 3.96% 4.14% 4.62% 3.92% 4.00% 4.17% 4.70%

February 4.25% 4.21% 3.99% 4.18% 4.58% 3.95% 4.02% 4.19% 4.70%

March 4.30% 4.27% 4.04% 4.23% 4.62% 4.01% 4.07% 4.23% 4.74%

April 4.19% 4.13% 3.93% 4.12% 4.51% 3.87% 3.92% 4.11% 4.62%

May 4.19% 4.12% 3.94% 4.12% 4.50% 3.85% 3.92% 4.09% 4.60%

June 4.01% 3.95% 3.77% 3.94% 4.32% 3.68% 3.78% 3.92% 4.41%

July 4.06% 3.96% 3.82% 3.99% 4.36% 3.70% 3.78% 3.95% 4.41%

August 3.92% 3.92% 3.67% 3.86% 4.23% 3.63% 3.76% 3.90% 4.38%

September 3.93% 3.91% 3.70% 3.87% 4.24% 3.63% 3.75% 3.89% 4.37%

October 3.97% 3.90% 3.74% 3.91% 4.26% 3.60% 3.74% 3.90% 4.37%

November 3.88% 3.87% 3.65% 3.83% 4.16% 3.57% 3.68% 3.85% 4.37%

December 3.85% 3.80% 3.62% 3.79% 4.14% 3.51% 3.60% 3.79% 4.31%

4.07% 4.02% 3.82% 4.00% 4.38% 3.74% 3.84% 4.00% 4.50%


DRAFT

Railroad

DRAFT

2018 Capitalization Rate Study Railroad Industry Notes

• For the Railroad Industry segment, American Railcar Industries, Inc. and Trinity Industries were excluded as they design and manufacture railcars and

component parts. GATX Corp. was excluded as they specialize in tank, freight car, and locomotive leasing. Greenbrier Companies, Inc. excluded as they design, manufacture, repair, and market railroad freight cars and related equipment.


Union Pacific Railroad



DRAFT




Railroad 13.30% 84.66% 15.34% 11.95%

DRAFT

Industry Equity Rate SummaryRailroad






DRAFT

CapM Equity Rates




Railroad 9.65% 13.51% 1.19 10.96% 15.54%

DRAFT





Growth Estimate

RailroadCanadian National Railway A 60,500,000,000 2.10% 11.00% 8.00% 13.10% 10.10%Canadian Pacific Railway Limited B++ 24,900,000,000 1.00% 12.00% 9.50% 13.00% 10.50%CSX Corporation B++ 44,100,000,000 1.60% 8.50% 11.50% 10.10% 13.10%Gennesee & Wyoming B+ 4,500,000,000 0.00% 0.00% 5.50% 5.50%Kansas City Southern, Inc. A 10,800,000,000 1.40% 6.00% 9.50% 7.40% 10.90%Norfolk Southern Corp. A 36,300,000,000 1.90% 3.00% 8.00% 4.90% 9.90%Union Pacific Corporation A++ 91,500,000,000 2.10% 7.00% 8.00% 9.10% 10.10%


DRAFT

E/P Ratio




RailroadCanadian National Railway A 60,500,000,000 80.18 5.25 6.55%Canadian Pacific Railway Limited B++ 24,900,000,000 171.83 12.80 7.45%CSX Corporation B++ 44,100,000,000 49.40 3.65 7.39%Gennesee & Wyoming B+ 4,500,000,000 72.14 5.30 7.35%Kansas City Southern, Inc. A 10,800,000,000 104.25 7.90 7.58%Norfolk Southern Corp. A 36,300,000,000 126.98 9.10 7.17%Union Pacific Corporation A++ 91,500,000,000 116.23 8.50 7.31%


DRAFT

Capital Structure




RailroadCanadian National Railway A 60,500,000,000 6,883,000,000 0.11 89.79% 10.21%Canadian Pacific Railway Limited B++ 24,900,000,000 5,745,000,000 0.23 81.25% 18.75%CSX Corporation B++ 44,100,000,000 11,788,000,000 0.27 78.91% 21.09%Gennesee & Wyoming B+ 4,500,000,000 2,398,100,000 0.53 65.24% 34.76%Kansas City Southern, Inc. A 10,800,000,000 2,238,400,000 0.21 82.83% 17.17%Norfolk Southern Corp. A 36,300,000,000 9,280,000,000 0.26 79.64% 20.36%Union Pacific Corporation A++ 91,500,000,000 15,930,000,000 0.17 85.17% 14.83%


DRAFT

Beta



Railroad, Selected ComparablesCanadian National Railway 1.05Canadian Pacific Railway Limited 1.20CSX Corporation 1.20Gennesee & Wyoming 1.50Kansas City Southern, Inc. 1.15Norfolk Southern Corp. 1.15Union Pacific Corporation 1.05


Railroad, Value LineAmerican Railcar Industires, Inc. 1.40Canadian National Railway 1.05Canadian Pacific Railway Limited 1.20CSX Corporation 1.20GATX Corp. 1.25Gennesee & Wyoming 1.50The Greenbriar Companies, Inc. 1.85Kansas City Southern, Inc. 1.15Norfolk Southern Corp. 1.15Trinity Industries Inc. 1.55Union Pacific Corporation 1.05


DRAFT



January 4.24% 4.20% 3.96% 4.14% 4.62% 3.92% 4.00% 4.17% 4.70%

February 4.25% 4.21% 3.99% 4.18% 4.58% 3.95% 4.02% 4.19% 4.70%

March 4.30% 4.27% 4.04% 4.23% 4.62% 4.01% 4.07% 4.23% 4.74%

April 4.19% 4.13% 3.93% 4.12% 4.51% 3.87% 3.92% 4.11% 4.62%

May 4.19% 4.12% 3.94% 4.12% 4.50% 3.85% 3.92% 4.09% 4.60%

June 4.01% 3.95% 3.77% 3.94% 4.32% 3.68% 3.78% 3.92% 4.41%

July 4.06% 3.96% 3.82% 3.99% 4.36% 3.70% 3.78% 3.95% 4.41%

August 3.92% 3.92% 3.67% 3.86% 4.23% 3.63% 3.76% 3.90% 4.38%

September 3.93% 3.91% 3.70% 3.87% 4.24% 3.63% 3.75% 3.89% 4.37%

October 3.97% 3.90% 3.74% 3.91% 4.26% 3.60% 3.74% 3.90% 4.37%

November 3.88% 3.87% 3.65% 3.83% 4.16% 3.57% 3.68% 3.85% 4.37%

December 3.85% 3.80% 3.62% 3.79% 4.14% 3.51% 3.60% 3.79% 4.31%

4.07% 4.02% 3.82% 4.00% 4.38% 3.74% 3.84% 4.00% 4.50%


DRAFT

Telecommunication

Services

DRAFT

2018 Capitalization Rate Study Telecommunication Services Industry Notes

• From the Telecommunication Services segment, America Movil, TELUS Corporation, and Vodafone Group PLC, were excluded as being principally and

primarily involved in non-domestic operations. Dycom, Inc. was excluded as the company is principally engaged in the telecommunications and electrical services business providing engineering, construction, maintenance and installation to telecommunication providers. Gogo Inc. was excluded as they offer wireless services to airlines. Iridium Communications Inc. was excluded as they provide communication services via satellite. J2 Global Communications was excluded as they principally offer value-added and tandem interconnection services.


Duff & Phelps – Communications Wireline Carriers (Mid & Small)



DRAFT




Telecommunications Services 12.45% 61.29% 38.71% 9.37%

DRAFT

Industry Equity Rate SummaryTelecommunications Services






DRAFT

CapM Equity Rates




Telecommunications Services 9.65% 13.51% 0.94 9.24% 12.87%

DRAFT





Growth Estimate

Telecommunications ServicesAT&T Inc. A++ 224,000,000,000 5.50% 4.00% 5.50% 9.50% 11.00%ATN International, Inc. B++ 925,000,000 1.20% -6.50% 10.50% 11.70%General Communication, Inc. C++ 1,500,000,000 0.00% 0.00% 0.00% Hawaiian Telcom Holdco, Inc. C++ 350,000,000 0.00% 0.00% 21.50% 21.50%IDT Corporation B+ 275,000,000 7.10% -5.00% 4.00% 11.10%Shenandoah Telecommunications Company B 1,800,000,000 0.70% 6.50% 10.00% 7.20% 10.70%Sprint Corporation C++ 23,000,000,000 0.00% 0.00% 0.00% Telephone & Data Systems, Inc. B 3,100,000,000 2.20% 3.50% 7.00% 5.70% 9.20%T-Mobile US, Inc. B+ 50,700,000,000 0.00% 0.00% 0.00% U.S. Cellular B+ 3,200,000,000 0.00% 0.00% 2.00% Verizon Communications A++ 208,000,000,000 4.60% 2.00% 3.00% 6.60% 7.60%Vonage Holdings Corp. C++ 2,300,000,000 0.00% 0.00% 1.00%


DRAFT

E/P Ratio




Telecommunications ServicesAT&T Inc. A++ 224,000,000,000 36.55 3.70 10.12%ATN International, Inc. B++ 925,000,000 57.98 4.10 7.07%General Communication, Inc. C++ 1,500,000,000 40.33 0.95 2.36%Hawaiian Telcom Holdco, Inc. C++ 350,000,000 31.04 1.00 3.22%IDT Corporation B+ 275,000,000 10.69 1.50 14.03%Shenandoah Telecommunications Company B 1,800,000,000 37.05 1.40 3.78%Sprint Corporation C++ 23,000,000,000 5.74 0.30 5.23%Telephone & Data Systems, Inc. B 3,100,000,000 27.77 1.00 3.60%T-Mobile US, Inc. B+ 50,700,000,000 60.96 4.65 7.63%U.S. Cellular B+ 3,200,000,000 37.61 1.50 3.99%Verizon Communications A++ 208,000,000,000 50.92 4.25 8.35%Vonage Holdings Corp. C++ 2,300,000,000 10.05 0.65 6.47%


DRAFT

Capital Structure




Telecommunications ServicesAT&T Inc. A++ 224,000,000,000 154,728,000,000 0.69 59.15% 40.85%ATN International, Inc. B++ 925,000,000 145,700,000 0.16 86.39% 13.61%General Communication, Inc. C++ 1,500,000,000 1,376,300,000 0.92 52.15% 47.85%Hawaiian Telcom Holdco, Inc. C++ 350,000,000 301,400,000 0.86 53.73% 46.27%IDT Corporation B+ 275,000,000 0 100.00% 0.00%Shenandoah Telecommunications Company B 1,800,000,000 778,700,000 0.43 69.80% 30.20%Sprint Corporation C++ 23,000,000,000 34,236,000,000 1.49 40.18% 59.82%Telephone & Data Systems, Inc. B 3,100,000,000 2,443,000,000 0.79 55.93% 44.07%T-Mobile US, Inc. B+ 50,700,000,000 30,348,000,000 0.60 62.56% 37.44%U.S. Cellular B+ 3,200,000,000 1,626,000,000 0.51 66.31% 33.69%Verizon Communications A++ 208,000,000,000 115,317,000,000 0.55 64.33% 35.67%Vonage Holdings Corp. C++ 2,300,000,000 259,400,000 0.11 89.86% 10.14%


DRAFT

Beta



Telecommunications Services, Selected ComparablesAT&T Inc. 0.75ATN International, Inc. 0.75General Communication, Inc. 0.95Hawaiian Telcom Holdco, Inc. 0.80IDT Corporation 1.05Shenandoah Telecommunications Company 1.00Sprint Corporation 1.20Telephone & Data Systems, Inc. 1.20T-Mobile US, Inc. 0.95U.S. Cellular 1.10Verizon Communications 0.75Vonage Holdings Corp. 0.80


DRAFT

Beta



Telecommunications Services, Value LineAmerican Movil, S.A.B. de C.V. 1.10AT&T Inc. 0.75ATN International, Inc. 0.75Dycom Industries, Inc. 1.25General Communication, Inc. 0.95Gogo Inc. 1.15Hawaiian Telcom Holdco, Inc. 0.80IDT Corporation 1.05Iridium Communications Inc. 1.05j2 Global, Inc. 1.10Shenandoah Telecommunications Company 1.00Sprint Corporation 1.20Telephone & Data Systems, Inc. 1.20TELUS Corporation 0.60T-Mobile US, Inc. 0.95U.S. Cellular 1.10Verizon Communications 0.75Vodafone Group Plc 1.10Vonage Holdings Corp. 0.80


DRAFT



January 4.24% 4.20% 3.96% 4.14% 4.62% 3.92% 4.00% 4.17% 4.70%

February 4.25% 4.21% 3.99% 4.18% 4.58% 3.95% 4.02% 4.19% 4.70%

March 4.30% 4.27% 4.04% 4.23% 4.62% 4.01% 4.07% 4.23% 4.74%

April 4.19% 4.13% 3.93% 4.12% 4.51% 3.87% 3.92% 4.11% 4.62%

May 4.19% 4.12% 3.94% 4.12% 4.50% 3.85% 3.92% 4.09% 4.60%

June 4.01% 3.95% 3.77% 3.94% 4.32% 3.68% 3.78% 3.92% 4.41%

July 4.06% 3.96% 3.82% 3.99% 4.36% 3.70% 3.78% 3.95% 4.41%

August 3.92% 3.92% 3.67% 3.86% 4.23% 3.63% 3.76% 3.90% 4.38%

September 3.93% 3.91% 3.70% 3.87% 4.24% 3.63% 3.75% 3.89% 4.37%

October 3.97% 3.90% 3.74% 3.91% 4.26% 3.60% 3.74% 3.90% 4.37%

November 3.88% 3.87% 3.65% 3.83% 4.16% 3.57% 3.68% 3.85% 4.37%

December 3.85% 3.80% 3.62% 3.79% 4.14% 3.51% 3.60% 3.79% 4.31%

4.07% 4.02% 3.82% 4.00% 4.38% 3.74% 3.84% 4.00% 4.50%


DRAFT

Telecommunications

Utility

DRAFT

2018 Capitalization Rate Study Telecommunications Utility Industry Notes

• From the Telecommunication Utility segment, BCE INC., BT Group, Deutsche Telekom AG, and Telefonica, S.A. were excluded as being principally and

primarily involved in non-domestic operations.


Duff & Phelps – Communications Wireline Carriers (Mid & Small)


1. Discounted Cash Flow 2. Capital Asset Pricing Model, Ex-Post and Ex-Ante 3. Earnings/Price Ratio

DRAFT




Telecommunications Utility 13.80% 23.32% 76.68% 6.58%

DRAFT

Industry Equity Rate SummaryTelecommunications Utility






DRAFT

CapM Equity Rates




Telecommunications Utility 9.65% 13.51% 1.11 10.45% 14.74%

DRAFT





Growth Estimate

Telecommunications UtilityCenturyLink, Inc. B 7,900,000,000 15.00% -8.50% -10.00% 6.50% 5.00%Cincinnati Bell C+ 875,000,000 0.00% 0.00% 0.00% Consolidated Communications Holdings, Inc. C++ 900,000,000 12.30% 0.00% 0.00% 12.30% 12.30%Frontier Communications Corporation C 725,000,000 26.40% -14.50% 0.00% 11.90% 26.40%

Median 887,500,000 11.90% 12.30%Arithmetic Mean 2,600,000,000 10.23% 14.57%

DRAFT

E/P Ratio




Telecommunications UtilityCenturyLink, Inc. B 7,900,000,000 14.39 1.25 8.69%Cincinnati Bell C+ 875,000,000 21.00 1.75 8.33%Consolidated Communications Holdings, Inc. C++ 900,000,000 12.63 1.20 9.50%Frontier Communications Corporation C 725,000,000 9.10 4.70 51.65%

Median 887,500,000 9.09%Arithmetic Mean 2,600,000,000 19.54%

DRAFT

Capital Structure




Telecommunications UtilityCenturyLink, Inc. B 7,900,000,000 24,854,000,000 3.15 24.12% 75.88%Cincinnati Bell C+ 875,000,000 1,120,800,000 1.28 43.84% 56.16%Consolidated Communications Holdings, Inc. C++ 900,000,000 2,311,200,000 2.57 28.03% 71.97%Frontier Communications Corporation C 725,000,000 17,604,000,000 24.28 3.96% 96.04%

Median 887,500,000 9,957,600,000 2.86 26.07% 73.93%Arithmetic Mean 2,600,000,000 11,472,500,000 7.82 24.99% 75.01%Weighted Average 6,203,004,808 20,400,988,462 23.32% 76.68%

DRAFT

Beta



Telecommunications Utility, Selected ComparablesCenturyLink, Inc. 1.00Cincinnati Bell 1.30Consolidated Communications Holdings, Inc. 1.00Frontier Communications Corporation 1.15


Telecommunications Utility, Value LineBCE Inc. 0.75BT Group PLC 1.00CenturyLink, Inc. 1.00Cincinnati Bell 1.30Consolidated Communications Holdings, Inc. 1.00Deutsche Telekom AG 1.00Frontier Communications Corporation 1.15Telefonica, S.A. 1.15


DRAFT



January 4.24% 4.20% 3.96% 4.14% 4.62% 3.92% 4.00% 4.17% 4.70%

February 4.25% 4.21% 3.99% 4.18% 4.58% 3.95% 4.02% 4.19% 4.70%

March 4.30% 4.27% 4.04% 4.23% 4.62% 4.01% 4.07% 4.23% 4.74%

April 4.19% 4.13% 3.93% 4.12% 4.51% 3.87% 3.92% 4.11% 4.62%

May 4.19% 4.12% 3.94% 4.12% 4.50% 3.85% 3.92% 4.09% 4.60%

June 4.01% 3.95% 3.77% 3.94% 4.32% 3.68% 3.78% 3.92% 4.41%

July 4.06% 3.96% 3.82% 3.99% 4.36% 3.70% 3.78% 3.95% 4.41%

August 3.92% 3.92% 3.67% 3.86% 4.23% 3.63% 3.76% 3.90% 4.38%

September 3.93% 3.91% 3.70% 3.87% 4.24% 3.63% 3.75% 3.89% 4.37%

October 3.97% 3.90% 3.74% 3.91% 4.26% 3.60% 3.74% 3.90% 4.37%

November 3.88% 3.87% 3.65% 3.83% 4.16% 3.57% 3.68% 3.85% 4.37%

December 3.85% 3.80% 3.62% 3.79% 4.14% 3.51% 3.60% 3.79% 4.31%

4.07% 4.02% 3.82% 4.00% 4.38% 3.74% 3.84% 4.00% 4.50%


DRAFT

Water

DRAFT

2018 Capitalization Rate Study Water Industry Notes

• From the Water Industry segment, Consolidated Water Company Ltd. was excluded as being primarily involved in non-domestic operations. • Staff considered capitalization studies submitted by:

No Submissions • Staff relied upon the results of the following models and appraisal judgment in the development of equity rates:


DRAFT




Water 10.00% 71.86% 28.14% 8.42%

DRAFT

Industry Equity Rate SummaryWater






DRAFT

CapM Equity Rates




Water 9.65% 13.51% 0.74 7.84% 10.71%

DRAFT





Growth Estimate

WaterAmerican States Water Co. A 2,100,000,000 1.90% 7.50% 6.50% 9.40% 8.40%American Water Works Company, Inc. B+ 15,900,000,000 2.00% 10.00% 8.50% 12.00% 10.50%Aqua America, Inc. A 6,900,000,000 2.20% 9.00% 7.00% 11.20% 9.20%California Water Service Group B++ 2,100,000,000 1.60% 7.50% 10.00% 9.10% 11.60%Connecticut Water Service, Inc. B+ 700,000,000 2.10% 5.50% 6.50% 7.60% 8.60%Middlesex Water Company B++ 650,000,000 2.30% 5.00% 9.00% 7.30% 11.30%SJW Group B+ 1,300,000,000 1.40% 7.00% 7.00% 8.40% 8.40%The York Water Company B+ 425,000,000 2.00% 8.00% 9.50% 10.00% 11.50%


DRAFT

E/P Ratio




WaterAmerican States Water Co. A 2,100,000,000 56.40 2.35 4.17%American Water Works Company, Inc. B+ 15,900,000,000 89.08 4.15 4.66%Aqua America, Inc. A 6,900,000,000 38.65 1.85 4.79%California Water Service Group B++ 2,100,000,000 44.70 1.85 4.14%Connecticut Water Service, Inc. B+ 700,000,000 57.13 2.90 5.08%Middlesex Water Company B++ 650,000,000 39.09 2.10 5.37%SJW Group B+ 1,300,000,000 63.47 3.45 5.44%The York Water Company B+ 425,000,000 33.35 1.60 4.80%


DRAFT

Capital Structure




WaterAmerican States Water Co. A 2,100,000,000 321,000,000 0.15 86.74% 13.26%American Water Works Company, Inc. B+ 15,900,000,000 6,672,000,000 0.42 70.44% 29.56%Aqua America, Inc. A 6,900,000,000 1,952,500,000 0.28 77.94% 22.06%California Water Service Group B++ 2,100,000,000 519,700,000 0.25 80.16% 19.84%Connecticut Water Service, Inc. B+ 700,000,000 255,200,000 0.36 73.28% 26.72%Middlesex Water Company B++ 650,000,000 135,800,000 0.21 82.72% 17.28%SJW Group B+ 1,300,000,000 431,000,000 0.33 75.10% 24.90%The York Water Company B+ 425,000,000 88,900,000 0.21 82.70% 17.30%

Median 1,700,000,000 376,000,000 0.27 79.05% 20.95%Arithmetic Mean 3,759,375,000 1,297,012,500 0.28 78.64% 21.36%Weighted Average 10,374,833,749 4,062,760,183 71.86% 28.14%

DRAFT

Beta



Water, Selected ComparablesAmerican States Water Co. 0.80American Water Works Company, Inc. 0.65Aqua America, Inc. 0.75California Water Service Group 0.80Connecticut Water Service, Inc. 0.65Middlesex Water Company 0.80SJW Group 0.80The York Water Company 0.70


Water, Value LineAmerican States Water Co. 0.80American Water Works Company, Inc. 0.65Aqua America, Inc. 0.70California Water Service Group 0.80Connecticut Water Service, Inc. 0.65Consolidated Water Co. Ltd. 1.00Middlesex Water Company 0.80SJW Group 0.75The York Water Company 0.80


DRAFT



January 4.24% 4.20% 3.96% 4.14% 4.62% 3.92% 4.00% 4.17% 4.70%

February 4.25% 4.21% 3.99% 4.18% 4.58% 3.95% 4.02% 4.19% 4.70%

March 4.30% 4.27% 4.04% 4.23% 4.62% 4.01% 4.07% 4.23% 4.74%

April 4.19% 4.13% 3.93% 4.12% 4.51% 3.87% 3.92% 4.11% 4.62%

May 4.19% 4.12% 3.94% 4.12% 4.50% 3.85% 3.92% 4.09% 4.60%

June 4.01% 3.95% 3.77% 3.94% 4.32% 3.68% 3.78% 3.92% 4.41%

July 4.06% 3.96% 3.82% 3.99% 4.36% 3.70% 3.78% 3.95% 4.41%

August 3.92% 3.92% 3.67% 3.86% 4.23% 3.63% 3.76% 3.90% 4.38%

September 3.93% 3.91% 3.70% 3.87% 4.24% 3.63% 3.75% 3.89% 4.37%

October 3.97% 3.90% 3.74% 3.91% 4.26% 3.60% 3.74% 3.90% 4.37%

November 3.88% 3.87% 3.65% 3.83% 4.16% 3.57% 3.68% 3.85% 4.37%

December 3.85% 3.80% 3.62% 3.79% 4.14% 3.51% 3.60% 3.79% 4.31%

4.07% 4.02% 3.82% 4.00% 4.38% 3.74% 3.84% 4.00% 4.50%


DRAFT

Documents

Capitaliza on Rate Study - ok.gov 2018 Capitalization Rate Study .pdfEarnings Price Ratios ... Valuation staff has consideredand where appropriate utilizeddata and capitalization studies